[Profile by the veteran economics New Yorker reporter John Brooks of the post-WWII American federal income tax (history, effects & reform attempts), which taxed incomes at rates as high as 91%, but was riddled with bizarre loopholes & exceptions which meant the real tax rates were typically half that—at the cost of massively distorting human behavior.
Stars would stop performing halfway through the year, marriages would be scheduled for the right month, films were designed around tax incentives rather than merits, countless oil wells were drilled unnecessarily and rich people would invest in business of no interest to them like bowling alleys, businessmen had to meticulously record every lunch because income tax distorted salaries in favor of fringe benefits. (A similar dynamic was at play in the rise of employer-based health insurance during WWII, contributing to the present grotesquely inefficient American healthcare system.)]
…the writer David T. Bazelon has suggested that the economic effect of the tax has been so sweeping as to create two quite separate kinds of United States currency—’before-tax money’ and ‘after-tax money’. At any rate, no corporation is ever formed, nor are any corporation’s affairs conducted for as much as a single day, without the lavishing of earnest consideration upon the income tax, and hardly anyone in any income group can get by without thinking of it occasionally, while some people, of course, have had their fortunes or their reputations, or both, ruined as a result of their failure to comply with it. As far afield as Venice, an American visitor a few years ago was jolted to find on a brass plaque affixed to a coin box for contributions to the maintenance fund of the Basilica of San Marco the words “Deductible for US Income-Tax Purposes.”