MauledAgain

When people ask me if I am retired, I tell them, “Not really.” Yes, I’m retired, because I stepped down from my full-time tenure-track position on the law faculty. But I continue to teach, as a part-time employee, and I hold another small part-time position, as an employee, the proceeds of which I donate back to the organization; I’d rather be a volunteer but that’s a tale for another day. So it was interesting to me to encounter a recent Tax Court decision, Voight v. Martin, T.C. Summ. Op. 2018-25.

The taxpayer has worked for Tulane University from February 8, 1985, to June 7, 1991. When Tulane encountered financial difficulties, it eliminated the taxpayer’s job. As part of the arrangement, the taxpayer received a severance package that included an extended tuition waiver for himself and his dependents. The separation notice showed the petitioner’s reason for leaving as “Elimination of Position,” and neither the box “Not Physically Able to Work” nor the box “Retirement, Pension” were checked. Because the taxpayer had six years of service, the taxpayer was granted six annual tuition waivers. After leaving Tulane, the taxpayer worked at Cornell and at America Online before becoming self-employed.

In the fall of 2012, the taxpayer’s daughter entered Tulane, and attended through the spring semester of 2015. The taxpayer filed applications to apply the tuition waivers for the spring and fall semesters of 2013. On the application, he identified his eligibility for the waiver as “Laid Off-Benefits Package.” Tulane granted a waiver of $21,575 on August 6, 2013. In 2014 Tulane sent a Form W-2 to the taxpayer, showing wages of $21,575, social security tax withheld of $1,338, and Medicare tax withheld of $313. Tulane also billed the taxpayer $1,650 for “2013 Waiver FICA Taxes.” The taxpayer did not report the $21,575 on the joint income tax return he filed with his spouse.

At some point before April 4, 2016, the taxpayer sent an email to Tulane asking about the Form W-2. On that date, a Tulane payroll department official replied, explaining, “[b]ecause you were not an employee with the University, and you received the Tuition Waiver Benefit, the waiver is considered income to you”. On the next day, the taxpayer responded and asked, “Please send me something that shows my dates of employment when I was actually working for Tulane as a staff member.” On May 16, 2016, the payroll official replied, “Per your request; your dates of employment were 02/08/85-06/07/91.”

The IRS issued a notice of deficiency, and among the adjustments was a determination that the taxpayer had failed to report the $21,575 tuition waiver as income for 2013. The taxpayer and his spouse timely filed a petition in which they made two assertions. First, the tuition waiver benefit is not taxable. Second, the IRS determined that a similar tuition waiver benefit for 2012 was not taxable.

At trial, the taxpayer argued that including the tuition waiver benefit as income in 2013 would be improper because the tuition waiver benefit represents “money that I earned 20 years ago,” apparently claiming that the benefit should have been taxed in 1991. The Tax Court determined that the benefit would be included in income in the year in which it was actually or constructively received, that it was actually received in 2013, and was not constructively received in 1991 because in that year neither the taxpayer nor his dependents had satisfied Tulane’s admissions standards and enrolled in the university. Therefore, unless an exclusion applied, the year in which the income would be included was 2013.

The taxpayer argued that the section 117 exclusion for scholarships and qualified tuition reductions applied to the waiver. The Tax Court explained that under section 117(d)(2), in order for the waiver to be a qualified tuition reduction, it must be provided to an employee of a qualified education institution for the education, below a graduate level, at a qualified education institution of either the employee or someone treated as an employee under section 132(h). Persons treated as employees under section 132(h) are former employees who separated from service “by reason of retirement or disability” and the dependents of employees, spouses and surviving spouses, and others not applicable to the taxpayer’s situation. Because the parties agreed that the taxpayer’s daughter was his dependent in 2013, that Tulane is a qualified education institution, and that the taxpayer did not end employment with Tulane by reason of disability, the issue was whether the taxpayer was either a current employee of Tulane in 2013 or was treated as an employee because he had separated from service by reason of retirement under section 132(h).

The taxpayer argued that he was an employee because he received a Form W-2, because the references on that form to “employer” and “employee” suggested to the taxpayer that sometime in 2013 “Tulane University thought I worked there.” The Tax Court noted that the issuance of a Form W-2 does not create an employment relationship, and that a Form W-2 may be required even when there is no longer an employment relationship, such as when social security and Medicare taxes are imposed on wages as defined in section 3121, which can include payments for employment “even though at the time paid the relationship of employer and employee no longer exists.” Thus, whether the taxpayer was an employee in 2013 is a factual question, resolved under common law rules. Aside from the Form W-2, the taxpayer did not present any evidence of an employment relationship. The taxpayer conceded he did not work for Tulane after 1991, and Tulane’s records confirm that he had not been an employee since 1991.

The taxpayer next argued that because the term “retired” in section 132(h) is not defined, being “laid off” as he was constituted early retirement. The Tax Court concluded that the taxpayer’s employment with Tulane had not terminated because of retirement. Because there is no definition in the Code of the term “by reason of retirement,” the court applied the principles that the plain language of a statute must be enforced, and that words must be construed so that they are not superfluous or insignificant. Turning to Black’s Law Dictionary, the court adopted the definition of “retirement” as the “[t]ermination of one’s own employment or career, esp. upon reaching a certain age or for health reasons; retirement may be voluntary or involuntary.” The court explained that this definition’s specific mention of termination of a career and special focus upon age or health as reasons for termination conforms with the ordinary meaning of the term “retirement” to refer to a time after an individual stops working. Thus, to give meaning to the inclusion of the term “retirement” requires that retirement be recognized as different from other methods by which an employee may separate from service, including being laid off, because otherwise the term “retirement” as used in section 132(h) would be is rendered superfluous or insignificant. The court also noted that this definition of retirement was consistent with the definition applied by the Supreme Court in the context of bankruptcy.

The Tax Court explained that the taxpayer had not retired because Tulane identified the reason for the termination of employment to be “Elimination of Position” even though retirement was a preprinted option, because the taxpayer’s severance package included assistance in finding further employment, and because the taxpayer testified that he was laid off because Tulane was having “money troubles.” Thus, the termination of the taxpayer’s employment was not contingent on age, years of service, or health considerations. Additional proof that the taxpayer was not retired was found by the court in the taxpayer’s continuing to work for a variety of other employers and for himself after he was laid off by Tulane.

So in order to be retired, at least for purposes of section 132(h) and the provisions that reference it, a person needs to leave employment on account of age, years of service, or health, without thereafter undertaking self-employment or employment with the same or a different employer. By that definition, I am not retired. Perhaps someday I will be. Check back later.

So that big tax giveaway last December was touted as the impetus for an increase in good-paying jobs in this country. As I pointed out in posts such as You’re Doing What With Those Tax Cuts? and More Proof Supply-Side Economic Theory Is Bad Tax Policy, that wasn’t going to happen, isn’t happening, and isn’t going to happen. Oh, sure, there has been an increase in low-paying jobs and a drop in the unemployment rate that might be more a reflection of people dropping out of the job market than a surge in good-paying jobs, but as I described in Much More ado About Almost Nothing and the previous posts cited therein, the two or three percent of workers getting a few hundred after-tax dollars of one-time bonus payments aren’t exactly heading out to buy yachts or even cover the increased cost of fuel for their vehicles.

Now comes yet another example of the tax cut scam. As reported in many stories, including this one, Walmart, recipient of a very large tax break, has used a chunk of that money, on the order of $16 billion, to acquire control of India’s largest retail company. That will permit that company, Flipkart, to create more jobs, in India. At the same time, Walmart is closing stores in this country and laying off thousands of workers in the United States. And despite all the buzz about raises and bonus payments, a significant number of Walmart employees need public assistance such as Medicaid, SNAP, and subsidized housing in order to survive.

As I suggested in How To Use Tax Breaks to Properly Stimulate an Economy and How To Use the Tax Law to Create Jobs and Raise Wages, it’s time to stop with the “here’s a tax break, now create the jobs you promised and if you don’t, oh well, see you at my next campaign fund raiser” approach to tax legislation, and to implement the “create jobs, get a short-term tax break, don’t cut those jobs next year, get another short-term tax break” style of holding tax break recipients’ feet to the fire. When a child says, “Give me a cookie and I’ll behave properly,” sensible parents reply, “Show me you can behave properly and then you’ll get a cookie.” It’s that simple, really.

Several days ago, an article about a tax proposal dispute in Wichita, Kansas caught my eye. The Fraternal Order of Police, the International Association of Fire Fighters, and the Downtown Neighborhood Alliance came together and announced a plan for a public vote to establish 0.25 percent to the sales tax, with the proceeds earmarked for public safety funding. The proposal is a reaction to stagnant and decreasing funds for public safety.

The debate ensued when the city’s mayor announced opposition to the proposal. He explained that City Council knows more funding is needed for the police and fire departments and that it is examining ways to find the money from sources in the existing budget. He expressed disappointment that those advocating the sales tax increase did not consult with him before issuing their plans.

The mayor argues that sales tax add-ons should be reserved for “extras” and not for items that are “top priorities,” such as public safety. The advocates for the sales tax increase referendum point to sales tax add-ons and special tax districts set up for a variety of projects, including a new municipal library and a “privately held pickle-ball theme restaurant.” They think that their proposal has a better chance of success than a one-percent sales tax increase proposed in 204 to fund water supply improvements, street repairs, public transit, and business development. That plan received only 37 percent of the vote.

The entire situation puzzles me. City services, including safety, transit, roads, and water supply, need funding, and yet a private restaurant gets its hands on tax revenue that other restaurants don’t get. Voting down road repair funds while voting for taxes that enrich a privately owned restaurant makes no sense. And it’s wrong. I have written many times about the short-term and long-term adverse consequences of shifting public tax revenue into private pockets in reliance on unproven claims that the general public will be better off economically. As I’ve written before, and will write again, if a person wants to start a business, it will flourish if it is properly managed and the public desires the goods or services being offered. If it cannot succeed on its own, it’s not worth operating. I’m not objecting to public money being loaned to businesses at appropriate interest rates that generate interest income for governments, provided the loans are properly secured and the money eventually returns. I’m objecting to individuals and corporations with enough money to fund tax referenda or to lobby governments to shift tax revenue into their pet projects, who reap huge profits, and who then lead the way in opposing tax increases.

I wonder why many of the people who argue for reduced taxes or for the elimination of all taxes don’t oppose these deals. Most anti-tax advocates claim that governments waste tax revenue, or spend it in ways that violate whatever standards and values the particular anti-tax individual or group has in mind. Raising taxes to fix highways gets criticized and opposed every day, and yet somehow increasing the regressive sales tax, or some other tax, to fund a pickle-ball restaurant, or a sports stadium owned by billionaires gets a green light.

Several days ago, a television commercial caught my ear as it came to a close. Generally, I don’t pay much attention to commercials, letting them drone on in the background as I do work that doesn’t require full concentration. So the next time this commercial aired, about twenty minutes later, I listened. I heard a pitch for a Publishers Clearing House sweepstakes. The prize is $1,000,000 payable immediately and $1,000 per week for life. Then came the bit that caught my ear the first time. It was something along the lines of never worrying about money again.

Curious, I did a quick search, and found a more detailed version of the commercial. I had the prize amounts right, and then comes the guarantee that amuses me: “That’s a lot of dough! And when you think of all the possibilities of how you can spend it, it would be a dream come true to win, wouldn’t it? Say goodbye to bills and debt, and say hello to a financially stress- free life!”

What amuses me, or perhaps saddens me, is the notion that this amount of money can deliver a financially stress-free life. Let’s think about this for a minute. Someone already living a financially stress-free life, like a person with $20 million in the bank and income of $1,000,000 a year, would not consider winning this sweepstakes to be the reason for that financially stress-free life. Someone with little or no assets and a meager income would be delighted with winning, but a financially stress-free life would not be guaranteed. After taxes, $1,000,000 could end up being somewhere between $600,000 and $700,000, depending on where the winner person lives (assuming the winner lives in the United States). Why no guaranteed financially stress-free life? Though $500,000 in the bank and $50,000 of income a year before taxes might seem wonderful, ten, twenty, thirty years from now it will pale in the face of inflationary increases in the cost of goods and services. For example, even if the after-tax remains of the $1,000,000 is invested well, it won’t keep pace with the rate of increase in the cost of health care, education, and some other items. On top of that, think of all the possible financial demands that might hit a person. An illness requiring medicine that costs $50,000 a year, not covered by insurance. An accident, with damages exceeding insurance coverage, letting the victim clean out the winner’s investments. For many people, handling this sort of money is in and of itself stressful, though perhaps that’s not technically financial stress.

True, for a few people on the edge between the economic position of those with little assets and meager income and those wallowing in wealth, the sweepstakes prize might be enough to tip the scales and move the person from a worrisome financial situation to the presumed comfort of wealth. But I doubt it. Studies show that most lottery winners aren’t very well off a few years after they hit it big.

What saddens me about the sweepstakes is its status as a mirror on the dire economic straits in which too many people find themselves in this new era of robber barons, income and wealth inequality, and money addiction. Life should not be such that only a handful of people, whether those who win the contest lottery or the birth lottery, can luxuriate, while some of the others labor tediously, with a scant few hitting the “rags to riches” lottery because their idea happened to synchronize with everything else in the world, and while the rest of the others throw their hands up in despair and surrender to misery. A quick read of the comments to the Publishers Clearing House announcement reveals the depths of despair and false hope into which this nation has fallen.

There are times when I think the worse addiction is money addiction. No, that’s not when someone without money or with insufficient money to meet basic needs yearns for financial security. It’s when people drowning in wealth beg, borrow, and steal more, cry for more, demand more, and never admit to how much would be enough. I doubt they enter sweepstakes or lotteries because those running the contests have yet to offer a prize consisting of an infinite amount of money. Even that would be insufficient. How sad.

Perhaps if a cure for money addiction is discovered, there would be no more need for people to pin their last dollar and all their hopes on a lottery or sweepstakes contest. But I doubt those suffering from the addiction want to fund a search for the cure.

Perhaps I don’t write about chocolate as much as I should. I’d like to, but there are so many other topics to discuss. So few, if any, of my commentaries touch on music, model trains, religion, or the First Amendment. T appears that chocolate is the focus of a MauledAgain blog post about once every two years. The list is short: More Praise for Chocolate, with a Tax Twist, Proof Chocolate is Medicinal: More Reason to Buy Me IRS Chocolates, Should the Tax Law Provide a Fix for This Looming Catastrophe?, Chocolate: Good News. Bad News. Tax News?, Chocolate? Yes!, One More Price Comparison: Chocolate, Income and Wealth Inequality Becoming a Disaster, and Horrors! Say It Isn’t So! .

Sadly, the last two of that series of posts about chocolate were far from heartening. They were reactions to bad news about chocolate. But now comes good news, though it is in many respects, an unsurprising repeat of the good news shared in the at least three of the first five posts in that series listed in the preceding paragraph.

According to this story from late last month, studied presented at the Experimental Biology 2018 annual meeting demonstrate that consumption of dark chocolate with a minimum of 70 percent cacao “has positive effects on stress levels, inflammation, mood, memory and immunity.” The report indicates that this is the first time the effect of the flavonoids in cacao on human subjects has been measured.

Perhaps I have not been consuming enough chocolate. Perhaps, in light of the report’s mention of the need for more studies, I can become a volunteer. Imagine, volunteering to eat more chocolate in return for having blood drawn every few days. It’s a deal.

Almost two years ago, in Does the “No New Taxes” Crowd Think Tax-Financed Public Goods Are Free?, I criticized Connecticut Republicans who accused the state’s governor of “planning a new tax” simply because the state’s Department of Transportation applied for federal grant money to set up a pilot program exploring how mileage-based road fees could be used on the heavily congested I-95 corridor. Connecticut has a problem. Current law prohibits tolls on its roads and highways. The state’s highways need repair, reconstruction, and maintenance. Without some sort of revenue, at least $4.3 billion of those repairs will be postponed or canceled.

According to this report, the Speaker of the House has predicted that no matter which party controls the state house and the legislature, those in office in January 2019 will face the challenge of dealing with the funding shortfall. Both the speaker and the outgoing governor support reinstituting tolls, which were eliminated several decades ago after a fatal crash at a tollbooth. Tolls would generate roughly $1.2 billion annually.

It did not take long for opponents of tolls to jump into the debate. They claim that state citizens already pay too many taxes. They make this argument even though pending proposals include a variety of discounts for state residents, a concept I discussed six years ago in User Fees: Differential Rates Based on Residency.

If Connecticut limits its tolls to interstate highways, its residents could easily avoid the tolls in most situations by using parallel highways. One of the reasons Connecticut’s interstate highways are in bad condition and congested is their use as local roads by residents. Unlike most interstate highways, I-95 in Connecticut has exits and entrances almost every mile. Traffic is slowed, and wear and tear increases, by vehicles that pop onto the highway at one exit, move slowly as though they are on local roads, and then jump off at the next exit, probably with the goal of avoiding one or two traffic lights. If the use of Connecticut’s interstate highway system as a local street system were deterred by tolls, there would be a double benefit. Tolls would be paid mostly by interstate traffic, and the wear and tear on the highway would be reduced, thus cutting costs.

Connecticut Republicans claim that a better approach is to borrow money to pay for the repairs and maintenance. What is unclear is how those loans would be repaid. Would not some source of public revenue, whether taxes or user fees such as tolls, be required? My reaction to that idea remains what it was two years ago in Does the “No New Taxes” Crowd Think Tax-Financed Public Goods Are Free?:

[Connecticut state senator Toni] Boucher and her anti-tax colleagues also fail to understand that Connecticut taxpayers are financing the cost of providing highways for nonresidents who travel through the state, especially those who do not stop and patronize Connecticut businesses. There are no toll roads in Connecticut, perhaps another indication that somehow, some way, magically, highways will appear and take care of themselves without anyone being “hit” by a tax, fee, or other charge, ever.

The fact that the grant [to study mileage-based road fees] being sought by the interstate coalition is nothing more than money for learning about the mileage-based road fee doesn’t matter to the anti-tax crowd. Opposition to funding this grant is nothing more than opposition to education. It does not surprise me that anti-tax and anti-education efforts are political comrades, if not one collective.

Another Republican legislator, state senator Fasano, claims that “More taxes and more burdens on Connecticut drivers is not the way to improve transportation in our state.” Then what is the way, senator? Taxes on milk? Slave labor? Pretense that potholes don’t exist? Deporting half the population and thus cutting down on traffic congestion? Walls at the border so that nonresidents of Connecticut cannot use Connecticut highways? What wonderful plan do you have to fix the problem? Criticizing everyone else is not a plan. It’s an indication that you have no plan, other than to appeal to the basic selfishness of drivers who want free highways and think someone else is going to pay for them. It’s an appeal for support from “takers not makers” who you claim to despise.

* * * * *

If the anti-tax crowd had their way, there would be no taxes. But then there would be no highways, or police, or anything else. Or there would be corporate-owned highways, corporate-owned police, and corporate-owned everything else, dictated by the oligarchy and impervious to the voting booth. Once we reach that point, surely most of the people sucked into the anti-tax movement will realize it was nothing more than a front for oligarchic takeover of public services, and they’ll be screaming for the do-over or reset button. Unfortunately, in much of life, there is no reset button.

Though the failings of the anti-tax movement and its corollary let-the-oligarchs-own-and-control-everything plan should be obvious to anyone with a pulse, the inability of too many people to balance the long-term with the short-term makes it too easy for the manipulators to prevail. Maybe when they’re on a collapsing bridge or recovering from a pothole-induced injury supporters of the “no taxes, everything is free the way it was when I was two” movement will find enlightenment.

It came as no surprise to read the report that Apple has increased its dividend payment and is investing $100 billion to buy back stock, which will drive up the per-share stock price and increase earnings per share without increasing earnings. Where is Apple getting the money to do this? If you answer “tax cut,” you are correct. The writer of the article notes that, “Lawmakers have been hoping Apple and other companies would use the overseas cash to create more jobs in the U.S. and spend more on other projects that will help accelerate economic growth.” That makes me laugh. Lawmakers are hoping? Perhaps lawmakers should have been studying, reading, learning, analyzing, and thinking. Perhaps lawmakers should have been writing. What should they be reading? This, from How To Use Tax Breaks to Properly Stimulate an Economy:

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.

They also could learn from the plan I have proposed multiple times, as described most recently in How To Use the Tax Law to Create Jobs and Raise Wages:

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.

If members of Congress gave closer attention to recent economic news and commentary, and applied critical thinking and careful analysis, they might realize how close the economy has crept to the edge of the cliff. It is best to avoid keeping one’s visual focus on the blue sky when a cliff looms underfoot.

Last week I attended a continuing legal education program at the law school which focused on the ethical and practical problems faced by attorneys whose clients are engaged in growing or selling medical or legally approved recreational marijuana or who do business with anyone so engaged. Among the issues addressed were several dealing with the section 280E Internal Revenue Code restriction on the deduction of business expenses by those engaged in growing or selling marijuana. Those activities technically remain illegal under federal law.

The program touched on some of the tax issues I have addressed from time to time, but not all of them. See, for example, No Deductions for Medical Marijuana Distribution Expenses, A Not So Dopey Tax Question, Why Not Read the Entire Sales Tax Statute?, and God’s Blessing Can’t Save Prohibited Deductions. In these commentaries I have described two cases involving the application of section 280E to medical marijuana businesses and the question of whether sales of medical marijuana in New Jersey are subject to the New Jersey sales tax.

As I listened to the discussion, another issue popped into my head. It was inspired by the discussion of how state law permitting the sale of medical marijuana collides with federal law that treats the sale of marijuana as a crime. Leaving to others more expert in questions of federalism, states’ rights, comity, and politics, I wondered how many of the states permitting the sale of marijuana continue, perhaps unintentionally, to penalize growers and sellers of medical or legally approved recreational marijuana. Most states require taxpayers to compute state taxable income by starting with federal taxable income, or perhaps in a few instances federal adjusted gross income, and then adding and subtracting adjustments designed to reflect differences between how the state tax law treats a receipt or expenditure and how the federal tax law treats those items. For example, if a state’s tax law provides for a different standard deduction than does the federal tax law, an adjustment is provided to account for that difference.

So do any of the states that have legalized medical or recreational marijuana and that require computation of state taxable income by using federal taxable or adjusted gross income as a starting point provide for a subtraction to permit deduction of the expenses denied by section 280E? If not, why not? The answer to the first question is simple. Some states have, and some states have not. A bit of quick research, not designed to examine every state, indicates that an adjustment exists, for example, in Colorado, and Hawaii, but not yet, for example, in California or Massachusetts. The answer to the second question probably is a simple matter of a state legislature not being aware of the need to provide for an adjustment, or of not getting around to it because of other, perhaps unrelated, issues.

Finally, I again leave for the experts in constitutional an criminal law the question of whether state legislators and other officials, by enacting legislation that permits behavior contrary to federal law, and that provides economic support in the form of state income tax deductions, are aiding and abetting violation of federal criminal law. It will be interesting to see how these issues play out, especially as those opposed to federal interference with state law when it’s a matter of civil rights, environmental protection, abortion, or gun control suddenly becomes fans of Washington, D.C. when it comes to marijuana control. As a neutral observer with no stake in the matter, being neither an advocate or opponent of marijuana use, it will be enlightening to watch what happens when the “keep D.C. out of our state” crowd starts doing what its adherents claim to hate and start trying to prohibit state income tax deductions for the medical marijuana industry.

Last week, in Another Reason the 2017 Tax Cut Legislation Isn’t Good for Most Americans, I commented on one of the many flaws in the 2017 tax legislation. It wasn’t the first. Now there is another one to examine. I doubt it will be the last Eventually I’ll run out of adjectives to modify the word “Another” as the list of stupidities in the 2017 tax legislation continues to grow. Eventually it will be time to use numbers.

Last week, the Staff of the Joint Committee on Taxation released Tables Related to the Federal Tax System As in Effect 2017 Through 2026. One of the provisions examined by the Staff is the new deduction designed to benefit low and middle income business owners. The deduction was intended to help businesses that would not benefit from the corporate rate reduction. Anticipating abuse by high-income, the Congress restricted its use by professionals in certain service businesses because the Congress apparently thinks that everyone in those types of businesses are high income taxpayers. But because the legislation was rushed through the Congress, did not go through the usual set of extensive hearings and comments, and was drafted by an uncoordinated group of lobbyists each pushing their special deal without anyone taking a broad, overall look at the intersection of the changes and Internal Revenue Code provisions as amended, something unjustified happened.

According to the Staff, of the $40.2 billion in tax savings provided by the deduction in 2018, $17.8 billion will go to taxpayers with income of $1,000,000 or more, and another $3.6 billion with go to taxpayers within income over $500,000 and under $1,000,000. That means that more than 50 percent of the tax cut provided by this deduction doesn’t go to low and middle income business owners. It goes to the wealthy. By 2024, the pecentange going to that group becomes even higher.

This absurd outcome is yet another demonstration of the foolishness of removing all but the most powerful and wealthy individuals from the process of enacting tax (and other) legislation. In a rush to earn points with taxpayers, most of whom will benefit very little in terms of real dollars, and some of whom actually suffer financially, from the legislation, caution was thrown to the wind, and examination of unintended consequences was abandoned. Sadly, too many people getting a few dollars after taxes from a one-time bonus are thinking that they are making out well, despite the eventual price they will pay, one way or another, when the economy crashes from the weight of the overwhelming budget deficit and national debt burden generated by yet more shifting of wealth from the 99 percent to the one percent. Whether it’s in the form of higher taxes in the future, which is something the 2017 legislation provides, cutting or elimination of Medicare and Social Security, degradation of national defense capacity, wholesale failure of infrastructure, a collapsed stock market, interest rates higher than those of the 1970s, or worse, the uninformed, the easily misled, and the apologists for ignorance and greed will be the focus of the laughter of those who have engineered one of the, if not the, biggest and most destructive wealth shifts in history.

The latest 2018’s Best & Worst Entry-Level Jobs report from WalletHub includes some rather interesting information about tax attorneys. It also includes information about some other types of attorneys, though not all. I did not see any references to criminal defense attorneys or trusts and estates lawyers. In fact, only four attorney positions are on the list: tax, employment law, patent, and unclassified. Nor did I find any references to physicians, pharmacists, or nurses as I did searches for occupations and careers that wandered through my brain.

Tax Attorney I (I’m not sure what the “I” signifies and I did not see Tax Attorney II) was ranked at the top of “highest starting salaries,” even ahead of Patent Attorney I. Despite the lure of the dollars, Tax Attorney I only ranked 30th in the “Best First Jobs” list. Tax Attorney I ranked first in “Growth Potential,” 94th out of 109 in “Job Hazards,” and 28th in “Immediate Opportunity.” The short list of jobs ranking worse in “job hazards” are pretty much the sorts of jobs one would expect to be fairly risky. The top four positions in “Growth Potential” were monopolized by the four attorney classifications, and by score, Tax Attorney I bested all but the unclassified Attorney I.

Engineering jobs dominated the top twenty in the “Best First Jobs” list, which comes as no surprise. At the bottom of the list are a variety of blue-collar jobs, which the trade schools are advertising as offering much higher salary and growth opportunities than most other career tracks.

Though the lists are interesting, they ought not steer individuals one way or the other when it comes to selecting careers. The problem, for me, is that “tax attorney” means many different things. Being a tax attorney in the Office of Chief Counsel to the IRS or the Tax Division at the Department of Justice presents different financial opportunities and job hazards than being a tax attorney in a small suburban or rural practice. Working as a tax attorney for a Big Four accounting firm or a large international law firm are very different propositions in terms of financial opportunities and job hazards. Tax attorneys also show up in corporate legal departments, as attorney-advisors to Tax Court judges, and as solo practitioners. Whatever information is attributed to tax attorneys as a group says very little about the possibilities with each of these variations.

Of course, there was nothing about tax law professor. It’s not an entry-level job. Maybe the next survey will focus on jobs that are entered as a second or later career step. I’ve never considered being a tax law professor a job. Perhaps that will keep it off that next list.

It’s no secret I’m not a fan of the 2017 tax legislation that lowered taxes significantly for the wealthy, gave some modest or trivial tax decreases for most taxpayers, jettisoned enough deductions to offset part of those decreases, and opened the door to even wider income and wealth inequality gaps. Claims that the cuts for corporations would generate meaningful wage increases and a parade of new jobs have been, aside from the occasional outlier, disproven by the continuing stream of job cuts and token $100 to $1,000 one-time bonus payments.

So when I read the headline to a recent article, I was not surprised. The headline said it all: “Big banks saved $3.6B in taxes last quarter under new law.” Nor was this a surprise to expert analysts, who predicted that banks would save $19 billion in taxes for 2018. Though higher interest rates charged on loans generated a small portion of the banks’ bottom line increases, most of the increases came from the tax cuts.

What are the banks planning to do with this infusion of funds? Most of it will be paid to shareholders as high dividends and stock buybacks. Employees will get raises, but I doubt they are holding their breath because they are probably praying that the raises keep them even with rising inflation.

What about bank customers? Will banks increase the insulting one-tenth of one percent interest rate on checking accounts and the paltry rates on money market and savings accounts? Will banks roll back the constantly-increasing overdraft fees, late charges, paper statement fees, ATM fees, and other charges and penalties? Will banks lower, or at least refrain from increasing, interest rates on loans?

The shift of assets from the 99 percent to the one percent continues. And the belief, deep in the hearts of most of the 99 percent, that they are destined to acquire membership in the one-percent club, and their desire that it be at least the economic paradise it presently is, blinds most people to economic reality even though most people sense that something is very wrong, and even though far too many people already are suffering. Oh, sure, the advocates of the asset shift will claim that there are more jobs now than during the past few years, but they neglect to mention that some of those jobs are part-time and most pay minimum wage or just a bit more than that. The writing is on the wall. Can enough people read? Can enough people understand? Can enough people do what needs to be done?

Reader Morris pointed me in the direction of a question at the intersection of tax and theology. There are many questions at that intersection, but this one was interesting for several reasons. The question as posted was “Do I tithe off my tax return,” which made little sense, but which was clarified by the video, where the question was articulated as “Do I tithe off my tax refund?”

People who tithe contribute ten percent of their income. So they encounter the same question that greets students in basic income tax courses. “What is income?” The question is asked in both contexts for the same reason, specifically, to avoid double counting. For example, if a person pays tax on their wages, and puts some of their take-home pay into a savings account, that person does not have income subject to income tax when the person takes money out of the savings account, aside from any interest that is earned. Similarly, if a person tithes on their wages, they ought not consider themselves bound to tithe on amounts taken out of the account, aside from interest earned on the deposits.

An income tax refund, aside from the portion generated by refundable credits, is very similar to withdrawal of money from a savings account. The refund arises from the fact more money was put into the taxpayer’s account at the IRS, through withholding or estimated tax payments, than is necessary to pay the tax liability. The fact that some people like to pay in more than is necessary because it forces them to save, even without any interest being earned, demonstrates how similar putting some take-home pay into a savings account is to putting extra money into one’s IRS account.

I wonder, though, how many people tithe on amounts that are included in taxable income but that are not easily recognized as income because the amounts are not received in cash, do not pass through the person’s accounts, or are reinvested rather than being withdrawn. Do people who tithe compute the tithe on gross income as defined for federal income tax purposes, or on expanded income that includes amounts excluded from gross income? Do recipients of scholarships tithe on the scholarship amount? Under federal income tax law, the scholarship is income but is not included in gross income because of an exclusion. Do people tithe on gifts, another amount that constitutes income but is not included in gross income? The answers, we are told, are “the subject of debate within the Christian community.” Some claim, for example, that an inheritance is subject to tithing, but others disagree. Unlike the Internal Revenue Code, Scripture does not contain a definition of income.

Followup: Reader Morris has shared a reference to Adam Chodorow's paper, Maaser Kesafim and the Development of Tax Law, in which he "explores the development of the rules of Maaser Kesafim, the Jewish practice of non-agricultural tithing, and compares the income definition rules found in the halacha to those found in the Internal Revenue Code." Millenia ago, the "ancient rabbis" were struggling with the issue of what should be included in income. So it appears that the measurement of income for purposes of tithing is not only "the subject of debate within the Christian community" but also within the Jewish community, and has been for a long time.

According to this recent story, a billionaire who is registered as an independent but who has donated to both major political parties though chiefly to Republicans has announced he is now going to support Democratic candidates in order to give Democrats control of Congress. Seth Klarman explained that his goal is to undo at least some of the policies of the current Administration.

Klarman focused on tax policy. Not unlike the handful of wealthy individuals who understand the foolishness of supply-side economics and trickle-down theory, Klarman stated, “I received a tax cut I neither need nor want. I’m choosing to invest it to fight the administration’s flawed policies and to elect Democrats to the Senate and House of Representatives.” Klarman holds members of the current Congress responsible for having “abandoned their historic beliefs and values.” One of those values is fiscal responsibility and the avoidance of needless federal deficits.

Though Klarman also has concerns about other issues, such as trade protectionism and the environment, it is his reaction to the recent tax law changes that gets my attention. It’s not that he agrees with my position on supply-side economics and trickle-down theory. It’s the opportunity he has to use money to influence or even control the debate about tax policy. Granted, he would have had that opportunity without the tax cut he received, but the tax cut gives him even more political clout. Unlike many other wealthy tax cut recipients, he has made no secret of his intent to step up his political campaign contribution and related efforts. Though I applaud him for his transparency and honesty, as well as his tax policy position, his disclosure inspired me to think about how tax policy, which affects everyone, is in the hands of a small group of Americans who have the resources to control legislatures and executive branch officials. Of course, this is a problem not only for tax policy, but for other issues, such as environmental, trade, labor, health, transportation, and housing problems.

The flaw in the system is the infusion of money into the political process. Perhaps every time someone uses money to try to influence a legislator or executive branch official, that person must bring along someone who holds the opposite view on the issues being discussed. Or perhaps wealthy individuals who fund political decisions should be required to provide funds to those whose voices are suppressed because they lack the financial resources to bring their views to the table. Oh, wait. There is an easier way to do that. Instead of giving the wealthy tax cuts that provide even more money to use in controlling the political process, repeal those tax cuts and instead provide substantial tax relief to the unvoiced, so that they can use their new-found economic gains in part to bring their viewpoints to bear on the decision makers.

One of the principal purposes of the income tax is to eliminate the wealth and income inequality that almost destroyed the nation’s economy during the era of unregulated wealth when a paradise existed for robber barons. By distorting the income tax, Congress has, over the past three and a half decades, reopened paradise for the wealthy. Congress claims to act on behalf of everyone, but it acts in accordance with the conditions imposed on the funding its members receive. One of those conditions is to make it even easier for the wealthy to restore the oligarchy of feudalism, which is their paradise.

Does it matter that Klarman is trying to undo the tax cuts? Does it matter that he has more economic power to do so because of the very thing he is trying to undo? It is a conundrum, for him and for all of us. Who should be deciding tax policy?

Too often, the anti-tax crowd portrays opposition to tax as beneficial for society. A frequent social media meme claims that before the income tax was enacted, people “kept all their earnings.” They fail to see that people paid more for goods and services than they otherwise would have paid because they were paying tariffs passed through by retailers, wholesalers, and manufacturers. They fail to see that they were paying for goods and services they otherwise would not have needed to purchase because there were no taxes to provide economy-of-scale social benefits that would remove the need for those purchases. An example is the reduced cost of tires, wheels, and axles and the reduced need to purchase and repair them once highways were improved with tax-based funding. People willing to pay ten times as much to fix pothole-caused damages than they would pay in pothole-prevention taxes demonstrates the short-sightedness and narrow-mindedness of the anti-tax emotion.

Recently, as recounted in this report, the state of Kentucky has provided a lesson the significance of taxation and the risks of not understanding what taxation involves. Two weeks ago, both houses of the Kentucky legislature, facing a budget shortfall, enacted a tax bill that cut both the individual and corporate income tax rates and increased and broadened the sales tax. It also increased the cigarette tax. Opponents of the legislation pointed out that the changes would increase taxes on poor and middle-income residents. The governor vetoed the bill, but not for those reasons. The governor wants a more comprehensive set of changes. He wants a tax system that is not “arbitrary and complicated.” He also argues that the legislation provides for hundreds of millions in spending that the state cannot afford to spend. It did not take long for the legislature to override the veto.

At the root of the problem is a simple concern. The governor claims that the legislation allows for spending that the state cannot afford to spend. But the question is whether that spending is spending that the state cannot afford not to spend. Without the tax revenue, spending on schools, prisons, Medicaid, and other essential programs would be cut in ways that would generate long-term costs far exceeding the tax costs.

Though there always is the issue of how tax burdens should be allocated among taxpayers, that issue does not seem to be at the center of the debate. The underlying concern appears to be the claim that taxes are bad, bad for workers, bad for business, bad for investment. Yet in every place that tax cutting has run rampant, such as Kansas, Louisiana, and Oklahoma, the longer-term consequences of cutting taxes has generated serious economic problems, and has not provided the economic paradise promised by the supply-siders.

Ultimately, anti-tax becomes anti-education, anti-health, anti-infrastructure, anti-safety, and anti-all-other-sorts-of-benefits best provided by government, that is, society. The anti-tax reply, that these programs should be turned over to the private sector, is nothing short of a death sentence for most of these programs, because the private sector yearns for profits above all else. When, for example, the private sector comes to own all streets, highways, bridges, and tunnels, the amounts people will be paying for their use will dwarf the amount that they would have been paying in taxes. They will have no voting booth into which to take their unhappiness. The return of royalty and nobility will be such a disappointment to the peasants.

A little more than a week ago, in How Not to Run a Tax System, I criticized the efforts by the Office of Management and Budget to get its hands deeper into the process of issuing tax regulations. In fact, OMB’s goal was oversight of the tax regulatory process. I pointed out that OMB does not have the tax experts necessary to deal with technical tax issues.

Late last week, The Department of the Treasury and OMB reached a Memorandum of Agreement. Under the agreement OMB’s Office of Information and Regulatory Affairs will review tax regulations that may “create a serious inconsistency or otherwise interfere with an action taken or planned by another agency,” “raise novel legal or policy issues,” or “have an annual non-revenue effect on the economy of $100 million or more.” To implement this agreement, Treasury “will submit to OIRA a quarterly notice of planned tax regulatory actions that describes each regulatory action; identifies any significant policy changes proposed or resulting from the regulatory action; and articulates the basis for determining whether the regulatory action is covered by” the agreement.

Does anyone think this will speed up the need for tax guidance? I don’t. I’m convinced it will slow it down. Even allowing for the delay to permit OMB to hire people who have the experience and education necessary to analyze tax regulations, proposed regulations will sit on someone’s desk for some period of time rather than being moved along the already slow process. If OMB disagrees, the process will take an even longer period of time.

Aside from delays at OMB, Treasury and OMB will need more time to figure out which regulations need to be diverted to OIRA. Someone will need to do computations to figure out “annual non-revenue effect on the economy.” That’s more hiring that needs to be done. Who figures out if there are inconsistencies with what other agencies are doing? Considering the extent to which Congress has dumped just about everything into the tax law, which means that Treasury regulations bear on every other federal agency, it is quite likely that Treasury and other agencies will be arguing about implementation of tax law that affects what other agencies do. Of course, the solution to this nonsense is for Congress to stop using the tax law to handle defense, health, housing, environmental, labor, and other policies, and to strip the Internal Revenue Code of provisions that have nothing to do with the collection of tax revenue, especially the “do this and get a tax credit” provisions.

As I asked Friday a week ago, “Is this any way to run a business? A government? A tax regulation process? A tax system? Of course not. How long will it take, if ever, for Americans to figure this out?” I’m willing to guess that 99.9 percent or more of the nation’s adult population is totally ignorant of the ongoing Treasury-OMB power struggle. It doesn’t make for good sound bites, it lacks marketing buzz, and its connection with people’s everyday lives is not easily understood. What looms ahead is even more uncertainty and longer periods of waiting for clarification. How’s that going to work out?

The title of the article, Why tax season is good (and bad) for Americans' health caught my eye. Expecting to read about increases in stress-related illnesses and even death in mid-April or attacks on tax return preparers, I surprised to discover that Diana Farrell focused on the use of income tax refunds to pay for health care. Citing research by the JP Morgan Chase Institute, of which she is CEO, Farrell pointed out that people who file their income tax returns early are more likely to receive larger refunds and to spend a larger portion of the refund on health care. American health care spending increases by 60 percent in the week that the refund is received. Taxpayers getting refunds in February increase health care spending over the next two and half months by 38 percent, whereas the percentage increases are lower for those receiving refunds after February. More than half of the health care spending was for services that should have been sought sooner. The conclusion, that cash flow problems cause Americans to delay their health care, makes sense. That, of course, is not a good outcome.

Farrell notes that if tax refunds are going to be used to finance health care, the timing needs to be adjusted. Farrell explains that taxpayers cannot control when they receive refunds, aside from filing early, where possible. Even filing early doesn’t guarantee that a refund will be received a week sooner than it would have been received had the filing been delayed by a week. Farrell suggests, and I agree, that it is problematic to schedule health care based on when tax refunds arrive.

Farrell proposes a solution. She thinks that “policymakers and employers should consider making changes that would allow consumers to access funds throughout the year. Policymakers might consider offering periodic tax refund payments -- perhaps quarterly payments so that families wouldn't have to defer care until tax season.” She also proposes permitting taxpayers to receive advance refunds on an emergency basis. Another proposal she offers is to permit filing earlier and receiving a refund based on “year-to-date” income.

Though well-intentioned, the first proposed solution presents too many disadvantages. Implementing it would require more forms, more filing, more IRS employees, and more aggravation. Because the amount of the refund is not known until the beginning of the following year, advance refund payments would need to reflect estimation, speculation, and guesses. Worse, if too much is paid during the year, April could bring the shock of owing money. The second proposal poses similar challenges. The third proposal is unworkable. Imagine trying to obtain “year-to-date” Forms 1099, or computing partial-year deductions. Worse, it would mean filing another return for the entire year, thus at least doubling the number of returns being filed and the time invested in filling out those returns. Talk about increasing health risks by doubling the amount of stress to which a person is subjected.

The solution is much easier. Tax refunds exist because more tax is paid or withheld during the year than is owed. Too many taxpayers use tax withholding and estimated tax payments as a way to force themselves to save money, even though they earn no interest on the money. Does it not make sense to reduce the withholding and estimated tax payments, and to simultaneously put the reduction into an account dedicated to health care? Taxpayers subject to withholding could achieve the same, or a better, outcome by asking employers to reduce tax withholding to a more appropriate level and to put the difference into an account, whether or not it is a tax-favored account. This helps those without budgetary discipline experience forced savings without using the IRS as a bank that prohibits withdrawals until tax refund season.

Granted, that solution would be unnecessary if the American health care system were fixed so that premiums were paid evenly throughout the year and care could be obtained when necessary. How can that be done? A variety of solutions have been proposed, but rather than getting into an extensive analysis of the health care system, I will simply point out that what Farrell’s Institute has discovered is yet another instance where a non-tax problem ends up burdening the tax system.

Waiting for Congress to fix things is like waiting on the side of a desert road for an ice cream truck to appear. Better for Americans to turn to self-help, fix their withholding and estimated taxes, put money into accounts – an idea Farrell also suggests – and obtain timely health care that promises long-term health improvements and long-term reductions in health care costs.

One of the best examples of how trickle-down supply-side tax policy is a total failure is the Kansas experience. I have written about the terrible outcome in that state on several occasions. In A Tax Policy Turn-Around?, I explained how the Kansas income tax cuts for the wealthy backfired, causing the rich to get richer, the economy to stagnate, public services to falter, and the majority of Kansans to end up worse than they had been. In A New Play in the Make-the-Rich-Richer Game Plan, I described how Kansas politicians have been struggling to find a way to undo the damage caused by those ill-advised tax cuts for the wealthy. In When a Tax Theory Fails: Own Up or Make Excuses?, I pointed out that the Kansas experienced removed all doubt that the theory is shameful. In Do Tax Cuts for the Wealthy Create Jobs?, I described recent data showing that the rate of job creation in Kansas was one-fifth the rate in Missouri, a state that did not subscribe to the outlandish tax cuts for the wealthy that Kansas legislators had embraced. In Kansas Trickle-Down Failures Continue to Flood the State and The Kansas Trickle-Down Tax Theory Failure Has Consequences, I described how large decreases in tax revenue, the opposite of what is promised by the supply-side theorists, triggered cuts in public education, and in turn stoked the fires of voter frustration. The voter reaction, however, did not push out of office enough supply-side supporters. In Who Pays the Price for Trickle-Down Tax Policy Failures?, I described how the governor of Kansas, who claimed that tax cuts for the wealthy would generate increased revenues, proposed to deal with the resulting revenue shortfall by cutting spending for essential services. In Kansas As a Role Model for Tax Policy?, I described how, despite the failures of supply-side economics in Kansas, its then governor, the chief architect of implementing the policy in his state, hailed his failure as a role model for the nation.

One of the problems I noted in Kansas As a Role Model for Tax Policy? was the adverse impact of the supply-side tax policy legislation on the state’s public education system. Because the tax cuts reduced state revenue, the outcome predicted by critics of supply-side economics, proposals to cut funding of public education ended up being litigated. As reported in this article, the Kansas Supreme Court held that the state’s $4 billion funding allowance was insufficient to meet the requirement of the Kansas Constitution that the state provide a suitable education for every child in the state. Faced with the prospect of the court ordering a stop to distribution of state funds so long as the funding was not increased, in effect shutting down all state schools, some of the Republicans in the state Senate, all of the Democrats in the Senate, some Republicans in the House, and a few Democrats in the House voted to increase school funding by $534 million, the bill passing each chamber by very narrow margins.

Republicans who opposed the measure, which was endorsed by the state’s Republican governor and its Attorney General, are worried that they will need to raise taxes to generate the funds. Democrats who opposed the measure are concerned that it does not provide for enough funding to satisfy the Supreme Court’s order.

Some supporters of the funding increase think that tax revenues will increase sufficiently to provide the money. How that will happen has not been explained. Apparently belief in failed supply-side economics dies hard. Some people continue to believe that the planet is flat. Perhaps they went to underfunded schools. What a pity.

The other day, listening to Philadelphia’s news radio station, I heard a commercial for a retailer in Delaware. One of the featured parts of the commercial, repeated and emphasized, was the proposition that people should “come to Delaware” to make the purchase because, in addition to the other advantages of patronizing this retailer, the purchases would be “tax free.” I cannot find a recording or transcript of the commercial.

The proposition that the purchase is tax-free is true for Delaware residents, because there is no sales tax in Delaware. The proposition that the purchase is tax-free for Delaware nonresidents traveling from Pennsylvania, New Jersey, or other states is not true, because those purchasers are subject to a use tax in their home state. That the commercial is directed to potential purchasers beyond people living in Delaware is demonstrated by the use of “come to Delaware” as part of the sales pitch.

As I listened to the commercial, I immediately wondered whether the retailer had an obligation not to mislead purchasers with respect to their use tax obligations. If Pennsylvania, for example, identified a Pennsylvania resident who made a sales-tax-free purchase in Delaware and failed to remit Pennsylvania use tax, could that person sue the retailer for misleading the person into failing to pay the use tax? Or is the retailer absolved by the Pennsylvania resident’s independent obligation to know, and comply with, Pennsylvania use tax law? If the resident, when arriving at the Delaware store, is told that there is a use tax obligation in Pennsylvania, could the purchasers sue the retailer for a misleading commercial? If Pennsylvania revenue officials get wind of the commercial, could they, should they, initiate proceedings to compel the retailer to change or remove the statement about the purchase being tax free?

For the moment, I won’t answer or try to answer the questions. Someone might want to use this a moot court problem or as an examination question. I won’t, because I haven’t been teaching tax courses since 2016.

In theory, the process of administering new tax laws works. Congress amends the Internal Revenue Code, and the Treasury Department, in cooperation with the Office of the Chief Counsel to the Internal Revenue Service, interprets the changes to the extent that the Congress directs the Treasury Department to do so or to the extent the language of the law does not answer the questions that arise when the law is applied to real-life situations. In practice, it has almost worked that way most of the time. Occasionally, there would be a snag. Treasury and the Office of Chief Counsel might disagree on the interpretations. Public comments might delay issuance of guidance. The principal guidance shows up in what are called Treasury Regulations.

But now, the reality of incompetence, greed, power addiction, and egos threatens the implementation of recent tax legislation. In an article with a technically incorrect headline, White House Turf Battle Threatens to Delay Tax Law Rollout New York Times writers Alan Rappeport and Jim Tankersley explain how two Administration officials are making a mess of the tax law implementation system. Technically, the tax law has been enacted. It has been rolled out. What has not been rolled out is the guidance necessary for taxpayers and their advisors to comply with the law in situations not specifically addressed by the legislation.

What’s the problem? The Treasury Department is prepared to function as usual, drafting, proposing, and issuing Treasury Regulations. However, the head of the Office of Management and Budget wants oversight of the process. Though the Treasury Department and the Office of Chief Counsel to the Internal Revenue Service are staffed with tax experts, the Office and Management and Budget doesn’t have the experience and the staff to deal with technical tax issues to the same extent and to the same depth as does the Treasury Department. If it prevails, it will need to hire tax attorneys, a process that will add even more delay to the issuance of guidance.

The Office of Management and Budget wants to impose its cost-benefit analysis rules on the Treasury Department. Until now, the process of tax regulation issuance has not been subject to those rules. Underneath this debate is a political struggle, an attempt to control the scope of the tax breaks enacted in the tax law. Some members of Congress, and it takes one guess to identify them, want interpretations as favorable to taxpayers as possible, and see the Office of Management and Budget as the gateway to such an outcome. The Treasury Department has already issued rules designed to prevent hedge funds and private equity funds from circumventing provisions in the recently enacted tax legislation designed to curtail the carried interest tax break that the wealthy owners of those funds use to pay low capital gains rates on income generated from performing services, a tax break not available to most taxpayers. The reality of Washington politics is that as soon as someone cracks down on abuse, those being restricted look for every angle to wiggle out from the restrictions. Their lobbyists look for the weak spots. It appears they have found one, though these days the nation’s capital is flush with them.

Experts agree that if the Office of Management and Budget gets into the process, the process of interpreting tax laws will slow down even more, and taxpayers and their advisors will be making decisions blindly for even longer periods of time. Extending periods of uncertainty is the last thing the precarious national economy needs. Extending the regulations issuance process also has the effect of bringing more lobbyists into the picture. As one commentator put it, “The swamp is going to be enriched by this one.” Not, of course, that the current Administration has been draining any swamps, as it has been too busy enlarging them.

Is this any way to run a business? A government? A tax regulation process? A tax system? Of course not. How long will it take, if ever, for Americans to figure this out?

For almost fifteen years, I have advocated the enactment of mileage-based road fees to replace the increasingly less effective and less efficient liquid fuels tax. One slice of my reasoning is not unlike the realization, a long time ago, that reliance on taxes imposed on telegraph messages wasn’t going to work once newer technology came along. I have explained how the mileage-based road fee works, and why it is the best solution on the table, in posts such as 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.

Now comes news that Oregon, which has been experimenting with the mileage-based road fee, has decided that its pilot program is now ready for implementation. As part of the next step in the process, Oregon is working out an arrangement with neighboring Washington to coordinate application of the fee to interstate driving. The state of Idaho and the city of Surrey in British Columbia are also involved in discussions to work out ways for each state to receive its share of the fees. Participants have concluded that the technology is ready but express concerns that the public isn’t ready to shift from paying taxes on fuel to paying fees for road use.

The only question is when, not if. As liquid fuel tax revenues decrease and highways continue to deteriorate, at some point enough drivers will demand legislatures do something other than continuing with a failing system. Opposition exists because there are those who see threats and those who see opportunities. Those who see threats fear the loss of their interests vested in the existing system. Those who see opportunities are those falling over themselves trying to privatize the system so that large, faceless, unresponsive, and unaccountable corporations can take over yet another public function.