Monday, December 13, 2004

Tax Crafting

Every time I consider an alternative to the tax code, such as a flat tax or value-added (VAT) tax, I’m confronted by evidence of social engineering that would be impossible without the present complicated law. The government’s interest in promoting private home ownership comes immediately to mind. The incentive of tax credit for mortgage interest made us first among all nations in owning homes.

Good deal! Worthy deal and I can think of few other ways to successfully promote it.

These past few days the newspapers are full stories about various non-profit groups that benefit from the tax break (dare we say loophole?) of “historic easement donations.” A Washington Post article by Joe Stephens looks at some of the less-than-straightforward issues attending the promotion of easements, but the fact is that virtually no one was aware of or taking advantage of such deductions before the profit seekers stuck their oar in the water. Currently things are rolling along quite well across the nation, depending upon how one defines ‘quite well.’ But private profit and public preservation are loose in the land, the former having set in motion the latter.

And I say well done. It’s very ‘American’ even today to tear down whatever is old and build whatever is new. Chicago, my home turf is famous for this and much has been lost to that great city as famous buildings by famous architects fell under the wrecking ball. Living now in Europe, I’ve come to realize that an attitude like that seems barbaric to Europeans. They work around their history and it makes them seem quaint to us, what with not-always-hot water and not-always-easy traffic patterns as part of the price they pay. But I suspect they’re on to something, Europe is very beautiful and amazingly civilized.

But back to the game at hand. In order to reap this quite substantial tax benefit one must own a building of historic value, a distinction applied for to the National Park Service. Don’t ask me why the Park Service, but those are the guys in charge. Once certified, the owner (and all future owners) agree not to change the building façades without proper permissions. The present owner can then write off from his taxes an amount equal to approximately 10% of the value of the building and sticks all future owners with his decision. This amounts to, in some cases, quite big bucks---hardly a ‘cottage’ industry, but then we’ve become accustomed to tax breaks going to the wealthy and those of us who live in cottages must find solace elsewhere.

But, like home ownership, historic preservation is something to be desired in the grand scale of things. In a uniquely American way we use the federal tax code as a facilitator of those desires.

When friends rant and rave about ‘special interests’ and the ‘graft’ that accompanies most federal programs, I tell them my favorite story. In the 1930’s, huge areas in and around Chicago were purchased by Cook County as ‘forest preserves.’ The land in question had been, for the most part, bought up on the sly by various politicians using insider knowledge to financially feather their nests. Nothing new there. Hundreds of millions were thus squandered in overpriced acquisition, a great deal of press attention was given at the time and a few old pols even went to jail---not many and not for long, but a few. Today, these vast county and inner city forests are priceless and irreplaceable cushions to the rigors of urban life. Chicago without them is like trying to picture New York without Central Park. The money is long gone, the pols long dead and yet the brilliance of the decision remains, brilliance helped a little on its way by private gain and unequal access.

This façade preservation business is yet another opportunity made possible by private gain and unequal access. I don’t have (at least on my house) a historic façade worth preserving and I’ll bet you don’t either. But this is good tax law and the country will be better and more beautiful for it. It’s ironic, yet so very American, that this provision in the law is being ‘sold’ for profit by an entrepreneurial group that only formed in reponse to that opportunity.

I love it!

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