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by notahacker 1264 days ago
I think the Faroes being a country with high levels of evenly-distributed wealth and a profitable but not-very-diverse business sector is why they get the luxury of having a simple tax system with limited pressure to add deductions (that and taxes not actually needing to be high enough to cover government spending). Certainly the wealth is more a cause of the tax simplicity than the other way round.

Back of the math envelope suggests the overheads of running their system aren't that low either (the 70m krone budget serves a population of just 54000 people). The IRS budget is closer to $14bn a year, but it serves around 330m people, and nobody accuses the US of being a model of efficiency.
2 comments
kevin_thibedeau 1264 days ago
They're subsidized by Denmark. They wouldn't be able to support their infrastructure projects without outside money.
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geysersam 1264 days ago
About the budgets. Certainly the cost of this kind of systems scales sub-linearly with population size?
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notahacker 1264 days ago
Not sure there are massive economies of scale in tax collection (and probably some diseconomies of scale too from scaling up from the Faroe Islands to a region/nation too big for a single official to know every accountant personally!). Auditing and providing specific advice on compliance is pretty hands on stuff, and as the population size grows, so does the size, variety and geographical dispersal of the entities being taxed, the range of possible avoidance measures, the complexity of legal actions etc. And inevitably, the complexity of the tax code...
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geysersam 1263 days ago
Software systems generally benefit from economies of scale. So do financial institutions. Their tax system is simple enough to be automated to a larger extent than the IRS.

Not sure why this would be controversial at all. You're basically arguing that the more complex system of the IRS is 10x more efficient (population/budget) at 1000x the scale, but that the efficiency is unrelated to economies of scale. It just makes no sense to me. Would the costs go down if the Faroe islands adopted the American tax system?

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notahacker 1263 days ago
I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger considering it handles a lot more complexity and it's seldom regarded as an efficient organization. It's also fairly uncontroversial that labour intensive stuff like auditing businesses and running helpdesks doesn't benefit from particularly significant economies of scale (you spread some software maintenance costs but as you necessarily massively scale up your workforce you acquire inefficiencies from diffusion of knowledge and accountability across a larger, more unwieldy organization and increased management overhead).
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geysersam 1263 days ago
> I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger

According to the numbers mentioned above the per head spend of IRS is 3-5x smaller than the Faroe island equivalent. (Taking into account the currency difference.)

That despite the IRS handling a much more complex system.

How do you explain that?

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