Friday, November 28, 2014

An Unanswered Tax Question for the Letter Writer 

Over the past few years I have pointed to the existence of bad roads as a lesson in the foolishness of alleged short-term tax cut benefits being swamped by short-term and long-term costs triggered by failing infrastructure. I made this point in posts such as Liquid Fuels Tax Increases on the Table, You Get What You Vote For, Zap the Tax Zappers, Potholes: Poster Children for Why Tax Increases Save Money, When Tax and User Fee Increases are Cheaper, Yet Another Reason Taxes and User Fee Increases Are Cheaper, When Potholes Meet Privatization, and When Tax Cuts Matter More Than Pothole Repair. On Sunday evening, the dangers of infrastructure deterioration was highlighted on 60 Minutes.

On Sunday, the Philadelphia Inquirer published a letter from Jim Grealy of Cherry Hill, New Jersey, who complained that in the winter of 2013-2014, he “had to replace a tire and two wheels due to road damage, at a total cost of $1,400.” His insurance refused coverage and the township, responsible for maintain roads, also refused compensation. Grealy points out that wherever he travels, there are potholes and rough roads. He suggests that tire companies are paying to have pothole repairs cancelled. It’s not just him, as he reports his tire dealer has been struggling to keep up with the repairs that its customers need.

Most of what Grealy shares is not news to me, or to anyone who reads this blog, or looks closely at the news. One thing that he did share that adjusts my thinking is the cost of fixing two wheels and a tire. I had been thinking in the three-digit range. It’s worse than I thought, and that strengthens my basic point. In the long run, it is cheaper to pay an increased highway use tax than it is to parade behind the pied pipers of tax reduction and elimination of government.

Grealy writes, “I pay a lot in taxes to get things like this fixed, so where is that money going?” The answer is simple. The amount of money being paid in highway use taxes, including the gasoline and other liquid fuels taxes, is nowhere near enough to pay for the cost of widespread infrastructure deterioration. A very small portion of the taxes that anyone, including Grealy, pays is devoted to highway repair for the simple reason that dedicated highway repair taxes are miniscule in the grand scheme of things. But that doesn’t keep politicians from accumulating votes with the promise of tax cuts.

Grealy doesn’t tell us whether he votes for or against increased highway funding. He doesn’t tell us whether he votes for or against politicians who want to gut the public sector so that their private sector friends can suck even more money out of the pockets of citizens who have no voting recourse against the private sector. He doesn’t tell us whether he is someone who understands the point I’ve been making and has become yet another victim of the pied pipers, or is a worshipper of the pied piper who has discovered the true consequences of a bad philosophy. If it’s the former, I feel sorry that he has been economically disadvantaged by the very thing against which he has cautioned. If it’s the latter, I feel sorry that he has to learn the lesson the expensive way, and I’m not sure yet that he has learned the lesson.

He left no email address in his signature as many letter writers do. Perhaps he will see this and send a response. Either way, it could be a productive conversation. In the meantime, it makes sense for every other driver to think about these things. Your $1,400 invoice, a result of saving $50 in gasoline tax hikes, is just around the corner. And as I pointed out in When Tax Cuts Matter More Than Pothole Repair. in which I discussed an accident triggered by a pothole and causing injuries, “It is far better to pay taxes and user fees to fix potholes than to be saddled with the much higher cost of lost lives, crippling injuries, and property damage caused by potholes.”

I close with the conclusion from that same post: “A nation with crumbling infrastructure, unrepaired because of strange fixations on the tax hatred, cannot defend itself or its people. The failure of so-called leaders to protect those to whom fiduciary duties are owed is at the root of the problem, and until those leaders are replaced by people willing to shut down the bribery and disassemble the gerrymandering, the potholes will continue to injure and kill people, destroy property, and make people miserable. The nation gets what the nation votes for.”

Wednesday, November 26, 2014

Giving Thanks: “No, Thank YOU!” 

A few years ago, in a sermon, the then pastor of my church, a former English teacher, pointed out that he was bothered by the increasing use of “No, thank YOU!” as a response to saying “Thank you” to someone. Somehow, a phrase which most of us have been conditioned to use as a way of declining an offer has become part of a struggle to determine which person is expressing the superior level of gratitude. The risk in this strange cultural twist is that the expression gets lost in the distraction of competing givings of thanks. That’s not what Thanksgiving is intended to celebrate.

With the exception of 2008, for reasons I no longer remember, I have taken the opportunity to use this blog to express my thanks for a variety of gifts, gestures, words of encouragement, and unexpected good news. 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, and in 2013 with “Don’t Forget to Say Thank-You”. As I stated last year, “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.”

This year brings another list, because this year brought me more reasons to be thankful:Eight 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 and yet again in “Don’t Forget to Say Thank-You”. 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 24, 2014

More Tax Ignorance 

Circulating on facebook, and probably on other social media, is a photograph with this legend:
Up until 1913 Americans kept all of their earnings. Despite this, we still had: schools, colleges, roads, vast railroads, streets, subways, the Army, Navy and the Marine Corps, (who managed to win 8 wars. Tell me again why We The People need to be extorted ???
Though I could write for hours about the deficiencies of praising the roads and educational institutions of the nineteenth century, I prefer to focus on the first sentence.

Taken at face value, the first sentence makes no sense. Americans did not keep their earnings. They transferred their earnings to shopkeepers, physicians, and other providers of goods and services in order to have a place in which to live, to feed and clothe themselves and their families, and to tend to medical concerns. What the author of this sentence probably meant to say was “Americans did not pay taxes.” But that, too, is ignorance manifested. Americans have been paying taxes since the beginning. Before 1913, and since 1913, they have been paying federal excise taxes, state property taxes, local property taxes, state sales taxes, occupation taxes, head taxes, and a variety of other taxes.

My guess, based on the reference to 1913, is that the author meant to say that “until 1913 Americans did not pay a federal income tax.” That statement is mostly true. The first federal income tax was enacted to fund the costs of the Civil War, but it didn’t last long. But when the federal income tax appeared is not the author’s point. The author seems to be questioning the need for an income tax. The answer is simple. The so-called modern income tax, the one enacted in 1913, was designed to provide revenue to offset the revenue losses from reducing import duties. Import duties are an indirect tax, ultimately paid by the consumer as part of the price of the item being purchased. The income tax, as originally enacted, applied only to individuals with income exceeding $3,000 and married couples with income exceeding $4,000. Very few people had that sort of income. In other words, the income tax would put the brakes on the growing income inequality that had time and again rocked the American economy with recessions, panics, and volatile economic performance. It was not, and still is not, used to fund roads. Roads are funded by state and local revenues and by fuel taxes paid into the Highway Trust Fund. It did fund, and continues to fund, the military, which now demands far more investment than it did in 1913, a consequence of changes in world politics, and interestingly not the prime target, and in some cases not even a target, of the “cut spending eliminate taxes” crowd.

The problem with slogans, sound bites, and quips is that they omit the important details and mislead people. Someone with a genuine interest in the history, impact, administration, and rationale of the federal income tax, or any other tax for that matter, ought to dig into something more analytical, such as the articles provided by The Tax History Project. In particular, this article provides the information thoroughly lacking in the “Up until 1913” bunk.

Friday, November 21, 2014

How Difficult Is It to Understand Use Taxes? 

A recent commentary in the Philadelphia Inquirer advocates extension of the moratorium on collection of sales taxes by out-of-state retailers. It rejects the claim that online merchants have an advantage over brick-and-mortar retailers, a claim made by those who want out-of-state retailers to collect sales taxes even if they have no nexus with the state.

The commentary makes good points and not so good points. It is true, as it points out, that some online sellers bear the cost of shipping. They cannot use promotions such as free, hot coffee to their shoppers. Their customers cannot easily try on clothing and shoes.

On the other hand, the author refers to the taxes in question as “internet sales taxes” when in fact, as I have explained in posts such as Collecting an Existing Tax is Not a Tax Increase, the tax in question is a use tax. That tax has been on the books for decades. Thus, when the author claims that “state lawmakers do not need another $23 billion in sales-tax revenue,” the author fails to explain that this revenue is revenue currently owed under existing law and that states are simply engaging in an attempt to collect unpaid but owed revenue.

Yet, I agree with the author of the commentary that requiring out-of-state online retailers to do the use tax collection for the state is wrong. As I explained in Collecting the Use Tax: An Ever-Present Issue, states ought not be trying to compel proprietors and entities over which they have no jurisdiction to their collection work. I did suggest that states consider entering into voluntary arrangements with out-of-state retailers willing to act as collection agents in return for compensation paid by the state.

The flaw in the argument that out-of-state online retailers ought to be collecting the use tax on behalf of states with which they lack nexus can be illustrated by examining what happens to an out-of-state bricks-and-mortar retailer. If a person living in Pennsylvania, which has a sales tax and a compensating backup use tax, travels to Delaware, which has no sales tax, to purchase an item, the retailer is not obligated to collect Pennsylvania use tax. Nor could Pennsylvania compel the retailer to do so. So why should Pennsylvania, or any other state with a use tax, be permitted to compel a Delaware online retailer to collect the use tax. Would that not put the Delaware online merchant at a disadvantage compared to the Delaware bricks-and-mortar merchant? Isn’t it questionable that those who claim to be seeking a level playing field between online and bricks-and-mortar merchants would end up un-leveling that playing field if their proposed legislation was enacted?

One wonders why the alleged collective wisdom of state legislators cannot fix this problem, especially when the solution has been provide to them, free of charge, by yours truly. And one wonders why the arguments being made on both sides of the debate are so consistently imprecise, confusing, and incomplete.

Wednesday, November 19, 2014

Satire, Tax or Otherwise, Lost on Americans 

Few people understand satire. It’s such a dangerous practice that one wonders whether in the long run it does more harm than good. Recently, a website specializing in satire, but carrying a name that doesn’t hint at its character as nicely as, for example, the Onion, published a fake report claiming that the IRS would delay until October 2015 payment of income tax refunds normally received in the early months of the year. The best guess, taking up on a story such as this one, is that the authors were trying to spoof the delay in the filing season announced in early 2014 because Congress could not get its act together with respect to 2013 tax laws until very late in 2013.

Unfortunately, many people who read these sorts of satirical compositions take them at face value, and do not bother to cross-check the information. Then, instead of simply saying something to a handful of colleagues at the office or friends at the corner bar, as was the practice several decades ago, they take to social media, and within minutes the entire planet has been informed of a news development that isn’t news but that is circulated as though it were. Is it any wonder people are making more and more bad choices? The information pool is becoming increasingly polluted.

If spoofs re necessary, a better one would have been to satirize the Congress, the source of the delay in the start of the last filing season. But, unfortunately, that would be rather difficult, because the Congress has become a self-perpetuating spoof, a satire on the political condition of this nation. If satire is intended to get people to laugh, there’s no point in doing Congressional spoofs. That legislative body is no laughing matter. It’s something over which the Founders would cry.

Monday, November 17, 2014

Soda Sales Shifting? 

In last Wednesday’s post, Escaping Tax and User Fee Revenue Diversion, my analysis of a Philadelphia cigarette tax included an exploration of city residents making purchases outside the city in order to escape the tax. That point was just one piece of my criticism of a tax that puts an education expenditure burden on a narrow group of taxpayers and not on all of those who benefit from the expenditures.

Another tax that doesn’t impress me is the so-called “soda tax,” designed to change people’s beverage drinking habits. In a series of posts, beginning with What Sort of Tax?, and continuing in The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, and The Realities of the Soda Tax Policy Debate, I have criticized singling out soda when there are all other sorts of beverages and food items that contribute to excessive sugar intake. I have also criticized the disconnect between the tax and public health improvement.

Now comes news that soda tax proposals in two neighboring California cities have met different fates. According to this report, the soda tax proposal in Berkeley passed. On the other hand, according to this report, a soda tax proposal in San Francisco failed. So now what happens? Will people in Berkeley drive to San Francisco or some other nearby locality to make soda purchases, including bulk purchases? For a serious soda drinker, the tax is high enough to make the costs of the drive bearable if sufficient quantities are purchased during one shopping venture. On the other hand, for the casual drinker, the option of going out of town to make the purchase is not practical.

Does anyone seriously think that the soda tax will reduce the number of obese people in Berkeley, or raise enough revenue to make the cost of administering and complying with the tax worthwhile? Is it nothing more than symbolism? I will be watching for follow-up reports.

Friday, November 14, 2014

Foolish Tax Filing Decisions Disclosed to Judge Judy 

From time to time, tax issues pop up on television court shows. I have described these episodes on five previous occasions, starting with Judge Judy and Tax Law, and continuing through Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, and Tax Re-Visits Judge Judy. That there have been only five, until now, reflects not only the infrequency of tax issues showing up on these shows but also the reality of my inability to view all of the shows. Surely I have missed some.

This time, once again a Judge Judy episode, the tax issue that came to light had no direct bearing on the outcome of the case, and drew no comment from the judge that I recall. The plaintiff had met a man, who when asked by her about his marital status, claimed to be single. So the plaintiff and the man started into a relationship. Eventually the man’s wife found out. She made the plaintiff aware of the fact that he was married. The plaintiff confronted the man, and he maintained his claim that he was single. He even showed the plaintiff a copy of his W-4 form, on which he claimed single status. The judge asked the defendant, the man’s wife, if that was true, and the defendant replied that yes, it was, that they both filed as single individuals. How can that be? They are married and lived together, so the only appropriate choices for filing are married filing jointly, and married filing separately. Filing as single individuals is not permitted.

But Judge Judy wasn’t interested in this issue. It wasn’t a tax case. The case involved the plaintiff’s claim against the man’s wife. The wife had assaulted the plaintiff, essentially because the plaintiff was in a relationship with the defendant’s husband. It’s not difficult to guess how this turned out. Why the defendant could not understand that the bad guy in this story was her husband and not the plaintiff remained unanswered.

I wonder if someone from the IRS caught this episode, and tracked down the tax returns filed by these two individuals. If that happens, the damages sought by the plaintiff will pale in comparison to what the IRS seeks.

Tax law often is complicated. But sometimes it’s simple. Married people cannot use the unmarried filing status.

Perhaps there should be a television court show dealing with tax issues. I’d have so much fun with that. As the judge, I mean.

Wednesday, November 12, 2014

Escaping Tax and User Fee Revenue Diversion 

Several months ago, in Delaying a Questionable Tax, I explained one of my objections to the then pending, and subsequently approved, new Philadelphia cigarette tax designed to raise money to fund the city’s public schools. Expecting cigarette smokers to carry an additional burden for a public good that benefits everyone, including the students, the employers who will hire them, and society that benefits from the contributions made by educated students, creates an imbalance in funding. I compared the tax with the diversion of toll revenue by the Delaware River Port Authority to fund projects having nothing to do with the repair and maintenance of the bridges on which the tolls are collected.

According to a Philadelphia Inquirer story several days ago, it appears that smokers are escaping the new cigarette tax by taking their business to stores outside the city. City merchants report not only that cigarette sales have dropped by as much as 80 percent, but also that the impact on total revenue has been so strong that they have had to let employees go. A wholesaler who supplies corner stores throughout the city described a 50-percent downturn in the amount of tobacco products, candy, and other goods being purchased by those stores for resale.

To combat the practice by city residents of purchasing cigarettes outside the city, the state Department of Revenue plans to hire enforcement agents. Exactly how they will combat city residents purchasing cigarettes while out of town has not been explained. Unlike agents watching license plates on vehicles as they try to enforce a sales tax avoidable by shopping out of state, these agents will need to find some other way of determining the residences of shoppers inside a Wawa or 7-11 outside the city limits.

When I compared using a cigarette tax to fund public education to the use of bridge tolls to fund unrelated projects, I did not mention an important difference. The cigarette tax is easily avoided, as the recent story describes. The bridge toll is not easily avoided if it is essential, for business or other reasons, to cross the Delaware River. There are no practical alternatives, unlike those available to circumvent the cigarette tax. In some respects, this makes the bridge toll revenue diversion more pernicious. Nonetheless, with projections indicating that the cigarette tax will raise much less revenue than predicted, it becomes a “lose-lose” situation, as the schools don’t get the expected funding and neighborhood stores go out of business. The city official who called the tax “win-win” because it will raise money for schools and reduce smoking is banking on theory and not practical reality. The smokers are still smoking, buying their nicotine at stores outside the city, and the school funding will fall short. In the end, all that will change is that some small business owners will close up shop. That’s a rather deplorable long-term result.

Monday, November 10, 2014

Letter from the Tax Advisor? Read It 

A recent Tax Court case, Singhal v. Comr., T.C. Summ. Op. 2014-102, presents an important lesson for taxpayers. The taxpayers were married, and were the only members of a limited liability company which went by the name of Man Machine Interface Technologies (MMIT), and which was treated as a partnership for federal income tax purposes. A third party accountant prepared the partnership tax return for MMIT, and sent Schedules K-1 to the two taxpayers, along with a letter. The letter explained that the Schedule K-1 “reflects the amounts you need to complete your income tax return. The amounts shown are your distributive share of partnership tax items to be reported on your tax return, and may not correspond to actual distributions you have received during the year.” The husband taxpayer prepared the taxpayers’ joint federal income tax return. Instead of including all the distributive share amounts on the Schedules K-1, he reported the distributions received from the partnership. The IRS sent a notice of deficiency indicating that the amount reported was incorrect because the amount reported to the IRS was different from what was on the return.

Although the taxpayers did not contest the change to their return that added what had not been reported, they contested the accuracy-related penalty imposed by the IRS. In rejecting the taxpayers’ argument that the underreporting was because they “made a mistake of law in good faith” that was “reasonable,” the Court noted that the third-party accountant had sent a letter advising them to use the amounts from the Schedule K-1 and warning them that those amounts “may not correspond to actual distributions.” The Court explained that at trial, the petitioner was asked, “what does it mean to you when a letter to you and your wife says, this information reflects the amounts you need to complete your income tax return?” and answered “To be truthful, I never read it.” The Court asked again, “You never read it?” and the taxpayer replied, “Yes.” The Court then reasoned that if the taxpayer had read the letter, it would not have been reasonable to ignore the information provided by the accountant, and if he had not read the letter, it was not reasonable to have done so.

When tax professionals put advice and information in writing, it is because they have determined that advice and information to be important. They usually don’t waste time and resources writing letters or memoranda about unimportant matters. The taxpayer to whom the letter has been sent almost always has paid for the advice and information contained in it. That, too, should be an incentive to read the letter.

True, we are so bombarded with so many types of information that it is difficult to separate the music from the noise. Yet when the letter is from someone to whom payment has been made, is expected, and refers to something as important as tax matters, it should be much easier to pull it out of the pile and examine it. In the case of these taxpayers, the price paid for not reading the letter exceeded $12,000. Ouch.

Friday, November 07, 2014

If You Don’t Own the House, You Don’t Get the Interest Deduction 

A recent case, Puentes v. Comr., T.C. Memo 2014-224, illustrates the principle that a taxpayer who is neither legal nor equitable owner of a residence is not permitted to deduct interest paid on the mortgage loan secured by the property. Instead, for tax purposes, the taxpayer who makes those payments is making a gift to the owner, who is deemed to pay the interest. Of course, if the owner does not need the deduction, or stands to acquire less of a tax benefit than would the non-owner, the non-owner has every incentive to try to claim the deduction. Unfortunately, the outcome of the principle is harsh.

The facts of the case are fairly simple. The taxpayer’s brother purchased a residence, made the downpayment, financed the balance of the purchase price with a mortgage loan on his name, and took title to the property in his name. The taxpayer did not contribute to the downpayment, was not obligated on the mortgage loan, and was not on the deed. In 2003, the taxpayer moved into her brother’s house. Their father moved into the house in 2005. The taxpayer’s brother made all mortgage loan payments until 2009, when he became unemployed. During the taxable year in issue, 2010, all three lived in the house, the father paid for repairs and supplies, and the taxpayer paid property taxes, homeowner insurance, and mortgage loan payments. The mortgage company issued a Form 1098 in the name of the taxpayer’s brother. When the taxpayer claimed the interest deduction, the IRS disallowed it. The taxpayer petitioned the Tax Court for a redetermination.

Although the taxpayer conceded she was not a legal owner of the residence, she argued that she was an equitable owner and thus entitled to the deduction despite having made that argument and lost in an earlier Tax Court case involving 2009. She tried to distinguish the facts of the earlier case by pointing out that she also paid the property taxes and the homeowner insurance, and shared in the maintenance expenses. Under California law, the legal owner is the equitable owner unless clear and convincing proof is presented that someone else is an equitable owner. The taxpayer failed to show that any agreement or understanding existed by which her brother held title on her behalf or to present any other evidence supporting her claim of being an equitable owner. The Court noted that the taxpayer had not contributed to the downpayment, was not obligated on the mortgage loan, and did not have her name on the deed.

If the taxpayer wanted the interest deduction, she needed to do something to shift ownership. One possibility would be entering into an agreement by which she became part legal owner of the property, and assumed an obligation to make mortgage loan payments. There probably would be countervailing considerations that could lead to a decision not to shift ownership. The availability of the interest deduction ends up as one of several factors that need to be considered. However, no matter what ultimately is decided, it makes sense in these sorts of situations to obtain advice about the best approach to take.

Wednesday, November 05, 2014

Mortgage Loan Modification Can Imperil Interest Deduction 

With mortgage loan modifications rather commonplace, particularly during times of economic downturns, taxpayers need to be careful when re-arranging their loan terms, particularly with home mortgages. There are lessons to be learned from what happened to the taxpayers in a recent Tax Court case, Copeland v. Comr., T.C. Memo 2014-226.

The taxpayers, who use the cash method, applied for and were granted a loan modification by their mortgage lender. Under the modification, the interest rate was reduced, payment terms were changed, and the loan balance was increased. The increase in the loan balance included past due interest that the taxpayers had been unable to pay. The taxpayers claimed a deduction for the unpaid interest that was added to the loan balance. The IRS disallowed that deduction, and the Tax Court sustained the IRS determination.

Interest is deductible by a cash method taxpayer when the interest is paid. The taxpayers in Copeland did not pay the interest, because adding the interest to the loan balance is not payment but simply a promise to make the payment in the future. This principle is well settled in the tax law. To get around this principle, the taxpayers asked the Tax Court to treat the loan modification as if they had borrowed money from another lender and then paid the outstanding principal and past due interest on the existing loan. The court declined to do so, pointing out that what the taxpayers actually did was not the same in economic substance as what they were trying to persuade the court to pretend that they did. The court explained that the taxpayers did not establish that they could have obtained a loan from a third party, and that even if they had been able to do so, the fact that they did not do so confined them to the tax consequences of what they actually did.

If these taxpayers did have the opportunity to borrow from a third party and use the loan proceeds to pay off the existing principal and interest obligations, doing so would have provided them with a tax benefit. Whether non-tax factors would have outweighed the tax advantage is something that cannot be determined from the facts presented by the court’s opinion. But for taxpayers and their tax advisors, it is something worth examining when a taxpayer sets out to restructure a debt obligation.

Monday, November 03, 2014

The Tax and Traffic Squeeze 

Last week, on my 10-hour round-trip drive to meet my first grandchild, a thought crossed my mind. It was triggered by the experience of needing to move back and forth between the right lane and the left lane on those inadequate four-lane limited access highways. The need to leave the right lane was triggered by the drivers who dilly-dally, driving at 10 to 20 miles per hour below the speed limit. But getting into the left lane, and staying in it while passing a slowpoke, was a dangerous adventure, because of the drivers who think they are NASCAR heroes and roar down the road at 20, 30, 40 and even more miles per hour than the speed limit. So, it struck me, those who are driving within 5 or 10 miles per hour of the speed limit are squeezed between the two extremes.

And then a second thought hit me. Being squeezed between the laggards and the speedsters is not unlike being squeezed between extremists on the right and extremists on the left. When it comes to tax policy, there are those advocate returning to 90 percent marginal rates, an idea that is absurd, and there are those who advocate eliminating taxes, another idea that is no less absurd. Neither side has the ability to fit their idea into the reality of the overwhelming majority who do not sit on the extreme edge.

What causes this behavior? The answer is simple. Addiction. When passing someone who is lumbering along in the right lane, I will increase my speed in order to minimize the time spent passing, remembering the lesson that the longer two vehicles are running parallel, the greater the chances of a collision. Along comes the speedster who, even though I am now driving 10 miles per hour above the speed limit, hangs on my rear bumper. I’ve experimented. Speeding up does nothing. Though I’ve not tried hitting 80 or 90 miles per hour, it’s never enough for these speed-addicted fools. And the same is true of wealth generation. Most individuals would be happy with salaries in the high six-digit range, and with wealth in the low seven-digit range. But the nation’s multi-millionaires, billionaires, and multi-billionaires aren’t happy. They can double their income and wealth time and time again, and even if they could reach an infinity of dollars, would still be unsatisfied. Something’s missing in their psyche, and like the speedster who does not understand and cannot accept the reality of limits, they, too, cannot stop, for there is no limit on their insatiability.

But what the extremists tend to forget is that if you squeeze too hard, something is going to pop. And the longer it takes for the pressure to build, the stronger the eruption. Some speedsters never learn until that last micro-second before they and their vehicle become on lump of fused human and metal material. I wonder what will be the limit-teaching event for the tax policy extremists.

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