If ever you needed an illustration as to why the tax code needs to be scrapped in favor of something else, here it is.

The National Association of Home Builders has been using all of their political might to get a tax loss carryback included in the various stimulus and budget bills. They finally succeeded with the Obama 2010 budget. It provides a loss carryback of five years instead of the normal two. To put that in plain English, the home builders would be able to take the losses they’ve experienced recently and apply them to the fat and happy years. That reduces the profits they already reported and upon which they paid taxes. Since the previously reported profits are now smaller they get a refund on the taxes they paid on the originally reported big profits.

Now the NAHB is being rent asunder because the Obama bill only lets the small home builders in on this gravy train. The big guys are irate and blaming the NAHB president for writing a letter suggesting that if the big homebuilders were included they would abuse this plum. Here is how the WSJ describes the issue.

The measure had been part of the $787 billion economic stimulus plan, but it was revised at the last minute to let only small companies, including very small home builders, use the five-year carry-back. A more generous net-operating-loss measure that would include large businesses such as large home builders has gained new life under President Barack Obama’s budget proposal.

The large home builders and some small builders were outraged that Mr. Howard wrote a letter to House Speaker Nancy Pelosi amid debate over the stimulus, expressing concern that large builders might abuse the tax break to dump land at discount prices to generate a tax loss and then buy the land back when the market recovers, putting some smaller builders at a disadvantage.

While Mr. Howard said he supported the tax break, he proposed safeguards to prevent possible abuse.

Now I know you would be shocked if the large homebuilders did something to game the system. And shame on Mr. Howard for suggesting that maybe the Congress should be happy with how it doles out the candy. But really, doesn’t this demonstrate how completely out of control all of this has become.

We truly have entered a realm in which power and patronage determine the winners and the losers. Not only is the Congress being petitioned for special favors but the petitioners cannot even agree among themselves as to what to ask for. There is a name for this sort of political system but it isn’t capitalism or free market.