Detroit and New York offer us contemporary validation of Ronald Reagan’s famous description of how governments view economic policy: If it moves, tax it; if it keeps moving, regulate it; and if it stops moving, subsidize it.
The American auto industry has stopped moving. The Bush administration has finally decided to give the three large car makers in Detroit a combined $17.4 billion of short-term credit. They have three months to shape up or ship out, unless the Obama administration offers another lifeline.
Now contrast this with what is being done in New York. The city’s finances are in a mess because of the mess at Wall Street. Its government has decided to impose a new tax on digital downloads, which was a tax-free activity till now. This has been called the iPod tax.
The subsidy to Detroit and the new tax in New York show that a subsidy here has to be financed by a tax there.
As our own government gets busy with bailouts, we should worry about future taxes that will be needed to fund current subsidies.