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by on December 30, 2017
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The tax bill that passed last week made good on a host of Republican campaign promises. But it doesn’t even come close on one that almost every agrees is way overdue: Reducing the complexity of the tax code.

Worse, the fact that the changes to personal income taxes expire in less than a decade, adds long-term uncertainty to all the complexity for millions of American taxpayers.

Complexity and uncertainty, as you can guess, add friction to the economy (that’s been the GOP—and everyone else’s—argument for simplifying the tax code for decades). And ample research from the fields of cognitive psychology and behavioral economics shows, financial complexity, is literally taxing. It depletes our focus, especially our ability to comprehend and identify the best choices for our own personal situation. This occurs whether you’re talking about taxes or investing or mortgage paperwork and has nothing to do with intelligence.

Recent research from neuroscientist Sam Barnett provides a glimpse inside the brain under strain, and demonstrates how increasing complexity degrades our ability to make sound decisions. When we struggle to understand financial issues, we actually suffer from cognitive fatigue.

Then there’s the additional uncertainty and stress the tax bill add to the long-term, hard-to-alter financial decisions many people have already made. Big stuff, like what will my house be worth now that I can’t deduct the whole mortgage interest? Or how will I be able to afford my retirement community if the deductions I factored into my decision years ago disappear?

I have no doubt tax lawyers will do what they always to, and find ways to make all of this work for the people who can afford top-notch advice. Heck, this may prompt millions of us to reorganize as a C-Corp.

But that’s the point. Of all the promises the GOP Congress made, the one that may have had the largest, long-term impact on the country would have been finding a way to reduce complexity and uncertainty, not add to it.

By Elizabeth Harris 

Posted in: Health, Politics, Society
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