MauledAgain

My recent post, If A Wealth-Dominated Congress is So Great, Why Are Taxation and Other Policies Such a Mess? , a reply to a Peter Pappas post, Two Professors, an Angry Bear and Hate the Rich Syndrome, which was in part a reaction to a point I made previously in A Tax Policy Determination Clue, has brought a further response from Mr. Pappas. In Professors Maule and Beale Respond; Pappas Cowers then Regroups, he addresses, among other things, several of the statements I made in If A Wealth-Dominated Congress is So Great, Why Are Taxation and Other Policies Such a Mess? .

Mr. Pappas disagrees with my contention that "ordinary folks tend to bring far more practical experience and common sense to the table than those who have lived inside academia or some other sheltered place before turning to life in the world of politics." I made that point to refute his position that "we should not elect legislators of ordinary intelligence, education, and diligence." In contesting my contention, Pappas claims I rely on a faulty premise, namely, "the conclusion that ordinarily intelligent people would make better legislators than extraordinarily intelligent ones" and that I make a common error in thinking that "the possession of a formal education precludes the possession of common sense or 'street smarts.'" Pappas asserts that "the opposite is true. It's more likely that a formally educated, successful person has common sense and street smarts because those are traits that tend to cause someone to recognize the value of a higher education and embark on a plan to obtain it."

There are several flaws in the assumptions and approaches that Pappas brings to the question of representational democracy, the national value that I think is in jeopardy because of the disproportionate presence of, and power exercised by, the wealthy in Congress, and, secondarily, among those who lobby and influence the Congress. Each one deserves a bit of attention, because they turn our attention to how our nation is governed, including how our nation's tax policy and tax laws are developed.

First, it is important to understand that intelligence and higher education do not go hand-in-hand. There are more than a few examples of people with higher education degrees who aren't all that intelligent. Worse, there are many intelligent people who lack higher education, not because they lack "traits that tend to cause someone to recognize the value of a higher education" but because they are so mired in economic deprivation, responsibilities to care for aged or ill family members, or other disadvantages that their ability to use their natural intelligence to obtain a higher education is tempered, and outweighed, by their moral convictions that keep them loyal to their responsibilities and to refusing to "sell out" in order to escape economic woes.

Second, though higher education does not succeed in wiping all of its participants clean of street smarts, it does a pretty good job of imposing the theoretical in place of the practical, or at least putting the theoretical in a more predominant position than the practical. America's politicians, for the most part, emerge from educational experiences that prepare them to enact the sort of legislation that is defensible on theoretical grounds but that falls apart when practical implementation is required. Is it any wonder that tax policy, tax laws, health care reform, securities regulation, improvement in K-12 education, or any other of the long list of life experiences and activities to which Congress has turned its attention end up becoming wastelands of futility? With all that education, how many members of Congress learned how to do their own tax returns? Or understand the basic principles of elementary education? Or have the skills requisite to get to the root of the health care crisis? In contrast, the nation has a solid cohort of people lacking higher education experience but who know how to get things done efficiently, effectively, and successfully. Unfortunately, wealth so taints the representational nature of our democracy that these folks have little, if any, chance of getting to Congress.

Third, there is no proof that I am incorrect in suggesting that "ordinarily intelligent people would make better legislators than extraordinarily intelligent ones." There is, of course, plenty of proof that the opposite claim, "extraordinarily intelligent people would make better legislators than ordinarily intelligent ones," is false. The proof is available by looking at the Congress. Its work product is awful, and though I am in a better position to critique the tax law that it has bestowed on us, I have sufficient ordinary intelligence to understand the mess it has made in so many other areas of our national life.

Fourth, the question really isn't one of ordinary intelligence versus extraordinary intelligence. It's a question of what happens when money and wealth corrupt values. To quote someone whom I've known my entire life, "There are plenty of intelligent people sitting in prisons. It's not whether a person is intelligent, it's what a person chooses to do with it." When the street smarts being exhibited by highly educated people consist of the ability to gather campaign contributions with promises never meant to be fulfilled, to take credit for others' work, to say one thing so convincingly when the opposite is intended yet disguised, to sell out principles for power, to put self-interest above national interest while appearing to be champions of the common good, street smarts become something other than common sense. Common sense is what tells someone that a proposed policy or implementation of a policy won't work, and a person rarely can figure that out without experience that touches upon all facets of life, not just the small subset that characterizes the world of the wealthy.

The point isn't a matter of intelligence, which, of course, can be measured in many ways. The point is one of wealth and representational democracy. The notion that wealth represents success, and success represents intelligence, and that intelligence is best over-represented in Congress, falls apart at every stage. Wealth represents material success, but has nothing much to do with moral or spiritual success. The ranks of the wealthy are packed with people who, if not criminals, have engaged in morally, socially, and theologically questionable or inappropriate behavior, ranging from the sale of defective products, through the exploitation of powerless and desperate workers, to purchasing influence to change the rules to their own benefit at the expense of others. Though many may admire these tactics, once the desire for wealth is pushed aside, it is easy to see the extent to which the addiction to greed, when pushed beyond sensible limits, jeopardizes the nation and representational democracy. To claim that success represents intelligence is to presume that there cannot be success without intelligence, a presumption that flies in the face of everyday experience. The presumption can be rebutted and supported by playing games with the definition of intelligence and the definition of success, but for many, happiness in life is success enough, and some of the happiest people in life are those whose shortcomings in intelligence, at least in the sense Mr. Pappas and I are considering it, are an advantage. The claim that intelligence is best over-represented in Congress is disproven by the track record of a Congress that, in comparison to what it has been in the past, is far more educated and arguably even more intelligent but whose work product is horrifically bad as written and even worse as applied. In other words, defending the Congress as it has presently evolved is to defend the antithesis of what it's supposed to be.

Mr. Pappas tries to solidify his position, one that has its origins in his objections to my criticism of the disproportionate representation of, and exertion of power by, the wealthy, by drumming up a canard, specifically, Sarah Palin. He asks, "And does Professor Maule truly believe we should have legislators of merely ordinary intelligence. I wonder, for instance, what he thinks of Sarah Palin, who has been roundly vilified by the left for her ordinariness? Does Mr. Maule think her ordinariness makes her exceptionally qualified to be the President of the United States or maybe a congressman?" These questions presuppose that what I consider qualification for the presidency is the same as what I consider to be qualification for membership in Congress. Though the percentage of presidents who have been wealthy exceeds the national norm, it is important to note that some of the best presidents were not wealthy, and that many of those from wealthy backgrounds failed miserably. So much for the presumed connection between wealth and intelligence, and between wealth and success. As for Sarah Palin, the vilification was not a matter of her alleged ordinariness but a matter of her stupidity. She is no ordinary person. Only a person extraordinary in some way can win beauty pageants, though the particular extraordinary characteristics that emerge in that sort of success may or may not translate into legislative effectiveness. What caused so many people to turn away from Sarah Palin wasn't her ordinariness, assuming she can be considered ordinary, but the stupidity of some of the things she uttered and the appalling lack of judgment she demonstrated with respect to a variety of concerns. My support for putting into Congress people who are of ordinary intelligence with practical experience in activities that matter to the governance of a country, including an understanding of how elementary education, the health care system, and infrastructure works and should work, even if they happen not to be wealthy, does not mean I support putting into political office those with less than average intelligence whose experience lies in frivolous activities almost as disconnected from most people's lives as are the theoretical pontifications of too many of those who inhabit the faculties of higher education.

Lest my defense of representational democracy be taken as an objection to increasing the educational attainment of Americans as a whole, I must emphasize my repeated support for more education and my repeated calls for reform of education. The two are intrinsically linked not only to each other but to the problem of America's shift to a nation dominated by a wealthy elite. More education, whether it's the insertion of tax education into high school curricula as I've long advocated, or finding ways to permit capable individuals otherwise denied access to higher education to enter colleges and universities, can do nothing but make it more likely that increasing numbers of Americans will acquire what it takes to see what is happening in the Congress and to figure out that voting for more of the same guarantees more of what inspires so many citizen grumblings about the decline in the quality of their lives. Yet more education is useless if it, too, is more of the same, education that values concept over application, theory over practical, bottom-line profit over values, self-centeredness over altruism. Some movement away from the educational failings of the past five decades is being detected. Whether it becomes a growing trend or is cut off in some manner by those who feel, and ought to feel, threatened by this development remains to be seen.

Interestingly, at the conclusion of his post, Mr. Pappas discloses that he agrees with me that "we should take the money out of politics." How that can be done is a vexing question. Yet, he claims to "disagree that we should take the money out of politicians." Clever. My point is that we need to take the moneyed power-seekers out of politics. And then if we take the money out of power-seeking we may end up having taken the money out of politics.

Mr. Pappas closes his post with a worthy footnote, in which he tries to explain why he looks at things differently than do I. He cites Steven Pinker's The Blank Slate: The Modern Denial of Human Nature, in which the author contrasts two world-views, the Tragic Vision and the Utopian Vision. Pinker in turn relies on Thomas Sowell's A Conflict of Visions. The Tragic Vision sees humans as "limited in virtue, wisdom and knowledge," thus justifying social arrangements reflecting those limits, whereas the Utopian Vision sees those social arrangements as the cause of those limits. Tying the Tragic Vision to "rightists" and the Utopian Vision to "leftists," Pinker's explanation of Sowell includes the assertions that "Rightists tend to like tradition (because human nature does not change), small government (because no leader is wise enough to plan society), a strong police and military (because people will always be tempted by crime and conquest), and free markets (because they convert individual selfishness into collective wealth)" and "Leftists believe that these positions are defeatist and cynical, because if we change parenting, education, the media, and social expectations, people could become wiser, nicer, and more peaceable and generous." Pappas concludes that he holds the Tragic vision and accordingly is a "conservative" whereas I hold the Utopian vision, making me a "liberal." To this I say, "Hah." Trying to categorize me, whether based on what others perceive or on those various tests that measure where a person is on the left-right spectrum, is not only near impossible, but certain not to pin me to either end of the spectrum. My vision is a theological one, namely, people surely are flawed (Tragic Vision) but have been, and can choose to accept or reject, redemption (Utopian Vision). So, yes, I think that if we improve education and parenting, we will raise nicer and more sensible children. I believe in a truly free market but I don't think any such thing exists or has ever existed, and will not exist without societal intervention. I favor wisdom and peace, but common sense tells me that a weak or non-existent police and military guarantees chaos. I relish many traditions and some of tradition, but I'm not unwilling to support change when a persuasive case has been made for dealing with a problem. I also believe in standing up to greed, to deception, to disloyalty, to breach of fiduciary duty, to corruption, and to economic exploitation, which explains why I continue to criticize the Congress, its membership, its work ethic, its enacted legislation, its terrible tax policy, its ruination of the tax law, and its many other failings. I cannot see how those holding to the Tragic Vision, those holding to the Utopian Vision, and those of us holding to something other thant those two visions, cannot agree that when it comes to Congress America deserves far better than what it is getting.

The Government Accounting Office has issued a report in which, relying on data from the IRS National Research Program, it discloses that 68 percent of S corporation returns filed for 2003 and 2004, the last years for which information is available, contained errors. It also noted that, citing an earlier report, 70 percent of sole proprietorship Schedules C have errors. This news may be shocking to some, but it’s not shocking to those who live in the tax practice world and to those living outside of that world who pay attention to what has been happening to federal tax law during the past several decades. It’s a wonder that 32 percent of S corporation returns and 30 percent of sole proprietor filings were error-free (or at least were not found to have errors, which isn’t the same as being error-free). Of all the business entity returns, these two are far from the most complex. If the error rate on S corporation returns is at 68 percent, the error rate on partnership returns must be close to 100 percent. Or more. S corporation taxation isn’t rocket science compared to partnership taxation. There’s no section 704(b) special allocation complexity, no section 704(c) contributed property allocation challenges, no section 743(b) or 734(b) optional basis adjustments, no section 732(d) special basis adjustments, no section 736 maze, no section 751 ordinary income asset analysis, to identify but some of the far more challenging provisions of subchapter K.

A few days before the GAO released its latest report, the Commissioner of the Internal Revenue Service disclosed in a C-SPAN interview, according to, among other sources, The Capitolist, that he does not do his own tax return. Why? He “finds the tax code ‘complex.’” Instead, the Commissioner hires a tax return preparer to do his return. Goodness. The Commissioner of the Internal Revenue Service does not even try to do his own return using software such as Turbotax. What I want to know is whether he CAN do his own return. He says he has been using a preparer “for years.” If he lacks confidence about his ability to do his own tax return, why not prepare the return and then have someone review what he has done? That is a learning experience, not only in terms of the substantive law that is involved, but also in terms of acquiring some empathy for what millions of taxpayers must endure, or pay someone else to endure, every year. How complicated could the Commissioner’s tax return be? It surely isn’t anywhere near as complicated as a partnership return.

The GAO report makes the following suggestions to deal with the horrific noncompliance rate in the S corporation area:

Identify and evaluate options for improving the performance of paid preparers who prepare S corporation returns, such as licensing preparers and ensuring that appropriate penalties are available and used.

Send additional guidance on S corporation rules and record-keeping requirements to new S corporations to distribute to their shareholders, including providing guidance on calculating basis and directing them to the specific IRS Web site related to S corporation tax rules.

Require examiners to document their analysis such as using comparable salary data when determining adequate shareholder compensation or document why no analysis was needed.

Provide more specific guidance to shareholders and tax preparers, such as that provided to IRS examiners, on determining adequate shareholder compensation through means such as IRS’s Web site.

In other words, it’s pretty much a matter of trying to get more people to understand the rules. That’s fine, but it’s only part of the solution. Very few people understand quantum physics, and only a handful more understand the federal tax law. The GAO reports prove that the problem is deeper than tax education, though tax education, done properly, might wake up Americans to the need for sending more powerful messages to the Congress that its manner of doing business with respect to taxation is no longer tolerable.

The key element of any solution, of course, is to clean up the tax law. Duh. When asked how he would make the tax less complex, the IRS Commissioner said, “I don't write the tax laws. Congress writes the tax laws. It's a whole different discussion.” Was this an attempt to avoid offending Congress by pointing out what it could have done differently and should be doing now? Was it the consequence of not understanding the tax law well enough to be in a position to point out ideas for simplifying unjustifiably complicated provisions in the tax law? No matter, it’s just one more bit of evidence demonstrating the disarray into which federal income tax administration continues to sink.

When people do not understand a law, their ability to comply diminishes. When the percentage of people complying with the law diminishes, the risk of the law becoming ineffectual increases. At some point the law becomes something very hollow. When that happens to the law that is the lifeblood of the nation, the nation will go into need of critical care. Then what?

Joe Kristan, of Tax Update Blog, asks, in his post When We’re Boring, We Demand Your Full Attention, “The TaxProf is cool with technology. What about Villanova's tax maven Jim Maule?” The question makes sense only in the context of Joe’s post, which is a brief reflection on Paul Caron’s post on Tuesday, Albany, Chicago & Villanova Ban Laptops in the Classroom. The post title is a bit misleading, because there is a difference between a Villanova banning laptops as a matter of school policy, which is not the case, and individual professors banning laptops, which is in fact what has happened. Though the banning of laptops by law school faculty is not news and had been going on for as long as there have been laptops, the fact that some Villanova faculty were doing so, in increasing numbers, is news. What triggered Paul’s post was an article at AbovetheLaw, which presented the news in editorial fashion, Boring Professors Ban More Interesting Things in the Classroom.

My conclusion is that I am cool with technology reflects not only the fact that I do not ban laptops in the classroom, but instead encourage their use, but also my eagerness to use technology in ways that improve, or at least that I think improve, my teaching. My use of Powerpoint slides reaches back more than a decade. My use of student response pads doesn’t go back quite as far, but it’s now entrenched in my J.D. courses, with use in Graduate Tax Program courses awaiting a cooperative effort for all, or most, of the Program’s courses. My authorship and use of computer-assisted tax law instruction exercises originates in the late 1980s, when the technology and software for doing so was almost hilariously rudimentary when compared with what now exists. So I suppose I’m cool with technology.

My decision to encourage, rather than prohibit, laptop use in my classes rests on the value I place on that use. Laptops permit students to take notes in a manner that permits them to make additions and corrections in real time without needing to interlineate previously handwritten material or to use arrows, circles, and numbered or lettered references to indicate that something on page 12 of their notebook belongs with something on page 8 because something taking place 20 minutes into a discussion of an issue illuminates a point made 2 minutes into that discussion. Laptops permit students to look at material that I provide to them through the Blackboard classroom without destroying several forests by printing out everything. Laptops permit students to work with digital versions of relevant Internal Revenue Code sections and Treasury regulations without needing to drag two-inch thick, five-pound books into the classroom. Laptops permit students to annotate the slides that I make available to them, so that they don’t need to invest time writing what already has been written. Laptops permit students, few of whom have legible handwriting, to take notes that they are able to read after leaving class, sparing them, and me, the agony of a visit to my office where they ask me to repeat what I said, not that I ever can remember the exact words, in an attempt to figure out a word or two in their notes that they cannot read. Laptops make the post-class assimilation process more efficient.

It is true that laptops pose several potential disadvantages. Each of these, however, can be eliminated or diminished through effective pedagogical techniques.

One concern is that laptops permit students to make verbatim transcriptions of the class session. As a matter of precision, laptops make it easier for students to make verbatim transcriptions. Students have been making verbatim transcriptions of classes since long before laptops arrived on the scene. The likelihood of students making verbatim transcriptions increases tremendously if the class consists of lectures. It decreases if other forms of teaching are adopted, though some of those can tempt students to use laptops for other purposes, as I discuss in a subsequent paragraph. The view that some students have, that every word spoken in class matters, can be dispelled by demonstrating early on why that is not so, and putting students through exercises that illustrate the relative importance of the concept or thought and the relative unimportance of the specific words. Encouraging students to put things in their own words, aside, of course, from situations in which statutory or other language is critical, is one of the goals of legal education. A student who is being compelled to speak, or to do something, will find it impossible to write or type very much while speaking or doing something else.

Another concern, and one that gets much attention, is that laptops permit students to engage in activity unrelated to the class, thus taking their attention away from what is happening in the classroom. Some schools permit faculty to request a disconnection of Internet access in the classroom while the course meets, but that step does not prevent students from using games or other software loaded on their laptops. Yet laptops are far from the only distraction available to students. Long before there were laptops, there were, and still are, crossword puzzles. There existed at one time, and for all I know there may still exist, bingo games, some involving money and betting, based on what favorite expressions of the professor are uttered during a particular class. There was note-passing, an activity supplanted by phone texting, and it’s unclear to me whether laptop prohibitions extend to the use of phones, an activity not as easily perceived as laptop use. There even was, and reportedly still is, sleeping. A student who chooses not to focus on what the professor wants to occur in the classroom will tune out no matter what. The key is to entice the student into wanting to focus on the class. When one or a few students are selected ahead of time to engage in dialogue with the professor, students are tempted, and often yield to the temptation, to engage in other activities until the dialogue, often inefficient and disjointed, generates something worth writing down or typing. I’ve seen first hand, observing other courses, how students make excellent use of the ALT-TAB key combination. Once word gets around that one cannot do well on the exam without having attended, and having paid attention, in class, the level of participation in activity not related to class drops considerably. Once word gets around that having a commercial or other outline from which one can memorize black letter law to be regurgitated on an exam is useless for the exam, the level of participation in class-related activity increases. If, knowing the value of classroom focus, a student chooses to play games or surf the Internet on his or her computer, that student is being foolish and deserves the consequences.

Neither of these two concerns presents much of a problem in my J.D. courses. Because I keep the students busy, for the most part, answering student response pad questions, they need to look at the projection screen, they need to look at what they prepared before class, they need to look at the Code or other materials. They know ahead of time whether or not their answers will count toward their course grade, but even if the answer does not count, they are so eager to find out if they “have gotten it” and so curious to see what their classmates are doing that they turn their attention to the classroom activity. In some ways, there is an element of game playing built into using student response pad questions. By involving all students simultaneously, there are far fewer instances of students becoming disinterested in the ramblings, off-the-mark responses, or uninteresting opinions or statements offered up by the one or few students engaged in direct dialogue with the professor. All of this comes at a cost, however. Building up an inventory of hundreds of questions takes time, a lot of time, because one must determine what to ask, how to ask it, what options to provide to students, and how to work through the answers after the students have made their choices.

Yet another concern, also getting much attention, is that laptops permit students to engage in activity that is distracting, or even offensive, to other students. This is a serious concern. It’s not, however, as though there are no other activities unrelated to class that can distract other students. Being asked to pass along a note is distracting. Being asked for assistance with a crossword puzzle is distracting. Noticing the student in the next row reading Sports Illustrated is distracting. Listening to people speak some version of the word “bingo” out loud is distracting. Watching someone doodle is distracting. Watching someone write comments about the professor or another student is distracting. Having attention drawn to a student’s newly acquired diamond engagement ring is distracting. Shifting forward in one’s chair to permit a late-arriving student to take a seat is distracting. Watching a late-arriving student enter the class attired in an attention-getting manner is distracting. No, I did not need to make up these examples. Each one occurred at least once during my student days, and some were repeated during my teaching days. Rather than banning laptops, magazines, newspapers, diamond rings, late arriving students, unapproved attire, and bingo cards, I prefer to maintain a rule that bars distracting behavior of any sort. Students who encounter distracting or offensive behavior are entitled to bring that to my attention. If they do not do so, they are making the same foolish choice as is being made by students who decide to engage in activities not related to the class rather than focusing on doing what needs to be done to do well in the course.

One supposed concern, noted in a comment to the AbovetheLaw posting, isn’t a concern. The complaint that the use of laptops generates distracting keyboard noise flies in the face of the quiet keyboards incorporated into pretty much every laptop built during the past five years. I’ve not noticed any such noise. Whatever sound keyboards might generate is masked by the sound of my voice or the voice of whichever student is speaking at the moment.

Many of those who offered comments to the AbovetheLaw posting suggest that they use laptops for activities unrelated to class because the class is boring. Some go so far as to claim that they would avoid class but for the recent trend in law schools, triggered by accreditation issues, of enforcing attendance policies. The faculty at Villanova who have told me that they have banned the use of laptops are not boring people, not by any stretch of anyone’s imagination, so I wonder why students in their courses had been playing games or surfing the Internet. Perhaps they weren’t and the faculty made a preemptive strike. Students who claim to be bored in class attribute their boredom to some presumed failing on the part of the professor, implicitly denying any responsibility on their own part. Sometimes they are correct. A professor who engages in a straight lecture, reading from notes that the students already have because years of accumulated note-taking have generated a student version of the professor’s notes, creates the temptation to do crossword puzzles, read Sports Illustrated, pass notes, or use a laptop for activities unrelated to class. When a professor lets one or a few students chew up valuable class time with commentary that doesn’t move things forward efficiently, the professor needs to understand that this approach indeed does invite engagement in other activities. On the other hand, if a student determines that he or she isn’t getting anything from what the professor is saying, ought not the student take on the task of redirecting the discussion, perhaps even livening up the class? Students who prepare as they ought to prepare should, as participants in a graduate program leading to a doctoral degree, step up and contribute to the class. Why not generate one’s own hypothetical or problem and present it? Why not challenge the implications of something that the professor says? Would this not, in turn, encourage other students to let their minds wander? No, not if the question or challenge is presented as essential to the course. Beginning a question with, “So what you are telling us, professor, is ….” gets the attention of other students. If the capable students, those attuned to the material and prepared for class, make these sorts of contributions, other students pay attention. Rewarding useful class contributions, while discouraging useless interjections, provides additional incentives to capable, prepared students to keep things moving along at a pace that denies time for distractions.

Students, of course, are very much aware of their own, and their classmates’, use of laptops for doing things other than dealing with class-related matters. Students at one law school put together a creative law school show promo leaving no questions as to the theme of their production. One wonders if they did the production work during tax class. I doubt it. What the promo doesn’t tell us is what happens when a student asks, “Would you please repeat the question?” If the answer is “No, and you have earned negative points for your final course grade,” the likelihood of students letting themselves get trapped into needing to ask that question because they’re engaged in other activities ought to disappear. On the other hand, being “nice” and repeating the question enables the distracting activity.

Yes, there are some students who are so gifted they can multitask, playing games while listening to class discussion. Yes, there are students who will sit in the back row where they can surf the Internet without distracting students sitting behind them because there are no students sitting behind them. If they can behave in this manner and still earn high grades, as some of those commenting on the AbovetheLaw posting claim that they do, so be it. But if exams and semester exercises are designed to reward class attendance, attention, and participation, and create insurmountable hurdles for those who did not learn because they were wasting time, student behavior would change, and change quickly. Law faculty have managed to get this far without banning pens, pencils, engagement rings, and bingo cards, and it ought not be that difficult to move ahead without banning laptops. But if a law professor chooses to do so, the law professor should expect that there will be far more negative feedback than positive, and that in the long run, it isn’t going to work. Sprinkled among the comments to the AbovetheLaw posting is information telling us that some of the schools, and some of the law faculty, who banned laptops have relented. I wonder why.

Peter Pappas, of The Tax Lawyer’s Blog, takes issue with a point I made in A Tax Policy Determination Clue. Technically, in Two Professors, an Angry Bear and Hate the Rich Syndrome, Pappas takes issue with the “exuberant endorsement” by Linda Beale, of A Taxing Matter, of my “attack on successful, millionaire Congressmen” in her post, Who's rich? what's going on with those freshwater economists? and more posts Worth Reading. What did she say that was so exuberant? She said this:

Jim Maule takes off on the issue of wealth and the fact that Congress isn't exactly representational on that score (something I've noted in several postings myself). 44% of Congress members are millionaires, compared to about 1% of the American population. Bad news for ordinary Americans.

In my book, that’s not quite exuberant. It’s simple agreement.

Pappas then suggests that

Ms. Beale’s exuberant endorsement of Professor Maule’s attack on successful, millionaire Congressmen compels me to assume that she thinks it is preferable that less successful and less educated people were running the country? I think she has it backwards. I think it is essential that we empower only those representatives who have proven their competency to handle their own financial affairs before entrusting them with care of the nation’s finances.

If Pappas is suggesting that financial competence be a prerequisite to sitting in Congress, I’m willing to go along with that idea. First, considering that the Congresses of the past however many years have failed miserably to handle taxation, economic matters, budget balancing, and every other financial aspect of governance, all members should be removed. Second, require candidates for Congress to undergo rigorous testing. Third, do some investigation into how members of Congress acquired their wealth.

Pappas’ argument rests on a faulty premise. His post presumes that “our legislators” are “ordinary Americans” who are not “incapable of understanding the plight of the average American” because they “know what it’s like to struggle” and because “through diligent study, hard work and intelligence they managed to lift themselves from the ranks of the ordinary and the mediocre.” Pappas, however, does not provide or point us to any statistics that disclose the percentage of Senators and Representatives who grew up in poverty. Nor does he provide or point to information that identifies those members of Congress who were born into, or married into, wealth. Also missing is information on members of Congress who neither grew up in poverty nor were born into wealth who, after being elected to a position in Congress, experienced wealth increases exceeding that which would be expected of someone earning what members of Congress earn. To conclude that Congress is predominantly a group of people who have struggled to pull themselves out of dire straits in some altruistic endeavor to put the nation’s well being above their own desire for power is to give too much credit to political campaign advertising and the self-congratulatory pronouncements of politicians.

Pappas also notes that more than 95% of members of Congress have college degrees whereas fewer than 30% of adult Americans have them. Could that be a consequence of college being more readily available to those who come from economic backgrounds that encourage college attendance and make the opportunity to pursue a college education far less of a challenge? Someone coming out of college with a degree in political science isn’t necessarily more highly qualified to sit in Congress than is someone who finished high school and learned about life as an employee paying close attention to how the life really is.

Pappas asserts that, “We should not elect legislators of ordinary intelligence, education and diligence.” Why not? Ordinary folks tend to bring far more practical experience and common sense to the table than those who have lived inside academia or some other sheltered place before turning to life in the world of politics. The point is that the process, including the need for huge amounts of money, shuts out a lot of people who would do a much better job than Congress has done for the past several decades. Congress should be a representational body. It has become a club dominated by the wealthy. The wealthy members of Congress tend to be those who have been there for a long time, and those holding that sort of seniority are the ones who control the Committees, who dictate the legislative process, who cut the deals in the back rooms, and who run the show.

What really disturbs Pappas isn’t so much the make-up of the Congress, but what he perceives as a “hate the rich syndrome.” He asks, “Why is it difficult for left wingers to acknowledge that wealthy people got that way through perseverance, hard work and sacrifice?” I’ll set aside the hilarity of being tagged as a “left winger,” because most people on the left tend to see me as, at best, middle-of-the-road, and more than a few consider me “too conservative.” I’ll focus on his presumption that the wealthy are wealthy because they persevered, engaged in hard work, and underwent sacrifice. That may be true of some of the wealthy. The wealthy who became that way admirably, that is, by meeting the Pappas definition of wealth acquisition, almost always are the sort of people who stay out of politics, either directly or indirectly, because the same qualities that they manifested in building up a successful business are the same sort of qualities that deter them from wallowing in politics. Their hard work and diligence teach them that modern day politics pose a threat to their value system. The few who do succumb to the temptation, and succeed in getting elected, too often get caught up in the arrogance and self-interest that pervade the halls of Congress.

When Pappas defends the wealthy by assuming that all, or to give him the benefit of the doubt, almost all, of them have taken the high road to success that he describes, he presumes too much. Are those born into wealth necessarily people who exhibit “perseverance, hard work and sacrifice”? Maybe a few. There are far too many news reports of heirs and heiresses behaving badly, born with a sense of entitlement, and accustomed to buying what they want, including politicians. Is every wealthy person who became that way by setting up and running a business someone who demonstrated “perseverance, hard work and sacrifice”? Most of them persevered. Many of them worked hard. A few of them may have sacrificed. But how many mistreated workers? Sold junk products to an unsuspecting public? Exploited the poor, in this nation or elsewhere? Shifted environmental costs and other externalities to society generally? Violated securities and other laws? Cooked books? Stole ideas from others? Raided pension plans? Stashed money off-shore to avoid regulation and taxes, or to facilitate the extraction of assets before putting their companies through bankruptcy so that unpaid debts and unfunded toxic waste site cleanup costs would be a burden on taxpayers?

Branding the wealthy as persevering, hard working, sacrificing individuals is as presumptuous as branding the poor as shiftless. What matters, though, is that my comments focused on the disproportionate number of wealthy in Congress, and the inadequate job Congress has been doing for the past several decades. The connection between money and politics, between money and election, between money and re-election, and between money and what Congress does cannot, and should not, be ignored. It might be defensible if Congressional work product was worth as much as the money that gets pumped into the institution.

It continues to puzzle me that so many people who are struggling economically choose to rush into a defense of the wealthy. The best explanation rests on comments I’ve received over the years from people who claim that repealing the special tax cuts given to the wealthy will somehow prevent the commentator or others from becoming wealthy. Even though the chances of winning the “get wealthy” lottery are extremely slim, there are people who prefer to see the unbalanced economic and taxation systems continue because they’d rather have a slim chance at acquiring huge amounts of money than go with a more sensible plan of increasing everyone’s odds of acquiring a much smaller amount of money that would make their lives somewhat better. It’s almost as though there is a subculture within society that so desperately wants a chance to own yachts, private jets, piles of jewels, and humongous mansions that they reject any sort of system that would provide decent health care, warm homes, adequate food, and quality education to the “masses.”

Pappas closes with the notion that “[e]ntrusting the operations of the government to merely ordinary Americans is a recipe for disaster.” Well, for one thing, the operations of government already are, and long have been, in the hands of ordinary Americans, including high school graduates who serve in the Armed Forces, technical school graduates who work in the bureaus and agencies of government, and the regular folks who are employed by judges and executive branch departments. The people who collect trash and plow snow, who care for the National Parks, who serve as guides at National Monuments, who inspect businesses for OSHA violations, and who otherwise underpin government operations are ordinary Americans. On the other hand, entrusting the determination of tax, economic, health, and other national policies to an overwhelming non-representational and disproportionately wealthy group of individuals beholden to powerful special interests, with a track record that is an embarrassment to a nation that once was a model to which people all over the globe looked for enlightenment and inspiration, already has become a recipe for disaster.

Some people in France don't like the consequences of digital technology and are proposing a tax on advertising revenue collected by Google and other internet enterprises, perhaps coupled with a tax on internet content. According to dozens of news stories, including this one from BBC News, France wants to use the tax to "fund legal alternatives for buying books, films and music on the internet." Another report goes into more detail, explaining that the revenues from the proposed tax would be used to support newspaper subscriptions.

France has a history of chafing at the impact of technological progress, modernization, and globalization. Though it deserves respect for trying to hold on to tradition, there comes a time when it makes no sense to let the world pass one by. Its campaign against illegal downloading of material subject to copyright is understandable, but there's little to recommend its opposition to Google's attempt to make available to the world books on which copyright has expired and other books for which it would be paying royalties. France also has on the table a proposal to permit people to delete digital information about themselves, an idea that would generate outrageous results if applied to the non-digital world. Like most people who "oppose" the internet, the folks coming up with these ideas simply do not understand modern technology, how it works, and, most importantly, how to adapt to it in a symbiotic manner. That is what is killing print newspapers and the culture industries, such as music publishers. As usual, the managers and owners of these failing private industries look to government to help them, instead of going to school to learn about the changes that have taken place in the decades since they last sat in a classroom. And one wonders how much of an impact on the French President's decision to support the proposed tax was made by the fact his wife is a music artist.

So, what the world sees is a proposal to tax Google, Yahoo, and others to prop up print newspapers. Let's see how the world would have evolved had people sharing the mindset of the Google tax proponents been around in years past:

A tax on automobilies to support the dying buggy whip, horseshoe, and stable cleaning industries (and for those who suggest that such a tax would have been wonderful because it would have kept fuel-consuming, pollution-emitting vehicles off the road, picture a large city with several million horses, dumping thousands of tons of "manure" on the street, while farms now growing food for humans would be devoted to generating feed for horses).

A tax on cordless and cellular telephones to prop up the dying rotary dial telephone manufacturers (though, to their credit, most of these companies figured out how to adapt, and designed new business plans to cope with change, unlike the "lost in the woods" newspaper, music, film, and other industries that can't seem to get a grip on how to survive in a digital world).

A tax on polio vaccines in order to maintain employment in the iron lung manufacturing industry.

A tax on computer manufacturers devoted to bailing out typewriter manufacturing companies (though, again, some of those companies managed to survive because their operators had the ability to engage in forward-looking thinking).

A tax on the electricity generation industry to maintain the survival of the whale oil lighting industry.

A tax on telegraph equipment to preserve the job of those working in the smoke signal sector of the economy.

There surely are dozens more examples of instances in which progress brought benefits to society that could, and probably would, have been curtailed had those incapable of going along with evolution prevailed in using government to grab profits to make up for the economic setbacks they suffered because they were unable to keep up. Why haven't print newspapers succeeded in doing what online news outlets have done? Why haven't the music and film industries done what Google did? Because they were, and are, too constrained in their thinking, too unable or unwilling to figure out for themselves how to take advantage of scientific and technological advances.

My reaction to the "grab profits from the successful to prop up the obsolete" tax doesn't mean I oppose taxes on successful innovators. To the contrary, a tax that is designed to cause an enterprise to reimburse society for the costs that it imposes on the world makes perfect sense. If Google is causing the cutting down of trees, a tax to provide replacement plantings makes sense. If Yahoo is causing pollution of rivers, a tax to pay for the clean-up easily is justified. But if X invents a practical instantaneous translocation device, a tax on X's business to support the no-longer-necessary passenger air transportation industry misses the mark.

The IRS has announced ”a sweeping new effort to reach tax return preparers with enforcement and education”. The decision follows a multi-month Return Preparer Review. The IRS is focusing on a problem that has been around for a long time. Though many income tax return preparers are competent, honest, and diligent professionals, there are far more than a few who are incompetent, dishonest, lackadaisical, or some combination thereof.

The IRS notes that between 900,000 and 1.2 million individuals prepare tax returns for a fee. Tax return preparers who are attorneys or certified public accountants are licensed by states or state agencies, and as a condition of obtaining the license must demonstrate some proficiency in taxes. More on that shortly. Other preparers are individuals enrolled to practice by the IRS, and they, too, must demonstrate some proficiency in taxes. But a substantial number of tax return preparers don’t fall into any of those categories. In other words, anyone can put up a sign or create a web page advertising tax return preparation services, obtain customers, prepare a return, and collect a fee.

Though penalties and other sanctions exist to encourage tax return preparers to do their task correctly, studies indicate that the error rate among preparers is woefully high. The GAO, for example, went to 19 commercial tax return preparation sites posing as taxpayers. Only 2 of the 19 generated the correct tax liability and refund amounts, and all 19 made errors. Eight of the 19 misreported state income tax refunds. Ten of the 19 did not include self-employment income on the return. None of the preparers whose test clients were eligible for the credit for dependent care included the credit on the return that they prepared. Of the nine test clients who would benefit from itemizing deductions, two had preparers limit them to the standard deduction. Of the other seven, five miscalculated itemized deductions. Of ten test clients eligible for the earned income tax credit, only one encountered a preparer who asked all the correct questions, and all made mistakes. Four of the preparers did not sign the returns and two did not provide their identifying numbers. The Treasury Inspector General for Tax Administration conducted a similar experiment, focusing on 28 unenrolled tax return preparers. Of the 28, 17 did not correctly compute tax owed or refund due. All six preparers asked to do returns with business expenses made errors. One-half properly handled the education credit, and 11 of 12 failed to properly deal with self-employment situations.

The IRS proposes to require all individuals who prepare tax returns for a fee to register with the IRS and obtain a preparer identification number. It also proposes to establish competency testing for all paid tax return preparers who are not attorneys, certified public accountants, or enrolled agents. Paid preparers, other than attorneys, certified public accountants, and enrolled agents would be required, under the proposal, to take 15 hours of continuing professional education in tax law and ethics. The IRS will follow through with studies, visits to preparers’ offices, and other means to evaluate the impact of the proposals, if they are implemented. There are other elements of the proposal, and there’s no substitute for reading the Return Preparer Review.

There are four major reactions that I offer to this proposal. First, it’s about time. Second, though there’s no excuse for someone holding himself or herself out as a tax return preparer without having the requisite competence, surely one of the principal reasons for the error rates that are revealed by the GAO, TIGTA, and other studies is the absurd hypercomplexity of the tax law. That’s not to excuse the preparers who engage in fraudulent activity, but I’m willing to guess that many of the preparers who are missing the mark mean well and are overwhelmed by the unjustified intricacy of most tax law provisions. Third, letting attorneys off the hook by presuming they are competent in tax law is foolish. Enrolled agents and certified public accountants must work their way through challenging tests with respect to taxation before gaining their certification. For the former, it’s pretty much the entire test and for certified public accountants it’s roughly 25% of the exam. Attorneys take bar examinations that devote roughly one to three percent of the testing time to a tax question that is at the most elementary level imaginable. If the GAO and TIGTA took their experiment into law offices, they would discover almost all attorneys in this country who are not tax lawyers and even some who do practice tax would fail miserably when asked to prepare a tax return. Fourth, if adopted, the proposal will cause a shakeout in the tax return preparation industry, pushing out many of the folks who do tax returns because they know a bit more about taxes than do their neighbors and see the opportunity to make some money that tax return preparation presents.

A snippet about a tax return preparer in a story I read the other day about tax return preparers made me laugh. It mentioned a fellow who prepares tax returns during tax season and who works as a clown during the summer. What a combination. "A clown who does taxes" probably does not work well as advertising. Of course, we ought to be worrying about the people in legislatures who have been clowning around with taxes for too long. If the Congress genuinely cares about reducing the number of errors on tax returns, it ought to turn its attention to genuine tax reform, which might not produce a simplistic tax system but surely would generate significant tax law simplification. Unfortunately, the IRS does not have the power to impose on members of Congress the sort of high standards it seeks to impose on tax return preparers.

A column in Monday’s Philadelphia Inquirer by Maria Panaritis, Happy Ending for ‘GenHexed’, caught my eye because it examines a topic that is of interest to anyone looking seriously at the nation’s economic future. Panaritis notes that people in their thirties and early forties have problems. She lists a “trifecta” of “money problems, pension problems, housing problems.” She points out that this Generation, popularly known as Generation X, is “worse off” than their parents’ generation. That’s not good. Wrapped within those three types of problems that Panaritis lists are all sorts of subsidiary difficulties, including an impending Social Security and Medicare implosion, a rapidly escalating health care crisis, looming epidemics, and a variety of political, military, and homeland security miscues waiting to happen.

As Panaritis tries to explain how this unavoidable signal of national decline – a generation being worse off than the one preceding it – came about, she mentions that “Income diminished for most everyone but the wealthy, who became even richer.” Without digging into this critical bit of information, she turns instead to a Congressional Research Service report that discloses the average age of members of Congress is 57, which is “among the oldest of any [Congress] in U.S. history.” She intimates, without being particularly specific, that this may be some sort of ingredient to the disarray into which the nation has slid.

However, for me, an important key to the current and impending crises is the growing chasm between the wealthy and the rest of American society. So I did a bit of research to confirm and get the latest information on something that’s been known for some time. As reported by a CBS Political Hotsheet, in turn referring to an Open Secrets report on the wealth status of members of Congress, 44 percent of members of Congress are millionaires. Some of the other 56 percent aren’t far off the mark. And this is based on information that does not include all of the legislators’ assets. Considering that about one percent of Americans are millionaires, the discrepancy is overwhelming and foreboding. Why? It pretty much means that to be elected, a person must have money and have access to money. That leaves a lot of highly qualified people out in the cold, eligible to serve in theory, but in practice shut out of the political landscape.

The difficulty is that money buys political power. It ought not be that way, but it is. And for it to change, the Constitution needs to be amended, unless Americans somehow independently decide to throw their support to qualified individuals whom they “call” to public service through grass-roots write-in campaigns, something that just isn’t going to happen. Though term limits are suggested as ways to shake up the legislative morass in which Congress is mired, even if such limitations worked, they would work to replace millionaires with other millionaires. Others recommend limits on campaign spending, but there are, according to the Supreme Court, serious First Amendment obstacles to anything that would be effective. Another solution might be some sort of restriction on the influence of money on members of Congress, but one wonders that although it is illegal to purchase votes outright, there’s no pragmatically adaptable means of insulating a member of Congress from the desires of someone who has pumped millions of dollars into a campaign chest.

My New Year’s Day post, A Zero Tax, A Zero Congress, triggered some comments, most of which were generously shared examples of yet dozens of other ways in which the failure of the Congress to deal with the estate tax issue can destroy estate plans despite the most careful of contingent planning. But the best comment came from Steve Odem, who reacted thusly: “If the Founding Fathers could have foreseen what taxation WITH representation would be like, they may have decided the revolution wasn't worth the trouble.” Though we do have taxation with representation, it surely isn’t taxation with representation of all. It’s taxation with representation of those who can afford to pay for the influencing of legislation, including tax legislation, and especially tax legislation.

When people complain that the tax law makes no sense and is too complicated, there is a cynical though defensibly accurate response. When viewed from the perspective of those who can afford to pay to influence the crafting of tax legislation, the tax law makes perfect sense. It helps the rich get richer and it contributes to the accelerating decline of this nation’s economic well-being. By the time critics of Congress will be able to "prove" that there is a need for reform, it will be too late.

Thanks to a tip from Paul Caron's TaxProf blog posting, I turned my attention to a Wall Street Journal Opinion article, Are Taxes the Root of Unhappiness?. The article looks at a new study reported in Science magazine that ranked state populations based on happiness levels. The study reported in Science magazine took data from a recent "Behavioral Risk Factor Surveillance System" and a six-year-old economics paper that explored quality-of-life information, and "regressed the subjective measure of well-being … against the objective measure." To no one's surprise, the objective and subjective measures correlated rather nicely. In other words, "quality of life heavily influences happiness." The study also supports the notion that people pretty much know when they're happy and unhappy, and have good reason for how they feel. So what's the tax angle?

The tax angle is that Allysia Finley, the author of the Opinion article, concludes that there is a correlation between states with high state and local tax burdens and states with high levels of unhappiness, and a correlation between states with low state and local tax burdens and high levels of happiness. Her premise seems to be that people who pay relatively higher proportions of their income in taxes have less to spend on the things in life that make a person happy. There are three major flaws in her reasoning.

The first major flaw is that happiness flows from things that can be purchased. True, accumulation of material wealth and consumption ("vacations, hobbies, home improvements, eating out and child care," in Finley's words) can bring happiness. But there are many other things in life that bring happiness. One excellent example is the satisfaction that comes from helping others and pitching in, experiences that highlight the efforts of those engaged in volunteer work and community service. It may be that those who have not experienced the joy of giving mistake self-serving material acquisition and consumption as happiness. They don't know what they're missing.

The second major flaw is the assumption that correlation implies cause and effect. Finley acknowledges the danger of making that leap but notes that "but there's something going on here." My suggestion is that what contributes to unhappiness or lessens happiness is the frustration arising from watching politicians, namely legislators, executive branch officials, and even judges, fail to use taxes in ways that enhance quality of life for a wide swath of the population. Taxes are high in states that tend to have more need for public intervention. States are not equal in this respect. Consider several of the examples highlighted by Finley. She notes that unhappiness levels in California are high despite its presumably fine weather. Yet California's weather includes Santa Ana winds that fuel wildfires, mudslides triggered by the torrential rains that fall upon land left barren by those fires, earthquakes if I can be so bold as to include that phenomenon in the category of "weather," avalanches, snowstorms, droughts, and a wide variety of meteorological mishaps that belie the myth of California being a fair weather paradise. If those tribulations don't bring unhappiness, consider the position of California as a state that must absorb and deal with hundreds of thousands of immigrants, both legal and illegal, who arrive with almost nothing and put burdens on the state until such time, if at all, they become self-sufficient and contribute to the economic well-being of the state. The same challenge afflicts New York and New Jersey, two additional states to which Finley points in trying to persuade us that taxes cause unhappiness. A significant proportion of immigrants arriving on the East Coast end up in those two states. Wyoming, South Dakota, Nebraska, and Kansas don't face the sort of challenges faced by New York, New Jersey, California, and many of the other "high tax" states.

The third major flaw is that the correlation between high taxes and unhappiness advanced by Finley isn't borne out by the information available. Paul Caron's TaxProf post includes a chart that's worth examining. True, California, Connecticut, New York, and New Jersey score high in unhappiness and in taxes. But how does one explain Indiana and Michigan, which also score near the top in unhappiness but are average in terms of tax burden? Could it be that insufficient tax revenues contribute to the factors that generate the unhappiness? Or consider West Virginia, a state with a tax burden exceeded by 44 other states, yet only 34th in happiness. On the other side, yes, Louisiana ranks first in happiness, and has the next-to-lowest tax burden, but what about Hawaii, coming in second in the happiness scores, and yet having a tax burden higher than 36 other states? Tax burdens in Florida and Arizona are average, and yet they claim third and fifth place, respectively, in the happiness sweepstakes.

It's not the tax rate or tax burden per se that contributes to unhappiness. If tax dollars were used properly for the improvement of quality of life, happiness would increase. Perhaps there are lessons to be learned from studies, if those studies were to be undertaken, between levels of happiness among those contributing to charities that efficiently and properly use the contributions that they collect, and those who contribute to charities that misuse the funds that they raise. What's needed is some sort of corruption and inefficient government index that can be plotted against the tax rank and happiness score sequences.

Finley's premise suggests that if all taxes were repealed, happiness levels would approach infinity. I suggest the contrary. If all taxes were repealed, happiness levels would plummet to near zero. The flaw in the sort of analyses of which Finley's is one example, is that they plot data on a linear basis rather than a logarithmic or differential calculus basis. In other words, the relationship is best portrayed by U-shaped curves and not straight lines. Mathematics aside, perhaps imbuing the culture with a better sense of the meaning and worth of giving, in contrast to the greed of getting, would bring significant changes to the underlying information that Finley and others use in their anti-tax campaigns. Doing that would require a change in education processes and values. That's an issue that reaches far beyond taxes.

The other day when I was at the gym, a retired fellow asked me what was going to happen with the estate tax, which as of today has become a zero tax. As we conversed, a crowd grew. Clearly it's a topic that interests people. What impressed me was the depth of knowledge that several people demonstrated about the issue. At least a few have been paying attention. I told them, of course, that no one knows what's going to happen. The fellow who started the conversation with me told us several times that he really wanted and needed to know. So do the rest of us, someone noted. But they made a good point. The taxpayers of this country deserve to know what's going to happen, which means, of course, that they deserve to have had a Congress deal with the matter long before now.

Much has been written, and I have no intention of repeating it, about the various issues that must be confronted because of the failure of the Congress to do its job. Should people make more gifts this year than they planned to make? Should people amend their wills? Should people make transfers to grandchildren? A long list of commentators have mapped out some strategies, though all admit that at some point it becomes a gamble. During the conversation at the gym, I repeated something I've noted to others in earlier conversations, and that's the possibility of drafting tax-contingent clauses in the will. One could set up a will so that different dispositive provisions were triggered depending on the estate tax situation at the time of death. It's not perfect, but it gives the decedent-to-be a little bit of control that otherwise would be lost.

One of the vexing issues is the possibility that when, or perhaps if, Congress gets around to doing something with the estate and other transfer taxes, it will make the changes retroactive to today. Pity the person who dies today, without having had the benefit of mapping out an estate plan that could take into account a tax situation unknown until weeks, months, or even years after death. It is wrong for the Congress to put someone in that position, but that is what the Congress has done. Someone at the gym commented to the effect that retroactivity would be unconstitutional, but I pointed out that although there is some debate about the matter, it appears very likely that a challenge on that basis would fail, unless the lag time were quite long, and even then there's no guarantee.

Thousands of commentators have shared their predictions of what Congress might do, though few go out on a limb and pick one specific possibility, and no one wants to project a timeline for Congressional action. Don't expect me to add to the list of possibilities or to make a projection as to what Congress will do or when it will deal with the matter. I simply don't know. Meteorologists do a better job with weather forecasts than anyone can do reading the Congressional crystal ball.

What I can offer is my condemnation of the Congress for putting America into yet another economic mess. Several commentators have noted, cynically perhaps, that members of Congress benefit from having the estate tax issue held open because it encourages lobbyists for the various positions to rustle up more cash for the campaign coffers of members of Congress. Far be it for me to criticize a cyncial observation. Truth be told, I think these commentators are making a valid point. It's not unlike members of Congress to put personal objectives, including raising re-election funds and grabbing power, ahead of what needs to be done for the national economic good. One look at the bribery involved in crafting a health care bill tells us quite a bit about the value system in play on Capitol Hill.

Almost nine years ago Congress enacted tax legislation but subjected most of it to a cut-off date in 2010. Absent Congressional action, in 2011, these changes will disappear and the pre-2001 tax law will spring back into force. Actually, it's more complicated. During the past eight years, Congress made some of the 2001 changes permanent. Some expired by their own terms. Many were themselves amended, in ways that will cause the pre-2001 law that returns to be a modified version of what it was. Why did Congress impose this strange sunset provision when it enacted the changes? The answer is simple. Congress did so in order to make the cost of the tax cuts for the wealthy appear to be less than what it would have been had there been no expiration date. Ultimately, it made the upcoming federal deficits appear smaller, though as reality was encountered as the decade progressed, the deficits went through the roof.

Almost nine years ago, Congress knew it had to deal with this estate tax question. Each year, it put the matter on the back burner. What's the rush? This is the sort of thinking that brings students into faculty offices begging for extensions of time, that causes partners to demand midnight work from associates, that even causes some law school faculty to run around in a frenzy on the morning of the first day of a semester's classes trying to photocopy materials for an imminent class session. To all of this, I often remark, admittedly with sarcasm, "What a surprise it must be to discover that a paper is due tomorrow, that a meeting with a client in the morning has been scheduled for weeks, or that a class is scheduled for the first day of the semester." And so the Congress neglected its responsibility to take good care of the nation. It let the issue rest until there was no time to deal with it, and then, because there was no time to deal with it, the Congress decided it would not deal with it.

There are a variety of words to describe the manner in which the Congress has handled the estate tax question. Irresponsible is my favorite. Short-sighted is another good one. Unwise, incompetent, and outrageous also come to mind. There also are some phrases that can be used. Derelict in its duty. A breach of its fiduciary obligation. Perhaps there's a new game here. The winner is the person who, in 10 minutes, can come up with the most words describing this mess. Would people play? They already are. One thing that struck me during my conversation at the gym on Wednesday was the intensity of the criticism levelled at the Congress. Do its members get out and meet with people or are they surrounded by their posses and moneyed interests? Are members of Congress so clueless that they think they're earning points by chucking aside their obligations? Someone suggested that Congress ought not be permitted to return to Washington, because it's either not doing what it should be doing or is doing something in a manner that makes things worse. I would not so easily let the Congress off the hook. My inspiration comes from the Emperor Frederick II, who barricaded the cardinal electors (though after making certain that a select few did not make it in), until they reached a decision. Perhaps the Congress ought to be sequestered until it fixes the estate tax issue. Perhaps if its members are unwilling to go to the people and listen to everyone, rather than to their patrons, the people will need to bring their frustration to the Congress.

There may not be any constitutional requirement that Congress do its job properly and in a timely manner, nor a provision that prohibits the Congress from creating the mess in the first place. Nor is there any statute that can be invoked to compel the Congress to live up to its responsibilities, particularly when the responsibility is one of its own making. But there is more to law than just a constitution and statutes, regulations and cases, rulings and decrees. There is a moral imperative, an overarching array of dedication to the national interest, respect for the citizens, decent treatment of the taxpayers, adherence to diligence, integrity, common sense, and fiduciary duty, and a deep understanding of the difference between the good and the expedient. Whether the Congress ever had or exercised this set of values is debatable, but what's not in dispute is the conclusion that the current Congress fails miserably in this regard. It is morally bankrupt. It earns a zero.

I noted previously, in New Jersey to Follow in California’s Tax Footsteps?, that New Jersey faces some difficult decisions if the intentions of its governor-elect are to be accomplished. The governor-elect, along with his political allies, want to cut taxes. To do so, they would need to cut spending, because New Jersey cannot print money and there are limits on its ability to continue borrowing. I pointed out one disadvantage to its practice of "borrowing" from the state unemployment insurance compensation fund in Monday's A Tax Lesson to Be Learned.

According to a recent article in the Philadelphia Inquirer, the chair of the New Jersey Senate's Budget and Appropriations Committee wants to review the budget impact of the various deductions, credits, exclusions, and exemptions available to taxpayers in New Jersey. This legislator pointed out that each of these items represents forgone revenue. Of course, revoking any of these items would be interpreted by the governor-elect's party, to which the Budget and Appropriations Committee chair does not belong, as a tax increase. The interesting twist is that the legislator proposing this review has introduced legislation that would require the governor to come up with the list of tax deductions, credits, exclusions, and exemptions. Hello? Why should the governor be required to generate the list? Did the governor impose these various tax breaks? Of course not. Every one of these tax breaks was enacted by the legislature. Why can't the legislature maintain and generate the list? Is it the same incompetence that led a member of the House of Representatives, many years ago, to write to the IRS asking for a copy of recently enacted legislation because he could not find a copy and did not understand a question from a constituent? Why is that incompetent? Surely he had a copy, and if he lost it, surely his staff should have been able to find a copy, considering he was a member of the legislature that enacted the legislation. What made it worse was that this member of Congress had voted in favor of the legislation. Legislators, do your own work and stop foisting your work, and blame for your mistakes, onto the executive branch.

It gets better. The interim president of a group that has lobbied for disclosure of the tax expenditures points to a tax compact between New Jersey and New York as an example of a tax expenditure. It should be noted that the compact is something to which the legislature agrees. Under the agreement, each state absolves its residents from income taxes on compensation earned in, and taxed by, the other state. According to this person, the agreement costs New Jersey $1.5 billion a year. It is unclear whether this amount represents wages earned by New Jersey residents in New York, multiplied by the appropriate New Jersey income tax rates, or a more sophisticated determination that in the absence of the compact New Jersey revenues would increase by that amount. Why the difference? If New Jersey chose to tax its residents on New York compensation, its law would also provide those residents with an income tax credit for the income taxes those residents paid to the city and state of New York. Considering the relative tax rates, those credits would wipe out the putative New Jersey income taxes. It appears that this lobbyist doesn't quite understand the impact of the tax credit because, to quote this person, "Most of the people who live in New Jersey but work in New York pay more to New York than they would to New Jersey, which means that if New Jersey could end or rework the agreement, the state could receive more in income taxes while its individual residents would pay less." That sort of analysis would not earn a passing grade in a state and local taxation course. Moreover, the tax compact is designed to achieve administrative efficiency, because the cost of administering and auditing the credit would otherwise add to New Jersey's spending. If the suggestion to rework or eliminate the tax compact implicity includes a proposal to eliminate the credit for income taxes paid to other states, aside from a variety of constitutional, policy, and statutory arguments that might foil such a move, as a political matter it is foolish and would have the effect of encouraging New Jersey residents working in New York to move to New York. The net effect would be to banish to other states individuals who pay other taxes to New Jersey.

It boils down, once again, to a legislature being quick to dish out tax breaks, quick to spend money, but slow to take on responsibility for its actions, slow to keep track of what it does, yet quick to ask others to do its work. Ought not legislators be held to the same standard of expertise that applies to people working in other occupations and jobs? Do not the taxpayers deserve better?

Imagine. A fund designed to make payments to those in need. A tax levied to put money into that fund. In good years the fund balance grows. In bad years the fund balance decreases as payments are made to those whom the fund assists. The level of taxation is set to keep the fund solvent. That's how it should work.

Imagine. When the fund, in good years, has a high balance, politicians seeking to increase spending in other areas of government without raising taxes, see the fund, flush with cash, and dip into it. Whether they intend to "repay" what they pilfer isn't known. But if they don't, the taxes levied to put money into the fund will need to go up when the fund balance dissipates.

Imagine. Times turn tough. Legitimate claims against the fund increase. The fund balance disappears. The fund then tries to borrow, but from whom and at what cost? Ultimately, the fund faces the prospect of showing its empty pockets to those with legitimate claims.

Is this some sort of end-of-the-year parable? Is it a re-hashing of the warnings periodically issued about the sorry financial state of the Medicare and Social Security trust funds? No.

Stop imagining. It's not fiction. It's a real story, with tax lessons for all.

According to this Philadelphia Inquirer story, this is what happened to the New Jersey unemployment compensation insurance fund. When the economy was going well, the taxes levied on employers and employees caused the fund to grow, even as it took care of the unemployment compensation claims made by those who lost their jobs. Unemployment was low, so the funds outlays were less than the taxes being collected on employers and employees. The tax rate on employers fell, as the legislation setting up the fund was designed to let the employer tax rate "float" depending on the fund balance. The arithmetic was done in a manner that let the fund hold reserves so that if unemployment increased, which would cause both an increase in unemployment compensation claims and a decrease in tax collections, the fund would be in a position to meet its obligations.

Unfortunately, New Jersey politicians eager to spend money without raising taxes looked at the fund balance and decided it was theirs to use for purposes other than unemployment compensation. So they took $4.7 billion from the fund. Their short-sightedness, a terrible lack of ability or willingness to look ahead, backfired.

The economy took a tumble. Unemployment skyrocketed. So, too, did legitimate unemployment compensation claims. The fund dried up. It dried up much sooner than it would have had the $4.7 billion not been pilfered. If the fund were a private trust, the trustees would be nailed for breach of fiduciary obligation. Unfortunately, there's no such fiduciary obligation imposed on politicians. In the meantime, the fund borrowed almost $1 billion from the federal government so that it could continue to pay claims.

Consequently, the "floating" tax rate mechanism is set to trigger an increase in the employer portion of the unemployment compensation insurance tax. Set to occur on July 1, it's a whopping increase. The rate would move to the highest permissible rate. Employers who at the moment are collectively paying $1.7 billion into the fund each year would pay $2.7 billion. Some employers are facing a tax increase of $270 per employee and others as much as $700 per employee, with rates varying depending on the particular employer's employment hiring and firing history. It will take several years of increased taxes and presumable declining unemployment compensation claims, to restore the fund to financial health. As early as April 2009, the state's labor commissioner disclosed the fund's condition and the looming tax increase.

New Jersey Republicans, however, consider tax increases to be evil upon evil, and want to block the automatic tax hike. So they are considering other options. One option is to have the state put money into the fund. The fund needs $2 billion in order to prevent a tax hike this July, but that would not prevent the tax hike trigger from kicking in on July 1, 2011. The difficulty with this option is that the state's general fund faces an $8 billion deficit, so there's no reasonable expectation that the state can come up with money that, in effect, would repay some of what the politicians "borrowed" -- or should we say "stole" -- from the fund in years past. Another option is to amend the tax rate trigger legislation so that the tax increase is reduced or eliminated. The foolishness of this idea is that the fund deficit would continue to grow, and the situation would compound itself in upcoming years. For example, if $2 billion is not made up during the next fiscal year, the following year would bring a $4 billion shortfall. Yet another option put forth by the Republicans is to ask the federal government to forgive the almost $1 billion that the fund has borrowed from it. This approach is doubly flawed. First, eliminating the fund deficit does not generate cash that can be used to pay pending and forthcoming claims, unless the unspoken aspect of this option is to borrow even more from the federal government with the intention of having that amount also forgiven as a debt. Second, shifting the burden onto the federal government shifts the burden onto taxpayers throughout the country, which is problematic in and of itself but worse, impractical because at least half of the states are in the same position of owing money to the federal government to repay loans undertaken to fund unemployment compensation insurance fund deficits. Still another option is to cut unemployment compensation benefits, but as the article puts it, this "could created a fierce backlash." Indeed.

Looking ahead, two politicians have proposed an amendment to the New Jersey Constitution prohibiting the sort of "borrowing" from the fund that caused this crisis. Voters will make a decision on that proposal in November. For the moment, though, the only viable choice is to let the automatic tax increase kick in. This will drive the newly elected governor crazy, considering he got himself elected on a campaign promise that benefits of all sorts from the state could be increased while taxes were not just being held steady, but cut. Cut! Welcome to reality, Mr. Christie.

Among the lessons to be learned from this mess, aside from the stupidity of eating next year's seed corn, is the prospects that lie ahead for the Social Security and Medicare Trust Funds. For years, federal politicians have used these funds to finance the deficits arising from cutting taxes for the wealthy while simultaneously increasing federal spending, chiefly to finance a war. When claims against those funds begin to increase and the funds begin to call back the loans made to the Treasury general fund, a crisis orders of magnitude bigger than the one facing New Jersey -- and several dozen other states -- will paralyze the nation. Consider the options. Unlike the New Jersey unemployment compensation insurance legislation, there is no automatic tax hike trigger that would increase social security and Medicare taxes on employers or even employees. So one option is to have the federal government put money into the fund, that is, to pay back the money borrowed from the funds. Where does the federal government, already wallowing in astronomical deficits, get that money? Increase taxes? Consider the hue and cry over that one. Perhaps the federal government could print money. That would cause inflation, devalue the dollar internationally, and probably trigger another economic collapse. Another option is to ask the trust funds to forgive the debt. Wait. That won't work. Perhaps the federal government should ask China, Japan, Saudi Arabia, and the other nations that financed the "raised military spending while cutting taxes for the wealthy" stupidity of the past decade to forgive the debt. Ha ha ha. One can imagine what would be asked in return. Think about an IRS with its headquarters in Beijing, Riyadh, or Tokyo. Yet another option is to cut Medicare and social security benefits. Expect yet another "fierce backlash."

As many predicted, beginning almost ten years ago, the ultimate price to be paid for the "we want it all and we want it now" screech of the wealthy who didn't want to pay taxes, joined by those who did not benefit from the tax cuts but imagined themselves someday being among the lowly-taxed economic elite, is soon to be paid. Now that the promised economic paradise offered by the tax-cuts-for-the-wealthy advocates has not materialized, a surprise and disappointment to some but a totally expected outcome to those who understand economic reality, the pain of foolish choices is going to afflict the entire nation and, quite possibly, most of the planet. It's time to set aside the false promises, the deceptive arguments, and the selfish motives of those who put individual greed above collective good, and to take the difficult and agonizing steps that need to be taken if unemployment, social security, and Medicare trust funds, let alone the nation, are going to survive and prosper.

Earlier this week, along came the news that Pittsburgh’s mayor has abandoned his effort to have the city enact a tax on tuition. This decision was announced during the height of the holiday season, and it surely is a welcome gift to those students and parents who are footing the bill for their undergraduate and graduate education. When the proposed tuition tax was first made public, I ripped into the idea in Funding City Services to Tax-Exempt Schools: Impose User Fees, not Taxes.

In my critique of the tuition tax proposal, I stressed the advantages of imposing user fees for the specific services provided by the city of Pittsburgh to the schools and other tax-exempt organizations carrying on activities within its limits. Not that I am under any illusion that Pittsburgh’s mayor, his staff, or executives at those tax-exempt organizations read MauledAgain or took note of my suggestions, but it is interesting that part of what persuaded the mayor to ditch his goofy idea was a pledge made by those organizations, along with some for-profit businesses, to come up with increased transfers to the city in the form of payment for services rendered by the city. The mayor’s decision may also have been influenced by the widespread outcry against his idea, as at least one of the positions I’ve taken on MauledAgain happened to correlate with those taken by the overwhelming number of people who commented on the issue.

The mayor also explained that he is forming a coalition to develop a plan that it will take to Harrisburg in search of state help for the city’s financial problems. Considering the financial mess in which the state finds itself, Pittsburgh won’t be coming away with state cash. Instead, the best for which it can hope is legislative approval of other money-raising plans, such as an increase in the annual per-capita tax imposed on people working in the city, or broadening the payroll tax to include those working for tax-exempt employers.

Whether the tuition tax proposal has been terminally set aside is questionable. Although the tax-exempt organizations in Pittsburgh pledged to contribute more money, they did not sign up for as many dollars as the mayor had requested as a price for dropping his tuition tax initiative. Nor, it seems, did they bring their pledges up to the amount that they had been contributing a few years ago. So long as the city needs money to deal with its financial problems, much of which is the same sort of seriously underfunded public employee pension plan disaster facing the state and many municipalities, it’s risky to conclude that a money-raising idea, even one as ill-advised as a tuition tax, has been relegated to the dustbin of history.

That said, for the moment, at least, students attending Pittsburgh schools, and their parents or other tuition providers, can breathe a sigh of relief and enjoy their holidays without worrying about scraping up money in January that they didn’t plan to spend and might not even have. Like some holiday presents, this one may not last into perpetuity. I know of only one gift for today that does, and it’s not one that a mayor or legislature can duplicate. To all those for whom it matters, Merry Christmas.

The area where I live has been clobbered with a snowstorm that comes in second on the "inches piled on" list. I'll spare everyone my bewilderment at the way snow shoveling reveals the existence of muscles that no machine in the gym seems to recognize and my desire that the phrase "global warming" be forever shelved in favor of the more believable "climate change." Instead, I want to share how even a near-blizzard snow storm gets me thinking about tax.

Twice on Saturday, once on Sunday, and once on Monday, township plows came down my street and cleared away the snow. I think that on Sunday they also dropped some cinders and salt or salt-like substance. The result was a street that was pretty much passable almost the entire time, and certainly since early Sunday morning. When the plows went by -- I was out there shoveling on several of the occasions -- what passed through my brain was the thought that my township property taxes were funding this service. As I drove to Swarthmore on Sunday morning, I noticed several PennDot plow trains on I-476, and again thought about the various taxes that paid for the equipment, supplies, and labor. Actually, I was beginning to draft this blog post in my head.

When someone complains about paying taxes, one of the questions I pose is this: "Who will plow the streets?" The smart-alecks from places that it doesn't snow, a rapidly diminishing list of locales, can reply, "Who cares?" but most of the anti-tax crowd goes quiet and some begin to modify their stance with some sort of "We're not against all taxes" explanation. I've yet to hear any sort of workable alternative arrangement to see to the removal of ice and snow from public highways.

Proof of the value of taxes in providing services to the citizenry can be found in the experience of Philadelphia residents and businesses. Once again, most streets remain choked with snow. Before using the size of the storm as an excuse, this problem occurs every time there is a snow of more than a few inches. The city has insufficient equipment and labor to get the job done. It's not even a matter of needing three or four times as many days to clear out the streets. Some years, the arrival of spring is what solved the problem. In the meantime, God have mercy on those living on snow-clogged streets who need an ambulance or the services of the fire department. It's one thing for emergency crews not to be able to respond during the height of a storm, but when the period of inaccessibility reaches a matter of days, it becomes downright dangerous. This is especially so when the problem is insufficient tax revenue to fund the work. It also appears as though some towns in New Jersey also are suffering similar problems. What I do not know is if this is a "first" for them or a common experience.

If Philadelphia had available funds, it could reach into the ranks of the unemployed, buy some shovels, and put these folks to work clearing out the streets too narrow for plows, and perhaps rent some plows and put those who are capable to work driving some extra equipment. Is this feasible aside from the funding issue? Certainly. The proof is what the Philadelphia National Football League franchise did to get ready for the San Francisco 49ers-Philadelphia Eagles game on Sunday. True, game time was postponed from 1 p.m. until 4:15 p.m. to buy some time, but the organization went out and hired 1,700 people and put them to work clearing the stadium and the parking lots (and apparently, neighboring streets that the city had not cleared). Though some of the 1,700 were folks with jobs taking on contracts with the Eagles, many others were folks looking to make some money. Reports are that many of them were paid $10 an hour to shovel and otherwise move snow out of the seating areas at the stadium. The Eagles could do this because they had some cash in reserve. The city of Philadelphia doesn't have the money. Its revenue shortfalls are a combination of yielding to pressure for reduced taxes, hordes of people not paying taxes, serious problems with its tax assessment and collection systems, and tax breaks dished out to corporations not in need of social welfare payments. One argument for reducing taxes, an argument that Philadelphia accepted to some extent, is that higher taxes deter people and businesses from settling in the city. Today's question is what effect do days and days of unplowed streets have on people and businesses thinking of moving into the city.

Speaking of resources, I have neither the time nor the money to do a study that analyzes the correlation between the taxation policies and tax rates of the governmental entities on which snow fell last weekend and the quality of snow removal and street clearing that those entities offer. Though such a study might plow away my suggestions, I suspect that it would demonstrate the value of taxation and the risks presented by the objectives of the anti-tax advocates.