Unemployment Extension vs. Tax Breaks for Ponzi Schemes


Most people look at accounting as something that’s boring but necessary for society.  I disagree as it can get downright interesting at times depending upon what you’re doing.  In a way, practicing accounting is like observing a canary in the coal mine in the sense that you often see what’s happening in the economy at ground level so to speak.  This is so because whatever is happening on a macro scale is always going to show up someone’s numbers. 

Anyway, I’m sure everyone remembers Bernie Madoff, the guy who ran off with $ 50 billion in a Ponzi scheme.  In the wake of his comeuppance, a number of other smaller schemes were also uncovered.  It’s like these guys had a little fraternity going and it’s still uncertain how extensive this sort of thing was.  With respect to Madoff, to this very day I’m unaware of any other significant prosecutions.  I guess we’re supposed to believe that he did this all by his lonesome.

Well anyway, I was completing a return for someone today who was a victim of one of the smaller operators and I had to research the code to determine how exactly to treat the loss.  I’ll spare you the details, but suffice it to say that the IRS significantly liberalized the rules governing losses from investment scams such that the victims can write off nearly all of the losses.  Effectively, this means that the US taxpayer is subsidizing the losses of the mostly wealthy investors caught up in these various scams to the tune of about $ 15 to $20 billion plus.  To escape public wrath and to keep this from view, the IRS alone was allowed make the call which gave congress cover.  Again, this is a very significant liberalization of the internal revenue code to accommodate this group which should have been legislated. I might also add that this liberalization wasn’t paid for so it will add to the deficit. 

Flash forward to today.  A battle will be brewing in congress over extending unemployment benefits to the unemployed which is going to cost about half  (about $ 9 billion) of the amount of the tax break given to the Ponzi scheme victims.  The republicans are holding up the legislation because they want it paid for and are using poll results to back up their claims that the majority of the people want the unemployment extension paid for.  Of course, no one bothered to query the people on whether or not a tax break should have been given to Ponzi scheme victims in the first place, let alone whether it should have been paid for.  The number of people affected by expiring unemployment benefits is about a million people.  At best, the number of Ponzi scheme victims is a few thousand people, yet the taxpayer has to pay more for them than the nearly one million folks about to run out of unemployment benefits. 

This is why we can’t have an honest debate or discussion in this country anymore.  If we’re going to insist that everything be paid for, then everything should be paid for.  If we’re going to legislate spending, then everything should be legislated rather than having the IRS pass backdoor legislation to benefit a very small group of people. 

What if we had an honest poll?  Let’s ask everyone if they’d rather pay taxes to help a few thousand Ponzi scheme victims or the millions of unemployed.  What do you think they’d choose and why aren’t the questions posed in that context?  The vast majority of the people have no clue of this huge tax relief given to the mostly wealthy victims of Madoff and the other scammers.  It’s clear to me that opinion polls are often shaped by the information that’s filtered and provided, hence they’re frequently unreliable as most folks only have half the information they need to form an opinion.

To be sure, there’s a need for fiscal responsibility and I agree that everything needs to be paid for.   We just need everything on the table.

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