Wednesday, October 24, 2012

Tax Loopholes

It seems to me that there has been an overuse of the word loophole lately.  In terms of taxation, a loophole is an unintentional ambiguity or omission in the law that allows people to reduce their taxes.  The key word here is unintentional.  If the government creates a tax deduction, it is intentionally expressing that it's citizens are allowed to take the deduction.  The same is true for the different tax rates that the government established for ordinary income, capital gains, section 1231 property, etc.

So basically what I'm getting at is that deductions for charitable donations, mortgage interest, state/local taxes paid, employee contributions to retirement accounts, accelerated depreciation, and the domestic production deduction are not tax loopholes.  The exclusion from taxable income of employer contributions to retirement accounts and exclusion of employer provided health insurance are not loopholes.  The lower rate on capital gains are not loopholes. These are all things I have seen in various articles referred to as loopholes.  By definition they are not.

Now I'm not saying that all of these things are sacred cows.  I'm only suggesting that we have an honest discussion about such things without all the psychological trickery.

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