In honor of tax day...
Figure I'd throw this out there:
Generally speaking, you can either have simple, or you can have fair. Especially when it comes to things like taxes, rights...or for that matter, anything that has to deal with a complex society.
Ah, April 15, thou day of long lines at the Post Office, hurried paperwork....and tax protesters. There always seems to be some sort of protest on Tax Day, simply because people don't like to pay them. Although this year's protests seem more to rail against the idea of federal taxes in general, thanks to the so-called "Tea Party", the general target has historically been the complexity of the tax code, with allowences for tax protests directed at specific spending (See: War, Vietnam). The editorial cartoons on Tax Day are generally cracks at the arcanity of the 1040. And so forth.
(As an aside, I find it rather gratifying that this year's tax protests here in DE - organized by the "Tea Party" - barely managed to draw 150 people on a rather nice spring day. Last year's independantly-organized protests drew well over 1,000, and that was in driving rain. Granted, Delaware is rather bluish, but if 150 is the best that these teabaggers can do, they're in for a rude shock over the next year or so).
I wonder if many - or any - of the usual complainers about the complexity of the 1040, or the tax code in general, have ever considered how the tax code came to be the way it is? Or how grossly unfair a "simple" tax system would be.
Bit of a development lesson here, from someone who has dealt with a significant chunk of the Infernal Revenue Code: the complexity of the tax code comes largely from two sources: definitions, and correcting inequities. I'll not go into changes that were forced upon it by Congress over the past 15 years or so, just into the general reasons why many of the provisions that so confuse the average person when they read them out of context are there in the first place.
Thing is, everything I'm about to say here also applies generally. Which is why I'm writing on it in the first place!
1: Definitions
Here's a little-known fact: at least 50% of the IRC is devoted to defining terms.
If you strike all of the definitional language from the IRC, what you are left with is a rather absolutist, generalist document. (Not to mention something about the length of a 1980s or early 1990s novel, rather than a convenient doorstopper, bludgeon, or catapult ammo). "Gross income is income from whatever source derived." "Like-kind exchanges shall not be taxed as income." "Capital losses may be used to offset capital gains." And so on.
As I was commenting to magirune in my last post, absolute truths - or absolute, general statements - only really work if one is willing to honestly consider all of the iterations of the various terms contained within the statement, both separately and together. And by "all" I do seriously mean "all." Taking the statement I made in the last post as an example, the definition of profit varies wildly from person to person. For the CEO, profit is how much money he can take away from the company at the end of the day. For the journalist, "profit" might be defined by the gathering, analysis, and dissemination of information. For a musician, profit could be defined by the performance of beautiful music (and let's not get into the many definitions of "beauty", mmmm?). Which is one definition of "profit" that might also be found for a chemist. For me, it's the good I can accomplish.
Of course, most of those don't exactly come into the IRC's definition of the term "profit". I don't have my IRC right in front of me at the moment, but I do believe that it defines profit as income over expenditures. Not that it has much use for the term profit, since it deals more with revenue or income.
The definition of the term "income", specifically "gross income", takes up several (dozen) pages in the IRC. And that's just defining income generally - there are hundreds of sections, all annotated, that take as many possible permutations of the term "income" and explain exactly whether they are income or not, what kind, and how they are treated.
The reason for this is that the IRC must account for 350,000,000 people and their interactions, as well as their varying meanings of so many words. NOT to mention the fact that people will willfully twist the meaning of specific terms to suit their own ends. While, as I tell my students, the law doesn't care what you call something, it cares about what it actually is, itis actually less complex - and FAR less confusing - for the IRS to actually take the time, verbiage, and complexity to define all of these terms in a way that is as clear as humanly possible (and attach Rule 11 fines to willfully idiotic misinterpretations of the Code), in order to actually make the taxpayer's job that much easier.
These clarifications have to get pretty abtruse from time to time, which only adds to the illuster of the Code. For example, let's have a look at one of the sections I described above: "Like-kind exchanges shall not be treated as income."
If I have a female animal, and you have a male one, and we trade, is it a "like-kind exchange"?
The day-to-day logic that we are used to would probably say "yes". After all, a cat is a cat is a cat, no? They're still adorable fuzzballs for us to love, no?
Well, yes, but ask any farmer if male and female animals are "like-kind". You'll get a resounding "NO". Male and female animals are VERY different, and the IRC has to account for that in the definitions.
Incidentally, this is one of the major problems I've been having with this project - my mind does naturally run to the manifold definitions present in even the simplest of statements and I keep trying to chase all of them down....
2: Adjusting for inequity
Over the past few years, there have been some voices raised in favour of either a flat tax, or a national sales tax (which would include monthly refunds to cover the tax on the first N amount of spending). The argument goes that this system is fairer and simpler than the current system.
The "Fair Tax" then proceeds to shoot the "simpler" argument down all by itself by having to answer questions about how things like male and female cows would be treated (defining when a product is "sold" is a bear, ne?) However, let's look at the "fair" premise of either of these plans, shall we?
First of all, a flat-rate tax across the board has at least one major inequity involved in it, and actually would serve to stifle economic growth.
The inequity is thus: there is a certain minimum cost that is required to survive. Regardless of what social level you are at - the pooridge-thinning very poor, or the caviar-dunking uberrich
- there is a certain level of expenditure that is required for one to continue to meet the requirements for being alive. That is to say, we have to eat, drink, and have a place to sleep at night. Now, if you attack the problem from a minimalist point of view, that is to say, if you just allow for the absolute bare minimum one needs to survive, that dollar amount is going to be a larger portion of the poor person's income than it is of the rich person's income. It's simple mathematics. As a result, a flat tax is going to cut far deeper into the discretionary monies of a poor person than it will the same monies of a rich person.
If the bare cost of living is $500/month ($6,000/year), then a person making $20,000/year will have a discretionary income of $14,000/year, whereas the person making $2,000,000/year will have a discretionary income of $1,994,000/year. If the tax rate is a flat 40% of total income, regardless of actual income, then our poor person is left with $12,000 in take-home pay, leaving $6,000 for anything beyond the bare minimum to stay alive, while the rich person is left with $1,200,000 in take-home pay, $1,194,000 of which is beyond the bare minimum to stay alive. The rich person has 59% and some change of their pay to spend on non-tax, non-what-you-must-do-to-continue-to-live items, while the poor person has 30% of their pay. And it gets worse for the extremely poor - someone making $10,000/year (about minimum wage until it went up a year or two ago) would be left with nothing after taxes and bare-bones essentials. NOTHING.
So we make an allowence (the "standard deduction" and "exemptions") that permits the poor to have their income adjusted to represent what they're spending on themselved in order to remain alive. There are other allowances - health care beyond a certain point isn't part of your taxable income, for example, on the theory that if you're spending over 8% of your income on medical expenses, something is very wrong and we shouldn't be dipping into your money. The interest on the mortgage is deducted because we want to encourage home ownership, and interest is an added cost of ownership.
All of these little deductions - moving expenses (only fair that we allow you to deduct costs you incur when seeking a better life), capital losses, amortization of equipment, amortization of cows, deductions for taking in families or individuals displaced due to natural disasters - all of these have been added in the interests of fairness. Taken individually, most of them actually are fair, so long as you remember to look at both the overall and the individual impact of not allowing those same deductions.
Taken in the aggregate, however, they are the other large factor that leads to the complexity that I describe above.
The same is true in anything that deals with society: once you start trying to make things absolutely fair, or as fair as you can, you start to add exponentially greater levels of complexity to the system.
Of course, we could always try to go back to a "simple" system, and accept the inherant unfairness that is present.
All of which raises two questions:
1: Is there a point at which the rapidly increasing complexity of a system (any system), done in the name of making it more fair, actually makes it less fair due to simple weight of complexity?
2: Even if a simple AND fair system of anything could be established, would the weight of having to deal with people (rather than angels, demons, or mindless automatons) force a complex system of definitions upon the system?
In other news: if all goes well (and no reason to assume it won't), this is the very last post I will be making from this computer. That's right - I'm finally buying a new one tomorrow. Good night Millie, and R.I.P. (finally....you probably should have been laid to rest quite a while ago...)
Generally speaking, you can either have simple, or you can have fair. Especially when it comes to things like taxes, rights...or for that matter, anything that has to deal with a complex society.
Ah, April 15, thou day of long lines at the Post Office, hurried paperwork....and tax protesters. There always seems to be some sort of protest on Tax Day, simply because people don't like to pay them. Although this year's protests seem more to rail against the idea of federal taxes in general, thanks to the so-called "Tea Party", the general target has historically been the complexity of the tax code, with allowences for tax protests directed at specific spending (See: War, Vietnam). The editorial cartoons on Tax Day are generally cracks at the arcanity of the 1040. And so forth.
(As an aside, I find it rather gratifying that this year's tax protests here in DE - organized by the "Tea Party" - barely managed to draw 150 people on a rather nice spring day. Last year's independantly-organized protests drew well over 1,000, and that was in driving rain. Granted, Delaware is rather bluish, but if 150 is the best that these teabaggers can do, they're in for a rude shock over the next year or so).
I wonder if many - or any - of the usual complainers about the complexity of the 1040, or the tax code in general, have ever considered how the tax code came to be the way it is? Or how grossly unfair a "simple" tax system would be.
Bit of a development lesson here, from someone who has dealt with a significant chunk of the Infernal Revenue Code: the complexity of the tax code comes largely from two sources: definitions, and correcting inequities. I'll not go into changes that were forced upon it by Congress over the past 15 years or so, just into the general reasons why many of the provisions that so confuse the average person when they read them out of context are there in the first place.
Thing is, everything I'm about to say here also applies generally. Which is why I'm writing on it in the first place!
1: Definitions
Here's a little-known fact: at least 50% of the IRC is devoted to defining terms.
If you strike all of the definitional language from the IRC, what you are left with is a rather absolutist, generalist document. (Not to mention something about the length of a 1980s or early 1990s novel, rather than a convenient doorstopper, bludgeon, or catapult ammo). "Gross income is income from whatever source derived." "Like-kind exchanges shall not be taxed as income." "Capital losses may be used to offset capital gains." And so on.
As I was commenting to magirune in my last post, absolute truths - or absolute, general statements - only really work if one is willing to honestly consider all of the iterations of the various terms contained within the statement, both separately and together. And by "all" I do seriously mean "all." Taking the statement I made in the last post as an example, the definition of profit varies wildly from person to person. For the CEO, profit is how much money he can take away from the company at the end of the day. For the journalist, "profit" might be defined by the gathering, analysis, and dissemination of information. For a musician, profit could be defined by the performance of beautiful music (and let's not get into the many definitions of "beauty", mmmm?). Which is one definition of "profit" that might also be found for a chemist. For me, it's the good I can accomplish.
Of course, most of those don't exactly come into the IRC's definition of the term "profit". I don't have my IRC right in front of me at the moment, but I do believe that it defines profit as income over expenditures. Not that it has much use for the term profit, since it deals more with revenue or income.
The definition of the term "income", specifically "gross income", takes up several (dozen) pages in the IRC. And that's just defining income generally - there are hundreds of sections, all annotated, that take as many possible permutations of the term "income" and explain exactly whether they are income or not, what kind, and how they are treated.
The reason for this is that the IRC must account for 350,000,000 people and their interactions, as well as their varying meanings of so many words. NOT to mention the fact that people will willfully twist the meaning of specific terms to suit their own ends. While, as I tell my students, the law doesn't care what you call something, it cares about what it actually is, itis actually less complex - and FAR less confusing - for the IRS to actually take the time, verbiage, and complexity to define all of these terms in a way that is as clear as humanly possible (and attach Rule 11 fines to willfully idiotic misinterpretations of the Code), in order to actually make the taxpayer's job that much easier.
These clarifications have to get pretty abtruse from time to time, which only adds to the illuster of the Code. For example, let's have a look at one of the sections I described above: "Like-kind exchanges shall not be treated as income."
If I have a female animal, and you have a male one, and we trade, is it a "like-kind exchange"?
The day-to-day logic that we are used to would probably say "yes". After all, a cat is a cat is a cat, no? They're still adorable fuzzballs for us to love, no?
Well, yes, but ask any farmer if male and female animals are "like-kind". You'll get a resounding "NO". Male and female animals are VERY different, and the IRC has to account for that in the definitions.
Incidentally, this is one of the major problems I've been having with this project - my mind does naturally run to the manifold definitions present in even the simplest of statements and I keep trying to chase all of them down....
2: Adjusting for inequity
Over the past few years, there have been some voices raised in favour of either a flat tax, or a national sales tax (which would include monthly refunds to cover the tax on the first N amount of spending). The argument goes that this system is fairer and simpler than the current system.
The "Fair Tax" then proceeds to shoot the "simpler" argument down all by itself by having to answer questions about how things like male and female cows would be treated (defining when a product is "sold" is a bear, ne?) However, let's look at the "fair" premise of either of these plans, shall we?
First of all, a flat-rate tax across the board has at least one major inequity involved in it, and actually would serve to stifle economic growth.
The inequity is thus: there is a certain minimum cost that is required to survive. Regardless of what social level you are at - the pooridge-thinning very poor, or the caviar-dunking uberrich
- there is a certain level of expenditure that is required for one to continue to meet the requirements for being alive. That is to say, we have to eat, drink, and have a place to sleep at night. Now, if you attack the problem from a minimalist point of view, that is to say, if you just allow for the absolute bare minimum one needs to survive, that dollar amount is going to be a larger portion of the poor person's income than it is of the rich person's income. It's simple mathematics. As a result, a flat tax is going to cut far deeper into the discretionary monies of a poor person than it will the same monies of a rich person.
If the bare cost of living is $500/month ($6,000/year), then a person making $20,000/year will have a discretionary income of $14,000/year, whereas the person making $2,000,000/year will have a discretionary income of $1,994,000/year. If the tax rate is a flat 40% of total income, regardless of actual income, then our poor person is left with $12,000 in take-home pay, leaving $6,000 for anything beyond the bare minimum to stay alive, while the rich person is left with $1,200,000 in take-home pay, $1,194,000 of which is beyond the bare minimum to stay alive. The rich person has 59% and some change of their pay to spend on non-tax, non-what-you-must-do-to-continue-to-live items, while the poor person has 30% of their pay. And it gets worse for the extremely poor - someone making $10,000/year (about minimum wage until it went up a year or two ago) would be left with nothing after taxes and bare-bones essentials. NOTHING.
So we make an allowence (the "standard deduction" and "exemptions") that permits the poor to have their income adjusted to represent what they're spending on themselved in order to remain alive. There are other allowances - health care beyond a certain point isn't part of your taxable income, for example, on the theory that if you're spending over 8% of your income on medical expenses, something is very wrong and we shouldn't be dipping into your money. The interest on the mortgage is deducted because we want to encourage home ownership, and interest is an added cost of ownership.
All of these little deductions - moving expenses (only fair that we allow you to deduct costs you incur when seeking a better life), capital losses, amortization of equipment, amortization of cows, deductions for taking in families or individuals displaced due to natural disasters - all of these have been added in the interests of fairness. Taken individually, most of them actually are fair, so long as you remember to look at both the overall and the individual impact of not allowing those same deductions.
Taken in the aggregate, however, they are the other large factor that leads to the complexity that I describe above.
The same is true in anything that deals with society: once you start trying to make things absolutely fair, or as fair as you can, you start to add exponentially greater levels of complexity to the system.
Of course, we could always try to go back to a "simple" system, and accept the inherant unfairness that is present.
All of which raises two questions:
1: Is there a point at which the rapidly increasing complexity of a system (any system), done in the name of making it more fair, actually makes it less fair due to simple weight of complexity?
2: Even if a simple AND fair system of anything could be established, would the weight of having to deal with people (rather than angels, demons, or mindless automatons) force a complex system of definitions upon the system?
In other news: if all goes well (and no reason to assume it won't), this is the very last post I will be making from this computer. That's right - I'm finally buying a new one tomorrow. Good night Millie, and R.I.P. (finally....you probably should have been laid to rest quite a while ago...)