Introducing "The Tax Refactor"

A software entrepreneur’s case for simple, fair and durable tax reform of our federal tax code (America’s "Most Expensive Technical Debt")

I have spent twenty years building software. A guiding principle of elegant software design is to resist complexity. Keep the codebase simple, to enable maintainability, reduce regression risk, and mitigate security vulnerabilities. Keep the user interface simple, so customers can learn on their own and reduce training and support costs.

A tax code is a form of technology - basically a collection of algorithms. And yet, how is it that the far more sophisticated technologies in our life (iPhone, Google, AI etc) are so easy to use but understanding and completing one’s taxes - what could and should be way simpler - is so hard? Some of us spend hours wading back and forth between screens in TurboTax: uploading PDFs, typing in numbers from a stack of papers on your desk…and watching your total flip from red (owed!) to green (refund!) like a slot machine. Some of us just pay someone a lot of money to…basically do an esoteric form of data entry. And after all that, we still aren’t sure if it’s right.

What a terrible “customer” experience, attached to what, for most of us, is the single largest expense of our lives and the most important “product” that we use: our citizenship. Americans spend 6.5 billion hours and over $500 billion annually just complying with the tax code. That’s 1.9% of GDP in pure deadweight loss. Not building products, not funding factories, not making anyone healthier. Just navigating the system. If I was in charge of a product with metrics like that, let’s just say I would not be looking forward to my next performance review.

I’ve surprised myself this past year with just how fascinated I’ve become with tax policy. That is not a typo! Our tax system shouldencode our fundamental values as a society into a clean specification and ultimately a simple user interface. This kind of thinking echoes what I’ve done my whole career building products: starting by asking ‘what problems are we solving?’ followed by ‘what system most efficiently solves them?’ And I can’t think of a more important ‘product’ problem to focus on right now. At the risk of a wee bit of hyperbole: the U.S. tax code is the most consequential piece of ‘technical debt’ in the country.

The Tax Refactor is a proposal to overhaul our tax code, built upon four key tenets: simplicity, fiscal durability, economic mobility and innovation (all detailed below). The approach I outline is radical in its means, but pragmatic in its result. There are aspects of what I propose that the political right and left will each like (and not like). I’ve gotten promising early feedback from policy researchers and several politicians.

Why is a Software Guy Writing about Taxes?

I don’t have the usual bonafides to propose detailed tax policies. I’m not an economist, a tax lawyer, a CPA, or a politician. But at this point in my life, I’ve paid taxes from many different angles: low-paid W-2 teacher, high-paid W-2 software executive, independent consultant, startup employee with options, large tech company employee with options, angel investor, founder with an exit, single filer, married-filing-jointly with dependents…I have seen the good, the bad, the ugly…and the uglier.

And I have shipped high impact software for almost twenty years: software used by tens of millions and generating something around a billion dollars of enterprise value. Eesh that sentence is treading dangerously close to doucheyness. I’m sorry, it’s the last one like that, I promise. The last thing I want to do is “Tech-Splain” how to do government. But I do contend that there are principles of good software design and product management that can be applied to tax policy. Experienced product thinkers (like me!) should be in the room when we’re designing our 21st-century tax infrastructure.

Why Now

Three converging dynamics make the current approach to federal taxation unsustainable.

A dire fiscal trajectory. Servicing the national debt now exceeds the federal defense budget and is the fastest-growing major category of federal spending. It consumes roughly 18 cents of every dollar of federal tax revenue, up from about 8 cents a decade ago. The annual deficit is roughly 6% of GDP, well above the 3% threshold commonly cited as a target. Meanwhile, hundreds of billions in taxes owed go uncollected every year, enabled in large part by the very complexity that makes enforcement impossible. If the trajectory doesn’t change, we eventually hit what economists call a debt death spiral: a country borrowing to pay interest on what it already owes, with each rollover demanding higher rates and weaker demand. (For the range of calamitous scenarios, see CBO’s long-term budget projections.)

An economic mobility problem. Only 50% of Americans born in 1984 earn more than their parents did at the same age, down from 92% for those born in 1940. The tax code isn’t the sole cause of this slide (technology, globalization, education gaps all matter), but it’s a major engine that perpetuates it: stepped-up basis, a feckless estate tax, infinitely preferential capital gains rates, to name a few.

The AI transition. Over the next decade, I expect that we will see profound economic shifts due to the advent of AI. AI is already doing work once reserved for stable, well-paid professionals. And these productivity gains risk pooling wealth to even more extreme levels than they are today. Our current tax code does not have the dexterity needed to response to such dramatic changes.

No amount of incremental tinkering (aka “hotfixes”) will address these challenges. We need a bold approach. A refactor.

One more conjecture, more speculative than the first three: the complexity of our tax code is also a quiet driver of our toxic political culture. Most of us have just written off the capacity to really understand how our take-home pay is calculated and what our tax bill will be. When citizens can’t follow the math, they can’t meaningfully debate the trade-offs. So “debate” about the tax code becomes a Rorschach test where everyone retreats to partisan clichés. My hypothesis is that a simpler tax code is part of a path back to a political decency.

The Design Tenets

1. Radical Simplicity.

Every citizen should be able to understand how they’re taxed. The system should be as automated as possible - it’s just numbers and math after all. Simplicity reduces compliance costs, evasion vectors, and enables a more meaningful debate about national priorities.

2. Fiscal Durability.

Reform must measurably reduce the structural deficit. Closing today’s ~6% of GDP gap toward a sustainable 3% will require revenue, spending discipline, and growth. This project will make a meaningful contribution toward this goal, primarily on the revenue side. Revenue-positive reform is essential.

3. Fuel the Climb.

Building new wealth should be easier than compounding dynastic wealth. The system should not create structural advantages that entrench existing fortunes at the expense of economic mobility.

4. Reward Innovation.

Risk-taking and entrepreneurship have genuine social value. The framework must preserve strong incentives to start companies, build businesses, and allocate capital productively, particularly where individual risk is highest and social returns are greatest.

A note on Tenets 3 and 4.

The first two tenets (Radical Simplicity, Fiscal Durability) are design constraints. The last two constraints (Fuel the Climb, Reward Innovation) are in productive tension, a quintessentially American one (dating back to the rich tension between “liberty” (tenet 4) and “the pursuit of happiness” (tenet 3). Anti-dynastic policy, pushed too far, becomes punitive to creative enterprise and capital deployment. Pro-innovation policy, pushed too far, becomes a shelter for entrenched wealth, undermining the chance for the next generation to build something of their own. The framework holds this tension in balance.

The Components (WIP)

1. Lifetime Gains Framework (capital gains reform): A universal exemption on capital gains, with rates that scale up based on cumulative lifetime gains. Replaces today’s patchwork of overlapping capital gains preferences.

Essays 2 - 5 are coming soon and will be linked here once they are released:

2. Income Tax Reform: Eliminate all deductions (including the mortgage interest deduction and SALT), replace the standard deduction with a 0% bracket. Filing statuses drop from five to two. Nobody earning under $250K sees a tax increase.

3. Child benefits consolidation: Consolidate the CTC, EITC, and education tax credits into a single universal monthly payment per child.

4. FICA reform: Ensure long-term solvency of Social Security and Medicare.

5. Universal Savings Account (USA): Replace 15+ tax-advantaged account types (401(k), IRA, Roth, SEP, SIMPLE, 529, HSA, FSA, and more) with a single universal account.

Together, these five components eliminate an estimated 80% of what an individual filer ever has to deal with: the estate tax, the AMT, the NIIT, roughly a dozen capital gains preferences (QSBS, 1031 exchanges, stepped-up basis, carried interest, and more), three of the five filing statuses, the entire itemized deductions stack, the fifteen-plus tax-advantaged account types, and the alphabet soup of child and education credits.

A free country ought to be able to read the system that taxes it. Let’s build one we can.

About This Project

By Matt Sly. I’m a software entrepreneur with twenty years of experience building products used by millions of people.

This project is not affiliated with a political party, campaign, or institution. It is an attempt to apply systems thinking, real-world experience, and honest tradeoffs to a problem that sits at the intersection of economics, equity, and long-term national health.

A few disclaimers

• This is meant to be work-in-progress to invite collaboration and critique, similar to an open source software project.

• This is a structural proposal, not a fully calibrated legislative bill.

• Primarily a revenue-side project, with some modest adjacent cost-cutting (most notably in Social Security). It targets reforms that close roughly half of the targeted deficit reduction, on the assumption that spending discipline and economic growth do the rest.

• All figures are directional ranges developed with Claude AI, not point estimates. Formal scoring by JCT/CBO would be needed for legislative purposes.

• Corporate taxation (corporate income tax, international tax, transfer pricing) is out of scope. Corporate tax reform is deeply intertwined with global competitiveness, trade policy, and entity structure decisions that deserve their own treatment.

• Healthcare tax treatment (including the employer health insurance exclusion, the largest single tax expenditure at ~$300B/yr) is out of scope. Reforming how we tax health benefits is inseparable from healthcare delivery policy, and this project stays focused on the tax system’s structural architecture.

• Feedback, critique, and collaboration are welcome: me@mattsly.com