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Musings From Tom Herman: The WSJ?s Tax Reporter Calls It a Day

By Ashby Jones

After 16 years as the WSJ’s tax reporter, Tom Herman is hanging up the keyboard. With the pain of April 15 still fresh in folks’ minds, we thought we’d blog on what appears to be Tom’s last column before heading off into retirement: a highly engaging grab-bag of tax-related thoughts, musings and reflections.

Tom’s First Column: Tom began working at the WSJ in 1968, but didn’t take over the tax beat until 1993. He describes his first column thusly: “I asked five different tax-preparation services in the Atlanta area to prepare returns for a family of four with fairly typical finances. The results: At one extreme, a tax expert said the family was entitled to a federal income-tax refund of $652.04. But another said the family owed $141 — a difference of $793.04. . . . That experience made me feel somewhat less dumb, but the article didn’t have much impact: Since then, our tax system has evolved from a mess to a nightmare.”

Tom on Where We Stand: “I . . . leave with a growing sense that our tax system is in shaky condition and needs a major overhaul. . . Many people who have held top jobs at the IRS and Treasury agree. Our federal tax system is “so shot through with deductions, credits, exclusions, loopholes and outright noncompliance that it fails in its essential job of raising revenues efficiently,” says Charles Rossotti, a former IRS Commissioner. “The complexity and instability of the tax system also leads people to believe that the average person always gets stuck, while the big hitters find ways to avoid paying, regardless of the advertised tax rates.”

Tom on Where We’re Headed: Toward a more stringent regime, for starters. “President Barack Obama is asking Congress to give the IRS more money, especially for “enforcement.” The message: Prepare for more audits, especially if you make $100,000 or more.”

Second, Tom fears Congress might enact legislation that “backers hope will help clarify the “economic substance” doctrine, long used by courts to disallow benefits from transactions that judges say have no substance or purpose other than tax avoidance.” Tom calls this “dangerous territory,” adding: “Some lawyers think legislative proposals along these lines are so vague that they could torpedo legitimate business transactions. They say judges have done just fine deciding shelter cases without such a law.”

Lastly, Tom doesn’t forsee any big overhauls to the tax code anytime soon. “Why? The pithiest explanation comes from Pam Olson, a Washington tax lawyer. As a Treasury official in 2002, Ms. Olson wrote a memo underscoring the need for a major tax overhaul. But in a section entitled ‘political risks,’ she warned: ‘Any reform is likely to have vocal losers and largely silent winners.’”

Full post as published by Law Blog - WSJ.com on April 17, 2009 (boomark / email).