May 07, 2008

McArdle on the "Gas Tax Holiday" Ideas.

She sure has been making all three candidates her bitches lately, particularly WRT short-term manipulations of the tax code:

It is true that the gas tax is fairly trivial. It is also theoretically true that a windfall tax could claw back the lost revenue, though I have my doubts. So why does it matter? Because when it comes to regulations, one should never arbitrarily increase the complexity or uncertainty of the law.

Complexity is bad because it ups compliance costs, often makes evasion easier, and because complexity itself increases uncertainty: as tax laws proliferate, it becomes harder to know whether you are in compliance. It also makes the government's administrative overhead multiply like those bacteria that can kill you in five minutes after first contact.

Uncertainty is bad because it reduces the ability of people and corporations to plan for the future. It's hard to estimate your ROI if the tax laws that govern your investment change every year.

Change is bad in general because every time the tax law changes, your nation experiences a sudden loss of human capital: all the understanding of how the old law becomes useless, and people have to spend valuable hours learning to understand the new law. This is often time that could have been better spent doing new deals, or regrouting the bathtub. Mold doesn't take care of itself, you know.

Obama's plan is bad because windfall taxes increase complexity and uncertainty. They also reduce the incentive for investment by lowering the return on it.

McCain's plan is bad because the gas tax holiday complicates tax administration and compliance, and because the revenue has to be made up somewhere else. That somewhere else is almost certain to be one more complicated tax of some sort.

Clinton's plan is doubly bad because it combines the uncertainty of a windfall tax with the complexity of both the Obama and McCain plans.

That's why she's Megan McArdle, and I'm not. RTWT.

Posted by Attila Girl at May 7, 2008 02:08 PM | TrackBack
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