Martin Sullivan at Tax Analysts loses hope that the Obama administration will attempt tax reform:
It wouldn’t be so bad if Obama simply remained a lackadaisical supporter of tax reform. But his proposals are actually moving us in the opposite direction. As the election approaches, he and his advisers are feeling the need to dish out new tax breaks. So the president who on national television shouted at Congress to “get rid of the loopholes” now wants to add a bunch of new loopholes of his own.
Instead of cleaning up code and lowering rates, we see a batch of focus-group inspired tax breaks:
Just as with Clinton’s parade of tax breaks, the growing list of Obama’s special benefits includes features that are absurdly complex. The president wants to double the tax deduction currently available to manufacturing in the case of “advanced manufacturing technologies.” It has been difficult enough to figure out how to differentiate manufacturing from other businesses under section 199. What in the world is “advanced manufacturing technology”? Are we talking about technologically advanced production processes or about technologically advanced products? If a product or production line includes advanced technology, is the entire product or production line eligible for the benefit, or just the components with the advanced technology features?
The questions are endless. There will certainly be major disputes between the IRS and taxpayers. We can add a nice, new chapter to the book on everything we hate about tax law.
Unfortunately the tendency to make the tax law more difficult to enact pretty-sounding tax breaks isn’t confined to Washington. While the President and the Governor of Iowa are from different parties, they both are proposing to jerry-rig new narrow breaks to an already byzantine tax law. In Iowa, ESOPs are the flavor of the month. And, of course, special tax breaks do more harm than good. From Mr. Sullivan:
Only in exceptional circumstances do violations of tax neutrality promote growth. Just because these tax breaks are well intentioned and targeted to sympathetic causes does not make them exceptional.
Iowa, with the nation’s highest corporate rate and one of its most complicated tax laws, would do much better with simplicity and lower rates — with the Quick and Dirty Iowa Tax Reform, for example.
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UPDATE, 2/8: Free link to Sullivan story at Tax.com.