Thursday, January 22, 2009

Insanity - Retroactive Refunds

So let's say April 15th is coming up and you've barely scraped by this past year. I'd say you'd be expecting a refund to help you out since you more than likely will have paid in more money to the government than was required of you. That's all fine and good. But you could always use more, right? Well no problem. How about we look at all of the money you paid the government over the past five years, too. Then we'll take 90% of your losses from this year and carry them backwards against what you paid in once upon a time. That will make your refund bigger this year to help soften the blow.

That's a proposed portion of the "tax cuts" portion of the stimulus plan, reported today by the Wall Street Journal:

Included in the package is a preference that would allow money-losing companies to get refunds for taxes paid as far back as five years. Current law allows such losses to be carried back only for two years.

Now, two years theoretically makes sense for this application. Let me explain. Imagine you're Nintendo. You just release the Wii and it sells our for a year straight. You recover all your R&D money and post major profits, while immediately beginning R&D on the next system, whatever it may be. You continue to cover your R&D costs for about three years via the revenue stream from the Wii sales. About year four into a normal 5-year R&D cycle, incoming revenue begins to dwindle, and you start to tighten up and possibly post losses during the development of you next system. Some of those losses you're allowed to carry forward. For the rest you are allowed to reach back into the tax you paid on your huge profits from years two and three. Basically it evens out your R&D schedule to help keep your workforce employed and launch the next system.

But reaching back five years? This is completely insane. Now you're reaching back to the launch year when the system was sold out off the shelves every single day and your profits were record high, when theoretically the government would have received a nice windfall in tax revenue, which they then overspent.

You may be struggling to move forward now, or you may even be going out of business. No problem. We're the US Government. We'll take care of you! We're going to go ahead and reach back to that money you paid us way back in the day (that we don't have anymore) and give it back to you because you're a failure now!

Stealing from the future to reward the failures of the present by reaching back to the past.

Bailing out failing big businesses continues. Unbelievable.

But hey, what do I know? I'm just middle class. Like Charlie Rangel says, I'm too busy putting food on my table to realize I'm taking it in the ass.

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