I think any proposal to change in taxation laws that doesn’t consider changes in regulatory burden is ill-thought out.
In 2016 for example the tax compliance costs in the US were 400 billion dollar for a total of 3300 billion dollar raised. It’s crazy to have a tax system where more then 10% of the costs that are inposed are compliance costs and not money flowing into government coffers.
From your points the first one of making income and capital gains taxed the same way likely decreases compliance costs as it makes the system simpler.
The other two however sound that they add a lot of complexity and proposal to add complexity to the tax code because of wage thoughts about fairness are what brought us the mess that we have right now. Any additional increases in complexity should come with a justification of why the increase in complexity is necessary.
The other two however sound that they add a lot of complexity and proposal to add complexity to the tax code because of wage thoughts about fairness are what brought us the mess that we have right now. Any additional increases in complexity should come with a justification of why the increase in complexity is necessary.
Why do they sound that way?
Carrying deductions forward is quite complicated in my experience, and there are a ton of rules about what can be deducted from what. Paying people back when they have a negative tax bill is not complicated (and already done for many Americans who overpay throughout the year).
When you report taxes you already say what your basis was and when you bought the thing. Adjusting your basis by the risk-free rate amounts to looking up a single number and then multiplying it by the basis. But this change makes the investor neutral about when taxes get paid, so you could just remove the comically complicated list of rules that currently exist to control when gains are realized.
(I’m not sure if you’ve ever actually dealt with changes, but the cognitive savings would be huge under this regime.)
I think both of those are net simplifications. But the additional complexity from each of them is also completely trivial compared to the classification of types of income.
It’s possible that you can’t realize any of those simplifications (e.g. that you’d still need to classify all your kinds of income even if they are taxed at the same rate, and that we’d still maintain wash sale rules and so on) because the code is sufficiently ossified that pointless and irrelevant complexities will remain in there forever. But even in the very worst case, I think you are probably misunderstanding where the complexity and compliance costs of the tax code comes from, I don’t think this is a noticeable increase (and in $ value it would be totally swamped by savings for tax planning even if you weren’t able to simplify the code in all the natural ways).
Either more complexity is removed or you have a really good reason. If you have a really good reason you should do the cost benefit analysis that the reason is worth the cost. A post like the OP that does advocate a policy that increases complexity shouldn’t do that without explicitely justifying the increased complexity.
I think the case for efficiency improvements is fairly strong, but you can evaluate it as you will. This post is unusual for my blog in that it gives fairness arguments instead of efficiency arguments, but I’ve discussed the efficiency arguments before (including in the linked FB comment, and implicitly here).
I think any proposal to change in taxation laws that doesn’t consider changes in regulatory burden is ill-thought out.
In 2016 for example the tax compliance costs in the US were 400 billion dollar for a total of 3300 billion dollar raised. It’s crazy to have a tax system where more then 10% of the costs that are inposed are compliance costs and not money flowing into government coffers.
From your points the first one of making income and capital gains taxed the same way likely decreases compliance costs as it makes the system simpler.
The other two however sound that they add a lot of complexity and proposal to add complexity to the tax code because of wage thoughts about fairness are what brought us the mess that we have right now. Any additional increases in complexity should come with a justification of why the increase in complexity is necessary.
Why do they sound that way?
Carrying deductions forward is quite complicated in my experience, and there are a ton of rules about what can be deducted from what. Paying people back when they have a negative tax bill is not complicated (and already done for many Americans who overpay throughout the year).
When you report taxes you already say what your basis was and when you bought the thing. Adjusting your basis by the risk-free rate amounts to looking up a single number and then multiplying it by the basis. But this change makes the investor neutral about when taxes get paid, so you could just remove the comically complicated list of rules that currently exist to control when gains are realized.
(I’m not sure if you’ve ever actually dealt with changes, but the cognitive savings would be huge under this regime.)
I think both of those are net simplifications. But the additional complexity from each of them is also completely trivial compared to the classification of types of income.
It’s possible that you can’t realize any of those simplifications (e.g. that you’d still need to classify all your kinds of income even if they are taxed at the same rate, and that we’d still maintain wash sale rules and so on) because the code is sufficiently ossified that pointless and irrelevant complexities will remain in there forever. But even in the very worst case, I think you are probably misunderstanding where the complexity and compliance costs of the tax code comes from, I don’t think this is a noticeable increase (and in $ value it would be totally swamped by savings for tax planning even if you weren’t able to simplify the code in all the natural ways).
So complexity shouldn’t be added unless (more) complexity is also removed.
Either more complexity is removed or you have a really good reason. If you have a really good reason you should do the cost benefit analysis that the reason is worth the cost. A post like the OP that does advocate a policy that increases complexity shouldn’t do that without explicitely justifying the increased complexity.
I think the case for efficiency improvements is fairly strong, but you can evaluate it as you will. This post is unusual for my blog in that it gives fairness arguments instead of efficiency arguments, but I’ve discussed the efficiency arguments before (including in the linked FB comment, and implicitly here).