I have finished up my annual exercise in filing tax forms, which gives me an opportunity to ponder how this task affects our lives. The obvious answer to this is the budget cycle, in which our federal and state leaders decide how to pay for the services we want, collect the revenue and then appropriate the money to various programs. Sounds simple enought, like making a pie. The problem is that they committ to a larger pie than they have ingredients for, so they go to the neighbors to borrow some eggs, milk, flour, apples, butter, spices, etc. Some day the neighbors are going to want their favors repaid.
I think a more subtle affect the the tax system is how politician can use taxes to either discourage or encourage certain behaviors. Various ways of generating income can be discouraged by how the laws define income. That is that long list of items beyond what is on our W-2 forms: interest, dividends, capitol gains, farm income, retirement income, alimony, unemployment income, gambling winnings, and several things I have never figured out what they are. Some of these are taxed at different rates from other, encouraging earning money certain ways. For most of us, we do not make our income this way anyway, or would need an accountant to know how to take advantage of those options.
Then there is the list of deductions. This is where the government attempts to encourage certain behaviors by reducing one’s income and thereby taxes. Starting with dependents, you can expect to get a write off for having more children or other people relying on you to care for them. Next with the Schedule A, you can write off interest on home loans, medical expenses, charitable contributions, some work expenses, etc. With the new emphasis on going green, you can get credits for purchasing high gas milage cars and renewable energy systems (solar hot water heater, photovoltaic and wind electric generators, etc.). Again, the list of items for which someone can reduce their income baffles me, especially when the forms get into mining credits and equipment depreciation.
I can understand the idea that people generate income from many places other than a paycheck. I am a little skeptical about why the government should reward behaviors ranging from having (more) children to buying a (bigger) home loan to donating money to causes. To me this pushes us to the edge of the cliff of legislating morality. People should make decisions about family size, house size, and helping each other based on their beliefs and resources, without consideration of whether they would get a bigger return (or smaller tax bill) by April 15th. To me legislating morality is an affront to liberty. Anyway, those most likely to know how to take advantage of all those deductions are probably those with the most income to start with.
When I completed my graduate degree at NYU, I was required to write an essay to demonstrate my ability to communicate. To yank this liberal institution’s chain, I wrote an essay on abolishing the National Endowment for the Arts in order to promote artistic freedom. That did not go over too well either, though they could not argue about my ability to write.
Moorefield Examiner, March 30, 2011