OCTOBER 28, 2021 – I’m not a tax lawyer, but throughout my career I’ve had more than a passing brush with tax law. Currently, I’m working on a protracted deal with lots of “tax angles,” and to my consternation, the tax accountant I work with characterizes these angles as “complicated.” Over the years, I’ve developed a cautious respect for tax specialists. It seemed that whenever I consulted anyone in the tax department of my old firms, the standard response to any tax question was, “It depends.” Such is life on the cutting edge of tax avoidance.
The Internal Revenue Code is now at front and center stage as Congressional Democrats attempt to raise dough for their massive social-spending bill. It gets down to taxing the super-rich. I’m not sure how taxing a few hundred billionaires translates to a thousand billion dollars, but it ought to be a winning political strategy. From the standpoint of addressing a serious national problem—extreme disparity in wealth—increasing taxes on the super-wealthy is a critical move in the right (er . . . left) direction.
Lost, however, in the effort to raise revenues and level the playing field is the need to reduce the complexity of “the Code.” Over the decades, our tax laws have become a big, hairy monster, as revealed by “Exhibits A, B, and C.” Exhibit A is the Code itself—all 2,652 pages of it. Exhibit B are the regulations—9,000 pages worth—promulgated under the Code. Exhibit C? Thousands of pages of letter rulings and case law interpreting Exhibits A and B.
Then there’s Exhibit D: an entire industry of tax lawyers and accountants who devote their entire vocational lives to understanding Exhibits A through C and helping clients minimize the dollars they must pay under those exhibits.
The complexity of tax law reflects a uniquely American problem: electoral campaign finance. Because of how we run our elections, big money is required to win. With each election cycle campaign spending grows. From 2016 to 2020, total spending (adjusted for inflation) on presidential and Congressional campaigns doubled, from $7 billion to $14 billion. This money comes from a narrow slice of the electorate, and it’s not “free.” It comes with strings attached in the form of policy influence, and it’s bolstered by over $3 billion in federal annual lobbying spending.
For generations, industry groups and other special interests have sought advantage via the tax code. One of the most enduring groups is the real estate industry—builders, developers, investors. As a result, we have a Byzantine tax structure that by contrast makes a jet engine look like a few twisted rubber bands.
In addition to raising dough and reducing wealth disparity in America, we need to simply the tax code. That in turn, requires that we get big money out of politics. Ultimately, the considerable brain power among tax professionals can then be diverted to economically more productive pursuits, further boosting GDP.
As is the case with every complex issue in a democracy, after lots of talk, we need to act.
(Remember to subscribe to this blog and receive notifications of new posts by email.)
© 2021 by Eric Nilsson
