Eyes Above The Waves

Over the weekend I completed my last set of US tax returns (God willing!). This is an occasion for great rejoicing.

I've always found the US tax return system very poorly designed. There are so many rules, categories and exemptions --- presumably due to the sheer breadth of citizens, territories and activities the system covers, compounded by endless Congressional modifications driven by special interest lobbyists. The need for file one or more state returns along with the federal return, each with slightly different rules, exacerbates the pain. I'm never really sure that I've gotten my returns right, especially whether I've claimed everything I could have.

This situation is actually really bad. The compliance burden on the economy must be significant. But worse, it favours those who can amortize the cost of a good accountant over a large income and obtain every tax benefit available. Such a complex system must also contain anomalies --- bugs ---- at any given time that can be further exploited by those accountants.

As far as I can tell, this situation is not really fixable. The US political system is too broken for for anyone to pursue successful comprehensive reform, and in any case the system is so large and has so many requirements that it resembles one of those software systems that can never be successfully rewritten. And of course some of the big problems, such as the existence of state taxation, are constitutionally fundamental.

In smaller countries like New Zealand this is not true, and indeed, over the years there have been successful efforts to simplify our tax system. What we have right now could be improved, but it's far simpler for most people than the US system. This ability to reform and simplify is simply an advantage that I believe comes easier to small countries then large ones. Of course it's merely one part of the size tradeoff, and large countries have many advantages over small ones ... probably much greater advantages, all told.