Wednesday, October 29, 2008

Lower Corporate Taxes!

It's pretty funny. When designing employee incentive packages, you need to reward those things that are good for your business so the employee will want the same things as you. But sometimes, there are unintended consequences.

A software company wanted its programmers to find and fix bugs in the program and they gave them a bonus for each bug they fixed. Sounds good, right? Except the programmers fixing the bugs were the same ones who wrote the software. They purposefully wrote bugs into the software to increase their bonuses on the back end. The result was buggy software and lots of bonuses for the programmers.

The same thing is true in government and taxes. If the government wants to decrease a particular activity, they tax it. Tobacco and alcohol are an example of this. (Except they don't really want these to go away because they are cash cows for the government. They tax enough to maximize revenue without making them go away.)

Companies that make products that have a good substitute and high taxes will go out of business. Just look at when Congress wanted to tax the rich and placed a massive tax on yachts. Over 7000 jobs were lost in New England ship building areas.

The US has the second highest corporate tax rate in the industrialized world. The only logical conclusion is that Congress doesn't want new startup businesses, job growth, business expansion, higher wages, or stronger imports and exports. The only thing higher taxes does is increase the size of government. Oh, wait, that is what government wants: bigger government.

(h/t NRO)

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