October 15, 2012

How Pols Learned to Stop Worrying and Love the Impenetrable Tax Code

Antony Davies

Senior Affiliated Scholar

James R. Harrigan

Summary

There is little else that either party can do to help the economy short of these two simple things. And that's why the political class has spent more time lately talking about Big Bird than the Federal Reserve and the tax code.

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Politicians are in the business of buying votes with tax breaks and sweetheart deals for their preferred constituencies, and they have to offset these deals by taxing disfavored constituencies at increased rates. The longer this game is played, the more convoluted the tax code becomes. A cursory glance at the federal tax code bears this out. As of 2010, it was nearly 72,000 pages long. It would take the average worker more than 11 years to type the federal tax code.

Even the IRS, the agency in charge of interpreting and enforcing the tax code, cannot understand it. In 2008 the IRS answered taxpayer questions incorrectly 10 percent of the time, according to the Government Accountability Office.

None of this makes sense unless elected officials actually want this system. This is what economists call revealed preference. No matter what they say about the tax code during each election cycle, they can be judged by what they do about it once they take office. And after promising to simplify the code year after year, they instead make it longer and more complex at each opportunity. But why?

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