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What's the point of income taxes?


As I prepare tax returns for businesses and individuals, I am increasingly aware of the dual purpose of the our tax code. We're all aware of the primary purpose: to bring money in to the US Treasury. The secondary purpose (some might argue that it's the primary purpose) is to control behavior. "That's ridiculous. The government isn't trying to control our behavior," you say. Consider the following recent examples: 1.) Cash for Clunkers. This program put many people into vehicles that they couldn't afford and took thousands of good cars off the road. Remember, the used cars had to be destroyed and couldn't be sold to people of lesser means who weren't able to purchase a new car. Behavior manipulation: we had to help poorly run companies (some of which the government had taken over) to attempt to make a profit. 2.) First-time home buyer tax credit. "Now what could be worng with this," you ask? Nothing, if you already intended to purchase a home. But if you weren't planning on buying and used this as an excuse, you fell prey to behavior manipulation. The intent was to stimulate the housing market by taking money from some taxpayers and giving it to others. Taxpayers should be deciding to purchase a home when they are ready to, not when they are persuaded to. I wonder what percentage of tax credit recipients are headed towards or in the midst of foreclosure proceedings? 3.) Tax Credit for Hybrid and Alternative Fuel Vehicles. This one is from 2005 and was an incentive for the purchase of certain new vehicles, but not all new vehicles and not any used vehicles. Surely I don't need to explain how manipulative this one was. The list goes on: it's often advantageous to not be married, to have no more than three kids, to not be self-employed, to lose money at a casino, etc., etc., etc. Why can't we be encouraged to be productive, profitable, prosperous? If we were encouraged to do these things, then a lower tax rate could produce greater income tax receipts for the federal government (10% of $100,000 is more than 15% of $50,000) Increasingly, it seems that the purpose of the tax code is to make us dependent upon or partial towards the government. But ultimately, the tax burden will continue to grow until spending in Washington DC is brought under control. Unless that happens, we will continue to have escalating taxes that will continue to try to mold our behavior to whatever shape the governement desires.



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