mmcirvin | Complexity (Reply)

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.