September 12th, 2008

Abundantly clear


Giving money and power to government is like giving whiskey and car keys to teenage boys. - P. J. O'Rourke

xinef was wondering where I stand on corporate tax rates. Most participants in that debate have already decided that higher or lower taxes are better and confine their research to seeking out data points they can hurl against the other side. I have no interest in hanging out in the No Man's Land of that WWI-style debate.

To me the tax rates are just a symptom of how much the government is constraining people's liberty. There have to be some constraints--human nature is abhorrent in a political vacuum--but they should be minimized so we can give individuals the widest scope for their personal choices. How much money the government takes from people is not always as important as how it takes it from them. All the money comes from people, whether you have an income tax, property tax, sales tax, import tariff, land tax, or taxes on groups of people (aka the corporate tax). Anything that is taxed will be discouraged as people turn to more cost-effective uses of their work or leisure.

The big danger is the government deciding to use tax policy to manipulate people into behaving a certain way. Now it's not just restricting liberty by reducing the resources they have for their choices but putting a thumb on the scales to force people toward one option. Sales taxes are applied to "bad" foods, not "good" ones. Owning a house gives an income tax deduction, renting doesn't. Corporations carefully distinguish between "research and development" and "proposals" to ensure they jump through the IRS's hoops.

I think we're at the point where the overhead in analyzing what people owe in taxes and the lost utility in making local decisions outweights the cost of the taxes themselves. We're a rich country, we can afford to give the government a lot of money. It's the time that comes out of everyone's life and the choices made at a legislature's whim that's the real cost.

There's many proposals for redoing the tax system. Flat tax, VAT, land tax, etc., could all be an improvement over the current system. What I'd want is to minimize the amount of worrying people do over how to deal with their taxes. Then let's fuss about what's the optimum rate for job growth.
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