Wednesday, October 3, 2007

Tax Credits for Everybody

Political power is primarily the opportunity to redistribute the property of others, and the tax code is the primary political tool. That's why politicians of both major parties love to tinker with the tax code: it's their universal wrench.

There are two major problems that come from using the tax code to solve political problems. First, every change in the code makes it more complex. Like a computer program that contains millions of lines of code, a continuously amended tax code eventually makes it impossible to anticipate how a change in one place might affect the entire program. As the system grows more complex, the possibility of contradictory logic grows as well. Eventually, a growing list complex and contradictory rules will result in a total system failure.

The second problem with using the tax code to solve political or social problems is that few of the intended beneficiaries of any tax policy have the time and expertise to find and use the tax policy directed their way. This is another problem related to complexity. In order to find the benefits in a complex system of rules, you need an intimate understanding of the rules or you need to hire a competent guide. Most taxpayers have neither.

More on the problem with tax credits in Forbes.

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