- There are four principles of sound tax policy: simplicity, transparency, neutrality, and stability—which should serve as touchstones for policymakers and taxpayers everywhere.
- These principles ensure taxes are effective and minimally harmful.
- Simplicity in the tax code means taxes should be easy for taxpayers to pay and easy for governments to administer and collect. Simplicity promotes:
- More tax revenue
- Less business and government resources dedicated to tax compliance
- Increased productivity that grows the economy
- The U.S. tax code is more complex than simple, especially for businesses. Some policy examples include:
- U.S. Book Minimum Tax
- OECD Pillar 2 Global Minimum Tax
- The more businesses spend on compliance, the less they can invest, develop, and produce. In turn, business and their workers earn less.
- Less income means less tax revenue.
- Simpler tax codes result in less taxpayer dollars spent on administration and compliance, more revenue, and more time for businesses and taxpayers to invest in and do what they’re good at.
Taxes only generate revenue if they’re paid and collected.
Sounds simple, right?
It should be. In fact, simplicity is one of the most important principles of sound tax policy.
A simple tax code means taxes should be easy for taxpayers to pay and easy for governments to administer and collect.
Simpler tax policies maximize tax revenue, minimize efforts spent on tax compliance, and keep businesses and governments operating efficiently and doing valuable work.
Unfortunately, the tax code in the U.S. is already highly complex, and we continue layering complicated policies like GILTI, the U.S. Book Minimum Tax, and the OECD’s Pillar 2.
These corporate tax policies will require businesses to adopt a massive amount of new financial and accounting work in order to comply.
The more businesses spend on compliance, the less they invest in what they’re good at. They operate less efficiently, produce less, and they and their workers earn less income – the very thing that tax revenue is raised from.
These complex policies also require incredible effort for government agencies to administer, which will require more and more tax revenue just to ensure compliance and actually collect the taxes.
Ultimately, overly complex tax policies are minimally effective at raising revenue and are economically harmful.
As with most things, when it comes to taxes, it literally pays to keep it simple.