Don Boudreaux of Cafe Hayek makes an excellent point in his letter to the Wall Street Journal and post titled, Regulate THIS!.
You’re correct that the Credit Card Accountability, Responsibility and Disclosure Act of 2009 will discourage lenders from extending credit to households most in need of it by arbitrarily reducing the penalties that lenders may assess against dead-beat and delinquent debtors (“The Politics of Plastic,” August 24). Our Leaders, though, cling to their peculiar faith that regulations never create incentives for people to do what Our Leaders would prefer people not to do.
Let’s put this faith to a real test: Ask Congress and the White House to regulate more strictly the penalties assessed by the IRS against dead-beat and delinquent taxpayers – for example, let’s reduce fees and interest charges for late payment of taxes, and eliminate jail time as a punishment for tax evasion. If Our Leaders’ faith is sound, there will be no increase in tax evasion and delinquencies. Revenue collected by the IRS will be unaffected. The IRS’s stiff penalties will be seen to have been unjustified because (if Our Leaders’ faith is true) these penalties do nothing to encourage timely and full payment of taxes.
Donald J. Boudreaux