Government Control

While sales taxes can be used as a blunt instrument for reducing the consumption of a particular type of product, they will not necessarily stimulate higher consumption of a favored type. If the proceeds of a sales tax or rebate of other taxes (“tax deduction”) are used as capital for producers of a favored type of product, the chances may be better than those in a free market that consumption of the favored products will increase.

There are several problems with this approach to controlling consumption. One problem is that sales taxes, if continued after the jump-starting of supply, could end up providing inaccurate information to the market (about demand and supply). Another problem is that the approach could result in the concentration of power in the hands of a small number of people who may not be able to anticipate and deal with unexpected consequences, or may use the power to their personal benefit rather than society’s.

Just about every industry in the U.S. is regulated to some degree (another reason that the existence of a “free market” is fiction rather than fact). Practices deemed harmful to people are penalized by fines, imprisonment, revocation of licenses, and other measures. This approach depends on accurate definitions of what is “harmful,” in both the nature of products and the activities involved in their creation and marketing. It also depends on fair and reasonable enforcement of the regulations. It therefore has the potential of also falling prey to the incompetent or irresponsible exercise of concentrated power. In addition, since government has its own economic requirements (it must acquire and keep resources so it can operate), additional regulations will result in an increase in the government’s influence on (and potential distortion of) the entire economy through increased taxes, its main source of income.