Yesterday, the Senate Finance Committee held a hearing on "Fairness in Taxation." In doing so, the Committee took a hard look at a tax law that currently provides for seven different tax rates on ordinary income and six more on long-term capital gains, that is replete with special interest deductions, preferences, and exemptions, that is written in an unintelligible tangle of limitations, exceptions, and exceptions to exceptions, and then, in both verbal and written testimony, the Committee placed the blame for this confusing, complex morass and the abuses resulting from its construction on.....me.
Well, not me specifically, although that would have been kind of cool. Rather, the Committee blamed tax professionals as a whole, which undeniably (and unfortunately) includes me.
That's right, the Senate Finance Committee believes the tax law is unfair because tax professionals take advantage of the benefits it confers, which is akin to the guy behind the counter at the 7-11 getting pissed off because he was negligent enough to leave eight bucks in change in the "take a penny/leave a penny" tray and you filled your pockets and walked off.
The indignities started with the opening statement by Senator Ron Wyden (D-OR), who said, "Those without access to fancy tax planning tools shouldn't feel like the system is rigged against them." In his written statement, Wyden added, "Today I'm releasing a report that sheds light on some of the most egregious tax loopholes around. Sophisticated taxpayers are able to hire lawyers and accountants to take advantage of these dodges, but hearing about these loopholes make middle-class taxpayers want to pull their hair out."
Now, if you find yourself thinking, "Tony, that's not that bad...Wyden is really just saying we abuse loopholes; he didn't say we create inequity in the tax law," allow me to point you toward the report Wyden referenced, titled "How Tax Pros Make the Code Less Fair and Efficient: Several New Strategies and Solutions."
That's a little needlessly antagonistic, wouldn't you say? Why not just call it, "Hey 99 Percent: Tax Pros are the Reason You Ain't Rich. TIME TO GET EVEN."
The paper itself is fairly tame; it goes on to list six major tax planning strategies employed only by those wealthy enough to procure my costly services-- collars, wash sales, derivatives, basket collars and deferred compensation -- you know, the types of stuff the standard tax pro deals with on a daily basis, and then points out how similarly situated employees down at the cracker factory don't enjoy these same benefits. It's nothing new, and it's 100% accurate. It's just the authors picked the wrong scapegoat.
Don't get me wrong; I share the report's sentiments -- the Code is screwed up. It's a complete mess, rife with loopholes and opportunity for abuse. It does favor those who can afford the type of advisor who can reach deep into the Code's bowels and extract real dollars. But that's sure as hell not the fault of tax pros. We're just working stiffs like everyone else, only as part of our day job, we are faced with the unenviable task of having to make sense of this monstrous miscarriage of legal text, which just serves to make the Senator's accusations all the more insulting.
To point a finger at the tax advisor industry is a red herring. The truth is, the Code got the way it is because very wealthy people lobbied very pliable Congressmen in search of special interests, and those same Congressmen, in desperation to protect their continued place in D.C., fought like hell to protect their most powerful constituents. Unless, of course, you truly believe that Congress enacted Section 280A-- which permits taxpayers to rent a home for less than 14 days during the year and pocket the income free from tax -- because they were worried about Joe Six-Pack, and not their buddies in Augusta who stand to make six-figures over Masters weekend. And if that's the case, I've got some stock in Malaysian Airlines I'd like to sell you.
The fact is, no tax pro that I've ever met was responsible for crafting the unbalanced, broken language of the Code. We're just the ones who have to make sense of it all.
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