Are Free Markets Hurting Themselves?

...in the income tax preparation market? Jim Henley:

Ah, taxes. I put them off and put them off and by the time I've installed TaxCut and opened the forms, it's over in a couple of hours.

[...]

... tax preparation software has gotten so good that for ordinary earners - wages, income, dividends, mortgage-plus-state-tax-plus-charity deductions - completing a return is a cinch. And from what I can tell, the programs seem to handle all sorts of contingencies I barely understand, let alone have a need for. That means that an awful lot of voters don't feel the pain of a complex tax code either - the computer handles the hard part. You can say that the code's complexity makes it hard to plan, but even there, a lot of the tax and financial management programs can help that area too.

That means that we libertarians face a serious annoyance gap: not only are middle-class voters not feeling especially taxed, they're not feeling the pain of our bizarrely involuted tax code either...[b]ut politics favors the pissed. And we don't have a mass movement of the pissed now when it comes to taxes.

Free people will attempt to overcome or sidestep situations when faced with annoyances, inefficiencies, and pain. That explains the rise and popularity of tax preparation software and the long-term prosperity of tax preparation companies. This market exists to rid the taxpaying individual of at least some of the irritation of dealing with his or her taxes by themselves. And of course, since free markets deal with human problems better than other means, over time the burden of arranging one's taxes will slowly drop as entrepreneurs learn better ways to serve their customers. Assuming the government doesn't dramatically change the rate at which it complexifies the tax code, this trend isn't likely to stop.

It's conceivable to me that at some point in the future, the old anti-tax argument that the IRS is too much of a burden and needs to be reformed will steadily loose traction with voters. They'll look at the effort they put into their taxes, realize it isn't as bad as it once was, and ignore the other, much greater problems with income taxation.

Posted by Drizzten at April 16, 2004 03:53 PM