fan_from_texas;827341 wrote:Serious question: what constitutes a "loophole" in your mind? Are all deductions loopholes? When I think of a loophole, I think of something having an unintended and unforseen consequence that people take advantage of (e.g., the black liquor tax credit). But if Congress says, "We want people to give to charity. We believe there is value to giving to charity. Therefore, we determine that people can deduct their charitable contributions." Is that a loophole?
I'm just trying to figure out if you're wanting to eliminate all deductions, or if you just want to eliminate some of them. If so, which ones?
"Loophole" is a bad term to use. Some are worse than others as you point out as there can be real traps for the unwary, etc. and I think that's what you mean. I don't mean to speak for I wear pants but I think he's talking about general types of deductions which may deviate from tax norms. The correct economic term is tax expenditure and they are embedded throughout the code and distort economic activity. The definition of a "tax expenditure" is "government spending through the tax code." In effect they are really just an inefficient form of government spending. I'm sure you know all of this.
You're right, there are some tax expenditures that are desirable such as perhaps the charitable deduction. But, you're a reasonable conservative and not all government spending or subsidies or tax expenditures are always and forever bad and of course you know this. But, much of the Republican Party has taken the approach that nearly all government spending is always and forever bad and therefore if they cared for coherence they would feel the same about tax expenditures but they do not. The reason we have so many in the first place is because democrats never found something they didn't want to spend money on and republicans have never found a "tax cut" they didn't like and they only have to pass through two committees unlike direct appropriations spending.
But, the point is, if indeed we're going to make austerity the national approach as both democrats and republicans have chosen (incorrectly in my view as interest rates are still in the basement and unemployment is disastrously high and contracting demand through both tax raises and spending cuts now will only make things worse and Moody's essentially said as much but that's another topic...), if you're going to say that you want to "cut spending" as the Republicans have chosen, it is incoherent from a tax neutrality norm perspective; which is generally the conservative approach to tax policy; to declare the elimination of certain tax expenditures that deviate from tax neutrality and income tax norms as "off the table" and use them as reason not to agree to trillions of dollars in spending cuts, and storm out of the room like Eric Cantor did when from an economic perspective they are essentially the same.
Republicans talk about getting rid of non-essential spending...it is not essential to preserve the tax expenditure subsidizing the expensing of intangible drilling costs when we could more align with pure income tax norms and allow such costs to be recovered over their useful lives just like every other company does and save $8 billion dollars over ten years. Yet, even though this is more like targeted government spending and would be a perfect nonessential to be cut and eliminate inefficiencies in our tax code....they throw up their hands and say "don't tax the job creators" even though if they were to cut a block grant to firms incurring intangible drilling costs would be essentially the same and would be lauded because it's a "cut in spending."
The thing about Private Jets that BHO is talking about is that they've offered to have private jets be depreciated over a 7-year schedule (as is the case with general aviation) instead of a 5 year schedule changing the distortion created in 1987...make them be depreciated just like every other plane...it only saves $3 billion dollars but "every little bit counts" as the Tea Party always says and Conservatives draw a line in the sand even though it causes a real economic distortion by encouraging firms to invest in private rather than commercial airfare even if it might not be a good business decision. If a firm chooses to invest in a private jet they shouldn't do so because of depreciation schedules but because of a genuine business reason.
Those are just a couple examples but in my mind it's not about what tax expenditures to cut right now because before you can even get to that you have to get to the point where republicans will acknowledge their inconsistent worldview....it's more so in my opinion about the
totally incoherent normative foundations of nearly everyone with political power and an R next to their name in that all they care about is cutting spending but refuse to cut the worst and most inefficient kinds of government spending...they same kind of inefficient government spending that Obama riddled his garbage of a stimulus bill with...yet they call them "tax cuts" in this context but "spending" in that stimulus context. The dems are wrong in my view for trying to cut the deficit now but at least they seem to understand that government spending in the tax code is still government spending.
rioritizing” payments from available funds and ensuring that bondholders get the principal and interest payments due them