I like to say that as I get older, I like things to be simpler. I believe there is much merit in simplicity. However, complexity appears to be the order of the day.
The tax laws in Canada approach 2,000 pages. Is there anyone in Canada who has read and fully understands every page of these laws? Undoubtedly, there are many people who are expert in sub-sets of these laws. But do we really need such complexity?
Why not replace what we have with a very simple flat tax system (one tax rate and a single deduction per individual or family), and a withholding tax on all payments to non-Canadians? There should be no other deductions against income. Get rid of the shibboleth that corporations pay taxes. And introduce asymmetry into the treatment of capital gains and losses (include all capital gains as ordinary income each year, but exclude all capital losses as deductions against income) to reduce the incentive to invest in more risky assets.
We will not get tax simplification because the complex structure has created too many vested interests.
In the U.S., the proposed financial reform legislation approved by the House runs over 1,200 pages. Again, does anyone really know what is contained throughout this document? Such a complex piece of legislation cannot produce good outcomes, only countless loopholes, and years of litigation. Why the complexity – because there are too many vested interests who have the clout to influence policy makers.
We have observed the absurdity of trying to get 190 countries to agree in Copenhagen on a follow up to the Kyoto Treaty. The Doha Round under the auspices of the WTO continues to struggle to find a compromise among 190 countries. The G8 has been expanded to the G20. Does anyone really believe that by making negotiations more inclusive, agreements will be reached? As Copenhagen demonstrates and as past WTO negotiations have shown, at the end of the day, an agreement is dictated by a handful of countries, and the other players meekly sign on. So why not just start with a small number of countries – the U.S., the EU, China, India and possibly Russia – and exclude all others including all NGOs and other “interest groups”?
Even in the private sector, we find numerous examples of complexity. GE is the classic holding company model. GE has a number of independent business units. Is the value of the whole actually greater than the sum of the value of the separate pieces? Does the corporate office really add any value to all of the pieces? Does a complex holding company structure create value for any of the stakeholders other than the senior executives at the corporate level who can demand higher levels of compensation because of the complexity of the organization?
Complexity can hide mistakes, benefit vested interests and confuse people; making it very difficult to assign responsibility. Simplicity makes things too transparent and makes it too easy to assign responsibility.
The opinions expressed in this blog are personal and do not reflect the views of Global Brief or the Glendon School of Public and International Affairs.