Complexity

[mmcirvin]

It's long been a pet peeve of mine that people advocating a flat tax like to promote it on the grounds of simplification, when the existence of brackets is far from the most complicated thing about the tax code (and the brackets are usually buried in the details of a single look-up table anyway), whereas alternative means of keeping the tax from completely breaking the poor are usually more complex. Massachusetts' state income tax is, in bracket terms, much closer to being a flat tax than the US federal income tax is. But it's usually the state tax form that drives me nuts, and it was worse when I was an impoverished grad student.

And the federal tax code is more like that than it used to be. 35 or 40 years ago, when the highest US tax brackets were very high but elaborate tax dodges for the rich abounded, you could possibly argue that it'd all be a wash anyway; but today, some of the most complex provisions in the US tax code are actually tax breaks at the low end, put there as a means of mitigating the flatter structure overall. In this post that I missed when he first posted it, Mark Schmitt argues that the complexity of these provisions is negating some of their value, in ways I never thought of:

It used to be that in the course of doing my taxes, usually on paper, I would look at some forms or deal with various questions from the software that looked very complicated, and realize with relief that I don't need to deal with that because that's for rich people. Now I look at forms like the Additional Child Tax Credit, and breathe a sigh of relief that I don't have to deal with that nightmare because it's for poor people. [...]

The complexity drives people to tax preparation services, which not only charge their own fees (average, $120), but also encourage people to take Refund Anticipation Loans, which as far as usury goes, makes the credit card industry look like UNICEF.

He goes into more detail, and it's pretty remarkable. Most of the people who take out these loans aren't even aware that they are loans.

Comments

[pentomino.livejournal.com]

So when I did my taxes at hrblock.com last year and my refund got to me a week later, was that a loan?

And I thought it only cost me $40 to do it over the web...

[mmcirvin.livejournal.com]

I think the services they're talking about are ones in which you can get it up front at the office... minus interest.

[glitter-ninja.livejournal.com]

If you go to irs.gov and click on the free tax services link, you can get H&R Block online tax filing for free. I'm pretty sure it's for anyone, no matter what their income, but you have to get to it through irs.gov or else they charge you.

If you want the online advice and/or other services, it costs.

[underwhelm.livejournal.com]

Atrios has been pointing out that no matter how complex the equations to determine a tax rate, even differential calculus, it could always be mapped on a tax table (it is a deterministic function once you arrive at the dollar amount that's being taxed, after all). But that sort of reasoning itself is already too complex for anti-intellectual America.

The other side of the coin is that what's truly complex about taxes, government incentives and disincentives in the form of credits and other exceptions, will never go away. Because to even tweak one creates winners and losers. And try to do away with the bulk of these and remain revenue-neutral? Bistromathics.

Poor people are getting fleeced left and right. The first thing I noticed when I moved to Iowa was the heavy rotation of rent-a-center and paycheck loan ads on local TV. The likes of which I didn't see in the somewhat more prosperous Twin Cities. It kind of disgusted me.

[mmcirvin.livejournal.com]

Yeah, if you drive up, say, Chinden Avenue in Garden City, Idaho, you see an intriguing progression of pawn shops, rent-a-centers, check-cashing joints and title loan shops, all in a row... amazing how that works.

[arsonnick.livejournal.com]

There a liquor store at the end of that?