Tax Day Thoughts
By Arnold Kling
April 15th is an appropriate day to consider the complexity of the tax code. Here is a piece by Chris Edwards written in October of 2001 on the case for a consumption-based tax.
The key factor that causes rising income tax complexity is that the tax base is inherently difficult to measure. The Haig-Simons measure of income favored by many academic theorists is economically damaging and too impractical to use in the real world. As a result, policymakers have fallen back on ad hoc and inconsistent rules to define the income tax base. That intensifies complexity and creates instability as policymakers gyrate between different definitions of the tax base.
Edwards argues that a consumption-based tax would simplify compliance, enhance economic efficiency by promoting capital formation, and provide fewer opportunities for special-interest provisions.
For Discussion. What political factors make it difficult to reform the income tax? How would these factors play out in converting to a consumption tax?