| 25 July 2010
UK Chancellor George Osborne has unveiled plans for a new Office of Tax Simplification.
The UK tax code - a somewhat amorphous concept since what is included depends
on what you choose to call a tax - is said to be around 30,000 pages long. Again
that begs the question of what you call a page, what size type, how many lines
etc etc. Anyway, no-one questions that there is too much tax legislation, and
every annual Finance Act adds another thousand pages or so. Even tax practitioners,
who you would think might benefit from complex tax legislation, are complaining
that it has become impossible to answer straightforward questions from their
clients. And the Inland Revenue has taken to making up the rules as it goes
along, for instance on tax residence, probably thinking to itself that since
no-one knows what the law actually says any more, it may as well use whatever
interpretation suits its purposes, which, surprise, surprise, is usually to
extract more tax.
The UK is not alone in having an overgrown tax code. In the USA, no-one even
seems to know how long the Tax Code really is. It has capital letters because
unlike in the UK, there is something called the Tax Code, and you can even buy
a printed copy of it from the government for a mere thousand dollars. President
George W Bush said: "The tax code is a complicated mess. You realize, it's
a million pages long." Most estimates though are down in the tens of thousands
of pages. One of the problems in the United States is that Congress quite frequently
tacks tax legislation on to other bills, being very often the only way of getting
it through. Then of course there is State-level tax legislation as well.
For there to be any chance of simplifying and shortening the tax code in an
advanced country like the US, the UK, France or Germany, you would first of
all have to understand why tax legislation grows like Topsy, and the answer,
inconveniently, lies in the word 'Democracy', ably assisted by public choice
theory. Getting and keeping political power nowadays means taking the part of
the innumerable groups, factions and interests that make up your constituency,
whether that be a small patch of countryside (for a local councillor) or a whole
nation (for the leader of a national political party). And the first thing that
any group wants from its politicians is to pay less tax, whether the group is
the motoring public, cyclists, commuters, train motormen (sorry, motorpersons),
car manufacturers, gas station operators or bus companies.
And in that microcosm of just one part of human life (getting to work) you
can immediately see the problem: these seven constituencies have conflicting
interests from a fiscal perspective. Some people belong to more than one of
those groups, as well. It's impossible to optimize a tax system to please everyone
all the time; the best you can do is to please some of the people some of the
time. But that doesn't stop politicians from trying. In the USA, where the system
is best developed (and the tax code is longest) the game is famously played
with 'pork', or 'earmarks', the little add-ons to a bill in progress that secure
the votes of enough legislators to get the bill through. Then it has to go to
the other House, and perhaps back again, each time gaining more weight. Certainly
you could never have a saying in the USA that 'a rolling bill gathers no pork'.
What is to be done, then? Abolish democracy? As Winston Churchill said: 'Democracy
is a very bad system. But all the others are worse.' No, we can't do that. So
what we do is to invent new quangos called The Office of Tax Simplification
or similar. Both Bush presidents did it; so did Bill Clinton. The only reason
that President Obama hasn't done it yet is that he has been too busy making
the Tax Code longer. Just give him time.
Reducing the number of countries would work, in terms of reducing the total
amount of tax legislation, and possibly the total number of tax lawyers. The
Romans proved that; but empire-building has become unfashionable lately. In
fact it's going in the opposite direction: in the UK, regions like Scotland,
Wales and Northern Ireland are all becoming more rather than less independent,
and along with that independence goes tax-raising and spending power, with,
yes, you guessed it, brand new regional tax codes.
Flat taxes work, too, and are even efficient at optimizing tax-gathering; but
they are a non-starter in advanced democracies. The new, Eastern European members
of the European Union got away with introducing them ten years ago because clever
Harvard-trained economists slipped them through before domestic politicians
had cottoned on to the usefulness of a bulky tax code. They are learning quickly,
now, and one by one the countries with flat taxes are undermining or abandoning
them.
So there it is: fat tax codes go along with fat people as shining achievements
of our civilization. You'll just have to learn to love them.
You have been reading an entry on the following blog:
Jeremy Hetherington-Gore Unleashed
Jeremy tackles the difficult issues head on!
Contact: jeremy@lowtax.net
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