Monday, December 9, 2013

A Bailout by Any Other Name

I love Rand Paul. His beliefs entirely embody mine in many ways. In fact, I was beginning to wonder whether I was dreaming up this perfect politician, but that is no longer a concern (not that I still don't like him, just that now I know he's not perfect).

Last week, Rand Paul unveiled his "free market" solution for a Detroit recovery. His plan entails that Detroit (and other "struggling" cities) will be given "Economic freedom zones," where the federal government will end interference in local economies, specifically mentioning a decrease in federal corporate income taxes. The idea is to attract companies back into Detroit to boost its economy. It is presented as a more free market approach than a direct bailout. Although it is definitely more likely to be beneficial in Detroit than a traditional bailout, its linkage to the free market is questionable.

Bailouts are considered wrong because they distort the market by redistributing wealth as a form of charity. (For information as to why redistribution is wrong, I recommend Davy Crockett's "Not Yours to Give.") These tax cuts do the exact same thing, just with a disguise. Rather than being bestowed money by the federal government, you get to simply keep money that you normally would be required to give to the federal government.

This wouldn't be a problem (and in fact would be quite advantageous) if it was an across the board cut for all cities, but as it stands in the proposal to cut taxes only for struggling cities, it is nothing more than taking money from one city and handing it to another. (Yes, I understand we're talking about corporate income taxes here, but these companies are being diverted from investing in other cities. Thus, the point stands that money is being redirected.)

Using the tax system to redistribute funds is nothing new. For about 100 years, America has used the progressive income tax to redistribute wealth from person to person. Now, politicians want to use our tax system to redistribute income from city to city.

Worse than just being a bailout, Senator Paul's proposal saves struggling economies at the expense of other cities - cities that might not be much better off than the city being saved. This is not a free market solution; it is a distortion of the market that has the possibility of harming more economies than it could ever save.

Despite Mr. Paul's good intentions, this proposal seems destined for disaster should it be passed. It is one stumbling block on an otherwise spotless record for Senator Rand Paul.

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