MauledAgain

It's Halloween. Even though April 15 gets all the attention, there's good reason to declare October 31 "National Tax Fright Day." I suppose one could dress up as a tax collector and go door to door giving the "trick or treat" option, but there's probably some statute criminalizing the impersonation of a federal revenue official. Anyhow, who wants to do that and end up getting tagged by the neighbors as the town eccentric.

Halloween and tax go together well. Think of the hallmarks of Halloween: fright, horror, monsters, goblins, cauldrons, skeletons, disguises, and witches. Think of the hallmarks of tax: fright, horror, monsters, goblins, cauldrons, skeletons, disguises, and witches. Don’t agree? Keep reading. It’s worth it. No trick, just a treat.

Tax and fright? Of course. Consider this on-line advertisement: "So, You got a letter from IRS. Tax Moms can help. Letters from IRS are scary. Tax Moms will answer your questions at no charge. Questioning answering Tax Mom is available at web site 24/7" Whew. I'm not sure which (AGH!) is scarier: the ad or the thought of someone being called Tax Mom.

Tax and horror? It deserves, and has, its own web site: Tax Horror Stories. Until he resigned from Congress when nominated to the SEC, former representative Christopher Cox maintained a web site of Internet Tax Horror Stories, as described in a wonderfully headlined article, House of Tax Horrors. Why is the idea of a Tax Amusement Park wandering around my head? Ticket takers dressed as tax lawyers, guides dressed as IRS agents, and a "fun house" of Tax Spectres.

Tax and monsters? Take a look at Monster Tax Hike in Massachusetts to see how easily the two words meet up.

Tax and goblins? Apparently in Ireland, October 31 is the deadline for filing 2004 income tax returns and 2004 capital gains tax returns, for paying the balance of 2004 taxes, and for paying preliminary 2005 taxes. No wonder that reporters choose headlines such as "Halloween Brings the Tax Goblins". I don't think they mean gobbling, but perhaps they do. After all, what's a "money-eating tax goblin"?

Tax and cauldrons? Indeed. About 12 weeks into a basic tax course students are introduced to section 1231, the one with the main hotchpot and the firepot. How else to graphically illustrate the point than with a cauldron? The term tax cauldron gets used to describe the entire tax system by this commentator, and in this global relocation warning about "jump[ing] out of the U.S. tax cauldron and into another country's tax fire."

Tax and skeletons? Words of caution are consistently offered to folks with "tax skeletons" in their closets, such as this advice to avoid taking certain deductions if those tax skeletons exist. It even found life in Daniel's Daily Tax Pulp Fiction, not as an opening line eligible for the Bulwer Lytoon Fiction Contest, but as a closing line that fits the horror film: "Ian began reflecting on the tax skeletons in his tax closet … his heart started racing at the thought of a lifestyle audit …"

Tax and disguises? Oh, my. The tax law is replete with disguises. Tax provisions often are masked by catchy titles, something I learned when I figured out that the amendments enacted by the Tax Reduction and Simplification Act of 1977 increased taxes for some taxpayers and surely did not simplify anything. This was the legislation that removed the standard deduction from the Code, replaced it with a "zero bracket amount" but then had to created an "unused zero bracket amount," affectionately know as UZBA by tax law students until Congress mercifully jettisoned an implemented theory gone bad and restored the standard deduction. So, tonight, when you can't figure out the kid's costume (happens sometimes), ask, "So are you dressed as an UZBA?" If the youngster goes fleeing while screaming, you'll know at least one of child's parents is a tax practitioner and they must have interesting dinner conversations. Not that the 1977 legislation was the first, last, or only tax disguise. The phaseout of itemized deductions and personal and dependency exemptions was a blatant maneuver to increase taxes without raising rates so that the public could be told that taxes had not been raised.

Tax and witches? Indeed. This is what inspired this Tax and Halloween post. Yesterday, thanks to an ABA-TAX message from Martin L. Bearg of New Jersey, I followed a link to this ABC News story, and learned that a Dutch court had upheld the right of Dutch witches to take a tax deduction for the cost of witchcraft schooling. The Dutch income tax, summarized here, contains an education deduction not unlike the one allowed under Regulations section 1.162-5 of the United States income tax. The deduction is allowable if the education is a requirement for a present or, unlike the U.S. income tax deduction, a future occupation, or if the study is intended to "upgrade" the taxpayer's "position in society in a financial or economic way," or if the eduction is to "maintain or improve [the taxpayer's] knowledge or capability in order to maintain [the taxpayer's] level of income in [the taxpayer's] present occupation." Thanks to the folks at the University of Liverpool Online Higher Education site, who spared me the experience of translating the Dutch income tax information from the Dutch Tax Authority's website, which is, of course, in Dutch. Now THAT would have been a bit of a nightmare.

Although the ABC News story was datelined October 30, the issue had been percolating for about a month. According to a News24 story, at the end of September a court had reached the same decision. The Tax Foundation, following a BBC News story, report this news at the end of September, and followed up two weeks later.

The News 24 story explained that the course lasts for one year and a day, and that "students are instructed in casting spells, magic, preparing potions, working with herbs, prophesying and divining." Upon completing the course, the students can hold themselves out as “qualified witches.” In mid-October, Bloomberg reported that the ruling has caused a huge surge in student enrollment in the only course in the Netherlands that certifies qualified witches. This story explained why the course lasts for one year and a day: it covers 13 full moons.

The decision has caused a stir in the Netherlands, or, as the ABC News story puts it, "a political fury." The political party holding the most seats in Parliament, the Christian Democratic Appeal, intends to address the issue. It questioned how a course for witches could be useful for employment purposes. Spells on the boss when it’s time for raises? Seriously, because the Dutch income tax allows a deduction if the education is a requirement for a present OR future occupation, certainly because one can earn money as a witch, the ruling is, to quote a tax expert from Leiden in the Netherlands, “logical.” In fact, the plaintiff in the case intends to teach in schools about the Middle Ages and witchcraft. She also is an actress who role-plays a witch at an old castle.

According to the woman who operates the school, previous students have included psychologists and accountants. I wonder if they were TAX accountants?

What better training? Goodness, even I have been likened to Professor Snape, he from the Harry Potter tales, which, coincidentally, have been attributed as the cause in the increase in interest in witchcraft. Goodness. No, folks, it’s only serendipitous that I wrote a book called "Better That 100 Witches Should Live." That’s a biography about a fellow acquitted of seditious libel charges after he castigated the Puritans of New England for conducting the witch trials and executions. Yeah, ok, so his name was Thomas Maule and he was my 7-great grandfather. He lived at a time when there was no such thing as an income tax.

So, yes, it is not unusual for someone to use the phrase "scary tax law". Nor am I the first to make the Halloween and Tax connection. Consider this news, also reported in a a Tax Foundation story, It seems that just in time for Halloween, the New Jersey sales tax is being removed from some candy bars and store-bought Halloween costumes. The change makes the New Jersey sales tax on these items similar to what is done in most other states.

But here’s the trick part of the treat: The sales tax exemption will apply to candies made with flour. Flour? In candy? I learned something. Flour is used in candies such as licorice, KitKats, and Nestle’s Crunch. But other candy, made without flour — think Hershey’s Chocolate bars — remains subject to the sales tax. The author of the a Tax Foundation story suggests, "Robert Frank of the New York Times told us yesterday that children learn best through story telling. Maybe the best way to teach children about poor tax policy is to tell them about the scary tax man who wishes to complicate their Halloween fun by taxing their snickers bars but not their twix bars."

I have a better idea. When I hand out the Reese’s Peanut Butter Cup 4-packs, which usually has the youngsters running back down to the street screaming, "He’s giving out big packs of Reese’s PBCs" (I kid you not, hee hee), I might add this year, "And I paid sales tax on these things." Perhaps that will blunt their excitement and lessen the alarm that usually registers in their parents’ minds as they wonder what sort of neighbor would dish out chocolate in such large doses.

Easy. A guy who thinks peanut butter, being a protein, and chocolate, which is medicinal, combine together to enhance the intellectual skills of those who devour those tasty treats. When those children grow up, they’ll need all the well-nourished brain cells they can muster to deal with what will be one horrific witches’ brew of a tax law.

Or at least they’ll learn to reach for a PBC when tax time stress begins to take over. And, no, this is no buzz. The makers of Reese’s PBCs haven’t compensated me to say anything nice. They don’t even know I’m saying anything at all. Let’s leave it that way. After all, if they tossed me a bone of a token stipend, I’d be required to pay tax on it. And to that, we can say, "Boo!"

The third of the famous three lies (only one of the other two of which, involving checks in the mail) came to mind as I read through some recent commentaries about tax reform proposals that involve government preparation of the taxpayer's return. The same concern that makes the third famous lie part of a joke that works hovered in my brain as I pondered this idea.

A commentary offered by the Office of Tax Policy Research at the University of Michigan's Ross School of Business on the President’s Tax Reform Panel Report notes that "under some reform proposals, including the national retail sales tax, individuals would never again have to file tax returns. Under another prominent proposal, no one with an income less than $100,000 would have to file. Some other proposals offer most taxpayers a no-return option, akin to the ReadyReturn program piloted in California last year. Even if most people will still have to file a return by April 15, the filing process could be greatly simplified."

What's a ReadyReturn? As explained by Joe Bankman in Simple Filing for Average Citizens: The California ReadyReturn, ReadyReturn refers to a concept that was the subject of an experiment by the California Franchise Tax Board (FTB) to prepare income tax returns for taxpayers whose only income is wages and interest. The FTB selected 50,000 taxpayers out of the many more who fall into that category, prepared their returns using the W-2 and 1099 forms that it had received from employers and interest payors, and mailed those returns to the taxpayers. Taxpayers could file the return, correct it, use it as a guide in doing their tax return in the traditional manner, give it to a preparer, or toss it.

Arguments in favor of ReadyReturn abound. It's easier. It requires less time for taxpayers. It saves taxpayers the cost of hiring a preparer. For example, some advocates equate it to receiving a tax bill in the mail. See, e.g., "What if IRS tax bill came in mail?". Others point out that it is a wonderful solution for helping the many taxpayers who cannot read.

Arguments opposing the ReadyReturn program are numerous. Before summarizing them, it's worth looking more closely at the arguments made in favor of ReadyReturn.

Although it appears to save the taxpayers time and money, that conclusion rests on the assumption that the ReadyReturn is correct. Any taxpayer who wishes to confirm that the return is correct must invest no less time or no less in preparer's fees than is invested in the absence of ReadyReturn to audit, in effect, the government-prepared return. The program shifts the burden to the taxpayer. Thus, the time and cost savings is a mirage.

Comparing the ReadyReturn program to something resembling the receipt of a tax bill, as happens with most real property tax systems, is misleading. When a property tax bill arrives, there are only two things to check. One is the assessment, and the other is the multiplication of the assessment by the tax rate. The assessment is made not on the bill but in a separate proceeding, and taxpayers have the opportunity to challenge. More important, they can learn what their neighbors' assessments and tax bills are, because those are a matter of public record. Even without going online or heading to the assessor's office to get the information, neighbors can learn much by chatting with each other. There is no equivalency in an income tax ReadyReturn. The government does not and would not issue a separate document with a determination of income, followed by a chance to appeal, and eventually capped with a tax bill. The assessment is buried in the ReadyReturn. No one knows how the billing process has impacted neighbors. A critical element in the "check and balance" present in the local property tax mechanism is and would be lacking.

The silliest argument is the benefit of the program to people who cannot read. If they cannot read, what will they do with a ReadyReturn? Is it simply a picture? When it comes to sighted people who cannot read, the problem is illiteracy, not the tax system. Isn't it an appropriate role for government and public schools to teach people how to read? Ought not we ask why that task is not being accomplished? I'd rather have a nation of literate people reading about and "seeing" the tax mess that the politicians have created than to have a nation of illiterate people "saved" by a government that does their tax and financial work for them. Can anyone spell Big Brother?

A variety of objections and concerns have been expressed with respect to ReadyReturn. Some could be resolved with modifications to the program. Others are far more serious.

What happens to taxpayers who move and thus do not receive their ready return? One solution proposed by the FTB is to take the system on-line. This shifts the burden back to taxpayers, all of whom would need to go online to find out if a ReadyReturn had been prepared for them. Yes, the FTB could send a postcard to the selected taxpayers, instructing them to go on-line, but those who have moved might not receive it. Think this is an insignificant problem? The IRS recently announced that it is looking for 84,000 taxpayers for whom it has a refund check. Oh, by the way, how is taking ReadyReturn on-line going to help those folks who can't read? Perhaps an audio file of some sort can be played?

What happens if the ReadyReturn is incorrect and the taxpayer simply accepts it because it is "from the government"? It is too easy to dupe people, and though it happens, governments ought not be doing so, whether intentionally or, as so often is the case, negligently. COULD the government be wrong? Mistakes by government employees in the area of taxation are legendary. According to this report, in a 2003 test of the IRS assistance system by the Treasury Inspector General, 30% of answers were incorrect, IRS employees incorrectly prepared 19 of 23 returns in a December 2003 survey of assistance sites around the country, and in a 2004 test, 38% of the answers provided by customer service representatives were inaccurate. Relying on people to read the ReadyReturn information (assuming that they can read) is no guarantee that they will do so. Will ReadyReturn become the "EXTAX" of taxation the way one politician's clever manipulation of absentee ballots has been peddled as an EZVOTE (which, incidentally, is a fiction)?

On the other side of the spectrum, what about taxpayers who deliberately or negligently accept the ReadyReturn even though it does not reflect additional income that the government does not know exists? After all, the government selects taxpayers for ReadyReturn because it assumes that a person with only wage and interest income in one year will be in the same position the following year. But certainly some not insignificant number of those taxpayers will start a business, or otherwise take in other types of income. Yes, instructions could be added to the ReadyReturn (as it inches closer to looking like the existing process), but will this matter to the folks who cannot read and who might be among those who are taking in cash income for which no W-2 or 1099 is issued? Of course, the underlying problem is not caused by ReadyReturn. But will ReadyReturn exacerbate it?

In "Reform and Modernization of the Tax Compliance Process, William J. Kambas notes that the ReadyReturn process poses question about how the government mines for tax data and the extent to which the confidentiality of taxpayer information would be compromised. He explains that this is not a reason to oppose the project, but requires careful scrutiny and insertion of data privacy protection safeguards. Government experience on this score is far from ideal. Do you remember this flap? Or the one about the IRS contracting taxpayer information out to a company whose databases had been compromised?

ReadyReturn does nothing to reduce the complexity of the income tax. What it does is to make the problem "go away" for some taxpayers, whose voices will be removed from the chorus of cries for income tax reform. William Kambas makes this "Chaos and confusion may be mitigated by hiding the complexity. If hiding complexity is the goal, the ReadyReturn program, as it stands now, may be the answer." Hide the complexity from enough people, and it no longer is an issue. So what? The so what is that behind the smokescreen, who knows what's going on? One opponent of ReadyReturn, who surely is not alone, sees it as something that will be required of more and more taxpayers, and that it will give the government an opportunity to hide tax increases. That might be pushing it a bit much, but democracy requires transparency in taxation. That is why I suggested that, instead, all taxpayers should be required to plow through, or pay someone to plow through for them while they watch, their tax return preparation, not as numbers being entered into a computer program, but with a running commentary from the preparer. For example, "The reason it is taking so long to put in all these numbers is that there are many, many steps to be computed. Notice that I am taking information from 12 different pieces of paper, and I asked you 25 questions." "OK, so why does the government need to know all of this?" "Because ......." This would permit them to see how dangerously convoluted the government revenue generator has become, and it is probably the only way that a strong chorus of cries for tax reform can be orchestrated. Yes, being required to watch a tax return being prepared may be cruel, but considering that taxpayers are among those who voted into office the people who created the mess, it's a deserved consequence. After all, we do too much "hide the problem" papering over in this country, be it energy shortages, military mistakes, international embarrassments, economic ignorance, or tax nonsense. Instead, it is better to remember that an educated citizenry is far more valuable to democracy than a pacified (or numbed) citizenry. Or perhaps it should be stated an educated electorate is far more valuable to democracy than a pacified electorate.

Yet another issue is conflict of interest. The government and the taxpayer are on opposite sides of the tax computation issue. If there is a question, for example, about an entry on a W-2 other than wages, will the ReadyReturn system resolve the issue in favor of the taxpayer? Will it disclose the issue to the taxpayer? Or will it resolve the matter applying the government's position on the issue? It has been suggested that the ReadyReturn process could be contracted out to a third party, but that would require taxpayer information being given by the government to a third party. Under current law, only with taxpayer permission could that be done. So one can contemplate a legislature reducing taxpayer privacy rights in this respect, or a system that sends a "request for disclosure" form to ReadyReturn participants, who, well, at least those who can read could stumble through the legalese and boiler-plate.

Speaking of interests, for-profit preparation companies oppose the idea. Recently, Intuit (probably in concert with other tax preparation companies) persuaded Congress or the staff to insert a clause in the IRS funding legislation that prohibits the IRS from adopting a federal equivalent of the ReadyReturn. This follows a similar successful effort in California, resulting in legislation holding the FTB's funding to last year's amount and requiring that the FTB not expand the program beyond last year's scope nor alter its format. The FTB had planned to expand ReadyReturn to approximately one million taxpayers, for roughly the same cost, by making it an on-line program.

For years, the IRS does arithmetic computations for taxpayers who choose to put their information on the return and leave the tax computation mechanics to the IRS. From what I understand, few taxpayers do so because return preparation software takes care of that issue. Many decades ago, I am told, taxpayers could go to an IRS office with their proverbial "shoebox" of bag of receipts and the IRS agent would assist in the return preparation. Those were the days when the tax law was much simpler, far fewer issues existed, far less money was at stake, and there was much less over which to disagree.

Though there is something "noble" about helping folks with simple returns escape the trauma, confusion, and agony of tax filing season, in the long run, ReadyReturn poses a great danger. Even ignoring the other problems, such as privacy protection, conflict of interest, mistakes, fraud, and logistical foul-ups, the major disadvantage to the ReadyReturn is that it will entice tens of millions of taxpayers into thinking that the federal income tax no longer is a problem in need of a solution. Why should the complexity of the Internal Revenue Code be a concern for taxpayers whose returns are relatively simple but yet a challenge for them to prepare? The answer is that the complexity of the Code has become a mask behind which hides the skewing of the revenue in favor of the wealthy and ultrawealthy. Consider the tens of millions of social security recipients whose benefits are taxable, not in full, but in an amount derived from a convoluted set of equations that appear to most folks as something out of a quantum physics textbook. Only by going through, or watching a prepare go through, these gymnastics might the person ask why, and then get the honest answer that the multi-tier mess in section 86 reflects the need to raise revenue to pay for someone else's tax break in the Code. Does anyone think Congress really wants taxpayers to know that? And even many of these taxpayers with so-called simple returns in California get dragged into complexity when one considers the various education deductions and credits, the child credit, the earned income tax credit, and the many other provisions targeted toward low-income taxpayers.

The "here, let us take care of it for you, don't worry, be happy" message of the ReadyReturn drowns out the "and you'll never feel a thing as we extract a wee bit more" part of the script. Why create tax zombies? There's enough of that already in a nation that so quickly seeks to be numbed. What's next? "Just let us tap into your bank account and we'll do EVERYBODY's return .... no more agony for the taxpayer"?

When tax compliance gets so complicated that the government must prepare the returns (even assuming they're better at doing so than are the taxpayers), the tax law surely has become not only too complicated but also inefficient and surely unjust. Government preparation of tax returns in an unnecessarily complicated system opens a door to government control beyond reasonableness. The ReadyReturn may in and of itself be not only harmless but helpful, but it's too close to "Big Brother finally took over."

I prefer to make the filing easier by simplifying the regulation. In other words, don't mask the complexity problem. Have courage. Fix it.

Today's TaxProfBlog news carries a report on a paper by Jonathan Gruber of MIT's Department of Economics. He has just released "Religious Market Structure, Religious Participation, and Outcomes: Is Religion Good for You?" on the National Bureau of Economic Research web site.

Prof. Gruber explored previous findings of "striking correlations between religion and various measures of well being" to determine which was the cause and which was the effect. One interesting and previously identified correlation is that "attending religious services weekly, rather than not at all, has the same effect on individuals' reported happiness as moving from the bottom to the top quartile of the income distribution." But, as Prof. Gruber sought to determine, does attending religious services make a person happier or are happier people more likely to attend religious services?

To solve "the problem of estimating the effects of religious participation on earnings and other economic measures," Gruber "draws on the fact that individuals are more likely to attend religious services if they live near others of their religion." He uses census data to "measure the effects of co-religionist density on economic outcomes such as education, income, employment, welfare participation, disability, marital status, and number of children." His results "suggest a 'very strong positive correlation' between religious market density, religious participation, and positive economic outcomes.'" He concludes that "People living in an area with a higher density of co-religionists have higher incomes, they are less likely to be high school dropouts, and more likely to have a college degree" and that "[l]iving in such an area also reduces the odds of receiving welfare, decreases the odds of being divorced, and increases the odds of being married." He demonstrates that "[d]oubling the rate of religious attendance raises household income by 9.1%, decreases welfare participation by 16% from baseline rates, decreases the odds of being divorced by 4%, and increases the odds of being married by 4.4%."

Finally, Gruber concludes "that being in an area with more co-religionists leads to better economic outcomes through the channel of increased religious participation." Although his paper does not explore how these results come to be, he suggests "four possibilities: that religious attendance increases the number of social interactions in a way peculiar to religious settings; that religious institutions provide financial and emotional 'insurance' that help people mitigate their losses when setbacks occur; that attendance at religious schools may be an advantage; and, finally, that religious faith may simply improve well-being directly by enabling the faithful to be 'less stressed out' by the problems of every day life."

Although Gruber's paper interests me for many reasons, including my theological and church service interests, my focus at the moment is the impact of religious service attendance on economic outcomes. For several decades, different Administrations of both parties and the Congress, no matter which party has been in control, has used the tax law in efforts to increase income, to decrease reliance on welfare, and to encourage behavior that is "good" for the economy. And now, it appears, attending religious services may have similar consequences.

And thus arises a conundrum. If attendance at religious services is good for the economy and financial status of the citizenry, and if a good economy benefits the national interest, ought the nation, through government, be encouraging attendance at religious services? Well, even if it should, would such encouragement run afoul of the First Amendment? Surely a law mandating, or even encouraging, attendance at religious services would be struck down. What about the typical backhanded tax approach, such as a deduction or credit for attending religious services? No, that won't fly. Charitable contribution deductions already exist for taxpayers who make contributions to the religious institutions that they are attending, or perhaps are not attending, but that deduction is not limited to religious donations. That's why the charitable contribution deduction survives attacks based on the First Amendment, because the deduction encourages charity and other socially desirable activities without being limited to religious institutions.

But I'm going to make a prediction. Someone, somewhere, whether in all good faith seriousness or simply to make headlines that will play well with particular constituencies, will propose legislation to create a deduction or credit for attending religious services. Legal scholars, commentators, and others will buzz for a few days about the proposal, and it will then fade into the background as something else takes center stage.

Here's my take: the decision to attend, or not attend, religious services ought come from within. It ought not be mandated, dictated, or required by government. It can be the result of private invitation, but it should not be the consequence of literal or figurative arm-twisting by anyone. The irony in this position is that it reflects a particular theological perspective, namely, that compulsory attendance at religious services lacks the essential characteristic of free and willing worship. Even though many, perhaps most, theologies are in accord with that perspective, nonetheless it conflicts with certain traditions that take the opposite position. Does that mean the rationale for opposing a tax credit or tax deduction for attending religious services is invalid because it reflects a theological perspective? No, because there are non-theological reasons for opposing such a tax credit or deduction.

Now I'll wait to see how much coverage Prof. Gruber's paper receives in the mainstream press. And then I'll wait for the almost inevitable legislative proposal. Stay tuned.

Proposals to increase the gasoline tax are back in the news. They've been percolating through this blog for many months. I made the suggestion back in May of last year, long before anyone had met Katrina or Rita. I made it again in January of this year. I repeated my suggestion for increased taxes on the use of non-renewable energy in March of this year, and defended my position in two follow-up posts (here and here). I revisited the issue last month, and extended the discussion a few days later in a post responding to a criticism of my position.

The topic moved into the spotlight even earlier, as I argued against proposals to DECREASE the gasoline tax. I explained the silliness of these proposals in March of 2004 and I attacked a similarly ill-conceived plan in Hawaii to cap gasoline prices back in August of this year.

I suppose I could write a book. In the meantime, others have been keeping the gasoline tax increase proposal fires burning (oh, well, sorry). An editorial in Sunday's New York Times advocating an increase in the gasoline tax to encourage conservation and to wean the nation from dependence on foreign energy sources has generated an interesting set of reactions from subscribers to the Oil Drum web site. Many of these subscribers are expertised in the energy industry, or are close followers of energy policy issues, so it makes sense for a tax person to pay attention to their perspectives.

The Times editorial doesn't raise any new arguments. The ideas that energy conservation is a good thing and that dependence on foreign energy is not have been around for much longer than the most recent news panic about oil, gasoline, natural gas, and diesel shortages. What may be new is that some folks who had not been paying attention now are paying attention. What's not new is that most folks still don't get it.

Conservation with respect to non-renewable resources is good not only because of the limited supply of energy, but also because oil-based energy contributes to environmental degradation. Shipping American dollars abroad to purchase oil from the Middle East puts financial resources into terrorist pipelines. The impact of higher energy prices on the economy is just beginning to be felt, and it will become worse.

The principal argument in favor of a higher gasoline tax is that it would cause the same sort of "demand destruction" as did the higher gasoline costs that showed up in the aftermath of Katrina. The current federal gasoline tax, unchanged for the past 12 years, is a mere 18.4 cents per gallon. Yet raising this tax is nearly impossible from a political perspective. The gasoline tax is regressive, because it takes a proportionately higher percentage of lower income taxpayer's income than it takes from the income of the wealthy. One problem with this perspective is that the word "tax" triggers issues that aren't triggered by the word "toll" or the word "fee." Bridge and highway tolls are regressive, but they're not regressive taxes. They are user fees. Someone suggested that the difference between a tax and a user fee is that the latter purchases the payor a direct benefit whereas a tax doesn't necessarily return to the payor an equivalent benefit. I'm not certain I agree with that definition, except to the extent taxes are used as wealth transfer mechanisms. But, for the sake of argument, using that definition convinces me that the gasoline tax is a user fee and not a tax. Other arguments lead me to the same conclusion. Persons who burn gasoline, or any other petroleum derivative, impose costs on the maintenance of highways, the retention of clean air, the safety patrolling and emergency servicing of roads and highways, and other social costs. What I cannot answer at the moment is whether these costs are somewhat more than or much more than 18 cents per gallon.

One tough issue is how to mitigate the impact of higher gasoline user fees on the poor. Although not much is done with respect to highway and bridge tolls paid by the poor, there are models that can provide guidance on alternatives available to prevent increased gasoline user fees from shutting the poor out of participation in the economic market place. Some cities and states provide reduced price public transportation to low-income individuals. The earned income tax credit is designed in part to offset the "cost of having a job" that might deter people from entering the work force at an entry level pay scale. Some of the commentators on the Oil Drum site supported some sort of give-back to the economically distressed.

According to the Times editorial, and this appears correct, each one cent increase in the gasoline user fee would raise approximately one billion dollars. What should be done with this revenue? Making highways more energy efficient is one possibility, which hopefully would include the elimination of poorly designed and horribly programmed traffic signals that compel every vehicle to get zero miles per gallon often while waiting for non-existing traffic on the cross street. Rewarding people who purchase energy efficient vehicles, or manufacturers who design and build them is another possibility. Investing in a renewable energy source "Manhattan Project" to deal with the inevitable drying up of non-renewable energy sources is yet another possibility.

The editorial concludes: "Cheap gas is no longer compatible with a secure nation, a healthy environment or a healthy economy - if ever it was. The real question is whether we should continue paying the extra dollar or two per gallon in the form of profits to the Saudis and other producers, or in the form of taxes to the United States Treasury, where the money could be used to build true energy independence." Put in those terms, it shifts the burden of the argument to those who oppose gasoline (and, seriously, petroleum consumption) user fees.

An Oil Drum poster noted that the previous day an editorial in the New York Times had advocated subsidies for heating oil for the poor. How could that be consistent with a call for an increase in the gasoline tax? The answer, another commentator said, is that "without gas, people whine, moan, and generally stay inside all day" but "without heating oil, people die."

Some of the comments on the Oil Drum site were practical. The chances of such a proposal getting support from the current Administration and Congress are slim. Though true, the importance of that comment is not to render the discussion irrelevant but to refine (sorry) the proposal so that it can be made politically acceptable. One suggestion was to use at least some of the revenue to cut income taxes. Hmmm. I wonder if the Tax Reform Panel is tuned into this discussion. Well, I say I wonder. I don't. I know. It's not. Too bad. As for the Congress, one commentator pointed out that Senator Harry Reid, who, I must add, claims he wants to make America energy independent, is singing the "let's reduce the cost of gasoline" song and dance on his website, but he seems to forget the "that will make people use more gasoline" dance that goes with that song.

Someone pointed out that the standard argument against taxes seems to be "I can spend more wisely than the government; the government will just fritter money away or hand it to the rich." Other comments certainly support this position. The fear that government corruption and incompetence and the resulting lack of confidence in government stewardship over any revenues is evident in some of the posts. Another commentator claimed that it's not the politicians who are at fault but the people who have unrealistic expectations. In some respects that's true. There are people who think there exists an infinite supply of petroleum products, and there are many more, surely a majority, who don't know what "peak oil" is. That's like not knowing what wasps are. Eventually they get stung.

The commentator who suggested the standard argument against taxes then pointed out that failure to regulate one's self invites regulation by others, and the government is quick to step in when the market place fails. But, I ask, who is to determine when the market place has failed? Is the market place for operating systems working well because Bill Gates has made money or is it failing because Windows crashes and security lapses require the inefficient expenditure of huge amounts of time by the consumers in that market? The conundrum, as one poster noted, is that a free market does not necessarily support "fairness" unless one considers the outcome of a market to be per se fair, yet supporting government intervention in a market because the outcome does not meet some other definition of "fair" suggests that something is fundamentally wrong with the free market model. The gasoline user fee, however, is not, as this poster seemed to imply, a "fairness tax" designed to make the price of gasoline fair, but a charge for the imposition that gasoline use makes on public goods such as highways, bridges, and clean air. After all, governments intervene in markets because markets do not reflect the theoretical rational person contemplated by Adam Smith but the practical modern American consumer enticed by advertising and peer pressure to react with emotion "thanks to the dumbing down of our nation's school system." Gee, there's another person who's with me on that point.

One argument against increasing the gasoline tax, or at least against increasing it significantly, is that it would thoroughly disrupt the lives of the tens of millions of Americans who are locked into their suburban lifestyles, living far from work, or working on farms that are miles from the nearest town. The idea of "moving close to work" seems sensible until one considers the two-earner family with jobs that are tens or more of miles apart. But others claimed that some people live "out in the country" for reasons other than economic necessity, as they are not farmers but simply folks who prefer to live in wide open areas.

Another comment claimed that even a 50 cent per gallon increase would trigger a recession. My question is what happens if gasoline consumption continues to increase, perhaps fueled (sorry again) by efforts to lower gasoline prices. Will that not accelerate the impending recession caused by energy shortages? What happens if natural gas shortages force manufacturing plants to close or move abroad, as already is beginning to happen? What happens when diesel fuel is rationed, as already is beginning to happen, and the trucking industry cannot ship goods that need to be shipped? My answer is, yes, a recession.

Someone asked why bother increasing gasoline prices through a gasoline tax increase when it is apparent that gasoline prices will increase on their own because of supply problems. The answer, provided by another poster, is that an increase in the tax (or user fee) will focus consumer attention NOW on planning for higher prices in the future, to "capture some of the demand in our own economy instead of sending it to OPEC," and to reduce demand and create more time for development of alternatives and to decrease vulnerability to shortages. Well put by someone named "Engineer Poet."

Should an increase in user fees be phased in? Perhaps. As one commentator noted, a small annual increase would give people time to prepare and plan, replace vehicles, perhaps move, and perhaps organize support for more efficient mass transit.

Should there be exemptions for individuals who have no choice but to use petroleum-based fuel? How should such an exemption be defined? Does it matter if the person must consume gasoline or diesel in order to do a job, such as a traveling sales representative, or should it matter if someone is "stuck" by gasoline user fees because he or she decided to live in a suburban development far from the work place? Notice how a discussion of a tax (or user fee) triggers questions about why people live far from their work places? Is it the attraction of the open country (which, ironically, then fills quickly with more shopping malls and many more homes)? Is it the supposedly better school system? Is it the cheaper cost of homes that are further from the work place? If so, does this mean that finding a cheaper home and thus incurring lower monthly housing costs puts the person in a no-win situation because commuting costs gobble up the savings?

Someone presented a problem with a per gallon gasoline tax (or user fee). Revenues would decrease as vehicle fuel efficiency increased. So perhaps the user fee should be a percentage of the retail price?

Some commentators proposed alternatives. One suggested a "feebate program" which would rebate monies to manufacturers whose manufactured fleets exceeded standards and which would collect those monies from manufacturers who did not do so. What happens, I ask, if most or all manufacturers exceed the standards? Someone suggested that the administrative costs would cause the rebates to be less than the collections. Another reaction was that the rebates ought to go to the construction of renewable facilities. Another pointed out that as those who could afford to buy the more efficient vehicles did so, their older vehicles would be the ones purchased by the poor.

Another commentator proposed a road usage tax. Ah, the semantics. You mean road usage user fee, correct? The difference between a gasoline user fee and a road usage user fee is that the latter takes into account the weight of the vehicle and thus the damage or wear and tear it imposes on the highway infrastructure. Because fuel use, though, is roughly proportionate to ton-mile, the gasoline user fee would be easier to administer. This poster noted that the per-mile tax that has been proposed in Oregon is a step backwards because it ought to be a per-ton-mile tax. After all, the idea that all vehicles impose the same burden on public goods when they travel a mile defies logic. I discussed these proposals back in November of last year.

Another commentator suggested the implementation of "tradeable quotas." Everyone is entitled to purchase a certain amount of fuel (whether gasoline or all petroleum products wasn't specified). Those who want to use more fuel either can purchase unused quotas from those who don't use all their allocable untaxed fuel or can pay a high tax on the excess fuel that they consume. The government would regulate the process but not collect revenue, as the system would move funds from fuel users to fuel conservers. Yes, this poster admitted, this is close to rationing, but doing nothing is putting the nation into a de facto rationing system that afflicts the poor more than the wealthy. I like the general idea, but I think that even the allocated quotas should be defined in terms of taxed fuel, set at a rate lower than the much higher rate on excess fuel consumption.

Another commentator suggested that because volatility in the gasoline retail price market is bad for the economy, the tax (or user fee) ought to be a fixed per gallon amount reduced by a percentage of the pump price. Thus, the tax would be dampened somewhat as retail prices increased, yet the total pump price would not drop so low as to encourage a spike in consumption. This is an interesting example of using a tax, or a user fee, to regulate a market, because the tax or user fee would be changing even though the impact on public goods per gallon of gasoline consumption would not be changing in the same manner. For that reason, I don't favor the idea. If the retail price increases because of supply and demand shifts, then the true price of gasoline usage ought to reflect that increase, without some sort of user fee reduction to cushion the cost and thus bias the consumer's decision making.

Yet another commentator suggested a return to the subsidization of ethanol production. This triggered an amusing exchange. A critic characterized ethanol as a very bad idea, and claimed that making ethanol rather than feeding people was selfish. The proposal's advocate replied that we have more than enough food in this country, as evidenced by the fact we are the most obese population in the world, and that farmers are having a tough time selling in the global market because of subsidized exports from the EU and cheap food from other countries. In response, another commentator claimed that what keeps American farmers from being competitive is high energy costs, which include, by the way, fertilizer and pesticides (which are made from and using non-renewable fuel). I learned that 13% of the corn crop is used to create enough ethanol to replace 1% of the nation's gasoline consumption.

So, the next commentator saluted biodiesel, but then described the adverse impact of modern agriculture on the environment, suggesting that solving one problem creates another. And, as expected, and as I've predicted, someone asked if there was a "peak water" website, because water supply would be the next natural resource crisis after peak oil. I disagree. I still think water will trigger a world war before oil does.

Still another poster claimed that the government should "help fund" the massive infrastructure projects that are beyond the ability of the private sector to risk, such as nuclear, biomass, oil shale, and mass transit. Again, it would be the tax law, I am certain, that already serves, and would continue to serve, as the vehicle for this government support. We're talking credits and deductions, such as those already in the tax law that I reviewed in March and to which a few more have since been added.

Finally, support was expressed for increasing the gas guzzler tax before increasing the gasoline tax. Support also was expressed for eliminating the "truck" tax break that treats SUVs and other vehicles as trucks.

What a mess. Ultimately, the question is whether the Congress, encouraged by the American public, takes control of this situation before this situation takes control of us. What a scary thought. What's even scarier is that most Americans don't realize the scope of the energy problem, don't understand the economic and political contexts in which the energy problem exists, surely don't comprehend the challenges of using the tax law or even user fees to deal with the problem, and who find planning for the future too difficult if the future means any time after the end of the next weekend.

As I asserted last month, "All of this will require leadership. It will be a factor in the 2006 and 2008 elections. I continue to scan the potential candidates and I continue to feed my pessimism."

The fallout from the Tax Reform Panel's proposals continues. In an ope-ed piece in yesterday's Washington Post, David Brunori explains why chopping the mortgage interest deduction is a good idea. David is vice president of Tax Analysts and a research professor of public policy at George Washington University. He knows taxes. Although sometimes I agree with David's analyses, this time I happen to disagree with the argument that he makes in defense of the Tax Reform Panel's idea.

As I pointed out in Friday's post, the problem with the Panel's approach is a combination of timidity and bias. The Panel goes half-way, in a half-hearted attempt to put some simplification paint on top of the special-interest group complexity rust of the Code. The Panel is biased, because it protects the tax breaks of most importance to the wealthy and ultra-wealthy, while taking its shots at the middle and upper middle class. In some respects, its pro-wealthy bias accounts for its half-heartedness.

David views the proposal as one that will impose financial strain on people who own homes with three-car garages, mega-kitchens, and grand entryways, and that it will make ownership of vacation homes financially more difficult. But the assumption that the "hit" from the proposal would fall on folks owning vacation homes in Rehoboth, Delaware, misses the point I made in Friday's post, namely, that the ultra-wealthy will lose far less of a tax benefit than will the middle class taxpayer who owns a far from over-imposing mansion or estate home. Likewise, the Panel's proposal will disadvantage the owner of a modest vacation home in a not-so-fancy resort far more than it will have any serious impact on the millionaires who jet from one resort to another as the planet's orbit around the sun changes the seasons.

David points out that the proposal will have the effect of removing any tax subsidy for home equity mortgages used for such purposes as college tuition for children. Now, who borrows to send children to college? The very rich? Nah, they just write a check from the petty cash fund. The very poor or the poor? No, they qualify for grants. The lower middle class? Some, though grants and other financial aid is available most of the time. It's the middle class and the upper middle class who borrow for tuition, because they have become the whipping posts of the new political order. The new political order, of course, is just another variation on the typical political order, by which the wealthy and ultra wealthy pit the poor against the middle class, buying the votes of the former in an effort to set back the latter from inching closer to the turf of the wealthy.

David is correct that the proposal to trim the mortgage interest deduction is "gutsy." It's also foolish. Telling the difference between gutsy and foolish is tough, because sometimes the two blur. Check in with the participants on MTV's Jackass series for an explanation.

David makes a great case for repealing the deduction. On this point, he and I agree. But the Tax Reform Panel isn't proposing repeal. Its plan is to trim the deduction, in a manner that afflicts the upper middle class the most, and the middle class almost as much, but that does little to the wealthy and ultra wealthy. Although it might make sense to praise a movement in the direction of repeal, it is deceptive to take a crooked half-step as does the Panel's approach.

It's when David lists the reasons for limiting the deduction that he takes the praise that's owed to a truly courageous, or gutsy, move, namely, repealing ALL benefits that skew the tax code in favor of the wealthy, and directs it to the window dressing from the Tax Reform Panel that is nothing more than a repetition of the bad tax policy that has afflicted tax legislation for the past decade and a half.

David argues that the "federal government needs the money." This is true. The question isn't whether the government needs money, as I pointed out in a recent post. The question is who should finance the federal government. The current policy, which is that the wealthy need to retain their funds so they can play games with the acquisition and sale of other people's labor and ideas, while the rest of the country foots the bill, is one that holds fast through the Tax Reform Panel's recommendations.

David then argues that trimming the mortgage interest deduction permits reform of the alternative minimum tax, keeping it from afflicting middle class taxpayers as it will if nothing is done. The problem with this argument is that it undercuts the first. If the revenue from cutting the home mortgage interest deduction is used for alternative minimum tax relief, then it's not going to be available for hurricane relief or to reduce the deficit. Because the wealthy know how to avoid the alternative minimum tax, and get assistance from Congress in doing so through provisions such as excessively low rates on capital gains, interest, and if the Panel is persuasive, domestic dividends, the middle class and upper middle class will end up financing the wealthy and ultra wealthy at least as much, if not more, than they currently do. To quote David:

Because of its lack of transparency, the AMT is a bad way to raise revenue. It is also politically very unpopular. The tax reform panel wants to see it repealed. Short of raising rates, which the president has vowed to oppose, there is no way to raise the money needed to reduce AMT burdens other than by trimming the mortgage deduction.

But that's just not so. There's PILES of revenue available if the snake-oil idea that capital gains and dividends are somehow "different" and less deserving of taxation at the same rates that apply to wages and the business income of sole proprietors and small businesses is relegated to the trash heap of bad tax ideas.

David also argues that "reducing the home mortgage interest deduction would shift the burden of paying for our government needs to those best able to pay." Again, what the panel proposes shifts the burden to the middle and upper middle class, who clearly are not "those best able to pay." Those best able to pay are proving, by being able to pay for the lobbying that generates tax code provisions favorable to the rich.

David hints at this by claiming that the rich who have high mortgage debt would balance the tax increase from the curtailment of the mortgage deduction with a tax savings from alternative minimum tax relief, and that when "the deficit eventually falls, the wealthy would recoup their losses with additional tax cuts." The problem may be in defining "rich." Why? Because the truly rich are NOT saddled with high mortgage debt. They may have other debt, designed to leverage big-time investments or contrived as part of structuring tax shelter deals, but these folks don't finance their children's education with home mortgage debt, because they are drowning in cash.

In arguing that the proposal would affect very few taxpayers, David states, "The wonderful thing about the progressive income tax is that it can be manipulated to raise revenue while protecting lower- and middle-income citizens quite easily." But let's face it. No one is protecting the middle class. OK, maybe a few members of Congress, here and there, try. The tax law favors the wealthy. Underneath the nominal higher rates on higher income that appear to make the income tax progressive, sit a variety of realities that shift the burden disproportionately ontothe middle class. Think of the bubble effects, the phaseouts, the tax breaks available to the poor and wealthy but not the middle class (such as earned income tax credits, and low rates on capital gains).

David state, "There is simply no tax policy justification for allowing large home mortgage interest deductions." But the point is that "There is simply no tax policy justification for allowing ANY home mortgage interest deductions." That's where David and I disagree. Just do it. Eliminate the deduction (and a bunch of others). Stop with the fiddle and dance, the pretensive finesse, and the manipulation. I suspect David is willing to take what he can get. I'm saying that no loaf often is better than half a loaf if the full loaf isn't available.

To make my point, David explains, "really smart people since the time of Adam Smith have warned against using the tax laws to distort markets. Perhaps it is time we listened." I agree. Take this argument to its logical end. Don't stop halfway. Repeal the deductions that have nothing to do with the generation of income.

Thus, David's conclusion that "In the end, the panel did the right thing by making these proposals." I disagree. The Panel chickened out. It held back, rather than going for the decisive blow against tax inequity and tax inefficiency. A huge disappointment.

A week ago yesterday, I commented on the many vacancies in the Treasury Department among positions affecting the development of tax policy and taxpayer guidance. I noted the disadvantages of continued delay, particularly after one candidate withdrew from the nomination process for that very reason.

Yesterday, the Treasury announced three new appointments in the Office of Tax Policy. Treasury named a Tax Legislative Counsel (Michael J. Desmond), an International Tax Counsel (Harry J. "Hal" Hicks III), and a Senior Advisor to the Assistant Secretary for Tax Policy (Robert H. Dilworth). Good news. It's a start. There remain five of the seven vacancies that were noted in last week's post:

• Assistant Secretary of the Treasury for Tax Policy
  
• Deputy Assistant Secretary of the Treasury for Tax Policy
  
• Benefits Tax Counsel
  
• Assistant Secretary for International Affairs
  
• Assistant Secretary for Public Affairs

At a pace of three appointments a week, the vacancies ought to be filled by mid-November. That, however, is unlikely, because several positions require Congressional action.

In his Philadelphia Inquirer column this morning, Andy Cassel asks a question which I am going to try to answer. But, first, here's the background for the question.

After reviewing the unsurprising reaction to the recent proposals floated by the Tax Reform Panel, though without specifically mentioning mine, Andy focuses on the proposal to reduce the cap on the amount of mortgage loans on which the interest would be deductible and the proposal to convert the deduction into a credit equal to 15% of the interest on the first $x of the mortgage, where $x is an amount that varies by county. Presently, the various $x amounts fall between $200,000 and $300,000.

According to Andy, this is the "bottom line: Owners of low- and moderate-priced homes would either get a bigger tax break or see no change. But owners of deluxe houses with jumbo mortgages would lose much of their current subsidy." He quotes the Tax Policy Center for the proposition that the taxpayers most likely to scream about this proposal are not "all American taxpayers" but "just the rich ones" and that 83% of the tax savings from the mortgage interest deduction benefits people whose income is in the top 20%.

Andy notes that "most Americans get little or no government help paying for their houses, outside of programs such as Section 8 for the very poor. But those with incomes above six figures receive tax benefits that can average $7,000 or $8,000 a year." He also points out that if the mortgage interest deduction is reduced, it paves the way for another proposal, namely, reducing the top tax rate and lower taxes on already lower-taxed capital gains.

Lastly, he notes that the ultimate impact would be on real estate, because a reduced mortgage interest benefit many people will refrain from borrowing huge amounts to purchase houses and will be less likely to bid up the price for luxury housing. The effect would be a slower increase in housing prices. This brings Andy to his question:

And that's why home builders and real estate agents are leading the charge to save the mortgage-interest deduction. In any market where the government props up prices, it's mainly sellers and brokers who benefit, while buyers pay extra. Shrinking the deduction would remove that prop and simply let the housing market function on its own. Anyone want to explain to me why that's a bad thing?

So here goes.

It's a bad thing so long as the hundreds of other tax breaks that the Tax Reform Panel does not address are left in place and if the additional proposed reduction of taxes on the wealthy, in the form of a zero tax on dividend income, further reductions in the tax on capital gains, and the reduction of tax on investment interest are implemented. The mortgage interest deduction is not the only unwarranted subsidy in the tax law, but removing it while turning a blind eye to the others skews the marketplace. The tax law currently props up McMansion purchases, exurban sprawl and the resulting energy waste, and inflated vacation home markets, but the tax law also props up an inefficient energy exploration and production industry, the construction of shopping mall after shopping mall and excess commercial and office building capacity, a variety of supposedly beneficial and favored social behavior, and a long list of other special interest group favorites. What happens if the reduced demand for home mortgages causes banks to lend their money to shopping mall developers or the builders of unnecessary commercial and office building space?

Let me step back. I'm no fan of a complexity-riddled tax law that reflects Congressional payback to the special interests that purchase their advantages rather than earning them in the marketplace. I'm all for repealing outright the mortgage interest subsidy and all other subsidies, leaving as deductions the cost of generating income. THAT would be true tax reform. The proposal is bad because it targets one group in the hope that the status quo advocates will be able to use that maneuver as ammunition to deprecate tax reform advocates as "having gotten what they wanted and coming back for more." That's why it's so important for tax reform advocates to resist these half-hearted gestures, because it distracts the country from the core issues.

It's also important to understand that the proposal is not an elimination of the mortgage interests subsidy but a curtailment that affects the upper middle class more than it affects the wealthy. Consider five homeowner named Low, Low Middle, Upper Middle, High, and Very High. Low owns a modest home, with a mortgage of $120,000, paying annual interest of $6,000. Low Middle owns a somewhat larger home, with a mortgage of $180,000, paying annual interest of $9,000. Upper Middle has two personas, one owns a typical McMansion, with a mortgage of $350,000, paying annual interest of $17,500 and the other owns a modest home in California with the same mortgage and annual interest. High owns an estate home, with a mortgage of $800,000, paying annual interest of $40,000. Very High owns a mansion, with a mortgage of $3,000,000, paying annual interest of $150,000.

Under current law, with the mortgage interest cap set at loans of $1,000,000 (leaving aside the $100,000 home equity wrinkle), all of these taxpayers except Very High deduct all of their interest (putting aside any other deduction limitations). Very High deducts only $50,000, reflecting 1/3 of the interest, because the $1,000,000 cap is 1/3 of the $3,000,000 mortgage. Assuming that Low is in a 15% marginal bracket, Low's $6,000 mortgage interest deduction saves Low $900 in taxes. Assuming that Low Middle is in a 25% marginal bracket, Low Middle's $9,000 mortgage interest deduction saves Low Middle $2,250 in taxes. Assuming that Upper Middle is in a 28% marginal bracket, Upper Middle's $17,500 mortgage interest deduction saves Upper Middle $4,900 in taxes. Assuming that High is in a 33% marginal bracket, High's $40,000 mortgage interest deduction saves High $13,200 in taxes. Assuming that Very High is in a 35% marginal bracket, Very High's $50,000 mortgage interest deduction saves Very High $17,500 in taxes.

Under the proposal, assuming that all five taxpayers live in the same county, assuming that $x is $250,000 for that county, and assuming that the interest on $250,000 would be $12,500, Low would be entitled to a credit (i.e., tax savings) of $900 (15% of $6,000), leaving Low's tax situation unchanged. Low Middle would be entitled to a credit (i.e., tax savings) of $1,350 (15% of $9,000), leaving Low Middle with increased tax liability of $900 ($2,250 minus $1,350). Upper Middle would be entitled to a credit (i.e., tax savings) of $2,625 (15% of $17,500), but limited to $1,875 (15% of $250,000), leaving Upper Middle with increased tax liability of $3,025 ($4,900 minus $1,875). High would be entitled to a credit (i.e., tax savings) of $6,000 (15% of $40,000), but limited to $1,875 (15% of $250,000), leaving High with increased tax liability of $11,325 ($13,200 minus $1,875). Very High would be entitled to a credit (i.e., tax savings) of $7,500 (15% of $50,000), but limited to $1,875 (15% of $250,000), leaving Very High with increased tax liability of $15,625 ($17,500 minus $1,875).

Low's mortgage interest tax subsidy is unaffected by the proposal. Low Middle's mortgage interest tax subsidy is reduced by 40% ($900/$2,250). Upper Middle's mortgage interest tax subsidy is reduced by 61% ($3,025/$4,900). High's mortgage interest tax subsidy is reduced by 86% ($11,325/$13,200). Very High's mortgage interest tax subsidy is reduced by 89% ($15,625/$17,500). Looks good, right? Yes, because the conversion to a 15% credit is cutting the tax subsidy to 15% of the allowable mortgage interest. Forced to accept either a mortgage interest subsidy in the form of a credit or in the form of a deduction, I'd go for the credit, for this reason. But the issue is the reduction of the cap. What does this do?

Working backwards, it pretty much tells Low that Low can still take into account all of Low's $6,000 annual interest. It tells Low Middle that Low Middle can still take into account all of Low Middle's $9,000 annual interest (though the conversion to a credit will increase Low Middle's tax liability). It tells Upper Middle that Upper Middle can take into account only $12,500 of Upper Middle's $17,500 annual interest, thus taking 28% ($5,000/$17,500) of Upper Middle's mortgage interest out of the equation. It tells High that High can take into account only $12,500 of High's $40,000 annual interest, thus taking 69% ($27,500/$40,000) of High's mortgage interest out of the equation. It tells Very High that Very High can take into account only $12,500 of the $50,000 mortgage interest that High took into account before the proposal, thus taking 75% ($37,500/$50,000) of Upper Middle's mortgage interest out of the equation. Still looks good?

Wait, there's more. For Upper Middle, 28% of Upper Middle's mortgage interest ($5,000/$17,500) is taken out of the tax subsidy picture by the proposal. For High, 69% of High's mortgage interest ($27,500/$40,000) is taken out of the tax subsidy picture by the proposal. For Very High, 25% of Very High's mortgage interest ($37,500/$150,000) is taken out of the tax subsidy picture by the proposal. What do we have here? Why, it's the same "bubble" effect that is generated by the various phase-outs, that is, another instance where the tax burden or the pain of a tax subsidy or deduction suppression hits the upper middle class far more than it hits the very wealthy.

Now let's add two fistfuls of salt into the wound. First, for the very wealthy (let's call the person Absurdly High) who purchase with cash and do not incur mortgages, the proposal does nothing whatsoever. Second, it is Very High and Absurdly High who will rake in the tax savings from the proposed zero tax on domestic dividends, the further reduction of taxes on capital gains, and the reduction of taxes on investment interest. Before someone tells me that Low will escape taxes on savings account interest, I will reply in advance that the $30 or $40 tax reduction that Low or Low Middle obtains from that reduction is less than the crumbs from the table thrown to the dogs when compared to the succulent feast of tax savings enjoyed by High, Very High, and Absurdly High.

So when Andy suggests that "The ironic part is that upper-income people end up paying most of the taxes anyway. So to some extent, they are actually subsidizing themselves," I disagree. The lows, low middles, and upper middles are subsidizing the highs, very highs, and absurdly highs. Such as it has been throughout history, except this time it's the upper middles who are hit hardest. Why? They pose the greatest threat to the high, very high, and absurdly high crowd, because they are the closest to breaking through that economic ceiling.

Andy is correct that a tax subsidy for mortgage interest impedes the ability of the housing market to function as a free market. Releasing the housing market while not releasing other markets will kick the inter-market economic balance out of kilter. ALL government subsidies that interfere with markets must be removed, or replaced by direct grants that let the voters know who is getting what from whom. Any social behavior regulation of which can be justified, such as laws against bank robbery, ought not be the topic of a tax law provision. For example, yes, it's "nice" to give tax credits to people who adopt children, but people ought to adopt children because they want and love the child, not because they're being paid to do so. If the argument is that children are expensive (and they are), then the income tax law ought not tax people whose incomes fall below the poverty level (or a higher percentage thereof) for the appropriate family size. The argument that "they want children and without a tax law subsidy they can't afford to do so" should not carry any more weight than "I want to own a baseball team and without a tax law subsidy can't afford to do so," and before someone argues that adopting a child is "nicer" or "more important" than acquiring a baseball team, I'll hasten to note that the economic benefits flowing from a well-run baseball team (I live near Philadelphia if you need a clue here) can enable dozens or hundreds of families to afford to have children (through whatever means, including adoption).

Note that I haven't lobbied for that baseball acquisition provision for myself. Why? I don't have the money to buy the subsidy. Here's what's ironic. The subsidies chiefly go to those who have the money to lobby for them, with a few crumbs tossed in the direction of the poor and very poor so that the gluttons don't feel too guilty about their gorging.

So, going a wee bit down a road camouflaged to look like a path to tax reform is far more dangerous than doing nothing. If the Congress and the Administration lack the courage or desire to go all the way down the tax reform path, then at least they ought not make things worse. The Tax Reform Panel's mortgage proposal is a half-baked, half-hearted, window dressing palliative. That is why it is a bad thing.

Well, the press has released enough news about the Tax Reform Panel's upcoming report to trigger reactions not only from tax pundits but also from political commentators. Of course I'm going to join in. I will try to bring a different perspective to the analysis that does the rest of the tax blog world. For example, Dan Shaviro has shared some predictions on the political viability of the proposal, along with a short commentary on each of the major components. Joe Kristan sees "business as usual" in his initial reaction to the plan. Vic Fleischer thinks that the plan could fly, if particular political forces think past their traditional positions and array themselves in a tax reform alignment.

From my perspective, the question is whether the Tax Reform Panel has lived up to its charge.

When the President established the panel in early January of this year, it was, to quote from the Panel's web site, to "advise on options to reform the tax code to make it simpler, fairer, and more pro-growth to benefit all Americans." The policy options, as a group, were to be revenue neutral. More specifically, the options were to meet these three goals:

simplify Federal tax laws to reduce the costs and administrative burdens of compliance with such laws;

share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society; and

promote long-run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace.

How can anyone take issue with these goals? Simplification, reduction of compliance burdens, job creation, and all those other lofty ideals. So let's see how the Panel fared.

The panel's suggestions consist of these proposals:

* Cut back, but do not eliminate, the exclusion from gross income of employer payments for employee health insurance premiums and health care.
* Widen and simplify tax-free savings plans.
* Increase and index for inflation the limit on gain excluded from gross income because it arises from sale of a principal residence.

* Eliminate the deduction of state and local taxes by individuals.
* Make the charitable contribution deduction allowable in computing adjusted gross income, but only for contributions exceeding 1% of income.
* Reduce the home mortgage interest deduction limitation from interest on the first $1,000,000 of mortgage loans to interest on the first $x of mortgage interest, where $x is the maximum amount that can be insured by federal mortgage insurance programs, an amount that varies by county. In the Philadelphia area, $x is approximately $235,000.
* Permit all individuals to deduct health insurance premiums.

* Eliminate the alternative minimum tax.
* Reduce the number of tax brackets from 6 to 4, with the top rate at 33% rather than 35%.
* Reduce the tax rate on interest income to match the rates currently applicable to dividends and capital gains.
* Reduce the tax rate on domestic dividends to zero.

* Enact a simplified family credit that expands the existing child credit.
* Replace some deductions with credits.
* Replace the personal and dependency exemptions with credits.
* Create a refundable savings credit for low-income taxpayers.

In general, one does not need a detailed analysis of these provisions to evaluate the package. Those who want more detail should take a look at Dan Shaviro's helpful summary.

So here I go:

Simplification

1. This is not simplification, aside from elimination of the alternative minimum tax and elimination of the deduction for state and local taxes by individuals. However, this deduction is one of less complicated provisions in the code, or at least it was until the sales tax deduction was restored, so its repeal isn't quite cleaning up the tax code mess.

2. Reducing the limitation on mortgage interest deductions is more complicated because of the tie-in to the variable mortgage insurance limit.

3. Changing a full exclusion for employer-provided health care to a limited exclusion necessarily adds complexity.

4. Shifting the charitable contribution deduction from an itemized deduction to one allowable in computing gross income adds complexity.

5. Expanding the deduction for health insurance may or may not be complicated, depending on how it is drafted. My guess? It will be complicated.

6. Reducing the number of tax brackets doesn't do anything with respect to simplification.

7. Reducing the tax rate on interest income adds complexity because it will be necessary to define interest income that qualifies for the reduced rate. The definition will not be one sentence.

8. Eliminating the tax on domestic dividends also adds complexity because, again, it will be necessary to define domestic dividends qualifying for this zero tax treatment.

9. Guaranteed, simplification of the family credit will not be simple.

10. Replacing deductions with credits in and of itself does not affect the complexity built into the definitions and requirements for the deduction or credit benefit.

11. If the refundable savings credit is anything like the parade of other credits recently added to the Code, it will not be a victory for simplification.

12. And what about the complicated, inconsistent, bewildering array of provisions affecting education of which the panel made a big deal a few months ago?

Score: F, and I wish there were an F- grade.

Reduction of the Cost and Burden of Compliance

1. Let's see. OK, the alternative minimum tax form disappears, so that's a plus. And the 2 minutes required to compute the deduction for state and local taxes gets added back to the lives of tax return preparers and to the lives of taxpayers who would be digging around for the check or receipt. That's a tiny plus.

2. Employers will need more time and money to figure out how much gross income must be reported to employees on the W-2 on account of employer-provided health plans, and there will be one more line on the return for that.

3. New and enlarged forms for the savings credit, tax-free savings plans, and the family credit adds to the cost and burden of compliance.

4. A deduction for health insurance premiums means more record-keeping and another line on the return.

5. Figuring out what is interest and what is a domestic dividend takes time, records must be kept, Schedule B must be modified to separate one kind from another, so it grows. Pages of special rules meshing these proposals with pass-through entities will do nothing but complicate tax planning and compliance for partnerships, S corporations, trusts, REITs, etc.

If all of this happens, there will be more forms, and more lines on existing forms, despite the removal of the alternative minimum tax form from the inventory.

Score: F.

Share the Burdens and Benefits of the Federal Tax Structure in an Appropriately Progressive Manner

Do any of these proposals heighten progressivity?

Yes, these appear to have that impact:

Cutting back the exclusion for employer-provided health care, eliminating the deduction of state and local taxes, reducing the home mortgage interest deduction cap, creating a refundable savings credit for low-income taxpayers, converting deductions to credits.

Do any of these proposals reduce progressivity?

Yes, these have that impact:

Eliminating the alternative minimum tax, reducing the top rate and the number of tax brackets, reducing the tax rate on interest, eliminating the tax on domestic dividends.

Putting these together, it's more likely to decrease than increase progressivity. So the challenge is to define the word "appropriately" in the phrase "appropriately progressive manner." Considering that I consider lower rates for dividends and capital gains to be inappropriate, more of the same also is inappropriate.

Score: D

Recognizing the Importance of Homeownership and Charity in American Society

The proposals do not eliminate the deduction for mortgage interest, and by turning it into a credit, the panel suggests something that, at least in theory, will make home acquisition economically easier for those most under-represented in the housing market, namely, low-income taxpayers. Adjusting the exclusion amount for home sales helps, but perhaps the amount should not be so high?

Making charitable contribution deductions available to taxpayers who do not itemize deductions might encourage more charitable giving, but will it? Most taxpayers who do not itemize are low-income taxpayers, and those taxpayers might not be in the best position to increase their charitable giving. And why not make the charitable contribution deduction a credit?

It would have been nice to see a wholesale re-write of the charitable contribution deduction. It is a forest of tangled threads, a contraption with which almost every Congress has tinkered, and a trap for the unwary.

Score: C

Promoting Long-Run Economic Growth and Job Creation

When was the last time a tax bill was not tagged as promoting economic growth and job creation? When was the last time a tax bill in fact triggered economic growth and job creation? Get out the tea leaves, the cards, the crystal balls, and the palms of your hand. This one will be debated until debating the proposals is moot, and then the debate will morph into more law review articles and commentary.

Score: Incomplete

Better Encouraging Work Effort, Saving, and Investment

Now, seriously, who is going to undertake or increase work effort because taxes on capital gains, dividends, and interest are lower? Or because the top rate would be 33%? Or because there would be 4 rather than 6 tax brackets? Or because a portion of employer-provided health insurance would be taxed? Or because deductions become credits? I don't see it.

Yes, those with money to spare might be tempted to invest rather than consume. Eliminating the tax on domestic dividends and reducing the tax on interest might have that effect. The problem at the moment is that most Americans don't have money to spare. Some could, if they cut back consumption, but is cutting back consumption the answer? Wouldn't that make the economic status of those producing the consumed goods and services a bit less pleasant?

Score: D

Strengthening the Competitiveness of the United States in the Global Marketplace

Perhaps what is contemplated is the following. The proposals will encourage investment, and that investment will be plowed into domestic production, creating domestic jobs. Consumption would be discouraged, and somehow that means China sells less stuff here, so that China acquires fewer American dollars. In the meantime, the new domestic production has Chinese citizens falling over one another trying to buy American products. Something like that.

Well, guess what? The Chinese prefer to either pirate the American product, counterfeit the American product, or purchase the source of the raw materials used by Americans to create product. Guess what? Even if the rest of the world wanted American-produced stuff that it currently isn't purchasing, where will Americans find the labor force to create it? The tool and die industry is withered, for every petroleum engineer coming out of college there are 100 lawyers coming out of American law schools, the number of American students majoring in science and engineering has dropped almost off the face of the earth, and energy costs threaten to make the entire economy go under.

Score: F

What Would I Do?

I'd make taxes as much of a non-factor in business and personal economic and social decision-making. I would repeal most exclusions and deductions, retaining deductions for the cost of generating income. I would eliminate depreciation on property that typically does not depreciate, such as buildings. I would index adjusted basis for inflation. I would include unrealized appreciation in the final return, and eliminate the estate tax. I would provide a flat exemption equal to a percentage (100% or higher) of poverty-level income. I would create more, not fewer, tax brackets, so that there would be less incentive to manipulate taxable income from one bracket to the next. I would require that any attempted use of the tax law to encourage or discourage specific non-economic behavior be proposed as a credit, and be advertised to all citizens in full-page newspapers, and through radio, television, cable and internet messages, with the words, "Senators A and B and Representatives C, D, and E propose to give credits of $x to people who do (or don't do) y, and this credit will require increasing the taxes of other taxpayers by $z," limiting the passage of such legislation to instances where there was overwhelming support. I might be persuaded to tack on a referendum arrangement. You get the picture. No more tax games because the tax playing field gets closed. The panel wants to mow the grass a little shorter. Ho hum.

And So?

The bottom line? I'm not impressed. That's no surprise. I saw this coming. On January 12 of this year, days after the panel was appointed, I wrote, "So back we come to tax reform. I hold out little hope." On April 25 I pointed out that it would have been "far less expensive, and far less time consuming" had the Tax Reform Panel "Simply ... Read My Books" after the panel concluded that there were "too many deductions [and] credits" in the code. As I predicted, "It's time for change. It probably won't happen." And just last week, when the first of the proposals began to see the light of day in the press, I wrote:

With this sort of work product, the panel should refund to the taxpayers the public funds it has wasted. Charged with reform, this panel seems dedicated to window dressing that masks maintenance of the status quo for their friends and financial backers. America is being short-changed.

The rest of the proposals don't change my opinion.

My prediction is that the combination of the erosion of the Administration's political capital and the power of the vested interests will combine to do one of two things. Either the proposal will collect dust somewhere, probably in the Congress, or the subset of Republicans who are anti-tax will join forces with certain vested interests to enact what the powerful want, namely, reduced or no taxes on investment income, modification of the alternative minimum tax so that it applies to the middle class but not the wealthy, and reduction of the top rate, in exchange for a refundable credit of some sort directed to low-income families. In other words, more of the same, at least so long as the same chefs are working in the tax kitchen.

A long-time reader sent me a tip for this story. It seems Deborah Combs of Loveland, Ohio, did not pay $1.16 in local income tax that she owed to the city of Loveland. Apparently she also had not filed city income tax returns for five years. Although it is unclear from the story if the city communicated with her in an attempt to collect, though her reference to how much the city had "spent in stamps" suggest that it had, the city obtained an arrest warrant and had her arrested. The tax amount of $1.16 is small, but according to the report she also faces "hundreds of dollars" in fines, though at the moment she does not owe any fines because none have been imposed.

So she's arrested for not paying $1.16 in taxes. The city manager, though, argued that it's a matter of principle and not quantity. "We have laws. The laws have to be complied with. At what cost do you stop enforcing the law?" That's a question that police and prosecutors answer every day as they exercise police discretion and prosecutorial discretion.

Curious, I began digging around, using google, to see if there was more to the story. Searches turned up dozens of websites with the same story, picked up from the same news distributor. Even most Ohio-area news web sites carried the same release. But on the web site of the Dayton Daily News, more information appears.

Combs faces up to 18 months in jail and $4,000 in fines, far more than "hundreds of dollars." She has been ill and out of work. So she concluded she did not owe taxes. The $1.16 relates to tax year 2003, apparently before she became ill.

Her trial is set for October 20 in Mayor's Court. If she was recuperating from her illness, this might just set her back.

There's no indication Ms Combs poses a threat to anyone. Clearly the city is sending a message. But what's the message?

Perhaps it is this: "Don't forget. If we're willing to arrest someone who owes $1.16, what do you think we will do when we discover YOU owe hundreds or thousands of dollars?"

Somehow, I think it would be cheaper in this instance to levy on her property. If the goal is to send a message, of any sort, it would be cheaper to rent space on a billboard. It's not as though the unpaid tax and the fines will cover the cost to the city of the trial.

Hopefully we'll get news of what happens when she goes to court.

Readers of this blog know that I've been touting Andrew Mitchell's tax charts because they are useful, visual, and well-done. My previous postings are numerous: here, here, here, here, and here.

Andrew has announced there now exists a Tax Charts by Topic access point. And of course the main tax charts entry page continues to provide an entry.

I suppose this email from one of my readers, a former student, will persuade tax students, faculty, and practitioners who appreciate visualization that Andrew's efforts are well worth a visit:

After reading your blog yesterday, I was checking out Andrew Mitchell's website. I had never looked at it before. Well, it didn't take me long to realize this was a great resource. My learning is always enhanced through visual representations of transactions. I forwarded the site to my M&A partner and he loved it. He forwarded it to the other M&A associates and recommended that they save it as good resource. See how you continue to help me along even when I am not in your class - thanks!

Indeed, the whole point of this blog is to help people. Oh, OK, and to give me a space in which to express myself. Which often, though not always, helps people.

Anyhow, quoting Andrew, here is the list of tax chart topics:

• 1. A Reorganizations
  
• 2. B Reorganizations
  
• 3. C Reorganizations
  
• 4. D Reorganizations
  
• 5. F Reorganizations
  
• 6. Triangular Reorganizations
  
• 7. Spin-Offs
  
• 8. Continuity of Interest
  
• 9. Section 351 Exchanges
  
• 10. Section 338 Elections
  
• 11. Pre-Sale Distributions
  
• 12. Liquidations
  
• 13. Redemptions
  
• 14. Entity Classification
  
• 15. Form vs. Substance
  
• 16. International

Yesterday a member of the ABA-TAX listserve raised a question about the proper, or at least appropriate and effective, response to clients who fail to provide tax return preparation information in a timely fashion, and yet who expect the return to be finished and ready for signature almost instantaneously so that the filing deadline can be met. Understandably, clients who approach their responsibilities in this manner are frustrating. Because the tax law has no monopoly on such clients, it is interesting, and perhaps useful, to consider whether the suggestions proposed for dealing with tardy tax clients work with tardy clients in other areas of the law.

For many tax practitioners, it seems that it's the same people who wait until the last minute to get their information to their tax return preparer. The issue popped up at this time of the year because October 15 is the deadline for taxpayers who have obtained a two-month extension to tack onto the automatic four-month extension of the April 15 due date to August 15. Although sometimes there are extenuating circumstances such as disasters, deaths, illness, or another person's failure to provide a K-1 or similar information, in most instances these clients fit the stereotype of disorganized, procrastinating, and unfocused.

The stories would be legends were they not so common. A taxpayer who not only has an individual return to file but also has a corporation and limited liability company whose returns are past due, calls a tax return preparer on October 13 and asks her to "file something so we can deal with it later." Another practitioner had a client who he had been "nagging" for three days to bring in his information. At 2 in the afternoon of the due date, he faxes some information to the practitioner, and while the fax continues to print the incoming data, the client calls the practitioner and announces, "I just faxed the info you needed. I am on my way to pick up my returns."

One practitioner has proposed a plan under which clients receive letters explaining that if they fail to provide all information required to complete the return by a specified date, a surcharge will be added to the fee. If the information does not arrive by the specified date and arrives by a later date, the surcharge is doubled. The same practitioner explained that rather than using a surcharge, she simply raised her fees. The consensus of other respondents is that premium fees are applied to clients who create time-pressured situations by their procrastination. One practitioner suggested taking a retainer. Perhaps this would work as an incentive for these clients. Another practitioner explained that in addition to using surcharges, his firm also imposes rush fees if the information arrives very late.

Considering that in the experience of the practitioner proposing surcharges, these clients also are the ones who are slowest to pay their bills, the impact of this approach may not be as effective as desired. Another practitioner noted that the procrastinators are disorganized but not necessarily late in paying fees. Yet another practitioner explained that until the fee is paid the return is not released to the client, a practice that is fully explained in the engagement letter. This practitioner compares leaving with a completed return without paying to shoplifting.

The practitioner who raised the question noted that if surcharges cause clients to go elsewhere, so be it. Another practitioner informed the group that the process of making September 30 the drop dead date for October 15 returns caused the loss of only one client, a grouch whom they were not unhappy to see go. Yet another practitioner who uses surcharges explained that the clients paid, and that most clients do not incur the surcharges two years in a row. So perhaps the attempt, as another practitioner phrases it, to wean clients from their expectation of 24-hour service is working. In response, still another practitioner explained that she perhaps had not raised her fees enough for late clients because "even [her] brother" brought in his information at the last minute, but at least she got dinner, Godiva chocolates, wine and flowers as "kiss-up gifts." Well, I suppose we make allowances for family!!!

What does appear to happen, though, at least with some clients, is that they "throw temper tantrums" when they show up on October 14 with their boxes and bags of paper and expect that the return will be done in time. Clients have been known to be abusive with receptionists, secretaries, and the preparers. To me, this is a clue that if people have a history of getting their own way, through bullying or parents giving in to tantrums, they will continue to do so until someone stands up to them.

But does this work with other clients? The primary determinant is the existence of a deadline. What happens if a young married couple stop by for a will, but never follow up with the necessary information? My guess is that unless the attorney reminds the clients of the need for the information, the will won't be completed. If the attorney is otherwise busy, these clients' planning may fade into the background. But suppose there is a deadline? What does a criminal defense attorney do if the accused isn't cooperative? At what point does the attorney jettison the client, and is that even a possibility in most situations? Ultimately, the attorney will explain to the court that he or she does not have the required information. It might mean a client does not make bail. But it could be worse.

Rather than launching into another commentary on how folks come to be disorganized procrastinators who expect the rest of the world to serve at their beck and call, I hasten to add that sometimes it works in reverse. Sometimes it is the client who is frustrated by a practitioner who does not get back to the client, fails to get pleadings or other documents filed on time, lets tasks slide, or misses statutes of limitation expirations. And before this becomes an invitation to jump all over the legal profession, or tax practitioners, this phenomenon of the unresponsive professional extends to contractors, medical personnel, civic organization organizers, and a long litany of either overworked or under-organized business entrepreneurs.

Unfortunately, because too many students leave the K-12 systems bereft of organization skills, respect for the calendar and clock, and consideration for others, it's left to the rest of the educational system to try to pound the point home. Yet, at least from the vantage point I have teaching in a graduate and post-graduate school, the rest of the system also fails. What are students to think when deadlines are waived? They learn that the world revolves around them, when in fact, in practice, it does not. Whether it is medical school, business school, or some other institution doing the teaching, it is important to remember that some of the clients who are late with their tax information are at the same time complaining about the fact that the plumber hasn't yet returned a phone call from the previous week.

I wonder how much of the procrastination and disorganization is a subconscious rebellion against the fast pace of life today. If life today is so much more hectic, pressure-packed, and overwhelming than it was, say, one hundred years ago, why is that? Too much to do and too few people willing to do it? Or is the notion that life has become more frenetic simply an illusion? Yes, our great great grandparents did not face daily commutes of 2 hours a day, but on the other hand they rarely left their villages, had to deal with perpetual illness and medical emergencies, needed months to cross the continent, expended hours making meals rather than grabbing "fast" food, and probably complained that life had become too complicated, too demanding, and too busy when compared with the lives of their great great grandparents.

So perhaps, even if there are societal overtones, it is a question of individuals' personalities. Some people can get to appointments on time, some can't. Some people can organize things, whether thoughts, paper, or digital files, with little effort, while others simply stare at the piles. It's not a congenital defect. People can learn how to organize. They can become disciplined with respect to day and time so as to minimize the inconvenience they impose on others. But these remedies require education, from every direction, be it parents, schools, places of worship, or legal authorities. What gets in the way are those who see these remedial efforts as unjustified intrusions on an individual's "freedom" to behave however he or she sees fit. At least with respect to tax return preparation, this is one instance where the forces of a "free" market might accomplish what formal education cannot or will not do, and that is to break people of bad habits.

Yes, there are many reasons I no longer have clients other than those with whom I relate vicariously through my communication of advice to practitioners. The behaviors described by the folks on the ABA-TAX listserve are among those reasons. I salute the practitioners who shared their experiences and coping devices, for they demonstrated creativity and again permitted me to engage in vicarious practice.