Philip Stern Reveals Income Tax Inequities, Shows Gaping Loopholes

THE GREAT TREASURY RAID, by Philip M. Stern '47. Random House; xviii, 361 pp.; 85.95.

The principal thing to be said about Philip Stern's book on tax loopholes is that it is a superb popularizaton. The term "popularization" has come to have an overtone of condescension that is often, as in this case, unjust. A good popularization takes facts or interpretations already known to the experts and makes them comprehensible and interesting to the lay reader. If the subject dealt with is of any importance, the popularizer performs an invaluable function--war is too important to be left to the generals.

Loopholes in the Federal tax law reduce the revenue flowing into the fisc; thus nominal tax rates must be higher; thus everyone not able to squeeze through the loophole must pay more in taxes: ergo, tax loopholes are a subject of general importance. Add to this the intricacy of the Internal Revenue Code and, to heap Pelion upon Ossa, the mind boggling complexities of the Regulations under that Code, and one has an area of expertise ripe for popularization.

The inequities Mr. Stern describes are well known to those familiar with the Code. The favorites of any good tax lawyer--percentage depletion for oil wells and clam shells*, the marital deduction, capital gains treatment for raisers of cattle and Christmas trees, stock options, and those marvelous fabrications, the real estate tax shelter and the collapsible corporation--all these are here, all are wittily and accurately dissected, all are outrageous. There is little more to be said about The Great Treasury Raid; those who are interested should read the book, those who are not will not be brought to do so by anything further I might say.

The book, however, stimulates a general reflection, not directly relevant to its subject. Federal taxation is a striking example of misrepresentation of the effect of a public policy. It is widely believed that the income tax is highly progressive and thoroughly soaks those unfortunate enough to be rich. In fact the tax (after all deductons, exemptions, and special provisions) is only slightly progressive and, indeed, at very high income levels is regressive. Nevertheless, the voice of the Goldwater is heard in the land. There are numerous other examples of these myths, spread by the ignorant or by wilful deceivers of the public.

In one of his finest speeches, delivered at a Yale commencement, President Kennedy called for a reexamination of some of these sacred cows of the received wisdom. In part, his administration began the job. I wonder how likely it is that President Johnson will go beyond these pre-formulated "realities" of public discourse and attempt to reshape the terms in which we discuss public issues to correspond more closely to the under-lying actualities. It seems improbable that he will make the attempt, and this likely failure is not the smallest part of November's loss.

* Those who doubt that clam-shells are eligible for percentage depletion should consult Sec. 613 (b) 5 (A) of the Internal Revenue Code of 1954.