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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.

Wednesday, November 14, 2018

Oregon Voters Stop Attempt to Protect Business Tax Breaks 

Reader Morris directed my attention to an election report on the outcome of an Oregon ballot initiative that would have subjected changes in tax exemptions, credits, deductions, and fees to the same three-fifths legislative majority requirement that applies to tax rate increases. The initiative was proposed after Oregon’s Supreme Court held that the three-fifths requirement did not apply to the legislature’s elimination of tax exemptions and tax rebates. That decision is consistent with how most other states apply supermajority tax increase requirements.

Proponents of the ballot initiative feared that the legislature would use the decision as justification for increasing revenue and spending. Opponents pointed out that the initiative was intended to protect 367 tax breaks that cost the state more than $12 billion and that primarily benefit businesses. Fingers were pointed at real estate agents, who think that the state’s mortgage interest deduction is at risk.

When Oregon voters went to the polls, 65 percent of them voted against the initiative. That wasn’t quite a supermajority of voters, but it was much more than enough to defeat the initiative.

Monday, November 12, 2018

Election Outcomes and Taxes 

So what’s in the future when it comes to taxes at the federal level? Four points are made in this recent post-election article.

The first point is simple. “Because Democrats will control the schedule [in the House], GOP efforts to . . . broadly cut taxes anew won't see the light of day.” I think that is a safe, and easy, prediction, unless Trump is being honest about his wish to cut taxes on the middle class and his having an open mind to rolling back some of the 2017 tax cuts for wealthy individuals and large corporations and is able to persuade Senate Republicans to go along. All things considered, it is unlikely Senate Republicans, and their financial backers, will let that happen.

The second point is simple. “Democrats . . . could propose . . . requiring presidential and vice presidential candidates to release tax returns.” Legislation of that sort probably would pass the House, but, again, it is not difficult to envision Senate Republicans blocking it.

The third point is connected to the first point. “[Democrats] also want to upgrade roads, schools, mass transit and communication systems. . . . The big dispute is over how to finance the mammoth investment. . . . How to pay for their initiatives? Some Democrats say privately that one possibility is erasing reductions that last year's GOP-written, $1.5 trillion tax cut bestowed on wealthy Americans.” It is difficult to imagine Senate Republicans, and their wealthy financial backers, letting that happen.

The fourth point is related to the first and third points. “Another possibility [for financing infrastructure improvements] is raising the 18.4 cents per gallon federal gasoline tax, last boosted in the 1990s, by up to 1 percent annually.” Perhaps if they call it a user fee they might find a way around the mindless “no tax increases ever no matter what” position of the anti-tax crew. There is a chance that intelligence will prevail over emotion and some sort of adjustment to the tax to reflect inflation will be made, but I hesitate to call it anything more than a chance.

With a divided Congress, it is unlikely much of anything will be accomplished in the federal tax world. It is likely, however, that sparks will fly when it comes time to pass a budget. It would not be going out on a limb to predict that government shutdowns and stalemates with respect to federal budget decision are likely.

Friday, November 09, 2018

Be Careful When Selecting and Dealing with a Tax Return Preparer 

Those television court shows continue to provide material for this blog. Some examples can be found in previous posts such as 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, and Yet Another Easy Tax Issue for Judge Judy.

This time it’s a Hot Bench episode, for which I cannot find an online link. The plaintiff and defendant opened a joint bank account, with the plaintiff as the primary owner and the defendant as the secondary owner. Sometime thereafter, the plaintiff was incarcerated. When he was released from prison, he tried to open a bank account and become a customer of a bank. The bank refused to let him open the account, because a credit check revealed that the bank had a claim against the plaintiff. It wasn’t clear why the bank did not accept the plaintiff’s money and then seize it in satisfaction of the claim. The facts are unclear and there probably are banking law nuances of which I am not aware.

So what happened? While the plaintiff was in prison, the defendant went to a tax return preparer to have her tax return prepared. The return was prepared, a refund was computed, and the preparer arranged for the IRS to deposit the refund in the preparer’s account. The preparer then wrote and delivered a check to the defendant. The defendant cashed the check, and the bank did not hold the check and delay handing over the cash until the check cleared. Of course, the check bounced because there was no money in the preparer’s account. The bank started a process to get the money back from the defendant. The defendant testified that she tried to remove the plaintiff from the account while he was in prison, but the bank would not do so because it required the plaintiff to appear in person. The defendant also testified that she tried to find the preparer, but was unsuccessful because all she had was the preparer’s name.

The plaintiff sued the defendant, seeking damages on the basis that by depositing a bad check into the joint account, she made it impossible for him to open a bank account and move forward with his life financially. The court dismissed the plaintiff’s claim because it was not yet ripe. The court explained that the case was not ripe because no one had, as of yet, sued the plaintiff, recovered money from the plaintiff, or otherwise caused the plaintiff to be out-of-pocket incurring damages. The court also explained that the plaintiff had not provided sufficient proof of economic damage.

What struck me about the case were two questions about the defendant’s decisions with respect to the tax preparer. First, why go to a tax return preparer and not obtain not only the preparer’s name, but also the preparer’s address, telephone number, email address, web site link, if any, and a business card? A preparer who cannot provide that information is not a preparer who ought to be given someone’s business. Second, why permit the preparer to have the refund deposited into the preparer’s account instead of having the refund sent directly to the taxpayer? It simply makes no sense. The defendant was not asked these questions, probably because the answers did not bear directly on the issue in the case.

This case provides lessons to be learned by anyone who retains a tax return preparer. Get recommendations from friends and relatives who are trusted. Get more than the preparer’s name. Don’t let the preparer direct a refund into the preparer’s account. Be careful with joint bank accounts, and learn about the advantages, disadvantages, and risks of using them. Tax season might be a few months away, but it’s not too soon to begin thinking about who to use as a preparer in February, March, and April of next year.

Wednesday, November 07, 2018

Doing the Same Tax Thing Time and Again With the Same Adverse Outcome 

One definition of insanity that circulates through society is the notion that doing the same thing over and over again and expecting a different result. People who disagree will point to a child shooting free throws in a basketball game who misses time and again and then hits one. The problem with that objection to the definition is that it does not take into account adjustments made by the child in shooting the ball, which is a natural reaction to having failed. If the child insisted that there was no need to adjust because all of the previous shots had fallen through the net, coaches and parents, and probably teammates, would become extremely concerned about the child’s eyesight or mental skills.

Last week, a meme popped up on my facebook feed. It pointed out that
Stock market is where it was a year ago. Wages are stagnant. National debt is out of control. Interest rates rising. Housing sales down. All this after huge tax cuts for corporations and billionaires. How much longer until Republicans learn that trickle down economics don’t work.”
I could not resist. I replied with a fairly short, for me, response:
They've had multiple opportunities to learn, considering that they have done this time and again with the same results. They know but don't care that trickle-down supply-side economics does not work, they aren't trying to help the middle class and the poor, the term is just a slogan to dupe Americans into voting for the oligarchs who want to own the world and relegate 99.9 percent to the status of, at best, serfs.
And before those who think my reaction is too extreme, Republicans, perhaps confident that gerrymandering and vote suppression will continue to leave a minority party running a nation the majority of whose voters don’t approve of their policies, have announced that they intend to cut Social Security, Medicare, and Medicaid payments. Some even claim that their goal is to eliminate those programs. It doesn’t take rocket science to figure out what the consequences will be if those things happen. Those who profess concern for the middle class and the poor by claiming that trickle down economics works, but who also are determined to cut or eliminate programs essential to the well-being of the middle class and the poor, are becoming increasingly bold and transparent with their actual intentions, just as some others are similarly becoming bold and transparent about their feelings. The bottom line is that trickle down economics, and its corollary supply-side economic theory, has the adverse effect that its proponents want. All that has changed is that they are confident that those adversely affected don’t have the determination, will, and courage to stand up to being bullied and mistreated. How sad.

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