Why The Tax Code Is Complex

It's not that I mind arguing over the Flat Tax, it's just that I dislike doing it so disingenuously. Which is why I'm glad to see Jon Henke breaking with tradition and admitting that, while he'd like a flat tax, the complexities in our code are structural outcomes, the inevitable results of our legislative process. But then, just as soon as he mentions it, he forgets again, assuming that a move to a flat tax would indeed end loopholes and even out taxation. Most pundits do this, and it's bizarre.

When I say the word loophole, folks think of Bermuda mailboxes. But those are second order changes, quirks that are opened and exploited long after the original distortions are introduced. The real changes dumping complexity onto the code are the popular ones: mortgage deductions, child credits, health care deductions, and so on. Once you begin creating massive, though well-meaning, hills and valleys in what should otherwise be a smooth rate progression, it becomes exponentially easier for savvy lobbyists and interest groups to add in a few more, then a few more, then a few more. Sometimes, the reasoning is sound, creating incentives meant to bolster flagging industries or encourage worthy behavior. More often, they're not. In any case, the changes become anachronistic, with the original pressures compelling their enactment fading but the loopholes and tax breaks remaining in full force.

Tax simplification is easy. The Alternative Minimum Tax, which everyone apparently hates, is simple enough to verge on insulting. And yet it's tough to find a politician in this country not urgently calling for its repeal when, if simplification were the object, they'd simply nix "alternative" from the title and make it the primary tax code. The reason they don't is easy: voters don't want a simple tax code. They want a code in which they pay less money and other people pay more.

So even if we did pass a simplified tax code (I, for one, think, Chakka Fattah's Transaction Tax, CAP's proposal, or Ron Wyden's "Fair, Flat Tax are all great plans), in a couple years, some Republican will carve it apart with complicated, partially-sunsetted, strangely distributed tax cuts, or some Democrat will propose a popular system of deductions and targeted rebates, and we'll be right back on the road to complexity, with future amendments receiving little scrutiny and business interests eventually dominating the process. Because in the end, voters like tax simplification as a concept, just as their eyes light up to "small government." But they'll happily sacrifice the government's shrinkage for programs that benefit them and they'll quickly abandon the tax code's simplicity if it'll save them money.