The Big Tax Dodge

You may deduct $25 for a business gift to any one person in a year. That limit was set by the Revenue Act of 1962. The words in the statute today are identical to the words enacted then — not similar, identical.

Sixty-four years. A $25 dinner in 1962 was a real dinner. Today it is a decent bottle of wine you would be embarrassed to bring. Nobody repealed the deduction. Nobody had to.

I bring it up because it is small enough to be undeniable, and because it is the whole argument in miniature. Congress never voted to reduce that deduction. It reduces itself, every year, automatically, and no one has to answer for it.

That is the trick this piece is about. Not overspending — I want to be careful there, and I will show you why in a moment. The trick is that we have separated the decision to spend from the decision to pay, and we have built a tax code that quietly collects the difference.

What is indexed, and what is not

Since the Economic Recovery Tax Act of 1981 — whose Section 104 is captioned, in the statute, “Adjustment to Prevent Inflation-Caused Tax Increase” — the United States has accepted the principle that inflation should not raise your taxes by itself. The Congressional Research Service counts more than 50 indexed items in the code today.

So the principle is settled. The application is selective.

If you don’t do this for a living, here is why that table matters. A frozen dollar figure raises your taxes in two different ways, and neither one requires a vote.

A frozen threshold catches more people. The $25,000 and $32,000 Social Security figures were set against 1983 incomes. They have not moved; incomes have. Every year more retirees cross a line drawn four decades ago — not because they got richer in real terms, but because the line didn’t move with the dollar. Same with the $200,000 investment-income threshold, frozen since 2013.

A frozen allowance shrinks. The $25 gift limit, the $3,000 capital loss cap, and the $250,000 home-sale exclusion aren’t triggers — they’re allowances. When the allowance stays fixed and prices don’t, the share of your real economic loss or gain that the code lets you shelter gets smaller every single year. Same nominal number, less actual relief, more taxable income. A Johnson County couple who bought in 2003 can run straight through a $500,000 exclusion that has not moved since 1997 without having done anything but own a house.

And notice what sits on the indexed side of that table: brackets, the standard deduction, the estate exclusion. Those are the places where Congress decided, in 1981, that letting inflation do the work was unacceptable. The principle was conceded forty-five years ago. It simply was not applied evenly — and the pattern of where it was and wasn’t applied is not random.

The exception is the minimum wage, and it belongs on the list for the same reason: a dollar figure Congress set once and has not revisited. $7.25 since July 24, 2009 — seventeen years last week, the longest stretch without an increase since the Fair Labor Standards Act was passed in 1938. By my own count from Department of Labor and Economic Policy Institute data, roughly fourteen states and the District of Columbia now index theirs automatically. The federal government does not.

It was not an oversight

This is the part that changed how I read the whole thing.

When Congress made Social Security benefits taxable in 1983, it set the thresholds at $25,000 single and $32,000 joint and did not index them. Here is the Congressional Research Service explaining why:

The intent behind using unindexed thresholds in the 1983 legislation was that eventually, over a long period of time, there would essentially be no thresholds and all Social Security benefits would become subject to taxation.— CRS In Focus IF11397

The Tax Policy Center adds that amendments to index those thresholds were proposed and defeated in the Senate. The design worked exactly as intended: the share of benefits subject to tax went from 12.2% in 1994 to 38.2% in 2022.

That is a tax increase spanning four decades, enacted once, never revisited, never voted on again. In my world we have a word for a number that produces a result nobody has to approve. We call it an automated control — and the first thing you ask about one is who benefits when it runs unattended.

The correction I owe you

I started this piece believing the country is under-taxed. The arithmetic does not support that, and I would rather correct myself here than have someone do it for me.

In fiscal 2025, federal receipts were 17.3% of GDP against a 50-year average of 17.3%. Dead on. Outlays were 23.1% against a 50-year average of 21.2%. CBO’s own year-end review says receipts were “matching the average of 17.3 percent for the past 50 years”, and it projects revenue above that average every year through 2036.

So “taxes are historically low” is false. What is true is narrower and, I think, worse: we tax at our historical norm while spending well above it, and we have simply declined to close the difference. That is not an argument about the size of government. You can want every dollar of that spending and still think we should collect for it.

And the bill for that choice does not vanish. It arrives as a smaller dollar. Milton Friedman named this in 1974, and his phrasing is the one I keep coming back to:

Inflation is a form of taxation without representation. It is the kind of tax that can be imposed without being legislated by the authorities and without having to employ additional tax collectors.— Milton Friedman, “Inflation, Taxation, Indexation” (1974)

Then, in the same lecture, the sentence I would put on the wall:

I have talked with numbers of Senators and Representatives, and everyone of them says the same thing: they never would have legislated the present level of taxes deliberately and explicitly. They are appalled at what has happened to the real level of taxes. And yet they have of course benefitted from it and permitted it to occur in an indirect way through inflation.— Friedman, same lecture

We already wrote the rule. Then we built a door in it.

Here is what I did not know before I started looking, and it is the most damning thing in the piece.

The Statutory Pay-As-You-Go Act of 2010 already requires that new mandatory spending and tax cuts be paid for. If the scorecard shows a debit at the end of a session, the President must issue an order making automatic cuts. It is permanent law. It has been on the books for sixteen years.

Although legislation estimated to increase the deficit has been enacted since 2010, a Statutory PAYGO sequester has never been triggered. To avoid any potential sequester, such legislation has often included a provision effectively exempting it from the PAYGO requirements.— Congressional Research Service, R45106

Sixteen annual cycles. Not once. Every year, OMB files a report concluding that an order “is not necessary,” because the legislation that would have triggered one contained a sentence exempting itself.

Two examples, because the mechanics are the story.

The 2017 tax act. CBO estimated it would add $1.46 trillion to deficits over ten years. Putting the PAYGO waiver inside the bill itself was procedurally risky, so the exemption went into a separate companion law signed the same day — a short provision stating that the budgetary effects of the reconciliation act “shall not be entered on either PAYGO scorecard.” Two bills, one afternoon. The cost was never recorded.

The 2021 relief act. This one actually got recorded — roughly $371 billion a year on the five-year scorecard. Then the debit was postponed by one law, postponed again by a second, and finally zeroed out entirely by a third, with the same formula used again in November 2025 to clear the most recent tax act. Four separate laws. Not one dollar sequestered.

I want to be precise about what that is, because “hypocrisy” is too easy and too small. In an audit, a control that exists on paper and is overridden every time it would bind is not a weak control. It is a fictitious one, and its presence is worse than its absence, because it lets everyone point at the rule instead of the result.

The idea is not new. That is the point.

I came to this from thirty years of client work, not from reading. When I went looking, I found that better minds got here decades ago and were ignored.

James Buchanan and Richard Wagner published Democracy in Deficit in 1977. Buchanan won the Nobel in 1986. Their thesis is this editorial:

Armed with the Keynesian message, politicians can spend and spend without the apparent necessity to tax.— Buchanan & Wagner, Democracy in Deficit (1977)

Their prescription was “institutional halters” on the tendency to spend without taxing — a constitutional constraint, not a statutory one, because they understood a statute can be waived by the same majority that wrote it. Which is precisely what happened to PAYGO.

Finn Kydland and Edward Prescott supplied the theory the same year, and won the Nobel for it in 2004. Their point was not that politicians are bad people: “The reason that they should not have discretion is not that they are stupid or evil but, rather, that discretion implies selecting the decision which is best, given the current situation.” They even sketched the remedy: rules covering monetary and fiscal policy, hard to amend, with an emergency exception.

And Alan Blinder — vice chairman of the Federal Reserve from 1994 to 1996 — proposed the institution in Foreign Affairs in 1997. He called it an “independent federal tax authority”: appointees with fixed terms, removable only for cause, “much like the Federal Reserve Board,” but required to publish its reasoning. And he drew the line exactly where I would:

Elected officials would select the ends of tax policy because ultimate goals hinge sensitively on moral, political, and value judgments that should be made democratically by elected politicians. But appointed professionals would design the means to achieve those ends.— Alan S. Blinder, “Is Government Too Political?” Foreign Affairs, 1997

In fairness to Blinder, he hedged: “Without necessarily advocating such a change, let us consider how Congress might make some aspects of tax policy less political.” He raised it for debate. Twenty-nine years later the debate has not happened.

What I would actually do

We have this backwards. The values get relitigated every two years and the arithmetic never gets done. Values should be hard to change. Arithmetic should adapt continuously. We built it the other way around.

So flip it. A constitutional amendment fixing the principles, and nothing else:

1. Every appropriation carries its revenue. Nothing is spent that is not funded in the same act.
2. The bill is dated. Cost falls on those who authorized it, not on people who never got a vote.
3. Every dollar figure in the code indexes automatically. No revenue increase without a vote — including the wage floor.
4. Borrowing buys assets, not groceries. Debt funds durable capital or a declared emergency, never recurring operations.
5. Emergencies are named, dated, and supermajority. Recession and war are real. The escape hatch should be visible, time-limited, and carry a repayment schedule.
6. Incidence is published before the vote. Who pays, by income band, certified in advance.
7. Like income is taxed alike. Carve-outs get their own recorded vote and their own expiration date.
8. Rates follow the arithmetic. Congress fixes purpose and distribution; a technical body sets rates sufficient to fund what Congress bought.
9. The government keeps books to the standard it imposes on everyone else.

That last one — keeping books to the standard we impose on everyone else — is not a rhetorical flourish, and I would put it first if I were ranking them. GAO has audited the government’s consolidated financial statements since 1997 and has never once been able to render an opinion on the accrual-based statements. Not a qualified opinion. No opinion. Alongside that, GAO puts cumulative estimated improper payments since 2003 at about $3 trillion, with $186 billion in fiscal 2025 alone — and says plainly that the real figure may be higher. If a client handed me those books I would not sign anything.

Structurally this is a separation of powers, not a surrender of one. Congress sets the ends. A technical body computes the means. The courts police the boundary — reviewing whether the body stayed inside the enumerated principles, not whether 24% was the wiser number. Nobody in that arrangement is unaccountable.

Three reasons this might not work

A proposal that only lists its strengths is a sales pitch. Here are the strongest arguments against mine.

1. The people who study this for a living say it cannot be done

The International Monetary Fund, in a 2013 policy paper, is blunt:

The case for fiscal policy delegation can be dismissed on both normative and positive grounds, and there is no real-world example of independent fiscal authorities. From a normative angle, all aspects of fiscal policy — including the deficit — are primarily distributive … which precludes delegation to unelected policymakers.— IMF, “The Functions and Impact of Fiscal Councils” (2013)

Their footnote names the objection: the Jeffersonian principle of no taxation without representation. So let me answer it head on, since it is the argument I most often hear.

The spending vote is the representation. When your representative votes to fund a program, you have been represented in the decision to incur its cost. Treating the revenue side as a separate imposition requiring separate consent is what created the dodge in the first place — it invented a second vote that can be skipped. And my amendment does not delegate the distributive question at all. Congress keeps who pays and what for. The delegate computes how much. That is Blinder’s line, and it is the whole design.

Over fifty countries now have independent fiscal institutions. None of them sets rates. I am proposing something that does not currently exist anywhere, and I would rather say that than have it discovered.

2. Constitutional rules get amended rather than obeyed

Germany wrote a debt brake into its Basic Law in 2009. In March 2025 the Bundestag amended that constitution by 512 votes to 206 to create a defence carve-out and a €500 billion exempt infrastructure fund. The result: the 2026 federal budget carries roughly €98 billion of core borrowing, of which only about €40 billion falls under the rule that was supposed to constrain it.

That is the honest counterexample, and it cuts hard. A supermajority-entrenched numeric ceiling did not survive contact with a defence emergency. My answer — and it is a claim, not a proof — is that this is exactly why an amendment should fix principles rather than numbers. A rule that says “0.35% of GDP” becomes wrong when circumstances change and must be amended. A rule that says “whatever you buy, you fund” does not.

3. We have tried enforcement before and courts have views

In 1985, Gramm-Rudman-Hollings set declining deficit targets with automatic cuts. In Bowsher v. Synar (1986) the Supreme Court struck down the enforcement mechanism, holding that Congress had “retained control over the execution of the Act, and has intruded into the executive function.” Worth noting for anyone building on this: the lower court rejected the argument that the delegation itself was unconstitutional, finding an adequate governing principle. What failed was who held the trigger, not whether the trigger could exist.

I am a CPA, not an attorney. The case citations above are quoted, not construed, and anyone drafting an actual amendment should be talking to constitutional counsel rather than to me.

What I would write in the management letter

Strip out the constitutional ambition and there is a smaller, entirely achievable version of this, and it is what I would put in a findings letter:

• Index every dollar figure in the code, or vote on it. If a threshold is supposed to erode, make Congress say so out loud on the record.
• Remove the self-exemption. A bill should not be able to waive the rule that governs it, in itself or in a companion signed the same day.
• Get an audit opinion. Twenty-nine years without one is not a technical matter. It is the finding.

None of that requires agreeing with me about the amendment. It requires treating the federal books the way we require every business in this country to treat its own.

And if it reads like I am unreasonably attached to knowing what things cost — guilty. It is the same discipline I bring to a client’s books. Most of the value I add is not finding a deduction. It is making the invisible visible before somebody makes a decision on top of it.

Questions

Open any of these for the answer and the source.

Sources

Everything above is linked in place. Collected here so the record can be checked without hunting through the piece.

This piece is opinion and analysis by a certified public accountant. It is not tax, legal, accounting, or investment advice, and it is not a political endorsement of any candidate, party, or officeholder. Nothing here is a legal opinion: where statute, regulation, or case law appears, the primary document is quoted rather than construed, and anyone acting on these questions should consult a licensed attorney. Tax provisions described here are stated as of July 2026 and are subject to change; do not rely on this article for the treatment of a specific transaction without professional advice.

Every factual claim links to a primary document, a nonpartisan research body, or a published work, and all sources are collected above. Where a figure could not be sourced it was omitted and the omission is disclosed in the questions section. Where my own initial position was contradicted by the data — specifically, the claim that federal revenue is historically low — the correction appears in the body of the piece rather than in a footnote.