While tax rates are often stated as the burden on individuals and businesses there are other “mandated expenses” that are much more insidious. Federal agencies are often charged with funding themselves with fines and penalties. Much too often these fines are levied on noncompliance to rules that are capriciously vague and in conflict with other rules. It is not unusual for businesses to pay these fines rather risk fortunes in legal bills in defense.
With the proliferation of regulations what was once a mistake is now a crime. May father used to complain that the government makes criminals of all of us, and that was decades ago. In my short period in the business world I am stunned at how often I have known some of the most righteous and ethical people I have ever met treated like common criminals.
The government can change deductions and depreciation schedules without the fanfare of talking heads arguing the merits and demerits of changing tax rates. While these changes in rules increase the money paid to the government there is never a headline about the new tax increase.
These changes have the same stifling effect of tax increases without the exposure or the debate. When taxes are lowered but other mandated costs are changed to more than counteract the decrease and no new revenues appear, the Laffer Curve will be deemed, wrongly, to have failed.
The better way to look at taxes are as a part of the overall friction costs that reduce the return on risk and capital investment.