Obama intends to simplify tax code

Thursday, April 16, 2009

From here:

Obama said at a White House event Wednesday that he's working toward "a simpler tax code that rewards work and the pursuit of the American dream."
The big question though is by how much. One way you can tell that something is too complex for the average person to understand is whether an entire industry can be built around deciphering and using it. In some cases (the law) this is a necessary evil as there is a huge variety of situations that can be encountered and you need a lot of clarification of small details and precedents in order to decide how to make a legal ruling, but taxes are a different matter as they really can be simplified to a point where the average person is easily able to understand them in their entirety. The most extreme example of this is Estonia's income tax, which is a simple flat tax of 21%.

Not all nations are able to adopt as simple a tax system as the one in Estonia, but some amount of simplification is always a good thing. Once you've gotten to a point where companies like H&R Block employs 90,000 people just to help average people prepare their taxes, you have a problem. Drastically simplifying the tax code could pose a threat for companies like this (though they would probably adapt to focus more on investment and banking advice), but in reality there's no reason why tax preparation should be such a large business. (Imagine a city with a road system so complex that specialists need to be hired to find the best way from point A to point B. Does this industry deserve to exist as well?) Not only is it somewhat unnatural to have a business that exists solely because the existing system is too complex, but it also gives an unfair advantage to those that can afford to hire specialists to sift through the tax code to find convenient loopholes that others are unaware of. The ideal Obama should aim for would be a system that is easy enough to understand that an average person should be able to derive as much benefit from personal knowledge or advice from intelligent friends and family members as someone who can afford to hire a specialist. In fact, Obama said the same thing in the article:
"We need to simplify a monstrous tax code that is far too complicated for most Americans to understand, but just complicated enough for the insiders who know how to game the system," Obama said.
One of the best qualities about Obama is his attention to detail, so I expect he will spend a lot of his own time making sure that the simplifications fit with his desired changes to the tax code.

As for the question of when, the deadline for recommendations is Dec. 4, so not for a while yet.


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