Misleading Tax Rhetoric Abounds

by Linda Beale

Misleading Tax Rhetoric Abounds

I got the same piece of mail that my colleague and fellow blogger Jim Maule got–a disturbingly misleading rant trying to make a case for zero taxation of unearned income. I started to write a post about it, since this is the kind of material that gets my ire up. It is written with what appears to be an intent to confuse or mislead. It applies vague language when that suits the writer, and fails to explain even the simplest transactions acceptably.

Maule beat me to it. He has an excellent post on Issue 9.04 of Tax Bytes, put out by the Institute for Policy Innovation (a think tank on the right): When Double Taxation Doesn’t Exist, Mauled Again (Feb. 8, 2012).

The problem with the IPI starts with the title of the piece–“when investment earns you additional–not lower–taxes”. Right there they are conflating two things–the original amount earned that was put into the investment, creating a “tax basis” that will not be subject to tax on any disposition of the investment; and the return on the investment when it is sold (or when dividends are paid on it), creating additional “gross income” that will be subject to tax, though at the preferentially low, low rate currently applicable for capital gains.

As Maule points out, the piece seems to be written to try to make the unknowing reader think that all the proceeds of a disposition of an investment will be taxable, not just the NEW income represented by the gain –the increase in value of the investment over the original basis.

The fact that a think tank could publish this kind of tax rhetoric, with so many misleading or erroneous statements, is just one more reason that I have urged my colleagues here at Wayne Law to require all our students to take at least the basic federal income tax course. No student will come out of that course making the mistakes the IPI made in its piece on the taxation of gains from investments. And every lawyer ought to have that foundation, so that they don’t make such foolish statements as those in the IPI piece.

crossposted with ataxingmatter