The Complexity of Taxes

The Complexity of Taxes

Is there any similarity between taxes and stress? This question leaped in my mind as I was reading a post by Jerry Fletcher titled “Consultant Marketing Napkin Diary”. This buzz reminded me of the “Laffer Curve”, which was first drawn on a napkin. In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of government revenue. It illustrates the concept of taxable income elasticity—i.e., taxable income changes in response to changes in the rate of taxation. I have drawn the curve as below:

This curve is very similar to the stress- strain curve. In both curves- the performance of the a government to collect tax revenue is divided in the red zones, yellow zones and the green zone. There is an optimal level of collecting taxes as there is a peak performance expected from employees only when exposed to a certain level of pressure and then their performance drops sharply till it becomes poor.

I am asking if a good metaphor for governments to collect taxes is the Yerkes-Dodson stress curve? If the two curves represent the performance under stress- either the stress imposed on employees or the stress imposed on tax-payers by governments? In line with this metaphor is my reading However, the Laffer Curve actually discourages taxes that are too low or too high. However, the Laffer Curve actually discourages taxes that are too low or too high. The social effects and feedback from the increased governmental taxes and like performances, the capacity to accommodate taxes and pressure reach their optimal effect There have been many attempts to find a suitable metaphor for the collection of taxes, which reflected different attitudes on taxes. Some of these metaphors are:

Text are thefts or thefts or charity

Beer Is Not A Metaphor for Tax Fairness - Forbes

A useful metaphor for understanding the disproportionate damage to economic efficiency caused by rising taxes is the noise-to-signal ratio. For example, if the income tax rate is 10%, you keep 90% of your income. The noise-to-signal ratio is .111 (or .1/.9). Taxes behave like noise in a signal.

One other idea that popped up in my mind is to imagine the “Cynefin of Taxes”. In their efforts to improve the collection of taxes governments tend to increase the huge number of tax-payers, the collection systems, the control of payment of taxes and many other procedures. This leads to turning the simple systems of tax-collection from simple to complicated to complex and then this tend to become chaotic. What applies to simple system doesn’t apply to complex systems, to give one example. This leads to fruitless efforts by governments because they fail to understand the human behavior and its loss in filling vague tax forms. The tax-complex system instead of becoming a self-organizing one tends to become self-destructive one. The result is the need for a new system to emerge or an endless chaos shall result. A very agreeing point of view that I find representing this thinking is this reference. It states that “…as complexity of a system increases, the costs associated with it increase exponentially to the point where the costs approach infinity, and collapse is a certainty”.

It amazes me how much governments need to understand the value of simplifying the tax systems and understand the behaviors of the tax-payers.



Thank you @Max Collins for your sharing the post.

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Rodríguez Isabel Granero Nov 1, 2019 · #24

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#22 I believe some governments make the tax system more complex intentionally to confuse the tax payer and rob him/her of more money. It is paradoxical that a tax-payer has to pay while suffering as well. Paying taxes is painful; more painful is robbing using the given authority to do so.
Thank you @Timothy welch for sharing the buzz as well.

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Timothy welch Oct 12, 2019 · #22

I want to meet the actual person who writes the tax table and the actual documents. WHy does a single person like me have to give the IRS 10 forms of paperwork when I have only once source of income? And then the big bad government sends me a letter saying I Still owe taxes? on what???
what is 0% of 0? zero.

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#20 Your comment put a smile on my face dear @Debasish Majumder. When the Laffer Curve was drawn on an envelope to the late president Reagan he decided not to raise the taxes. Taxes, like prices, have their elasticity. This means that the tax reach a maximum and then decline because they no more become responsive to tax increases.
yes, who pays the taxes? I know of examples that the profit-makers found many ways to avoid paying their fair share.
I thank you also for sharing the buzz.

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Debasish Majumder Sep 20, 2019 · #20

when a kidnapper asked for ransom how will we react? d o you really think government and governance is synonymous? a government always represent the ruling class who somehow manged to reach to the helm of administration by making rhetoric to hoodwink people and reach to the corridor of power only to satiate minority's aspiration. i truly love the quote of @Jerry Fletcher, "and so it goes"! I wonder, how long majority will be subjected to such taxing instrument to unleash only exploitation. so simplifying tax system does not depend on any government as they are being sponsored by big business houses whose interests they are forced to look after after reaching to the helm. what a fun sir @Ali 🐝 Anani, Brand Ambassador @beBee to expect government to reduce tax as well stress! across the world the governments have a proven track record to unleash huge stress to the ordinary mass. is n't it an irony to expect government to reduce stress? quite interesting buzz sir. enjoyed and shared. thank you for the buzz.

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#18 Jerry- indeed, the best thing to say is "and so it goes".

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Jerry Fletcher Sep 18, 2019 · #18

Dr. Ali, Fair and equitable taxes? Surely you jest. Taxes, in the eye of the taxed are seen as unjust and unrewarded. The closer a government comes to a dictatorship the more taxes represent a penalty with no redemption possible. Few governments have the knowledge or ability to take actions on taxes that would get to the sweet spot you note. Even fewer have the desire. And so it goes.

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