To increase tax revenues some are saying that we should raise tax rates. Others are saying that we should keep the current tax rates and close tax loopholes. And then some are saying we should do both.
The term “loophole” originated in medieval times. A loophole was a slit in a castle wall that allowed archers to fire arrows at attackers without fear of being fired upon. Tax loopholes are carve-outs that allow certain groups a competitive tax advantage. These are distinctive from deductions, e.g., the home mortgage interest deduction, or credits, e.g., the earned income tax credit.
While closing loopholes is a good idea, it’s a difficult proposition. It will require a lot of negotiation on which loopholes to close. K Street is filled with lobbyists who’s mission is to create loopholes for their clients. And when one loophole is closed, another is opened by House legislation.
The debate on tax reform will certainly be fascinating to watch.