Taxation, loopholes, and the ignorance of another DC technocrat


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One of the last places to seek truth about the economy, government spending, taxation, monetary policy, etc., is in the op-eds of former government bureaucrats.  This is evident in a Wall Street Journal essay today by George Callas, “Five Tax Loopholes for Mike Johnson’s Chopping Block.”  

Callas was chief tax counsel for the House Ways and Means Committee and served a senior tax counsel for then-speaker Republican Paul Ryan.  He obviously was in the “inside” of tax and spending negotiations during his tenure as an important advisor to the tax writing committee. 

The title of his essay reveals a huge mistake regarding taxes.  The tax code contains deduction, exemptions, and credits.  There are no “loopholes” in the tax code.  A loophole is a political term, referring to a reduction in taxes that a Republican or Democrat doesn’t like.  All “loopholes” are a step toward economic freedom because they allow individuals and businesses to keep more of their own money. 

As far as Callas is concerned, he wants to eliminate the tax deductibility of state and local taxes.  In other words, taxpayers would have to pay taxes on taxes.  Currently, this “loophole” is limited to $10,000 thanks to Trump’s 2017 Tax Cuts and Jobs Act. 

He wants to “revisit” the tax exemptions of nonprofits—universities, hospitals, etc.  If Callas is concerned of the high salaries and other “distortions” he asserts are the consequence of the tax exemption of nonprofits, there is a simple fix—end government funding of nonprofits.  This would force them to be more efficient without government funding. 

In addition, Callas recommends “the so-called round-tripping loophole that allows multinational corporations to route profits from sales to the U.S. through foreign tax havens.”  The less money flowing to the IRS means that businesses get to keep more of their earnings for capital formation, higher dividends, increased wages and salaries.  The solution is to end all government subsidies to businesses. 

Next, Callas suggests that stock buybacks should be treated as dividends and thus more revenue would be raised to reduce the deficit. 

Lastly, he recommends the repeal of “the preferential qualified small-business-stock exemption for venture-capital profits.”

Callas then asserts, “These proposals are consistent with free-market governance that benefits everyday Americans.”  This is disingenuous.    One of his reasons for his proposal is that it would reduce the income of Democrats whose businesses that benefit disproportionally from these “loopholes.” 

In concluding his essay, Callas claims “The GOP would either earn a principled victory in fighting for smaller government or a policy victory by actually making government smaller.”  Mind boggling. 

How would closing “loopholes” to bring in more revenue to Uncle Sam make the federal government smaller?  Did Callas proofread his essay?  There is one contradiction after another throughout his essay.

For wisdom about the effects of taxation on the market economy, we turn to Murray Rothbard’s essay, “The Myth of Neutral Taxation.” Rothbard points out, “Any firm or institution is neutral to the market when it functions as part of the market. That is, both General Motors and Mom and Pop’s Candy Store are part of the market, and insofar as their activities remain within the market, they are neutral to it.”  In the footnote to this statement, he writes, “Thus lobbying or other government-related activities by any business firm would not be neutral to the market” (emphasis in original). 

In other words, to have a “neutral,” free market economy, income taxation should be abolished, and government spending should be minimal, at best.  Other taxes would be abolished as well to create a voluntary society.  As far as national defense goes, this is a discussion for another time. 

In the meantime, Callas and others who want to tinker with the tax code are statists.  They claim to be free-market advocates when they are really technocrats for the welfare-warfare state.  In short, they are “conservatives,”—defenders of the status quo.


This is an update of my 2021 forecast, 


Murray Sabrin, PhD, is emeritus professor of finance, Ramapo College of New Jersey. Dr. Sabrin is considered a “public intellectual” for writing about the economy in scholarly and popular publications. His new book, The Finance of Health Care: Wellness and Innovative Approaches to Employee Medical Insurance (Business Expert Press, Oct. 24, 2022), and his other BEP publication, Navigating the Boom/Bust Cycle: An Entrepreneur’s Survival Guide (October 2021), provides decision makers with tools needed to help manage their businesses during the business cycle.  Sabrin’s autobiography, From Immigrant to Public Intellectual: An American Story, was published in November, 2022.

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