A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System

by T.R. Reid

New York Times  bestelling author T. R. Reid travels around the world to solve the urgent problem of America's failing tax code, unravelling a complex topic in plain English - and telling a rollicking story along the way. 

The U.S. tax code is a total write-off. Crammed with loopholes and special interest provisions, it works for no one except tax lawyers, accountants, and huge corporations. Not for the first time, we have reached a breaking point. That happened in 1922, and again in 1954, and again in 1986. In other words, every thirty-two years. Which means that the next complete overhaul is due in 2018. But what should be in this new tax code? Can we make the U.S. tax system simpler, fairer, and more efficient? Yes, yes, and yes. Can we cut tax rates and still bring in more revenue? Yes.
 
Other rich countries, from Estonia to New Zealand to the UK—advanced, high-tech, free-market democracies—have all devised tax regimes that are equitable, effective, and easy on the taxpayer.  But the United States has languished. So byzantine are the current statutes that, by our government’s own estimates, Americans spend six billion hours and $10 billion every year preparing and filing their taxes. In the Netherlands that task takes a mere fifteen minutes! Successful American companies like Apple, Caterpillar, and Google effectively pay no tax at all in some instances because of loopholes that allow them to move profits offshore. Indeed, the dysfunctional tax system has become a major cause of economic inequality.
 
In A Fine Mess, T. R. Reid crisscrosses the globe in search of the exact solutions to these urgent problems. With an uncanny knack for making a complex subject not just accessible but gripping, he investigates what makes good taxation (no, that’s not an oxymoron) and brings that knowledge home where it is needed most. Never talking down or reflexively siding with either wing of politics, T. R. Reid presses the case for sensible root-and-branch reforms with a companionable ebullience. This affects everyone. Doing our taxes will never be America's favorite pastime, but it can and should be so much easier and fairer.

Genres: Nonfiction, Economics, Politics, Business, Finance, Taxation, Social Science

288 pages, Hardcover

First published April 4, 2017

About the author

T.R. Reid is a reporter, documentary film correspondent and author. He is also a frequent guest on NPR's Morning Edition. Through his reporting for The Washington Post, his syndicated weekly column, and his light-hearted commentary from around the world for National Public Radio, he has become one of America’s best-known foreign correspondents.

Reid, a Classics major at Princeton University, served as a naval officer, taught, and held various positions before working for The Washington Post. At the Post he covered congress and four Presidential election campaigns, and was chief of the Post's London and Tokyo bureaus. He has also taught at Princeton University and the University of Michigan. His experiences in Japan led him to write Confucius Lives Next Door: What Living in the East Teaches Us About Living in the West, which argued that Confucian values of family devotion, education and long-term relations, that still permeate East Asian societies, contributed to their social stability.

He is now the Post's Rocky Mountain Bureau Chief. A 2007 Kaiser Family Foundation media fellow in health, he is a member of the board of the Colorado Coalition for the Homeless and the University of Colorado Medical School.

Reviews

[Emily · Rating 4 out of 5]

I'm going to jot down a few quotes here as I run across them...

"The 535 members of the U.S. Congress--the people who write the tax laws--have given themselves various tax break and deductions that other Americans don't get. This is probably a natural tendency among people who write the law. As it happens, though, some countries have found ways to combat this predictable effort by legislators to reduce their own tax bills. Slovakia, for example, has a rule that members of the national legislature and the prime minister's cabinet always have to pay 5% more in tax than any other Slovakian with the same income." (10)

*************

"A standard way to measure national tax burdens is to calculate a country's total tax revenues - national, state, and local - as a percentage of gross domestic product (the sum of all the wealth produced in the country in a year). This statistic, called the "overall tax burden," is measured annually by the Organization for Economic Cooperation and Development (OECD), which is sort of a United Nations but with membership limited only to the richest countries. For many years now, the OECD's calculation of overall tax burden has shown that total tax revenues in the United States are much lower than in most other advanced countries." (13-14)

*************

"When it comes to designing a country's tax system, the World Bank, the IMF, and the OECD all preach the same sermon, relying on the same fundamental principle. This rule is not particularly complicated; it is easy to understand, although not always easy to implement. In fact, it's so simple that the economists generally reduce the essential formula for good taxation to a four-letter world: 'BBLR.'

"That stands for 'broad base, low rates.'

"BBLR means that if the tax base-that is, the total amount of income, or sales, or property that can be taxed-is kept as large as possible, then the tax rate-that is, the percentage that people have to give to the government-can be kept low. Virtually all economists and tax experts agree that this is the best way to run a tax regime." (52)

************

"The best way, though, to avoid the unfairness, the abuses, and the revenue loss from the charitable deduction is to get rid of this deduction altogether. Austria, Finland, Ireland, Italy, Sweden, and Switzerland all have flourishing charity sectors, even after they took away the tax break for contributions; New Zealand, of course, got rid of it in that first base-broadening exercise in the 1980s. None of these countries saw any significant drop in charitable contributions. All over the world, people contribute mainly because of a belief in a particular cause or because of a basic human desire to help others. Getting a tax break is, at most, a minor motivation. The tax deduction for charitable contributions cheapens the charitable impulse by implying that you and I wouldn't give a dime to charity unless we got a little financial gain on the side." (86-87)

*************

"While this deduction is promoted by realtors and mortgage bankers as a boon to home buyers, it is just as likely to make a home purchase more difficult. All studies (except those funded by the real estate industry) find that a mortgage interest deduction raises the price of a house. When the OECD investigated the impact of the mortgage interest deduction in wealthy countries where it is still in place, it concluded that 'new purchasers...are not necessarily the beneficiaries of these tax provisions,' because the interest deduction forces them to pay an increased price. Whatever benefit a buyer might get from the tax break is just about completely offset by the higher price of the house. So the deduction doesn't do what it is supposed to do--make it easier for people to buy a home." (89)

*************

"...Australia, Canada, Germany, Great Britain, Israel, Japan, the Netherlands, and New Zealand, for example, have no deduction for mortgage interest at all. Yet eliminating the deduction seems to have no impact on home ownership. In all the industrialized democracies, the rate of home ownership is just about the same. Roughly 65% of families own their home in countries that have the mortgage interest deduction, and about 65% of families own their home in countries that do not." (90)

*************

" 'What I learned at Chicago is a basic truth about taxes: rich people will try to of course avoid paying,' [Radim] Bohacek [an economist at the premier Czech college, Charles University, and a member of the Czech Academy of Sciences who studied economics at the University of Chicago] told me. ' The more you raise the rates, the more incentive rich people have to hire accountants and strategize. Then they can duck just out. What you want is a broad-based tax without exemptions or loopholes--because one you have special exemptions or deductions, people who can afford lawyers will take of course advantage of them.' " (109)

*************

"Does the flat tax work? Yes, a flat-rate income tax regime can work, under certain conditions. The flat tax works in a country that is a former Communist state, with no investment capital and low wage rates, which needs to build a capitalist economy from a base of approximately zero. The flat tax works if people are willing to pay a 20% sales tax on every thing they buy, to make up for lower revenue. The flat tax works if employers are willing to pay 34%, or more, in Social Security taxes for every employee they hire. The flat tax works in a country where almost everyone has the same amount of wealth so there's no need for the distributive effect of graduated rates. And if all these conditions are met, the flat-rate tax will probably work as long as the economy is on a path of steady growth.

"For countries that don't meet these requirements, it probably makes more sense--in terms of fiscal health as well as fairness--to adopt progressive rates, in which the wealthy pay a higher percentage of their income in tax than middle- or low-income people pay." (114)

*************

"...developments in the private sector, [Professor Thomas] Piketty [author of Capital in the Twenty-First Century] says, are not the only cause of the burgeoning financial imbalance. A key contributor to inequality, he says, is government policy. When governments decide to bail out big banks while millions lose their homes to foreclosure action by the same banks, the policy exacerbates the problem of inequality. Such policies transfer wealth from middle-class homeowners to upper-bracket bankers and their shareholders--not through private markets, but because of decisions by governments. Similarly, tax policies that give generous breaks to the wealthiest--like that $7,500 giveaway to people who can buy a $105,000 car--exacerbate the trend toward concentration of wealth in a lucky few. When the national tax code says that money earned from trading securities will be taxed at a much lower rate than money earned from working at a job, the tax law itself is adding to inequality. That is not surprising, Piketty says, because the government officials who approve corporate bailouts and write tax laws are often beholden to the financial elites for political contributions.

"But the major reason for growing inequality, Piketty argues, is that rich people today make most of their money not from wages but from capital investments--stocks, bonds, commodity trades, real estate, patents, and so on. And earnings from capital (that is, from financial transactions) are growing faster than earnings from labor (that is, from working at a job). That is, you can make some money cooking hamburgers or serving hamburgers, but you won't make as much as a guy who buys and sells the stock in a hamburger chain.

"In other words, Piketty says, 'the rich get richer' has become a fundamental law of economics, especially in the United States. Because our Supreme Court has defined donating money as a form of political speech, economic clout in the United States turns quickly into political clout." (122-123)

***********

"The most comprehensive unbiased study of effective tax rates paid by U.S. firms was issued by the Government Accountabilty Office (GAO) -- essentially, the accounting arm of Congress--in 2013. Looking at profits, and taxes paid, in the years 2008-2010, the GAO said large U.S. companies actually paid 12.6% of their profits in federal tax. Many companies had to pay state and local income taxes, and some paid income tax to foreign countries on their overseas earnings. But even when all those taxes were added up, the effective rate of tax paid by large U.S. corporations was only 16.9%. The GAO said that companies were able to cut their tax bills far below the statutory rate because of 'exemptions, deferrals, tax credits, and other forms of incentives' in the law and because they have successfully transferred much of their profit to foreign countries, as Caterpillar did. Big companies were so successful in the game of tax avoidance that 'nearly 55 percent of all large U.S.-controlled corporations reported no federal tax liability in at least one year between 1998 and 2005,' the GAO found." (147-148)

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"The U.S. corporate income tax is not working. We have a higher corporate tax rate than almost any other country, and we apply it to income earned anywhere in the world. And yet corporate income tax revenues have fallen so sharply that they now make up a fairly small share of the federal government's annual tax revenues. In the 1960s, the corporate tax brought in about 33% of U.S. tax revenues. Today, the same tax provides less than 9% of revenues; that means individual taxpayers have to take up the slack and pay more. Which we do. In the 1960s, the individual income tax and the Social Security tax constituted about 50% of all federal tax revenues; today their share of the nation's total tax burden is more than 80%. Corporate tax revenues are plummeting partly because Congress has larded the corporate income tax with costly preference and giveaways for corporations, and partly because American multinationals have become so successful at shifting income overseas. Hundreds of millions of dollars--money that might have gone to raising wages, or creating new medicines, or building factories--have been paid to tax lawyers for the creation of elaborate evasion schemes. The result is a complicated, unpopular, and stiff corporate income tax that actually doesn't do much taxing." (164-165)

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"Members of Congress love to harangue the IRS bureaucrats about lengthy tax forms and unfair rules and complex instructions--but of course the IRS isn't responsible for the length, the fairness, or the complexity of our tax code. It is Congress that writes the tax laws. It's Congress that adds hundreds of new exemptions, allowances, credits, and calculations to the tax code every year. It was Congress that decided to give the IRS responsibility for managing the health insurance subsidies flowing to millions of Americans under the Affordable Care Act (ObamaCare)--and then cut the agency's staff after assigning it this major new task. It was Congress that assigned to the IRS the management of the earned income tax credit (EITC), which has become one of the nation's largest support programs for low-income Americans. It was Congress that crafted the much-hated alternative minimum tax, which spawned whole new dimensions of complexity, and hours of additional work, for millions of families. And yet congressmen and senators can't seem to resist pointing angry fingers at the IRS, as if somebody else had created the legislative monster that is the U.S. tax code." (209-210)

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"The IRS likes to boast that it is a highly efficient government agency, and this is accurate, in a sense. In fiscal year 2015, the agency spent $11.4 billion and brought in revenues of $3.3 trillion; that is, the service spends just thirty-five cents for every $100 it brings in...But the IRS achieves this noteworthy status by imposing much of the cost of the tax system on taxpayers. In other rich countries...the tax collector shoulders much of the burden that is borne by individual and corporate taxpayers in the United States. The IRS, in contrast, pushes those costs onto us. While the tax agency spends $11.4 billion, American taxpayers end up paying vastly more just to file their annual returns. The Office of the Taxpayer Advocate says American families spend 3.16 billion hours each year getting their taxes done--gathering the data, keeping records, and filling out forms; businesses spend about 2.9 billion hours on the same tasks (a figure that does not include all the time required for the tax-avoidance gymnastics). At an average wage, those six billion hours devoted to filing tax returns represent about $400 billion per year of working time; six billion hours is the equivalent of 3.1 million people working forty hours per week, fifty weeks per year. In terms of time and cost, just paying our taxes has become one of the biggest industries in the United States." (214-215)

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"Almost all economists who've looked at the U.S. tax code, almost every blue-ribbon study commission, almost all presidential candidates who bother to propose a program of tax reform, agree that some version of the value-added tax could increase the fairness and efficiency of our tax system and reduce its mind-boggling complexity. And yet the United States stands alone among the world's rich nations in refusing to implement this common levy."

"It's one of the curious manifestations of the concept of 'American exceptionalism,' the idea that there's no country like the United States of America...The problem comes when U.S. politicians are so determined to be exceptional, to do things our own way, that they refuse to implement a valuable idea that almost every other country on the planet has embraced to its benefit. This makes up exceptional, but not in a way that any other country would choose." (229-230)

****************

"...our political leaders talk about fixing the tax code all the time. But their proposals involved incremental change to the existing system, and incremental change, over the decades, is what got us into the fine mess we're stuck with today. These approaches to tax reform, including the plans we heard during the 2016 presidential campaign, all suffer from the same problem: they're too timid.

"They all have a rearranging-the-deck-chairs quality at a time when the whole structure is sinking from its own weight. As we've seen in other countries, the way to bring about fundamental change is a dysfunctional tax code is to start over--to rewrite from scratch." (250-251)

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[Steve · Rating 4 out of 5]

I never thought I’d read a whole book about tax policy, but this wasn’t too bad. Written very simply and directly, it gives some history of taxation around the world and especially in America, with a broad overview of how our tax system works and how it could be improved, especially by emulating practices that have worked well in other countries. From a center-left POV in general, but I think it’s pretty fair to mainstream viewpoints on all sides.

[Conor Ahern · Rating 4 out of 5]

So, I can't exactly recommend this book. It is, after all, about taxes. Taxes are boring, everyone has unlettered and predictable opinions about them, and the subject is endlessly abstruse.

But they're also very important. Beyond clumsy suppositions about liberals favoring more taxes and conservatives loathing them, I found this account fascinating for revealing one of the few political areas of substance where conservative and liberal policy goals are consistent with each other. It is in fact possible to raise more money and lower tax rates! We can lower the taxes on the richest, not chase away corporations, implement a VAT without it being regressive, and do all of this while raising more money and radically simplifying the nature of our byzantine tax code! BBLR! Suffice it to say, it'll be interesting to wade into the promised tax reform debates and not immediately assume that our government is run by a cabal of greedy idiots intent on ruining anything good about this country/world for plutocratic purposes. I mean, I'll probably end up that way, but at least I can come in with an open mind and a lack of presumptions about what conservative policies do.

So if there's a fix out there, then why not adopt it? In a word: politics. And also a hefty dose of the ridiculous idea that American exceptionalism means "everything we do contributes to us being the greatest!" rather than "almost everything that we insist on doing differently has become an embarrassing albatross with nothing more to justify it than convention and stubbornness."

Anyway, this book, I gather, is written by a frequent NPR commentator. I kept getting surprised about how interesting the subject matter was but that's kind of what NPR does so well: makes something mundane and boring into something worthy of exploration. Hooray for taxes!

[Graeme · Rating 5 out of 5]

I read this book on the recommendation of my Goodreads friend Steve. I may have otherwise passed it by, expecting a dry, technical tome. In fact, I enjoyed it and learned a great deal. I used to imagine that Americans must understand most of the arcane shit in tax forms and the IRS booklets that are intended to explain everything but are totally impenetrable. I always wanted to know more about the tax system, the various taxes, and how it all works, but never dreamed that I would.

The admirable T.R. Reid, a seasoned journalist and author, has changed all that. I now understand that the first principle of good taxation is "broad base, low rates" (BBLR), and that there are many kinds of taxes to pay for our communal expenses (or the luxuries of dictators and their children). For the first time, I actually understand how value-added tax (VAT), which I have paid in England, Germany, and other places, actually works. Reid is a strong proponent of VAT for the United States, which is the only developed country that doesn't use it, although 175 other countries do. He shows the advantages of it, and a few disadvantages. Even though Republicans and Democrats support it, no politician or party is prepared to introduce a new, and therefore unpopular, tax. Reid shows very convincingly that only a total overhaul of the gargantuan, nightmarish tax code of about 73,000 pages will succeed, because the only way that the politicians will get it through is by presenting gains and pains in the same package. Most important is the need to lower rates at the same time as eliminating all of the enormously expensive entitlements that enable citizens and businesses to reduce their taxes, but adding VAT will also help enormously, by taxing consumption rather than income.

The structure of the book is interesting, logical, and coherent, as Reid introduces the history of American taxes and politics (tightly entwined), but quickly adds the experience of many other countries, some of which, such as New Zealand, the UK, Australia, and Slovakia, he researched in great detail on the spot. The taxation systems of several countries are working extremely well. They have gone through the pain of refining and improving them so we shouldn't have to. An unfortunate side effect of American exceptionalism is the belief that America can't learn from other countries. In the case of taxation, that has already been proved wrong by Donald Regan, during the Reagan administration. He even sent a team to New Zealand to understand what they had done. The Tax Reform Act of 1986, which "swept through both the Senate and the House, and was signed into law by a beaming president in October," is considered to be, "the most significant reform in the history of the income tax."

[Sharof Hamroh · Rating 5 out of 5]

Very good book. Quite insightful analysis of a person who doesn't hold degree in economics & taxation. Broad base, lower taxes system is indeed necessary step for the U.S. but I highly doubt that BBLR on its own can reduce dreadful American inequality. Increasing tax revenues? Sure! Businesses would have less incentive to hire PWC-like companies to build intricate fradulent schemes. Saving individuals' time and money on tax lawyers? Ooohh yes! Literally billions to be saved. However, BBLR will not lower inequality at all.

A very short example. Average american citizen can no longer afford a house in thriving, livable American city. What do politicians do? They fuel financiers with money to give away mortgages. In other words, instead of curing the disease fellas only fight symptoms that reveal once in a while. To make matters worse they widen the gap between rich financiers and middle-class Americans. Never can loanee be equal in your financial capabilities with his loaner, if the first pays interest on money he owes. So, basically tax money enrich small bracket of citizens.

I can go on and on about this issue, but the review must end, why not to end on this horrible note...

[Angie Boyter · Rating 3 out of 5]

3+
Everyone complains about taxes, but veteran journalist T. R. Reid thinks the time is right for us to DO something about it. According to Reid’s research, we have had a major overhaul of our tax system in the United States every 32 years, which means we are due for the next major rewrite in 2018. To help us prepare, Reid has written A Fine Mess, an interesting and informative look at our own tax system and tax systems of other developed countries around the world, from Austria to New Zealand. He concludes that other countries have systems that are much more equitable and easy to navigate than our own and makes recommendations on how we can improve.
Reid’s research is impressive, and the book is replete with data, history, and expert opinion from sources worldwide. I was surprised to learn that of the 35 richest countries in the world the US is 32nd in taxes as a percentage of GDP (South Korea, Chile, and Mexico are lower.) . I was also surprised and intrigued to find out that in some countries the tax authorities “do the taxes” for citizens. The citizen need only review the form and let the authorities know if there are any corrections. No need for H&R Block or Turbo Tax!
In addition to interesting facts, readers can broaden their knowledge of concepts used in discussions of taxation, like BBLR (Broad Base, Low Rates) and the Gini coefficient, which is a gauge of income inequality (A country would have a Gini coefficient of 0 if everyone had the same wealth and a coefficient of 1 if one person had it all.).
We can read of the elaborate tax evasion schemes used by large corporations, like “inversions”, and get outraged at special provisions like “carried interest” whereby brokers who invest other people’s money can treat their own compensation as capital gains rather than ordinary income, thereby allowing Warren Buffet to pay a lower tax rate than his secretary.
Reid is a journalist and not an economist or policymaker, so it is not surprising that A Fine Mess is stronger at documenting the problem than at proposing solutions. Most of his recommendations are no-brainers like retaining a progressive tax rate system, reducing complexity, and eliminating special provisions that benefit some small favored company or group. Reid’s other major recommendation is for the United States to implement a VAT tax. He makes a good case for the benefits of such a tax but does not explore adequately or solve, in my opinion, the drawbacks, e.g., its tendency to be regressive.
However, if the finest experts in our country and others have not been able to solve our tax “mess”, it would be expecting too much to demand the solution in this book. A Fine Mess remains an interesting exposition that will leave readers better informed and hopefully provide stimulus for progress towards a better tax system in 2018.
(I also was left with a lot of what seemed to me to be fairly obvious questions that he did not even mention, much less follow up, like the fact that the US, Mexicoi, and Cile had very low tax burdens as % of GDP and extremely high Gini coefficients and are among only a very small number of countries who tax money their companies earn overseas. Are these items related? And what is their significance? I can't reasonably expect him to follow up every question that might arise out of a book like this, but I would have hoped for a bit more original thought from him.)

[Brian · Rating 4 out of 5]

(4.0) Kind of too late, but we can try to continue tax reform. Just need a plan to safely dismantle the tax-industrial complex (and retrain Intuit/H&R Block workforce to do something actually productive)

[raw notes for now]

Graduated better than flat tax. Graduated rates themselves are not a painful source of complexity. It’s all of the exceptions.

“Tax expenditures” (deductions, credits etc) are over a trillion dollars.

Americans spend billions of hours and dollars to file returns. Huge drain on productivity. IRS says it’s super efficient, but only by outsourcing all of the work to taxpayers.

Congress likes to yell at IRS. But it’s clear where complexity comes from—them.

Bblr (broad base, low rates)—eliminate exemptions, deductions, credits to tax all income

Make rates low to disincentivize cheating and to make deductions etc less valuable to wealthy

Adopt the VAT (not too far from Ted Cruz’s proposal)—key idea here is that each link in the supply chain is motivated to report taxes paid to their counter parties so government can easily spot the cheaters/underpayers. Can give some credits to make VAT less regressive (though admits that fairness is the enemy of simplicity).

Also got into Piketty territory about avoiding concentration of wealth before it leads to social upheaval/revolution. Keep the estate tax. Also: introduce global wealth tax. It’s being tried in EU (what about Brexit?).

Japan mails postcards with government assessment of taxes owed. If taxpayer agrees, they’re done. 80-85% of Japanese tax returns are competed this way. They also have dynamic rules for withholding taxes from income. It’s pretty much always correct and the right amount is withheld. Ingenious? How hard could it be? Side benefit to tax cheats: you know what the government knows! :)

[Christine · Rating 4 out of 5]

I received a free, advanced reader's copy of this book from the publisher through GoodReads Giveaways.

I actually laughed out loud at several portions of this book, which is always a good sign when you're talking about a tome regarding taxes. Considering that our tax code itself runs in excess of 70,000 pages (no that's not a typo. Yes, it caused a LOL when I read it.) this is a delightfully compact book explaining everything that's wrong with that code, and how we might improve on it. Using real world examples of what to try, and what not to try, Reid makes a strong case for an overhaul of the US tax system that everyone but Congress and the tax preparation services companies can get behind. Will it happen? Not a chance in hell. But if you want some solid information to use to lobby your Congressman, this is a great, easily understandable place to start making your notes.

[Drtaxsacto · Rating 3 out of 5]

The author starts out with a four letter word - BBLR which stands for Broad Base/Lower Rates - an ideal which he suggests should guide tax policy. That is a good starter although I would have used BBLRC (which will be explained below). In order to understand any tax system one needs to reduce it to a couple of basic factors. The Base (what is taxed) times the Rate (how is the tax collected) produces the Yield of the system.

What bothered me about the author’s extended discussion were several things. First, he starts with Oliver Wendell Holmes definition of a tax system “Taxes are the price we pay for a civilized society.” I have always found that quote to be a bit off. Indeed, we do pay taxes to fund government services, but tax decisions can affect not only what we choose to provide through government (and Holmes went on in another quote to denigrate the role of voluntary (Charitable) contributions to the common good) but also choices about whether some things are better provided in the private sector. At the same time, because of the ways taxes are created decisions about things like the base and rate are almost never neutral. So a tax system can intervene in society very deeply or very little and there can be significant consequences for making wrong decisions. IN the field of public finance there is a theory about PUBLIC GOODS (those which are provided in common and which cannot exclude people) and PRIVATE GOODS (those which are provided individually and which can exclude consumers). - An easy way to think about those distinctions is to compare National Defense (where if you live in an area which has defense it is impossible to exclude you from its protections - PUBLIC GOOD) and a donut (where if I buy a donut you cannot buy the same donut - you can be excluded - PRIVATE GOOD). But about 50 years ago one of the deans of public finance (Richard Musgrave) who thought we under provided in the public sector came up with an ingenious new middle thing called MERIT GOODS - those things which we under provide but which can exclude some consumers. For those who want a larger government - that is a very flexible term.

Reid mischaracterizes the history of income taxes in the US. For example, during the 1980s there were about a dozen bills which dealt with tax issues - but not every one was equal. For the Reagan years the big ones were four - the Economic Recovery Tax Act (which lowered rates and increased investment incentives); the Tax Equity and Fiscal Responsibility Act (which broadened the base); the Social Security Amendments (which put the Social Security system on a sounder financial base) and the Tax Reform Act (which was a fundamental rewriting of the tax code which lowered rates and broadened the base). Each dealt with slightly differing definitions of BBLR. Reid’s description of ERTA mischaracterizes the revenue results of the act. Deficits in the 1980s were caused not because revenues declined but because the spending grew faster. Here are the numbers - in 1980 (the last Carter year) - revenues were $517 billion, by 1989 revenues had almost doubled to $999 billion.

Reid is a big fan of Tax Expenditure Theory which argues that it is possible (and desirable) to estimate all of the “lost” revenues caused by preferences in the tax code. I’m not. I think it is a flawed concept which starts with the notion that all wealth is created by government and then a portion is few back to us taxpayers. I think that one is backward.

I also believe Reid’s interpretation of Thomas Piketty’s Capital in the 21st Century is incorrect. As I did in my own review of the book, to come to his conclusions Piketty ignored a good deal of transfer income which goes to the lowest two income quintiles. (Phil Gramm’s book - which I reviewed on Goodreads The Myth of American Inequality demolishes Piketty’s arguments).

Finally, I am not at all impressed with comparisons of tax systems in other nations. Reid seems to think that there is a flaw in how much money we collect (by the way the number he uses for percentage of GDP that the US extracts in taxes is simply wrong - too low) and because taxes are about choices just because France or Germany extracts more dough from their citizens than the US does, doesn’t suggest to me that theirs is the right mix.

Reid points out, this is not a hard target, the complexity of the current tax system and quotes several outrageous IRS rules which would have to be clarified to be incomprehensible. And he argues (which I also did in my dissertation) that you can’t have a simple and fair tax system. All that is low hanging fruit. He then makes a case for a Value Added Tax, which many people in the economics community believe is the best ultimate tax system. Many other observers believe that the flaws in the VAT start with the fact that it can be too easily adjusted (up). I tend to believe that adjustments in any tax regime should be hard to do. (We ought ask our legislators to think carefully when they want to pull resources out of the private sector.)

Reid argues that about every 30 years we rewrite our tax codes. The natural propensity of legislators is to tinker - so we have silly things in it like the credit for E-vehicles and for a portion of the state and local taxes we pay - both of which are heavily skewed to very high income taxpayers. Reid’s argument for BBLR were it possible to establish and continue, a good idea. So what is the C? The US tax system is really more than 50 tax systems - based on the individual tax systems in the states. Any implementation of BBLR needs to consider the consequences to those other tax regimes - there needs to be some thinking about Coordination.

There is a lot of information in his book, unfortunately from my perspective many of the things which Reid takes for granted are things on which we should spend a lot more time.

[Book Shark · Rating 4 out of 5]

A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System by T.R. Reid

“A Fine Mess” is a surprisingly readable book on sensible taxation. Best-selling author and longtime correspondent for the Washington Post, T.R. Reid once again travels the globe in search of taxes that make sense and how such knowledge could be put to good use to address America’s failing tax code. This informative 286-page book includes the following twelve chapters: 1. Policy Laboratories, 2. “Low Effort, Low Collection”, 3. Taxes: What Are They Good For?, 4. BBLR, 5. Scooping Water with a Sieve, 6. Flat Broke, 7. The Defining Problem; the Taxing Solution, 8. Convoluted and Pernicious Strategies, 9. The Single Tax, the Fat Tax, the Tiny Tax, the Carbon Tax—and No Tax At All, 10. The Panama Papers: Sunny Places for Shady Money, 11. Simplify, Simplify,and 12. The Money Machine.

Positives:
1. A well-written, well-researched and accessible book on tax policy.
2. A great command of the subject and the innate ability to make what is traditionally a dry topic into dare I say an interesting one.
3. Straightforward format. The author ends every chapter with a teaser that leads right in to the following chapter.
4. Limited but does provide some useful tables.
5. A very informative book. The author travels the globe in search of the impact of specific tax policies and how it can be applied in the United States. He provides countless examples throughout the book.
6. Fair and evenhanded treatment of a hot button issue. “Many of the developed countries have come up with tax systems that are simpler, fairer, and more efficient than ours.”
7. Does a good of establishing fact over fiction. “It’s a fact: Americans pay significantly less than our counterparts in the world’s other advanced, free-market economies. In terms of the overall tax burden, Americans pay less. In terms of specific taxes—income tax, sales tax, gasoline tax, and so on—American rates are almost always lower.”
8. So does high taxes stifle growth? Spoiler alert: “In America, it is often said that high taxes stifle economic growth. But Denmark and Sweden have a much higher tax burden than the United States, and yet both countries have had higher rates of growth than the United States for most of the last five decades. In those nations, clearly, high taxes did not stifle growth.”
9. Does a good job of explaining key financial terms. “A capital gain is the profit you make by trading stocks and bonds, or real estate, or commodities like gold. If you sell some shares of stock for $50,000 more than you paid for them, the $50,000 you gained is considered income.”
10. Fascinating tidbits, “The U.S. government is a huge spender, of course, on some things. We pour more money into national defense than anybody else; our defense budgets, in fact, are bigger than those in the next eleven countries combined. But American governments spend much less than other advanced democracies on social support for low-income and retired people.”
11. Useful and fascinating observations. “The crucial point is not how much somebody pays in taxes but rather how much she has left after paying. This biblical lesson has been invoked time and again to justify a tax code that calls on the rich to pay higher rates than the poor.” Bonus, “In fact, though, the U.S. income tax was initially designed to apply only to those in the top income brackets; its primary purpose from the start was to offset inequality.”
12. The impact of Bill Bradley to the historical tax reform of 1986. “With a seat on the tax-writing Finance Committee, Bradley immersed himself in the policy and politics of tax reform. He made an important discovery: in taxation, the policy issues and the political considerations neatly overlapped. Lowering the rates was something Republicans wanted. Broadening the base—cutting out special interest preferences—was something Democrats wanted. So combining a broad base with low rates should win support from both parties and thus get a real reform bill through Congress. Bradley used this combination approach in a tax bill he introduced, the Fair Tax Act, which proposed to cut the top marginal rate by half, to 30%.”
13. Structuring tax breaks and how it impacts the rich or the poor. “Tax expenditures take several different forms, and the structure of each tax break determines how it affects different groups of taxpayers. As Surrey taught, a deduction or an exemption from income gives a larger tax benefit to the rich, which he considered unfair favoritism. A tax credit, in contrast, gives the same benefit to all taxpayers.” “One major sore point is that the charitable deduction is a deduction and thus saves far more for upper-bracket taxpayers than for the average worker.”
14. The reality of flat taxes. “Generally, the advocates of the flat tax focus so tightly on “fairness” and “simplicity” that they fail to mention the most important impact of a flat-rate income tax: it would amount to a major tax break for the richest people in the country and a corresponding tax hike for many average workers. While a progressive income tax tends to reduce the gap between rich and poor, a flat-tax regime would serve to increase economic inequality.” “Second, simple mathematics tells us that a flat tax would generate significantly less government revenue than the current progressive rate structure.”
15. Gaging economic inequality. “The United States had a Gini coefficient in 2014 of 0.4—the worst rating among rich countries. Among the thirty-four members of the OECD, the club of industrialized democracies, only Mexico and Chile ranked higher than the United States on the inequality scale.”
16. Great sections on how the rich avoid paying taxes. “One obvious problem with a national wealth tax is that wealthy people can, and do, switch nations to avoid the tax. You can’t move your city mansion or your mountain condo to a different state, but a rich person facing a $100,000 tax bill each year might well pack up his art, rugs, and jewelry and move to a country that doesn’t tax wealth. Piketty has a solution: make the wealth tax a global tax. That is, all countries should agree to a standard tax on wealth so that a zillionaire can’t cut his tax bill by moving across the border. Being a fairly down-to-earth economist, Piketty freely admits that this “global wealth tax” is not a realistic possibility at the moment. He holds out hope, though, that the member nations of the European Union might agree on a continent-wide wealth tax, and maybe the idea would spread from there.”
17. Provides examples of corporations that have taken advantage or abused the system. “Apple, with the help of tax-law geniuses, managed to shift its profits (on paper) to a legal concoction where it paid no corporate tax at all.”
18. A look at the controversial Panama Papers. “Consequently, when the Panama Papers were finally made public, in the first week of April 2016, the story was a bombshell around the world. “The revelation of vast wealth hidden by politicians and powerful figures across the globe,” the New York Times reported on its front page, “set off criminal investigations on at least two continents . . . as harsh new light was shed on the elaborate ways wealthy people hide money in secretive shell companies and offshore tax shelters.”
19. The problems with our tax system. ““The most serious problem facing taxpayers—and the IRS—is the complexity of the Internal Revenue Code,” Olson reported. She went on to list some of the implications of this complexity.”
20. Does a good job of explaining the Value Added Tax (VAT) system.
21. An excellent epilogue that ties everything together and provides sensible recommendations. “The task ahead of us, therefore, is clear: the United States needs a completely new Internal Revenue Code, built around the principles that have made the tax codes in other advanced nations fairer, simpler, and more efficient than the one we’re stuck with today. For tax codes, there comes a point where the sheer accumulation of complicated and contradictory stuff requires that the “whole damn thing” be replaced.”
22. Notes are linked.

Negatives:
1. I would have added some much needed spice to the book. A fun chapter on famous tax evaders and their consequences.
2. I would have added a glossary of terms.
3. This is an excellent introduction to tax policies but it’s not an in-depth analysis.
4. A gallant attempt but some topics are dry.
5. No formal bibliography.

In summary, this is a very solid book on sensible taxation. Reid travels the world and shares insights on how tax codes work or don’t work and discusses whether or not it may work in the United States. This is an excellent introduction and it’s very informative. I recommend it.

Further suggestions: “The Healing of America” by the same author, “Taxes in America: What Everyone Needs to Know” by Leonard E. Burman and Joel Slemrod, “Taxing Ourselves” by Joel Slemrod, “The Benefit and the Burden” by Bruce Bartlett, “Red Ink: Inside the High-Stakes Politics of the Federal Budget” by David Wessel, “White House Burning” by Simon Johnson, “The Price of Inequality” by Joseph E. Stiglitz, “Tax Havens” by Jane G. Gravelle, “Plutocrats” by Chrystia Freeland, and “Deficits, Debt, and the New Politics of Tax Policy” by Dennis S. Ippolito.

[Manray9 · Rating 3 out of 5]

A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System is insightful and thought-provoking. The current system cries out for reform, but I foresee little chance of any genuine improvements to our obtuse and archaic tax code during an era of government paralysis. Reid deserves Four Stars on the research and content and Two Stars for the facetious tone.

[Max · Rating 5 out of 5]

Clear and careful analysis of the United States tax system in comparison to other OECD nations. Reid makes a great argument for a “broad based low rate” taxation system with an emphasis on the Valued Added Tax and Financial Transaction tax. One in which IRS would pre-fill your tax forms for you with the abundant data it has access to, rather than you filling them out, hiring accountants to fill them out or spending your money on electronic tax calculating software. Tax software companies have an incentive for a more complicated tax code and have lobbied for the status quo. These methods have been successfully implemented and proved efficient effective tools in other nations (UK for example). Inspires me to look into recent- 2018 tax code reform. Important topic! Check out his other great book on health care reform.

[Thomas Ray]

Advocates a regressive, value-added tax.

[Eric Spiegel · Rating 4 out of 5]

You'd think a book on comparative taxation would be a snooze fest but Reid does a fantastic job of guiding the reader through our complex tax code and uses international and historic examples and data to show how it could be better. Great writing on a normally agonizingly boring topic.

[Thom · Rating 4 out of 5]

Interesting and relevant, Reid writes about some alternatives for a tax system that is due for an overhaul. He explores history, ways to measure the effects, and how various ideas (flat tax, VAT, progressive and simple) have worked in other countries around the world. He also examines various schemes to avoid taxes, some for individuals but mostly for companies (Apple, Starbucks).

For a (relatively) dry subject, the author injects humor at times, and the history is very well done. His approach isn't partisan, and uses clear measures to see the impacts of various taxes on different earners and spenders. The best system is known as BBLR - broad base, low rate - and any exemptions or credits just narrow the base (and therefore increase the rate).

Some of the most interesting ideas are automated taxes (just check a postcard or email to see if they are right - 99+% are) and a combination broad base low rate tax and VAT. The anecdotes are also great reading. The audio book is read by the author, but lacks some of the graphics and footnotes. While this falls short of 5 stars, it is clearly more than 4. Check it out!

[Hill Krishnan · Rating 5 out of 5]

Tax: A fine mess: I ❤️this book:


Out of the 35 OECD countries the US is ranked 32 in terms of low taxes! It's only 25.8% of it's GDP. Mexico and Chile are behind.
However Warren Buffett's secretary pays higher tax than Mr. Buffett. Why so unfair? Tax laws lobbied and set So "capital gains" are taxed low than the wages.
When the US started federal taxes in 1913 it was for only the very Uber wealthy the taxes were.
When Ronald Reagan was POTUS there was a successful tax reform (BBLR: Broad base low rate). But the rich lobbied and created loopholes to write off depreciation etc. e.g.: Team owners even write off the aging players as depreciation. Even arts loaned to museums are written off.
The tax filing in Netherlands takes 7 minutes because it's so easy. US it's so complex that 10 billion dollars spent to HR block and others every year. No HR block in UK or other countries because of tax reform.
To write off during tax filing one chooses "itemized tax filing which is done by a tiny percentage of Americans. Most not wealthy people giving to charity etc cannot be written off because it's "standard filing." So it's one form of unfairness towards not wealthy.
Flat tax for all was recommended by Ted Cruz, Ben Carson and others will favor rich. Why? Wealthy ended up paying less than what they pay now & not wealthy pay more! That's distribution from poor to rich.
Taxes is also used to incentivize good behavior of citizens by government. E.g.: to marry, children, buy homes, etc. but countries w/o those house tax benefits also have similar home ownership percentage (63% ) like US.
Estonia, Latvia, Lithuania and Slovakia created "flat tax" and it benefitted because the population is not unequal in wealth like developed countries. So it's fair, simple and efficient revenue. Most Eastern Europeans followed except Poland.
US companies like Apple, Google, Caterpillar, and Microsoft save billions on taxes through loopholes laws.
"Inheritance tax" is for inheritance above $5.4 million for others & &10.9 millions for spouses. They lobbied saying it's "death tax" to cut it off!
US: The country's richest 1% own more than the bottom 90% of the country's people. Another reason: wage unfairness: CEOs salary compared to average worker went from 20 times higher to 600 to 1000 times higher! e.g.: marissa Meyer gets $42 million despite drop in yahoo sales. Chipotle CEO was paid $40+ million despite food poisoned customers and sales drop.
Mitt Romney said when he was found w/ money in Cayman Islands: I didn't move money there for tax purposes. Commentator: that's like saying buying a condom is for not sex purposes!
Even though corporate tax rate is 35% they use to pay 32 in 1960s but now they pay 9%. The slack is picked up by people like you and me!
Corporate legal scams: Corporate loaning itself money and then writing off the tax on the interest it paid to itself on the money it borrowed from itself!!!
Switzerland 8.5% corporate taxes, UK: 20% and that's why caterpillar files through or reports taxes in Switzerland!
Opposite to Bloomberg pop idea: you can tax the soft drinks! E.g.: Mexico. 15% more tax on sugary drinks "sugar tax" or "fat tax." Followed by Chile, Britain.
FTT: financial trading tax. Robin Hood tax. Eg: Italy, South Korea, Taiwan all do it! Bernie will fund education through this. "Tobin or not."
Carbon tax!: Revenue & reducing co2 emissions! Coal is taxed higher than oil. Gasoline can be taxed on the pump. Camp & trade.
No taxes: Mostly middle eastern. least taxed UAE! Saudi Arabia. Bahamas. Monaco, Macau.
Sovereign Wealth fund: Alaska sends check made from oil if you lived in for 1 year.
2013: expatriation tax. Assets more than 2 million & Renunciation citizenship you get taxed. Monaco residency: 1/2 million in bank & cant be withdrawn for years. Macau: $375,000. Cayman:500K in real estate or stocks in cayman corporation.
Panama papers: panama law firm: hossni mubarak, Assad, PK PM, Putin, Xi Jinping. PM of Malaysia!
In panama a law firm opens a fake corporation and sells stocks on it. $500K of your money is put in a bank account in panama as if you bought those stocks. Firm gives you debit card that you can spend $ in your country!
In 2016 Manhattan U.S. Attorney Preet Bharara went after a 270 reputable Swiss bank for hiding nontaxed US money. 10,000 + Americans hidden accounts came out and IRS received $8 billion back lagged taxes! Bank closed.
Economists think VAT is great because it's on spending: 175 countries Value added tax: like sales tax but at the end of every of dealings/ each link in the chain (every deal from woodman, polisher, to table sales company). Liberals love it because tax is hidden In the product price but US doesn't have it!
Estonia it takes 7 minutes for tax filing, Japan govt. sends tax details postcard (easy). Why US so complex less than 10% Americans file their own tax papers. More than 60% pay others to file? Why couldn't government make it simple? Companies like HR block lobby to make money by keeping the system complex!
Tax reform is vital & it's in2018 (based on the every 32 years reformed) should begin from scratch: recommendations: 1) eliminate mortgage write off ($100 billion each year), 2) BBLR for corporate tax! 3) it should keep the progressive tax rate. 4) it should increase estate tax! 5) we should have VAT! 6) like EU the US should have FTT! 7) IRS already have all your tax info. So like Japan they should take care of it!

[Karel Baloun · Rating 5 out of 5]

Since Tax Reform is about to fly all over the news, you really should read this interesting and enjoyable book on taxes! An easy to read and carefully edited collection of 12 short essays, each about the history and benefits of different types of tax.

As a progressive, I tend to doubt whatever Trump and the GOP Congress advocate, and tax reform ideally would be bipartisan, yet it is really very necessary. The current system wastes about 3.1 million person years each year, it is not "fair" in any way, and just about every other country in the world has it better.

We must “broaden the base” of taxes, so that rates an be lower. “Tax expenditures” are taxes that government does not collect, due to exceptions, deductions or credits and they totaled an estimated $1.2T last year. That’s roughly equal to the “discretionary budget” for all non-entitlement spending. Social security and medicare/medicaid each cost about $1B/yr.

Reid makes a strong social justice case for why the top tax rate should be well over 50% and why it should hit more than the current 1% of US tax payers. Reid proves that the estate/death tax is an extremely valuable social instrument, much more than reflected by the amount of money it collects.

The depth of international research, and the amazing personal connections with foreign ministers and tax authorities the author employs, astound me. So much work over 4 years to deliver this short book, and almost all of it is carefully hidden by a soft and welcoming writing style. Reid avoids the now inevitable partisan lenses, and shows how much the system could easily be improve in a way that benefits every single American, whether the intent is to soak the rich or not.

Did you know America alone doesn’t have a VAT, and even Canada introduced one in the 90s? Despite being a sales tax, it isn’t necessarily regressive. Flat taxes worked in eastern Europe, but ONLY when inequality was low. Lowering tax rates may not result in the rich paying less tax, because they benefit most from credits and exemptions, and could raise the effective collected rate, if it become "not worth the effort" to avoid paying. Deductions are very expensive, and only benefit richer tax payers, whereas credits benefit anyone, but the lovely EITC comes with a 59 page instruction booklet, and over 20% of applications are filled out incorrectly. Humorous anecdotes abound.

[Andres · Rating 4 out of 5]

Before reading this book, I am ashamed to say, I knew very little (to nothing) on the US taxation system. Honestly, after reading this book, it's not like I know much more. But that was kind of the point. The book does very little to explain the intricacies of the US taxation system, which ultimately works to its benefit. The purpose here is not to go step by step on the forms you have to fill and the red tape you have to cut through. It illuminates the reader on the fact that those exist. But ultimately, the author is trying to offer up different solutions - while sprinkling in some colorful commentary. I can safely say I know more about Estonia's taxation system, and Slovakia's and France's and Japan's - which is funny. I appreciated this book so much because of how little it focused on the nitty gritty and lensed its perspective in a broader way. It explored the politics in America, the interest groups, the culture. I am happy to report I learned so much. I want to commend the author for explaining such a dry and intricate subject with such personality and ease. It made it fun to keep reading.

The one thing I will say about the book is that the author made no efforts to hide his political leanings - which is fine. I would have appreciated a more objective view at the matter. Because even though I agreed with some of the points he was making, it was difficult to separate the facts from the opinions.

I recommend reading this book in conversation with the author, not as the ultimate text on tax opinions. I appreciate being intellectually challenged by someone so smart and knowledgeable! Great book.

[Cameron · Rating 4 out of 5]

Really good. Taxes are intertwined with so many political issues and I finally feel like I understand at least some of their workings and relevance after reading this book.

Takeaways:

Progressive income tax has been widely accepted as necessary to raise adequate amounts of government revenues for a long time, throughout many societies.

Broad Base, Low Rate is the fundamental guiding principle of good tax policy, both in personal tax and corporate tax. Tax everybody and everything, but at low rates. This as opposed to the current U.S. system of lots of loopholes and deductions, and higher rates to make up for those "tax expenditures".

Value Added Taxes are very common in other rich countries and seem to be, on the average, quite popular and successful. Each business along the chain of production pays a sales tax when they sell something, but get a credit for what the previous business paid and therefore passed on to them. This makes for a high level of compliance, since each business is incentivised to report how much the previous business should have paid in tax, so that they can get their credit.
But, because it's "invisible" to the public (it's factored into the initial sales price, not added on when you buy, like sales tax), it's easier for governments to raise rates without the public noticing.
Seems like, well why not just pay attention to the news so you know if it gets raised?

[Rachel · Rating 3 out of 5]

As a tax accountant I don't think I'm really the target audience for this book. I did learn a lot but you don't need to have any background in tax to get a lot out of it. And you probably would learn a lot more than I did as there were certain areas that I was pretty familair with and either got bored or wished he would go into more detail. I listened to the audiobook, which is read by the author. Overall I think he does a good job of outlining all the problems with our current tax system and ways to solve them. Although a few of the improvements he proposes have since been implemented after the publication of the book (mainly relating to corporate tax), I am not left with a lot of hope that all the other pieces of the solution are coming anytime soon.

[Michael Shaw · Rating 4 out of 5]

The author argued strongly for his theory that broad base, low rate tax codes are best, and gives strong arguments for why broad bases are good, but I find his justification of lower rates rather weak. Yes, "spending" through the tax code is terrible, and we should never do it, but what's wrong with higher rates, and a strong social safety net?

I liked the book, found some of the cross-country comparisons really thought provoking, and wished this was the debate actually going on in Washington today.

[Sean · Rating 4 out of 5]

In A Fine Mess, T.R. Reid paints a picture of an archaic, disorganized, and seemingly intentionally incomprehensible tax system that is worthy of the title of the book. America's tax system is exceptional in its terribleness, especially when compared to other wealthy and developed countries around the world, and Reid does a fine job of pointing out exactly where we fall short.

A Fine Mess is as depressing as it is illuminating. It is obvious that America's tax system intentionally caters to the wealthy and powerful, and will likely stay that way. The current political landscape of the country makes it very difficult to enact any sort of meaningful change in the federal tax code, despite the numerous studies that promote the benefits of doing so. As long as American politics is ruled by money and special interest groups, it seems very unlikely that any of the proposed changes in A Fine Mess will ever be applied.

Still, the book is good food for thought, and we can hope that someday, America will catch up to the rest of the world in how it taxes its citizens and allocates that revenue.

[Rachel · Rating 5 out of 5]

Not quite as riveting as his comparative study on global healthcare systems, but almost as maddening. Biggest takeaway: eliminating tax cuts that primarily benefit the rich (e.g., mortgage credits; electric vehicle credits), increasing taxation of capital gains and dividends, and simplifying the ridiculous IRS tax code would save us billions of dollars — while also enabling us to lower our painfully high income tax. Broad base, lower rates.

[Mary Gwin · Rating 5 out of 5]

TR Reid has a gift for writing comparative policy books that tell you the facts and let you decide for yourself if our current approach is optimized (spoiler: it is not). He keeps it informative, earnest, and offers enough humor and levity to keep what you might otherwise think is a boring topic fresh and engaging.

[Eric Mattson · Rating 5 out of 5]

Very enjoyable and quite thorough overview of the variety of tax structures in the US. I especially enjoyed the part detailing how corporations and wealthy individuals hide their money from the tax man. Would recommend reading for those who want a more thorough understanding of our tax system vs. the tax systems of other nations.

[Johan · Rating 4 out of 5]

Good overview and comparative analysis of taxation systems across different time periods and different countries. I really enjoyed all the experiments and misadventures in misaligned incentives.

[Ian West · Rating 4 out of 5]

It’s a book about taxes, so I’m not really recommending that anyone read it, unless you just really like reading about taxes. It is put forth in a very understandable and easy-to-follow way. As books about taxes go, I’d guess this one is pretty good.

[Alastair · Rating 4 out of 5]

A Fine Mess is the second book by TR Reid I've read, following his wonderful The Healing of America, an international comparison of healthcare systems and how the US could learn from these. A Fine Mess follows the same structure - an international comparison geared to inform a US debate - but this time aimed at the tax system. Unlike Reid's book on healthcare - which very clearly splits into country-by-country assessments - this book takes a more thematic approach. Each chapter takes on a different element of tax and interweaves the international comparison throughout. Chapters cover such topics as: flat tax rates (one income or overall tax rate for all); tax avoidance schemes (such as the Panama Papers); and the importance of value added taxes.

In amidst such nuanced discussions as the structuring of VAT, or the appropriate levels of taxes, is a guiding principle that holds the book together: that of 'BBLR' or 'Broad Base with Low Rates'. This abbreviation - which I'd never come across before - encapsulates what appears to have overwhelming consensus among the tax specialist community: that tax regimes operate best when you ensure a particular tax has a broad base (applies to lots of people with few exemptions) allowing you to lower the rate on that tax (because it applies broadly). The knock on effect is that, through low rates, the incentive to avoid tax is lowered while the broadening of the base prevents individuals feeling like others are doing better out of the tax system than they are.

Perhaps what this book does best of all is tell a coherent story of how the various factors come together in determining how well a tax system operates. There is, of course, discussion of the details of specific taxes like VAT, or exemptions like mortgage interest deductions (something as a Briton I had to Google to find out what it was as it hasn't existed in the UK for decades). But there is a discussion of other factors that I wasn't expecting.

The author spends a lot of time discussing what the US can learn about simplifying the filing process to reduce the costs of compliance for instance. The April 15 nightmare of US filing day is something of a fascination for non Americans who've never filed a tax form in their life. The process itself could have been treated as a minor irritant, but for Reid the onerousness of tax filing is used to bring into sharp relief the dizzying array of exemptions that taxpayers must track; the huge costs involved and the risks of getting your filings wrong; and, most intriguingly of all, the impact on what is (I've just learnt) called 'tax morale'. As Reid points out: "A tax code so byzantine that people can't understand how much they have to pay badly undermines the spirit of voluntary payment that is essential to a successful tax regime ... a concept called tax morale". The author often highlights the pernicious impact of complexity and exemptions on the taxpaying populace, concepts that seem almost obvious but this book made me confront. The book points out that tax fairness can justify democratic systems themselves by giving the population a stake in the quality of government services, so promoting accountability.

The book does a great job at weaving together the many disparate areas of discussion via guiding principles like BBLR, tax morale and the purpose and fairness of taxation itself. At a level of detail down, the book is full of the sorts of discussion I had expected on the ludicrous contradictions and perverse incentives due to specific taxes or exemptions. This is perhaps best illustrated by Reid's discussion of the (to me mysterious) mortgage interest deduction, whereby the interest you pay on a mortgage is deductible from your taxable income. Reid incisively analyses the limitations of such a tax. Because it is an income tax deduction, those earning low wages cannot benefit from it (because they pay little or no tax in the first place): "with a top rate of 39.6%, the mortgage interest deduction has the same reverse Robin Hood impact. It saves a rich family $396 for every $1,000 of mortgage interest due - but saves zero for low-income homeowners. Those who least need help get a subsidy, while those who most need it get nothing". As Reid goes on to point out, "about three-quarters of all the deductions for home mortgage interest go to taxpayers making more than $100,000 per year".

The best part of Reid's analysis is that he asks the key question - which goes beyond sensationalizing who gets what exemption - does the tax work? It's a peculiarity that while government spending programmes are questioned ruthlessly in terms of their efficacy, tax exemptions (spending by another means) are not. I was refreshed, therefore, to see this issue tackled here. In the case of mortgage interest deductions, you would expect the exemption to promote house buying, but a range of examples - including international comparators like the UK that phased out the deduction - demonstrate that "the deduction doesn't do what it is supposed to do - make it easier for people to buy a home". Reid's discussion of charitable giving and how corporations are taxed follows a similar pattern of illustrating the abuses of the system, the foregone revenue (ersatz spending) and failure of exemptions as policy tools - all of which is exceptionally worth reading even for the non-US citizen as much applies in other countries.

Another line of inquiry pursued by Reid is of the role of lobbyists and legislative influence in the tax law process. As Reid describes at the start of the book, the US tax code periodically undergoes drastic rationalisation followed by incremental hollowing out with exemptions. But these exemptions are driven in part at least by the vocal lobbies in Washington promoting specific exemptions and boons for particular groups. As Reid tells it, after the 1986 Reagan simplification of the tax code "the lobbyists and political contributors started leaning on Congress to restore many of the credits, exemptions, allowances, and shelter ... All these giveaways narrowed the tax base ... the top marginal rate of income tax was back up to 39.6% by 2017".

The role of interest groups in breaking the fundamental principle of BBLR ultimately means higher taxes for the majority of citizens, something that should bother us all. Specific illustrations of lobbyists clout is given too: Intuit, maker of tax filing software, have spent millions preventing Washington introducing systems whereby the IRS would complete forms for people (as happens in other countries, resulting in returns taking minutes not days). Effectively, a private firm has blocked the IRS from utilising its trove of data to reduce the work of taxpayers in filling in their forms, pushing taxpayers to pay for software like Intuit's. A curious parallel struck me here: in the realm of weather forecasing, AccuWeather has successfully prevented the US meteorological body NOAA from producing its own weather forecasts (despite, like the IRS, having the necessary data and in NOAA's actually providing it to third parties like AccuWeather). As with Intuit, by blocking the government making use of its own data, it can charge individuals for it instead. This is all unrelated to Reid's book but it was interesting to spot such a depressing parallel nevertheless.

Back to Reid: the book is a very informative guide to taxation, both in terms of what should be its guiding principles as well as the details of implementation, filing and exemptions. The book admirably takes on the issue of what taxes and exemptions are for and scrutinises such schemes accordingly by asking: does a particular exemption work?

The book has its flaws, including not always making clear why a particular topic is being discussed and sometimes neglecting (or paying minimal lip service) to the political realities of attempting to remove such exemptions as mortgage interest deductions. I would have liked to hear more about how the US could remove this in practice, such as regional trials or perhaps a reduction in some other tax to give those affected people a carrot that does not itself violate BBLR. My biggest gripe with this book is on the discussion of VAT. While I appreciate the detailed history lesson and the reasons given for why it is such a valuable, self-policing means of taxing economic production, I feel that Reid totally ducked the reality that consumption taxes hit the poorest hardest and so must be considered anti-progressive. He acknowledged this but seemed to imply that exemptions for food were a viable approach - though this risks creating precisely the sort of exemption-riddled regime the rest of the book takes issue with.

Barring this one limitation, the book is well worth reading because we all, in one form or another, pay tax - be it income, property, VAT or fuel - and could all likely benefit from approaching the subject with a more informed eye. Furthermore, as Reid points out, a citizenry that believes its tax system is fair will support it and the government that administers it. Tax reform to this end could, therefore, be a potent tool to combat populism and anti-democratic inclinations that can seem in 2021 to be inexorably on the rise. Perhaps a lofty case to be made by a little book on taxes; at the very least, Reid will convince you of the need for more enlightened tax policy that can make everyone's lives a little better.

[Preethiya Sekar · Rating 5 out of 5]

T.R. Reid has a knack for making obscure topics accessible to the public. While his main goal is to advocate for change in anticipation of the 2018 tax reforms (Congress amends the Internal Revenue Code on a 32-year cycle), the book is filled with historical context and political nuance that will continue to outrage readers today. He lays out the complexity of our nation’s tax system by explaining how many of the deductions and loopholes in our current tax law came into existence and why it's so difficult to get rid of them. By looking both at previous successes in US tax reform (1986) as well as at other country's tax systems, he is not shy about his ideas on the way forward: broad based low rates reform (though most people are theoretically on board with this idea) along with VAT and FAT/FTT (more contentious). Sporadically, Reid presents counter-arguments but doesn't fully refute them- i.e: ensuring government accountability with VAT being a hidden tax. Regardless, he makes taxes, an otherwise dry subject, into an engaging/infuriating/amusing read.

[cauldronofevil · Rating 5 out of 5]

I’ve been wanting to read this one forever! I finally snagged a copy.

I’m pretty sure it’s going to come down to ‘Do the VAT like every other sensible country you dumbasses!’. Cause really, America is the stupidest when it comes to looking at what’s worked with other countries. We’ve decided the country we most want to emulate is IRAN!

As usual, it’s the Netherlands making us all look like the morons we are.

”I mean, some years, it takes me nearly half an hour just to file my tax returns!”

So far, it’s what I figured. The US pays the lowest taxes of almost everyone, and while we have the highest wealth, we have the lowest income growth. Bas-akward gain. Go USA!

Our defense budgets, in fact, are bigger than those in the next eleven countries combined. But American governments spend much less than other advanced democracies on social support for low-income and retired people.

I’m okay with listing “Fighting ISIS” as a reason to pay taxes, the the money could be better spent than it has been. But I resent my money paying Israel to do to Palestinians what were are paying Ukraine to prevent Russia doing to them!

I wish we as tax payers had a choice of where discretionary spending was put!

Another book I’m listening to, “Drift” tells the story of how Reagan spent a fortune on beefing up the military for war when we had no enemies and completely neglected the infrastructure that is now falling apart.

Some countries, eager to enhance civic participation, charge a tax penalty for people who fail to vote.

When I asked economists at the World Bank, the IMF, ad the OECD which countries have the best tax system, they agreed on a prime candidate.

We didn’t allow individuals to take the two big deduction that your U.S. has, for mortgage interest and contributions to a church.

With that addition, the income tax rates could be cut in half for every taxpayer in the nation—with no loss of revenue to the government.

If a handout to a specific business or group can’t be justified as a direct government subsidy, it can’t be justified as a tax break, either.

It saves a rich family $396 for every $1,000 of mortgage interest due—but saves zero for low-income homeowners.

That means Congress could cut everybody’s tax rate by 37% and take in the same amount of revenue if we didn’t have all those tax expenditures.

All those issues should be enough to demonstrate that the deduction for charitable contributions is costly, unfair, and easy to abuse.

Generally, the advocates of the flat tax focus so tightly on “fairness” and “simplicity” that they fail to mention the most important impact of a flat-rate income tax: it would amount to a major tax break for the richest people in the country and a corresponding tax hike for many average workers.

”Only the wealthy,” Trump conceded, “would reap a windfall, because a flat-rate tax would shift the tax burden from the richest taxpayers to those in the lower brackets.”

What you want is a broad-based tax without exemptions or loopholes—because once you have special exemptions or deductions, people who can afford layers will take of course advantage of them.

”In practice, you can’t find a single tax rate that is high enough to raise the revenues you need but low enough for average working people to afford.”

With all the talk of inequality, some of the 1% began moaning out loud about the focus on their wealth, giving birth to a curious new American species: the whining billionaire.

Sarkozy supports free higher education, a complete ban on handguns, and unemployment compensation that never ends, but in European terms that makes him “center-right”

About Mitt Romney: To which the attorney Frank Schuchat responded, “To say you put money in the Caymans, but not for tax purposes, is like saying you bought a condom, but not for sex.”

Each chapter explores an idea, which then leads logically to the next idea and the next chapter. This makes it easy to follow. And it’s not written in a math or jargon heavy way, though it does give the ‘correct’ terms for all these tax schemes. It’s a good read.

But even when all those taxes were added up, the effective rate of tax paid by large U.S. corporations was only 16%.

Indeed, Apple, with the help of tax-law geniuses, managed to shift its profits (on paper) to a legal concoction where it paid no corporate tax at all.

In what should be a surprise to no one both Microsoft, Google and Apple pay no taxes whatsoever on their profits.

Phfizer, the giant drug firm that makes such staples of the American medicine cabinet as Viagra and Preparation H, concedes in its reports to stockholders that its bottom line is heavily dependent on U.S. government programs financed by taxes.

They “minimize” their tax bills; they “avoid” paying taxes; but they do not “evade” taxes, because that would be against the law.

But it’s also be cause the IRS, facing budget cuts year after year from a hostile Congress, just doesn’t have the firepower to take on rich, well-lawyered tax avoiders.

And yet, we’ve got plenty of money to for wars we are too incompetent to win!!

In the 1960s, the corporate tax brought in about 33% of U.S. tax revenues. Today, the same tax provides less than 9% of revenues; that means individual taxpayers have to take up the slack and pay more.

”What we have learned, is that people are enthusiastic about environmental protection, but are not enthusiastic about paying for it.”

I also learned about the countries that have no taxes whatsoever!

But, in fact there’s a big neon sign in several of your states saying, “ ’Open to tax cheats. Bring your money, and we won’t tell.’ ”

The investigation caught more than fifty-four thousand U.S. taxpayers who had hidden money in Swiss banks, and it collected over $8 billion in back taxes and penalties from those would-be evaders.

”I didn’t write the tax laws, Congressman,” he would say. “You did that.”

It turns out that the complexity of the U.S. tax system is a moneymaker for some large companies. So they have loied strenuously, and successfully, against all efforts to simplify the tax code.

That is, the value-added tax does what its name suggests: it taxes each link in the chain only on the amount of value it added toward the final product.

To economists, this is a fundamental flaw with a retail sales tax: nobody has an incentive to see that the tax is actually paid.

And this was Marice Laure’s great gift to tax collectors all over the world; in his VAT system, everybody has an incentive to report the taxes that are due.

A consumption tax like the VAT is paid by everybody, including those who pay no income tax and those who are in the country illegally.

Well, I wasn’t entirely right but I wasn’t entirely wrong either. The VAT is in fact a simple method that lowers taxes for everyone. But it does have problems that can make it so that governments want to create the many ‘exceptions’ that cause all the complexity of taxes in the first place.

”I myself opposed the VAT on money-machine grounds, “ Bartlett continued. “I changed my mind when I realized that there was no longer any hope of controlling entitlement spending before the deluge hits when the baby boomers retire; therefore, the U.S. now needs a money machine.”

When I asked the commisioner of the IRS whether anybody in his agency has read all seventy-three thousand pages of IRS regulations, he laughed at the very suggestion.

Well, I was half right. The VAT system IS the easiest, both politically and logically to implement that would provide the greatest bang for buck the soonest.

However, with just a little more backbone (something Americans in general and politicians in particular lack) we could do even BETTER. Lowering taxes for EVERYONE, corporations and individuals. Lessening income inequality and STILL making the rich even richer and giving them even less reason to ship jobs overseas.

I’m VERY glad I read this book. As you can see it was quick, very readable book that educated me alot on how taxes really DO work and how they really SHOULD.

I recommend this 5 star book to EVERYONE who EVER bitched about having to pay income tax.