“Over the years the tax code has become a hodgepodge of special rules designed to alternatively shield or tax veterans, companies, preachers, singles, the self-employed and so on…”
President Trump unveiled the framework of his tax reform plan last week and congress is still debating the details. The outlines of the plan include simplifying or eliminating many of the deductions, lowering the corporate tax rate, and doubling the standard deduction for singles and married people. The plan has inspired the usual arguments from liberals such as it being a tax break for the wealthy.
The debate has also centered on eliminating tax deduction, as this could possibly hit many middle class tax payers but keeping it acts as a federal subsidy for blue state governments. I find it especially ironic how liberals will spend money on anything and everything, but they suddenly become fiscal conservatives when tax cuts might add to the deficit.
It isn’t illegal or perfidious to follow the laws given to minimize the amount of taxes they pay, even if big business and the wealthy can afford an army of lawyers to find those tax breaks while the average citizen can’t…
As this debate rages on it’s important to consider how politicians might mask their true intentions. In particular, politicians like to use the word loophole to give themselves moral authority to change the tax code. Loopholes are really just laws that companies follow. Just like water naturally flows down and not up, businesses and people naturally take the course of least resistance to protect their money.
It isn’t illegal or perfidious to follow the laws given to minimize the amount of taxes they pay, even if big business and the wealthy can afford an army of lawyers to find those tax breaks while the average citizen can’t. But for politicians, “we’re going to change the tax code because too many people are following the law” doesn’t quite create the same impetuous for change.
Using the word loophole implies some sort of wrong doing. When it’s done by big and powerful corporations to pay very little in taxes it makes it look like they are exploiting the tax code out of their own greed. This of course inspires moral outrage among the people and politicians then jump into the breach to satisfy that outrage by changing laws. What is left out by politicians is that the loopholes were probably written into the tax code in the first place because of similar outrage.
Over the years the tax code has become a hodgepodge of special rules designed to alternatively shield or tax veterans, companies, preachers, singles, the self-employed and so on to the point that even the Treasury Secretary and Secretary of Defense can’t figure out their taxes. (I got a very fun call from my ex wife on tax day one year because I made a very critical mistake that affected her taxes. I was only surprised that didn’t happen every year.)
The tax code is so complicated it’s easy to make a case for simplification. I’m glad that they are trying to fix it. But politicians go a step further and try to add moral power to their case by using the word “loophole” when those are simply laws added by Congress and followed by companies. The public should be aware of this so that politicians can’t manipulate the people into fixing some loopholes to satisfy public outrage, while creating many more at the same time to also satisfy public outrage.
Just like the word “investment,” the people should take an extra hard look at the proposals from any politician claiming to end loopholes.