The Key 2 Liberty involves learning the principles of freedom for yourself and then sharing your knowledge with others.

Free Markets

Examples of government regulations that oppose free market principles

Tax credits and subsidies for specific industries or products

One of the most common ways that the government at all levels; federal, state, county and city interferes with the free market is by granting certain tax credits for specific industries or products.  This is a very direct way for the government to basically pick the winners and losers of the economy and should be thought of as a repugnant act in a free society where all people should be treated equally under the law.  The primary role of government in a free society is to protect the lives, liberties and private property of its citizens and not to decide which industries or companies should succeed or fail.  The people through the natural process of voting with their wallets should determine which products are fairly priced and which products are overprices regardless of the “need” for a product.  The powers granted to the Congress of the federal government by the states are listed in Article I, Section 8 of the Constitution and it is amazing how many tax credits and subsidies that the federal government has granted to certain industries and even specific businesses over the years that are clearly outside of the limits of the enumerated powers listed in this section.

To have a truly operational free market system tax credits and subsides for specific industries, businesses or products should never be granted but if the people of a particular state insist that one be granted it should only be done at the state level.  If a tax credit or subsidy is done at the state level then the costs and therefore the taxes required to pay for it will only affect the people of that individual state.  People that live in a state that have high taxes due to large amounts of tax credits and subsidies granted to industries or businesses by their state legislatures at least have the ability to vote with their feet and move to a different state.  When the federal government creates a tax credit or subsidy every U.S. citizen is affected by it and no longer has the ability to move somewhere else that protects their right to not have their money confiscated from them to pay for tax credits and subsidies they do not agree with.  Thomas Jefferson said it best when he said, “To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.”  Americans must keep in mind that the only way the government at any level can grant a tax credit or subsidy to an industry or business is by taking private property, sometimes called money, away from its citizens through taxation.
Here are a few specific examples of tax credits and subsidies that clearly go against the principles of a free market;

Tax credit for new windows

In 2011 the federal government offered a tax credit to install new energy efficient windows in homes.  The tax credit amount was 10% of the cost of installation with a maximum credit of $200.  Some people thought that this tax credit was a great idea for the United States since it allegedly stimulated the economy by encouraging people to upgrade their older energy inefficient windows to ones that were more energy efficient.  Making homes more energy efficient helps keep our energy costs down by reducing the demand for energy and thus increasing the available supply.

The government always has sleek slogans and catchy phrases for making their programs sound beneficial for everyone.  The fact of the matter is that most tax credits and subsidies only benefit a small percentage of the population.  Continuing with the tax credit for windows example how many people actually used the tax credit?  Probably less than 5% of the population if not less than 1% of the population actually used the available tax credit.  Yet everyone was responsible for chipping in to pay for it.  The argument that the tax credit stimulated the economy by encouraging people to buy windows is totally false.  The tax credit did not magically create money in a special bank account for people to use for the purchase of windows.  People who bought windows in 2011 had to pay the full price of the windows with cash up front and then were able use the available tax credit when they filed their taxes at the end of the year.  For most people a tax credit does not entice them to buy something.  It may however entice them to purchase one product over another.  This is nothing other than the government picking the winners and losers.

The free market alone should determine what products people want to buy.  When the government gives a tax credit for windows the window manufacturers get a distinct advantage over every other type of business whose customers receive no special benefit for purchasing their products or services.  There is definitely a strong argument that without the window tax credit people who purchased windows in 2011 may have decided to spend their money on other things.  Instead of buying new windows someone may have decided to purchase a new toilet from a plumbing company or have a painter stain their outdoor deck or maybe just take their family out to dinner and a movie.

Another side effect of tax credits that is often overlooked is the effect of artificially creating a higher demand for a product or service.  When the demand for a product or service is increased, whether by normal economic, free market forces or by an artificial economic force caused by a tax credit, the price of the product will increase.  Most of the so called free money that is created by tax credits does not go to the purchaser of the product and receiver of the tax credit.  It goes to the manufacturer who because of the artificially high demand for his or her product is able to increase the cost of the product or service almost to the point where the consumer is getting the product or service for about the same price as he or she would have bought it for without the tax credit.  The government through the tax credit has done a great favor the window manufacturers in the case of the window tax credit but has done nothing for anyone else except raise their taxes to pay for it.  Once again tax credits are just a way for the government to pick the winners and losers of the economy and they directly oppose the ideology of a free market.

Cash for clunkers

Similar to the way a tax credit for new windows benefited the window manufacturing industry the infamous Cash for Clunkers program formally known as the Car Allowance Rebate System that was passed in 2009 benefited the manufacturers of fuel efficient cars.  Some people in 2009 may not have purchased a new car if it were not for the rebate and would have possibly spent their money on other items.  The rebate was of course great for the automotive industry but what about people who work as electricians or plumbers, or those who work at a grocery store or those who sell home insurance for a living?  It did not assist them at all and the government once again simply just picked a winner by choosing to give special assistance to an industry they felt needed special help.  Many people who purchased a new car in 2009 would have purchased one anyway even without the tax credit.  Too often Americans forget that the foundation of a free country is that all people are to be treated equally and given equal protection under the law.  When the government picks the winners and losers of the economy it directly opposes the principle of equal treatment.

Another interesting stipulation that was required in order for people to take advantage of the Cash for Clunkers rebate was that their old fuel “inefficient” car had to be destroyed and scrapped.  This took many cars off the used car market that would have been available for lower income families that often purchase used vehicles.  When the supply of anything goes down, whether by normal economic, free market forces or by an artificial economic force caused by complying with the provisions of a tax credit, the price goes up.  The Cash for Clunkers program without a doubt reduced the supply of used cars which in turn caused the price of them to go up putting an even larger burden on the poor whom the government often claims they must give special help to in order to make life “fair” for everyone.  In the case of Cash for Clunkers the primary people who benefited were of course the auto manufacturers and people who could afford to buy highly fuel efficient cars that qualified for the program which were typically middle to upper class individuals.  People that worked for industries other than the automotive industry or did not buy a new fuel efficient car got the shaft and were involuntary obligated to pay for the program through higher taxes.

Tax credit for first time home buyers

Between the years of 2008 and 2011 the federal government was allowing first time home buyers to claim various tax credits ranging from $6500 to $8000 for the purchase of a new home.  Like many federal tax credits, the first time home buyer tax credit was praised by scores of people.  In a constitutional republic the right to life, liberty, and private property which includes the right for people to keep the fruits of their labor should be the primary objectives of the government and the legislative bodies of the state and federal governments should examine every bill being considered for law and make sure that it will work toward accomplishing these objectives.  With this in mind how much did the first time home buyer tax credit advance the principles of freedom and liberty?  Does this tax credit advance or retard the principle of equal treatment under the law?  Why do some individuals get to claim the tax credit while others may not?  The answer is obvious if examined under the eye of liberty.  The first time home buyer tax credit, like most tax credits, is just another method for the government to redistribute the wealth of one group of people and give it to another, the antithesis of freedom and free markets.  It is the government deciding on who will be the winners and who will be the losers.

It is important to point out the obvious cause and effect relationship of any tax credit on the free market economy.  Although it has been tried a countless number of times in human history it is impossible to change one side of the supply vs. demand equation without effecting the other.  It is just like with algebra, when the left half of a mathematical equation is changed the right half must also change to keep the equation in balance.  The price of all products and services in a free market economy are automatically governed by the natural law of supply and demand.  If the demand for a certain product or service increases and the available quantity of the product or service stays the same the price will increase.  If the demand for a certain product or service decreases and the available quantity of the product or service stays the same the price will decrease.  In a properly operating free market economy the only thing that should naturally fluctuate is the demand for a product or service based on the wants and needs of the people.  The price of products and services should be determined by the demand from the public for the products and services and the ability for individuals or companies to produce them.  As individuals or businesses improve ways to produce products and services they will become more plentiful and therefore will cause the price of them to drop.  This in turn creates a natural incentive for individuals and companies to compete with each other to produce the best products and services.

Getting back to the first time home buyer tax credit.  If the number of houses on the market stays the same but the demand for them increases, despite the fact the demand was artificially created by a tax credit, the price of them will increase.  The people who got tax credits for being a first time home buyer were able to buy a home for themselves but it was at an increased price.  Everyone has heard of the so called “housing bubble” but few people are knowledgeable enough to know how it was caused.  It is certainly unfortunate that those who did not qualify as first time home buyers and therefore could not get a tax credit for purchasing a home but were in the market for buying a home had to choose from houses that had already increased in price due to the higher, artificially created demand for them caused by the government offering a tax credit.