Indiana hosted a conference on tax competitiveness and tax simplicity last week. The event will receive a lot of merited attention in the coming months and years as Indiana grapples with some lingering weaknesses in our tax code. I was lucky enough to attend the conference and can offer a few insights about the event.
Tax competitiveness and tax simplicity are vague phrases that deserve some explanation. Competitiveness in a tax code means a structure of tax rates, tax types and a suite of public services that provoke households and businesses to relocate or stay in Indiana. We surely disagree on how to get there, but as an aspirational goal this would seem a wise pursuit. Simplicity of course means the tax code is easy for government to administer and easy for households and business to comply.
This obvious definition is only the veneer of simplicity, for all complexity in taxes is the result of basic unfairness. Every loophole, every deduction, every exemption, every abatement, every special carve-out of taxes is designed to benefit one class of citizens at the expense of others. In the end these are neither fair nor simple. They are rarely effective.
For every small deduction, credit or exemption crafted in our tax code for disabled veterans or Girl Scout donations, there are hundreds of far more dubious credits that have slipped into the code to benefit installers of solar-powered roof vents, builders of riverboat casinos and others. Fixing these inequities in the tax code was a major theme of the tax conference.
As with any research-based conference on taxation, there were some provocative ideas from thinkers and doers from around the world. We heard about the remarkable transformation of New Zealand’s tax code, which literally rescued the country from bankruptcy while increasing direct payments to the poor and unemployed. We heard about the challenges state tax codes face when linked to federal income tax rules, and the trials of reforming a federal tax system that has become purely political.