MauledAgain

Tax law professors are well known for presenting students with hypotheticals and asking the students to analyze the tax and other legal consequences of the transaction. So let's look at a set of facts.

A non-profit social services organization offers its employees accounts in which it deposits something called Equal Dollars. Even the CEO of the organization receives $700 of his pay in Equal Dollars. These are not items of U.S. currency, but are scrip with the face of someone whose philosophy and examples are inspiration for the organization. The organization prints these Equal Dollars, in denominations of 1, 5, 10, and 20.

One day a week, vendors come to the organization to sell their wares. One sells earrings, another, Tupperware. Yet another offers baked goods, and still another markets pocketbooks. A person who wants to purchase something can pay in U.S. currency, Equal Dollars, or some combination thereof. The vendors use Equal Dollars to pay rent for the space in which they set up shop. In the same building in which the social services organization is located one finds a pharmacy, which accepts Equal Dollars in payment. The organization's CEO brings vegetables to sell to other employees for Equal Dollars. He also accepts Equal Dollars in exchange for teaching people line dancing and how to make pizza dough. A former employee of the organization continues to accept Equal Dollars in exchange for teaching people how to crochet. She uses some of those Equal Dollars to purchase earrings from the earring vendor.

But as I tell my students, law professors, including tax law professors, "don't need to make up this stuff." Paraphrasing from a decades-old leading Supreme Court case on taxation, one that addressed the concept of ordinary and necessary, I remind them that, "Life in all its fullness provides the examples." It also provides the clients whose business sustains tax practice.

So the preceding hypothetical isn't hypothetical. It's real. The facts come from Annette John-Hall's column in Monday's Philadelphia Inquirer, nicely titled The Currency of Bartering. She explains that the program started in 1996. It blossomed, reaching a point at which it had 864 participants, 298 businesses, and a newsletter with a circulation of 2,400. But for some reason the program fell dormant. Now, with the economy struggling, the program has had a resurgence. Its 200 members actively trade with each other. The program is making arrangements for a local credit union and a medical practice to accept Equal Dollars. The program has made an interest-free loan to another non-profit organization, which plans to use the money to hire someone, half of whose compensation will be in Equal Dollars.

John-Hall concludes her column by hailing the idea of privately-printed scrip: "More money to spend, more support for small businesses, and more cash to save or use for other means. In these economic times, I'd say it's a win-win-win." But is it? Will it be seen as all win when the IRS comes knocking on doors and stopping by vendors' booths?

There's nothing in John-Hall's column that indicates how the people using Equal Dollars treat them for tax purposes. Does the CEO's W-2 include the $700? Will the employee of the borrowing non-profit end up with a W-2 that includes only the amount of U.S. currency paid to her or will it also include the Equal Dollars? Do the vendors who accept Equal Dollars report those amounts as gross receipts? Does the pharmacy do so? What will the credit union and the medical practice report on account of Equal Dollars?

There are three major groups of issues implicated by this set of facts. One group of issues involves the tax consequences. The second touches on tax compliance. The third puts the spotlight on tax policy. Though the answers to the first two groups of issues inform analysis of the third, a student, just like a practitioner, needs to answer the questions that are posed. Too often, when faced with determining the tax consequences, students -- and too many law faculty -- jump into the wonderful world of what the law should be rather than providing to the client the assistance the client seeks. A client who is trying to comply might have some peripheral interest in how the world would be a better place if the answer were different, but the client isn't paying for that advice.

The consequences of the use of Equal Dollars should be easy to determine, but there is no explicit authority answering the question. Years ago, in Rev. Rul. 79-24, 1979-1 C.B. 60, the IRS concluded that gross income includes the value of property or services received in exchange for other property or services. About a year later, in Rev. Rul. 80-52, 1980-1 C.B. 100, the IRS concluded that the same result was reached even if the bartering was not direct but implemented by an organization crediting its members with trading units. Several years later, in Rev. Rul. 83-163, 1983-2 C.B. 26, the IRS concluded that members of a barter club must report gross income when they receive services through a barter exchange. The organizations operating these barter exchanges are required to comply with the barter exchange reporting requirements. The IRS has also concluded that organizations that provide a venue for individuals to exchange services on an informal, noncommercial basis and that do not give the participants any rights or impose any obligations with respect to the exchange are not barter exchanges subject to the reporting requirements. Thus, in private letter rulings, the IRS has concluded that nonprofit organizations issuing "Time Dollars" or similar credits for services provided by individuals to other individuals are not barter exchanges subject to the barter reporting requirements, chiefly because in the instances it reviewed, there was no guarantee that the recipient could get anything for the "Time Dollars" issued to the person. The IRS has specifically declined to answer the question of whether the participants in the program have gross income. Turning to the statute, unless an exclusion can apply, the recipients of the Equal Dollars have gross income because when they receive those dollars they receive something that has value, that can be used to acquire property or services of comparable value, and that are theirs to use unfettered by any restrictions or limitations. When one works through a list of possible exclusions, it's unreasonable to conclude that the Equal Dollars are received as a gift. A person who bargains to receive half of her salary in Equal Dollars isn't the recipient of a gift. Filling employee accounts with amounts that the employees can use to acquire goods or services isn't the making of a gift because transfers by employers to or on behalf of employees by statutory definition cannot be gifts. It's very difficult to conclude that the receipt of Equal Dollars represent imputed income, which the IRS as a matter of administrative practice declines to tax and which some theorists claim isn't income in the first place, because imputed income situations involve people doing work for themselves, such as mowing their own lawn or cooking their own meals. Consider, for example, the $700 of Equal Dollars received by the organization's CEO. How is that any different from receiving a gift certificate for $700 worth of services of products at a retail establishment? It isn't. Professor Deborah Geier has reached the same conclusion, in "When Helping Hands Have to Pay Taxes," an article published on page A24 of the January 22, 1993 edition of the New York Times.

As for the compliance questions, there aren't enough facts to determine what the organization and the participants are doing. Perhaps the recipients are reporting income, and perhaps they are not. Whether the details of the Equal Dollar program fall closer to the barter exchange or closer to the "Time Dollars" arrangement on the spectrum of "U.S. currency-free transactions" is unclear, and thus whether the organization described in John-Hall's column should be reporting cannot be answered at this point. The facts of the "Time Dollars" private letter rulings are sufficiently different from those of the "Equal Dollars" arrangements to make it risky for someone to reach a conclusion based on the general facts that fit into a newspaper column. Lurking in the compliance cluster is the situation that will arise when someone reports Equal Dollars as earned income in order to qualify for, or increase, the amount of his or her earned income tax credit.

The policy questions are important, and have as many answers as there are opinions to be set forth by tax experts, community organizers, non-profit organization executives and advocates, legislators, and citizens. If the transactions described in John-Hall's column were to be made the subject of an open-ended exclusion in the Tax Code, every transaction in the nation soon would be recast in Equal Dollars, and income tax revenues would vanish. Though the Tea Party crowd might rejoice at this outcome, their partying would end quickly when they dialed 911 and no one showed up or when they drove across a bridge and it collapsed. If the Congress created an exclusion limited in some way, it would create even more complexity and encourage people to squeeze into the exclusion transactions not intended to be within it. If the justification for exclusion is that poor people ought not pay income tax, is not the answer a personal exemption and standard deduction of sufficient size to permit people to avoid taxation if they receive small amounts of Equal Dollars but not if they receive a huge amount? Arguments for excluding these amounts from gross income are found in Vada Waters Lindsey, The Burden of Being Poor: Increased Tax Liability? The Taxation of Self-Help Programs, 9 Kan. J. L. & Pub. Policy 225 (1999). The programs discussed in the article, however, are significantly different from the Equal Dollars arrangements. For example, under the programs discussed in the article, the maximum that a person could receive in "Time Dollars" during a specific year was $2,000, whereas the description of the Equal Dollars program suggests that the amounts in question may turn out to be much higher.

In some ways, the use of Equal Dollars is tantamount to the creation of a separate currency system within the economy. So long as Equal Dollars can circulate only within the limited world that accepts their use, the tax issues aren't unlike those arising when a barter exchange or trading club sets up ways to measure members' economic positions through devices other than a national currency. If, however, the use of Equal Dollars or their equivalent become so widespread that they displace the use of national currency on a grand scale, the tax issues, especially the policy questions, will be cast in a totally different light. As for the issues that are not tax issues, others need to suggest the consequences and risks of issuing and dealing in these sorts of currencies. What, for example, will be the impact on the credit union's financial reporting and compliance with credit union regulations of accepting Equal Dollars?

Ultimately, the Congess needs to deal with these issues. Unfortunately, it, like most legislatures, usually waits until people sort things out for themselves, making it more difficult to prescribe sensible rules because a coalition of those wanting special exceptions, those wanting transition rules, and those unwilling to change their reporting practices prevent the legislatures from writing on clean slates. That has happened with digital technology, it happens with advances in biomedicine, and it is happening with the creation of substitute currencies. I wonder how many members of Congress understand that the issue exists, let alone understands the analyses applicable to dealing with the issues. And why has the IRS declined to give the nation guidance on these questions? What concerns cause it to hesitate?

A recent article in the National Law Journal, Could Collective Action by Students From Top Law Schools Change Firms? raises some important questions about the way law firms conduct business, the relationship between law schools and law firms, and the extent to which law students have the power to change the law practice world.

The article describes a meeting of roughly four dozen students from "premier law schools," including Stanford, Harvard, Yale, and Columbia, at the National Conference of Student Leaders sponsored by the Building a Better Legal Profession (BBLP). The goal of the BBLP is to reform law firm practices with respect to billable hours, diversity, the treatment of women and minorities, and pro bono. The BBLP, and others, are critical of the number of billable hours expected of associates, question the use of the billable hour, have concerns with respect to diversity, and are disappointed with what they perceive as a lack of commitment to pro bono work.

According to the student leaders from these elite law schools, the solution is for students from these schools to not take jobs at law firms whose business practices run afoul of the standards set by the BBLP. This proposal appears to rest on the assumption that law firms would find it detrimental in some way to be rejected by students from these schools, and that in an effort to bring them into the firm would revamp how they operate. Quoting a second-year student from Stanford Law School, ""Over time, firms with low diversity numbers, poor female partnership rates, high billable hour requirements and poor commitments to pro bono will risk year after year of associate classes without graduates from the country's top law schools." Between the lines of that statement is the notion that law firms who lack graduates from these elite schools will experience some sort of disadvantage.

The issue isn't whether law firms need to work through some serious problems in terms of billing practices, minority hiring, and pro bono efforts. The issue, as often is the case with lofty goals, is how to accomplish a goal which almost everyone accepts as praiseworthy. How realistic is the plan advanced by these law students?

The plan put forth by the students from the elite law schools appears theoretically sound, but it has serious practical problems. That's not surprising, considering what these law students have been experiencing for the past several years.

First, to be effective, this approach would require full participation. Though refusing to work at a law firm that doesn't measure up to a student's standards may salve a student's conscience, that refusal is unlikely to have any impact on the firm. If the student doesn't tell the firm why he or she has turned down the offer, it's almost certain that the student's protest is in vain. Students decline employment at law firms for a variety of reasons, many of which are tied to a student's perspective on life, morality, theology, lifestyle, or other preferences. The BBLP, at best, is adding to the list of reasons to pass up on a particular law firm, but that, in and of itself, isn't going to change anything.

Second, assuming all of the students at these elite schools jump on the bandwagon, it is highly unlikely that any law firm will change its ways because it no longer can hire students from these schools. Law firms will discover that there are other students available to be hired. Law firms will discover that students in the top ten or fifteen percent of any graduating law school class are gifted and capable of practicing law in any law firm. Law firms might even discover that graduates of non-elite law schools are more prepared to practice law than are those of the elite schools because their education has been focused more on practical matters and less on theory. They are somewhat more likely to have been in an environment where faculties focus more on teaching than they do on "writing for other scholars." Once law firms make this discovery, and get past what is another problem with many big law firms, the addiction to the brand or label, they may settle in with what will have turned out, serendipitously from the firm's perspective, to be a better situation. These firms may not be in much of a hurry to rush back to on-campus interviews at the elite schools.

Third, magnifying the point of the previous observation are the economic consequences of a law firm turning to the elite students at non-elite law schools. Law firms will discover that these students, perhaps because their tuition was slightly or more than slightly less than those paid by the elite schools' students, are willing to work for slightly or more than slightly less pay. From the law firm's perspective, what better incentive is there to modify hiring practices?

Fourth, at a time when many law firms are not making employment offers, self-removal from the hiring process isn't going to have much of an effect, if any. At the moment, it's an employer's market. Potential employees have little leverage. One might suppose someone learns this in law school, but perhaps when one is learning more about the way the world would be if the law faculty ran the planet and less about the way the world actually is, it's easy to miss out on the niceties of leverage in the marketplace.

Fifth, to the extent that the BBLP effort succeeds with respect to billable hour practices, the outcome very possibly would be a further reduction in associate salaries. Consider the flaw of the billable hour. A client needs a problem to be solved or some planning to prevent a problem. The law firm takes the matter, and assigns it to a young associate who is billed out at $300 per hour, to be supervised by a patner who bills at $600 per hour. The associate initially invests ten hours in the matter, and a supervising partner invests five hours reviewing the associate's work, explaining what is wrong and needs to be fixed, and the associate invests another seven hours, followed by the partner putting in another two hours. The client is billed $5,100 for the associate's time and $4,200 for the partner's time, a total of $9,300. The client asks how much time would have been charged had the partner simply done the task. The partner would have been able to take care of the matter in eight hours. The invoices would have been for $4,800. Even if the partner has another partner invest an hour to eyeball the work to make certain there are no errors, the client's cost would still be significantly less than $9,300. The inefficiency in this approach is apparent. The client is paying for the partner to teach the associate, because the associate, despite having attended law school, is unable to deal with the matter. Contrast this with a business that charges a fixed-fee. Assume a lawn mowing company charges $50 to mow a one-half acre lawn. The company generates this fee in part by looking at what the competition charges, but also at what its costs will be. It knows that a good lawn mowing employee can mow a one-half acre lawn in an hour. It knows that the market is such that the employee must be paid $30 per hour, that fuel for the mower will be $5 per hour, that the lawn mowing equipment is amortized to $6 per hour, that insurance is $2 per hour, and so on. To be profitable, this business must make certain its employee gets the job done in an hour. If a person doesn't know how to mow the lawn properly within an hour, the person is history with that company. Alternatively, the lawn mowing company could pay the employee on the basis of work done, so that if the employee needs twice as much time to do a fixed number of lawns, the employee's pay is cut in half. Carrying these models to the law firm, most law school graduates would not be earning $150,000 or more but less than $50,000, and that's being generous. At those salaries, the elite law schools charging brand-name tuition rates become economic failures. At those salaries, would these students nonetheless attended law school? If so, why aren't these students simply taking the legal positions that pay $40,000? If they need or want the $150,000 salaries, are they not going to need to put in thousands of hours a year in order to produce enough acceptable work to justify the pay? Or do they think that because their teachers kept tagging them as A students in elite schools that their law firm work product is per se wonderful? Granted, it's not their fault, but how loud have their voices been in criticizing the deficiencies in their legal education?

Sixth, the proposal is flawed because it is hypocritical. For the most part, the business practices that are under scrutiny are variants of elitism. Inattention to pro bono concerns, the limited number of female and minority partners, lack of diversity in hiring, and most of the other complaints made by the BBLP originate, to a greater or lesser extent, in elitism. The sense that "we are better than you" tends to be reflected when there genuinely is gender, racial, religious, or other discrimination, when there is disregard for the plight of the less fortunate, and when there is a willingness to price one's self at the high end of the law practice cost scale. Yet is there not elitism in the gathering of students from a handful of premier law schools to the exclusion of students from other schools? Is there not elitism in the notion that there is a good reason for employers to favor graduates of these schools, even though studies show that over the long run, there are just as many good and excellent lawyers coming out of second, third, and fourth tier law schools? None of this is surprising, for throughout history, reform movements targeting elitism have themselves often been elitist. One need think only of Communist Party officials in the former Soviet Union who owned dachas inaccessible to the peasants. So much for egalitarianism.

Having criticized the BLPP's approach to dealing with what are legitimate and real concerns, I ought to propose an alternative. Here's one. Ought not these elite students from elite schools have sufficient education, intelligence, motivation, and savvy to form their own law firm or firms, built on principles consistent with their views, that over time will become more attractive to clients who share these views? Would that not erode the revenue sources of the firms that these students have tagged as having unacceptable business practices? When and if these students respond that they don't have what it takes to do this, ought not these elite students from elite schools undertake to sue their alma maters for having failed to prepare them for the very profession they claimed they were readying their students to enter?

There is no question that law practice needs to change. There is no question that lawyers, law faculty, and law students need to be involved in encouraging, energizing, inspiring, and compelling the changes that will improve the practice of law. The effort needs to be universal, and not the domain of a select self-appointed elite. The effort needs to be cooperative and persuasive. Creating forums in which law students and associates can communicate with, and educate, partners is far more helpful than turning up one's nose and walking away without ever engaging the partners in a candid disclosure of the issues. Surely the elite can figure this out.

The New York State Society of Certified Public Accountants (NYSSCPA) has dusted off its Simplified Exact Transparent Tax (SET) proposal, which it describes as a simplified tax code. Back in 2005, the NYSSCPA presented its SET proposal during the superficial tax reform excitement that ultimately led to nothing. With a new Administration in office, the proposal has returned to the NYSSCPA center stage.

Under SET, there is one tax rate that applies to income reduced by statutorily defined exclusions. That's the first time I've encountered the concept of an exclusion as something that is included and then subtracted out. An exclusion is something that doesn't go into gross income in the first place. After reading several sentences of the report, I'm already leery of the quality of the thinking underlying the idea. According to the report, the tax computation would begin with gross income, which the report describes as the "broadest income base possible and the easiest to teach and understand." Really? Try teaching section 86, section 132, or even the basic concept of gross income. What is income? What is realization? What is "clearly realized"? Deep in the report is this claim: "Gross income is ALL income. Income would be measured under existing principles….There would be no omission from realized gross income, only deductions we call exclusions." Sorry, but that doesn't simplify anything. In fact, by calling deductions exclusions, the proposal muddies the tax water.

SET would provide exclusions for gifts and inheritances. Ask any law student who has been enrolled in a well-taught basic income tax course to define gift for income tax purposes. Any student who pays attention knows that the simple black letter law, gifts are excluded from gross income, generates its complexity when it is time to apply the simply-stated rule to the reality of life's facts. SET would continue treating loans as items that are not income. So the ongoing tension between IRS and taxpayer, include decades of litigation, concerning the distinction between a loan and a dividend, a loan and compensation, a loan and equity, will continue. There's no simplification in this aspect of SET. The report continues to suggest that exclusions could be provided for care giving, home mortgage interest, state taxes, charitable contributions, and taxes on capital income. How is this not the reintroduction of all the complexities that the comparable deductions and credits presently offer? What happens to imputed income? To amounts received in kind? To fringe benefits? What happens to retirement income? What happens to amounts set aside for retirement? The only credits under SET would be refundable credits to benefit low-income taxpayers, and perhaps a foreign tax credit although an exclusion equivalent would be another way of dealing with the taxation of foreign income.

The goal is to allow everyone to file their tax returns on a one-page form. Good luck. What happens if there is a long list of exclusions, as surely will happen as Congress continues to tinker with tax law? Will the subtracted items fit on one page by reducing the font of the typeface to point 3?

The NYSSCPA claims that SET will permit progressivity even though it uses only one rate. That is done, apparently, through use of a lump-sum exclusion for lower income taxpayers. This can generate progressivity, but it is not a very steep progressivity. The rate? Thirty-three and one-third percent. Even though proposing this rate, the NYSSCPA does not endorse it. I'm still trying to figure out what that means. Perhaps it's similar to someone making a motion simply to permit discussion of an idea which the person opposes, either as a gesture of fairness and open dialogue or as a ploy to find a venue in which to criticize the motion. The report, almost as an aside, mentions the possibility of having a scaled lump-sum exclusion, which appears to have some of the trappings of a phaseout.

The NYSSCPA characterizes SET as superior to other flat tax proposals because most other proposals remove people from the tax rolls. SET would require everyone to file, a goal that the NYSSCPA thinks is important because it prevents people from feeling "detached from government." Allegedly SET will make it easier to find tax cheaters. How? Every citizen would be required to file a return, and a person who fails to file would be treated as a tax evader.

Is there any good news with SET? It would eliminate the alternative minimum tax. It appears it would eliminate the phase-outs that create "bubbles" in the marginal rate structure. From the summary, it appears that it would eliminate the preferential special low tax rates for capital gains and dividends. But, alas, the report also proposes the possibility of an exclusion for capital gains and an exclusion for dividends. Is this a wage tax in disguise?

That good news is insufficient. This quote from the report explains why: "Most of the complicated parts of the Internal Revenue Code would be retained merely as building blocks and protective mechanisms to address the complex business and financial transactions that are the hallmark of our ever-evolving system of capitalism." So the simplification is accomplished by doing simple things with complex building blocks? In other words, hide the complexity behind a single rate, as though the complexity of the tax law is attributable to multiple rates. The least challenging task in preparing a tax return is looking up tax liability in a table or causing software to compute it.

Nothing in SET addresses the complexity caused by timing issues, as taxpayers generally seek to postpone income and accelerate deductions and exclusions. Nothing in SET addresses the complexity caused by taxpayers who try to structure transactions to avoid income, an issue that the NYSSCPA admits will continue to vex the tax world as it explains, " Existing rules are used to distinguish between income and loans, gifts, inheritances, support, and so on, as well as to handle issues of when income is 'received' in complex situations." SET would retain one of the more complicated areas, tax-free reorganizations, and the report explains, "Current law definitions will be very helpful in this area, and retained." Those definitions may be helpful, but they're wildly complex, as entire tax courses are devoted to the study of reorganizations. SET would retain percentage depletion through the use of a percentage depletion exclusion. Why?

Ultimately, although doing a few good things, SET simply turns deductions into exclusions, retains some of the most offensive aspects of the current income tax system, and creates, in effect, a tax on wages. Yet it is hyped as some sort of panacea to every problem facing the nation. It's as stale and misguided as the tax policies implemented during the time it was first proposed, and it has about as much chance of seeing enactment as the outcome of the tax reform proposals that were issued during that same time frame. The SET tax proposal should be set aside.

My librarian friend gave me a Christmas gift that is paying dividends (of the nontaxable sort) every day this year. It's a calendar of "Forgotten English." Each day brings a word, only a few of which I've previously seen, a definition, and some trivia with some connection, close or remote, to the word. My friend is trying to expand my vocabulary beyond the narrow confines of tax law, genealogy, and trains.

Today's word is catchpole. Look it up.

The trivia involves taxes. Is there a connection with catchpole? Yes, a slight one. The trivia, though, is fun. Two tidbits are shared.

Did you know that Virginia permitted its citizens to pay taxes in kind, specifically, by transferring beef to the tax collector? What did the state government do with it? Sell it? Give it away? Back in 1781, one tax collector realized that he wasn't going to succeed in collecting beef, so he permitted the taxpayers to transfer "the same quantity of pork." Now there's a reversal. Instead of a government dishing out pork, it was collecting it. Talk about gross income.

Did you know that in the Netherlands there once was a tax calculated according to the length of the taxpayer's surnames. This caused people to abbreviate their names to monosyllabic versions. I suppose the best my distant relatives could have done would have been to drop the "e" but I haven't yet found very many of the family in Holland. My Dutch ancestors had, and seemed to retain, rather long names. But imagine. Could genealogy research have been made more challenging because of a tax law? How outrageous is that?

Fortunately, the First Amendment would pose some obstacles to a tax based on the length of blog posts or emails. Am I glad for that? Yes.

Monday's Philadelphia Inquirer featured an article, the name of which, Cut Calories by Taxing Soda, almost says it all. According to the article, Kelly D. Brownell, director of the Rudd Center for Food Policy and Obesity at Yale University, has wiped the dust off of his 1994 proposal to impose a one cent per ounce tax on sugared drinks. Although, according to Brownell, he "got blistered" in 1994, he's ready to try again because during the past 15 years obesity rates, particularly among children, have increased and governments find themselves in need of revenue. Together with Thomas R. Frieden, who is New York City's Health Commissioner, Brownell published a report last week that "daily caloric intake from sugar-sweetened drinks rose nearly 30 percent in the last decade." They estimate that the one cent per ounce tax would generate $1.2 billion in annual revenues in New York State. Whether that refers to a state tax, or combined state and local taxes, isn't clear. No matter, it's a good chunk of change.

The idea of imposing so-called "sin taxes" as a way of reducing government budget deficits isn't new, and has grabbed the spotlight in recent months. As I pointed out in Taxing Barbie, detrimental behavior that does not infringe on another person's rights usually is not criminalized, but taxed. I noted the taxes on tobacco, alcohol, and gambling, and mentioned proposals to tax fast fook, carbon-based fuels, ammunition, and furs. More specifically, the idea of taxing non-diet soda and other sugar-containing beverages was included by New York's governor in his recent budget proposal. In What Sort of Tax?, I discussed the proposal. I questioned whether it made sense to single out soda, or soda and certain beverages, if the purpose of the tax was to increase the cost of behavior that contributes to obesity. I explained, though one might think it should not need explanation, that non-diet soda soda isn't necessarily any worse than other foods when it comes to causing obesity. Even low-calorie foods, when consumed in sufficient quantity, can cause a person to gain weight. The authors of this essay on the question volunteered that when they asked the New York State Health Commissioner about this point, he replied that if economic needs justified extending the tax to "other high calorie foodstuffs [such as] cheeseburgers, pizza, and snack foods," he would do so.

Not surprisingly, there is opposition to the imposition of taxes on non-diet soda and similar beverages. Some opposition can be found among those opposed to taxes on general principles. Some opponents, such as the American Beverage Association, claim that soda has little or no effect on obesity. Others claim that the tax would affect poor people, which is true of most sin taxes. Still others claim that popular opinion disfavors the tax, although others claim that their polls show the opposite if the funding is directed into public health programs.

The sort of tax in question is much like a user fee. User fees make sense when they are related to a burden that the taxed item or activity imposes on society. A user fee is equitable when it treats all similarly situated items or activities in a comparable manner. No tax or user fee ought to be imposed simply because it can be imposed, or simply because a government prefers to increase its revenue. Some sort of justification is required. In this instance, if the purpose of the tax is to pay for the cost of ingesting excess caloric intake, then the tax needs to be tailored in a manner that doesn't focus the "blame" on specific foods or beverages. The administrative difficulty with excess caloric intake is that no food or beverage can be singled out as the cause, and yet every food and beverage can be the cause. Any food ingested in sufficient quantity can be unhealthy. If the justification for taxing soda is that it contributes to obesity, what is the sense of imposing the tax on a non-obese person who makes the purchase? That question illustrates the administrative problem, because the purchaser may not be the actual consumer.

In theory, the best tax or user fee designed to reduce obesity should be a tax or fee based on weekly weigh-ins. That sort of tax would be near-impossible to administer. Who would do the weighing? How would cheating be prevented? Who would handle the dispute about scale accuracy? Compliance surely would be a huge problem, no pun intended. But if the next best thing is a tax on foods and beverages that are more likely to contribute to obesity, then singling out beverages containing sugar appears to be nothing more than the pet project of the artificial sweetener lobby. What about those cheeseburgers and, I daresay, peanut butter cups?

Would not a tax on sugar-containing beverages compel at least some people to use alternative items? Would this not heighten the battles among the various sugar-substitute manufacturers, each of whom is eager to point out the health risks of their competitors' products? If the tax were successful, to the extent that everyone switched to diet whatever, would the tax not be successful in the sense that it would no longer raise revenue?

Why the focus on obesity? Is there not also a concern about excessive thin-ness? Does not being underweight pose health problems? What would happen if there were a tax on failure to consume sufficient calories? If the answer is that someone who eats too little already suffers enough, cannot the same be said about the obese?

Think also of the other dietary practices that adversely affect health. Consumption of sugar-containing beverages can be detrimental to one's well being. But so, too, can be a diet devoid of vegetables. Will the meat and potatoes crowd be the next target of the healthy lifestyle advocates? Would a tax on caffeine be helpful to societal well being because it might reduce the number of over-caffeinated individuals roaming the planet?

My perspective isn't that of someone who doesn't care about proper nutrition. I gave up soda (or pop, or soft drink, or whatever one calls it) a long time ago, chiefly because I preferred to avoid the carbonation. I've cut my weight by trimming down my intake of those chocolate chip cookies and peanut butter cups, among other things. I exercise. So I very much would like to see a nation of fit and healthy people, for a variety of reasons into which I presently will not delve. I simply don't think that a tax on sugar-containing beverages, or even a tax on supposed unhealthy foods, will make a difference, because it doesn't attack the root cause of the problem. What activity or item can be taxed when the problem is a psychological one rooted in lifestyle and culture? Even if it could be identified, and I don't think it can be, would it be appropriate to tax it? No.

A new study from the Transactional Records Access Clearinghouse (TRAC), New Agency Data Shows IRS Downgraded Large Financial Services Audits provides some disturbing information and raises some serious and challenging questions. According to the report, in 2008 the IRS audited only 15% of large financial services companies even though it audited 64% of other large corporations. The first question that comes to mind is, "Why?" The report also asserts that the audits of the financial service industry were "less thorough" than those of other industries. Again, the question is, "Why?" These concerns are not new, as indicated by earlier TRAC studies cited in the latest report. The TRAC report itself asks, "Did the decision of the IRS to cut back on its financial services audits in a direct or indirect way contribute to the failure of the government to uncover the criminal schemes of Bernard L. Madoff and others like him in a timely manner?"

The answers to the first two questions are known only to those persons at the IRS responsible for determining the extent and scope of audits. The answers may have something to do with resources, and may have something to do with perceived audit needs in other industries. There may have been empirical evidence indicating that noncompliance by other taxpayers was increasing at an alarming rate. The answers will not be known until someone, somehow, persuades the IRS to inform the public. Until then, it's a matter of guessing.

The answer to the third question is impossible to determine. Even the IRS doesn't and cannot know. It is possible that in the course of a tax audit, the IRS would discover that Madoff or someone acting as he did had recycled dollars in a Ponzi scheme. It is also possible that this would not have turned up. Perhaps, if the IRS did discover something sinister, it would have passed the information along. That is a guess, but it is probably a very good guess. The IRS does have a history of cooperating with the Department of Justice when criminal behavior comes to light through tax audits. On the other hand, whether it would send information to other agencies, such as the SEC, is a more difficult question to answer.

For me, there is a fourth question. It is the product of my increasingly cynical mind, the mind that sees relationships woven among life's patterns. Is it mere coincidence that during the same time that federal regulators were backing off close supervision of the financial services industry, the IRS also began backing down on the number of audits of that same industry? Could the industry's representatives and lobbyists have been so effective in their "get government off of people's back" campaign that there was a government-wide retreat? How can lobbyists be that effective? Do they speak with golden tongues? Do they make arguments so effective that no one ever, ever could deny that non-regulation of the financial services industry is the best ever thing for the American economy? Did they engage in behavior itself no less criminal than much of what transpired behind the closed doors of a loosely and perhaps phantomly regulated industry?

Hindsight is so amazing. I wonder how many people who were sucked into the "minimize or eliminate government, end taxation, give us freedom" movement now think to themselves, "Hmm. Who got the freedom from this deregulation and what did they do with it? Perhaps they decided they were now free to hoodwink and defraud the typical citizen." Much like the folks in the town that reduced taxation due to citizen pressure and then found itself in turmoil when reduced revenues required laying off half of the police force, to the consternation of the citizens, Americans may be discovering that the pied pipers of reduced taxation and deregulation masquerading as freedom were thinking not of the nation or their compatriots, but of themselves. Perhaps more IRS audits would have made a difference. Perhaps not. Perhaps the SEC and the other relevant regulatory agencies could have and should been more diligent in their examinations of the industry's activities.

Isn't it interesting, though, how, when things turn out badly, there's an implication that the IRS should have done more to prevent the problems. Yes, the IRS, that agency so despised. Despised, of course, until people begin to figure out that perhaps it really isn't their enemy.

This latest tidbit falls into the category of how the tax law becomes complicated and raises the questions of why a complication should exist and why an existing complication that is scheduled to expire should be extended. What's at issue is section 168(i)(15) of the Internal Revenue Code. Section 168(i)(15) defines "motorsports entertainment complex." Why is that definition required? It is required because section 168(e)(3)(C)(ii) of the Internal Revenue Code provides that a motorsports entertainment complex is seven-year property, which means that in computing taxable income the owner of a motorsports entertainment complex can deduct its cost over an eight-year period, rather than over the longer periods that otherwise would apply, 39 years for buildings and 15 years for land improvements. Section 704(a) of the American Jobs Creation Act of 2004, Public Law 108-357 added section 168(e)(3)(C)(ii) to the Internal Revenue Code, and with subsequent extensions, made the change effective for property placed in service after October 22, 2004, and before December 31, 2009.

Why this special provision for a very small group of taxpayers? The Joint Explanatory Statement of Committee of Conference for the American Jobs Creation Act of 2004 does not give a reason. It simply states existing law and states what the new provision does. The House Report to the 2008 extension contains two explanations. It states that the "Committee believes that extending the depreciation incentive will encourage economic development." It also states that the "Committee also believes that taxpayers should not be required to recover the costs of motorsports entertainment complex beyond the useful life of the investment."

Within the past few days, a bill was introduced in the house to repeal the termination date and make the special tax break for motorsports entertainment complexes permanent. The language of the bill, which can be found through the Library of Congress web site by searching for H.R. 1974, is quite simple. It gives itself a name, the "Motorsports Fairness and Permanency Act of 2009" and then provides for the repeal of section 168(i)(15)(D). The bill was introduced by "Mr. THOMPSON of California for himself, Mr. HELLER, Ms. BERKLEY, Mr. DAVIS of Alabama, Mr. LEWIS of Georgia, Mr. MEEK of Florida, Mr. BACHUS, Mrs. BONO MACK, Mr. BOUCHER, Mr. BRALEY of Iowa, Mr. BURTON of Indiana, Mr. CARSON of Indiana, Mr. COURTNEY, Ms. FOXX, Mr. FRANKS of Arizona, Mrs. HALVORSON, Mr. HASTINGS of Washington, Mr. HILL, Ms. KOSMAS, Mr. LOBIONDO, Mr. MCHENRY, Mr. MCHUGH, Mr. MICA, Mr. MOORE of Kansas, Mrs. MYRICK, Mr. PERRIELLO, Mr. SCOTT of Georgia, Mr. SESSIONS, Mr. WESTMORELAND, and Mr. CROWLEY."

How does this provision make the tax law more complicated? It requires the addition of 205 words to the Internal Revenue Code, numerous words to IRS Publications and instructions to forms, and countless words in professional publications, letters to clients, and web sites. For example, does the special break apply to the cost of racetrack warehouses? To the cost of vending stands? To the cost of fences? How many motorsports racing events must take place to qualify the facility for the special tax break?

Does the special tax break indeed encourage economic development? How has the economy fared since 2004 in the towns that have motorsports entertainment complexes? If those places are pillars of economic robustness, ought every town in America find developers to build these complexes? Assuming that the special tax break encourages economic development, why is there a special tax break for this activity and not for other activities? Are there locations whose economic track record (ha ha, sorry) surpasses those of towns with motorsports entertainment complexes? If so, why not a special break for whatever it is that people in those locations are doing? Are they not doing something even more valuable for the economy?

Does the special tax break prevent taxpayers from requiring the costs of motorsports entertainment complexes beyond their useful lives? In the absence of the special provision, the buildings would be depreciated over 39 years, as are factories, offices, shopping centers, and other non-residential structures. In the absence of the special provision, the other facilities and equipment would be depreciated over 15 years. Is the useful life of a motorsports entertainment complex less than 15 years? Many have been around for decades, and many still use facilities constructed a long time ago. Where is the evidence that after 7 years, the facilities are ready for demolition?

Why is the word "Fairness" in the title of the recently proposed legislation? What is fair about making permanent a special tax break when other taxpayers don't have a similar break and still others who have special breaks aren't candidates for permanency? Is it, perhaps, fair to the members who sponsor the bill so that they have a fair chance of gathering more NASCAR votes? Is that what's behind this proposed legislation?

When legislators bemoan the complexity of the tax law, do they ever look in the mirror? Do they truly understand the economics of the situation? Do they rely on their staffers? Are their staffers experts in this area? Are the legislators and their aides simply doing what their major contributors tell them or their staff to do? Has anyone produced proof that this special tax break has done anything other than reduce the taxes of a very small, select few taxpayers?

And what's the need for this special tax break? Taxpayers suffering from the economic meltdown are buried in losses and don't need accelerated depreciation deductions. They would be just as happy, or even happier, with depreciation extended over longer periods of time. Someone who owns a motorsports entertainment complex anticipates needing this special tax break in 2010 and thereafter. This someone must have some chunk of income that they want to shelter. This someone isn't buried in losses on account of the economic meltdown.

This legislation would do absolutely nothing to increase the take-home pay or improve the economic condition of motorsports fans. How has the introduction of this special tax break in 2004 affected their economic situation during the past four years? Are they better off than they were before it was enacted? Will they ask themselves this question the next time they enter a polling place?

It's unfortunate no one has introduced legislation to repeal section 168(e)(3)(C)(ii) and section 168(i)(15). That could be called the "Small Bit of Permanent Tax Fairness Act."

In How A Transformative Recession Affects Law Practice and Legal Education, I examined the impact of the current recession on law firms, including their relationships with law schools, and extrapolated these developments into a prediction about the future. With clients demanding lower hourly rates and elimination of inefficiencies from the rendition of legal services, and with firms rescinding offers, curtailing or terminating summer programs, and showing the door to associate after associate, the legal world, I noted, is watching "one more nail in the coffin of legal education as we know it" get pounded home. I predicted that the quality of applicants to law schools will decline, that the number of law students will decline unless law school tuition is adjusted to reinvigorate demand, that law schools will need to increase faculty teaching loads and cut back on "scholarship [written] for the benefit of other scholars," and that we might even see the practice world, perhaps a combination of law firms cooperating with bar admissions committees and state supreme courts, establish schools that prepare people to practice law so that their salaries can be justified to the law firm's clients.

In Law Schools, Teaching, Legal Scholarship, and the Economy, I examined Richard Posner's proposal that law schools have a department of legal doctrine. I suggested that law schools, or more precisely, their parent universities, need to separate law teaching and legal institutes so that law school tuition funds education and some other sort of funding, if it exists, sustains the legal think tank. I noted that law faculty need to wake up and get in touch with the realities of what is happening in the law practice world, and that law schools are not insulated from the impact of this sea change in the world economy.

I posted those thoughts on March 16 and March 27, respectively. What feedback came my way was notoriously private, that is, people agreed with me but were unwilling to go public. Understandably, they had more to lose than do I, or at least are in a more difficult position than am I, from challenging the legal education establishment as it presently exists. It's not so much the reluctance to criticize, for it's easy to find people critical of modern American legal education, both inside and beyond the walls of the nation's law schools, but a reluctance to come across as a prophet of doom. There is legitimate concern that when a dean or someone in a comparable position of authority within the academy publicly agrees with the sort of predictions that I am making, there will be a self-fulfilling prophecy that can come back to haunt the person as those hurt by the changes seek to put blame somewhere other than on themselves. Although encouraging voices from within legal education continue to be in short supply in the public forums, more and more commentators outside the academy are chiming in and making many of the same arguments, and predicting many of the same outcomes, as I have been offering.

On April 1, Adam Cohen, in With the Downturn, It’s Time to Rethink the Legal Profession, also looked at the recent developments in the legal profession, and concluded that if there is a "silver lining" to the bad news, it's "that the legal world may be inspired to draw blueprints for the 21st century." He predicts a drop in associate compensation. That's already beginning to happen. He also predicts that lower compensation means that associates will not need to work as many hours. I disagree. The economics of law firms is that law partners think it's more profitable to hire fewer associates to do more work than to hire more associates to do less work. I'm not confident that the perspective of the partners on this issue will change very much. Cohen predicts that the billable hour may disappear. He's probably correct. Then he turns to legal education and, after noting the scale of law graduate debt loads, suggests that law schools "will need to keep tuition and other costs in check" so that students can move into the profession without being saddled with "unmanageable debt." He wonders if more schools will follow Northwestern's lead and offer two-year programs. What he doesn't mention is that the total cost of the two-year program, as it now exists, isn't a 33% discount from the cost of a three-year program. In fact, it's barely cheaper and carries the obstacle of blocking out summer employment income, though at the moment there's not much in the way of summer employment income available. Cohen also emphasizes the need for law schools to "become more serious about curriculum reform," with "more pressure on schools" to add "more focus on practical skills." He suggests that law schools should "pay more attention to preparing students" to end up in "business, government, journalism and other fields." Though I share Adam Cohen's outlook, I must warn that those who "draw blueprints" are those who realize there's a need for a new building or a rehabilitation of an existing one. I'm not yet convinced that law faculty generally understand the need for some heavy-duty construction and reconstruction of legal education. Deans do. But deans are not CEOs and it remains to be seen what they do after they trim budgets and work with the financial statements.

On April 6, Katharine Patterson, a long-time legal recruiter and HR management consultant, brought her extensive experience and "in the middle of all of it" perspective to bear in Tough Times for Law Firms, Lawyers May Be Catalyst for Positive Change. Drawing on the impact of the last three major legal recessions on the profession, she, not unlike Adam Cohen, points to the current difficulties as an opportunity for productive change. She predicts the demise of lockstep compensation, the growing use of "more dynamic models that account for productivity and contributions to the firm's long-term institutional identify," and the disappearance of, and I think this is a great phrase, the "donkey and carrot race for partnership." She, too, turns her eye toward university campuses. She tells us, "Law school hiring will change. On-campus hiring will move to the end of the second law school yar, and look a lot more like business school recruiting." She thinks students increasingly will seek admission to two-year programs or "schools that offer stronger internship and practical training opportunities beyond academic legal training." As did I, she uses the "nails in that coffin" language to describe the impact of the recession on the way things have been done in the past, such as institutional loyalty. She then makes a point that I've also heard, in somewhat different terms, from someone who is a law school dean. She explains, "The current generation of young lawyers and law students is cursed not just by its lack of experience of hard times, but by an egocentricity born of good times. They just don't know how to behave, and can come across as self-centered and childish." Amen. Sadly, I can say the same thing of many who are on law school faculty, who have been able to ride a student debt bubble into a journey of writing scholarship for which no market has been, is, or will be willing to pay. I wonder how many deans will use the words "egocentricity" or "self-centered" when describing the reactions they encounter when they break the news that course loads are increasing, scholarship no longer holds center stage, and teaching, as measured by performance of the school's graduates, will be more of a factor in tenure and compensation decisions.

Perhaps all of this turmoil will indeed bring worthwhile change. The change needs to be more than structural. It needs to be more than shortening or lengthening the number of years one enrolls in law school. It needs to be more than incorporating law practice skills into the curriculum. It needs to be more than increasing faculty course loads and decreasing the time invested in scholarship for other scholars. The change needs to reach into the heart of law school culture. Law schools need to be more demanding of their students academically and to be more willing to dismiss those who cannot accomplish what law practice demands. Law schools need to put an end to relying on the useless portions of student evaluations of law teaching, and need to stop playing to the U.S. News rankings. Both best serve legal education and society by being dumped into a landfill. Both have contributed to the current failings of law schools, as the first causes law faculty to play the popularity contest game at the price of giving up the important quality of being demanding and the second has encouraged law faculty to churn out scholarship for other scholars, namely, faculty at other law schools whose U.S. News vote they are trying to acquire.

Patterson predicts that similar changes will wash through law firm culture. She predicts that "lower salaries, fewer offers and a much more competitive job market" will encourage law students and law graduates to "focus on performance and achievement." She tells us that law firms "often condoned shockingly bad behavior by students during summer programs" and that this should end, explaining, "Firms now have a chance to teach tough lessons that will make better lawyers." Indeed, law schools ought to be taking advantage of the chance that briefly exists to "teach tough lessons that will make their students better lawyers."

Adam Cohen concluded with these words: "Law school deans, bar association leaders and firm managers should follow Rahm Emanuel’s advice about never allowing a crisis to go to waste and start planning for what comes next." Katharine Patterson ended her article with this advice: "We are all in this together, firms, companies, law schools, students, folks who want to make careers in the law. Let's take advantage of this time of change and invest in all our futures. Law practice has come a long, long way since 1980, and hard times give us the chance to build an even stronger future together." I conclude with this simple notion: Law school faculties are on notice that they can act now, when there is a chance to influence the transformation of legal education, or act later, when they are trying to survive the tide of change.

Lily Garcia writes an advice column for the Washington Post. In the Sunday, March 29, 2009, edition of the paper, her column, titled that day Explaining Your Credit History; and the Case of the Vanishing Lawyers, addressed a question posed by someone "in middle management at a small law firm." It's unclear if this person is an attorney or a human resources professional. The writer's concern was the firm's experience with associates. "Of every three associates we hire, we inevitably part with two within a year." According to the writer, after being hired, the associates struggle with their hours, and then develop "problems maintaining a responsible level of contact with clients," "struggle with deadlines," and then stop working and billing. The firm offers "training and performance plans" and meets weekly with associates. The question: "Is firing people just the way it is?"

Ms Garcia's response suggests that although the demanding hours and stressful work of an associate's job cannot be changed, a firm can "minimize the chance of firing" the associate. Her advice:

1. Describe the job effectively and eliminate candidates not suited for it, because a good description will discourage unqualified applicants and attract those who thrive in a law firm atmosphere.

2. During the interview, ask questions designed to generate relevant information from the candidate. Ask the candidate how he or she would deal with a particularly challenging set of specific circumstances.

3. Don't let "personal preferences" affect the hiring decision, and if necessary, use some sort of scoring system that takes into account each key characteristic of the job.

4. Because the "employee's training, support, and supervisory relationship most accurately predict success," evaluate the firm's training and "formalize the mentoring relationships," because "many employees will forego opportunities to ask for help for fear of appearing incompetent."

5. Try to learn from employees who don't measure up why things didn't work out for them.

I don't know if Ms Garcia is an attorney. I don't know if she has practiced law. I don't know if her area of expertise is employment counselling. If she's not an attorney, her response is pretty much what I would expect from someone expertised in workplace management generally. If she is an attorney, her response carries a few surprises.

Here is what I would have replied to the writer:

1. If by struggling with hours, you mean that the associates do not manage their time well, rest assured that this is true of almost all law school graduates, because somehow they get through law school without learning good time management skills. Whether it is because faculty tolerate student practices that are not best practices when it comes to time management, whether it is because some law faculty themselves are deficient in time management skills, or whether it is because time management is very difficult to learn when not engrained in elementary and high school education, accept the fact that the firm will need to teach time management skills to its new employees, and not just its new associates. The firm should put in place a formal training program, at least until law schools acknowledge and implement processes that protect the law practice world from graduates who lack time management skills.

2. On the other hand, if by struggling with hours, you mean that the associates are not cranking out sufficient billable hours, ask yourself if you are providing them with enough work, and if someone in the firm is managing their workloads so that they aren't being inundated one week and left bereft of work the next.

3. And if by struggling with hours, you mean that the associates are billing too many hours for the tasks to which they have been assigned, understand that they cannot accomplish in an hour what senior attorneys can accomplish in an hour. Also understand that even though they have graduated from law school, they are novices at almost everything they try to do. They know a good deal of legal theory, some federal legal doctrine, smatterings of international law doctrine and state and local law doctrine, are fairly good at doing legal research, chiefly with case law, and most likely are unfamiliar with procedure and local rules. Again, until law schools revamp their curricula and teaching methods, prepare yourself to do a good bit of training and to make little money during the associate's first year with the firm. If this is too much to bear, consider doing what other law firms, even large ones, are doing. Hire someone with practice experience. Not only has someone else provided the training to get them from law school education into the practice world reality, you also have the opportunity to find out how they worked out in their previous job. Keep in mind that they may be leaving their previous job not on account of having done poorly, but because the job was for a limited term or lacked opportunities for professional advancement.

4. If, when you state that associates develop "problems maintaining a responsible level of contact with clients," you mean that they are not finding and obtaining clients and lack the skills to do so, rest assured that only in the most extraordinary instance does someone come out of law school with this ability. And in those extraordinary instances, which might occure once or twice a decade, the ability often is the student's connections to a family member or family friend who can be a source of new business for the firm. If, when you state that associates develop "problems maintaining a responsible level of contact with clients," you mean that you are giving the associates responsibility to contact clients and they are failing to keep clients up-to-date and informed about their cases, you should be applauded for trying to practice in this manner, for it is well known that too many lawyers do not stay in sufficiently frequent contact with their clients. Again, this is a skill that isn't taught in law school, unless the person you hired had the good fortune to enroll in a clinic taught by a faculty member who did not tolerate student inattention to client care. During the past decade and a half, the number of law students who fail to turn in work on time, fail to get to class on time, fail to reply to emails from administrators and faculty, and fail to deal with other matters in a responsible way has been increasing. Because law schools don't winnow out very many students, graduating close to 100 percent of the students who enter, it falls upon your firm to find a way to screen out candidates who lack conscientiousness. Asking questions during an interview might help identify the truly inattentive, but most law school graduates are smart enough to know how to give the right answer. Think yet again about selecting candidates from among those with a track record. Pay attention to the law graduate's transcript. Look beyond the GPA and focus on the courses. If the candidate was in a clinic or externship, call the faculty member or practitioner who supervised the person. Educate yourself about the candidate's law school, by finding out which courses are the ones that push the students to learn and put them into situations attuned to law practice circumstances. Beware of candidates with transcripts replete with courses more likely to provide high grades than sharp practice skills. Talk with colleagues in the profession. Get the scoop on what's happening at the school, because it's surely not the same place it was when you and your peers were in law school two or three decades ago. Talk with younger lawyers, especially those who are doing well in practice, whether at your firm or somewhere else. Ask questions. Call the school's administration and ask what's in the student's file. If it's something you would be glad you were told, it most likely is something that the student didn't volunteer to disclose. You may find the red flags that you're currently not discovering.

5. If you think it helps, describe the job with sufficient detail and with candid assessment of its demands. Anyone applying for a position in a law firm as an associate should know that it is a stressful situation and that the hours are demanding. But it doesn't hurt to put the obvious in front of the candidate because there are candidates who don't know the obvious or who don't focus on the realities of the job until they're in it and discover they're not in law school anymore.

6. Don't let your personal preferences get in the way. A candidate who converses well doesn't necessarily have the character traits you seek. A candidate who is polite isn't necessarily someone who will stay in touch with clients. A candidate who has a fine demeanor isn't necessarily someone who will thrive in a law firm.

7. If it helps to use a scoring system that evaluates each candidate, use it. The act of creating the scoring system will compel you to think about the job, what it requires, and thus what you require in an associate.

8. Be ready to provide much training, as already discussed, and to provide mentoring for the newly hired lawyer. Yes, this requires senior attorneys to invest non-billable hours in the professional development of the young associates, but the present value of its payback in the future exceeds the foregone billable hours, if indeed the mentoring cuts into billable hours rather than increase the senior attorney's total hours at the firm. Yet again, if the pressure of the bottom line makes this prospect unacceptable, think about hiring associates who are further along in their careers.

9. Supervise the young associates. Take a moment to sound them out about their current projects. Set up mechanisms to determine earlier rather than later if they are going off-track. Giving an associate an assignment and then having no interaction until the associate turns in work product is as ineffective as teaching a course for an entire semester and getting all the feedback in an end-of-semester exam. It's a truly bad time to find out that the associate, or the student, was in the wrong place.

10. Hire new associates on a provisional basis. Let them know that there is a probationary period. There are federal agencies that hire lawyers on this basis, and all sorts of employers in other industries who do the same. Though it may seem to be a difference without meaning, there are different psychologies involved when the choice is between firing someone and letting someone's probationary period end. The probationary period puts the associate on clear notice that a job is not something to which the associate is entitled. Many law school graduates enter the workplace with a deep sense of entitlement, and although the experience of an economy gone bad may wash this feature out of American culture, that sense of entitlement is very real and isn't going away tomorrow.

11. Get feedback from the associates. Ask them what they need, what is working well, what isn't working well, and whether their expectations match the reality of their experience with the firm. Make it clear that they're not necessarily going to have the firm restructured to meet their demands, but that if they make a worthwhile suggestion, it will be given due consideration.

12. Set salaries on the lower side, and put in place a bonus system. That should create incentives for associates to perform at their best. It reduces the loss when, despite taking all of the preceding steps, things don't work out, because it reduces the cost of training someone who isn't going to generate significant net revenue for the firm during their first year of practice.

And yet, with all of that, sometimes the associate's failure to work out isn't the fault of the firm, but the fault of the associate. Sometimes getting fired is the wake-up call that brings the associate out of childhood and into responsible adulthood. It's unfortunate that your firm needs to be the one that teaches the lesson because those responsible for educating and raising the person before they entered your world failed to be sufficiently demanding and courageously firm when dealing with people who did not make the progress they needed to have made before they reached your firm.

Andrew Oh-Willeke, who practices law in Denver, has commented on my musings about Tax and Pefection. In A Rare Sighting Of A Common Statutory Species, Andrew notes that he is "more sympathetic " to the staff involved in drafting legislation than am I, and indeed he is. Andrew has contributed to what I hope becomes a discourse that reaches beyond the two of us, and into the world of tax practice and the halls of the Congress.

Andrew makes several important points:

1. The elected legislators and their chief agents "rarely have, and generally are not expected to have, the kind of academic preparation that an excellent tax student should."

2. The "prime qualification" for being hired as a legislator's staffer "are political, not academic."

3. The people who are making the drafting decisions "are rarely fully aware of the problems they are getting into," a condition that similarly afflicts private practice contract drafting, particulary when it comes to drafting partnership agreements.

4. The type of thinking that works well with the precision required for drafting doesn't always align with the sort of brain that can see the "forest of implications" that an amendment to a tax law might have beyond "its immediate surrounding."

5. Drafting is harder than it seems.

6. Tax code amendments often are drafted with "only one set of facts in mind, without much attention to how the text could be read in other circumstances."

7. "It doesn't help that American statutory drafting generally is not particularly systematic by international standards," because American statutes are drafted "with an eye towards practitioners who will cherry pick a sentence or two, rather than having overarching definitions and unacknowledged cross-references." Along the same line, Andrew notes that "American laws are more collections of little statutes, than they are comprehensive codes, a tendency that carries over even into the tax code."

8. It is doubtful that "there is one overarching and universal definition of much of anything 'for federal income tax purposes,'" a position reinforced by the multiple definitions given to terms such as "corporate control" and "dependent."

9. It is easy, when drafting legislation, "to go awry by going beyond what has been expressly agreed," making it unwise to embellish a deal during drafting.

10. Tax legislation is "typically the subject of negotiation until the very last minute and its passage, ready for prime time or not, is often critical to the ongoing functioning of the Republic."

11. Junior committee staffers don't have the clout to solve drafting problems by changing language "carefully crafted to reach sufficient agreement of interested lobbyists, members and senior staff of those members," which "discourages staffers from rigorously identifying every problem," in turn something lobbyists are charged with doing.

12. Tax statutes get caught up in technical problems because they are "prone to Congressional micro-management," which leaves the administrative agencies handling tax matters with much less "authority to engage in quasi-legislative regulatory drafting" than in other areas of the law such as securities and environmental law.

13. There is much less participation in drafting by Treasury officials than "their counterparts in countries with a parliamentary system of democratic government," and "Treasury does not necessarily get much more input than a knowledgable subcommitee chair on the House Ways and Means Committee, or U.S. Senate Finance Committee, or senior staffers on the Joint Tax Committee."

14. Tax practitioners have "even less of a say in the process" of drafting than does Treasury and are "less well equipped to participate" in that drafting.

15. Consequently, tax "administration is less important in statutory drafting than the question of distributive politics and appearances."

16. Perhaps the solution is to give courts "the power to certify questions of statutory interpretation to legislative bodies with the authority to change the statutes in response for future cases, just as federal courts refer unsettled questions of state law to the supreme court of that state."

The points that Andrew makes are keen observations about the realities of how federal tax statutes are drafted, and perhaps carry a bit of justification for the quality level of the material that is produced by the drafting process. Though I can criticize the drafting process, I do not criticize Andrew, for he has contributed to enlightening the populace about the ways Congress does business. The only point with which I must disagree with Andrew is his assertion that I found the error in sections 121 and 163(h). I carefully noted that " It has been suggested that the problem lies with the drafters of section 163(h) and its amendments. Specifically, it has been proposed that the drafters assumed that married individuals filing jointly become one taxpayer for federal income tax purposes." because I did not want to steal someone else's discovery while I also did not want to give that person unwanted publicity. I ought not be given credit for something I did not discover, nor do I seek it. I am not Admiral Peary.

The points that Andrew makes inspire me to elaborate on my initial observations about Tax and Pefection:

1. Because legislators and their senior staff don't "have … the kind of academic preparation that an excellent tax student should," it is even more reason that they hire people who are expertly trained in the substantive matters with which they will deal. That the legislators and their senior staff generally are not expected to have this sort of preparation is true, but is an unfortunate commentary on the state of politics in America, one in which expertise must yield to the sound-bite vote-acquisition game. Is there not something sensible about the idea of calling people to public service who can bring skills that can be put to use solving problems? And ought that sort of calling extend beyond the appointment of mid-level executive branch directors and managers?

2. Thus, though it is true that the "prime qualification" for being hired as a legislator's staffer "are political, not academic," it is unfortuate, and in the long run, risky, that this is true. Staff who are expected to draft legislation ought to have those skills. I have seen tax legislation drafted by staffers without tax expertise, and it makes the Internal Revenue Code appear to be a masterpiece.

3. One of the challenges of lawyering is the ability to become "fully aware of the problems" that are implicated in an issue, whether it is drafting, litigation, or counselling a client. The same is a good trait for computer programmers to have, and every time a program crashes, as happened to me several minutes ago, one is reminded of how a limited perspective can generate pitfalls. Surely a bit more awareness and thinking through a situation reduces the chances of the problem arising.

4. I totally agree that it is rare for someone able to think with the sort of precision required for drafting to have the sort of brain that can see the "forest of implications" for a piece of tax legislation, but people with that combination of skills exist. It is essential that they be encouraged, however possible, to use those skills for the betterment of the nation's tax laws. It is just as essential that they be given that opportunity, even if they don't carry the political attributes that are prevalent among legislatures and their staffers.

5. Absolutely, drafting is harder than it seems. That's why law schools need to put more effort into teaching it. That's why legislatures need to reach out for those who are the best drafters.

6. Though tax code amendments often are drafted with "only one set of facts in mind, without much attention to how the text could be read in other circumstances," there is no reason that this practice cannot be changed. There is no reason that drafters cannot ask themselves, "How would this affect other things and other people?" That is a question fewer and fewer people ask of themselves these days before embarking on an activity or making a statement.

7. There is no doubt that statutory drafting in this country is not systematic. It is indeed a hodge-podge of "collections of little statutes." That wasn't always the case with the tax law. So long as those charged with its care knew it inside out, its coherency remained intact. But during the past several decades, it has been pushed, pulled, and twisted in so many directions that it has lost its coherency, and it has become quite an adventure to find someone who thoroughly understands the Code, in contrast to some particular segment of it.

8. There probably are a few, but only a few, terms that hold a universal definition for all of the federal income tax, because even those definitions established "for purposes of this chapter" are subject to the inevitable "except as otherwise provided." Much of this stems from the pressure of lobbyists for special rules, so that signs with the word "STOP" mean "GO FAST" for their special clients. The term "small business corporation" has at least four different definitions in the code.

9. Of course, when drafting a statute, staff should not go beyond what has been agreed, but if something needs to be covered by the statute and the agreement doesn't deal with it, the staff should be given the right to request the decision-makers to deal with the issue. If they don't, the statute should not move forward. Should an automobile manufacturer ignore a worker's inquiry about the absence of brakes on vehicles moving down the assembly line? The position of being a legislator includes the responsibility of seeing to the enactment of coherent legislation.

10. Tax legislation would not be enacted under last minute pressures if the Congress would apply time management principles to its workload, deny itself home leave when it's behind on its work, and restore the use of public hearings to the legislative process so that it would get early warning that its decision-making and drafting are heading in a direction certain to create administrative problems. The shift into midnight legislative drafting madness is in part a consequence of letting lobbyists jump in late in the game rather than during earlier, transparent, and public hearings.

11. It is unfortunate that junior committee staffers don't have clout, and even more unfortunate that they are discouraged from telling the manufacturer that the brakes are missing. The increasing role of the "interested lobbyists" coincides with the decline in the quality of tax statutes, and probably explains why many of the folks with that rare combination of focused precision and wide perspective choose to go into the private sector to draft partnership agreements rather than to endure the frustrations of being powerless to accomplish quality work.

12. Congressional micro-management of the tax law is definitely a problem, as Andrew notes. On more than a few occasions, the IRS and Treasury have issued positions favorable to taxpayers in order to fix a drafting flaw, and though at times criticized for allegedly going beyond permissible bounds, have prevented even more problems, and more problems of an even serious nature, than do arise under the statutory language that is enacted.

13. Once upon a time, Treasury participated in the tax legislative process at a level that brought the benefits of its collective experience, knowledge, and wisdom to the drafting table. During the past several decades, Treasury's role has diminished, and its input marginalized, as a combination of lobbyists and legislators who think they are tax experts have taken over the process. I have my doubts that senior staffers on the Joint Tax Committee have as much influence as they once had, and that is unfortunate. It may be a reason that turnover on that staff is higher than it was several decades ago.

14. Tax practitioners would have more " of a say in the process" of drafting if Congress would return to the practice of holding hearings so that it can educate itself about the ramifications of proposed statutory changes. That's how a drafter can become "fully aware of the problems" that are implicated in an issue. And I'm not referring to the grandstanding hearings such as the one at which what turned out to be falsely-testifying witnesses were paraded forth in an effort to blame the IRS for the existence of the income tax.

15. Though Andrew is correct that tax "administration is less important in statutory drafting than the question of distributive politics and appearances," it is a sad commentary on the state of current American political process that appearances trump function. I suppose the shiny car without an engine is more worthwhile to some people than the dinged-up vehicle that runs. Perhaps the good-looking bridge with wrong-sized bolts should be the logo of the "appearances matter more" crowd?

16. I very much like the idea of giving courts "the power to certify questions of statutory interpretation to legislative bodies with the authority to change the statutes in response for future cases." I wonder how long it would take for a response. I wonder how much irrelevant baggage would be tacked onto the response. I wonder if it would make sense to give Treasury and the IRS similar referral authority, so that the question could be resolved long before it reaches the courts many years after the legislation's enactment.

Near the end of his critique, Andrew provides an example of how distributive politics and appearances have trumped tax administration concerns. He refers to the Pease Amendment, which is the phaseout of personal exemptions for higher income taxpayers. To me, that amendment is the epitome of what is wrong with how Congress functions. The amendment was designed to raise taxes without raising the section 1 rates, so that the Congress could tell the nation that it had not raised taxes. The phaseouts, which finally were set for repeal but which unfortunately appear to have been given new life, not only create a higher effective marginal rate for taxpayers not in the highest brackets than for those in the highest brackets, and not only complicated tax forms and the tax law, but also reflect a deceit that tried to trick the public into thinking that by not raising section 1 rates Congress, which had in fact raised taxes, had not raised taxes. Of course, as drafted, the Pease amendment is not a poster child for bad drafting, but for bad policy. And that is another topic.

Ultimately, even if it cannot attain tax drafting perfection, the Congress can improve significantly the process that it uses to generate tax legislation. It can restore public hearings. It can relegate lobbyists to the public arena. It can disclose which individuals injected themselves into the drafting process. It can find ways to bring into the process the people who have the combined ability to be precise and to see the big picture. It can recognize that the far-reaching consquences of its actions carries with it a responsibility to subject those actions to the same sort of careful review it requires executive agencies, product manufacturers, and service providers to bring to their respective operations.

The inability to attain perfection is no excuse for failing to seek the next best thing to perfection.

An email found its way to me, carrying a proposed solution to the economic tribulations of the country. The email claims that the idea came from a reader of the St. Petersburg Times, as a response to the newspaper's request for readers to suggest ideas on how they would fix the economy. The reader whose response is getting attention allegedly proposed the following:

There's about 40 million people over 50 in the work force. Pay them $1 million apiece severance with stipulations.

1) They leave their jobs. Forty million job openings! Unemployment fixed!

2) They buy NEW American cars. Forty million cars ordered! Auto Industry fixed!

3) They either buy a house or pay off their mortgage. Housing Crisis fixed!

Aside from the question of whether such a plan would work, there's the question of whether there is any truth in the story of how the suggestion came to be. I went to the St. Petersburg Times website. I searched for various components of the suggestion, such as "They leave their jobs. Forty million job openings! Unemployment fixed!" but I found nothing. A google search turns up sites repeating the email message but none have a link back to the alleged origin. There's nothing on the Snopes.com Rumor Has It website one way or the other. Because the suggestion is simply that, and aside from one assertion, mostly opinion rather than fact, it doesn’t matter whether the idea came from a reader of the St. Petersburg Times or some other source. Even the asserted fact, that there are about 40 million people over 50 in the work force, isn't critical to the idea, because the idea would be no more or less sensible if there were 30 million or 50 million people over 50 in the work force.

The more important question is whether this plan would accomplish what its unidentified proponent claims it will. My answer is no.

First, assuming the proposal would require everyone over the age of 50 to leave the work force, it would have the effect of removing from the nation's pool of labor assets those members of the work force who, though over the age of 50, possess skills, knowledge, wisdom, intuition, prescience, creativity, and other characteristics that aren't necessarily to be found among those who remain in the work force. The proposal suggests that unemployment would be solved, presumably because 40,000,000 jobs would open up. However, there's nothing to indicate that those seeking jobs have the requisite competencies to step into the positions that have been vacated, unless the unstated premise is that qualification for employment should continue to be eroded. In the short term, there would be far more negative consequences for the economy than positive ones. The people forced out of the work force won't be there to pass their collective wisdom and knowledge to the next generation. In the long run, the damage to the economy could be no less severe than the damage that has already occurred.

Second, assuming that the 40 million who receive the payment are required to puchase automobiles, there would be a huge shortage of available automobiles. According to How Big Will the Post-Recession US Vehicle Market Be?, the peak year for US automobile sales involved 17 million transactions. That was nine years ago, and during that time production capacity has been reduced. Restoring production would be more than a bit difficult with most of the people who know how to do so and who once worked at those plants having been pushed out of the work force in step one of the proposal. Whether foreign automobile production could fill the gap is problematic, because the economy isn't helped by having these 40 million individuals ship money abroad for a set of wheels. Many of these 40 million individuals don't need new vehicles, so requiring them to make the proposed purchases is a waste of resources. Worse, as pointed out in How Big Will the Post-Recession US Vehicle Market Be?, the current woes of the automobile industry are the consequences of needing to adjust to a marketplace that no longer can absorb the glut of product pushed into it during the past two decades. The economic problems in the automobile industry are transformative, and at best the proposal would postpone the inevitable at an unreasonable cost. Unless the automobiles being purchased by the 40 million involuntary retirees consume far less energy and don't rely on fossil fuels, the proposal is counter-productive in the long run. Sometimes pain is a good thing because it is sending a message that needs to be heard.

Third, assuming that the 40 million who receive the payment are required to purchase a home or pay off a mortigage, these individuals would be assuming responsibility for the maintenance and care of properties that, in present value terms, might require as much investment as the cost of the home. Some of the 40 million own homes on which there is no mortgage, but it is wasteful to require them to purchase a home that they don't need. One might suggest that they be required to rehabilitate an existing structure so that it can be used as a home, but it is not efficient to ask 40 million people to undertake 40 million projects, and thus funneling the money into their hands for this purpose is highly inefficient. Creating this sort of demand for homes simply contributes to sprawl and excessive housing size, and thus sustains elements of the old economic order that holds back genuine economic growth. Nothing in this step of the proposal does much of anything to deal with the problem of toxic mortgage debt, because most of the people who have lost homes or face foreclosure are under the age of 50. Most of the people over the age of 50 own homes, often free of debt, and are far less in need of a $1 million hand-out to be used for housing purposes.

Fourth, after these folks spend a small portion of the $1 million on a car and a house, what will they do with the rest of the money? Will they stash it offshore? Will they spend it? Will they save it in a US bank? When it goes into the US bank, will it be loaned to someone else or held by the bank because the bank officers are reticient to lend money during a bad economy? If it is to be loaned to someone else, does it not make more sense for the government, rather than transferring the money to 40 million individuals who then transfer the money into banks who then lend it, to lend the money directly to people who want to borrow? If the money is moved abroad or consumed overseas, how does that help the economy?

Fifth, the proposal would not do much of anything to deal with the health care crisis, the energy crisis, the environmental crisis, the education crisis, or the crime wave crisis. Ignoring any one of these problems guarantees that no arrangement, whether it is $1 million distributed to 40 million people or bailout money tossed into the black hole of bank and investment company bailouts, will succeed in solving the other crises.

Sixth, to the extent that people over 50 who would receive the $1 million payout are among the wealthy, the propriety of making the rich richer is deeply questionable. From a practical perspective, these folks could buy cars and houses or pay off debt if they wanted to do so without needing or having another $1 million in their hands. To the extent the government distributes money, it ought to do so with respect to people who truly need assistance. The proposal may be nothing more than a satire on the existing bailout deals, in which case it surely proves this point.

Seventh, $1 million for each of 40,000,000 individuals is $40 trillion. According to Table 3 in this Bureau of Economic Affairs News Release, the nation's gross domestic product is on the order of "only" $14 trillion. The total federal debt, according to the Treasury, is on the order of $11 trillion.

The proposal is nothing more than the tax rebate concept on steroids. And it has about as much chance of accomplishing its intended result as did the rebate, excuse me, economic stimulus program. That is, zero.

More than a year ago, in Who Should Get a Tax Rebate?, I suggested that funneling money to taxpayers made sense only if taxpayers would make better use of the money than would non-taxpayers. Even though that concern was addressed in part when the rebate payments were modified so that non-taxpayers could participate in the program, the outcome reinforced my contention that increasing federal debt in order to put money into people's hands would not help the economy unless the people used the money in ways helpful, rather than hurtful, to the economy. As it turned out, the economic stimulus program did not stimulate the economy, in part for that precise reason. I pointed out the reason, and here it is again:

So long as consumption exceeds production, so long as more wealth, particularly dollars, flow out of the country than flow into the country, so long as certain items remain in short supply and project to remain that way, the nation's economic and financial health will worsen. Tax rebates will not increase the supply of clean water, oil, natural gas, or any of the other resources mismatched to the demands of the world population.

The three-step proposal getting all of this attention exacerbates the mismatch between production and consumption, because it would create a group of 40 million people who consume more than they produce, and considering that the world already has far too many people consuming more than they produce, for one reason or another, it makes no sense to add to their numbers when the underlying cause of the global economic meltdown is consumption exceeding resources. As I pointed out in Taxes and Economic Stimulus: Déjà vu All Over Again?":

What seems undeniable is that simply transferring cash to individuals, whether through rebate checks or reduced tax withholding, will have the same insignificant impact on the economy as did the earlier stimulus package. Having the money end up in banks, through savings or loan repayment, simply makes the ocean of bailout money flowing to bank shareholders somewhat, and unnecessarily, deeper. Having the money end up abroad to the extent it is used to boost the consumer goods production in other nations does little to create jobs in the United States, one of the few specific goals mentioned by advocate of a second stimulus package. Transmitting the money to state governments simply removes the question to the next level but doesn't address its ultimate disposition.

This analysis, though, needs to be considered not simply against the ideal, but the reality. Putting aside the question of whether the government should transfer dollars to private individuals or organizations, and focusing on the question that arises if the preceding question is assumed to be answered in the affirmative because it already has been so answered, the question is whether the dollars should be transferred to individuals or organizations such as banks, automobile manufacturers, and investment enterprises. On this point, an argument can be made that, compelled to accept the transmission of dollars to the private sector in this manner, there is something to be said to preferring individuals as the recipients. Nonetheless, the proposal begs the key question, because the best use of the money is for direct government investment in public infrastructure and facilities for the public good, a process that generates public assets in exchange for the public debt incurred to acquire them.