Tax Breaks in the Tax Code

[shmokes]

Excellent interactive infographic on tax breaks in our tax code

My first instinct was to post this in Politics n Religion. But then hardly anyone would see it. And that would just be a shame because there's nothing overtly political about these facts, but they're super interesting. And I doubt there's anywhere in the world where this information can be had so easily and comprehensibly. This is 100% policy, not politics. If you're inclined to discuss this information and how it bears on the election or relates to the political parties, go talk about it in PnR.

[Samstag]

I don't see much there to discuss.  It seems obvious that changes in tax law are used by both parties to either encourage or discourage certain behaviors.  There will always be people who think every change is either fair or unfair, depending on how it affects them personally.

It's important for everyone paying taxes to understand which breaks they can use to lower their bill.  The IRS even encourages "tax avoidance".

[shponglefan]

Maybe I'm being overly pedantic since I work as a tax accountant, but tax loopholes and tax breaks aren't the same thing.

[drventure]

It seems obvious that changes in tax law are used by both parties to either encourage or discourage certain behaviors curry favors for and political contributions from special interest groups.

Fixed that for you   

[Gray_Area]

It seems obvious that changes in tax law are used by both parties to either encourage or discourage certain behaviors curry favors for and political contributions from special interest groups.

Fixed that for you   

Now that's politics. Always has been. But it's really based in social behavior. It's biological.

[shmokes]

Maybe I'm being overly pedantic since I work as a tax accountant, but tax loopholes and tax breaks aren't the same thing.

No, that's a good point. They're miles apart. Thanks for catching that. Fixed.

[SavannahLion]

Forgive me here, but how are loopholes and breaks that different?  The former is legal by omission and the later is legal by inclusion. It seems to strike me that such.... events (is that the right term) are so thoroughly scrutinized that neither is missed by those who write them. In either case, the net effect is the same and they're closed or removed when enough people squawk about them. 

[shmokes]

In short, a tax break is a benefit Congress intended to give; a tax loophole is a benefit an individual or corporation obtains by exploiting the code in a way that was not intended by Congress.

[drventure]

When we moved for jobs a few years back I wrote most of the expenses off.  Completely legal.  Turbo Tax walked me through it. 

I'm pretty sure all those are gone. I work from home, and doing so has always been a big help in terms of taxes. However, 2011 saw almost all those benefits disappear. You'd have to spend SO much in home office expenses that most people I know won't qualify anymore.

I just think that it's absolutely insane that the average citizen (who is expected to pay taxes), really can't possibly know enough to do so properly and in a reasonable amount of time given the current tax code. It just about +requires+ a program like TurboTax or hiring a professional. That just shouldn't be a requirement to pay your taxes.

Yeah, yeah, I know, there's plenty of things that, as a citizen, if you want to do, you'll likely have to hire a pro. I just think paying taxes shouldn't be one of them.

[Gray_Area]

I just think that it's absolutely insane that the average citizen (who is expected to pay taxes), really can't possibly know enough to do so properly and in a reasonable amount of time given the current tax code. It just about +requires+ a program like TurboTax or hiring a professional. That just shouldn't be a requirement to pay your taxes.

If not familiar, you might find the history of the income tax very enlightening.

[SavannahLion]

In short, a tax break is a benefit Congress intended to give; a tax loophole is a benefit an individual or corporation obtains by exploiting the code in a way that was not intended by Congress.

I see.... I've always been under the impression that, in either case, those writers already know about it no matter how it's written. I see that it's the intent of the law. But then again, after being tortured with some of those "intent" docs, one has to wonder what is their intent half the time.... 

[ChadTower]

It is plausible that a lot of those loopholes are the result of writing laws without understanding their full implications.  Tax code is so complex that it takes a dedicated professional to understand.  It only takes a bunch of stupid ---uvulas--- in Congress to change tax laws.  It isn't surprising that there are unintended loopholes.  It is surprising that they aren't larger and more common.

[shmokes]

I think the reason they're not more common is that the process of auditing leads to the loopholes being plugged usually within a few years. Clever corporations and individuals exploit ambiguity in the text, but when they get called on it in an audit, the IRS rolls their eyes and the ambiguity is soon clarified in an amendment to the Code.

[Samstag]

I think the reason they're not more common is that the process of auditing leads to the loopholes being plugged usually within a few years. Clever corporations and individuals exploit ambiguity in the text, but when they get called on it in an audit, the IRS rolls their eyes and the ambiguity is soon clarified in an amendment to the Code.

Can you name an example of that ever happening?

[ChadTower]

I think the reason they're not more common is that the process of auditing leads to the loopholes being plugged usually within a few years. Clever corporations and individuals exploit ambiguity in the text, but when they get called on it in an audit, the IRS rolls their eyes and the ambiguity is soon clarified in an amendment to the Code.

Can you name an example of that ever happening?

It is state rather than federal taxes but it may have happened in MA this year.  People who work in RI but live in MA are forced to pay RI TDI (Total Disability Insurance) as a withholding.  The problem is that it was not being credited to MA as a "tax paid to another state" because they considered it a benefit.  This year the MA Dept of Revenue "reinterpreted that ruling" and decided that the RI TDI is in fact a tax paid to a different state and should be credited when your MA return is filed.  This means that all MA residents who work in RI can file amendements to our MA returns for the years 2008 and up in order to receive a refund of that money.


The stupid part is that they gave us like 4 weeks to file the 2008 amendments because it was about to hit the statute of limitations.  So a whole ton of us filed that 2008 amendment right away.  My result?  "Partially approved but mostly denied.  Reason:  not given.  There is no appeal process for this type of amendment."


So, while they SAID there was a "reinterpretation" of the code, the end result was that once the amendment was filed they had the right to say horseshoes and hand grenades with no reason and no recourse.

[shmokes]

I think the reason they're not more common is that the process of auditing leads to the loopholes being plugged usually within a few years. Clever corporations and individuals exploit ambiguity in the text, but when they get called on it in an audit, the IRS rolls their eyes and the ambiguity is soon clarified in an amendment to the Code.

Can you name an example of that ever happening?

It's happened a ton of times. But off the top of my head, the loophole to get around the "marriage penalty" by obtaining a divorce in a foreign country in December and remarrying in the U.S. in January was plugged a few years after it began to be exploited. If you think about it, of course it happens. There's no way congress could write the entire code without making errors. The errors are found and rooted out over the years. Of course it works like that. And, of course, the Code is expanded in various ways too, which means new errors. And those are then rooted out as well.

[kahlid74]

On those lines Check out this article - http://economix.blogs.nytimes.com/2012/09/15/tax-cuts-and-economic-growth/

    The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.

    The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

    However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

Here's the Congressional Report where they got their summary from - http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf

[Howard_Casto]

"I like to pay taxes. It is purchasing civilization" — Oliver Wendell Holmes

“Taxes, after all, are dues that we pay for the privileges of membership in an organized society” – Franklin D. Roosevelt

“Rich bachelors should be heavily taxed. It is not fair that some men should be happier than others” — Oscar Wilde

“A tax loophole is something that benefits the other guy. If it benefits you, it is tax reform” — Russell B. Long

“The best measure of a man’s honesty isn’t his income tax return. It’s the zero adjust on his bathroom scale” — Arthur C. Clarke

[shmokes]

All the best quotes in the world are Oscar Wilde's

[Gray_Area]

All the best quotes in the world are Oscar Wilde's

There is (and perhaps was intentional?) irony to that one above. I promote his early enthusiasm in:

Aestheticism (or the Aesthetic Movement) is an art movement supporting the emphasis of aesthetic values more than socio-political themes for literature, fine art, music and other arts.