MauledAgain

It’s been a while since I’ve written about the Philadelphia soda tax. I wrote many commentaries about the tax from the time it was proposed until it was enacted and debates about the tax faded as other issues moved to center stage. Those commentaries included What Sort of Tax?, 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, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, Putting Funding Burdens on Those Who Pay the Soda Tax, Imagine a Soda Tax Turned into a Health Tax, Another Weak Defense of the Soda Tax, Unintended Consequences in the Soda Tax World, Was the Philadelphia Soda Tax the Product of Revenge?, Did a Revenge Mistake Alter Tax History?, What’s More Effective? Taxing and Restricting Soda or Educating People About Healthy Lifestyles?, If Sugar Is Bad And Is Going To Be Taxed, Tax Everything That Contains Sugar, Time for a Salt Tax to Replace a Soda Tax?, Soda Taxes: So It’s Not So Much the Soda, Is It?, The Soda Tax “War” and a Pathway to Tax Peace, and The Primary Goal of the Philadelphia Soda Tax: Not a Reduction in Soda Consumption.

Now comes a Philadelphia Inquirer story letting us know that Philadelphia has decided to hold hearings on the soda tax. One member of Council noted that the tax “disproportionately affects the poor” and that Council should look for other sources of revenue. As I pointed out in some of my commentaries, if the soda tax was truly about improving health, the tax should and would be a tax on sugar and similar substances and not just beverages. Instead, the tax is about revenue, and the large amount of sugary beverages sold in Philadelphia was, and to some extent still is, low-hanging tax revenue fruit.

Interestingly, according to a study reported in this Philadelphia Inquirer story, the tax has had an impact on Philadelphians’ health. Whether that impact is positive is questionable, considering that the study showed Philadelphians’ body mass index increasing though at a slightly slower rate than for people outside of the city. Supporters point to substantial drops in soda sales within the city, but that doesn’t demonstrate purchases of soda have declined substantially. It only proves that purchases made within the city, rather than across the street in other municipalities, have decreased.

The Council member who noted that the tax adversely affects the poor then explained that, “I just want to look at [the tax.] I’m not saying we’re going to do anything with it. I just want to make sure that I bring everybody in that has an opinion about it.” It doesn’t hurt to review periodically all sorts of laws and taxes. Of course, I have an opinion about the tax. I’ll let you know if he brings me in.

Representative Earl Carter of Georgia has continued the practice of at least one representative from Georgia introducing the Fair Tax Act when each new Congress convenes. First introduced in 1999, the most recent version of the proposal is not what its sponsors claim it to be. In his press release, Carter claims that the “The Fair Tax would repeal the current tax code and replace it with a single national consumption tax.” Though it would enact a consumption tax, it would not repeal the current tax code. It would repeal parts of the current tax code. Carter claims that the “Fair Tax would also eliminate the need for the Internal Revenue Service.” Yet the bill leaves to “the Secretary” [of the Treasury] a long list of responsibilities and tasks that if not assigned to the Internal Revenue Service that would be assigned to existing or new departments or bureaus that would differ chiefly in name only. The proposal leaves in place some taxes, such as excise taxes, and there would still need to be some sort of federal agency to administer them.

Replacing an progressive income tax with a consumption tax, which is a fancy name for a sales tax, would eliminate the corporate income tax. It would reduce the amount of federal taxes paid by the wealthy. It is a regressive tax, which means that the percentage of income paid in taxes would decrease as income increased. Even with the absurdly complicated rebate system proposed for people living under the poverty level, the consumption tax would hit the middle class, or what’s left of it, while letting the wealthy pay a token amount of tax. The tax would not apply to investments. That, of course, is quite a relief to those who have investments but is an exception of no use to those struggling to get by on poverty wages. On a Myth v. Fact release, Carter rejects the claim that the “FairTax will hurt the poor and give the rich a huge tax cut” by pointing out the rebate system for the poor, and then argues that “the FairTax is not riddled with shelters and loopholes, meaning wealthy taxpayers cannot minimize what they pay in taxes,” but without mentioning that the wealthy spend very little of their income and wealth on consumption compared to everyone else in the country. The exception in section 102(a)(2) of the proposal is pretty much a shelter if not a loophole. It’s actually a flaw in the consumption tax, and it makes ridiculous the claim that the “FairTax is the only progressive tax reform bill currently pending before Congress” because it’s not a progressive tax.

If you are interested in how the mechanisms for people to qualify for a rebate that would be mailed to individuals qualifying for consumption tax relief, read the details in the bill. The definitions, the reporting, the hoops through which people must jump are no less complicated and in some instances more complicated than existing federal tax law.

The bill shifts to the revenue departments of states that have sales taxes the task of administering the federal consumption tax, which surely cannot delight existing overworked state revenue department employees. The federal government, through the use of some sort of IRS replacement agency, would remain the administrator of the tax in states that do not have sales taxes. Considering the difficulties states face in collecting the backup use tax, relying on a system that provides just as many compliance and enforcement challenges as does the existing federal income tax is unwise, even foolish.

Though the press release claims that the Fair Tax would eliminate the need for taxpayers to have “a team of lawyers or accountants to fill out their taxes,” the bill contains language that contemplates the need for professional advice to deal with the inevitable mistakes, overcharges, erroneous poverty rebates, and other glitches sure to arise. Worse, some taxpayers may not realize that they have been overcharged or under rebated, and so they wouldn’t know they need professional assistance, which is not a good reason to not retain professional assistance.

One of the co-sponsors claims that a national consumption tax would “make the American Dream affordable again.” He doesn’t understand, or perhaps does but does not want to admit, that the unaffordability of the American dream for almost everyone who isn’t attaining it rests on the income and wealth inequality caused by the reduction of income tax progressivity. Eliminating that progressivity with a regressive consumption tax guarantees that the American Dream will be out of reach except for the several hundred families that would eventually own 99 percent of wealth in this country. Progressivity means progress, which encompasses the American Dream. Regressivity means regression, which encompasses the flaws that this nation has been trying to remediate for the past 90 years.

Sponsors of the proposed legislation, as quoted in the press release, keep tossing around words and phrases such as prosperity, pro-growth, and fair share. These buzz words are the hallmark of the Oligarchic Dream, which is the antithesis of the American Dream. It is legislation welcomed by the ruling oligarchy and that will make the economic position of most Americans even worse than what it currently is.

Representative Carter went so far as to claim that the legislation is “the only tax proposal out there that is pro-growth, simple, and allows Americans to keep every cent of their hard-earned money.” If Americans keep every cent of their hard-earned money, then no one would be paying taxes, except perhaps for those who have easy-earned money. So who has easy-earned money? Certainly not the hard-working electricians, police officers, farmers, engineers, bookkeepers, caregivers, nurses, and other workers. The easy-earned money accrues to those who sit around living off trust funds and inherited wealth. Yet I am confident that the Fair Tax is not designed to remove tax obligations from those who work hard or have worked hard.

Carter goes even further, telling us that he is “proud to lead this Georgia-grown legislation that puts the American people, not bureaucrats, in charge of their tax rate.” If that is what he intends, put the tax rate to a popular vote. If I were to bet, I would bet that zero percent would win. Not only would it reflect the ubiquitous distaste for taxation shared by most people, it would also reflect the efforts of the oligarchy that wants to eliminate government or reduce it to a structure under the control of the oligarchy, and replace it with a nation whose economy is totally, or close to totally, a private sector under the control of oligarchs who are not subject to votes, recall, or impeachment. In that world, the services currently provided by government would either be eliminated or would be available for purchase from oligarchs who own highways, hospitals, banks, police and fire departments, grocery stores, clothing stores, and everything else, and who can refuse service to whomever they want to push aside, who can charge whatever they want to charge, who can damage the environment however they wish, who can sell defective and dangerous products if doing so enhances their net worth, who can use false advertising to procure customers, who can be the marketplace capitalist bullies that is their oligarchic dream.

Almost a month ago – somehow I missed it – the IRS issued a news release warning people about “the growing threat of bad tax advice on social media that continues to dupe people into filing inaccurate tax returns.” The statement was issued as part of the ninth annual National Tax Security Awareness Week.

There is no question that all sorts of “scams and bad advice” circulate with promises of lower taxes and refundable credits for taxpayers who fall for these scams and bad advice. Though some of these misleading claims are the product of an ill-informed person thinking they are helping others, most are designed to funnel money to the perpetrator of the arrangement. According to the IRS and is Security Summit partners, these scams include the “Fuel Tax Credit” claim (misleading people who are not eligible for the credit to claim it), the “Self-Employment Tax Credit” plan (a limited credit that existed only for several years and hasn’t been available since 2022), “pig-butchering” crypto scams, and “investments in fake cryptocurrencies.” Other bad advice encourages taxpayers to invent fake household employees and claim refunds based on sick and medical leave wages never paid, to create fake W-2 forms with inflated income and withholding amounts from a fake employer and to use these for filing returns to get refunds, to claim deductions equal to the entire amount of their wages and labeling the deduction as an expense for the production of income.

There is no question why the people who deliberately market these suggestions do so. They know that a large proportion of Americans are easy prey for misinformation and lies. They know that too many Americans are unwilling to do research to verify what they hear, see, or read. They know that too many Americans let their initial emotional reaction suppress critical thinking and analysis. They know that the chances of getting caught and prosecuted are low, and that the chances of meaningful punishment if convicted are even lower.

An interesting twist to the IRS statement is its reference to “social media.” What is social media? According to Merriam-Webster, it consists of “forms of electronic communication (such as websites for social networking and microblogging) through which users create online communities to share information, ideas, personal messages, and other content (such as videos).” This definition is so broad that it includes the IRS website itself, a place where users, that is, IRS employees, create an online community through which it shares information. The IRS announcement itself explains that “a better option for taxpayers to learn how to properly use tax forms and claim credits is to go to IRS.gov and follow IRS social media channels.” So it’s not a matter of concluding that all information obtained through social media is necessarily bad. It’s a matter of learning how to separate truth from lies. More on that in a moment.

On the other hand, limiting the warning to “social media” ignores the other means by which misinformation and lies are disseminated. The misinformation and falsehood communication problem existed long before electronic communications and, for example, the internet, came into existence. People with bad intent offered bad advice and spread lies in social clubs, churches, schools, taprooms, business offices, and on public transport. What the internet had done is to provide an environment in which bad advice tossed up at a local club and that circulated among perhaps hundreds or a few thousand people to find its way to billions of people all over the planet.

What’s the answer? The IRS gave the same advice I’ve been offering for decades: “We urge people to do some research before falling for these scams. Finding a trusted tax professional or visiting IRS.gov is a better way to research a tax issue than relying on someone talking in their car or their kitchen about a non-existent tax hack.” Following advice from an online stranger, or even a well-known friend or family member that turns out to be bad advice can be costly. When taxpayers accept the misinformation or bad advice without verification, the IRS explains that “they could face audits and expensive fines [and] in some cases, they could be subject to federal criminal prosecution and imprisonment.” In other words, do deep research. Do background checks on tax return preparers. Ask the friend or relative where they are getting the information they are sharing and to direct you to its source. Their refusal or inability to do so is a red flag. If there is a source, go to it. Research it. Analyze it. Protect yourself.