Why Tax Complexity Still Matters

April 10, 2015

Many Americans will be filing their tax returns next week. As Americans work on this, it’s worthwhile for us to consider why tax complexity still matters. There was a kerfuffle last month over this subject; Senator Ted Cruz, who advocates a simpler tax system, pointed out that the tax code has more words than the Bible (which is true), and the Washington Post’s fact checker column took the opportunity to editorialize on the subject, asking “does any of this matter?”

The Fact Checker column was mocked on some conservative blogs for acknowledging a true fact, stepping into an editorial role, deciding that the fact didn’t matter, and declaring it a nonsense fact, worthy of neither a Geppetto Checkmark nor a Pinocchio. Since this kerfuffle, Senator Cruz has at times fired back at fact checkers he deems untrustworthy.

The number of words in the tax code is perhaps a mediocre proxy for the abstract concept that Senator Cruz was trying to address, but it’s not an unreasonable one. The length of the tax code is certainly proportional in some way to tax complexity. The nuances of what merits a Geppetto Checkmark and what doesn’t are apparently beyond me, but the question posed in the column – whether this matters – is actually worth answering.

The Fact Checker column asks another worthwhile question: “Do Americans actually read the tax code, especially now that software programs make it easy to file taxes with a few mouse clicks?” Or put more broadly, does tax complexity still matter if professionals or software allow taxpayers to navigate the code successfully. It does still matter. I have argued in the past that a muddled tax code reflects muddled thinking. Even if taxpayers file successfully, the complexity is itself evidence of poor design on the part of lawmakers. That remains true today.

However, Nina Olson, the U.S. taxpayer advocate at the IRS, had an even better answer to the same question: “Many people don’t know why they’re getting the results they’re getting.” This, I think, is a more immediately relevant argument. Regardless of one’s views about economics or compliance costs or distribution or anything else pertaining to taxes, taxpayer understanding is a value worth consideration. Making the tax code understandable isn’t just a means towards better compliance and efficient revenue raising. It is a good in itself for people to understand the laws under which they live.

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