Joe Trotter notes that Senator Durbin is now proposing a new tax on businesses that get government contracts, in order to fund political campaigns. The ideologues wedded to tax financed campaigns never cease to come up with Rube Goldberg type schemes to hide the fact that they are raising taxes to fund politicians’ campaigns, something the voters don’t seem to want, but this strikes me as a particularly dumb idea.
What is almost certain is that Senator Durbin’s new “pay to play” scheme will simply lead to bids on government contracts being higher by the amount of the tax. Durbin’s scheme simply shifts the cost structure for all potential bidders higher, by an equal amount. The firms won’t eat the tax to gain a competitive advantage – if they could do that, they’d already be cutting their bids to gain the same competitive advantage over their counterparts.
Let’s suppose a tax rate of 5%. So, before Durbin bill: Government spends $10 million on contract, 0 for tax financing of campaigns, and gets 0 tax revenue from the contract.
After Durbin bill: Government spends $10.5 million on contract and $500K on financing of campaigns, and gets $500 K tax revenue. The government has just had to borrow another $500K – essentially to fund campaigns.
Great idea – more deficit spending to fund political campaigns, but, with the tax collection function involved, with an added drag on the economy to boot.
