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Monday, May 1, 2000

Unworthy of the Name

Government Manipulates People's Behavior with the Tax Code

When’s a tax cut not a tax cut? When it’s a targeted tax cut. That is the new euphemism for government’s manipulation of people’s behavior with the tax code. Government can get us to do things in several ways, including decree, subsidy, tax credit, and tax deduction. The last two are particular favorites of the current occupant of the White House. All those methods aim at getting people to do what they apparently wouldn’t do otherwise. (Or else why is the inducement needed?) The analysis gets tricky, however, because people might have done some of the things government rewards if they weren’t taxed in the first place.

For example, the government can offer a tax deduction for saving money. As a result, people might save more than they would have without the deduction. But they might have saved the higher amount and even more if there were no taxes at all. No one can know that, however, least of all politicians and bureaucrats. Besides, there’s an easier way to get people to behave as they would if taxes were closer to zero: cut taxes!

Another objection to targeted tax cuts is that the politicians have no way of knowing if they are “buying” too much of the favored conduct. They are fond of giving deductions and credits to people who save for their children’s college education. But how do we know that parents aren’t buying too much education? For the policymakers, there is no such thing as too much education. But of course there is. Every choice has a tradeoff.

The point is that government’s manipulation of behavior by tax code is no better than manipulation by cash subsidy or direct order. Politicians shouldn’t be allowed to count “targeted tax cuts” as true tax cuts. Since they impose a cost on the taxpayer—the opportunity forgone by engaging in the government’s prescribed behavior—they add insult to injury by implying that it was the government’s money all along.

Only unconditional tax cuts are worthy of the name.


Does capitalism carry the seeds of its own destruction? Some thinkers have wondered if the free market’s bounty can become so commonplace that people forget what is required for its continuation. Steven Yates takes a fresh approach to the question by examining it at the level of an individual family.

The Internet has prompted a good deal of concern about privacy in the electronic age. Daniel Klein puts that concern through the prism of the marketplace and comes up with some reassuring conclusions.

The electronic age has produced something else: new opportunities for government to impose taxes. It’s not just a bad idea, write Richard Ault and David Laband; it’s ultimately futile.

In 1811 an earthquake of record strength hit North America. The government did not spring into disaster-relief mode, as it would do today. Therein lies a lesson, drawn by Janet Sharp Hermann.

Champions of the free market often praise its ability to direct resources to their “highest valued uses.” Can it be so? Roy Cordato says the claim rests on insidious premises.

Regulation is bad enough. But M. Reed Hopper writes that there is something even worse: a regulatory state that can change the rules anywhere anytime.

Karl Marx promised a new man under socialism. He was right in a way he never dreamed. Patricia Linderman, who lived in Cuba for several years, describes the toll that the denial of economic freedom has exacted.

The environmental movement as we know it emerged in 1969 from the flames on a river in Ohio. For many, that burning river was a symbol of industrial capitalism and proof that government must protect the natural resources. Neither was true, as Stacie Thomas demonstrates.

Can space exploration be left to decentralized private efforts? Timothy Sandefur finds an analogy that points to the answer: Star Trek.

It’s good for government to privatize operations that belong in the marketplace. But unless it does so all the way, the taxpayers will still be on the hook. Christopher Mayer explains.

Before we can know if government works for the common good, we have to know what the common good is. Edward Younkins unpacks this much-abused concept.

Government programs come dressed up in the rhetoric of the general welfare. But as Roger Clites reminds us, they all come down to one thing.

Our columns burst with insights this month: Donald Boudreaux looks at the marvel of the market in a unique way. Lawrence Reed doesn’t like what the Census Bureau plans to count this year. Doug Bandow evaluates America’s East Asian policy. Dwight Lee calls for freedom of the price. Thomas Szasz revisits psychiatry’s paradigmatic disease. Mark Skousen ruminates on the phenomenon of greed. Charles Baird brings sense to the discussion of the wealth gap. And your editor, inundated with claims that campaign-finance controls will cure government of corruption, bellows, “It Just Ain’t So!”

This issue’s reviewers pass judgment on books about government’s treatment of its citizens, World War I, Justice Clarence Thomas, unions, “turbo-capitalism,” development economics, and the decline of great universities.

—Sheldon Richman

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.