MauledAgain

On Tuesday, the Senate rejected an attempt to impose a windfall profits tax on oil companies. Why the proponents of such a tax think that it would increase the amount of oil in the ground, reduce the cost of finding and extracting that oil, lower the expense of refining it into gasoline, or improve vehicle energy efficiency isn't clear. The rejected legislation also would have permitted lawsuits against OPEC. And how, if at all, would a successful litigant enforce a judgment against OPEC?

The rapid increase in gasoline prices is a product of several developments. None of the problems each of these developments reflects would be solved by imposing a windfall profits tax or by suing OPEC.

First, worldwide demand for oil has caught up to, and passed, worldwide supply. Persuading OPEC to ramp up production, which for all practical purposes means convincing Saudi Arabia to increase output by a fraction of the world's shortfall, would do nothing but accelerate the day when OPEC would explain that it had no more oil to pump, or at least insufficient oil to pump. The solution is to find ways to replace oil as an energy source, and to find ways to reduce oil use while its replacement is sought, developed, and prepared for market.

Second, speculators, who are nothing more than gamblers, are betting that oil prices will rise, and so they purchase oil futures. That in and of itself drives the price higher. Again, it is a matter of supply and demand. As more and more speculators, including hedge funds, commodities dealers, day traders, institutional investors, and others looking for the "quick and easy" profit try to purchase future oil, the price increases because the amount of future oil is no less constrained than is the amount of present oil. The solution is to examine the extent to which stock, commodities, futures, and other trading should be regulated to remove the element of gambling. The difficulty is that these markets, like most others, involve an element of risk, and thus reflect an element of gambling. To outlaw everything that involved a gamble would be to outlaw life. On the other hand, if the trading in oil futures, or any other stock, commodity, or other item, is adversely affected by manipulation, deliberate mis-information, or other forms of cheating, then intervention is required because those practices make the market one that is not free.

Third, the price of oil, and gasoline, in dollar terms, has increased because the value of the dollar is plummeting. No tax and no litigation against OPEC would solve that problem. The latter course of action might make the weakening of the dollar even worse. The solution to the weakening of the dollar is to lessen or eliminate the things that weaken the dollar. There are two that need significant and rapid attention. One is the federal budget deficit, and the other is the trade deficit. The things that need to be done to fix those aren't as easy as imposing a tax on some "abstract" set of entities, which, when one thinks about it, is a tax on those who own those entities, including investors, pension plans, university endowment funds, and other shareholders. What needs to be done is the opposite of what people suggest is the problem. Consumption needs to be curtailed until it matches domestic production. Those who want to ramp up consumption to "jump start" the economy ought to be putting their efforts into ramping up domestic output. Why cannot American enterprise develop and market renewable energy? Why is this nation so willing to become dependent on other nations for goods and services that are essential to the well-being and survival of the United States? To what extent do government economic and tax policies put national well-being and security in a back seat to the enrichment of the rich?

If oil companies indeed are reaping windfall profits, should not the marketplace react by a refusal to purchase their products? To some extent, that is not possible because gasoline, diesel fuel, and other petroleum products have become an essential commodity. But to some extent it is possible, because these items are being wasted. For example, those who drive at 80 mph in 55 mph zones are not only creating safety risks, they are burning far more gasoline or diesel fuel than they would at 55 or 60 mph. Can there be that many people indifferent to the price of gasoline? A local Lukoil station raised its prices to $4.49 per gallon for regular gasoline, an amount significantly above what is being charged by other stations in the vicinity. Local residents surely are avoiding this station, but out-of-town drivers are likely to stop there because it is close to an Interstate highway interchange. Perhaps competitors can put up signs directing people to their stations, so that eventually the Lukoil station loses most or all of its business or reduces the price.

One issue that doesn't get sufficient attention is the definition of windfall profits. The sound bite gurus harp on the total profits of oil companies. They could just as easily harp on the total profits of Microsoft, a company that delivers a product far less reliable than the gasoline and other petroleum products sold by the oil companies. What matters is rate of return. Consider this example. A company pays $40 for something it sells for $50. It incurs $5 of expenses in doing so. Its profit is $5, which is a 10% rate of return on the $50 of sales. Now suppose what it pays for its product increases to $80. Some might think that it should increase its retail price to $90 to recoup the $40 increase in the wholesale price. At this point, the company would be earning $5 of profits on $90 of sales, a return of only 5.6%. The company, which was expending $45 to make $5, would be expected to expend $85 to make $5. That makes no sense. Instead, the company ought to increase the price of its product to $100. It would then earn $10 of profits, the same 10% rate of return it realized before the wholesaler increased the price. Only if the price is increased to something more than $100, ignoring for a moment increases in the $5 cost per item of operating the business, could one claim that there is a windfall. Any other definition would justify imposing an extra tax on any investor who experiences an increase in the interest rate being paid by the bank or other debtor with which the investor has a deposit or investment. The problem is that this analysis uses numbers, and requires a sequence of reasoning that most people reject as too complicated. It doesn't fit into a sound bite. Unfortunately for sound bite devotees, life does not fit into a sound bite. Nor does the solution to the existing and forthcoming economic crises in housing, energy, and health care. Somewhere, somehow, someone needs to take America past the sound bite and past the "quick and easy" to a place where reward is attained through significant effort. Otherwise, the price of gasoline may become the least of our worries.

The Philadelphia Inquirer Editorial Board, in Take the Next Exit, has taken the same position on the unwise proposal to lease the Pennsylvania Turnpike as I have taken. In Selling Off Government Revenue Streams: Good Idea or Bad?, I pointed out disadvantages to leasing the turnpike, including the decrease in accountability and the dangers of selling off a public revenue stream. About a month later, in Are Citizens About to be Railroaded on Toll Highway Sales? , I criticized the secretive nature of the bidding process and suggested that the matter be put to a referendum. Three months later, in Turnpike Cash Grab Heats Up, I bolstered my opposition to the lease plans with information indicating that turnpike tolls would increase astronomically in order to generate the profits that the lessee would expect to yank out of a public asset. No sooner had the legislature rejected the governor's idea than it resurfaced, necessitating even more criticism, in Selling Government Revenue Streams: A Bad Idea That Won't Go Away, a post whose title summed up the problem. The governor either hasn't been reading my analyses of his turnpike lease proposals or has been reading them and then ignoring them. He's moved ahead, awarded the lease to a company from Spain, and has submitted the deal to the legislature for approval.

In its editorial, the Philadelphia Inquirer Editorial Board highlighted even more disadvantages to the arrangement. As economic conditions have changed, the assumptions used by the lease proponents to make the deal appear to be a "no lose" situation have also changed. Though the governor and his allies claim that the deal will generate $1.1 billion per year, it assumes that the investment of the up-front payment received from the lessee would generate a 12.5% annual yield. There's a phrase for that, even before the economy worsened. It's "wishful thinking." Using a more realistic 8.5% annual yield, which is what the state pension fund managers anticipate when they invest their holdings, the annual revenue stream drops to $800 million. But is 8.5% as realistic as it gets? The only investments getting that sort of return are very risky ones. Can one imagine the outcry if in an attempt to make the deal work, the state puts the money into the stock market and it tanks? Safer investments are generating 1, 2, perhaps 4% yields. That means annual revenue from the lease arrangement of $100 million to, at best, $400 million. And for this the governor wants to give up the right to the Turnpike tolls? Last week, in Is Tax Ignorance Contagious?, I wondered about the governor's tax education. Now I'm wondering about his economics studies.

The Philadelphia Inquirer Editorial Board prefers the imposition of tolls on I-80. This is an idea that I have discussed on several occasions, including Raising Revenue Through Tolls Isn't Simple. I continue to prefer mileage-based road fees. I first advocated this approach more than three and a half years ago, in Tax Meets Technology on the Road. I provided a more detailed explanation of how it works and why it makes the most sense in Mileage-Based Road Fees, Again. I revisited the proposal, which has been implemented in other jurisdictions, in Mileage-Based Road Fees, Yet Again, after support for it began to emerge from some public officials. The governor of Pennsylvania, unfortunately, for some reason is unwilling or unable to make a 21st century proposal to the Commonwealth, and instead insists on embracing a financing arrangement that smacks of the late 20th century business style for which the economy is now paying the price.

I call on the governor to step up with genuine leadership. Put aside the advice of the interest groups, the foreign investors, the deal-makers, and the folks who want to profit at citizen expense, and turn to something that is gathering support and being implemented in other areas. Putting in place a mileage-based road fee system not only provides revenue needed to maintain highways and bridges and not only does so in a fair and rational way that keeps the revenue in the hands of the public, it also will energize Pennsylvania commerce and industry by providing an opportunity for software and hardware developers to create jobs as they manufacture and install the mileage-based road fee system. Pennsylvania deserves better than a deal that sends toll revenue to Spain.

The information that I found most interesting in Friday's Philadelphia Inquirer article about one of state senator Vincent Fumo's confidantes agreeing to testify at Fumo's scheduled trial in the fall was not that fact but the revelation of how that confidante, Howard Cain, managed to escape paying taxes for 16 years. Cain's agreement to testify against Fumo was part of an arrangement by which prosecutors will seek reduced penalties and prison time when Cain pleads guilty to tax evasion charges next week.

What Cain did to evade paying income tax is fairly easy to describe, but more difficult to explain. Cain arranged for the fees and other income that he received for performing services to be paid to a corporation that he owned. Because he was the sole shareholder, sole officer, and sole director, there was no one to object to his decision to have the corporation fail to provide W-2 or 1099 forms to Cain. Thus, the IRS did not know that Cain's corporation was paying him income.

It is not clear from the story whether Cain’s corporation filed tax returns. If it did, then one would expect the return to show a deduction for the payments to Cain, or distributions to Cain, or some combination of the two. Would that not alert the IRS, or its computers, to the inconsistency between the information on the corporate return and the lack of reporting by Cain because he filed no return? If the corporation did not file a return, why was that not picked up? Perhaps because 1099 forms were not being filed for the payments made to the corporation. If the circumstances are as can be inferred from the story, no obligation to file 1099 forms may have existed.

It comes down to reporting, not just with respect to the taxpayer’s tax returns, but also with respect to information returns, including W-2 and 1099 forms. Unfortunately, every time the IRS or Treasury suggests tightening up the reporting requirements so that the sort of information gap exploited by Cain can be closed, lobbyists appear to explain how the imposition of a reporting requirement on their clients not only would be a huge hardship for their client or the industry in which the client participated but also would destroy the national economy.

I wonder how many people will read about, or have read about, this particular fraudulent stratagem and have concluded that the only flaw is getting caught. I wonder how many people think that they have the skills to avoid getting caught. I wonder how many more people will try. I wonder how many have already tried and have managed not to get caught. I wonder how many will get caught. Hopefully, all of them will be discovered. I doubt that will happen.

Last week, in Honoring Those Who Serve, I explained the mess Congress made with the farm bill. What Congress sent to the President was missing Title III. The President vetoed the bill. On May 22, the Senate and the House voted to override the veto. But because Title III was not in the bill, it was not enacted. Though some have suggested that none of the bill was enacted, others claim that the bill in the form sent to the President, vetoed, and then approved in the override, was enacted. In other words, everything but Title III has been enacted. What will Congress do next to fix this mess?

In Farm Bill Headache May Continue, J. Taylor Rushing reports that the Senate may vote on the entire farm bill when it returns. The House, on the other hand, wants to pass an amendment or some other "small-scale" fix. Yesterday, the Senate passed the entire bill, including the previously omitted title.

Why does this matter? It matters because there are provisions in the legislation that take effect on the date of enactment, or that apply to transactions entered into on or after the date of enactment, or that preclude application of certain provisions to property owned before the date of enactment, or that otherwise refer to the date of enactment. Therefore, it becomes important to determine when the legislation was enacted.

If Congress re-enacts the entire bill, is the date of enactment the day the bill is re-enacted, or is it May 22? Would the date of enactment for provisions in Title III be the day the entire bill is re-enacted? If the provision refers to "the date of enactment of this act" does it refer to May 22 or to the day that the entire act is enacted for the first time? One could argue that "this act" was not enacted on May 22 because only part of "this act" was enacted on that date.

If Congress enacts Title III on its own, or some other "small-scale" fix, is the date of enactment of the bill split into two? What then is the "date of enactment of this act"? Does it depend on whether the provision making that reference is in Title III or in another title? Or would the date of enactment for the entire bill be the date that its last piece is put into place when Title III or the "small-scale" fix is enacted?

If Congress wants to put an end to this nonsense, it could add a provision that specifies that the date of enactment is the date that the President signs whatever is sent to the White House in June, or, if it is vetoed, the date that the House and Senate override the veto. Alternatively, the Congress could replace the phrase "date of enactment…." with a specific date, for example, May 22, so that even if the entire bill is re-enacted, there would not be any disadvantage to someone who takes action or fails to take action between May 22 and the date that the entire bill, in contrast to the bill with the missing title, becomes law.

Otherwise, the question may end up being litigated. Consider someone who makes a purchase or enters into a transaction on May 25. Without an answer in the final legislation, this person may end up in a dispute with the IRS concerning the applicability of the new provision to the May 25 transaction. So although there is no way to sue the Congress or its staff for sloppiness, the gaffe will find its way back into the public spotlight several years hence. That simply cannot be good for the nation, can it?

Joe Kristan, of Tax Update Blog fame, provides me with more fodder for MauledAgain. In IRS - THE UBER-BUREAUCRACY Joe quotes from my Not to Its Credit indictment of what Congress has been doing to the tax code. He notes my exasperation:

I object to the Internal Revenue Service being turned into a institution that is focused more on the technical requirements of energy production activities than on administering revenue laws. I wonder why financial incentives to produce and conserve energy aren't administered by the Department of Energy.

Joe then makes an interesting point, one to which I did not pay the attention it deserved. Joe writes, with regard to the point I made:

This point is almost always ignored in discussing tax complexity. Every specialized tax credit - like the "agricultural chemicals security credit" included in the new farm bill - adds a little more to the power of the IRS. Thanks to these sorts of provisions, the IRS is a powerful public policy player in energy, housing, research and development, charitable giving, regulation of non-profits, employment policy, retirement policy, and now, fertilizer. Congress is well on the way to turning the IRS into a shadow super-agency with influence across the whole range of public policy. The IRS Commissioner is a bigger player in some policy matters than the cabinet secretary nominally overseeing the area.

Joe’s point not only is interesting, it is important. With so much government policy being encoded in the tax law, and with so much delegation by the Congress to the IRS, it’s no wonder that the IRS is on everyone’s radar. Select a business, or activity, or transaction, and what the IRS decides and promulgates is important not only with respect to tax collection but with respect to how one manufactures vehicles, farms land, builds houses, develops medicines, researches energy development, or simply breathes. I hadn’t mentioned the fertilizer issue. But I’m glad Joe brought it up. He expresses a sense of doom not unlike what I have shared on other matters:

It's hard enough for IRS agents to just determine somebody's income. Having them oversee research and development, or fertilizer, isn't very promising.

So true, but let me cast Joe’s concern in even gloomier light.

Before its amendment by the American Jobs Creation Act of 2004, Internal Revenue Code section 45(c)(1)(C) specifically included “poultry waste” as a qualified energy resource for purposes of the section 45 renewable electricity production credit. Section 45(c)(4) specifically defined poultry waste as “poultry manure and litter, including wood shavings, straw, rice hulls, and other bedding material for the disposition of manure.” The 2004 amendment removed the language because it expanded the scope of qualified resources to include “open-loop biomass” which is defined in section 45(c)(3)(A)(i) as including “agricultural livestock waste nutrients.” That term is defined, in turn, in section 45(c)(3)(B)(i) as “agricultural livestock manure and litter, including wood shavings, straw, rice hulls, and other bedding material for the disposition of manure.” Section 45(c)(3)(B)(ii) defines agricultural livestock to include “bovine, swine, poultry, and sheep.” In other words, the chicken and turkey manure tax credit was expanded so that cows, pigs, and sheep did not feel left out. Congress did some equal opportunity shoveling down on the farm.

We’re told, in articles such as Waste Not from Farm Industry News, that chicken manure is a fertilizer. So it turns out that the IRS has been dealing with fertilizer since 1999, when the Tax Extension Act of 1999 inserted former section 45(c)(1)(C) into the Code. Fear not, Joe, the IRS has had almost a decade in which to become expert in fertilizer and manure.

The possibilities are endless, but my mother reads my blog. So I’ll leave to your imagination the word play that is so tempting. Chicken manure is just too genteel a term to use to describe what Congress has been doing to the Internal Revenue Code.

The "friendly debate" between Joe Kristan and myself continues. It has taken on sharper focus, which generally is a good thing in a debate because it opens up more opportunities for communication.

In my latest installment on the issue, Keeping Free Markets Free, I summed up my preferences in this way:

Given the choice between a market hijacked by speculators, cheaters, shoddy artisans, defective manufacturers, cronyism-afflicted traders, and others whose greed surpasses their respect for the market's consumers, and a market patrolled by representatives of the citizenry, I'll opt for the latter.

Joe's response? "Unlike me, Dr. Maule believes that the 'representatives of the citizenry' won't just make things worse. But they pretty much always do."

If what Joe means is that "representatives of the citizenry pretty much always make things worse and will continue to do so if they are selected and do business as they currently are, then I agree. After pointing out that I would opt for a market patrolled by representatives of the citizenry rather than one hijacked by speculators, cheaters, shoddy artisans, defective manufacturers, cronyism-afflicted traders, and others whose greed surpasses their respect for the market's consumers, I explained that my decision was conditional:

Of course, it works only if those representatives are not themselves dishonest, shoddy, and inept.

At present, the choice is between an market that is not free and representatives of the citizenry who are effectively representing selected special interests. That's a terrible choice, and so it should be no surprise that the economy is a mess. The combination of a warped market and special interest politics has enabled bad decisions, such as borrowing beyond one's means, and had widened the gap between the haves and have-littles. So I return to my conclusion:

So if and when the people mobilize to deal with the current mess, one of the things that must be done is a reformation of government so that those in government, elected or not, who are more like those infecting the free market, are tossed out as quickly as their comrades should be tossed out of the market place.

If things don't change, the economy won't improve. It might stumble into a few short-term gains, but in the long run, the looming social security crisis, the ballooning federal deficit, the massive debt held by foreign nations and investors, and all of the other systemic flaws will prevail. The unholy alliance between politicians and lobbyists brought market deregulation. Is the economy so much better? Ask someone who is in bankruptcy, looking for a job, trying to obtain health care or medical insurance, or attempting to make ends meet. Talk with people who must function within or with an industry that is monopolized or virtually monopolized by an enterprise that has no competition to push it to achieve higher quality. Is it any wonder that confidence in the warped market is no more than confidence in government? I wonder if Joe disagrees with how I concluded Keeping Free Markets Free:

Reform of government and reform of market are necessary, they go hand-in-hand, and if either fails to happen quickly, the issue is going to become much more serious for all of us than is this friendly dialogue between Joe in Iowa and Jim in Pennsylvania that gets the attention of perhaps several hundred readers.

Whether these reforms will occur is a different issue, and I'm not convinced that they will happen.

Last week, in Tax Ignorance, I criticized Senator Salazar of Colorado for not understanding the very basic tax concept of adjusted gross income. It's covered in the basic tax course, a course I think should be taken by any law student who intends to seek public office. Dealing with taxes is an inescapable part of holding office, and no public official should take the oath of office without understanding the basics.

Now the governor of Pennsylvania has jumped on the tax misunderstanding bandwagon. A few days ago, as reported in Hidden Costs Will Make Turnpike Deal a Bad One, Ellen Dannin and Phineas Baxandall explain that Governor Ed Rendell, in pushing for his turnpike leasing plan, "called for using a 'tax-exempt, public benefit corporation under IRS code 63-20.'"

Simply put, there is no such thing as "IRS code 63-20." First, there is no such thing as an IRS code. There is an Internal Revenue Service. There is an Internal Revenue Code. The IRS does not create nor does it own the Internal Revenue Code.

But even if the governor had referred to "Internal Revenue Code 63-20" he would have missed the mark. There is no section 63-20 in the Internal Revenue Code. There is a section 6320 in the Internal Revenue Code. No hyphen. It deals with notice and opportunity for a hearing when the IRS files notice of a lien or files a lien. It has nothing to do with the financing of public projects with tax-exempt, public benefit corporations.

The Governor is not alone in using the incorrect "tax code 63-20" reference. In the Recommendations portion of what appears to be a report by some unidentified agency or official of Washtenaw County, Michigan, the drafters use the phrase "tax code 63-20." The only other similar reference identified through a google search is found in an untitled report apparently issued by an unidentified agency or official of Ypsilanti Township in Michigan, that refers to "tax code 63/20." Unfortunately, replacing the hyphen with a dash does nothing to make the citation any less incorrect.

It took about 30 seconds to identify the source of the "63-20" term. It comes from Revenue Ruling 63-20. The hyphen is correct, the slash is incorrect, and the phrase "tax code" is not an acceptable substitute for "revenue ruling," and neither is the phrase "internal revenue code." A revenue ruling is an opinion issued by the Internal Revenue Service. The Internal Revenue Code is legislation enacted by the Congress. A ruling is not legislation, and legislation is not a ruling. The Congress is not the Internal Revenue Service and the Internal Revenue Service is not the Congress. These are fundamental concepts that are grounded in Constitutional law -- think separation of powers -- and that are or should be injected into the cerebral processes of every law student, every lawyer, and ideally, every citizen.

Most practitioners, when referring to this form of financing, refer to 63-20 bonds, 63-20 corporations, or 63-20 financing. There's nothing wrong with those terms. So how does the governor of Pennsylvania end up using the phrase "tax code" when referring to something that is not legislation? My guess is that someone wrote the governor's speech. I can't imagine the governor wrote it, because he is a lawyer, he went to law school, and I'd venture to guess, knowing something about that law school, that he took the basic tax course. Was he too busy to go over the speech? Perhaps. Ultimately, though, his speech is his responsibility. If someone else wrote the speech, as I think was the case, they did not serve the governor well. I wonder if the people advising the governor on his turnpike proposal, which I have severely criticized in Selling Government Revenue Streams: A Bad Idea That Won't Go Away, are doing any better of a job of serving the governor and the people of Pennsylvania. Suppose the financial figures being tossed about have been derived with as much care as went into formulation of the phrase "tax code 63-20." How much confidence should citizens have under these circumstances?

It is not uncommon for law students to conflate legislation, regulations, and rulings. When I insist they demonstrate understanding, and push aside ignorance, some of them have argued that my call for precision is unwarranted, and that what they have done is acceptable. My rejection of imprecision, by students and by others, at times has been derided as picky or worse. But I usually quiet the complaints by asking if people want neurosurgeons operating on them, their children, or their parents to be imprecise. I wonder if people want engineers building bridges to be imprecise. I ask whether the folks making pet food, medicines, and other products should be imprecise. Perhaps speech references aren't as life-and-death as neurosurgery, bridge building, food manufacturing, or pharmaceutical formulation, but when dealing with billions of taxpayer dollars, precision is no less a sign of the care and attention to detail that should be demanded of public officials. If public officials are going to talk about taxes, they should make certain they know what they're discussing and take steps to make their words correct and precise.

Surely the Congress cannot truly think that the American nation will give it credit for its recently enacted Heartland, Habitat, Harvest, and Horticulture Act of 2008 This is the bill that was sent to the White House with one of its titles missing, as I described in Honoring Those Who Serve. Once again, in an effort to acquire votes during an election year, the Congress has packed legislation with all sorts of provisions that defy justification. Some of the provisions, though hyped as good for the country, surely benefit a very narrow group of taxpayers.

For example, section 15344 of the legislation extends the benefits of three-year depreciation to all race horses placed in service before January 1, 2014, even if the horse is not more than 2 years old. Under current law, and for race horses placed in service after December 31, 2013, three-year depreciation for race horses is limited to those that are more than 2 years old. What vital national security issue or economic crisis does this provision address?

The legislation adds even more credits to an Internal Revenue Code already bursting at the seams with credits that have nothing to do with how much a taxpayer has paid in taxes. There will be a new section 45O, allowing an the agricultural chemicals security credit. There is a new section 54A, allowing a credit to holders of qualified tax credit bonds. Only by digging more deeply into the text does one discover that these bonds should be called qualified forest conservation bonds. The legislation extensively amends the alcohol fuels credit, and makes numerous changes to the biodiesel and renewable diesel fuels credit and the qualifying advanced coal project credit.

I wonder how many taxpayers benefit from these credits, and whether making tax credits available for the activities that permit the credit to be claimed is the most effective and efficient way of encouraging people to engage in those activities. It's not that I object to the goals. I object to the Internal Revenue Service being turned into a institution that is focused more on the technical requirements of energy production activities than on administering revenue laws. I wonder why financial incentives to produce and conserve energy aren't administered by the Department of Energy. Well, I know the answer. The Congress, though every now and then publicly trashing the IRS and characterizing it as harmful, then turns to the same agency to administer its favorite incentives programs. Which should speak more loudly to America? What Congress says when it grandstands or what it does when it overburdens the tax law and the IRS because it apparently doesn't trust other agencies to administer laws relating to agriculture, energy, employment, or health?

On this Memorial Day, perhaps we should honor those who serve by taking steps to serve well. Not everyone observes Memorial Day for what it is, as many turn their attention to the "traditional" start of the summer season. Fortunately, others do invest some time in remembrance, in prayer, and in quiet contemplation. But are parades and speeches enough? I think not.

All of us serve or can serve in one way or another, and perhaps, for those who are gifted, in two or more ways. But if we serve we should serve well. We should put into our efforts the care, the preparation, the attention to detail, the dedication, and the courage that mark the actions of those who have committed themselves to protecting the nation and going wherever they are commanded to go, regardless of the risks or their personal perspective on the matter. They are heroes and heroines.

Those who are called to serve, or have campaigned to serve, in positions of high responsibility and in the halls of power have an even greater obligation to serve well. They have an obligation to serve with no less care, preparation, attention to detail, dedication, and courage than do those who serve and have served in the Armed Forces.

So it is deeply troubling to observe the Congress strike out in the space of a few days. Last Wednesday, in Tax Ignorance, I commented on the thoroughly incorrect articulation of a basic tax law principle offered by Senator Ken Salazar in defense of subsidies to wealthy farmers. Now two more embarrassing episodes in the adventures of the Congress have made the news.

The first gaffe is a serious one that some commentators think raise yet unanswered Constitutional law issues. Somehow, after Congress passed the farm bill, which is the legislation containing the farm subsidies to wealthy farmers that Senator Salazar tried to defend with erroneous tax law explanations, as I described in Tax Ignorance, it sent to the President a version that was missing Title III. So, technically, the President did not veto Title III, and arguably the veto override has no veto to override with respect to Title III. That leaves the question of whether Title III was enacted in the first place, or whether it remains in limbo. More details and analysis of the legal issues are in this story. Members of Congress from both parties are trying to use the goof as a way to position themselves advantageously. My concern is that someone goofed, no one picked up on the goof, and rather than fixing the problem, the politicians are trying to gain advantages from what could be a serious legal matter. Look, we all make mistakes. We can reduce mistakes by exercising more care, more attention to detail, more preparation, and more dedication. The more serious the matter, the more intense should be our commitment. I don't worry all that much about the few typographical and punctuation errors in this blog because those errors do little harm. At worst, they remind me I'm not perfect. On the other hand, a neurosurgeon doesn't have the sort of leeway I give myself. Nor should the Congress. Granted, it wasn't a member of Congress but surely someone on staff who made the initial error or failed to catch an error. Is there someone in position to review that person's work? As a matter becomes more important, and the consequences of error more serious, the number of layers of review need to be increased. If there is no one in place to review one person's work on the legislation, then fingers point to Congress, for it bears ultimate responsibility. If someone was in place, then TWO people goofed, and questions begin to arise as to how that can happen. One answer may lie in the way Congress operates. Things are left to the last minute, proceedings become chaotic, stress pervades the chambers and drafting rooms, and communication breaks down. Could the fact that this is an election year have something to do with staff attentiveness?

The second episode is even more troubling, because there is no mystery as to what happened. During a hearing held by the House Committee on the Judiciary with respect to gasoline prices, Representative Debbie Wasserman-Schultz said to the panel of oil company executives, "I can't say that there's evidence that you are manipulating the price, but I believe that you probably are." She then challenged the executives to prove that they were not manipulating prices. That sort of questioning is not what one would expect in a nation that is based on the rule of law, rather than the tyranny of sound bites. A good lawyer would know that one does not admit to not having evidence for a point that he or she is trying to prove. In Wasserman-Schultz' defense, unlike Senator Salazar, she does not have a law degree and has not had the benefit of a law school education. According to her official biography, Wasserman-Schultz has a bachelor's and a masters' degree in political science.

Had she offered evidence of price manipulation, she would have been in a good position to challenge the oil company executives to explain why that evidence meant something else. Even circumstantial evidence, though weaker and less persuasive, would have been better than a confession that she has no evidence. Surely she could have pointed to the rates of increase in oil company revenues as compared to the rate of increase in oil company profits. She could have put forward facts and charts illustrating crude oil price hikes, refinery capacity changes, oil industry labor cost increases, internal rate of return analyses, and other financial data from which logical analysis must begin. Gathering that information requires care, preparation, attention to detail, dedication, and courage. Walking in and asking witnesses to prove a negative after admitting an inability to offer any evidence is sloppy and disrespectful.

Imagine if someone turned to Wasserman-Schultz and said, "I can't say that there' evidence that you are taking bribes , but I believe that you probably are, so prove you are not." I am certain she would be outraged. Yet how is that any different from what she did? There's no question she was playing to the cameras, seeking to tap into the emotional reactions that people have with respect to gasoline prices. Perhaps her constituents think she is going to bat for them when she tosses out accusations and demands for negative proofs without having done her homework. As a leader, she owes her constituents more than playing to their emotions. She owes them quality representation, and that requires taking the initiative to become educated not only with respect to the facts but also on how to work with facts. Had she done so, she surely would have been quite effective, because there exist facts which when put to those executives would require them to respond with facts rather than with the general statements that most of them offered most of the time.

Yes, I'm picking on the Congress. It's a high profile body of politicians who actively seek the power and the attention. No one compels them to serve. They voluntarily seek the positions they hold, and they should be held to the same high standard to which people in other professions, including the Armed Forces, are held. Members of the military are dying, and have died, to protect what this nation represents. Surely this nation and its elected leaders must act in a way consistent with the principles for which so many have sacrificed. Offering erroneous statements of tax law, losing a title of a bill, and tossing illogical questions at witnesses are so very inconsistent with those principles. Is it any wonder that calls for change resonate throughout the nation? One thing that must not change is the deep appreciation and respect that this nation holds for those who have served well and who have sacrificed much, holding fast as careful, well prepared, dedicated, and courageous defenders of the freedoms we cherish. The best way to show that appreciation and respect is to emulate those values.

In reaction to my If Only It Were Prices Getting Depressed post, Joe Kristan, in Good on Taxes, Not So Good on Economics, takes issue with my position with respect to the present economic mess, in these words:

Dr. Maule worries about future resource scarcity, and he thinks the government should mobilize to do something about it. He says that the market can't be relied on to provide "essential" items.

I do think that the market is not providing sufficient quantities of necessary goods, and explained in If Only It Were Prices Getting Depressed how shortages in various items were causing shortages, food riots, hoarding, and other behavior adverse to the well-being of the species. But I have not advocated the sort of government intervention that Joe seems to think I support.

In the post that started this debate, Can a Tax Rebate Band-Aid Stop the Economic Bleeding?, I argued that the tax rebate, now with the fancy name of stimulus payment, wasn't going to do much of anything to fix the economic mess. If anything, my argument objected to the government rebate intervention in the markets. I pointed out that the rebates would make the situation worse in the long run, by increasing the federal budget deficit and the amount of debt owed to foreign investors. I then directed attention to the root cause of the current economic mess:

The impending shortages of critical goods and materials, including oil, clean water concrete, steel, natural gas, health care, copper, agricultural products, and similar life-essential ingredients, will only worsen the problem. An ever-increasing world population, seeking more and more quantities of these and other items, coupled with the emergence of a small creditor group and massive hordes of debtors, is a recipe for disaster. Somewhere along the way, these conditions will trigger armed conflict, pestilence and pandemics, civil disorder, and breakdowns in societal structures. No one ever promised that the Dark Ages were a one-time event.

Nothing in that observation advocated government market planning of the sort Joe fears when he quotes an instapundit poster who argues "The last thing we need is the know-nothings in Congress pretending they have the expertise required to plan the future of a market segment as huge and critical as energy."

In response to Joe's Good Morning! We're All Doomed response to Can a Tax Rebate Band-Aid Stop the Economic Bleeding?, I explained, in Can Tax Rebates Help Prove Malthus Wrong? that there are shortcomings to the supply-demand curve theory of economics. I argued that if the government is going to borrow money to spend on fixing the economy -- and note that I was not advocating that it do so -- that distributing that money as tax rebates was far inferior to using it to deal with the underlying problem. I then suggested that "people and governments mobilize to deal with these issues while there still is time." To me, there is a huge difference between government dealing with the issue and "people and government" dealing with the issue. I know that, at least in theory, government IS the people, but as a practical matter, government has become an entity unto itself and those who control its powers. Thus, people alone cannot solve the problems if government stands in the way. Government alone ought not be entrusted with solving the problem, because government in its present state ought not be trusted. But someone must deal with these problems before they overwhelm the nation.

Joe, and others, think that the answer is in the market. I agree, but with a qualification. Only a FREE market can solve the problem. An unfree market, which is what currently masquerades as the market in our so-called "free market economy," cannot get the job done. The market is unfree because there are biases, there is corruption, there is bullying, there is cheating, there are monopolistic practices, there are all sorts of behaviors, characteristics, and practices that are inimical to the notion of "free."

My position, that the market is not a free market and that this condition is responsible for much of what plagues the economy and society in some direct or indirect way, is not a new one. Over the years I have repeatedly pointed out the shortcomings of the modern economic marketplace, and the need to restore its freedom. Who, I ask, protects the freedom of the free market?

For example, in Greed, Stupidity, Poor Judgment, and Taxes, I argued that much of the problem with the current housing crisis arose because "a free market was enslaved by the greed of speculators and gamblers who call themselves investors." In A View from Down Under, I responded to a respondent's observations on free market issues with this observation:"My concern is that influence has been flowing the other way, as the sort of entrenched, safe-from-dismissal public employee mindset has infiltrated the management levels of some private enterprises operating in a so-called free market that no longer is truly free. At least it's not free of incompetence, greed, cronyism, politics, and excuse manufacturing." In Can Tax Cuts for Shareholders Increase Employee Wages?, objecting to proposals to lower taxes on corporate owners and managers, I remarked, "To suggest that the corporate executives of the Fortune 500 should have even more after-tax money with which to control the economy is the very antithesis of a 'free' market."

The underlying problem was highlighted by another respondent, whose explanation I adopted in More Gasoline Tax Increase Chatter:

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.

Every tax is a government intervention in a market. The notion that a society without government, or a totally unregulated market, can provide for the welfare of society is a proposition that has never been successfully applied in life.

In Planning: It Can Be Taxing, I shared a more extensive analysis of market freedom:

Before the "it's a free market" object is raised, let's examine the market and see how "free" it is. Is it a free market when the same folks sit on corporate boards, playing round-robin games with executive appointments, as insiders move from boardroom to boardroom? Is it a free market when labor and management conspire to portray a pension plan soothing to the union but in reality a paper configuration? Is it a free market when pension plans fall short of funding goals because the accounts are not invested consistent with secure long-term pension funding growth?

A market is not, and cannot be, free in the absence of truth and candor. Otherwise the market is deceptive, and deception is not free. That's the truth of this entire mess. And truth hurts. In this instance, it's going to hurt a lot. The debate will be intense, shrill, and frightening. Let's hope it gets straightened out before American industry crashes and tens of thousands or even millions of retirees are left on the very short end of a poorly planned stick.

That was back in 2005. Nothing that has since transpired has changed my outlook on the issue.

I am not advocating government management of the markets. But I also do not support a "hands off" approach. As I explained in Using Taxes to Rescue a Non-Drowning Film Industry?, government market intervention is, at times, necessary and helpful, and defining those times is a delicate but essential task:

Conceptually, governments ought not to engage in business engineering. They've done enough damage and made enough mistakes with social engineering. The free market principle means "free of government interference" even if government involvement would be beneficial to some citizens. Only when business or other activity threatens the health or welfare of the jurisdiction should a government step into the market. So, if legislatures are looking for opportunities to interfere in the free market, they ought to stick to important safety and health concerns such as development of pharmaceuticals for avian flu, assistance to local transit authorities for security planning and operations, regulation of the sale of alcohol to vehicle drivers, and similar matters that concern the population and not a specially selected segment.

Thus, though I object to government intervention to help professional sports owners build stadiums (see Tax Revenues and D.C. Baseball), and to rescue a film industry segment, I think it is necessary for a government to step into a market and preserve its freedom when the market fails to deliver food, fuel, and other essential goods. Given the choice between a market hijacked by speculators, cheaters, shoddy artisans, defective manufacturers, cronyism-afflicted traders, and others whose greed surpasses their respect for the market's consumers, and a market patrolled by representatives of the citizenry, I'll opt for the latter. Of course, it works only if those representatives are not themselves dishonest, shoddy, and inept. So if and when the people mobilize to deal with the current mess, one of the things that must be done is a reformation of government so that those in government, elected or not, who are more like those infecting the free market, are tossed out as quickly as their comrades should be tossed out of the market place. Market deregulation became a fashionable trend during the past several decades. "Trust us," said industry and commerce. Well, they had their chance. Short-term advances are now fading in the face of structural long-term disaster. Reform of government and reform of market are necessary, they go hand-in-hand, and if either fails to happen quickly, the issue is going to become much more serious for all of us than is this friendly dialogue between Joe in Iowa and Jim in Pennsylvania that gets the attention of perhaps several hundred readers.

Tax ignorance weakens the civic bonds that constitute the fabric of our nation's democratic and constitutional principles. In an ideal world, all citizens would understand the tax law, including not only the technical application of its substantive and procedural provisions, but also the policies that shape its existence. Because our world is far from ideal, it is asking too much for all citizens to understand the tax law, but it surely isn't asking too much for all public officials whose hands and votes touch the tax law to understand it. Yet an incident last week demonstrates why it has been so easy for special interest groups and people with the power of money to hijack the tax law.

Last week, Congress passed and sent to the president a farm bill that is packed full of goodies for constituents whose votes are sought by the legislators voting for the bill. Though the president has stated his intention to veto the legislation, it passed by such wide margins that a veto override is very likely.

Under current law, farmers can receive subsidies no matter their income. The administration proposed limiting subsidies to farmers with adjusted gross incomes of $200,000 but the Congress rejected that proposal. Eventually the administration modified its position and indicated it could live with a limit of $500,000 in adjusted gross income. The legislation that was enacted disqualifies individuals with more than $750,000 of adjusted gross income from farming, married farmers with more than $1,500,000 in adjusted gross income from farming, individuals with more than $500,000 in adjusted gross income from sources other than farming, and married individuals with more than $1,000,000 in adjusted gross income from sources other than farming. In other words, there will continue to be people with incomes higher than most Americans' incomes getting subsidies from the government.

Earlier last week, mainstream media picked up on the language of the bill and began to question the sense of handing out tax dollars to farmers with six and seven figure incomes. According to Plowing into the farm bill, a Denver Post article that came my way thanks to Paul Caron's TaxProf blog, one member of Congress defended the legislation in a very disappointing manner:

Sen. Ken Salazar, a Denver Democrat who supports the bill, disputed the idea that it pays rich farmers. The bill allows payments to farmers with adjusted gross incomes of $750,000 or less.

That number doesn't take into account deductions for the cost of running a farm, Salazar said.

"A farmer with an adjusted gross income of $750,000 might be losing his shirt" after paying for fuel, a new tractor and other expenses, Salazar said.

Putting it simply, the Senator is flat-out wrong. The concept of adjusted gross income is so foundational in the tax law, and so easy to understand, that it is one of the benchmarks that I build into my exams to determine whether a student understands tax law well enough to earn a passing grade. Adjusted gross income DOES take into account the cost of running a farm, because farm expenses are business expenses deductible in computing adjusted gross income.

According to his biography, Senator Salazar is a lawyer. He has a law degree from an elite American law school. And he doesn't understand adjusted gross income? I don't know who's to blame, and I'm not sure it matters. Was he permitted to graduate without learning something that pervades all areas of law? Did he skip classes? Did someone do the unthinkable and teach the course without referring to adjusted gross income? According to the same biography, the senator has been a farmer. I'm going to guess he didn't do his own tax returns, or, if he did, he didn't pay close attention. Did someone on the Senator's staff misrepresent the bill? Did some special interest group or groups take advantage of the situation and circulate misinformation about what adjusted gross income represents? Considering that adjusted gross income is used in hundreds of legislative provisions each year to measure qualification for one or another benefit, it is not some obscure concept that pops onto the legislative stage every once in a while. No matter, when someone is elected to Congress, that person has an obligation to understand at least the basic principles applicable to the legislation on which they vote. We, the citizens, deserve no less.

In an ideal world, the tax law would be much less complicated than it is. But what tripped up the Senator isn't one of those obtuse, overly complex provisions that infects the Internal Revenue Code. I doubt I would have much sympathy even if it were one of those horrific provisions that did in a politician, because they're the folks who have allowed those terribly drafted provisions to become law. I'm sure my outlook is affected by the fact I'm currently writing about tax credits, and the new ones that have come into the Code during the past five years include some of the most abysmal drafting I've ever seen. There are terms that are not defined, and definitions for terms that are not used. Calling it sloppy would be too kind.

Someone on the ABA-TAX listserv called the entire situation outrageous. I am going to repeat my reply:

What should be outrageous isn't that this is being proposed.

What's outrageous is that this is just yet another in a very long line of subsidies to the wealthy, either direct (as this one is) or indirectly (through "tax expenditures").

Perhaps the difference is that this one is (a) getting attention, (b) isn't as well disguised behind smoke and mirrors as are most of the others, (c) was defended in a totally ignorant way (literally), and (d) is sufficiently understood by the mainstream media to get attention.

To leave Americans with the impression that the subsidies are going to poor farmers, when in fact farmers with six and seven digit incomes are getting them, simply is wrong. Either the Senator knew what he was saying or he spoke in ignorance. Neither explanation does anything to restore public trust in the American political process. Is it any wonder that calling for change attracts voters?

The tough question is the one I posed the other day:

Ultimately, a simpler tax system requires a less tainted political system. That's a choice for citizens to make, but will they ever get the opportunity?

Indeed, whether we will get the opportunity remains to be seen, but there's no question America wants that opportunity.

Last week, during a conversation among a group of people at the gym about taxes, someone turned to me and said, "OK, expert, wouldn't the flat tax solve all these problems?" My answer came in a sentence as short as I can make one. "No," I replied. "Why not?" was the rejoinder.

Why does a flat tax not make tax simple? A flat tax, that is, a tax imposed at a flat rate rather than multiple rates, makes the computation of tax liability easier, but that computation contributes little to the complexity of the tax law because once taxable income has been computed, the tax liability can be found in a table or generated by tax software. It is the computation of taxable income that is complicated, and playing with the tax rates does nothing to alleviate that complexity. A flat tax does not make any simpler the complex rules that determine what receipts are included in gross income, and thus taxed, and what receipts are not. A flat tax does not reduce the complexity in the numerous provisions that allow deductions and that impose limitations on otherwise allowable deductions. A flat tax does nothing about the impact of money's time value, which generally encourages attempts to delay income and accelerate deductions. All of the statutory, regulatory, administrative, and similar provisions, and all of the case law, dealing with these timing issues would be no less voluminous nor any less complicated.

The phrase "flat tax" makes for a nice soundbite. It serves well those politicians who seek votes by misrepresenting the impact of a flat tax, trying to sell it as a solution to a genuine problem when, in fact, it is at best the equivalent of using touch-up paint on an automobile that has been totaled in a wreck. What goes unsaid is what some mean by the phrase "flat tax," namely, a flat rate tax on wage and salary income. Yes, that would be a much simpler system, though not without complications. Think of the game by which investment bankers use partnerships to convert compensation for personal services into capital gains taxed at special lower rates. Worse, it would shift the burden of taxation even more heavily onto workers and give investors a free pass. The fact that something is simpler is insufficient to make it the chosen path to simplification. Have you seen the joke Form 1040 with two lines? The first one asks what the person received. The second one instructs the person to "send it in." Simple? Yes. Good policy? No.

The federal income tax can be simplified greatly without shifting the tax burden solely onto workers. All that needs to be done is to remove the special interest giveaways and the government grant programs that are hidden in the tax code but should be restructured as expenditures administered by the appropriate federal agency, where the nation can see them for what they are. Ultimately, a simpler tax system requires a less tainted political system. That's a choice for citizens to make, but will they ever get the opportunity?

In Why I Don't Write, Geoffrey Rapp explores the decision by some law professors to stay away from writing and to focus on the teaching and service components of the three principal components of law faculty hiring and tenure decision making. Geoffrey wrote his blog piece partly in response to the Why I Write blog posting that Paul Horwitz shared a few years ago.

Geoffrey notes that law faculty write all sorts of things, though he doesn't mention books or, to appease those who consider Tax Management portfolios something other than books, monographs. But his explanation on this point makes sense. Writing, particularly so-called scholarly writing, but often other legal writing, is rewarded. Deans approve research assistance for writing projects. Merit compensation committees take writing into account, though the pecuniary reward is far more symbolic than economically powerful. Writing brings attention to the author's law school, which affects rankings, and which accordingly makes deans happy. It is always good to have a happy dean.

So, asks Geoffrey, why do some law faculty choose not to write? He concludes that they are not lazy, and that the non-writers tend to contribute disproportionately more time and effort to committee work, other university service, additional classes, and even CLE program participation. Geoffrey explains why the usually reasons that are provided by non-writers don't justify the lack of writing:

1. I have nothing to say that would re-invent my field.

2. No one will read it anyway.

3. I object to student-edited law reviews.

4. I get more satisfaction out of service and teaching.

Though Geoffrey makes good arguments - read his posting - I'm not unsympathetic to the claims of the non-writers. Law reviews are saturated with articles exploring all sorts of things, even issues of little practical use. Outside of the academy, most law review articles get little attention, as even judges are ignoring them in increasing numbers. There are all sorts of valid criticisms that can be leveled against student-edited law journals, particularly by those of us who write in time-sensitive areas where the usual student lag in getting things published turns great articles into yesterday's headline. And surely there are good teachers, and great teachers, who just aren't writers.

I'm going to focus on the second and third reasons. After all, if someone isn't a writer, or as once was said to me, "some people just HAVE to write and those are the people we want to hire," then that person isn't a writer. Writing something without having the desire to write is a recipe for a bland, weak, and sad work product. It is so true that great writing rests on the enthusiasm and energy that flows from that need to write, that desire to express one's ideas. I'm not convinced that everything that could be said has been said, else I'd be quite quiet, and so I'm in agreement with Geoffrey that it isn't a very strong justification.

For those who want to be read and who want to avoid the pitfalls of student-edited law journals, opportunities to write are plentiful. I've mentioned books and monographs. For example, there are several areas of tax law for which portfolio authors are needed. Professional journals pepper my in-box, both digital and postal, with requests for articles. Some CLE enterprises seek authors to write explanations and examples that can be used for educational purposes. As Geoffrey notes, blogs are open to anyone, and I add that well-written scholarly posts, or series of posts, are beginning to find acceptance and recognition in some circles as worthy writing. Often, the number of people reading portfolios and blogs are orders of magnitude larger than the number of people reading traditional articles published in student-edited law reviews.

The underlying question isn't why does someone write or not write. It is why the institution wants its faculty to write. Though it is claimed that writing makes a person a better teacher, there are people who contest that assertion. The reason institutions so value writing, particularly law review writing and traditional legal texts, is that it brings the school to the attention of faculty elsewhere, which theoretically boosts the institution's rankings. Law faculty at school A might know enough about the writings of faculty at schools B, C, and D, to mention one or another of them. How many faculty at school A know anything about the teaching quality at schools B, C, and D? In other words, when law faculty respond to the U.S. News questionnaire, their placement of a school is affected by that school's faculty scholarship and not by the reputation of its teachers. There is no question that law schools, when hiring, seek people who have published or who demonstrate significant potential when it comes to writing. Is this a good thing?

For me, it isn't essential that a school's faculty consist solely of people who are legal scholars, whatever that means. A faculty is not unlike a baseball team. It is impossible, I think, to field a lineup of players all of whom are base-stealing threats and 50-homers-a-season sluggers. A law faculty needs great teachers, and if the price that is paid for having them is to have a few who don't write, so be it. Similarly, among the writers on the faculty, it is beneficial to have not only those who pen law review articles, but others who produce books, write monographs, post blog pieces, and contribute editorials and essays. If a school is fortunate, it might have writers who do two or more of these things, and if a school is truly exceptional in its recruiting, it finds some writers who are also great teachers. The risk is that an institution which seeks only those who are great writers and teachers, it will struggle to find the balance that is required for a faculty that excels as a team.

The true concern is when a faculty member who does not write anything also does little beyond the usual teaching. Though Geoffrey claims that laziness is not an issue, there indeed are instances of law faculty who teach their classes, server on several committees as do other faculty, and don't do much else in terms of professional activities. Fortunately few in number and increasingly rare, they are the ones who fuel the popular misconception that law faculty "have it easy" because they're only in the classroom a few hours each week.

Geoffrey concludes that perhaps the reason some law faculty do not write is the avoidance of rejection and the need for "more immediate affirmation of worth." Yet, for me, that does not answer the question. One does not need the approval of a law student editor to publish a blog. Professional journals and publishers seek writers. The opportunities exist to make one's mark. I think it's something different. It could be that some law faculty don't want to publish because they don't want what they say to be criticized. They prefer a low profile. They feel safe in the classroom, because they are at the podium and the students are not, and because they are good or great teachers they know that student evaluations will be fine, or they adjust their teaching so that the evaluations are fine.

But as lawyers, why not run the risk of being criticized? There's always the opportunity to respond. Done well, and with respect, it is enriching, enjoyable, and enlightening. If that were not so, would I be blogging away? Nah.

Twenty-five years ago, I taught my first class at Villanova. It was in the Graduate Tax Program. Because the school needed me to teach a course during the program's summer session, it was arranged that I would begin in May rather than at the usual August start date.

Two and a half years ago, as I wrote in Happy Silver (Teaching) Anniversary to Me, I marked 25 years of law teaching. The first two and a half years were spent at The Dickinson School of Law, now part of Pennsylvania State University. Thus the two and a half year lag between the silver anniversary of teaching and the silver anniversary of teaching at Villanova.

And this year marks the thirtieth anniversary of my post-law school professional writing career. So although it is almost impossible for me to reach 50 years in law teaching, chiefly because retirement is around the corner if I have my way, it is not unlikely that I will continue writing for another 20 years.

When I noted my 25th teaching anniversary, I compiled some interesting but useless statistics about the number of courses and students that I had taught. For whatever it's worth, here is comparable information with respect to my teaching tenure at Villanova. I have taught the basic income tax course, under several names, 25 times. I have taught Partnership Taxation in the Graduate Tax Program 50 times, and in the J.D. Program 10 times. I have taught Introduction to Taxation of Business Entities 15 times. I have taught Decedents' Trusts and Estates 12 times. I have taught Digital Legal Practice Skills or its predecessor Computers and the Law 6 times. I have taught the J.D. Estate and Gift Taxation course once. In the Graduate Tax Program, I have taught the Taxation of Property Disposition course several times, the Taxation of Real Estate Transactions course several times, the Tax Policy course once, and several other courses once or twice. Between 4,000 and 5,000 Villanova University School of Law and Graduate Tax Program students have been enrolled in my courses.

This year, the Law School administration decided to initiate a program whereby they confer academic cords - part of the academic regalia worn at graduation and other academic convocations - on members of the faculty with at least 25 years of service teaching at the law school. Good timing, yes?

Along comes news that the House has passed H.R. 3221, the American Housing Rescue and Foreclosure Prevention Act of 2008. To see the text, one must go to the Library of Congress legislation web site and enter HR 3221 as the search term. The URL changes with each search and has a limited life span.

This legislation contains a variety of provision touted as remedies for the current housing market mess. As I pointed out a month ago in Preventing Foreclosure through the Tax Law? Not This Time, in which I addressed similar or identical provisions in its predecessor bill, The Foreclosure Prevention Act of 2008, this legislation does little to prevent foreclosures. In its present form, it does little to rescue housing. Why? Again, it fails to address the underlying issues.

The earlier version contained four tax provisions. Three remain, though in modified form, and one appears to have been ditched. Gone from the legislation is a provision permitted corporations to carry net operating losses back four years rather than two.

The provision increasing the limit on tax-exempt private activity bond authority remains, and is joined by additional provisions affecting tax-exempt bonds also designed to open up some funding for the refinancing of failed loans. These provisions might help clean up the mess, but they won't prevent foreclosures.

The provision that would provide a tax credit to encourage the purchase of homes in foreclosure has been replaced by a provision that would allow a tax credit to first-time home buyers. How this prevents foreclosures baffles me. How it rescues the housing market also baffles me, because the foreclosures are hitting higher-priced markets far more severely than they are affecting entry-level markets. With record numbers of Americans having acquired homes during the past decade, there aren't very many people remaining who would be first-time home buyers, and many of them either prefer to rent because at the moment it makes more sense in many instances, or cannot afford to purchase a home even with the benefits of the proposed credit.

The provision providing additional standard deduction for up to $500 of a taxpayer's real property taxes ($1,000 on a joint return) has been modified to a standard deduction for up to $350 ($700 on a joint return). This provision remains just as useless as it was a month ago. As I explained in Preventing Foreclosure through the Tax Law? Not This Time:

People who pay real property taxes usually pay mortgage interest. Those two items alone, to say nothing of state sales or income taxes, puts these people in a position to itemize deductions. So who would not be in that situation? People who don't pay mortgage interest because they own their home outright, usually after having paid off the mortgage. Those folks aren't facing foreclosure by lenders because they don't owe money on a loan secured by a mortgage. A few face seizure by local governments on account of non-payment of real estate taxes, but a $500 standard deduction isn't going to help them. If they're not itemizing, the odds are the $500 will save them $50 to $75 in taxes. So here's a provision that adds complexity without doing much of anything other than provide campaign trail sound bites. The solution, which would open the door to tax reform and thus meet much resistance in the Congress, is to abolish non-business deductions and make the personal exemption a sensible amount as it was when it was first enacted, namely, the cost of living (including rent, mortgage payments, whatever) for a person. But the bottom line is that this proposed standard deduction plan does absolutely nothing to prevent foreclosure, nor does it do anything to deal with people who have suffered through foreclosure and probably aren't paying property taxes.

But it sure makes the tax law more complicated and the process of filling out a tax return more confusing.

The latest version adds more tax provisions. That's not a surprise. Once a bill begins to move through Congress, special interest groups persuade members that their particular provision must go into the bill for the bill to have any chance of success and that its omission spells doom for the economy. So we have an increase in the state housing credit ceiling for purposes of the low-income housing tax credit, adjustments in the computation of the credit rate, changes in the amount of eligible basis, and other modifications to the credit. Those changes might make more tax credits available to the wealthy who invest in low-income housing, but I cannot figure out how it assists middle-class taxpayers facing foreclosure when those folks don't qualify for low-income housing. Tacked onto the bill is a provision dealing with foreign exchange gains of real estate investment trusts. Nothing in the provision appears to do anything to prevent foreclosures or rescue American housing. Also tacked onto the bill, surely intended to raise revenue to pay for the tax breaks provided by the bill, are provisions that require brokers to report their customers' bases in stock and other securities. Another revenue provision involves increases in the payment of estimated taxes by corporations.

This bill is a classic example of bad tax policy and bad legislation. First, the provisions do not address the underlying cause of the housing market mess. Second, the provisions will not accomplish what they are marketed as accomplishing. Third, tax breaks wholly unrelated to the mess are tagged onto the legislation as it works its way through the legislative process, for a variety of reasons that are far more political than economically sound. Fourth, the legislation will make the tax law and tax return preparation more complicated. Fifth, it will make tax compliance and tax return preparation more difficult.

My suggestions, that Congress enact legislation penalizing loan brokers and loan merchants who induce people to take out loans they cannot afford, and funding high schools so they can teach their students some basic information about home buying to reduce the chances they will be bamboozled by loan merchants with more concern about their up-front fees than the economic well-being of their customers, have not seen the light of day. I wonder why.

In What Law Schools Should Tell Applicants, David Friedman makes the interesting and in many ways sensible suggestion that law schools should provide its graduates' bar passage rate information in a different way. Currently, law school simply provide the percentage of their graduates who pass the bar exam. Friedman explains why this information doesn't reveal what I will call the "value added" to the student by the school. In other words, a very bright student has a higher chance of passing the bar examination than does a not-so-bright student, and therefore the overall bar pass rate does not reveal the extent to which a school's high pass rate is attributable to its graduates' natural talent. Friedman, who uses LSAT scores as a marker for brightness in lieu of any other readily available data, suggests that law schools disclose the bar passage rates of its graduates arrayed by their LSAT scores. I like Friedman's idea but I don't think it goes far enough.

Friedman's rationale for his proposal rests on this assertion: "Most law students study law in order to practice it." I heartily agree, though dissenters can be found, especially within law faculties. The reason I think Friedman's proposal doesn't go far enough is that it satisfies the following assertion: "Most law students study law in order to pass the bar examination." The glitch in Friedman's analysis is that another factor enters into bar passage rates, and that is the service offered by bar review courses. Surely some law school graduates are workout wonders, ramping up their intellectual efforts for several months to squeak by the bar examination, only to fall back into a mediocre experience when showing up at their first law job.

Though it might be difficult and expensive to get some of the following information, it surely would be revealing, in many ways. Is there some way to ask law firms to identify how many graduates they have hired from each law school during the past, say, 5 or 10 year, how many were asked to leave, how many left after being given hints, how many made partner, how many were helped find other employment, how many would have committed malpractice but for the sharp eyes of a reviewing attorney, how many demonstrated excellent writing skills, how many demonstrated miserable writing skills, how many could not do legal research, and so on? It would also be helpful to know how many firms have said to someone at a law school, if at all, something to the effect of "Please do not send us any more of your graduates, as the last three did not work out at all." Yes, that has happened.

Law schools understandably might argue that if under Friedman's proposal they ought not be given high marks simply because of high bar passage rates, they also should not be considered responsible for the failures of graduates who did not apply themselves while in law school, who carry some sort of baggage through law school and into practice, or who finally slid off the ice while trying to succeed in life by skating by. My response is that law schools are no less gatekeepers to the profession than are the bar examiners, and therefore have an obligation to put their students to the test. The goal is not to find a way to get students through, and, yes, that happens, but to determine if the student can hold up when subjected to demands that are equivalent to what the student will face in practice. These are matters not just of substantive knowledge and understanding, but of ethics, of time management, of diligence, of common sense, of team work skills, of compassion, and of creativity. On that side of the equation, law schools need to improve their filtering processes. On the other side of the equation, law schools need to identify where they are coming up short in educating their students to practice law. Ascertaining what sorts of mistakes and bad judgments are being made by graduates through surveys of employers is essential. It is particularly important to focus on the students who are not as gifted, because they are the ones for whom a law school can do much. As was said to me often by law faculty during my student days and in the early years of my teaching, it doesn't take much to teach the A students. How much credit can the teacher of a Michelangelo take? The greatest satisfaction in teaching is helping the average student develop, if not into a superstar lawyer, into a competent and reliable attorney.

I wonder how many people are going to take offense at my thoughts on what is turning out to be a major legislative battle in Pennsylvania. A while ago, the governor of Pennsylvania proposed that high school diplomas be awarded only to those students who passed state high school graduation tests in ten subjects. According to the Philadelphia InquirerRendell's Graduate Skills Test in Trouble story, the headline for which doesn't quite say it all, opposition to the proposal is growing, is strong, and is widespread.

The governor's motivation rests on several concerns. First, even though tens of thousands of eleventh graders fail one or more state school assessment tests, almost all receive diplomas at the end of their senior years. Considering that as many as 45 percent of juniors have fallen short on one or more of these tests, either an amazing amount of catch-up is being accomplished or students are graduating high school deficient in particular skills. Second, increasing numbers of college students are being funneled into remedial courses to learn what they ought to have learned by the time they graduated high school. Third, employers complain that many high school graduates whom they hire have little or no reading skills, are incapable of doing arithmetic, or both. Are these believable accounts? I think so. Why? Because among law students whom I teach, far too many cannot spell, cannot write well, do not understand grammar, and struggle with simple arithmetic. Considering that law students are drawn from college graduates with grade point averages on the high end of the scale, it is rather disappointing and worrisome that among the very best there is so much deficiency.

Opposition to the proposal is coming primarily from local school boards and, on their behalf, legislators. The argument that they raise is that local school districts "are the best judge of whether students are qualified to graduate." Local educators worry that the tests will encourage unaccomplished students to drop out of school. They also object to increasing the number of tests that students must take. Even though the superintendents of most of the state's larger school districts and the presidents of the 14 state universities support the proposal, its opponents dispute the notion that local graduation tests are "dumbed down." Opponents rest their arguments on the premise that "graduation has always been a matter of local control."

The proposal would permit a student to graduate if he or she passes six proficiency tests or demonstrates competence by passing the PSSAs, advanced placement exams, or international baccalaureate exams. Those who fail would be eligible to obtain educational assistance and to retest. The state board would provide model curricula and additional teacher training. Some opponents claim local testing is a better measure of student accomplishment than are the PSSAs.

Some of the opponents appear to be focusing on implementation rather than denying a problem exists. One school district board president admits that some graduates are not qualified for graduation but that before testing at the high school level, improvements must be made in elementary education. Others point out that students who do not do well on tests would be disadvantaged.

One college student, who passed high school algebra but failed the college course, expressed the opinion that high school had not adequately prepared her for college. She supported the idea of higher standards, but worried that unless students were educated sufficiently to meet those standards, they would fail the tests and drop out, or perhaps drop out before taking the tests because they feared that they would fail.

There is no doubt that there is a problem. There is no doubt that it varies from school district to school district. There is no doubt that over-valuing a student's academic performance sets that student up for ultimate failure, either in higher education or in the workplace. There is no doubt that for many students the difficulties begin at an early age and need to be addressed before those shortcomings blossom into full-fledged failure in high school. The issue is how students' progress should be measured and who should be doing the measurement.

Certainly there are many ways to measure a student's progress, and standardized objective tests are only one of them. Those tests work well for certain skills. Other skills, however, need to be evaluated in other, though admittedly more expensive and elaborate, ways. There certainly is an opportunity for everyone involved with the governor's proposal to sit down and work out effective and efficient testing mechanisms.

On the other hand, there is something troubling about the idea that the effectiveness of education should be tested by those providing the education. I am not persuaded that there is something wrong with the state evaluating the educational achievement levels of a school district's students. Though the state is in some ways an outsider, so too are the colleges and employers that will be admitting and hiring the school district's graduates. Ultimately, outsiders will evaluate how well a school district educates its children. Personally, I like the idea of outside evaluation. Having had students who arrived in my courses lacking the knowledge and understanding that should be acquired in a prerequisite course - because the students did not work as diligently as they ought to have worked, because they were awarded grades exceeding what they deserved, or because the instructor failed to cover critical components of the course - and having observed how much more difficult it was for those students to succeed in the course I was teaching - despite having to squeeze in remedial coverage - I can be tempted to support a mechanism that evaluates how well a precedent course is preparing students for subsequent courses or programs. Yet law faculty, and presumably faculty in other academic disciplines, almost universally oppose the idea of having their students examined by someone other than the person who teaches them. Why? The answer to that question is obvious, at least to me, and perhaps incendiary. So I'll just pose it and leave it.

I am not without sympathy for K-12 educators who struggle to accomplish their mission in the face of circumstances over which they feel powerless. In some school districts, the lack of appropriate funding is a principal reason that the students don't get the best opportunities to learn and to make progress. There surely is a correlation between success rates on graduation and other testing and the economic condition of the school system. In many, perhaps most, school districts, there are students, sometimes very many students, who do not receive educational affirmation at home. Without parents or guardians who encourage good study habits, who supervise homework, who engage children in activities and conversations that complement school learning, and who support the teachers as the educators try to shape the children's academic skills and habits, the teachers face a daunting task. They have only so many hours, and if they are put in a position of needing to do twice as much as can be done in the limited time available, perhaps it is expecting too much to expect most or all of their students to pass graduation and similar exams. In many respects, society ought to consider itself lucky that the teachers and school districts are accomplishing what they are accomplishing, considering the insufficient monetary support and inadequate home study reinforcement that society provides to school systems.

So, though the governor's proposal has much to commend it, there is room for improvement. Beyond that, the governor ought to expand the proposal so that it addresses the reasons so many students cannot pass what graduation tests would be if they truly tested for ability to do well in college or in a post-high-school job. Of course, such an expanded proposal would ruffle even more feathers, but that might be a price that needs to be paid if we want our high school graduates to compete in the global economy and to succeed in college. Do we not and can we not embrace standards that are sufficiently high to match the expectations we have for our nation and our lives?

Tax rebates have started to flow out of the government and into people's bank accounts. According to this MSNBC report, the process has started a bit earlier than expected, and delivery of paper checks is expected to begin on May 9. In making the announcement, the President claimed that "The money is going to help Americans offset the high prices we're seeing at the gas pump, the grocery store, and also give our economy a boost to help us pull out of this economic slowdown." The previous hype for the tax rebates, which some people deep into wishful thinking call stimulus payments, was that this infusion of money borrowed from overseas creditors would somehow fix the current economic mess. Apparently that lofty goal has been shelved.

The President's suggestion that the money will be used to pay for gasoline and food brought criticism from Senator Charles Schumer, who noted, "It's galling to think that taxpayers' stimulus checks will be lining the pockets of OPEC. The sad truth is that the average American family will spend almost their entire stimulus check on higher gas prices this year." Schumer may be overstating the case somewhat, because not all money paid for gasoline finds its way to OPEC nations. But surely some of it does. Consequently, the government is borrowing money from overseas investors to finance rebates that are used in part to move money to overseas investors who then await repayment of their loans. Something just isn't right about that. We're back to the need for government officials and politicians to take some basic courses in economics, finance, and international trade. And perhaps some science courses would be useful, for when Schumer claims that the only solution is for "the administration [to] get .. OPEC to increase oil supply," he demonstrates his membership in the "unlimited supply of oil" wishful thinking club.

It's no secret that I think the entire tax rebate gimmick is just that, a gimmick, as I explained, for example, in Can a Tax Rebate Band-Aid Stop the Economic Bleeding? And it will backfire. What happens when the tax rebate money runs out? Will the price of gasoline and the cost of food decrease? Will there be demands for yet another rebate? If the tax rebate money runs out in October, it's easy to imagine at least one, and perhaps two, of the Presidential candidates, so quick to get on the gasoline tax reduction gimmick bandwagon, as I noted on Friday, jumping on the "yet another rebate" bandwagon. Will the government simply issue rebate after rebate? Does no one understand that by dampening the message behind high prices that a government rebate program adds fuel (sorry, I couldn't resist) to the economic fires that are stoking the high prices?

In Getting Those Tax Rebates Might Not Be So Easy, I pointed out that one of the many administrative problems associated with the rebate gimmick was cost. I wrote, somewhat sarcastically:

And I suppose the Congress added to the IRS appropriations bill money to be used to mail the notices. I suppose the Congress has made funds available to the Treasury Department to process and mail the checks. Or, as often happens, will some other program, such as enforcement or taxpayer assistance, be cut in order to fund this election-year "I voted for a rebate" ploy?

Now comes news that yet another cost has been imposed on the rebate, excuse me, stimulus, program. According to a frequent contributor to the ABA-TAX listserv, the IRS has responded to yet another problem that has cropped up. As discussed in Getting Those Tax Rebates Might Not Be So Easy, people who would otherwise not have been required to file a tax return but who are eligible for a rebate must file a tax return in order to get the rebate. If they want to file electronically, but have adjusted gross income of zero or less, they need to "dummy up" the return and add $1 of income to the return. Apparently, the IRS computer is treating the "false dollar" of income as earned income, is computing an earned income tax credit of $2, and is generating and mailing a $2 refund check to those taxpayers. Those taxpayers are confused. The IRS has issued advice, apparently to its employees, on how to deal with this mess:

If you receive a call from a taxpayer who has received a $2 refund check and research shows the refund was generated from an EIC credit (TC 768), assure the taxpayer this is not their stimulus payment. Most taxpayers will not know about the $1 reported as income because their return was most likely prepared by a preparer or software company. Explain that due to a processing error they received a $2 earned income credit and they will not need to pay it back.

Here is my question: How many taxpayers are receiving these $2 checks? Ten? Ten thousand? One hundred thousand? A million? Ten million? If, as has been estimated, tax rebate checks will be sent to 130 million taxpayers, then it would not be a bad guess to conclude that the number of taxpayers filing returns in order to obtain rebates is in the millions or tens of millions range. So, where does the IRS obtain the $2 million, $20 million, or $40 million that it is accidentally sending out to taxpayers? What IRS services or programs get cut? This additional amount is added to the cost of administering the tax rebate computation and deliveries, so ultimately yet another price that is paid for this bad idea is a decline in IRS taxpayer services, or audits that could cause the payment of otherwise unpaid taxes, or some other IRS initiative.

To be fair, I should give this "stimulus" concept credit where credit is due. It has stimulated some of my blog posts that otherwise would not have existed. Unfortunately, stimulating MauledAgain posts does not increase gross domestic product nor reduce the federal budget deficit. But I do not fear that Congress will stop giving me things about which I can find something to write. No fear whatsoever.

A few weeks ago, in Vote Trolling Creates Bad Tax Policy, I explained why John McCain's proposal to suspend the federal gasoline tax through the summer was a very bad idea. I concluded that "Its short-term appeal as a vote trolling device ought to be recognized for what it is and soundly rejected."

Unfortunately, duping people into surrendering their votes for an bad idea hiding behind a sound-bite mask has been afflicting civilization since the first politicians arrived on the scene. Once upon a time it was bread and circuses, at times it has been total demagoguery, and too often it is the promise of government largesse for all matched with reduced or eliminated taxes. If the Congress is foolish enough to go through with this nonsense, will the proponents step forward when another bridge collapses because highway repair funding, which the gasoline tax supports, runs out? Or will they be running for cover?

Now, as reported in this CNN story, Hilary Clinton has jumped on the "suspending the gas tax will save the nation and its economy" bandwagon. One wonders if she truly believes it will, or is simply another way to scrape up some votes. Eight years ago, she opposed a similar proposal. Why is it now such a great idea? The answer is easy. Votes, votes, votes.

So of the three viable potential presidential candidates, only one is yet to get on the bandwagon. Yet Barack Obama not only takes the position he will not call for the suspension, but also opposes it strenuously. But how consistent has he been? According to this story, Obama voted for a suspension of the Illinois state gasoline tax when he was in the state legislature. When attempts were made to reduce the tax permanently, he voted against that idea.

Are there any politicians who understand economics to the extent the leaders of this nation need to understand the subject? Is the citizenry so gullible that a batch of empty promises is all that it takes to entrust the survival and well-being of the populace to those who proclaim those bad ideas?

So, let's see what happens if the gasoline tax is suspended. The price of gasoline drops, and demand continues to climb. At some point, the pumps will run dry. So will what will the geniuses then propose? Lowering the price to zero?

It takes courage to speak the truth and make the right decision. I'm not seeing much of that at the moment. I'm seeing a little bit. But it is in danger of being overshadowed. Empty promises might have much more appeal than tough talk, but empty promises are just that. Empty.