It's bad economic policy to allow politicians to direct economic activity via tax breaks because loopholes often encourage people to spend money in less beneficial and economically productive ways than would otherwise occur. It's a process that also favors the well-connected over working families.
We saw that in Oklahoma with two incentive programs for small business and rural venture capital. In 2006, citizens learned those programs were allowing investors to obtain $2 in state tax credits for every $1 invested; the investors were guaranteed a profit even if the business failed. Those programs were effectively funneling hard-earned income from the pockets of Oklahoma's working families to the accounts of “investors” whose expertise was tax avoidance more than job creation.
Obama's tax-hike designs will likely have the same outcome, giving us a higher-rate tax code doing little to reduce deficits or debt, but empowering politicians to reward the politically connected in ways that distort the free market and impede economic growth.
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