Reprogramming the Tax Code
The tax code has flaws, not unlike the way the universe has stars. There are, in other words, more than one or two of them.
Consider Warren Buffett’s bet:
“I’ll bet a million dollars against any member of the Forbes 400 who challenges me that the average for the Forbes 400 will be less than the average of their receptionists.”
I’ll bet a million dollars no one took that bet. True, I don’t have a million dollars to bet, but it’s fun to sound like gangsta Warren B., throwing around million-dollar bets.
So we have potentially a regressive tax system–in practice, if not in theory–one that taxes lower income people at a greater percentage of their income than higher income people.
A single dollar has a very different value if you’re poor than if you’re rich. With regard to the Clinton tax returns, for example, much was made of the high percentage given to charity (10%-ish). Less was made that ten percent to charity still left around 100 million to pay for basic necessities like food and jets. Still less was made of the reports that the lion’s share of the charitable donations went to the Clinton Foundation, which was remarkably slow to actually spend any of the money.
But before anything can be done about the substantive unfairness of the tax code, something must be done about the sheer mass of the tax code. Twenty volumes of convoluted, too many chefs in the kitchen, disaster. Another sixty thousand pages of federal regulations.
When I think of the tax code, I’m reminded of a comic strip that was on the door of one of my tax professor’s office in law school. I can’t remember the exact details, but the idea was, someone was looking at the tax code and said if you studied it carefully enough, there was evidence it was created by intelligent life–that it didn’t just happen by chance. (Incidentally, remember back when Bush promised a bipartisan effort to simplify the tax code? This one didn’t even make the top twenty list of unfulfilled Bush campaign promises.)
And it matters that its such a mess. According to a 2005 study:
[T]he cost of figuring out what individuals, families, businesses owe, was more than $265 billion . . . The Tax Foundation calls this secondary burden ‘a 22-cent tax compliance surcharge for every dollar the income tax system collects.’
$265 billion just to figure out what we owe. That’s a big number. So how’d this happen?
I think software developers have a unique insight into how this kind of mess develops. As a recovering software developer myself, I think it fair to say all experienced programmers have worked on projects that suffered from insufficient advance planning and a series of ad-hoc bootstrapped solutions that resulted in something resembling the Frankenstein monster.
Take for example the Alternative Minimum Tax (AMT). The AMT came about as an effort to simplify the tax code, a start-from-scratch type plan, a flat tax. In order to file the paperwork for the AMT, however, taxpayers must also perform all of the paperwork for a regular tax return and then all of the paperwork required by Form 6251. Programmers are no-doubt familiar with the awkward scenario of a stalled transition from an old system to a new system. The AMT performed in the worst possible way. Stalling completely and thus, leaving itself open to the kind of Frankenstein patches that created the need for it in the first place. Now, instead of just one monster, we have the Bride of Frankenstein as well.
Efforts to simplify and overhaul the tax code consistently fail–right as they leave the gate–despite the clear need for radical change. When someone suggests, say, a switch to a consumption-based tax, it seems almost an impossible suggestion, even if a valid one. It’s like suggesting replacing all the electrical wiring in all of America. Crazy talk.
But if it turned out that hiding within our electrical wiring was the source of a great deal of social injustice, it might be time to roll up our sleeves, buy some new copper wire, and get to work. Lets just remember as a nation that we must do more than merely turn off the power, we must leave a note by the box warning people that we’re working on the wiring. That way Canada doesn’t come along and flip the switch back on accidentally.
One Response to “Reprogramming the Tax Code”
http://www.luros.org
I don’t see what the problem is with a so-called “flat tax”? Let’s say we start with everyone paying 30%. Get rid of all taxes besides the income tax. No gas tax. No dividend tax. No death tax. No cigarette tax. Throw in there the alternative maximum tax, payroll tax, social security tax. After that, throw in the tax credits and subsidies. Farm credits, oil exploration credits, Warren B credits, and the lot. Would that work? Hell, no. But at least it would be tractable. Right now, with 450,000 lines of code, it’s completely intractable. Not intractable in the way fixing Microsoft Vista is intractable, but similar. I’d rather fix it afresh than have to fix what we have. As you say, let’s just rewire it. It might bankrupt our government in the process, but at least it’d be our fault. If our parents die without fully explaining to us how their tax code system works, we’re really screwed. They didn’t even write an API.
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