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Wednesday, December 19, 2018

The Disadvantages of Postponing Tax Increases 

Local governments generally impose taxes to pay for services to their residents. Among those services are police protection, fire protection, hazardous material removal, street lights, traffic signs and signals, trash collection, recycling, libraries, snow plowing, and a long list of other benefits. Not every jurisdiction provides all of these services but all jurisdictions provide at least some of them.

Local officials continually explain their desire to avoid raising taxes. To do this, they cut services or find ways to provide the same services for a cheaper cost, which often causes a reduction in the quality of services. Over time, the cost of providing services increases as costs generally increase. Workers need raises to keep up with inflation. Materials purchased from third-party suppliers increase in cost.

What happens when the postponement of tax increases can no longer be maintained? An answer can be found in this report, which explains that the local property tax in Allentown, Pennsylvania, will increase 26 percent next year. One need not be a tax expert to predict the reactions of property owners. Yet there is another twist. Somehow, for 13 years, the city managed to avoid increases in the property tax. In retrospect, would taxpayers have been less upset if each year the property tax increases by roughly 1.7 percent? That amount of an annual increase is equivalent to postponing increases for 13 years and then raising taxes by 26 percent.

Different individuals have different preferences when it comes to dealing with price increases. Some might prefer small annual increases. Some might prefer waiting and taking the big hit. To make a good decision, a person would need to know at the outset what the increase 13 years later would be, and would need to know, or at least have some idea of, whether they could invest what would otherwise be the annual 1.7 percent increase and obtain a better than 26 percent return over the 13 years. Of course, it isn’t possible to have that information at the outset.

The worst aspect of this approach, of postponing increases until a large increase is necessary, is the inability or unwillingness of people to set aside funds to cover the possibility that this will happen. Of course, most taxpayers think that holding taxes constant will continue forever or that when taxes are increased, the increase will be small and manageable. Unfortunately, it doesn’t always work out that way.

Monday, December 17, 2018

Warped Perspectives on Tax Policy 

Facebook is beginning to challenge television court shows as a provider of material for this blog. A few days ago, someone posted a meme that showed up on my newsfeed. It was a picture of several elderly gentlemen sitting on a bench, with the following caption: “After the age of 65 you should be 100% tax exempt. You have already more than paid your dues. Like and share if you agree.” Of course, I did not like or share the post. But I did comment.

My reaction to this meme was simple. It was a rhetorical question. I asked, “So those 70 year old billionaires would be tax-exempt? Really?”

The first response was a comment that failed to address the question. It was a typical me-focused, toss-aside-a-wider-perspective analysis, the sort that leads to stereotyping groups because of one person or incident. The response stated, “I just turned 65 and I've paid my fair share.” Was this response intended to imply that all people who have “just turned 65” have paid their fair share, whatever that might be? Does it distinguish between people who have attained the age of 65 and are wealthy and those who have attained the age of 65 and are destitute? Or does it lump together all persons who have attained the age of 65 without distinguishing economic situations even though the issue is an economic issue?

The second response was another example of this narrow, view-the-world-through-my-lens-and-ignore-the-wider-perspective thinking that is destroying not only the nation but the planet. The response stated, “I totally agree with these old gentlemen . Work your aaa off for over 45 years, pay more than your fair share and the Govmt , still taxes your partial pension, they screw you coming and going . And now they want to screw You again , while congress has all the perks of men and women who goof off.” Without defining “fair share,” this commenter went beyond the claim of the first commenter and decided the payment had been “more than” a fair share.

What particularly caught my eye was the complaint that “the Govmt , still taxes your partial pension.” To the extent that the pension is paid out of funds that have not previously been taxed, it is income. The extent of taxation depends on the amount of the pension. If the pension is a small amount, the recipient’s standard deduction, and in years before 2018, personal exemption deduction, most likely offset the pension, creating a zero income tax. Even adding in social security payments might not trigger an income tax liability. Of course, if the pension were higher, or when social security benefits were added in, the total was high enough, there would be an income tax, but it would be a smaller percentage than if the pension and social security payments were added to large amounts of investment or trust income. In other words, the income tax accounts, to a greater or lesser extent, for the economic condition of the recipient of a pension and social security. I tried to make this point in my response, in which I stated, “Not everyone who has reached the age of 65 has paid their dues. Age is one thing. Income and wealth and taxes are another.”

The observation that “they screw you coming and going” suggested to me that the person was complaining about being taxed on wages and salary and then being taxed on a pension or other retirement income such as social security. So I pointed the readers of the facebook thread to an explanation I had provided last year, in Does the Taxation of Social Security Benefits Constitute Double Taxation?, in which I wrote, in reaction to a claim that the taxation of social security benefits “represent double taxation”:
I disagree with the scope of [that] observation. . . .

My reason for disagreement rests on how the social security system works. Employees and employers make payments into the social security trust fund. Employees, when they retire or become disabled, and in certain instances their spouses, when they retire, and their dependents, if they are minors when the employee dies, receive lifetime benefits. Sometimes an employee collects less than what the employee paid into the system. One example is an unmarried employee who has no dependents who dies shortly before reaching retirement age. Far more often, though, employees, or their spouses and dependents, collect more than what the employee paid into the system.

When an employee collects more than what the employee paid into the social security system, the employee has income. It is fair to tax that income. The sensible way of doing this is to permit the employee to exclude social security benefits from gross income until the employee has received what the employee paid into the system. At that point, all of the benefits should be included in gross income. If those benefits are the retired employee’s entire gross income, the effect of the standard deduction and the personal exemption deduction would be to generate either zero tax or tax computed at the lowest rates. If the retired employee has substantial amounts of other income, the social security benefits would be taxed at higher, and perhaps the highest, rates.

Under the current system, some social security benefit recipients do not include any social security benefits in gross income, even when they receive more than they paid into the system. There is no double taxation in that situation. Others include some portion of the social security benefits in gross income, and often they live long enough so that the portion of social security benefits not included in gross income over the years is at least the amount that the person paid into the system. Again, there is no double taxation. Double taxation exists when the recipient dies before receiving back what was paid into the system, and yet includes some of the benefits in gross income. The reason for this inconsistency is that current law measure social security gross income with a bizarre formula that reflects the recipient’s adjusted gross income, certain adjustments, and varying portions of the social security benefits. Thus, some social security recipients encounter double taxation, but most do not.
Taxation of private retirement income, such as pensions, is not quite as complicated nor bizarre, but the overall concept is that the recipient is taxed on amounts paid into the retirement fund without being taxed at the time. This would include nontaxable employer contributions and employee contributions taken out of compensation and excluded from gross income.

It is unfortunate that much of the political and social unrest, including angry reactions to taxation, reflects a lack of a wider perspective that can be acquired both through formal education and through traveling outside the bubble, whether it’s a gated community, a closed social or religious community, or a neighborhood characterized by a singularity of perspective. Too many people think that when the encounter something, it becomes a truism. Thus, we observe people attaining a particular age and turning it into a category with attributes reflecting a singular or limited experience. So we see “I am over 65, I have paid taxes, I am being taxed on my pension, and I don’t have as much money as I would like” being translated into “Everyone who is over 65 should be exempt from paying taxes because [presumably] everyone over 65 is in the same position I am in because everyone over 65 is in the same economic position.” The flaw in the reasoning, if that is what it can be called, is obvious the moment thought is given to the proposition. The inability to view things from a wide enough perspective, reflecting a broad exploration of life, causes people to see things from a warped perspective, one that does not reflect all of reality. Here, I saw it with respect to taxation, but it exists not only with respect to economic issues but also with respect to political, religious, cultural, and social issues. It’s a narrowness of experience that become a narrow-mindedness of cognitive dissonance. It is a dangerous thing except for those who profit from the narrow-mindedness of the masses.

Friday, December 14, 2018

Judge Judy Identifies Breach of a Tax Return Contract 

I’ve never counted, but my guess is that tax related cases show up in television court shows more often than most issues other than gift versus loan, dog attacks, and vehicle accidents. These sows have provided me with numerous opportunities to explore the tax woes of plaintiffs and defendants. My commentaries include Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, Fighting Over a Tax Refund, and Another Tax Return Preparer Meets Judge Judy.

So it’s no surprise that a few days ago I encountered a rerun of a Judge Judy episode (Season 22, Episode 231) from earlier this year that involved a tax issue. That I did not see the episode when it originally airs simply demonstrates that I’m not always watching the television in hopes of finding material for MauledAgain!

The facts of the case were simple. A man and a woman lived together, did not marry, had a child, and separated. When they separated they entered into a separation agreement. They agreed that the child would spend half of her time with each parent, that each parent would support the child when the child was with the parent, and that no child support would be paid by either parent to the other. In the contract, the parents agreed that the mother would claim the child as a dependent for tax purposes in odd numbered years, and that the father would claim the child as a dependent in even numbered years.

The story became complicated when the mother went to jail for three months during an odd numbered year. During that time the child lived with the father’s parents because the father at that time was not employed. When the father filed his federal income tax return for that odd numbered year, he claimed the child as a dependent. He then paid the mother $1,000 to account for the fact that he claimed the child in a year that “belonged” to the mother.

The mother sued the father, seeking “the other $2,000” and the father counterclaimed for return of the $1,000 he had paid the mother. The father argued that the mother’s inability to support the child during the time she was in jail during the odd numbered year nullified the contract.

Judge Judy held that the contract was in force, and that the father had breached the contract. She held that he owed the mother $2,000 and that he was not entitled to receive back the $1,000 that he had paid.

Two questions popped into my head while watching the episode. I wondered, how did the parties compute the $3,000 of tax savings attributable to claiming the child as a dependent? My guess is that it was a combination of the reduction in tax due to the dependency exemption and the reduction in tax due to credits based on having a child as a dependent. Whether the amount reflected the decrease in the father’s tax liability, or what the mother would have saved had she claimed the child is unclear. I also wondered, did the mother claim the child as a dependent and then receive a disallowance from the IRS or did she know what the father had done and avoided complications by not claiming the child? The answer to that question was not provided during the show.

It is unclear if the parties had professional advice when they decided to enter into, and sign, the separation agreement. My guess is that the father did not have professional advice when he decided to claim a dependency exemption that he had agreed the mother was entitled to claim. It is very unlikely that the agreement contained a provision addressing what would happen to the dependency exemption if either parent was unable to take custody of the child for one-half of the year. Perhaps it should have had such a provision.

Wednesday, December 12, 2018

Another Tax Cut Failure 

The December 2017 tax cut legislation has wrought all sorts of damage to the American economy. Some taxpayers not in the top one percent rejoiced when they received tiny raises or paltry bonus payments, but many of them, unlike the still-too-poor one percent, will be forking those dollars back to the Treasury come tax filing season in early 2019. Job numbers appear better, but it’s a short-term phenomenon and most of the new jobs are minimum wage opportunities. The federal budget deficit is growing as though it were on steroids.

Now comes more bad news. One of the claims made by the proponents of the always-failing supply-side, trickle-down economic theory was that the reduction in corporate tax rates would bring back into the United States money stashed overseas by corporations. Supposedly, the return of this money would create jobs, though the fallacy in that claim is that corporations do not simply create jobs because they have money, they create jobs if they need workers, and if the 99 percent cannot afford to purchase the goods and services offered by the corporation then the corporation doesn’t create jobs. At one point, the administration that pushed the 2017 tax legislation, despite having promised to push legislation that allocated all of the tax cuts to the 99 percent, claimed that the reduced corporate tax rates would cause $4 trillion in cash to come back into the country from overseas. Now comes news that, once again, reality trumps theory and boasting. According to this Bloomberg report, the repatriation of these earnings started off slowly and slowed even more. During the first quarter of 2018, the first after the enactment of the 2017 tax cut legislation, corporations brought $295 billion of earnings back into the United States. During the second quarter, the amount dropped to $170 billion, and the estimate for the third quarter is between $50 billion and $100 billion. That’s a total of $515 billion to $565 billion. That’s just about halfway to ONE trillion dollars, and it’s nowhere near FOUR trillion dollars. Not even close. And one doesn’t need to be a mathematician to figure out that each new quarter will bring diminishing amounts, so that after ten years it’s unlikely that much more than one trillion might be repatriated.

Many companies are keeping their cash overseas, and some have publicly announced that they are doing so. One reason is that many other countries impose “onerous” taxes when the money is taken out of their jurisdiction. I wonder if the architects of the “lower tax rates and the money will cascade into the United States” theory paid attention to the realities of a global economic marketplace. They were too busy, I think, selling the false claim that corporate tax rates in the United States were the highest in the world to pay attention to the reality of other countries’ exit taxes.

Monday, December 10, 2018

To Itemize or Not To Itemize 

To me, the decision whether to itemize or not to itemize is an easy one to make. Yet for years the question has generated a variety of commentaries, articles, analyses, suggestions, and other explorations. The latest one that I’ve seen is It may be time to stop itemizing your taxes. The author provides “four things tax pros say could indicate that it's time to stop itemizing and take the standard deduction.” These are “1. YOU DIDN'T PAY A LOT OF MORTGAGE INTEREST. . . 2. YOU USED THE DEDUCTION FOR STATE AND LOCAL TAXES. . . 3. YOU DIDN'T DONATE A LOT TO CHARITY. . . 4. YOU DIDN'T HAVE HUGE MEDICAL EXPENSES.” Notice that the term “a lot” is used twice and “huge” shows up in one of the “things.”

For me, the answer is simple. Do the math. Add up the itemized deductions and compare the total to the standard deduction. Tax preparation software does that automatically. Yes, I know that the process of keeping track of itemized deductions requires some time and effort, but software used to track financial transactions also does most of the heavy work for that task. The significant itemized deductions are easy to identify: local real property taxes, usually paid once a year, charitable contributions, for which donees provide statements and the checkbook software tallies, mortgage interest, identified by a statement from the lender, and so on. When doing the math, “a lot” and “huge” are not numbers that enter the equation.

In the article, the author, after pointing out that “many taxpayers . . . ponder. . .” the question, suggests that “a major plot twist may make the issue even more vexing for some this tax season.” What is the “major plot twist”? The 2017 tax legislation increased the amount of the standard deduction. That will change the decision for some taxpayers but it doesn’t change the process. Do the math. It simply means that a different number is used to compare to the total itemized deduction number.

There are plenty of other “plot twists” in the 2017 tax legislation about which taxpayers need to worry. Most are disadvantageous to those who are not wealthy. It seems to me that the existence of “additional tax due” is going to be far more vexing for taxpayers than the simple task of comparing two numbers.

Friday, December 07, 2018

Conflicting Tax Provisions in Colorado Constitution Remain Unresolved  

The Colorado Constitution sets a fixed ratio between real property taxes collected from assessments on residential properties and real property taxes collected from assessments on commercial property. For this to happen, the legislature must adjust rates each year as assessments change to maintain that fixed ratio. This means that unless total assessments on each class of property remain the same, the rate on one class will increase and the rate on the other class will decrease. However, the Colorado Constitution also requires that any increase in a tax or tax rate must be approved by voters. These two provisions create a conflict.

Because of the conflict between the two provisions, the governor of Colorado, following another provision in the state’s Constitution, asked the Supreme Court to determine which provision should take precedence. The governor was joined in making the request by various local taxing districts and state and local tax officials.

What did the Supreme Court of Colorado decide? According to this report, the court declined to provide an answer. The court simply issued an order that stated:
Upon consideration of the Interrogatories Pursuant to Article VI, Section 3 of the Constitution of the State of Colorado Propounded by Governor John W. Hickenlooper Concerning a Conflict between Section 3 and Section 20 of Article X of the Constitution of the State of Colorado filed in the above captioned matter, and being sufficiently advised in the premises, the Court announces that it will DECLINE the Interrogatories as propounded by Governor John W. Hickenlooper.

BY THE COURT, EN BANC, DECEMBER 3, 2018.
It’s anyone’s guess why the court decided to not answer the governor’s questions. I am tempted to joke that courts that are not tax courts don’t like to decide tax cases, but the issue presented to the court was not so much a tax issue but a question of interpreting constitutional language addressing a procedural matter.

In his request to the court, the governor pointed out that the conflict between the two provisions “has caused the system to collapse. . . .The effects have become so severe that they have started to cripple the ability of local government to provide essential services.” Several former lawmakers, including the chief proponent of one of the provisions, did not want the court to resolve the problem because they think voters should provide the answer. A committee already exists to study the problem and possibly propose changes to be submitted to voters, but the chair of that committee expressed disappointment that the court did not provide clarification. There is concern that any proposed change would face opposition in the legislature and from voters, in part because of the complexity of the existing language and the likelihood of complex language in any proposal. Concern has been expressed that the conflict will not be fixed until the inability of local governments to maintain revenues by re-balancing tax rates causes a catastrophe.

My question is how did this happen? How was an amendment to the Constitution put forth to voters when its provisions conflicted with language already in the Constitution? Surely multiple eyes looked at the language multiple times. It once again illustrates the shortcomings of the nation’s political systems.

Wednesday, December 05, 2018

The Challenges of Comparing Taxes 

Recently, a facebook post came through my newsfeed. It was a picture of a person standing under an Ohio fueling sign, showing a price of $2.069 per gallon for regular grade gasoline, and $3.139 per gallon for diesel. Underneath, presumably written by the original poster, were these words: “Gas prices in eastern Ohio. Don’t worry Governor Wolf voters, this will never happen in PA. Very soon we will be taxed even more on our gas. Soon we could pay $1 more per gallon than Ohio. Thanks for voting Democrat!” Probably what prompted this reaction are Pennsylvania gasoline prices, which as of late November, according to the Daily Item were averaging $2.75. Yet without knowing the date on which the photo from Ohio was taken, nor if the station involved was engaged in a price war with a neighboring fuel outlet, the comparison might be an apples versus oranges situation.

According to Gas Buddy, the average price of gasoline in Pennsylvania at the beginning of December was $2.68, whereas in Ohio, it was $2.125. That’s not a $1 per gallon difference. How much of the difference is attributable to the difference in the gasoline tax? According to the Tax Foundation, in 2018 the per-gallon gasoline tax in Ohio is 28 cents, whereas in Pennsylvania it is 58 cents. That’s a 30-cent-per-gallon difference. The other 20 cents is attributable to other factors, not the gasoline tax.

But before concluding that Pennsylvania and one of its political parties are worse in terms of taxation than Ohio, it is necessary to consider other taxes. Pennsylvania has a very low state individual income tax rate, specifically, 3.07 percent. Ohio’s individual income tax system is progressive, and rates can reach 4.995 percent. Would Pennsylvanians be willing to pay higher state income taxes in exchange for a e0-cent-per-gallon reduction in state gasoline taxes? I don’t think so.

According to Wallet Hub, Ohio has the eleventh highest tax burden among states, measured at 9.48 percent, whereas Pennsylvania comes in twenty-third, at 8.66 percent. So people thinking of moving to Ohio to take advantage of a lower gasoline tax might find themselves worse off in terms of all state taxes.

The lesson is simple. Look not only at details or specific items, but also examine the big picture. Put things in context. Just because something makes for an entertaining tweet or a pithy sound bite doesn’t mean that it is correct, makes sense, or should be given credence. Comparing one tax in isolation might be useful for certain limited purposes, but it usually is a distraction, not unlike many tweets and sound bites.

Monday, December 03, 2018

A Peek Into Congressional Tax and Deficit Confusion 

Recently, as recounted in this article, outgoing Speaker of the House Paul Ryan shared thoughts about a number of topics, including taxes and the national debt. What he said offers an insight into why the nation’s economic indicators, such as job growth with stagnant wages, are inconsistent.

According to Ryan, he regrets “not paying off the national debt.” He did not elaborate on what efforts he or his colleagues made to accomplish that goal. Ryan also claimed that "history is going to be very good to this majority" in part because of the “tax overhaul” that was enacted “under his leadership.”

Hello? Any member of Congress who wants to reduce the federal debt should not be voting for tax legislation that significantly reduces federal revenue. I understand that the advocates of this maneuver think that reducing tax rates increases tax revenue, but every attempt to pursue this approach during the past forty years has failed, and has contributed to the enlargement of annual federal budget deficits and growth in overall national debt.

If it is difficult for a member of Congress to understand basic arithmetic and the practical reality of economics, imagine the challenge facing most Americans. This is what encourages advocates of failed tax policy to continue preaching this nonsense. They have the means to do so because they are financed by the handful of wealthy individuals and large corporations that benefit from a situation that is detrimental to almost all Americans. Though some people look at their present situation and consider it comfortable, very few examine the long-term consequences of this harmful tax-cut gimmick and the impact of those consequences on their lives ten, twenty, or thirty years from now.

Perhaps it is the inability to understand tax and economic policy that encourages too many voters to line up with those who offer false promises that make for great tweets and sound bites but that in the long run, and in many instances in the short run, are disadvantageous to the vast majority of Americans. By the time enough people figure this out, it will probably be too late. So for those who don’t yet get it, cutting taxes for the wealthy and large corporations not only fails to reduce or pay off national debt, it also fails to improve the economic position of everyone else. Perhaps Paul Ryan will figure out what it is he ought to regret.

Friday, November 30, 2018

Another Tax Return Preparer Meets Judge Judy 

Over the years, I have had the opportunity to comment on a increasingly lengthier list of television court shows that involve taxes. Some of the episodes that have contributed to MauledAgain include Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, and Fighting Over a Tax Refund. It seems that tax refunds and tax return preparers are showing up more frequently in these shows.

Last week, it was Judge Judy’s turn again. In the last case of season 23, episode 82, another tax return preparer had the opportunity to show us how not to run a tax return preparation business. The defendant is a tax return preparer. The plaintiff engaged the defendant to prepare the plaintiff’s income tax return. When completed, the return showed a refund. After taking out her preparer’s fee of $800, the defendant remitted $4,833 to the plaintiff. The plaintiff testified that she had been told that the fee was $200, so she called the defendant in an attempt to get back $600. Each time she called the defendant said that she was on the phone, either with a client or with the IRS, and promised to call the plaintiff back. Apparently she did not do so.

The defendant, according to the judge, seemed to acknowledge that after the plaintiff complained about the fee being increased from the promised $200 to $800, the defendant did the plaintiff’s return a second time and filed it. She did this without the plaintiff’s authorization. She claimed she did so because the first return had not been properly prepared. Because she removed a $6,000 credit from the return, the IRS demanded that the plaintiff pay back the refund. It was unclear whether the IRS also demanded that the plaintiff not only pay back the refund but also pay an additional amount to make up for the $6,000 credit.

Judge Judy told the defendant that what she did was not a good way to run a tax return preparation business, and that filing an amended return without the taxpayer’s permission was wrong. She then entered a judgment in favor of the plaintiff for both the amount of the refund sought by the IRS and the fee charged by the defendant.

Sometimes these television court show cases are a bit too time-constrained to permit all the facts to emerge. One of the questions that popped into my mind was whether the defendant removed a proper credit in order to “stick it to” the plaintiff for having complained about the fee. In other words, was the credit properly or improperly claimed on the first filing? Another question I would have liked to have seen posed to the defendant, even if only rhetorically was, “What made you think that you could file an amended return for a client without asking for and getting the client’s permission?” Yet another question that I had involved the fee. Was there anything in writing, such as a contract or an advertisement, that would have established the amount of the fee to which the parties agreed? Judge Judy ordered the entire fee returned to the plaintiff, on account of the defendant’s behavior, so whether the agreed-upon fee ultimately was $200 or $800 became irrelevant.

There are lessons for both preparers and clients. Preparers and clients need to put their fee agreement in writing. There needs to be a contract the specifically prohibits preparation of an amended return without the client’s consent. Clients should demand, and preparers should agree, that the preparer provide an explanation of all significant items on the return, such as the credit in question in the case. Clients and preparers should reach some sort of agreement to deal with instances when the preparer does not take or return telephone calls or respond to email messages. Clients should do research on anyone they are considering as their preparer, and that includes much more than determining if they were defendants in a television court show case. Finding a way to communicate with other clients of the preparer is something that is worth pursuing.

With all of these tax cases popping up, I am so tempted to find a producer that would develop a television tax court show, and cast me as the judge. That would be so much fun. No, it would be unkind to call it MauledAgain.

Wednesday, November 28, 2018

A Core Principle of Teaching: Formative Feedback 

A meme popped up on facebook a few days ago. The meme stated: “College student: HS students worry about grades . . . imagine not knowing your grade for an entire SEMESTER in a class you are paying for.”

The person posting the meme prefaced it with these words: “Hate those kinda professors #prayforme”

The thought that instantly crossed my mind was a flashback to my days as a law student. With the exception of some seminars and a few practice-based courses, the grade in a course was based on one final exam. As the semester progressed, students struggled to determine if they were “getting it” and even out-of-class conversations with faculty did not guarantee any sort of confirmation. Sometimes a student could get a sense of the extent to which material was being learned and principles understood, but often the frustration spilled out in a variety of ways. During my first semester, so many students dropped out that the class shrunk in size by roughly 15 percent.

When I decided to give graded quizzes during the semester, I was required to obtain faculty permission. I obtained it, but not without some opposition and the imposition of conditions. Why did I make this decision? The principal reason was to encourage students to assimilate and review during the semester rather than engaging in the classic all-nighter that for most students is detrimental to doing well on an examination. The second reason was to give students a sense of their progress, so that they could identify the areas to which they needed to give more attention and to build up confidence in areas in which they were doing well. The third reason was to give me a sense of how students were progressing and where I needed to make adjustments to help improve their learning.

When I started doing this, in the early 1980s, I administered quizzes, quickly renamed semester exercises, by distributing questions on paper, collecting filled-in sheets, grading manually, and then distributing marked papers. About 15 years ago I shifted to the use of student response pads, eliminating paper and saving trees, and distributing results through email and web site posts.

Initially, students bristled at the idea of stopping ten times a semester to respond to a graded set of questions. Some students still react in that manner at the outset of a semester. By the end of the semester, most students express appreciation for the opportunity to get feedback, and to go into a final exam knowing the extent to which they have, or have not, grasped some or most of the material. Often, they know that they are not going to fail the course, and that relief certainly helps improve exam performance. A few students, when filling out course evaluations before the semester ends, offer complaints about the course being “too much like high school with those graded exercises.” Perhaps when this approach to teaching becomes prevalent in college, fewer and fewer students will find these sorts of exercises a change from their experience.

Some years ago, the dean at the time said to me, “That’s a hell of a lot of extra work.” My response reflected my pedagogical approach. “It’s part of what I think teaching must be.” Not everyone agrees, but views are changing.

During the past half-dozen years or so, the idea of formative assessments, the terminology used by educational consultants, has taken hold in some law schools, and has been adopted, to a greater or lesser extent, by some law faculty. This, too, causes the process to be familiar to students and reduces the instances of negative “this is like high school” reactions. All in all, I am convinced of the value of formative assessments and feedback during the semester.

It is heartening to see facebook posts by students who want formative assessments. It makes the effort to create and grade formative assessments worthwhile.

Monday, November 26, 2018

How Tax Cuts for Large Corporations and Wealthy Individuals Impact Jobs 

When I read the New York Times article, I was not surprised. The news was consistent with my reaction to the 2017 tax legislation that increased the bank accounts of large corporations and wealthy individuals, as I described in posts such as Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, That Bonus Payment Ruse Gets Bigger, Oh, Those Bonus Payments! Much Ado About Almost Nothing, Much More Ado About Almost Nothing, You’re Doing What With Those Tax Cuts?, Arguing About Tax Crumbs, and Don’t Want a Crumb? Here’s Dessert But Give Back Your Appetizer and Beverage.

This time, the news was from a Just Capital report that revealed what the 1,000 largest publicly traded companies have done. They promised to use the tax cut money to create jobs. Yet since the 2017 legislation was enacted, those companies have reduced net employment by roughly 140,000 jobs. Considering the reports issued by specific companies over the past year, which I mentioned from time to time, the surprise would have been to discover that these large companies created the net job increases that they said they would and that they said they did. When the only concern is maximizing shareholder return and executive compensation, increases in the economic position of workers ought not be expected. Wage growth during the same period has barely registered, amounting to a fraction of one percent, and coming in lower than wage growth before the late 2017 tax giveaway.

In What’s Not Good Tax-Wise for Most Americans Is Just as Not Good for Small Businesses, I wrote:
If, indeed, the goal of the Congress and the Administration is to assist all Americans, including small business owners, then it would have proceeded, and would proceed, in a manner consistent with the platitudes too many of its members tweet, bark, and spew. Instead of handing out tax breaks to large corporations and wealthy individuals while driving up the deficit that will wreck the economy, Congress and the Administration should have, and could have, made tax breaks available only after the tax break recipient performs what has been promised. This is what I suggested in How To Use Tax Breaks to Properly Stimulate an Economy, How To Use the Tax Law to Create Jobs and Raise Wages, Yet Another Reason For “First the Jobs, Then the Tax Break”, and When Will “First the Jobs, Then the Tax Break” Supersede the Empty Promises? Of course, my suggestions fall on deaf ears in the nation’s capital, because it is no secret that adopting this approach would expose what is really happening behind the curtain of deflections, misstatements, and fabricated claims. What is happening is not good for the vast majority of Americans, nor is it good for small business.
I wonder, if the tax cuts had been tied to actual job creation performances and not empty promises, whether more jobs would have been created or far fewer large corporations and wealthy individuals would have lined their pockets. I have yet to read any sensible argument why making tax breaks conditioned on actual performance rather than on false promises is a bad idea or something that cannot be implemented.

Friday, November 23, 2018

Defeating Ignorance, and Not Just in the Tax World 

In Reaching New Lows With Tax Ignorance. I wrote “Ignorance has become an epidemic.” I think it poses a threat to the survival of democracy, and perhaps even the survival of the species, considering what ignorance has already destroyed. I have written about the horrible consequences of ignorance in numerous posts, so many that the following list is probably incomplete. I have focused not only on tax ignorance but ignorance generally in posts such as Tax Ignorance, Is Tax Ignorance Contagious?, Fighting Tax Ignorance, Why the Nation Needs Tax Education, Tax Ignorance: Legislators and Lobbyists, Tax Education is Not Just For Tax Professionals, The Consequences of Tax Education Deficiency, The Value of Tax Education, More Tax Ignorance, With a Gift, Tax Ignorance of the Historical Kind, A Peek at the Production of Tax Ignorance, When Tax Ignorance Meets Political Ignorance, Tax Ignorance and Its Siblings, Looking Again at Tax and Political Ignorance, Tax Ignorance As Persistent as Death and Taxes, Is All Tax Ignorance Avoidable?, Tax Ignorance in the Comics, Tax Meets Constitutional Law Ignorance, Ignorance in the Face of Facts, Ignorance of Any Kind, Aside from Tax, Reaching New Lows With Tax Ignorance, Rampant Ignorance About Taxes, and Everything Else, Becoming An Even Bigger Threat, and The Dangers of Ignorance, Present and Eternal.

In The Dangers of Ignorance, Present and Eternal, I wrote, “Ignorance is high on my list of dislikes. Unlike some things that I don’t like, ignorance can be avoided, and in most instances it is easily avoided.” But now comes news that perhaps ignorance is not so easily avoided.

A three-month old article in Psychology Today, brought to my attention recently, helps us understand how deeply ignorance becomes entrenched in a human mind. The key, I think, is how the brain can deceive itself. The flaw, according to many psychologists, is that “people with little expertise or ability assume they have superior expertise or ability.” They call it the Dunning-Kruger effect. In the word of the article, “This overestimation occurs as a result of the fact that they don’t have enough knowledge to know they don’t have enough knowledge.” According to the article, a recent study has demonstrated that the Dunning-Kruger effect becomes even more pronounced when “partisan identities are made more salient” and “even more when greater emphasis is placed on political affiliation.” I wonder how it plays out when the topic is tax, tax policy, or economic policy.

Bobby Azarian, the writer of the article asks, “How do you combat ignorance when the ignorant believe themselves to be knowledgeable? Even worse, how do you fight it when America is becoming increasingly polarized, which certainly increases the salience of partisan identities?”

The answer, of course, as I’ve pointed out many times, is education. In the tests run by those conducting the recent study, the Dunning-Kruger effect stood out the most with people whose political knowledge was abysmal. Their proficiency in what was, and perhaps still is, taught in Civics and similar courses was disturbingly low. Azarian points out that “studies have shown that Democrats now tend to be generally more educated than Republicans, possibly making the latter more vulnerable to the Dunning-Kruger effect,” and that observation correlates with the announced political affiliation of college graduates.

The challenge in using education to combat ignorance is two-fold. First, those who profit from ignorance use their resources to curtail access to education, particularly quality education. Their efforts include underpaying teachers, underfunding schools and educational resources, and consigning lower income individuals to low quality schools. Second, those who profit from ignorance use their resources to distort curricula, to fill textbooks with misinformation, to leave important material out of educational materials, and to indoctrinate students, particularly those who grow up in cultural bubbles. The effort to keep Americans ignorant or misinformed, which is pretty much the same thing as ignorance, is intense, well-funded, and dangerous. The fear of letting people think for themselves, a skill that I was fortunate to learn and that I have tried to instill in my students, motivates the purveyors of ignorance to take steps that are inconsistent with the survival of a healthy democracy. Put another way, tyrants, dictators, and oligarchs delight in the spread of ignorance.

Azarian suggests that, “With the right education methods and a willingness to learn, the uninformed on both sides of the political aisle can gain a meta-awareness that can help them perceive themselves more objectively.” The conundrum is figuring out how to apply those methods in the face of opposition from those who want to maximize ignorance. Azarian recognizes the problem, pointing out that the recent study “shows that getting through to these people becomes more and more difficult as the nation becomes more divided. And with Trump’s fiery rhetoric and fear-mongering, that divide appears to always be growing wider.” For all of the damage being done, the deeper entrenchment of ignorance in the citizens of an endangered democracy might be the most serious, longest-lasting, and most difficult to reverse.

Wednesday, November 21, 2018

Particularly Thankful This Time Around 

For as long as I’ve been writing this blog, I’ve been sharing a Thanksgiving post to express my gratitude for a variety of people, events, and things. Aside from 2008, when I did not post and I don’t have any recollection of why or how that happened, I’ve dedicated a post on or around Thanksgiving. I started in 2004, with Giving Thanks, and continued in 2005 with A Tax Thanksgiving, in 2006 with Giving Thanks, Again, in 2007 with Actio Gratiarum, in 2009 with Gratias Vectigalibus, in 2010 with Being Thankful for User Fees and Taxes, in 2011 with Two Short Words, Thank You, in 2012 with A Thanksgiving Litany, in 2013 with “Don’t Forget to Say Thank-You”, in 2014 with Giving Thanks: “No, Thank YOU!” , in 2015 with Thanks Again!, in 2016 with Thankfully Repetitive, and in 2017 with Never-Ending Thanks.

As I stated the past five years, “I have presented litanies, bursts of Latin, descriptions of events and experiences for which I have been thankful, names of people and groups for whom I have appreciation, and situations for which I have offered gratitude. Together, these separate lists become a long catalog, and as I have done in previous years, I will do a lawyerly thing and incorporate them by reference. Why? Because I continue to be thankful for past blessings, and because some of those appreciated things continue even to this day.” When I re-read those lists, I realized that the people, events, and things for which I am appreciative are far from obsolete.

So once again I will look back at the past twelve months, and remember the people, events, and things for whom and for which I give thanks. If some of these seem repetitive, they are, for there are gifts in life that keep on giving:Twelve years ago, in Giving Thanks, Again, I shared my Thanksgiving advice. I liked it so much that I repeated it again, in 2009 in Gratias Vectigalibus, yet again in 2013 in “Don’t Forget to Say Thank-You”, still again in 2014 in Giving Thanks: “No, Thank YOU!” , even yet again in 2015 in Thanks Again!, even still again in Thankfully Repetitive, and of course, once more in Never-Ending Thanks. For me, it does not lose its impact:
Have a Happy Thanksgiving. Set aside the hustle and bustle of life. Meet up with people who matter to you. Share your stories. Enjoy a good meal. Tell jokes. Sing. Laugh. Watch a parade or a football game, or both, or many. Pitch in. Carve the turkey. Wash some dishes. Help a little kid cut a piece of pie. Go outside and take a deep breath. Stare at the sky for a minute. Listen for the birds. Count the stars. Then go back inside and have seconds or thirds. Record the day in memory, so that you can retrieve it in several months when you need some strength.
I am thankful to have the opportunity to share those words yet again.

Monday, November 19, 2018

Tax Breaks and Corporate Blackmail 

A meme is making its way around facebook, and for all I know, perhaps other social media outlets. It asks a question. “As Jeff Bezos Earns $191K Per Minute, Why Are NY & VA Giving Amazon $3 Billion in Corporate Welfare?” My standard response has become a phrase and an explanatory sentence. “Corporate blackmail. It’s what happens when corporations are larger than governments.”

I’m sure that defenders of giveaways to large corporations and wealthy individuals will gag when they read my response, and then crank out the standard talking points about free markets, apple pie, and the rest. But the problem is that the markets are not free. They are dominated by a small group of extremely large conglomerates that can do what they want because no government has the strength to put an end to the monopolistic trends that mask themselves as beneficial capitalism.

The reason that the “give us money, both in the form of tax breaks and cash grants, or we won’t locate our business, our team, our stadium, or anything else in your state” threat works is that these huge corporations know they will find a compliant government somewhere. In some instances governments fear “losing” to another government. In other instances, the decision makers in the government are under the influence, monetary and otherwise, of the corporation or wealthy individual seeking the use of public money for private gain. In some cases, it’s a matter of both.

I have long been a critic of cash grants and tax breaks for private businesses. Some of the many posts in which I have shared my reasoning include Tax Revenues and D.C. Baseball, and three years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, and Tax Dollars to Finance the Wealthy? Not Necessary and Not Appropriate. The disadvantages to these giveaways greatly exceed whatever benefits allegedly arise.

In a free market system, if the enterprise is profitable it doesn’t need the grants and tax breaks, and if it can’t succeed on its own, it doesn’t deserve to survive. If the enterprise involves something essential, then it ought to be a public enterprise, controlled by the public through genuinely representative government. That approach doesn’t sit well with those who want to feed at the public tax trough, a strange reaction considering how most of those who support these cash grants and tax breaks for profitable corporations and wealthy individuals are among the most vocal critics of public assistance for the poor and truly needy.

Defenders of the Amazon grab claim that Amazon will create jobs. Surely Amazon can create jobs without these giveaways, by using its own money. If jobs are going to be created with tax revenues, those jobs should be created by and supervised by elected representatives of the taxpayers who are putting up the dollars, and the work that is done ought to benefit taxpayers and not a handful of private entrepreneurs and shareholders.

Many of the same people who support funneling taxpayer dollars into the hands of large corporations and wealthy individuals are also the most vocal critics of “welfare” and “socialism.” Yet they don’t hesitate supporting corporate welfare and socialism that benefits the wealthy, and are not reluctant to twist arms and stoke fear to enlarge the coffers of the oligarchy. For shame.

Friday, November 16, 2018

Fighting Over a Tax Refund 

Another Hot Bench episode provides an important lesson for people who live together, have children together, or do both, without being married. These television court shows continue to be a generous supplier of material for this blog. Some of the episodes that have contributed to MauledAgain include Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, and Be Careful When Selecting and Dealing with a Tax Return Preparer.

In Episode 56 of season 5 of Hot Bench – this is the best link I can find – the plaintiff sued the father of her children, because she claimed that they had an agreement for him to give her one half of his income tax refund each time he received an income tax refund. The parties had been together for five years, had two children, and until they broke up, the defendant was the source of income for the family. He claimed the two children as dependents on his tax return, and for the year in question received a $10,000 refund. After they broke up, the plaintiff obtained a job.

The defendant denied that the alleged agreement existed. The plaintiff testified that every year since their first child was born the defendant gave the plaintiff $1300 of his tax refund if he received a refund. The defendant agreed with that assertion. The plaintiff admitted that she did not know how much of a refund the defendant received each year. The defendant explained that the $10,000 refund was extraordinary, and that in the past when there was a refund it was usually $3000 to $4000, and that he gave plaintiff a random portion each year. The plaintiff agreed. The plaintiff testified that the largest portion of a tax refund that she ever received from defendant was $1,500.

When asked by one of the judges, the parties admitted that they had not been to family court with respect to child support and other financial issues.

The plaintiff agreed that the agreement did not apply after they broke up, but that the defendant received the $10,000 refund before they broke up. The parties agreed that the defendant had been paying child support regularly, and that one child was receiving SSI because of a disability. The plaintiff then argued that the defendant owed her $1,300 but that he did not pay her, because for some unexplained reason, some money of the defendant had been garnished. It was unclear whether the $1,300 was a different amount, or a change in the plaintiff’s position with respect to how much she claimed the defendant owed her.

During deliberations, one judge pointed out that once they broke up and the plaintiff started working, the agreement made no sense, because the plaintiff possibly could claim at least one of the children as a defendant. The judges agreed that the defendant had no legal obligation to pay the plaintiff, but decided that based on the prior course of dealing between the parties, the defendant should give $1,300 to the plaintiff. The judges told the parties to get legal advice, go to family court, and resolve their financial issues before they encountered more points of contention.

The lesson to be learned from this case is important, and should be obvious though unfortunately it is not. When making financial agreements with someone, put it in writing. When the agreement is between individuals who are not married, it is even more important that the agreement be put in writing because there is no recourse to state law applicable to married couples to provide remedies. Of course, even if the parties are married, it makes sense to enter into agreements to reduce or eliminate the disputes that can arise even though state law might apply. State law might not apply and if it does, it might not provide an answer that the parties would have preferred.

An agreement of the sort that the plaintiff claimed existed could provide additional parameters, such as the computation of the portion of the refund to be transferred, outcomes if no refund existed, the outcome if additional tax was due, the outcome if the amount to be transferred is a fixed amount that exceeds the refund, the date on which the payment is due, the consequences of failing to make the payment, and similar concerns. Not only does an agreement provide a memorial of the terms, in the event that one or both parties forgets or if they disagree, but also to encourage the parties to think about the terms of the agreement in advance rather than after the relationship falls apart.

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