What you call “waste”, someone else calls “income”.

It's like Elon Musk tweeting about how the tax code needs simplifying:

https://x.com/elonmusk/status/1857919131464478752

Of course it does. But every loophole and tax break comes with an influential constituency attached to it.

Also the complexity isn't all tax breaks and loopholes. Much of it comes from the need to precisely specify things.

I remember several times when in my tax classes in law school looking at the history of complicated provisions and finding they started out as short and simple provisions whose meaning was obvious to anyone with common sense.

But then people would find ambiguities that could give them a favorable tax result. There would be a court fight over it, and eventually the provision would be change to be more precise. And so what had been short and simple because longer and more complicated.

I don't remember all the details (law school was 30+ years ago and afterwards I decided I'd rather go back to programming than become a lawyer), but I remember the overall gist of one example.

Some big company around the 1930s or so came up with a clever idea. Next time they were going to pay a dividend instead they did a fractional stock split, such as 1.01 to 1, immediately followed by a mandatory fraction buyback which resulted in each shareholder getting the amount of money they would have gotten if a dividend had been declared, and with no change in each shareholder's percentage ownership of the company unchanged. The company suggested that shareholders report that money as capital gains.

The IRS said it was really a dividend, and the IRS won that dispute. The tax code and/or regulations were updated to reflect that. But there are legitimate buybacks that really should get capital gains treatment, and so those updated rules had a bunch of clauses and steps to go through to apply them to any specific case.

Influential constituencies like poor people or homeowners or anyone with a 401k.

Weird to lump in poor people with people with tax advantaged assets. Poor people generally take the standard deduction, so don’t interact with most loopholes or tax breaks.

The standard deduction is a tax break.

I think there's a big difference between policies that benefit vulnerable people and those that benefit powerful people and corporations. It's a false equivalency.

(Policies regarding 401k's and homes can affect powerful people too.)

I agree. The tax code should benefit those most in need. It should also incentivize investment in the country through homeownership and retirement savings. But these are the reasons the tax code will never be “simple”. I’m all in favor of increasing taxes on the wealthy. But I’m not certain “simplification” will accomplish that. Or even that simplicity is desirable in our tax code.

One of the oldest examples of tax simplification is the flat income tax. This is extremely regressive and disadvantages the poor and middle class. Any exemption would be “complication”.

If there’s good and bad complication then simplicity is the wrong dimension on which to focus.

> I’m not certain “simplification” will accomplish that.

I think it helps democratically - people understand the code and could believe in its fairness.

> One of the oldest examples of tax simplification is the flat income tax. This is extremely regressive and disadvantages the poor and middle class.

I agree, but that's also a perversion of 'simplification'. If you follow that logic, the even simpler tax would be that everyone pays the same amount, not the same rate. E.g., everyone pays $10K, no matter what.

Obviously that's ridiculous, and so is the flat (rate) income tax. Simplicity and fairness is not equal tax or equal rate, but equal sacrifice.

> I think it helps democratically - people understand the code and could believe in its fairness.

Ok but to what benefit? Progressive tax codes are both complex and fair.

> I agree, but that's also a perversion of 'simplification'. If you follow that logic, the even simpler tax would be that everyone pays the same amount, not the same rate. E.g., everyone pays $10K, no matter what.

Ok, then what is true simplification?

This is where I don’t find the argument that taxes need to be simple compelling. What’s the benefit?

I spelled out a benefit in the first line. I don't understand you repeating the question.

I don’t understand how that is a benefit.

Maybe we shouldn't be using things like taxes as a way to incentivize behavior. If we used taxes as just taxes maybe it would be easier to simplify the rules fairly and without having to endlessly litigate the meaning of each word and category involved.

> If we used taxes as just taxes maybe it would be easier to simplify the rules fairly

I agree, though using taxes is an efficient way to incentivize: If you want to fund home ownership, you can either identify each homeowner, cut checks, and mail them; or you can achieve a similar result by reducing taxes for homeowners.

I'm not sure the former isn't worth the extra hassle, for the reason you describe.

Why shouldn’t we use taxes as an incentive? What should be used instead? How do we account for externalities?

Why is simplicity desirable in the tax code? Who does it benefit and how?

Unironically yes. In a democracy any sizable voting bloc is an influential constituency. Just try to cut current social security payments and you'll see they are no joke.

I suppose. No one likes to be taxed. But those people aren't rich enough to evade them. Well, most of them.

100%

I've seen it first hand.