I was recently asked: Why are tax laws and their underlying policies so complicated? Are lobbyists to blame? My answer went something like this:
Have you watched the Underworld movies? No? In the Underworld series, the descendants of the first werewolf and vampire, who were brothers of the first immortal human, seek to peacefully coexist while only one maintains ultimate control. Don't watch them in their order of release; watch them based on the chronology of their timelines (3, 1, 2, 4, and 5). One quote about the frustrations of finding clear answers comes from Victor, the leader of the vampires in the first Underworld movie, who said, “Your incompetence is becoming most taxing.”
What about the Matrix trilogy? Not even the first one? Wow, you’re not making this easy on me. OK, that series depicts a dystopian future in which most of humanity is unknowingly trapped inside a simulated reality — the Matrix — created by intelligent machines to distract humans while the machines use their bodies as an energy source. People who are invited to the revolution to overthrow the machines are asked whether they want to take a blue pill to stay in the Matrix or a red pill to “wake up” and see the truth. There is no right or wrong choice, and each person is entitled to their preferences, which can change. Cypher, who chooses to leave the Matrix but later changes his mind, provides this memorable rationale: “You know, I know this steak doesn't exist. I know that when I put it in my mouth, the Matrix is telling my brain that it is juicy and delicious. After nine years, you know what I realize? Ignorance is bliss.”
In these two series, the perspectives and realities of groups are pitted against each other, much like tax law. Two opposing groups choose goals, alliances, and adversaries to achieve the “reality” that best affirms their identity and objectives. The dominant governing group sometimes changes and makes compromises that often don't seem to follow any consistent policy. But isn’t the nature of compromise that parties with conflicting goals make concessions so those goals are at least partly achieved?
In the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), the law describes a retroactive change to the Tax Cuts and Jobs Act that allows for accelerating depreciation for qualified improvement property as a technical amendment. But this amendment addresses an issue known as the retail glitch that had bipartisan support to be fixed through legislation to address many technical corrections to the TCJA. Why was this technical correction included in the CARES Act while the section 1061 technical correction for the carried interest loophole wasn't? Perhaps the lobbying efforts by real estate coalitions prevailed. Perhaps ensuring that the qualified restaurant property obtained benefits many thought were intended by the TCJA's drafters was one way to target businesses especially hurt by the COVID-19 pandemic. Or perhaps it was both, as a frantic and busy Congress was reminded by lobbyists that proposals that already had bipartisan support and could help with the crisis should be considered for legislation to do just that.
OK, so tax laws are made by those in control. But why did the parties’ goals change, ending a long-standing deadlock on technical corrections for the COVID-19 crisis? The answer may be the same as in the Underworld and Matrix series: The groups needed to peacefully coexist to prevent greater harm — one that threatened lives in all groups. The parties found agreement based on the interests (survival) of those they represent. While generally one party controls most tax lawmaking, the laws places limits when a sizable majority can’t agree.
Were the changes solely to prevent harm from the crisis? No, the crisis was the reason they agreed to work together on the CARES Act. But when they got together, they used their other goals to negotiate concessions as a condition of support for the law. That’s the interesting part, and an example of why there are secrets and complexity in tax law.
So in the CARES Act they all agreed to things they previously refused to agree on? Yes. In the Matrix and Underworld series, the warring parties ultimately needed to survive against greater threats, and therefore teamed up. How did they hash out their differences? They sat down and talked through representatives — Parties that are independent from the decisionmakers who represent the interests of those who might otherwise never be heard. Sounds like what a lobbyist does, right?
The CARES Act benefits that go beyond COVID-19 were largely created this way. Law certainly isn’t always made this way, but it often is. And that’s not always a bad thing, especially when a deadlocked Congress can’t do its job to govern through law, or doesn't have any information about a particular interest group’s concerns to help. Of course, gamesmanship is involved to varying degrees by different people. It’s politics. But some lobbyists have dedicated their lives to backing noble causes, in and out of government.
Tax law is filled with policies that represent collaboration, but that collectively represent discrete provisions that the collaborating parties value differently. This is often why a single piece of legislation may include policies that are inconsistent when applied as a whole.
Lobbying has become so controversial that some feel it does more harm than good. I argue that that isn't the case with tax, and likely in general. Like everything, there are exceptions when ethics are violated, but I never saw anything close to that in the months leading up to the enactment of the TJCA, one of largest changes to the tax laws since 1986. Interest groups that would be affected by a specific law or policy want a voice at the table. Most tax law can be agreed on based on the polices the parties ascribe to when they agree to talk, and lobbyists do a great deal of good in making that happen among the 535 voting members of Congress.
Lobbying represents the legitimate efforts of diverse groups whose pooled resources can effect change. Lobbying has been painted as the efforts of those superior to most humans to control them and the tax law’s imposition of benefits and burdens that pay for a civilized society. Historically, this has largely been based on a country's ability to protect itself from war and crises.
Everyone is taxed (or tax-exempt), so all parties have a vested interest in beneficial tax policies. People elected to Congress must talk, and they must agree. Overall, lobbying can help push gamesmanship aside and remind Congress of Americans’ desires. Lobbyists are just as likely to be representing a social justice activist organization as a multinational conglomerate — not all of them are mercenaries for hire. And of course, lobbying rules that impose parameters for transparency are necessary to somewhat level the playing field. Ultimately, however, Congress members pick and choose which lobbyists’ interests are most important to them (and because of Citizens United, they have even more freedom to pick the ones that can bankroll their reelection campaigns through SuperPACs).
Congress members and lobbyists who value transparency and collaboration throughout government focus on achieving fairness in tax policy, not on eliminating the competition. The greater economic threats of COVID-19, just like the economic threats that often drive tax reform efforts, should drive Congress and lobbyists to come together and minimize disparate policies and unnecessary complexity that arise. We can all have different preferences and still come to mutual agreement.
When I sent the above to my friend, he asked: “Did you just call lobbyists blood-suckers who can help the greater good by seeing their common interests?” I responded: "No." The tax laws are a complex matrix of rules and policies built slowly over a century, always shifting to accommodate checks and balances of the groups they seek to benefit. Some lobbyists, like the Oracle in The Matrix, believe that a balance can be achieved in tax law by working to ensure that all voices are heard and to allow for groups to peacefully coexist. But the Architect summed up our ability to fully understand the Matrix aptly: “You remain irrevocably human. Ergo, some of my answers you will understand, and some of them you will not.”
Perhaps that is why I may never understand the entire code and its underlying policies. After all, I’m irrevocably human, unless, like Alexander Corvinus, I have a dormant genetic mutation that can only be unlocked by a plague or realize I’m more of a battery powering the controlling class and decide that’s OK — because I like steak. But ultimately, everyone deserves to be heard; lobbyists help to make sure that happens.