Milton Friedman - Why Tax Reform Is Impossible

Somewhat relevant talk by Milton Friedman that I found enlightening when thinking about these tax matters (economics of tax shelters, tax cuts being the "product" politicians "sell", etc.): [VIDEO] (I strongly recommend watching all of it, but around 5:50 in he talks about why the tax system will remain complicated if you have an internet attention span).

1. Google does not "dodge" taxes. They follow the incredibly complex web of rules the system specifically designed for this sort of use (or abuse). Its absurd to expect any corporation or person to go out of their way to pay more than they need to. (Milton Friedman Why Tax Reform is Impossible: [VIDEO] ) 2. Muni does not need more money. SF does not need more money. SF's budget is twice that of Idaho's, and we have far fewer people and far less space than Idaho ( [LINK] ). Look no further than the ridiculous extension of muni from China town to downtown to see a clear indication of how funds are being completely misused. No one wants to fix the budget problems in SF and its so much easier to just blame whoever happens to be successful at the moment. 3. I'm not sure I disagree with your third point at all but also don't understand how its a negative thing. You are describing normal competition between companies. I can at least provide one piece of information: I used to work in the South Bay and hated the commute and would do everything in my power not to ever do it again, bus or not. So there's plenty of incentive to stay and work in a small company here, I assure you. Do you see lots of small companies running buses (honest question, I'm simply not familiar)? I seem to just see the flipside happening: more small companies simply being in SF.

Because tax breaks are the products politicians sell: [VIDEO] (relevant portion about 5:28 in but it's all worth watching)

There is a good Milton Friedman video wherein he explains why tax reform won't happen in the United States. The key is that the ideal goals of a tax system (e.g. generate lots of revenue with little inefficiency and little impact on taxpayers' personal financial situation and few unequally distributed loopholes like corporate tax avoidance) are not the goals of lawmakers who define the tax system. In the video, he focuses on a theoretical tax system just like our current progressive income tax, but with all brackets >25% limited to 25%, and argues that it would be an improvement (according to ideal goals). But I think the argument could be extended to basic income or negative income tax, the latter of which Friedman also advocated. [VIDEO]

Milton Friedman made a similar point about the advantages of a complex tax code for those in power. A complex tax code favors those that will contribute to politicians in order to gain a special benefit or avoid a specific harm. Paraphrased obviously. Here's the original lecture: [VIDEO]

Perhaps if taxes were less punitive and confiscatory people would be less likely to be creative in their avoidance. Lowering and simplifying taxes would increase revenues (per the Laffer Curve,) however that would result in politicians not being as powerful. Milton Friedman explains this brilliantly: [VIDEO]

The real question is why we have a tax system that would need 10,000 additional customer support reps. The problem isn’t a lack of reps, it’s a system that requires that many reps. The flat tax, file-on-a-postcard system proposed by 2016 presidential candidate Ted Cruz was mocked by the establishment because it seemed tha politicians on both sides have a vested interest in a complex tax code — it is the means by which politicians derive their power. See Milton Freidman on the subject: [VIDEO]

Milton Friedman (who is a few steps above AOC when it comes to economic policy knowledge): "All things considered, the personal income tax structure that seems to me best is a flat-rate tax on income above an exemption... I would combine this program with the abolition of the corporate income tax, and with the requirement that corporations be required to attribute their income to stockholders, and that stockholders be required to include such sums on their tax returns. The most important other desirable changes are the elimination of percentage depletion on oil and other raw materials, the elimination of tax exemption of interest on state and local securities, the elimination of special treatment of capital gains, the coordination of income, estate, and gift taxes, and the elimination of numerous deductions now allowed." However, this won't happen because those on the left and the right (i.e. "politicians") use the tax code as a means for punishing and rewarding to garner favor with contributors to their political campaigns. Here's Friedman speaking on that: [VIDEO]

Not sure I understand the hate for TurboTax. Literally not a single person is forced to use it. I do use it and it's a very good product for the most part. Perhaps energy should be directed at the actual tax code complexity rather than software built to help navigate filing. Ted Cruz's tax plan would have practically eliminated the need for TurboTax-type software. [LINK] But, let's not forget what Milton Friedman had to say about tax reform: [VIDEO]

Why not ask the question why taxes are so complicated? Ted Cruz advocated for post card tax filing but everyone hated it because it would have eliminated the winners-and-losers picking that the tax code gives politicians. According to Ted Cruz, 9 billion hours is spent on tax compliance each year. Milton Friedman has a lot to say on the intentional complication of the tax code: [VIDEO] Tax rates should be low, deductions minimal, and compliance easy. The Laffer Curve demonstrates this value to government revenues. But the economic literacy of most people is so lacking that it always revolves into some kind of class-warfare debate. Tangential, but related would be the UBI debate vs. welfare program. Whatever side of the aisle you’re in when it comes to spending priorities, one thing that should be obvious is that simplification is a win for everyone except those with robust lobbying resources to fight for carve-outs. We could spend more money with simpler, lower taxes that are applied evenly. Have a high standard deduction to protect the very poor and for every dollar over that, the government gets 10%. Simple. But the compliance industry would lose their minds. This “progressive” tax system we have is ridiculous because it isn’t progressive at all — those making money from capital gains pay less than wage-earners. Everyone should pay the same percentage regardless of the origin of funds.

Intuit isn’t the problem. Politicians are. See Milton Friedman on this subject. A complicated tax code is used to reward and punish people. The tax code was complex long before Intuit came around. [VIDEO]

Let’s not blame Intuit for this. Blame the politicians. Here’s Milton Friedman on the reason the tax code is intentionally complicated: [VIDEO]