MauledAgain

Though I stopped teaching Decedents’ Estates and Trusts in 2009 after 13 years of teaching the course as a “temporary” fill-in on an “emergency” basis, I continue to follow developments in this area of the law because it interests me. It’s also a course that I taught for several years when I entered full-time law teaching, so it remains in a category different from one that is simply “law courses I’m not teaching.” Here’s an example of why the course is both fun and challenging to teach, and no less fun and challenging to learn.

Several days ago, CNN reported on a story with a headline that grabbed my attention: Convicted Killer Could Inherit Victim’s Assets. That’s a very unusual outcome, so I just had to read the full report. I’m glad I did. If I were still teaching the course, the tale would become the basis of an examination or semester exercise question. The fact pattern is simple, though there is one fact in dispute and two that are unclear. Brandon Palladino pleaded guilty to killing his mother-in-law in 2008. The report doesn’t explain why he killed her, and the reason doesn’t matter. For those who are curious, a 2009 report explains that he choked her to death after she arrived home earlier than expected and discovered that he was robbing her house. Brandon, who pleaded guilty to first-degree manslaughter, is awaiting sentencing, and he will be sentenced to as many as 25 years in prison. When Dianne Edwards, the mother-in-law, was killed, her property passed to her daughter Deanna Palladino. Some reports, such as the one from CNN use the word “inherit” or a variant to describe how the property passed to Deanna, but others, such as this one, state that Dianne Edwards had executed a will in favor of her daughter. Whether Deanna took through inheritance or under a will does not matter. Deanna, meanwhile, remained married to Brandon. Two years after her mother’s death, Deanna died. The CNN story states that Brandon will inherit Deanna’s property, which includes the property she inherited from her mother. But another report explains that Deanna “left everything to her imprisoned husband,” which suggests she executed a valid will. In this instance, the difference does matter. What’s in dispute is Deanna’s involvement in the robbery. According to this story, Dianne Edwards’ sister Donna claims that Deanna gave Brandon the key to her mother’s house, assisted in covering up the crime, pawned some of her mother’s jewelry, and used some of the money received from her mother to pay for Brandon’s legal defense.

Wow. As I tell my students, we law professors don’t need to make up our hypothetical questions. We get plenty of material from life itself.

As a matter of law, under what is known as the Slayer’s Act, people who kill another person are precluded from inheriting or otherwise taking property from the decedent. The scope of this rule’s application varies from state to state, many applying it to all homicides, some only to murder, and so on. Those details aren’t pertinent in this case. The problem is that Brandon Palladino is not inheriting from his victim. He is either inheriting from his wife or taking property under his wife’s will. He is not an heir of his victim nor was he a beneficiary in her will. Thus, the reports, about the situation, such as this one, claiming that “a convicted killer is set to inherit a quarter-million dollars from his victim” are wrong. It’s true that the victim’s property, or much of it, will end up in her killer’s hands, but that’s not because he is inheriting from her. It’s because of what her daughter did with respect to her own estate planning.

The victim’s daughter chose to let her husband take her property. If she did this by writing a will that named him her beneficiary, then she made a decision that she was capable of making because her mother’s earlier decision to let her property go to her daughter gave her daughter the opportunity to transfer the property however she chose. If the daughter did this by failing to write a will, then it’s less clear whether she chose to let the inheritance statutes apply or whether she didn’t even give a moment’s thought to the question and unwittingly let the property go to her mother’s killer.

When I taught the Decedents’ Estates and Trusts course, I tried to instill in my students a sense of thinking through all possibilities when mapping out an estate plan. One needs to help a client understand what happens with the client’s property after the client dies. And this is more than simply identifying the intestate heirs or working through the contingencies that trigger alternate beneficiaries under a will if a primary beneficiary fails to survive. It involves getting the client to understand that once the heir or beneficiary takes the property, he or she may use the property for some purpose that the client dislikes, or transfer the property by gift or will to a person that the client dislikes, or neglect to write a will and let the property go to someone who is a stranger to the client, such as a spouse whom the beneficiary meets and marries years after the client dies. There are ways, of course, to reduce the chances of these things happening, such as setting up trusts and imposing conditions on the bequests and devises, but the attorney needs to help the client get past the temptation to think that the unexpected will not happen.

Estate planning is a risky business. People die out of expected sequence. Someone lives much longer than expected. Beneficiaries marry. They divorce. Beneficiaries adopt children. Beneficiaries’ spouses commit crimes. A beneficiary’s spouse or friend might even kill the decedent.

The statute in question blocks the killer from inheriting property from the victim and from taking under the victim’s will. The statute does not apply to Brandon Palladino. The reaction of the victim’s family, and many others, reflects common sense. Common sense seems to tell us that there’s something not quite right about Dianne Edwards’ property ending up, albeit through a two-step process, in the hands of her killer. But statutes don’t always reflect common sense, nor is all common sense codified in statutes. Perhaps if Dianne knew what would end up happening, she would have written a will that kept Brandon from getting the property, by use of a trust. We don’t know what Deanna intended, and there are indications that she wanted her husband to have the money. If she did not, then the experience is yet another example of why people need wills and need to think carefully about what they put in those wills.

It would not surprise me to learn that one or more members of the victim’s family initiate litigation to prevent Brandon Palladino from taking possession of the property in question when he is released from prison. It’s unclear whether the family tried to stop Deanna from taking her mother’s property after her mother was killed. If they did, they obviously failed to prove by a preponderance of the evidence that Deanna also was a killer of her mother and thus blocked from taking her mother’s property. If they did not, it’s too late. So they’re left with trying to find some theory on which to block Brandon from taking the property. It would not surprise me to learn that they tried and failed.

It also would not surprise me to learn that a legislator introduces a bill to amend the statute to extend the Slayer’s Act to these sorts of situations. And it would not surprise me to learn that the bill received little or no attention in the legislature. It would not surprise me that some lawyers started adapting their will drafting to take these sorts of situations into account. And it would not surprise me that other lawyers did not.

Almost a month ago, in Why the Tax Compromise is a Mistake, I described the reasons I opposed the tax compromise, including this concern:

4. Cutting the employee FICA rate. This may be the most dangerous provision in the compromise. Ultimately, it worsens the financial health of the social security system. It dumps even more financial burdens on younger generations. Advertised as beneficial for people at the lower end of the income ladder, the roughly $2,000 tax reduction will be available to all wage earners, including those whose salaries are in the millions and tens of millions. Do those people need even more tax reduction? Why? Certainly not to create jobs.

Had I looked more closely, I would have noticed that the provision worsens the financial health, not of the social security system, but of the nation. The legislation contains the following provision:

There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.

A similar provision makes up the shortfall in amounts otherwise collected and credited to the Railroad Retirement Fund.

What will happen is that the nation’s general fund will transfer to the Social Security and Railroad Retirement funds what are, in effect, IOU notes. The general fund will borrow from those other funds, issue special bonds to cover that debt, and in turn use the money borrowed from those funds to pay into those funds the cash that would have been paid into those funds had the full employee portion of FICA taxes been collected. At some point, when the Social Security and Railroad Retirement funds need cash to pay benefits, they will call on the general fund to pay up the borrowed amounts plus interest. Where will the general fund get the money?

The general fund will get the money to repay its debt to the other two funds in one of two ways. The amount in the general fund can be increased by raising taxes. The general fund can obtain funds by borrowing from other nations. Keep in mind that the amount of taxes that will need to be raised, if that route is chosen, is more than the tax cut generated by the reduction in the employee FICA rate.

Consider another possibility, namely, the general fund defaults on its obligation to the Social Security and Railroad Retirement funds. That leaves three choices with respect to the latter two funds. First, Social Security and Railroad Retirement tax rates can be increased to make up the difference. Second, benefits can be cut. Third, the funds can borrow from other nations, assuming that by this time there are other nations willing to lend money to these funds.

Imagine being in a vehicle moving forward at a high rate of speed. Imagine a passenger sees a cliff ahead. Imagine the drive assuring everyone, “We’ll deal with that when we get there, and, anyhow, by the time we get there the edge of the cliff will have advanced into the distance.” How much confidence do you have in the driver’s braking reaction skills and in the vehicle’s braking system?

Consider again, carefully, what is happening: “What will happen is that the nation’s general fund will transfer to the Social Security and Railroad Retirement funds what are, in effect, IOU notes. The general fund will borrow from those other funds, issue special bonds to cover that debt, and in turn use the money borrowed from those funds to pay into those funds the cash that would have been paid into those funds had the full employee portion of FICA taxes been collected. At some point, when the Social Security and Railroad Retirement funds need cash to pay benefits, they will call on the general fund to pay up the borrowed amounts plus interest.” In other words, the funds are being funded with money that does not exist. It’s not unlike the non-existing road surface beyond the face of the cliff.

A recent Tax Court Summary Opinion, Bragg v. Comr., illustrates the dangers of relying on cases decided under Internal Revenue Code provisions that have been amended, and on the dangers of ignoring changes in statutes and regulations. In this instance, it was the IRS and not the taxpayer who made the mistake.

The facts are fairly simple. Taxpayer was married in approximately 1986, and in April 2002, he and his wife were divorced. In the divorce decree, the taxpayer was ordered to pay $400 twice a month to his former wife “without a specific ending date.” The decree also provided that after five years, the court would review the taxpayer’s obligation to make the payments. At some point, the taxpayer and his former wife agreed to reduce the amount that he was paying because of changes in the taxpayer’s financial circumstances. They did not ask the court for a revision of the divorce decree because it would have cost money to do so.

During 2007, the taxpayer paid $6,240 to his former wife through a direct deposit into a checking account set up for her. At the end of 2007, a grandson of the former wife told the taxpayer that his grandmother had remarried in 2006. On learning this, the taxpayer stopped the direct deposits. The taxpayer claimed an alimony deduction of $6,240 on his 2007 federal income tax return.

The IRS disallowed the deduction, arguing that the payments were not made under a divorce or separation instrument. It agreed that the other definitional requirements for payments to be alimony had been satisfied.

The IRS argued that because the taxpayer’s obligation to make alimony payments terminated under state law when his former wife remarried in 2006, the payments in 2007 were not received under a divorce instrument. The Tax Court, however, pointed out that there is no requirement in section 71(b) that payments be made under a legally enforceable duty. It noted that “Although it was once the case that entitlement to an alimony deduction under section 71 required payments to be made under a legally enforceable obligation, it has not been so for more than 25 years.” The Deficit Reduction Act of 1984 repealed the requirement that the payment be made under a legally enforceable obligation. The Court then wrote the sort of sentence that no attorney wants to read about his or her efforts: “Respondent’s legal argument has as its foundation old law and does not reflect amendments to the statute.” The Court noted that cases so holding dealt with situations where no decree had been issued, payments made before the decree was effective, or situations to which the old version of section 71 applied. The Court also noted that Treasury Regulation section 1.71-1(b) had been, in effect, obsolete by the temporary regulations issued under section 71 after the enactment of the Deficit Reduction Act of 1984. In fact, section 1.71-1T(a), Q&A-3 of those regulations states that the requirement that alimony payments be “made in discharge of a legal obligation . . . has been eliminated.”

So what happened? It seems, from the Court’s description of the IRS arguments, that the idea of voluntary alimony payments being deductible did not sit well with the IRS. Yet, there is a good argument that the payments were not voluntary. They were obtained through lack of disclosure. Was the former wife under an obligation to inform the taxpayer when and if she remarried? I don’t know what state law in Washington requires, but what’s the harm in putting such an obligation in the divorce decree? The case does not reveal if the taxpayer sued his former wife to recover the payments she should not have received. If he does recover those payments, he’s looking at a tax benefit rule issue. The case also does not reveal if the former wife included the 2007 payments in gross income. If she did not, and the IRS let her go on that decision because it considered the payments not to be alimony, it whipsawed itself.

Or it simply could have been an oversight by one or more IRS employees. Were the IRS personnel involved in the case doing what some of my students continue to do despite my many warnings, namely, working from “old outlines”? Did no one look at the Temporary Regulations issued years ago? I doubt we ever will know.

With the tax law changing almost daily, thanks to frequent legislative tinkering and hundreds of cases and administrative issuances being delivered almost daily, anyone dealing with the tax law must stay on top of the changes. Speaking from experience, that is a staggering undertaking. But it’s an inescapable one.

Several weeks ago, in Driscoll v. Comr., 135 T.C. No. 27 (2010), the United States Tax Court, in a case of first impression, held that the exclusion from gross income under section 107 of a minister’s parsonage allowance is not limited to the portion used to provide the minister’s primary residence but also extends to the portion used to provide a second home, which happened to be located in a vacation area. The case is yet another example of how courts struggle to determine what Congress intended when examining statutory language the Congress almost surely enacted without thinking about the issue. The existence of majority, concurring, and dissenting opinions indicates the extent of the struggle.

The facts are simple. A religious organization employed the taxpayer, who owned more than one home. One was a principal residence in Cleveland, Tennessee, and the other was a second home at the Parksville Lake Summer Home area of the Cherokee National Forest in Lake Ocoee. After selling the second home in 1998, the taxpayer acquired another second home, but this fact doesn’t affect the analysis. The taxpayer did not use either home for commercial purposes, nor was either home rented to third parties. The religious organization paid to the taxpayer a parsonage allowance to cover the costs of owning and maintaining both the principal residence and the vacation home. The taxpayer excluded the allowance, which increased from roughly $25,000 in 1996 to almost $200,000 in 1999, from gross income under section 107.

The IRS took the position that the section 107 exclusion applies with respect to only one home. The IRS argued that the term “a home” in section 107 refers to one home. The taxpayer argued that the only limitation in section 107 is that the amounts excluded under section 107 be used to provide a dwelling place for a minister, and that both homes were used as dwelling places, a fact to which the IRS and taxpayer stipulated.

An examination of earlier versions of the exclusion, which first appeared in 1921, was not helpful. Originally the statute referred to “a dwelling house and appurtenances thereof” and the transformation in 1954 of this phrase into “a home” was described by Congress as intending no change in the law.

The majority of the Tax Court rejected the IRS analysis for several reasons. First, it viewed the IRS argument as one that substituted the phrase “a single home” or the phrase “one home” for the phrase “a home” in the statute. Second, it turned to section 7701(m)(1), which provides that “words importing the singular include and apply to several persons, parties or things.” Four judges joined this opinion, another concurred only in the result, and yet another did not participate in consideration of the case.

In a concurring opinion, Judge Wherry explained that he agreed with the majority opinion, but wrote “separately to emphasize the limited factual record on which this case was decided.” After noting that he disagreed with the dissenting judges’ position that the phrase “a home” is ambiguous, and that the parties’ stipulations essentially mandated the conclusion reached by the majority, Judge Wherry noted that “[n]ecessarily absent from our consideration of this case are important regulatory consideration which were not fully addressed in the stipulation or on brief.” For example, ministers whose duties require tending to persons living in sparsely populated rural areas may need two or more homes to reach everyone within their assigned area. As other examples, the question of whether the parsonage allowance was reasonable compensation, why it was provided in the amounts indicated, and whether private benefit and personal inurement existedwere issues not before the Court. Two of the judges who joined the majority opinion also joined this concurring opinion.

In a dissenting opinion, Judge Gustafson concluded that the IRS should prevail, for four reasons. First, under the principle that exclusions from gross income must be narrowly construed, section 107 should be limited to one home. Second, the fact that the word “a” and the word “home” are both singular, combined with the fact that in common usage a person has only one home and the facts that, according to the dissenting opinion, the term “home” refers to the place where the minister lives and that a person can live in only one place at one time, makes the IRS interpretation of section 107 “more likely.” The dissent dismissed the majority’s reliance on section 7701(m)(1) by noting that it applies only if the context does not suggest otherwise, and that in section 107, the context does suggest otherwise. To the notion that some people have multiple homes, as exemplified by a person referring to “my city home and my mountain home,” the dissenting opinion noted that the IRS had not conceded the use of terms such as “summer home” or “vacation home” “presumes the existence of a prior ‘home’ that is one’s habitual dwelling.” The dissent added, “The phrase ‘second home’ refers instead to a secondary residence that is not one’s actual ‘home’.” Third, in an argument connected with the second reason, the dissent, relying on the “to the extent used by him . . . to provide a home” language of the statute, concluded that a person can use only one home at a time, and that because the allowance cannot apply to a home that the minister does not use at all during the taxable year, it ought not apply for periods when the home is not in use. Fourth, the dissent argued that permitting a parsonage allowance exclusion for more than one home “would serve no evident legislative purpose.” Five judges joined in the dissenting opinion.

This sort of case demonstrates how frustrating it can be to interpret a statutory provision that does not deal with all of the basic possibilities. It is likely, at the time that Congress enacted the predecessor of section 107, that the thought of ministers owning or using multiple homes did not enter the collective Congressional mind. Of course, considering that, as the court pointed out, the origins and purposes of section 107 are “obscure,” it is speculation to conclude what, if anything, was in the collective Congressional mind.

It is easy to propose alternative language that would resolve the issue, but doing so simply emphasizes the inadequacy of the existing statute. If the language referred to “a home or homes,” the answer would be clear, as would be the case with the phrase “any home.” If the language referred to “the principal home” or “the home that is the principal residence,” the analysis would be fairly easy. The phrase “the home” would be more difficult to interpret than the preceding suggestions, but still less daunting than the existing language.

What’s left are several questions for the future. First, will the IRS appeal, and if so, will it prevail? Second, will the IRS continue to issue notices of deficiency in these sorts of cases, knowing that it would lose in the Tax Court but hoping that it would prevail on appeal to a different Court of Appeals? Third, might the Supreme Court end up dealing with this issue? Fourth, will the Congress amend section 107 to respond to the Tax Court’s decision, and, if so, what will it do? Fifth, might the Congress repeal section 107, the existence of which is difficult to justify under any sort of tax policy analysis? I’m willing to predict that at some point in the future, a subsequent development with respect to this issue will be the subject of a future MauledAgain blog post.

According to this Yale Law School news release, two members of the Yale Law faculty and a member of the faculty at Cornell Law School have established a website that “enables visitors to the site to calculate what their tax cut would be, choose a charity, and donate their tax cut amount to that charity.” These three professors “are encouraging Americans to give back the tax cuts just approved by Congress by making donations to organizations that ‘promote fairness, economic growth, and a vibrant middle class.’”

The website in question, Give It Back for Jobs, permits users to select from one of four charities: Habitat for Humanity, the Salvation Army, Children’s Aid Society, and Nurse Family Partnership. I’m sure these are worthy charities, in fact, I know that they are, but the three law faculty don’t disclose how they determined that these four charities, and no others, qualify. Surely there are other charities that meet the tests of promoting fairness, economic growth, and a vibrant middle class. I did not see any option to select a charity other than the four listed on the site.

Setting aside the question of charity selection, there remains another puzzler. Several commentators have suggested that those who wish to decline the tax cut they otherwise would receive should return it to the United States Treasury. Joe Kristan, over at Tax Update Blog, in You First, Buddy notes, “They are all worthy charities, but they do nothing for the entity most harmed by the tax cuts: the government.” Glenn Reynolds at InstaPundit shares an email from Hanah Volokh, who asks, “shouldn’t the only option be to send the money to the U.S. treasury?” and who wonders “do any of [the four charities] create jobs?” and ponders, “Wouldn’t the number of jobs in America grow more quickly if we all spent our tax cut money on consumer goods or home remodeling? Or by hiring someone to mow our lawns instead of doing it ourselves?” Peter Pappas, in Rich Liberals Say Give the Tax Cuts Back, notes that “After all, if they really believe they should be paying more taxes, the diversion of their tax savings to private charity doesn’t solve the problem. The feds are still out the money.” William Jacobson of Le-gal In-sur-rec-tion explains, “I am not sure the methodology is appropriate to the goal, since the money is not paid to the government and the donor gets a tax deduction for the donation.” He argues that “the net effect is that payment is not an act equal to paying higher taxes, in fact, it is just the opposite.” He also notes that “[i]t will be hard to know if the contributions actually represent a contribution of the tax savings from extension of current rates, or just a contribution which would have been made anyway.”

To these questions, I add more. I offer no answers.

Is it possible for charities, whether these four or a broader group, to use this additionally donated money to improve the economic situation of persons who otherwise would be the recipients of federal spending, thus reducing the amount of federal spending directed to these assisted persons? In other words, if these donations provide food for 1,000 families, does that not permit the federal government to reduce concomitantly its food assistance spending?

Is it the government that is harmed by the extension of tax cuts for the wealthy, or is it the middle class and the poverty class? Is the government of the people or something separate and apart from the people? Who are the people?

How can people spend their tax cut money on consumer goods, home remodeling, or anything else, when the impact of the tax cuts for non-wealthy people is that it permits them to continue spending what they’ve been spending but does not provide resources with which to increase spending? Does economic recovery arise from maintaining spending at current levels or from increasing spending from current levels? Does increasing investment in offshore trusts and foreign bank accounts create jobs in the United States?

Would people participating in the Give It Back for Jobs initiative be willing to provide proof that they increased their charitable giving as compared with previous years, rather than maintaining charitable giving while shifting it from other recipients to one or more of the four listed on the Give It Back for Jobs web site? Would people participating in the initiative be willing to give up their charitable contribution deduction for these donations so that they are not being financed in part by reductions in tax liability arising from the deduction?

What would happen if we eliminated government spending on all programs providing the sort of assistance also provided by charities, reduced taxes accordingly, eliminated the charitable contribution deduction, and relied instead on private philanthropy? Would there be an increase or decrease in the number of people living in poverty? Would there be an increase or decrease in the number of people dying prematurely? Would there be an increase or decrease in childhood disease? Would there be an increase or decrease in the number of students graduating from high school capable of competing for jobs in a global economy?

On Thursday, the IRS announced that certain taxpayers must wait until mid-February, and perhaps as late as the end of February, to file their federal income tax returns. Why the delay? The IRS must re-program its systems to take into account tax changes enacted by the Congress last week but that are effective for 2010. Generally speaking, the delay affects taxpayers who itemize deductions, who claim the higher education tuition and fees deduction, and who claim the educator expense deduction.

Though there are a few taxpayers who try to get their tax returns filed by the end of January, it’s a good guess that the delay won’t change the filing plans of most taxpayers. Many taxpayers don’t get around to filing until March or April, so they probably took little notice of the IRS announcement. A few taxpayers, thinking they have refunds headed their way, who would have filed in February are going to be inconvenienced. They should write a thank-you note to the Congress, for its decision to wait until late December 2010 to do something it has known since 2001 that it needed to do.

The IRS did not disclose where it is getting the money to pay for the re-programming of its systems. Vendors of tax preparation software also face the prospect of spending additional money to update their products and to distribute those updates to their customers. They, too, should write a thank-you note to the Congress.

The more important issue is whether this development is the start of a trend. Fast forward to 2012, when the patchwork arrangement cobbled together last week itself expires. Consider it a real possibility that the Congress fails to deal with the matter before December 31, 2012. Imagine a Congress, deadlocked or simply manifesting its usual inefficiencies in self-governance, deciding by April, May, perhaps even June of 2013 that it is changing the law applicable to 2012. Will there come a time when the IRS tells all taxpayers to hold back on filing until July? Dare it charge interest on unpaid balances? Will it waive penalties?

In the meantime, revenue departments in states whose tax laws reflect Internal Revenue Code provisions surely are facing similar problems. They, too, must re-design forms and re-program tax return processing systems. Who pays? Perhaps a tax on Congress?

A few days ago, a reader of Joseph N. DiStefano’s PhillyDeal$ blog voiced his concern over the fact that social security benefits are taxed “if you make more than $25,000 a year.” DiStefano provided a link to the Social Security Administration’s Customer Help page, where one finds this assertion: “You will have to pay federal taxes on your benefits if you file a federal tax return as an individual and your total income is more than $25,000. If you file a joint return, you will have to pay taxes if you and your spouse have a total income of more than $32,000.” Well, that’s not quite correct.

A portion of social security benefits is taxed if the taxpayer’s adjusted gross income, modified to add back certain deductions allowable in computing adjusted gross income and to include tax-exempt interest income, plus one-half of the taxpayer’s social security benefits, exceeds $25,000. So, in a sense, it’s worse than DiStefano’s reader thought. Suppose an unmarried taxpayer has $23,000 of wages from a part-time job, $10,000 of social security benefits, and no deductions allowable in computing adjusted gross income. The taxpayer’s modified adjusted gross income is $23,000. The taxpayer’s expanded income is $23,000 increased by one-half of the taxpayer’s social security benefits, or $28,000. The taxpayer’s expanded income exceeds $25,000 by $3,000. The taxpayer will be taxed on $1,500 of the social security benefits. It’s more complicated than this, of course, because if the taxpayer’s expanded income exceeds $34,000 (or $44,000 in the case of a married couple), even more of the social security benefits are taxed.

DiStefano’s reader asserts that the “idea of taxing Social Security was to make wealthy people pay taxes.” That’s not quite correct, either. The idea of taxing Social Security was to tax social security recipients in a manner not unlike the way recipients of pensions and deferred compensation payments are taxed. To the extent a person is receiving more than the person invested, the person has income. Congress chose to include some of this income in gross income. In the case of social security, instead of resting the computation on what the taxpayer actually paid into the system with after-tax dollars and letting the taxpayer receive the contributions tax-free while being taxed on the excess, Congress instead chose an allegedly less complex – don’t believe that for a moment – arrangement that presumes that 50 to 85 percent of what a taxpayer receives in social security benefits represents amounts in excess of what the taxpayer contributed. The flaws in this arrangement are obvious. The current tax law makes the percentage that is taxed dependent on what the taxpayer’s income happens to be in the year the benefits are received, which has absolutely nothing to do with what the taxpayer contributed into the social security system. Permitting taxpayers to receive a return of their contributions tax-free, and to then include all subsequent benefits in gross income is infinitely less complex than the monstrosity currently residing in section 86, which one ought not read before, during, or immediately after eating.

If the Congress did want “to make wealthy people pay taxes,” it can and ought to do so by dealing with tax rates rather than by creating convoluted and arbitrary social security benefit gross income inclusion computations. Proof that the Congress wasn’t focusing on “the wealthy” rests in the fact that even when Congress enacted section 86, $25,000 and $32,000 were not annual income amounts separating the wealthy from everyone else. Those amounts were calculated in order to make the revenue estimate from the provision match the revenue that was desired.

But DiStefano’s reader makes an excellent point when he complains that the $25,000 amount has not changed since the outset. None of the amounts -- $25,000, $32,000, $34,000, or $44,000 – have changed. They are not indexed to increase with inflation. Taxpayers who pay attention to details notice that all sorts of tax amounts in the tax law are adjusted for inflation. Things such as the personal and dependency exemption amount, the standard deduction, the tax rate bracket boundaries, and dozens of other limits and similar items are changed annually though from time to time inflation is insufficient to require adjustment of one or another particular item in a given year. Yet the social security threshold amounts, along with some others, such as the exemption amount for the alternative minimum tax and the $100,000 adjusted gross income limit on the active management exception to the passive loss rules, are set in stone, so to speak. They are not adjusted for inflation.

Why some amounts are adjusted and others are not is puzzling. The practical guess is that Congress chose not to adjust an item for inflation if doing so would cause the revenue estimates to make the provision incompatible with budget impact projections. But that could be wrong. Inflation adjustments entered the tax law in response to people expressing concern that inflation was moving people into higher tax brackets even though income, in real terms, did not change. Could it be that Congress responded with inflation adjustments only for items that were the subject of taxpayer complaint? Is it possible that taxpayers were and are more aware of the impact of inflation on tax rate bracket boundaries and the standard deduction than they are of the impact on the alternative minimum tax and social security benefits gross income inclusion computations? Perhaps that was true ten years ago. Surely it is not true now, considering the amount of press that the alternative minimum tax overreach has received. And it’s not unlikely that a sizeable portion of social security benefits recipients are aware of the frozen state of the $25,000 and other tax amounts relevant to the gross income inclusion computation.

What it comes down to is inexplicable inconsistency. All of these amounts should be indexed for inflation, and to the extent this would reduce the revenue stream, it needs to be offset with adjustments to the tax rates. Otherwise, each year social security benefits recipients face a tax increase. But, I suppose, they don’t have the influence in Washington to lobby for tax relief. Perhaps they ought to proclaim that if their annual tax increase is removed, they will create jobs.

My Monday post, Tax and Spending Policy Inconsistency: A Nicer Term Than Hypocrisy has drawn the criticism of Peter Pappas, in his Earmark Hypocrisy? post. His response is a bit puzzling.

Pappas contends that “[i]t is neither hypocritical nor inconsistent to favor an across-the-board ban on earmarks while yourself benefiting from earmarks while they are legal.” He then presents an example:

If a congressman proposes that the speed limit on I-95 be lowered to 55 miles per hour and continues to drive at 70 miles per hour, he is not acting hypocritically. The reason his driving at the higher speed limit is not hypocritical is because he does not propose that the speed limit be lowered only for him, but rather that it be lowered for everyone. If, on the other hand, the law changed and the speed limit were reduced to 55 and he continued to drive at 70, then he would be a hypocrite.

The example deals with a proposed speed limit reduction that is not (yet) enacted. The earmark issue, on the other hand, involves something much more than a proposal. According to this report on the matter, “Republicans formally agreed last week to a two-year prohibition of earmarks.” This is much more than a simple proposal. To bring the point back to the example, if the congressman proposing the reduced speed limit enters into a formal agreement with other members of Congress to adhere to a reduced speed limit – perhaps to make a point, perhaps to set an example -- then driving at 70 miles per hour is a breach of that formal contract. It cheapens, weakens, and renders suspect the formal agreement. If the goal was to set an example, it’s a bad example being set. But to stand up in a group and proclaim that “We pledge to drive at no more than 55 miles per hour, and have formally agreed with each other to adhere to this pledge” while proceeding to continue driving at speeds in excess of 55 miles per hour is a classic example of hypocrisy. If asked, “Did you really mean what you said?,” the honest answer would be, “No.” And that is a one-word response that outs the political grandstanding that the pledge turns out to be.

Pappas also takes issue with my point that ending earmarks is a “drop in the bucket” when it comes to deficit reduction. He doesn’t offer any evidence that one-fourth of one percent is not a drop in the bucket. Instead, he complains that ending earmarks is a “budget-cut proposal made by the right” that is being discounted and suggests that every budget-cut proposal made by the right is similarly discounted. The bottom line is that ending earmarks does not reduce the budget deficit sufficiently. As for other budget-cut proposals, I haven’t analyzed them, chiefly because they’re quite difficult to find, and so I’ll let Pappas identify the other ones he thinks are being discounted. A creditor who is owed $1,000 and to whom the debtor offers $2.50 most likely will consider the $2.50 to be a drop in the bucket. As for Pappas’ claim that enough drops will fill the bucket, the problem is that by the time the bucket is filled, it will be too late. One does not fill buckets used to put out fires one drop at a time. One needs a hose, or a pool or lake into which to dip the bucket.

Pappas then takes issue with my point that the inconsistency demonstrated by those who violate their pledges is a matter of principle. Though I oppose earmarks and support the pledge to eliminate them, my annoyance with the violation of the pledges is not so much the lost opportunity to trim the deficit by some infinitesimal amount, but with the lack of principled decision making and the lack of principle. If a member of Congress truly believes earmarks are wrong, and pledges to refrain from using them, then it is flat-out hypocritical to continue using them simply because “everyone else is.” A person with principle who opposes using alcohol and pledges to refrain from its use ought not be defended when subsequent imbibing is undertaken because “everyone else is” doing so. A person’s word means nothing without principle. A formal agreement by members of Congress to refrain from doing something means nothing if those members ignore their own pledge.

The irony is that some Democrats joined with Republicans in making this formal pledge. Some of them also ignored their own promises. There’s also much irony in Pappas’ continued characterization of my positions as from the “left,” particularly when the outrage at even more broken grandstanding promises by Congressional politicians comes from every direction. Considering that I oppose budget deficits because I think they pose a risk to long-term national economic and military security, and considering that I opposed spending money without having the revenue with which to finance that spending and would have been content to see that spending not undertaken, I have been holding to a position traditionally taken by the right. Why the right abandoned that position, gleefully spending trillions while cutting taxes, is an answer that must come from those who think that increasing budget deficits is consistent with arguing for smaller government.

Finally, Pappas notes that legislators who do not insert earmarks into legislation are at “great political disadvantage.” He’s right. By pledging to give up earmarks and following through by holding to that pledge, these members of Congress will not provide to their campaign-funding special interests the goodies that those special interests demand as payment for their contributions to the members’ acquisition of seats in Congress. Well, if that really matters to a member of Congress, then don’t sign the pledge. Stand up and explain that earmarks are important to re-election and that they will be continued. If that’s inconsistent with promises of spending cuts and budget deficit reductions, it speaks not drops but volumes.

It’s a time of year when many people give gifts to each other. The Congress of the United States never fails to get in on the giving action, except, of course, its members are not giving away their own money, but that of taxpayers.

One of the underlying tensions in the debate over how the government should respond to the current economic crisis is the conflict between raising taxes, something seen by some as putting a damper on economic growth, and extending tax cuts and increasing spending, which swell the budget deficit, something seen my some as putting a damper on the nation’s economic future. Much of what is argued in favor of, or against, either position is at best questionable and at worst nonsense, but here and there some sensible arguments are put forth. Ultimately, time will prove one position or the other to have been unwise.

It is reasonable to think that those who line up on one side or the other of the issue would argue, act, and vote consistent with the approach they advocate. For example, one should expect those who think that tax increases stifle economic growth to vote against tax increases and even in favor of tax cut extensions. As another example, one should expect those who consider the budget deficit to be a serious threat and who oppose spending increases to vote against spending increases.

More than a few members of Congress have stood up and decried earmarks, those bizarre additions to appropriations bills that members can insert without opposition, almost always to fund some home state project that does not and would not gather support from a majority of the legislators. There’s nothing wrong with opposing earmarks, for all sorts of reasons. What’s galling, however, is that many of those who oppose earmarks publicly and loudly turn around and slap all sorts of earmarks onto appropriations bills.

The practice of opposing earmarks while making use of them has riled some members of Congress. The best quote, reported in this story, among others, comes from Senate Majority Leader Harry Reid. Reid noted that some of those who speak out against earmarks “are people who have more earmarks than others. If you went to H in a dictionary and found hypocrite, under that would be people who ask for earmarks but vote against them.” Senator Dick Durbin, who inserted almost $100 million of earmarks into the legislation, is reported to have said, “Many of the same senators who are criticizing . . . earmarks have earmarks in the bill. That is the height of hypocrisy, to stand up and request an earmark and then fold your arms and piously announce, ‘I’m against earmarks.’”

Currently pending before the Congress are spending bills that contain at least $8 billion in earmarks. So much for the hoopla surrounding last month’s announcement by Republicans that they were banning earmarks. Senate Minority Leader Mitch McConnell, an advocate of banning earmarks, has 38 of them in the pending legislation. Senators John Thune and John Cornyn, attacked the legislation that combined the spending bills, but were put on the defensive with questions about the 17 earmarks the two of them had placed in the legislation. Thune replied, “I support those projects [funded by earmarks], but I don’t support this bill.” This sort of inconsistency, to use a gentler word than hypocrisy, underscores the madness of opposition to budget deficit growth combined with support for tax cut extensions that contribute to budget deficits, justified by claims that spending decreases will solve the deficit problems, all thrown at us by members continuing to engage in the earmark game.

It’s truly a bipartisan effort. Though McConnell, Thune, and Cornyn are Republicans, Democratic Senators Michael Bennet and Mark Udall, who joined with the Republicans last month in opting to ban earmarks, had their own earmarks in the bill. It will take truly bipartisan reform to solve a bipartisan problem. And that won’t happen until nonpartisan voters take ascendancy in the voting booth.

Earmarks of $8 billion, though seemingly a huge amount of money to most of us, constitutes something on the order of one-fourth of one percent of the annual federal budget. I doubt it’s even quite a drop in the bucket. It’s more akin to a grain of sand on a beach. So what’s the big deal? The big deal is principle. The big deal is the nefarious impact on the economy of a mindset that accepts tax cut extensions and earmarks while complaining about budget deficits and federal spending. When no clear direction is being delivered, those who are being led will end up scattered and lost. Is this what Congress wants? Maybe. Is this what Americans want? I hope not. But it’s what we’ve been getting, and what we will continue to be getting until enough people understand what is happening and solidify opposition to it.

One of the stories that I have been following during the past year is a proposal to revamp Philadelphia’s business taxes, phasing out the net income component of the business privilege tax, and simultaneously increasing the gross receipts component. I explored the proposal in Don’t Like This Tax? How About That Tax?, in Better to Tax Gross Receipts, Net Income, or a Combination, and in Yet More Reasons to Prefer User Fees. I explained how the tax would disadvantage taxpayers with relatively high gross receipts that generate relatively low incomes.

Now comes news that the City Council hearing on the proposal has been postponed indefinitely. According to this Philadelphia Inquirer story, the proponents of the change have agreed to sit down with the mayor and other members of City Council to work out changes that are acceptable to the administration and city council. One hopes they also will be acceptable and fair to taxpayers. The involved parties appear to agree that the first $100,000 of gross receipts should be exempt, and that existing provisions permitting out-of-city businesses that do business in Philadelphia to avoid the tax should be repealed. Under existing law, the gross receipts portion of the business privilege tax will disappear by 2022, and the tax will become, in effect, a 6 percent net income tax that replaces the existing 6.45 percent net income component.

There is general agreement that something needs to be done about a city tax that is too easily avoided by those with access to high-end tax advice. There is general agreement that the tax as currently shaped is a detriment to entrepreneurs conducting very small businesses or simply collecting revenue such as minimal blog advertising dollars, as I explained in A Tax on Blog Writing or on Blog Business?, with follow-ups in Taxes and Parties, in What If They Gave a Tax Party and No One . . ., and in And So Now Philadelphia Listens?. It ought not be difficult to construct a business tax that adequately compensates the city for the services it provides, that provides funding to pay for the costs imposed on public resources by business conducted in the city, that is not avoidable through accounting tricks, that is fair and reflects the taxpayer’s ability to pay as measured by net income, and that is easily administered. The authors of the original proposal, the mayor, and the other members of the administration and City Council who have opted to sit down and work this out are to be commended for avoiding the sort of partisan bickering that lets good tax policy get buried by political considerations and for including everyone in the process who should be involved in it.

Surely there will be more news on this matter in the weeks ahead. And that means there will be more MauledAgain blog posts on the topic.

One of the items in the so-called 2010 tax compromise is a provision allowing businesses to deduct the full amount of expenditures made for equipment and similar items. This expansion of section 168(k) bonus depreciation is touted as yet another essential piece to putting the economy back on track, which is pretty much the equivalent of asserting police departments would be improved if they hired and gave guns and badges to convicted felons. This approach hasn’t worked in the past, and it won’t work now. It’s yet another unnecessary concession to those holding lower-income and middle-income citizens hostage.

What does this sort of deduction do? It does nothing for the small business entrepreneur who lacks cash or borrowing capacity to make the purchases. It compels the American taxpayer to foot the bill for the equipment purchases that businesses would have made in any event. It has little effect in terms of marginality. It also fails in other ways.

Almost two years ago, in Just Because It Didn’t Work the First 50 Times Doesn’t Mean It Will Work Next Time, I explained why reviving section 168(k) bonus depreciation and making section 179 first-year expensing more generous doesn’t do much of anything to help restore vitality to the American economy. I wrote:

Does it make sense to increase deductions for acquisitions of equipment? How does that restore confidence in the economy, which is essential to putting the nation back on track. How does a tax provision that encourages businesses to use their limited funds to buy machinery put people in this country back to work? Nothing in the provision requires that the property be built in the United States, and it's almost certain that such a requirement would violate at least a few trade agreements and treaties. What's the point of enacting tax breaks that create jobs in other nations? Dollar-for-dollar, a tax break for creating jobs directly is worth much more than a tax break for purchasing equipment.

Three months ago, in If At First It Doesn’t Work, Try, Try, Try Again, I criticized the Administration proposal to permit taxpayers to deduct the full cost of asset acquisitions made in 2011. I noted:

Such is the life of one of the business world’s favorite tax breaks. Entrepreneurs salivate at the idea of getting a deduction for making an investment. The idea of getting a tax break for swapping cash for equipment of equal value is the sort of thing that makes lower-income taxpayers roil, because they don’t have the opportunity to get, in effect, cash flow from the government in the form of lower taxes by swapping cash for equipment of equal value.

I then asked:

The previous incarnation of section 168(k) “bonus depreciation” as well as continual expansion of section 179 expensing have been consistently hailed as solutions to the nation’s economic woes of the moment. Yet no evidence exists that these tax giveaways have had the claimed effect. Why is it, for example, that during 2008 and 2009, while businesses basked in the benefit of 50-percent bonus depreciation, the economy got worse, not better? Where are all the jobs whose creation was promised when the proposal for the 2008 and 2009 tax break was being trumpeted as the answer? Where is the economic recovery that supposedly was an inescapable consequence of enacting those tax breaks? Similar questions can be asked about the long parade of tax breaks for business investments during the past 50 years. Though the economy doesn’t benefit, though economic fundamentals do not improve, though joblessness doesn’t abate, something fuels the repetitive re-enactment of this bundle of tax breaks. Could it be that it’s good for business? Could it be that what’s good for business isn’t necessarily good for those in need, especially if the funds generated by the tax break go the same way as the excess cash that businesses have been accumulating during the past year and a half, namely, somewhere other than the economy?

If someone does want to buy into the notion that these sorts of tax breaks are good for the economy – and I have my doubts, as I explained in Tax Incentives Can Do Only So Much -- then the tax break ought to be designed to reward those who do something to help the economy over and above what they’ve been doing.

Thus, would it not make sense to limit section 168(k) bonus depreciation and expanded section 179 first-year expensing to a deduction based on the excess of the taxpayer’s 2011 business equipment expenditures over the average of the taxpayer’s business equipment expenditures for 2008 through 2010? Would that not be most beneficial to the businesses that need encouragement, namely, the start-up operations that have a zero or very low average expenditure for 2008 through 2010? Would that not prevent taxpayer subsidization of a company’s routine purchases that are not injecting additional growth into the economy? Ought not there be a requirement that the equipment not qualify for the deduction unless it is manufactured in the United States? Otherwise, allowing a deduction for purchasing equipment made in some other country creates jobs in that country. Strangely, if the equipment is manufactured in the United States but put in service overseas, the cost does not qualify for the deduction. Does this not seem a bit backwards?

The problem is that these provisions are not being written after careful analysis of the economy, its problems, the causes, and the appropriate remedies. They are being written by lobbyists whose goals are not necessarily consistent with the best interests of America and its economy or Americans and their finances, but that are instead aligned with the goals of those with resources sufficient to hire lobbyists to champion tax reductions for those most capable but least willing to pay taxes. It is even more offensive when the provision in question is one that has been repeatedly enacted with promises of job growth and economic expansion but that has repeatedly delivered nothing aside from continued job losses and economic flat-lining. When compromise becomes surrender, the losers don’t win.

The negotiations over the tax cut extension legislation manifest many of the same flaws that show up in everyday negotiations, and lack many of the attributes found in negotiations between and among serious professionals skilled in working out the terms of a contract.

Consider the primary negotiating stance of the tax-cut-extension advocates. Their position is that retention of the Bush tax cuts will create jobs. Considering that jobs are not created by the poor and middle class, in effect, the negotiating position amounts to a promise that if the wealthy are given tax cut extensions, they will create jobs. There are two major flaws in how this position has been valued by those opposed to extending the tax cuts for the wealthy. First, they fail to consider prior history. This isn’t the first time the “give us more tax breaks and we’ll create jobs/boost the economy/do nice things” promise has been made. And in every instance, at best the nation received a momentary glimmer of compliance. In some instances, the promise was ditched as soon as the legislation was signed. Second, they fail to give themselves protective leverage. What’s wrong with offering, instead, a deal that says, “Give us jobs, and then we’ll give you a tax break.” The tax-cut-extension advocates don’t like that sort of arrangement. Why? It compels them to put their money where their mouths are, so to speak. Yet that is how competent business entrepreneurs, savvy agents for athletes and other service-providers, and professional negotiators attain workable contracts.

The sort of deal-making underway in Washington resembles, not the approach of professional negotiators and seasoned business entrepreneurs, but the false promises of advantage seekers who populate not only every segment of the business world but a substantial part of personal life. Consumer complaints are replete with tales of vanishing businesses, warnings are issued regularly about the risks of dealing with fly-by-night home improvement companies and individuals, and it took the enactment of lemon laws to compel auto manufacturers to honor their contracts. Tales of woe sent to advice columnists are packed with familiar strains of the “he respected me in the morning .. not” song and the crushed hopes of those who believed what the other person said.

Surely a majority of Congress, no matter party affiliation, would agree to an arrangement that rewarded activities that benefit the economy by pushing it past where it now stands. Surely they, and their constituents, understand that the deduction for compensation paid is a tax shelter. If it takes some sort of additional enticement, such as a credit, there are good arguments for providing one. Compare how the tax law generally functions as a mechanism of inducement, which is what the tax-cut-extension advocates are using as their core argument. The tax law, for example, tells people that if they make certain energy-saving improvements to their residences, they will receive a tax credit. The Congress did not take the approach of handing money to people with the hope that they would make energy-saving improvements.

Years ago, the phrase “show me the money” entered into the vernacular. Perhaps it’s time to say, “show us the jobs.” Show us the jobs, the nation will reply in gratitude with a tax break. No jobs, no tax breaks. That’s how tax law inducement provisions work. The “no tax breaks, no jobs” threat is nothing more than bully posturing of the worst sort. There’s a reason the tax-cut-extension advocates don’t like the “show us the jobs, then get the tax break” approach. They know that they’ve created few jobs, particularly enduring jobs, in response to previous tax cuts, and that the nation will not see any sort of job surge with an extension of the tax cuts.

Despite warning after warning, people continue to hand over cash to home improvement con artists, and to engage in behavior they later come to regret when and because they discover they’ve been duped. Perhaps that explains why America continues to listen to, and even cave into, the siren songs of the pied pipers of tax cut grabbing. Yet, just as there are people who hold firm in negotiating contracts and perform due diligence before signing a contract, there are people in this nation who know how to hang tough in working out tax legislation and how to check out the facts before agreeing to a deal. It’s time for those folks to bombard their legislators in Washington with one simple message: Stop Being Duped – Hold Out for Job Creation Before Dishing Out Tax Breaks. I wonder if the Congress has enough of what it takes to save itself and the nation from the con artists and fly-by-night money grabbers. I have serious doubts.

Compromises often are defended as beneficial because both sides to a disagreement surrender something or some things, and both sides get something or some things. But there are times when compromise is a mistake. A person who offers to drive under the influence only half the number of times they drove under the influence during the preceding year is not putting on the table a compromise that deserves support. The same can be said of the caving-in of the President to what he termed the hostage-taking of the middle class by the agents and representatives of the wealthy.

An examination of each of the major provisions of the compromise demonstrates why the nation will lose, in the long run. It will lose, and lose badly.

1. Extending tax cuts for people making more than $250,000. This provision does nothing to help America with its problems. These tax cuts did not create jobs, and despite the hucksterism of its proponents, it will not create jobs. Maintaining the status quo with respect to the tax liabilities of the wealthy will maintain the status quo with respect to jobs. In short, job losses will continue, and high unemployment will continue. At best, the job situation will stagnate. At worst, it will get worse. If the job creators want a cut in their tax liabilities, they need to do what I’ve been advising them to do for quite some time. Hire people, take the compensation deduction, thereby reduce taxable income, and watch tax liability go down. It’s that simple. Corporations and wealthy individuals are awash in cash, but they’re not creating jobs. Nor will they create jobs as their cash hoards grow from continued tax breaks. I explained this, for example, in Job Creation and Tax Reductions. The promise of jobs is an empty promise. By the time America realizes this, it will be too late.

2. Extending tax cuts for people making less than $250,000. This provision might help. People on the lower end of the income ladder, if faced with expired tax cuts, would need to cut back on spending, because they don’t have cash stored up in offshore tax havens and Swiss bank accounts into which they can dip to make ends meet. If the 97 percent of Americans making less than $250,000 had to cut spending, that ultimately would cost jobs. The point is, the 97 percent used their tax cuts to stimulate the economy. As noted in Absurd Tax Quote of the Century, the top 3 percent did not recycle their tax cuts into job-creating activities and investments. Had they done so, the economy would not be afflicted with the job losses eroding the economic health of the country.

3. Estate tax modification. Simply tinkering with rates and exemption amounts won’t do much, because it’s too easy for the wealthy to avoid the estate tax. What escapes attention is the amount of wealth that bypasses the estate tax, making the estate tax rate irrelevant and the exemption amount fairly meaningless. Though the provision raises revenue compared to the 2010 year of no estate tax, it loses revenue compared to the situation before the unwise tax cuts of a decade ago were implemented.

4. Cutting the employee FICA rate. This may be the most dangerous provision in the compromise. Ultimately, it worsens the financial health of the social security system. It dumps even more financial burdens on younger generations. Advertised as beneficial for people at the lower end of the income ladder, the roughly $2,000 tax reduction will be available to all wage earners, including those whose salaries are in the millions and tens of millions. Do those people need even more tax reduction? Why? Certainly not to create jobs.

5. Extending unemployment benefits. This provision is a seemingly wonderful amelioration of the plight of the unemployed, but it simply postpones the day of reckoning. Then what? Unemployment benefits constitute a band-aid applied to symptoms. What’s required is a remedy or cure for the underlying cause of the affliction. The people in a position to finance that remedy are unwilling to pay. In the long run, it makes more sense to do what needs to be done to create jobs than to increase the financial insecurity of future social security beneficiaries to avoid doing what needs to be done.

6. Extending expiring tax credits. This provision ultimately doesn’t do much of anything. It doesn’t create jobs.

7. Total deduction of business equipment purchases. In If At First It Doesn’t Work, Try, Try, Try Again and in Just Because It Didn’t Work the First 50 Times Doesn’t Mean It Will Work Next Time, I explained why first-year expensing and first-year bonus depreciation do little, if anything, to create jobs in this country. It sounds good, and misleads people into thinking something is being done to solve the nation’s economic problems, but it’s mere puffery at best.

The compromise adds almost a trillion dollars to the nation’s accumulated deficit. It accelerates the day when the foreign creditors of America show up, announce they’re cutting off the lending pattern, and demand repayment of the loans. What then? Even 100 percent tax rates won’t raise sufficient revenue. Will the nation’s politicians come up with another compromise, one in which the nation surrenders all but its nominal independence?

The President claims that this was the only avenue open to his Administration. Nonsense. The Republicans should have been permitted to block extensions of tax cuts for taxpayers making less than $250,000, and the Administration should have embarked on an education tour explaining to Americans that Republicans care more about tax cuts for the wealthy than they care about the middle class. Would this work? Absolutely. During the past week I’ve had one-on-one conversations with people who are beginning to understand the bill of goods that has been sold to them by the anti-tax crowd and to understand how they’ve been duped, a realization reflected in polls such as the one reported in this article. Though I may be an expert in tax law, I’m not an expert in dealing with the question I’ve been asked more than a few times, “Can I change my vote?” I think the answer is, “No, not until 2012.” By then it might be too late.

The political games being played in Washington at the expense of the American economy and the nation’s citizens are abominable. By putting party loyalty and devotion to disproven principles above solving problems caused by decades of similar governance flaws, members of Congress are doing their best to raise suspicions that the American political system might not be what’s required in a world far removed from the days when farmers and rural populations saddled with eighteenth-century technology and medieval economics dominated the socio-political landscape.

Congressional Republicans continue to insist they would rather let tax cuts for all taxpayers expire than to let the nation’s wealthy go broke on account of a 4-percentage point increase in the tax rate applicable to a portion of their taxable incomes. Somehow, they claim, a $15,000 tax increase on someone making $1,000,000 a year will doom that person to the poorhouse, or, at the very least, cause 10,000 more jobs to disappear. Once the arguments are seriously examined, they’re downright laughable. Republicans are translating voter anger at an overly complex, somewhat unfathomable health care statute as a blank check to defend the wealthy at the expense of the middle class. Put not so gently, Republicans are holding middle America hostage for the benefit of the wealthy. Making matters worse is the inability of Congressional Democrats to explain this to the nation, and their inability to expose the dangers of continuing a tax policy that has driven the middle class into dire economic straits. In the meantime, the Administration, valuing compromise and kindness over tough talk and firm action, looks for ways to make everyone happy in a situation guaranteed to make everyone, in the long run, poor and miserable – except, perhaps, for the wealthy with nest eggs stored overseas.

According to this CNN story, “Several economic studies have indicated that the wealthiest people – the top three percent who make more than $250,000 per year – are more likely to invest tax cuts in stocks or other assets than to create jobs. . . . [M]any large American corporations are posting record profits without sinking that money into payroll. Instead of spending money on tax cuts, . . . the money should be spent on actual jobs – which, in turn, will bring businesses the customers they need to thrive.” Is this not what I argued last week in Tax Cuts v. Increased Spending? Was this not explained in Job Creation and Tax Reductions? What part of Economics 101 do the members of Congress not understand? Apparently, quite a bit. Keep reading.

The question of why Congress is incapable of doing what needs to be done is wonderfully illustrated by the marvelously absurd comment uttered by Representative Jeb Hensarling of Texas. In yet another feeble attempt to justify making the rich richer and everyone else worse off, disguised as sympathy for the unemployed, this brilliant “leader” of America said, “You cannot help the job seeker by punishing the job creator. No taxes on nobody. It may be bad grammar but it’s great economics.” No, Representative Hensarling, it’s bad economics, it’s even worse tax policy, and it’s a woeful attempt to relive the failed past. The only shred of value in this quote is the perhaps inadvertent revelation of the realities lurking beneath the advocates of treating the wealthy as though they’re the ones suffering the most from the economic mess created by the failed policies of the past decade. Focus on the second sentence. “No taxes on nobody.” That’s the true goal. I wonder if Hensarling is going to be admonished by the powers-that-be for this ungrammatical but confessional revelation. The ultimate goal, of course, is to repeal all taxes, thus depriving the poor and middle class of the only thing that stands between them and total subservience to the cabal of wealthy elites, namely, government. Most of the wealthy – there are some exceptions, see Do the Wealthy WANT Tax Cuts? -- prefer that government shrink and even disappear, because government is an obstacle to their goal of wealth for the sake of power (in contrast to wealth for the sake of survival). These anti-government, anti-tax wealth accumulators are quite successful convincing the poor and middle class that government is their enemy, when in fact it is their last worthwhile hope. Any remnants of the exaggerated claim that the private sector knows what’s best for Americans were washed down the sewers in more than a “trickle down” when the power and greed merchants at Enron, Goldman Sachs, Countrywide Mortgage, Adelphia, Halliburton, WorldCom, AIG, and dozens more of their sort showed the nation what can be done when government is underfunded and tax cut money is put to uses far from the well-being of the nation’s citizens.

Think about it. “No taxes on nobody.” It’s tough to find a better slogan to describe the philosophy of the anti-tax crowd, and it’s going to be even tougher to persuade Americans that in the long run, if they don’t already have a ton of money, they’re not going to be better off when and if the country becomes a Wild West revival, with “No taxes on nobody” and “No sheriff in town.” After all, if there were no taxes, who would pay Hensarling’s Congressional salary? Perhaps we don’t want to know.

“No taxes on nobody.” The absurdity of the concept, and its implications, are terrifying.

A week and a half ago, in Being Thankful for User Fees and Taxes, I demonstrated the short-sightedness and narrow-mindedness of uncompromising opposition to tax increases. I referred to a study that calculated what it would cost motorists to maintain gasoline taxes and similar road use fees at their nominal levels, rejecting even the increases necessary to keep pace with inflation. It turns out that the “savings” obtained from locking in tax and user fees is significantly less than the expenses incurred on account of deteriorating roads and bridges, such as increased fuel consumed in traffic jams, repairs necessitated by encounters with potholes, lost time, and other costs.

Now comes another instance highlighting the advantages of taxation in contrast to private individuals assuming the cost of services provided by local government. In a memorandum jointly written by Radnor Township’s Finance Director and Township Manager Revised 2011 Operating Budget Options, the authors responded to a directive by the Board of Commissioners to “prepare options that stipulate various changes in the Township millage rates and what the impact those revenue changes would have on the services/contributions provided by the Township.” In other words, the Commissioners were trying to identify the impact of not raising the real property tax, raising it by 5 percent, and raising it by 9 percent. According to the memorandum, if the real estate tax rate is not increased, the Township would need to lay off two police officers, eliminate all trash removal, recycling pick-up, and leaf collection, and curtail snow removal. Based on current market prices, an individual homeowner would need to pay roughly $550 per year to obtain private trash, recycling, and leaf collection. In contrast, a 5% increase in the millage rate would cost the average homeowner $53.21 per year, permitting not only retention of township trash, recycling and leaf collection but also the two police officers, though at the expense of a $400,000 reduction in Township funding of its library and a reduction in the Ending Fund Balance. These reductions in turn can be avoided with a 9% increase in the millage rate, which would cost the average homeowner $93.90 per year rather than $53.21 per year.

Whether Township residents understand that small increase in their property tax bills makes more sense than paying ten times as much for some of the services that would be eliminated – the $550 would not restore snow removal or the two police officer positions – remains to be seen. Technically, it is a decision to be made by the Commissioners, but ultimately residents will respond at the voting booth. That makes it essential that the conversation be sensible and informed.

Though it might appear that there is something odd about the discrepancy in costs, much of it has to do with the efficiencies of local government provision of the services in question and the impact of profit extraction when the services are provided by the private sector. It’s not unlike the attempts by private sector “investors” to extract profits by taking over the Pennsylvania Turnpike system, a money-grab that ultimately comes at the expense of motorists, and an issue I have discussed numerous times, most recently in Are Private Tolls More Efficient Than Public Tolls? and More on Private Toll Roads. Shifting public services into the private sector simply puts more money, in the form of profits that don’t exist and don’t need to exist in the public sector, into the pockets of those who are eager to turn public services into their own money-generating machine. That money comes from taxpayers, duped into thinking that “holding the line on taxes” is a good thing. Only when they compare the impact on their own budgets – too often done after the fact than beforehand – do some or many of them realize that they are getting the same or decreased services but paying out much more. In the long run, will they figure out who gets the better end of privatization deals, and that it’s not the taxpayer?

The “hold the line on taxes” campaign has profited from catchy sound bites, appeals to emotion, and funding from shadowy sources. It’s time for reasoned analysis and informed discussion to push itself into the tax discourse arena. It’s time for the myth that taxation is bad and privatization is good to be broken, and illuminated for what it is, a ploy. It’s time for people to understand that “holding the line on taxes” is going to cost them, and this country, dearly. Trash, recycling, and leaf removal will become one of their least concerns, but it’s a good place to begin learning the lesson.

Tax cuts and increased spending having something very much in common. Both increase budget deficits. One reduces revenue. The other increases expenditures. Doing either when there is a surplus is one thing; doing either when there already is a deficit is another. Yet there are times when increased spending, even in the face of budget deficits, is an unavoidable necessity. One example is war, which in the 1940s caused huge budget deficits because even increased taxes could not offset the necessary increased spending. But tax cuts and increased spending are also very different.

A few days ago, the Congressional Budget Office released a report, Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output From July 2010 Through September 2010, which analyzes the multiple components of the legislation enacted in 2009 in an attempt to ameliorate the economic crisis gripping the nation. The report groups the components of the legislation into four categories: grants to state and local governments and similar entities, money transferred to individuals, government purchases of goods and services, and tax breaks for individuals and business. The CBO then analyzed the impact of the various grants, transfers, purchases and tax breaks, to determine the impact on the economy. The CBO calculated an “output multiplier,” which measures the impact of the grant, transfer, purchase, or tax break on GDP. For example, a multiplier of 3 means that a $1 grant, transfer, purchase, or tax break generated $3 of GDP. The CBO calculated low and high boundaries for the multipliers. How did the various incentives in the 2009 legislation fare?

The most effective incentive was the purchase of goods and services by the government, generating a multiplier of between 1.0 and 2.5. Grants to state and local governments and entities for infrastructure purposes generated a multiplier of between 1.0 and 2.5, and grants to state and local governments and entities generated a multiplier of between 0.7 and 1.8. Transfers to individuals generated a multiplier of between 0.8 and 2.1, and the one-time payment to retirees generated a multiplier of between 0.3 and 1.0. What the CBO calls two-year tax cuts for lower-income individuals generated a multiplier of between 0.6 and 1.5, and the extension of the first-time homebuyer credit generated a multiplier of between 0.3 and 0.8. The least effective incentive was the two-year tax cuts for higher-income individuals, which generated a multiplier of between 0.2 and 0.6

These results are not in the least surprising. Assuming the choice is between tax cuts for the wealthy and increased spending on infrastructure – directly or through states and localities – there is much more bang for the buck in taking care of the nation’s infrastructure. The flip side is that letting the tax cuts for the wealthy expire has far less negative effect on the nation’s economy and all of its people than does letting the nation’s infrastructure rot and crumble away.

I’ve been arguing this point consistently and almost incessantly. For example, in Funding the Infrastructure: When Free Isn’t Free, I explained how refusal to let the gasoline tax keep pace with inflation, because of politicians’ inability to resist the siren song of the anti-tax movement, has been imposing a toll in lives, property, and money on taxpayers throughout the country. I returned to this point in The Return of the Federal Gasoline Tax Increase Proposal. Last year, in So How Does This Tax Provision Stimulate the Economy, I criticized the enactment of the qualified motor vehicle sales tax deduction, using these words:

Though the notion that federal spending, either of tax revenue or borrowed money, will stimulate the economy, that notion ought not support the contention that any infusion of money into the economy is fiscally stimulative. It would make much more sense, for example, to invest the money in assets, such as infrastructure, schools, homeless shelters, prisons, and energy facilities, because the outlay would be matched, at least to some extent, by the production of an asset owned by the government and because there would be no doubt that the outlay would create and preserve jobs. It is difficult to imagine that whoever lobbied for this qualified vehicle sales tax deduction made that sort of strong case that it would rev up the engines of the automakers' production facilities.

The CBO report certainly proves the point I was making. Recently, in Being Thankful for User Fees and Taxes, I explained why increased government spending on highway infrastructure coupled with increased taxes is much cheaper than reduced taxes coupled with even higher increased individual spending on automobile repair and operating costs.

Just as consistently and perhaps incessantly, I’ve been arguing that enacting, and, worse, extending, tax cuts for the wealthy is not a solution to the nation’s economic woes. The CBO report bears out that position. Not only is there little bang for the buck, there actually is a negative effect on the economy when tax cuts are enacted or extended for the wealthy. Why is this so? Unlike lower-income individuals, who translate their reduced tax liabilities arising from tax cuts into local spending, and unlike government expenditures on local infrastructure, the wealthy are in a position to ship their tax savings arising from tax cuts to investments overseas. If their tax cuts are creating jobs, they’re creating jobs elsewhere, not at home. As I have mentioned previously, the wealthy can reduce their tax brackets by hiring people and taking the deduction for compensation paid to employees. But businesses aren’t going to hire unless they need workers, and they don’t need more workers if people aren’t buying goods and services and governments aren’t investing in infrastructure repair and maintenance. People reduce their demand for goods and services when their incomes fall, which has been the case for pretty much everyone but the wealthy. Governments reduce their investment in infrastructure repair and maintenance when their tax revenues are decreasing because of the combination of tax cuts and reduced economic activity.

Closer study, reaching back beyond 2009, will reveal that the current economic downturn began with the tax cuts almost a decade ago, despite the momentary, misleading, and phantom bubbled blip of economic growth in the earlier part of the decade. Logic tells us that the key to reversing the decline is to remove its cause and undo what should not have been done. Even if the trillions in lost revenue cannot be recovered, at least the bleeding can be stopped by taking tax cut extensions for the wealthy off the table.

According to this Philadelphia Inquirer article, “more than 400 U.S. business owners and professionals signed a petition [more here]” asking Congress and the Administration to let the Bush tax cuts for the wealthy expire. Some of the thoughts expressed by several of the people who signed the petition mesh with arguments I have been advancing for the past several years.

One signer pointed out that low taxes are an incentive not to hire. In contrast, he explained, higher tax rates on upper-end income encourage wealthy business owners to hire employees, because the deduction for compensation reduces the owners’ taxable incomes. In effect, the higher the marginal tax rate, the higher the “subsidy” provided for hiring new employees. I made this point two weeks ago in Job Creation and Tax Reductions.

This individual pointed to a Mark Buchanan article, Wealth Happens: Wealth Distribution and the Role of Networks, excerpted here that “associates lower tax rates with greater wealth disparity, and vice versa.” I mentioned the same effect in Taxes, Bailouts and Socialism, arguing:

Obama's tax plan is to increase taxes for individuals with incomes exceeding $250,000. Most Americans do not fall into that category, and 95 percent are unaffected by this particular proposal. Americans in that category are paying taxes at lower rates than they were paying a decade ago. The theory was that reducing rates on the rich would generate benefits not only for the rich, but also for everyone else. This "trickle down" theory turned out to be a failed experiment. All that trickled down was the economic pain inflicted on America by the casino capitalist gamblers. Technically, Obama proposes revocation of tax cuts for the wealthy. They had their chance. It failed, other than to make the wealthy wealthier, the middle class smaller, and the gap between the haves and have-nots wider.

It is becoming increasingly clear to more and more people, including the wealthy, that focusing tax breaks on investment at the expense of wages causes wealth to concentrate even more intensely in the wealthy. That increases the odds faced by the non-wealthy who think that tax cuts increase the prize waiting for them if they happen to win the “break out of the low or middle class into the upper income stratum” lottery. The reality is that no matter by how much tax cuts increase the “I’ve made it” prize, they decrease the odds of winning by orders of magnitude beyond the potential benefit. Can anyone spell “con game”?

Another signer trashed the “trickle down” theory that has been used to obtain and defend tax cuts for the wealthy. According to Warren Buffett, “trickle down” simply “has not worked.” He added, “I hope the American people are catching on.” I wonder if members of Congress are catching on. I doubt it. I, too, have trashed the “trickle down” theory on many occasions. In New Jersey to Follow in California’s Tax Footsteps?, I noted:

Tax-cut advocates rely on the disproven “trickle down” theory, a theory to which some die-hards cling as tightly as flat-earthers embrace their belief that all of us should fear boarding ocean-going ships because they will falling off the edge of the earth. Here’s some news. The earth isn’t flat, and trickle-down is yet more proof that a theory isn’t worth much until it is proven to work. And this one doesn’t.

In Tax Cut Advocates – Like the Poor – Will Always Be With Us: Part Three I concluded:

After several decades of supply-side, trickle-down, spend-but-don’t-tax, and other voodoo tax and economic policies, it’s time to put those bad ideas into the dustbin of history.

It’s heartening to learn that hundreds of wealthy individuals agree.

Yet another signer of the petition noted that one effect of tax cuts for the wealthy has been a decrease in the nation’s investment in its infrastructure. In contrast, he points out, nations such as India are “moving in the right direction because they have invested in their national infrastructure. Meanwhile, we’re cutting back. It’s a moral decision, and it’s a business decision, and it’s wrong.” I tried to hammer home this point, shortly after the bridge collapse in Minnesota, in Funding the Infrastructure: When Free Isn’t Free. This signer explained that in his travels around the world for professional purposes, he could not help but notice that when the national infrastructure crumbles, workers suffer even more. Ultimately, I contend, it will hurt even the wealthy, proving that tax cuts for the wealthy are short-term treats infected with long-term economic disease that afflicts everyone.

I connected the complex relationship among tax cuts, infrastructure spending needs, and the menace of federal budget deficits in Tax Policy: It's OK for Us But Not For You, building on my warning five years ago in Government Budget Math: $1 + $1 + $1 = $1 + $1 that unbridled tax cuts for the wealthy – not only in the form of low marginal rates but also the dangerous even lower rates for capital gains and dividends, which populate high-end tax returns disproportionately more than they appear on other tax returns – would lead to economic crisis. The question is whether enough of the wealthy will learn what the signers of the petition have learned, and whether this education will occur soon enough to permit remedial action before the nation’s economy spirals into a black hole.

Although the primary focus of MauledAgain is taxation, the blog description leaves room for me to wander into a few other areas that are of interest, perhaps even more interest, to me than taxation. One of those is chocolate. Several news stories during the past few weeks have inspired me to write about chocolate, yet again.

First, the good news. My youngest sister, who also considers chocolate to be important and wonderful, sent me a link to a Science Daily story, whose headline, Why Chocolate Protects Against Heart Disease almost says it all. After doing the sort of experiments that tax practitioners never get to administer, researchers at Linkoping University discovered that dark chocolate contains a substance that inhibits the enzyme ACE. This enzyme “is involved” with blood pressure regulation and the body’s fluid balance. One of the researchers explained that “the object of her studies is not to design new pharmaceuticals.” Of course not! The prescription simply is to consume more chocolate with a cocoa content of at least 72 percent. Don’t go for the 99 percent stuff, though. Take my advice, based on experience, it’s just way too bitter.

Second, the bad news. According to this Philadelphia Inquirer article, which mirrors similar articles popping up throughout cyberspace, the Court of Justice of the European Union ruled on Thursday – yes, that’s Thanksgiving here in the States – that there is no such thing as “pure chocolate.” At first glance, that’s bad news, the idea that all chocolate is impure. Horrors! The court’s decision capped a long adventure only lawyers could love, pitting EU nations against each other in a battle over labels. The disagreement arose between counties where chocolate is manufactured using only cocoa butter and countries using vegetable fats. Italy tried to get a step up on the competition by passing a law describing chocolate items made from 100 percent cocoa butter as “pure chocolate.” Other nations, such as Britain, objected. The Court of Justice decided that the place to let consumers know that the chocolate is made from 100 percent cocoa butter is on the table of ingredients, and that “EU’s chocolate labeling rules make no room for a ‘pure chocolate’ reference such as the one Italy enacted.” The court also held that if vegetable fats are included, the label must state, “contains vegetable fats in addition to cocoa butter.” A spokesperson for the EU explained that Europe has “two chocolate cultures,” one that uses only cocoa butter and one that includes other vegetable fats. Does the court’s decision put an end to the chocolate culture wars? Apparently, as the 1999 agreement to use the word “chocolate” no matter the ingredients and to leave the components to the table of ingredients resolves the matter. Fortunately, the decision does not prevent ordinary people from referring to the really good chocolate as “pure chocolate,” though some prefer to use the term “pure bliss.”

Third, one must wonder what will happen when and if advocates of taxing beverages, sugar, and other “sinful” foodstuffs get around to trying to tax chocolate. Will distinctions be made between pure chocolate and the other, impure, chocolate? Will there be litigation over the meaning of chocolate? The first story causes me to wonder whether, in a state that imposes a sales tax on food or on carry-out food but not on medicines, will chocolate qualify for non-taxation because it is a medicine?

There’s a sad thread running through these stories. It’s disappointing how lawyers and tax practitioners can make something as wonderful as chocolate the focal point of legal arguments and tax debate.

One of the t-shirts I wear to the gym declares “We Love Taxes” in a script just above a logo for the Villanova University Graduate Tax Program. There’s an older gentleman at the gym who, when he first saw the shirt, became quite agitated. He proceeded to tell me why all taxes should be abolished. I explained what life would be like if there were no taxes. He relented, shifting his complaints to the woeful administration of taxes in the state of Florida. For that, I was in no position to disagree, because I was not familiar with the particular inefficiencies he had encountered.

Though anti-tax sentiment is popular, it too often is expressed in thoughtless condemnation of all taxes, as well as user fees. At some baser level, perhaps tied into the limbic system, humans simply prefer to get as much as they can get for free. They dislike taxes, but complain no less when paying bills or forking over cash at the checkout counter. Perhaps the trait is acquired and refined during childhood, when life for many people does appear to be an experience of getting things for nothing.

An excellent example of why taxes and user fees are, in the long run, effective and sensible appears in Future Mobility in Pennsylvania: The Condition, Use and Funding of Pennsylvania’s Roads, Bridges and Transit System, issued by TRIP, a “non profit organization that researches, evaluates and distributes economic and technical data on surface transportation issues.” Lest anyone doubt the nonpartisan character of the organization, it “is sponsored by insurance companies, equipment manufacturers, distributors and suppliers; businesses involved in highway and transit engineering, construction and finance; labor unions; and organizations concerned with an efficient and safe surface transportation network.”

After reading the report, I wondered how the yes and no responses would turn out if each motorist in Pennsylvania were to be asked this question: “Would you be willing to pay an addition $1 per gallon in gasoline taxes if the proceeds of that tax were used to improve and repair Pennsylvania highways and bridges?” My guess is that most people would say “No.” I wonder what would happen if people understood that those improvements and repairs, by decreasing congestion, enhancing safety, and reducing vehicle operating costs, would save each motorist an average of $800, to say nothing of creating jobs. Motorists in Philadelphia would save $1,500 each year, while those in other urban areas would save between $900 and $1,000.

Indeed, according to the report, the miserable condition of Pennsylvania’s roads contributes to traffic fatalities, wasted fuel, lost time, increased wear and tear and damage to vehicles, business supplies delivery delays, and a variety of other “hidden” costs attributable in significant part to inadequate funding of public roads and bridges. Though costs of keeping roads safe and in good repair have increased, and though use of this infrastructure has skyrocketed, gasoline taxes and user fees have not kept pace.

Rational logic dictates that it makes more economic sense to pay higher gasoline taxes and/or user fees when doing so reduces other costs by more than the increase in the taxes and user fees. Intuitive reaction, which is that there must be some sort of trick to this assertion, fails to consider that the reason for the savings is the efficiency of collective action. Widening a road, installing a median barrier, resurfacing a road with pothole-resistant material, modernizing traffic signals, realigning dangerous intersections, installing traffic cameras and sensors, and similar improvements are less expensive than the collective cost of replacing tires, realigning wheels, incurring lost profits caused by delivery delays, repairing and replacing wrecked vehicles, caring for people injured in accidents, burying traffic fatalities, replacing what those injured and dead individuals would have contributed to themselves, their dependents, their employers, and their communities.

The problem is that taxes and user fees are visible, but many of the costs of underfunded roads and bridges are hidden. A person paying for a wheel alignment required because of a pothole encounter might realize that he or she is shelling out almost half of what a $1 per gallon gasoline tax increase would cost, but how many people calculate the additional gasoline they purchase because they’ve burned it while sitting in traffic jams caused by inadequate highway capacity, accidents attributable to highway defects, and choke points cause by the need to deal with bridge weight restrictions? How many people know the amount by which what they pay for an item would be reduced if the seller wasn’t passing along the costs incurred by the seller, the wholesaler, the manufacturer, and everyone else in the supply chain because of inadequate road funding?

Consider what would happen if all road taxes and user fees were removed. We’d be dealing with streets and highways that would rapidly crumble into muddy tracks flecked with loose stone, highlighted by deep ruts, and yielding nothing but rough rides. Speeds would be reduced to the point of utter frustration for motorists. Would it be too much sarcasm to note that the anti-tax crowd would be delighted, singing songs of joy at the demise of transportation taxation, sparing them a few hundred dollars while they cheerfully incur visible and hidden costs running into the thousands?

I wonder how many people, fortunate to be doing their Thanksgiving driving on good and excellent roads, gave thanks that there exist taxes that made their journeys possible. I did. I suspect I was alone, or nearly so, just as I am when I wear that t-shirt.