Simpler taxes could improve the tax code in at least two important ways. First, simpler taxes would lower taxpayers’ costs of complying with the tax system in terms of time, money, and mental anguish, thus reducing the overall burden of taxation. Second, tax provisions that are simpler are more likely to be used. Provisions aimed at encouraging certain activities, such as saving for college, will be less effective if people cannot understand how they work and therefore do not use them.
- Making taxes simpler would probably raise compliance rates, by reducing both inadvertent and intentional nonpayment of taxes, and illegal tax evasion. To some (uncertain) extent, people do not pay taxes because they do not understand the tax law. Clarifying and simplifying tax rules can only help to make people understand the tax law better and would likely make it easier to enforce the law as well. Evidence also suggests that people are more likely to evade taxes that they consider unfair. People who cannot understand tax rules may also question the fairness of the tax system and feel that others are reaping more benefits than they are. This may make them more likely to evade taxes.