Capital Gains Tax

Opinion: Everything Is Bad. Blame the Tax Code.

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Taxes are the viscera of American politics, the bleeding guts of nearly every policy proposal. “Simplifying the tax code” has served as State of the Union boilerplate for presidents of both parties, yet somehow it doesn’t get done even in times of unified government. That’s because loopholes are the most underrated locus of political power. Politicians use the tax code to reward their friends, punish their enemies and cut deals with their colleagues. The complexity of the tax code gives them cover to do that without most Americans noticing what’s going on. This creates a silent, extremely potent constituency for opacity, complexity and an ever-growing body of highly specific rules.

When Congress opens loopholes, it’s typically with the intention of shoving Americans right through them. The generous mortgage deduction is intended to increase homeownership. Bumping up the child tax credit is supposed to make more American babies. Cutting the capital gains tax shoves money into the stock market. Anytime you do something to minimize your tax bill, you’re doing what a politician wanted.

Even political fights that don’t look like tax battles on the surface often quickly become the business of the Internal Revenue Service. During Prohibition the ban on the production of alcohol was initially enforced by agents of the Treasury Department — “revenuers,” they were called. The bill of impeachment against Richard Nixon cited his alleged efforts to cause “income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner.” And in 2012, the Supreme Court saved the Affordable Care Act by ruling that the penalty for not carrying insurance was actually a tax.

All of that means that when it comes time for Republicans to make good on their years of promises about tax reform, they freeze up. Because they like being able to manipulate people, institutions and industries via the tax code.

This is not entirely Donald Trump’s fault (for once). The Republican Party’s allergy to closing loopholes predates his presidency. Since 1986 — the last serious, successful effort to simplify the tax code — being a signatory to Grover Norquist’s Taxpayer Protection Pledge has been the cost of admission into civilized Republican society. The pledge binds signatories to oppose all increases in marginal income tax rates for individuals and businesses. It also requires that they oppose the elimination of deductions and other loopholes unless increased revenue is offset by reductions elsewhere. What the pledge very carefully does not ask signatories to do is to cut spending.

In other words, nearly all Republican members of Congress have signed a deal that makes it politically unappealing (though not impossible) to eliminate loopholes. It allows them to wear the badge of fiscal conservatism without cutting spending. At the end of all those decades of distortion: the new Republican tax plan, with its cuts in the corporate tax rate, an increase of the standard deduction, some fiddling with income tax rates in different brackets and absolutely nothing in the way of simplification, rationalization or believable revenue neutrality.

Rumor has it that Mr. Trump felt pretty strongly about naming the bill the Cut Cut Cut Act. This is consistent with the fiscal plank of nearly every Republican primary contender, best summed up as “cut taxes first, ask questions later.” In fact, the bill is called the Tax Cuts and Jobs Act, but the sentiment is there.

There are quite a few Republicans who have made no secret of the fact that they’re holding their noses and working with Mr. Trump in order to get tax reform. The House speaker, Paul Ryan, as sincere a fiscal reformer as one can hope to see in leadership, was described as saying last week that he and the House Ways and Means Committee were “turning the dials” on the plan. By strategically phasing out certain provisions and plugging in optimistic growth estimates, the Republicans might get the math to work on paper. But in reality, no one seemed to know where the offsetting hundreds of billions in revenue will come from, and for every door the plan closes, it opens a window.

Everyone lies to the tax man, knowingly or unknowingly. That’s why howling for the president’s tax returns is an ever-present background noise in the nation’s capital: Reporters know there are likely to be exaggerations, bold deductions and envelope-pushing maneuvers aplenty in there, because they’ve done the same on their own returns.

People hate taxes because they hate to be pushed around. But politicians love taxes because it’s their job to push people around, and taxes are a powerful tool to do just that. A “tax return you can fill out on the back of a postcard” — long promised by the Republican Party — would essentially be a decision by the political class to unilaterally disarm itself. And that’s not going to happen.

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Wendy Pettit

Wendy Pettit is a writer for NYT and writes for other publications on her spare time. She lives in Chicago with her husband and her dog Zuko.

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