TaxVox What We Hear When We Talk About Taxes... Musings of a Tax Hound
Renu Zaretsky
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It’s been just over a year since I started posting TPC’s Daily Deduction. It’s high time I let you in on a little secret: Whenever I tell people that I write about “tax news and research” I get the exact same reaction. Imagine furrowed eyebrows, coupled with a sad, “Oh.” Every. Single. Time. As a relatively new immigrant to the tax world, I’m not entirely surprised. Tax policy is, to many non-geeks, boring and confusing. In fact (and here’s another not-so-secret secret) tax policy has been known to make really smart people feel… dumb. Why is that? It starts with what we hear.

Consider the well-covered story of President Obama’s failed attempt to curb Sec. 529 college savings accounts. (Forgive me: My family includes two children about ten years from college.) For plenty of middle-income people who don’t qualify for other subsidies, these plans help mitigate the sky-high cost of higher education. Yet, it was more than a little strange to see Obama’s plan characterized as a “middle class tax hike” and to learn about families who were “scraping by” on $250,000 a year. It seemed that no matter where people fell along the income distribution, the President’s plan was confusing, and it didn’t feel fair.

I wonder what might have happened if the White House fact sheet on the President’s tax proposals read something like this: Fund an expansion of American Opportunity Tax Credits by closing a tax loophole. Sec. 529 college savings plans, intended to encourage moderate-income families to invest in their childrens education, have instead disproportionately benefitted those with very high incomesin many cases over $1 million annuallywho don’t need government help to save for college.

Now of course, there’s no “loophole,” unless by loophole, you mean a giant doorway that Congress opened—on purpose—for those high-income families to stroll through. Compared to many, Sec. 529 plans are a rather transparent tax expenditure. Curbing such subsidies will be a necessary part of any effort to reform the tax code and lower rates without adding to the deficit, as Senate Finance Committee chair Orrin Hatch said recently.

But try explaining that to parents who are busy working and saving for their kids’ college. I did. And this is how they replied: “Tax expenditure? A savings incentive isn’t an expenditure. The government isn’t spending any money. I’m the one losing out. The government isn’t losing anything.” In fact, yes it is. But tax-speak is so opaque that most people can’t see why a government subsidy for saving is indeed a type of spending, or tax expenditure. But “loophole?” That’s different. Folks want to close those, whether or not they are there.

Maybe if the President had appealed to a deeper sense of fairness by using a more effective choice of words, his plan would have fared differently. Or maybe not. Last fall, my editor, TPC’s Howard Gleckman, explored why tax lawyers and tax economists can’t communicate. Lawyers, or policymakers, (read: politicians) often misinterpret what economists say. It could be because they simply don’t understand what’s being said. But Howard fears “it is because they choose to misread it. Misstating data serves their political interests in the same way as mischaracterizing an opponent’s vote.”

I have a bigger fear: Policymakers and, yes, many policy analysts, make tax issues so complicated that ordinary taxpayers (and voters) have no idea what they are talking about. When you don’t understand something, you have a choice. You can feel disenchanted with a system that’s so complex that it feels more than a little rigged—and not in your favor. Worse: You can shrug your shoulders and stop caring. That doesn’t bode well for good tax policy. Or, you can dig in and try to translate something completely foreign into your own language, and tie convoluted concepts to more familiar ideas. That’s hard, and understandably frustrating.

With a new TPC feature we’ll call Tax Hound, I’ll dig in. I’ll try to help make sense of tax policy for non-geeks and connect tax issues to the non-tax world. Here’s to un-furrowing a few eyebrows, one post at a time.

Tags Sec. 529 savings plan tax policy tax reform
Primary topic Individual Taxes
Research Area Education