On John Brooks on The Federal Income Tax

After reading Bill Gates’ hearty endorsement, I rushed to order a copy of John Brook's compilation of Business Adventures. Since quarterly taxes are due in a couple of weeks, I decided to first read chapter 3 on the federal income tax.

What I Learned

• Income taxes are only about a hundred years old, made practical by large-scale industrialization. Prior to that, they had mainly been used as levies during times of war (e.g. the civil war).
• The adherence and self reporting of US taxes is particularly high. The US (at least at the time of writing) had once of the lowest cost-per-revenue rates for tax collection (1/3 of the UK).
• Tax rates have varied a lot over time, increasing during times of war. In fact, the current US tax rates are at a historic low.
• Though written in the 60's, this article shows that attitudes towards the income tax haven't changed that much. E.g. concerns over loopholes, complexity, and the moral hazards of T&E (travel and entertainment) deductions have existed since that time.
• The Oil Depletion Allowance is a particularly egregious loophole benefiting oil drillers. It allows for a large (27) percentage of the well's value to be depreciated every year, multiple times over.
• Mortimer Caplin, the IRS commissioner from 1961-64 was a particularly outgoing and charming leader. He drove a “New Direction" towards a friendlier IRS. They even ran TV ads at that time. I don't see why that doesn't happen anymore.
• Charitable giving is supported (if not driven) in large part by the generous terms of the charitable deduction provision in the tax code.

Takeaways & Thoughts

• Any tax law will favor one demographic over another. This can lead to distortions.

Related: Society.