Loopholes? Really?

Over on the Taxgirl blog, Kelly Phillips Erb ponders press coverage of Bill and Hillary Clinton’s estate tax reduction strategies (Admit It: The Clintons Didn’t Do Any Tax Planning You Wouldn’t Do). Along the way, she discusses the misuse of the term “tax loophole.”

We all want to criticize tax reduction strategies as somehow un-American until, of course, we want to take advantage of those same opportunities.

I said “opportunities” for a reason. I’ve been pretty outspoken about how I believe that the notion of a “tax loophole” has been mischaracterized in the press to paint a picture of taxpayers who are somehow gaming the system. We pretend that a loophole is kind of an “oops” – that it wasn’t really mean to exist and that somehow, someone has figured out a way to exploit it. But that’s not true.

Loopholes exist because it is impossible to imagine every response to the law. And a real loophole can be fixed.

But an accepted tax planning strategy – even if we don’t like it and even if we don’t think it’s fair – isn’t a loophole. It’s a carefully planned reaction to existing law.

It doesn’t matter whether it’s Apple or the Clintons: the law is the law. Whether and how often individuals and corporations take advantage of those laws may be a matter of choice – but let’s face it, when tax reduction strategies are available, most of us seize on them. You take the mortgage income deduction, right? You claim your dependents. You stash away tax deferred cash in retirement plans. You write off business expenses. You do it because you can. Just like the Clintons. And just like Apple. The difference is that the notion that other taxpayers are somehow saving more than they are annoys other taxpayers.