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Comment by cwan | Hacker News Reader

Small businesses do spend increasing amounts on tax accounting and legal. There's a very real and tangible cost to complexity in both regulations and taxation.

"No. That would be stupid. It has nothing to do with my argument." You're right it would be a stupid argument except according to you, a job is a job. Not sure how it's even a tenuous argument to point out that reducing friction increases jobs as it not only frees up people who have to navigate the complexity - ie the tax accountants and lawyers to doing something more productive but it also reduces the costs of compliance for companies themselves. The US tax code is now over 16500 pages with non-compliance a criminal offense.

I find it remarkable that you don't think there's an increasing cost to this compliance. Ask just about any internal accountant or anyone in a position of leadership and they'd tell you differently especially over the last 15 years.

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"reducing friction increases jobs as it not only frees up people who have to navigate the complexity - ie the tax accountants and lawyers to doing something more productive"

Har. Yes...because if we reduce the complexity of the tax code, somehow, droves lawyers and accountants (who chose to do what they do, and spent years training to do it) are going to switch to "productive" jobs.

I get it. You don't like lawyers and accountants. But I think you need to separate your judgments of these jobs from the reality that these people do productive work that is clearly valuable -- even outside of the need for tax code compliance. Lawyers and accountants are not going away.

"I find it remarkable that you don't think there's an increasing cost to this compliance."

I didn't say that. I said that small businesses don't spend that much on compliance relative to all other factors, and that I'm therefore skeptical of the claim that reducing tax code complexity will increase jobs in any substantive way.

Har. Yes...because if we reduce the complexity of the tax code, somehow, droves lawyers and accountants (who chose to do what they do, and spent years training to do it) are going to switch to "productive" jobs.

There are legal and accounting tasks to be performed in any company that are not related to tax and regulatory compliance. Lawyers will still be lawyers, and accountants will still be accountants, but instead of working (indirectly) for the government doing nothing that provides value to consumers or the business, they would be working on things that are of value to consumers or the business. Contracts need to be written and negotiated, books need to be kept, projections need to be made, copyrights and trademarks need to be defended, etc. These things make our world run smoother, and our economy grow, and helps small businesses defend themselves against larger incumbents, and helps them plan and finance growth.

We're talking about a baroque tax code and regulatory environment for business. This cost is relatively higher for small business than large business (because large business has full-time legal and accounting staff, while small businesses must outsource or do it themselves, poorly, and at the expense of productive expenditures of money or time).

I'm, frankly, stunned that you believe that small business "don't spend that much on compliance". I spend about two days a month on it for our three-man company; that's more than 13% of my productivity gone to keeping us out of trouble with the government. Given that the other two people are part-time employees, it's about 6% of our entire available work. You consider that small, when it does nothing for our business' growth or for our customers? When added to the actual taxes we pay out, it's a wonder any small business can get off the ground while staying legal.

Note that while I'd also enjoy seeing small business tax obligations reduced, I'd be extremely happy to see reduction in the complexity of paying those taxes at both the state and federal level. If I can put off employing lawyers and accountants (who make more money than I, as CEO, currently make, lawyers, in particular, who make more than I've ever made even when I was a well-paid contractor) for another year, that'd allow me to grow faster, and hire another employee this year.

And, of course, if it means lawyers don't work quite as much, and have to put off buying that new BMW for another three months, I think I can live with that.

"I'm, frankly, stunned that you believe that small business "don't spend that much on compliance". I spend about two days a month on it for our three-man company; that's more than 13% of my productivity gone to keeping us out of trouble with the government. Given that the other two people are part-time employees, it's about 6% of our entire available work. You consider that small, when it does nothing for our business' growth or for our customers?"

I consider it far less than a single full-time job, or even a part-time job. Even if you could eliminate all of this overhead (which you can't), you wouldn't be able to hire a new employee with the savings.

Look, if you think my argument is that the tax code shouldn't be simple, you're not reading me correctly. Low compliance costs should always be the goal. But when Mark Cuban says "reduce small business taxes to fix the economy", I think he's wrong. It won't move the needle on hiring, because in 99% of the businesses that matter for employment, hiring is limited by consumer demand, not corporate taxes.

'But when Mark Cuban says "reduce small business taxes to fix the economy", I think he's wrong.'

He did not say that. He called for a simplification of the tax code and easing the regulatory environment, not for lower taxes.

You have to be able to read between the lines. "Dramatically streamline the tax code" is classic political double-speak for "flat tax", which means the elimination of most forms of taxation on US corporations. Much of the "complexity" of US tax code is part of the long legislative history of closing tax loopholes that large businesses have successfully exploited to escape taxation in the past.

But even if you don't take my word on this, he actually does call for tax cuts in the post:

"Make capital gains on investments up to $1mm in small companies tax free"

This has nothing to do with "streamlining" the tax code. Cuban wants the ability to invest in hedge funds and other "small businesses" without paying capital gains tax on the profits, and he's framing it as a way of "encouraging investment" in the mom and pop store down the street (who will never, ever be assisted by this kind of a policy change). In reality, Cuban is proposing yet another loophole that would be used primarily by rich people and large corporations to escape taxation.

So why not just make it so complex that every business needs to hire 100 accountants to overcome the red tape? Under your theory this seems like a plausible way to eliminate unemployment.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

It's not a dislike of lawyers/accounts it's a desire to make things more efficient. Every cost that is paid is a lost opportunity to grow the business in a more productive direction. Even small losses in investment over time can make large differences.

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