Monday, January 30, 2012

WHAT FREE MARKET? UNCLE SAM WANTS YOU TO SPEND ...

In my classes I always make the case that we don't have a free market. The very visible hand of the state is involved in subsidizing and encouraging purchases and other activities that many of us simply take for granted. Uncle Sam wants you to spend, and to spend on things that are supposed to make us all better off (at least that's the way the programs are sold to us).



Let's take employer provided health insurance, for example. I'm sure most of you look for jobs with employer provided health insurance, and are thankful when you find a job that can provide it, right? Well, guess what? Your employer doesn't actually pay for your health insurance. You do. And so does your neighbor.

Your employer might pay the insurance provider, but your employer then gets reimbursed by the federal government (i.e. the American taxpayer) for the expense. While the process is called a tax deduction, it's also the essence of fiscal policy; i.e. when congress creates legislation that encourages certain economic activities over others. Over the next four years the medical plan your employer "provides" will cost the U.S. taxpayer over $1 trillion. 

Below I've attached a brief list of several major tax deductions designed to encourage spending & investment, and what they will cost the U.S. taxpayer this year (over $600 billion) and a few years down the road.




One thing should be clear from this list. The federal government - at the request of industry lobbyists - is doing a lot to keep our "free market" afloat (just ask Mitt Romney). Whether you agree with the long list of write-offs and deductions is another matter.

- Mark

UPDATE: Click here for tax expenditure estimates for fiscal years 2014-2018.

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