A tax raises the costs associated with the behavior being taxed.
An income tax raises the costs associated with generating income.
A sales tax raises the costs associated with engaging in trade.
A property tax raises the costs of owning property.
A luxury tax raises the costs associated with owning luxury items.
A capital gains tax raises the costs associated with investing.
A tariff raises the costs associated with imports.
And so on.
In this respect, taxes end up being a form of social engineering, as they distort people's incentive structures -- the benefits of engaging in behavior a, ceteris paribus, remain the same, but the costs are now higher -- people change their behavior accordingly.
Like Colin pointed out, do we want to maximize receipts or minimize them or what? As a libertarian, clearly I think the less government intervention we have in our lives, the better, so we should cut spending and tax very little.
So the question is what behavior is the best to tax? Well, since I pointed out that taxation amounts to social engineering, I think we should tax behaviors that we wish to discourage, and not tax behavior we wish to encourage.
I don't think it's a good idea to discourage income generation, investment, property ownership, importing, luxury, or trade.
I would rather tax poverty, illiteracy, practicing law, passing legislation, running for public office, or driving slow in the fast lane.
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