Summary of Can the U.S. Tax Code Be Simplified?

Overview of Can the U.S. Tax Code Be Simplified? (The Dispatch Podcast)

This Dispatch Roundtable episode (host Steve Hayes) examines why the U.S. tax code keeps getting more complex, what the unseen costs of complexity are, whether meaningful simplification is politically possible, and a few topical tax fights — including a proposed New York pied-à-terre tax and the political optics of small campaign crowds. Guests: Scott Lincicum (Dispatch Markets/Tax expert), Megan McArdle (Dispatch contributor) and Mike Warren (Dispatch senior editor).

Key topics covered

• Scale and nature of tax-compliance costs (time, money, economic opportunity).
• Drivers of complexity: repeated narrow tax “goodies” and political giveaways, legislative process (reconciliation), and lobbying/tax-preparation industry incentives.
• Corporate tax complexity and distortions (capital intensity, depreciation, gross receipts vs. profit, multinational profit shifting).
• Historical example: 1986 tax reform (“base broadening”) as a model for simplification.
• Recent politics: 2017 Tax Cuts and Jobs Act (TCJA) limits on SALT and follow-on SALT politics in later legislation; the One Big Beautiful Bill Act’s mixture of simplification and new carve-outs.
• New York City “pied‑à‑terre” / second-home tax proposal: goals, revenue claims, and potential side effects.
• Short segment: low turnout at a JD Vance event and what it signals about Republican enthusiasm.

Main takeaways

• The cost of tax compliance is enormous and often ignored: Scott cites Tax Foundation figures (about $536 billion and ~7 billion hours of compliance in 2024–25 — roughly equivalent to 3 million full-time workers).
• Complexity isn’t just annoying — it creates economic distortions (misallocation of capital, lobbying, inefficient subsidies such as ethanol) and opportunity costs (resources diverted from productive uses).
• Corporate taxation is especially difficult to get right because firms’ expenses and capital structures vary widely; taxing gross receipts or mismeasuring profit can hollow out certain industries.
• Political reality makes broad simplification very hard: narrow constituencies and lobbying fight any base-broadening; the 1986 reform succeeded largely by attacking many things simultaneously — a politically difficult approach to replicate today.
• Practical reform proposals discussed include radical simplification moves (e.g., reduce/eliminate the corporate income tax and tax income only at the person/recipient level; treat inheritances as income), but these carry distributional and political trade-offs.

Notable quotes & incisive lines

• Steve Hayes reads Donald Rumsfeld’s Tax Day note: “I have absolutely no idea whether our tax returns and our tax payments are accurate.” (Used to illustrate everyday taxpayer confusion.)
• Scale illustration: “$536 billion is more than the corporate income tax will generate this year… the 7 billion hours spent complying is equivalent to 3 million full American workers doing nothing but tax paperwork for a full year.” (Scott)
• Megan McArdle’s blunt prescription: “Tax the people. Corporations don’t spend in the way people do — eliminate the middleman.” (Paraphrase of her argument to tax business income only when it reaches people, plus eliminating the estate tax while treating inheritances as income.)

Policy proposals discussed (and pros/cons raised)

• 1986-style base broadening (one massive package): pro — can limit targeted carve-outs and simplify; con — requires enormous political coordination and a willingness to deny many constituencies special breaks at once.
• Eliminate or shrink the corporate income tax (Megan’s proposal: near 1% or zero) and tax corporate income only on distribution to people; end special capital-gains treatment; treat inheritances as income:
  • Pros: removes distortions that punish capital investment, reduces multinational profit-shifting incentives, and collapses layers of complexity.
  • Cons/Challenges: huge political resistance from constituencies and industries, transitional issues, distributional concerns, and details on how to implement without creating new loopholes.
• Keep or reform targeted tax incentives (e.g., energy, biofuels, housing subsidies): Guests argued many are inefficient or politically motivated; better to do explicit spending if the policy is important, rather than hidden tax subsidies that are opaque and distortionary.
• SALT cap politics: capping the state-and-local tax deduction (TCJA’s $10k limit) simplified filing for many taxpayers but created powerful, geographically concentrated opposition that has driven later partial rollbacks.

Political and practical context

• Tax reform used to be a repeated national debate (flat-tax proposals, 1986 reform, 2017 TCJA). That sustained, high-profile debate is less common now.
• Modern political dynamics (presidential impulses, reconciliation process, showmanship) increase the temptation to use the tax code for giveaways and targeted carve-outs rather than broad, durable reform.
• Local politics: New York’s proposed pied‑à‑terre/second-home tax is politically effective in the short run (populist appeal to “soak the rich”) but may lower high-end real estate values, reduce property-tax bases, and encourage wealthy residents to move away — with fiscal knock-on effects.

Specific case: New York pied‑à‑terre tax

• Proposal: annual fee on luxury properties valued above $5 million that are not primary residences; claimed to raise ~$500 million for services (childcare, street cleaning, safety).
• Arguments in favor: symbolic “tax the rich” appeal; taxes owners who consume fewer city services.
• Concerns raised: may depress luxury real-estate values, reduce property-tax revenue, encourage departures of wealthy taxpayers (and related philanthropy/school enrollment), and be gamed (owners change holdings or structure purchases). Effectiveness depends on mobility of wealthy residents and broader market trends (remote work, competition from other cities/states).

“Not worth your time” segment (short takeaways)

• Viral image of a sparsely attended JD Vance event (sponsored by Turning Point USA) reflects broader GOP enthusiasm gap in polls and possible organizational disarray at some conservative youth groups after leadership changes.
• Guests viewed the image as one data point among others (weather, competing activities) but consistent with recent indicators that GOP turnout/enthusiasm problems are real and that certain candidates lack broad charisma.

Action items / further reading recommended on the show

• Follow the new Dispatch Markets vertical for deeper economic-capitalism pieces (contributors include Scott Lincicum, Megan McArdle, and others).
• Read recommended Dispatch reporting mentioned in the episode:
  • David Drucker’s piece on the Indiana state senators and Republican retribution.
  • Alex Demas’s April 7 Morning Dispatch piece on private credit (recommended by Megan).
  • Jonah’s Dispatch piece on the decline of Orbanism and the implications for the global/new right.
• For a deeper historical perspective on tax reform politics: the book Showdown at Gucci Gulch (about 1986 tax reform) was referenced.

Episode logistics / who said what

• Host: Steve Hayes (The Dispatch).
• Guests: Scott Lincicum (Dispatch Markets newsletter author; economics background), Megan McArdle (Dispatch contributor; host of Reasonably Optimistic), Mike Warren (Dispatch senior editor).
• Segment structure: tax complexity discussion → NYC pied‑à‑terre tax → recommended reading → “Not worth your time” (JD Vance crowd photo).

If you want quick takeaway bullets to save or share:

• U.S. tax complexity imposes huge direct and hidden costs (money, time, opportunity).
• Corporate taxes create outsized distortions and drive most tax-law complexity; radical simplification would require taxing people, not corporations.
• Politically, large-scale simplification is hard because every carve-out creates a constituency; the 1986 playbook (attack many things at once) is the clearest historical precedent but politically difficult now.
• Populist local taxes (e.g., NYC pied‑à‑terre tax) score short-term political points but risk longer-term fiscal and market consequences.