Taxation distorts incentives from "summary" of Capitalism and Freedom by Milton Friedman
The power to tax involves the power to destroy. The power to tax is the power to coerce and to control. Taxes are the price we pay for civilization, but they also have a dark side. Taxes can be used to influence behavior, to shape incentives, and to distort decision-making. When the government imposes taxes on certain activities or products, it changes the relative prices of goods and services. This, in turn, alters the incentives facing individuals and firms. For example, when the government taxes savings and investment at a higher rate than consumption, it discourages people from saving and investing. This, in turn, can slow down economic growth and reduce overall prosperity. Similarly, when the government imposes high taxes on labor income, it reduces the incentive for people to work and earn a living. This can lead to lower levels of productivity and job creation. Taxes can also distort incentives in other ways. For instance, when the governm...
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