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One small step toward tax simplification

Posted by Richard on May 6, 2005

Alex Tabarrok at Marginal Revolution links to an interesting NY Times column (log in with BugMeNot) by Hal Varian, "What Should a Reconfigured Tax System Look Like?"  Varian has a great opening line:

TAX systems are like septic tanks: they need to be cleaned out every 10 years or so.

The last significant structural tax reform in the United States was in 1986, so we are long overdue for a thorough cleansing. Some economists have claimed that the changes in 1986 increased the economy’s growth rate by as much as 1 percent in the years immediately afterward. But since then, virtually every piece of tax legislation introduced in Congress has added to the complexity and inefficiency of the tax system.

Varian makes a number of recommendations, but Tabarrok rightly spots one that should be treated as "low-hanging fruit":

I agree with him that one of the most desirable but also achievable reforms would be to expand and simplify "the current messy system of tax-deferred savings, including I.R.A.’s, 401(k)’s, 403’s and Keough plans. We do not really need all those different plans and having one, simple tax-deferred savings plan would make a lot of sense."

I couldn’t agree more. Jeez, there must be 6 or 8 flavors of IRAs alone, each with its own 50-page IRS publication explaining the subtle differences in the limits, rules, recordkeeping, etc. If the Bush administration can’t make an utterly compelling case for simplifying this mess tomorrow, then Rove’s way overrated.

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