Peter Marklund

Peter Marklund's Home

Fri April 18, 2003

Tax Systems are too Complex

It's April, spring has come to Copenhagen, and to those of us who worked in Sweden last year the privilege has also come to declare our incomes to the swedish tax authorities.

A handful of colorful forms and over sixty pages of instructions have been sent to me. You can really tell that a tremendeous effort has gone into producing these forms and making them so pedagogical that any citizen can fill them in. Still I find myself turning to friends and family in Sweden for advice on how to submit these damn things.

I am one of those people who really isn't all that amused by the idea of reading up on the intricacies of the tax system. I once heard a friend boasting about his ability to do the tax declarations and how he was doing them for his friends and family. It almost seemed like a sport to him and like he was contemplating it as a business.

I once told an austrian friend about the swedish tax system with its yearly income declaration and she gave me a surprised look. It turns out that in many other countries (from my own experience this applies to Austria, Germany, Denmark, and the US) you are informed by the authorities yearly about the taxes deducted and you are free (but not obliged) to make any corrections or objections. This means that by default, and for most people, no action is required.

How much time is invested each year in maintaining and understanding the tax system? The administrative aparatus is naturally enormous, but it's not just that, it's also all the time spent by citizens trying to understand the system. Citizens and companies put significant energy into figuring out how to minimize their taxes.

So what is the value of this tax complexity, surely it must exist for a good reason? I'm not in a position to confidently answer that question. The primary reason I suppose is to collect taxes in a fashion that is deemed fair and in line with the political agenda.

Still I can't help but wonder if we wouldn't all be better off if the tax system was kept really simple. Let's say we for example had a flat salary tax of 40%, and a tax for stock trading of 20%. A simple system like this would save the society billions each year, money that could be funneled into areas adding more value such as education and health care. In addition citizens and companies would better be able to predict and understand which taxes they are paying.