MauledAgain

In his March 7, 2018, Institute for Policy Innovation commentary, Whose Crumbs?, Tom Giovanetti criticized Democrat Minority Leader Nancy Pelosi for referring to the recent spate of employee bonuses as “crumbs.” Two responses are in order.

First, though I am no fan of Nancy Pelosi, fairness dictates that she not be accused of, nor credited with, originating the use of “crumbs” to describe these mere pittances of bonuses. Giovanetti notes that she used the term on January 11, 2018, and then again on January 25. My guess is that she also used the term at other times after January 11, but Giovanetti did not need to identify every instance to make his point. My point, however, is that credit or condemnation for using the term belongs to me. On December 25, 2017, in Taxmas?, I referred to the impact of the 2017 tax legislation on the average American as “crumbs.” On December 29, in Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, I predicted that “when the smoke clears and the mirrors are removed, corporate cash reserves will grow, some employees at a handful of companies will get a few crumbs, and others, perhaps many others, will lose their jobs.” On January 1, 2018, in Getting Tax Cut Benefits to Those Who Need Economic Relief: A Drop in the Bucket But Never a Flood, I criticized what the recipients of the tax cuts were doing by asking, “Imagine if corporations and businesses were required to use their tax cuts to reduce the prices of their goods and services rather than using them to engage in mergers, buy back stock, increase dividends, or toss bonus crumbs to some employees while axing thousands of jobs.” Weeks before Pelosi shared her description of the meager bonus payments being dished out to a handful of employees, I used a very appropriate word to describe what was about to happen, and has been happening.

Second, Giovanetti’s criticism of Pelosi’s use of the word “crumb” to describe what has happened is seriously flawed. I respond because criticizing her use, or anyone’s use, of the word is no less a criticism of my use of the word. Giovanetti claims that Pelosi is out of touch with the average American family. Maybe she is, maybe she’s not, but I’m not. I’ve spent my entire life in touch with people from average and not-so-average backgrounds, with the wealthy, the poor, and those in-between. So how is the average American family responding to these tax crumbs? The answer can be found in Michael Tackett’s Blue-Collar Trump Voters Are Shrugging at Their Tax Cuts report. One worker described his take-home pay increase caused by the tax cut to be enough for two beers. To quote Tackett, “Other workers described their increase as enough for a week’s worth of gas or a couple of gallons of milk, with an additional $40 in a paycheck every two weeks on the high side to $2 a week on the low.” Another worker concluded that his pay increase would be insufficient “to take his girlfriend to a nice dinner.” Still another worker described the $6 weekly increase as “lunch money,” presumably for one day of the week. One worker appears to be seeing the light of day, though his use of “he” should be “they,” as members of Congress certainly are complicit in the tax cut scam foisted on America; he explained, “He’s pulling out jazz hands and shiny stuff up front and will screw us on the back end.” Indeed.

Surely the reaction to a $250 bonus, which is the equivalent of a $5 weekly pay increase for one year, no different. These tiny amounts, though better than zero, are no different than crumbs. I explained this in several posts, including Oh, Those Bonus Payments! Much Ado About Almost Nothing, describing the average $190 bonus to be received by Walmart employees. In other posts I explained how, at the same time these measly bonus payments were being slated for distribution to some employees, other employees at a number of companies were seeing pink slips.

Giovanetti also claims that Pelosi doesn’t understand economics. Perhaps she doesn’t. Perhaps she does. But the claim by Giovanetti that a company’s taxes are paid by its workers, shareholders, and customers and that these are the people who benefit from the company paying lower taxes flies in the face of economic facts. As I described in More Proof Supply-Side Economic Theory is Bad Tax Policy, a Morgan Stanley study showed that almost half of the tax cut money received by corporations is going to top executives and hedge funds, a fifth is going to mergers and acquisitions enriching investment bankers, and about a tenth ending up in one-time rank-and-file employee bonuses. In other words, prices charged to customers aren’t being reduced, and workers aren’t getting permanent and meaningful wage increases. Of course, as I proposed many times, including How to use the Tax Law to Create Jobs and Raise Wages, Congress could have, and should have, made the tax cuts contingent on worker pay increases and customer price reductions. It hasn’t worked out that way. Instead, increasing amounts of money are flowing into the hands of those who already are drowning in it. Thus, Giovanetti’s claim that the tax cuts “frees up more money for business investment, expansion, hiring and worker training” ignores the reality that these corporations already had huge piles of money available for business investment, expansion, hiring and worker training, weren’t doing very much of that, and still aren’t doing very much of that. Before getting hoodwinked by the increases in jobs, remember that almost all of those jobs are low-paying, minimum wage, and part-time, temporary, arrangements. As the people in Tackett’s report experienced, when factories closed and eventually other employers came to town, the average worker was earning half of what he or she had been bringing home. The poor remain poor, the middle class becomes poorer, and the wealthy, well, they get wealthier.

To Giovanetti’s credit, in the same commentary he criticizes those who defend the tariff increases. He’s right. In his criticism of the tariffs, he flirts with demand-side economic theory, focusing on the impact of the tariffs on consumer spending power. Would that Tom Giovanetti realize that the tariff increases and the tax cuts for the wealthy both emanate from the same approach to economics, and that the approach in question is deeply flawed. I cannot wait until he makes that connection. When he embraces demand-side economic theory, his contribution to the rebuilding of America could be tremendous.

With great delight, Americans for Prosperity issued a press release proudly quoting Paul Ryan’s promise, “We’re not going to raise gas taxes.” He explained, “[T]he last thing we want to do is pass historic tax relief in December and then undo that, so we are not going to raise gas taxes.” Americans with Prosperity endorsed that position, quoting from a letter it sent to the Administration opposing any gas tax increases.

So, with highways, bridges, and tunnels in serious need of repair, and expansion necessary in areas stifled by congestion, what brilliant idea does Paul Ryan and his backers at Americans for Prosperity offer? Let the transportation infrastructure deteriorate while people are injured and killed? Put ownership of public infrastructure into the hands of oligarchs who will impose tolls far higher than any gas tax hike would have been, while they extract more profits for their bulging coffers and scream for more tax relief because they are impoverished?

It amuses me how an organization claiming prosperity as its goal can ignore the vital role that public highways, bridges, and tunnels play in boosting a nation’s prosperity. Does this group not understand the negative impact on the American economy of traffic congestion, delayed delivery of goods, and productivity decreases caused by deficient highways, bridges, and tunnels? It is a well-known principle of economics that one must spend money in order to make money. Has Paul Ryan and Americans for Prosperity figured out yet that investing in infrastructure will increase GDP more quickly and to a greater extent than the tax cuts they worship? And, if dumping money into the economy by putting it into the hands of wealthy individuals and corporations that are using very little of it to spark the economy is supposedly, in their view, so wonderful, is it not even more wonderful to infuse the economy with investments that are visible and guaranteed to provide economic payback that benefits everyone?

The answer surely is the mileage-based road fee. I have discussed that approach in numerous posts, including Tax Meets Technology on the Road, 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?, Between Theory and Reality is the (Tax) Test, 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, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, and Understanding the Mileage-Based Road Fee. Yet the anti-tax, pro-oligarchy-enrichment-through-privatization crowd derides the mileage-based road fee with as much vigor as they oppose the gasoline tax and every other tax.

It is not unusual for defenders of a foolish policy, such as cutting off necessary funding that returns many dollars for each invested dollar, to sound more and more ridiculous as they are backed into a corner while the light shining on their policies’ shortcomings becomes brighter and more focused. Every American, including those already injured or dishing out dollars because of injuries and damages caused by infrastructure deficiencies, and those who inevitably will suffer injuries and damages, should be extremely alarmed. Figuring this out while at someone’s funeral, while in the hospital, while dealing with unemployment, or while dealing with delays in the delivery of much-needed medicines will be too late. Way too late.

For almost a decade I have been criticizing the so-called soda tax. It fails to get my support because it is both too narrow and too broad. It applies to items that ought not be subjected to this sort of “health improvement” tax, and yet fails to apply to most of the food and beverage items that contribute to health problems. I have written about the soda tax for almost ten years, in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, and Putting Funding Burdens on Those Who Pay the Soda Tax.


Now comes news that despite falling short of its revenue goals, Philadelphia officials consider the city’s soda tax to be a success. According to Stu Bykofsky, the city’s budget director declared that the city’s reaction to “coming within 15 percent of that original [revenue] estimate” was something o which “we’re actually pretty proud.” Bykofsky asks, “If you announced a goal and failed to achieve it, would you claim success?” The city’s mayor’s answer, though provided before Bykofsky asked his question, “The beverage industry would like folks to think that somehow $79 million in new revenue is a failure.” The revenue projection was $92 million. The city’s finance director gave an answer by pointing out that “thousands of children are getting access to pre-K and to community schools that they would not have gotten without this tax.” Bykofsky noted that though the goal was to provide space for 6,500 pre-K children, only 5,500 seats will be added because of the revenue shortfall. He asks if the 1,000 children not getting into the program would consider the soda tax to be a success.

My reaction to this debate is that too much focus is being placed on the word “success.” Technically, success means the accomplishment of a goal. Using that definition, the Philadelphia soda tax is not a success. It failed to raise the revenue set as a goal by its proponents. On the other hand, the soda tax revenue has permitted the city to rack up several accomplishments. The question, though, isn’t whether those accomplishments amount to success – they don’t – but whether the method of funding those accomplishments made and makes sense. It doesn’t, for all the reasons I have described in that long litany of previous posts and for the additional reasons other commentators have provided. There are better and more efficient ways to raise revenue.

One of the goals of the soda tax, held out as a justification, is not discussed by Bykofsky in his recent commentary, though that’s because no city official mentioned it. The soda tax was, and still is, touted as a method of improving public health. What remains to be seen are measurements indicating that the health of Philadelphia residents has improved. Has the average blood pressure dropped? Has the average blood glucose level dropped? Has the percentage of Philadelphians who are obese dropped? Statistics exist, as this article demonstrates, but I did not find anything indicating one way or another whether the tax on some beverages, including those not contributing to poor health, has had any noticeable effect on the health of Philadelphians.

To answer the question posed by the title of this post, a tax is successful when the goals established for the tax are met within the period of time set for accomplishment of those goals. At the moment, there is insufficient information to reach a final conclusion on the Philadelphia soda tax, but to date, it has not been a success. Getting partway to the goals, though in and of itself an accomplishment, is not success. The tax is an unwise tax, and it is rare for an unwise tax to be a success.

Readers of this blog know that I am an advocate of demand-side economic policy. Logic and experience have established the failure of tax cuts for the wealthy to improve the economic condition of most Americans. Even some beneficiaries of supply-side tax cutting have disagreed with that approach, as I discussed in Some Wealthy Persons Don’t Want Tax Cuts. Among my many posts pointing out the failures of supply-side trickle-down economic theory are Does Repealing the Corporate Income Tax Equal More Jobs?, in which I explain why demand-side economic theory works and supply-side theory does not, and Kansas As a Role Model for Tax Policy?, in which I describe the utter catastrophe foisted on the people of Kansas by a crazed supply-sider who ignored the advice of experts and alienated even many members of his own political party.

Now comes more proof that the tax cuts enacted at the end of 2017 are not going to do what was claimed by the advocates of tax cuts for the wealthy. In What will S&P 500 firms do with their tax cut billions?, Joseph N. DiStefano explores the outcome of a Morgan Stanley study of what corporations plan to do with their tax cut windfalls. What interested me most was not that overall outcome, which came as no surprise – almost half of the money going to top executives, hedge funds, and similar stockholders, and a fifth going to mergers and acquisitions that generate wealth for investment bankers, and barely a bit more than a tenth ending up in one-time mere pittances of employee bonuses – but what some executives confessed. As DiStefano put it, executives “have admitted they don’t expect tax cuts will fuel new demand for what they sell.” For example, the CEO of Boeing described the effect of tax cuts on aircraft sales by explaining, “No, I don’t see a changing pattern of buying patterns.” When asked if the tax cuts would increase demand for advertising, the CEO of Comcast NBC Universal explained that there wasn’t “necessarily a direct correlation” between the tax cuts and increased advertising designed to increase revenues. Officials at Pulte Corp. explained that lower tax rates do not affect demand for the homes it builds.

These responses do not surprise me. Those who can afford to buy airplanes already have done so and don’t need or want any more, and the tax cuts do nothing to cause more than a handful of individuals and businesses, if at all, to decide they can afford to buy an airplane. The same can be said with respect to the homes built by Pulte. And any company can increase its advertising, but if the consumer class cannot afford what’s being sold, even if it’s wanted, sales will not happen.

How different it would be if the tax cuts had been distributed to the “bottom 90 percent” instead of to those who are not in need of more money, and who clearly are doing very little with their tax cut windfalls that will boost demand in the American economy. But considering that the goal of those advocating these tax cuts was not to improve the economic condition of Americans or to boost the national economy, but to line the pockets of the oligarchy that has seized control of government, it is no surprise that demand-side economic theory will not find a home in national tax policy until the swamp is drained and the make-the-oligarchy-even-wealthier crowd is voted out of power.

Two weeks ago, in One Man Who Made a Difference in the Tax World, I reacted to the passing of Leonard L. Silverstein by describing the positive impact he had on the tax world and on my career. Now comes more sad news. Saturday a week ago, Leon G. Wigrizer died. My career with the Chief Counsel to the Internal Revenue Service was facilitated by his gracious assistance, as he took time to educate me about the responsibilities and opportunities I would encounter and took time to let people in that office know of my availability.

Shortly after I met him, Leon became the first inspector general in the Treasury Department, and eventually served as the first inspector general of Philadelphia. I nodded in agreement as I read comments by the professionals with whom he worked, who used phrases such as “endless dedication to integrity and honesty, “wonderful public servant,” and “inspiration to all.”

One of the many efforts in his campaign to rid government of fraud, corruption, waste, and mismanagement was participation “in an investigation of family members of high-ranking elected officials” in the federal government. The number of government employees arrested through his efforts numbered in the triple digits.

The nation needs more people like Leon Wigrizer. I was blessed for having known him. So, too, was the nation, even though few people realize it. Like Leonard L. Silverstein, Leon made a difference. He will be missed. May he rest in peace.

On Monday, in How To Use Tax Breaks to Properly Stimulate an Economy, I stated that, “The worst way to use the tax law to encourage behavior is to hand out tax breaks without requiring anything in return other than promises.” Already some Americans are beginning to realize that making the wealthy wealthier is doing little, if anything, for the typical middle-class or poor American. In fact, it’s doing almost nothing for anyone not in the top one percent. The evidence is piling up.

Though I detest using the tax law to encourage or discourage behavior, it isn’t enough simply to criticize. So, although I would prefer other avenues, if I were to craft tax law provisions to create jobs and raise wages, I would do something very different. Whether anything needs to be done is problematic, because we’re being told that the labor market is tight, unemployment is down, and wages in a handful of economic sectors are rising because of shortages of skilled workers. Of course, we also are being told that skilled people in their fifties and sixties are finding it difficult to find jobs.

The best way to encourage employers to hire workers is, of course, to put money into the hands of consumers, because the American economy, when at its best, is demand-driven. Supply-side economics is nonsense, and most people are coming to understand that. Many advocates of demand-side economic theory also support tax rate reductions, but aimed at the 99 percent rather than the top one percent. There are flaws, though, in tax rate reductions, because there is no guarantee that the tax cuts will find their way into the economic sectors most in need of revitalization, and because getting money into the hands of those with no tax liabilities requires something more than rate reductions, namely, refundable credits. Refundable credits are problematic.

A somewhat middle position is to provide employers with an additional deduction based on wage and job growth. For example, employers could be allowed to deduct not only compensation paid, but, in addition, a percentage, perhaps 25 or 30 percent, of the excess of the compensation paid during the taxable year and the compensation paid during the previous taxable year, perhaps leaving out of the computation increases in compensation paid to individuals earning more than a specific amount, such as $150,000, $200,000 or some similar figure in that range. This incentive would, or at least should, encourage employers to raise the pay of their low compensation employees rather than CEOs and other highly compensated employees. As for employers that would have no use for these deductions, encouraging failing businesses or successful businesses that use tax shelters to mask taxable income, they ought not be encouraged to continue on those paths. In this way, tax breaks would be tied to performance. People who don’t create jobs ought not get to share in tax breaks held out as job-creation inducements.

The danger in advocating a “somewhat middle position” is that it invites criticism and attacks from all sides. In the current political climate, where compromise is disdained, cooperation avoided, and extremism rampant, the best that can be said about advocating a middle position is that it provides a framework on which to rebuild the nation when, or if, its citizens realize that political climate change is necessary.

There are times when doing something the wrong way is a problem even if the outcome is the desired result. Sometimes, the “no harm, no foul” principle makes sense. Sometimes, even when it make sense, things don’t work out well. In the tax world, though often the IRS and courts look at the substance of a transaction, there are times when form matters more than substance. This notion is illustrated by what happened in Kirkpatrick v. Comr., T.C. Memo 2018-20.

In Kirkpatrick, the taxpayer and his wife divorced. One of the paragraphs in the consent order entered on September 24, 2012, provided, “ORDERED, that the [taxpayer] shall transfer to [his wife] the sum of One Hundred Thousand Dollars ($100,000.00) directly (and in a non-taxable transaction) into an IRA appropriately titled in [his wife’s] name within fourteen (14) days of the entry of this Order and that the funds will not be withdraw [sic] until 2013.” The taxpayer and his wife were separated during the entire year in question, and their divorce became final on June 30, 2014.

The taxpayer did not transfer any money into an IRA titled in his wife’s name at any time after the consent order was entered or before the divorce was finalized. The taxpayer made payments directly to his wife throughout 2013. At that time the taxpayer was over 59-1/2 years of age, and paid the money he was ordered to pay to his wife through a series of checks. To make these payments, he withdrew funds from two of his IRAs held at JPMorgan Chase, and transferred that money to his JPMorgan Chase checking account, from which he wrote checks to his wife.

The taxpayer received two Forms 1099-R from JPMorgan Chase for the 2013 taxable year. One showed gross distributions of $116,489.39 from the first account. The other showed gross distributions of $294,665.64 from the second account. Each had a box checked to indicate that the taxable amount was not determined. Petitioner and his wife filed a joint federal income tax return for 2013, on which they reported total IRA distributions of $411,155, with only $116,489 of that amount claimed to be taxable.

The IRS determined, among other things, that the taxpayer had taxable retirement income of $294,665 from JPMorgan Chase. The taxpayer conceded all of that amount but for $140,000, which had been reported as nontaxable on the joint return.

Generally, distributions from an IRA must be included in gross income. An exception exists for transfers incident to divorce. Section 408(d)(6) provides, “The transfer of an individual’s interest in an [IRA] to his spouse or former spouse under a divorce or separation instrument described in [section 71(b)(2)(A)] is not to be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest at the time of the transfer is to be treated as an [IRA] of such spouse, and not of such individual.”

The taxpayer made three arguments in support of his position that the IRA withdrawals fell within the exception. First, he argued that the consent order is a written instrument incident to a divorce within the meaning of section 71(b)(2)(A). Second, he argued that nothing in section 408 or its regulations offers any specific guidance on the timing of a transfer for it to qualify under the section 408(d)(6) exception, and thus it is logical to assume that any transfer is nontaxable so long as it occurs in a timeframe beginning with the issuance of a written instrument, such as the consent order, and through a judgment of absolute divorce, as happened in this instance. Third, the taxpayer argued that the fact the funds passed through his checking account on the way from him to his spouse’s IRA should have no bearing on the taxability of the exchange because the funds were moved within the allowable time limit for this type of transaction.

The IRS also made three arguments in support of its position that the IRA withdrawals were taxable. First, it argued that the taxpayer did not transfer an interest in his IRAs to his wife, because no IRA was opened in her name, nor were any funds transferred from the taxpayer’s IRAs to an IRA owned by his wife. Second, though conceding that the consent order was a written instrument incident to a divorce, the IRS argued that the taxpayer did not comply with its terms because he did not make the required transfer within 14 days, and thus any transfer that was made was not made pursuant to the order. Third, the IRS argued that any argument by the taxpayer that state divorce law should be determinative as to the IRA distributions’ taxability is erroneous, because state-specific requirements for obtaining a divorce do not preempt or override the Internal Revenue Code.

The taxpayer rebutted the IRS arguments, claiming that there was a transfer of his interest in his IRAs, that they were made under a divorce instrument, and that he complied with all of the conditions in the consent order. He explained that his wife failed to establish an IRA to receive the transferred funds, but that he is not responsible for that failure. He also claimed that state divorce law with respect to taxability from time to time conflict with the IRS position and that to ignore the state court position would put him in contempt of court.

The Tax Court first disposed of $40,000 of the amount in dispute, noting that it had nothing to do with the ordered transfer of an IRA interest. Instead, it related to another paragraph in the consent order requiring the taxpayer to pay attorney fees and litigation costs. The IRA withdrawals made for that purpose would not fall within the exception, and because the taxpayer did not address this amount, the Tax Court considered the taxpayer to have conceded this amount, leaving in dispute the $100,000 IRA transfer.

The Tax Court next disposed of the taxpayer’s argument that the conflict between the state court’s reference to “nontaxable manner” and the IRS position. It pointed out that if a conflict existed, the Supremacy Clause of the U.S. Constitution would resolve the matter in favor of the IRS position. It also pointed out that there was no conflict, because the state court was not holding that any transfer would be nontaxable but that the taxpayer was required to make the transfer in a manner that would cause it to be nontaxable under federal income tax law, something that the taxpayer failed to do.

The Tax Court turned to the applicability of the section 408(d)(6) exception. Relying on prior cases, it explained that there are only two ways to fall within the exception. One is to change the name on the IRA account. The other is to have the trustee of the taxpayer’s IRA transfer funds to the trustee of the wife’s IRA. The taxpayer did not do either of these things. Instead, the taxpayer did what the Tax Court had previously concluded did not fall within the exception, namely, he took a distribution from his IRA and then transferred that cash to his wife.

The Tax court noted that, “Ultimately, [the taxpayer’s] argument rests on the idea that the alleged substance of what occurred should govern and not its strict form.” The court declined to do so, even if the money had been placed by the taxpayer’s wife in an IRA, something that had not been proven, because, as the Court of Appeals to which the case is appealable stated, “’Form’ is ‘substance’ when it comes to law. The words of law (its form) determine content (its substance).” Though that notion has been honored in the breach in some instances, in this case the Tax Court pointed out that section 408(d)(6) refers to an “interest in an individual retirement account” and not “assets from an individual retirement account” or “interest in or assets from an individual retirement account.” The Tax Court summed it up in two words: “Form matters.” And thus the $100,000 must be included in the taxpayer’s gross income.

The taxpayer’s failure to cause his actions to mesh with the required form cost the taxpayer tens of thousands of dollars. It is not difficult to ask the trustee of an IRA to transfer a particular amount of money or other assets into an IRA established in the name of the transferee. In some ways, it would be easier to do that than to ask for the distribution, and then write and deliver one or more checks.

People who insist that proper form be followed often are tagged as picky, demanding, obsessive, or worse. Yet, in so many fields, form matters. Proper form matters in sports, in music, in grammar, in posture, in etiquette, and in many other situations. Form matters.

As readers of this blog know, I am not a fan of using the tax law to encourage or discourage behavior. If a taxing authority wants to encourage but not require people to do something, perhaps because it has no authority to require the behavior, it can pay them directly. Despite all the professed reasons for complicating tax laws, the reason governments, federal and state, use the tax law is because, deep down, they trust their revenue agencies more than the agencies responsible for the sort of behavior being encouraged. This approach, though I don’t like it, at least has a quid pro quo, namely, the taxpayer gets the tax break only if the taxpayer does what the tax break requires the taxpayer to do.

The worst way to use the tax law to encourage behavior is to hand out tax breaks without requiring anything in return other than promises. Promises too often are made to be broken. This is why the legislation enacted in December is proving to be a long-term failure. It came with promises of increased pay and increased production, but it did nothing to require those things. So a few bonus crumbs of several hundred dollars were handed to a small fraction of the work force, an even smaller group picked up a $1,000 bonus, and tens of thousands of individuals lost their jobs.

A good example of why strings-free tax cuts is a bad approach to stimulating the economy is provided by another in the ever-growing list of large corporations that, having been the beneficiaries of huge tax reductions, do the opposite of stimulating the economy. As reported in many stories, including this one, Pfizer has announced that it is terminating its research into cures or treatments for Alzheimer’s and Parkinson’s disease. It also is terminating the jobs of 300 workers. Surely if someone said, “Gee, we expected you would use that huge tax cut, amounting to at least $5,000,000,000, to increase research and hire people,” the response would be either, “We promised no such thing,” or “What we’re doing is better for everyone than expanding research and hiring people,” the translation being, “What we’re doing is better for our highly compensated executives and our shareholders.” The key to that translation is Pfizer’s planned $10 billion share buyback. Do the decision makers in the Congress and at these corporations not understand that the key to increased sales in the future is a consumer class with money to spend, something that doesn’t happen when inflation outpaces raises, when one-time bonus payments fail to reappear, when workers are laid off, and when income and wealth inequality grow rather than diminish?

Of course, this is not earth-shaking news. In 2004, a similar tax break, permitting companies to repatriate foreign earnings without the otherwise applicable tax consequences generated layoffs, share buybacks, and increases in the compensation of the executives. The beneficiaries of this tax break had promised to hire more employees and increase business investment. It’s just so easy to make a promise when there are no adverse consequences to breaking it. The corporations can break their promises and their tax cuts are not rescinded. The Congress breaks its promises and Americans let it get away with its failures, time and again.

Though I dislike using the tax law to encourage behavior, Congress should at least have the good sense to tie the tax break to the promised hiring, the promised research, the promised price cuts, the promised pay raises, and everything else the tax cut advocates dished out during their slick marketing campaign. But, I suppose, after enough workers are fired, after enough people realize they are worse off than they were two years ago, let alone ten years ago, perhaps Americans will shut the door on these tax cut sales pitches and demand accountability, including accountability in the form of tax cuts tied to performance rather than to promises.

Recent news about increased approval of the recent federal tax legislation, such as this report, is generating celebrations among the legislation’s advocates. In particular, they are delighted that in some polls, fifty-one percent of Americans approve of the legislation, up from 37 percent in December. When I read these stories, I think of fans who leave stadiums and arenas during the last two minutes of a game that they think is over.

What seems to be driving the approval is a combination of personal experience by a handful of taxpayers, and expectations by many others that the bonus payments others are receiving will come their way. In both instances, time will tell. Many of those who see decreased federal withholding in their paychecks will be surprised to discover in early 2019 that their refunds are smaller and, in some instances, taxes will be due. Most of those expecting their employers to announce a bonus will find their dreams turned into nightmares. And speaking of nightmares, imagine the delight of workers in Louisiana, who are discovering what I described in State Tax Increases Cut the Tax Cuts. According to this story, these folks will see their paychecks go down because of increased state tax withholding. This will also happen in other states, but it will take longer. And, of course, looming on the horizon are those Medicare, Medicaid, and Social Security cuts that are planned by the tax cut advocates to offset the revenue losses generated by those tax cuts.

Tax cut advocates know that this tax cut euphoria is short-term. It is designed to last until after the November 2018 elections. Then, when people start seeing the reality, they will need to wait another two years to send a message. And by then, another ruse of some sort will have been concocted and sold to a continually unsuspecting public. One doesn’t need to fool all of the people all of the time. One just needs to fool some of the people some of the time. How long will it take before fooling more than a few people becomes impossible because people have insisted on, and obtained, sufficient education to wipe out the ignorance?

Friday a week ago the legislation to keep the federal government operating became law. But that legislation did much more. Among other things, it restored some tax deductions and credits that had expired more than a year ago. What does this mean in practice? It means that tax forms already prepared, printed, and made available online are incorrect. It means that tax preparation software is incorrect. It means that some taxpayers who already filed 2017 tax returns need to amend those returns. It means that the IRS must reprint forms and retool its software. It means that tax software developers must recode their products. It means that taxpayers using tax preparation software must download and install updates. Note that all of this must occur during tax filing season.

Is this any way to run a country? Of course not. But the Congress isn’t known for its ability to run a country, let alone run it efficiently and effectively. Do the members of Congress and members of their staff understand that changing the rules after the game has been played is foolish, dangerous, and thoroughly inappropriate? Do any of them understand how the tax return filing process works? Do they understand that in order to prepare and file tax returns in February, March, and early April, preparations must begin in the previous fall and be finished by the middle of January? Do they understand how much time and money must be expended by ordinary citizens and the IRS to accommodate this poor planning by the Congress? The operating rule should be simple. If you want something to apply to a particular taxable year, enact legislation by October 1. Otherwise, it’s too late. That sort of rule, however, apparently doesn’t apply to the privileged few who are accustomed to having everyone else bow and scrape to appease their royal highnesses.

Understandably, Americans are fed up with how the federal government, especially the Congress, operates. So they claim to vote for “change,” but all that has been accomplished is “more of the same.” When people are poised to complain about something that the federal government has done, is doing, or is about to do, perhaps they ought to ask themselves if the candidates for whom they voted are responsible for the mess. If the answer is yes, then the person ready to complain should remember that they have contributed to the problem and enabled the chaos.

Last week I learned of the passing of Leonard L. Silverstein. I had the good fortune to have known Leonard for many years. In 1983, when I returned to teach at Villanova, one of my colleagues, then writing for what was then BNA Tax Management, Inc. (and now is Bloomberg Tax), asked me if I was interested in updating the Portfolio on Income Averaging. I knew what portfolios were, because we had used several in one of my law school tax courses because there was no casebook or textbook on the market for that particular advanced course. I still own those portfolios.

It didn't take very long, as I completed my J.D. education and entered practice, to discover that BNA Tax Management portfolios were the best and most-used tax references available, though calling them references is insufficient. They offered, and still offer, detailed commentary, explanations, examples, hints, and other analyses that have, for decades, helped tax practitioners provide advice and guidance to their clients. Over the decades, the scope of the portfolio series grew. An idea that started when Leonard realized the tax practice world needed help with the newly enacted Internal Revenue Code of 1954 blossomed into multiple sets of treatises, books, and digital materials that blanketed global tax issues and accounting practice. What he created and shepherded through the years made a huge difference in the lives not only of tax practitioners aware of the portfolios but also of client taxpayers who may or may not have known that those portfolios had provided value to their planning and their litigation issues.

As part of the process of being accepted as an author, I spoke with Leonard, who, in effect, interviewed me. It went well, I wrote the portfolio, and then I was asked to write another, and another, and another, until eventually I had written seventeen. Writing those portfolios, chapters in the Tax Practice Series, and other writing projects kept me in contact with Leonard for almost 35 years.

From time to time Leonard would call me, or invite me to a meeting, where he would pick my brain. One of the many things that impressed me was his deep interest in technology. Born into a generation often unfairly stereotyped as technology adverse, he would read a story about a technological development and immediately ask how it could be used to improve the tax practice world, specifically, how it could make Portfolios and other products and services more useful to subscribers. When a two-person venture of which I was one member suggested ways to move the Portfolios into cyberspace and add features that technology could provide, Leonard jumped at the ideas. He was ever supportive, even though for other reasons it took more than a few years for the transition to occur. Without his support and enthusiasm, perhaps it would not have happened or happened quickly enough for the market.

The first time I entered Leonard’s office, I noticed the photographs. These photographs told me how respected he was in the world of taxation. The photographs were of Leonard with each of the nation’s Presidents from the time he entered practice until the last time I was in his office, about six years ago. It dawned on me that not much happened in the tax world without Leonard being involved, and that nothing happened in the tax world of which Leonard was unaware.

He and I had other conversations that extended beyond taxation. He loved to ask me about my teaching, about my students, how they were learning, what sorts of things I did in the classroom, and whether I was getting students to focus on the sorts of issues and thought processes he considered important to the development and education of the next group to enter the tax practice world. From time to time, we talked about life. His life extended far beyond taxation, as is apparent from his obituary.

I will miss Leonard. He clearly has had a significant impact on my professional experience. I learned from him. Through him I saw, and still see, the world of tax and the atmosphere of the nation’s capital in ways that are very different from how most people see them and from how I would have seen them. He helped me become a better tax person.

The world, and the tax practice world, needs more people like Leonard Silverstein. It is difficult to open or look at a Portfolio without his face and his voice popping into my head. I hope it is that way for everyone else who makes use of a Bloomberg Tax product or service. Without Leonard Silverstein, it would not exist. He made a difference.

The tax legislation enacted in December of last year adds roughly $1.7 Trillion to the national debt. Even some opponents of increasing the national debt voted for the legislation. Most of the revenue lost on account of the legislation comes from tax cuts for large corporations and wealthy individuals. Some not-so-wealthy individuals face tax increases, but those increases aren’t financing that $1.7 trillion bill that will come due someday.

Now there is reason to think that opponents of increasing the national debt had good reason not to worry about the inconsistency between voting for the legislation and increasing the national debt. The answer is in the budget proposed by the Administration, which might come as a shock to some people once they look at it closely, but perhaps was expected all along by the advocates of tax cuts for the wealthy. The proposal is to slash $1.5 trillion from Medicare, Medicaid, food stamps, and other programs that assist, wait, the poor and the middle class.

Though this stupidity might seem quite clever in the short term to those who are engineering what has been happening, in the long run it is counterproductive even to the interests of the oligarchs and others who support supply-side economics, trickle-down theory, and other outdated, disproven, and foolish approaches to governance.

Once the two percent of Americans who received those overhyped $200 and $300 bonus payments realize that that income falls far short of making up for the loss of all the programs being reduced or eliminated, will it be too late for them also to realize that voting for candidates based on their words rather than on their actions is just as foolish as the decisions being made by the candidates who prevailed?

The federal tax legislation passed in December limits the deduction for state and local taxes to $10,000. In some states, many taxpayers‘ state and local tax bills exceed that amount by more than a little bit. In some instances, their state and local tax bills can reach two, three, four, or more times the limit. State and local politicians in these states, who rightfully view the limitation as a siphoning of funds from their states to states traditionally dependent on the federal income tax revenue they like to criticize, have taken several approaches to dealing with the issue. Some states are suing the federal government. Some states, including those joining in the litigation, are trying to find ways to make state and local tax payments that exceed $10,000 deductible.

One idea that has gained traction, most recently in New Jersey according to this story is to replace the state and local taxes, or at least some portion of them, with payments to charitable funds. Why do this? Though the federal tax law has for decades imposed limitations on charitable contribution deductions, those limitations are so generous that they would prevent the deduction only in the most unusual of circumstances.

Advocates of this approach admit that they are unsure if the idea will work. The governor, who is pushing for the plan, “can’t guarantee . . . success.” But he, and others, see little harm in trying. Most agree that the state would need to enact legislation to implement the plan.

Perhaps my conclusion will break their hearts. The plan won’t work. Here’s why.

To be deductible as a charitable contribution, a payment must satisfy several requirements. One of those requirements is that the payment be voluntary. Another is that the payment not be a quid pro quo.

If New Jersey enacts legislation that reduces some portion of state and local taxes and replaces that payment obligation with a requirement that taxpayers make payments to a charitable fund, then there is no charitable contribution deduction because the payment is not voluntary. If the payment is made voluntary, state and local revenues will decrease because surely there will be many taxpayers who choose not to make a voluntary payment.

If New Jersey enacts legislation that reduces some portion of state and local taxes and replaces that payment obligation with a requirement that taxpayers make payments to a charitable fund, then there is no charitable contribution deduction because the payment is a quid pro quo. First, the payment can be viewed as a transfer of money in exchange for lower tax bills. Second, the payment can be viewed as a transfer of money in exchange for state and local government services.

One supporter of the plan pointed to tax credits offered in other states for charitable contributions. The flaw in that comparison is that those credits are provided by the state legislatures as reductions in state and local taxes, not as attempts to recharacterize state and local taxes as charitable contributions for purposes of the federal income tax.

I’m not alone in concluding that this attempt to cloak state and local taxes in the garb of charitable contributions will not work. As Jared Walczak of the Tax Foundation, put it, “IRS and Treasury officials weren't born yesterday. They will see right through these proposals, recognizing the contributions for what they are: payment of taxes."

Readers of this blog know that I consider the December 2017 tax legislation to be unwise, misdirected, and harmful to the economy. I have shared some of my thoughts in Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, That Bonus Payment Ruse Gets Bigger, Oh, Those Bonus Payments! Much Ado About Almost Nothing, and Much More Ado About Almost Nothing. These commentaries explain in part why I think funneling tax cuts to the wealthy and to large corporations fails to infuse the middle class and the poor with the resources needed to stimulate the economy based on genuine, long-term demand. The few crumbs being tossed to a very small portion of the consumer class isn’t enough.

Now comes more bad news. Verizon has announced that “Tax-reform legislation will have a positive impact to cash flow from operations in 2018 of approximately $3.5 billion to $4 billion." What does it plan to do with this money? It plans to spend between $17.0 billion and $17.8 billion for capital expenditures in 2018, compared to the $17.2 billion it spent in 2017. In other words, Verizon’s tax cut money isn’t going to other businesses. Verizon announced it will give stock shares to its employees. Its 155,000 employees will share $400 million in stock, which amounts to less than $2,600 per employee. Crumbs. Surely the employees would prefer cash. So where is that tax cut money going? It’s going to “be used primarily to strengthen Verizon’s balance sheet.” In other words, it’s going to the owners. Though there are shareholders among those in the consumer class, keep in mind that the richest ten percent of Americans own 84 percent of the stock market. So when someone claims that tax cuts are good for stock ownership, the translation is that it’s very good for the richest ten percent, and lets a few more crumbs fall down to the other 90 percent. That’s not good long-term planning for the economy or the nation.

It’s a problem no one wants. It’s a problem many people, perhaps most people, have encountered or at least have seen. Geese descend on a lawn, a sports field, a park, a golf course, or any open area, and begin to leave mementoes of their visits. What they leave is slippery, smelly, unpleasant, and unattractive. So most people facing these rude visitors would try to find ways to discourage their return. It’s not easy. The internet is full of web sites with advice on getting rid of the geese, and businesses have sprung up offering geese removal services.

The geese don’t care whether the owner of the property they are polluting is rich or poor. One would assume that a wealthy individual, unlike most people whose income barely covers existing bills, or falls short, can pay some experts to show up and deal with the problem. But for a New Jersey billionaire, according to this article, the solution is to refuse to pay his real property taxes. This fellow claims that he has tried all sorts of devices to keep the geese off his property, and that they have not worked. It is unclear whether he himself has been out stringing up fishing line, installing decoys, and spraying liquids, or whether he has paid someone to do this. Surely he has the resources to pay someone, and surely if they fail to delivery he can refuse to pay the bill.

Why is this billionaire refusing to pay his property taxes because geese are fouling his property? He argues that the geese problem is reducing the value of his property. That probably is true, and he has the option of seeking a revaluation, and surely a revaluation will not reduce his taxes to zero. Instead, he claims that the town has an obligation to solve the problem. The town’s position is that it’s a private property problem. Apparently this billionaire thinks that his taxes are paid for the purpose of financing geese removal and that failure of the town to live up to its end of the contract he unilaterally wants to impose on it justifies his nonpayment of the real estate taxes. Interestingly, the taxes he currently is refusing to pay are school taxes. The logic behind refusing to pay for school funding because the town is not solving a private property owner’s problem escapes me.

The geese appear to provide a convenient pretext for this billionaire. He plans to file class action litigation on behalf of property owners who think their taxes are too high. His claims that the property tax valuation process needs repair are not without merit, but surely there are other ways to contribute to the betterment of the public good. Why not establish a foundation to fund the training and expertise that he explains tax assessors need, and to provide management improvements so that the assessors make better use of their time that he claims is necessary. For a billionaire who supports education and health care, as this guy does, it’s a no-brainer to put some money to work finding ways to fix the geese problem. He might even make money if he comes up with a solution.

There’s an inconsistency in adding to the list of things someone wants a government to do while at the same time trying to reduce the revenue available to that government. Money that could be used to deal with the geese problem will be diverted to pay the legal fees of defending the litigation that has been promised. Perhaps money can buy principle, as he claims is the case, but it appears that money cannot buy common sense.

So the supply-side trickle-down crowd pushed a bad tax bill through the Congress. Then, as I discussed in If A Tax Act is So Wonderful, Why the Need to Promote It?, they decided they needed to hype the legislation because they want to erase the image of wealthy individuals and large corporations gobbling up most of the tax cuts while ordinary Americans get tax cut crumbs.

Perhaps that is why Paul Ryan, according to numerous stories, including this one, decided to issue a tweet sharng the news that a public high school secretary was “pleasantly surprised her pay went up $1.50 a week.” Technically, her gross pay is unchanged. Her take-home pay was reduced because the employer withheld $1.50 less in federal income taxes.

What the secretary didn’t mention, probably because, like most Americans, she is unaware of the issue, is whether the withholding decrease is too much. If it is, she will end up with a smaller refund in the early months of 2019 or, worse, find herself writing a check or making an electronic funds transfer to the U.S. Treasury. Why? There has been too little time for the IRS to issue revised withholding tables that are sufficiently accurate. Taxpayers should run pro forma analyses to determine if their withholding has decreased by too much, but very few people do that sort of computation. Instead, they rely on the IRS and employers to “do the right thing.” Though usually well-intentioned, the IRS and employers don’t always get it right.

Perhaps the secretary was pleasantly surprised because she’s one of those people who don’t pay attention to news, tunes out of political discussions, and perhaps is among the half of eligible voters who didn’t bother to go to the polls in November of 2016. Would she be pleasantly or unpleasantly surprised to learn that while she banks an additional $1.50 per week, the Koch Brothers stand to gain $1,400,000,000 and tossed $500,000 into Paul Ryan’s pockets as a thank-you gift?

Shortly after posting the tweet, Ryan deleted it. The California’s Lieutenant Governor’s reaction was not unlike mine and that of many others: “Guess someone told Paul Ryan you shouldn't go around praising yourself for giving a working person an extra $1.50 a week.” It is just amazing to me how oligarchs and their puppets think they deserve high praise, obedience, and votes because they hand tax cut crumbs to ordinary Americans. I suppose they take this approach because they can, and because enough Americans buy into their propaganda. At some point, will enough Americans wake up? Or will it take the next great crash to motivate people to learn something about long-term economic and tax policy?

Several weeks ago, in Oh, Those Bonus Payments! Much Ado About Almost Nothing, I elaborated on two previous posts, Those Tax-Cut Inspired Bonus Payments? Just Another Ruse and That Bonus Payment Ruse Gets Bigger, in which I explained the crumb-like nature of the pennies per hour that are being handed to some workers. In in Oh, Those Bonus Payments! Much Ado About Almost Nothing, I shared the news that Walmart’s trumpeted $1,000 bonus is actually a $1,000 bonus for a handful of employees. The average bonus is $190, which means some employees will be tossed a twenty-dollar bill and expected to dance with joy. Reports are that in many instances, these bonus payments have been announced but not paid.

Now comes news that Home Depot is emulating Walmart. Only those employees with 20 years of service will receive a $1,000 bonus. How many Home Depot employees have been with that company for 20 or more years. Surely nowhere near 100 percent, 50 percent, 25 percent, or even 10 percent. Employees with two to four years of service will receive $250. Those with fewer than two years of service will receive $200. What’s the average? Somewhere between $200 and $1,000, but surely closer to $200 because there are so few long-tenured employees. Even using $500 as the average, the bonus payments will cost Home Depot $190,000,000 before taking into account the tax savings from the tax deduction for the bonus payments. Shortly before the tax legislation was signed, but as it was making its final journey through Congress, Home Depot announced a $15,000,000,000 share buyback program for its shareholders. Count the zeroes in each number.

Those bonus payments amount to pennies per hour. But it’s not a raise. There’s no promise of a bonus payment in 2019. Employees receiving a bonus cannot commit to higher long-term expense commitments. They will not be able to commit to higher monthly mortgage payments, higher monthly rents, higher monthly car payments, or much of anything.

Though those who pushed the unwise tax legislation through Congress claim that it will toss thousands of dollars into each household, no one should expect such a result, as I explained in Another Word for Fake Tax Math. According to a Reuters/Ipso poll released about a week ago, only two percent of American adults responded that they are getting a raise or bonus as a result of the tax legislation. For almost everyone, their economic challenges continue.

All of this propaganda is working, at least on some Americans. According to a Monmouth University poll the percentage of Americans who approve of the tax legislation increased from 26 percent to 44 percent, while those disapproving of it fell from 47 percent to 44 percent. I wonder how many of those people who changed their minds, even though the legislation wasn’t changed, suddenly figured that they, too, would be getting a raise or bonus. By the time people realize that their economic condition hasn’t improved or hasn’t improved by much more than a crumb, will it be too late for them to undo the votes that they will come to regret? That happens, as is evident from the number of people finally waking up to Michael Bloomberg’s warning that they failed to heed. In the meantime, the cash flowing into the hands of oligarchs and large corporations will contribute to inflationary pressure, making economic conditions even more difficult for ordinary people, even those dancing with joy because they received a $300 bonus on which they must pay taxes. It’s just too bad that so many Americans are incapable or unwilling to learn economics, analyze economic trends, understand long-term impacts, avoid being blinded by temporary economic distractions, and evaluate politicians on the basis of performance and not cheap talk. While they are so excited about what amounts to pretty much nothing, their future economic chances are being undercut. This is not going to end well, except for the rich and powerful.

According to this recent story, the Koch brothers have announced that they are willing to spend as much as $20 million “to promote the tax law.” Senator John Cornyn of Texas admitted that “Republicans will need to fight to sell their tax overhaul.” He claimed that this is necessary in order “to combat the misinformation and the naysayers.”

My attitude about advertising and marketing does not mesh with the views held by most people in those industries. To me, advertising and marketing are necessary when a product or service is new, so that what’s being sold can be brought to the attention of the public. It also is necessary if new information needs to be shared, such as the reduction of a price or a change in a product or service in response to competition or customer suggestions and concerns. What is not necessary is advertising to hype a successful product. Almost all, if not all, of the hottest selling products and services have benefitted from word of mouth, or, in the digital age, by “going viral.”

If the Republican tax act is so wonderful, people will realize that without someone needing to beg them to think that it is so. When people open their weekly paychecks and discover another $100,000, oh, wait, my mistake, discover another $8, will they dance in the streets and tell their friends how wonderful the Republican tax plan has made their lives? When they receive the layoff notice, will they sing praises to the architects and devotees of trickle-down-not? When they read in the paper or learn online that the store where they are employed is closing, will they write thank-you notes to the Congress that is within the grasp of the Koch brothers and other oligarchs? When they are starving and are permitted to eat the crumbs that fall from the table, will they bow in abject gratitude to those who have made their lives miserable? Will $20 million of “advertising” change their minds and convince them that being treated badly is a wonderful experience?

Let’s face it. Last time around, people figured out pretty quickly what went wrong with cutting taxes while increasing spending. So this time, the purveyors of supply-side economic theory are emulating the child who tells the parent when the parent walks in the door, “I didn’t break the cookie jar.” Hopefully the planned propaganda campaign will be just as effective as a preemptive strike.

A recent Tax Court decision, Plato v. Comr., T.C. Memo 2018-7, demonstrates how not to go about getting one’s spouse to sign off on a proposed joint return. It’s not the way I would have advised someone to do it.

The taxpayer and his wife separated in December 2007. Their community property assets were liquidated subject to a stipulation order in December 2007. The taxpayer prepared and signed a federal income tax return for 2007, reporting a filing status of married filing jointly and a tax liability of $46,073. On April 15, 2008, the taxpayer left the joint return and a check for $46,073 “under the mat at the front door” of his wife’s residence for her to sign and mail to the IRS. No evidence was presented showing that the return was mailed or that the check was negotiated. The taxpayer did not request an extension of time to file the joint return, but he asked his wife to request an extension. Neither the request for an extension of time nor the joint return was filed with the IRS.

The IRS prepared a substitute for return for 2007. Based on the substitute for return, the IRS issued a notice of deficiency to the taxpayer, determining a deficiency and additions to tax for 2007. During the course of the examination and after the notice of deficiency was issued, the taxpayer submitted a 2007 federal income tax return, reporting a filing status of married filing separately, and tendered a payment of $43,490 with the separate return. The IRS accepted the payment, and it was the basis for the recalculation of the additions to tax for which the IRS determined that the taxpayer was liable.

Because the IRS and the taxpayer had resolved the issue of tax liability, the Tax Court was left with deciding whether the additions to tax determined by the IRS should be upheld. The taxpayer’s attempt to avoid the addition to tax for failure to file a timely return, based on his having left the joint return with his wife along with a check and his history of filing tax returns in a timely manner, did not convince the court. The court noted that prior cases had established that a taxpayer cannot rely on an agent to file a timely tax return, and that failure to obtain a spouse’s signature on a joint return when the couple is separated does not per se constitute reasonable cause for failing to file the return in a timely manner.

The taxpayer escaped the addition to tax for failure to pay tax shown on the return because the IRS did not place into the record the necessary forms to meet its burden of production. Another failure by the IRS to meet its burden of production spared the taxpayer the addition to tax for failure to pay estimated tax.

There are safe and prudent ways to obtain a spouse’s signature on a joint return. Though the fact that a couple is separated can make the process more challenging, it is inappropriately risky to leave a tax return and a check under a doormat. The list of things that could happen to the return and the check is long, and I’ll let readers imagine the possibilities. For starters, consider various wild and domestic animals and weather. In fact, it’s quite possible that the taxpayer’s wife never found the return and check. The better course of action would be to arrange a meeting. Even handing the return and check to the other spouse poses risks, because the other spouse can forget to sign and mail the return. Though it is tempting to think that couples who are not separated don’t face challenges, think of what might happen if the return and check are left on the kitchen counter. This time, for starters, consider domestic animals and children.

It is no secret I am not a fan of supply-side economics or trickle-down theory. The reason is simple. They don’t work. They’ve been tried. They have failed. Technically, they do work. They work for a small group of oligarchs. So, to be precise, the reason I don’t support them is that they don’t work for America or the vast majority of its people.

We’ve been told that handing $1.5 trillion in tax breaks mostly to big corporations and the wealthy nonetheless is a good thing because they will create jobs. But what have they been doing? They have been handing out crumb-size bonus payments, cutting jobs, and shying away from raising wages, as I have described in Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, That Bonus Payment Ruse Gets Bigger, and Oh, Those Bonus Payments! Much Ado About Almost Nothing. Yes, here and there a corporation has raised wages a bit, but the overall picture isn’t one of money flooding into the hands of the middle-income and poverty-level households.

Now comes news, as reported by various sources, including this one, that another beneficiary of tax cuts is doing some cutting itself. Kimberly-Clark Corporation has announced it will layoff roughly 5,500 employees and close 10 of its plants. According to this report, that’s about 13 percent of its workforce. Though its revenue has decreased somewhat over the past five years, its earnings increased 1 percent in the last quarter of 2017, and its adjusted earnings per share rose 8.3 percent. Its total revenue in 2018 was $18.3 billion, an increase over 2017, and its operating profit was $3.3 billion. The company plans to increase its dividend by 3.1 percent. In addition, as this report reveals, the company anticipates a lower tax rate in 2018 than it faced in 2017. In other words, this is a company that isn’t hurting financially, and if it wanted to scale back, surely could let attrition, rather than job deprivation, be the pathway to implementing its plans.

This situation is more proof that cutting taxes for big corporations doesn’t save American jobs nor prevent the closing of American manufacturing plants. According to this report, Kimberly-Clark plans to use the tax cut to pay for the restructuring plan that includes the layoffs. In other words, it costs money to get rid of workers, and tax breaks are being used to finance layoffs.

I wonder how the roughly 5,500 workers who find themselves on the street with no job feel about the tax cut that will save them a few dollars. I wonder how they feel about the claim that cutting taxes for big corporations is a better approach than cutting taxes for the poor and middle class, especially considering that cutting taxes for big corporations and the wealthy hasn’t helped the poor and middle class when it’s happened in the past. I wonder how many of them, if any, has thought about supply-side economics and trickle-down theory, examined the history, or thought that when voting, they were voting in favor of that approach to managing the national economy. I wonder how many of them celebrated when the tax cut legislation was enacted, thinking it would be a good thing for them, only now to discover not only would it not lift them up economically, it is financing their trip to joblessness. I wonder if they went into work thinking they would be getting a bonus, and not the dreaded pink slip. I wonder if they realize that the people who claimed to have their back didn’t.