Paul L. Caron

Friday, February 2, 2024

Schaffa Presents Two Papers On Tax Complexity Today At Indiana

Daniel Schaffa (Richmond; Google Scholar) presents two papers at Indiana-Maurer today as part of its Tax Policy Colloquium hosted by Leandra Lederman:

The Regressivity of Complexity:

Daniel schaffaThis article presents evidence suggesting that complexity in the US tax system is regressive. This should be taken into consideration when designing policy. In particular, when there are several policies that would have similar outcomes, excepting complexity, the least complex one is likely to be the most progressive.

Moreover, this article makes two advances to the analysis of complexity. First, the effect of complexity is not a well-defined concept in the absence of counterfactual analysis. Without a clear statement of a counterfactual, it is not possible to attribute to complexity any effect. Second, the comprehensions of many players are instrumental to determining outcomes within the tax system, and, thus, an analysis that does not consider how complexity changes outcomes in the tax system vis-à-vis the comprehension of all of these players is incomplete—although perhaps intentionally so to avoid the intractability of accounting for comprehension comprehensively. As a final point, while progressivity is the outcome focused on in this article, the insights and analysis developed here applies to other outcomes of the tax system, including social welfare, deadweight loss, economic activity, and the tax gap.

Towards An Understanding of Tax Complexity

Complexity pervades the US tax system. It affects taxpayers in their tax compliance, planning, and disputes; it affects policymakers in their efforts to raise revenue and achieve policy objectives; it affects administrators in their detection of evasion and their attempts to determine how tax law should apply; and it affects voters in their endeavor to support candidates who will enact legislation in line with the voter’s preferences and interests.

A large body of research has emerged seeking to better understand tax complexity, by modeling it, measuring it, and exploring its determinants. This body of work, while informative, is ununified because, as it recurringly notes, there is no consensus about what tax complexity is. More crucially, there is no framework to understand how different uses of the word complexity in the tax context relate to one another.

This article devises such a framework. It notes that every scholarly use of the word complexity ought to have an underlying conception of complexity. The critical inquiry is, thus, what a reader would need to know in order to comprehend this conception. To that end this article identifies the following four crucial dimensions along which tax complexity conceptions vary: (1) Whose comprehension (and more specifically what activity) is affected by this complexity conception? (3) What are the behavioral and experiential effects of this complexity conception? (2) Through what paradigm, if any, is this complexity conception viewed? And (4) What causal models are consistent and inconsistent with this complexity conception?

Using this framework, a reader of tax complexity research will have a deeper understanding of what any particular use of the word complexity means and how any particular conception of complexity fits into the tax complexity literature. More specifically, this framework clarifies what a tax complexity measurement captures and what it does not; how a description or definition fits within the larger complexity literature; and what assumptions about complexity are being made in a tax complexity model or claim. As a result, this framework facilitates comparisons between tax systems in complex environments and the statement of general tax policy claims.

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