We have a big problem with how we deal with taxes in America. The first serious problem with our tax code and regulations is it’s length and complexity. There are 1 million words in just our tax statutes; the novel War and Peace has only 560,000 words in comparison. The tax regulations and statutes combined has over 4 million words!
The tax code is constantly changing. A study showed that 5,000 changes happened from the year 2001 to the year 2010. That is an average of about 1 change per day. Because our tax policy is so long and complicated, and because of all the changes that happen in it, the door is open wide for rigging and crony capitalism. It also leads to confusion and impedes the ability of the people to do their taxes to the best of their ability. Taxes are so complicated, that whole government agencies/companies are devoted to figuring out the meaning of tax regulations and helping people file their taxes.
All of this is costing America money. We have the cost of the IRS and the cost of other government agencies devoted to the interpretation of our tax regulations. Also, there is the cost of lobbying for certain tax loopholes.
Another thing that happens when our taxes become long and complex, is unintended consequences. This happens when our government thinks that it is doing something beneficial for our country, but it causes drastic results where it never was thought of. An example of this would be the prohibition of liquor and alcohol in the early 1920s. The government decided that the prohibition of alcohol would lead to a more moral society. What happened? It actually led to a less moral society, because alcohol became high on the list of smuggled goods. Gangs and Mafias sprung up that otherwise weren’t there before the prohibition of alcohol. To make it easier to transport, liquor was actually brewed stronger than before and the effect was disastrous. The USA didn’t think of this unintended consequence.
Another situation that caused unintended consequences was the thinking that putting more heavy taxes on the wealthy would be a great thing. In reality, taxing wealth decreases the incentive to make wealth. In 1999, the federal government decided to put a 10% luxury tax on all luxury items. (Things that cost over $1,000 dollars.) In the Yacht industry, sales dropped dramatically by over 50% because the rich stopped buying. They took their business elsewhere. Because of the loss of customers, the industry had to give up many jobs. Their was a net loss of 7,000 jobs in the yacht industry. To make up for their lost jobs, the federal government provided them with uninployment benefits. The federal government didn’t gain any money from the luxury tax; in fact, they lost money.
One of the saddest example of unintended consequences however, goes back to the first few years of Yellowstone national Park. The farmers surrounding the area didn’t like the wolves that roamed the woods in the park, and the many tourists that came in admitted that they were a little intimidated as well. So the federal government went to work and exterminated all the wolves. Well, what happened? The Elk that lived in the park flourished dramatically because the wolves were gone, but they began to strip away all the vegetation. River banks were stripped bare and places that used to flourish dried up. The Elk also began to roam in places where they had never gone before because of the threat of wolves. Something else happened that wasn’t foreseen. The Beavers that depended on the trees and the vegetation from river banks died out because of the lack of it. Soon all the Beavers were gone from Yellowstone National Park.
We really need to think about unintended consequences before we jump into any hasty policy.
How should we work to get or tax policy into a better place? We could start by lowering the marginal tax rates and simplifying our tax regulations. We would then have a much better and healthier economy.
Thank you for reading. 🙂