Incentives and Taxes

This was originally published at Porcupine Musings.

Bill O’Reilly is disingenuous when he says high taxes might compel him to quit his lucrative job. Although there is a level where taxes can have that effect (why engage in challenging work if taxes limit your income to that of someone flipping burgers), we are nowhere near it. However, taxes and regulation do result in a net decline in businesses and jobs albeit by a different mechanism than “quitting”. The mechanism is attrition. Businesses fail due to normal changing market demands, bad luck, poor leadership or other reasons. New businesses take their place, however as taxes and regulations increase, the rate of business replacement declines. Why? Some business ideas are high risk and some are low risk and both types may have a high or low reward. A graphical metaphor works best here.

Figure1Imagine a square, the left side indicates increasing reward (bottom to top) and the bottom indicates increasing risk (left to right). As taxes and regulations increase it makes those endeavors in the lower right corner (high risk-low reward) less appealing because of reward diminishment (taxes and regulation costs consume the reward). As taxes and regulation climb we continue to move across the square from lower right to upper left along a diagonal front: everything to the right of the diagonal will not be attempted, everything to the left will be attempted. As taxes and regulations continue their march upward that diagonal shifts further and further to the left until the only thing remaining is extremely low risk-high reward ideas. [Read more...]

Supreme Court Rebukes EPA In Landmark Property Rights Case

Property rights in America are sinking to the bottom of a regulatory swamp. The biggest threat to property rights is unchallenged bureaucratic decisions that command property owners to do the bidding of the EPA while not allowing those citizens the opportunity to be heard.

One couple caught in this legal quagmire is Mike and Chantell Sackett, of Priest Lake, Idaho, where they bought property in 2008 to build the home of their dreams. They secured all of the necessary permits and began work to fill the land and to prepare the site for the construction of their lake home. But three days after they began work a group of EPA wetland cops made a visit and in no uncertain terms ordered the Sacketts to cease and desist their activities.

Obviously, the Sacketts were taken aback by the EPA command. To complicate matters EPA’s own National Wetlands Inventory did not include the Sackett property as a wetland. To that, the EPA officials only shrugged and said that makes no difference: your property is still a wetland.

[Read more...]