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Social Engineering and Taxes

Yaron Brook has an excellent op-ed on Life and Taxes in Forbes:

Your taxes are overdue, if you’re just reading this now. But the fact is that every day is April 15 for Jane and John Smith, America’s most tax-savvy couple.


They awaken in their highly mortgaged house (interest deduction), make breakfast for their adopted child (tax credit and exemption), then drive their hybrid cars (more tax credits) to work. John, at his office, signs a contract for solar energy panels (tax credit), but he turns down a promotion that would launch the couple into a higher tax bracket. Meanwhile, across town, Jane signs an application to get historic preservation status (tax credits) for her office building.


Back home that evening, the Smiths write a few tax-deductible checks to charities and then discuss where to put their savings–into a tax-free retirement account, or a start-up business whose income would be taxed at the highest marginal rate? Just before sleep, their thoughts drift to energy-efficient appliance credits and carbon-emission taxes.


Since it’s an election year, the presidential candidates are busy figuring ways to add still more carrots to the tax code–so that the Smiths will become still more entangled in a tax policy that fears and distrusts the goals that individuals would select if guided only by rational self-interest.

Tax policy works by attaching financial incentives to a long list of values deemed morally worthy. If you want to maximize your wealth come tax time–and who doesn’t?–you must look at the world through tax-colored glasses, “voluntarily” adjusting your behavior to suit social norms and thereby qualifying for tax breaks. In this way, the social engineers of tax policy preserve the impression that you’re exercising free choice, while they’re actually dispensing with your reason and your judgment.


As an example, consider the choice between buying and renting a home. In a free market, a dollar paid in rent is equivalent to a dollar paid for mortgage interest. But when the federal government offers a mortgage interest deduction–based on some alleged need for an “ownership society”–then each purchase dollar saves a few pennies in tax that a rental dollar does not. So the path to wealth maximization suddenly veers away from renting and toward home ownership.


Over the past century, such social engineering has inflated the nation’s tax laws to an estimated 66,000 pages of statutes, regulations and rulings. […]


Read the rest here.

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