[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

just as if the government paid directly for child care or research. Accordingly, the
revenue lost from a tax subsidy is called a tax expenditure.
Administrative Simplicity Americans live in a complex society, and their
tax laws reflect and contribute to this complexity. As legislators have sought to
ensure that the tax laws are fair and apply uniformly to all people in similar situations,
the laws have become increasingly complex. High tax rates make it worthwhile
for individuals and businesses to think hard about legal means of minimizing
taxes. It may pay a businessperson to devote almost as much energy to tax avoidance
as to designing and producing a better product. The tax law has evolved out of this
constant battle between the government and taxpayers; as each new way of reducing
tax payments is discovered, the law is modified to close the loophole. Inevitably
another hole is discovered, and another repair job is attempted. Today the federal
tax law fills tens of thousands of pages.
The objective of administrative simplicity seems to remain elusive. Many economists
are convinced that the United States could have a tax system that is truly
simple to administer, but only if other objectives are given up. Some of its complexity
derives from the effort to have a progressive income tax and to tax the income
from capital.
Flexibility One of the weakest aspects of the U.S. tax system is its lack of flexibility.
Any time a tax change is proposed, all of the issues discussed here are raised.
Its effects on different groups and on efficiency are debated. Basic issues of values—
how progressive should the tax system be?—are aired once again, while specialinterest
groups try to take advantage of the chance to have favorable treatment
written into the code. Changing the tax law is thus extremely difficult—and very
time-consuming.
Transparency Though the merits of transparency are widely preached, governments
often prefer citizens to be ignorant of their total tax bill. The worry is that
knowledge might lead to “sticker shock” and that opposition to taxes might grow.
The overall impact of some taxes is more obvious than others. For instance, individuals
pay sales taxes in dribs and drabs; they never get a clear view of their total
payments. That may be one reason why politicians seem to love the sales tax so
much. Of all the parts of the tax system, the ultimate burden imposed by corporate
income tax is perhaps the least transparent. Although corporations write the check
to the IRS, most economists agree that much of the onus of paying taxes is shifted to
individuals and households, through reduced wages, higher product prices, or both.
Transfers
Earlier we noted the role of government in redistributing income: very poor individuals
receive more from the government than they contribute in taxes. There are
five major public benefit programs for low-income Americans: welfare, Medicaid,
food stamps, supplemental security income (SSI), and housing assistance. Until
386 ∂ CHAPTER 17 THE PUBLIC SECTOR