Monday, April 15, 2013

The absurdities of the income tax

Being a libertarian, I agree that all taxation is theft. I hope that someday the human race “progresses” to the point where coercion, even to purchase “protection” from the official mafia, is held in contempt. But of all of the possible ways to rob us, the income tax is by far the most insidious. Consider some of its absurd stepchildren.

There is some finite cost to defending the borders, running a court system, and administering “justice.” For those who believe that government should do more (like conservatives and liberals), there is likewise a finite cost for building roads, running healthcare programs and taking care of the poor. That cost doesn’t change significantly overnight or even from year to year.

But the income tax doesn’t reflect this. If productivity and therefore incomes double due to some new technology, the amount of money owed to the government doubles, even though there are less poor people, more private sector “infrastructure” projects and less crime (crime goes up during recessions, down during booms). The more productive Americans are, the bigger and more oppressive a government they get.

Talk about a bad incentive.

It also discourages productivity in general and encourages wasteful consumption. Anyone who has had any business success knows that at a certain point, additional income costs you money. You would rather stop producing more than allow the additional income to put you at the low end of a higher tax bracket. So you produce less to keep more.

The flipside of that is frivolous consumption. If you’re showing too much profit near the end of the fiscal year, you look for things to buy that you don’t really need so that you can write them off as business expenses. You’d rather purchase something that you’ll get some use out of rather than give that money to the government. If not for the income tax, you might have reinvested that money in producing even more goods or services and making society richer.

This is in contrast to a consumption tax, which although still a theft, at least provides relatively less perverse incentives. To the extent that it does influence behavior, a consumption tax encourages you to forego unnecessary consumption and, by omission, to produce more, as it does not tax productivity.

Full article: http://communities.w … urdities-income-tax/



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