The Rape of the Taxpayer

by Philip Stern
Random House, 483 pp., $10.00

Tax reform, as George McGovern found out, is about as practical a cause as spelling reform. The income tax has been riddled with exceptions—not loopholes but truckholes, as the economist Joseph Pechman put it—since the day it was born. Every so often Congress feels moved to pass a cynical, regressive “tax reform” law (the 1969 version has been more appropriately nicknamed the “Lawyer’s and Accountant’s Relief Act”). Otherwise nothing happens.

Philip Stern’s book is a denser, more analytical version of The Great Treasury Raid, published in 1964. In both books he makes a clear and overwhelming case for scrapping the deductions, exclusions, exceptions, and rip-offs of the current tax law. In The Great Treasury Raid we learned of the special amendments to the tax codes that are custom-tailored for a particular taxpayer: Louis B. Mayer or Dwight D. Eisenhower, for example. In the new book the list of the specially favored includes the Cafritz Foundation, set up for the Washington hostess/rentier Gwendolyn Cafritz, as well as the Twin Cities Rapid Transit Company, the benefactor of one of former Senator Eugene McCarthy’s less lyrical compositions, his bill “Income Tax Treatment of Certain Losses Sustained in Converting from Street Railway to Bus Operations.”*

The old favorites are here: oil depletion allowances; fast depreciation write-offs; capital gains shelters for what seems like a list of every business that ever picked up a lunch tab for the late Senator Robert S. Kerr. Newfangled variations of the kama sutra of tax avoidance include: the “Mexican vegetable roll-over,” where, for planting tomatoes south of the border, you get the deductions al instante and pay the taxes mañana; actinidia chinensis or the Chinese gooseberry, a tempting fruit that tastes like a combination of rhubarb, pineapple, and guava, and (if you grow it) can be swallowed with liberalized tax accounting. One investment program called “Rent-a-Cow” offers not only tax savings but promises “to add a new and exciting dimension to your life. Just imagine having your own herd of fine quality registered cattle and a big cowboy hat!… Just hop on a jet in New York—we’ll meet you in Tulsa with a twin-engined private plane and within four short hours from your busy city life, you will be in our luxuriant guest lodge, gazing at your own tax-sheltered registered cow herd.”

Such wrongs are as familiar as they are egregious; the interesting question is why they have not been righted. After all, loophole closing offers a means of raising $77 billion without changing the tax rates. Stern offers answers, some obvious, some not so familiar.

The famous complexity of the tax laws, he points out, contributes to the Sisyphean quality of reform: who is to know whether a provision closes one loophole or opens three new ones? Consider this aside in the code: “For the purposes of paragraph (3), an organization described in paragraph (2) shall be deemed to include an organization described in Section 501(c)(4), (5) or (6) which would be described in paragraph (2)…

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