Is Tax Complexity So Bad?

April 14, 2010

In a New York Times blog, economist Casey Mulligan writes:

But it's easy to overlook an important side effect of tax complexity burdens—and the taxpayer anger created by them. Such aggravation helps sustain the sizable and energetic group of Americans who want their government to get by with less.

Arguments of economic efficiency, fairness, and effect on tax rates aside, various credits and deductions increase the complexity of the tax code and the costs of paying taxes.  While I am sympathetic to policies that would make paying taxes more painful, determining taxes owed should be made as easy as possible.  That means ridding the code of these complex credits and deductions. 

Paying taxes should be made painful not for its own sake, but because it would make the cost of government more transparent.  Increasing the costs of paying taxes is never a good thing.  But making the costs of taxes more transparent is important. 

Take federal income tax withholding.  It eases the burden of paying taxes by divorcing the taxpayer from the act of actually paying their taxes.  Sitting down and writing a check to the government would be near costless (if someone knew the amount to send).  But it would be painful.  You could not help but think of what you could have done with that money.  And that would lead you to think about what you are getting for that money.  And that would lead to a more honest calculation of the costs and benefits of government and that would lead to a more educated citizen.  So the argument goes.  Instead, we have an automated system that shields taxpayers, to an extant, from the excruciating act of paying money for something they do not necessarily want.

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