April 18 2013

Tax System Distortions

Donna Wiesner Keene

Marilyn vos Savant has some brilliant statistical solutions in Parade Magazine each week, but public policy is based on the multiple value systems of the society, not straight logic.  In Parade a questioner this week asked why her compensation for a donation of eggs should be taxed when it was “intended to offset the effort and discomfort involved.” Vos Savant rightly said tax laws are unfair – then said this is why taxes should not be simple.

Thus she advocates the same tax system we have, with loopholes and exceptions based on individual value systems. 

ALL compensation is based on offsetting effort and discomfort.  Workers are paid more for jobs that require the extra years and effort of a better education, more exposure to danger, working in the heat and cold instead of an office, or techies because society needs more of them ... whatever.  By supply and demand, the market decides if too few or too many applicants are in one field or another and raise or lower salaries to accommodate ... unless government distorts with ridiculous exceptions. 

Not paying taxes for egg donating means all of society supports a subsidy for the activity, and frankly, I don't see where we all benefit.  In our current system, charitable deductions sound wonderfully supportive, but provide taxpayers with an incentive to support IRS-approved charities instead of their neighbors in need.  Is that what our society actually wants? Thousands of pages of regulations and a whole division of the IRS could be cut with this one change, money that could stay in the hands of taxpayers and offset easily the loss of the deductions -- but the support for the change is thin. 

Simple, predictable taxes mean less market distortions; the people not the government would decide their own needs and wants.  Fewer families would buy municipal bonds, which are risky and even pay less, because of the tax advantages. ALL voters pay for the tax advantage of the few who buy the bonds. 

Vos Savant’s solution it to complain about the tax system we have, with its 100,000 exceptions, then determine that it is faulty because HER values are not reflected.  There we go again.

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