"The taxing power of government must be used to provide revenues for legitimate government purposes. It must not be used to regulate the economy or bring about social change."
-- President Ronald Reagan
State of the Union Message
Feb. 18, 1981
"(b) no portion of the proceeds of such issue is to be used to provide (including the provision of land for) any private
or commercial golf course, country club, massage parlor, hot tub facility, sun-
tan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises."
-- Title 26
Internal Revenue Code
(tax exemption requirements for qualified redevelopment bonds)
Well, yes, certainly no massage parlors. Or hot tubs, of course; one shudders to think what happens in those. And tanning facilities, too, are the devil's playgrounds. As for racetracks, although state governments promoting their lotteries are America's most energetic advocates of gambling, government should err on the side of caution when protecting whatever this tax provision protects by frowning on racetracks, hot tubs and other things.
This peculiar wrinkle in the tax code, first approved the year after President Reagan said the tax code should not be used to leverage social change, makes certain projects ineligible to be financed by industrial redevelopment bonds that are subsidized by preferential tax treatment. This provision recently popped back into the news, thanks to Hurricane Katrina.
That ill wind blew some (barely) offshore casinos onto the shores of the Gulf Coast. As part of the plan to "rebuild," as the saying goes, the damaged coast, such bonds are going to be issued. But not promiscuously. Some legislators do not want tax-subsidized bonds to finance the rebuilding of casinos.
Not that the casinos need help: They are rebounding briskly, even expanding. Still, government has a sorry record of dispensing billions in corporate welfare for flourishing businesses.
It is mysterious why states or localities that want casinos operating nearby -- and providing jobs and tax revenue -- also want them afloat, a few feet from a riverbank or ocean shore. (Mississippi has just decided to let them come ashore.) Does the narrow band of water provide a prophylactic against sin? The communities already have weighed the sin against the jobs and revenue and found the sin congenial.
But such awkward questions arise when government begins moralizing, especially about the minutiae of life, such as hot tubs. Which brings us to Reagan's 1981 statement about inappropriate uses of the tax code.
He disliked government's using the code to conduct industrial policy, picking commercial winners and losers, which is a recipe for what is called "lemon socialism" -- tax subsidies for failing businesses that the market says should fail. Regarding the second part of Reagan's statement, any tax code is going to shape society. But he opposed manipulating the tax code to stigmatize this or that consumer preference. Which is what the code's anti-hot-tub provision does.
One wonders: Why did the social improvers who used the code to put the government, in its majesty, on record against hot tubs and tanning facilities not extend their list of disapproved choices? Their list looks morally lax.
Really stern social conservatives probably favor explicitly proscribing government assistance to lots of things, most of them somehow involving sex. Government could preen about being too moral to subsidize, with tax-preferred bonds, economic projects that include bookstores that sell Judy Blume novels, or hotels that offer in-room pornography. And wouldn't it be fun to find the words "lap dance" in the nation's tax code?
As strongly as social conservatives deplore commercialized sex, liberals deplore cigarettes, Big Macs, firearms, fur coats, SUVs, pornography not printed on recycled paper, pornographic movies produced by nonunion studios, holiday trees provocatively labeled "Christmas trees" and much more.
But do we really want to march down this road paved with moral pronouncements? When government uses subsidies to moralize, as with tax preferences for bonds that can be used to finance this but not that, government is speaking. It is expressing opinions about what is and is not wholesome. And once government starts venting such opinions, how does it stop?
Government could spare itself the stress of moralizing about so many things if it decided that the choices people make with their money is their, not its, business. And government could avoid having opinions about so many things if it would quit subsidizing so many things.
When, for example, the valuation and allocation of money through bonds is left to the market, government can be reticent. And reticent government sounds wonderful.