Loopholes in the law are weaknesses that allow the law to be circumvented. Once created, they prove hard to eliminate. Acase study of the evolving tax unit used in the federal income tax explores policymakers' response to loopholes. The1913 income tax created an opportunity for wealthy married couples to shift ownership of family income between spouses, then to file separately, and, as a result, to reduce their collective taxes. In 1948, Congress closed this loophole by extending the income-splitting benefit to all married taxpayers filing jointly. Congress acted only after the federal judiciary and Treasury Department pleaded for congressional reform and, receiving none, reduced their roles policing wealthy couples' tax abuse. The other branches would no longer accept the delegated power to regulate the tax unit. By examining these developments, this article explores the impact of the separation of powers on the closing of loopholes and adds to our understanding of how the government operates. It concludes that when statutes contain loopholes that are not politically salient, there is a limit as to how long policymakers will accept a delegation of responsibility to police the loopholes.
Stephanie Hunter McMahon, Political Hot Potato: How Closing Loopholes Can Get Policymakers Cookd, 37 J. Legis. 141 (2012)