Business Columns & Blogs

Simplified federal tax code not easy

Microsoft and Hewlett-Packard recently found themselves in the unwanted public spotlight of a congressional hearing for, in the words of U.S. Sen. Carl Levin, using “loopholes and gimmicks” and “schemes” to “shift income to offshore tax havens,” costing the U.S. Treasury billions of dollars in the process.

It was a wonderful opportunity for political posturing and pontificating. Microsoft got its shots in too, issuing a statement that the company “has a complex business and we must comply with the complicated tax code of the United States, resulting in an exceedingly complex tax structure. That is why we’ve advocated for reforms to simplify the U.S. tax code and make it more competitive with the rest of the world.”

The hearing got relatively muted coverage, competing for attention as it did with a rancorous presidential campaign, a shaky economy and a steadily deteriorating international scene.

That wasn’t the only reason. For all the bloviating about tax scofflaws, Levin’s opening statement didn’t accuse either company of actually breaking the law. What both companies do is perfectly legal. And the complexity of the federal tax code is hardly news. Nor is the pointlessness of most hearings. Americans having learned long ago to tune them out as noise.

Obscured by all that noise is a larger point that neither side is likely to acknowledge, much less make. Yes, the tax code is complicated. The reason: Everyone involved – politicians, businesses, even individuals – wants it that way.

The game played by everyone is to pretend they have no idea how we got such a bloated blob of a tax code. But those loopholes and gimmicks did not write themselves and then sneak into the Federal Register when no one was looking. They got there because someone wanted them there, to encourage or discourage certain activities or behaviors, to advance some cause or just to reduce someone’s tax bill.

The politicians were more than happy to oblige. What easier way to buy votes than with someone else’s money?

Thus tax codes at every level are laden with special provisions, incentives and exemptions that benefit various and multiple constituencies. Microsoft, Boeing and other Washington companies and industries are beneficiaries of complexities in the tax code that they may have even put in a good word for. One dares say that there have been a few efforts by the federal government to assist companies in Levin’s home state, Michigan, through the tax code or other means (not to mention any names, but a car company with the initials GM comes to mind).

Simplifying the tax code isn’t difficult. News Tribune readers could probably write a more straightforward tax code on their lunch break and still have time to run an errand.

But does anyone really want that?

You readers, for example. The forms you fill out (and curse) in the weeks leading up to April 15 could be boiled down to a postcard – provided you’re willing to give up the mortgage-interest deduction, education and child-care credits, write-offs of charitable contributions and all the other line items that quite legally reduce taxable income.

No? Probably no more than Microsoft, HP, Boeing, GM and thousands of other companies and industries are willing to give up their pet tax provisions. And certainly no more than politicians are willing to give up the power to dole out tax benefits.

In his statement, Levin said he hoped the hearing would “generate some enthusiasm to fix” the code. Oh sure – the rhetoric to “fix” the tax code, from all sides, is deafening.

But the underlying and sincere enthusiasm to do so? You’ll get more reverberation out of feathers landing on carpet.

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