The Chicago Booth School's Dee Gill once wrote that the U.S. tax code is a “master class in convolution.” That's being generous with the code, which is very long, extremely complex, and almost constantly changing. Every few years, a few members of Congress (the source and reason for all that “convolution) propose ways to simplify the code so it's less of a drag on productive economic activity and fairer and more transparent to taxpayers.
As Gill noted, such efforts almost always fail, and more complexity always wins. But the worthies keep trying to get simplicity over the finish line. A new effort from the House Republican Study Committee is the latest attempt at simplification. According to the Tax Foundation's Tyler Parks, the RSC proposal has a number of sound ideas that would make the code simpler and boost job growth. It does so using ancient GOP tax tech: making the Trump-era tax cuts permanent and rolling back the tax handouts and subsidies in the Biden administration's ill-named Inflation Reduction Act.
That sounds far more like politics than tax simplification. But there's wrinkle or two worth noting:
Other key provisions include introducing universal savings accounts, indexing net operating losses to inflation, and eliminating the state and local tax deduction. [emphasis added]
A major sticking point of the Trump tax cuts was that they capped the state and local tax deduction. This sent ripples of disquiet, angst, and outright anger through high tax states and most members of their respective congressional delegations. A few states even sued to overturn the cap. They lost.
But that was a $10,000 cap on a deduction – not complete elimination of the deduction. While this idea would have some effect on tax simplification, is also fairly radical. As the RSC says:
The RSC Budget fully repeals the state and local tax (SALT) deduction. The SALT deduction federally subsidizes the tax-and-spend policies of liberal states. The ability to deduct SALT liability exclusively benefits wealthy taxpayers. In fact, the Tax Policy Center found that, “…two-thirds of households in the top 1 percent – making over $885,000 per year – would receive an average tax cut of $16,090 in 2022.” Repealing SALT would create room for $2.285 trillion in broad based tax relief.
In other words, repealing the deduction would raise revenue – because it raises taxes. Allegedly, Congress would use this windfall to enact “broad based tax relief.”
I'll believe that when I see it. Taking that much money out of official DC's hands and sending it back to taxpayers invites more complexity.. That's because there is no such thing as a frictionless, cost-free transfer of money from taxpayers to DC and back again to taxpayers.
Unless they members of the Republican Study Committee believe they have cracked the bureaucratic code that would allow for such a miraculous flow of money from Peter to Paul.
But let's give them the benefit of the doubt: perhaps such a big idea can move forward – even pass. Nah. There's a reason complexity always beats simplicity. Back to Chicago's Gill, who wondered why, even with supposedly bipartisan support for more simplicity, complexity won. It did so because Congress really doesn't have an interest in getting it done. The bipartisan urge is:
Overstated, suggests [ University of California at Berkeley's Alan] Auerbach. The goal of a simpler code ranks “right up there with motherhood and apple pie,” he says, “as long as it's an abstract objective.”
Which means it's really just politics. And that means what is really at play is the notion that you can have the issue (here, simplification and pro-growth changes to the code) or the solution (getting them passed into law). You can't have both.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
Better than nothing, but the only meaningful tax simplification would be the Fair Tax because it would eliminate the problem–the income tax–which is unfair, wastes money on a huge enforcement agency, the IRS, and is inefficient. Imagine a tax system by which everyone would pay his fair share (no more tax shelters for preferred special interests) and taxpayers would never again have to file an income tax return every year.
Excellent idea. Which is why it will never happen. The Democrats, RINOs, and GOPe’rs need a complicated tax code for the lo-info voters that keep voting for them, so the voters can’t figure out how bad they’re getting rolled every tax year.
Politicians of all stripes like the tax code just fine as is. It gives them multiple opportunities to reward their friends (donors) and punish their enemies (critics) and use as a cudgel with which to beat the “other” side. No “Fair Tax” or “Flat Tax” will ever pass, as long as it’s up to congress.
Let’s go, Brandon!
Favor Flat Tax plan
The Flat Tax is still an income tax, with all its horrors.