Tom Wheelwright, my friend and author of Tax-Free Wealth, describes the US tax code simply as a series of government-sponsored incentives. As someone who hates paying taxes, this fact has made me extraordinarily patriotic. The problem is, that sometimes incentives backfire.
Case in point—during the British Raj rule in India, there was a proliferation of venomous cobras in Delhi. To deal with this problem, the colonial government introduced a bounty/reward program where people would be paid a cash amount for every dead cobra they brought to the authorities.
Initially, this seemed to work as intended – the cobra population started declining as people hunted and killed the snakes to earn the reward money.
However, people soon realized they could exploit this system by breeding and farming cobras specifically to kill them and collect the reward. Driven by the monetary incentive, many started cobra breeding operations.
When the British officials discovered this unintended consequence of their bounty program – people were now breeding more cobras than they were killing – they scrapped the reward program altogether.
This led to another unintended effect – with no more reward money to be made, the cobra breeders simply released their now-worthless snakes into the wild, causing the cobra population to proliferate even more than before the bounty was introduced.
As an American of Indian descent, I would love to tell you that the Colonial British were just a bunch of idiots. But, the reality is that the cobra effect is alive and well in the US tax code.
To explain how, this week on Wealth Formula Podcast I interview one of America’s leading experts on tax policy.
Show Notes:
04:31 What is Taxocracy?
06:11 Tax Codes Are Just Incentives
07:15 Are the Tax Codes Making Americans Disapprove of the Economy?
08:30 The Global Wealth Tax
13:22 President Biden’s Proposal on Capital Gain
14:38 The Death Tax
18:17 In Comparison to President Trump’s Policy
20:39 The Mansion Tax
23:59 Other Tax Influences
25:46 The Tax Foundation
