Tax avoidance will continue as long as federal code remains unchanged
AT its root, “loophole” has military connotations. A loophole was the gap in the wall of a fortress through which a defender could see the enemy and shoot a weapon, with relative protection from return fire.
Words move on. Loophole is now a term with negative connotations. It's a means of avoiding an obligation — most particularly taxes. The military element remains, though, because loopholes are constantly under fire. A recent example is a report on corporations that paid little or no taxes by means of legal tax avoidance. Loopholes.
Sixty-eight large companies were found to have avoided some corporate income taxes in at least one of the past three years. These were profitable companies that found a way to avoid paying taxes. Included were Chesapeake Energy and 19 other Oklahoma firms.
Tax avoidance is something many of us do but we don't want others doing it. Buying untaxed goods over the Internet instead of locally is tax avoidance. Deferring income taxes through 401(k) plans is tax avoidance. Selling goods at a swap meet and not remitting the sales tax is tax avoidance. In those examples, which represent common activities, only one (the ideferral) is truly legal.
One man's loophole is another's sensible tax strategy. Yet most of us are discomfited when hearing about companies with a combined $1.33 trillion of profits over three years engaged in tax avoidance.
To plug all the gaps in the walls of the fort — to end all loopholes — would vastly increase tax revenues and might mean taxes overall could be lowered. Therein lies a key point about tax avoidance. By some estimates, nearly half the population avoids paying the federal personal income tax altogether. They do so legally. At the other end, the wealthy avoid paying at least part of their tax obligation by employing tax avoidance strategies. Loopholes. This is also legal.