Why taxes are hard.

It's not just the legalese. Kicking off a series of newsletters about taxes.

We all want stuff for free, but stuff costs money. This is the fundamental conundrum of tax policy. I’ve been thinking of this because I started researching the process and rationale for moving some retirement savings into Roth funds, and I quickly got sucked into the legalese that is US tax regulation. That story will come eventually, but you’ll have to wait.

The entire field of economics is about how to satisfy infinite wants with finite resources. Marxism tried to solve the problem by focusing on needs, not wants. If everyone agreed to share resources according to people’s needs, not their wants for ostentation or profit, he argued that there should be more than enough money to go around. And maybe that’s true, but try getting people to buy into that without the violent overthrow of the bourgeoisie.

The line between a want and a need can be very thin. On one level, all any of us really need is to pay our rent and buy our groceries—and plenty of people can’t afford to do even that much.

On another level, I need haircuts and I need to get out of the house and I need to see my friends and I need a diet coke first thing in the morning. And maybe I need a new carry-on bag, although I have a few nice bags that I don’t use enough so I really don’t need one. In fact, I only decided that I needed one when I read that article. So you know what? I don’t need it. I’m not sure I even want it.

Maybe you are now thinking of things that you think are needs that are really wants, and maybe aren’t even wants. They are just ideas you had. We all do it, especially in this capitalist society in which we live.

To understand why we have infinite wants, just scale up my consideration of whether or not I need a new carry-on bag throughout the entire world. Almost every person, organization, and government has the same ongoing dialogue about different things that might be nice to have. Even if there’s reasonable consensus, there’s still debate because resources are limited. If you often can’t get your own self to decided if something is really necessary or not, how can you expect everyone in the United States to decide if something like new bridges are necessary. That’s not even getting into all of the things that we currently pay for or that we could pay for instead.

Richard M. Daley was mayor of Chicago from 1989-2011. During his administration, just about every nice-to-have thing that people wanted was approved. We got fancy planters on major city streets and big new parks (Maggie Daley Park and Millennium Park) downtown. Pay and benefits for city workers improved, so strikes seemed like ancient history. The city became a global model for urban environmentalism, with an enviable recycling program and green roofs installed on city buildings. Everyone marvelled at how Mayor Daley was could accomplish so many good things that his predecessors said were impossible.

His secret? Massive deficit spending! He took over a city with budget surpluses and created a nightmare deficit, even after selling a grossly undervalued 75-year lease on the city’s parking meters.

Budgets aren’t fun! No one wants to take a pay cut. People don’t want teachers strikes. They want the parks to stay clean, long hours at the libraries, and rapid snow plowing of side streets and alleys as well as main roads. And all of that costs money.

And that brings us to the fundamental problem of taxation: every community has infinite wants, some of which people actually need and some of which they think they need, but no one wants to spend any money on them.

What do you want to know about taxes? Let me know and I’ll do some research!