Hamill: Was the US tax system ever designed on purpose?

If you read this column even on a sporadic basis, you know that I like quotations of people smarter and more accomplished than myself.

A conservative icon of finance, William Simon, served as Treasury secretary in the Nixon and Ford administrations.

Simon was a pioneer of leveraged buyouts and had a business school named after him. He was known as an expert on tax policy.

Simon helped other countries design tax systems. But he had little favorable to say about the U.S. tax system.

He once said that the U.S. deserves a tax system that looks like it was designed on purpose. He did not think we were getting what we deserved.

A simple explanation of our tax system is that it raises revenues to fund the government.

The road to perdition in tax policy usually begins with using the tax system to do just about everything else — political, social, economic.

We end up with some weird stuff. And most of it results in a reduction in federal tax revenues, which are broadly called “tax expenditures.”

The government’s fiscal year starts on Oct. 1 and ends on Sept. 30. In the 2025 fiscal year, ending Sept. 30, 2025, the deficit was $1.78 trillion.

In the first three months of this fiscal year, the budget deficit was $601 billion. This is “good” relative to the prior year due to the timing of revenues.

Historically, this is “bad.” Deficits were large in 1945 when we had more than 12 million military personnel serving in a world war.

Former President Dwight Eisenhower, who knew a few things about war, warned of the budget costs of a war and how those costs crowd out the ability to fund the needs of the citizens.

Eisenhower described this as, “it is humanity hanging on a cross of iron.” But we can understand that during times of war, budgeted spending will exceed revenues.

Today, it is difficult to imagine that Simon would see our tax policy as having been designed on purpose.

The tax law today is a mix of snips and snails and puppy dog tails, and when elections are coming, a quick addition of sugar and spice and everything nice.

Our wars today are rhetorical. War on woke. War on Christmas. War on fat generals. At least the costs are low. Nonetheless, we run wartime deficits.

Housing affordability is an issue for young people. I have four daughters with eight college degrees. They own a combined total of one home.

It is not the weight of the college degree costs. They each had a father, who, some say, is a saint, who covered those costs.

While recently in Davos, Switzerland, President Donald Trump raised some sugar and spice for housing affordability.

I quote, “You know, the crazy thing is a person can’t get depreciation on a house. But when a corporation buys it, they get depreciation.”

I continue, “That’s something we’re going to have to think about.” Really? Well, let’s try the idea on for size.

A young couple buys a $500,000 house. With an allocation of some cost to the land, they can claim annual depreciation tax deductions of $16,000 or so.

That adds to affordability. It adds to the deficit, also. It also violates every principle of depreciation.

Well, aren’t you a Debbie Downer, you say. Please note that Wikipedia says “Debbie Downer” is gender neutral and “actually works better on men.”

I will go on record as predicting there will be no depreciation allowed on personal use residences. That’s why the idea was not broadly disseminated.

But why do we feel a need to address every social and economic issue through the tax system?

With the overarching objective of getting reelected to an office that seems to have no significance other than providing an office with a staff, all proposals reduce revenues.

Let’s end on a high note. Rep. Jimmy Panetta, a California Democrat, and Sen. John Cornyn, a Texas Republican, have separately introduced legislation to raise the home sale exclusion.

In 1997, Congress created a $500,000 exclusion — if married, half otherwise — for gain realized from the sale of a principal residence.

In today’s dollars, that $500,000 is $1,010,000. The Panetta/Cornyn proposal is to raise the exclusion to $1 million and index it for inflation.

There was a purpose to this proposed legislation. Sure, Cornyn faces a tough reelection in Texas, but there is some logic to the proposal.

Jim Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.