Influence of Politics and Special Interests on Tax Policy


The role of the government in the public sector is to redistribute income and provide a legal framework. (McConnell et al., 2009) Tax policies are designed to reallocated resources. There are positive and negative externalities. Positive externalities are provided as a benefit for other producers and consumers without compensation, such as immunization. Negative externalities are payments received from companies or people without compensation, for example environmental pollution.

The taxation policies determine the level of distribution based on policies and government priorities. Holcombe (2006 and 2012) confirms that the distribution of taxes built in the tax system is based on determining who benefits from the taxes the most. As there is nobody to lobby in the interest of the general public, (Holcombe, 2012), however, there are some public forces to lobby in the interest of special interest groups.

 Case Study

The taxation plan covering employer health insurances has surged action by unions, and 30 organizations planned TV campaigns and a full-page ad was ran in the major Washington magazines to support the campaign. It is evident that the influence of these special interest groups was great regarding the public, and this way of influencing the society might not be considered as providing financial benefits for opposition parties, it does strengthen their influence. In this case, the approval of the bill would have cost health insurance companies an extra $900 billion in taxes, which they were not prepared to pay. (Babington, 2009) However, considering the public interest and the deficit of the budget, not accepting the bill would have resulted in multiple other cut backs in public spending, which is a disadvantage for all people living in the United States. According to Szper (2010), one of the main legislative issues of the bill was the taxpayer health care fairness, in relation to taxation. The prescription drug costs and taxation had a lobbying intensity of 260, therefore, the legislation and tax provisions are one of the most common areas of taxation that special interest groups are trying to influence.

Van De Water (2012) confirms that the bill that excised tax on medical devices had a smaller impact on manufacturers than they anticipated. The lobbying campaign included claims that it would force companies to move their manufacturing operations overseas. The tax implied only benefited the US Treasury about $30 billion in the period 2013-2022, and it would have little effect on innovation. Considering the amount of money spent on campaigns and publications by health care industry organizations, and the research confirming that the tax would have little effect on customers, innovation or operation costs, it is evident that the lobbying was excessive and certainly did not reflect the public interest, no matter how it was designed to represent the country’s health care patients. 

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