Up Next

Market-Based Solutions to Vital Economic Issues


Building bridges between tax scholars, policymakers and practitioners
News & Media

What Jobs Do Taxes Do?

Write-Off: The Tax Blog

Twice this week, I listened to someone mention the three jobs taxes are intended to do. One of these times was on Lisa De Simone and Bridget Stomberg’s excellent tax podcast, Taxes for the Masses, where they mentioned the canonical three jobs of taxes: 1. Raise revenue to run the government, 2. Redistribute income, and 3. Change taxpayer behavior. These three purposes of taxes are pretty standard, and, extremely useful for thinking about tax policy. I have mentioned them myself many times. But, I would like to propose that there is a fourth purpose of taxes that we should always keep in mind. What is it?

Tax policies are proposed and passed by politicians. If we have learned anything from public choice theory, it is that politicians, like the rest of us, will do things to maximize their own utility. So, if there are actions that will get politicians elected (or give them more power, money, etc.)., we might expect to see them take those actions, including proposing and passing tax bills. So, for example, we have seen politicians rant about tax deductions for private jets, and, how these should get eliminated. There is not much revenue at stake (there is a Bloomberg article from 2011 that was titled, “Corporate Jet Tax Gets Six Obama Mentions, Nicks Deficit”, given the small sums of money redistributing is unlikely to be the goal, and politicians are unlikely interested in changing corporate behavior with regards to how their executives move around the globe. But, some constituencies get really jazzed about tax deductions for private jets. The motivation for this policy is likely to get the politician elected.

One conversation I had made this fourth job of taxes, to get politicians elected, especially obvious. I was talking to the economic advisor of someone then running for national public office. He was explaining a tax proposal his candidate was considering. I asked which of the three jobs of taxation the tax proposal was supposed to accomplish. He mentioned some benefits of the proposal (none of which were entirely convincing to me), but then, finished by telling me that when his candidate talks about this proposal to voters in Iowa, they love it. It was clear to me—the law was meant to get someone elected.

So, the next time you think about the reason a politician might be advocating for a specific tax policy, remember the four jobs taxes are meant to do: 1. Raise revenue to run the government, 2. Redistribute income, and 3. Change taxpayer behavior, 4. Get politicians elected.

You may also be interested in: