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Saturday, October 22, 2011

Taxes and behavior

The "Up for Discussion" section of the Zocalo Public Square addresses the topic - "Taxes Hurt So Good." This ties to a presentation on 10/19/11 by Robert Frank, author of The Darwin Economy: Liberty, Competition, and the Common Good. Zócalo asked four professors (including me) about taxes and behavior. Zócalo's lead in ...

"Life has only one certainty other than death: taxes. And taxes may be less popular than death in 21st century America. Much of today’s politics is centered on opposition to taxes.

So what is the point of taxes? More than just securing money for the government. Taxes are often meant to promote good behavior. But are taxes an effective way of getting people to do something they otherwise would not do? And should we be using taxes this way? In advance of economist Robert H. Frank’s visit to Zócalo to ask, “Did Darwin Create Modern Economics?”, we checked in with some experts in tax policies about their thoughts."

That is a good question! As I noted in a blog post about today being the 25th anniversary of the Tax Reform Act of 1986, over 150 new provisions have been added to the federal tax law since 1986. That number doesn't represent modifications to existing rules, but new provisions. Many of them were intended to affect behavior in some way.

Psychology Professor Timothy Hackenberg of Reed College notes: "We have always had rules and regulations that temper unbridled self-interest. The real question is not whether to intervene, but rather, when we do so, whether we should continue to rely on intuition and conventional wisdom (as in the past) or use what is known about human behavior from a modern scientific perspective."

Take a look - here.

1 comment:

Steven J Fromm said...

This question clearly cannot be answered. Take tax shelter rules. In the early 1980 this was the go-go industry where a whole industry was geared toward generating tax breaks for high earning taxpayers. There were promoters, real estate, equipment leasing and other syndications to just generate large tax deductions. Taxpayers used these vehicles to zero out taxes. Later they were audited and ended up having the losses or credits disallowed and paying taxes and penalties. Then the passive loss rules were implemented and the industry was dead. This now seems like a useless exercise to reduce taxes. The point is that the Congress first created this mess with ill conceived laws and then taxpayers were done in by greed and tax strategies. Finally, the alternative minimum tax was adopted to combat this problem, but now it is hitting middle class taxpayers. This was not the intent nor the design of the AMT, yet revenue is too great to abolish it. The passive loss limitations protect against tax shelters and the AMT is not really needed at this point.
Bottom Line: Congress has no clue of how all this works and is dominated by special interests, pork barrel and large deficits. As a result the Internal Revenue Code will remain a complete mess.