The Upside of Tax Opacity

Ok, so y'all have done your taxes, and you're probably thinking that perhaps an anarchist system wouldn't be so bad after all. Much of that has to do with the fact that you gotta pay money that you thought was yours, but it's also the fact that taxes are really complicated, and therefore doing taxes is a horrible experience.

Everyone rightly laments the complications in the tax code, but it's worth it to point out that there is a nice silver lining. Basically, a progressive tax system in theory creates distortions in the labor supply by creating a disincentive to work (although the magnitude of this effect is HOTLY disputed). But incentives and disincentives only cause behavior changes if individuals know about them. In this case, the worker needs to know how many cents on the next dollar they make will be taken. Deductions, credits, and anything else that contribute to a more opaque tax system prevents workers from discerning their marginal tax rate, and thus make it more difficult to decide how they should change their behavior in response to the tax. Most likely, cognitive limitations are, to a certain extent, currently causing people to ignore the disincentive to work, thus avoiding the distortionary effect of the tax. Conversely, making the tax system more transparent might then create more distortionary effects of the tax.

Just something to think about.