Tax Reform and Mobilized Interests

One of the big rumors is that this year Obama plans to reform the tax code, and that this reform will include doing away with many “loopholes,” subsidies, and write-off opportunities. This is a great opportunity to demonstrate what exactly a “mobilized interest” is an how, even if that interest group only includes a tiny number of people, that group can easily get what it wants even if it means defying the will of the majority on an issue like, say, closing tax “loopholes.”

Consider by way of example the tax write-off given to pharmaceutical companies for the purchase of many research necessities. Is there any breed of organization Americans are prepared to inflict taxation upon so vociferously as the pharmaceutical company? Competitors for consumer ire are few and far between. The difference between the average American’s relation to the taxation of pharmaceutical firms (or lack thereof) and that of the pharmaceutical companies themselves lies in the fact that you probably didn’t know that this particular tax write-off existed – while pharmaceutical companies have teams of “advocates” dedicated to monitoring just such legislation.

Due to their material wealth and their “personal” interest in the taxation of pharmaceutical firms, pharmaceutical firms are in a state of semi-permanent “mobilization” over this sort of tax write-off. Legal advocates meet with regulators and members of Congress on a daily basis specifically on the issue of pharmaceutical taxation. The average American would probably be happy to hear this write-off going extinct, but the average American isn’t explicitly mobilized on this issue. Legislators receive what is called a weak or uncertain signal from American voters on which tax write-offs to pursue, while they receive an absolute unambiguous signal from lobbyists on which tax write-offs to keep.

Born out in aggregate, this is why we should rarely expect to see tax write-offs disappear, and while tax reform is extraordinarily difficult. Most people agree that increasing tax revenue as a means of fighting the deficit is important. Virtually no consensus exists on what tax increases to pursue – and those facing the tax increase are most likely to speak out the most loudly.


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