When ‘Simplification’ is a Trojan Horse for Great Harm

Abstract

In this article, Johnson argues that simplification is sometimes used as a cover for terrible tax policy. A flat tax, for instance, will increase harm by shifting the burden of tax from Uncle Scrooge, who can bear tax on a dollar without much loss in value, to the Little Match Girl, who cannot. Flat tax does not accomplish substantial simplification. An add-on VAT is not a simplification, but another level of complication. So too, expensing of inventory, repeal of net operating loss carryover limitations, and repeal of straddle rules are not are not well illuminated by calling them simplification and are not justified by simplification. Johnson recommends 10 proposals to simplify the law while improving its efficiency and fairness. He suggests repealing all qualified pension plans, and that withholding would depend on the amount paid. Johnson also recommends simplifying partnership tax law and that partnership tax should be computed and collected at the entity level. He further suggests disallowing deductions for the cost of tax planning, and would require tax liens to be filed via the internet. Moreover, he would require capitalizing prepayments, and he recommends ways to reduce valuation disputes in both charitable deductions and estate tax cases.