Any government – a monarchy, a republic, a theocracy, a revolutionary cell – needs money. Every government, even an oil kingdom, collects taxes in one form or another to pay for roads, schools, waterworks, armies, social safety nets, and thousands of other projects.
Taxes are as old as human history. So are arguments about tax fairness. Imagine an Ice Age community that needed to upgrade its cave-bear barrier. In theory, every neighbor would chip in. But to be fair, perhaps the prosperous should chip in more than the poor. Also, shouldn’t people who dwell far from the bear’s lair still contribute to the community’s overall safety? Or perhaps the barrier builders could get a break next time firewood needs to be gathered. And how about collecting money to fund that smart kid’s new anti-bear technology?
Even in simple societies, a tax code gets packed with exceptions and nuances. Little wonder that a society as complex and dynamic as today’s United States ends up with 70,000 pages of tax statutes, regulations, and case law, according to the nonprofit Tax Foundation. There’s nothing simple about the US economy. It has farmers, rocket-makers, software specialists, storekeepers, artists, coupon-clippers. It has workers at booming, high-tech enterprises and workers at flagging, old-line industries. More than 800 occupations are tracked each month by the Department of Labor, and that’s just a snapshot of the labor force. The CareerPlanner website lists 12,000 job categories – from able seamen to zoologists – and misses all the new jobs being dreamed up right now in garages and coffee shops.
Mark Trumbull’s cover story (click here) describes how and why the US tax code is so complex and whether anything can be done to simplify it. This is tax season in the US. Billions of man-hours are burned up wading through receipts, puzzling over subsections, calculating, justifying, guesstimating, and hoping not to trigger an audit. The tax code is so complex that the Internal Revenue Service – which fields 100 million phone calls, 10 million written letters, and 5 million in-person visits per year – is incapable of keeping up with its workload, according to the agency’s taxpayer advocate.
Every election year, politicians promise tax reform. But even after a heroic effort such as the 1986 Tax Reform Act, the code grows more complex. That’s because the US economy is always more complex. There are always new projects to fund for the common good. There are always new exceptions to be made. All those solar panels in your neighborhood, for instance, didn’t just sprout because of a technological breakthrough. The 2008 Solar Investment Tax Credit was crucial (and it expires this year).
There might be a smarter way of assessing taxes. But despite our longing for simplification, tax reform first must do no harm. It must be fair. Reformers can’t simply take taxes off one person and put them on another. Reform is possible (click here for some ideas about how reform can succeed). But life is complex. And nothing is as certain as life and taxes.