The Absurd Cost of Complexity

By Kevin Meyer

Lean folks are naturally tuned to recognize unnecessary complexity, and most of us know the largest cost in a manufacturing operation is usually not traditional material, labor, or overhead.  It's unnecessary complexity.  Archane and overbearing bureaucracies driven by a lack of trust fueling a lack of creativity and accountability.

Complexity is costly.  This week we once again came face to face with one form:

Not only the absurd length, but last year alone there were 579 changes – more than one a day.  Only companies the size of GE can employ enough green eyeshade types to keep ahead of it – and legally take advantage of it – for which we castigate their genius and investment.  What's the real culprit?

The cost?  Try $431 billion annually to stay ahead of the changes, complete the forms, comply, and enforce.

In a study published last week by the Laffer Center, my colleagues Wayne Winegarden, John Childs and I estimate that these costs alone are a staggering $431 billion annually. This is a cost markup of 30 cents on every dollar paid in taxes. And this is not even a complete accounting of the costs of tax complexity.

A 30 cent markup – or loss to the overall economy depending on how you look at it.  How much are we trying to save with the budget shenanigans of both the left and right?

David Keating of the National Taxpayers Union provides a useful perspective on how big the tax compliance industry is. According to his research, as of 2009 the income-tax industry employed "more workers than are employed at the five biggest employers among Fortune 500 companies—more than all the workers at Wal-Mart Stores, United Parcel Service, McDonald's, International Business Machines, and Citigroup combined."

Simplifying the tax code should be a top priority. Regardless of the reform approach taken, the U.S. economy will be enhanced greatly by significantly reducing the complexity of the current tax code. In a time of global economic competition, we cannot afford the luxury of a Byzantine tax system.

There's some money for you, in case you're looking.  Anyone want to bet on whether there will be changes?  Nope, raising taxes, slashing programs, or simply going further into debt is far easier.

But what really tweaked me a bit today was an article in the local paper on a large-scale solar energy project.  We all want alternative energy, but we make it exceedingly difficult.  Two different companies have proposed large projects in the wild empty sunny plains a few miles from here.  The first got shot down quickly because some rodent habitat wasn't effectively addressed.  The second finally, finally got approved.  Sort of.