Simplifying the Tax Code
Kevin Drum makes two very good points about tax simplification:
- “[A]lthough it might make a great many people slightly happier, it inevitably makes a small number of people much angrier because they lose some
loopholetax credit or other. And that small number of people will raise bloody hell about it.”
- “The complexity of taxes has nothing to do with the number of brackets. It has to do with calculating your taxable income.”
The first problem is one that policy-makers face whenever they make some change to the status quo: No matter how seemingly obvious the solution, some group is going to be disadvantaged compared to their present state and that group will almost certainly care more than those who benefit. That’s why it’s so hard to get rid of things like helium subsidies.
If we could solve that challenge by fiat, the second one is easier, since it’s related. There are plenty of ways to make calculating taxable income simple. A flat tax [defined here as one with no deductions in addition to a single rate] or a consumption tax are but the most obvious. Both of those options, though, not only put some people in a much worse tax situation than they face now (see Problem 1) but give rise to not-unreasonable arguments about fairness. Which, of course, is what got us in the current mess with the tax code.
So long as we’re willing to write a code that taxes all income and/or expenditures equally and makes no attempts to redistribute income or advantage certain types of economic behavior, it’s easy. Once we try to correct perceived inequities, demands for rent seeking will commence and there will be politicians eager to curry favor.