Follow the (tax-exempt) money!

Tax reform is on the way! Cuts in the tax rate will likely mean reducing or eliminating existing tax breaks enjoyed by both individuals and businesses so that Congress can pay for the cuts.

Now, as the Washington Post reports, a herd of lobbyists representing these various sacred tax cows will descend on Congress to win the votes to keep favored tax treatments in place. The news media should scrutinize these efforts.

Groups representing both corporations and classes of individual taxpayers are gearing up to show that their particular tax deduction should stay (implying, of course, that others are more worthy of elimination). They will attempt to tell their story both directly to members of Congress and indirectly through the news media to the general public that Congress serves.

Who will win? Who will lose? It would be nice to think that those tax breaks that truly benefit society the most will remain. But it will probably be those most aggressively championed by K Street, the colloquial term for lobbying interests, based on the street in Washington, D.C. where many lobbying firms are headquartered.

Whichever way Congress turns, there will be a lobbying firm there to remind them how vital to the nation a particular tax break is.

Should the amount people can annually contribute tax-free to a 401K retirement plan be significantly cut? Right now, it’s $18,000 and the IRS recently announced it’s being raised by $500 for next year. Speculation says there are tax writers in the House who favor dropping that limit to $2,400. “Bad move,” many financial firms surely will tell Congress, arguing that people need to maintain a vibrant retirement savings portfolio. Of course, they will not likely say that cutting the limit will cause them significant lost fee income. It will up to the news media to point out that fact of self-interest.

Maybe Congress can find a cut by eliminating the provision that lets companies deduct advertising expenses. One tax reform proposal in 2014 estimated this move would save the Treasury $169 billion over a decade. That should be popular; why should TV commercials and other advertising be tax-deductible? There’s just one problem: advertising firms that create the ads and the media companies that carry them will be losers, and both entities will be out to convince the tax writers to look elsewhere. Reporting on this particular tax break will be a challenge for the news media, since their parent media companies will be the ones taking the hit.

Full disclosure: I worked for an advertising agency for 20 years and was an independent advertising consultant for another 12 years. If I were in either position today, I’d probably oppose this one.

These are just two of many examples. Others include the deductibility of state and local taxes, mortgage interest or charitable donations for individuals and the subsidizing of sports stadiums or certain oil-exploration costs on the business side. Every tax break will have its advocates and detractors.

The news media challenge will be to not only report the tax breaks themselves, but exactly who supports retaining each one as well as how much money each of those supporters (groups and individuals) provide to which members of Congress. We know that money moves votes. Mark Twain’s observation that “we have the best government that money can buy” survives yet today; in fact, it may be more apt than ever.

Here’s hoping the news media is up to this task. The tax bill’s particulars will be revealed this week. Fasten your seat belt!

Featured image photo credit: via CC0 License.

One thought on “Follow the (tax-exempt) money!

  1. Pingback: Lower Status for Higher Ed | paulsevensky

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