CLOSE TAX LOOPHOLES

A Good Idea, Right?

We hear it all the time: "Close Tax Loopholes!"  There's even an apparently anonymous campaign urging just that, right here in my own state.

Most people nod their heads in agreement with that sentiment.  After all, it would be only fair, right?

Not so fast.  Before we can close a tax loophole, we have to know what a loophole is.

Easy, some people think.  A loophole is any legal way to avoid paying taxes.

Okay, let's examine that.  Let's say that you own a home - or, more accurately, own a home mortgage.  You pay $$$$ every month on that mortgage.  Most of that money goes toward the interest you have to pay, and the rest against the principal of the loan.  Luckily, though, you get to deduct the interest you pay every year - or, to be exactly correct, you get to deduct your tax bracket's worth of that interest - when you file your taxes.

By our definition, that's a loophole.  Should we close it?

No?  Then we need to re-define the word 'loophole.'  Either that, or change our objective to something like "Close SOME tax loopholes."

Now that's something your Ostrich Killer can get behind.  I want to close all those loopholes that don't benefit me.  And there, o gentle reader, is the rub.  That's what EVERYONE who says 'Close Tax Loopholes' wants.

Which 'loopholes' benefit me?  Any loophole that drives down the cost of goods and services does.  For example, Big Oil gets exploration cost deductions.  If they didn't get those, the cost at the fuel pump would be higher.  Anything made of plastic would cost more.  Small businesses get to deduct much of their start-up costs.  If they didn't, many of them wouldn't start up.  If they didn't start up, their goods and services wouldn't be available to me. 

Here's a loophole I could close happily:  the dependent child deduction on personal income taxes.  All my children are grown, so I don't have that deduction available to me.  So you shouldn't either.  It would only be fair, after all.

Back to that campaign in my own state.  Those road-side signs also say "Put our families and kids first."  Not sure how closing loopholes helps families and kids, but I can guess that means removing loopholes from business taxes.  What happens if we do that?  The businesses will be faced with suddenly far less profit.  What do you think they'll do about that?  Pick one or more of the below:

1. Raise prices.
2. Reduce overhead and number of employees.
3. Go out of business.
4. Move to another state- Texas? - or country.

Will families and kids benefit from any of those outcomes?

The point to be taken is that loopholes are often necessary.  Think of them as tax incentives, meant to encourage certain kinds of fiscal behavior.  Without them, or at least some of them, that behavior would not be readily undertaken.  In most cases those tax incentives were written into law ON PURPOSE to encourage that sort of fiscal behavior.

So to put families and kids first, it would be prudent to think twice about closing tax loopholes.

This has been a public service announcement by your Ostrich Killer.  

You're welcome.  Now down to the boat.