Tax Exemptions

 

This week I covered tax exclusions with students in my personal income tax class, and I think that concept is extraordinary given the broad mandate of §61 of the Internal Revenue Code:

. . .Except as otherwise provided in this subtitle, gross income means all income from whatever source derived. . . .

Exclusions speak to what this county holds dear, what it places a great value on over and above collecting revenue.  Exclusions are preferences that shifts the tax burden away from those who are the subject of that benefit onto the general taxpaying public.  The question becomes, whether that those who benefit are worthy, and if so then whether the mechanism is effective.

For example, §103 generally provides that interest received from state and local bonds are exempt from taxation, irrespective on the financing purpose.  Should sport stadium financing qualify?

For example, §121 provides that the first $250,000 of gain from the sale of the taxpayer’s principal residence ($500, 000 if Married Filing Jointly) is excluded from taxation (with any remainder generally taxed at capital gain rates), irrespective of the total gain from the sale or of the income of the taxpayer.  Should the first $250,000/$500,000 be exempt from the sale of a multi-million dollar home, or if the Adjusted Gross Income of the selling taxpayer is in a generally high tax bracket?

Maybe, these and other tax exclusions should be reconsidered, or at least fine tuned, especially if the remainder of the taxpaying public have to foot the bill for these preferences.  Insist that tax exempt municipal financing be limited to certain projects.  Insist that those able to pay additional amounts of capital gain do so, or that the exclusion amount is indexed to regional economics.

The additional amounts collected may well be de minimus in the grand scheme of things, but that’s not the point to those who have to foot the bill.  Let’s see the forest and the trees.

Author: Luis Rodriguez Jr.

Assistant Professor of Law and Taxation, Alfred University, rodriguez@alfred.edu

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