MauledAgain

Who would have guessed that the tax license plate posting would bring so much traffic to the site and trigger the largest number of responses?

Yes, more tax-related license plates have been brought to my attention:

TAX REBL - The license plate of convicted felon and tax protestor Lynne Meredith (see this very interesting write-up).

0 TAX - license plate of Portland, Oregon tax lawyer and former tax law professor at the University of Cincinnati School of Law Gersham Goldstein (which only goes to prove that some law schools try to corner the market on creativity). Speaking of creativity, I'm sure that other areas of the law have inspired some interesting license plates, but I think the tax folks are in the lead.

The owner of TAX GEEK emailed me, and passed along some plates she has seen:

501 C3S (rather clever, and my google search wouldn't have caught this one)

TAX ESQ

TAX GEEK explains that she "got the idea for TAX GEEK after seeing TAX NERD on a Virginia license plate in DC."

She adds: "It's been fun seeing the smiles on the highway and around Richmond." I wonder what sort of reactions the other tax vanity plates evoke.

The guessing game can begin to identify the owner of TAX NERD, with information found in this report.

You can go to Paul Caron's TaxProfBlog to see photographs of some of these plates. Yes, Paul is a current tax law professor at the University of Cincinnati School of Law (and I wonder what's on his license plate). Still waiting to find out if these are actual photographs or done up in PhotoShop. See, one of the vanity tags is on the wrong state's plate!

Or a tax license?

The getting-very-famous (or at least more famous than MauledAgain) TaxProfBlog has run into a tiny problem. It seems that an accounting professor at Rutgers has a "TAX PROF" vanity license plate, causing Paul Caron of the TaxProfBlog to ask, in all good humor, for a volunteer intellectual property lawyer. Take a look at the photo and comments by Paul.

A former colleague, who years ago taught me tax and who died a few months ago, proudly motored about with "TAX MAN" imprinted on his vanity Pennsylvania plate. Years ago I asked him why he wanted the world to think he was a tax collector, or perhaps a Beatles fan enamored of one particular hit.

Another colleague, still very much alive, reminded me that one of our recent graduates had "TAX CHIC" on her license. I checked in with her today, and, yes, she still has it. And, yes, she is practicing tax. Not much of a surprise, considering she lived and breathed tax as she progressed through the J.D. and LL.M. programs.

So I've set out to make a list of actual tax-related vanity license plates. There are more than a few web sites with lists, large and small, of vanity license plates. Some are geographically limited. There are very many web sites devoted to license plates generally, particularly collecting and trading.

Here's what I've found so far, after allowing myself no more than one hour to wander into an exploration that could become a month-long project. Maybe I can get funding for "Law and Tax Vanity License Plates: An Extrapolation of Cultural Perspectives on Taxation at the Halogen Headlight Level." Sounds scholarly.

TAX RFND on a Red Acura NSX in Los Angeles, CA (from this site)

B4RTAXS Before our taxes, on a new Mercedes (from this site)

NY: FELIXTAX (from this site)

TAXGUY (from this site)

The following are from the official West Virginia list:

TAXFREDM
TAXKUTTR
TAXLAND
TAXLAW
TAXLESS
TAXMAN
TAXMAN2
TAXPREP
TAXPRO
TAXRENT
TAXSLAYR
TAXSTORE
TAXTIPS

These three are from this site) (and I particularly like the first):

IH8 TAX (Sudbury, Ontario) - [ on a tax accountant's car, parked at Legislature )
TAX BAK
TAX MAN

This just in: In Virginia, a TAX GEEK plate has been observed.

So if you have any ACTUAL tax vanity license plate information, please send it along. I'll periodically update the list.

A new poll reveals that 61% of us have lost faith in leaders and institutions during the past four years. It isn't clear if that's 61% in addition to those who lost trust more than four years ago.

Quotes in the news report make it astoundingly clear that people are skittish. No wonder.

It's not really news, though. That's why I ask about the meaning of the 61%. By now, it wouldn't surprise me if 98.6% of us have lost trust. The list of folks in whom trust has almost disappeared is the same list I've seen at various times during the past few decades: politicians, corporate executives, lawyers, entertainers, and journalists. Oh, yes, lawyers come in pretty much at the bottom. I didn't see a mention of schools or religious institutions in this report. Or law professors. Or tax law professors.

So who DOES get trusted? A person's own family and firefighters, followed by neighbors, police and doctors.

The poll suggests that the reasons include the situation in Iraq, the 2000 election mess in Florida, white-collar crime, and terrorism.

Why make something so complicated? To me, it's easy to understand. Trust has diminished because people react to the inability of other people to accept responsibility, act honorably, put duty and honor above "it's all about me" selfishness, and to take pride in their efforts. Layer onto that the insulation that protects people responsible for a mess from the people whom they've hurt, sprinkle in the "no fault" mentality that represents "it's anyone's fault but mine" post-modern philosophy, and there's a recipe for carrying a mirror so one can watch one's back.

Wouldn't it be nice if a customer whose account has been butchered can talk to the clown who makes the mistakes? Wouldn't it be nice to talk to the programmer who still doesn't quite understand what the software user really needs? Wouldn't it be nice to talk with the faceless bureaucrat who is hidden away behind a screen? It's so much easier to shirk responsibility and to let one's self get by on a lesser standard when the aggrieved person is a concept and not an actual being with a face and personality.

It's simply this: the depersonalization and incorporation of American has eroded trust. Trust reflects a personal relationship. Post-modern society has chopped away at these foundational legs of culture. It's getting very wobbly.

News that a "Top Tax Lawyer Pleads Guilty to Felony Tax Evasion" may come as a surprise to some, but for me it's only in the who and not the what. After all, lawyers as a group do not have a stellar compliance record when it comes to taxes. As I mentioned in a previous post,

...the worse thing to do when in financial trouble is to avoid paying taxes by hiding income.

In this instance, though, it doesn't appear that the lawyer in question was in financial difficulty.

His former partner describes his tax woes as "some mistakes" and attributed the problems to his being "a little bit careless in his bookkeeping." I wonder why, if it was a matter of carelessness and mistakes, and not wilfulness, why he would plead guilty to a crime. By doing so he faces up to two years in prison. And he may end up being suspended or disbarred.

According to federal prosecutors, he failed to report as much as $1.5 million in gross income over 4 years. That's a pretty big mistake. Even for someone who is not one of the nation's top tax and estate planning experts, let alone for a tax attorney.

If it genuinely was carelessness, it is possible that an undiagnosed health problem, perhaps one associated with getting on in years, could be the culprit. If so, it's unfortunate that jail time awaits a person who would have been best served by medical care.

There are more lessons here than simply "don't omit gross income from the tax return." We need to learn to pay attention to those with whom we interact and to watch for changes in behavior or personality that might signal a need for medical or other attention. Maybe that's what happened here. Maybe not. After all, if it is what happened, the guilty plea makes no sense. And we need to learn that any one of us, no matter how skilled or famed, can get into trouble very quickly if we let our guard down.

I doubt we'll ever know the complete story. It is a sad ending to an otherwise fine career.

UPDATE: Some readers have questioned whether I'm cutting "slack" to this tax attorney that I would not allow to other taxpayers who commit tax fraud. I certainly don't intend to cut any slack, but until the facts are known, I'm simply giving the benefit of the doubt to the partner who used the terms "mistake" and "carelessness" to describe what was done. If compelled to take a stance without having additional facts, I'd consider the seriousness of a guilty plea and the pattern of tax fraud indictments not being issued without very strong evidence, and conclude that indeed, there was fraud. If there is a plausible "carelessness" argument, a guilty plea is not the expected reaction.

And if it's shown that what was done involved deliberate and wilful evasion, then my reaction to the use of the terms "mistake" and "carelessness" will be revised, and my disdain for trying to make fraud appear to be mere negligence will be very obvious. Back in November 2003, when the indictment was issued, I posted to the ABA-TAX listserve a comment that I had read the indictment and found nothing that explained what was done (or not done) that led to the indictment. It is a very brief and generic indictment, which is available here. The only clue is that taxable income was allegedly understated, which means that it could be a matter of understated or omitted gross income, overstated deductions, overstated credits, or some combination.

FURTHER UPDATE:

The press release from the Department of Justice gives some additional information about the situation. The attorney in question understated business receipts, and did not use the business and bank records of the actual receipts. He also failed to report gain from selling an interest in his law practice to another attorney. And he also failed to report receipts deposited into his personal bank accounts that represented payments from clients for services provided before the other attorney became a partner.

The guilty plea includes an acknowledgement that these omissions were made knowingly and willfully. Under these circumstances, it is extremely difficult to understand the other attorney characterizing what was done as a "mistake" on account of "carelessness."

Today, Paul Caron's TaxProf blog carried an item analyzing net federal spending by state with the state's character as a "red state" (electoral votes won by Bush in 2000) or "blue state" (electoral votes won by Gore in 2000). Paul points out that of the 32 states (including D.C.) that benefit from net federal spending (more federal expenditures in state than are paid in federal taxes from the state), 76% are red states (17 of the 20 states with the highest net federal spending are red states). Paul also points out that of the 16 states that are are disadvantaged in terms of net federal spending (paying in more taxes than receiving in federal expenditures), 69% are blue states (11 of the 14 states with the highest net tax pay-in are blue states.

The net federal spending report, from the Tax Foundation points out that the net federal spending or net tax pay-in for a state is affected by political factors such as the power of the Congressional delegation from the state and the state's ability to finesse its spending to maximize federal funding, and non-political factors such as age (social security benefits), per capita income, and percentage of federal employees (D.C., Virgina, Maryland). I would add factors such as weather (hurricane relief to states such as Florida and Alabama), and federal land ownership (western states).

Though I haven't figured out how to post a colorful graphic as Paul has, here is a listing of all the states (and D.C.) along with the partisan composition of their Congressional delegations and the governorship (and the 2000 electoral vote). I'll let readers decide for themselves if there is a correlation with any of these characteristics:

State	Fed Expenditures per Dollar of Taxes	House Delegation (D-R-I)	Senate Delegation (D-R-I)	Governorship	2004 Presidential Vote
New Jersey	$0.62	7-6-0	2-0-0	D	D
Connecticut	$0.64	2-3-0	2-0-0	R	D
New Hampshire	$0.68	0-2-0	0-2-0	R	R
Nevada	$0.73	1-2-0	1-1-0	R	R
Illinois	$0.77	9-10-0	1-1-0	D	D
Minnesota	$0.77	4-4-0	1-1-0	R	D
Massachusetts	$0.79	10-0-0	2-0-0	R	D
Colorado	$0.79	2-5-0	0-2-0	R	R
California	$0.81	33-20-0	0-2-0	R	D
New York	$0.81	19-10-0	2-0-0	R	D
Delaware	$0.85	0-1-0	2-0-0	D	D
Wisconsin	$0.87	4-4-0	2-0-0	D	D
Michigan	$0.90	6-9-0	2-0-0	D	D
Washington	$0.91	6-3-0	2-0-0	D	D
Texas	$0.92	16-16-0	0-2-0	R	R
Indiana	$0.99	3-6-0	1-1-0	D	R
Oregon	$1.00	4-1-0	1-1-0	D	D
Florida	$1.00	7-17-0*	2-0-0	R	R
Georgia	$1.01	5-8-0	1-1-0	R	R
Ohio	$1.02	6-12-0	0-2-0	R	R
Wyoming	$1.05	0-1-0	0-2-0	D	R
Rhode Island	$1.06	2-0-0	1-1-0	R	D
North Carolina	$1.07	6-7-0	1-1-0	D	R
Pennsylvania	$1.08	7-12-0	0-2-0	D	D
Vermont	$1.12	0-0-1	1-0-1	R	D
Utah	$1.14	1-2-0	0-2-0	R	R
Kansas	$1.14	1-3-0	0-2-0	D	R
Nebraska	$1.19	0-2-0*	1-1-0	R	R
Arizona	$1.20	2-6-0	0-2-0	D	R
Maryland	$1.20	6-2-0	2-0-0	R	D
Iowa	$1.22	1-4-0	1-1-0	D	D
Tennessee	$1.24	5-4-0	0-2-0	D	R
Maine	$1.31	2-0-0	0-2-0	D	D
Missouri	$1.32	4-5-0	0-2-0	D	R
South Carolina	$1.32	2-4-0	1-1-0	R	R
Idaho	$1.34	0-2-0	0-2-0	R	R
Louisiana	$1.44	2-5-0	2-0-0	D	R
Kentucky	$1.46	2-4-0	0-2-0	R	R
Oklahoma	$1.47	1-4-0	0-2-0	D	R
Virginia	$1.47	3-8-0	0-2-0	D	R
Hawaii	$1.52	2-0-0	2-0-0	R	D
Arkansas	$1.53	3-1-0	2-0-0	R	R
South Dakota	$1.59	1-0-0	2-0-0	R	R
Alabama	$1.61	2-5-0	0-2-0	R	R
Montana	$1.64	0-1-0	1-1-0	R	R
West Virginia	$1.74	2-1-0	2-0-0	D	R
Alaska	$1.82	0-1-0	0-2-0	R	R
Mississippi	$1.84	2-2-0	0-2-0	R	R
New Mexico	$1.89	1-2-0	1-1-0	D	D
North Dakota	$2.03	1-0-0	2-0-0	R	R
District of Columbia	$6.17	n/a	n/a	n/a	D

Partisan composition data as of 2004 fromhttp://www.thegreenpapers.com/G04/composition.phtml

Spending data for 2002 from http://www.taxfoundation.org/ff/taxingspendingupdate.html

* 1 vacancy

Paul Caron has an item on his TaxProf blog this morning, citing a Washington Post article that quotes the President describing describing the tax code as "a million pages long." He's wrong, because it's supposedly only 17,000 pages (as if that's an improvement).

Had the President described the tax code as being more than a million WORDS long he would have hit paydirt. As of 2000, the last year for which I have a count, the Code contained 1,669,514 words. In 1954, when its predecessor (the Internal Revenue Code of 1954) was enacted, there were "only" 409,421 words.

The number of pages, of course, depends on page size, font size, kerning, and a bunch of other variables. To many people, it feels like a million pages. Perhaps the President uses the large print edition, with one or two words per page. Or perhaps he uses the illustrated edition that has a photograph page for every word. Ever see a picture of adjusted basis?

As of 2000, tax regulations contained 7,307,000 words. In 1954, tax regulations had already crossed the million-word mark at 1,033,000.

I've never seen a count of the words in IRS rulings, court opinions dealing with taxation, and tax commentary. I'd guess more than a hundred million words. My publisher tells me that I've contributed more than a miniscule portion of that total (and that's not counting the legislation and regulations I drafted several decades ago).

So it's partly my fault.

Sorry.

Very low on the national news headline radar, but getting some attention in the sports pages, is the allegedly imminent move of the Expos from Montreal to Washington, D.C. Though baseball's cerebral challenges and its bucketloads of statistics have always interested me, it's the public finance and taxation aspect of the story that gets my attention today.

Negotiations between major league baseball and D.C. officials have progressed so far that the location for a new stadium has been identified. It would be on the shores of the Anacostia River south of the Capitol.

The new stadium would cost more than $400 million. Some of that cost would be expended to acquire the site, which consists of more than two dozen parcels used for a variety of purposes. All are privately owned. This news surely pushed up the value of these parcels. Yet some of these owners don't want to move, and don't want to sell. Unless, of course, they get much more than current market value. If that happens, the price of the stadium goes up.

Major league baseball wants D.C. to fund the stadium. D.C., an area that has had, and continues to have, serious financial problems, which depends on the Congress for appropriations to assist it in balancing its budget, and which can barely provide services to its residents, is being asked to come up with money to pay for a stadium to be used by a bunch of multi-millionaire team owners and their almost-as-wealthy employees. In addition to charging the team rent for use of the stadium, a tax on concessions, D.C. proposes to impose a tax on other businesses, and has set out to try to "sell" this plan to them. In the meantime, three candidates for D.C. Council who oppose public funding won their elections last week. Surprise. The citizens have spoken. So now D.C. is trying to rush this deal to completion before the newly elected members of the council take office.

Once upon a time, if a business chose to move one of its facilities, it found a location, negotiated a price, worked out any zoning problems, and carried on in true free market tradition. That's not how it happens anymore. Businesses that choose to move approach two or more governments and bargain for public financing and/or tax breaks. Sports teams are among the most notorious for seeking public financing of their private enterprises.

The argument that is used by the sports teams and by other businesses is that they are bringing "economic growth" to an area. Therefore, so the argument goes, because they are improving the economic condition of the community, the community ought to pay. Through the government. So governments trip over each other trying to entice the business to their neighborhoods.

There are three huge flaws in the argument.

First, there is no guarantee that the newly arrived sports team or business will bring economic growth. Yet any attempt to obtain a pay back of the governmental financial assistance if the promises of the sports team or business aren't met is rejected. Why can't the team or the business put its money where its mouth is? Simple. They want the risk to be shifted to the taxpayer.

Second, the community gets its chance to pay without the need for tax revenues to be funneled to the team or business. If the team or business is selling something that people want, they will come. They will buy tickets or pay for the goods or services being sold. They will patronize the subsidiary businesses that sprout up around the principal team or business location. They will watch the team on television, pushing up ratings, and increasing the amount of money that networks and advertisers are willing to pay to the team. A tax, in contrast, is a forced extraction of money that lacks the voluntariness of the free market.

Third, the idea that governments need to cave because the team or business otherwise would not locate in the area is tempered by the fact that the team or business needs to locate somewhere. There are only so many cities that can support a professional sports team. Most businesses need to be near a port, or an airport, or a good highway system, or the source of raw materials. No one city can "grab" all the teams or all the businesses, and when a city gets too big in that respect, businesses begin to avoid the city because its success in attracting businesses breeds its rewards of congestion, higher infrastructure needs, crime, and other disadvantages. In the long run, it balances out.

It is interesting that D.C., which could use revenue to fund schools, playgrounds, and other beneficial social services, is expected to come up with revenue for a baseball stadium when it hasn't been able to find the revenue to meet more important needs. And that is one of the reasons there is opposition on the current D.C. council that makes it less than a slam dunk that the proposal would get the necessary approval.

Although other teams have persuaded other cities or states to pay much or almost all of the stadium cost, such as Camden Yards for the Baltimore Orioles, or the new Padres stadium, the tide is turning. The teams in Philadelphia, Pittsburgh, and St. Louis are getting less than half the costs from publicly financed sources. The San Francisco Giants failed to get any money out of San Francisco or California to build their new stadium. What? Government fiscal sanity in California? Indeed.

The history of public funding of private enterprise sports facilities in D.C. is inconsistent with what major league baseball is trying to get. The NHL and NFL arenas were built with private money, though a relatively small amount was spent by public authorities on roads.

One of the reasons D.C. is getting attention from major league baseball is that the other locales trying to lure the Expos are not offering 100 percent public financing. But they are offering a good-sized chunk.

For critics, including myself, the idea of taxing citizens, directly or through business taxes passed on in increased prices, to build a facility for a private enterprise is nothing more than a breach of public trust. The argument that the local or state government is making an investment that will bring returns has been refuted. Andrew Zimbalist, an expert sports economist, does as much in his many writings, and summarizes his findings in this interview. And the citizens of D.C. who had an opportunity to vote sent a concordant message when they elected three council members who oppose the use of public funds to shore up private enterprise.

Let's face it. The Montreal Expos are a business that fell on hard times, mostly through mismanagement and the impact of the player strike. The team cannot survive in Montreal, and it lacks the money to move elsewhere. Hence, major league baseball is trying to make everyone else, but mostly folks in D.C., bail out the team. Why not have the players and owners, whose foolishness led to the strike that catapaulted the Expos into financial oblivion, bail out the team? Is major league baseball playing on the sympathy of low and middle income D.C. citizens to make them willing to bail out a bunch of millionaire and multi-millionaire owners and players? No, with negative D.C. Council reaction looming on the horizon, major league baseball and its cronies in government are trying to rush something through and jam it down the throats of the citizens before the newly elected Council members are seated. THIS is democracy?

Even supporters, such as Michael Wilbon, in his Washington Post article, A Stadium Grows, a City Will Blossom, admits that the economic benefits he claims will result from the proposed deal will not flow back to the citizens. He writes:

I'm not about to argue that any stadium built for a professional sports franchise is going to benefit working class and poor people. Primarily, it's going to benefit folks who own the franchise, and people who entertain in luxury boxes that lease for $200,000 or more per season. But it can greatly benefit businesses that attach themselves to sporting palaces.

It doesn't take much to see where this is going. I admire Wilbon's honesty. I don't understand his sympathy for taxation designed to enrich the already rich.

While the baseball dealings swirl and whirl, the D.C. United soccer team announced that it intended to seek approval to build a new soccer stadium in the vicinity of the proposed baseball stadium. The stadium would be privately funded. How refreshing. Oh, for those who don't know, major league soccer players earn far less than do major league baseball players, whether measured by averages, medians, or maximums.

Somehow, it never fails. A person's financial problems make the news, and sometime later the other shoe drops: the person has tax problems.

A story in today's Philadelphia Inquirer reports that Neil Stein, famous for his several popular, elegant restaurants, was indicted for skimming receipts from his businesses so that he could avoid federal income taxes. He's been charged with filing false tax returns. He's also being investigated for possible mail and bankruptcy fraud charges, as well as more tax charges.

The amount involved in the federal income tax fraud case is $120,000, but the IRS contends that Stein owes $4.5 million in back taxes. It's possible, of course, for tax fraud charges not to attach to all of a taxpayer's unpaid taxes. Plus, the city of Philadelphia and the Commonwealth of Pennsylvania have already obtained rulings that Stein owes $1.1 million in city taxes and $773,000 in state taxes.

Each semester I explain to my students that the worse thing to do when in financial trouble is to avoid paying taxes by hiding income. It's better to file a return without paying the taxes. No fraud, no crime. Lots of aggravation, but no jail time. Stein's bankruptcy lawyer is one of my former students, who is getting a first-hand look at what happens when someone tries to outsmart the IRS.

Yippee! I published again. No, not the sort of "scholarly" work that gets the usual attention. It's another "soapbox" column in the Law School's weekly newsletter. Gee, what a surprise. Jim Maule delivers a "soapbox" column.

It's not a surprise because this is the fifth in a series of essays on legal education directed primarily toward law students. Anyone interested in what at least this law faculty member is trying to do while educating future lawyers should take a look. Just click on the column title. Monday's column is at the top of the list, and they progress in reverse chronological order.

Doing Puzzles While Learning and Practicing Law, The Gavel Gazette, at 1 (Sept. 20, 2004)

Time Can Be on Your Side. Or At Least By It, The Gavel Gazette, at 1 (Feb. 16, 2004)

Learning to Teach and Teaching to Learn, The Gavel Gazette, at 1 (Sept. 29, 2003)

Crumbling Myths & Dashed Expectations, The Gavel Gazette, at 1 (Sept. 3, 2002)

Money for Nothing and Work for Free?, The Gavel Gazette, at 1 (March 5, 2001)

Yes, there will be more.

Today in the Introduction to Federal Income Taxation class it was time to tackle section 86 of the Internal Revenue Code, which specifies the extent to which social security benefits are included in gross income. Though the students may think I delight in dragging them into the morass of computational complexity and policy pitfalls that characterize the provision, I wish it did not need to be done. Until this point in the course, one which inspires high anxiety or fears of boredom for many students, the experience, though a bit obscure at times, generally is positive. Students learn that much of tax is not simply "just numbers," that there are unresolved issues, that tax affects almost everything in life, and that it can, at times, be fun.

Then section 86 appears. And dark clouds cover us.

Why?

Section 86 is a testament to legislative inefficiency. The first step is easy. Should social security benefits be taxed? There are good arguments for yes, and for no. The better outcome is yes, because after all, it isn't all that different from a pension. The next question is, what should be taxed? The answer should be, the excess of what a person gets over what a person pays in. In other words, the net gain, or profit. That's pretty much how pensions are taxed.

Did Congress do it that way?

Of course not.

Congress decided that it would be too complicated to have people figure out how much they had put into the system. Hmmm. Every year we get a statement from the Social Security Administration that tells us what its records show, and gives us a chance to correct the records. So that information exists. What's the problem? Probably the realization that a lot of people would have a lot of social security gross income. And they'd be unhappy. And Congress fears the outcome.

So Congress made two decisions. First, it would tax 50% of social security benefits. It's not a rough approximation. It guarantees that almost no one would be taxed on as much as they gained. Second, it decided not to tax social security benefits if the taxpayer's modified adjusted gross income, increased by tax-exempt income, which I'll call "modified aggregate income," does not exceed a base amount ($25,000 for unmarried taxpayers). Why? Because "poor people shouldn't be taxed on social security." Well, poor people shouldn't be taxed on ANY KIND OF INCOME. Congress avoided the real issue, which was the need to increase the standard deduction and/or personal exemption so that a poor person, no matter the type of income, would not be taxed. The notion that different kinds of income should be taxed at lower rates is not something new that arrived with the low rates on dividends. The folks that enacted low rates for dividends had mentors... the ones who decided social security income should be treated differently.

Then Congress realized that if a taxpayer's modified aggregate income was $25,100, it would trigger taxation of 50% of social security benefits, which is quite a high price for that extra $100 of income. So Congress limited the social security gross income to the lesser of 50% of the benefits or 50% of the excess of modified aggregate income over the base amount.

Complex, but manageable. Tough to defend as a matter of policy, or efficiency in administration. But at least I could teach it, and the students could understand it well enough to comprehend the underlying sausage factory environment, in about half a class (25 minutes) plus the time they need to invest outside of class (another hour to hour and a half in preparation and assimilation).

But then someone in Congress needed a revenue raiser to offset a revenue loser, and their eyes turned to section 86. It was proposed to raise the 50% to 85%, an amount much closer to an "average" rate of gain for the typical social security benefits recipient. Others howled. Horrible idea. So we get a compromise. Use 85% rather than 50% if the social security benefits exceed an "adjusted base amount" ($34,000 for the unmarried taxpayer). But, again, a few dollars of modified aggregate income could push someone from 50% being taxed to 85% being taxed, so an absurdly complex provision was added to ensure that the inclusion rate scaled or stepped smoothly from 50% to 85%. They put it in section 86(a)(2), drafted it as an alternative, and then labelled it as an additional tax. It's an alternative, not an addition to what's in section 86(a)(1), so what's the problem with using some accurate language?

We didn't get to the 85% stuff today. That's on Friday's schedule.

By this point students are in mental pain. I risk being in physical pain when things fly (but that's never happened). I give them a bunch of examples. I don't and won't test them by asking them to do the computation. Computer software can do that. They can, too, though they don't believe it, for all they need to do is to follow the form.

But following the form makes much more sense if one understands WHY one is doing what the form asks. That's one of the things I want the students to figure out. The WHY of it.

But there's something else I want them to understand. It's the bubble effect. Only after I explain this mess can I explain the bubble. The bubble happens when someone with modified aggregate income under the base amount (or adjusted base amount) has an increase in income, which happens if the retiree needs to go back into the workforce in order to make ends meet or to pay extraordinary expenses. The person's taxable income increases not only by the amount of the additional income, it increases by the increased social security gross income caused by the increase in the person's aggregate modified income. Instead of having a tax liability increase equal to the additional income multiplied by the marginal tax rate, the person ends up with a tax liability increase equal to the additional income multiplied by as much as 185% of the additional income. I'm not going to do the computations here, but in a law school class I'm not going to say "trust me" to the students. I want them to see the WHY of it, to look at the arithmetic so that they can understand the phenomenon. I want them especially to understand the significance of the question, "So why is this retiree couple scraping by on a few tens of thousands being taxed at an effectively marginal rate far greater than that imposed on a multimillionaire picking up a few more thousand dollars of income?" How can that be justified under any philosophical, moral, or theological canon?

After all, it is the inability of most Americans to understand the bubble phenomenon that permitted certain members of Congress to enact phaseouts and scale-downs that, to quote one of them, "let's us increase taxes without increasing rates" so that people will think taxes were not raised when in fact they were. We don't reach the phaseouts until late in the semester. About the time we cover marriage penalties and marriage bonuses. By then the students are either rolling along with me or sick to their stomachs, or both. And yet I continue to insist we ought to be teaching Real Civics in our high schools.

When we begin this topic there usually are some questions about social security. Some students know what it is and how it works, and others have only a vague idea. So I explain it, of course with my bias that emphasizes the "I" in FICA. The word Ponzi is heard. References are made to the problem that looms when the number of social security recipients will be only 1.4 times the number of workers rather than the 41.9 to 1 it was in 1945 or the 16.5 to 1 it was in 1950 or the 3.something to 1 it's been recently.

Most of my students are in their early 20s. Most have held jobs, but mostly as part-timers. They're just about ready to enter the full-time workforce. The idea that each group of three of them must support two retirees doesn't appeal to them. The fact that the funding of the social security program has been woefully inadequate, costing far more than its proponents admitted, doesn't sit well with them. Or me, but I don't count, because I won't be around when these students are in their 80s. If I am, I'll be so old and decrepit I won't know that I'm around, that I'm old, or that I'm decrepit.

The date is voluminous and worth a read. Take a look at the 2004 OASDI Trustees Report, especially at IV, B, 1 Annual Income Rates, Cost Rates, and Balances. Lots of numbers, some nice charts, intense text, and alarming news. But we knew that because Alan Greenspan drew our attention to it, as I pointed out in one of social security posts. Or at least he tried. Most folks weren't and aren't listening. Those that are try to soundbite the issue and play to the electorate.

The impending doom of the Social Security program doesn't stand alone on the horizon. It's wrapped up with general government revenues and expenditures, simply because for a while the program has had a surplus. It's far too small, of course to fund its obligations, but it exists and it was invested. In what? Mostly in loans to the rest of the government. What happens when social security needs to tap its surplus when social security tax revenues begin to slip behind payments to beneficiaries? The government will need to issue debt. I'm not going to do the entire macroeconomic analysis. Suffice it to say, it won't be pretty. My guess is that China will own the nation. Yes, that's alarming, but go look at the numbers. There are numbers in the TENS OF TRILLIONS. That's a LOT of money. Even for Bill Gates. Well, hmm, now that I mention him, if China doesn't own us by then, Bill will.

Some serious reform is needed. Not just of tax, but of expenditures and programmatic decisions. Should social security be treated as an entitlement or as insurance? How should it be financed? Bruce Bartlett points out the alarming truth in A New Money Machine for the U.S.; The old ways can't keep up. We need a value-added tax to meet revenue demands. We need SOMETHING.

Politicians speak of tax reform. Yes, speak. And they get hard-working, intelligent officials in Treasury to prepare tax reform proposals. Proposals that are unlikely to become law, even if they generate discussion in the political arena and find a temporary home in a Congressional committee. The proposals are alternates so there's a lot to read and ponder. Each one has its advantages and disadvantages. Some I like more than others, and some I dislike. Does it matter? Practitioners generally want to, and need to, deal with the law as it exists. Some get involved in studies to refine or repair a narrow technicality. A few pay attention to the big picture and lift their eyes to the horizon. Politicians can't think past the next election. In the meantime, the tax system has become more complex, more inequitable, and more inefficient. Tick tick tick

It's sad, but we have a long history of a nation of being unprepared and then needing to scramble, quickly, painfully, expensively, and fatally, to solve the problem. Oh, and then there will be a commission to figure out what went wrong. But this time perhaps there won't be any money to fund a commission. Or a Congress.

That doesn't sound very optimistic, does it? And supposedly I'm am optimist, a Saggitarian who when getting a box of pony dung figures the gift of the pony isn't far behind. (Someone told me that years ago and it stuck. The analogy, not the pony stuff.)

It's not as though the system CAN'T be fixed. It's that too many people can't or won't set aside personal agendas for the common and better good. When asked what I would do if I were the "tax czar" my response usually includes a comment that it wouldn't matter, because reform needs to come from within each citizen rather than being imposed from above (or below, depending on one's perspective).

I hang on to one shred of hope. Modern technology, linking people together in ways far different from the communications of the past, provides an opportunity for people to organize and coalesce around issues that matter. Perhaps I'm wrong and most Americans like the current system, look forward to the impending economic failure of social security, await with glee the financial collapse of the nation, and think Grandpop and Grandmom should indeed be taxed on their part-time earnings at two or three times the rate the millionaires and multi-millionaires are taxed on their capital gains and dividends. I could, after all, be wrong. It wouldn't be the first time.

But if most Americans share my fears about the tax system and the larger national economic situation, and want true tax reform, it will require that many of those who understand the smoke and mirrors be willing to explain the game to the tens of millions who don't. Those who are invested in the current tax system, even though its failure will take down rich as quickly as it takes down poor, include too many who understand (and created) the smoke and mirrors and who have the skills to use them to their advantage.

And, so, it comes back to the need for education. I guess as long as I keep trying to explain section 86 to second and third year law students I must think, at least deep down inside, that there is indeed some glimmer of hope.

One could write a book on the complex relationship between taxes and education. Actually, it's been done. Several times. At one end of the spectrum are issues involving the selection of the type and amount of tax imposed to fund public education. At the other end are issues involving income tax exclusions for scholarships, deductions for educational expenses, exclusions for employer-assisted education, credits for lifetime learning, and a long list of similar provisions, both at the federal and state level. Somewhere along the line between the two are sales tax exemptions involving education, and estate and gift tax charitable contribution deductions for gifts to educational institutions.

I'm not going to write another book. I want to focus on provisions that connect the public education financing side of the spectrum with individual income tax deductions and credits on the other end. Specifically, I want to consider tax credits and deductions for school supplies purchased by teachers for use by their students.

What turned my attention to this question was a news report today with this headline: Teachers lose tax breaks for class expenses. The news was that the California legislature has suspended a state income tax credit (limited to $1,500) for teachers who purchased school supplies for use by their students. There are similar credits (or deductions) in a few other states.

Note: The news article erroneously states that there was a federal deduction (limited to $250) that has expired. For federal income tax purposes, there has been and continues to be an employee business expense deduction for supplies purchase by teachers. What expired was a provision that permitted this deduction to be taken in computing adjusted gross income for taxable years 2002 and 2003. The deduction remains as an itemized deduction subject to the 2% floor and the overall 3%/80% limitation on miscelleaneous itemized deductions.

What's not news is what anyone who pays attention to education issues already knows: teachers spend hundreds of dollars of their own money providing supplies to students that schools do not provide (even though the supplies are necessary) and that, in some instances, students and their families cannot afford. The scale of the problem is alarming. Students cannot learn if they lack the required supplies, and many taxpayers are unwilling to pay increased taxes so that the schools can provide the supplies. Though the problem afflicts all sorts of schools, it is most acute among public schools.

The article also reports more information that is not news. Sometimes teachers and their unions oppose enactment of tax breaks because they prefer increases in public school funding. I agree with this position. First, tax breaks do not provide full reimbursement, and teachers continue to bear a burden that should not be theirs to bear. Second, tax breaks hide the problem, whereas school funding debates get the spotlight that the issue needs to have.

The school funding issue is another example of the "we want it, and we want it cheaply" demand of the post-modern culture now dominant in the country. Taxpayers complain about teacher salaries, and point to salary figures that are deceptive because they don't reflect the portion of the salary that is spent by the teacher making up for employer omission. How many of these complaining taxpayers would be happy if they were required to purchase supplies for their clients and customers on a regular basis?

People want inexpensive goods and services, but when corporations seek to lower costs so that prices can be lowered, they turn to outsourcing, and an uproar begins. How long until children begin to get their schooling through outsourced public education? It's already being done in a few rare instances of home schoolers getting their children connected via the Internet to cultural, educational, and historical sites outside the U.S.

People want inexpensive airline flights, but when corporations seek to lower costs by cutting unprofitable routes, seeking worker give-backs, or lobbying for public financial support such as tax breaks and government-funded facilities, all sorts of objections are lodged. Today's cheap flight on the other airline will become tomorrow's expensive flight once the undercutting has put the more expensive airline out of business. And the person making the boatload of money, like the developer who leaves behind for the rest of us the traffic congestion and related costs caused by the development, will be long gone.

Inexpensive public education buys cheap learning. Cheap learning guarantees that the country will lack the informed, capable citizens and leaders of the next generation that it needs. Let's add up all the things we demand of our schools and put a price tag on them. Then calculate what taxes would need to be if the public bore the full burden, rather than shifting some of it to the teachers. Logic and common sense dictate that the list of "wants" be pared to the essentials, but emotions get in the way. An anecdote: when I was about 9 or 10, I overheard a discussion among the adults in the extended family about the "stupidity" of putting carpeting in an public elementary school (which was also getting a full-sized Olympic quality swimming pool). I have never forgotten the bluntness of one of the adult's comments (I think it was one of my aunts): "Who in their right mind would put carpeting in a place where at least every other day some kid throws up?" Indeed. Who in their right mind.

Somehow right minds need to prevail and alter the spending so that it is done with logic and common sense. The "everything for everybody" and "make each person happy" emotional mantra causes public education to invest in (or at least in some instances to be pressured into investing in) each full-fledged athletic facility or extracurricular activity program that is wanted by the parents of any given child. So schools end up with football fields, baseball fields, hockey rinks, Olympic swimming pools, spinning rooms, ...... In the meantime, driver education programs are discontinued for lack of funding.

Someone has decided that athletics and certain other activities are more deserving of funding than supplies for the academic programs. Perhaps it's the parents who put far more energy into working for successful school athletic programs (measured by won-loss record and occasionally by number of athletic scholarships earned) than into working for successful academic programs. Ever wonder why the high school football or basketball team's game makes the headline and the National Merit scholars might get a tiny mention at the bottom of a column on an inside page?

This tension between academics and everything else has existed for a long time. It exists not only in the public K-12 schools but also in higher education. We hear that athletics "teaches" valuable character traits, and I suppose in some instances it does (though I doubt that such is the case at some schools, such as one out near the Rocky Mountains). Character, however, can be taught, and sometimes is more easily taught, under adverse conditions. Successful progress in academic courses cannot be accomplished, however, when the requisite basic tools are missing.

I suppose I'd be less aggravated by the short end of the deal that teachers are getting if I thought that the current system of K-12 (and higher education) in this nation was turning out a nation of highly educated individuals. I teach at the terminal end of the system, in graduate and post-graduate education. The information and analytical deficiencies that I see in our "best and brightest" is sad, alarming, and unjustified. Class attendance and learning (in contrast to "getting a grade") rank too far down the priority list for most college students. I wonder where they learned their priorities?

An income tax credit is NOT the place to solve the problem. Giving small tax credits to teachers is a poor substitute for schools taking responsibility for education. In the case of public schools, that means the public taking responsibility for education. That responsibility belongs both in the civic arena (school funding and expenditure issues) and in the household (determining spending priorities for individual education expenses).

In the meantime, the teachers in California are faced with this choice: watching their students suffer because they need to cut back on their purchases of school supplies by the amount of the suspended tax credit, or cutting their own household expenses (including spending for their children's necessities) to make up the difference.

Maybe the professional athletes who got to where they are because their schools gave them the opportunity can jump in with 1% of their multi-million dollar salaries in an "Athletes Grateful for their Schools" program that would fund these supplies. At least in the short term that might bring some relief to people in need of the tools for learning how to be tomorrow's informed electorate.

After all, children without the necessary school supplies are far more likely to be children left behind. And all of us have a responsibility to say and do something when children are getting the bad end of the deal.

In my post about taxpayers being awarded emotional damages because the IRS tried to collect discharged tax debts, I stated that the making of mistakes and failure to respond with corrective action was as prevalent in the private sector as with government agencies. As an example, I share this story.

Early in the year it became apparent that the 7-year-old software I used for generating HTML documents was useless with Windows XP. Yes, I know Word and WordPerfect documents can be converted to HTML, but they come with too much overhead and it's more convenient using software designed for HTML composition and programming.

So I found a replacement. I downloaded it. I tried it. I liked it. I paid for the Professional version. All was well, though the "better" professional version would slow down after it was in use for a few hours.

On Wednesday I received an email from the company inviting me to download a FREE "upgrade" to my paid version of the software. The upgrade included a few new features but, more importantly, fixed numerous bugs. Good, I thought, this might solve the slow-down problem.

I went to the URL provided in the email. It was a web page that invited me to download the trial version of the software. Don't need that. I looked through the company's site and did not find an upgrade download. So I clicked on the "contact us" link in the email, came to a web page permitting the sending of messages, and sent my message. There was no reply.

So I looked again at the trial version download page, and it was described as the version number of the upgrade. I downloaded it. I installed it. I clicked on Help, and then About. It showed itself as the upgrade, with a September 14 date. Excellent. Except for one thing. It also described itself as an unpaid trial version.

How nice. A supposedly FREE upgrade to fix problems in a purchased product ends up demoting me to a trial version.

So I decide it's time to contact the company again. By now, I am more than annoyed. Are the company's programmers too incompetent to distinguish between paid users getting the upgrade and first-time users downloading a trial version of the upgraded software? Apparently so, for all users reach the same trial version download page.

Before sending the message I check my email. I have a response from the company. Great. Great? Noooo. It is an automated response telling me that my email sent from the company's "contact us" web page went to an obsolete email address and that I should use a different address. Huh? If you change the email address, why not go to the web page and change it there also? Don't treat me as though I was the one who decided to send the email where it went. The company's web page did that. Now, of course, the programming staff's stature fell more. A lot more.

So I sent an email to the new email address and explained the situation, much more elegantly than I did in this post. Have I had a response? Nooooo.

So I may end up having to change programs yet again. How I wish I could sue for emotional distress. I can't. I didn't have any. Being dumbfounded at the incompetence of others isn't a cause of action. If it were, I'd own the world by now, for I'd have sued Bill Gates so many times.... ha ha, maybe Bill Gates bought the company that developed the HTML software I was trying to update. Hmmmmm.

I haven't named the company. I'm sure if I did, it would sue ME, because it would be OFFENDED that I dared to criticize it. After all, they're perfect and their parents told them that the world was all about them.

Just checked my email again. Nope, no response.

UPDATE (Wed 21 Sep 2004): I received a reply from the software developers. They claim that even though the trial version and the update are the same file, that the program was not demoted to a trial version. There's no way to prove or disprove that until the trial period ends. So, we'll wait and we'll see.

Blogs are very useful. Paul Caron’s TaxProfBlog brought news about an article written about a bankruptcy case decided in May. It’s now September, so the case had flown under my radar, but after reading Paul’s summary curiosity got the best of me.

The case, In re Torres, 209 Bankruptcy Reporter 643 (2004), involved taxpayers who filed for bankruptcy in September 1992. In January 1993, they received a discharge of all their liabilities, including almost $14,500 in 1985 self-employment taxes and $7,100 in 1989 through 1992 self-employment taxes. Discharge means that the debts are absolved, and need not be paid.

At first, the IRS suspended its collection activities on the discharged debts. Why not close the case? Closing the case would have prevented the next part of the story.

Three and a half years later, in September 1996, the IRS began to send notices to the taxpayers, requesting payment for the taxes that had been discharged. The taxpayers responded each time with a telephone call to the IRS. The IRS then notified the debtors that a refund due to them for 1995 was being held by the IRS so that it could be applied against the taxes that the IRS claimed were due. Then the IRS sent a final notice of levy to the taxpayers.

The taxpayers brought an action seeking to have the IRS held in contempt for violating the discharge injunction. The IRS conceded to a willful violation of the discharge injunction. The bankruptcy magistrate awarded damages to the taxpayers for emotional distress, but rejected their request for attorneys' fees and costs because they had not exhausted their administrative remedies. On appeal, the court affirmed the damage award and reversed the denial of fees and costs, sending the latter issue back for determination of the fees and costs.

Nothing is more aggravating than when a clerk, bureaucrat, or other administrator makes an error as to which there is no room for discretion, and then fails to admit the error and fails to fix the error. In this instance, the IRS heaped insult onto injury by trying to collect taxes and then holding back a refund.

The bad news about this case is that the award for emotional distress is authorized under bankruptcy law and thus is available only in the limited number of cases in which the taxpayer dealing with the mistake is in, or has gone through, bankruptcy. The good news is that perhaps a message will get through to the IRS.

I am among the first to defend the IRS when it deserves to defended. It is underfunded, it is charged with administering a mess of a tax law, it is treated as though it wrote the foolish provisions in the tax law, and it is a favorite scapegoat of Congress for the latter’s tax legislation incompetence. But when the IRS does goof, it gets the headlines, and leaves the world thinking it’s like this all the time.

There probably are no other cases, or perhaps just a few, in which the IRS has pursued collection of taxes that had been discharged. What happened?

First, the case should have been closed. Second, an employee made a mistake. Third, the mistake was not corrected.

True, the blame can be attributed to high turnover among IRS employees, miscommunication, inadequate funding (thanks to the Congress) for employee education, and perhaps ignorance concerning the meaning of “discharged debt.” Before hauling the IRS up on charges, consider that this sort of nonsense goes on in every company, and is the reason for many, many customer service calls, Better Business Bureau complaints, and lawsuits.

The individual employees who erred won’t be paying the bill. The odds are they no longer are with the IRS. They were not identified. Their current employers surely don’t know of the problem they caused. While we cheer the award of damages to taxpayers whose lives were made miserable by incompetence, we might forget that WE, yes, WE, are paying the bill. That’s because the employees involved in this mess are protected. Wouldn’t some ACCOUNTABILITY be nice here? Just as it would be in the private sector?

Modern culture needs to stop rewarding incompetence, laziness, greed, and crime, it needs to stop pretending something bad is good, and it needs to elevate the values of individual responsibility and accountability to the same level to which their counter-balancing forces, freedom and independence, have been raised. Why society is so reluctant to be intolerant of incompetence, laziness, greed and crime puzzles me. Far more good is done in the long-run by confronting the problem head-on and dealing with it than is done by protecting the sensitivities of an employee who isn’t helped by pretending that reality is a fantasy.

They called it Ivan the Terrible, a hurricane noted not only for its own powers of catastrophic destruction but for its identity as a camel-back-breaking straw, coming on top of three previous hurricanes with the past several weeks. Reporters tripped one over the other in bringing the alarm to a fever pitch, typified by this quote from the Guardian:

"unprecedented ferocity and frequency of the hurricanes that have battered the Caribbean this year"

Anyone looking for proof that studying history has value need look no more. Students of history know that a burst of hurricane activity and intensity is nothing new. People born after 1960 and ignorant of hurricane history (a way too big proportion of the population) see the current hurricane activity level as some sort of doomsday event that cries for immediate measures of prevention.

Of course, the favorite scapegoat is global warming (which hasn't yet been proven to be true, as intense, or as calamitous in effect as predicted). Predictions such as this one, in which the Red Cross contends that 1-in-50 year hurricanes will occur once every 10 years. The notion that global warming is responsible for all perceived increases in natural disasters suggests that before, and in the absence of, global warming there would be no such disasters, and rests on the premise that there has been an increase in natural disasters.

But is global warming the cause? And if it is, would stopping or reversing it change hurricane activity levels?

The answer simply is that global warming is not the cause of the seeming increase in the number or intensity of hurricanes. Even during the when global warming allegedly has been taking place, the number of hurricanes had been decreasing. The fact is simple: hurricane activity follows a cycle.

Historical records show that the explorers of the Spanish Empire encountered frequent and strong hurricanes. Global warming?

Some scientists suggest that eventually global warming will have an effect, such as a 5-12% increase in hurricane intensity, but that hasn’t happened yet. And it might not happen. But other studies show an inconclusive connection between global warming and hurricane development.

No matter, global warming would not account for an increase in the number of hurricanes. Even the scientists who predict future increases in hurricane intensity on account of global warming agree on this point.

It even is possible that in the long-run, hurricanes might even offset global warming. Perhaps global warming during the 70s and 80s into the early 90s is in part attributable to the lower frequency and intensity of hurricanes during that low side of the hurricane cycle.

Far more significant is the ATTENTION that hurricanes get. Hurricanes get attention because they cause death and property destruction. What HAS changed since the last high point of the cycle are phenomenal increases in the number of people living in, and the amount of property constructed in, areas prone to hurricane activity. More than 45 million people now live in hurricane-threatened areas, and the population continues to grow. Add tourists and vacationers, and the number of people at risk increases significantly.

What is unprecedented is the amount of property damage as measured in dollars. Fortunately, there has not been a corroborative increase in deaths and injuries. Because of improved technology, weather forecasters can give warnings and people can evacuate. Without modern communication, hurricane hunter planes, satellite imagery, and other improvements in forecasting, the circumstances that brought more than 8,000 deaths in Galveston alone when a hurricane showed up in 1900 would have generated tens or hundreds of thousands of deaths with the approach of Ivan.

The bottom line is that global warming is not the culprit. Many people are so attacted to the idea of tagging global warming as the cause of whatever ills happen to come upon the world that their limbic system goes into overdrive, causing logic and reason to wither because the brain chemistry is re-tuned to synchronize with the fear, awe, anger, distress, and other emotions triggered by the impact of seeing and experiencing hurricanes.

What’s missing is common sense. Common sense, along with reason and logic, tells us to educate ourselves about hurricanes and their history. It tells us to deal with the reality of having more at risk, economically, than the gross domestic product, to say nothing of human lives, and to take precautions. Common sense tells us not to ride out a Category 3, 4, or 5 hurricane. Common sense tells us not to build or re-build on barrier islands, coastal wetlands, and fragile ecosystems. Common sense tells us to preserve and rebuild dunes. Far better for the energy devoted to chasing the phantasms of global warming to be dedicated to protecting dunes, opposing government subsidization of ocean front flood insurance, and eliminating tax provisions that encourage activities that increase the risk of hurricane deaths and destruction.

After all, most people living in hurricane-threatened areas have never experienced a hurricane. Trust me, it is an experience best avoided.

There's something I don't understand about the job market. The buzz is all about lost jobs, and people looking for work who can't find it.

Yet on the other side of the equation are people looking to get work done and who can't get it done. It's not just the time wasted on hold because a megagiant corporation fired all but two of its customer service representatives. It's trying to find small business owners with time and desire to take on small tasks. If they're too busy to meet demand, why not hire help?

I have a gas fireplace insert that won't work. The plumber who fixed the leak in the gas line to the insert couldn't fix it. The company that does my heating, air conditioning and plumbing won't work on it because "we didn't install it." The fellow who installed it retired and isn't in business anymore.

I have gutters that need to be cleaned. I find someone to do the work, and then when I try to bring the person back the following year, they're unavailable. Either I cannot find the person, or the person doesn't get back to me, or they put me on their schedule and don't show.

Problems in finding small task contractors abound. It afflicts neighborhood housing services organizations, schools, and homeowners trying to adapt housing for disabled children. It reflects a nation-wide labor shortage in the construction industry?

These aren't instances where the shortage of building materials prevents taking the job. It's a problem that extends beyond small home repair tasks. Similar labor shortages exist in the home care, assisted living, adult foster care, and nursing home care industries.

How can there be a labor shortage if there are people looking for jobs? If there are jobs that need to be filled, or jobs that need to be done, and people who need money, why aren't the jobs being filled?

Because they don't match up.

The problem, and it is a problem, is that there is a mismatch between the available jobs and the skills that are needed. It's not just outsourcing. It's not just legal and illegal aliens "taking the jobs from Americans." It's a matter of many Americans not wanting jobs where services are needed. Gutters need to be cleaned and broken gas appliances need to be fixed.

What happened?

What happened is that American culture has made college the next step of choice for a substantial number of high school graduates. In 1992, 96% of high school students expected to attend college: "...people have come to believe that most or all high school graduates should go to college."

College experiences, as presently constructed, do not necessarily prepare students for all the things that need to be done. College graduates supposedly hold an edge when it comes to hiring, but how is a college education helpful if it has the effect of steering job-seekers away from available jobs?

It isn't the money. Gas appliance contractors and even gutter-cleaners can charge amounts that generate annual incomes exceeding that earned by many college graduates. It is no secret that students graduating with majors in certain disciplines discover that the world doesn't have much of a demand for their skills.

It's the prestige. As more students go to college, more people shift the "prestige" onto graduate school. There are students in law school, for example, who are there for reasons other than wanting to be a lawyer, practice law, or use legal analysis skills in another profession. To quote a parent at a recent graduation, "Finally, we now have a lawyer in the family." I suppose that moves the family up the prestige ladder. Meanwhile, the graduate is grimacing and I'm biting my tongue, for I wish to say, "No, you have a law school graduate in the family. That's different." This, or something like it, has happened far more than once. In several instances the law school graduate has not sat for the bar exam. In one situation, the graduate took a position with a landscaping contractor.

As a nation, we are not investing our education dollars well. Education includes not only college, not only trade school, and not only other formal learning environments, but also life experiences. It makes sense for children to take summer jobs when they are in high school. Discover the world. Some do. Many don't. I've heard all sorts of arguments why students should not work, even in the summer. Perhaps parents fear that students will discover a fulfilling life and career reached other than through the path of formal education.

Whoa! I teach in graduate and post-graduate programs and I'm suggesting not everyone attend? Yes, indeed. It is wrong to try to sell a product or service to someone for whom it is not right, or for whom it is too soon. Recently, educators have noticed that more and more college students are "nontraditional," that is, they are returning after stints in the work place. College, and graduate school, have more value when they are experienced in the context of having had practice world experience, even if the practice is working for a plumber while in high school, pumping gasoline, repairing cars, or organizing a company's files (been there, done that, on all four).

The issue isn't the need to create jobs. The jobs exist. The issue is how to match people wanting or needing jobs with the jobs that exist. That issue requires discussion of what sort of life and career guidance parents, schools, counsellors and society are giving to our children and our young adults. This is a discussion that for some reason seems to escape the political debates. There's a reason for that and I'll leave it for another day. I need to go find someone to clean my gutters and fix the gas fireplace insert.

"George Bush gave police officers his word that he would keep the ban. But when it came time to extend it, Bush’s powerful friends in the gun lobby asked him to look the other way. He just couldn’t resist, and he said 'sure.' He chose to make the job of terrorists easier and make the job of America’s police officers harder."

--John Kerry, September 13, 2004.

"If he wanted the ban renewed, he could have called on Republican congressional leaders to pass it."

--Nancy Pelosi, House Democratic Leader, September 13, 2004.

March 3, 2004: Vote on S.1805, Protection of Lawful Commerce in Arms Act:

Voting (in effect) to extend assault weapons ban:
5 Democratic Senators, 3 Republican Senators

Voting (in effect) to let assault weapons band expire:

41 Democratic Senators (including Kerry), 48 Republican Senators, 1 Independent Senator

Not voting: 2 Democratic Senators (including Edwards)

Not entitled to vote and not voting: George W. Bush, James Edward Maule, and just about every other American citizen.

To repeat my initial charge: the failure of this bill was a BIPARTISAN effort. When there's so much to debate, on the merits, why toss misinformation unless the goal is to capitalize on confusion and emotion?

Kerry did not serve himself well today. After all, does he mean that the 41 Democratic Senators who voted against the bill looked the other way because they were asked by George W. Bush? Wow.

They were asked to look the other way by the NRA. Without public debate. Through direct communication with the members of the Senate. In language referring to re-election. And that takes us back to my initial charge. This is no way for a legislature to run a country.

Coming on the heels of the announcement that Medicare premiums would increase by 17% was news of former President Clinton's heart surgery. This news has spurred a surge in cardiac health checkup appointments and inspired Andrew Cassel of the Philadelphia Inquirer to write a thought-provoking Philadelphia Inquirer column on health care costs. He makes some very important observations, including the increase in health insurance premiums that quadruples the inflation and wage growth rates, that the economy cannot sustain a continued pattern of annual double-digit percentage increases in health costs, and that these increases account for the low job growth in the current economic recovery. He then proceeds to answer his question of "who's to blame" by identifying employers (who choose to stay in business by hiring part-timers and outsourcing work, neither of which requires subsidizing health care, rather than going bankrupt by taking on the open-ended health care commitments inherent in full-time hiring), insurers (he doesn't say why), hospitals (ditto), doctors (ditto), and malpractice lawyers (ditto again). Yet he need not explain why for the latter four because there's been a flood of commentary on the reason one or another of these groups bears some or all of the blame for health care cost hyperinflation. And he points out we health care consumers are to blame because we want "the latest techniques, the best equipment, the most skilled caregivers."

Clinton's surgery is a good example of health care costs. Health care is expensive. The cost of bypass surgery can reach $50,000 or more. Yet, as Andrew Cassel points out, when it comes to dealing with the life of someone in our family, we want to pay whatever it takes.

Yet Clinton's surgery is a sad example of another cause that didn't get mentioned. I made a passing reference to it a few days ago in my post on the Medicare premium increase. As I wrote:

Second, we make the cost of medical care much higher than they would be were we to adhere to lifestyles that reduced the chances of illness and disease afflicting people. People smoke, they ride motorcycles without helmets, they drive cars without wearing seatbelts, they get into arguments and shoot each other, they fatten the coffers of vendors of disease-enhancing foods, they use drugs for recreational purposes, and they engage in all sorts of activities that jeopardize health.

It's our culture. We've been taught and encouraged to seek the easy road, to avoid the tough choices, to let someone else solve the problem, to seek solutions in a magic pill, and to deny reality in face of a theoretical no-fault paradise. Now the piper wants to be paid.

It is cheaper to prevent disease than to cure it. Though some diseases cannot be prevented, others can be avoided and still more can be delayed in onset or diminished in effect. If health care resources are limited, does it not make more sense to fund prevention programs where prevention is possible so that there are the necessary resources to deal with the diseases that cannot be prevented? I think so. Most health insurers structure programs to encourage prevention, and the medical profession encourages prevention. So I'm not alone on this one.

It isn't easy to do the health-right thing, and perfection isn't possible. I know. I try. I succeed most of the time. I have incentive. Like Andrew Cassel, I watched my father deal with heart health. I'm not trying to preach, I just want to encourage some serious thinking and self-reflection. I want our public debate and political decisions on health care to reflect more than simply how much can or will we pay, through the private sector and through taxes, to deal with the consequences of disease.

For me, sugar and chocolate (surprise) continue to sing their siren song, though recent news that chocolate is good for heart health, though perhaps not in cookie form (drat), has me hoping that similar news will make my genetic sweet tooth a blessing in disguise. But I know that won't happen, no more than we'd hear tomorrow that smoking tobacco increases health and longevity. For Bill Clinton, the siren song was sung by "junk food."

But the key is try. The only thing guaranteed about not trying is not succeeding.

Clinton exercised, though how regularly isn't all that clear. So he tried. And perhaps the genetics are indeed as strong as they appear to be with respect to so many other medical conditions. Those genetics can curse us, or at least condemn us to a life of trying even harder, because we have much less leeway to skip the exercise, chow down some grease, or stop taking a required medicine. And I wonder about the stress, though I'd think if the stress was going to get Bill Clinton, it would have been a few years ago and not now, for surely it is much more stressful to be President, let alone to deal with impeachment, than it is to be a retired President who can go through life at a more relaxed pace.

Yet it's not just what we do individually. It's not just what we teach through words and example. Science has yet to determine, with any certainty, what all those above-ground nuclear tests did, though I continue to wonder at all the cases of cancer hitting otherwise healthful young people. As a culture, we simply don't consider physical and mental health to be as worthy of devotion, attention, and rigorous discipline as we do the acquisition of wealth, the exercise of power, the purchase of influence, and watching a few others get paid big bucks to give us vicarious participation in entertainment or sport.

We're killing ourselves, slowly but surely. We are killing our bodies and our minds. And we are killing our economy. As easily as one can ask what can be done with the money expended to fight war, one can ask what can be done with the money expended to fight health problems that would not have existed had health-damaging behavior been avoided or controlled. I marvel at how some houses are better maintained than are our bodies and minds (remembering that the cost of treating mental disorders has tripled during the 1990s). We'd recoil in horror if and when the house were trashed by out-of-control partying, yet we don't react in the same way when our bodies get invaded, mistreated, or put at risk.

Surely our bodies and our minds are more important than our houses, or our cars. Houses and cars can be replaced (even when they are built on the rim of a volcano or in a flood plain). We're learning to value prevention as a value more cost effective than cure when it comes to constructing hurricane and tornado-proof homes, and putting airbags in automobiles, so why can't we be that way when it comes to health?

Is it simply a matter of personal autonomy and individual freedom? Is it that we don't care, and that many physical illnesses are simply outlets for a deeper pyschological malaise? Is it a matter of a youth-focused culture that values a dangerous but "fun" short life more than it does a steady and more likely longer life? Is it a subconscious slow-lasting suicide attempt? Is it a weakness of will? Is it laziness? Is it some combination or something else? These are deep questions, involving theological concerns and chocolate chip cookies, and yet they bear heavily on a question of economics and taxation. The clock is ticking.

Calls to reform federal taxation are almost everyday events, and the introduction of bills in the Congress to do so gets their advocates some attention, even if it is transitory. Sometimes a bill, though unlikely to become law, can spark serious debate. Such is the case with H.R. 25, the Fair Tax Act of 2003. Essentially, it replaces the federal income tax, estate tax, etc. with a federal sales tax.

The bill is advertised as enacting a 23% federal sales tax (in lieu of an income tax whose rates range from below 23% to above 23%). But, as I often tell my students, let's do a bit of statutory analysis (though in this case it's bill language analysis because it's not yet a statute).

Proposed section 101(b)(1) states: "In the calendar year 2005, the rate of tax is 23 percent of the gross payments for the taxable property or service."

Looks like a 23% rate, right?

Wait.

Proposed section 101(a)(5) provides; "The term `gross payments' means payments for taxable property or services, including Federal taxes imposed by this title."

So, if I buy something for $100, the proposed sales tax is NOT $23. It is 23% of $100 increased by the sales tax. We need some algebra. The tax is $30. How? 23% of $130 is $30. The tax is 23% of $130 ($100 plus the $30 tax).

Whoa. Why not simply a 30% tax on the $100. Same thing, right?

Yes, it's the "same thing" in terms of the $30 tax result. But it's a totally different thing when it comes to selling the tax to the public. Replacing the income tax with a 23% tax is going to attract more support and votes than replacing the income tax with a 30% tax.

This is a proposed 30% tax. It's being sold as a proposed 23% tax. That's misleading.

Discussion among some tax law professors drew some mixed reactions. There are some existing taxes that are "inclusive" of tax, for which there are stated rates. One argument is that there is no difference between saying that the cost of an item is $100, plus $30 must be paid in tax, and saying that the cost of an item is $130, of which $30 is remitted as tax. That's true, but that misses the point.

The point is that most Americans, other than perhaps a few who can think in terms of "exclusive of tax" and "inclusive of tax" rate setting, think that a stated 23% tax means, pay $100 for something plus pay $23 in tax. They don't think it means, pay $100 for something plus pay $30 in tax, even if the tax of $30 is 23% of the $130 that comes out of the purchaser's pocket including the tax.

Another argument is that the VAT (value added taxes) used in Europe are "inclusive of tax"). So what? This isn't Europe and the general public doesn't think that way about sales taxes. Sometimes I wonder at the chasm between academic theory and the general public's day-to-day life.

Americans are accustomed to thinking in what academics call "tax exclusive" terms, and it is totally misleading to shift gears without notice. Yet it was argued that there is nothing wrong in framing the issue in a way most palatable to the goals of the advocates of the legislation, because, after all, lawyers and advertisers do that all the time. Maybe that's why lawyers and advertisers top the list of "most admired persons" and "most admired professions." Sorry about the sarcasm. Just because something is done, even if it is done often, doesn't make it right.

The discussion inspired me to contribute a description of a cartoon:

*****s comment about math disingenuity reminds me of the Calvin and Hobbes comic in which failure to understand math boomeranged. Hobbes says to Calvin: So how'd you do on the math test?

Calvin replies: I bet Suzy Perkins a quarter that I'd get a higher score.

Hobbes: Did you?

Calvin: No, but I got back at her. I paid her only three dimes.

I don't know how to describe the look on Hobbes' face.

Great cartoon, it's missed, and it sometimes presented a quip of use in teaching tax and for teaching generally.

This brought a negative reaction, which puzzled me. I share now my response. When I re-read it, I decided it really does represent my opinion of folks who just can't put it square on the table, for the desire to win so overwhelms the willingness to play fair:

The Calvin and Hobbes reference, for which I am responsible, was intended to make the following points: those who do not study carefully the words and numbers used in others' expressions are doomed to being fooled, and when it comes to the question "fooled by whom?" the answer is "by themselves."

And it is on that ability of an oft-unschooled citizenry to fool itself (into thinking it knows and understands) that the merchants of "cleverness" (be they politicians, lawyers, or product sellers) construct careers. Taking advantage of another's disability doesn't earn high marks with me. If I know that someone will be misled I have an obligation, and I make every bona fide effort, to see to it that what I am saying is understood. I expect no less of those who advocate in the public arena. Of course, I understand that my expectations are close to futile.

Hence, although one can argue that in some worlds three dimes equal a quarter (which they do for certain old quarters whose value is beginning to creep up a wee bit on the hopeful road to being worthwhile collectibles), I don't understand the annoyance with the reference. Of course, in a world where three dimes rarely are considered to be equal to a quarter, thinking that they are (or that they are less) is just as much a twist as is the use of a tax inclusive rate ballyhooed in a world where tax rates are almost universally considered to be tax exclusive.

All of this can be avoided if precise and accurate statements, long as they may need to be, trumped the soundbite mentality of the so-called post-modern culture. I wonder who would be most unhappy with a requirement that a proposed rate for a proposed national sales tax be expressed in a manner that precluded any twist. Surely those who, in lieu of "23% rate" would need to say (their choice), "30% of pre-tax cost" or "23% of tax-inclusive amount". The latter, of course, would need to be explained to most of the citizenry whom legislators are obliged to serve, which would surely turn on the lights with a brightness that would reach into the deepest, darkest corner.

My spirits were lifted by the private emails in which people expressed agreement. Why is it so difficult for things to be cleared of the smoke and mirrors? When I think of who benefits from the "cleverness" I begin to understand why the world is such a mess.

I've been trying to find statistics on tractor-trailer accidents, and have come up empty. I'm trying to learn (1) what percentage of traffic accidents involving tractor trailers are caused by tractor trailers, (2) what percentage of vehicles on the road are tractor trailers, and (3) what are the economic costs arising from delays due to accidents involving tractor trailers.

My interest was triggered by yet another Traffic Report on Philadelphia's KYW radio of a road closure due to a single-vehicle tractor trailer accident. It's the umpteenth one this week. When these accidents happens, they can paralyze the region's already inadequate highway system.

If I can find the information, I will be in a position to share some ideas about tax issues involving tractor trailer and other highway accidents. So, if you know where I can find the information, please let me know. Yes, I've googled, and I've visited the National Highway Transportation Board web site. Thanks.

Readers of MauledAgain know that I don't hesitate to criticize politicians, no matter their party, and that I consider the traits of the politician to be far more important in evaluating a vote than the politician's party affiliation. For me, "We must elect more [Democrats/Republicans/whatever]" is a distraction from the questions that need to be asked.

The federal ban on assault weapons has expired, because the Congress found itself unable and unwilling to extend it. The failure of the proposed legislation cannot be laid at the feet of either party. It gets attributed to members of BOTH parties. At least those members who voted down the bill that would extend the ban.

As with most of what Congress does, this is a wee bit more complicated than a simple up or down vote on extending the ban. Summarizing the detailed explanation, the Congress had in front of it a bill that would absolve gun manufacturers from any liability for any damages caused by a gun. Some members of Congress succeeded in tacking on two amendments. One would require background checks on people buying guns at gun shows. The other would extend the assault weapons ban.

Shortly before the bill came up for consideration, back in March, head counters predicted a close vote. The bill was defeated in the Senate, 90 to 8. I can't think of any sport in which 90-8 is "close." What happened? What happened is that the National Rifle Association made it clear that IT did not like the legislation. It spoke. Ninety Senators listened. Even the proponent of the bill voted against it.

That's clout. It's also a recipe for a lot of dead and injured people.

Yes, I know the arguments and I've read the Constitution. There's enough ambiguity for the matter to deserve the input of the public. The polls show that the public supported the extension. Those elected to represent the public represented the small group with clout.

The tax connection? Here's how I'd solve the problem. Calculate the damages caused by guns. Subtract the benefits generated by the cost of guns (e.g., the culling of deer herds). Allocate the difference among guns according to the capacity of the gun to cause damage and to generate benefits (e.g., one does not hunt deer with an assault weapon, simply because one wants to take home something other than ground venison). Impose a tax on guns equal to the allocated amount. Provide an exemption for inoperable antique collectors' items. I predict that the sales of guns would quickly readjust. I'd allocate this weapons user fee to pay the damages and to fund a program to crack down on those violating gun control laws.

And, yes, I'd be open to a similar "damages caused tax" on swords, baseball bats, bows and arrows, and kitchen knives. I'm guessing it would be a much much lower tax.