Politics and Public Policy

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Politics is the art of governing, and requires negotiation and compromises to make decisions. It is often said that one shouldn’t watch sausage or legislation get made, as the process is inelegant, and rarely follows the rational statesmen like course we’d like to see.

Laws are like sausages, it is better not to see them being made.
– Otto von Bismarck

Our politicians make the laws we live under, and set up our tax codes. Whether you love politics or hate it, the process is how our rules are made. News hits, tax tips, and financial decisions can all flow from the interaction of politics and public policy.

While we try to make decisions based upon the laws as they are, we sometimes have to make intelligent decisions based upon what is likely to happen based on proposals. While no President gets their exact agenda through Congress, usually new Presidents are able to bend tax policy close to their preferred goals. As a result, we track proposals from the White House, to see what impact they have on the decisions that our clients are making, and help them adapt accordingly. Paying attention to the state of politics, including which party has Congressional majorities and what is being proposed can impact your planning process.

“No man’s life, liberty or property are safe while the Legislature is in session.”
– Gideon John Tucker

Generally regulations get more complicated instead of less, and the tax code is no different. While once a generation tax reforms attempt major changes of the tax code, the political reality most annual changes are small and involve minor changes, regardless of public policy objectives.

The The Tax Cuts and Jobs Act (TCJA) didn’t pass until December, but large chunks of it were relatively well established months prior. The state of politics made it clear that something was going to pass, so preparing for the possible outcomes was an important tax planning strategy. The new qualified business income deduction was one of the most significant small business tax changes, and changes for 2018, and required that companies quickly adapt to the new rules for 2018 to take advantage of it.

Similarly, during the COVID-19 Pandemic crisis, rules were changing daily, and programs ran out of funds within days. Those that filed earlier for the EIDL Advance received it, even in the abbreviated $1,000/employee form that the SBA morphed it into, while those that waited to see what happened generally received nothing.

The IRS and SBA originally made PPP forgiveness less taxpayer friendly, intentionally disregarding the intentions of Congress by reducing your deductions by your PPP forgiveness and reducing your PPP forgiveness by your EIDL Advance. It was relatively clear that Congress was going to force the IRS to change, so there were reasons to slow walk the application process and wait until the rules became more clear. On the other hand, if you planned on your unemployment payments continuing after August 1st based upon the assurances of Speaker Pelosi that they would be retroactive, you would have been disappointed. It is important that you treat public policies proposals as possibilities to be plan for, not certainties to expect.

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