Fake libertarianism: Free market for me and not for thee edition

Jon Henke mounts a defense of the indefensible tax proposals being mounted by the Bush administration. After briefly defending the President’s transfer of the tax burden from capital to labor on supply-side grounds, he defends the removal of the tax incentive for employers providing health insurance on classic free market grounds. Jesse Taylor points out the flaws in a strictly free-market approach; unless we’re willing to let indigent people die, it won’t work. (Although, obviously, single payer–which provides better median coverage for less state money than the U.S. spends now–is preferable, it’s not on the table and won’t be for a long time.)

In addition, it’s worth highlighting the obvious contradiction here. As I said, Henke attacks the employer subsidy on classical free-market grounds, arguing that it leads to the inefficient allocation of resources. In the context of the health care policy ends a decent society would want to pursue, I don’t agree, but it’s something reasonable people can disagree about. What should be noted, however, is that if you accept this argument the decision to tax labor at much higher rates than capital is completely indefensible. After all, if we believe in classical economic theory, then markets will provide the optimal allocation of resources devoted to labor and investment, and the government should tax all of it equally so as not to distort market forces, right? Cutting capital gains and other investment taxes while increasing taxes on wages cannot be defended based on “free market” principles; it’s social engineering pure and simple, and also requires the assumption that markets, left to their own devices, will allocate resources in highly suboptimal ways (while, strangely, in health care the assumption is that free markets would be perfectly efficient. In practice, of course, you can make a better case for the reverse.)

To state the obvious, there’s no consistent or principled economic theory underlying this series of proposals; you could defend individual ones on their own merits, but as a whole the justifications are fatally contradictory. The only thing that unties them is a desire to 1)achieve regressive redistributions of wealth, and 2)transfer the tax burden from capital to labor. The rest is just window dressing offered in almost comically transparent bad faith.