MauledAgain

First, the article. According to this article, one of the ways China is trying to encourage people to have more children is to impose its 13 percent value-added tax (VAT) on condoms and other contraceptives. For those unfamiliar with a VAT, it is similar to a sales tax, computed not on the total sales price but on the portion of the sales price that represents the value added by the seller (whose seller paid a VAT on what that seller added, and whose customer, if selling the item, would be pay a VAT on what the customer-turned-seller added in value). The article notes that China has raised the “limit on the number of children permitted per couple to three.” It also offers a variety of subsidies, leave days, and other incentives such as tax breaks for childcare.

Second, the question posed by reader Morris, and his answer. He asks, “Will China's new tax increase raise birth rates?” He suggests, “No. If you cannot afford a condom tax then you sure cannot afford the cost of a new child.” The article suggests that the tax is “largely a symbolic move,” pointing out that the equivalent US dollar cost of condom packets and contraceptive pills run in the average of $6 to $17. The 13 percent VAT would run from the US equivalent of 78 cents to $2.21. So though it’s true that someone who cannot afford to pay another 78 cents to $2.21 is almost certainly lacking the finances to support a child. To the extent that two people pass up purchasing a contraceptive because of that slight increased cost, there is a chance, perhaps small, perhaps greater, that those two people will become the parents of a child they cannot afford to raise.

A demographer in China opined, “However, this measure is unlikely to have a significant effect on increasing the fertility rate.” Concomitantly, the VAT in question is highly unlikely to raise much revenue, and thus unlikely to make a dent in the revenue shortages that are making it difficult for childcare subsidies to be paid. Some are suggesting that the “primary motivation” behind the tax is not revenue generation.

The question of whether, and if so, how, tax rates, exemptions, and credits should be used to encourage or discourage births has been around for a long time, has been debated during that long time, and has been the subject of arguments supporting and opposing the use of tax systems to affect decisions made by individuals who are considering having or not having children.

This larger question is not one I am ready to discuss. I am not a demographer. I am not a sociologist. I do wonder, though, if China was higher birth rates, why limit people to three children? Why not permit someone who can afford to have six children do so? Surely there are underlying reasons but I leave that discussion to others who are more qualified to explain and critique birth limits.

Only in a some instances have I mentioned the sentences handed down by judges on tax return preparers who plead guilty to, or are convicted of, tax fraud. In most of those instances the sentences were peripheral to the issues I addressed. In only a few instances did I comment on the adequacy of the sentence. That includes one commentary in which I discussed how plea bargaining can reduce what otherwise might be a tougher sentence, and in another I considered how injunctions should be added to the usual sentences of fines, restitution, prison, or some combination of those penalties.

Recently, the IRS issued a news release describing the sentencing of a tax return preparer who pleaded guilty to five counts and aiding and assisting in the preparation and presentation of false and fraudulent tax returns. Over a period of three years (“between 2021 and 2023,” which I interpret as three years and not the one year (2002) that is between 2001 and 2003), the preparer prepared and filed approximately 463 fraudulent returns, causing a tax loss to the U.S. Treasury of $1,575,250. One of the preparer’s schemes was to fabricate Schedules C (Profit or Loss from Business), showing “significant net losses” for taxpayers who had not operated a business. The preparer also put inflated itemized deductions on clients’ returns, particularly for the medical expense deduction.

The preparer was ordered to pay $1,954,673.30 in restitution, which appears to be the amount of taxes not paid by the clients increased by interest and penalties. The preparer was also sentenced to 18 months in prison, to be followed by two years of supervised release. 18 months is roughly 540 days. That’s roughly 1.17 of a day (or 30 hours) for each fraudulent return. It’s one day for each $2,917 in federal taxes unpaid by clients.

Is 30 hours in prison for a fraudulent return sufficient? I suppose it depends on the magnitude of the fraud. So the better question is whether one day in prison is sufficient for a monetary crime of $2,917. For purposes of comparison, consider someone who embezzles $1,575,250. In New York, as summarized in this explanation, embezzlement of more than $1,000,000 is a Class B felony, which carries a prison sentence of 5 to 25 years. A quick look suggests that in other states the sentences are at least as long, perhaps higher. So 18 months is quite the bargain.

A better question is whether 18 months is enough time to persuade this preparer to give up trying to make money through fraudulent means and to seek income in some other, legal manner. It depends on what happens during those 18 months in prison. Are attempts at reformation serious and effective? Only time will tell in the case of this particular preparer.