The higher your tax, the more "incentive" there is to pursue a tax break of whatever sort.
Let's say I buy a home in the country with 10 acres to garden in. I could've just bought a townhouse in the city, but if I put an "honor system" veggie stand at the side of the road, voilá- I get "farm" writeoffs- making decentralization more cost-effective. Let's also say the state and federal government offer a tax write-off if I put in "alternative energy" sources like a windmill. Boom, the cost of that windmill is discounted by roughly 30% (my state and federal combined tax rate). That windmill may offer no appreciable energy savings vs. the cost, energy and materials put into the manufacture and installation and maintenance. But the tax advantages may shift the equation in its favor.
Now, change "buying a windmill" to "buying a shiny new pickup truck." One of the recent loopholes on the farm subsidies granted tax advantages to buying vehicles above a certain weight- which is why many independent businessmen bought HUGE SUV's for a few years- there was a tax advantage.
Objectively speaking, it makes the most economic (and environmental) sense for me to buy a small townhouse, keep my cruddy little sedan, and keep my commute short. In terms of current and very recent tax legislation, it would not cost much MORE for me to have bought a huge pickup truck, buy the hobby farm, and put in an overpriced and inefficient windmill for the *illusion* of generating an appreciable amount of "alternative energy."
The lower the tax rates, the less incentive there is to chase moronic tax write-offs. Not as much money will be poured into "stupid stuff" like Escalades for real estate agents. And the MORE incentive there is to take reasoned, calculated risks to invest in new enterprises or education, in the hopes they pay off. Make the tax rates too high, and you have people wondering whether grad school or overtime is really worth the trouble. And that amounts to the rich man refusing to show up to dinner, in the original example. Or maybe cutting back his contribution because he only ordered an appetizer. :P |
