Tax Laws Cripple Business


Dan Mitchell, a small-government advocate, writes about how the new tax codes that went into effect thanks to Obamacare is turning American citizens into financial lepers. Banks and other financial institutions are dropping Americans citizens, and even foreigners working in the US, because the tax code is too difficult to comply with.

This isn’t surprising. There is a huge, unidentifiable cost associated with every law any government ever passes. This is the cost of compliance. Oftentimes, the costs of compliance are so high, that people just give up on the activity altogether.

Granted, sometimes the cost of complying with a particular law actually is a net benefit for everyone. For instance, the law that states that we drive on the right side of the road means that we can drive at high speeds down the road because everyone else follows that law. The cost of complying with that law is offset by the benefit of following the law.

In many cases, people will discover these kinds of laws for themselves. There is no need to government to get involved. For instance, no government agency tells web companies how to comply with the HTTP standard, and yet they comply with this standard and thus enjoy a level of connectedness that has never existed in human history. In these cases, it is far better for government to stay far, far away from regulation, since the people will figure out the best laws and comply with them as far as it is reasonable. Also, they are allowed to innovate and try and discover new laws that make life better, or bend existing laws. Technology is littered with examples of this, both of laws that succeed and the numerous laws that fail and have been forgotten.

Occasionally, very, very rarely, there is a case where it just makes sense to have government get involved. A good example of this is weights and measures. By having the government set the standard weights and measures, and then allowing people to use the government to punish those who violate these standards, by saying, for instance, that they sold 1 pound of grain when they only sold 15 ounces, we not only enjoy the economic benefits of being able to trust the labels, but we have a way of thwarting those who would abuse their power to lie.

The vast majority of the laws on the books in the United States, at the federal, state, and local level do not fall in the category of laws that are wise for governments to make. By writing these laws, the government is imposing a cost with a benefit that is far less than the cost. Because these laws are difficult to identify and quantify, I cannot say with any certain how much damage we are doing to ourselves with this unjust laws. I can only estimate that our economy would likely be many, many times more strong in the absence of these laws.

One of the laws that is getting attention is the drug laws. I believe that consuming drugs, even alcohol and tobacoo, is good for no one, and the best life is to be had by avoiding all such substances. Those who find themselves addicted to these substances have become enslaved to them and their producers. I believe even coffee and certain teas fall in this category. However, I do not believe it is wise for us to break down people’s doors and throw people into prison for manufacturing and distributing these things. We should be able to handle the problem with our social institutions, namely, our churches and charities. Those who think government should fix the problem would better spend their time educating and rehabilitating than petitioning.

But the drug laws are a small fraction of legislative abuse. Our tax code is another example, and its damages are much easier to quantify.because we can ask businesses what lost opportunities and costs they incurred by the tax code. I believe we should completely throw out all the tax codes we have on the books at every level. Our attention should be on finding a tax that gives us the greatest revenue for the least economic damage. I believe such a tax would largely be voluntary. If government truly delivers the benefits it claims to, then people would gladly pay their taxes to keep government running. If the tax is just and fair, then when the tax bill came, businesses and individuals would be amazed at how little government costs for such an operation.

Of course, those who understand what money really is and where it comes from know that the federal government can freely print money that matches the economic growth of the country. This will keep the currency balanced, so that it is neither deflating or inflating, both of which lead to negative feedback loops. If our economy grows at 5% or 10% a year, then we’re talking about more money than we can ever hope to be raised in taxes being ready to print. As long as our country grows at this healthy rate, and government services cost less than the growth, we need no taxes at all. With no taxes, there is no tax code. With no tax code, people are free to do what they like with their money, and government has no business in how they spend it or earn it.

I would like to live in a country where government is so distant that the thought barely enters my mind. The rules we follow are the rules we know make living in America a better place, and we gladly follow them because of it.


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