Sunday, June 5, 2011

A Beltway Libertarian on Simplifying the Tax Code

As I have pointed out on various occasions, be very suspicious of those calling for a simplification of the tax code, a simplification does not necessarily mean the lowering of overall tax revenue. Further, given the sneaking of last minute clauses into legislation as a standard operating procedure in Congress and the total lack of respect for the common man, most assuredly any "simplification" will mean higher taxes.

The real solution is not to simplify the tax code, but to freeze the current system and start cutting from here.

Nevertheless, Beltway libertarian Megan McArdle is promoting a new simpler tax code. She writes:
Let me start off by noting that I am madly in favor of simplifying the tax code.
She then makes pretty damn clear that when she talks about simplification, she isn't talking about tax reductions, shifting the tax burden, yes, but certainly not overall reductions:
This is not a post supporting the Republican notion that giving someone a tax break for doing something is somehow mystically, metaphysically different from giving them a cash subsidy to do the same thing; either way, that money has to be made up by taking it from someone else.
To be clear on how the mind of this Beltarian works, she sees even the deferment of a tax a "subsidy":

To be sure, deferring taxes is very valuable; the longer your money grows without paying a periodic bite in capital gains taxes to Uncle Sam, the more of it you'll have when you finally spend it. This is especially true if you expect to have a lower tax rate later--if you can put tax-free dollars into your 401(k) when your income tax is high, and withdraw it when your income tax is considerably lower...Because the accounts are only deferred, not exempt, we'll end up getting a lot of the money back in taxes. But not yet, because they're a relatively new innovation, and still growing. That means that if you calculate the cost today, or for the next five years, 401(k)s look like a very expensive tax subsidy.
In other words, she takes the current tax revenue generated as a given, and sees any reduction from here as a tax subsidy that has to, in her own words, "be made up by taking it from someone else".

Further, it's clear that she sees as a plus of the current tax system (although she is "madly" in favor of simplification) that it tends to micro-manage the economy, which has the "benefit" of generating more revenue for the state:
...the home mortgage interest deduction is very expensive--but it might be less expensive if you assume that without it, people might put less money into homes and more into, well, tax-deferred retirement accounts. Childcare subsidies are pricey--but maybe not that pricey if they encourage more women to go into the workforce and earn taxable income.
So although she is for a simpler tax code, she laments that  

I still think that simplifying the tax code is a very good idea. But just keep in mind that if we eliminated them, we wouldn't necessarily garner as much for the treasury as simple calculations might lead us to expect.
The problem with her conclusion is, of course, that any new simple tax is not going to result in lower taxes (and it won't be simple), but she thinks it might lower rates and she appears to think this is a problem with a simple tax!

I am waiting for a future column from her that calls for a higher simple tax rate because of the revenue supposedly lost if a simple tax is implemented.

In short, this Beltarian call for simplification of the tax code is not about lowering tax levels, but about shifting the tax burden.


  1. Let me see if I understand the logic here: Simplifying the tax code = a not so simple tax code since it is the state and the smug moralists that would continue to define the parameters for taxation. Thus, that "burden" will continue to shift onto and crush productive members of society like myself. No thanks.

  2. What is the deal with McArdle anyway? Anywhere I've seen her she's advocating for MORE government not less. I'm completely stumped as to how anyone would accept her as a "libertarian".

  3. Normally I appreciate what is written on this site, however this article is somewhat disingenuous. You make it sound like McArdle is the President of Cato, which she isn't. Not even affiliated. Most people in Washington, even amongst the Orange Line set, wouldn't even acknowledge her as libertarian. (Those that do, shouldn't be acknowledged as libertarian themselves.)

    Certainly there is a diversity of opinion in Washington, and that diversity is clearly narrower due to too much influence and proximity to their corporate-state neighbors, but to try to lump them all into one clump and label them heretics is just as bad as the more extreme of them yelling "anarchist" every time they hear someone mention Rothbard.