Free Market

Recognizing Indirect Plunder in Utah

The Economist is the latest in a string of national publications to extol the virtues of Utah’s economy.  Their article “Busy bees” focuses on Utah’s low unemployment rate, friendly business climate, and burgeoning tech sector, while cautioning readers about the challenges within our education system, population growth, and funding allocations. But with popular recreational opportunities, a well-educated workforce, advantageous geographic locations, and natural resources aplenty, Utah certainly has a lot to offer workers, businesses, and families. There is much to celebrate about our great state.  Like many of you, I choose to live here for the remarkable quality of life Utah offers.

When appropriate we applaud politicians in Utah for their fiscal discipline and principled approach to governance—the fruits of which are enjoyed by all Utahns.  Rather than accuse public servants of cognitive dissonance on certain issues, I’d prefer to give them the benefit of the doubt in assuming they approach their work with an earnest desire to do what is right for their constituents, if not all Utahns.  My hope in writing this article is to redirect our attention towards those virtues which lend to the improvement of our lifestyle, shrink wealth gaps, promote equality, expand freedoms, and create opportunity for all.

Focusing on liberty as an ideal helps build bridges between competing political factions. Just about any legislator would agree that protecting liberty is important for them. The difference lies in how each individual prioritizes that ideal relative to other issues of importance. What really matters, in the end, is the practical application of how these policies affect our lives, and it’s in that area I’ll focus this article. In particular I will focus on how certain policies are considered annoying or morally reprehensible by certain people when it directly affects them, though are frequently ignored when indirectly applied.

Occasionally we hear in the news about direct violations of liberty that cause us to cringe and seethe with indignation. Such was the case last year when a police narcotics unit forcibly entered an elderly man’s home to confiscate painkilling drugs in the middle of the night, without a warrant, as his wife was drawing her last breaths. Or consider the case of Jestina Clayton who was cited by state regulators for braiding hair without a license—a government permission slip that would have required 2,000 school hours to obtain, simply to legally braid hair for pay. Most people will agree that these examples are downright ridiculous and unlawful. These are the cases that draw scrutiny and lead to changes in the law (a bill to exempt hairbraiders from licensure requirements in certain cases passed through the Utah legislature unanimously earlier this year). Despite these occasional corrections, citizens casually put up with a multitude of less offensive intrusions, based upon the same set of laws, which lead to a loss of liberty and life—and they do so without a second thought because they are being affected only indirectly.

This is why, for instance, people tolerate businesses like Scheels getting a 25 year tax exemption to locate in Utah, but get all fired up when they find out General Electric has enjoyed an effective tax rate of just 2.3% over the last decade. Certainly, the economic impact of a company like General Electric is a large multiple of a relatively small outdoor sports company like Scheels, and creates many more jobs as a result of its lower tax rate. Why the inconsistency?

The answer was provided in the 1850 essay by Frédéric Bastiat, That Which is Seen, and That Which is Not Seen. Bastiat recognized that economic effects removed by degrees from our immediate view are only recognized by the few who possess foresight and experience. Hence, Scheels, which is now located in Sandy, may employ you or your neighbor. This is a positive, direct (or seen) consequence of their locating in Utah, which likewise reflects positively on the central planners that made it happen. On the other hand, GE is a faceless behemoth of a company, too big to comprehend, headquartered in faraway Connecticut, that is not “paying its fair share,” thus subjecting the rest of us to a higher proportion of the overall tax burden. Because no positive consequences are readily apparent, the tax incentives offered to this faceless, distant corporation are opposed.

What many fail to recognize is that both of these scenarios have similar effects overall—proportionally speaking. By granting Scheels a property tax exemption, Sandy has effectively forced all of its citizens to subsidize a private company. The municipal agencies that rely upon property tax revenues will still get their money, but instead of collecting it from the owner of the prime business location occupied by Scheels, they will get it from residents and competing businesses in their locale. Is it fair to make Sportsman’s Warehouse or REI pay Scheels’ proportion of property taxes? It is no more unfair than the loopholes GE uses to reduce its tax liability, passing the expense on to others for the fixed costs of running a leviathan state. What are perceived to be the “positive” effects of one business may be more visible than another, but both operate at a cost to taxpayers.

Let’s visit this idea of direct and indirect control a bit more. Government agents do not generally boss you around directly. You don’t pay your sales tax while a tax agent holds a gun to your head—the store that sells you the item simply charges you a higher total cost to account for the tax. You don’t pay into Social Security directly—your empower withholds money you have earned to pay the expense on your behalf. Once these and other intrusions on individual liberty are recognized and connected to the people they negatively affect, they are usually rejected, but the challenge of good economists and freedom lovers everywhere is to take a few extra steps down the chain of consequences to the unseen or indirect effects and highlight them for all see, prior to implementation.

Most of us have an internal moral compass that helps us recognize right and wrong. Since that compass tells us coercion and economic slavery are immoral, we need only recognize them when presented to us—and go the extra mile to recognize such coercion even when its effects are “not seen” through indirect application. Lawmakers must therefore be more sensitive to the unseen consequences of their actions by subjecting all legislative proposals to a moral test that includes short and long-term consequences, as opposed to immediate needs or gratification, and to make these consequences known to those who will bear the brunt of them before moving forward with any planned action. This is a policy based on full disclosure, prudence, and honesty that we can all get on board with.