Writers are articulate people and, when they are so inclined, noisy ones as well; if they unite in righteous protest, as they do over any number of issues, one does well to take their lamentations with an ample dose of salt. But in the furor over a footnote in the Tax Reform Act of 1986 the writers and their representatives are absolutely, incontrovertibly correct; if Congress fails to amend the act so as to take their grievances into account, it will be an abrogation of responsibility and a repudiation of the notions of fairness out of which, so we were told last year, the act was formulated.
Up to now I've refrained from public comment on this issue for a couple of reasons. The first is that the writers' complaints struck me as exaggerated; only now, having studied the matter with some care, am I convinced of the legitimacy of their case. The second is that I am myself at work on a book, contracted to a publisher who has paid me an advance against royalties, and thus under the unamended Tax Reform Act I will suffer a financial pinch that I could not anticipate when the contract was signed; but my losses will be bearable, so the wisest course seems to be to acknowledge an element of self-interest and press on to the larger matters at hand.
What is at issue is a footnote to the tax act that was inserted by the staffs of House and Senate committees when the proposed law was in conference last year. Staff members thought that it had been established practice for writers to capitalize income and expenses and to file tax returns accordingly -- that is, to follow standard business practice and, after projecting income over future years, to amortize deductible expenses at an appropriate rate. Thus, in a section of the bill pertaining to the production of "tangible" property, a footnote requiring the writers of "books, and other similar property," to capitalize their costs was added.
All of which doubtless was done in good faith and in what the staff members believed to be proper interpretation of past practice, except that previous tax law had never included authors under capitalization requirements and no public hearings were ever held on the question of authors' tax liabilities. According to Helen Stephenson, executive director of the Authors Guild, "no member of the Ways and Means Committee or the Senate Finance Committee recalls a discussion about the footnote"; it simply passed into law, unnoticed, when the full bill was enacted.
But now that it is law, there is significant sentiment within the Treasury Department and the Internal Revenue Service and even, inexplicably, on Capitol Hill, for keeping it just that way. This is understandable, since people who work in Treasury and the IRS are charged with increasing the revenues of the federal government and with enforcing the tax laws as they now exist. The only trouble is that those laws, as they now pertain to writers, are manifestly unfair.
In a nutshell, the new law magically transforms writers from self-employed professionals, which they are, into business companies, which they are not. As interpreted by the Treasury, the law isolates writers as the only self-employed professionals who must conform to complex and burdensome capitalization requirements that do not pertain to doctors, lawyers, accountants and others who work for themselves.
What this means is that writers, who previously had been allowed to deduct business expenses as they were incurred, now must amortize those expenses over the anticipated income-producing life of their work and can only deduct expenses in years when income is earned. If a writer receives a $20,000 advance for a book that is due three years later, he can only deduct expenses during the year the advance is paid -- even though he surely will have expenses throughout his labors on the book -- and he cannot even deduct them in full as he pays for them.
Instead he must guess at how much income he ultimately will earn from the book and deduct accordingly. If he spends $15,000 on expenses in the first year, and makes the wild guess that the book will make a total of $30,000 (of which the $20,000 advance is two-thirds) for him over three years, he gets to deduct only $10,000, since that is two-thirds of his expenses; the additional $5,000 he has already spent on expenses cannot be deducted until he receives the remaining $10,000 from his publisher -- if he ever does -- or until the book ceases to produce any income at all. In sum: Even though he has entirely legitimate business expenses, he cannot deduct them in full at the time of incurring them, as other self-employed professionals can, for the simple reason that he is a writer. No other reason has been given.
This is as ludicrous as it is unfair. Writers can no more predict income from their books than they can walk on air, though the one safe prediction is that their income will be less than they hope. Further, capitalization requires them to go to extremes of financial record-keeping that will leave them scarcely a moment for writing; such bookkeeping is common practice at businesses, which have accountants trained at such matters, but it is wholly beyond the ken of the ordinary writer.
Speaking of whom, it must be emphasized as strongly as possible that it is the ordinary writer who will suffer most from this footnote. Some famous and wealthy writers have come to Capitol Hill to argue against this bill, but they have done so less in their own interest than to speak up for others. The real losers will be the relatively unknown free-lancers who are trying to make a living -- as entrepreneurs, if you will -- in a difficult and highly competitive market. They don't have accountants and they don't party at Elaine's; most of them make less than congressional staffers and other government employes, and they have to pay their own office and business expenses into the bargain.
Free-lance writing is not a glamorous business; few of those who practice it ever make much more than a living. Even if they ultimately do, the process can be long and hard. During the seven years he worked on "Common Ground," for example, J. Anthony Lukas averaged barely $10,000 a year in publisher's advances; his expenses were large and prolonged, but he was able to deduct them, which made his financial burdens somewhat less onerous. This meant, among other things, that he felt in a position to make a major change in the book's structure that necessitated an extra year's work. But under the present law his deductions would be far more limited, and as a result, he says, he might have felt constrained to press on with the book's original conception; and a book that is widely admired in political circles, as elsewhere, might not have become the classic that in fact it is.
So that casual little footnote has the potential to have a chilling effect on the writing of books in America; for no apparent reason except a failure to understand how writers' business expenses had been deducted in the past, their right to those deductions has now been sharply curtailed. With no opportunity to defend or explain themselves in public hearings, writers have been burdened with what amounts to a punitive restriction that comparable workers are not required to bear. Surely this was not the intention of Congress, where the written word has always been held in high esteem; surely Congress will acknowledge its oversight and restore writers to the full rights, unabridged by "compromise," that previously, and legitimately, were theirs.