Tax Day Rip-Off

Even if you’re high-minded and believe, with Oliver Wendell Holmes, that “taxes are the price we pay for civilization,” there’s always something irksome about writing those big checks come April 15. But this year there’s something new to make your blood boil. A little-noticed ruling by the IRS in March, will, according to The New York Times, “allow victims of Bernard L. Madoff’s huge investment fraud to claim a tax deduction related to the bulk of their losses.” This is being done through an easing of some arcane rules involving theft losses, and there are details I don’t pretend to understand. But one thing is maddeningly clear: Because many of Bernie’s victims were people rich enough to have millions of dollars to place with him, and thus people with marginal tax rates near 50 percent, that means the government—i.e. the rest of us—will be picking up roughly half the cost of many wealthy people’s stupidity.

On what theory of justice do we absorb the full loss of getting ripped off while Madoff’s victims get to shift half of theirs to everybody else? Yes, we were idiots to let it happen, but so were Steven Spielberg and Uma Thurman.

Why on earth should we bail these people out? And why draw the line at Madoff’s victims? This is no abstract question at our house. During a home renovation we did in 2008, our decorator defrauded us out of $37,000. This woman, a previously respected member of the community (like Bernie), intentionally deceived us and used our money for things having nothing to do with our fabrics, furniture, and upholstery; now she says the money’s gone and she’s filed for bankruptcy-court protection. On what theory of justice do we absorb the full loss while Madoff’s victims get to shift half of theirs to everybody else? Yes, we were idiots to let it happen, but so were Steven Spielberg and Uma Thurman. Our accountant says the most we can do is use our decorator’s rip-off as a capital loss to offset capital gains (something that, after the last 18 months, we’re not sure we’ll show again in our lifetime). But the IRS says Madoff’s wealthy victims can use their losses against ordinary income. I know this may not be as sympathetic a plea as Job’s, but on tax day the question seems pressing nonetheless: Why do only the richest idiots get this fraud write-off?

To be sure, Madoff had many less well-heeled victims, and I’m not going to stand between them and their deduction. I say, let’s means-test it. And Elie Wiesel I have no problem with. The man’s a Holocaust survivor, he’s suffered enough. But Mort Zuckerman?

I don’t know about you, but I’m starting to feel like a sap. I learned to live with it when some of President Obama’s nominees didn’t pay their own taxes straight up; it’s a crisis, I thought, give the president the team he wants. I was open-minded when the bank bailout was designed to enrich hedge funds and private-equity firms; sometimes, to muscle through a mess, I thought, you need to harness the capital that’s there. But now average Americans are being forced to pick up the tab for the dumb investment choices of some of the wealthiest people in the country. Maybe those tax revolt “tea party” organizers are on to something.

Matt Miller, a senior fellow at the Center for American Progress, is the author of The Tyranny of Dead Ideas: Letting Go of the Old Ways of Thinking to Unleash a New Prosperity. He hosts “Left, Right & Center,” public radio’s popular weekly political roundtable, and blogs at mattmilleronline.com.