Wednesday, August 25, 2010

Taxes and behavior

I just read a very smart comment on another news story about taxes that I will paraphrase here.  The discussion was about the two new tax measures in Oregon, Measures 66 and 67, and the proposed income tax measure in Washington, I-1098.  It would seem that there are some people moving from Orgeon to Washington to avoid 66 and 67, but they will be thwarted if I-1098 passes this fall.  The commenter pointed out that governments pass tax and fee increases all the time with the intent to modify behavior.  All "sin taxes" fall into this category (i.e. cigarette taxes), as well as congestion tolling, etc.  The government makes an activity more expensive with the stated intent to reduce that activity.  So if the government buys that argument for some taxes and fees, why on earth do they not believe that all taxes change behavior?  Why do they think that higher income taxes will not prompt people to change their behavior and either hide income or be less productive?  Great point.