Feedback Lost — Taxation
A Concise Case Study of a One Way System
Every human interaction creates some level of feedback by default. But many interactions, even today, remain essentially One Way. When feedback only flows clearly in one direction, systems under perform or break entirely.
In a society where freedom and free markets have come to dominate most aspects of life, it is difficult to find examples on One Way systems of any scale or prominence. They simply fail long before they get to that stage.
Fortunately, at least for our purposes today, we have the United States government to provide us with some well-known examples… of under performance. The lack of feedback in these systems is not so well known or understood.
As you read this article, think about your own products and services. Have you designed One Way systems? Do you even know what one looks like? Well here is a great example to learn from:
Taxation
This was one of the fundamental issues that spawned the United States of America. Taxation without representation was a cornerstone grievance of the revolution. In an era of mercantilism and protectionist trade, providing feedback before a tax is created was a major victory.
Things have changed, mostly. While some still dream of the good old days of autocrats and benevolent decrees, the world has moved steadily toward increasingly free markets, free trade, and more feedback. Only having a say when a tax is enacted is now the low bar of allowable government feedback.
Per Capita Taxes
While levies upon heads are not the most feedback inducing mechanisms for taxation. They are mostly limited (today) to the local municipalities where feedback is more direct and frequent. Townships and even cities often modify these taxes on a yearly basis.
Local taxes are also subject to a much more real time and direct feedback, relocation. Often referred to as voting with your feet, people who don’t agree with a type of taxation (or any other local ordinance) have the ability to leave. This is not without cost, but that cost is also part of the feedback.
Taxation of Goods and Services
Value Add, Consumption, and Sales taxes allow people to express their dissent by changing their behavior. This often takes the form of substitution and can have far-reaching impacts on local society and businesses. These impacts are themselves a form of feedback, though arguably not the most optimal or easily understood kind.
Taxes that can influence behavior often lead to social engineering. While this term is not well liked in some circles, it is a fairly effective use of feedback. The challenge of exactly who gets to decide what behavior is reduced with negative feedback vs encouraged through positive feedback (like subsidies) is a battle for another blog (though ultimately feedback will decide).
Income Tax
Finally, sadly, there is the personal income tax. As far as feedback goes, this is a PIT. Leaving aside both progressive and conservative arguments, income tax is a One Way system. Sure people can provide feedback by quitting their job, cutting their hours, or avoiding the IRS-but poverty and jail time are severe costs.
But didn’t you just say that costs are part of the feedback system? Yes, I did. And it is. That said, when the cost of providing feedback is severe, it is no longer effective.
First feedback in total is suppressed. Less feedback equals less information on what is working and what is not. This, in turn, leads to longer adjustment times and limited optimization.
Second, cost acts like a calibration mechanism when coupled with feedback. An ideal system has a linear and predictable relationship between any action and its associated cost. To describe this easily and quickly, the costs associated with income tax are analogous to trying to drive a car where the accelerator is either off or on at the highest speed your car can go. This will not make for smooth trip and you might just lose your lunch.
Effectively the cost of avoiding income tax is just too high. Feedback from the tax payer back to the system is suppressed and horribly inefficient. This makes the Income Tax a One Way system. History says its days are certainly numbered, though how long only feedback will tell…
Quintessentially is an article format created by Corsair’s Institute to increase the reader’s comprehension of key concepts in a quick and engaging fashion. For more articles from Feedback, Quintessentially — click here.
Feedback Lost is a ongoing series provided by Corsair’s Publishing. We seek to provide engaging content that is both thought provoking and entertaining. Other articles on related topics can be found within our other Medium publications.
