How Tax Code Devalues Labor
For example, in order to lower our dependence on foreign energy, the stimulus bill included breaks for energy conservation and alternative-energy sources. In Pennsylvania, the shale industry went untaxed to encourage exploration. And the City of Philadelphia has used a property-tax abatement to foster housing construction.
If tax breaks are given to those activities that are deemed to have special value, what does it say about those activities that are taxed at higher rates? Policymakers are indicating they consider the competing activities to be of lower value. That is precisely the issue with how we treat income.
The tax code says people should earn their income from almost any means other than labor. Wages and salaries are taxed at just about the highest rate of any income source. There are special low rates for dividends, capital gains, and interest income - especially from state and local debt - but if all you do is make your money from wages and salaries, you pay a higher tax rate.
Consider the tax-free treatment of interest on state and local government securities. Most state and local governments issue bonds for schools, roads, and other infrastructure projects, and imposing no federal income tax means interest on the securities can be reduced. That increases construction by making the projects more affordable.