The burden of government can be seen in many ways. One is the simple amount of money that it takes out of an economy via taxes. Another is the maddening complexity that it imposes on people.

An article from the newsletter of a chamber of commerce illustrates the complexity (and absurdity) of a tax on tax:

Let’s say you intend to reward several of your top salespersons with an all-expenses-paid vacation. The vacation is a non-cash reward, but the employees will have to pay income tax on the fair value of their trip. To eliminate the tax and cash burden on them, you will agree to pay the additional income tax that is owed on account of the trip.

Already we have a level of complexity, I can figure it out.

But wait, there's more!

This creates a "pyramiding" because any payment made to cover the tax is itself taxable income and will require you to make an additional payment to make the trip completely tax-free.

Uh-oh. Isn't that "additional payment" then taxable income?

The article goes into several alternatives by which a business can deal with this situation. (If you'd like to read all the details, see this PDF file and read page 5, "Employer's Payment of Employee's Income Tax.")

Under one option, an employer's incentive payment to an outstanding employee is the gift that keeps on giving--more money to the tax man and more headaches to the business.

Alternatively, the employer can agree to pay the tax on the tax. This approach keeps the transaction alive far into the future, as the employer pays a diminishing amount of tax in each year. Eventually, the tax on a tax will approach zero, but this may not happen for many years.