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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Location: Northwest Arkansas, United States

Wednesday, August 24, 2005

Merger Mania

Via Roy F. Moore on the distributism yahoogroup. Whirlpool is buying up Maytag for $2.7 billion.

One reason corporate mergers are feasible to this extent is that the financial transactions involve are, in effect, subsidized. Stock transactions involved in stock-swap mergers and buyouts are exempt from the capital gains tax. The interest on corporate debt accumulated in the process is also deductible.

Never mind whether capital gains and corporate income taxes are good or bad, as such. I think they're bad, too. But so long as they're in place, they should be paid at the same rate by all, without exempting some kinds of activities--especially when it amounts to a subsidy directed specifically to mergers and acquisitions.

Some free market advocates object to the use of the term "corporate welfare" for such tax loopholes. But the practical effect of such exemptions is exactly the same as if we started out with a tax rate of zero, and then imposed a punitive tax only on firms not engaged in such favored activities. Those who engage in the most capital- and R&D-intensive forms of production, and in mergers and acquisitions, are paying a disproportionately lower tax rate as a reward for doing so, and are thereby given an artificial competitive advantage at the expense of those not engaged in such activity.

8 Comments:

Blogger iceberg said...

I like to think of government taxes as protection fees to the mafia.

Surely I'd be upset if everyone but "Tony's Pizzeria" were subject to the protection racket, but I can't see myself blaming Tony's for not being targeted by the mafioso for whatever reason.

In the same light, I will certainly not go as far and call it a subsidization of "Tony's Pizzeria" just because they aren't being victimized like other businesses.

If it really worked in that perverse way, one could say that gunshot-wounded individuals are subsidizing the health of those unwounded around them in society.

August 24, 2005 3:08 PM  
Blogger Kevin Carson said...

The problem is that, under state capitalism, Tony heads one of the Five Families. Big business is not just a passive victim, getting by as best it can by taking advantage of the loopholes that are available. Big business, rather, is completely intertwined with government, to the extent that it's more accurate to say that government agencies, large corporations, and the big foundations and think tanks, are an interlocking directorate staffed by the same Power Elite.

August 24, 2005 8:07 PM  
Anonymous Atreyu42 said...

There is a parallelism with medieval age. In those times Church and nobility were allies against the citizens.

Now Government and Big Business act protect and help each other against the people.

August 26, 2005 8:06 AM  
Anonymous Wild Pegasus said...

Never mind whether capital gains and corporate income taxes are good or bad, as such. I think they're bad, too. But so long as they're in place, they should be paid at the same rate by all...

Rob one old lady, rob them all?

- Josh

August 27, 2005 1:11 PM  
Blogger Kevin Carson said...

Josh,

Read my reply to iceberg above. The non-robbed old ladies aren't just passive beneficiaries; the government is an "executive committee" of those corporate little old ladies who aren't getting robbed.

August 27, 2005 8:53 PM  
Anonymous Wild Pegasus said...

You're trying to prove too much. Whirlpool and Maytag are not in some grand conspiracy with the state to get a tax merger loophole. The conspiracy simply isn't there.

Moreover, talking about "practical effects" is a serious ethical danger. If a hobo robs me on the street, or if I give a hobo all the cash in my wallet, the practical effects are the same. But one is robbery and the other is charity. Practical effects is nonsense economic talk from the morally retarded, like Prof. Epstein. That's not you.

- Josh

August 30, 2005 12:03 PM  
Blogger Kevin Carson said...

Tax loopholes for mergers, accelerated depreciation, R&D, etc., result in exactly the same comparative tax rates as if we started out with a rate of zero and then imposed a punitive tax on those NOT engaged in such things. That's a fact. If acknowledging the fact is a "serious ethical danger," ethics must be vulnerable indeed.

And I guarantee industry lobbyists aren't too ethical to consider the practical effects.

No "conspiracy" is needed. Only a government that, for structural and institutional reasons, responds mainly to corporate interests.

August 31, 2005 6:53 PM  
Blogger iceberg said...

>>Tax loopholes for mergers, accelerated depreciation, R&D, etc., result in exactly the same comparative tax rates as if we started out with a rate of zero and then imposed a punitive tax on those NOT engaged in such things<<

I was wondering if your argument can be flipped around, to perhaps argue the pro-voucher position. The existence of public schools results in a punitive tax upon those who do not enroll their children in public schools, and therefore to equalize the punitive education taxes, government ought to (partially) fund private schools.

Is this a position you would agree with?

September 03, 2005 6:23 PM  

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