Thoughts on Taxes and Property

I’ve written elsewhere about the property nature of money that is taxed, and how that property is owned by the individual and not by any government.  In this post, I’d like to talk about another aspect of taxes and about the concept of eminent domain as a kind of tax.

The House Committee on Small Business, a few days ago, held hearings to see what the major target (whether intended or not) of the Obama increase-taxes paradigm thought about taxes and what a tax régime out to look like.  The question of interest here was Congressman Joe Walsh’s (R-IL), and he asked this of a number of small business owners.

When it comes to this issue, tax reform and specifically how it impacts pass through entities*, what’s one word of caution or one word of advocacy — what would you advocate for if you had a moment or two in front of the super committee?

To a man, they decried the uncertainty in the current administration’s proposals.  They can’t plan for the future when they can’t know that their costs—of which taxes are a major part—will be reasonably stable.  When businesses can’t plan from one year to the next, there are a lot of other things they can’t do: they can’t predict the cost of components for their own production, since their suppliers can’t predict their costs, so purchase are held down, and production is held down; they can’t plan for R&D since they can’t know the tax costs, or subsidy availability, of those, so R&D falls off; they’re inhibited from hiring, since one of the costs of an employee is the incremental tax cost just from having him on the payroll.

And they want lower tax rates.  This isn’t just a self-serving matter, either.  Money the government taxes is money the business does not have to spend on its own needs.  What are those needs?  Supplies for their own production, R&D, labor.  And in the present administration, part of that labor cost is the mandated set of benefits levied on them.  Additional costs, which high(er) tax rates reduce their funds for covering, include regulation compliance costs from financial reporting, environmental reporting, privacy reporting, and the like.

But these businessmen aren’t alone.  Americans, generally, are tired of the constant drumbeat of raising taxes to claim monies for government to spend on politicians’ purposes.  Coloradans, a number of years ago, passed a state constitutional amendment requiring that the citizens of Colorado, not the politicians, approve any new tax, tax rate increase, emergency tax spending, or any tax policy change that causes a tax revenue increase or creates more debt.  In special elections just concluded, Coloradans suited these words to action.  Earlier this week, Colorado’s citizens defeated, roughly 2-1, a state measure that would have increased income and sales taxes, ostensibly to provide funding to the state’s K-12 schools.  The rejection was local, also.  More than 10 separate local tax questions, with the funds claimed to be aimed at schools, were put to local communities.  They all were voted down.  This, though, wasn’t a decision by Coloradans to reject supporting their education system; it was a rejection of higher taxes as a useful or effective means of doing that.  It was a rejection of higher taxes.

Aside from that, some taxes are simply capriciousness, which brings me to eminent domain.  Under our Constitution, governments have the authority to seize private property, paying the erstwhile owner “just compensation.”  But even though compensation is paid, this is little more than a tax on the individual whose property is confiscated.  It’s true enough that the man gets something of value back, but that’s the idea behind taxes, generally—a public good (roads, education, national defense)—is returned to each man for the money property taken as taxes.  Indeed, as the 5th Amendment is written, the government’s sole legitimate purpose for such a seizure is that the property taken had to be for public use—to provide a public good.

20th Century Supreme Court decisions, though, have morphed that public good requirement into a simple need asserted by a private commercial interest for whom a man’s house has greater value than that house has to the man who owns it.  Google on Kelo v. City of New London, for instance.  The claim here is that there is in fact, some sort of public good resulting from this: jobs, perhaps, and certainly higher tax income for the government exercising that eminent domain.

One of  the fallouts of this is a referendum next week in Mississippi that, if passed, will essentially bar the state of Mississippi, or any jurisdiction within it, from exercising eminent domain for such purely private commercial/economic purposes.  One brief discussion of this can be heard here (click on the video link, and sorry about the lead-in commercial).  The eminent domain part can be heard beginning at about 5:30 of the video.  Oddly, Gov. Haley Barbour is hoping the referendum is defeated; he insists the economic gains are worth the costs of such an eminent domain tax—and the costs to freedom.

Stephen Hayes makes a very good case concerning the centrality of individual property rights, a natural right, to American freedom.  Charles Lane, though, makes the governor’s case, and he utterly misses the point of property rights (and so of taxes levied on property, whether money property or real).  Lane assures us that a man’s land wouldn’t just be taken from him; he’d be paid for it.  But other taxes are agreed to by the citizenry as a whole through their elected representatives and through those citizens’ collective decision concerning who should represent them.  The man whose land is seized has no say in the matter.

In the Mississippi case, the man wouldn’t even share in a public good—his land would be turned over to another private enterprise for that enterprise’s benefit, which might also have a general economic benefit for the region.  But there’s a problem here.  The rights to private property are durable, long-lasting (I won’t get into their inalienable nature in this post).  The economic benefits are not long-term, and often they’re pure chimera.  That seminal Kelo case provides an illustration.  A private developer got the city of New London, CT, to condemn a neighborhood-full of private houses so he could develop the property for a shopping mall.  The public good these displaced homeowners (assuming they could stay in the area, absent any homes) and the remaining community were to get were jobs, a new shopping mall, and more taxes for their city government.  In the end, the developer was unable to finalize financing, the mall never was built, and the jobs and tax income never materialized.  The homeowners are still out of their homes, though.

More than that, the 5th Amendment demands “just compensation.”  But there is not enough money in the world to pay a man, there is no way at all to make him whole from his loss, if what is taken from him is something with which he does not wish to part.


*Pass-through entities, according to Congressman Walsh, are partnerships, S-Corporations, LLCs, sole proprietorships, and so on.

Leave a Reply

Your email address will not be published. Required fields are marked *