A rose by any other name
Is graffiti an art? Is alcoholism a disease? Is economics a science? Is bombing cities during wartime terrorism?
Who cares? Art, disease, science, terrorism are just words. How I feel about graffiti, alcoholism, economics, and bombing doesn’t depend in any way on how society labels those activities. Words are just words.
I base my judgment on other factors. Do I like graffiti? How do I believe alcoholism should be addressed? Do I believe economics is useful? Do I support bombing cities during wartime? Labeling those activities one way or another does not in any way influence the way I evaluate those things.
David Henderson has an excellent post on the question of whether we are subsidizing the fossil fuel industry. I agree with the post, but have a slightly different take on the final sentence:
Note: There is an issue, especially for libertarians, about whether preferential tax treatment constitutes a subsidy. I’m always a little torn about this.
Yes, it’s unclear whether the term “subsidy” is appropriate for a tax preference. I’d add that it is also unclear as to whether the sort of tax preference David describes is appropriate. But I don’t believe the issue for libertarians is whether the activity should be called a subsidy. As with bombing cities during wartime, the real question is whether it is a good or a bad thing. I’m not going to let the way Webster defines “subsidy” in a dictionary determine how I feel about a particular public policy. (Or how Webster defines art, disease, science, terrorism, etc.)
Consider the following information in David’s post:
The biggest single item (see his Table 5-1) is $13.9 billion over 10 years for oil drillers being able to expense, rather than depreciate, intangible drilling costs. But the 2017 tax cut permitted expensing for investments in short-lived assets such as machinery and equipment. So the preference for the oil industry suddenly fell. That would make the $13.9 billion for, say 2021, fall, possibly all the way to zero.
In my view, all investment should be immediately expensed. So in one sense the oil industry preference is a good thing; this is how the tax code should work. But we’d also like to see each industry treated equally. So the favoritism shown to the oil industry before 2017 distorted the flow of capital, directing it to uses less productive than in other industries. Does the good outweigh the bad? I don’t know, but I’d say the answer does not depend on whether we decide to apply the term “subsidy” to this sort of tax preference.
[Of course there’s also the question of externalities from burning fossil fuels, which makes the issue even more complicated. But I’ll ignore that complication, as the main point I’m making applies even if there are no externalities involved.]
The Atlantic has a very good article on the problems faced by electric car companies that try to sell directly to consumers. They point out that New York has lots of subsidies for electric cars, whereas Florida does not. But electric car sales are far higher in Florida, partly (not entirely) because Florida’s car dealership rules are far less restrictive.
Even if New York’s subsidies and restrictions in some sense were to “balance out”, neither favoring nor impeding electric car sales, the policy regime would still be quite inefficient. It’s not a zero sum game. Both the purchase subsidies and the dealership restrictions are costly policies, considered in isolation. It seems crazy to spend public funds that are raised by distortionary taxes in order to promoting electric car sales, while at the same time restricting those sales with barriers to direct sales to consumers. It’s like driving with one foot on the accelerator and one on the brake pedal. That wastes gasoline (or electricity.)
PS. The Atlantic article is worth reading. I especially liked this paragraph:
“If you want to see more rapid market penetration of electric vehicles, then prohibitions on direct sales are a major barrier,” he said. Crane frequently testifies on Tesla, Rivian, and Lucid’s behalf, but he says that he’s never accepted money from any of them. He wants to make clear that this is a no-brainer issue. “Whether you’re free market or pro-consumer or pro-environment or pro-competition, there’s something here for everyone,” he said. One of his proudest moments was getting the Sierra Club and the Koch brothers to sign a letter opposing the same law.
PPS. Taxation is theft? Affirmative action is discrimination? OK, but what do you think about the policies? Utilitarians spend more time enjoying eating tomatoes than worrying about whether they are a fruit or a vegetable.