Alex Tabarrok argues that tax breaks aren’t government programs

People who use 529 programs and who think that they have not used a government social program are not willfully ignorant, they are demonstrating a healthy if fading appreciation of the distinction between civil society and government.  What Rampell et al. implicitly imagine is that the natural state is slavery and any departure from that state a government benefit. Thus, if the government taxes your saving for a college education less than your other savings, you should be grateful for how government has benefited you and your children.

And if the government doesn’t jail you today, you should be grateful for how government has granted you the benefit of liberty.

This is the attitude of a serf not an American.

I hear this view a lot and I think its fundamentally mistaken. The question is not whether or not the government takes some seemingly affirmative action or makes a special case of refraining from action. The question is – is this program designed to cause specific deviations in behavior. Is it – as I would say – heavy touch.

Why?

Well, because through creative accounting we could simply cast all programs as some type of tax break or failure to implement policy. We could even make the transferable and there would be no discernable difference. This, however, would not make them light touch.

For example we create a refundable tax credit for certain food purchases, available to those below a given poverty line. To make it easy to implement we make this tax credit transferable. Using an EBT card, the tax payer can simply transfer his or her credit to store owner who can then apply it (refundable) against his or her own tax liability.

Now we have a tax credit program.

Similarly we could replace 529 programs with subsidies and get the same result.

In each case, the state has made a choice to influence the behavior of its citizens by manipulating their budget constraints in a particular way. That’s the essence of a government program. And, indeed its that type of intervention that displays the Fatal Conceit we should be worried about with government programs.

Lastly, to be sure – if the government explicitly chose to say, never jail top ranking civil servants for charges of assault, that would definitely count as a government program/policy and I think we could expect it to influence behavior. 

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