Arbitrary Tax Laws Steal from Peter to Pay Paul; Leave Millions Out in the Cold

(MoneyWatch)  There was a collective cheer from prospective home buyers and Realtors when the government chose to extend and expand the first-time home buyer tax credit last week. But many of the people who read my explanation of the law in the LATimes last Sunday (or read Ilyce Glink's on MoneyWatch), were not. Neither was I.

These readers were left out in the cold. And I was left with the impression that our nation's tax laws have become increasingly arbitrary and capricious.

A quick look at my mailbag might give you an inkling as to why:

• We purchased our primary home in Miramar on August 13 of this year. Would we qualify for the credit?--Alex. Answer: No.
• I owned the principal residence for 2 years only (2006-2008), am I not qualified for either $6,500 nor $8,000 credit?--June. Answer:You're not qualified
• I just closed escrow on Oct. 29th. Does that mean I missed the credit by a few days?--Dan. Answer: Yes.

This, by the way, was the second time that a vast number of consumers contacted me because rapid-fire changes in tax law promised windfalls one day before a seemingly arbitrary rule change or cut-off date ripped them away.

With the "cash for clunkers" law, hundreds of consumers complained that government grant money had been denied because the EPA did a last-minute update of mileage ratings and reclassified dozens of cars. People who qualified for a $4,500 break on Thursday were told they got nothing on Friday.

I may be old fashioned, but I think tax rules ought to treat similar taxpayers in similar fashion, and should provide you with some ability to plan. After all, the government supposedly creates breaks to encourage behavior that's good for the economy.

But these here-today/gone-tomorrow breaks treat our tax code like a lottery. If you happen to buy a house or car at just the right moment, you might get a windfall. If you miss the date by a day--or the EPA has a change of heart on your mileage rating--you're out of luck.

And what of all the taxpayers who can't afford to move or buy a car? They're paying the tab for the people won the tax-lottery. Or, rather, their children (and grandchildren) are because our tax breaks are being financed by an ever-widening federal budget deficit that is already so huge that it threatens the nation's economic health for decades to come.

Worse, legislators are already discussing how to turn the health reform bill into a Christmas tree of tax breaks and federal giveaways for their friends, constituents and favorite causes. Is it just me, or do you also want this to stop?

I feel a bit like Diogenes here. Is there anyone else out there looking for a system that's fair and predictable, where everybody pays at least some tax and no one pays an extraordinary amount to finance lottery-like breaks for the favored few?