Another April 15^th is upon us, and many of us have recently paid someone to help navigate the treacherous shoals of a tax code so complex that even the head of the IRS admitted that he doesn’t “know how anybody understands all of the ramifications of it”. This complexity results in Americans and American businesses spending over $100 billion dollars simply to move money from Point A (the taxpayer) to Point B (the federal government). If the purpose of the tax code was simply to raise enough money to fund the government, then the code would not be this complex and we wouldn’t be wasting endless hours filling out pointlessly complex forms, paying people to help us fill them out in order to make sure that we don’t get caught making an inadvertent mistake.

But the tax code isn’t about simply raising money, but is an effort to socially engineer outcomes believed to be desirable, used by the powerful to reward their friends “with special tax breaks & loopholes”, and to punish their enemies by encouraging the IRS to come down hard on them. While many things have contributed to the sluggish economic recovery over the last 6 years, one of the contributing factors is that companies and individuals are spending time filling out forms (of any kind) and working to comply tax regulations, and aren’t spending that time working productively and growing the economy.

The first problem is that trying to socially engineer outcomes is always a difficult proposition because large, complex social systems are inherently too large to predict with certainty the outcome of any policy action. There are always unintended or unforeseen consequences that often have irreversible impacts. As modifications are attempted to correct the problems that arise from the original policy, more unintended consequences arises, with still more regulatory fixes, until you have an overly complex mess that nobody understands. And it is not at all clear that the resulting outcome is any more desirable than what would have resulted without the tax code.

Second problem is that the tax code is used to reward politically connected people & corporations, thereby leading to political corruption. By creating a byzantine and opaque tax code, the advantage goes to people/corporations with sufficient resources to adequately navigate it and to “influence” (aka bribe) politicians into carving out loopholes for them. This leads to economic distortion as resources are not led by the ‘invisible hand’ of the market to their most efficient use, but rather are led to their most politically effective use. Ultimately, economic resources are wasted and the country is poorer overall as a result. If those crying about “too much money” in politics really want to reduce its influence, they need to remove opportunities for corruption, which is about taking the politics out of money.

The third problem with the opaque and byzantine tax code is that it allows the government to punish its opponents. Although the IRS has recently gone after opponents of the Obama Administration, any future President can use the tax code as a weapon to silence his political opponents. In addition, the nature of bureaucracies is such that it is very hard to prosecute people as they have the power to make evidence disappear with nobody saying a word; something that would get a normal person jail time. The poster child for this appears to be Lois Lerner whose actions against conservatives it appears will go unpunished. She won’t really lose much (pension, etc.) for destroying those people’s lives. A system whereby some can destroy the lives of others without incurring risks to themselves is not a system that will result in the sort of dynamic economy that we have known in the past. As the advantages/risks of being politically on the wrong side increase, politics will become more vicious as people/corporations feel that they are fighting for their lives. The result will be political instability, which as one can see in countless cases around the world, leads to economic instability and stagnation.

As the modern world dawned, there were many problems that the government really needed to get involved with and help solve. The cities of the late 19^th/early 20^th century were horrible dirty places, and things like sanitation, electrification, etc., were things government needed to step in and help out with. As weapons of war became more sophisticated and the world moved faster with phones, planes, trains, cars, etc., we needed a larger government to help manage these challenges. Consequently, an income tax may have been what was called for at the time.

However, it is now clear that the costs of this system a far outweighing the benefits. Scrapping the income tax and putting on a national sales tax with a few exceptions for food and shelter could be set high enough to generate the revenue the government needs without the opportunity for corruption. It is time to scrap the tax code.