The Free Money Game: When Will Republicans Wise Up?

Every election cycle, you can count on Republican candidates promising to reduce the size and cost of government, and in general, getting government out of our businesses and out of our daily lives. Yet as every session of the legislature demonstrates, that pledge – for the majority of Republican lawmakers – has a distinctly hollow ring. Not unlike their Democratic counterparts, the GOP’s commitment to controlling government and reducing welfare dependency is highly selective. For their friends, the free money game continues unabated.

One of the most sainted of wealth transfer schemes for the Republicans is the Holy Tax Credit, generally targeted toward specific types of businesses and business activities that – so the GOP argument goes – are worthy of tax-funded inducements and rewards for “doing the right thing.” What is the right thing? Government will decide. Who will pay for it? You and I will.

That sounds amazingly like big government interventionism and the welfare state to me – the very things Republicans rail against. But if it quacks like a duck…

Currently, there are over 40 specific tax credits cluttering Montana’s anything-but-simple tax code, each one designed to use the taxing powers of the state to influence human behavior in a way our elected officials have decided is “good” or “socially responsible.” You’d be blown away by all the favored businesses and interest groups that are jumping through the required hoops to get to their fair share of the booty.

But their share is anything but fair. It’s mostly a reflection of how good their lobbyists are at convincing legislators to transfer the wealth of others into their particular bank accounts and balance sheets. It’s a giveaway game, where the winners get government backing and the losers are those unfortunate entrepreneurs who still choose to be independent and free.

Tax credits are just a backdoor form of government spending. They are essentially a government “credit card” that provides the politically connected with dollar-for-dollar reductions in their tax bills. At the end of the day, it comes out of the treasury, just as if they were sent a check.

Moreover, a fair and equitable tax policy demands that businesses be treated equally. Tax deductions for business expenses do that. Every business can deduct operational expenses and reduce their net taxable income accordingly. That’s fair. So are across-the-board tax cuts that benefit everybody and fuel economic growth (i.e., true economic development.) Tax credits are another story, because only favored companies can take them, by making business decisions determined by government.

Several tax credit bills are currently flying through the legislature, opposed by a small minority of intrepid lawmakers with the courage to point out that these measures are little more than dressed-up corporate welfare, with no public benefit and considerable public harm. Take HB 252, advanced by the governor’s office, that gives companies back 50 percent of the cost of training an existing employee in one of 28 endorsed “trades,” to a maximum of $25,000 per year.

At a time when Republicans still believed in free market economics, they would have laughed at such a proposal, pointing out that businesses train their employees based on actual need and actual value of their investment. But now, they reject the free market and embrace the quasi-socialist belief that businesses must be induced with government tax credits to make the right decisions – including employee training. Two kinds of responses will result from such a law: (1) the business will make a bad decision, based on the lure of free money, or (2) the business will be a “free rider” that collects the tax credit for doing something it planned to do anyway.

Beyond the taxpayers themselves, perhaps the biggest victims of this crony capitalism are the previously independent businesses that now beg for more tax credit subsidies. It’s free enterprise turned on its head. How quickly they have forgotten that no free people will barter their liberties for a place in line at the government trough.