Thursday, December 6, 2012

Loopholes and Entitlements


What do you think of when someone uses the word “loophole”?  Odds are it’s something negative.  You could say Ryan Braun beat the steroid charge because of a loophole.  A loophole in the law to most people means it’s a way around a law, clearly defeating the intent of the law.  If you ask most folks what a tax loophole is, they’ll tell you it’s a way to get out of paying a tax that other folks pay.

Closing a loophole is almost always regarded as a good thing.

But in the political lexicon of 2012, we’re now hearing a lot of politicians use the word “loophole” to describe a fully lawful, long-established tax deduction.  Like home mortgage interest.   Kind of like they use the word “entitlement” when talking about Social Security, lumping it in with SNAP (food stamps) and other dog-whistle terms that get the Tea People all wound up.

When I hear politicians talk about closing tax loopholes, I’m never sure what they mean because they’ve so muddied the term “loophole” the way they muddied the term “entitlement”.  Don’t tell somebody who paid into Social Security every paycheck for 45 years that it’s an “entitlement” program, unless you want to get a stern lecture about your use of the word.

Now they’re talking about closing some tax loopholes, so the nation doesn’t fall off the “fiscal cliff” (another one of those annoying political terms).  To the typical American dweeb, who wouldn’t know a Schedule A if it bit him on the butt, it sounds like a good thing.  You betcha – close those loopholes that the rich use to get out of paying taxes!  The vast majority of Americans use the 1040ez form and nearly three-quarters of all Americans now file their annual income taxes electronically.  If you use the 1040ez, you can’t itemize your deductions.

I’ve never used the 1040ez form.  There have been quite a few years when my wife and I filed a tax return over a hundred pages long.  Every year, our tax guy, Marshall Mennenga, helps us figure out how much we should be sending in for estimated quarterly tax, and he and his staff do all the heavy lifting every year in January when we provide him with the stuff he asks us to keep track of, and one of the things we keep track of is how much home mortgage interest we’ve paid in the past year.

Deducting home mortgage interest is not, as I see it, using a “loophole”.  Home ownership is a good thing, and one of the many ways the government encourages it, is to allow you to deduct your mortgage interest cost.  Home ownership, for most people, is the foundation of the American Dream, and the home mortgage tax deduction helps a lot of people afford to become homeowners.

Don’t call my home mortgage interest deduction a “loophole” unless you want an on-the-spot rant from me.  And don’t get me started on Social Security….

7 comments:

  1. Tim...as usual, an excellent piece dealing with a current issue...when I read about loopholes and entitlements, I too have a difficulty understanding what exactly is being referenced when the words are used by politicians and news people...I sure would like our Senators, Ron Johnson, Herb Kohl, Tammy Baldwin and our congresspeople to be explicit to their constituencies when speaking of loopholes and entitlements...what is Social Security to each of them, what is a mortgage tax deduction, what is a tax credit for M&E?...if they would define more precisely exactly what the loophole or entitlement means to them as a person might help in a better working arrangement with their colleagues..imagine that, understanding and agreement with concessions to achieve a goal acceptable to a majority of the electorate/people in this great Nation..it can be done,......I believe!

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  2. The Republicans have been rather loose with the term 'entitlement.' To us cynics, all that means is that they are TRYING to lose this battle.

    Remember that Nixon was the one who eliminated the interest deduction for auto loans (and any other non-investment loan.)

    And the child-credit is not a loophole, either; I happen to think that children are a helluvalot more important to the country than 4,000 square foot houses, but that's just me.

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    1. I recall Nixon nixing the car-loan interest deduction...the credit-card interest deduction...all that stuff. And Reagan did away with income-averaging in 1986, a "loophole" which benefitted my situation at the time - my '86 income was WAAAAY above my '85 income, and I wound up shelling out a lot more to the taxman.

      Geez, at 2800 square feet and only two kids, I feel like a piker, Dad....

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  3. Yah...in about that timeframe (mid '80's) I managed to break into the Alternative-Minimum-Tax crowd. That was the beginning of awakening....

    NEVER AGAIN!!

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  4. AMT was signed by Reagan. It built on a predecessor minimum-tax law signed by Nixon. Just sayin'

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