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Why does US seem to have such a convoluted tax code?

This one says that the US have 70k code.

Most of which are loopholes for lobbyists I bet.

Most make sense.

I am a tourist that go to US for vacation for a year. My company earns $100k in profit. It pays all in a dividend to me. I then give all as allowances to my girlfriend/wife/mistress. I am still a citizen of my own country that also charge income taxes with their rules.

In the "simplified" code, I can end up paying taxes 3-5 times.

On land tax, it doesn't matter. So it seems that land taxes don't have all this complexity problem like income taxes.

Will things be much simpler? A government can say that typical land cost this much in this area. Morever, there are people willing to pay this much taxes if they can use that land.

So if I let A to stay in the land I will collect less tax than if I let B to stay in the land. They both cost the same amount of money from the army and infrastructure. Of course I would demand from A, the same amount of taxes I demand from B.

In fact, that's how feudal landlord tax I guess.

So why not land taxes? More importantly, will it be cheaper?

Note: Some people say that land taxes are easier to avoid. For example, a person can just live in another country. Well. That is also a good way to avoid income taxes. Also, rich people want to live in some big mansion.

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    Doesn't really work: a very wealthy person could live in say a Manhattan apartment that occupies the same amount of land as a Harlem tenement, and much less than say a family farm in the midwest.
    – jamesqf
    Jun 1, 2019 at 16:59
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    Manhattan land is expensive. So that very wealthy person will pay huge tax. The family farm has tons of land. However, the land price is cheap. So lower tax.
    – user4951
    Jun 3, 2019 at 23:32
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    @user4951: But why would you want to give incentives for building apartments, which would presumably cram as many people into as little space as possible - IOW, the human equivalent of a battery chicken farm: en.wikipedia.org/wiki/Battery_cage
    – jamesqf
    Jun 4, 2019 at 4:30
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    @jamesqf To make more efficient use of land and mitigate the consequences of land monopoly. Hopefully a democratically elected government or local authority would have minimum bounds on dwelling / room sizes. Apparently NYC's Building Code says all dwelling units must have at least one room with a minimum of 150 square feet; for specific types of dwelling, e.g. those intended for pensioners, there are larger, different minimums. The market will also determine who is prepared to pay how much for what.
    – Lag
    Jun 5, 2019 at 10:13
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    @jamesqf In NYC and other cities there is ever-growing interest in micro-apartments and foldaway furniture and utilities. Land in certain places is already affordable only to the ultra-rich. However, there is less incentive for them to share it than there would be under LVT. If they want to monopolise their land that's OK so long as they return some part of the location value to society, which would improve other people's quality of life (e.g. by reducing income tax). There is land e.g. plots in Manhattan or London, that is worth vastly, vastly more per unit area than land in other places.
    – Lag
    Jun 6, 2019 at 10:10

4 Answers 4

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If you tax just one thing then it's easy to avoid that one thing (in other words, turn the system into one giant loophole), especially if you're wealthy. Rent a studio apartment, and then throw the rest of your money into renting yachts, traveling the globe and staying in luxury hotels, etc. You could live in the lap of luxury all of your life and barely pay a dime in (property) taxes. And conversely a farmer could pay a mountain in taxes and barely make ends meet.

People have choices to make with their wealth, and different people tend to make different choices. If you want to tax their wealth, you have to cover a great many of those choices: property taxes if they use it to have property, sales taxes if they want to buy things, capital gains taxes if they want to profit off an investment, etc.

As far as the US is concerned, this would be essentially impossible to implement. The US constitution prohibits direct taxes (taxes on people or property, as opposed to transactions) by the federal government unless the taxes are levied in proportion to state populations (so if a state has 10% of the population they'd be required to pay 10% of the tax). This has confounded many types of attempts at taxation, as it is difficult to impose such taxes for technical and political reasons. Politically taxes are a powerful tool, with tax breaks, loopholes, etc. used to encourage people to support you in an election. It also has lots of equity issues: if one (hypothetical) state has 2% of the population but 30% of the wealth (of what's being taxed) its residents pay all of 2% of the levied tax, a drop in the bucket to their cumulative wealth; while a state with 30% of the population but 2% of the wealth must pay 30% of the tax, a severe impact on their peoples's strained budgets.

In your particular case one of the loopholes this would create is that the wealthy would be incentivized to locate as much of their property as possible in the lowest population states, and to keep them that way. Drastically so since higher populations naturally tend to imply less available land. Or simply move them out of the country entirely, which is likely for businesses and industry if no suitable lands can be found that won't be taxed heavily for simply existing in high population states. Your very need to hire employees will effectively increase the supported population and so your taxes!

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  • It's not even clear that the proposed plan would tax renters, since they don't own the land they rent by definition. Probably any sane implementation of this would tax land based on its value rather than just its size, which would help the farmers and raise the price of rent. Of course, it's really hard to put a value on land, and there's no way the government could keep an accurate valuation of all the private property in the nation. Income is much simpler by comparison.
    – IllusiveBrian
    Jun 1, 2019 at 21:50
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    The landlord would pay the tax and incorporate it into the price of rent, so renters would be paying indirectly. Property taxes are already based on the assessed property value - these are not new concepts. It isn't rapidly adjusting or perfectly accurate, but close enough for government work. Many different approaches could be used to keep cost low and improve accuracy - it could use self-report with minimum terms between outside valuations, and base eminent domain compensation on it (undervalue too much and gov can buy it at your proposed value).
    – pluckedkiwi
    Jun 3, 2019 at 20:38
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    The main feature of property taxes is that they are essentially impossible to dodge. Hiding land isn't really possible, even living on a yacht you still need a harbor that can get taxed.
    – Ryathal
    Jun 4, 2019 at 12:17
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    Staying in a hotel you will still pay the land taxes that are passed on to the customer. Farmers will not pay as much land tax because the tax rate on land in the middle of nowhere is low.
    – Chloe
    Jun 6, 2019 at 16:56
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    Some famous historical examples of this kind of tax reduction strategy involve taxes on hats, taxes on windows and taxes on beards.
    – ohwilleke ♦
    Jun 6, 2019 at 21:28
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Dear benevolent dictator,

Having one tax of any kind is more simple in itself than having a mix of taxes.

But will having one tax of any kind raise the funds needed to pay for the great works you want done? Will it pay for the services you want to provide your loyal citizens?

Economists and tax theorists often talk about things in terms of revenue neutrality - you must calculate the total value of the taxes you want to abolish, for that is the value that must be raised by other means if you intend to maintain the same level of spending.

And your esteemed benevolence would not want to be associated with making the most vulnerable worse off than under the present system.

There are states that use or have used land value tax (or something similar). These include Denmark, Estonia, Hong Kong, Lithuania, Russia, Singapore, Taiwan, Pennsylvania (USA), New South Wales and Victoria (Australia). But none have land value tax as the sole tax on their inhabitants.

Henry George was a well known proponent of land value tax. Georgists and other LVT supporters range from recommending LVT as the single tax, to being the main tax, to being one of a number of taxes on economic rents generally, to being part of a purported optimal mix of taxes.

With regard to the complexity of the tax code, in 1995 Hall and Rubushka said:

"The [US] federal income tax is a complete mess. It’s not efficient. It’s not fair. It’s not simple. It’s not comprehensible. It fosters tax avoidance and cheating. It costs billions of dollars to administer. … It can’t find ten serious economists to defend it. It is not worth saving."

Perhaps that is the consequence of behaviour such as in the UK, as Mirrlees observed:

"Tax policy has for a long time been driven more by short-term expedience than by any long-term strategy. Policymakers seem continually to underestimate the extent to which individuals and companies will respond to the financial opportunities presented to them by the tax system. They seem unable to comprehend the importance of dealing with the system as a whole. And real and effective reform remains politically extremely difficult."

It's possible that some taxes could be reduced, made more simple or abolished with sufficiently large revenue from land value tax. Hong Kong for example had a flat tax of 20% on income.

Your humble servant

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  • Land tax cannot be avoided. If the government build road and that road makes an area more accessible and the land price goes up, then the government will collect more taxes no matter who live there.
    – user4951
    Jun 10, 2019 at 16:20
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    Bob can avoid taxes by selling his house and live in an apartment. But someone else says Charlie, will buy that house. So governments don't even have to care who live there. The government collects the same amount. After all, governments already build roads to that region.
    – user4951
    Aug 29, 2019 at 11:57
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Governments need a substantial amount of money to operate, and they will get that money through taxation. Whether it is income tax, VAT, land tax, usage tax, or a combination of all of the above depends upon how those taxes affect the nation's economy, and to a degree, the prevailing political philosophy of the rulers.

The US already has land taxes, under the general category of 'property taxes', usually levied by local governments to fund schools and social services. The more you own, the more you pay.

If the US economy were fueled with only land taxes, those taxes would be quite high. Whoops, you just drove all of your farms out of business, and you can't feed your people. You're now at the complete mercy of whatever countries you buy food from. If they start putting the screws to you with high prices, you end up with hungry people... who do desperate things like vote you out of office.

Taxes are not something to be just tossed around. They can have dramatic effects upon your country's economy.

Also... 'tax breaks' are almost always put in place to encourage certain behaviors, not as some subterfuge to pay off rich campaign donors.

Most countries support their local agriculture with subsidies for the very scenario outlined above: food is one of the most strategic of resources, without which your country is in deep trouble. The more you create internally, the less vulnerable you are to a cutoff.

Manufacturing companies get tax breaks to encourage them to provide jobs in your country, instead of some nation that has much lower labor costs. The low cost of shipping internationally has made that situation far more prevalent than it once was.

In the US, capital gains taxes, as in money made on investments rather than working a job, tend to be low. Why not tax capital gains a lot higher? It kills investment. This was seen in the US in the late 1970's, when then president Jimmy Carter raised capital gains taxes sharply, and the drop in investment activity that followed drove the US economy into a deep recession.

Something to keep in mind as some politicians talk about jacking up capital gains taxes to pay for their new and expensive programs... if the economy tanks like it did in the late 1970's, overall tax revenue will be a lot lower. Not only did you not raise tax revenue, you killed a lot of jobs, too, and you're in a downward spiral as your lower tax revenue now has to pay for the increased social services to those people who lost their jobs.

Taxes are not free money, as much as some inexperienced politicians think otherwise. One has to be careful how taxes are applied, as they can have lots of unintended consequences, which are almost always negative consequences.

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  • While mostly well thought out, the problem I found with it is that in your farm example the assumption seems to imply that the land tax is assumed to be universal and thus a farmer could be over taxed when compared to a suburb development. However, the tax is assessed by the cost of the local real estate markets and the assessed cost of the land, compared to that, not universal flat rates. A key tenant is of a LVT is that the producer may factor the price of the tax into the price of the product when selling to a consumer.
    – hszmv
    Jun 6, 2019 at 16:23
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    Suddenly the "simple" system is complicated again. My billion dollar mansion surrounded by vineyards is a "farm" same as your falling down farmhouse surrounded by corn fields. Sure you can try to stop that but how? You make complicated rules? You allow officials to arbitrarily decide how much land is worth? Farmers faced with huge tax bills will of course pass that on to their customers, now the poorest people can no longer afford food. Also suddenly your farmers product is far more expensive than imported food so most of them go bust anyway. Now you have no farmers and no tax revenue.
    – Eric Nolan
    Dec 2, 2020 at 11:17
  • @EricNolan one idea proposed by Georgists is to make people bid on the land. The person who pays the highest tax gets to "rent" the land from the government, and the tax is the "rent". Of course they only get the land, so the mansion and the vineyards must be destroyed, moved, or bought with extra money.
    – user253751
    Dec 3, 2020 at 15:29
  • The point is: you tinker with tax codes at the peril of your economy. Yes, it may be possible to raise land taxes without bad effects on farms, but you have to define those conditions, plus dual use property, plus rented properties becoming very expensive, plus a lot of other factors, and your 'simplified' tax code just became complex again. The only real winners in that situation are tax accountants.
    – tj1000
    Dec 3, 2020 at 16:17
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It might be the case that someone with a lot of land is just that, someone with a lot of land but not having a large sum of money available to pay taxes with. Of-course if someone with a lot of land doesn't pay his/her taxes the government can seize part of the land and auction it. However if someone with a salaried job doesn't their taxes you can simply garnish (part of their) wages. So I think in some/a lot of cases it might be easier to tax income rather than land.

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