MauledAgain

David Henderson has written for the for Policy Innovation an interesting commentary addressing “The Bizarre Economics of 'Tax Expenditures'” He points out that tax policy discussions almost always include reference to the term “tax expenditure.” He classifies that term as “internally contradictory.” He bases his conclusion on the premise that something cannot be both a tax and an expenditure.

Henderson gives an example of a tax expenditure. He describes a person who deducts mortgage interest, and in doing so causes his federal income tax to be less than what it would be without the deduction. The reduction in tax liability due to the deduction is a tax expenditure. In that, he is correct.

Henderson then asks, “Why do they call it a tax expenditure?” His answer is wrong. He claims that the term “tax expenditure” rests on the “implicit assumption . . . that there shouldn’t be a deduction for home mortgages.”

Why is he wrong? Let’s step back. There are two ways that the federal government can move money into the private sector. One is a direct expenditure. A direct expenditure is the delivery of a check, an electronic fund transfer, or the delivery of some sort of prepaid card. The other way is to shift money by providing an income tax exclusion, a deduction, or a credit to a taxpayer. A technically precise term for that sort of expenditure would be “expenditure accomplished through the tax system.” Another technically precise term would be “expenditure accomplished through providing an income tax exclusion, deduction, or credit.” Both of those technically precise terms are mouthfuls and make it difficult to speak, to understand when listening, to write, or to read because they clutter sentences and paragraphs. So as shorthand for those technically precise, but verbose, terms people speaking about tax policy and government spending shortened the term to its two most important words, tax and expenditure.

Henderson, proceeding on his claim that the term “tax expenditure” is used to describe exclusions, deductions, and credits that should not exist, says that instead of using the term policymakers and those discussing policy should simply state that “the deduction is bad policy.” But this demonstrates the flaw in Henderson’s position. At present, EVERY exclusion, deduction, and credit is classified as a tax expenditure because EVERY exclusion, deduction, and credit has the same effect of reducing tax liability. According to Henderson’s method of reasoning, because anything termed a “tax expenditure” is something that policymakers and those discussing policy should simply describe as “bad policy,” logic mandates that every tax expenditure, that is, every exclusion, deduction, and credit is “bad policy.” That surely is not the case.

A tax expenditure is nothing more than an equivalent of a direct expenditure. For example, instead of providing a deduction for mortgage interest, the federal government could provide a direct cash subsidy to the homeowner. Currently, the amount of that subsidy would be measured by the homeowner’s tax status. Whether there should be subsidy, however paid or measured, is a different issue than the terminology used to describe one way of providing that subsidy. Tax has a language all its own. Tax expenditure is a term that is part of that language. Calling something a tax expenditure is not, in and of itself, an evaluation of the wisdom of the tax provision causing the tax expenditure.

Apparently, streets in St. Paul, Minnesota, are crumbling. According to this report, the amount of funding available for street maintenance has been holding steady while the cost of repairs and reconstruction has nearly doubled. It’s at the point where the city is reconstructing only one-third as many miles of streets as it did 20 years ago.

So the mayor of the city wants to increase the city sales tax. It would raise $1 billion over the next 20 years, and most of it would be used to rebuild 44 miles of certain streets. The rest would be used to improve city parks, trails, athletic and recreation facilities, and similar projects. To put this in perspective, in the early 2000s, the city annually reconstructed 10 to 15 miles of streets, and now does only 5 miles. So the tax would permit rebuilding 44 miles of streets over 20 years, which comes out to 2.2 miles per year. One billion dollars is an interesting price tag for that sort of marginal improvement.

What strikes me is the disconnect between sales taxes and street use. The streets need reconstruction because streets wear out. They wear out primarily through use, though weather also plays a role. There’s not much of a correlation between retail transactions and street use. Though consumers use streets to get to stores and stores use streets when shipping or receiving merchandise, it is likely that most retail consumers in St. Paul do not use the streets slated for reconstruction. Why not a tax or funding method tied more closely to the use of the streets in question? Another problem is that the proposed sales tax revenue would be used for a handful of streets, leaving the overwhelming number of other streets bereft of funding for maintenance and repairs.

Other proposals offered by St. Paul citizens and officials are likewise disconnected. Raising property taxes presumes a direct connection between property ownership and street use. Though there is a much higher correlation, it isn’t sufficient direct. Cutting funds for libraries and schools makes no sense. Asking non-profit institutions to bear the cost suggests that somehow only non-profit institution, and their members or clients, benefit from street use.

What would work? Readers of MauledAgain will not be surprised by this question from me: why not a mileage-based road fee? I’ve discussed this fee in posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, In Praise of the Mileage-Base Road Fee, What Appears to Be Criticism of the Mileage-Based Road Fee Isn’t, Though It Is a Criticism of How Congress Functions, Ignorance and Propaganda, A New Twist to the Mileage-Based Road Fee, The Mileage-Based Road Fee: Simpler, Fairer, and More Efficient Than the Alternatives, and Some Updates on the Mileage-Based Road Fee.

In all fairness, that question cannot be answered until another question is resolved. Does St. Paul have the authority to enact a mileage-based road fee? I don’t know. Perhaps someone who is expert on Minnesota legislative delegation law has an answer. The same question would need to be answered before a different but similar approach were taken. Why not revenue from a system similar to what is used in cities that impose congestion fees? Congestion fees are nothing more than tolls imposed during high volume periods, and there is no reason the systems in place to collect those fees cannot operate all the time. But I doubt St. Paul has authority to impose a congestion fee or toll on its downtown streets without state authorization. Perhaps I am wrong. Again, a Minnesota legislative delegation law expert might have an answer.

Public officials and citizens should find it helpful to consider use fees, and to think about the connection between public expenditures and revenue sources. Simply grabbing any sort of tax to fund any sort of expenditure is not a pathway to good government.

The recent excitement about a lottery prize topping one billion dollars has generated a blizzard of posts, such as this one, claiming that the "government" or "the IRS" will "take" more than half of the winnings. Whether this claim has arisen independently among many writers or is simply the repetition of a computation worked out by one person is a question I don't have the time or inclination to research. What I do know is that whoever makes this claim is wrong, and whoever repeats it has failed to do independent research.

So let's work with a $1 billion lottery prize. The winner can take an annuity, that is, payments over a period of time, or a lump-sum, which is what almost every winner chooses the lump-sum, either because of the attraction of a huge amount of money instantly in hand or because the lump-sum can be invested at rates of return that are better than what is built into the annuity payments.

In recent months, the lump-sum amount for a $1 billion prize has been roughly $516.8 million. What is the federal income tax on a $516 million lottery prize? It depends on how much other income the winner already has. Let's assume the winner is unmarried, has $70,000 in other income, and $20,000 in deductions. The winner's taxable income would be $516,850,000. The federal income tax on that amount of taxable income is $191,197,455 (which is 38.99 percent of the taxable income). The state income tax could range from zero, in states with no income tax, to as much as 13.3 percent, in California. Rather than analyzing dozens of states, let's assume a state income tax of 8 percent, or $41,348,000 in state income tax. The total income tax for the winner would be $232,545,455.

Of the $516,800,000 lottery prize and the $70,000 of other income, the winner keeps $284,324,545. That's 55 percent of the cash prize.

The problem with the "government takes more than half" claim is that people do the following erroneous computation. They consider the winner as having won $1 billion and keeping $284,324,545. That is 28.4 percent of the "prize," and thus, according to the reasoning of whoever makes this claim, the other 71.6 percent must be going to "the government" or "the IRS." The flaw in this reasoning is that the winner does not win $1 billion. The winner chose to waive the $1 billion payable over a period of years in order to get an immediate $516.8 million. Put another way, of the $1 billion, the winner goes home, after taxes, with $284,324,545. That is $715,675,455 less that $1 billion. But only $232,545,455 of the $1 billion is "lost" to taxes. The other $483,130,000 that is "lost" is lost because of the time value of money, which is what converts a $1 billion annuity into a present value lump sum of $516.8 million.

The flaw in the reasoning of the "government takes more than half" alarm bell ringers is a combination of bad arithmetic, bad logic, and bad understanding of the time value of money. In some instances, I suspect that those making the claim fully understand the arithmetic and the logic but are trying to drum up outrage among those with less understanding in order to rally support for their anti-tax, anti-government programs. Whether it is the product of ignorance, a not-so-subtle tactic, or some combination, the claim has gone viral. It shows up on social media posts, mostly by people who also post similar unfounded claims about a variety of topics, as well as popping up in more than a few mainstream media publications.

The price that this country is paying for deficiencies in K-12 education continues to grow much more quickly than the benefits that are being reaped by the "reforms" that are crippling the nation's education systems. Something needs to be fixed, and yesterday isn't soon enough.

Reader Morris asked me if my July 11 post was my final post. I assured him, no, it was not. Nor is this post intended to be a final post. My expectation is that I will not know when I have posted my final post. There hasn't been a post for the past three weeks because of several reasons. I've been away. I've been dealing with a variety of things that come with owning a home, and a bunch of them demanded attention at about the same time. The front door lock needed repairs, the trees need attention, the property needed to be powerwashed, most of the cast iron drain pipes needed to be replaced because they cracked and were leaking, the generator needed its annual check-up, the bathtub faucets needed replacement, and on and on it goes. There may be an interesting tax issue in there somewhere but I doubt it. Do any of the expenditures increase adjusted basis in the property? I'll leave that as an exam question if someone teaching the tax course needs an idea. It also is a slow time for tax developments that motivate me to write. That usually happens during the summer, particularly in July and August. Not much happens on the legislative front. The cases that have been decided aren't remarkable. The proposals that have been floated are repeats. When I have something to say, or write, I speak and my fingers dance on the keyboard. In the meantime, enjoy these brief moments of quiet.* * This expression of the moment reflects a story told to me several times by my mother. Apparently I began talking at a very young age, perhaps 6 or 7 months. A few months later, I stopped talking. Completely. Worried, my mother asked around, to friends and family and neighbors who had children, to learn if this was normal. Her father said to her, almost in these words, don't worry, soon he talks again and you will wish he was again quiet. Somehow he knew.

It is no secret that I oppose public funding of, and tax breaks for, businesses owned by multimillionaires and billionaires. Some of my commentaries on this issue include Tax Revenues and D.C. Baseball, four years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, Tax Breaks for Broken Promises: Not A Good Exchange, Tax Breaks for Wealthy People Who Pretend to Be Poor, When One Tax Break Giveaway Isn’t Enough, It’s Not Just Sports Franchise Owners Grasping at Tax Breaks, Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park, and Tax Breaks For Starving Team Owners.

So it’s no surprise that a reader brought to my attention the latest developments in a story to which I had been paying a bit of attention, namely, state and local financing and tax breaks to bring the Oakland Athletics to Las Vegas. As I ask each time billionaire team owners seek public financial assistance for their private businesses, if it can’t be done with the owner’s money then is it really worth doing? Governments should not be owning or financing professional sports teams. Though the owners and politicians line up to justify these arrangements as “doing good for the public” and “creating lots of jobs.” as I explained in Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park. “this reasoning would support tax breaks for almost everyone, thus destroying government and civilization.” In many instances, truly public government functions are underfunded or eliminated because of revenue shortages caused by the tax breaks handed out to the starving team owners. It’s interesting that the same groups opposed to “big” and “intrusive” government don’t seem to have any qualms about supporting the expansion of government to be a partner in private enterprise, especially when that expansion consists of public money ending up in private hands. Of course, if public money is ending up in the hands of impoverished individuals, the same anti-tax and anti-government advocates are quick to complain.

Why do these arrangements continue to be proposed and accepted, even when the majority of taxpayers are either opposed or indifferent to the activity being financed? It’s because those who have an unending appetite for money have the money necessary to persuade public officials to funnel tax breaks and, in some instances cash outlays, in their direction. There’s something very wrong with this, and the longer it goes uncorrected, the worse it will get. Down the road the nation will end up with private ownership of all government functions, with ownership limited to those with wealth sufficient to belong to the club.

As an advocate of mileage-based road fees, I keep an eye out for legislative developments and commentaries dealing with the proposal. I’ve been writing about this idea for a long time, in posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, In Praise of the Mileage-Base Road Fee, What Appears to Be Criticism of the Mileage-Based Road Fee Isn’t, Though It Is a Criticism of How Congress Functions, Ignorance and Propaganda, A New Twist to the Mileage-Based Road Fee, and The Mileage-Based Road Fee: Simpler, Fairer, and More Efficient Than the Alternatives.

Though I don’t always catch every proposed legislation or commentary, I do notice some and readers sometimes alert me when there is news on this topic. Today I spotted an article in this morning’s Philadelphia Inquirer, which it has picked up from the Associated Press and reprinted in several places, including this one. The article is more of a summary than a delivery of breaking news, but it does make some points that deserve attention.

The article notes that the need to deal with the deficiencies of using fuel taxes to fund highways is moving ever more quickly to becoming a crisis. I’ve been pointing this out for years, and it’s good to see that increasing numbers of people are taking notice. Electric vehicles, which accounted for about 5 percent of new vehicle car sales in 2021 will constitute 40 percent by 2030, which is only seven years from now.

The article shares the opinion of an Oregon woman who thinks “it’s far less hassle to just pay at the pump,” though she admits, "It's probably a good thing, but on top of everybody else's stress today, it's just one more thing." If done correctly, it’s not one more thing. The system for measuring mileage and relevant factors such as weight and number of axles can be installed easily in existing vehicles and will eventually be pre-installed by vehicle manufacturers.

The article points out that many states are seeking temporary fixes. Those fixes, such as increasing registration fees for electric vehicles and taxing electricity consumption at public charging stations, require more effort and are less efficient than simply enacting mileage-based road fees. These fixes also fail to share the financial burden of maintaining highways in an equitable fashion. What an individual vehicle owner pays per mile in fuel taxes is not equivalent to what is paid through these temporary solutions. Some of the fixes are absurd, such as taxing companies that make home deliveries, where there is no correlation between road usage and the tax.

The article notes that the Washington state legislature passed a bill, which the governor vetoed, to permit collecting odometer readings on a voluntary basis. The governor justified the veto by explaining that the state should establish a program before collecting personal data. The notion that the number of miles a person uses a public highway is somehow personal data is puzzling. I don’t know how Washington state handles vehicle inspections and mandatory liability insurance, but in Pennsylvania, odometer readings are collected when vehicles undergo annual safety inspections, and when vehicle registration renewals are filed. Also factoring into the equation is the increasing connectivity between vehicles and manufacturer and other services that track all sorts of vehicle information, including mileage, in connection with safety and maintenance of the vehicle.

The article also pointed out that the annual survey undertaken by the San Jose State University Mineta Transportation Institute demonstrates growing support for mileage-based road fees. There also is increasing support for special rates for low-income drivers, and rates that reflect pollution generated by a vehicle. The latter concept makes sense, because vehicle pollution contributes to road deterioration, just as heavier vehicles cause more wear and tear. The need to lower rates for low-income drivers makes little sense when one considers that the fuel tax rate is the same for all drivers, and that a mileage-based road fee would replace, not supplement, the fuel tax that low-income drivers are already paying.

Whether I see a wholesale replacement of the fuel tax with a mileage-based road fee during my lifetime remains to be seen. The actuaries and political pundits can compute the odds. I can’t.

Reader Morris directed me to a question posted on a Rockford, Illinois, Eyewitness News web site. The question, found here, is simply stated: “Can I donate my neighbor’s trash to Goodwill for a tax deduction in Illinois?”

As often is the case with tax issues, before the tax question can be analyzed there is a need to look at the underlying concerns. In Illinois, it is illegal to take something from another person’s private property, even if it appears to be trash. But if it is on public property, such as the street, then it is not illegal to take it, though as a child I was taught to knock on the neighbor’s door and ask. It’s the polite thing to do. What constitutes public property depends on state and local law. In some jurisdictions, the sidewalk and the grass strip between the sidewalk and the street are public property.

If the item is taken legally, when the person donates it to a charity and gets a receipt indicating that the property is worth, say, $100, then the taxpayer, by claiming a charitable contribution deduction for $100, also is admitting that the item was worth $100 when taken (barring some unusual instance in which the taxpayer did work on the item before donating it). When the $100 item is taken by the taxpayer from the trash, the taxpayer has $100 of gross income. How would the IRS catch this? From the paperwork that must be filed, which asks how the donated property was acquired. At least, that’s the theory. It’s a wash. Worse, if the taxpayer’s other itemized deductions do not exceed the standard deduction, the charitable contribution deduction is worthless. So the taxpayer probably doesn’t claim the deduction and probably omits the gross income. The IRS probably detect the transactions. But it’s still a wash.

But suppose the taxpayer can use the deduction because the other itemized deductions exceed the standard deduction. And suppose the item is taken illegally. In this case, there still is gross income, because gross income exists for the same reason embezzlement proceeds are included in gross income. But there would be no right to a charitable contribution deduction because that deduction is limited to gifts of money and property owned by the taxpayer. The taxpayer does not own the item of trash stolen from the neighbor’s private property.

The article to which reader Morris directed my attention advises readers to look at the IRS website or consult with a CPA or attorney. Good advice.

I see here an exam question for use in a basic federal income tax course. Better yet, it could pop up on a bar exam, because bar examiners prefer questions that require examinees to work with multiple areas of law. This question involves application of property law, criminal law, and tax law. Fun.

Yesterday the United States Tax Court issued an opinion in Sanders v. Comr., 160 T.C. No. 16, in which it held that it lacked jurisdiction over the taxpayer’s petition. The reason is simple. The petition was filed after the deadline. The facts deserve attention.

On September 8, 2022, the IRS sent a notice of deficiency dated September 12, 2022, to the taxpayer. The notice provided that the deadline for filing a petition with the Tax Court for redetermination was December 12, 2022.

Before December 12, 2022, the taxpayer set up an account to file an electronic petition through DAWSON, the Tax Court’s electronic filing system. During the evening of December 12, 2022, the taxpayer started the process of filing the petition. At 9:59 p.m. EDT, he downloaded the necessary PDF forms to his Android mobile phone but he was unable to fill out the forms on the phone. Shortly after 11 p.m. EDT on December 12, 2022, the taxpayer tried to file his petition from his phone. At 11:03:07.442, he logged into DAWSON.. At 11:43:53.728 he logged in again. The taxpayer stated that between 11:03 p.m. and 11:44 p.m., when he was logged out from the phone for the rest of the evening, he tried to upload documents but DAWSON “would not even allow [him] to click the button to upload the documents from [his] android device even after several times of login in and logging out.”

At that point, the taxpayer switched to his Windows computer, presumably a laptop or desktop, shortly before midnight. He need time to send the filled out forms from his phone to his email so he could download them to his computer. The Court noted that this explanation, using forms filled out on the phone, conflicts with the taxpayer’s statement that he was unable to fill out the forms on his phone, but because neither statement is material to the outcome, the Court accepted both as true. At 11:56:15.88, he tried to log into DAWSON from his computer but was unsuccessful. The Court noted that within one second of that time another user successfully logged into DAWSON. At 11:57:21. 379, the taxpayer did log into DAWSON successfully. The taxpayer explained that after he logged in and started the filing process he was slowed down by having “to do 3 other steps” before he could actually file his petition. He also explained that he had to refer to the filing instruction several times. During this entire time, DAWSON was fully operational.

The taxpayer began to upload the petition at 00:00:09.493 on December 13, 2022. At 00:00:11.693 (11 seconds after midnight) on December 13, 2022, the petition was filed. The DAWSON system automatically applied a cover sheet to the petition that states that the petition was electronically filed and received at “12/13/22 12:00 am.”

On January 25, 2023, the IRS file a motion to dismiss for lack of jurisdiction. The IRS argued the petition was filed late because the period for filing the petition ended at 11:59 p.m. on December 12, 2022. The IRS pointed out that the taxpayer did not begin to file the petition until after that time. The IRS also pointed out that because DAWSON, which is a filing location, was operational the entire time it could not be considered inaccessible or unavailable to the general public, a condition that would postpone the deadline.

The taxpayer filed an objection to the IRS motion. He stated:

I object to this motion due to the fact that I logged in and uploaded documents on time. On December 12, 2022 I attempted several times to upload documents well before midnight. Finally I was able to get it uploaded and it literally did not finish the upload until exactly 12a. I am sure it can be proven that the system had errors and that my upload was loading before cut off time.

An amicus brief was filed by the Center for Taxpayer Rights, represented by the Tax Clinic at the Legal Services Center of Harvard Law School. That brief argued that the petition should be treated as filed at the time that the taxpayer relinquished control of it. Although the brief did not ask the Court to apply equitable tolling, it urged the Court to view the timeliness of an electronically filed petition “through the lens of equitable tolling.”

The Court explained that its jurisdiction is limited, and in deficiency cases its jurisdiction is limited to petitions that are timely filed. It lacks authority to extend the deadline. A petition is filed when it is received by the court, and an electronically filed petition “will be considered timely filed if it is electronically filed at or before 11:59 p.m., eastern time, on the last day of the applicable period for filing.” Because electronic filing is not limited to the Court’s business hours, electronic filing systems may extend the number of hours available for filing, but not the number of days. Electronic filing is not accomplished merely by logging into the system or beginning the filing process. The Court concluded that the taxpayer’s petition was not timely filed.

The Court also explained that the timely mailing rule does not apply to electronically filed petitions. It thus rejected the argument made in the amicus brief. The Court also explained that even if it adopted the argument that the petition should be considered filed when the taxpayer gave up control, akin to the timely mailing rule, it would not help the taxpayer because the petition was not relinquished until 9 seconds after midnight when the taxpayer began to upload the petition.

The Court rejected the taxpayer’s claim that DAWSON system errors caused the delay. The Court pointed out that the DAWSON system was fully operational during the time in question. Though inaccessibility of the filing system extends the deadline, inaccessibility on the user’s side does not extend the deadline. The Court compared user problems, such as entering an incorrect password, a Wi-Fi outage, or problems with the user’s device, to traffic jams or car problems that occur on the way to an open courthouse. None of those situations render the electronic filing system inaccessible or otherwise unavailable to the general public.

The Court then stated a version of the principle that I have shared for decades with thousands of students. It stated that the case “exemplifies the risk in last-minute electronic filing. Filing close to the deadline leaves ‘little margin for error.’” That principle was important long before electronic filing came into existence. The issue can arise in various academic situations. If a paper is due by a certain day and time, dropping it off minutes or hours or days later is equivalent to not dropping it off. Though many faculty ignore something being turned in a few minutes late, and though some faculty simply reduce a grade a little bit, the lesson that needs to be taught is that often in practice, being 11 seconds late is equivalent to not being compliant. The Court also stated a related principle, that is, a “prudent litigant or lawyer must allow time for difficulties on the filer’s end.” I have repeatedly advised students to pretend that a deadline is actually a day or two earlier or that a scheduled event is 15 or 30 minutes sooner than the starting time. When I assigned out-of-class exercises, the instructions always contained boilerplate telling students that “I strongly recommend NOT waiting until the last minute to send the message because YOU then bear the risk of the network or email system being down.” Though I cut students some slack when responses arrived a few minutes late, I tried to instill in them a sense of the reality that they will confront in practice.

It is unfortunate that being 11 seconds late prevented the taxpayer from having the Tax Court decide his disagreement with the IRS. Instead, he will need to pay the amount of tax the IRS claims he owes and sue for a refund in federal district court. That is most likely more than an inconvenience because it requires the taxpayer to come up with the money to pay the alleged tax deficiency.

Eleven seconds made all the difference. Eleven seconds.

Reader Morris has directed my attention to a recent story describing a proposed North Carolina bill that attempts to deal with that state’s transportation funding crisis. My first thought after reading the description ought not surprise anyone who knows that I continue to advocate for a mileage-based road fee, which I have described in posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, In Praise of the Mileage-Base Road Fee, What Appears to Be Criticism of the Mileage-Based Road Fee Isn’t, Though It Is a Criticism of How Congress Functions, Ignorance and Propaganda, and A New Twist to the Mileage-Based Road Fee.

The proposed North Carolina legislation seeks to deal with funding issues by enacting or tinkering with five different taxes and fees. It would increase the electric vehicle registration fee from $140.25 to $180. It would impose a new $90 annual registration fee on hybrid vehicles. It would amend the sales tax so that it applied to the entire purchase price of a vehicle rather than to the first $66,667. It would enact a new tax on ride-share companies, charging 50 cents for exclusive rides given to one person and 25 cents for shared rides, increasing each year in tandem with the state gasoline tax. It would permit the state to authorize six, rather than the current three, toll road projects based on private-public partnerships.

Would it not be easier, simpler, and most importantly, fairer, to charge vehicles according to the wear and tear they impose on highways rather than enacting and tinkering with five different taxes and fees? Because I’ve written extensively about the superiority of a mileage-based road fee as a solution to the transportation funding issues exacerbated by the advent of electric vehicles, I will simply point out that one criticism of the mileage-based road fee, that it is too complicated to implement, not only is unsupported by the experience of states trying it on a trial basis but also encourages setting aside that fee in favor of the truly complicated and difficult-to-implement hodgepodge of stopgaps such as those contemplated by the North Carolina legislation. Why should people using ride-share vehicles be hit with a tax when people riding in other vehicles don’t share in that burden?

Too often politicians lack the courage to solve a problem directly and efficiently because they are unwilling to help citizens understand what needs to be done and why it needs to be done. They find it easier to enact and amend existing laws in the hope that they can avoid pushback by acting in ways that make their changes seem palatable. The long-term price that is paid for this way of legislating ends up being borne by everyone but the legislators.

Perhaps legislators in North Carolina can avoid the unfairness, inefficiency, and complexity of the proposed legislation and step to the forefront of the transportation funding changes that this nation needs. Perhaps. But don’t hold your breath.

Readers of this blog know that I am not a fan of using the tax law to encourage or discourage behavior that is better regulated through other means. The list of commentaries in which I have made this point and explained why I oppose these sorts of tax breaks is very long. I share references to some from the past several years: Is a Tax Credit or Tax Deduction the Answer to Every Problem?, Another Problem With Tax Credits and Deductions for Doing The Right Thing, Yet Another Bad Consequence of Unwise Tax Breaks, These Problems Won’t Be Solved By Tax Breaks, and Another Instance Illustrating Why Using the Tax Law to Influence Behavior is Unwise and Inefficient.

This morning, listening to news radio, I heard a report that prompted me to dig up this pending Pennsylvania legislation. The proposed bill would provide a tax credit to individuals who enter the teaching, nursing, or policing professions. The impetus for this proposal is easy to identify. Teachers, nurses, and police officers are leaving their professions, through retirement or resignation, at much higher rates than people are entering those professions. Once again, legislators think that the solution is to throw tax breaks in the direction of the problem.

Many times I have heard, and I’m confident readers have heard, a variation of the exclamation, “You couldn’t get me to do THAT even for a million bucks.” And though sometimes enough financial incentives will prompt people to do things they don’t want to do or would prefer not to do, such as cleaning septic tanks and sewers, there are some things that most people would not do no matter the money.

There is a reason people are abandoning professions such as teaching, nursing, and policing. It’s not the money. It’s the lack of respect, the lack of consideration, the lack of support, and the lack of social pressure to mitigate the problems that make life in those professions miserable. Will a few dollars cause someone to enter the teaching profession or cause a teacher to change their mind and continue teaching in a dilapidated building filled with rowdy students who don’t hesitate to disrespect teachers and even bring violence into the classroom, to say nothing of the intruder who thinks schools are a good place to work out their psychological issues with military-grade weapons? Will a few dollars cause someone to enter the nursing profession or cause a nurse to change their mind and continue nursing in a short-staffed medical facility lacking supplies and visited by a patient who assaults personnel? Will a few dollars cause someone to enter the policing profession or cause a police officer to change their mind and continue policing in a society that has more concern for the criminal than the victim, in a judicial system that puts criminals back on the street before they are rehabilitated, and who are too often in situations where they are outnumbered.

It is easy for legislators to vote for a tax break and claim that they have “taken steps to solve a problem.” It is difficult, and requires political courage, to vote for legislation that focuses on the root causes of the problems. That political courage is easier for legislators to find when people generally stand up and advocate solutions that address those root causes, resisting the influence of the monied lobbyists and those who hesitate to hold people accountable for their actions. And to the extent that money is an issue, and it is in some segments of those professions, then the answer is to raise salaries and benefits, dealing with the issue directly instead of using a more complicated round-about paperwork-filled tax break approach.

Sometimes when I reread what I wrote in the past, I think that perhaps I could have done a better job with the message, the vocabulary, the grammar, and the sequence of paragraphs. Other times, I think I did about as good a job as I could expect. And occasionally, though I conclude that what I wrote hit the nail on the head, a bit of tweaking is in order to reflect changes in the world around us.

So this Memorial Day, I will simply edit what I wrote two years ago in The Price of Freedom Is Much More Than Taxes. I wrote that commentary to expand the scope of my previous essays on freedom, which had focused on the fiscal aspects of freedom. In particular, I had addressed the connection between the payment of taxes and the things people take for granted as part of their “freedom.” Back in 2011, I had written, in Free, Freedom, Fees, and Taxes, that “In order for a person to have something for free, someone else must pay.” I had written that claim in connection with the conundrum faced by New Jersey beach towns facing opposition from visitors to the enactment of beach fees. I asked, “But when tourists use a beach for free, requiring lifeguards, safety patrols, litter removal, public restrooms, parking, and other amenities, who pays? Should 5,000 pay for the freedom of 295,000?”

So shifting from the fiscal aspect of freedom to a more general perspective:

Consider an example. The person who claims that they are free to drive 30, 40, 50 miles per hour over the speed limit – and if you think that isn’t happening, I invite you to take a ride on the roads I travel – can end up imposing the cost of that “freedom” on the people they kill and injure when they learn, too late, that there are reasons a person should not, and cannot, drive at 95 miles per hour on a road subject to a 55 miles per hour speed limit. Similar examples can be based on drivers who run red lights, who drive while under the influence, or who operate muffler-less off-road vehicles on public highways at all hours of the night.

Too often, those who claim that this unregulated “freedom” is sacrosanct point to the arrival of Puritans in what is now Massachusetts. They are idolized as seekers of freedom, trying to escape religious and political persecution. Yet when they arrived in the Massachusetts Bay Colony, they immediately started acting in the same manner as had their tormenters, in turn suppressing those whose religious beliefs or political positions conflicted with those set down by the Puritans. The contrast with Pennsylvania, also settled by victims of religious persecution, but where those of diverse origins and religions were welcomed, is startling. I didn’t learn this in school because it isn’t taught in this manner, nor is this lesson noted. I learned this when I did the research to write the biography of Thomas Maule of Salem, reading not only his works and those of others, both in his day and thereafter, but also studying the social and cultural environment in which his fellow citizens, of a different religious persuasion, acquitted him of the seditious libel charges brought by Puritan authorities who resented being tagged as hypocrites. And they truly were. Seem familiar? Today the nation is being tormented by “freedom lovers” who are trying to prevent Americans from learning the truth about the hypocritical Puritans whom they not only worship but whose hypocrisy they emulate and imitate.

The question at the moment is what sort of “freedom” will this nation embrace? To ignore this question is to dishonor those who fought and died for freedom, because answering the question incorrectly makes the price they paid a price paid in vain. Will the model be the “freedom” to escape torment and persecution only to torment and persecute others? Or will the model be the “freedom” to welcome those with different perspectives while refusing to adopt the methods of those from whom freedom was sought?

Indeed, freedom is not free. It comes with a cost. The cost is more than monetary. The cost can be the reduction of speed, the stopping at a red light or stop sign, the obedience to the yield sign, the ceasing of the 1 a.m. fireworks, the toning down of the party noise at 2 a.m., the picking up of the pet’s poop, the use of a trash or recycling container rather than the gutter when disposing of trash, the extinguishing of the cigarette when in a closed space or close to others, the use of words rather than weapons when in a disagreement, telling the truth, and learning to think critically.

Freedom is not free. It disappears when the cost, whether in lives, taxes, or proper behavior, no longer is paid. Memorial Day means little if the freedom for which the fallen fought is disregarded, abused, or limited to fewer than everyone. The cost of freedom is much more than taxes.

I return again to the notion that freedom is not free. There is a price to be paid. A price paid in lives, in blood, in time, and in money. Those who pay in time and money but not in lives and blood surely owe a debt to those who shed blood and gave up their lives. And those who aren’t paying at all, for them we pray that they be enlightened.

Almost three years ago, in Who Gets Surplus Proceeds From a Tax Sale?, I explained that I had learned a about a dozen states that seize property for failure to pay property taxes don’t simply take from the sales proceeds the unpaid taxes, interest, and penalties while returning the excess to the property owner, but instead pocket all of the sales proceeds. What brought this to my attention was a Michigan Supreme Court decision that held this practice in Michigan to be a violation of the Michigan Constitution.

Yesterday, the United States Supreme Court handed down a decision, , Tyler v. Hennepin County, Minnesota that involved a similar practice in Minnesota in which the excess of the sales price over the delinquent taxes was not returned to the property owner. In this instance the property owner challenged the practice under the Takings Clause of the Fifth Amendment to the U.S. Constitution and under the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution. The district court dismissed the property owner’s challenge for failure to state a claim, and the Court of Appeals for the Eight Circuit affirmed the decision. The Supreme Court granted certiorari, and held that the property owner plausibly alleged that the retention of the sales surplus violated the Takings Clause. The Court explained that a government cannot take more from a taxpayer than is owed, and that this principle has its origins at least as far back as the Magna Carta, and that most states had statutes adopting this principle. Minnesota did not provide a way for the property owner to recover the excess in the case of delinquent real property taxes even though it did provide for return of the excess when property was seized on account of delinquent income taxes and personal property taxes. The Supreme Court rejected Minnesota’s argument that the property owner did not have a property interest in the excess sales proceeds because she constructively abandoned her home by failing to pay the property tax.

The outcome is not, to me, surprising. The obvious impropriety of what Minnesota and the other states have been doing is apparent from the fact that the Supreme Court’s opinion was unanimous, something that doesn’t happen very often these days. What is surprising are the decisions of the district court and the Eighth Circuit.

In Who Gets Surplus Proceeds From a Tax Sale?, I described the retention by the state or local government of the sales proceeds as “unconscionable.” It should not have required a Supreme Court decision to make it clear to states and localities that retaining the excess sales proceeds is wrong. The Supreme Court got it right and it’s now time for states that permit retention of excess sales proceeds to amend their statutes.

The Office of the U.S. Attorney for the District of Massachusetts has issued a press release announcing the sentencing of a father and son for a tax fraud scheme grounded in lottery ticket transactions. According to the release, the father and the son recruited a large group of co-conspirators to help them hide their activities from state lottery officials. Between 2011 and 2020, the father and son approached people who held winning lottery tickets and who were willing to sell the tickets for a cash discount. This prevented the state lottery commission from identifying the actual winners and prevented the commission from withholding taxes, back taxes, and child support from the lottery winnings. The father and son recruited and paid convenience store owners who were lottery agents in order to find the people who held winning tickets. They then used those agents to cash in the wining tickets, claiming the prizes as their own. Over those ten years the father and son purchased and redeemed more than 14,000 winning lottery tickets.

The father and son reported these winnings on their tax returns. To avoid the tax liability, they claimed fake gambling losses to offset the winnings. The net effect was that no federal or state income taxes were collected on the lottery winnings involved in the scheme. The defendants caused $6 million in federal income tax to go unpaid.

The father and son were each convicted of one count of conspiracy to defraud the IRS, one count of conspiracy to commit money laundering, and one count of filing a false tax return. Another son of the father had already pleaded guilty for his part in the scheme and awaits sentencing. The father was sentenced to five years in prison and the son to 50 months in prison.

It is unclear if or to what extent Massachusetts is dealing with the state income tax revenue lost because of the scheme. The state lottery commission is revoking and suspending the lottery licenses of the more than 40 lottery agents identified as having participated in the scheme. It also is unclear if the persons who sold the lottery tickets at a discount reported the amounts they received though it is doubtful they dd so, and it also is unclear if the IRS and the Commonwealth of Massachusetts are taking steps to identify these individuals.

The special agent in charge of the IRS Criminal Division in Boston noted that the father and the two sons had chosen to engage in a decade-long scam rather than “using business savvy and skill to build a legitimate multi-generational business.” Perhaps it was easier, physically and intellectually, to throw together the illegal scheme than to endure the challenges of starting a legitimate business. Perhaps psychologists can elaborate, though professionals have been trying, for generations, to figure out why some people turn to crime rather than engage in appropriate behavior.

Yesterday I commented on the revocation of tax breaks by the city of Mishawka, Indiana, after the taxpayer given the tax breaks failed to comply with conditions attached to those breaks. One of the conditions required the taxpayer to reduce or eliminate foul odors coming from its plant.

At the end of yesterday’s commentary I provided my answer to the question from reader Morris, who had directed my attention to the story. He had asked, “Is this the first tax break revoked due to stinky odor.” My response was that “I don’t know of any other instance in which a tax break was repealed because a taxpayer failed to eliminate stinky smells.”

Today, reader Morris followed up by directing me to this story. The story doesn’t address the question about tax break revocations on account of failure to eliminate or reduce smells, because it involves a failed attempt by the city of Kalamazoo, Michigan, to enact a tax break that imposes that condition.

According to the story, the Kalamazoo City Commission enacted a tax break for the expansion of a very large paper recycling and production factory provided that it make efforts to reduce smells coming from the factory. However, the state of Michigan told Kalamazoo that it does not permit tax breaks that are contingent.

The situation involves more than bad smells. According to the story, people living near the factory have been experiencing health issues. The state of Michigan is investigating “the prevalence of asthma in the neighborhood” of the factory. There has been one instance of someone with asthma dying at the age of 17. The area also evidences a “14-year life expectancy gap.”

These stories illustrate the problem with trying to use tax laws to deal with issues that aren’t tax issues. As readers of MauledAgain know, I consider the use of the tax law to deal with issues that should be handled by government departments and agencies other the IRS or a Revenue Department to be unwise and inefficient. If there are, for example, bad smells coming from a building, that problem should be handled by the federal, state, or local agency responsible for property use, zoning, and nuisances. If there are, for example, adverse health consequences caused by a person’s or company’s activities, that problem should be handled by the federal, state, or local agency responsible for health care.

Legislators who are unwilling to take the heat for blocking donors and supporters from conducting inappropriate operations find it easier to try using tax systems to change that behavior. That approach, in the long run, doesn’t work, as evidenced by the ever-growing list of tax breaks intended to make life better. If tax breaks did the job, there would be no need to continue piling on more and more tax breaks. Imagine those who are caught for committing bank robberies being told that they would be given money or a tax break if they stopped robbing banks. Would bank robberies stop? Would the recipients of these tax breaks retire from a life of crime?

The underlying problem is that we now live in a world in which everything has been or is being monetized. Money has always been an idol for some, and now it’s becoming an idol for many. Parents paying children to eat vegetables, governments paying factories to stop spewing bad smells, legislators paying people to make sensible health decisions, the list gets longer and longer. Until we return to a culture in which things are done because they are the right thing to do rather than a culture in which it takes money to get people to do the right thing, civilization will continue to decline. To the extent using tax law to control behavior adds to the problem, it needs to stop.

Reader Morris contacted me today, asking this question, “Is this the first tax break revoked due to stinky odor?” He pointed me to this story. Curious, I read the story, which indeed might involve a novel set of facts related to a tax matter.

In 2021, the city of Mishawka, Indiana, granted tax breaks to the Wellness Pet Company, which makes pet food. The tax breaks were intended to help the company expand the factory and install equipment to reduce or eliminate the odors emanating from the plant.

During the past two years, only three percent of the improvements to real estate contemplated by the city and the taxpayer were made. Only 20 percent of what was intended with respect to personalty was accomplished. When asked, the company was unable to explain when it anticipated making the improvements on which the tax breaks were conditioned. According to the city, the parent company chose to expand operations in other locations rather than in Mishawka. The company did install odor abatement equipment but apparently it does not work well enough. Reader Morris let me know that he was near the site and the odor was foul.

So a few days ago, the city’s council voted unanimously to repeal the tax breaks. It remains to be seen if the company cries foul and sues the city.

So to answer the question from reader Morris, I don’t know of any other instance in which a tax break was repealed because a taxpayer failed to eliminate stinky smells.

Today’s Philadelphia Inquirer featured a Spotlight article examining the reception given by the Pennsylvania legislature to Governor Shapiro’s proposal to provide an income tax credit to individuals who are newly hired as police officers, teachers, and nurses. The proposal is an attempt to deal with the shortages faced by those professions. The credit would be nonrefundable, and limited to $2,500, which means that the full credit would be available only to those with taxable incomes exceeding $81,433.

In response, Republicans in the Pennsylvania Senate rejected the idea. Instead, they want to reduce Pennsylvania’s corporate and personal income tax rates. They profess a desire to bring “big businesses” into the state. One Republican noted that there are shortages in other industries, mentioning “bus drivers, EMTs, correction officers, and CDL drivers.”

None of this makes any sense. Yes, there is a problem. No, neither the governor’s proposal nor the Republicans’ desires fix it.

Many of the people leaving the professions in question, or refraining from joining them, are doing so for reasons far more important than money. Yes, income helps, though tax credit that might not exceed $1,000 or $1,500 for most people in those professions isn’t going to tip the scales, especially for people who say things like, “Even for half a million dollars I wouldn’t stay in (or keep) this job.”

Of course, reducing tax rates for corporations doesn’t do a thing to increase employment in the policing, teaching, or nursing industries. Nor would it solve the problem in other industries. Reducing the personal income tax rate also doesn’t solve the problem, and worse, provides the best financial benefits to those most unlikely to be found in the affected professions. Bringing “big businesses” into the state not only fails to provide more police officers, teachers, nurses, EMTs, and others, but would increase the demand for police officers, teachers, nurses, EMTs, and others.

Before parading out solutions such as tax credits, tax breaks for corporations, or reducing tax rates, political leaders need to identify WHY people are leaving professions such as teaching and nursing, and declining to become teachers and nurses. As I’ve often commented, there are problems that tax breaks do not and cannot fix.

People don’t want to work in professions that are disrespected. People don’t want to work in industries that are neglected by politicians. People don’t want to work in jobs that are unnecessarily dangerous. People don’t prefer jobs in which they are overworked, and when staff shortages fuel that decision, the problem grows exponentially. People don’t want to be employed in situations that wreck work-life balance. People don’t like jobs where they get insufficient support and ineffective training. People don’t want to work in companies that are stacked with incompetent supervisors.

Money won’t fix those problems. In fact, money has caused or aggravated many of those problems. But as long as society has become a place where everything has been or is being monetized, staffing shortages will get worse. Education quality will decline. Health care services will become even more inadequate. Crime will continue to escalate.

What the politicians have done and have been doing isn’t working. The answers lie beyond tax.

Reader Morris alerted me to proposed legislation in North Carolina that would eliminate state income tax on bonuses up to $2,500 and overtime pay. The benefit would be provided in the form of a deduction, according to the language of the bill.

The reasoning behind the legislation is that it would encourage employees to work extra shifts, and help employers fill vacant positions. Of course, if the reason someone isn’t working extra shifts is because of other responsibilities, such as caring for family members, pursuing an education, or engaging in community service, a tax break might not move the needle enough to change the person’s schedule.

Putting aside the question of whether this legislation would further the goals stated by the sponsors, it creates a new tax game. It would be rather easy for employees and employers to reduce compensation by $2,500 and replace it with a $2,500 bonus. That thought popped into my head several sentences into reading the article, and so I wasn’t surprised to read, deeper into the article, that Timothy Vermeer, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation observed that “You might not see more productivity from certain professions, you may just see a shift of how they are compensated.” Indeed.

There may be less of a game to play with overtime pay, because the proposed legislation limits the tax break to “overtime compensation pursuant to sections 206 and 207 of the Fair Labor Standards Act.” Section 206 provides for a minimum wage, so it appears to me that no portion of the minimum wage compensation could be converted into overtime or bonus pay. Section 207 provides that overtime pay is required at not less than one and one-half times the regular pay rate if the employee is employed for more than a specified number of hours per week (which varies by industry). It is unclear to me if an employer can specify a lower number of hours as the threshold for overtime pay and thus shift some compensation into overtime pay classification. To avoid paying extra amounts the employer would need to do some computations to determine how many hours to shift.

This proposed legislation is yet another theory that, if enacted, will not work well when it encounters practical reality. There will be employees in a position to shift the classification of their compensation without adding shifts. As Vermeer noted, “There’s really not a good economic reason for treating those different classes of income differently.” And he noted that there are employees who not receive bonuses or overtime pay, and I wonder if in some instances the particular employment situation makes those types of pay either impossible or impractical.

I have no doubt that this legislation, if enacted, will simply create another tax game. It will be a game that is not needed and that would be harmful.

They call it the The Death Tax Repeal Act of 2023. It was introduced recently as a bill in Congress. If enacted, it would repeal the estate tax and the generation-skipping tax, and make conforming amendments to the gift tax.

Why this bill? According to its sponsors, the legislation is needed because “the death tax is lethal to many of America’s family-run businesses and farms.” The current estate tax applies when the taxable value of the estate exceeds $12.92 million. An estate that exceeds that amount almost certainly has a gross value exceeding that amount. What percentage of family farms and family businesses are worth more than $13 million? According to the Tax Policy Center, of the nation’s 2.7 million estates in 2017, only 5,200 owed estate tax. That’s 0.2 percent. And of the 5,200 estates, only 50 were family farms and family businesses. That’s less than one percent of estates paying estate tax, and less than 0.02 percent of all estates.

So who benefits from a repeal of the estate tax? About four dozen family estates and businesses, and more than 5,100 oligarchs, private equity investors, and other ultrawealthy individuals.

So why does legislation benefitting 5,000 ultrawealthy individuals get so much support from Republicans in Congress? The answer is simple. Those members of Congress owe favors to the wealthy individuals who fund their campaigns and in some instances provide other things to them.

So how does this sort of legislation get sold to the public? The sponsors of this legislation know that if they simply told America that they were proposing a tax break for 5,000 ultrawealthy individuals each year, a majority of Americans, who are far from wealthy and pay a larger proportion of their income and assets in taxes than do the ultrawealthy would balk. So to make the “sell,” the sponsors wrap their gift to their wealthy donors as something necessary for small family farms and businesses. Yet the legislation would not help 99 percent of those small family farms and businesses, because those small family farms and business already pay no estate tax.

The advocates of giving the ultrawealthy a tax-free life introduce legislation of this sort every session of Congress. They tried in 2021. They failed. They probably will fail this time. But if Americans who aren’t wealthy and who are unhappy about their economic situation keep voting for candidates who toss them crumbs while opening the doors of the Treasury to the ultrawealthy the sponsors of this sort of legislation will eventually win. Their donors will win. The unhappy economically non-wealthy will suffer even more. And the apostles of the ultrawealthy will continue telling the afflicted that their sorrow is caused by others, deflecting blame away from themselves.

Someone once said, “Know your enemy.” It takes education and research to do that. As long as the ultrawealthy have sufficient resources to block quality education and honest research, to hide history, to spew lies, and to package bad things in fancy wrapping paper, the sorrow of the afflicted will not end.

Here’s a piece of information that enhances America’s education and research. The supporters of tax-free lives for the wealthy are pretty much the same advocates who toss around the “Make America Great Again” slogan. And when, for them, was America “great”? For many, it was what the chief preacher of that slogan explained. He claimed, as reported in this story, that it was “during periods of military and industrial expansion at the onset of the 20th century and again in the years after World War II.” So what was the estate tax during those post-war years? Take a look at this chart. From 1942 through 1976, the estate tax kicked in at $60,000 and the top rate was 77 percent on estates worth more than $50 million. Think about it. The wealthy, when they died, faced a 77 percent estate tax rate. That is what helped keep income and wealth inequality in check. Unleashed in the 1970s, the rapid rise in income and wealth inequality lies at the foundation of the disenchantment that is fueling much of today’s economic and even cultural discord. And an estate tax repeal will do nothing but make economic inequality even worse. And that, in turn, will ramp up the discord.

I have written many times about tax return preparers who have been investigated, indicted, convicted, sentenced, or subjected to an injunction or restraining order. I have discussed these sorts of events in commentaries such as Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, Don’t Get Burned By a Tax Return Preparer, Tax Fraud School: When It’s Not Enough to Be a Fraudulent Tax Return Preparer, It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns, Overused Fraudulent Tax Return Preparation Ploys, It’s Not Just Law Enforcement That Confronts Misbehaving Tax Return Preparers, When An Injunction Doesn’t Stop a Tax Return Preparer from Filing False Returns, Filing a Fraudulent Tax Return Is Bad, Filing More Than 3,000 Is Outrageously Bad, When It Comes to Fraudulent Tax Returns, It's Not Always the Preparers, and A Procedural Twist on Dealing with Fraudulent Tax Return Preparers.

It would not be unusual to think that when tax return preparers see what happens to other preparers who try to get a financial advantage by breaking the law they might think twice or three times or more before trying the same thing. It would not be unusual to think that the disadvantageous outcome endured by others would deter tax return preparers continuing or entering the business. But deterrence doesn’t seem to work. Perhaps it never has worked. It certainly isn’t working now, and it’s not just with fraudulent tax return preparation that deterrence fails to work.

Here’s an example. Yesterday, the Department of Justice issued a press release, in which it described the consequences to yet another tax return preparer who thought she could get away with preparing and filing fraudulent returns on behalf of actual clients and individuals who weren’t clients but whose stolen identities were obtained and used. This preparer also decided to underreport income on her personal income tax return. In total, she evaded approximately $171,534 in income tax between 2013 through 2016.

So now this preparer faces a maximum sentence of 20 years for wire fraud, 10 years in prison for conspiring to file false claims, five years in prison for tax evasion, and a mandatory sentence of two years in prison for aggravated identity theft. She also faces a period of supervised release, restitution, and monetary penalties. That’s quite a high price to pay for increasing one’s annual income by roughly $40,000. Is it worth it? No. I wonder how many other tax return preparers will think about this when they are tempted to do the same thing. It is foolish to think that the result will be different. Yet too often they think that they are and will be smarter, more careful, more lucky, and more adept than those who preceded them in making the same bad decision.

The answer to my question posed in the title is simple. Perhaps. Though we will learn about yet another preparer who does the same thing, we most likely won’t hear about the preparer who was thinking of doing the same thing, but after learning about what happened to others, backs down and takes a different path. I do hope that more and more preparers resist the temptation even if others succumb.