How costly is complexity? Q.How costly is complexity? A.Tax compliance imposes three major costs: taxpayers’ time spent filing returns; their out-of-pocket costs of keeping records, hiring preparers, buying software, and the like; and government costs of administering the tax system. All of those costs increase with the complexity of the tax system, but their magnitudes are difficult to measure. Read more about How costly is complexity?
What is the personal exemption? Q.What is the personal exemption? A.Personal exemptions for both taxpayers and dependents provide that only a person’s income above some defined basic level is subject to tax. This helps ensure that the poorest households are not subject to the income tax. In 2017, the personal exemption is $4,050. Read more about What is the personal exemption?
What policy reforms could simplify the tax code? Q.What policy reforms could simplify the tax code? A.Reducing the number of distinctions among economic activities and taxpayers’ personal characteristics would simplify the code, reducing both compliance costs for taxpayers and administrative costs for the government. The consequent broadening of the tax base would allow lower tax rates while maintaining revenue and also reduce economic distortions caused by taxation. Read more about What policy reforms could simplify the tax code?
