Tax Reform Minutiae

Lost in the Health Care Debate and budget proposals in Washington are the minutiae of the tax proposals in Congress. In the various tax bills under discussion in Washington are issues such as the proposal to raise gasoline taxes to 40 cents a gallon. Also under discussion is a proposal to triple excise taxes on gun ammunition, and raise the beer tax; two items unlikely to affect liberals. There are proposals to increase enforcement of the tax code through more "aggressive activity" on the part of the IRS. Limiting charitable deductions is another policy under review. The list is a long and indeed tedious one. While most of the tax proposals and adjustments are not very remarkable in themselves, the cumulative effect on the economy will be felt. Taxes, no matter how obscure, always affect someone.

Interestingly, in Texas the Plano city council is discussing a proposal to grant tax breaks to Pizza Hut of America Inc. to encourage its relocation to their city in order to spur economic activity. Does Plano know something the federal government doesn't? Unlikely. It has long been conventional wisdom that decreasing taxes encourages economic activity and promotes desired behavior while increasing taxes discourages them. That is why the government is forever manipulating the tax code. They know that raising taxes on cigarettes, gasoline, or anything else, discourages use and consumption, while giving tax breaks and subsidies encourages it.

The debate over income tax is a little trickier. People will try to earn a living whatever the tax rates. Taxing income does little to discourage work. What it does do is create an industry devoted to helping people avoid paying taxes and encourages tax fraud.

In regard to the tobacco industry, if the government is ever able to tax it out of existence, how do they plan on replacing the lost revenue? No doubt they will have to raise taxes on something else.