From: JJ
Sent: Sunday, September 18, 2016 11:49 PM
To: Walter Block
Subject: Why is this a bad idea?

Walter, First, I wanted to let you know that I just watched your speech from Mises U remembering Murray Rothbard. It was such a touching speech. I wish I’d been around in those days to meet him. I hope to meet you and Jeff Tucker and Tom Woods and Bob Murphy (although given the Tucker/Mises Inst. split, I’m sure it won’t happen all in the same room…). In any event, I hope to someday meet the four of you in person. You do such an amazing job of keeping the Rothbard fire burning, and I really appreciate it. Now to my question: I was just thinking about the mortgage interest tax deduction and wondered what would happen if there were tax deductions for all debt payments, not just interest, and not just on mortgage. It seems like this would be universally popular politically. It’d reduce government revenue (which is why I’m sure it’s never been seriously proposed by politicians…) and it would create some moral hazard (though not nearly the moral hazard the promise of bailouts creates). Are there other downsides? Has the idea been analyzed from an Austrian point of view as far as you know? JJ

Dear JJ: Thanks for your kind words. I think yours is an excellent idea. Our friends on the left will think of it as opening up other “loopholes” but by that they mean pretty much any income or wealth not taxed by government. I think the economic effects would be one, to misallocate resources toward all of those new areas that qualified for these new tax deductions, and away from all other areas of endeavor. And also, two, a very positive one, less revenue for the state, more for its rightful taxpaying owners. In my prudential judgment, the latter will heavily outweigh the former. This is akin to, say, legalizing drugs. First, this would have very positive effects in terms of promoting economic welfare, reducing gun deaths over turf, etc. However, it would also have the negative effect of placing more revenue into the voracious hands of government, since they will now be able to tax these substances. What has been the experience of states such as Colorado, regarding its happy legalization of marijuana. I think the proper libertarian view is to favor drug legalization DESPITE this negative fact. Similarly, I think the proper libertarian view is to favor drug as widespread tax deductions as possible DESPITE the negative fact of resource misallocation.

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