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Tax brackets are the simplest thing in the world but I've heard this argument several times. Is it made it good faith? Are there really people who think tax

Tax brackets are the simplest thing in the world but I've heard this argument several times. Is it made it good faith? Are there really people who think tax brackets make taxes complicated and not 401ks, mortgage interest tax deductions, capital gains, etc? A flat tax is completely orthoganal to the complexity of the tax system(which is almost entirely what counts as income, and what type of income does it count as). If tomorrow we merged all tax brackets into one, no one's taxes would get any simpler, just the poor would pay far more in taxes and the rich far less.

roenxi 7y ago
If you have 5 tax brackets, all the other parts of the tax system basically get multiplied by 5 in the number of combinations that could cause weird optimal equilibriums. Eg, maybe the most optimal retirement plan changes depending on whether you are in the 2nd-to-lowest or highest tax bracket. That means advice for one person might be suboptimal for someone else solely because they are in a different tax bracket. Factoring in indirect taxes like payroll, in Australia about half my marginal income is directed to government purposes (Australian tax system). Rationally I should be spending 2-3 days/year of thinking time reading up on changes in tax law and scheming on trying to optimise my tax burden if I believe I can find a way of reducing that by 1% somewhere. Having 5 different tax brackets is just asking for me to try and find some complicated scheme where I filter income to unemployed relatives (eg, the ol' put income earning assests in the wife's name). I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. The more combinations there are, the more weird schemes people come up with. Having everyone pay a flat 30% and with some sort of minimum income scheme would reduce the number of alternatives there I have to think about and make it easier to be confident that my taxes are properly optimised.
- jxramos 7y ago
  > I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. That's the flip side to a flat tax, we save a ton on the opportunity costs paid for with time and the development of expertise in all this minutiae. We have entire industries and corporations devoted to taxation. At what point does the benefits gained by our tax complexity get outweighed by the regulatory costs and burdens associated with compliance to that complexity? A quick check > Tax preparation is BIG business – there were 300k people employed at 109k firms in 2012 - generating $9 billion in revenue in 2012. The industry grew over 2% from 2010-2015, and is expected to speed up the pace of growth. Revenues of $11 billion are forecast for 2018. https://www.franchisehelp.com/industry-reports/tax-preparation-industry-analysis-2018-cost-trends/ https://www.franchisehelp.com/industry-reports/tax-preparati... What else could we get with that sort of brain/man power?

roenxi 7y ago

If you have 5 tax brackets, all the other parts of the tax system basically get multiplied by 5 in the number of combinations that could cause weird optimal equilibriums. Eg, maybe the most optimal retirement plan changes depending on whether you are in the 2nd-to-lowest or highest tax bracket. That means advice for one person might be suboptimal for someone else solely because they are in a different tax bracket. Factoring in indirect taxes like payroll, in Australia about half my marginal income is directed to government purposes (Australian tax system). Rationally I should be spending 2-3 days/year of thinking time reading up on changes in tax law and scheming on trying to optimise my tax burden if I believe I can find a way of reducing that by 1% somewhere. Having 5 different tax brackets is just asking for me to try and find some complicated scheme where I filter income to unemployed relatives (eg, the ol' put income earning assests in the wife's name). I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. The more combinations there are, the more weird schemes people come up with. Having everyone pay a flat 30% and with some sort of minimum income scheme would reduce the number of alternatives there I have to think about and make it easier to be confident that my taxes are properly optimised.

jxramos 7y ago
> I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. That's the flip side to a flat tax, we save a ton on the opportunity costs paid for with time and the development of expertise in all this minutiae. We have entire industries and corporations devoted to taxation. At what point does the benefits gained by our tax complexity get outweighed by the regulatory costs and burdens associated with compliance to that complexity? A quick check > Tax preparation is BIG business – there were 300k people employed at 109k firms in 2012 - generating $9 billion in revenue in 2012. The industry grew over 2% from 2010-2015, and is expected to speed up the pace of growth. Revenues of $11 billion are forecast for 2018. https://www.franchisehelp.com/industry-reports/tax-preparation-industry-analysis-2018-cost-trends/ https://www.franchisehelp.com/industry-reports/tax-preparati... What else could we get with that sort of brain/man power?