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Tax-Credit Hypocrisy

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There are always rallies, marches, and demonstrations taking place in the nation’s capital, but a recent event organized by the American Mustache Institute was certainly one of the most unusual to ever take place.

Members of the American Mustache Institute (AMI), a tongue-in-cheek advocacy group with the mission of “protecting the rights of, and fighting discrimination against, mustached Americans by promoting the growth, care, and culture of the mustache,” held a news conference in front of the U.S. Capitol building on President’s Day in support of a tax break for men with facial hair. The Stimulus to Allow Critical Hair Expense Act, otherwise known as the STACHE Act, would allow a tax deduction as high as $250 for expenditures for mustache-grooming supplies. And according to AMI chairman Aaron Perlut, “Anyone with hair care costs would be eligible.” AMI plans a Million Mustache March from the U.S. Capitol to the White House on April 1 of this year as a show of support for the STACHE Act.

The STACHE Act is the brainchild of John Yeutter, an accounting and tax-policy professor at Northeastern State University in Oklahoma. Yeutter authored a “white paper” in 2010 on the “environmental, social, and economic impact of the mustache on America.” The paper notes a link “between the growing and maintenance of mustaches and incremental income.” Citing a “study” showing that “mustached Americans earn 4.3 percent more than their clean-shaven counterparts,” the paper reaches two conclusions. First, because mustached households earn more, they pay more in taxes, but because maintaining a mustache “requires some substantial expenditures” to “maintain the power of income production,” they should receive a tax break on their purchase of grooming supplies. The second conclusion — a perfect example of the cum hoc ergo propter hoc logical fallacy of inferring causation from correlation — is that if the tax incentive “causes only 5% of the more than 50,000,000 households with no male adult with facial hair to adopt and maintain a mustache, earnings by these households should increase by more than $6.8 billion.”

Lending some semblance of credibility to the whole idea is H&R Block, which is making donations to a charity, Millions From One, which provides clean drinking water to people in need, on behalf of every person who participates in AMI’s Million Mustache March Facebook campaign or the march itself. “We’re very serious that Americans should never settle for less when it comes to getting the tax deductions they’re entitled to,” said H&R Block’s director of social media, Scott Gulbransen.

AMI has appealed to Rep. Roscoe Bartlett (R-Md.) and Sen. John Hoeven (R-N.D.) — the only senator with facial hair — for support, but as yet no bill has been introduced in Congress.

Now, at first glance the whole idea sounds ludicrous. But since we are in the middle of tax season, and since it raises the issue of tax deductions, I think it will be beneficial to revisit the subject.

Although they may not like to admit it, some conservatives and Barack Obama have something in common — an aversion to tax breaks.

In his 2011 State of the Union Address, the president called for “Democrats and Republicans to simplify the system” and to “get rid of the loopholes.” In his 2012 State of the Union Address, the president called for the elimination of tax breaks for certain Americans: “If you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions.”

Some conservatives likewise advocate the elimination of certain tax deductions and credits, and not just in the name of making the tax code flatter, fairer, or simpler. They state, correctly, that the government shouldn’t pick winners and losers, show favoritism, be partial, practice social engineering, engage in vote-buying schemes, or allow its cronies to game the system.

Okay, fine. Then don’t be a hypocrite. Insist that all deductions and credits be eliminated.

Taxpayers receive an exemption of $3,700 for each qualifying child — even if the child was born on the last day of the year. Taxpayers with children who make under a certain level of income also receive a $1,000 tax credit per child. Since the government shouldn’t be partial to people with children, shouldn’t those exemptions and credits be eliminated?

Taxpayers who are 65 or older or are blind are entitled to add to their standard deduction $1,450 for each of those conditions if they are single and $1,150 if they are married and filing jointly. Since the government shouldn’t be partial to people because of their age or the condition of their eyes, shouldn’t those deductions be eliminated?

Taxpayers with children or other dependents receive a tax credit for child- and dependent-care expenses up to $1,050 for one dependent and $2,100 for two or more dependents. Since the government shouldn’t be partial to people with children, shouldn’t those credits be eliminated?

Students can take advantage of the student-loan interest deduction and either a deduction or one of two credits for college tuition and fees. Since the government shouldn’t be partial to students, shouldn’t those deductions and credits be eliminated?

Home-mortgage interest and real-estate taxes paid are allowable as itemized deductions. There was once a first-time homebuyer tax credit that could be as high as $4,000 ($8,000 if married and filing jointly). Why should the government be partial to homeowners?

Moving expenses is another tax deduction. Why should the government give a tax break to people just because they move?

Alimony paid is another tax deduction. Why should the government give a tax break to people just because they pay alimony?

IRA contributions up to $5,000 ($6,000 for those 50 or older) are tax-deductible. Why should the government give a tax break to people just because they contribute to an IRA?

There is an adoption tax credit that can be as high as $13,360 per child. Why should the government give a tax break to people just because they adopt a child?

If someone is going to denounce tax breaks for a particular industry, then to be consistent he should also condemn tax deductions and credits for parents, the aged, the blind, students, homeowners, movers, the divorced, those who save for retirement, and those who adopt children.

Opponents of tax deductions and credits have things backwards. Tax breaks don’t cost the government revenue; they allow Americans to keep more of their money. The tax code doesn’t need to be reformed; it needs to be eliminated. The tax base doesn’t need to be widened; tax breaks need to be expanded. Income taxes don’t need to be made flatter, fairer, or simpler; they need to be abolished. Taxation is not the price we pay for civilization; it is institutionalized theft. All tax breaks are good; it doesn’t matter whom they benefit or why Congress enacts them.

Conservatives usually make the same basic error when pointing out that approximately half of Americans pay no income tax. But the solution is not to spread the misery and punish those with low incomes by increasing their taxes. The solution is to decrease the tax burden of those who are paying the taxes now. The last time that Congressman and Republican presidential candidate Ron Paul was on the Tonight Show, Jay Leno brought up the fact that Paul wanted to eliminate the income tax. To that Paul said something truly profound: “Sometimes they complain, you know, the lower-half income people, they don’t pay any income tax. And I say we’re halfway there.”

We are halfway there. But until we get all the way there, the more tax breaks we can get the better — even if we have to pay for them. As the late economist Murray Rothbard explained,

There is, once again, a good reason for our paying money to tax lawyers and accountants. Spending money on them is no more a social waste than our purchase of locks, safes, or fences. If there were no crime, expenditure on such safety measures would be a waste, but there is crime. Similarly, we pay money to the lawyers and accountants because, like fences or locks, they are our defense, our shield and buckler, against the tax man.

The STACHE Act appears to be modeled on the $250 tax deduction available to teachers for unreimbursed educator expenses. There are potentially many more Americans who would benefit from the STACHE Act tax deduction than the number of teachers in the country, and especially if the deduction was allowed for any taxpayer with hair-care expenditures.

Short of abolishing the income tax, eliminating the progressivity of the tax code, or lowering the tax rates, Americans need all the tax breaks, tax shelters, tax incentives, tax deductions, tax loopholes, tax exemptions, and tax credits that they can get.

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