Tax Loopholes

Anyone notice that anytime someone or a group of people doesn't directly benefit from a tax regulation, they disparagingly refer to it as a "Tax Loophole" that needs to be closed?

Recently I have heard HSAs be referred to as Tax Loopholes. How can it be a loophole if the law was specifically written for the purpose of giving triple tax-advantage to account holders? A loophole is an unintended consequence that lawmakers didn't consider when writing the law.

Michael Moore has referred to 401ks as Tax Loopholes. WTF?

Anti-2nd Amendment Activists refer to a "Gun Show Loophole" that doesn't exist because all dealers at gunshows are required to issue background checks as per the Brady Bill anyway. These people just want to ban all private firearm ownership and use the buzzword "Loophole" to effect their gain.

What other bull$h!t uses of the term Loophole have you heard?

tripleB said: Recently I have heard HSAs be referred to as Tax Loopholes. How can it be a loophole if the law was specifically written for the purpose of giving triple tax-advantage to account holders? A loophole is an unintended consequence that lawmakers didn't consider when writing the law.I'm fairly certain that the criticism is due to the fact that there is no substantiation requirements for withdrawing money from a HSA account. As long as you claim enough medical expenses on your tax return (and you don't get caught lying) you get the money tax free. I'm sure there are a lot of taxpayers out there fully funding their accounts each year and turning around and taking the money out as 'qualified medical expenses' even when they don't have the expenses.

The other criticism is because it allows otherwise nondeductible expenses (well, deductible but subject to a 7.5% of AGI limitation) to be deductible for high net-worth individuals.

Whatever the facts, it really doesn't matter. Taxpayers and politicians are always trying to get someone else to pay more and get more free benefits.

theman2 said: I'm fairly certain that the criticism is due to the fact that there is no substantiation requirements for withdrawing money from a HSA account. As long as you claim enough medical expenses on your tax return (and you don't get caught lying) you get the money tax free. I'm sure there are a lot of taxpayers out there fully funding their accounts each year and turning around and taking the money out as 'qualified medical expenses' even when they don't have the expenses.

The other criticism is because it allows otherwise nondeductible expenses (well, deductible but subject to a 7.5% of AGI limitation) to be deductible for high net-worth individuals.

Whatever the facts, it really doesn't matter. Taxpayers and politicians are always trying to get someone else to pay more and get more free benefits.
That isn't a loophole, that's fraud. If the expenses don't qualify, then they can't be taken out, so there is no loophole, even if most people can get away with it without being caught.

The fungibility of money also does does not make for a loophole.

"Loophole" is a very fuzzy pejorative term, but it does require at least some disconnect between the intent of the law and how people actually use it. When people use HSAs or total deductions to relieve their tax burden on the portion of their income linked to their medical spending, that is exactly what Congress intended.

Loopholes are like what was discussed in this thread, where tobacco execs rebranded rolling tobacco as pipe tobacco to take advantage of legislative flaws, even though they know people will primarily buy it for rolling.

Loophole - What we all look for at online retailer sites to get something for as close to nothing as possible. Thus what brings us to deal sites.

My Trip-B thread guess score 2/2

tripleB said: Anti-2nd Amendment Activists refer to a "Gun Show Loophole" that doesn't exist because all dealers at gunshows are required to issue background checks as per the Brady Bill anyway. These people just want to ban all private firearm ownership and use the buzzword "Loophole" to effect their gain.
The gun show loophole does not refer to dealers selling guns at gunshows, but private party sales in states/counties where background checks are not required. Last gun show I went to, many of the tables had signs that said, "All sales are private party sales" in addition to lots of guys walking around the show with guns slung over their shoulders with price tags on them. NFW they were going to do a background check on me.

BostonOne said:
The gun show loophole does not refer to dealers selling guns at gunshows, but private party sales in states/counties where background checks are not required.

How is this a loophole? The state and county decided at the local level that a private transfer of a firearm does not require a background check. Where is the loophole here? Is it a state's rights loophole around the Brady Bill? Criminals can easily bypass the Brady Bill background check provisions by purchasing a stolen illegal firearm or having a friend do an illegal straw purchase.

If the federal government preempted local governments authority, then criminals would still be able to get firearms even with the background check in place. Remember the definition of criminal means they break the law so buying a stolen gun isn't something outside of the realm a criminal would do.

Here in Chicago, a Loop hole is a pothole in the downtown (Loop) area.

And we have plenty of them.

curtisekarr said: Xnarg said: IMNHO, about half of the people in the US not paying any federal income tax is a pretty big loophole.Are your federal income tax Personal Exemptions, Standard/Itemized Deductions, 401-k/IRA Contributions, Mortgage Interest, Capital Losses, and various other legal tax-avoidance measures loopholes? Should we abolish these for ALL taxpayers? If not then why should we keep complaining about those who - through those exact same legal measures - are able to reduce their taxable income to the point where they owe no tax?The majority of people who pay no federal income tax are not doing so because of the reasons you cite (with the exception of standardized deductions).

It's because the tax laws have been amended for the primary purpose of making it so that a large share of voters pay no income tax.

Once 1/2 of the people can vote that the other 1/2 pay for everything, we're basically lost.

InsuranceExpert said: BBB, Michael Moore is actually correct about this. 401(k)'s were not supposed to be a way to put money away on a pre-tax basis. They were designed to allow deferred compensation to grow tax-deferred, but AFTER taxes were removed. I don't know the years, but the fact that they could be used for pre-tax money wasn't "discovered" until several years after this section of the tax code was added.Really? So it was more like a Roth at the beginning? Do you have a reference?

Loophole - something in the tax code that inexplicably lets others pay less than their share of tax, while causing you to pay more than your share since you do not qualify for its terms.

@InsuranceExpert: Yea well this country wasn't supposed to have income taxes, but that changed in the early 1900's, SSN was supposed to be YOUR money being saved for YOUR retirement. Guess what sh!t happens, so fat a$$ Michael Moore can go suck a big d!ck with his selective choice of government programs that need reform.

@curtisekarr: I think you are missing Xnarg's point. I think what he is trying to say is that we shouldn't eliminate the programs that you list (since both groups stand to benefit from them, albeit not equally or proportionally), but rather increase taxes to where the bottom 50% of the population share at least some of the burden, instead of saying oh let's just tax the wealthy! Let's face it taxes will have to be raised in the coming years, all Xnarg is saying is that this increased burden shouldn't fall only on the top 50% of earners as the entire federal tax burden does at present...tax the poor too, god knows they benefit from all the free sh!t the government buys them with our $$.

adavypromos said: SSN was supposed to be YOUR money being saved for YOUR retirement.

No, it never was. Social Security was "pay as you go" from day one (in other words, current workers pay for current retirees). Otherwise, how would people have been recipients on day 1, even though no revenue had yet come in?

Xnarg said: cestmoi123 said: adavypromos said: SSN was supposed to be YOUR money being saved for YOUR retirement.No, it never was. Social Security was "pay as you go" from day one (in other words, current workers pay for current retirees). Otherwise, how would people have been recipients on day 1, even though no revenue had yet come in?The Social Security "lockbox" was broken by LBJ and Congress in 1965 to fund Medicare and Medicaid.

Before the advent of The Great Society, SS funds were untouchable.

They were on a separate budget, but that has nothing to do with SocSec being a prepaid or pay as you go plan. It is, and has always been, the latter.

adavypromos said: @cestrmoi123:

"1939 Amendments
Economic concerns
One reason for the proposed changes in 1939 was a growing concern over the impact that the reserves created by the 1935 act were having on the economy. The Recession of 1937 was blamed on the government, tied to the abrupt decrease in government spending and the $2 billion that had been collected in Social Security taxes.[29] Benefits became available in 1940 instead of 1942 and changes to the benefit formula increased the amount of benefits available to all recipients in the early years of Social Security.[30] These two policies combined to shrink the size of the reserves. The original Act had conceived of the program as paying benefits out of a large reserve. This Act shifted the conception of Social Security into the pay-as-you-go system.[31]"

This was taken from Wikipedia, please note the very first line (1939 Amendments) and the last two sentences. The SS Act became law in 1935 but the amendment to make it a pay as you go system didn't occur until 1939!

The quote button works quite well, and makes your comments more readable. Try it sometime!

adavypromos said: @pthor1231: Cus it was so unreadable the way it was.Actually, I have to agree with adavypromos -- using the quote button prevents people from having to scroll through the thread to determine what exactly you were replying to.

adavypromos said: @curtisekarr: I think you are missing Xnarg's point. I think what he is trying to say is that we shouldn't eliminate the programs that you list (since both groups stand to benefit from them, albeit not equally or proportionally), but rather increase taxes to where the bottom 50% of the population share at least some of the burden, instead of saying oh let's just tax the wealthy! Let's face it taxes will have to be raised in the coming years, all Xnarg is saying is that this increased burden shouldn't fall only on the top 50% of earners as the entire federal tax burden does at present...tax the poor too, god knows they benefit from all the free sh!t the government buys them with our $$.Can we tax corporations, too? Approx 35% of them pay tax!! Let's remove all loopholes for all the rich, middle class, AND poor people, and you will realize a helluva lot of tax revenue for this country.

@curtisekarr: What are you talking about? We do tax corporations! Sure lets remove the loopholes, so long as we go to a consumption based or better yet a flat tax system. This way at least the bottom 50% have to pay too, and I can moderate my spending to minimize my tax burden and increase investment. I really don't care if the poorer members of our society have money to buy their children bread, nor is it yours. My concern is can I buy my children and my family bread. That's it! The rest I could care less about. If your priorities are somehow different you've got bigger problems.

adavypromos said: @hatoraide: Whoa, whoa, whoa. You paid for your gym membership using your HSA? I thought this wasn't an eligible expense?!?

You can sometimes get away with it, if you have a letter from a Dr that's it's medically necessary for a specific medical condition, but generally, it's not.