Sunday, March 7, 2010

The Virtue of Simplicity

Most Americans have no idea how the tax system works including what they pay and what anyone else pays. The tax laws are so complicated and so impossible to comply with that the vast majority of taxpayers are, unwittingly, paying the wrong amount of taxes, year-in and year-out. The same complexity pervades the Obama health care reform package that passed the Senate. It is clear that the President doesn't understand it, because he often describes the bill in ways that run precisely counter to its actual provisions. How can anyone else understand what neither the Prsident nor his Congressional supporters understand about his proposal?

Why does it have to be like this? Is there some reason why laws cannot be simple and easy to understand for the average citizen? The answer is "no." Laws can be made simple and should be made simple.

Take taxes, for example. Why not just have one rate on income and that is that, regardless of the type of income: labor, capital, dividends, whatever. Yes, there would be inequities. So what. There are always inequities. Simplicity is the more significant virtue. How can a government be controlled by its citizenry, if the citizenry doesn't understand the laws of the country?

Think of the resources that are wasted every year in the United States by citizens trying to comply with our income tax laws. How many man (woman) hours go down the drain in this silly exercise, every single year!

This bring us to the recent jobs bill. A complicated tax credit, so full of exceptions and legalese, is not understandable by the small businessman without calling in a tax expert. This makes the credit really only valuable to companies who: 1) were already planning to hire employees; 2) can afford good tax advice. Basically, this bill will be "gamed." There will be no new net creation of jobs by such legislation. Far more effective would be a bill that cut all taxes -- all taxes -- by, say 5 percent. Everyone can understand that bill and act accordingly. And jobs will be created!

As long as laws are too complicated for even their sponsors to understand, then democracy will not be well served.