Beware The Barrenness Of A Busy Tax Code

Tax compliance employs more workers than Wal-Mart, UPS, McDonalds, IBM, and Citigroup -- combined.

“The hardest thing in the world to understand is the income tax.” — Albert Einstein (attrib.)

Tax returns are due today. Arthur Laffer marks the occasion by pointing out that tax compliance employs more workers than “Wal-Mart Stores, United Parcel Service, McDonald’s, International Business Machines, and Citigroup combined.” The result is a markup of “30 cents on every dollar paid in taxes”:

To start with, individuals and businesses must pay the government the $1 in revenue plus the costs of their own time spent filing and complying with the tax code; plus the tax collection costs of the IRS; plus the tax compliance outlays that individuals and businesses pay to help them file their taxes.

In a study published last week by the Laffer Center, my colleagues Wayne Winegarden, John Childs and I estimate that these costs alone are a staggering $431 billion annually….

A complete accounting of compliance costs would also include the efficiency losses created when individuals and businesses invest in tax-avoidance activities that lower their tax liability at the expense of creating more jobs and economic growth. These lost opportunities are impossible to measure but could be the largest cost of all.

The simple solution? Tax code simplification:

If we think of the tax-compliance markup as simply another tax, we can also think of a reduction in compliance costs as a tax cut.

A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system, which is full of loopholes, exemptions and special interest carve-outs. Based on the estimates from our new study, if a static, revenue-neutral flat-tax reform were to reduce the tax complexity in half, the long-term growth in our economy would increase by around one-half of 1% per year.

As William Simon put it, “The nation should have a tax system that looks like someone designed it on purpose.” Given the difficulty even IRS employees have providing correct answers to tax questions, simplifying the tax code makes sense just from a practical standpoint. Add in the benefits of freeing up hundreds of billions currently being wasted merely filling our forms for more productive use and it’s a no-brainer. But, to paraphrase the Esteemed Professor, there’s no opportunity to coerce people’s behaviour in that plan, so it probably won’t happen.

FILED UNDER: Economics and Business, Taxes
Dodd Harris
About Dodd Harris
Dodd, who used to run a blog named ipse dixit, is an attorney, a veteran of the United States Navy, and a fairly good poker player. He contributed over 650 pieces to OTB between May 2007 and September 2013. Follow him on Twitter @Amuk3.

Comments

  1. Andyman says:

    The world’s smallest violin is playing for all those millionaires so cruelly, cruelly “coerced” into setting up Roth IRA’s instead of traditional ones, or whatever the tax rates incentivize these days. Along those lines, I’d be all for tax code simplification except that that line of thought seems to inevitably be a disguise for making it more regressive.

    Let’s eliminate a lot of the deductions and tax the more obscure sources of income at consistent rates. To make up the lost revenue, the Bush tax cuts need to go and maybe more so. A new top bracket? In the spirit of the FY12 budget debate, let’s not take anything off the table.

  2. superdestroyer says:

    Andyman,

    Millionaires are means tested out of Roth IRAs and cannot deduct their contributions to traditional IRAs. Besides to a millionaire, a $5K tax deferment is not worth it. That you made that mistake shows how complicated the tax code is and how most people do not understand it.

    Millionaires benefit most by not having traditional salaries but having other sources of income.

    How does the left plan on forcing people to pay themselves salaries so that the government can easily tax the revenue.

  3. jwest says:

    If liberals would give up their insistence on punishing the rich, we could move to the Fair Tax plan which would make the U.S. the only logical place to do business, skyrocket the economy, solve the immigration issue and provide more revenue to government than ever before.

  4. Rick DeMent says:

    If the simple minded would not be swayed by the utterly vapid argument that the progressiveness of the tax code is what makes it complex, maybe we could have a real grown up debate about it. But as long as this argument is taken seriously by anyone we simply can’t because apparently some people don’t have the first clue as to why the tax code is complex.

    The fair tax would not make thing simpler by a long shot. The tax code is complex because the people who fund campaigns want it that way. Period.

  5. Tano says:

    A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system, which is full of loopholes, exemptions and special interest carve-outs.

    The flat rate here is totally unnecessary, and represents an attempt by the greedy right-wing rich to sneak in a strongly dose of regressivity into what could otherwise be a straightforward simplification plan.

    There is no reason why one cannot eliminate almost all complexity from the income tax, almost all deductions, so that one could “fill out one’s return on the back of a postcard”, and still have a dozen different rates. All you do is write down your AGI, then look up your tax in a table. Would take about 30 seconds.

  6. Dave Schuler says:

    We’ve performed a major overhaul of the tax code every twenty years or so since the income tax was enacted nearly a century ago. We haven’t done one since the Reagan Administration. We’re due.

  7. Dave Schuler says:

    BTW, as Tano suggests above the complexity in figuring out your taxes isn’t in determining the rate, it’s in determining income.

  8. Dave,

    Are you referring to the 82 or the 86 reforms under Reagan? As I recall, the second were supposed to make tax preparation simpler for most people, I don’t recall that happening for my parents even in the first year after the law was in effect.

    Incidentally, I remember there being quite the political battle in 86 when they removed the deduction for credit card interest (which was really quite insane when you think about it for more than a second). That’s nothing compared to the battles we’d see if they ever really go after the home interest deduction

  9. john personna says:

    I’m for simpler taxes, but I think any equation that puts overhead for compliance workers on tax payers is misguided. As I understand it, they are looking for tax cheats and achieve a positive ROI on that basis.

  10. Dave Schuler says:

    Doug:

    I’m referring to the major overhauls that took place in 1943, 1964, 1982 and 1986—roughly every twenty years. Since then mostly we’ve tinkered around with rates and brackets, no major overhaul.

    My taxes were certainly simpler after the 1986 revisions. I suppose it depended on what was going on in your life.

  11. Eric Florack says:

    If the simple minded would not be swayed by the utterly vapid argument that the progressiveness of the tax code is what makes it complex, maybe we could have a real grown up debate about it. But as long as this argument is taken seriously by anyone we simply can’t because apparently some people don’t have the first clue as to why the tax code is complex.

    I’m sympathetic, Rick…. But perhaps the real reason is that opposed to a free society, what we have is a government trying to manipulate it’s people through the tax code.

  12. Alex Knapp says:

    “The hardest thing in the world to understand is the income tax.” — Albert Einstein

    Einstein never said this. It was made up after his death.

  13. Dodd says:

    The flat rate here is totally unnecessary, and represents an attempt by the greedy right-wing rich to sneak in a strongly dose of regressivity into what could otherwise be a straightforward simplification plan.

    Yes, of course. The only reason one could conceivably support a flat tax is because one wants to ensure those nassty, filthy rich people get richer. Not because it’s fairer, or simpler, or likely to generate more revenue. No, it can only be a nefarious motive.

    I’m for simpler taxes, but I think any equation that puts overhead for compliance workers on tax payers is misguided. As I understand it, they are looking for tax cheats and achieve a positive ROI on that basis.

    The cited figure isn’t what the IRS spends enforcing the tax code. It’s what private individuals and companies pay complying with it.

    Einstein never said this. It was made up after his death.

    I’ll take your word for it because, frankly, who cares?

  14. mantis says:

    I’ll take your word for it because, frankly, who cares?

    Accuracy is for suckers!

  15. An Interested Party says:

    Yes, of course. The only reason one could conceivably support a flat tax is because one wants to ensure those nassty, filthy rich people get richer. Not because it’s fairer, or simpler, or likely to generate more revenue. No, it can only be a nefarious motive.

    Just as the only reason one could conceivably support a progressive tax is because one wants to ensure those who produce more are sucked dry to take care of deadbeats who pay no taxes. Not because a majority of economists and even Adam Smith himself supported it as being reasonable. No, it can only be a nefarious motive…by the way, where is the evidence that a flat tax would “likely generate more revenue”? Just curious…

  16. mantis says:

    Yes, of course. The only reason one could conceivably support a flat tax is because one wants to ensure those nassty, filthy rich people get richer. Not because it’s fairer, or simpler, or likely to generate more revenue. No, it can only be a nefarious motive.

    No, you could just be foolish.

  17. jwest says:

    Just for the sake of accuracy, my support is for the Fair Tax plan. Various flat tax plans are totally different and bear no resemblance whatsoever.

    “The fair tax would not make thing simpler by a long shot.”

    It would be useful if people who make statements like this spent a little time researching what the Fair Tax plan is, then rejoin the conversation with a basic understanding of what they are talking about.

  18. mpw280 says:

    “supported it as being reasonable”
    Where does the reasonable clause fall to the wayside and punishment start? When 50% don’t pay and 10% pay more than the rest who determines how it is reasonable? When the majority decides it is ok to tax the minority when does protection from the majority, like for non-whites or non-straights, come into effect? What is fair and who determines it? What happens when the 25% left paying taxes tell the rest of the 75% to go take a hike? When will you stop? It appears that you feel it just fine to tax the smallest minority because they are just that, a small minority, yet for every other aspect of life the smallest minority gets a more than fair say in how they are treated. When talking about taxes the smallest minority is just a target to be drained of money so that the rest can suck on the government teat. mpw

  19. Dodd says:

    Just as the only reason one could conceivably support a progressive tax is because one wants to ensure those who produce more are sucked dry to take care of deadbeats who pay no taxes. Not because a majority of economists and even Adam Smith himself supported it as being reasonable. No, it can only be a nefarious motive…

    Hmmm… I was responding to a explicit bit of by-the-numbers class warfare. You appear to be responding to the messages coming from the fillings in your teeth.

    When you’re finished bludgeoning your straw man, please feel free RTFA for an answer to your question and rejoin the conversation.

  20. hey norm says:

    Considering Arthur Laffer gave us the Laffer Curve which is in (no small) part responsible for the current deficit – I have a very, very hard time taking anything that stupid mother-f***er has to say seriously.
    Also – I’m trying to figure out how an effective tax rate of 17% for the wealthy versus 22% for the middle class is liberals insisting on punishing the wealthy but I’ll consider the poster in that case as well.

  21. Mithras says:

    A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system

    When an individual has nothing but wage income, and the normal kind of interest, dividend and capital gain income, the income tax is quite simple.

    The complexity arises with the use of trusts, corporations, and partnerships, and the tax planning opportunities that come with them. You cannot have a simple tax code and still permit these artificial persons to exist for tax purposes. Period.

    To the extent that a “flat-tax rate” means taxing cash income only, and not accrual income, and forgoing all the rules that are aimed at the little games that corporate and partnership taxpayers play to delay and assign income, it’s a recipe for financial disaster, as well as huge inequities in how the government raises revenue.

  22. Dodd says:

    When an individual has nothing but wage income, and the normal kind of interest, dividend and capital gain income, the income tax is quite simple

    And yet even the 1040EZ takes 7 hours to complete. The average time for a 1040, used by most people with even slightly complicated tax issues (one need only have a moderate amount of charitable, child, or business-related deductions to need to use the 1040, not just “trusts, corporations, and partnerships”), is 23 hours.

  23. hey norm says:

    those times…7 hrs for 1040ez and 23 hours for 1040…are ridiculous.

  24. mantis says:

    those times…7 hrs for 1040ez and 23 hours for 1040…are ridiculous.

    Seriously. Where does the IRS get those estimates? I had my most complicated tax return yet this year, and the 1040 took me about an hour to complete, and about 20 minutes to review.

  25. Mithras says:

    And yet even the 1040EZ takes 7 hours to complete.

    Complex and time-consuming are different things. Filling out a 1040 with nothing but W-2, 1099 and 1098 information, and receipts for things like medical expenses and charitable contributions is simple but time consuming. It’s true you could make it less time-consuming by eliminating the mortgage interest, medical care expense, and charitable contribution deductions. I doubt you could get a majority in Congress to repeal them.

    In terms of the complexity of the tax code and regs themselves, these scenarios are trivial. If you line the books up on the shelf, you’d need only one volume out of ten to handle almost all of the possible situations. The rest is given over to the results of artificial persons using accrual accounting.

  26. Tano says:

    And yet even the 1040EZ takes 7 hours to complete.

    I find this impossible to believe.
    The link you include has nothing that I can see about the 1040EZ. Its been years since I actually looked at a 1040EZ, but from what I remember, it doesn’t seem physically possible to spend more than 10 minutes on it.
    Seriously, Dodd, what do you imagine any could possibly be doing for 7 hours that is relevant to filling out this form?

    OK, I just went to look at it.
    Income – salary, interest, unemployment and Alaska fund money. I imagine everyone has a W2 or similar reporting document for all of these.
    Check off your deductions and you arrive at your AGI.

    Witholding (just read your W2). “Making work pay” – a 5 minute worksheet, and Earrned Income credit.

    Thats it. You are done. You are trying to tell us that ANYONE, let alone the average person needs 7 hours to do this?

    Maybe you suffer from a permanently disabled BS meter because otherwise it would be going off all the time, whenever you open your mouth.

    To the larger issue – I use the standard 1040 and about 5 other forms, and it takes me about one hour. But that doesn’t count much time gathering my relevant documents since I take care to store them together whenever I receive them, Maybe that makes me a genius or something…

  27. Tano says:

    The only reason one could conceivably support a flat tax is because one wants to ensure those nassty, filthy rich people get richer. Not because it’s fairer, or simpler, or likely to generate more revenue.

    Maybe there is some alternative reason – Mantis did point out one – but no, it cannot be because it is fairer, or simpler, or likely to generate more revenue.

    “Fair” of course, is somewhat subjective – it is a judgement made in light of certain moral or ethical standards. If you think that an extra dollar made by a lower middle class family who are struggling to survive and raise their children should be taxed at the same rate as the extra dollar that Donald Trump finds in his bank account – if you think that is “fair’ then you have a perverted definition of fairness. I certainly could not consider such a standard to be fair.

    Simpler? My whole point was to demonstrate that having 12 rates or 2 rates (no one really proposes just one rate, there is always a 0% category and then a flat rate category) adds no more complexity at all – except in a trivial theoretical sense. You determine your AGI then look up the tax in a table. It adds absolutely no more complexity for the taxpayer if the table itself was generated by a ever-so-slightly more complicated algorithm.

    Generate more revenue? Why? Why would a thoroughly simplified tax code with 2 rates generate more revenue than a thoroughly simplified tax code with 12 rates?
    And since when are you interested in choosing a tax code that generates MORE revenue?

    So sorry Dodd – there really are no reasons whatsoever to think that flat-tasx proponents are anything other than greedy rightwingers, or foolish.
    Although my mind remains open to serious arguments….

  28. ptfe says:

    And yet even the 1040EZ takes 7 hours to complete. The average time for a 1040, used by most people with even slightly complicated tax issues (one need only have a moderate amount of charitable, child, or business-related deductions to need to use the 1040, not just “trusts, corporations, and partnerships”), is 23 hours.”

    Here is the relevant link, where you can see that the 23 hour estimate includes “record keeping.” Make of it what you will.

  29. Dodd says:

    Yes, I have this utterly depraved notion that “fair” means something along the lines of “everyone equal before the law.” The only other cognizable definition would be “a place you take children to ride the merry-go-round,” since the notion of treating everyone the same is anathema to the class warriors, for whom it comes down to wholly subjective factors and therefore has no meaning at all.

    As for how long a tax form takes to fill out, when I imagine there’s a selection bias problem amongst those supplying the anecdotes so desperately trying to elevate themselves to “data” in this thread.

  30. Mithras says:

    I have this utterly depraved notion that “fair” means something along the lines of “everyone equal before the law.”

    Being fair doesn’t necessarily mean treating people the same, if the people are in dramatically different circumstances. Just for illustration, imposing a tax of $10,000 per person is fair in the sense of identical treatment, but not with reference to their ability to pay.

  31. Tano says:

    Yes, I have this utterly depraved notion that “fair” means something along the lines of “everyone equal before the law.”

    We would not have any dispute if that were your standard. I certainly would insist that everyone be equally subject to whatever laws we pass.
    But if fact you are raising a very different standard. You are insisting that every dollar be treated equally. A struggling family’s 25,001st dollar, and Donald Trump’s 25,000,001st dollar. That is a very different standard.

    Just to clarify something here Dodd. The Flat Tax or Fair (sic) Tax is actually somewhat progressive because they have a 0% category, then the flat tax category. Therefore, if you make minimum wage, your effective tax rate is 0%. If you make twice minimum wage, your effective tax rate probably is in the high single digits. If you are Donald Trump, your effective rate is just about whatever the flat tax rate is – usually close to 20%.

    So do even these proposals violate your moral standards? Do you really think that “everyone equal before the law” means “every dollar must be taxed at the same rate” – therefore there must not be any 0% category for the first X thousand dollars earned? Even the minimum wage worker must pay the same rate as Donald Trump on every dollar they earn?

  32. An Interested Party says:

    @Dodd: Actually, I was responding to your silly argument with an equally silly one…I’ll be more than happy to stop bludgeoning straw men when you can do the same…

    re: mpw280 Monday, April 18, 2011 12:52
    Speaking of straw men…

  33. Dodd says:

    Do you really think that “everyone equal before the law” means “every dollar must be taxed at the same rate” – therefore there must not be any 0% category for the first X thousand dollars earned? Even the minimum wage worker must pay the same rate as Donald Trump on every dollar they earn?

    If I had my druthers, we’d repeal the XVIth Amendment and replace income taxes with pure consumption taxes (with some exclusions like food as per the current state systems). Taxing income is inefficient and perfidious.

    But I presume any flat tax would exclude a certain amount of income. I can’t recall seeing an even remotely viable plan that doesn’t include some such. There have been so many different suggestions for one or the other where flat/fair taxes are concerned, assuming any one idea is the sine qua non of the concept is erroneous. Nevertheless, I’ll assume someone of some consequence has suggested the idea you’re treating as the only flat tax reform plan out there. Whoever proposed it, that’s not what I’m for.

    So, no, your class warfare invocation of Trump has no impact on me.

  34. Alex Knapp says:

    Einstein never said this. It was made up after his death.

    I’ll take your word for it because, frankly, who cares?

    It matters because you’re imputing a particular point of view to someone who never expressed that point of view.

    Getting the facts right matters.

  35. Dodd says:

    It matters because you’re imputing a particular point of view to someone who never expressed that point of view.

    Getting the facts right matters.

    Based solely on your word, I added the (attrib.) to the quotation. And just now I went looking for some source denying its authenticity. I can’t find one; but it’s attributed to him all over. Quote Investigator finds that, yes, the quotation appeared a few years after his death but came from a reliable source (Einstein’s friend and tax accountant).

    Got a cite definitively proving it’s merely a misattribution?

  36. jwest says:

    I honestly think everyone would benefit from learning about the Fair Tax plan. Even if you disagree with it, you would know what the idea is and be able to formulate effective arguments as to why you disagree. Here’s a link:

    http://www.fairtaxplan.org/faq.php

    The Fair Tax is designed to be revenue neutral for current taxpayers, but brings in additional taxes by tapping new sources in the underground economy, tourists and illegal aliens. Citizens get to keep their entire paycheck with no deductions whatsoever. Each person receives a check (prebate) each month, with a family of four receiving about $559.

    No one who doesn’t own a business doing retail sales would ever need to file a tax return. The U.S. would instantly become the world’s tax haven, with trillions of dollars flowing into our banks. Without corporate taxes, companies would flock to the U.S. to set up shop.

    Those who spend more would pay more taxes. Those who spend less than double the poverty rate actually make money.

    It’s easy.

  37. Alex Knapp says:

    Got a cite definitively proving it’s merely a misattribution?

    Not at the same computer I was at when I looked this up. Let me get back to you. QI makes it seem a wee bit shaky, IMHO.

  38. Tano says:

    But I presume any flat tax would exclude a certain amount of income.

    I think that is a fair presumption. It would also be fair to assume that the reason some income would be excluded is because everyone – even the thoroughly greedy rightwingers, understands that real human beings have real existential needs – like water and food and clothing and shelter – that it would only be “fair” to allow them to address, at least at some minimal level, before we start asking them to contribute to the rest of society at the same rate that we ask of people who are taking in dollars at a level way way above what they need for their existential needs.

    Hell, even you seem to have some vague and unarticulated sense of that when you speak of excluding some articles of consumption from your sales tax.

    The “fair tax” proposal that was introduced in Congress calls for a 30% tax on consumption (gee that sounds like just the thing that small busineess might need!!), plus a complicated system of rebates to families to adress the concerns I mentioned above.

    Sounds like a really efficient system!
    Whatit does’t do though, is fall on the other side of the moral argument for a progressive system. Both the flat tax proposals, and the fair tax proposals all try to be at least somewhat progressive, so they all are based more on my moral outlook than yours. (Except, as I noted above, even you seem to accept exclusions from your tax – WHY?)

    Why exclude any items from your sales tax, or have rebates under the “Fair Tax”, or a 0% category under a flat tax? What is the moral justification?

  39. Dodd says:

    Both the flat tax proposals, and the fair tax proposals all try to be at least somewhat progressive, so they all are based more on my moral outlook than yours. (Except, as I noted above, even you seem to accept exclusions from your tax – WHY?) Why exclude any items from your sales tax, or have rebates under the “Fair Tax”, or a 0% category under a flat tax? What is the moral justification?

    Oh, Tano, I’m just a greedy right-winger. By definition, I therefore have no moral compass.

    The idea of a consumption tax is to capture revenue from consumption. As distinguished from maintenance (for lack of a better word offhand). You can try to call it ‘progressive’ if it makes you happy, but not taxing basic foodstuffs doesn’t strike me as a moral question so much as simple practicality.

    As for rebates, well, I hate that idea. One reason for doing all this is to get the government out of shuffling our money back and forth interest-free. Hence the idea of either a pure consumption tax (which, if no-one’s paying income taxes or higher prices to cover corporate taxes, can be a significantly higher percentage than states take) or a flat tax with some income excluded.

    And I’m sure you don’t really need to ask a libertarian why he the idea of excluding income from taxation is appealing…. Taxing income is itself immoral; anything not subject to it is a lessening of that moral error. Between depriving a man of one hour from his life and depriving him of his life there exists only a difference of degree. – Frank Herbert. But we need taxes for the necessary functions of government. So a consumption tax is the preferred model.

  40. Drew says:

    Heh, this Dodd guy is my hero. Everytime he posts something the monkeys jump wildly in their cages.

    I just walked over to my files and looked at my last 9 years folders of tax returns. They go from about 1/2 to 3/4 inch thick, each. I looked at some of the schedules. I don’t even know what half of them are. Ridiculous.

    I suppose I’ve averaged about two million in income a year over those 9 years. Hardly super-rich league – you know, Kennedy, Pelosi, Kerry type numbers. Just a half dozen or so K-1’s each year. 1099’s for savings. Perhaps some foreign income issues. The whole NY investment firm vs residency issue. That’s it. 1/4 to 1/2 inch thick.

    And you guys think this makes sense? I wouldn’t be surprised if Dodd’s premium wasn’t low. Just ludicrous.

  41. jwest says:

    Dodd,

    One of the biggest concepts of the Fair Tax is that every retail sale or service is taxed – no exceptions.

    Once you open the floodgates by allowing food or housing or anything to be exempt, everything else will follow. The way this is handled is the prebate.

    The prebate system is less a progressive measure, because every citizen from Bill Gates to the hobo panhandling on the street gets the same money. However, it solves the illegal immigration problem by changing the dynamic of immigrants. With the Fair Tax, conservatives will throw open the borders to anyone wishing to live and work in the U.S. With millions of new “guest worker” card holders purchasing goods and services (but not receiving prebates due to their lack of citizenship) the financial burden citizens is reduced.

  42. Tano says:

    You can try to call it ‘progressive’ if it makes you happy, but not taxing basic foodstuffs doesn’t strike me as a moral question so much as simple practicality.

    Don’t quite see what you mean here. Why is it any less practical to tax a potato rather than a toaster?

    And my use of the word “progressive” has nothing to do with my preferences. It is simply the standard vocabulary of the subject. If higher incomes are taxed at higher rates, that is what “progressive” means.

    Between depriving a man of one hour from his life and depriving him of his life there exists only a difference of degree. – Frank Herbert. But we need taxes for the necessary functions of government. So a consumption tax is the preferred model.

    And this, of course, is simply incoherent. Whether you take money from people based on their income or their consumption, you are still taking their money, and thus taking “an hour” of their life – and thus, by your lights, not doing anything different than taking their life – except by degree,

    This is the real problem I have been poking at you throughout this thread. You rant on and on about supposed principles that underlie your positions, but all one need do is scratch the surface and see that you fail to follow your own principles – or the principles themselves are incoherent fantasies.

    Yes, there does need to be a government, of at least some size. And the government needs to be funded by extracting money somehow from the economy. There is no getting around it. You just peddle in utter nonsense by making arguments that claim that you are somehow avoiding this necessary evil. You are not.
    A consumption tax is no less “evil” than an income tax – it represents taking money away from people even if they do not consent to it.
    A flat tax is no less evil than a less flat tax – in fact the only real difference is that as some people make money that is wildly beyond what they actually need, the flat tax represents a refusal to ask them to contribute at even a slightly higher rate, despite the enormous benefits that those people derive from society.

    You seem not to have thought very deeply about these issues – relying on a blind acceptance of some pre-packaged ideology – one formulated for people who I suspect are in a different place than you. If you want to deploy moral or principled arguments for your position, it really helps to have spent a little time doing the hard work of binging your moral sensibilites to bear on the issue, in detail.
    Get back to us after you try it.

  43. jwest says:

    Tano,

    You fail to realize the difference between taxing income and taxing spending.

    Taxing income is totally involuntary and the most basic invasion of privacy that could be imagined. Taxing spending captures revenue by voluntary means. If you don’t want to pay any tax, don’t spend for new goods or services over twice the poverty level. Buy a pre-owned house or a used car instead of new.

    Also, a system that taxes consumption places the incentives in the right place. When you want to encourage something (like making money), don’t tax it.

  44. Drew says:

    To be clear –

    My reference to “Dodd’s premium” was really the citation by Laffer that we pay 30 cents extra on the dollar of tax collected just because of compliance.

    And I’ll bet that might even be low……..

  45. Dodd says:

    And this, of course, is simply incoherent. Whether you take money from people based on their income or their consumption, you are still taking their money, and thus taking “an hour” of their life – and thus, by your lights, not doing anything different than taking their life – except by degree, This is the real problem I have been poking at you throughout this thread. You rant on and on about supposed principles that underlie your positions, but all one need do is scratch the surface and see that you fail to follow your own principles – or the principles themselves are incoherent fantasies.

    No, Tano. Taxation isn’t evil and I’ve never suggested it is. But there’s a massive difference between taxing my income and taxing my consumption. Taxing me for working is tantamount to indentured servitude, whereas with a consumption tax I choose what I get taxed for.

    I realize that that the muddled, envy-driven (oh those dastardly, “greedy” bastards with incomes “wildly beyond” what you have decided they “actually need”! They’ll be first against the wall when the revolution comes, for sure!) notions of fairness that you call principles probably can’t help you reach to that rather obvious conclusion on your own, but it’s not subtle.

    You seem not to have thought very deeply about these issues – relying on a blind acceptance of some pre-packaged ideology – one formulated for people who I suspect are in a different place than you.

    Ah, the boilerplate, not-at-all-pre-packaged response of the tolerant, open-minded liberal to someone who has observed reality and come to a different conclusion than him. If I had a dollar for every broad-minded, independent-thinking “progressive” who’s spouted some variation of this you-can’t-or-won’t-think-for-yourself pabulum… well, I’d be in a lot higher tax bracket.

    If you want to deploy moral or principled arguments for your position, it really helps to have spent a little time doing the hard work of binging your moral sensibilites to bear on the issue, in detail.
    Get back to us after you try it.

    You keep talking about moral principles but have yet to actually espouse one. Instead, your own, utterly subjective notions of what might assuage your envy this month seem to be the only basis for your supposed morality. And next month, when that didn’t turn out to be enough to slake your thirst, it’ll be more. And then more. And so on until you die or get over your covetousness.

    The fact that your so-called morals are out of synch with mine doesn’t make mine incoherent. If your baseline for coherence is a cacophony of warped cymbals being thrown down a flight of metal stairs, I’m sure anything even remotely orderly seems simplistic.

  46. An Interested Party says:

    Everytime he posts something the monkeys jump wildly in their cages.

    Much like you often do when, say, Alex Knapp in particular or maybe Steven L. Taylor posts something…I doubt that they are your heroes though…

    Meanwhile, in Libertarian Land, a progressive tax code is nothing more than “envy” and “covetousness” and “indentured servitude”…no wonder so many people want to Go Galt…

  47. sam says:

    @Dodd

    “Taxing income is itself immoral; anything not subject to it is a lessening of that moral error.”

    Got an argument for that? Or rather, could you spell this out: “Taxing me for working is tantamount to indentured servitude”

  48. Tano says:

    Taxing income is totally involuntary and the most basic invasion of privacy that could be imagined.

    You sir, have a very poor imagination.

    Taxing spending captures revenue by voluntary means

    If eating, drinking, wearing clothing and finding shelter were voluntary activities.

    Also, a system that taxes consumption places the incentives in the right place. When you want to encourage something (like making money), don’t tax it.

    So, you want to strongly discourage consumption? Is that your brilliant policy idea for helping the American economy? Slpa a 30% tax on all consumption? What would that do to the small businesses in America?
    Wait – pretend for a moment that you are not advocating this policy. Pretend for a moment that you never heard of a “fair” tax. Pretend that Obama were to propose a tax like this. Now think about.it…

  49. Dodd says:

    Meanwhile, in Libertarian Land, a progressive tax code is nothing more than “envy” and “covetousness” and “indentured servitude”

    “some people make money that is wildly beyond what they actually need”

    Q.E.D.

  50. Tano says:

    Taxing me for working is tantamount to indentured servitude, whereas with a consumption tax I choose what I get taxed for.

    Nonsense. You are free to work, or not to work, just as you are free to consume or not to consume. In fact, you probably have more practical freedom when it comes to working than when it comes to consuming. You can always become a beggar, or if you somehow own or have access to land, a subsistence farmer – and thus avoid an income tax. As a subsistence farmer or a beggar you can also maybe avoid actually buying anything – but if you took these example to extremes, I bet you would be forced to actually purchase something before you would actually be forced to take a job.

    So your point does not stand, even in extemis. Back in the real world where everyone works and consumes, the difference is specious.

    Instead, your own, utterly subjective notions of what might assuage your envy this month seem to be the only basis for your supposed morality.

    Aren’t you ever embarrassed by reading your own writing? You have this comic book notion that anyone who thinks that rich people should pay a 39% top marginal rate rather than a 35% rate – y’know, like they did back during the greatest economic expansion in our country’s history – must be driven by blinding envy, and ready to line the millionaires up against the wall. Don’t you wish, at some point, to participate in grown-up discussions?

    If your baseline for coherence is a cacophony of warped cymbals being thrown down a flight of metal stairs, I’m sure anything even remotely orderly seems simplistic.

    Orderly thinking? LOL. Why not get back to the questions raised earlier, and address them?

    The only reason one could conceivably support a flat tax is because one wants to ensure those nassty, filthy rich people get richer. Not because it’s fairer, or simpler, or likely to generate more revenue.

    How on earth is a flat tax “fairer”? Please explain how a struggling family, making 25K/yr while trying to raise kids should be expected to pay a marginal rate that is the same as someone making millions of dollars. Don’t run and hide behind calling me “envious”. It is simple fairness. What moral calculation would cause you to differ? Imagine, if it helps, that you are some millionaire. Would you really feel good and moral arguing that the poor family should pay exactly the same rate as you?
    How is the flat tax simpler? It isn’t. One can have complete simplification but still have multiple rates. How would it generate more revenue?
    And if you are opposed to rebates – which strike me as a rather lame attempt to fix some fatal flaws in the “fair tax” – then you are left with poor people paying the same rate as the rich on everything. Once again, how can you imagine that is fair?

    Sorry buddy, but I do not see any clear or orderly thinking here. Just a lot of pure ideology, a refusal to take seriously the obvious consequences of your policy proposals, and a lto fo comic book mis-characterization of those who disagree with you.

  51. Hey Norm says:

    50 comments about an op-ed by a clown with zero credibility on an editorial page that is only slightly crazier than Michelle Bachmann. Tragic waste of bandwidth.

  52. An Interested Party says:

    “some people make money that is wildly beyond what they actually need”

    Q.E.D.

    A particular commenter on a blog types that, and suddenly it is an indictment of the entire progressive tax code…

  53. Tano says:

    A particular commenter on a blog types that, and suddenly it is an indictment of the entire progressive tax code…

    Not only just a particular commenter in a blog. A particular comment taken out of context. The context was a discussion of existential needs – and why people should not be taxed on the money that earn that goes to supplying the basic amount of food and water and clothing and shelter that one needs for minimal survival. That is what “what they actually need” was referring to. Thus, that rich people make money far beyond that is simply a fact. It means that this money, far in excess of their minimal existential needs, is the money that should be subject to taxation.

    Don’t you think that probably 80 -90 percent of all people, heck, maybe close to 100%, would agree with that?

  54. Dodd says:

    A particular comment taken out of context. The context was a discussion of existential need

    You are a truly shameless sophist, Tano. But not a very good one.

    A flat tax is no less evil than a less flat tax – in fact the only real difference is that as some people make money that is wildly beyond what they actually need, the flat tax represents a refusal to ask them to contribute at even a slightly higher rate, despite the enormous benefits that those people derive from society.

    There’s nothing in that post about existential needs; just insults and muddy-headed persiflage. You did talk about that topic upthread, in between repeated episodes of hissing at “greedy right-wingers” and, of course, that clichéed, copy-pasta insult about the depth of my thinking that was almost stunning in its immunity to irony.

    But you didn’t even allude to it in that rant. No, by then you’d left that well behind and had moved on to full blinders-on raving at the heartless rich who have so badly wronged you by their persistent refusal to let you and your ilk force them to experience the same outcome as everyone else, the irreducible bottom of all “progressive” notions of “fairness.”

    In short, you have become boring. Have a nice life.

  55. Eric says:

    I think Tano has done an excellent job of drawing out important weaknesses in your argument, Dodd, and most of us here would have appreciated a better reply to them from you.

    Tano’s objections are serious objections to the philosophical underpinnings or your argument, which I think he has taken the time to carefully and more or less respectfully address. I would have thought (beyond expectation, I admit) that you would have done the same; instead, you take the low road and are responding to perceived (but not actual) slights instead of addressing those objections in a serious manner.

    Others commenting here who clearly do not agree with Tano at least seriously tried to bring out some distinctions between differing tax plans (e.g. jwest), but we are treated from you, the original poster, with nothing but snark, exaggeration, and ad hominem insults that do nothing to support your argument but make you look rather petty and thin-skinned. You would do better to take James’s more measured approach in responding to critics and critiques of your posts and leave the petty insults for us commenters to level at each other. We could at least take you seriously, then (even if we commenters can’t take ourselves seriously).

    Maybe some of us really are interested in your argument and questioning our own assumptions about it. But any substantive points you may have are completely overshadowed by you apparently feeling personally attacked by any objection to your argument.

    If you want people to take you seriously, then maybe you should start taking them seriously.

  56. jwest says:

    Eric,

    It’s next to impossible to get to the core of arguments around here. Once people (liberals) are confronted with a choice that clearly delineates where they stand on an issue, they shut down, obfuscate or resort to insults in order to avoid revealing the truth.

    In a previous discussion, I posed the question that if the government magically obtained the means to fund itself at twice its current outlays by way of a new, rare mineral, would they still want income taxes on the “rich”?

    No one would answer.

  57. john personna says:

    In a previous discussion, I posed the question that if the government magically obtained the means to fund itself at twice its current outlays by way of a new, rare mineral, would they still want income taxes on the “rich”?

    No one would answer.

    I think you should have actually gleaned my answer from my reference to oil rich nations, and the gifts they give their population.

    Given magic money (a golden goose?), there is no need to tax anyone, no.

    Of course once we’ve got that out of the way, where are we? There is no magic money. We have harder choices, and a $14.2 trillion dollar national debt.

  58. john personna says:

    If I were to vent for a moment, the problem with you ‘wingers is that you don’t see the $14.2 trillion dollar national debt as a practical problem.

    For you it is a religious question, and hence stonewalling that any solution must pass a purity test.

    Let me ask you one … if someone proposed a balanced budget initiative that was 8 parts spending reduction and 2 parts tax increase, would you support it?

    What’s more important, the debt, or purity?

  59. Eric Florack says:

    In a previous discussion, I posed the question that if the government magically obtained the means to fund itself at twice its current outlays by way of a new, rare mineral, would they still want income taxes on the “rich”?

    I do tend to agree that it’s nigh on impossible to get them to admit such things. Let’s break this out a little:

    Let’s take… as a matter of governmental fiat. every dollar… every last farthing, that the rich make. First of all, there goes the investment capital normally used for job creation. (Can anyone here tell me of a living-wage job they got from a poor person?) But of greater import, perhaps, is the idea that such confiscation, such punishment being heaped on the successful, wouldn’t make even the smallest dent in the deficit spending being heaped on by the Democrats.So, why, I ask, is “tax the rich” the knee-jerk solution leftists always cough up when the spectre of their deficit spening has some light shown on it as is happening now?

    And no,persona, I wouldn’t support it.

  60. john personna says:

    And no,persona, I wouldn’t support it.

    Not even with tax rates at historic lows, eh? We can keep our arms around that fact, right?

    This is what’s wrong with the ‘wingers, in a nutshell.

  61. jwest says:

    John,

    I wouldn’t support it either. Until the government gets spending under control, approving any tax increase simply adds to the problem.

    The government can’t continue with their attitude that they can spend without limit. This is true with Medicare, where we can’t afford to give heart-lung transplants to every 80 year old alcoholic smoker, to the defense department where we can’t afford every high tech weapons system designed to refight World War II, to every social program someone can dream up.

    A realistic budget needs to be established, priorities set and unpopular choices made. That’s how it’s done in the real world.

  62. john personna says:

    lolz, when a solution is 8:2 spending reduction, isn’t that “getting spending under control”

    “approving any tax increase simply adds to the problem”

    What is this, the movement of guys who failed math?

  63. john personna says:

    Oh, and this is the cherry on the the top:

    “A realistic budget needs to be established, priorities set and unpopular choices made. That’s how it’s done in the real world.”

    For everybody but you, right?

  64. wr says:

    jwest: “It’s next to impossible to get to the core of arguments around here. Once people (liberals) are confronted with a choice that clearly delineates where they stand on an issue, they shut down, obfuscate or resort to insults in order to avoid revealing the truth.”

    Dodd: “:In short, you have become boring. Have a nice life.”

    Yup, it’s the libs who shut down when they realize they’re losing the argument…

  65. Drew says:

    There is so much going on here one hardly knows where to start. I suppose some random observations will have to do.

    1. The “rich” carry most of the tax load. The usual BS is to attack that proposition by invoking payroll taxes without quantifying how that adjusts the “rich’s” overwhelming carry of the income tax. But this very site – OTB – has posted those numbers in the past. And the conclusion is the same: the “rich” carry most of the load. Period.

    2. So what is “rich?” Well, I suspect everyone has seen those calculations that show that “if you take 100% of the income of the top x % it will only run the government for a week etc etc.” That’s a problem. And that’s why tax incidence always migrates to lower income levels. Our current President lies – words chosen carefully – when he represents that “only those over $250K…..etc..” That’s bull. Everyone making $100K or more (perhaps less) will be affected.

    3. And without real benefit to the budget. The pols, being what they are, will spend most of it. There is always a cause, or a voting constituent, who has his hand out. And then lefties will profess to be mystified that the tax increase didn’t solve the problem. And you know what their solution will be…………. Further, there is no politically or economically feasible tax increase that will achieve balance. Go over to Schuler’s site and browse for treatment of this subject. Can taxes be a component? Of course. A major component? No.

    4. As for the politics, I think it is worthy of separating the neanderthals from the thinkers. The right always argues that there is only so much taxation that economic entities – people,businesses – can withstand before making suboptimal choices. We can argue over that level, but that’s the position the majority come from. The left? Just look at the comments of the current Democratic politicians, commenters on this site, various “advocates” and its a steady stream of invective about how failure to endores more taxation or cutting spending is tantamount to forcong children and the elderly to eat dog food before throwing them out in the snow………….and then perhaps eating them, or forcing them into disease? Neanderthals.

    5. We have a spending problem people. And since The War on Poverty – a war that has never been won – we just keep increasing spending in pursuit of an illusion. A realistic person would understand that this is nothing but creation of a monolithic voting bloc – power – because the stated objectives of the left never are achieved…………but the solution always remains the same. More programs, more taxes, more power, more control, more spending…………..but never a solution.

  66. john personna says:

    Drew, did you miss the news that taxes are at a historic low?

    It was covered here: Tax Burden At Historic Low?

  67. Drew says:

    “Drew, did you miss the news that taxes are at a historic low?
    It was covered here: Tax Burden At Historic Low?”

    Do we really have to do this, jp? You know, despite all my hyperbole and such I don’t put you in the same camp with ponce etc as just blind, stupid monkeys. But I was embarrassed for Doug, and now for you, for falling for this sophistry.

    Let’s review: GDP = C + I + G + Net Export/Import

    Fact: G as a percent of GDP has grown from about 23% to 40% since 1950 See here: http://www.usgovernmentspending.com/us_20th_century_chart.html

    Since borrowing has been a major component of G, the graph of taxes to GDP that the illustrious professor and acolytes cherish is true by definition. But that’s not really the point.

    Spending must be financed, either by taxing (income) or borrowing. We have borrowed like drunken sailors. The real question becomes what is the source of non- borrowing financing, is it sustainable and so what is the ratio of taxes to personal income. For that go here: http://hotair.com/archives/2011/04/18/govt-handouts-exceed-taxes-as-percentage-of-average-household-income-for-first-time-since-1936/

    And as we can see, the taxes upon households in the time frame that the illustrious professor cites has doubled. Not only that, the incidence on fewer and fewer has progressed unabated. The Golden Goose is being choked.

    The professors argument is pure sophistry. It implies that what we borrowed to create that GDP (to the point of insolvency) could have alternatively been taxed instead. Balls. (BTW – If you want to make that argument, please do.) When I read it I immediately knew the prof was a crook. I knew that mental midgets like ponce, herb and his crowd would jump on it because they are, well mental midgets. Hence, I didn’t even comment on the thread. I was embarrassed for Doug, who I have great respect for, but who fell for the trap. And now you, who fell for the trap.

  68. john personna says:

    This is a Great Recession. It would be a mistake to graph “transfers” without somehow subtracting automatic activation of the safety net. We know that Food Stamp usage is at an all time high, and is in “transfers of income to households” category. As are special extensions of unemployment benefits. And of course, revenues fell with the Great Recession. A few less houses are being sold with capital gains (oh, that one’s still a gimmie, isn’t it?).

    That said, I’m not asking for much. I’m throwing around tax cut to spending increase in an 8:2 ratio. Why? Not because it’s a magic number, but because it strikes me as about the only thing palatable.

    We have a lot of moving parts. We have shifting demographics. A major recession. High unemployment. And yeah, taxes at a long time low.

  69. Drew says:

    Gawd. jp, look, despite all my hyperbole, faux invective etc, you know my MO. I try to provoke spirited debate. Otherwise, why are we here?? I don’t agree with you on alot, but I know you are a bright, well read person, unlike many here. But you’ve done once again what frosts me……….you change the debate midstream and deflect.

    The sole point of that graph in the context of the thread is taxes as a percent of income. It doubled. Period, full stop. And the professor’s taxes as a percent of GDP is pure sophistry, failing to account for time financed GDP. You fell for it, Doug fell for it. It is what it is.

    I guess for a person like me, an LBO/finance and accounting guy its just second nature to look at that argument and see the fallacy and get something like a belly laugh or roll the eyes. And I guess that’s why so many others just don’t see it. But its not really rocket science if you understand the fundamental concepts.

    So – NO – taxes are not at a long time low. They are relatively high in relation to income, and more concentrated. And that’s why looking to the well that is running dry is a fools errand.

  70. john personna says:

    You have a graph of “G”, government spending, which may be financed by tax or borrowing.

    Borrowing may equal future tax, but it sure doesn’t equal current or past tax.

    ?

  71. Drew says:

    john –

    Are you implicitly telling me you do not understand the concept? Would you like me to explain it? Its not a trick question, and my inquiry is not intended to be in your face, but its becoming clear to me you do not in fact understand the profs fallacy. I’m not trying to be a prick. But its becoming evident you really don’t get the point. (BTW – as did not Doug, and no one in Doug’s post thread!)

    Hint: based upon your last post – remember the mirror equation, if future taxes must go to provide debt service to past expenditure, so must future GDP decline. And that would make the tax to GDP ratio, uh, er, increase………………….oopsey!!

  72. john personna says:

    It may be that I’m missing something.

    But to be clear about my focus, it is about the current situation, and how curves should be bent for GAO projections to work out better.

    Visualizing Economics has Top Marginal Tax Rates 1916-2010. It is a little odd to put income, cap gains, and corporate on one page (unweighted), but it does look like they are all at lows.

    Maybe that is what helped create the debt? The debt you see as future tax?

  73. john personna says:

    (I think GDP growth comes primarily from technology cycles.)

  74. john personna says:

    Really.

    It seems like a simple story. Imagine a country that convinced itself that taxes should always be lower, even as they convinced themselves that spending should always be higher. Being a fairly dumb folk, it takes them 10 or 20 years to see the problem.

    Then, as it hits the fan, some say “oh, it wasn’t the tax cutting that was the problem …”

  75. Drew says:

    I got it, jp.

    No, you don’t understand the fundamental concept. This is in no way shape or form intended to rub your nose in it. Its clear that an entire thread of commenters, and Doug, didn’t get it either.

    Tax issues will be a target rich environment at OTB over the next few weeks. I’ll put it all out there. In addition, I may make reference to another blogsite at which I’m a contributing editor.

  76. Drew says:

    Addendum: re: Visualizing Economics

    Been there a number of times. Why don’t we just say: Visualizing Leftist Economics?

    She’s light, jp. Really light.

    You can do better.

  77. john personna says:

    No problem, and I will keep a wary eye for distractive arguments.

  78. Eric Florack says:

    @ Persona… The issue is not that taxes are too low… it’s that spending is too high and government far too large. Most of what our government spends money on, it shouldn’t be involved with at all.

  79. john personna says:

    Eric, is the math really that hard? At various moments in the past the deficit has passed through zero (link) At those moments receipts equaled spending.

    You can turn that balance into a deficit by either cutting taxes or adding spending. In the last 10 years we have done both. The two have moved apart.

    Now, to return to balance we need to move them together again. What kind of person says “no, only one can move?”

    IMO, a zealot. Someone applying a religious test.

  80. Eric Florack says:

    Actually, Persona, we have the highest corporate tax rates in the world, bar none.
    As for personal income and consumption taxes, have you considered the issue of state taxes, forced by unfunded federal requirements, such as healthcare?

    Oh, you forgot, huh?

  81. john personna says:

    No we don’t have the highest _effective_ corporate taxes in the world.

    Did you think I was some noob you could fool with that one?

    And of course, those aren’t our only taxes. We have also reduced income tax and tariffs.

    Total tax burden is down. Fact.

    And that shouldn’t be surprising to folk who rooted for it, called for it in each election.

  82. Eric Florack says:

    Actually, they do.
    http://dailycaller.com/2011/03/16/america-to-have-the-highest-corporate-tax-rate-in-april/
    Until this month, Morocco had that distinction. No longer.

    Fact: Total taxes are up.