TEI and the "new normal".

• Author: McCormally, Timothy J.
• Position: Less Taxing Matters

The term "new normal" has been all the rage these days, embraced by Wall Street, Washington, and all manner of pundits and the commentariat. For the last few years, the phrase has been attributed to Mohamed El-Erian, who is CEO and co-CIO of PIMCO, the global investment firm and one of the world's largest bond investors. He uses "new normal" to describe economic conditions after the 2008 financial collapse, and others have invoked the term in a similar vein, sometimes to inoculate themselves for not anticipating or doing more to avoid a bad outcome. ("I'm really sorry about that huge loss in your portfolio, Mr. Smith, but you have to understand--we're dealing with the new normal.")

In researching the origins of "new normal," I learned that the term predates the 2008 meltdown, having been used a decade ago by Canadian Alan Watt to describe the global social, economic, and political changes in society. An author, musician, and radio host, Watt uses his radio program "Cutting through the Matrix" to advance the apocalyptic theory that "cultures are created and altered by those in control, always to lead the people like sheep into the next pasture." Whew.

Regardless of its etymology, the term "new normal" is helpful shorthand for conveying that "gosh, things are different," whether the "things" are the world economy, business environment, political or social climate, or something else. A tax executive could claim, for example, that we experienced a "new normal" after the Sarbanes-Oxley Act became law and again when the Financial Accounting Standards Board released FIN 48 and the IRS issued Schedule UTP.

What neither "new normal" nor a similarly vogue term, "Black Swan," by itself explains is WHY things happened or WHAT is to be done to cope with or compensate for the new environment in which one finds himself or herself. That analysis comes afterward, and is often performed by others. In considering whether the concept of the new normal is helpful, a balance needs to be struck: If you too readily invoke the principle, it can become an excuse for what has happened (a reason not to do a thorough after-action review), but if you resist it too long, you miss (or delay) the opportunity for corrective action.

When TEI decided in 1982 to hire its first in-house tax professional, no one used the term "new normal," but the Institute's Board of Directors did debate whether the events precipitating consideration of the issue--the passage of the Economic Recovery Tax Act of 1981 followed almost immediately by what ultimately became the Tax...