Week in Insights: Tax Policy Is a Complex, Sticky Web of Threads

Tax breaks are a frequent topic in the world of tax policy. Their intended effect is to provide relief to some individual or sector that policymakers believe need or deserve a boost.

But some effects are unintentional. The Inflation Reduction Act’s domestic production requirement for electric vehicle credits incentivized the use of lithium iron phosphate, potentially leading to heavier batteries. The goal was to boost job numbers, not turn hatchbacks into M1 Abrams tanks. These accidental effects are called “market distortions.”

Romania faced such a distortion in the early 2000s. The IT sector became overtaxed because of how payroll and ...