Why We Fear the IRS

I have an MBA.

I write about tax policy for a living.

These things are surprisingly little help. Filling out your taxes is not a matter of being good at math, or accounting, or even knowing how various provisions of the tax code interact in revenue projections. It is entirely a matter of knowing what can be deducted, and how. And because our tax code is so complex, that doesn't mean "read the statute"; it means "read the statute, and the case law, and develop a sense over long experience of how agents are likely to interpret this or that during an audit." The only people who can do that are tax professionals; the rest of us are too busy earning a living in our own professions.

There's no perfect measure of tax complexity, but consider one quick-and-dirty metric: the number of lines on a typical tax form, and the length of the accompanying tax booklet. Quartz did just that a while back, and found that the complexity had been steadily increasing.

Legal complexity does not accumulate linearly; it accumulates exponentially. When you have one law on the books, and you add a second, the new law may (or may not) have some unexpected interaction with the old law. This would be one complexity point for regulators to manage. But with each new law, the number of potential interactions grows quickly, until it passes the ability of any layman to grasp it (and eventually, surpasses the professionals as well, which is why they're increasingly specialized in narrow areas). We are long past that point with the tax code.

The obvious answer is "tax simplification." Other countries do not have quite this tangled mess, after all; the annual ritual where everyone in the country panics over getting their taxes in seems alien to folks from many other places.

And yet getting there won't be easy, because the dirty secret of tax simplification is that the stuff creating all the complexity is stuff people like. "Tax complexity" sounds terrible, particularly as April approaches. But what about IRAs? Tax deductions for dependent children? Deductibility of excess health expenses? Educational tax credits? Home mortgage interest deduction? All those things sound great, don't they? And if we try to get rid of all that great stuff that people love, taxpayers would scream.

There's more than one reason that the U.S. tax code is so complicated, but a big one is simply that we give tax deductions where other countries use subsidies. There is no way to have a simple, comprehensible tax code that offers the wide array of deductions and credits that the U.S. does. And so we have the paradox of U.S. tax policy: Everyone wants things to be simpler, but no one wants to get rid of the things that make it complex.

This leaves us vulnerable, not just to scams, but to a pervasive sense that the government may descend at any moment to punish us. But apparently, we'd rather have that than lose our mortgage interest deduction — or admit what our tax policy is doing, and offer straightforward subsidies for the things we want to encourage.