A Stitch in Haste

Still think that "tax simplification," without more, is a neat-o idea?

As taxpayers recover from finishing their annual filing chores, a presidential commission studying the tax laws has reached the conclusion that there are just too many deductions and credits.
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"We have lost sight of the fact that the fundamental purpose of our tax system is to raise revenues to fund government," according to President Bush's Advisory Panel on Federal Tax Reform.

The commission's chairman, former Florida Sen. Connie Mack, said its nine members have been surprised at the number of tax deductions and credits.
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Tax breaks also provide benefits without creating a government spending program. But the proliferation of tax breaks end up costing the public because they mean lawmakers cannot lower income tax rates...

This article exposes two distinct fallacies of "tax simplification" from the libertarian perspective. First is the bait-and-switch between "tax simplification" and "tax reduction." Tax simplification means eliminating deductions. Eliminating deductions means higher taxes. While acknowledging the deadweight loss of tax preparation, we must also acknowledge the "starve the beast" factor: anything that keeps anybody's money in their own pockets and out of the government's coffers is a good thing. Deductions may be complicated, they may create unintended consequences, they may even be "unfair" by some vague criterion. But if they help to constrain government, then they are a good thing.

The second trap of tax simplification is that it's somehow permanent. Hogwash. Simplify taxes today, and you merely give hungry politicians a less cluttered slate from which to craft new tax complications. And as they're doing so they will invoke the Politics of Pull and the Politics of the Warm Fuzzy Feeling and the Politics of "Or Else!" And in a few years time we'll be right back where we started.

"Tax simplification" is a false god that libertarians have no business worshipping. I certainly acknowledge the outrageous deadweight loss created by the estimated 6.6 billion hours Americans spend preparing tax returns. But that is not enough to justify a blind championing of tax simplification. Tax rates must also come down. Tax reduction should always be the priority: reduce tax burdens, and "tax simplification" will take care of itself.

POST SCRIPT: Of course, any talk of "tax simplification" that does not include the complete elimination of the Alternative Minimum Tax is a contemptible fraud. Keep that in mind as you (don't) hear talk of it from this Advisory Panel or from politicians generally.