Closing loopholes and linguistic parsing

by mo on August 9, 2011

Loophole comes from the Dutch word liupen meaning to peer as in from a slit in a castle wall while staying protected.  From there it gains a meaning a gap, omission, or ambiguity that makes it possible to evade a difficulty or obligation – as in taxes.

So when is closing a loophole a tax-hike? Well of course it is a tax increase to the organization or individual who has benefitted from its existence here-to-date and it is removed. Our tax code is chock full of incentives that made sense to congress and past presidents at some point in time to encourage investment, favored industries or innovation. They have just never perfected a way to close them in the face of lobbyists.

Grover Norquist’s continued linguistic parsing that removing a tax loophole equals a tax hike ignores basic economics, common sense and even the beliefs of the endangered species – the moderate republican. Former Republican Senator from Wyoming Alan Simpson, interviewed on NPR, cut no slack. (OK Simpson is not exactly remembered as a moderate anything, but he is looking that way today in comparison.) Well he did spend 10 months with 17 other members of a bipartisan committee to offer a plan that was completely ignored. (So now we call it a super committee and expect a different outcome? Not if Mitch “there is no compromise” McConnell chooses the players.)

Simpson said of Norquist (and Republican leadership rigid stance on no taxes): “He’ll (Norquist) be irrelevant in a couple of years. Because if you can’t get rid of these tax expenditures, which are just loopholes – they’re really spending by any other name – if you can’t get rid of those and then get a better tax rate, broaden the base, lower the rates, get spending out of the code – all of that is in our plan.”

And: “if we and this government and these congresspersons are enthralled to the AARP and Grover Norquist, we ain’t got a prayer.”

And how about: “The word compromise is not a filthy word. If you can’t learn to compromise an issue without compromising yourself, then you shouldn’t be a legislator.”

Ouch.

Not everyone would agree but there is a reason to use the tax code to provide incentives in the marketplace. The increase in taxes on cigarettes, for example, resulted in a decrease in sales and increased people’s attempts to kick the habit.  The mortgage deduction was put in place as an incentive to increase home ownership. That one may not be looking as shiny and pristine as it once did.

A busted tax code that can make it possible for GE to pay NO corporate taxes in 2010 while the hardworking family who runs a toy, gift, and variety store down the street certainly does pay taxes makes no sense. (They cannot concentrate their profits from sales of school supplies, cards and gifts offshore I guess.) And while GE has increased offshore profits from $15 billion to $92 billion since 2002, they eliminated one/fifth of their US workforce and increased overseas employment. Trust me, the small store has a better job creation record. Hmmm, and much of these tax breaks came from a law brilliantly named, the American Jobs Creation Act.

Our congressional leadership on both sides of the aisle will spend the next months tied up in linguistic loops calling a loophole a tax increase, and a tax break, a job-creating-incentive and ignore the obvious that the majority of America realizes: you cannot cut enough spending to reduce a deficit created by not funding wars for a decade. Tax revenue is down because of the number of people out of work. Any of the unemployed would be most happy to begin paying into the system again in exchange for a job. But they need to know that everyone, including corporate American pays their fair share. To say that the revenue side of things is “off the table” is insane and frankly feeds a notion that the Republicans want to deliberately wound the economy so they can take the presidency. Not sure what they think they will be handing the candidate elected in 2012 or to leaders in the rest of what he see is a very connected global economy.

Seems fitting that loophole comes from a military history. Legislators (both parties) hid under the cover of terrorism and a strong economy to escalate military spending while allocating no revenue for it, whether taken from other programs or through increased taxes. How long did they think the party would last?

Get ready for the best Simpsonism, How painful will it be to get us back on a fiscally responsible path? “It’s going to be like giving dry birth to a porcupine.”

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