Saturday, October 08, 2005

Rent-seeking obscured by seeming progressivity

Consumers benefit when profit-seekers compete. Citizens, likewise, benefit when rent-seekers (and rent-extractors, e.g., their political leaders) compete. As labor and capital become ever more mobile, politicians find reasons to behave and reform.

Friday's WSJ calls attention to the spread of flat-tax reforms in eleven countries, most of them in eastern Europe ("The World Is Flat" -- WSJ subscription required).

In the October 17 Forbes, John C. Goodman contrasts his "Kinder, Gentler Flat Tax" with Steve Forbes' better known version ("Flat Tax Revolution: Using a Postcard to Abolish the IRS"). Goodman suggests a slightly more complex rate schedule which would include incentives for more rational health and retirement insurance choices among individuals.

Some sort of balance between endearing simplicity and social engineering will have to be found. That could be a useful discussion and a desirable outcome.

Anything would be better than the status quo. In the name of a superficial progressivity, bizarre complexity is maintained. Taking the whole tax-and-expenditure presence of the federal government (with or without the addition of the state and local role) into account, no one can argue that the net effect is progressive.

The status quo is suitably ambiguous so that massive rent-seeking can persist under the guise of progressive redistribution.