MauledAgain

One of the many reasons taxpayers should pay attention to whatever is being done when someone else computes their tax liabilities is that people make mistakes. As I describe in Federal Ready Return, Part Three: Income Tax Return Accuracy, the risk of government employees and computer programmers making errors is one of many reasons I do not favor the Ready Return concept. For those interested, all of those reasons can be found using the index to my analyses of Ready Return.

The simpler the tax, the fewer objections I have to the computation being performed initially by someone other than the taxpayer, because the simpler the tax, the easier it is to spot mistakes. One of the examples I use is the sales tax. Taxpayers do not compute the sales tax (though they are responsible to compute the accompanying use tax). Merchants, and more specifically nowadays, the computer programmers who put algorithms into check-out devices, compute the sales tax. Some consumers would take quick notice if they were charged a $60 sales tax on a $100 purchase in a jurisdiction with a 6 percent sales tax (though, sadly, some would be oblivious). Sharp-eyed consumers would spot much smaller errors, not only in arithmetic but in identification of taxable items.

According to this report, a woman living near Pittsburgh, Pennsylvania, Mary Bach, sued Kmart in magisterial court because the store charged her sales tax on toilet paper, which is exempt from sales taxation in Pennsylvania. The over-charge happened at the Kmart store in North Versailles. According to Bach, it also happened on a previous visits, and on toilet paper purchases at five other Kmart stores scattered throughout the state.

When Bach pointed out the error to the cashiers, they did not reimburse her for the improperly charged tax. Bach noted that “When a merchant is charging sales tax on non-taxable merchandise, somebody has to hold them accountable.” So how would the IRS be held accountable if it made errors on a Ready Return?

This was at least the third time Bach sued Kmart on the same issue. She prevailed in 2007 and in 2009. This time, the judge awarded her $100 plus court costs. Bach, who describes herself as a “consumer advocate and careful shopper” might be one of the few who would catch a Ready Return error. One wonders how many sales tax dollars were collected by Kmart on exempt items, and whether those dollars ended up with the Department of Revenue or with Kmart. Kmart’s attorney described the matter as unintentional, “a mistake at the store level,” but it seems to me that a problem occurring at multiple stores over a ten-year period is a computer programming error that should have been fixed a decade ago.

If something as simple as a sales tax computation can be so easily miscalculated, what happens with “we’ll do it for you” government-prepared income tax returns? Perhaps Ready Return legislation should contain a provision for $100 judgments in favor of careful taxpayers for each Ready Return error that they spot. The tax return preparation industry that Ready Return is designed to eliminate might simply switch to Ready Return error checking, and at $100 a goof, they will continue to be flush with cash. And who would pay those $100 judgments? Taxpayers, of course.

When students express concerns about enrolling in a basic tax course, usually because they are “afraid of” or “cannot do” math, those of us who teach the course reassure them that the course, although requiring some basic arithmetic skills, is mostly about issues that are not numerical. Today I have found another example that my teaching colleagues can use to relieve student anxiety and that people who think tax “is simply a numbers thing” can use to adjust their perspective.

According to this story, the Australian Taxation Office has revealed it has terminated its attempt to provide a definition of “salad” for purposes of the goods and services tax. That tax is very similar to a sales tax.

Under current law, Australia does not subject fresh salads to the 10 percent goods and services tax. On the other hand, the tax applies to pre-prepared meals. One need not be a math whiz or an arithmetic genius to see the problem. Food retailers asked for guidance, and in March the Taxation Office disclosed it was initiating a process to determine whether existing guidelines were sufficient to deal with the “very rapidly moving nature of salads.” Last week, when asked about the plan, a representative of the Taxation Office explained that it had abandoned the effort. The reason, the representative explained, was that retailers and others in the food industry, reacting to a draft of the guideline revision, decided it wasn’t going to be helpful.

Two months ago, when asked specifically about salads, the Taxation Office representative replied, “It depends on what you define a salad as. Some may define it as a bowl of lettuce, some may define it as a BBQ chicken shredded up with three grains of rice on it. I'm not trying to be facetious... there [are] a range of products that are very, very different that are marketed as salads." The legislator who asked about the salad guidelines noted, "Adding [the goods and services tax] to fresh salads would hurt household budgets. The chief medical officer advised that it could also discourage people from making healthy choices and see more Australians eating junk food." Surely a salad isn’t “anything that isn’t junk food.”

The arithmetic is easy. The definition is challenging. What is a salad? Must lettuce or spinach be in the mixture of foods in order for it to be a salad? Is egg salad a salad? Is chicken salad a salad? Is taco salad a salad? Is fruit salad a salad? If the exemption for salads is designed to promote healthy nutrition, what is the response to those who tag egg salad, for example, as unhealthy because of the cholesterol in eggs and the fat in mayonnaise? If putting the word “salad” into the name of what is being sold, then what of candy salad? Yes, there is such a thing, something I discovered while writing this commentary and deciding, on a whim, to google the phrase “candy salad.”

On my first day as a law student, the professor started my first class by walking into the room and asking, “So, what is property?” It is tempting to walk into a basic tax class and ask, “So, what is a salad?” Though I would not do that, I can imagine the reaction would be fun, especially when the phrase “candy salad” was, sorry, tossed into the discussion.

Readers of this blog are familiar with my claim that it is cheaper, in the long run, to increase taxes and user fees dedicated to highway, bridge, and tunnel maintenance and repairs than to wait until the invoice for new tires, repaired suspensions, and refurbished wheels arrives. I have written about the challenges posed by this particular American short-sightedness in posts such as Potholes: Poster Children for Why Tax Increases Save Money, When Tax Cuts Matter More Than Pothole Repair, Funding Pothole Repairs With Spending Cuts? Really?, Battle Over Highway Infrastructure Taxation Heats Up in Alabama, When Tax and User Fee Increases Cost Less Than Tax Cuts and Tax Freezes, and Road Taxes and User Fees as a Form of Pothole Insurance .

Recently, according to this report, legislators in Arkansas have been grappling with the challenges posed by highways and bridges that are disintegrating. Attempts to raise revenue to pay for vitally needed work have repeatedly failed. Two years ago, a legislator proposed moving money from the general fund into the transportation fund, but objections persuaded him to withdraw his proposal. Recently, the same legislator proposed a referendum asking Arkansans to approve a bond issue, the proceeds of which would be used to fix state transportation infrastructure, and which would be paid through a 6.5 percent sales tax on wholesale fuel sales. The legislature rejected the idea.

Several legislators focused on what they hear from constituents. People complain about the deteriorating roads and bridges, but objected to transferring money from the general fund because that would mean cuts in other programs. People reject the idea of new or increased taxes, but then complain that the condition of the roads continues to worsen. Advocates of road repair are considering the use of an initiative, which would put the question on next year’s ballot if sufficient signatures are obtained.

At the state’s Economic Development Commission’s Arkansas Rural Development Conference, two legislators opined that nothing would be done to address the problem until bridges collapsed and major accidents occurred. As one put it, “When we start having bridges collapse and people killed, then we’ll start funding highways.” It’s so sad, and so indicative of what has happened to this nation, that death has become the price for obviously necessary taxes and user fees.

It is no secret that I object to the use of public funds to support private enterprises that are not in need of financial assistance. For some reason, some of the strongest opponents of “taking from the rich to pay the poor” seem to have no problem with “taking from the poor to pay the rich.” One area in which this feeding at the public money spigot has run amok is the grabbing of tax dollars by wealthy professional sports franchise owners. I have written about this problem in more than a few posts, including Tax Revenues and D.C. Baseball, Taking Tax Money Without Giving Back: Another Reality, Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, and, most recently in connection with Cleveland’s professional teams, Running Out of Sin Taxes.

Now comes news that Detroit’s professional sports teams are getting in on the action. Actually, this has been underway for quite some time but it’s not a story that has had my attention until now. The Detroit Pistons want to relocate from suburban Auburn Hills to downtown Detroit, after having done that move in reverse several decades ago. The Pistons are in line for an additional $36 million in tax incentives from the Michigan Strategic Fund, which is part of the public-private Michigan Economic Development Corporation. Three years ago, the Fund dished out $250 million in tax-exempt bonds to construct a new arena for the Detroit Red Wings. Now the Fund wants to issue more bonds to help the Pistons move, which means that roughly 40 percent of the private development will be financed by taxpayers who have no say in the matter.

So who pays back the bonds? Will the principal and interest be paid from revenues collected by the professional teams? No. Will the principal and interest be paid by the wealthy owners of the teams? No. Will the principal and interest be paid from sales and other tax revenues imposed on activities in the arena and associated development? No. So who pays back the bonds? The bonds that have already been issued are being repaid with school property taxes paid on properties located in downtown Detroit. And they wonder why Detroit is such a mess. They wonder why education opportunities for Detroit children and youth are so inadequate. The next time I see one of those internet memes that attribute Detroit’s downfall to tax and spending policies designed to help those who are less fortunate, I will share with them this post about the tax and spending policies that divert funds intended to educate the children and youth of Detroit to those already more than fortunate. Sadly, this is just a tiny slice of a growing movement to shift what little is owned by the poor into the coffers of those who fortunes far exceed their needs. Of course policies to assist the poor aren’t going to work if they are constantly being undermined. Put another way, “tax and spend” seems perfectly fine when it means “tax the poor and spend on the wealthy.”

As I wrote in If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars:

The wealthy continue to line up for financial assistance. A profitable business conjures up arguments for why the public should contribute to an increase in its profits. The sales pitch is a claim that the business benefits the public at large. Omitted from the discussion is the admission that if and when the public benefits the public will patronize the business and generate revenue for the business through cumulative individual decisions rather than through political shenanigans that force all taxpayers to underwrite a business than a majority do not want to support.

Taxing and spending for the benefit of the wealthy at the expense of the poor must end.

In Pennsylvania, state law prohibits localities and school districts from subjecting billboards, wind turbines, amusement park rides, and silos used to store animal feed to the real property tax. Why these structures and not, for example, buildings and cell phone towers? It’s all about the lobbying.

Local tax officials are not fans of these exemptions. According to this report, the attorney for two school districts tried to work around the statutory restriction by crafting a “creative” approach. The attempt makes sense, because billboards populate both districts. The argument made by the attorney rested on the idea that the existence of the billboards increased the value of the land on which they sit, and because the land is not exempt from the property tax, the revenue that could have been generated by taxing the value of the billboards can be recovered by taxing the increase in the value of the land caused by the existence of the billboards. The owners of the billboard companies objected, and after the Board of Assessment and Appeals agreed with them, the school districts appealed to the Court of Common Pleas. They lost.

There is no question, as one of the attorneys for the billboard companies pointed out, that the school districts were “trying to circumvent clear legislative statutory language.” The attorney for the school district defended his argument by explaining, “If I own a piece of ground and I’m renting it to a billboard company for $2,000 a month, why shouldn’t I have to pay tax on the ground as if I can rent it for $2,000 a month?” There are two flaws in this rhetorical question. First, in addition to income, replacement cost and comparable sales are factors in determining the value of property. Second, the presence of the billboard increases the value of the property, but that doesn’t mean that it increases the value of the land. For example, assume that the small plot of land is worth $10,000. Assume that a billboard is constructed and that it has a value of $40,000. The property is now worth $50,000. The school district’s “creative” argument is that the land is now worth more than $10,000. But because the property continues to be worth $50,000, assigning a value of, for example, $30,000, to the land means that the billboard is being treated as worth $20,000. I would not use the word “creative” for this outcome. If the billboard is removed, the land continues to be the same $10,000 piece of land that it was before the billboard was installed (assuming that the land was not otherwise damaged or improved, which is most likely the case). In other words, the issue is a matter of determining how much of the property value to allocate to the land. The land’s value does not change when an improvement is made. What changes is the value of the property. Those are two different things.

It is understandable that school districts populated with billboards rather than cell towers are “envious” of nearby districts that face no restriction against taxing the value of the cell towers. Whether billboards or cell towers proliferate in a district is a matter of geography, terrain, highway location, and other factors. Some of these are within the control of the district. Most aren’t. Does it make sense to treat billboards and wind turbines differently from cell towers? The response from the legislative record, according to one state legislator, is that “cellphone towers were taxed because they are permanent structures, whereas billboards can be taken apart, moved from location to location.” What nonsense. Cellphone towers can be taken apart and moved, probably more easily than taking apart and moving a wind turbine. It’s all about the lobbying. Now, if someone could engineer and end to private interests paying money to supersede public worth, that would be creative.

Last week, a reader asked me if I was aware of a tax proposal in Oregon. I was not. The tax, proposed in Oregon House Bill 2877 would have been imposed on motor vehicles 20 years old or older, at the rate of $1,000 every five years. Called an “impact tax,” nothing in the bill described with any specificity what sort of impact was being taxed, though a good guess would be the presumed impact on the environment of older vehicles lacking the most up-to-date clean emissions technology. An exception was provided for vehicles registered as antique vehicles. Revenue from the tax would have been used for highway and bridge repairs.

I replied to my reader, explaining that I had not been aware of the proposed tax. I suggested that the only three groups of people with old cars are collectors of classic cars and trucks, people too poor to buy new cars, and people who use their cars infrequently. Because the proposal exempts the first group, the tax would be imposed on poor people and people, usually older and often poor people, who do not have or no longer have jobs and thus drive very little.

I suggested that if the goal of the tax is to remove vehicles with less than adequate emissions systems from the roads, that can be done by imposing a tax or fee on specific vehicles, namely, those that fail annual inspections requiring compliance with specified emissions standards. Surely these older vehicles do not cause more wear and tear on highways than newer vehicles. I also suggested that if the goal of the statute is to remove older vehicles from the highways on the premise that older cars are more dangerous because they’re more worn out, then the solution is to deal with that issue through annual state safety inspections of vehicles. If a car is well maintained, it’s much less of a safety threat. Most accidents are caused by human errors, and not vehicle failures. I noted that sometimes people hold onto vehicles in the hope that they will eventually become classics. In other words, some older vehicles are held as investments. I know several people who have done, and are doing, just that. Finally, I wondered if the automobile manufacturers were involved in this legislation, because certainly the prospect of paying this tax might tip the “hold or replace” choice in favor of a new vehicle purchase.

Several hours later, the same reader shared with me the news that the legislature would not consider the bill. To my surprise, the writer of the article suggested that, “The theory behind the bill apparently was that these older vehicles inflict a disproportionate amount of wear and tear on the state's transportation infrastructure.” That was the very last thing I thought had motivated the author of the proposed legislation. Really? An older 3,000 pound vehicle causes more wear and tear than a brand-new 5,500 pound large SUV? Really? Seriously, if wear and tear is a concern, then taxes and fees based on mileage and weight would be in order. Now, doesn’t that idea seem familiar to readers of this blog? Of course.

The writer of the article also pointed out that farm vehicles would be within the scope of the proposed tax. The writer informed us that many farm vehicles, at least in Oregon, are in good working order but are more than 20 years old. I had not realized that. Considering that farm vehicles are on public roads for a very tiny fraction of the time they are on private farm property, the proposed “old vehicle” tax makes even less sense. The writer also made note of the same concerns I expressed, specifically, the adverse impact of the proposed tax on Oregonians whose economic struggles cause them to drive older, less expensive vehicles.

The writer of the article warned that “the ease by which legislative proposals thought dead can be resurrected as [a legislative] session wears on” should be remembered. Most horror movies make use of the plot development in which monsters thought dead turn out to be quite alive. Let’s hope this silly tax idea stays buried. There are much better alternatives. If the legislators in Oregon need some advice, I’m just a phone call or email away.

A few months ago, in If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, I criticized a major league soccer ownership group for trying to get taxpayers in St. Louis and in Missouri to foot part of the bill for the construction of a soccer stadium. This was not the first time I pointed out the greed of multimillionaire and billionaire professional sports franchise owners trying to get other people to provide free funding for their assets. Aside from the foolishness of asking the poor and middle class to funnel even more money into the pockets of the wealthy, these deals trigger a stream of tax funding requests to keep these arenas and playing fields in good condition.

Cuyahoga County is now dealing with the consequences of having agreed to funnel tax dollars into Cleveland’s professional sports teams. According to this report, the teams want repairs and major renovations to Progressive Field and Quicken Loans Arena. County officials explained, however, that they cannot sell bonds to provide financing because sin tax revenue, which secures these sorts of bonds, is insufficient to meet the demands of the teams. What sin tax money is available under the current arrangement is far short of what the teams want. A contributing factor is the use of a sizeable portion of sin tax revenue to service interest and principal payments on bonds issued last time the teams came begging at the public tax well. The well has run dry.

The Cleveland Indians “want $8.5 million to replace all the seats.” The Cleveland Cavaliers “want $17.7 million to replace the heating, cooling and ventilation systems.” The lists of requests from the three teams are long, and can be found in the report cited in the previous paragraph. The lists are long, and the dollar amounts attached to the desired items are far from trivial.

The solution is simple. The teams can pay for their wish-list items by using their own funds. If they don’t have enough funds, they can raise ticket prices and negotiate better television deals. They can reduce player salaries, which are absurdly high, orders of magnitude beyond what is earned by the working folks who not only shell out dollars for tickets and as part of the purchase price of products advertised on sports programs to fund those television contracts, but who also are paying taxes. If none of that works, then shut down the team. That’s what business owners do when their revenues dry up or expenses soar, particularly when technology and culture change. The reality is that the owners don’t want to dip into their multi-million dollar and billion dollar reserves. To paraphrase what I said a few months ago, if you want to upgrade your professional sports team or the facilities in which it plays and practices, pay for it yourselves, and don’t go grabbing tax dollars from people who are orders of magnitude less economically situated than you are.

Sometimes people decide to do something nice, in a monetary way, and then discover that there is no tax benefit for doing so. If there is a tax benefit, it exists for the recipient of the gesture. For example, a person who makes a gift to a friend or relative is not permitted to deduct the gift for income tax purposes, and thus does not obtain any tax benefit. The donee, however, escapes paying tax on the increase in economic wealth because section 102 excludes gifts from gross income. Those are basic principles of federal income taxation with which any diligent student in the introductory federal income tax course is familiar.

What happens, however, when someone makes a monetary transfer that is difficult for many people to view as a gift, but that is not a transfer the person is obligated to make? An excellent example is one that recently popped up again, and was the subject of the Tax Court’s decision in Bulakites v. Comr., T.C. Memo 2017-79. The taxpayer and his wife legally separated and, a year later, divorced. Under the separation agreement, the taxpayer was required to pay his former wife $2,000 per month for spousal support until their home was sold. At that point payments would increase to $8,000 per month. Because the real estate market was moribund, the house stayed on the market, and eventually its value dropped to less than the mortgage balance. The taxpayer testified that in order to do “the right thing,” he agreed with his former wife to increase his payments to $5,000 per month. They did not amend the written separation agreement. Though the taxpayer didn’t always send $5,000 each month to his former wife, he did send her more than the required $2,000 per month.

The taxpayer deducted as alimony the total amount he paid his former wife. The IRS disallowed the portion of the deduction that exceeded $24,000. The dispute ended up in the Tax Court, which held in favor of the IRS. The court pointed out that in order to be deductible, alimony must be paid under a divorce or separation agreement, which is defined by the Internal Revenue Code as a decree of divorce or separate maintenance or a written instrument incident to that decree, a written separation agreement, or a decree requiring a spouse to make the payments. An oral modification does not qualify because it is oral and not written. The kindness of the taxpayer had no value for tax purposes.

The only silver lining in this unhappy outcome for the taxpayer is that his former wife is not required to pay tax on the additional amounts the taxpayer paid to her. The court did not mention this aspect of the arrangement, because the former wife was not a party to the litigation. It is unknown whether she reported the entire amount she received or only $24,000, though my guess is that she reported only the $24,000. If she did report more, and happens to learn of her former husband’s tax outcome, she should move quickly to amend her return.

The additional payments are very much like a gift, and the tax consequences match those applicable to gifts, but it would be a bit awkward to refer to the payments as gifts. It is unlikely that the taxpayer was acting with “detached and disinterested generosity,” the benchmark usually applied to the determination that a transfer constitutes a gift. Though he was trying to do “the right thing,” it would not be surprising to learn that he was also concerned about his former wife challenging him with respect to the delay in the sale of the property and that he concluded making additional payments would buy some time.

It is unclear why the taxpayer and his former wife did not execute a written amendment to their separation agreement. Perhaps she did not want to report additional income. But what is more likely is that the two of them simply didn’t see the need to write anything down. The failure to put oral agreements into writing has been the pitfall of more litigants than one can easily count.

It isn’t all that terrible, I suppose, that the tax law doesn’t always award someone for being nice, despite the existence of the charitable contribution deduction. One hopes that people would be nice for reasons other than a tax incentive to do so. The monetization of kindness is an unkind quality.

If my blog post from last Friday, Taxes, Strip Clubs, and Creativity had been a podcast, I’d now be saying, “I had to go and open my big mouth.” But instead, I’ll simply settle for mentioning my irrepressible keyboard.

On Friday, I commented on a story shared with me by a reader, in which a strip club in New York unsuccessfully, at least so far, tried to avoid the sales tax on revenue collected from customers, by arguing that its dancers were therapists, bringing its services within the therapy exception to the sales tax. I noted that in earlier posts I had described the partially successful attempt by another New York strip club to escape the sales tax by branding its services as “a dramatic or musical arts performance.” I observed that the lawyers representing these clubs were quite creative, and suggested that perhaps they would work their way through the sales tax exemption list. I asked, “How long until the strip clubs argue that they are offering educational services?”

About an hour after the post appeared, the same reader pointed me to another story. Granted, it wasn’t an attempt to escape the sales tax, but it did involve taxes, education, and strip clubs. I suppose I would have found this story had I pursued a google search for those terms. As restrained as I tried to be, sometimes the inevitable is inevitable. According to this story from seven years ago, “Lap dances just got more educational.” According to the report, dancers from yet another New York strip club rallied at the courthouse in support of a pole tax to fund local schools. The club intended to start charging an entry fee which it planned to send to the state revenue department. According to one of the dancers, “We just want to give back to our communities.” Incidentally, the dancers were supporting a pole tax, not a poll tax, which is an entirely different sort of tax, one that when applied to voting has been outlawed, though I am confident there are some people who would dance with delight if it were revived, though it would take an amendment to the Constitution to do that.

The nation’s highways, bridges, and tunnels are in need of major repairs and reconstruction. The sticking point, as is the case with just about everything that the nation and its people need, is funding. When it comes to highways, my preferred method of funding is the mileage-based road fee. I have written about the mileage-based road fee many times, beginning with Tax Meets Technology on the Road, and continuing through Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, and If Users Don’t Pay, Who Should?.

Now comes some good news and bad news. According to this report, South Carolina has increased its state gas tax to pay for badly needed road repairs. That’s the good news. The bad news is that the enactment required the state senate to override the veto of a governor who takes the position that the federal government should pay for the repairs, along with proceeds from the issuance of bonds. Why is that bad news?

There are three reasons that the governor’s position is bad news. First, the federal government is unlikely to hand out the amount of money that is required, and to do so must either increase taxes – something that South Carolina’s governor and his political party oppose as a matter of principle – or increase the federal budget deficit – something that the South Carolina’s political party claims to oppose though it certainly is willing to overlook its principles when it comes to political expediency. Second, using state bonds to finance road repairs increases the cost of the repairs because not only must the bonds be repaid, but interest also must be paid. Third, the repayment of state bonds would come out of the general fund, which means all taxpayers would be bearing the cost of something that benefits motorists. As I stated in If Users Don’t Pay, Who Should?, “I support the mileage-based road fee because I think that, where possible, users of services should pay for those services, and those who, for good reason, are unable to pay for essential services should receive assistance in receiving those services.” What South Carolina has done, though not as optimal as a mileage-based road fee, is much better than doing nothing. In the long run, the tax increase will cost motorists much less than the cost of vehicle repairs, injuries, and deaths caused by highway infrastructure neglect.

If asked which industries are most likely to get caught up in tax disputes, it would be a safe guess that the folks operating strip clubs would be on the list. Almost four years ago, in Lap Dance Tax?, I first wrote about the attempt by Philadelphia to impose its amusement tax on fees paid for lap dances. I continued the saga in Tax Review Board Strips City’s Lap Dance Tax Attempt, Philadelphia Lap Dance Tax Effort Bumped Up to Court, Which Grinds It Down, and The Lap Dance Tax Dance Marathon. Ultimately, the city of Philadelphia lost. Almost two years ago, in The Return of the Lap Dance Tax Challenge, I described a New York decision in which a judge held that New York’s sales tax did not apply to amounts collected from customers to observe pole dancing because pole dancing fit within the sales tax exception for “a dramatic or musical arts performance,” but did apply to amounts collected for lap dances because laps dances lack “artistic merit.” I explained that I would have struggled with the case because “as others can attest, I don’t quite understand art.” I elaborated by noting, “I don’t understand why something is or is not art, and have concluded, perhaps erroneously, that I some sense everything is art.”

A few days ago, a reader turned my attention to a story about another New York strip club that unsuccessfully offered another attempt to avoid sales taxes. The club argued that its dancers were providing therapy to its customers, and thus the amounts charged fit within the sales tax exception that applies to amounts paid for massage therapy or sex therapy. The state, not surprisingly, argued that the services constituted entertainment and thus the amounts paid for the services were equivalent to an admission charge and thus subject to the sales tax. The court rejected the club’s position, and held that the amounts in question were subject to the sales tax.

Perhaps I understand therapy more than I understand art, but that’s not a proposition I can defend with any confidence. It seems to me that, in some way, all sorts of things can be therapeutic. The sales tax applies to movie ticket sales, yet watching a movie is, for many people, therapeutic. The same could be said of most forms of entertainment to which the sales tax applies. In states where the sales tax applies to food, clothing, and shoes, is there not an argument that food, and shopping for clothes and shoes, is something that many people find therapeutic? For those who think tax is simply a matter of numbers that a robot can handle, here is a question that doesn’t involve mathematics: where does one draw the line between activities that are therapeutic and those that are not?

The attorneys who argue that strip club activities constitute art and therapy surely are creative. I can imagine that they have been reading through the extensive list of sales tax exceptions, and pondering how, if at all, their clients’ businesses fit within any of those exceptions. What’s next? In New York, sales of educational services are exempt. How long until the strip clubs argue that they are offering educational services?

It can boggle one’s mind. A member of Congress has proposed legislation, the “Lifetime GI Bill Act,” which, among other things, would require members of the military to pay $100 per month for the right to access education benefits after separating from the service. As described in a variety of articles, including this one from the Military Times, the idea faces strong opposition. The Commander of the Veterans of Foreign Wars called it a “new tax on troops.” Is it a tax? Perhaps. Technically, it is a fee. It is a proposal to compel veterans to pay for a portion of the cost of the education that they are provided as part of the compensation earned for serving in the Armed Forces. The amount in question is a significant amount. Though for the wealthy, $100 per month is at best petty cash, for an entry-level member of the service earning between $17,000 and $20,000 per year, it cuts deep into take-home pay. Though one opponent referred to the proposal as another example of Congress “nickeling and diming America’s service members and veterans,” it’s much more than a nickel and dime imposition. It’s a big paper currency from the wallet deal.

The proposed fee would generate $3.1 billion in revenue over ten years. The current cost of providing education benefits to veterans is $10 billion per year. So what’s the point of charging the fee? It’s simply a way to raise revenue while holding firm on the “tax cut” mantra that afflicts the nation.

Seven years ago, the member of Congress who offered this proposal explained, “Allowing our workers and families to keep more of what they earn and save - while giving entrepreneurs and smalls businesses incentives to grow - are the best ways to stimulate the economy.” If he truly believes this, why look for revenue among some of the least well-compensated members of society?

Oddly, proponents of the plan claim that by charging members of the military for benefits that have been, and should be, part of their compensation package would strengthen those benefits against future attempts to curtail the benefits. That is nonsense. Nor is it clear that this amount of revenue is require to fund the smattering of miniscule benefit adjustments also provided in the draft legislation. What the plan does accomplish is to make it easy to shift increasing amounts of the benefit’s cost to active and retire military members, by raising the monthly fee from $100 to whatever suits the members of Congress who want to raise revenue to offset deficits enlarged by cutting taxes for people who take home more in a day than servicemen and servicewomen take home in a month or a calendar quarter.

Though I’m not into reality television shows, I do enjoy watching television court shows. They are, in many ways, a form of reality television, so perhaps my rejection of reality television isn’t so much a rejection of reality television per se, but a rejection of what, to me, is boring reality television. The court shows are anything but boring. They’ve provided me with a long parade of opportunities to comment, when tax issues pop up, including posts such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, and Judge Judy Almost Eliminates the National Debt.

Several days ago Judge Judy heard a case involving a plaintiff and defendant who were in a relationship, had a child, and when the child was about a year old, decided to go on vacation to Italy. The plaintiff made deposits, and the two parties purchased trip cancellation insurance. The plaintiff made additional payments as the date of the vacation approached. Unfortunately, the child became ill, and the parties cancelled the vacation. The trip insurance company paid each party $1,100. The plaintiff asked the defendant to reimburse her for her outlays, but the defendant refused. So the plaintiff sued.

Judge Judy asked the defendant why he did not pay the plaintiff the $1,100, considering he had not made any payments toward the cost of the vacation. He explained that he let the plaintiff drive a car he owned. Judge Judy brushed that aside after a brief exchange, and then asked the defendant if he was paying child support. He responded, “I have an order.” Judge Judy interrupted, and said, “I didn’t ask you if you had an order. I asked if you paid child support.” The defendant replied, “Yes.” Judge Judy asked him, “How much child support did you pay last week?” The defendant answered, “Nothing.” Judge Judy asked, “How much did you pay last month?” His reply again was, “Nothing.” He added that he had just gotten his job back two weeks ago. Earlier in the trial he had explained he had worked in his brother’s locksmith business, and was paid in cash, but was laid off because there wasn’t enough work, but was rehired two weeks before the trial. Judge Judy asked, “When you were paid for these two weeks, how much child support did you pay?” His response, “Nothing.”

Judge Judy turned to the plaintiff and advised her, “Contact the IRS. Report his brother for not withholding taxes. That will make it possible for you to go to family court and get his [the defendant’s] wages garnished.” Perhaps because the plaintiff did not respond immediately with an indication of understanding, the judge repeated, “Contact the I [pause] R [pause] S.” Judge Judy announced that judgment would be in favor of the plaintiff for the $1,100. Judge Judy then looked at the defendant and again said, “IRS,” pausing between each letter and speaking more loudly. Presumably Judge Judy figured that the letters “IRS” would give the defendant incentive to meet his obligations.

It’s too bad that the show doesn’t disclose the results of any follow-up information on the cases. Perhaps the producers don’t do follow-ups, though other shows do, or perhaps they do but choose not to publicize the outcomes. I’m curious. I wonder if the plaintiff contacted the IRS. I wonder if the defendant’s wages were garnished.

In a recent commentary, A. Barton Hinkle claims that “Tax cuts won't cost you anything, unless you're Uncle Sam.” He argues that “taxation entails taking the earnings of some people for the benefit of others,” though conceding “We need some level of taxation; government can’t function without it,” but implying through his statement, “But the level should be kept as low as possible,” that the bulk of tax revenues are not necessary for government to function. He begins his commentary with an attempt to draw an analogy with a retail store sale, in which most people would be happy if they discovered that they could purchase something during an “Everything Now 20 Percent Off” sale. He argues that only government suffers from tax cuts, and likens taxation to strangers trying to spend a person’s paycheck.

Hinkle’s commentary is flawed, because it rests on bad theory and woeful practical application. He overlooks some important concepts.

First, his claim that “tax cuts won’t cost you anything” ignores the consequences of the last two rounds of trickle-down supply-side tax cut foolishness. Reagan, at least, recognized the error and persuaded Congress to reverse some of the cuts before the adverse economic consequences produced the same sort of disaster that the Bush tax cuts generated. Rather than creating jobs – because jobs aren’t created unless there is demand and demand isn’t created unless wealth shifts to the consumer rather than the investor – those tax cuts found a home in gimmicks such as bad loans called by different names, hiding places such as offshore tax havens, and secret organizations now well funded to control politics and voting. Indeed, the proposed Trump tax cuts will cost people even more.

Second, his analogy to the retail store sale fails because it compares apples to oranges. Too often, a “sale” is nothing more than a pretext for lowering an artificially high retail price to the actual desired price. Anyone familiar with shopping for automobiles, as well as other products, is well aware that “manufacturer’s suggested retail price” is nothing more than a device that permits sales personnel to earn points by offering generous “discounts.” But even if the sale is a genuine sale and discount, the analogy should be as follows. By cutting profits, or even incurring a loss, the seller runs the risk of going out of business. If that happens, the buyer has little or no recourse if the purchased product is defective and needs to be replaced, or for some reason needs to be returned for a refund, or needs to be serviced when it fails in some manner. In the long-run – a perspective that most tax-cut enthusiasts, the anti-tax crowd, and the anti-government activists are unable or unwilling to consider – it doesn’t help the community of which the purchaser is a part for the retailer to cut revenues.

Third, when Hinkle argues that “taxation entails taking the earnings of some people for the benefit of others,” he projects a one-sided, self-focused analysis of what taxation is and what taxation does. Taxation benefits a taxpayer both directly and indirectly. Direct taxation is easy to understand. The person who pays a gasoline tax used to fix highways benefits from the availability of a road on which to drive. The person who pays a local property tax used to hire police officers benefits from the protection and assistance provided by the local police department. The person who pays an income tax, part of which is used to fund national defense, disease detection and prevention, weather warnings, clean air, and similar benefits is getting something in return. Indirect taxation is a bit more difficult to understand. Taxes paid for the education of others provides the long-term benefit of a citizenry sufficiently capable of contributing to a safe and improved nation. Taxes paid for the medical care of others provides the benefit of preventing, detecting, and suppressing epidemics before they run wild through the taxpayer’s community.

Fourth, Hinkle presumes that the proposed tax cuts will “save you money” but he fails to acknowledge that for many people, the proposed “tax cuts” will increase their federal income tax liability or have no effect. The only people saving any money beyond a few pennies a day are the wealthy, whose addiction to money will not be appeased even when there is no more money for them to grab.

Fifth, by arguing that “the only entity for whom a tax cut could be considered a cost is the federal government,” Hinkle treats “government” as something separate and apart from taxpayers. Yet every government, at least in the democracy that the United States has been, is not a separate thing but a collective representation of everyone within the jurisdiction of that government. If the federal government incurs a larger budget deficit, which it will if the proposed Trump cuts are enacted, the economic burden of those deficits is not borne by some “entity over there” but by all Americans.

Sixth, his analogy to the stranger trying to dictate how someone’s paycheck is spent is yet again another apples to oranges comparison. The better analogy would be the utility company that says, “We want part of your pay to compensate us for the electricity we provided to you.” That’s what happens when taxes are imposed for goods and services provided directly and indirectly. That paycheck is not earned in a vacuum, but is made possible by the social and economic structure safeguarded under the collective protection of government.

In all fairness, Hinkle does make several good points about why tax and economic policy is a mess. He notes that “Republicans don’t care much about deficits unless Democrats are in charge, and vice versa,” as an example of how “partisan hypocrisy enters the equation.” Indeed, the fact that politicians have more loyalty to party and the secret organizations that fund parties and politicians than they do to country and the collective citizenry called government is at the root of current political discord and dysfunction.

Hinkle notes that there is a “high cost of government.” Though the degree to which the cost of government is high can be debated, there is no question that government can reduce costs without reducing benefits. Yet the places in government accused of being inefficient turn out to be far less wasteful than alleged, and the places where waste flows like a river remain sacrosanct because of the vested specific interests of individual elected politicians.

A democracy cannot survive extensive wealth and income inequality. The tool for fighting that inequality is taxation. Though some who are wealthy understand the point, most do not comprehend that once the oligarchy owns pretty much everything, the peasants will have little or nothing to lose. There are lessons to be learned from history, though we are now becoming aware of how woefully ignorant elected politicians are when it comes to history. When matters here and now reach the point they have in the past, perhaps then the value and cost of taxes will be appreciated. But I fear that it will then be too late.

A recent Tax Court case, Wainwright v. Comr.. T.C. Memo 2017-70, provides a lesson in how not to claim a residential energy credit. The taxpayer and his friend worked and lived together. They lived in a home that the friend had purchased before she and the taxpayer met. While they were living together in the home, they refinanced the mortgage as co-borrowers. During 2010 and 2011, the taxpayer lived in the home, paid the mortgage payments, and maintained the property. On his 2010 federal income tax return the taxpayer claimed, among other credits and deductions, a $1,500 residential energy credit arising from the installation of energy-efficient windows and “other energy saving assets” in the property. When the IRS issued a notice of deficiency, one of the items it disallowed was the residential energy credit.

To substantiate the credit, the taxpayer provided an invoice from a local window company, issued to the taxpayer’s friend who also lived in the home. The invoice showed a “contract amount” of $11, 934, a “deposit” of $3,580, and “payments” of $8,354. It showed an “install date” of March 5, 2011.

The Tax Court found that the invoice was insufficient proof of the claimed credit, pointing to several shortcomings. First, it did not describe in any detail what sort of windows were installed. Second, it did not specify the property on which they were installed. Third, the taxpayer’s name was not on the invoice. Fourth, the invoice did not disclose who paid the deposit or who paid the payments. Fifth, and this is the clincher, the invoice stated that the windows were installed in 2011, but the taxpayer claimed the credit on his 2010 federal income tax return.

From time to time, I share my thoughts about the relationship between, on the one hand, road taxes and user fees, and on the other hand, the cost of death, injury, and property damage caused by potholes. I’ve explained the economic sense of collecting user fees to repair highways in posts such as Potholes: Poster Children for Why Tax Increases Save Money, When Tax Cuts Matter More Than Pothole Repair, Funding Pothole Repairs With Spending Cuts? Really?, Battle Over Highway Infrastructure Taxation Heats Up in Alabama, and When Tax and User Fee Increases Cost Less Than Tax Cuts and Tax Freezes.

Estimates vary in terms of what a motorist pays for automotive repairs required when someone runs over a pothole. The American Automobile Association uses a $600 figure, as noted in Analyzing Gasoline Tax Increase Impacts. Others suggest it’s twice that amount. It only takes one blown tire and bent tie rod for someone to learn, quickly, how expensive tires, wheels, suspension parts, and labor can be.

In a recent article, Cassie Hepler of phillyrecord.com explains that there are now more than 35,000 potholes in Philadelphia, an increase of more than 20,000 since four years previously. Before 2012, the city filled almost 13,000 potholes each year. It just can’t keep up. Worse, because potholes are more likely to appear when roads get older, the situation is compounded by the city’s inability to repave as many road miles as it needs to do in order to reduce pothole development. For more than ten years, the city has failed to pave the 131 miles that it sets as the goal to stymie pothole increases. In 2013, the city managed to repave all of 22 miles of roads.

The reason for this problem is easy to identify. The city’s highway budget has fallen from an annual average of $25 million to $18 million. The average cost to fill a pothole is $22. The Independent Insurance Agents and Brokers of America organization has calculated that potholes cause $5.4 billion a year in damage, and I don’t think that includes any sort of price for death and personal injury. Spreading the $5.4 billion over all drivers, the organization concluded that the average driver pays $20 a year because of pothole damage. Put another way, every ten years a motorist will be hit with a $200 repair bill. I think those numbers are low. But even using those numbers, does it not make more sense to pay $5 a year to provide enough funds to ensure that all potholes are fixed quickly and to repave roads so that the number of new potholes is reduced? It’s called insurance and it makes sense.

The anti-tax crowd and the anti-government groups argue that no one should be forced to pay taxes to fund roads or to buy insurance. In one sense, if someone wants to live without insurance, so be it, provided the consequences fall only on that person. Someone without health insurance can self-fund their own care, even though 99 percent of those who claim to self-fund their own care lack the financial resources to do so and end up getting free care at emergency rooms. In contrast, the person who resists fees for road repaving and pothole repairs is forcing other people to incur the risk of death and injury because they are compelling people to use roads that are inadequate.

Of course, lurking beneath the surface is the intent of those who want to privatize highways, so that they can charge ten or twenty or fifty times what it would cost if road taxes and user fees were increased. And when the private company fails to deliver, it and its officers and shareholders cannot be voted out of office. Beware of the profiteers taking advantage of the anti-tax and anti-government sentiments. As bad as public government can be at times, privateers are much worse.

A few months ago, in If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, I criticized a major league soccer ownership group for trying to get taxpayers in St. Louis and in Missouri to foot part of the bill for the construction of a soccer stadium. I explained that if the project is a good economic deal, then the owners should be more than happy to invest their own money. I explained that if the only way to make the private sector project economically viable is to grab taxpayer dollars, then the project isn’t worth doing. I pointed out that an attempt by the then St. Louis Rams of the National Football League to persuade taxpayer to fund a new stadium for the Rams had failed. I noted, “Apparently the message, that the taxpayers do not want to finance profitable private sector enterprises, did not get through to everyone.”

Now comes a news report that when the voters in St. Louis went to the polls earlier this month, they rejected one of the two ballot propositions that needed to be approved in order for public financing of the proposed soccer stadium to proceed. The proposition that passed is a half-cent increase in the sales tax. The proposition that failed was an increase in the use tax with the revenue dedicated to the construction of the stadium. The report explains that because the first proposition passed and the second failed, the use tax will increase but the revenue will go into the city’s general fund. Turnout for the vote was higher than expected.

Though this is good news, it’s just one small victory in the effort to put an end to wealthy business owners trying to take even more from the public than already is taken. Almost all taxpayers complain about taxes, their anger is deflected onto the truly needy, that deflection is part of an effort to hide where too many tax dollars go, and now, it appears that taxpayers are figuring out what has been happening. They think to themselves, “Some years ago, I voted for, or didn’t object to, a tax increase to fund a private business or a private business with a very visible public presence, like a professional sports arena. My wages didn’t increase, my unemployed friends continue to be unemployed, city and county services have been reduced, there are more potholes on the roads, and the owners of the businesses siphoning off tax dollars are wealthier than eve. Enough. No more. This time I’m going to vote, and I’m going to push the no button.” Sometimes education is a long, time-consuming process, but hope springs eternal.

There’s a man in Montana who is unhappy that the county treasurer has not cashed the check he wrote in November to pay his property tax bill. After waiting several months for the check to be cashed, Scott Dion, according to this report, retained a lawyer to help sort out the situation. The lawyer notified the treasurer that failure to cash the check violated the First Amendment, and ran afoul of two state laws, one requiring financial institutions to report the deposit of public money, and the other requiring county treasurers to keep a record of tax payments. The lawyer accused the county treasurer of official misconduct and suggested that the treasurer be prosecuted.

According to Dion, he writes something on the memo line of most of his checks. Earlier in 2016, he wrote “bulls—t” on the memo line of a tax payment check. He claims that the county treasurer have never failed to cash his checks in the past, despite whatever he had written.

But perhaps the reason things changed things is what he wrote this time. In the memo line, he wrote, “sexual favors.” Dion’s lawyer thinks that the county treasure was offended and thus decided not to cash the check. My guess is that the county treasurer is playing it safe. For example, according to a FatWallet forum discussion, putting “sexual favors” in the money line is not as unusual as one might expect. Though some bank tellers laugh and deposit the check, in one instance, according to a commenter, a bank teller refused to deposit the check because, he surmised, it was proof of an illegal activity. Perhaps that is why Dion’s check, according to the county treasurer, is in the hands of the county attorney. The county attorney’s only reaction is that there is no current civil or criminal case pending with respect to Dion’s check. But perhaps there will be, in the near future. According to this decade-old news story, Robert Militzer was ordered to appear in court after writing “bulls—t money grab” in the memo line of a check written to pay a $10 parking ticket. He faced thirty days in jail and a $250 contempt of court fine, but I am unable to determine what ended up happening in his case. There is a difference, though, because what Militzer wrote, and what Dion wrote on an earlier check, do not suggest the commission of a crime as does what Dion wrote on the November check

And here many of us thought that the biggest form-of-tax-payment challenge was the use of coins, as I discussed in Does It Make Tax Cents?, It Still Doesn’t Make Tax Cents, and Trying to Make Cents of Two More Coin Payment stories. It remains to be seen what happens with electronic funds transfers. I can hardly wait.

Seventeen months ago, in Taking and Giving Back, I wrote:

It’s a familiar story. A private sector business asks for special tax breaks and taxpayer funding for an enterprise that already is extremely profitable and that will continue to be profitable. The justification is that the business generates economic benefits for the public at large. Some of the most egregious instances of this money grab occur in the professional sports industry. I wrote about this eleven years ago in Tax Revenues and D.C. Baseball, and three years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public.

Though this happens more often than I write about it, from time to time it helps to remind people that “taking” isn’t confined to those who are the objects of the makers’ scorn.

A few days ago, a news report out of Cincinnati explained that that owners of U.S. Bank Arena need to upgrade their building. This development was sparked, apparently, by the ownership group’s successful bid to host the NCAA men’s basketball tournament. The kicker? The bid requires the city of Cincinnati and the county of Hamilton to provide some of the $350 million needed to do the upgrade. How much is desired by the owners has not been revealed by them, nor have they disclosed how much of their own money they plan to spend. Here’s some advice to the owners: Spend $350 million of your own money, or however much it costs to do the renovations. You can make it back through ticket sales, concession sales, parking fees, and television contracts.

Fortunately for the taxpayers of Cincinnati and of Hamilton County, their elected officials, perhaps keenly aware of public sentiment, have expressed deep reluctance about tossing public dollars into the begging baskets of wealthy arena owners. The fact that the city and country already committed nearly $1 billion to the not-so-poor owners of the city’s professional sports teams has something to do with that reluctance. One official explained that the county would be willing to help facilitate zoning and other regulatory issues, but doesn’t have money to dish out to the arena’s owners. Officials doubt the public would be willing to approve another tax or an increase in existing taxes. The city has a budget deficit, and the county expects a revenue decrease because of changes in state laws that reduce the number of items subject to the county sales tax. The city and the county do not want to increase an already sky-high 17.75 percent hotel tax. The owners of the arena don’t have any major sports tenants lined up, nor is it likely they could find one. They claim, however, that they don’t need one because “major concerts and events” could “bring hundreds of millions in dollars in economic activity to the region.” It’s the same old song, and it’s rather out of tune.

If the owners of U.S. Bank Arena cannot make it work using their own money, they can do what every middle-class would-be entrepreneur does when the economics don’t work. They abandon their plans, or close down the enterprise, and find another way to accomplish their goals. The wealthy think that they are entitled to financial contributions from everyone else because their activities allegedly benefit society. So, too, do the activities of the would-be entrepreneurs. If what any of those entrepreneurs, wealthy or middle-class, is doing provides the claimed societal benefits, the enterprise will flourish and will not need public support.

When a reader sent me an email directing my attention to this commentary I knew immediately that it was a foolish proposition that begged for a response. How did I know? The headline told me, “Let’s Make Tax Day a Month Earlier.”

The authors who came up with this idea relied on several general observations about behavior and on several specific bits of empirical evidence. First, they noted that 25 percent of people filing tax returns did so between April 1 and April 22, with 10 percent of taxpayers filing after the deadline. Second, they asked, “So why are people waiting to file?” They suggested several answers. First, those who delay are not expecting a refund. They questioned this explanation because 32 percent of tax refunds are distributed after April 1. Second, they considered the notion that people who wait until the last minute to file taxes don’t like free money, characterized that idea as absurd, and then noted that “this line of thinking is used by many business leaders and product managers. Using employer contributions to employee retirement plans as an example, they pointed to a change in employee retirement plan enrollment options that increased employee participation, and concluded that people have busy and complicated lives, and thus leave for tomorrow tasks that require more time and effort. Third, they pointed to another experiment involving zero-interest loan applications as support for the proposition that deadlines matter, and when a deadline is imposed, participation rates increase. Fourth, they relied on another study to support the claim that shortening a deadline increases participation. Fifth, they concluded that late filing could be eliminated by moving the deadline for filing individual Forms 1040 from April 15 to March 15, because most taxpayers receive their Forms W-2 and 1099 in January or February.

This commentary was published on a Scientific American blog, so I am going to take this suggestion apart using scientific methods. Specifically, I will examine facts and law.

First, anyone who understand tax law knows the answer to “Why are people waiting for file?” The answer is, “It depends.” It depends on the person and the person’s situation. Yes, there are procrastinators, especially those who file after the deadline. They don’t file late because the deadline is April 15 rather than March 15. They file late because they are psychologically insensitive to time. Many people have had the experience of advancing the time for meetings in an effort to get late-comers to show up on time. Yet the late-comers still manage to be late. Most people, however, who file in April do so because they do not yet have the information required to file the return. Though they do get the information in time to avoid filing for an extension of time in which to file, there simply is no way for them to file by March 15. Why? They are waiting for Schedules K-1 from partnerships, LLCs, and S corporations. They are waiting for information from trusts and estates.

Second, although 32 percent of refunds are distributed after April 1, a good-sized chunk of those refunds are generated from returns filed in March. Refund checks aren’t mailed, and direct deposit refunds are not posted, on the day that a return is filed or even on the day it reaches the IRS. Even with a March 15 deadline, refund checks would continue to arrive as late as May.

Third, changing the deadline to March 15 for those folks who have all the information they need by the end of February does nothing for the people who do not. Under this deadline change, there would be a huge increase in the number of taxpayers filing extension of time to file returns.

Fourth, not everyone received all of their Forms 1099 by the end of February? Why? Because Forms 1099 coming from brokerages and mutual funds, for example, cannot be issued until the brokerage or mutual fund receives the information it needs to generate the information on customers’ Forms 1099.

Fifth, changing the deadline to March 15 for those folks who have all the information they need by the end of February would compress tax return preparation into a two-week period at the beginning of March that would swamp tax return preparers. Deadlines need to reflect the amount of time required to perform a task, the amount of material and information that needs to be collected, and the workload on those facing the deadline. There is a huge difference between a theoretical proposition and practical reality.

Sixth, trying to accelerate the receipt of Forms 1099 and Schedules K-1 by accelerating the dates by which those items must be distributed would require, in turn, acceleration of the processes that lead up to the distribution of those items. For example, full implementation of the “Make Tax Day a Month Earlier” proposal would require partnerships to file their returns before they had time to close their books and do the accounting for the calendar year that just closed. I’m confident brokerages would agree that accelerating the due dates for Forms 1099 would require them to undertake tasks that would not only be burdensome but downright impossible.

Seventh, anyone who has the required information for their tax return and who wants to file early can do so under current law. If people want to wait, so be it. It’s no loss to the rest of us. In fact, it provides the rest of us another month of interest-free use of the money that does not get sent as a refund until April or May. Advancing the deadline will not reduce the number of people who procrastinate because they are oblivious to calendars and clocks. It will, however, require people to invest time and effort in filing extensions of time to file.

Eight, the only reason this “Make Tax Day a Month Earlier” proposal doesn’t win the prize for being the most impractical tax filing deadline change idea is that another one, made years ago, continues to be absolutely mind-boggling. More than thirty years ago, Representative George Gekas proposed requiring taxpayers to file their tax returns during the month in which their birthdays occurred. He explained that he was trying to spread IRS processing work over the year, and defended the birthday concept because it give people an easy way to remember when their tax returns were due. To avoid the absurdity of requiring January babies to file by January 31, he conceded that people born during the first four months of the year would have an April 15 deadline. So much for an easy way to remember when tax returns would be due. The IRS informed Gekas that it has already surveyed taxpayers, tax return preparers, and IRS agents on the question of staggered filing schedules, and the idea had failed miserably. The adverse collateral consequences were another problem, including disruption of training and hiring, and the financial cost of keeping seasonal employees on a full-year basis. Though Gekas claimed to have support for his idea in the House Ways and Means Committee, it went nowhere. And that is where the “Make Tax Day a Month Earlier” proposal will go, unless the federal tax system is radically changed in ways that eliminate taxes.