A parental excise tax illustrates some principles

Australian economics professor and author of Parentonomics Joshua Gans shows that excise rates can be too high to collect any revenue and that evasion can beat the system as he tried this plan for his daughter “B.”:

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Gans came up with a special incentive plan for candy. If B. wanted to buy candy, she would have to pay her parents a 100 percent tax, effectively doubling the cost.

The tax was based on how much B.’s candy consumption would add to the family’s health costs, because of increased dental visits and the like. As it turned out, Gans never earned any revenue from the tax — because B. never bought candy with her allowance.

“I realized that’s just a ripoff,” B. says. “Why would I want the candy then?”

Of course, just as people evade government regulation by crossing state lines for cigarettes or fireworks, B. can go to her grandmother’s for tax-free candy.

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http://www.npr.org/blogs/money/2010/09/02/129604336/?ft=1&f=93559255, via http://taxprof.typepad.com/

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Tax law, according to John Grisham

“Halfway through college, and still drifting, I decided to become a high-powered tax lawyer. The plan was sailing along until I took my first course in tax law. I was stunned by its complexity and lunacy, and I barely passed the course.”

This is why some of my friends make big bucks.  Grisham abandoned tax pronto on his way to writing best sellers.