Is Complexity a Necessary Part of the Internal Revenue Code?

Many taxpayers consider the current federal income tax system highly complicated and would hope to deal with a much simpler system to facilitate effectiveness in the administration of taxes. However, the complexity in the current system is understandable and justifiable because one of the objectives of an ideal system of tax is fairness. Simplicity and fairness are both essential in any system of tax, although achieving both objectives at the same time becomes an enormous challenge for the administrators.

For instance, if the administrators of tax imposed a flat tax rate on all taxpayers, administration of the tax would be much more straightforward and easy. However, such a move would not result in fairness among taxpayers. For instance, in the case of two taxpayers, A and B, each with an annual income of $100,000, each would have to pay $20,000 if the flat rate was 20 percent. However, despite the simplicity of the flat rate involved, the situation is likely to be different if B suffered a severe health complication that required him to incur medical expenses amounting to $60,000 during the year.

In this case, it might not seem fair if the two taxpayers have to pay the same amount of tax because B has a reduced amount of disposable income to spend owing to his high medical expenses. Such a case would necessitate the introduction of exceptions/provisions to the tax system in a bid to achieve fairness. Essentially, this means that while it is appropriate for a tax system to strive for simplicity, the aspect of fairness is also fundamental and requires serious consideration, which implies that making the system simple should not be the main concern in tax reform.