All the way with Hazlitt - as far as he goes

The rest of that new value will be a net windfall to the property owners.

Hazlitt then turns to the Norris Dam (a New Deal project) and rubbishes the claim that "private capital could not have built it", because it was indeed built by private capital "expropriated in taxes... taken from people all over the country", causing the loss of "the private power plants, the private homes, the typewriters and television sets" that the expropriated funds might otherwise have bought. Thus the people of one district got richer at the expense of the rest of the country.

But it didn't have to be done that way. The earlier Don Pedro dam (completed 1923) was built by two Californian irrigation districts and financed entirely by local land-value taxes. The affected land owners were fiercely in favour of it because they knew the increase in their land values would outweigh the taxes. Even if the land-value taxes had been imposed by a higher level of government, the financing of the dam would still have been local, because only the local land values would have been affected by it. Private capital did not build it, because the uplift in land values that paid for it would not have occurred without it. Private agencies could not have organized it, because they would have had no way of tapping the uplifts in land values.

With an eye to current debates, I should conclude by praising Hazlitt for an insight that his latter-day admirers have ignored.

In explaining why "Taxes Discourage Production" (chapter 5), he says:

"When a corporation loses a hundred cents of every dollar it loses, and is permitted to keep only fifty-two cents of every dollar it gains, and when it cannot adequately offset its years of losses against its years of gains, its policies are affected." If individual investors "lose the whole dollar when they lose, but can keep only a fraction of it when they win," they are less likely to take risks.

The "World War II excess-profits tax", which Hazlitt condemns in chapter 22, was similarly one-sided.

If that's the problem, the obvious solution is to allow the tax bill to be negative when profit is negative. A cash-flow tax with full loss offset, also known as a Brown tax, does precisely that. Because a Brown tax reduces all cash flows by the same proportion, is doesn't affect the internal rate of return (IRR) of a series of cash flows and therefore doesn't distort investment decisions.

If credits for losses, instead of being immediately refunded, are carried forward at an "uplift rate" (interest rate) reflecting the risk that they will not be redeemed, then the total present value, hence the IRR, will be unchanged (unless redemptions of credits are incorrectly discounted at the target IRR instead of a rate reflecting the risk of non-redemption). The appropriate uplift rate obviously depends on the extent to which carried-forward credits are transferable, tradable or refundable.

Taxes of the latter sort have been proposed and even legislated. They have names like "PRRT", "RSPT" and "MRRT"! By Hazlitt's logic, the political Right should welcome such taxes as a means of reducing corporate income tax. But it conspicuously does the opposite -- for example by arguing that the uplift rate is not a sufficient return (the fallacy of the wrong discounting rate).

When it is suggested that a modified Brown tax should be used to eliminate corporate income tax altogether, the Right gets even more apoplectic, complaining that the new system would be distorted in favour of less profitable companies, when in fact the present one is distorted the other way because it increases the return needed to make an investment viable.

Thus Hazlitt's professed admirers have become leading peddlers of the sorts of fallacies that he decried.