035-025 Why some want a complicated tax system

by Antony Last

Some apparently want a complex tax system because it is erroneously thought to make people happier.

Tim Worstall (2012) writes: “But there’s an intriguing argument that actually we’ll find human happiness, that maximised utility which is the goal of all economic policy, to be highest if we had an even more complex tax system than the one we have. For this would allow those who really don’t like being taxed to practice even more tax avoidance and thus be even happier. It is indeed an odd argument but it has the glorious possibility of actually being a true argument” (via Forbes).

And he further explains: “In a complicated tax system, with lots of allowances and exemptions, we’ll find that those who don’t mind very much won’t go to any great length to reduce their tax bills by claiming those allowances and exemptions. Those who do mind a lot will tie themselves into contortions to make the greatest use they can of such loopholes.

“Which leads us to being able to a) distinguish between the two groups entirely through their own actions and b) charge the different groups different tax rates and thus c) maximise human utility.”

We reject such frivolous speculation for the following reasons:

  1. The structure of a tax system cannot be based on an ephemeral self-aggrandizing notion of achieving human happiness.
  2. It completely disregards the economic realities of tax complexity causing larger government and increased deficit and joblessness, the mitigation of which would have a far greater effect of maximising real human utility not only for a few spoilt taxpayers who have nothing better to do but to nitpick the tax code but for all members of society.
  3. The misconception that those who do not bother to utilise a complex system for deductions, etc, are happiest in this state, as non-utilization does not equate to preferred action. That is, such people may be simply resigning themselves to their plight as the complexity is too daunting to deal with – this is not human happiness.
  4. The possibility that Worstall’s article is purposely laced with flawed logic, being a tongue-in-cheek attempt to stimulate discussion of both sides of the tax-simplification debate.

Thus, Worstall’s assertion in the title of his article “Why We Want a Complicated Tax System” is “So That People Can Avoid Taxes” stands as no sound reason for such a desire, as a reduction in complexity would in any event lead to a reduction in avoidance which would concomitantly produce greater time utility and happiness for all.

[A. Last CPD: 7 May 2016, 1.25h]

Others, it appears, would indirectly support a complex tax system as it is inextricably interwoven into the fabric of the motivations and methods of government (Bram,Thursday. Why The Complex U.S. Tax Code Won’t Be Simplified. Investopedia).

For example, promising certain tax breaks from complex provisions forms the basis of political campaigning and certain government moves and policy drives.

Remove the complexity, and boom, what is there to get excited about or with which to manipulate public opinion and action?

This is very short-term thinking, as the very act of making sweeping reductions in complexity could in and of itself be vastly popular with the governed.

The problem is getting over the hump of the thing, which in this case is the myriad of rules and regulations.

A commission should be established with a mandate to come up with a restructuring plan for the tax system. This could be applicable to any particular country or state.

See How to simplify the tax code

The result: A simpler tax code/law, more effective tax collection, a fairer, more affordable system, cost-effective, stimulating to economic growth, employment and business development, and delivering of services to a broader base of the people.

This is true happiness and optimal human utility.

[A. Last CPD: 7 May 2016, 0.83h (50m)]