They’re Not Loopholes. They’re Jump Ropes.

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July 13, 2015 by Liberty

Whenever someone mentions the old classic, “we need to close the loopholes,” I have to force myself to hide the grin.

“Loopholes” are an oft-assailed enemy of the average American. People talk about loopholes as if they’re a problem to be solved. Politicians love to paint loopholes as the enemy. They’ll attack the loopholes for existing. Eventually, they might even remove the loopholes. Of course, with every loophole they remove they happen to leave a new trail of loopholes in their wake.

This should not be surprising though. In fact, it would be surprising if this were not the case. Loopholes are a fundamental part of any rule book.

The Anatomy of A Loophole

Loopholes exist in the basic concept of regulation.

Look at fighting sports as an example of this. In fighting sports, they tend to split competitors by weight classes. They do this, obviously, to prevent 300lb beasts from pounding down 150lb guys. That’s not exactly what you’d consider a good fight as a spectator. So the league prevents the fights and uses weight classes.

One weight class may be 130-150 lbs. Anyone between those two weights would be allowed to compete. Of course that decision of the league has consequences because competitors don’t just ignore the new rules implemented. They look for and use loopholes.

With that new rule, they’d virtually never have any competitors around 140 or less. In fact, the day to day weight of the average competitor in that weight class would be well over 150 lbs because they only have to weigh 150 pounds during the weigh in. That means the competitors that are 135 pounds will, instead of fighting in their weight class, will diet and/or dehydrate before the weigh in. Then, before the fight, they’ll rehydrate and try to put as much of that weight back on as possible. Suddenly, this regulation has added a significant (and dangerous) dynamic into the competition.

No matter how you change that rule, there will always be a loophole.

Let’s say the league does the weigh in minutes before the fight to prevent excessive weight gain directly after the weigh in. The competitors would adjust. Of course, they would just rehydrate right before the fight. Considering how dehydrated they’d be, it might even make it a more boring fight. On top of that, they’d find more creative ways to game that system.

Let’s say the league does a day to day weigh in and the competitor has to stay under 150 every day for 6 months before the fights. Of course, that would be a ridiculous expense for the league to verify but assuming they chose to do it, the competitors would still adjust. Suddenly they’d take a dump, go pee, not drink water before, and use all kinds of other tricks to stay light for the weigh in.

“Loopholes” are the natural consequence of laws.

The politicians, even if they were perfectly ethical and intelligent, couldn’t solve this problem. When you change the tax laws, people will change their behavior. If the government raised the corporate income tax then people would move their corporations or use some other loophole in the millions of pages of laws.

The Funny Truth About Taxation

Taxation, throughout history, typically, (but not always) started as a means for the government to get income from people with a ton of money. Now, you could argue it was always a ruse on the poor but superficially, taxes are touted as a means to take back money from the selfish rich people.

It actually makes a lot of sense for a small government to tax very rich individuals and not the poor. A government, early in it’s history, gets most of its power from it’s followers (citizens that actually support them.) The government essentially has the power of violence of the crowd but it doesn’t have all that much economic power.

The government then touts the story of “taking from the rich” and “giving to the poor,” to convince its followers to support a taxation endeavor. Of course, if the government said, “EQUAL TAX ON EVERYONE!” they’d get laughed out of the government because people don’t actually want to be taxed themselves. The company, with the fear of the government’s followers will comply with excess taxation.

At that time, companies are forced to change their behavior. Since they can’t avoid the expense of government, they focus on how to use the government to support their profits in the most effective way possible. (You could probably argue government was already infiltrated by “corporations” and taxation was designed to help the rich from the get go but essentially it’s the same problem.)

Within no time at all, those taxes that were intended to take from the rich are levied on the poor. Since government has more economic power, they can now get away with it. As much of that money that went to the poor is soon getting sent right back to the rich. As much as we like to think it’s possible for governments to control businesses, it’s just not possible. The political process is heavily dependent (in a democracy or any government for that matter) on people with money. The businesses are always going to have the money to influence politics. (If not the corporation then the people involved in the corporation.)

So, assuming all politicians have good intentions, we’re screwed. Assuming every once in a while government has a bad apple, we’re royally screwed.

What This Means To You

The average American is a 130 lb boxer fighting in the same weight class as a 150 lb boxer.

There is nothing wrong with that morally. If you want to compete versus people significantly better off than you, then good for you. Perhaps it will make you better in the long run but sure as hell, don’t expect to win (or bet too much on it.) In some ways, who cares. If you’re not looking to win then there is essentially no reason you should be changing your behavior.

Of course, if you’re looking to compete, you have to learn to change your behavior to be competitive within the rule structure. They’re not so much loopholes as jump ropes. You have to keep on moving to make sure you keep up with them as they bounce around. Occasionally, you might get stuck in them, (and pay fine or something) but that’s the nature of competing to win.

Using loopholes is not unethical, it’s the nature of the game of politics. Whether you like it or not, you’re forced into playing the game of politics. You have to pay the dues. You are forced to follow the rules. You have every right to play the same rules as anyone else does.

Don’t want to not play anyway? I can’t blame you. I’ve never been much of a fan of jump ropes. Just know if you wanted, you could.

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