So, you have just paid your taxes. Having bitten the bullet, though, you still don't feel inclined to describe your contribution to the national effort in particularly generous or charitable terms. You would never guess it but you have a corner of sympathy with the economists and the government accountants of the country. They point to the tax laws of the country that often reward people with tax breaks for no reason, and make that up by taxing you, the taxpayer, a lot more than they would otherwise have to.
Let's say that 30 years ago, you saw a bunch of computer makers with a dozen different computer designs, the Atari, the Commodore, the Apple, and you bet that that last one would probably make it big. You bought in on the ground floor, and today you find that your shares have appreciated ten times. If you sell them today, you'll make a killing, and so will the IRS, because you'll pay capital gains taxes. But let's say that you don't sell them today and you leave it to your heirs. Whoever inherits your Apple investment is going to cash in for free; financial advisors even recommend that if you're pushing it a bit, that you don't sell anything now and just write it off on your will. This really makes no sense if you think about it; a person who is 90 today and wishes to sell his stock portfolio will be hit by the tax laws as far as possible. If he had not sold anything, and he died the following day, his grandson who inherits it could sell it the very same day and he would not pay a dime in taxes. Over the next five years, the government will lose in a third of a trillion to this tax exemption.
It's about the same way with the energy policy in the country. The government always has various incentives and high taxes to try to encourage or discourage one or the other kind of energy consumption behavior; people get so mixed up over these pretty soon, they give up on trying to understand anything, and do what they would have anyway. Or like some unscrupulous manufacturers, they try to game the system. Five years ago, President Bush signed in a new energy policy that really went for ethanol; and the tax laws were amended to hand out lots of credits and tax breaks to any farmer or manufacturer who helped with the ethanol effort. Ethanol has been a nonstarter, though; it's been using up so much corn that food prices have shot up, and the production of ethanol uses up so much gas and puts out so much pollution, that it hasn't been worth it. And still, tax laws have handed manufacturers of ethanol about $12 billion of tax credits in the past four years alone.
You've been hearing about those Cadillac health plans for a while and the whole lead-up to the new health care plan, haven't you? Consider one of the best perks you get at working a regular job - health insurance. Employer-provided health insurance, though, is tax exempted. In the beginning, that tax exemption didn't really cost the government much, as healthcare was cheap. Healthcare now, though, is rising in cost in such a fearsome way that in about 100 years, it will be using up almost all our national income. Granting a tax exemption on this costs the government $1 trillion right now every five years. So what do employers do, but keep wages frozen, and choose to compensate workers with very pricey health insurance plans. If they compensated workers with regular salary increases, they would pay payroll taxes on them. And part-time workers who don't have insurance anyway, just suffer in both ways - no salary increases, no free insurance either, and the need to pay a tax when they go out and buy their own personal health insurance.
When employers are so willing to buy the pricey health insurance schemes, insurance companies have no incentive to lower their prices either. There are a bunch of tax laws that work like this - punishing the poor and rewarding the rich. For instance, the mortgage interest deduction plan will give you a better break if you have a really large house. Sometimes the tax laws get so complicated, even the drafters of those laws get mixed up like this.