by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
Federal income taxes get more complicated as people earn more. Do some independent work and you have to estimate your taxes, and file a Section C and a Section SE. Put money in or use money from a Health Savings Account, file more forms. Earn money from your investments, file another form and pay capital gains. All this before dealing with itemized deductions and possibly calculating your taxes twice as part of the Alternative Minimum Tax (AMT). Fortunately, we in North Carolina have straightforward state taxes, but the complicated federal tax code has a high cost. A new paper estimates the cost of federal tax filing has increased over the past 30 years and now takes 1.2 percent of the economy, or $230 billion a year.
All of the twists and turns of the tax code made it in to reward certain behaviors and punish others. We tend to think that they all were added to benefit well-connected wealthy people, but as the paper shows, they make us all poorer.
Brink Lindsey and Steven Teles, two left-leaning libertarians at the Niskanen Center, make the case in a new book that zoning, occupational licensing, some financial regulations, and intellectual property laws hurt newcomers, the poor, and the economy as a whole.
The role of excess taxes and regulations in slowing the economy also has made the distributional costs of those arrangements less acceptable. It’s why tax and regulatory reforms at the state and federal level are so vitally important.