Thursday, July 26, 2007

The Subtle Bias of "Loophole"

Another word has lit up press critic Jack Shafer's radar for loaded locutions: "loophole." Shafer concedes the word's utility—it "compresses interesting findings from the complex worlds of campaign finance, taxation, or regulation"—but argues that it's often used to editorialize rather than report. He cites three recent examples, from the Post, Times and Chicago Tribune, respectively.

Headline: "Loophole Lets Candidates Skirt Donation Limit." Story: Presidential candidates are legally collecting contributions for both their presidential campaigns and for re-election to their incumbent office, thus allowing supporters to make double donations to them. To wit: "Candidates Exercise Maximum Fund-Raising Rights."

Headline: "Mexico Moves to Cut Back Tax Loopholes for Businesses." Story: The Mexican government wants to collect more taxes, so it's rewriting the tax laws. To wit: "Mexican President Calls for More Taxes."

Headline: "House Blocks Stores' Bank Bid; Senate May See Closer Vote on Bill Closing Loophole." Story: Under current law, firms can own and operate "industrial loan companies," a limited type of bank that competes with established banks, who fear the competition and are thus calling for restrictive laws. To wit: "Banks Make Progress in Winning Protection from Competition."

Shafer's argument is wonderfully libertarian, but he ignores the distinction between "natural" loopholes and man-made ones. "Natural" loopholes are unsolicited and arise after-the-fact. A typical example is so-called 527s, tax-exempt organizations named after that section of the United States tax code. Such groups emerged from a campaign-finance law that capped political contributions by individuals, while left non-PAC organizations, like 527s, free to raise unlimited amounts of money. The 26 U.S.C. § 527 loophole was thus a benign happenstance.

By contrast, man-made loopholes are lobbied for and deliberately slipped into legislation. These are the infamous loopholes—the myriad special preferences, credits, exemptions and deductions that make laws unbearably complex—and unlike their coincidental cousins, they're fully deserving of opprobrium.