tdaxp

"Simpler Taxes," The Economist, 14 April 2005, http://www.economist.com/printedition/displayStory.cfm?story_id=3861190&fsrc=RSS.

The Economist is a Market Liberal (what Forbush would call Augmented Capitalist) pro-gay-marriage, pro-prostitution, pro-Drug pro-War, pro-Clinton (twice), pro Bush (in '00), pro-Kerry (in 04) British newspaper... which makes its agitation for a flag tax all the better

So much for the two main objections. What then are the advantages of being very simple-minded when it comes to tax? Simplicity of course is a boon in its own right. The costs merely of administering a conventionally clotted tax system are outrageous. Estimates for the United States, whose tax regime, despite the best efforts of Congress, is by no means the world's most burdensome, put the costs of compliance, administration and enforcement between 10% and 20% of revenue collected. (That sum, by the way, is equivalent to between one-quarter and one-half of the government's budget deficit.)

Though it is impossible to be precise, that direct burden is almost certainly as nothing compared with the broader economic costs caused by the government's interfering so pervasively in the allocation of resources. A pathological optimist, or somebody nostalgic for Soviet central planning, might argue that the whole point of the myriad breaks, deductions, allowances, concessions, reliefs and assorted other tax expenditures that clog rich countries' tax systems—requiring total revenues to be gathered from a narrower base of taxpayers at correspondingly higher and more distorting rates—is to improve economic efficiency. The whole idea, you see, is to allocate resources more intelligently. Yes, well. Take a look at the current United States tax code, or just at one session of Congress's worth of tax-gifts to favourite constituencies, and try to keep a straight face while saying that.

...

Once tax codes have degenerated to the extent they have in most rich countries, laden with so many breaks and exceptions that they retain nothing of their original shape, even the pretence of any interior logic can be dispensed with. No tax break is too narrow, too squalid, too funny, to be excluded on those grounds: everybody is at it, so why not join in? At the other extreme, the simpler the system, the more such manoeuvres offend, and the easier it is to retain the simplicity.

In Britain, election notwithstanding, tax simplification is nowhere on the agenda: why not? George Bush has at least appointed a commission to look into tax reform. But its terms of reference are so narrow that it could not suggest a flat tax even if it wanted to. This is a great pity. A flat tax would not eliminate the need for spending control; it would not deal with the impending financial distress of Social Security and Medicare; it would not even settle the arguments about the so-called consumption tax (since in principle a flat tax could take as its base either all income, or income net of savings, in which case it would act as a consumption tax). There are things it cannot do and questions it does not answer. But the gains from a radical simplification of the tax system would be very great. The possibility should not be excluded at the outset.