Recently, President Obama has begun talking up his plan for reducing the deficit (hint: raise taxes as much as he can get away with, say words like "fair share" a lot). Included in this is saying "closing tax loopholes for millionaires and billionaires." Inherent in the statement is the assumption that "tax loophole" equals "cheating."
The truth, however, is far less insidious (actually, it isn't insidious at all). What Obama is calling a "loophole" is really a legal tax deduction that is written into the Internal Revenue Code that reduces a person's total taxes paid. (For those of you from Palm Beach County, FL, I can't dumb that one down enough for you, I'm sorry, just click here for some alternate amusement. I'll try to write on a simpler topic tomorrow.)
Some of these so-called loopholes include deducting the interest paid on your house, writing off student loan interest, and tax-free investments like municipal bonds. Another very popular deduction is a person can deduct any charitible donations on their taxes. Others still include the ability to have certain payroll deductions taken before tax is assessed from each paycheck, such as employee contributions to medical and their 401k plans. Wow, these are some horrible, evil loopholes, aren't they?
Here is my point: Every single one of these deductions are 100% legal. Their use is legal. They are written into the Internal Revenue Code to encourage certain activities (like buying municipal bonds) and to make certain purchases affordable (like home ownership). When Obama calls them "loopholes" he wants you to think it's cheating the government out of money owed. By that logic, buying peanut butter with a coupon and paying less is cheating the store.
Now you're not cheating the store by buying your jar of Skippy with a coupon, nor are you doing anything wrong by using your save $1 on two jars coupon. Wealthy individuals aren't doing anything wrong by taking deductions specifically allowed in the tax code either nor are they doing anything wrong by accepting tax credits that are also included in the tax code. That's not a loophole. As a matter of fact, I would personally call someone who chooses not to take whatever tax deductions that are legally allowed in the tax code an absolute fool.
Obama's playing the class warfare game with his lines about "loopholes." He wants you to think these legal deductions are cheating, and that is a false suggestion. Truth is these "loopholes" are better labeled as legal tax deductions and tax credits, and anyone who calls them anything else is just playing political games. (See: Barrack Obama.)