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Posted: January 31, 2013

The futurist’s taxes 2.0: Is extreme complexity the new simplicity? Part 1

The IRS has made 4,680 changes since 2001

Thomas Frey

When was the last time you used Google’s search engine? Were the results more or less relevant than the searches you did a year ago?

Early on, after Google had developed its breakthrough search algorithms, they realized the Internet was a very fluid environment that would require constant monitoring and continuous changes to keep the people who were gaming the system at bay.

Currently, Google is making changes to its main search algorithm roughly 40-50 times a month or slightly more than once a day. As the web evolves, this number will undoubtedly increase.

Now consider the possibility of a country using the same type of constantly evolving algorithms to determine its tax code. Countries have similar problems with people trying to game the system to avoid paying taxes, so what if the IRS, or its equivalent in other countries, made similar algorithm adjustments to constantly close loopholes and determine the appropriate tax rate?

In case you’re thinking this is a ridiculous idea, the IRS is already making changes to the tax code at a rate of more than once a day – 4,680 changes since 2001. But rather than thinking in terms of an income tax that is only filed once a year, what if it were applied to a national sales tax where literally billions of purchase transactions happen every day? Here are some thoughts on why this may or may not be a better way to go.

Current Tax Trends

Over the past several decades, people and politicians in the U.S. have pushed for simpler taxes, yet the trend has always been in the opposite direction.According to National Taxpayer Advocate, Nina Olson, the U.S. tax code contains almost 4 million words. Since 2001, there have been 4,680 changes, or an average of more than one change a day. Here are a few other stats:

• Roughly 60 percent of taxpayers hire preparers, and another 30 percent rely on commercial software to prepare their returns.
• Most taxpayers don’t know how their taxes are computed or what rate of tax they pay.
• Tax code complexity makes fraud harder to detect.
• Because the code is so complicated, it creates an impression that cheating will also be hard to detect. Complexity creates a grey area between right and wrong and people rationalize “forgetting” about income and declaring excessive deductions because “all the millionaires are doing it.”
• In 2012, the IRS received 125 million calls, but only answered about two-thirds of those who were trying to reach a live person. Callers had to wait, on average, about 17 minutes to get through.

The current trend line here is unmistakable. Taxes are getting more complex at a far faster rate. However, what most people have been overlooking is the complexity enablers, the tools and technologies that enable us to work with far more variables and decision points. We have entered an era of automated complexity, giving us the ability to manage problem sets far beyond the normal scope of human capabilities.

Making a Case for Extreme Complexity

Since calls for simplicity fall on deaf ears, and the ability to control taxes lies at the heart of congresses’ power, the only logical approach may be to push for extreme complexity, with a living tax code that gets monitored and adjusted every second of every day.

Much like Google’s ranking algorithm or a power company’s demand pricing structure, the tax code could evolve into the living, pulsing heart of our economic engine. Taking it one step further, what if this overarching economic engine could also adjust interest rates regionally and nationally, and instantly react to emergency situations such as national disasters or life threatening conditions.

As an example, when someone faces a medical crisis, has a new baby, gets evicted, or loses a job, the system could automatically adjust interest, abate payments, or adjust their taxes until the situation improves.

Here are a few other features that could be built-in to this type of system:

• Industry Stimulus – As a way to stimulate a specific industry, congress could decide to reduce taxes or eliminate them entirely for a designated commerce category over a certain period of time.
• Time-of-Day Pricing – Adjust taxes based on time of day.
• Regional Rates – Tweak amounts on a region-by-region basis.
• Disadvantaged Pricing – Create special classes of people who pay less until their situation improves.

Thomas Frey is the executive director and senior futurist at the DaVinci Institute and currently Google’s top-rated futurist speaker.  At the Institute, he has developed original research studies, enabling him to speak on unusual topics, translating trends into unique opportunities. Tom continually pushes the envelope of understanding, creating fascinating images of the world to come.  His talks on futurist topics have captivated people ranging from high level of government officials to executives in Fortune 500 companies including NASA, IBM, AT&T, Hewlett-Packard, Unilever, GE, Blackmont Capital, Lucent Technologies, First Data, Boeing, Ford Motor Company, Qwest, Allied Signal, Hunter Douglas, Direct TV, Capital One, National Association of Federal Credit Unions, STAMATS, Bell Canada, American Chemical Society, Times of India, Leaders in Dubai, and many more. Before launching the DaVinci Institute, Tom spent 15 years at IBM as an engineer and designer where he received over 270 awards, more than any other IBM engineer.

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