A much worse consequence of a complicated tax code...

2009-04-20T08:46:25.718-04:00

A much worse consequence of a complicated tax code is that the optimal individual strategy often involves learning a great deal about taxes in order to save paying them.

As such, we might have tens, if not hundreds of millions of man-hours lost each year to 'learning about taxes and planning for them'. Worse, these are high earners, so their time is actually very valuable.

On the other hand, we often end up rewarding those people who play the tax code game, rather than those who 'just do productive work'.

Consider, for example, medical expense flexible spending accounts. If someone has a, say, 100k job, he probably has one of those, and he probably uses it because it will save him several hundred dollars a year in taxes. But if you just lowered the his tax rate by a percent, he'd also save that money, and it would not take layers of clerks and effort.

Or, consider how housing is an 'extra good' investment, both because you can deduct mortgage interest (for no particular good reason, since I cannot deduct rent or interest on loans to play the stock market), and you only pay capital gains taxes one or zero times.

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A much worse consequence of a complicated tax code...