Almost everything that is wrong with tax policy in the U.S. is because someone wanting to encourage or discourage some practice, product or industry introduced a credit, deduction, penalty, or favorable tax rate. The result is an accumulated landfill of policies, many of which are contradictory or at least inconsistent. And according to a recent analysis by the Mercatus Center, complying with such a tax code is a deadweight loss of almost a trillion dollars each year to our economy.
The purpose of tax policy is to raise the necessary revenue to fund government while introducing as few distortions in the economy as possible. A good tax code should not attempt to manipulate anyone’s behavior or decision making—it should stay in the background and out of people’s lives as much as possible.