Summary: “The Return of the Tax Credit”

“The Return of the Tax Credit” is a brief single-author political-economic polemic. Its immediate scope is narrow—the tax-credit tactic, the 1986 Tax Reform Act, and the 1988 child-care subsidy debate—but Rothbard uses that setting to restate a larger libertarian argument: tax credits are not subsidies in the same sense as government spending, because they allow people to retain and direct some of their own money. The essay moves from satire, to fiscal doctrine, to a strategic plea for multiplying “loopholes.”

Modern liberalism works in a simple but effective manner: liberals Find Problems.

Rothbard’s opening defines modern liberalism as a machine for converting ordinary scarcity into public emergency. He does not deny that unmet wants exist; rather, he argues that liberal politics treats every want as a state-solvable crisis. The comic examples—hangnails, BMWs, beri-beri—make a serious conceptual point: in a world of finite resources, not every hardship can justify public finance.

At the heart of these problems is the fact that we do not live in the Garden of Eden: that there is a scarcity of resources available for us to achieve all of our desired goals.

The beri-beri fable supplies the essay’s model of bureaucratic ratcheting. Once a problem is federally funded, failure no longer counts against the program; it becomes evidence that the problem was larger than expected and needs more money, more experts, and more institutional permanence.

Instead, the liberal draws the lesson that beri-beri is even more of a menace than he had thought, and that there must be a prompt across-the-board tripling of federal funding.

Against this pattern, Rothbard presents the tax credit as a conservative “end-run.” Conservatives, unwilling to say that some crises are outside the government’s proper sphere, accept the crisis rhetoric but propose private spending supported by tax credits. Rothbard regards this as philosophically incomplete, since the state still dictates favored uses, but preferable to taxation and direct expenditure.

In short, the social crisis would be solved by allowing people to keep more of their own money, provided they spend it on: aiding hangnail research, BMWs, or combating beri-beri.

The essay’s sharpest distinction is between a subsidy and a credit. A subsidy gives someone money taken from others; a credit permits the earner to keep money otherwise taxed away. Rothbard’s complaint about post-1986 conservatives is that they adopted the liberal and technocratic language of “loopholes,” treating retained income as though it were public property improperly withheld.

Conservatives joined liberals in scorning the tax credit as a "subsidy" (as if allowing people to spend their own money is the same thing as giving them some of other people's money!) and in rejecting the tax credit approach as a "loophole," a breach in the noble ideal of a monolithic uniformity of taxation.

The Tax Reform Act of 1986 is therefore, for Rothbard, not a triumph of fairness but a surrender to uniform fiscal pain. Its promised simplicity failed, while its attack on credits weakened one of the few practical devices for limiting state extraction. The final policy case is child care: Rothbard portrays the new “crisis” as a demand that less affluent one-earner households subsidize upper-middle-class two-earner families, while conservatives avoid the more radical answers of nonintervention or deregulation.

The relevance of the essay lies in its inversion of reform vocabulary. “Fairness” becomes imposed uniformity; “loophole” becomes refuge; “subsidy” becomes a misleading label when applied to untaken income. Rothbard’s closing strategic move is not to perfect the tax system but to hollow it out by expanding exemptions until the revenue state is structurally weakened.

And then we can revive the lost tactic, not of “closing the loopholes,” but of ever-widening them, opening them so widely for all indeed, that everyone will be able to drive a Mack truck through them, until that wondrous day when the entire federal revenue system will be one gigantic loophole.