When a removal of uncertainty would cause too much uncertainty

Businesses and wealthy individuals have gotten used to using “uncertainty” to mean “higher taxes on me.” But when taxes are to increase precisely because uncertainty is removed, the label gets risible.

In an L.A. Times story today on Jerry Brown’s tax and spending proposals, a business reporter writes:

Brown also is going after a third business benefit. He wants to raise $1 billion by ending a corporate tax break approved by state lawmakers in early 2009. The legislation, which took effect this month, allows multistate and multinational corporations that operate in California to choose each year between two methods of calculating their state income taxes, whichever results in the lower payment.

Instead, Brown wants to require that all companies pay taxes based solely on their sales in California and not on a formula involving in-state sales, real estate holdings and payroll size.

Some business and trade organizations that successfully defeated a fall initiative to repeal the corporate income tax break criticized Brown’s plan. A change in tax policy would create uncertainty at a time of continuing national economic weakness, they said.

Now, I know that Frank Luntz has successfully substituted “uncertainty” as the preferred American English term for “higher taxes on wealthy individuals and businesses.”  But this reduces the practice to absurdity.  Instead of calculating their taxes twice and paying the state whichever number is lower—the whole point being that this isn’t known in advance—businesses will be asked to calculate their taxes just once, on a single schedule.  Saying that the result would be to “create uncertainty” makes as much sense as when a conservative news service unwittingly renamed runner Tyson Gay as “Tyson Homosexual.”

Author: Andrew Sabl

Andrew Sabl, a political theorist, is Associate Professor of Political Science at the University of Toronto. He is the author of Ruling Passions: Political Offices and Democratic Ethics and Hume’s Politics: Coordination and Crisis in the History of England, both from Princeton University Press. His research interests include political ethics, liberal and democratic theory, toleration, the work of David Hume, and the realist school of contemporary political thought. He is currently finishing a book for Harvard University Press titled The Uses of Hypocrisy: An Essay on Toleration. He divides his time between Toronto and Brooklyn.

9 thoughts on “When a removal of uncertainty would cause too much uncertainty”

  1. I love higher taxes on myself, and even higher taxes on corporations. But even Satan speaks truth on occasion. Changes in the tax code generate uncertainty, even desirable changes. A tax code that needs tinkering with all the time is not conducive to long-term planning. However, stability is not the only desideratum in taxation. The CA business interests tacitly acknowledged this when they changed the tax law in the first place.

    So I wouldn't accuse the CA business interests of irrationality. Their crime, instead, is that of hypocrisy.

  2. That changes in the tax code generate uncertainty might be true as a general proposition; I can at least see its logic. But I can't see how it applies in the current case since the status quo consists of a rolling change *every* year: the business doesn't know each year whether it will end up paying under one tax scheme or another.

  3. The whole "taxes causing business uncertainty" mantra seems to be one of the new talking points for the designated journalists, and for the well to do as they make their rounds at the country club and cocktail parties. Of course, drilling down a bit further, the uncertainty involves things such as whether to invest, whether to hire and the like. And that uncertainty, is at its core, one about demand both short and long term.

    In our current environment, the "starve the beast" effects of plummeting state revenues is unfortunately creating a pretty near certainty that any of the stimulus effects of the tax cuts and unemployment benefit extensions will be wiped out by cuts. Reducing the uncertainty means enacting serious and likely medium term stimulus directed towards things which will do good in the long term.

    So, at the end of the day, it isn't uncertainty holding businesses back, but rather a something of a certainty that nothing currently happening is going to restore demand on a sustainable basis.

  4. "the business doesn’t know each year whether it will end up paying under one tax scheme or another."

    But the reason they don't know, is that THEY get to "chose" which scheme they pay under, depending on which costs them less. Having a choice isn't the sort of 'uncertainty' that businesses fear. It's the exact opposite of uncertainty, "control".

    What generates uncertainty any time the law is changed, is the prospect that the changes will keep coming. But I think in this case they don't have much of an argument. This isn't a matter of uncertainty, what they object to is the near certainty that this is going to cost them more money.

  5. I've never understood the usage. I'm inclined to agree it means exactly what Andrew is saying. During the past year or so that I've been noticing it being attributed to the "business community", especially in the context of worrying about some policy or another, I'd sure love a reporter to actually ask what the hell they're talking about.

    Ironic, I suppose.

  6. Seriously?

    Change generates uncertainty?

    Uncertainly means "we don't know what's going to happen". We just told them what's going to happen. There is no uncertainty involved in the new tax rules.

    The only possible uncertainty is whether the corporation will get to keep short-changing the society that supports them. That uncertainty depends on their deviousness and scruples (or lack thereof).

  7. Change generates uncertainty, in general, because once you start changing something, people become less confident that you're not going to change it again. But I agree, this was not about uncertainty, it was about the certainty that they'd be paying more.

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