On Tax Loopholes

The key issue for tax loopholes is this -- if lawyers and accountants can find a portion of the law that makes it cheaper for rich people and corporations to pay them than to pay Uncle Sam, then people and corporations will always take advantage of tax loopholes.

The more the income tax is used as a tool of social policy the worse it gets. Higher marginal and corporate tax rates mean that the rich and corporations have greater potential savings by using loopholes. Creating tax breaks to encourage behavior gives the lawyers and accountants more room to work to find loopholes.

Obviously, this is not an either/or situation. The tax code could be redesigned so that there are less loopholes taken advantage of, but that would mean it must be used less to encourage or discourage behavior. However, the irony is, the people most upset about tax loopholes, the Democrats, are also the ones who frequently want to use the tax code as a social policy tool.