Life And Taxes
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Life And Taxes

by Yaron Brook | April 17, 2008

Your taxes are overdue, if you’re just reading this now. But the fact is that every day is April 15 for Jane and John Smith, Americas most tax-savvy couple.

They awaken in their highly mortgaged house (interest deduction), make breakfast for their adopted child (tax credit and exemption), then drive their hybrid cars (more tax credits) to work. John, at his office, signs a contract for solar energy panels (tax credit), but he turns down a promotion that would launch the couple into a higher tax bracket. Meanwhile, across town, Jane signs an application to get historic preservation status (tax credits) for her office building.

Back home that evening, the Smiths write a few tax-deductible checks to charities and then discuss where to put their savings — into a tax-free retirement account, or a start-up business whose income would be taxed at the highest marginal rate? Just before sleep, their thoughts drift to energy-efficient appliance credits and carbon-emission taxes.

Since it’s an election year, the presidential candidates are busy figuring ways to add still more carrots to the tax code — so that the Smiths will become still more entangled in a tax policy that fears and distrusts the goals that individuals would select if guided only by rational self-interest.

Tax policy works by attaching financial incentives to a long list of values deemed morally worthy. If you want to maximize your wealth come tax time — and who doesn’t? — you must look at the world through tax-colored glasses, “voluntarily” adjusting your behavior to suit social norms and thereby qualifying for tax breaks. In this way, the social engineers of tax policy preserve the impression that you’re exercising free choice, while they’re actually dispensing with your reason and your judgment.

As an example, consider the choice between buying and renting a home. In a free market, a dollar paid in rent is equivalent to a dollar paid for mortgage interest. But when the federal government offers a mortgage interest deduction — based on some alleged need for an “ownership society” — then each purchase dollar saves a few pennies in tax that a rental dollar does not. So the path to wealth maximization suddenly veers away from renting and toward home ownership.

Over the past century, such social engineering has inflated the nation’s tax laws to an estimated 66,000 pages of statutes, regulations and rulings. At the core of this unreadable agglomeration is the most arrogant scheme of all, the progressive income tax. Its basic idea is that the more productive you are, the more you should pay in taxes. If you dare to suggest that penalizing success is neither a moral ideal nor a practical tax policy, you will be told that all such questions must be decided by reference to the good of society.

And now the presidential candidates want to bulk up this already bloated system. For instance, Hillary Clinton wants you to take care of your elderly relatives ($3,000 “caregiver’s credit”), Barack Obama wants you to keep your company’s headquarters and jobs in America (“Patriot Employer” program) and both Obama and McCain want you to fund more research and development (making an existing credit permanent).

Of course, there’s nothing wrong with caring for grandparents, hiring local people or spending on R&D — if a rational thought process leads you to conclude that those choices actually serve the self-interest of you or your company. But government has no right to influence your decisions one way or the other.

Here’s the point: Government’s job is not to dictate your values but to protect them. In a free country, you choose values and then use your own money as a tool to achieve them. But a value-rigged tax policy reverses this cause and effect — it uses your money against you, bribing you with tax breaks that let you keep some of your earnings in exchange for abandoning your preferred values.

Clearly, we have slid a long way downhill from this nation’s founding, when political leaders respected individuals’ ability to make rational decisions for themselves about how to pursue their own health, wealth and happiness. Today, it is commonly accepted that Uncle Sam has a right to reach not only into your wallet but into your soul, through tax policies that substitute some version of the “public interest” for your own rational desires.

Of course, tax policy is only one form of “social engineering” — spending and direct regulation are other coercive methods of substituting collective values for private choice. But when it comes to micro-managing our lives, there are two reasons why tax incentives remain one of politicians’ favorites.

First, people find comfort in the illusion of self-direction that goes along with tax incentives — they would rather be lured by a tasty carrot than beaten with a stick. Second, tax law is an easy mechanism through which politicians can dispense favors to supporters, as Clinton, Obama and McCain have each pledged to do. Every year numerous pages are added to the long list of politically correct values.

In place of the limitless variety that emerges when individuals plan their own lives in a free society, tax laws strive to impose a dreary sameness — as if every individual should get married, have children, buy a home and save for retirement on a government-approved schedule — and as if every company should look to bureaucrats for the one true path to selecting real estate, equipment, fuels, employees and financing. Such artificial homogeneity has no place in the tax policy of a government dedicated to protecting individual rights.

If government were restricted to its proper functions — police, courts and a strong military to defend individual rights against physical force and fraud — our 66,000-page coercive tax code would be a thing of the past. What’s more, a great burden would be lifted, not just from the economy, but from our lives.

Imagine reasserting ourselves as rational, sovereign individuals, whose rights to life, liberty and the pursuit of happiness include the right to choose values without asking society’s permission — and without chasing our own money, like lab rats sniffing cheese, down the twisting corridors of a labyrinthine tax code.

About The Author

Yaron Brook

Chairman of the Board, Ayn Rand Institute