Tax Planning Revolutionized & Proscribed

As someone who lives and breathes taxes everyday it is interesting to see the interaction between the typical business owner and the tax code.  I think for most business owners the tax code does not drive decisions.  Business owners decide on a course of action that makes sense for their business and THEN they sit with someone such as me and see how that decision might be undertaken thru the prism of the tax code.  For example: the need to major equipment purchases might cause us to talk about the section 179 equipment write-off election, new hiring might be focused by talking about IRS hiring credits, expansion into foreign markets might foster me to discuss the IC-Disc, purchasing real estate might lead me into an entity and structural discussion on the LLC, etc. 

You get the point, the tax tail doesn’t wag the dog, NO business owner says, “gee I don’t need to hire anyone right now but those hiring credits are sure enticing, maybe I will.”  Of course all this calls into question the very logic of tax breaks for business, if they do not actually promote certain business behaviors do they make any sense???  We will leave that discussion for another day.

If commentator Fareed Zakaria is correct (and he might be) that our bloated and corrupt tax code is essentially ground zero for crony capitalism, we see the above paradigm turned on its ear.  Companies like GE are essentially able to make the same business calculation that the small business owner does; what is the best route forward for our business?, but then they are able to lobby for and achieve custom loopholes in the tax code that optimize their plans in terms taxation.  Of course these tax breaks MIGHT actually help other businesses large and small but that will be a happy accident as none of the participants in these travesties cares.

Years of this sort of behavior has left the US tax code bloated with thousands of special interest loopholes and provisions specifically written for these large companies.  It has corrupted capitalism and business in our country and has necessarily led to deep cynicism about business, government the rule of law.