The futurist: More on extreme tax complexity

Thomas Frey //February 1, 2013//

The futurist: More on extreme tax complexity

Thomas Frey //February 1, 2013//

With our current tax system, where income tax is filed once a year, we have very little understanding of how any one particular change will affect specific groups, regions or the economy as a whole.

If we moved to a national sales tax, where the system is constantly being tweaked and monitored, we could instantly watch the ripple effects of every alteration.

Most view government’s role through an adversarial lens, when the reality is far different. Every government relies heavily on the performance of its people and businesses. In a competitive global economy, the synergy between a country’s component parts has to be maximized for any administration to stay ahead of other countries nipping at its heels.

However, for a system like this to work properly, there would have to be a number of checks and balances incorporated into its architecture. This would mean the IRS may be allowed to manage it but wouldn’t be allowed to make policy decisions, and operational metrics would need to be optimized for overall performance as opposed to favor-granting schemes or fine-tuning around someone’s personal interests.

Two Scenarios

Here are a couple brief scenarios to help expand your thinking:

Scenario 1: Any street with a high number of stoplights could either be optimized around creating the best flow of traffic or maximizing the amount of sales tax generated in local businesses. Impulse buying decisions are often made when life is put on hold, even briefly at stoplights, so would it be better to lean towards better flowing traffic or increasing revenue streams for neighboring establishments? More importantly, how insane is it to think of having a tax system control our stoplights?

Scenario 2: Whenever taxes are added to the price of a product it becomes very difficult for consumers to calculate exactly what they’ll pay when checking out of a store. With a national sales tax, if we have to do the math ourselves, it will only get worse. In a hyper-connected world, smart tags could be developed with readouts that display a complete breakdown of a product’s price along with its associated taxes Every store would use these Internet-connected smart tags in front of each item they’re selling. Whenever consumers have the complete picture, they are better equipped to make purchase decisions.

But here’s where things can go wrong…

Every complex system can become a breeding ground for power abusers if it’s not properly designed and managed, especially if the natural state of transparency is a complex fog of nano intricacies.

In a two-party form of government, for instance, the party in power could build in specific disadvantages for those living in opposition districts or working in opposition industries.
A national sales tax could begin to distort the authority of state and regional taxes and overshadow their autonomy.

All complex technologies have flaws, and for the hacker crowd, security systems designed to protect money tend to come across like a bully yelling, “I dare you!” with little danger of being caught. A system like this should in no way be considered a panacea for everything we have problems with today, because many things will go wrong. Yet, as governments evolve, it may be inevitable.

Final Thoughts

Here in the U.S. we dedicate far too many brain cells to thinking about taxes, and I’m sure it’s the same way in many other countries.

Every hour we spend thinking about taxes is one less hour we can devote to growing our businesses, helping our families, or solving far more important problems in society.
Those who are demanding a far simpler lifestyle are being drowned out by the complexity enablers, and ironically, extreme complexity may indeed be where authentic simplicity lies.

Governments have a vested interest in creating a better functioning country, and current systems rely heavily on guesswork with very few (and slow) metrics for making policy decisions.
Making hundreds of tax code changes every year with our current income tax system is tantamount to having Google wait until April 15 every year and making all their software updates on a single day.

A national sales tax can provide real-time data with the ability to make changes on the fly. It’s far more attuned to the fluid nature of society and our rapidly changing global economy.
At the same time, many things can go wrong. Complex systems often spawn complex problems, and Big Brother paranoia will be rampant. I’ve often said people in the future will look back at our time and laugh at how insane our tax code is to deal with.

So can we actually achieve some sort of Zen state of invisible tax equilibrium? Can extreme complexity guide us to a simpler, better life ahead? I’d love to hear your thoughts.