Tax season is now behind us. But it’s not. Yaron Brook of the Ayn Rand Institute points out in an article for Forbes that, with 66,000 pages of tax code controlling our lives, tax day is every day.
After offering numerous examples of the way that the tax code skews incentives, Brook summarizes:
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.
Brook then briefly describes the proper alternative:
Government’s job is not to dictate your values but to protect them. In a free country, you choose values and then use your own money as a tool to achieve them. But a value-rigged tax policy reverses this cause and effect–it uses your money against you, bribing you with tax breaks that let you keep some of your earnings in exchange for abandoning your preferred values.
Brook’s entire article is worth perusal. Brook’s topic is delimited, so he does not touch upon all of the misincentives of the tax code. A huge problem is that high taxes reduce the incentive to produce. Taxes also reduce the division of labor. Work you do for money is taxed, while work you do for yourself is not taxed. Thus, rather than spend their time working in their field of speciality, many people divert some of their time to doing things they don’t especially enjoy and aren’t particularly good at, such as fixing the car or painting the house. But these are just two more examples of the way that taxes distort incentives. The combined effects are massive.