MauledAgain

Last week, I received an email from Queendom, which is a outfit that provides tests and surveys for a variety of purposes and users. According to the press release contained in the email, its survey indicated that when it comes to the impact of money on whether a person is more egoistic or more altrustic, there “isn’t a great deal of difference between classes.”

The survey asked respondents to answer a series of questions, such as whether they “regularly do favors for others without being asked,” “will only do something nice for others for personal gain,” and “feel bad when they see someone less fortunate.” The outcomes, sorted into three categories of low socio-economic status, middle status, and high socio-economic status, pretty much came out the same way for all three groups, but for the question about giving to charities on a regular basis.

Whatever anyone wants to make of the survey results, it is important to understand that on these sorts of surveys, people lie. As explained in this advice to survey designers, people are dishonest on surveys if they fear their answer is contrary to what is socially acceptable, if they want to appear sophisticated, tolerant, or up-to-date, if they want to be mischievous, or if they dislike the survey or surveyor. Some things measured by surveys, such as the one in question, are often better resolved by observation. For example, a survey asking people if they have ever run a red light almost certainly generates results inconsistent with information gathered by observers stationed at intersections.

How people really feel reveals itself in actions. There’s a reason that the old saying, “Actions speak more loudly than words,” has hung around for so long. Unlike some survey responses, it’s true.

On Wednesday, in Is a Tax Appeal Delayed a Tax Appeal Denied?, I discussed how an attempt to reduce city expenditures by reducing the pay of members of the city’s Board of Revision of Taxes is considered to be at least part of the reason almost 24,000 property tax valuation appeals have not yet been decided and are projected to be in the queue for quite some time. As a consequence of a court decision holding that the pay of incumbent members could not be reduced, the Board ended up with two members earning $70,000 salaries and the others being paid on an hourly basis. Wednesday’s post was the latest in a long series of commentaries on the saga of the BRT, beginning with An Unconstitutional Tax Assessment System, and continuing with Property Tax Assessments: Really That Difficult?, Real Property Tax Assessment System: Broken and Begging for Repair, Philadelphia Real Property Taxes: Pay Up or Lose It, How to Fix a Broken Tax System: Speed It Up? , Revising the Board of Revision of Taxes, How Can Asking Questions Improve Tax and Spending Policies?, This Just Taxes My Brain, Tax Bureaucrats Lose Work, Keep Pay, Testing Tax Bureaucrats Just Part of the Solution, A Citizen Vote on Taxes, Freezing Real Property Tax Reassessments: A Nice Idea, The Tax Price of a Flawed Tax System, Can Bad Tax Administration Doom the Tax?, Taxes and Priorities, R.I.P., BRT, A Tax Agency Rises from the Dead, Tax Law as Subterfuge: Best Use Valuation v. Current Market Valuation, How to Kill a Bad Tax System That Will Not Die?, The Bad Tax System That Will Not Die Might Get Another Lease on Life , Robbing Peter to Pay Paul, Tax Style, Don’t Rob Peter to Pay Paul: Collect Unpaid Taxes, The Philadelphia Real Property Tax: Eternal Circles , A Tax Problem, A Solution, So Why No Repair?, Can the Philadelphia Real Property Tax System Be Saved?, Alarm Bells Ringing for Philadelphia Property Tax Reform, and A New Chapter in the Philadelphia Property Tax Story.

Now comes news that City Council has voted to boost pay for all members of the Board so that all of them receive a $70,000 salary. The hope, or perhaps expectation, is that the raises will encourage the board members to work longer hours. Interestingly, the Board continues to exist even though the city tried to abolish it, because another court decision requires that the board be maintained as the venue for appeals of property tax valuations.

The change would increase one member’s pay from $50,000 to $70,000, which he would collect in addition to his $88,800 annual state pension. Another member, currently being paid $150 per hour, would earn $70,000, along with his $95,000 annual state pension. But for another member, who receives a $64,000 annual city pension, a switch from $150 per hour to a $70,000 salary would mean surrender of the pension. So, in a bizarre twist, the attempt to create a financial incentive for this member backfires, as he would earn more if he remained a $150 hourly employee.

It’s unclear whether a member can refuse the switch to a salary and remain as an hourly employee. It’s also unclear whether a “raise” leaving a member in worse financial shape would cause that member to resign from the board. Sometimes things aren’t as they appear to be, and often things aren’t simple. In this case the simple concept of a raise creates the appearance of something that it isn’t.

The measure needs the mayor’s approval. There are rumblings that it is being criticized in his office. So this story will continue.

I don’t smoke, so there are limits to what I understand about cigarettes and e-cigarettes. I do know that cigarettes are subject to special taxes, as are some other items and activities, such as alcohol and gambling. These special taxes are justified in part as providing revenue to offset the long-term societal costs of the items and activities, and in part as providing incentive for people to refrain from certain behavior. Yet at the same time, these activities are not prohibited, and some states even participate in activities such as gambling. Sometimes it is tempting to think that the legislative attitude simply is one of “they’re going to do this no matter what, so let’s tax it and get some revenue.”

According to this story, the governor of New Jersey proposes a new tax on e-cigarettes. Though e-cigarettes are not illegal in New Jersey, using them in public has been prohibited. It is unclear whether the proposed tax is designed to discourage the use of e-cigarettes or to provide funding for the long-term societal cost of their use. It’s unclear, as explained in this story, whether e-cigarettes help people stop smoking tobacco or encourage people who wouldn’t otherwise smoke tobacco to transition from non-smoking through e-cigarettes into tobacco use. Another study, according to this story, concluded that e-cigarettes causes an increase in the number of tobacco smokers.

It has been suggested that New Jersey’s proposed tax would push e-cigarette stores out of business because the tax would at least triple the cost of the liquid used in e-cigarettes, and encourage some users of e-cigarettes to turn to tobacco products. Others think that taxing e-cigarettes at rates less than those applicable to tobacco products would signal that the legislature thinks e-cigarettes are safer than tobacco.

Public hearings are scheduled to consider the proposal. They should be interesting.

A tax appeal delayed is not a tax appeal denied if the taxpayer making the appeal is not required to pay the disputed tax until the disagreements are resolved, especially if interest and penalties do not accrue while the appeal is pending. This issue has popped up as the latest installment in the long-running story about Philadelphia and its difficulties with its real property tax. That story has been the subject of numerous posts, beginning with An Unconstitutional Tax Assessment System, and continuing with Property Tax Assessments: Really That Difficult?, Real Property Tax Assessment System: Broken and Begging for Repair, Philadelphia Real Property Taxes: Pay Up or Lose It, How to Fix a Broken Tax System: Speed It Up? , Revising the Board of Revision of Taxes, How Can Asking Questions Improve Tax and Spending Policies?, This Just Taxes My Brain, Tax Bureaucrats Lose Work, Keep Pay, Testing Tax Bureaucrats Just Part of the Solution, A Citizen Vote on Taxes, Freezing Real Property Tax Reassessments: A Nice Idea, The Tax Price of a Flawed Tax System, Can Bad Tax Administration Doom the Tax?, Taxes and Priorities, R.I.P., BRT, A Tax Agency Rises from the Dead, Tax Law as Subterfuge: Best Use Valuation v. Current Market Valuation, How to Kill a Bad Tax System That Will Not Die?, The Bad Tax System That Will Not Die Might Get Another Lease on Life , Robbing Peter to Pay Paul, Tax Style, Don’t Rob Peter to Pay Paul: Collect Unpaid Taxes, The Philadelphia Real Property Tax: Eternal Circles , A Tax Problem, A Solution, So Why No Repair?, Can the Philadelphia Real Property Tax System Be Saved?, Alarm Bells Ringing for Philadelphia Property Tax Reform, and A New Chapter in the Philadelphia Property Tax Story.

In the latest installment in this saga, it seems that it will take years for the Board of Revision of Taxes to work through the approximately 24,000 appeals that have been filed. More than $48 million in tax revenue has not been collected while the appeals are resolved. According to this report, one of the reasons that the process is taking so long, aside from the huge volume of appeals, is the decision of some board members to hold out for a pay increase. It is expected that by the end of this month, about 10 percent of the appeals will be resolved. At that rate it will take years to work through the appeals, and certainly more will be added to the backlog when another real property tax year rolls around.

Currently, though two members of the board are paid $70,000 a year for their work, others are paid as little as $150 per day, which works out to roughly $38,000 a year. City Council claims that it has made money available to the board to hire staff, but apparently that money was used to comply with a court order requiring back pay for several board members. The board spends two days a week listening to arguments on behalf of taxpayers, and three days a week dealing with appeals for which taxpayers have not requested the opportunity to make presentations. On those days, the board meets for about an hour, sometimes less. It seems that for $150 a day, board members aren’t inclined to put in 40-hour weeks. So now attempts are underway to increase the pay of all the board members to $70,000. The situation is muddied by the fact that the city had tried to reduce the pay for all the board members from $70,000 to $50,000 for the chair, $45,000 for the secretary, and $150 per meeting for the other members. But the courts held that pay could not be cut for members already holding office, which generated back pay for them, and left only the new members being paid $150 a day. Legislation is working its way through City Council that would restore the $70,000 salary for all board members, in an attempt to “make the BRT members feel encouraged to finish the hearings by the end of the year.” The Mayor and his spokesperson are questioning why this plan wasn’t brought forward months ago.

Getting through these appeals requires all the board members to put in full-time weeks. It makes no sense to pay two of them $70,000 a year and the others $150 a day. This is what happens when someone thinks that saving a few hundred thousand dollars by cutting government spending is a good idea, when in fact the cost of the delay triggered by the outcome delays collection of almost $50 million in tax revenue. It’s not unlike the foolishness of cutting the IRS budget and then wondering why there is a federal budget deficit, knowing that the annual $300 billion shortfall over several decades accounts for quite a chunk of the national debt. Short-term thinking, one of the banes of modern culture, is bad for long-term progress. Surely there will be more chapters in the Philadelphia property tax story.

The topic of the email caught my eye. It simply stated, “Money is the last social taboo for the rich, reveals deVere study.” Curious, I looked more closely at the press release. Though I could not find the actual survey results, the press release noted that:

In the global survey conducted by deVere Group, one of the world's largest independent financial advisory organisations, 61 per cent of those polled ranked personal finance as the most difficult subject to discuss with family, friends and colleagues.

It came ahead of politics (14 per cent), sex (11 per cent), religion (8 per cent), and health issues (6 per cent) in the study of 1,125 clients who have investable assets of more than £1m. The respondents came from, the U.K, the U.S., the United Arab Emirates, Hong Kong and South Africa.

My first reaction was not one of surprise, but one of curiosity. Did these results differ from how people not considered high-net-worth individuals would reply. Digging around, I discovered that Wells Fargo had done a similar survey of individuals aged 25 to 75, without regard to financial status. According to the news release, the results were a different:

A new survey from Wells Fargo (NYSE: WFC) revealed that Americans find discussing personal finances as difficult as talking about other thorny discussion topics like religion and politics. Nearly half of Americans say the most challenging topic to discuss with others is personal finances (44%), whereas death (38%), politics (35%), religion (32%), taxes (21%), and personal health (20%) rank as less difficult.

It seems that a somewhat higher percentage of the high-net-worth individuals found finance discussions difficult. What is interesting is that despite that difference, for most people, conversations about money present the toughest challenge. That’s not a surprising result. So however the differences might be with respect to the other topics – the survey results are presented in a way that prevents comparison – it seems that rich, poor, or in between, talking about money continues to be a social taboo.

Few people delight in paying taxes, though some people pay them with the same sort of acceptance that people project when stopping for a red light. There are people, however, who cannot abide compliance with societal norms. Some, equipped with sufficient resources, find ways to buy their way out of paying taxes. Others, frustrated that they lack those resources and resulting influence, rebel by taking matters into their own hands, refusing to pay taxes, and justifying their actions with voluminous quantities of nonsensical arguments. It is not difficult to understand the anger that motivates the tax protest movement, many of whose members would abandon it if they were able to obtain the special tax breaks that have been acquired by others.

The unfortunate thing about the tax protest movement is that most of the people in it are vulnerable folks who fall for the siren song of the ringleaders, just as those who support special tax breaks, even without benefitting from them, have fallen for the siren songs of those who procure special tax breaks for themselves and their clients. Just as most of those arguing for the wonderfulness of economic inequality take their words from a few propagandists, so, too, most people in the tax protest movement blindly follow the words and instructions of the movement’s ringleaders.

This is what happened to Steven T. Waltner. Following the advice given by Peter Hendrickson in “Cracking the Code: The Fascinating Truth About Taxation in America,” Waltner and his wife submitted returns showing zero wages, two deductions, and a zero tax liability. Listing their occupation as “private-sector workers,” they attached Forms 4852, Substitute for Form W-2, reporting zero wages, including boiler-plate statements that they did not receive wages. Waltner also attached a “correcting” Form 1099-B, on which he replaced the gross proceeds amount with a zero, and at the bottom of which he included more boiler-plate language.

Of course, the IRS issued notices of deficiency to the Waltners. The ensuing litigation generated enormous activity, ranging from multi-hundred-page discovery requests, dozens of orders by the Tax Court, and eventually the Waltners paid the taxes that were due. But the case didn’t end at that point. The IRS had asserted section 6673 sanctions against the Waltners, and the Waltners in turn asserted similar sanctions against the IRS. In Waltner v. Comr., T.C. Memo 2014-35, the Tax Court upheld a $2,500 penalty against Waltner, even though it was authorized to impose a penalty of as much as $25,000.

Rather than simply pointing out that the Waltners had filed frivolous returns and imposing the penalty, the Court took the time, and many pages, to rip apart Hendrickson’s book. The Court’s effort is intended to prevent others from wandering down the deceptive path on which Hendrickson has been leading people looking for a quick way to live life without contributing to what society provides them. Anyone who thinks Hendrickson is sharing any sort of valuable tax information needs to read the case to learn why he simply is regurgitating the same, long-disproven, nonsensical arguments that analytical examination readily identifies as silly and dangerous. The best part of the opinion, for me, having read numerous rebuttals of the tax protest creed, is the description of Hendrickson’s tax protest activities. The court notes that nowhere in his book does Hendrickson provide his credentials, confining himself to a claim that he is a “researcher, analyst and scholar.” The court continues, “Add to that felon and serial tax evader.” Hendrickson not only has been indicted for tax-related crimes, but also placing and using explosives in the mail, and he ultimately pled guilty to some of the charges. Subsequently, he was again indicted on 20 counts of federal tax crimes, and eventually convicted. At his trial, Hendrickson defended himself by making the same arguments he made in his book, and those arguments were soundly rejected by the court.

Even though Hendrickson’s ideas, broadcast in his book, have been rejected, some people seem intent to treat it as worthy of being followed. It doesn’t seem to matter to them that Hendrickson went to prison for following his own advice. Do they think they’re headed anywhere else if they persist in going along the same path? It doesn’t seem to matter to them that Hendrickson proclaims Irwin Schiff, another convicted ringleader of the tax protest movement, to be his mentor. They’re so angry about paying taxes that they would follow these Pied Pipers right over the cliff as they play their pipes.

Yes, the tax system is a mess. But the path to its reform is to clean up the Congress that is responsible for the mess. To do that, control of the Congress needs to be taken away from the moneyed interests that have corrupted it to their purposes. Going down the tax protest path does nothing but to strengthen the power of the moneyed elite over the Congress. If those in the tax protest movement took their energy, their anger, and their frustration, and directed those feelings into reforming the Congress, they’d be pleasantly surprised by the outcome.

Last Wednesday, in Making Taxes Fun, I reacted to a quip by Harry Gross in which he asked and answered a question, “Fairest [tax] of all? A self-assessed tax on men based on virility, and on women based on beauty.” I pointed out that, as a practical matter, it would be too easy for people to claim that they were “horrifically unattractive.”

An enterprising reader, far more steeped in popular culture than I am, sent me an email and pointed me in the direction of this number from Boardwalk Empire: Don’t Put a Tax on the Beautiful Girls. Just imagine an exemption for beautiful girls. It’s not difficult imagining the lobbying that would take place in favor of such an exemption. Nor is it difficult to imagine that every female would claim to qualify. But what about the handsome men? What would they do? One can only imagine. The entire concept is not only hilarious but ridiculous.

If anything, all of this simply proves that individuals are intent on seeking an edge over everyone else. Whether it’s going straight out of the left-turn lane, sneaking into a movie theater without paying, or getting a tax break based on some supposedly unique or limited feature or characteristic. Too often, the feature or characteristic has nothing to do with sensible measure of a tax base, but is hyped as having some rational connection with how revenue is raised. The point of the suggestion made by Harry Gross is that the best tax is one that requires declarations against one’s own interest. That, however, is not easy to construct.

So I’ll toss out another idea. Perhaps people should be taxed on income equal to the amount they claim as income when they apply for a loan or try to impress a date, and perhaps property taxes ought to be paid on the value of the homes, boats, cars, airplanes, and other items that people claim to own when they are trying to get an edge in some arena other than taxation.

Yes, sometimes tax policy can generate hilarity. And ridiculousness.

Every now and then we read of someone finding something valuable. This time, it’s a California couple who found a stash of gold coins on their property. According to this story, the couple found eight cans containing 1,400 coins, valued at approximately $10 million.

The joy of the moment is tempered, of course, by the existence of income taxes, both federal and state. Must the couple pay tax? Yes. The value of the coins is included in the couple’s gross income. It is ordinary income. The law is settled. See, for example, Treasury Regulation section 1.61-14(a), Cesarini v. U.S., 296 F. Supp. 3 (N. D. Ohio 1969), aff’d, 428 F.2d 812 (6th Cir. 1970); Rev. Rul. 53-61, 1953-1 C.B. 17.

If the couple treat the coins as an investment does that turn the income into capital gain? No. Holding the coins as an investment generates capital gain or loss when the coins are sold by the couple. Capital gain or loss treatment requires a sale or exchange. Acquisition of something by finding it and reducing it to possession is not a sale or exchange. Assume that the coins in fact are worth $10 million. The couple reports $10 million of ordinary gross income, and obtains a basis of $10 million in the coins. If the couple hold the coins as an investment and sell them for, say, $11 million, there will be capital gain of $1 million. Whether the capital gain is long-term or short-term depends on when they sell the coins.

But if the couple treat the coins as inventory, any gain on subsequent sale of the coins would be ordinary income. According to the story, the couple plan to sell the coins individually or in small bundles using on-line sites. That approach raises the possibility that they will be treated as dealers.

It has been suggested that because the couple found the coins on land that they owned, that they purchased the coins when they purchased the land, that part of what they paid for the land should be treated as having been paid for the coins, that they thus invested in the coins, so that selling the coins generates capital gain. This argument simply prevents the couple from having gross income when they purchased the land equal to the difference between what they paid for it and its value as computed with $10 million of gold coins buried in it. In other words, the acquisition transaction by which they were enriched did not take place when they purchased the land, but when they extracted the excess value by discovering the coins. If instead of discovering coins they had discovered natural gas, oil, or minerals naturally in place and extracted those items, they would have gross income, not when they purchased the land but when they sold the natural gas or oil. At best, the argument supports a delay in the timing of the income but does not convert it into capital gain any more than a landowner who discovers and sells oil from the land has capital gain.

If the couple reports capital gain, the IRS surely will adjust their return. If they choose to contest that decision, they will end up in court, and the world will know who they are. To date, they have carefully protected their identity and the location of the land, understandably, and have chosen to remain anonymous. It is unlikely that they would surrender that anonymity for the sake of saving some tax dollars net of the cost of contesting the IRS assessment.

Thanks to the reader who raised the question about the tax treatment of this event.

According to this story, a study sponsored by the Pew Charitable Trusts has determined that the percentage of people in Philadelphia who belong to the middle class has fallen from 59 percent in 1970 to 42 percent in 2010. The study did not determine whether those who left the city’s middle class fell into the lower-income class, moved out of the city, or died. What is clear is that they did not join the ranks of the city’s upper class, because the percentage of the city’s population in that group went from 11 percent in 1970 to 10 percent in 2010. The percentage of the city’s population in the lower class increased from 30 percent to 48 percent during the same period.

The thought that these statistics reflect mere geographical movement is negated by another bit of information from the study. During a comparable forty-year period, 1971 through 2011, the percentage of the nation’s population that belonged to the middle class fell from 61 percent. This news is exacerbated by a realization that the economic condition of the middle class also has fallen, because middle class income has stagnated.

The decline of the middle class is not because those in it lack education. The study revealed that in 1970, only 56 percent of the city’s middle class had at least a high school education, and only 18 percent had any college education. By 2010, 92 percent of the middle class had finished high school, and 50 percent had at least some college education.

According to the study, the biggest drop in the city’s middle class, from 55 percent to 48 percent of the population, took place during the 1980s. The biggest increase in lower-class membership, from 36 percent to 45 percent, took place during the same decade. That decade, hailed by many as a time of American prosperity, surely didn’t do wonders for Philadelphia’s middle class.

This one is clever. A reader wrote to Harry Gross, finance columnist for the Philadelphia Daily News, complaining about the complexity of the federal income tax. In his response, after giving several dozen examples of the deductions and credits that needlessly clutter the income tax law, Harry Gross wrote, “Fairest [tax] of all? A self-assessed tax on men based on virility, and on women based on beauty.” What a clever idea. Imagine how many people would end up describing themselves as horrifically unattractive! But that could be done at little cost. Perhaps the fairest tax is a self-assessed tax on people based on how much they contribute to the economic well-being of the world. Just think. The ultra wealthy who agree with Tom Perkins, as discussed in Getting to the Root of the Problem, that “The 1 percent work harder, the 1 percent are much bigger factors in all forms of our society” would be forced to avoid taxes by claiming that they are miniscule factors. Imagine asking for a raise after claiming that one’s contribution to societal well-being is nil. Or perhaps this idea might catch on. Instead of using the Tom Perkins votes-based-on-wealth absurdity, discussed in Some Ultra Rich Reveal Their Hands: Intentional or Accidental?, perhaps votes could be assigned on the basis of how much one pays in taxes.

Sometimes, especially during tax season, it helps to find humor in the tax world. It can require digging deep or reaching far, but it’s worth it. Thank you, Harry Gross, for making me laugh and inspiring me to think about taxes in a fun way.

It is important to understand that objections to income and wealth inequality, such as those I’ve shared in Getting to the Root of the Problem, Absurdity Breeds More Absurdity, Income and Wealth Inequality: A Threat, Not a Distraction, Working Hard?, and Some Ultra Rich Reveal Their Hands: Intentional or Accidental? are not objections to inequality. There simply is no way that absolute income or wealth equality can be attained. It is administratively unworkable, and the cost of accomplishing it would be too great. The objection is to deep inequality, the situation in which the disproportionality is severe and unwarranted by any sort of measuring stick. Those who claim that the wide discrepancies are the product of the market place conveniently ignore the fact that the market is skewed, and skewed in favor of those with disproportionate wealth and income, so that they have the opportunity to increase the disproportionality.

Last week, Eric Liu explained, in a commentary that needs to be read by everyone who votes or should be voting, why the suggestion by Tom Perkins that each voter should be given a number of votes equal to the voter’s wealth in dollars doesn’t present as radical a change as it appears to be. Liu draws our attention to information that most people haven’t noticed, because if they had, the outcry would be even louder than it has been.

Liu begins by asking why Perkins is getting attention. What Perkins says, according to Liu, reveals that “he has no command of American social or political history, no appreciation for the multigenerational legacy of public investment that made his success possible, and no apparent empathy for anyone outside his rarefied circle.” But his comments get widespread coverage simply “[b]ecause he's spectacularly rich.”

Liu then turns to voting booth strength. Among voters with incomes of $150,000 or more, 78 percent vote. On the other hand, among voters with incomes of less than $15,000, only 41 percent vote. The rich vote at twice the rate as do the poor. One cause is that too many of the poor aren’t getting themselves – or cannot get themselves – up and out to the polling place. On the other hand, the poor who are aware of the campaign by the rich to disenfranchise them through the pretext of voter ID concerns are probably so discouraged that they have given up. The rich run the country, and when this is the outcome, they have some explaining to do.

Beyond voting, very few of the poor, and a shrinking sliver of the middle class, show up as political donors, lobbyists, or legislators. During the 2012 election cycle, one-tenth of one percent, or a mere 31,000 people, accounted for 28 percent of campaign contributions, and surely their corporations accounted for yet another chunk. When it comes to lobbyists, 894 of them tossed $34 million to political candidates as part of the process of buying legislation, dictating policy, and running the government.

The ultra rich already have disproportionate advantages in the political process, and it’s one that they hold without needing to implement the votes-tied-to-dollars-owned nonsense trotted out by Perkins. They benefit from a tax law flaw, one that I have criticized for decades. Their dividends, capital gains, and carried interests are taxed at rates far lower than those applicable to salaries and wages. The rich know how to convert their income into low-taxed and no-taxed items, whereas the poor and middle class have no genuine opportunity to turn their compensation into dividends and carried interests, or to circumvent employment taxes in the manner used by those with sufficient wealth to do so. What’s galling is that as the rich find ways to get legislatures to give them and their corporations tax breaks, they continue to whine and cry about how horribly burdened they are with taxes. It’s more than greed. It’s an addiction.

Liu’s conclusion is well worth sharing:

In short, the outrage is not what a Tom Perkins says out loud; the outrage is that we already have something like the system he fancifully, condescendingly proposes.

Policy wonks and heroic citizen activists have all proposed reforms. We don't lack possible remedies. What we've lacked is the will to force our government to enact them. And this is why the outrageous self-justifications of an imperious hyper-elite are, perversely, very helpful now.

The game is rigged. Having the likes of Tom Perkins rub our faces in it may be insult enough to awaken us. He suggests giving big money even more political power. Imagine a movement going the other way. Imagine a concerted citizen effort to double voter registration and turnout among poor and working Americans. Imagine cross-partisan collaborations between right and left to curb crony capitalism.

Let's not kid ourselves: It wouldn't be easy to unrig the game and revive the principle of equal citizenship. But let's not kid ourselves about this fact either: The rich already have more votes than the rest of us. The only question is whether we will continue to tolerate it.

Perhaps these eloquent words will encourage people to read his entire commentary He understands why deep inequality is a serious threat, and he explains it well. Go, and read.

As snow and ice storms have been battering the Midwest, the Mid-Atlantic, the Southeast, and New England, states, counties, cities, towns, and townships have been spending far more on salt supplies, fuel, and overtime for plow drivers and other personnel than had been budgeted. For example, according to this report, Massachusetts has already exceeded its snow removal budget for the fiscal year. Similar reports are coming in for places such as Norwich, Connecticut, Bloomington, Illinois, and towns in the New York City area.

These jurisdictions have three choices. First, they can stop clearing roads and highways of ice and snow. Surely that is an outcome that would not find favor with anyone other than those who would privatize snow removal so that people could pay more for the same services in order to put more money into the pockets of those who already have more than enough money funneled their way. Second, they can shift money from other budget lines, such as stopping pothole repairs, closing parks and recreation centers, firing police, shutting down firehouses, or mothballing EMT services. Third, they can raise taxes. That’s the sensible thing to do, but it will bring howls of protest from the anti-tax crowd, who, I suppose, think that plow drivers should work for free.

Perhaps one silver lining in this dark and dreary winter is that some folks previously enchanted by the siren song of the anti-tax crowd will come to realize that taxes are a good thing. With that realization, perhaps they will see past the superficiality of the anti-tax sloganeering and recognize the anti-tax campaigns for the threats that they are.

The growing awareness among Americans that the at least a significant number of the ultra rich hold them in disdain, delight in the diminution of the middle class, consider the poor to be “takers” addicted to entitlement, and have failed to come through with the promise of a better economy for all that justified reductions in their tax bills has put at least some of the wealthy into a panic. How else to explain the sudden full-court press defense of the ultra rich, wrapped in claims that they are being persecuted in a Holocaust-style manner, work harder than everyone else, are more important than everyone else, and deserve to be orders of magnitude more prosperous than 99 percent of the nation. During the past week and a half, these ridiculous claims were the subject of my commentaries in Getting to the Root of the Problem, Absurdity Breeds More Absurdity, Income and Wealth Inequality: A Threat, Not a Distraction, and Working Hard?.

Now comes an even more obnoxious reaction from the same ultra wealthy fellow who has explained he feels as though he is being persecuted in the same manner that Jews were exterminated in Nazi-dominated Europe. Tom Perkins, as reported in this report and many others, has proposed that voting should be limited to people who pay taxes, and that the number of votes available to a person should reflect the amount of money that the person has. Thus, according to Perkins, someone with $1 billion of assets would get 1 billion votes, whereas a person with $100 of assets would get 100 votes. Perkins explained that “it should be like a corporation. You pay a million dollars in taxes, you get a million votes.” Perkins did not explain why corporations should be a role model for anything.

If there’s anything worse than a defensive ultra wealthy person with an exaggerated sense of self-worth, it’s an ignorant, defensive ultra wealthy person with an exaggerated sense of self-worth. Aside from infants, toddlers, some children, and some people in comas, everyone pays taxes. People pay sales taxes, liquid fuel taxes, alcohol taxes, real property taxes, state, local, and federal income taxes, social security taxes, unemployment insurance taxes, tobacco taxes, excise taxes on tires, and so on. Few people pay all of these taxes, but just about everyone pays at least one, and generally two, three, or more, of these taxes. So Perkins’ proposal wouldn’t really make much of a difference in who votes.

Though adverse reaction to Perkins’ proposal has been almost universal, most people have focused on the outrageousness of his attitude and the equation of wealth with voting booth value. The best voters, of course, are those who are well-informed, thoughtful, wide-minded, and sensible, whereas only some of the ultra wealthy have those qualities. The administrative nightmare of figuring out how many votes a person receives is alone proof that Perkins lacks the ability to think things through before tossing out grenades in defense of his indefensible position. Is the voter’s wealth measure when registering? When voting? Is it the average wealth since the last election, measured monthly, quarterly, annually? Who audits the claims? Does photo-ID come into play when everyone claims to be a trillionaire?

What gets my attention isn’t simply the outrageousness of what Perkins suggested, but what he has revealed, perhaps inadvertently, about the mindset of ultra rich like himself. He could not have been any clearer had he simply come out and said, “We, the ultra rich, want to own and rule the world, leaving you as peasants, albeit in a so-called democracy where you can cast token votes that mean nothing. We have been unhappy since the demise of serfdom, slavery, and keeping peasants down on the farm.” Perkins has done the nation and the world a favor. He has let the ultra rich cat out of the bag. Not that it was a secret, but now there is proof, from the mouth of one of them, that the tax cuts for the wealthy, the destruction of the middle class, the demonization of the poor, the tagging of ordinary citizens as “takers,” the rejection of entitlement claims other than those asserted by the ultra rich, the disrespect for the hard work of the 99 percent, the manipulation of the markets, the buying of legislatures, and the duping of voters with spurious and hypocritical claims to be guardians of things voters hold dear all fit together in a mosaic matched wonderfully to the “we are better than the rest of you and deserve to be your overlords” mentality of Perkins and fellow travelers.

When it comes to why Perkins pulled back the curtain, there are two possibilities. One is that it was accidental, a thoughtless utterance by someone losing inhibitory control in reaction to the pressure and panic of a rising tide of political, moral, and electoral opposition. Considering the absurdity of Perkins’ previous comments and the apparent misconception that many people pay no taxes, it is not implausible to conclude that he blurted out something before he realized he was saying too much. The other is that it was intentional. If so, the question is why. What advantage is gained by revealing outright the heretofore badly-kept secret goal of economic world domination and its corollary electoral, political, military, and social domination? Is it a matter of making the point appear so ridiculous that no one will take it seriously? That sort of ploy is not new. Perhaps a reaction of “That’s so ridiculous they couldn’t possibly be planning that sort of outcome” is what they want. If so, it hasn’t quite worked out that way, because the outcry of outrage has been widespread.

On Wednesday, in Absurdity Breeds More Absurdity, I noted one defender of Sam Zell’s silly claim that the top one percent works harder by resorting to another absurdity, that of measuring how hard a person works by referring to how many hours a person works. Now along comes Robert Frank, who in a Wall Street Journal blog, uses hours worked as the measuring stick for how hard a person works.

As I suggested in Absurdity Breeds More Absurdity, caloric expenditure surely is a better measure of how hard a person works. It may not be the best measure, but for the moment it’s as good as there is. Taking a look at Calories Burned During Work, Occupations and Hobbies, it becomes clear that work such as mowing lawns, shoveling snow, cleaning houses, farming, coal mining, fire fighting, digging ditches, and nursing requires far more effort than making telephone calls, sitting in meetings, and socializing at lobbying events. Lest anyone offer that people in jobs not involving intense physical labor aren’t working as hard as the ultra rich, one burns more calories playing a musical instrument, bar tending, helping customers as a store clerk than wheeling and dealing with money and power brokering.

And even if someone could demonstrate that people holding hundreds of millions and billions of dollars in wealth, or pulling down tens of millions or hundreds of millions of dollars in income, somehow are “working harder” than everyone else, it is inconceivable that they can demonstrate that these folks are working hundreds and thousands of times harder than everyone else. Falling back on the “that’s what the market provides” argument overlooks the collaboration permeating the supposedly “free” market of high level income and wealth.

In recent posts, I have been exploring the defensive positions taken by those who consider excessive income and wealth inequality not only as a contrived problem but also as a condition beneficial to everyone. For example, in Getting to the Root of the Problem, I rejected the claim that income and wealth inequality is a simple outcome caused by poor people not working hard enough.

The defenders of the trend that will bring us one person owning the world have stepped up their marketing campaign to convince the majority of voters, almost none of whom are ultra rich, that their best chances lie with the ultra rich and their agenda. Now that the world has reached the point where 85 people own as much as do the poorest half of the world’s population, as dissected in this report, it is only a matter of time before 50 people own as much as do the poorest three-quarters of the world’s population, and perhaps just decades before 25 people own as much as does everyone else. The current situation and the direction in which things are going are not accidents, and the vigorous defense being mounted by the perpetrators is glaring proof of what is being planned.

It is disturbing to read claims that income and wealth inequality is a good thing, that it does not matter, and that it is a distraction. One wonders how well orchestrated this defense of inequality has become. Consider several recent attempts to push the blame for the nation’s economic problems away from the causes.

Economist David R. Henderson argues that most people do not care about income inequality, and that this makes sense because income inequality doesn’t matter, a point he justifies by claiming that so long as everyone’s income increases, the gap makes no difference. As for his first point, there’s no doubt that many people are deeply concerned about it, especially when they are given the opportunity to learn why life has become increasingly challenging from an economic perspective. As for his second point, for most people, income in real terms has either declined or increased at a rate that does not keep up with the increases in the costs of food, energy, health, and similar necessities. Worse, when economists argue, as Henderson does, that the poor are better off because more of them now own refrigerators, cars, and cell phones, he overlooks the fact that this has happened because of the government transfer programs so detested by those who delight in the growing income and wealth gap. What would the economic situation be if they had their way by eliminating all social welfare programs, including Medicare, Medicaid, and Romneycare-turned-Obamacare, repealing the income tax, revoking most regulations, and giving their ultra rich sponsors unrestrained opportunity to do what they want? The things that they want to eliminate are the very things that have spared the nation from an even worse outcome, and that’s why there is so much effort from their direction to remove those last lines of defense against tyrannical oligarchy and the reduction of democracy to a mockery.

Economist David Brooks also claims that income and wealth inequality is not the issue. He argues that the plight of the poor is caused by “bad schools, no jobs for young men, broken families, neighborhoods without mediating institutions.” In many respects, he’s correct. Fixing those problems would help reduce the inequality. What he doesn’t address, for obvious reasons, is that those problems for the most part are caused by the tax destruction campaign waged by the ultra rich under the pretext of helping the very people that tax destruction harms, and by the bottom-line mentality that exalts next week’s profits over the long-term economic health of the nation. Jobs are not available for young men in part because those jobs have been shifted overseas and in part because the nation’s school systems are a mess thanks to insufficient funding and attacks on the far-from-rich teaching profession. As I’ve asked in previous posts, does it make sense to destroy tomorrow’s consumers if the lack of consumers means the long-run failure of the businesses generating profits and wealth for the ultra rich?

Economist Robert Samuelson characterizes income and wealth inequality as the consequence, rather than the cause, of the nation’s economic problems. But in his attempt to prove this point, he claims that “the rich got rich by running profitable small businesses, . . . creating big enterprises, . . . being at the top of lucrative occupations, . . . managing major companies or inheriting fortunes. He writes this in a way to suggest that inherited wealth is a miniscule factor, whereas inherited wealth is what brings many of the ultra rich into their position as ultra rich. Samuelson’s list of examples, such as owners of car dealerships, lawyers, doctors, actors, athletes, and the like is misleading because very few car dealership owners, lawyers, doctors, actors, and athletes are close to being within the ranks of the ultra rich. Samuelson also makes the same point Henderson does, by trying to prove that everyone’s inflation-adjusted incomes increased wonderfully from 1980 until 2010, though he concedes that the rate of growth among the top one percent was far more than what was experienced by everyone else. The flaw in Samuelson’s statistics is that he reaches back to 1980, thus taking into account the impact of decisions and events before the Revolution of the Rich in 2001. Gains accrued by the 99 percent from 1980 through 2000 aren’t much help to people trying to make ends meet in 2014 because their situations deteriorated during the decade of the double zeroes. And we know what happened during that era, and why it was a bad thing to do.

That income inequality is a bad thing is clear, even though its defenders choose to ignore the signs or excuse them away. In England, research indicates that 25-year difference in life expectancy exists between London’s wealthy and its deprived. Two medical researchers have demonstrated that income inequality contributes to the growing health problems of the nation. Other researchers have determined that assortative mating, the phenomenon of people marrying within their income bracket, contributes not only to the rich getting richer and the poor getting poorer, thus widening income and wealth gaps, but also to the reduction of marriages between people near the edges of their income brackets. These gaps also contribute to the decline in the number of marriages which, in turn, as even admitted by the defenders of inequality, contributes to even more income and wealth inequality. The inability to support a family on one salary, the growing insecurity of job tenure, and workplace stress fueled by a profits-is-all-that-matters mentality feeding the money addiction of the ultra rich are major factors in the divorces that the defenders of inequality identify as a cause of inequality. In other words, income and wealth inequality feeds upon itself as it spirals into oligarchy.

The claim that income and wealth inequality is not a cause of poverty overlooks the connection between wealth accumulation in the hands of a few and the lack of education, jobs, health care, and well-being among the poor. The Revolution of the Rich was justified by claims that putting more money in the hands of the rich would solve problems because the rich are the job creators. Yet, if they created jobs, they didn’t create very many in this nation, and the surely didn’t create enough. Americans fell for the siren song, and the economy is now crashing on the rocks. True, the captain and crew will get off the sinking ship because they have the resources but the passengers are left with broken promises and cutbacks in lifeboats and life preservers. And, not surprisingly, the captain and the crew are now trying to blame the passengers for the navigation errors, the false promises, and the lack of lifeboats and life preservers.

In my last post, Getting to the Root of the Problem, I criticized Sam Zell for, among other things, his absurd claim that the ultra rich work harder than everyone else. Much to my surprise, someone has actually tried to defend this claim, on equally absurd grounds. On Erin Burnett Out Front, one Reihan Salam tried to justify Zell’s claim by pointing out that the ultra rich work upwards of 3,000 hours each year while those not in the top one percent barely crack the 2,000 hour barrier.

The silliness of this retort of desperation is inescapable. Here are just a few facts for Zell, Salam, and the rest of the elitists to consider.

First, all sorts of people hold jobs or practice professions in which they put in more than 2,000 hours each year, and a more than a few top 3,000 hours. For example, it doesn’t take much of a bad winter for utility crews to rack up 16-hour days. And they can’t take an offsetting vacation when the next storm shows up a week later to cause more damage.

Second, because of the ways in which the ultra rich have managed to push down the middle class and demonize the poor, many people are compelled to work more than one job, which causes the number of hours that they invest in labor to surpass by far the 2,000-hour limit Salam thinks applies to the rank-and-file.

Third, and this is the most important point, the number of hours spent at work does not correlate to the difficulty of that work nor does it measure how hard a person works. What are the ultra rich doing during those 3,000 hours? To use a better measure, how many calories are they burning? How much of their time is devoted to conversation, lunch and dinner meetings, cocktail parties, fund raisers, and similar events? If they think that’s hard work, someone needs to hand them some hard hats, shovels, and picks, and guide them into a coal mine.

Having argued with people who clearly are wrong but who cannot let go of their errors, I recognize the defensive tactics that have been adopted by those still intent on ruling the world through means other than democracy. I understand why it is so difficult – hard work, perhaps – to let go, because letting go unravels the entire arrangement. Yet being exposed for absurd and silly arguments would not happen if those absurd and silly arguments had not been advanced. The fact that these sorts of outrageous claims are popping up with increasing frequency suggests that Americans’ growing awareness of what has been going on is more than an idle threat to the power and money addiction that is doing no less damage to this nation than any other sort of addiction.

According to numerous reports, including this one, billionaire Sam Zell has rushed to the defense of Tom Perkins, the venture capitalist who compared complaints about staggering income and wealth inequality as equivalent to the persecution of Jews in Nazi Germany. Although Perkins was compelled to apologize for his comment, Zell tried to paper it over by explaining that although the word persecution was not “the right way to describe treatment of the top 1 percent of earners,” the criticism of the ultra rich is fueled by envy, and the income and wealth inequality is the fault of government regulations. Zell then compounded his defensive posture by claiming that the reason people are critical of the income and wealth inequality is that “it’s politically convenient to do so.” He suggested that people should emulate the ultra rich, and followed that up with a claim that “The 1 percent work harder, the 1 percent are much bigger factors in all forms of our society.”

Is he serious? Clearly what’s at the root of the problem is the belief that those who do well, no matter how that comes about, work harder and are more important. That explains the war on the poor and the attempt to destroy the middle class. People aren’t complaining about income and wealth inequality because they want to be billionaires. They’re complaining because they want to be able to feed their children, take care of the children’s education and medical needs, and put a roof over their heads. People aren’t complaining about income and wealth inequality because it’s politically convenient to do so. They’re complaining because they understand that it is morally and ethically reprehensible to create and support systems that funnel increasing amounts of wealth into the hands of a oligarchy that ultimately is destined to become a global tyranny that promises even more dire economic distress for all but the economic elite.

The absurdity of Zell’s comments is evident from his silly claim that the one percent work harder. I wonder if Zell has ever shoveled out his own driveway, or raked leaves, or did laundry, or dug ditches, or changed engine oil, or put chains on police car tires. I wonder if he has ever tried climbing icy utility poles to restore power in bitter cold weather. I wonder if he has worked in a coal mine, or stood on his feet for hours in an operating room or a fast-food restaurant. I wonder if he has tried to handle a room full of kindergartners, or walked behind a refuse truck collecting trash and recycling. I wonder if he has delivered newspapers in the dark, the rain, the snow, and the ice, lugging dozens of pounds of material to subscribers. I checked his wikiedia biography and if he’s done any of those things it hasn’t been included. What’s evident is that he gambled with other people’s money, got lucky, and now considers himself a hard worker. It must be muscle-weakening and strength-sapping to wheel and deal in the world of finance. For every Sam Zell who gets lucky playing the finance gambling game, there are hundreds who tried and failed. According to Zell, those who fail simply didn’t work hard enough.

Zell seems to think that the one percent work hard, even though a significant number of the one percent are living on fortunes handed down to them. Perhaps their grandparents or great-grandparents worked hard. So what? And in some instances even the ancestral wealth accumulators didn’t work all that hard. Until someone has experienced digging ditches, fixing utility lines, mining coal, collecting trash, or similar endeavors, that person needs to be quiet about what it means to work hard. In the world we inhabit, buying a winning lottery ticket does not constitute working hard.

The disdain that Zell has for those whose hard work isn’t rewarded by the so-called free market to the extent he has accumulated wealth reflects a very deep and disturbing mindset. People who do well through luck, accident of birth, or circumstances beyond their control too often translate that experience into a claim that they work harder and are succeeding through merit. Too often they subscribe to the flip side of that translation, deeming people who are down on their luck to be nothing more than lazy takers who don’t work hard enough. As another commentator suggests, in line with comments I’ve made since the outbreak of the war on the poor and middle class, “More and more, these people sound like the French royalty and aristocracy right before the revolution. Perhaps they will create the same outcome for themselves.” I wonder if Sam Zell can afford to purchase some history books. I wonder if he can work hard reading them and figuring out the absurdity of how he views people.

A recent case, Richardson v. Comr., T.C. Summ. Op. 2014-9, reaches an unsurprising result but nonetheless is disturbing. What’s disturbing is not the opinion, but the underlying facts.

In 2006, the State of California removed the taxpayers’ four children from their home, and the children did not live with them during 2008 or 2009, and presumably during 2006 or 2007. When the taxpayers filed their 2008 joint federal income tax return, they claimed four dependency exemption deductions for the children, and also claimed a child tax credit. They did the same thing on their 2009 joint federal income tax return.

The IRS issued a notice of deficiency, denying the deductions and the credits. The taxpayers filed a petition with the Tax Court, which agreed with the IRS that the taxpayers were not entitled to the deductions and credits because the children did not reside with them during 2008 or 2009, and because the taxpayers failed to show that they provided any support for the children.

It is disturbing that taxpayers would claim dependency exemption deductions and child tax credits with respect to children who did not reside with them. It is even more disturbing that something happened to prompt the State of California to remove the four children from the taxpayers’ home.

Most of the time, when someone complains about tax being complicated, the reason is on account of what lawyers call the substantive law. In other words, the rules for computing tax liability are complex. Not only are computations sometimes reminiscent of those long-ago algebra classes, but determining how transactions are classified requires digging through general rules that are curtailed by exceptions, exceptions to exceptions, exceptions to exceptions to exceptions, special rules, and transitional rules. Fortunately, computer software can assist with much of the computational frenzy, assuming the programmers understand what needs to be done.

On the other hand, sometimes the complexity of tax arises from what can be confusing procedures. One might expect that the more complex the substantive tax law, the more complex the tax procedure. But that’s not the case. Some of the most vexing procedural snags can arise with respect to taxes that are computed rather easily.

For example, real property taxes are computed by multiplying the assessed value of the property by the tax rate. Sometimes a special rule permits reducing the assessed value. Sometimes a person qualifies for a reduced rate. Not infrequently, a property owner qualifies for a flat dollar reduction of the tax computed after multiplying the assessed value of the property by the tax rate. In almost every instance, the taxing authority almost always computes the tax and sends a bill to the property owner.

The fun begins when assessed values are increased and the property owner wants to appeal. If the property owner files the appeal before the bills are sent, in some jurisdictions taxing authorities can adjust the bill so that the old assessed value is used pending the outcome of the appeal. But in some instances the news that the assessment is being appealed doesn’t reach the folks who send out the property tax bills, and the bill that is sent reflects the newly assessed value. A property owner who is appealing the assessment is, in some jurisdictions, permitted to pay an amount reflecting the old assessment. But the property owner who is unaware of how the procedure works is apt to write a check for the amount shown on the bill and then go about trying to get the new assessed value reduced, expecting a refund if the appeal is wholly or partly successful.

According to this Philadelphia Inquirer story, things aren’t working out well in Philadelphia. It seems that most property owners who are appealing their new assessments are unaware that they can pay a real property tax computed by using the old assessment. Apparently the bills for at least 24,000 properties whose assessments are under appeal were sent out with tax amounts reflecting the new assessment. The cause, an official explained, was that the people sending out the bills did not get a list of properties for which appeals had been filed until it was too late to revise the bills. Another official used the word “confusion” to describe the situation. Indeed.

It’s worse. It seems that the owners of roughly 4,600 properties filed appeals even though the assessments on their properties were the same or even less than what they had been. In other words, taxpayers are filing appeals to complain that their taxes have been reduced.

The bottom line is that when a tax bill arrives, whether it is for real property taxes or any other sort of tax, the taxpayer needs to review the bill. In other words, the taxpayer needs to do what an auditor would do when examining financial statements. Look at each number. What is its origin? For a real property tax, look at the assessment notice and compare it to the assessment on the bill. Check the arithmetic. The bill probably is generated by computer software, but computer software is far from infallible. If unsure, get help.

About two months ago, in in If They Use It, Should They Pay?, and its follow-ups, The See-Saw World of Legislating Infrastructure Funding and Noticing a Tax, I described the long and twisted path taken by a simple proposal to raise tax revenues in Pennsylvania to fund transportation infrastructure repairs and maintenance. I pointed out that in the long run, the tax increase would be less than the vehicle repair costs incurred if the infrastructure repairs and maintenance were not pursued.

Now comes news, as reported in this story, that the governor of Delaware has proposed a 10-cent-per-gallon increase in that state’s gasoline tax. The revenue would be used to provide an additional $500 million to fund repairs and maintenance on the state’s transportation infrastructure. The average driver would pay an additional $57 per year, certainly far less than the cost of hitting just one unrepaired pothole. In addition to improving transportation safety, the work would create jobs.

It takes only one transportation catastrophe, such as the one last week in the nation’s southeast, to demonstrate the need for government and the need to fund government. The efforts to portray taxes as evil, though initially resonant with too many people, are being exposed as simplistic, misleading, and dangerous.