Sweating the Small Stuff: The Cost of Immaterial Tax Law Provisions

Abstract

The United States federal income tax law has been the subject of decades of study due to its burgeoning level of detail and complexity, including many calls to scrap the income tax and replace it with new approaches, such as a consumption tax. This Article argues that a more manageable and pragmatic approach to improving the tax law, itself a creature of incrementalism, is to reverse its complexity through an incrementalist approach. The tax code contains many immaterial provisions, including two provisions applicable to millions of individuals (the $100 floor on personal casualty and theft deductions, and the up-to-$250 deduction for educators). Such provisions have trivial budget implications and negligible, if any, incentive effects on taxpayer behavior. These provisions add unnecessary complexity and thus inflate transaction costs for the government and taxpayer. For the immaterial provisions residing within tax expenditures, such as the educator deduction, an institutional economics analysis reveals such tax expenditures are ideal candidates for removal from the tax code, to instead be directly expended by the government. The Article offers recommendations as to how to identify and eliminate tax law clutter.

JEL Classification: H2