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December 24, 2014

The Emperor's New Taxes

Well, it’s here again. The country’s biggest sporting event is about to bombard you with targeted advertising, find new and creative ways to separate you from your money, and in general be so in your face that you wouldn’t mind relinquishing it for that root canal that you keep pushing off. Yes, the IRS and its associated industries are revving up for tax day. But let’s not blame them. They perform the thankless task of providing the country with the funding it needs to carry on essential services. (Non-essential services (i.e. most of the government) is something we can talk about whenever Congress gets back from its vacation.) Those in the know actually feel bad for IRS management as their budget has suffered some incredible cutbacks, while at the same time receiving the brunt of the taxpayer’s enmity for not preventing fraud or implementing better accounting systems. The IRS, however, is not today’s topic. Instead we’re going to focus on the taxes they (don’t) collect. In a recent Forbes article, Howard Gleckman lists the top 10 worst tax ideas of 2014. Here are three of the most egregious.

1. Really Expensive Movie Tickets

Although viewers are still king, film production is increasingly being influenced by state specific tax credits. The way it works is simple. A state looking to become a prime location for movie making can make itself attractive to production companies by offering tax credits. What’s “great” about these credits is the fact that they are transferrable. That means that if a film doesn’t rack up enough of a tax bill to use all the credits, the remaining credits can actually be sold to other (non-film) companies at a discount. In essence the state is subsidizing movie production by taking a hit in their general tax base. As if the plethora of bad movies made wasn’t enough of a punishment itself!

2. Tax Reform

Obviously tax reform itself is a great idea. The reason why it’s on this list is because of its apparent departure from the realm of the practical and subsequent solid landing in talking point limbo. When Dave Camp, Chairman of the Ways and Means Committee, proposed a serious restructuring, Speaker John Boehner responded literally by saying “Blah, blah, blah, blah.” Mitch McConnel seconded the notion with a few more words: “I think we will not be able to finish the job, regretfully. I don't see how we can." And this was during one of the few moments when Congress was not on vacation.

3. Pension Smoothing

You know it’s bad when the program title itself sounds like a corporate gimmick. “Pension smoothing” is the illusory raising of tax revenue by allowing companies to push off pension contributions, thereby lowering their deductions for the year. This means that for a short time the government gets to count more money in its coffers. The catch is that eventually the companies will make the required contributions and they’ll receive the full set of deductions at that time. Net tax revenue gain? Zero. (And that zero is being presented as the funds available for national infrastructure projects. Yeah!) At this point feel free to take a swig of your favorite amber colored liquid and call it a day. You need your rest. After all, it’s almost Tax Day.


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