Among the most important and lasting insights of economist Thomas Sowell is the observation that “there are no solutions—there are only tradeoffs.” Sowell’s axiom is intended as a corrective to the idea that there is some achievable ideal that we are only slightly missing, but with the right idea or the right leader, we can correct our mistake and return to the ideal.
Unfortunately, the truth is that we are imperfect creatures in an imperfect universe, and therefore our knowledge is incomplete, our problems are poorly understood, our leaders are imperfect, as are We the People ourselves. So, no leader, no election outcome, no law and no government program is going to be a solution. Everything is a tradeoff.
This especially seems to apply to legislation. No legislation is perfect, and all legislation involves consensus based on compromise and tradeoffs. In most circumstances, one political faction cannot simply force its will on the country—to get some of what the faction wants, it must be willing to give the other side some of what THEY want. And we’re currently faced with a perfect example.
House Ways and Means Chairman Jason Smith has moved the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) out of committee on an overwhelming 40-3 majority. The proposed legislation would extend tax provisions that are prized by business and that we believe contribute to increased economic growth.
But—and here comes the tradeoff — it also includes provisions that Democrats prize, particularly an increase and extension of the refundable child tax credit that was implemented as part of Covid-19 relief. “Refundable” means families get the tax credit even if they have no federal income tax liability—i.e., they’re receiving money from the government. It’s welfare through the tax code.
So, tradeoffs.
The Wall Street Journal has editorialized against the legislation, judging that entrenching the child tax credit in law is more harmful than allowing the business tax credits to expire. You may be forgiven for being surprised to see the Journal editorializing against business tax cuts. On the other hand, Americans for Tax Reform supports the legislation because it is an overall reduction in taxes.
The full Sowell quote goes like this:
“There are no solutions, there are only trade-offs; and you try to get the best trade-off you can get, that’s all you can hope for.”
Is trading an expanded and extended child tax credit for extensions of business tax credits “the best trade-off you can get”? That is the task of the legislature, which in our system is where tradeoffs take place and consensus is formed. And which is accountable to the people.