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Marco Rubio says his two-tier tax plan will simplify the tax code. It is not that simple.

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Sean Rayford/Getty Images


Marco Rubio says his two-tier tax plan will simplify the tax code. It is not that simple.

Sean Rayford/Getty Images

there is almost something Name this melody-ish about how GOP candidates talk about tax brackets these days. Currently, there are seven. Donald Trump wants four. Jeb Bush says he can cut them down to three. Chris Christie and Marco Rubio want two. Ben Carson does them better – a rate of 10%, inspired by the bible.

They are not alone – President Obama advocated less parentheses too.

Why do this? One of the most common reasons they give is that it would simplify the tax code.

As Rubio’s tax plan says, “The tax code desperately needs simplification, and bracket consolidation is an important first step.”

He is right about the first part: The Internal recipe code is impenetrable, unfathomably complicated.

But here’s the reality: cutting the supports won’t really help much.

“It’s a very mild form of simplification,” said William Gale, co-director of the Urban-Brookings Tax Policy Center at the Brookings Institution, a left-leaning think tank in Washington. “The real complication of the system is in the tax base, not the rate structure. Understanding how you calculate capital gains or determining whether you qualify for the [earned income tax credit for lower-income Americans], given the rules for children – once you have that, you just plug in the fares.”

Think about your own taxes – figuring out how much you owe can be tricky when you have investment income, self-employment wages, or lots of deductions. But once you’ve filled in the boxes and subtracted all that, it’s easy to figure out your rate (and if you’re using a program like TurboTax, the computer does that for you).

Cutting taxes overall tends to be the real goal behind cutting rates, said Ed Kleinbard, a law and business professor at the University of Southern California. After all, no one ever tries to simplify the tax brackets upwards.

“The number of brackets has an almost imperceptible effect on the complexity of tax law as experienced by the individual taxpayer,” Kleinbard said. “Taxpayers are not, on their own, engaged in high-level math.”

What does simplicity look like?

So reducing the number of parentheses is not the clearest path to simplification. What is? Make the rest of your tax preparation experience easier, says an expert.

“[Simplification] does not necessarily mean that taxes are a simple mathematical function of income,” said Matthew Weinzierl, an assistant professor at Harvard University who studies what optimal tax systems look like. “After all, with TurboTax, it’s easy to have a computer do a complex calculation for you. Instead, what economists generally have in mind is that a tax system should be easy to understand, transparent, and difficult to manipulate.”

Many of these bracketed cut ideas come with proposals to limit deductions. And that, in itself, is a big step towards simplification. Bush, for example, wants to cap the amount of total deductions most people can take (not including the charitable deduction).

“Most economists believe that a tax base with fewer such loopholes is less prone to evasion and less distorts economic activity,” Weinzierl said.

The idea is that these loophole closures compensate for lost tax revenue due to the reduction in brackets. But that’s not always how it works.

“The real motive of calling for fewer tax brackets in all cases is to reduce the tax burden on the highest income Americans, not to make life easier for the middle class,” Kleinbard explained. Take the example of Bush’s tax proposal. While this limits deductions, it would also allow benefits massively the highest incomes (and increasing the national debt – unless there is unprecedented growth in the economy).

Cutting the deductions and loopholes makes for a great soundbite, but it’s a lot harder than it looks. The politically popular mortgage interest deduction is a prime example. It tends to benefit higher incomes more, but despite constant calls to “simplify” the tax code, it is so politically popular that it has proven impossible to eliminate.

Reducing deductions isn’t the only way candidates can fight for simpler taxes. They could also pledge to fight efforts by tax preparers to keep tax preparation itself complicated. Vox’s Dylan Matthews and the Center on Budget and Policy Priorities’ Robert Greenstein reported that H&R Block pushed for changes that would have quadrupled the length of the Earned Income Tax Credit form, making it harder for low-income families to get the credit (i.e. without help from H&R Block) . (The company defended itself here.)

There are also unsexy opportunities to make code less complicated. For example, Kleinbard argues that some long and hyperspecific definitions could be reduced.

“If you really care about complexity, the place to look, for example, is the definition of who is a dependent“People fight over whether a child is in the care of one parent or another. It turns out to be an incredibly complicated subject, and absurdly so. If you’re looking for simplicity, you’d actually want to look at things like a consistent, simple definition of “addict.” “

So there is a lot of room for simplification, and politicians often point to the so-called 70,000 page tax code as proof of this. However, objecting to the page count may be a mistaken line of attack.

One (nitty) reason is that the tax code itself isn’t, in fact, 70,000 pages, like Slate highlighted last year. This distinction belongs to a compilation of court decisions surrounding the tax code, according to the Tax foundation. The statutes themselves are approximately 2,700 pages.

But far more important, Kleinbard said, there is some complexity inherent in a tax code that attempts to govern a complicated economy.

“The tax code is thousands of pages long for a very simple reason: it’s a model, in an economic sense, of all economic activity,” he said. “Most Americans don’t spend a lot of time worrying about taxing the logging or crewing a tuna boat. But there are rules for that, and you may find the rules irrelevant. for you, but the rules are complex for a reason.”

OK, so how many parentheses should there be?

Americans want a simpler tax code to some degree. And the square brackets aren’t really going to simplify the code that much. But that still doesn’t answer a key question: are there a “right” number of parentheses?

Here is the unsatisfactory answer: No.

There is a whole branch of economics devoted to this kind of question. (It’s called optimal taxation theory, and a Google Scholar search will have you down an intellectual rabbit hole all afternoon.) Weinzierl, who studies it, said that there was no magic number.

“The number of hooks is generally considered unimportant,” Weinzierl said. “Any level of progressiveness you want can be achieved with a number of different support structures, so the specific number isn’t that important.”

But some experts think our current seven-slice system might need some tweaking. Thomas Piketty (last year’s best-selling author Capital in the 21st century) and Emmanuel Saez of the University of California at Berkeley, for example, argued that a higher top marginal rate would be better.

Given the growth of top earners, Weinzierl said, that idea is popular among economists.

“Many economists would say that the absence of such a bracket is odd because it means a family earning $750,000 is likely to pay the same marginal tax rate as a family earning 10 times as much,” said he declared. The basic idea here, he adds, is that “if we are going to have more than one tranche, and therefore allow ourselves something other than a flat tax, it is quite limiting not to have bracket for the highest incomes”.

And here’s another compelling complication: the United States may have already stumbled upon a pretty good system. Earlier this year, economists from Discovery of the Minneapolis Fed that the current US system, warts and all, is, in fact, “near-optimal”, beating other “optimal” options like a flat tax plus transfer system.

Trying to understand all of these tax policy contradictions at once could (understandably) make your eyes glaze over. But the bottom line is simple: when a politician advocates simplifying the tax system, there’s usually good reason to be skeptical.

Just cutting the parentheses doesn’t really help matters.


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