About Perks.

The Wall Street Journal has jumped on the bandwagon of pointing out golf trips on executive jets which are underreported as income for income tax purposes and evade disclosure to investors.

It is neither surprising, nor acceptable. Abuses like this should be shut down, not just because there is revenue lost, the dollar amounts aren't huge in comparison to many other corporate tax abuses, but because the attitude of impunity and appearance of unfairness compared to sole proprietors run through tough audits because they don't document work mileage v. personal mileage for their pickup is corrosive and discourages voluntary compliance with the tax code.

There are other perks, however, which are simply built into the tax code itself, because seperating one's personal life and one's work life is not easy. Most of us spend thousands of hours a year on the job, and highly compensated workers tend to spend more time there than most.

If choose to spend $100,000 rather than $20,000 on household furnishings, the tax code will do nothing to subsidize this expenditure which will have to come from your after-tax salaries and bonuses. But, if you choose to purchase $100,000 of office furnishings rather than $20,000, you will receive five times the tax deduction, even if the additional expenditures are never seen by clients and serve no real business purpose other than to make you happy while you work.

The same tax subsidized perk comes into play in the area of office space. Rent paid for an expensive, plush office is going to be deductible even if it serves no business purpose. A high tax bracket sole proprietor can typically choose between spending $2,000 a month on a much nicer office, or taking home $1,200 a month to spend at home, even if the sole proprietor is a commodities broker who does all of his work over the phone, and never sees employees or clients in person in his office. Given this choice, it isn't surprising that many high income executives choose to spare no expensive when furnishing their workplace homes away from home.

The deductions for mortgage interest and property taxes mitigate this discrepency to some extent. But, anyone who has worked with self-employed business people for anything length of time is well aware of the expense account lifestyle that the tax code promotes. Creative accounting in an effort to turn personal expenses into business deductions is nearly universal.

Fringes like these are not going to bring down the economy. But, they do eat away at a tax base already hobbled by irresponsible tax cuts on investment income. Revenue has to come from somewhere, and generating that reveue with a smaller tax base requires higher tax rates. Elaborate efforts to fit individual's lives and spending patterns to the tax code also drives tax complexity.

It will be interesting to see how the President's Advisory Panel on Tax Reform comes out on fringe benefit issues. Their final report has been postponed, for a second time, to November 1, 2005. It will also be interesting to see if the President, having already in his most recent press conference basically abandoned his Social Security reform effort, will want to spend his meager remaining political capital and a high risk, low reward effort like tax simplification.