Why Are US Tax Laws So Complicated?

June 14, 2017

If used for raising revenue alone, the US tax system would doubtless be a much simpler affair. However, as the system needs to be fair, efficient and enforceable, and has been used by Congress to influence many aspects of political life and for delivering benefits to groups and industries for many years now, it remains complicated, and in fact, becomes more complex every year.

If our taxes weren’t so complicated, it would simply mean that they wouldn’t be fair for every US citizen, and if that is one of the primary goals of taxation, then it won’t be set to change anytime soon. For taxes to be fair to those whom they apply to, they need to account for the differences between incomes and needs of individuals, families and businesses, and this is itself, complex.

What are the goals of an efficient and fair tax system? 

It would be foolish for us to say that taxes shouldn’t be fair. We are all tax payers, and so of course we want our own, individual taxes to be assigned fairly. They should be conducive to the state of the economy, be easy to enforce and simple to understand. They should account for an individuals’ characteristics, such as whether they are married and have children, as well as how much they earn compared to the cost of their expenditures, and everything should be carefully reported and documented. Yet despite agreeing upon this, we remain undecided as to exactly how important each of these factors should be. Resulting from this, policies regarding tax rules and regulations often come to represent many competing goals, and keeping things simple, is simply not possible. 

The politics behind the tax system 

There are always going to be politicians who strongly support the subsidising of taxes for certain groups of people or for certain activities, and these serve only to complicate the system further by creating and upholding many distinctions among tax payers and uses of income. Pressure from activists campaigning for taxes to remain the same, has seen many Congress members sign a pledge to do exactly that, meaning that lowering taxes for some taxpayers, only complicates the system further. If any changes are then made to the tax system which results in them being raised in the process of simplification, then they must be offset with another change that lowers them back again. That’s about as complicated as things can get, believe me! 

Other goals that complicate US tax laws 

To deter people from trying to avoid paying their taxes, there does have to be an element of complexity. While taxpayers have every right to try and lower their taxes by any legal means, in doing so, certain questions are raised regarding whether some activities or outgoings qualify for tax-preferred status. Limiting tax avoidance is something that The Treasury Department have responded to with a set of new rules and laws, but of course some taxpayers have found ways to dodge these, and the never-ending cycle of avoidance and conflict continues unabated. 

The landmark Tax Reform Act of 1986 was an incredible accomplishment, in that it sacrificed efforts to simplify matters, just to meet a goal of revenue neutrality, something that sparked many complex phaseouts and hidden taxes to meet federal and state targets.  

So, it seems that our taxes aren’t likely to get any less complicatedin the near future, and if understanding them all is proving too much for you, why not call on the services of a professional company who can guide you through the US tax systems murky waters.

   

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