The tax system could well be the most idiotic, hypocritical and unnecessarily complicated part of modern industrial economies. The system needs to be rebuilt.
In developed economies, as governments have expanded, taxes have increasingly been used as a tool of economic and social policy. The rich are taxed more than the poor for the sake of a vision of social justice: from each according his ability. Depending on the jurisdiction, some good cause or another is favoured: house ownership, marriage, children, charitable contributions, savings. For companies, an almost endless series of exemptions, deductions and definitions are supposed to encourage investment, employment or some other desirable end.
Each tax wrinkle produces its own complex set of rules. Taxpayers’ continuous efforts to minimise payments lead to yet more rules. Each tax jurisdiction has its own system, a diversity which both increases the intricacies of international business and creates opportunities for individuals and companies to place income where it is less highly taxed.
The complexity has created a lucrative business in tax advice, but it is hard to see how the overall system promotes either economic efficiency or social justice. The complexity does have one clear effect; it alienates people from their governments. The tax law evokes frustration and a righteous indignation which is often undercut by the fervent desire to hold onto particular tax advantages.
The recent moves against tax havens and some corporate tax shifting are a welcome exception – a few parts of the tax system are actually becoming less unjust. Foreign governments used mostly to ignore the practices of banks in Switzerland and other havens, but an international campaign against some of their practices has been effective. A more recent campaign against egregious corporate income-shifting seems to be gathering momentum.