Tackling Tax Complexity: Why Simpler Codes Mean Stronger Compliance
In its latest report, the Hamilton Taxation and Public Finance Research Center’s Tax Policy and Legislation Division investigates how overly complex tax codes erode voluntary compliance, obscure fiscal accountability, and result in costly inefficiencies for governments.
For millions of Americans each year, navigating state tax codes can feel like deciphering a foreign language. From confusing exemptions to inconsistent filing rules, tax complexity has long plagued both individuals and businesses—especially small enterprises with limited administrative resources. But tax complexity is more than just a hassle; it's a policy challenge with real economic consequences.
In its latest report, the Hamilton Taxation and Public Finance Research Center’s Tax Policy and Legislation Division investigates how overly complex tax codes erode voluntary compliance, obscure fiscal accountability, and result in costly inefficiencies for governments. The report, titled “Simplifying State Tax Codes for a Stronger Fiscal Future,” offers a path forward for lawmakers and tax administrators looking to modernize their systems without compromising equity or revenue generation.
“We often think of tax complexity as an inconvenience, but it’s also a serious threat to transparency and compliance,” said Prof. Rachel Ngai, Director of the Tax Policy and Legislation Division. “When the rules are too complicated, people make honest mistakes—or they opt out altogether. That costs states billions and weakens public trust.”
Key Findings from the Report Include:
States with more straightforward tax structures enjoy higher rates of voluntary compliance and lower audit burdens
Small businesses disproportionately bear the cost of complexity, often spending thousands in compliance assistance
Disparities in tax code language and enforcement can lead to inequitable treatment of taxpayers
Administrative costs rise significantly when tax codes are riddled with exceptions, special rates, and overlapping definitions
The report also points to success stories from states like Indiana and Utah, which have streamlined tax brackets, reduced the number of itemized exemptions, and improved digital filing systems. These reforms not only improved compliance and reduced backlogs but also enhanced taxpayer satisfaction and increased collection predictability.
Recommendations from the Hamilton Center Include:
Adopting clearer and more standardized language across state forms
Reducing the number of income brackets and eliminating obsolete credits or deductions
Improving coordination between state and federal tax systems
Expanding access to free or low-cost tax assistance tools, especially for small businesses and lower-income individuals
Simplifying tax codes isn’t about cutting corners—it’s about creating systems that are easier to understand, easier to follow, and more effective at raising the revenues needed to support public services. As policymakers look to modernize outdated frameworks, the Hamilton Center’s analysis offers a timely blueprint rooted in data, equity, and administrative pragmatism.