Everyone wants to simplify the tax code. They just want to simplify the parts other people like. We could cut out a big chunk by getting rid of farm subsidies. My wife (went to high school and college in Iowa) doesn't think that's acceptable. We could simplify by getting rid of all the handouts for older people (mortgage interest deduction). My parents, who save tens of thousands in taxes each year from their McMansion, don't like that idea. I'd love to have a flat tax with no brackets. But my liberal friends like the whole progressive taxation thing. The tax code is a soup but it's one that reflects an equilibrium of all these interests.
Also, the idea of government creating a complex tax code just for funsies is naive. The tax code is huge because accounting is complicated, and taxation is basically a superset of accounting. The GAAP rules are 25,000 pages. That's probably the lower bound in how much you can simplify the tax code (without incorporating the GAAP by reference, which basically would outsource writing tax law to a private organization).
The reason we have complicated taxes in the US is because US politicians make it complicated. Trump actually did a good job to simplify by increasing the standard deduction and effectively removing AMT. Still its complicated because every politician wants their little tweak.
Yes, but if the US tax code weren't so darn complicated wouldn't that reduce the chances of the IRS totally screwing up?
I just finished my taxes and filing taxes in the US is such a stshow. But where do we start? We want to simplify filing, but that might depend on simplifying the tax code, which might be orders of magnitude more difficult. Sigh!
My argument is that Tax calculation should NOT be so complex that we need any entity (Govt or Private) to actually run it. Why don't we simplify the tax ssytem like other developed countries instead ? E.g. I worked in Hong Kong for aabout 2 years and for my taxes, the Govt. already calculated everything and I just had to check some boxes. Why cannot we do that here in the United States ? And Yes, I am aware of things like complex deductions etc but still, majority of Americans don't have that problem.
now you might see why I think simplifying the tax code would be extremely difficult.
Of course. You are 100% right. I was describing a fantasy world, you are describing practical reality.
Edit: just to be clear, I'm not trying to be sarcastic in this post, even though it contradicts what I said earlier about how "trivial" it would be to simplify.
The reality is as you describe. Any serious simplification would be extremely difficult to achieve.
This is the problem with a complex and byzantine tax code: entities that can manage and manipulate the complexity profit by it. Entities that don't have those kinds of resources are stuck.
It would be good if folks from all political walks of life could come together for some kind of tax simplification. I highly doubt this will ever happen, though, as tax law is used as just another club by big businesses to beat down the small. They have the money, and they're willing to pay-off the political class to make various arguments about how simplifying things would be bad for the little guys. That's not changing. (This has nothing to do with current politics, by the way. I am not following the U.S. tax discussion and it's not relevant to my point. My point is that whether it's business, tech, or government, complexity itself is an enemy)
Simplification seems very difficult because entrenched interests benefit from the complexity. Look at health care: it's not hard to imagine a vastly better and cheaper system than the US has (indeed many other countries have it), but even minor changes to health care will involve battling politically powerful groups, and the political risk is extremely high. Same thing can be said about the complexity of the tax code. There have even been HN articles recently about how it's not hard to simplify the tax filing process, but Intuit and other tax preparers lobbied against it and killed it.
I believe there a lot of things that we could do to EDIT FIX TYPO _simplify_ tax work (say, kill the corporate tax and replace it with a consumption tax and/or taxes on capital gains/dividends until we have the same revenue). But, as 'rayiner says, changing the five-line tax table into a one-line tax table is not where the current complexity is.
Complexity of tax law is an absolute killer to productivity. I have a small business (not in USA) and I don't know how many times I've wished it could just be a simpler system, even if it meant I have to pay more! The savings in time, accounting complexity, professional fees, mental overhead, and stress would more than make up for it. It would also make efforts to automate compliance more feasible (as opposed to a system of nuanced rules that is constantly changing).
I agree with you that the tax code is in need of a drastic restructuring.
But realize that when you argue for a simplified tax, you're saying we need to get rid of the many incentives baked into the current code. These run the gamut, including things like:
Investing (lower capital gains rate + ability to deduct losses from gains)
Education (credits/deductions for education spending + student loan interest)
Homeownership (mortgage interest deduction - just imagine home prices without it)
Alternative energy (credits for purchasing solar panels/green cars)
Charitable giving
And so on... I'm not saying that all of these credits/deductions are needed, just that their absence would cause changes to the US far bigger than your "lots of accountants +entrepreneurs would have some more free time" intended effect.
This is the fundamental problem. Everybody wants a simpler tax system. But nobody can agree on which parts to remove, or how to change it. The current system is close to what you get when everybody tries to get what they want. Even if you blew it up and started over, I think you'd get back to the current state pretty fast.
Edit: everybody can stop replying to my comment proposing your favorite simplified tax system and explaining why it's great. You're missing the point here. If you want to discuss your favorite tax system, make a top-level comment.
I'm pretty sure the real reason its complicated is because politicians are all trying to get deductions or special rules for their favorite special case. I thin its simplistic to blame tax preparers.
Actually simplifying tax is one good thing Trump has done. Hopefully will continue.
We need a simpler tax code with fewer deductions before a simple tax form will make sense. Otherwise people will just get their simple tax form and pay TurboTax or someone else to squeeze every penny out of the deductions.
How would you simplify it? The complexity tends to come from rules that create opportunities not to pay taxes. I think any simplification will hurt some tax payers who will fight it out of their own self interest.
The fact of the matter is the tax code is stupidly complex for no good reason. It's used to promote policy and benefits the wealthy (Warren Buffett has noted this numerous times). That's it. If the focus was on collecting taxes it would be stupidly simple.
The number of rules and their complexity are simply stupifying. It's horrible.
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