MauledAgain

According to several reports, including ones from the Central Penn Business Journal, the Philadelphia Inquirer, and the Pennsylvania Budget and Policy Center, Republicans in the Pennsylvania legislature are trying to extract a tax cut that favors big business as a price for the governor’s attempt to delay the phase-out of the state’s antiquated capital stock and franchise tax. This attempt at a trade-off is part of the ongoing attempt to break the budget impasse, which has arisen because Democrats are willing to increase taxes to preserve state services whereas Republicans are willing to pay any price to prevent any tax increase of any sort. The stalemate, which I described more than two months ago in A Tax-and-Spend Conundrum, continues.

This particular proposal originates with the planned phase-out of the capital stock and franchise tax. There is no way to describe that tax in a one sentence other than to note that it makes the federal income tax system appear to be a work of art. The computations are complex, the tax is subject to a variety of exceptions, and the effective rates are high. A few years ago, the legislature agreed that it was time to eliminate the tax, and chose to do so by phasing it out by the end of 2010. Because the state is in a cash crunch, the governor is suggesting that the phase-out be suspended for a year, though one wonders if the suspension would continue so long as fiscal problems plague the state. Republicans in the legislature consider the phase-out suspension to be a tax increase, and thus argue that there needs to be an offsetting tax decrease. This logic is amazingly flawed. If the lack of a tax cut is a tax increase, then this philosophy demands that taxes be decreased in order to avoid an increase. The ultimate goal of eliminating taxation, and thus government, is exposed. Of course, most people who buy into this philosophy buy into the sound bites without realizing the underlying policies that spawn this logic nonsense. Worse, if the point of suspending the phase-out of a tax is to prevent additional decreases in state revenues, what’s the point of offsetting it with a tax cut that would decrease state revenues? How does that get the state any closer to the balanced budget it is required to produce?

To understand the tax cut that is being proposed at a time when the state’s budget problems arise from declining revenues, one must understand how Pennsylvania taxes corporate income. Pennsylvania is prohibited by the federal Constitution from taxing out-of-state corporations on out-of-state income. That is why a corporation organized in Indiana and that conducts all of its business in Indiana is not required, and cannot be required, to file Pennsylvania income tax returns or to pay Pennsylvania income tax. But what happens if that corporation begins to do business in Pennsylvania? How does one compute the portion of its income that is attributable to Pennsylvania? Should it be based on the percentage of its sales in Pennsylvania? The percentage of its payroll expended for services rendered to it in Pennsylvania? The percentage of its property located in Pennsylvania? Under current law, it is based on all three, with the ratio reflecting 70 percent of the sales factor, 15 percent of the payroll factor, and 15 percent of the property factor.

Republicans are proposing to ditch that formula in favor of one that relies solely on the sales percentage. It’s called the single sales factor. What happens is that large companies located in Pennsylvania but whose sales are mostly out-of-state would find less of their incomes deemed attributable to Pennsylvania. The property and payroll factors, which weigh heavily in favor of attributing income to Pennsylvania, would be knocked out of the computation. On the other hand, for small companies whose sales are entirely or almost entirely within Pennsylvania but that have payroll or property outside the state, would incur an increase in income tax liability, though not on a scale sufficient to offset the revenue decline from the tax cut for the large companies. According to this report, the Pennsylvania Manufacturers’ Association and the Pennsylvania Chamber of Business and Industry support the proposal. What a surprise.

A former Secretary of Revenue in Pennsylvania, who is now active in the state’s business community, sent a letter to the governor and legislators explaining why the proposal to shift to a single sales factor is a bad idea. He notes that five years ago the Pennsylvania Business Tax Reform Commission developed a plan to fix the problems in the state revenue system, but that special interest tax breaks continue to impede progress towards efficient, broad-based business taxes. The writer of this editorial notes that the tax cut proposal would benefit companies such as PPG Industries, U.S. Steel, and Hershey Foods. In its policy brief on the issue, the Pennsylvania Budget and Policy Center explains that the change would increase taxes for roughly 10,500 companies, cut taxes for 4,380 corporations, and cost the state $100 million in annual revenues. It also examined what happened in the eight states using the single sales factor approach, and discovered that manufacturing jobs declined in those states during the past 7 years, whereas the four states with increases in manufacturing jobs do not use the single sales factor. The Center concluded that the arguments by those in favor of the tax cut that it will create more manufacturing jobs are unsupported by the evidence. According to the former Revenue Secretary, half of the $100 million tax cut would benefit roughly 15 corporations.

My concern isn’t simply the notion that at a time when Pennsylvania is facing a fiscal crisis, a small group of well-represented corporations is trying to reduce their tax liabilities. My concern also reaches to the worsening problem of uninformed citizens being unaware of what actually is happening in their state capital. How many Pennsylvanians understand these tax issues? How many understand the impact of what is being proposed? What resources are available for those who care enough to try to learn what is transpiring during these budget talks? If people comprehended the impact of the single sales factor proposal, they would be making their opinions heard in Harrisburg. What should matter is that every dollar doled out in tax cuts to these large corporations will cause either a dollar increase in a state tax paid by individuals or a dollar decrease in vital state services. That’s what happens when the state constitution requires a balanced budget.

On Monday, in Federal Tax Law Changes Looming?, I reviewed, albeit briefly, some of the ideas set forth in a Congressional Budget Office report with respect to ways that the federal revenues can be increased or decreased. At least some of those that I omitted do deserve attention.

The report notes that revenues could be increased if the exclusion for income earned abroad were repealed. The principal argument in support of the exclusion is that Americans living abroad do not receive as many benefits from the federal government as those living in the United States. Assuming that this proposition is true, how can it justify excluding the first $91,400 of earned income? Would it not justify, instead, an exclusion of a percentage of income, or, perhaps ideally, a credit equal to a percentage of tax liability subject to a fixed dollar limitation?

The report's focus on taxing carried interests as ordinary income is not new. It is an idea whose time is long overdue. The fact that the tax law can be adapted to convert income received in exchange for services into capital gains taxed at special low rates is an indictment not only of the complexity of the tax law but also of the dangers of carving out certain types of income for special rate treatment. The thicker the tax maze, the easier it is for a taxpayer to hide in it. Thin out the tax weeds, and there will be far fewer opportunities for people to take advantage of unintended consequences.

Another idea is to consolidate the American Opportunity Tax Credit, the Lifetime Learning Credit, and the student loan interest deduction into one credit. Those are but three of a variety of tax law provisions designed to encourage education. The advantage of the consolidation is that it would simplify the tax law. The number of taxpayers not taking advantage of existing provisions because they are unaware that they exist or do not understand how they apply would be reduced. I wonder, though, if the tax law is the appropriate vehicle for encouraging education. Surely there are non-monetary incentives that a civilized society can use to encourage people to attend school. And to the extent that monetary constraints hamper people who want to continue learning in a formal setting, thus making financial assistance a necessity, what does it say of the Department of Education that the Congress chooses to have the IRS administer multiple programs to funnel money to taxpayers who qualify for help? Consolidation of these three provisions is not a bad idea per se, consolidation of more of the provisions makes better sense, but reforming the entire governmental perspective on education is a better, and absolutely necessary, goal.

The suggestion that the child tax credit be eliminated or modified also gets attention in the report. The tax law is riddled with provisions that are intended to provide financial benefits to persons raising children. Aside from the child tax credit, there is the dependency exemption deduction, the adoption credit, the adoption assistance exclusion, increases in the earned income tax credit on account of children, the credit for dependent care, and others. These provisions account for disproportionately high levels of taxpayer noncompliances, often to the disadvantage of taxpayers. Some also are of little use to taxpayers; for example, the child tax credit does little or nothing for low-income taxpayers. Why not one credit that accounts for the cost of raising a child? Why not a consolidation similar to that floated with respect to education incentives? A consolidated credit, incidentally, ought not be an incentive to have children, but simply part of the "ability to pay" principle underlying the federal income tax.

In the area of corporate taxation, the report floats two contradictory ideas. One is to lower corporate tax rates by five percentage points. The other is to set the corporate rate for all corporations at a flat 35 percent. Both of these proposals in turn contradict the idea of integrating the corporate and individual income taxes, which the report also discusses, as mentioned on Monday in Federal Tax Law Changes Looming?. Absent integration, of which I am a fan, I struggle with the question of whether the corporate rates should be progressive, flat, or, as under current law, phased-out progressive. I struggle because S corporation income, with a few technical exceptions, is not subject to double or even the triple taxation that C corporations encounter. What is it about C corporations that justifies separate taxation, and does the answer carry with it the possibility of some other form of taxation or user fee to be imposed on corporations? The principal justification for taxing corporate income, namely, that it would not otherwise be taxed, is best solved with integration of the two taxes.

The report considers the elimination of deductions for exploration and development costs incurred by taxpayers engaged in extractive industries. In other industries, the costs of exploring or setting up facilities must be capitalized, and if deducted, generate deductions over a period of time. Extractive industries get special treatment simply because they've had efficient lobbyists for the past 70 or 80 years. I still remember my reaction when I learned that the costs of a drilling platform qualified as intangible drilling costs. Intangible? That's a sign of how warped these provisions had become. Reform is long overdue.

Would it make sense to repeal the low-income housing credit? The report asks that question, and I respond in the affirmative. If Congress wants to direct resources into housing for individuals with low income, it ought to do so directly rather than through the convoluted, complex, and inefficient tax credit approach that has been in use for many years. The report describles the flaws of the credit, pointing out how it helps lower middle-income persons far more than low-income individuals, and explaining how direct grants are economically more efficient. The latter conclusion arises in part from changes to the tax law that permits states to shift into direct subsidies some of the amounts allocable to the credit. To these reasons I add the assertion that the IRS ought not be in the business of administering and auditing programs to develop low-income, or any other sort of, housing. There are other Departments in the federal government responsible for housing and related matters and it is with those agencies that responsibility should be placed.

The report notes the idea of extending the recovery period for depreciation of certain assets. During the past twenty years, more and more specifically identified types of property have been singled out for extremely generous, and economically unrealistic, recovery periods. Not only does it make sense to derail this particular gravy train, it also would make sense, as I have advocated in the past, to eliminate depreciation on real property.

Another idea that has been floating around since the deduction for domestic production activities was enacted is to repeal it. It was a bad idea from the outset, it has been roundly criticized, it has created a variety of issues in the international taxation context, it is complicated, it encourages game-playing by taxpayers, and it has burdened the IRS. The report elaborates on these concerns, and also notes the few arguments in favor of retaining the deduction.
Revenue projections would decrease if the research and experimentation credit were permanently extended, but the report considers this idea because otherwise the credit loses much of its punch. Of course, I question whether the credit should exist, for again, direct subsidies to research and experimentation activities that are in the national interest makes more sense. But if there is to be a credit, it doesn't accomplish its goals if taxpayers do not know if the credit will exist the following year. The Congressional game of waiting until the last moment, or even after a credit expires, to extend its application by another year or two is counterproductive, in the case of most credits, but particularly in the case of this credit which involves commitment to expenditures over periods of time extending beyond whatever happens to be the current termination date of the credit. When politics trumps efficient tax administration, the nation pays the cost. Politics isn't worth that price.

A huge amount of revenue would be raised if the maximum limitation on taxable wages for social security purposes were repealed or increased. Should that happen? The report analyzes the possibilities. If social security benefits are limited, why should the tax base be unlimited? On the other hand, if social security is insurance (The I in FICA is for insurance), premiums aren't directly related to the specific recoveries received by specific covered individuals. On a more practical level, when the maximum limitation was enacted, it caused 92 percent of earnings to be subject to social security tax on the employee. Over time, that percentage fell as real wages increased, and Congress amended the law and provided for cost-of-living increases to the specified maximum dollar amount. Yet, presently only 80 percent of wages are subject to social security taxation on the employee. Would it make sense to raise the limit so that 92 percent of wages are covered? There's much logic in that proposal.

Moving away from income and social security taxes, the report makes a place for the continuing proposal to increase the excise tax on motor fuels. Readers of MauledAgain know that I'm all for this idea and that, at best, the debate should be about the extent of the increase and not whether one is required, justified, sensible, or economically efficient. That's because increasing this tax indeed is necessary, justifiable, sensible, and economically efficient. Until motor fuel taxes reflect the true cost of those fuels, motorists will continue to make decisions thinking that fuel is cheaper than it actually is.

The report examines several proposals to impose excise tax on the emission of specified noxious pollutants, namely, sulfur dioxide, nitrogen oxides, and greenhouse gases. This is a good example of what ought to be called a user fee, or a pollution charge, rather than a tax. The reason for an excise tax is not simply that there is a revenue stream that can be tapped, but that the nature of what is being emitted is harmful to civilization. When a tax distinguishes between that which is good and that which is not good, it's really not a tax, but a fee or charge for the harm done by that which is not good. Is it a good idea to impose a fee, charge, tax, or whatever one wants to call it? The answer rests in the decades-long argument between those who look to the future and at the true cost of emitting these substances and those who look to the present and near-term and see these sorts of taxes as constraints on the development of business, the generation of profits, and the production of near-term consumption.

The report also looks at a parade of user fees for services provided by the federal government, from the Inland Waterway to food and drug reviews and bank examinations. Perhaps it makes sense to charge those whose activities need to be examined and reviewed for the cost of doing so. The alternative is to impose those costs on society through general taxation. Though society benefits from government oversight of activities such as food processing and drug manufacture, if those industries operated ideally no such government regulation would be necessary. The cost of these reviews and examinations are better placed on these industries because they are the ones who cannot manage to reach the ideal. Yes, these costs probably would be passed on to consumers, but they would be attached to the products in question and not to other industries.

Even after briefly reviewing this second list of options in the CBO report, I've not touched on all of them. Some I have ignored because they are very technical. Others I have skipped because they are very narrow. One I omitted because it's simply a focus on the wide-open question of what to do with the estate and gift tax, a discussion to which I have nothing to add at the moment that I haven't already said at some point in the past. For those who are interested in what sorts of ideas are floating around Capitol Hill but that are not getting attention in the mainstream media or even in some tax-focused outlets, the report is worth a visit.

Everyone, or perhaps almost everyone, has ideas about how the tax law should be changed. Some want this or that new credit. Others want a deduction for some specific purpose. Still others suggest raising rates, while their ideological counterparts advocate more tax cuts. Yet others want to eliminate many or most deductions, credits, and exclusions. Another group wants to shift to, or add, a value added tax or a consumption tax.

There always are ideas floating around to “improve” the tax code. There also are ideas that aren’t tagged as improvements but that are suggested because their proponents think that the proposal is necessary. When the Congressional Budget Office jumps in with a list of possible changes, it’s time to pay attention, for many tax law changes in past years have CBO attention in their histories.

In a report dated “August 2009” and titled “Budget Options, Volume 2,” the CBO finishes its analysis of federal expenditures and turns to possible increases and decreases in federal revenue, particularly through tax law changes. There are 66 separate items analyzed by the CBO. No one blog post can do justice to all of them, so a select few will be examined.

The first item in the CBO report, not surprisingly, is a cluster of variations on the theme of raising tax rates. One possibility is to increase the percentage for each regular tax bracket by one point. Another is to do this, plus increase the AMT rate by one point. A third is to take the second option, and add to it a one-point increase in the rate applicable to capital gains and dividends. Another group of proposals is the increase of the rate for only the top bracket, or for the top two brackets, or for the top three brackets, etc. Still another idea is to add a new bracket for incomes over $1,000,000 ($500,000 for taxpayers not filing joint returns). Has someone at the CBO been reading MauledAgain? If so, they don’t cite it.

The report then follows up that proposal with its opposite. It explores the consequences of extending the tax cuts that are scheduled to expire at the end of 2010. Under current law, if Congress does not act otherwise, tax rates – and a good number of other provisions – will revert to where they were in 2000. The cost of extending the 2001 tax cuts is enormous, on the order of two and a half trillion dollars over the next decade. As the report implies, Congress will need to pick and choose among the various provisions expiring in 2010, because each has its own separate advantages and disadvantages, and it would be unwise to deal with them as one package.

The third item is to extend permanently the zero and 15 percent rates for dividends and capital gains. Readers of MauledAgain know my response to this idea. These special low tax rates should be repealed, sooner rather than later. Their promise of invigorating the economy remains unfulfilled, and a decade is long enough to experiment with the financial well-being of America for the benefit of a select few who haven’t come through. This idea is followed with a suggestion that special low rates be replaced by a deduction equal to 45% of net gains. Something like this was in the tax law a long time ago. Its chief flaw, other than favoring investors over wage earners, is that those in higher brackets benefit more from a deduction than those in lower brackets. Though it presents the advantage of ditching the complex special capital gains rates computations, put simply, it’s a bad idea.

Another item involves the AMT. There are several ideas. One is outright repeal. Another is to make permanent the annual “fixes” that have been enacted for the past decade. Still another is to expand the deductions allowed under the AMT. One thing is certain. The AMT needs to be fixed, or, ideally, repealed. Its repeal would be possible if the flaws in the regular tax that create the need for an AMT are removed. That would simplify the tax law while improving its equity.

The mortgage interest deduction is the subject of two ideas. One is to convert it into a credit. Another is to reduce the $1,000,000 and $100,000 limitations to a combined $500,000 limitation. I wonder where is the idea of repealing it outright. And what about limiting it to the principal residence? Following this item is one suggesting repeal or curtailment of the deduction for state and local taxes. This, particularly the proposed cap equal to 2% of AGI, will pit legislators from, and lobbyists for, high-tax states against those from low-tax states.

The CBO is recycling some old ideas. The report explores the possibility of limiting the benefit of itemized deductions to 15% of taxable income. This is a classic theoretically justifiable idea that would trigger complexity at the practical level. There’s a better approach. Turn the deductions into credits, and limit credits to a percentage of income. That’s a much easier idea to implement, and it’s theoretically not that far from the one highlighted by the CBO.

Another set of old ideas resurfaces in he CBO report. These include imposing a 2% AGI floor on charitable contribution deductions, creating a preferred deduction for charitable contributions, and limiting the deduction with respect to appreciated property to the taxpayer’s adjusted basis in the property. The last idea makes sense and is long overdue. Allowing a deduction for gain that is never recognized by the taxpayer is inconsistent with general tax accounting principles. On the other hand, the tax law doesn’t need more floors. And it surely doesn’t need a reprise of the failed above-the-line charitable contribution deduction. Been there, did that, abandoned it, for good reason. Would it not make more sense to turn the deduction into a credit, and more easily and simply accomplish the same goal?

The report considers the repeal of the additional standard deduction for the elderly and blind. This is a good idea, another than I have suggested from time to time during the past several decades. The presumption that the elderly need an additional standard deduction judges people’s economic status by age rather than by income or wealth. It’s a bad way to proceed. And as many students have asked me, why a preference for the blind but not the deaf, mute, or paralyzed? Good question, fun to bat around in class, but in the tax practice world, it lacks justification.

When I read the proposal concerning the taxation of social security and railroad retirement benefits, I became convinced someone at CBO was reading MauledAgain, or something written by a reader. I like the idea. What is it? It suggests taxing benefits received that exceed the amounts paid in by the employees. This is how pensions are taxed. It makes sense. It not only is theoretically sound, it is much simpler than the current maze in section 86 that defies rationality. And anything that makes the basic income tax course easier to teach and easier to sit through certainly should get careful scrutiny and the benefit of the doubt.

Here’s a very old idea. The report mentions the notion of replacing the exclusion of state and local bond interest with a credit. This was the topic of the paper I wrote in Fred Rothman’s Tax Policy class during my third year as a law student at Villanova. I literally wrote the paper, because there was no personal computer and the typewriter broke. I think I still have a copy of the paper somewhere in my files, along with Fred’s copious notes in red ink. Moving beyond the limited question of deduction versus credit, I wonder why there should be any tax break, especially as it benefits higher income taxpayers much more than it does the rest of the citizenry.

Speaking of old ideas, integration of the corporate and individual income taxes once again finds attention. This idea has been around since before I was born. Oh, yes, I wrote about it 30 years ago. Though by that time it had been the subject of more than a few articles, no one had paid much attention to the impact of the idea on state and local taxes. So I chose that topic for my LL.M. thesis, persuaded the administration at George Washington University National Law Center to let an adjunct be my advisor, and eventually published the thesis in both full and abridged form. To this day I remain indebted to Tom Field, the Tax Notes guru and publisher, who shared his extensive tax knowledge and experience, especially in the area of state and local taxation, in reviewing what I had written.

There are many more items in the report. Some involve technical issues, some deal with international and compensation issues, some deal with environmental and energy issues, some deal with various credits. Though most involve the income tax, some focus on the estate and gift tax, payroll taxes, excise taxes, and user fees. There’s more to be said and written, so don’t be surprised if I return to more of these items in the near future. In the meantime, it will be interesting to see how far each of the ideas in the CBO report goes before it falls by the wayside.

During the past several weeks, a few accolades have come MauledAgain's way. It's nice to know someone is reading.

Over at the Tax Lawyer's Blog, MauledAgain was included in its 5 Best Tax Nerd Blogs: The Second Annual Rick Moranis Awards. Here's what Peter Pappas had to say:

Another law professor blog and a doggone good one.

Professor Maule also comes at things from the left side of the ideological aisle, but, like Professor Beale he never does so with hostility or disdain for those on the right.

We need more of this kind of disagreement and less of the kind that labels those with a different weltanschauung racists, homophobes, un-American and stupid.

A smattering of Maule: [an excerpt from The Total Happiness of Taxlessness]

Oh, by the way, he doesn’t accept comments on his site.

Until he does I am going to assume its because he’s afraid of me.

Don’t stall, subscribe to Maule.

I very much like that ending. There's a deep reference in that phrase, considering where the inspiration for the title of my tax blog was found. The other writeups are just as much fun, and I recommend taking a look. Oh, I do take comments, but I find it easier and more efficient to receive them by email, a process that also opens up some good one-on-one exchanges that work their way into the blog.

In the meantime, over at BlogRank's Tax Blog Ratings, MauledAgain was ranked #12, though between the time this news reached me and when I last checked the site, it had dropped to #19. Unlike many blog ranking sites, which rely on one factor, or perhaps a few, BlogRank uses almost two dozen factors, including "1. RSS membership, 2. Yahoo incoming links, 3. Yahoo indexed pages, 4. Google indexed pages, 5. Google PR, 6. Monthly visitors, 7. Pages per visit, 8. Link to page ratio, 9. Compete Alexa,and Technorati ranking." MauledAgain ranks 25th by number of pages, probably because I post three times per week, in contrast, for example, to a blog that posts close to 70 stories a week. It ranks fifth by number of incoming links, first in the number of links-to-pages ratio, 16th in number of pages per visit, 3d in google page rank, 13th in Top Taxes Blogs by Technorati blog rank, 16th in Top Taxes Blogs by Alexa blog rank, 6th in Top Taxes Blogs by the total Delicious bookmarks, and 6th in the Top Taxes Blogs by the number of Stumbledupon reviews. I suppose the ranking in number of links-to-pages ratio probably is a consequence of my tendency to cite things as though I were writing a law review article. But as for those Delicious bookmarks, could it possibly have something to do with my occasional forays into the world of chocolate? On other factors, MauledAgain isn't far below the radar. That's why I like BlogRank. It looks at so many factors that no blog can do well simply by dominating one factor. The outcome is more balanced, and reflects characteristics some of which are important to some readers and not so important to others, and others of which are more important to a different group of readers, and so on. Let's face it, among those who appreciate links to assertions and other propositions set forth in a blog, MauledAgain is number one. But piles of citations don't necessarily mean that the content is high quality. That shows up in the number of visits, the number of links to the blog, and so on. Sure, it would be nice for one's ego to have everything rated by the factor that generates a number one ranking, but that's not intellectually honest. BlogRank is worth a visit, not only for its tax blog rankings, but for all the other categories it rates.

With interdisciplinary studies all the rage in law schools, MauledAgain apparently has racked up praise in that regard. It wasn't something I was trying to do. Over at CBTISH, here's part of what was said about my series on Student Focus:

. . . . The entire series is well worth reading, even if you have no interest in US federal tax law, or in teaching. . . .

What you can usefully do, if you have no interest in US federal tax law, or in teaching, is imagine that Prof. Maule is instead describing psychotherapy, because much of what he has to say applies. . . . You only have to substute two words in that passage from Part II (”therapeutic” for “learning” in the first line, and “theory” for “law” in the last) to make it true of psychotherapy.

. . . .

This from Part III [dealing with the need to understand the transactions to which tax law applies] is also true of psychotherapy. . . . As a psychotherapist you need to know about how life works, in many many ways that lie outside the textbooks of psychology. This is a very difficult thing. . . . .

. . . . .

The transcription game in psychotherapy is just the same as the game Prof. Maule describes in Part V. I’ve seen case notes and referral letters that are little more than page after page of: “He said… I asked… He replied…”

Instead, what you should be doing as a psychotherapist is constructing an understanding of your patient. . . . .

Reaction to my story about the student who realized that the goal was not to take A and B to get to C, but to figure out that B is required if one has A and needs to get to C, CBTISH notes "It’s the essence of psychotherapy, too. You get A: a set of symptoms. Then do you get B: a diagnosis and standard treatment from the book? Do you hope to arrive at C: a cured patient that way? It’s not the way it works. . . . You have to understand A: your patient as he is now, and C: your patient as he could be if he were cured of his illness, and then use that understanding to construct B: how you get there. . . . The thing that these approaches in tax law and information science have in common is that they address the question, “How do we go about understanding?” In psychotherapy there has been a tendency to run away from that question and instead develop methods that can be applied to patients without understanding. But understanding can itself be understood, and gifted teachers and information scientists are doing just that. Without an understanding of how to go about understanding, it is not very surprising that so many therapists (adapting Prof. Maule’s words): …aren’t doing what they should be doing, seemingly because they do not know what they should be doing, or if they do know, they do not understand why."

And over at Language Log, Mark Liberman also looked at Student Focus. Here are some of his reactions:

Barbara Phillips Long pointed me to Prof. James Maule's tax-law blog, Mauled Again, because, she wrote, "he touches on three areas that intrigue me –language, teaching and economics". So I followed the link and read a few pages, and I was struck by a number of implicit connections. For example, his approach to teaching the tax code reminded me of the way I was taught, many years ago, to "construe" Latin texts:

I take the students through an analysis of how Code sections and Treasury regulation sections are constructed, showing them that the secret to parsing the language is … to break the conglomeration of words into phrases and other segments and then to re-connect them, preferably in a manner that resembles English more than what I call "tax-ese."

Prof. Maule goes into the process in considerable additional detail, and it really does seem to be closely analogous to the traditional pedagogical technique described in the OED's sense 3 of construe: . . . . This approach long ago fell out of fashion as a way to teach foreign languages, for mostly good reasons. But it also gave students a model for understanding complex material in their native language by an analogous process of analysis and re-synthesis. And a more sophisticated version of the same process remains at the heart of everyday linguistic analysis, where the goal is not simply to understand what a sentence means, but also how and why it means.

Prof. Maule's pedagogical notes are full of other implicit law/linguistics connections. For example,

Finally, I try to instill in the students’ minds the difference between what they think they are going to be doing and what they often will need to do. They are accustomed to working from premises (or facts) to conclusions. Though there is opportunity enough in tax, and in other courses, to engage in this consequential analysis, there also is a need to understand the process of working from a desired conclusion to the premises or facts. As an example of how students enhance my teaching, I did not articulate this aspect of the course in this manner until a student, who had come to my office several times to complain that something was wrong with my teaching and grading because she was a top student but was doing poorly in my tax course, returned to exclaim, "I figured out what you are doing. We spent a year being given A and B, with the objective of getting to C, and you’re telling us we have A and want to get to C and are asking us what we need to get there." Bingo. That’s the essence of transactional work, of tax planning and of planning in many other areas of law.

Being given A, having the objective of getting to C, and trying to figure out "what we need to get there", is an excellent ordinary-language account of the theory of meaning advanced in e.g. Hobbs, Stickel, Martin and Edwards, "Interpretation as Abduction", ACL 26, 1988, which argues that … the interpretation of a sentence is the least-cost abductive proof of the logical form of the sentence. That is, to interpret a sentence one tries to prove the logical form by using the most salient axioms and other information, exploiting the natural redundancy of discourse to minimize the size of the proof, and allowing the minimal number of consistent and plausible assumptions necessary to make the proof go through. Anaphora are resolved and predications are pragmatically strengthened as a by-product of this process.

Liberman then touches on another of my favorite issues, what courses or major should be selected by students interested in entering law school. He writes: "This is not the first time, or the only reason, that I've wondered whether the right choice for a pre-law major might be an appropriately-designed linguistics program." Considering that lawyers are wordsmiths, Liberman's suggestion fits nicely with my oft-repeated advice that courses in Latin, French, and medieval history will enrich the law student's knowledge base and facilitate the transition to law study. Certainly, if not a linguistics major, at least a basic course in the subject. I'm adding it to the list.

Though I've never thought of myself as one of those highly developed interdisciplinary types, if I or anyone else were to try identifying other disciplines connected to my writing and teaching, we'd point to economics, statistics, accounting, finance, and, yes, history. But after reading these comments on Student Focus, linguistics would fit in nicely though I don't have anything close to resembling a degree or education in the area. And as for psychotherapy, that makes a lot of sense. For almost all of my life, my tendency to analyze things and look at details has evoked comments, both positive and negative, from others. It's no secret I wanted to be a psychiatrist, but those plans came to a halt when I discovered, in my youth, that a medical school education would be required. Was I in trepidation of organic chemistry? Hardly. What stopped me? What stopped me is my deep reluctance, and aversion to, cutting up dead bodies. It's more fun cutting up the Internal Revenue Code.

When the news broke on Sunday that two members of the Obama Administration refused to rule out tax increases for the “middle class,” all sorts of static swirled through the blogosphere. For example, the Lonely Conservative took the refusal to rule out such a tax increase as proof that there would be such a tax increase. At The Plain Truth, the same inevitability was attached to increases in middle-class tax rates, accompanied by three iterations of the word “LIARS.” From the Heritage Foundation comes the announcement that the “Obama Middle-Class Tax Hike is Coming.”

So is there going to be a tax increase on the “middle class”? I put that term in quotes because there are so many definitions of middle class. Is someone earning $400,000 a year a member of the middle class? Compared to someone making $2,000,000 annually, probably. Compared to someone earning $75,000 a year, probably not. Assuming for a moment that by middle class the various pundits are referring at least to people earning between $50,000 and $250,000 annually, what exactly did these Obama Administration officials say? The best place to find out what Secretary of the Treasury Timothy Geithner said is to examine the transcript of the conversation.

Geithner was asked whether the prediction by former deputy Secretary of the Treasury Roger Altman that the issue isn’t “whether tax revenues should increase but how,” was correct. Geithner replied by explaining that to sustain an economic recovery, the federal budget deficit must be reduced. He noted that the previous eight years ended with the deficit sitting at 1.3 trillion dollars, in part due to “making a bunch of commitments to cut taxes” and in part due to “spending without paying for those [expenditures].” He noted the obvious, that the nation is “not going to be able to afford to do that.” Asked if dealing with the problem would involve “new revenues,” Geithner replied:

Well, we're going to have to look at – we're going to have to do what's necessary. Remember the critical thing is people understand that when we have recovery established, led by the private sector, then we have to bring these deficits down very dramatically. We have to bring them down to a level where the amount we're borrowing from the world is stable at a reasonable level. And that's going to require some very hard choices. And we're going to have to do that in a way that does not add unfairly to the burdens that the average American already faces.

The interviewer then commented:

So to bring the deficits down, there is not enough money in the discretionary budget, we all know that. That means more revenues. The President has said that taxes won't go up for any Americans earning under $250,000, but it doesn't appear that he's going to be able to keep that promise if you're going to bring the deficits down.

To this, Geithner responded:

[W]e can't make these judgments yet about what exactly it's going to take and we're going to get there. But the very important thing, and no one is going to care about this more than the President of the United States, is for people to understand that we do not have a choice as a country, that if we want an economy that is going to grow in the future, people have to understand that we have to bring those deficits down. And it's gonna, it's going to difficult - hard for us to do and the path to that is through health care reform. But that's necessary but not sufficient. We [are] going to do some other things too.

The interviewer continued to push, “So revenues are on the table, as well?” As Geithner was answering, “Again, we're not at the point yet where we're going to make a judgment about what it's going to take. But the important thing….,” the interviewer interrupted, “But you're not ruling it out, you can't rule it out.” To this Geithner replied, “I think what the country needs to do is understand we're going to have to do what it takes, we're going to do what's necessary.”

Geithner did not say that taxes on the middle class would be increased. He refused to deny the interviewer’s assertion that taxes for people “earning under $250,000” would be increased. Why? Why not reaffirm the Obama campaign promise that taxes would not be increased for taxpayers with incomes under $250,000? Perhaps the answer is that the Administration is sending a message. Perhaps it is saying to Americans, “Our attempt to finance health care reform by raising taxes on incomes exceeding several hundred thousand dollars was met with fierce resistance by those with the resources to keep the Congress from adopting that approach. So if they succeed, revenues will need to come from the middle class. So wake up, middle class, and start pushing back at the folks who hire the lobbyists to keep those tax cuts in place even though those tax cuts and the refusal to repeal them when military spending soared led to eight years of ever-increasing federal budget deficits that threaten to keep this country in a perpetual recession.” If this is what some officials are doing, it could be a brilliant tactic.

And the best place to find out what Lawrence Summers, Director of the National Economic Council, said is, again, the transcript of the interview. Asked, “You don’t see another round of tax increases coming?” Summers replied, “Tax increases -- look, let’s understand where we have been. Let’s understand that the president put in place as part of the stimulus bill, as part of the economic recovery act, a measure he had campaigned on, the making work pay tax act that is reducing taxes by $800 for working -- for working families. That’s where -- that’s where the focus is.” When interrupted by the interviewer with “No tax increases for middle-income Americans?” Summers finished his previous thought, “... of this economy. There is a lot, though, there is a lot that can happen overtime. But the priority right now, so it is never a good idea to absolutely rule things -- rule things out no matter what.“ After finishing his reply to the previous question, he then answered the one that was interjected by explaining, “But what the president has been completely clear on is that he is not going to pursue any of his priorities -- not health care, not energy, nothing -- in ways that are primarily burdening middle-class families. That is something that is not going to happen.”

Of course, a quick and careless listening or reading of this exchange makes it appear that “... of this economy. There is a lot, though, there is a lot that can happen overtime. But the priority right now, so it is never a good idea to absolutely rule things -- rule things out no matter what.“ was the response to “No tax increases for middle-income Americans?” but to me it appears as though the answer to that question came after Summers finished his response to the preceding question. Interviewers ought not interrupt, because the outcome is the sort of garbled cross-talk that opens the door to misinterpretation and twisting of words.

The propaganda games being played with serious national fiscal issues is even more apparent when one examines how one news outlet dealt with Geithner’s comments. According to this report, “Asked point blank whether it was right to suggest it is a matter of when, not if, taxes will be raised, Geithner responded, ‘It is absolutely right.’" By cutting off the rest of Geithner’s response, the impression that the report gives is totally different from what was said. When asked that question, Geithner replied, “[I]t is absolutely right and very important for everyone to understand we will not get this economy back on track, recovery will not be strong enough to sustain unless we can convince the American people that we're going to have the will to bring these deficits down once recovery is firmly established.” That is NOT the same as saying that there will be tax increases. And even if it is interpreted to mean that there will be tax increases, it is not the same thing as saying there will be tax increases on the middle class. This sort of reporting not only is misleading, it is dishonest and a disservice to the nation. It’s also horrible journalism.

A day after these two interviews, and the resulting barrage of alarms, outcries, and misinformation rampaging through the airwaves and the internet, White House press secretary Robert Gibbs reiterated that, "The president has made a clear commitment not to raise taxes on middle-class families." He said that Geithner and Summers “allowed themselves to get into a hypothetical back and forth.” Does this mean that Geithner’s refusal to rule out tax increases on the middle class is not part of some clever strategy to remind Americans that if the Bush tax cuts are not repealed that the middle class will continue to pay the price, as it has for the past eight years of those cuts? Not necessarily. It would make no sense for the Administration to admit there is such a strategy, at least not at this point.

Obama is in his first term. If he were to support raising taxes on the middle class rather than on the wealthy, he would guarantee that his would be a one-term presidency. There are too many votes in the middle class to put them at risk in 2012. It would not surprise me to see comments from Geithner and others in the Administration during the coming months, as the repeal of the unwise Bush tax cuts for the wealthy is debated, suggesting that such a repeal would eliminate any discussion of middle class tax increases. Hopefully, the policy debates will take place against a background of actual facts and not the innuendo and misinformation currently clogging the forums of public discourse.

The problem of people texting while driving is becoming quite serious. If talking on a cell phone, whether or not hands-free, is distracting, then looking down at a hand-held communications device while driving is beyond distracting. It’s more than reckless. It’s downright dangerous.

In recent months, I have seen first-hand an amazing number of accidents and near-accidents caused by people who are trying to text or use a cell phone while driving. To that add the number of reports that show up every day throughout the nation describing the tragic effects of people who think that because they can multitask at their desktop while in the office they can multitask while driving a vehicle.

According to a very recent report, a bill has been introduced in the Senate to outlaw texting while driving. This action came after a study was released that revealed, certainly not to my surprise, that drivers who are texting are “much more likely to have an accident” than those who are not, and that truck drivers who text while driving are “23 times more likely to crash or get into a near-accident” than those who are not. Compared to cell phone use, hands-free or not, which accounts for a good number of accidents, texting is even more of a danger. Studies show that people who are texting let their eyes leave the road for as long as five seconds. That’s a long time. At 60 miles per hour, a vehicle travels 440 feet in 5 seconds. A lot can happen on a road in 5 seconds.

Technically, the legislation would pressure states into banning texting while driving by holding back highway funding from states that do not take such action. It’s not as though the idea has no support. Fourteen states already have enacted similar laws, and cell phone industry groups support the ban. The proposed law would also apply to operators of mass transit vehicles. Several headline-grabbing mass transit accidents, one with 25 deaths, have highlighted the danger of texting while trying to do something that demands full attention.

Of course, it’s one thing to have a law, and it’s another to have compliance. There still are people who do not wear seatbelts, despite a generation of educational messages, laws requiring their use, vehicles outfitted with buzzers, beepers, and blinking lights to remind people to fasten seatbelts, and report after report of people killed when thrown from a vehicle during an accident because they were not wearing seat belts. Failure to wear a seatbelt affects the person who makes the foolish decision to ride unfettered. Failure to refrain from texting while operating a vehicle puts others at risk. Enforcement would need to be more effective than it has been with seat-belt laws. Into my mind entered the question of whether there is a role for taxation.

At first glance, the idea that taxation has any role to play in the matter seems silly and unworkable. Justifying a tax on texting because it can impose risks on others isn’t that far-fetched, because there are taxes that rest on that principle. The main objection to such a tax is that texting per se isn’t risky. It’s texting while driving that poses a threat to the lives and well-being of most Americans. Is it possible to have a tax, or, if it’s more palatable, a user fee, on texting that occurs when someone is driving? It is, if the technology can be developed and implemented that detects that the user of the texting device is operating a vehicle. Present technology probably can detect that the device is being used in a moving vehicle, but I don’t think it can identify the device as one used by a passenger or by the vehicle’s operator. Could sensors be installed in vehicles that detect the device’s signals and identify that they are coming from the driver’s area? If so, then perhaps a stiff user fee on those who text while driving would curtail and even eliminate the practice, by making it too expensive.

Advocates of tax reduction and tax elimination surely are appalled at the idea of taxing texting. Others may claim that such a tax would violate the First Amendment because it would chill the free expression rights of vehicle operators. How could that be, if the practice already has been outlawed, and similar claims with respect to laws banning the use of hand-held cell phones have withstood such challenges? In weighing the advantages and disadvantages of imposing a user fee on texting while driving, one must consider that almost none of the texting that occurs while someone is driving qualifies as necessary. Unlike the use of a hands-free cell phone to listen to directions to a destination, or to call police, or to phone in some other emergency, texting almost always involves matters that are trivial and that can wait. People who are accustomed to sending a tweet the moment something earth-shattering occurs, such as the appearance of the sun after a rainstorm, carry that lack of impulse control and need for immediate attention into their vehicles. By doing so they are imposing costs on society, and society ought to be repaid in a manner that encourages prevention rather than after-the-fact litigation and criminal sanctions that do too little, too late.

The proceeds from a texting user fee could be used to fund health care and rehabilitation costs for the innocent victims of thoughtless texters, and to compensate the survivors of those killed through the gross recklessness of senseless drivers. They also could be used to fund research into making texting impossible for the driver of a vehicle to do while the vehicle is on the road. In fact, if industry can find a way to use sensors, not to identify texting devices being used by vehicle operators in order to impose a tax, but to shut down the device’s connections until the vehicle is parked, I’d gladly ditch the thoughts of a tax or user fee in favor of the technology solution. Considering the resistance to devices that disable vehicles if the driver is inebriated, I doubt that there’d be many fewer objections to the text-disabling system than there is to the inebriation-detection system. It’s just that the criticisms would come mostly from different quarters.

On Wednesday, in Not Paying Taxes No Obstacle to Being Hired by Government, I explored the current brouhaha about Philadelphia city employees who haven’t paid their city real estate tax bills, some for more than twenty years. One of the articles to which I referred explained that the city was considering garnishing the wages of employees who did not pay their back taxes or at least enter into payment agreements. The article noted that “[i]f the city did try to garnish wages, it would likely be opposed by municipal unions that question the city's legal authority to deduct property-tax payments directly from employee paychecks.” It quoted the president of one union as saying, “We believe everybody should pay their taxes. But I do not think the city should be applying special rules or regulations to its workforce beyond what it would do to the average taxpayer.”

Now it appears that the city in fact will pursue withholding unpaid taxes from its employees. According to this report, the mayor and the city controller have “agreed in principle” to collect unpaid real estate taxes from city workers. Apparently, there is a state law that permits the city to withhold unpaid taxes from its employees even though it does not have the right to garnish the wages of other taxpayers who are in arrears. To stop the city from garnishing its members’ wages, the unions will need to go to court an challenge the state law. Would they have a case? When someone is hired by the city, they enter into an employment contract, and a long list of state and other laws that affect that contract become part of the deal. If someone does not want to have his or her wages garnished by the city for unpaid taxes, then either pay the taxes or don’t take or retain the job.

From a policy perspective, though, the unions make an interesting argument. The point isn’t, as the unions might be contending, that the city ought not have the authority to garnish its workers’ wages. The point is that the city ought to have the authority to garnish the wages of any taxpayer who owes and has not timely paid city taxes. Presumably, there ought to be in place procedures to ensure that people’s wages aren’t erroneously garnished and that provide an opportunity to challenge the city’s assertion that someone owes back taxes.

In many ways, garnishing wages is a less oppressive way of dealing with unpaid real estate taxes than is the alternative. Though it moves slowly to do so, the city has the authority to sell at sheriff’s auction the property with respect to which the taxes are unpaid. Given the choice between losing a home and having take-home pay reduced by a fraction of salary, most people would probably prefer the latter option. The city has not indicated whether it will suspend foreclosures on properties owned by city employees whose pay is being garnished to pay the back taxes. It would be quite harsh if the city pursued both options simultaneously.

If the city does succeed in collecting even three-fourths of the taxes and other amounts that are owed to it, it could mean the reduction of taxes for the folks who have been doing whatever needs to be done to remain current with their tax and other obligations. Or it could mean that taxes would not need to be raised. Either development would, in turn, reduce the number of people finding themselves in deeper financial distress on account of tax increases. It makes sense for the city to collect unpaid taxes, and it makes no sense that it hasn’t been trying to do so expeditiously. It would make even more sense to give the city authority to garnish wages not only of its employees but of all taxpayers.

Another bit of tax news that broke just days after I returned is disturbing, to say the least. According to an article by Patrick Kerkstra and Dylan Purcell in the Philadelphia Inquirer, at least 2,000 city employees are tax delinquents with respect to city taxes. They include a ward leader currently holding a patronage job who hasn’t paid real estate taxes for more than 20 years, several dozen who are employed in the Law Department, the Revenue Department, and the Board of Revision of Taxes, almost 20 who work as City Council aides, and a former candidate for City Council who is now an aide.

Half of the delinquents are at least two years behind in payment, roughly one hundred are at least 10 years in arrears, and 17 have been ignoring their tax responsibilities for more than two decades. Some employees of the city have been hired even though at the time they were hired they had accumulated unpaid tax obligations. Perhaps the idea is that if they are given a job they’ll have funds with which to pay the taxes. The problem is that even after being hired, these folks continued to ignore their tax bills. In a Philadelphia Daily News article, Stu Bykofsky reports that the mayor explained, “Government should not be some heartless, soulless place.” That outlook on life suggests that because everyone prefers not to pay taxes, and thus finds tax collection enforcement to be cruel, unpleasant, and thus heartless, no taxes should be collected. Government, perhaps, should be operated using voluntary donations? That’s been tried. It doesn’t work.

City officials claim that they are trying to increase the rate at which they pursue collection of unpaid taxes, but even at the accelerated rate it would take more than 40 years for the city to collect what currently is owed on unpaid real estate taxes alone. There is “a culture of unaggressive collection” in Philadelphia, according to the city controller, and though “the city has a big heart in dealing with its debtors,” he continued, “the problem with being generous to a few is that you’re being unfair to the many who do pay their bills, and who depend on city services being fully funded.” I wonder if the people who do have money, and choose not to use some of it to pay their tax bills, are the same people who think it’s acceptable to go straight out of the left turn lane because they are in a hurry and are more important than the law-abiding people in the go-straight lane who also are in a hurry.

A spokesperson for the mayor claims, "This is about striking the right balance between aggressively pursuing the revenue the city needs and also not wanting to eviscerate large swaths of communities through mass foreclosures. But we concede that the right balance has not been met, and we want the message to be clear that all property owners have an obligation to pay your property taxes." A right balance? How is failure to pursue tax collection a right balance? It’s one thing to propose repeal of a tax that
must get legislative consideration and public hearings. It’s another thing to bring about a de facto repeal through bureaucratic inaction that hides from public scrutiny. This is a city that is running out of cash to pay its suppliers.

One member of city council claims that people who cannot pay ought not be asked to pay. That might be a worthy idea, but it ought to be enacted as law, if there is support, and not left to the ad hoc determinations of an unaccountable bureaucrat making seat-of-the-pants decisions about individual tax delinquents. This particular member of city council has an aide who owes back taxes even though earning more than $50,000 annually. He and his former wife, from whom he was divorced three years ago, failed to pay real estate taxes for 25 of the past 26 years on a co-owned property. She, incidentally, earns more than $36,000 annually from one of those patronage positions at the Board of Revision of Taxes. Though under normal procedures the property would have been seized and sold at sheriff’s sale years ago, nothing has been done. Allegedly, the inaction came at the request of this member of city council. The aide claims to be in debt on account of medical problems.

The power of the press is evident from what happened after the Inquirer and a reporter for an affiliated paper asked for information about city employees who owed taxes. The city sent notices to employees that if they did not pay or enter into payment agreements, the city would garnish their wages. That caused slightly more than a hundred employees to pay in full and another 425 or so to enter into payment plans. City unions appear ready to challenge wage garnishment.

In a his article, Bykofsky notes that although a few of the taxpayers behind in their payments may be poor or the victims of financial disasters, many of them likely are spending money on discretionary items and have chosen to ignore their taxes because they don’t fear the tax collector as much as they fear the repossession of their car or big-screen television if they ignored those creditors’ invoices. Bykofsky mentions that the city has failed to collect $1 billion in bail from people who have skipped bail. I’m no criminal law expert, but $1 billion is a huge pile of money for a city that is in the first stages of a cash-flow crisis.

Perhaps a jurisdiction’s tax philosophy is best found, not in the language of the revenue laws that it enacts, but in its tax enforcement policies. Not the stated tax enforcement policies, but those that can be identified by observing what the jurisdiction’s officials are doing rather than saying. Perhaps if the city of Philadelphia, and other places in similar predicaments, enforced its laws regularly, consistently, and uniformly, more people and businesses would choose to move there and contribute to the economic and social revitalization of the locale. Otherwise, the downward spiral will continue spiraling downward.

While I was posting the series on Student Focus, news reports continued to bring information concerning taxation, the economy, political activities, and life generally. Most of the news consisted of continuations of, or updates to, stories that already were underway. Most of the news involved topics on which I’ve previously commented. Nonetheless, a few observations are in order.

First, there’s the question of whether the economy is climbing out of the recession. Just as the various economic reports give conflicting signals, so, too, a trip across the country reveals inconsistent clues. Several decades ago, during the first recession that I experienced as a full-time member of the work force, I noticed that tractor-trailer traffic had declined significantly. That’s been the pattern ever since. So, if truck traffic is some indicator of economic activity, I’d conclude that the recession is ending. Why? Because there were as many tractor-trailers on the highways as there have been during previous cross-country journeys that occurred during periods of economic robustness. Those trucks are moving goods, goods that have been produced and presumably sold. If goods are being produced and sold in numbers that require at least as many trucks to transport them, then America’s economy is operating at pre-recession levels. Perhaps this activity has not yet shown up in the published reports. Another indicator is the number of trains that I observe, and, again, there did not appear to be any diminution. The number of trains and the number of cars in each train were no less than in years past. Those trains also are hauling goods. As with the trucks, sometimes one knows what’s being carried, and often one doesn’t. From the trains, it appears that a lot of coal and ethanol is being moved. From the trucks, it appears that a lot of cattle, Wal-Mart products, beer, and heavy equipment is being shipped. The two types of trucks that appeared to be diminished in numbers were automobile carriers and moving vans. That’s consistent with what we know about this recession. There are many reasons it is good to get out of the office and travel about, and though this is not the primary or even secondary one, it is helpful to take a first-hand look at the transportation sector.

Second, Pennsylvania still does not have a budget. Last month, in A Tax-and-Spend Conundrum, I explored the challenges of creating a state budget that provides all the things the citizens want without increasing taxes. Apparently, the conundrum is real, because in the six weeks since I wrote that piece, the legislators in Harrisburg haven’t made much progress, in any, in dealing with the state’s financial mess.

Third, according to a report in Friday’s Philadelphia Inquirer, during the next 26 years, there will be a $45 billion shortfall in the amount of funds available to maintain the highway infrastructure in the Philadelphia area. Of the $110 billion that will be required, only $65 billion is lined up. If most Philadelphia-area residents had the chance to travel throughout the country by vehicle, they’d discover highway projects all over the place. Not surprisingly, the increase from last year is attributable to economic stimulus money, as signs posted near most of the construction projects boldly proclaimed. If other states can get their acts together, why can’t Pennsylvania and New Jersey? As for New Jersey, perhaps this article in Friday’s Philadelphia Inquirer suggests some answers.

Fourth, more celebrities have run into tax trouble. Add tax Stephen Baldwin, Foxy Brown, and Toni Braxton to the list. Do celebrities not budget for tax advice? Or are they paying for what turns out to be incompetent tax guidance?

Fifth, but certainly not last or least, the proposed health care reform bill would impose an income tax surcharge on married couples with adjusted gross incomes exceeding $350,000 and unmarried individuals with adjusted gross incomes exceeding $280,000. I will have more to say about this in the weeks to come. This idea is not unlike one that I have advocated, most recently in Tax Change Ought Not Be Tax Redux. The current legislative language isn’t quite what I suggested, for I had asked, “Why not a progressive rate structure that increases the rate by 1 or 2 percentage points for every $1 million or $2 million increase in taxable income?” and had not slotted the revenue specifically for health care.

Sixth, and finally for the moment, news in the world of legal education continued to be generated. The debate about the use of lap-tops in the classroom showed no signs of ending, and the efforts by some to do away with the use of Powerpoint slides have been re-invigorated. There was no let-up in complaints about law school and about the shortcomings of law school faculty. These, and other legal education issues, also will get my attention as the summer progresses and autumn arrives.

In the meantime, thanks to Paul Caron and his TaxProf Blog for functioning as my tax news ticker while I was out of my office during the law school’s move into a new building and out traveling. Congratulations, Paul, on reaching 7,500,000 visitors. By my calculation, I will be 150 years old by the time MauledAgain reaches that milestone.

I wrap up the student focus section of the course by telling students that at times they indeed will find themselves overwhelmed, frustrated, challenged, and defensive. They will discover that they must make adjustments to how they study, how they learn, how they read, how they assimilate material, how they prepare for semester exercises and the examination, and how they relate to their academic endeavors. Though it’s something I would rather have the chance to share with first-year students, it nonetheless is no less valuable for the upper-year law students who come into my courses, tax or any other subject.

I tell them this: "You are taking graduate level courses, in a doctoral program, enrolled in a professional school, and this means that you must make an effort unlike any you’ve put forth in previous academic experiences." The translation, "You’re not in college any more," is something I save for informal conversation when the need arises. Several of my colleagues, having come upon my reference to the trinity of graduate level courses, doctoral programs, and professional school have asked permission, kind folks that they are, to use this in their courses. Without hesitation I agreed, and if anyone reading this who teaches law school or in any other graduate-level professional school offering a doctoral degree wishes to use it, please, do so, and there’s no need to ask permission.

And so this portion of the course ends. Hopefully it has been helpful to those who teach the basic tax course, who teach other tax courses, and even other law courses. Take from it what you will, adapt it, condense it, work it into the classroom experience, or simply suggest students read this series of a dozen posts. For law students who want the advice of someone who thinks this “student focus” is the foundation of doing well in one’s legal studies, hopefully it will be no less helpful to you. At the very least, it may answer those questions of "why?" that so often are uttered by law students not understanding why their professors are doing what they are doing. Perhaps it will do more than that, and show the way to some modification of learning techniques that will improve performance, raise grades, and harmonize the relationship of the student’s intellectual efforts with the student’s educational goals.

It has been my experience that learning a complex subject matter is made easier by breaking the material down into what I call "digestible bits" and after learning how they work, examining the relationship of each bit to each other bit, reconnecting them in what is an attempt to reconstruct the evolution of the material. In other words, rather than looking at the enormity of the segment of federal tax law that is studied in the course and throwing up one’s hands in futility, students are advised by me to "divide and conquer" the pieces of the tax law that we are studying. Some students understand this approach, perhaps intuitively and surely from experience, but for others, especially those whose education has taken a holistic bent or who prefer to avoid focusing on details, the adjustment is challenging.

To help students in this effort, I provide them with the Course Outline and Assignments document that I have already mentioned. In many respects, I have done the breaking down process for the students. Though some students can learn valuable lessons from organizing the disjointed product of a rambling professor and a class of unfocused students, too many students either go off on the wrong track or give up on a course when there’s no adequate roadmap. Students are advised to present road maps when they take their first steps in appellate advocacy, so it isn’t that alien a notion to do the same thing when putting together a course.

The breakdown approach is useful not only at the course level, but also at the level of the statutory and regulatory material that constitutes a significant portion of the course. I take the students through an analysis of how Code sections and Treasury regulation sections are constructed, showing them that the secret to parsing the language is, again, to break the conglomeration of words into phrases and other segments and then to re-connect them, preferably in a manner that resembles English more than what I call "tax-ese." It is during this explanation that students are given the opportunity to understand the significance of flush language, definition clauses such as "For purposes of this paragraph and paragraph (7) but not paragraph (4),...." Later, when we get to substantive material, they will encounter the word "over" in its subtraction sense and they will be encouraged to discard their instinctive treatment of the word in its division sense. Similarly, the language of ratios and fractions is left for later in the semester. But the same principle will apply, namely, break the sentence down into its parts.

To help students with this level of breaking down material, I provide them with several charts that show the names of the various components of Code and regulations sections. They are annoyed, and disturbed, at the inconsistency between the two types of codifications. It is amusing to see their reaction when, in response to the inevitable question, I tell them that I have never figured out why the regulations don’t track the Code terminology.

Finally, I try to instill in the students’ minds the difference between what they think they are going to be doing and what they often will need to do. They are accustomed to working from premises (or facts) to conclusions. Though there is opportunity enough in tax, and in other courses, to engage in this consequential analysis, there also is a need to understand the process of working from a desired conclusion to the premises or facts. As an example of how students enhance my teaching, I did not articulate this aspect of the course in this manner until a student, who had come to my office several times to complain that something was wrong with my teaching and grading because she was a top student but was doing poorly in my tax course, returned to exclaim, "I figured out what you are doing. We spent a year being given A and B, with the objective of getting to C, and you’re telling us we have A and want to get to C and are asking us what we need to get there." Bingo. That’s the essence of transactional work, of tax planning and of planning in many other areas of law. Yes, her tax grade matched her other academic accomplishments and she embarked on an outstanding career in law, though not in taxation. My discussions with her, and her culminating discernment of what I was trying to get students to understand, made it much easier from that time forward to get the point across to all the students, in the classroom, before the semester had progressed very far.

Next: hammering home the conclusion

Knowing that by this point student anxiety is growing despite my attempts to explain what will be transpiring in the course, what is expected and why, and how, in the long run, this approach will serve them well in law practice, I share with the students some "helpful hints" for dealing with the course.

First, I tell them not to be intimidated or disappointed by overviews. Some of them, I note, will want much more than what they will be getting because they are or will be caught up with tax law as something that grabs their attention. Others, unfortunately, jump to a conclusion that the material is too difficult before giving themselves a chance. Put that aside, I tell them, and work through the course with me. I have no goal but to get them educated about tax law.

Second, I warn them to ignore what others say. Rumors abound. Students who took the course and were unhappy with their grade sometimes will make assertions inconsistent with their own lack of effort, with the effect of causing others to think that no one can do well in the course. That’s nonsense, a conclusion readily apparent to those who bother to look at the grade distributions for previous semesters. Others take delight in stirring up anxiety, and they should be ignored rather than treated as oracles from on high. If they have a question, I invite them to ask me. After all, I ask, who knows more about this course than the person teaching it?

Third, I explain that tax law has its own language and culture. Rather than being frustrated by the use of new terminology or the assignment of new meanings to familiar words, consider the course similar to a language course. Understanding a language is easier if one understands the culture in which it arises, and this is true of tax law. Learning a language is easier if one immerses one’s self in the culture, and this is why it is important for students to dig into the material from the outset. It is difficult to learn a language the night before the final exam, and it is difficult to learn tax law during the two-day "reading period" before exams. Interestingly, this analogy sinks in with most students.

Fourth, I advise them that merely learning rules is inadequate to deal with the constant change in tax law, and the same is true for any area of law. Knowing the rules of grammar and pronunciation for a foreign language does not make a person capable of communicating well enough in that language to get by when traveling, let alone make the person fluent. The key is to understand the process of tax law, the sequence of analysis, the reasons for a rule, the manner in which rules are applied, and the relationships among rules.

Fifth, I suggest that they consider each situation from one or both of two perspectives. Is it a compliance question, that is, are they doing problem solving for the client? Or is it a planning question, that is, are they trying to prevent problems for the client in the future? Understanding this distinction matters, because there is far more control over events when planning than when looking at the consequences of what already has happened. I use this hint to reinforce the problem approach of the course. Lawyers solve problems and prevent problems, that is, if they are doing their jobs well.

Sixth, I assure them that issue recognition is not the difficult part of the analysis the way it was during their first-year courses. I also assure them that case analysis is not the key to the course, and when there are cases to analyze, that is the one thing with which they are most familiar, and considered by me to be adept, because they’ve been doing it longer than they’ve been doing any other legal skill.

Next: breaking down the course and the analysis

When I describe to the students how the other 1/3 of the final course grade is determined, it is only the existence of a well-oiled student rumor mill that eliminates the groans that filled the room in the early years of semester exercises. Semester exercises consist of short tasks and bundles of multiple-choice questions, usually four in a group. There are ten such exercises during the semester. Usually five are administered in class, these being the multiple choice questions and the student response pads ("clickers") being used for the recording of student answers. The other five are administered outside of class. They are posted to the Blackboard classroom and students have four or five days (depending on whether a weekend intervenes) in which to submit a response. The model answers usually consist of four short paragraphs. The questions usually ask students to identify facts that are needed in order to respond to a partner’s or client’s inquiry, to point out errors in what some other professional has asserted, to identify mistakes in actual web pages, to list arguments that are irrelevant to the issue, and so on. I warn students that although it would take about five minutes to type the model answer if I were dictating it to them, they will find themselves claiming that it took hours to do the exercise. I explain that those hours are dedicated chiefly to doing the post-class assimilation that they have n ot yet done and that is triggered by the posting of the exercise. I wait until at least a week after a topic has been covered in class before posting an exercise that deals with the topic, so there is ample time for students to assimilate. I tell the story of one student, who came to me one semester shortly before the exam and explained he had assimilated thoroughly the topics addressed by the exercises, but when asked by me about the rest of the course he laughed and said he had not yet reviewed those topics. One goal of the semester exercises is to discourage the bad habit of waiting until the end of the semester and using a “reading period” to do the semester’s work.

Experience taught me that unless some mechanism were put in place to deal with students who happen not to be in class on the day an in-class exercise is administered, either I or an administrator will be charged with the task of evaluating the worthiness of the absence excuse. Having tried that sort of process, and having been told by a former associate dean that it was a nightmare for him, I chose instead to permit students to drop two of the ten scores. In other words, it permits two absences. The odds of a student missing three or more in-class exercises is rather low unless there is some supervening problem such as an extended illness, in which case other arrangements are made for all of the student’s courses by the school administration in cooperation with the faculty teaching the student’s courses. What happens, I tell the students, is that too many students waste their drops on out-of-class exercises, especially early in the semester, because they don’t bother to check the Blackboard classroom. Even with the option of signing up so that an email is sent automatically whenever something is posted, there still are students who manage to waste drops in this manner and then become hyper-anxious when they discover that an interview caused them to miss an in-class exercise. So I devote a few minutes to emphasizing the need to stay on top of things, just as they would need to do in law practice.

I also explain that the purpose of the semester exercises is to give them a chance for feedback so that they can identify and rectify errors in their thinking processes before the exam gives them a chance to replicate those errors throughout all of their answers. They are informed that the exercises focus on specific "bad academic habits" that need to be unlearned. Of course, they like to think they don’t have any bad academic habits but I explain to them that one of my tasks is to help them eliminate those habits rather than simply lower their grade on account of their effects.

Finally, I point out that the feedback from these exercises has a higher quality because they are being grades and thus are "for real." Unlike other study devices that provide feedback, such as CALI exercises and practice questions in student study guides, the psychological impact of knowing that there is no “do over” puts the students in a situation that more closely resembles both the exam and law practice. That is one major goal of the course, getting students acclimated to functioning in environments similar to those in law practice.

Next: hints for students

Every law student lives in anticipation or fear of the exam. Hopefully, as their studies progress, the fear disappears and the anticipation increases. I doubt, though, that students will even look forward to exams the way people look forward to vacations.

Knowing this, I tell them about the exam. It’s too early to predict precisely how many questions will exist, or the precise nature and mix of the questions, but it’s not too early to share information that will help them in their preparation for class, their note-taking and other class activity, and their post-class assimilation.

They need to know, and I tell them, that the exam is open-book. For some students, this is their first law school open-book examination. It means they need to make an adjustment, ditching the "memorization and regurgitation" approach in favor of one that emphasizes process of thinking. Particularly in tax, it makes no sense to memorize rules that frequently change. Some students are relieved to hear this. Others, thinking that they had mastered the closed-book exam, become anxious about their ability to handle an open-book exam. A few apparently don’t react, because 8 or 10 weeks into the semester I almost always get an email asking if the exam is open-book or closed-book. Hello. Oh, this information also exists in a "course information document" which is on the Blackboard classroom. What a way to let a professor know that someone hasn’t bothered to read something that a professor took time to prepare.

They also need to know that the exam score accounts for 2/3 of the final course grade. Though I don’t get into the mathematical formula, I tell them enough so that they realize that it will take more than doing well on the exam to do well in the course. This is yet another aspect of my efforts to eliminate the end-of-semester cram time approach.

Next: the other 1/3 of the final course grade

Lest students think that I plan to toss them out into a post-class environment bereft of help, I list for them the tools that exist to help them in their assimilation tasks. First, I give them a very detailed Course Outline and Assignments document. It usually runs for about 10 pages. Yes, it resembles a Harvard outline, but at the highest levels, that sort of organization makes sense. What they have is an arrangement of the course into which they can fit their preparation, class notes, and assimilation. As an aside, one of the better laughs I get every now and then is the course evaluation that claims that there was no syllabus. Ought not that student’s evaluation be tossed aside as de facto disconnected?

Second, there is a Blackboard classroom for the course. It not only provides students with materials, the course outline and assignments document, and the slides, it also contains forums in which substantive issues can be discussed. Ask questions. Answer questions if you see one posted and it hasn’t been answered. Interestingly, students rarely post answers. I’m convinced it’s a cultural thing but I haven’t explored the issue in any deep, methodical, or empirical manner.

Third, there is email. I explain why I like email. It’s two in the morning, and a student who is studying has a question. In days before email, if they wanted to ask me, they needed to wait until the next day at the earliest. Often, they didn’t remember the question, or could not articulate it well. With email, they can compose a message while their brain cells are working with the material. They won’t get an instant response, but their question will be much more coherent than when it is formulated hours or days after it crossed their mind. But they do get a response. If the question is a good one, and almost all are, and relevant to the class, I post the question and my response to the Blackboard classroom after deleting references to the student’s identity. This is efficient, I explain, because it spares other students from composing the same question or trekking to my office to ask a question that has been answered. It cuts way down on the “lines outside the professor’s door” syndrome that is highly inefficient. There is another forum, incidentally, that is used for administrative and course “housekeeping” and though this isn’t directly related to the assimilation process it contributes to the culture of digital communication. No, I do not use twitter in the course. At least, not yet. Perhaps never. We’ll see.

Fourth, there are computer-assisted legal instruction exercises in taxation available at the CALI web site. These happen to have been written by yours truly, though a search for someone to assume the updating has been underway for awhile, as I put in a plug (contact the folks at CALI). Anyhow, this permits students to practice. It gives them feedback on the extent to which they have mastered a topic. It shows them variations on how facts need to be gathered, examined, and set against rules and concepts. It boost self-confidence where appropriate and gives warnings where needed. I stress that they cannot do all of the exercises the night or even the entire day before the exam. They need to work through these on a regular basis. It gives them the opportunity to engage the material, something that must take place during assimilation.

Next: describing the examination

The next major point that I make during this emphasis on student focus is that it doesn’t end when class is over. Instead, they need to engage in what I call post-class assimilation. I stress to my students that this is more than waiting until the end of the semester to go over class notes and is more than the proverbial law school outlining. It is an essential process that needs to take place on a regular basis.

As is the case with pre-class preparation, I tell students that they should expect to invest one to two hours of time outside of the classroom, after class, for each 50-minute classroom session. Again, the logical question is why such a wide variance? Again, it depends, for one, on the particular topic and how much was covered in class. It depends, as well, on the student’s ability to pay attention in class, the student’s skill at taking notes in a methodical and efficient manner, and on the extent to which the student was prepared for class. Under ideal circumstances, a well-prepared student has far less to do after class than does the student who skimmed material or didn’t bother to look at it to any extent.

Knowing that students are likely to respond by asking what they are expected to do, I share with them what I consider to be the keys to assimilating the material. What they need to do, I emphasize, is to prepare their own summaries, charts, graphs, outlines, or other representations of the concepts, the rules, the application of the rules to facts in hypotheticals or problems, and the sequence in which analysis needs to proceed. I surprise some of them when I dismiss the so-called Harvard outline, the one with the roman numerals, upper-case western alphabet characters, Arabic numerals, and so on, as ineffective in many instances. There are times when a flowchart is worth thousands of outline words. I promise them that I will give them flowchats and other visual representations early in the semester so that they can see what they should be aiming to create, and I also tell them that as the semester progresses there will be fewer instances of my giving them these sorts of summaries. That distresses them. But, I explain, this is necessary in order for them to learn.

The best results occur, I point out, when they do their own work. Do not use others’ outlines because none of them are flawless, and in tax courses, there are changes that make old outlines obsolete. I warn students that I, and others who teach tax, find delight in focusing exam questions on topics that have changed, and when students inquire about their grades there are times when an exam will demonstrate, indirectly, that a student used an old outline rather than invest in creating his or her own post-class assimilative materials. It’s a tough way to learn a lesson, so they are getting that lesson on the first day of class, with no cost in terms of their grade. Some get it, but unfortunately too many do not. To dispel any notions that reading someone else’s work is the pathway to success, I tell them that they will not get in shape watching me ride a bicycle. That turns on the light bulbs for another handful. This sounds harsh, but its truth is inescapable. It is so obvious that students miss it until it is pointed out to them.

Then I share one more secret. It is worthwhile, I advise students, to teach one another. It does not matter whether it takes place in tutoring, in study groups, in participation on the Blackboard classroom for the course, or in some other way, but the best way to learn something is to teach it. They stare at me. I respond by noting that as the teacher I don’t get to pass, come to class unprepared or without my books, or stare blankly when asked a question. Oh, I could do that but I wouldn’t last very long, or ought not to. When they enter practice, they will be teaching clients, partners, judges, and other attorneys. What better way than to get started now, in a non-adversarial context. Anticipating another reaction, I suggest that for those who are competitive about grades, helping another student will do as much if not more for the helper than for the helped. I also note that they are not competing for a fixed number of A or A- grades, so that they ought not sign onto the “every person for himself or herself” attitude that flourishes here and there, now and then, in assorted law schools.

Next: helping students assimilate