If you want less of something, tax it. Some in government are convinced people don’t change their behavior when a tax is imposed, and they’re always amazed when taxes have results they don’t expect. And it’s really odd how they change their view based on circumstances – tax income more and people won’t change their behavior; tax cigarettes and people will change their behavior.

Illinois thought they found a gold mine in waiting – tax Amazon transactions! They thought it would raise $150 million in taxes. But Amazon changed how it does business and as a result: “An actual decrease in use tax collected of over $11 million. Numbers given to Chicagoist by the Illinois Department of Revenue show that in the period of January 2011 through June 2011, IDOR collected approximately $139 million in use tax. After the law went into effect on July 1, the total amount collected between then and the end of the year was approximately $127 million.” Not only that, but “larger companies that rely more heavily on affiliate income like Fat Wallet and Coupon Cabin simply packed up and moved to neighboring states, taking their jobs and income tax with them.” More on this story here.

When I was a lawyer, there was a government proposal that would have had pharmaceutical companies pay a rebate to the government so that the government got the lowest price charged to any customer, without regard to volume or any other circumstances that might make the other customer more deserving of a lower price. Low and behold all of the drug companies raised their lowest prices to the level of the government price.

Taxes matter. People and businesses respond to tax changes and change behavior to minimize taxes. The government never learns.

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