Leviathan or Puppet?

One of the favorite rhetorical weapons of the Right is to point to the sheer page count of federal legislation, particularly the Federal Tax Code.  They are especially fond of pointing out that the tax code is longer than the Bible, though there seems to be considerable haziness on the precise margin.  This is often presented as damning evidence of the overgrown power of the federal government, a sprawling, all-consuming monster that has its tentacles in everything.  Of course, no one would deny that there is a lot of truth to this picture.

But reading Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, it occurred to me that another interpretation is possible.  Perhaps the sheer length of US tax regulations is more a sign of impotence than omnipotence.  Think about it.  

In a nation with a strong, respected, generally-accepted authority (perhaps a mere hypothetical), laws ought to be able to be fairly concise.  The law can say “Thou shalt not do X,” (where X is a fairly clear and generally-accepted concept), without too much further elaboration, and can generally accept that people will by and large try not to do X.  But suppose people feel disinclined to obey; they will start saying, “So what counts as X anyway?” Or, “They won’t be able to convict me of X if I just do it this way…”  To cope with this loss of authority, this lack of concern for the spirit of the law, the law will have to become ever more complex and detailed, trying to plug every hole in the dam.  We might suggest the principle, “Where words are many, authority is probably absent.”  Of course, this becomes a vicious cycle, since the increased regulation simply provides further incentive to try to dodge the law and search for loopholes.  

Treasure Islands suggests that this is exactly what has happened with our tax codes.  Eager to avoid taxes, companies and wealthy individuals used accounting tricks and offshore tax havens to get off scot-free, and governments responded with ever more complex tax codes to catch the fleeing money, usually with only very short-term success.  Even worse are those cases where the complexity and absurd length of the regulations is a result of lobbying, so that governments are not merely struggling to maintain control but have capitulated entirely, allowing corporations to all but write the tax codes for them.  

It’s for this reason that, while sympathetic in principle with a dramatically slimmed-down tax code, I have so little patience for the gimmicky proposals that get trotted out every election cycle by the GOP, such as Herman Cain’s absurd “9-9-9” plan.  “We can get the tax code down to just a few pages and still bring in just as much revenue!”  For how long?  A week?  The current code started out at just a few pages too, and you can guarantee that as long as multinational corporations and wealthy individuals remain as powerful, mobile, and creative as they now are, that any tax code that wants any slice of their money will have to grow like kudzu just to keep up.  

2 thoughts on “Leviathan or Puppet?

  1. Jess R. Monnette

    Brad, In my experience with the tax code and regulations, the revenue generation provisions are all quite simple and concise. For instance, "gross income" means "all income from whatever source derived." I think some of the complexity can be attributed as you state to creative tax dodging. I would bet, however, that the overall majority of the complexity is added by Congress. Put another way. The complexity of the code is not what is included in income subject to taxed (those are the simple statements), the complexity is in all of the special breaks/benefits/credits/deductions that have been added by Congress over the years and the associated regulations which are the Treasury's attempt to achieve Congress's intent in those laws. The Tax Code has long been the tool of choice for members of Congress to benefit their constituencies. "Simple" tax codes cannot remain simple as long as Congress has a chance to muddy them. That is just my take. Maybe Ellis might have something to say. – Jess

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  2. Brad Littlejohn

    Thanks Jess—good to know you are still lurking about to keep me on my toes. You might want to weigh in on my new post as well.To be sure, you have more hands-on experience with tax law than I do; my understanding, though, from Shaxson's book, is that there is a great deal of ambiguity and room for abuse when it comes to multinationals' classifying how much of their income applies in different jurisdiction. Transfer pricing can be used to push profits to low-tax jurisdictions (like the Cayman Islands), and leave little or no taxable income in the United States. In industries like finance, the complex possibilities multiply considerably. But in any case, your objection simply draws attention to the second source of trouble that I mentioned: "Even worse are those cases where the complexity and absurd length of the regulations is a result of lobbying, so that governments are not merely struggling to maintain control but have capitulated entirely, allowing corporations to all but write the tax codes for them." For some odd reason, conservatives like to pretend that "special breaks/benefits/credits/deductions" are somehow the result of too much government—it's those nasty power-hungry congressmen that are responsible—instead of the result of too much private interference with government, as powerful corporations (not just corporations, of course, but often these) lobby aggressively for special treatment. Of course, that doesn't make politicians who cave in to the lobbying innocent, but it does suggest, as I said in the post, that government is operating more like a puppet than a leviathan.

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