MauledAgain

Reader Morris directed my attention to an election report on the outcome of an Oregon ballot initiative that would have subjected changes in tax exemptions, credits, deductions, and fees to the same three-fifths legislative majority requirement that applies to tax rate increases. The initiative was proposed after Oregon’s Supreme Court held that the three-fifths requirement did not apply to the legislature’s elimination of tax exemptions and tax rebates. That decision is consistent with how most other states apply supermajority tax increase requirements.

Proponents of the ballot initiative feared that the legislature would use the decision as justification for increasing revenue and spending. Opponents pointed out that the initiative was intended to protect 367 tax breaks that cost the state more than $12 billion and that primarily benefit businesses. Fingers were pointed at real estate agents, who think that the state’s mortgage interest deduction is at risk.

When Oregon voters went to the polls, 65 percent of them voted against the initiative. That wasn’t quite a supermajority of voters, but it was much more than enough to defeat the initiative.

So what’s in the future when it comes to taxes at the federal level? Four points are made in this recent post-election article.

The first point is simple. “Because Democrats will control the schedule [in the House], GOP efforts to . . . broadly cut taxes anew won't see the light of day.” I think that is a safe, and easy, prediction, unless Trump is being honest about his wish to cut taxes on the middle class and his having an open mind to rolling back some of the 2017 tax cuts for wealthy individuals and large corporations and is able to persuade Senate Republicans to go along. All things considered, it is unlikely Senate Republicans, and their financial backers, will let that happen.

The second point is simple. “Democrats . . . could propose . . . requiring presidential and vice presidential candidates to release tax returns.” Legislation of that sort probably would pass the House, but, again, it is not difficult to envision Senate Republicans blocking it.

The third point is connected to the first point. “[Democrats] also want to upgrade roads, schools, mass transit and communication systems. . . . The big dispute is over how to finance the mammoth investment. . . . How to pay for their initiatives? Some Democrats say privately that one possibility is erasing reductions that last year's GOP-written, $1.5 trillion tax cut bestowed on wealthy Americans.” It is difficult to imagine Senate Republicans, and their wealthy financial backers, letting that happen.

The fourth point is related to the first and third points. “Another possibility [for financing infrastructure improvements] is raising the 18.4 cents per gallon federal gasoline tax, last boosted in the 1990s, by up to 1 percent annually.” Perhaps if they call it a user fee they might find a way around the mindless “no tax increases ever no matter what” position of the anti-tax crew. There is a chance that intelligence will prevail over emotion and some sort of adjustment to the tax to reflect inflation will be made, but I hesitate to call it anything more than a chance.

With a divided Congress, it is unlikely much of anything will be accomplished in the federal tax world. It is likely, however, that sparks will fly when it comes time to pass a budget. It would not be going out on a limb to predict that government shutdowns and stalemates with respect to federal budget decision are likely.

Those television court shows continue to provide material for this blog. Some examples can be found in previous posts such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, and Yet Another Easy Tax Issue for Judge Judy.

This time it’s a Hot Bench episode, for which I cannot find an online link. The plaintiff and defendant opened a joint bank account, with the plaintiff as the primary owner and the defendant as the secondary owner. Sometime thereafter, the plaintiff was incarcerated. When he was released from prison, he tried to open a bank account and become a customer of a bank. The bank refused to let him open the account, because a credit check revealed that the bank had a claim against the plaintiff. It wasn’t clear why the bank did not accept the plaintiff’s money and then seize it in satisfaction of the claim. The facts are unclear and there probably are banking law nuances of which I am not aware.

So what happened? While the plaintiff was in prison, the defendant went to a tax return preparer to have her tax return prepared. The return was prepared, a refund was computed, and the preparer arranged for the IRS to deposit the refund in the preparer’s account. The preparer then wrote and delivered a check to the defendant. The defendant cashed the check, and the bank did not hold the check and delay handing over the cash until the check cleared. Of course, the check bounced because there was no money in the preparer’s account. The bank started a process to get the money back from the defendant. The defendant testified that she tried to remove the plaintiff from the account while he was in prison, but the bank would not do so because it required the plaintiff to appear in person. The defendant also testified that she tried to find the preparer, but was unsuccessful because all she had was the preparer’s name.

The plaintiff sued the defendant, seeking damages on the basis that by depositing a bad check into the joint account, she made it impossible for him to open a bank account and move forward with his life financially. The court dismissed the plaintiff’s claim because it was not yet ripe. The court explained that the case was not ripe because no one had, as of yet, sued the plaintiff, recovered money from the plaintiff, or otherwise caused the plaintiff to be out-of-pocket incurring damages. The court also explained that the plaintiff had not provided sufficient proof of economic damage.

What struck me about the case were two questions about the defendant’s decisions with respect to the tax preparer. First, why go to a tax return preparer and not obtain not only the preparer’s name, but also the preparer’s address, telephone number, email address, web site link, if any, and a business card? A preparer who cannot provide that information is not a preparer who ought to be given someone’s business. Second, why permit the preparer to have the refund deposited into the preparer’s account instead of having the refund sent directly to the taxpayer? It simply makes no sense. The defendant was not asked these questions, probably because the answers did not bear directly on the issue in the case.

This case provides lessons to be learned by anyone who retains a tax return preparer. Get recommendations from friends and relatives who are trusted. Get more than the preparer’s name. Don’t let the preparer direct a refund into the preparer’s account. Be careful with joint bank accounts, and learn about the advantages, disadvantages, and risks of using them. Tax season might be a few months away, but it’s not too soon to begin thinking about who to use as a preparer in February, March, and April of next year.

One definition of insanity that circulates through society is the notion that doing the same thing over and over again and expecting a different result. People who disagree will point to a child shooting free throws in a basketball game who misses time and again and then hits one. The problem with that objection to the definition is that it does not take into account adjustments made by the child in shooting the ball, which is a natural reaction to having failed. If the child insisted that there was no need to adjust because all of the previous shots had fallen through the net, coaches and parents, and probably teammates, would become extremely concerned about the child’s eyesight or mental skills.

Last week, a meme popped up on my facebook feed. It pointed out that

Stock market is where it was a year ago. Wages are stagnant. National debt is out of control. Interest rates rising. Housing sales down. All this after huge tax cuts for corporations and billionaires. How much longer until Republicans learn that trickle down economics don’t work.”

I could not resist. I replied with a fairly short, for me, response:

They've had multiple opportunities to learn, considering that they have done this time and again with the same results. They know but don't care that trickle-down supply-side economics does not work, they aren't trying to help the middle class and the poor, the term is just a slogan to dupe Americans into voting for the oligarchs who want to own the world and relegate 99.9 percent to the status of, at best, serfs.

And before those who think my reaction is too extreme, Republicans, perhaps confident that gerrymandering and vote suppression will continue to leave a minority party running a nation the majority of whose voters don’t approve of their policies, have announced that they intend to cut Social Security, Medicare, and Medicaid payments. Some even claim that their goal is to eliminate those programs. It doesn’t take rocket science to figure out what the consequences will be if those things happen. Those who profess concern for the middle class and the poor by claiming that trickle down economics works, but who also are determined to cut or eliminate programs essential to the well-being of the middle class and the poor, are becoming increasingly bold and transparent with their actual intentions, just as some others are similarly becoming bold and transparent about their feelings. The bottom line is that trickle down economics, and its corollary supply-side economic theory, has the adverse effect that its proponents want. All that has changed is that they are confident that those adversely affected don’t have the determination, will, and courage to stand up to being bullied and mistreated. How sad.

Every now and then I remind people that tax is everywhere. I did that 13 years ago in Truly, Tax is Everywhere, 12 years ago in Attack of the Tax Form Clones, 7 years ago in Judge Judy and Tax Law Part II, and 6 years ago in Taxes as an Element in Damages, to mention but a few of the times I have made that point.

The other day I read a sports article, and to my surprise, and admittedly delight, up popped a tax tale, though not what one would expect. The article described the welcome that wide receiver Golden Tate received from Eagles fans when he was traded from Detroit to Philadelphia last week. Somehow, on his flight from Detroit to Philadelphia were Eagles fans returning to Philadelphia from attending the Eagles-Jaguars game in London, England. I say “somehow” as a one-word summary at the strange paths people must take when flying from one place to another.

Anyhow, according to the article, “On the plane, Tate took his seat next to a man who kept peering at his phone and glancing at the former Detroit Lions receiver. When the connection was made that it was, in fact, Tate sitting next to him, they started talking. The fan works for the IRS and told Tate about Philadelphia's wage tax, offering tax advice for the Eagles' road games. That's a new Welcome to Philadelphia moment.”

So many thoughts popped into my head. First, an IRS employee working in the Philadelphia area surely knows about the Philadelphia wage tax, but the IRS does not, contrary to what some people think, administer or enforce the Philadelphia wage tax. Second, should an IRS employee be giving tax advice to someone, even if the tax in question is not one administered by the IRS? Third, was the advice in the form of, “If you don’t have a good tax attorney adept with state and local taxes, they are easy to find in Philadelphia.” Fourth, did the IRS employee suggest, “When you look for a tax attorney in Philadelphia, make certain the attorney holds an LL.M. (Taxation) from Villanova University Charles Widger School of Law”? Fifth, was the IRS employee an attorney who at some point sat in one of my tax classes at Villanova? That’s not improbable, because many of my students have been avid Philadelphia Eagles fans, and kindly tolerated their colleagues who walked into class wearing jerseys of other teams, particularly those other three in the NFC East Division.

Perhaps it isn’t all that surprising that tax pops up on an airplane. I encounter tax questions not only at the school, even though I haven’t taught a tax course for two years, but also at the gym, at church, in the neighborhood, at family gatherings, on facebook, and at stores. And in many instances, the conversation starts before the other person or persons realize I know a thing or two about tax.

I say that tax is everywhere, but I wonder if tax exists in the afterlife. Eventually I’ll find out. If I can, I’ll let you know.

After reading this Philadelphia Inquirer article I concluded that inattention to precise wording causes needless confusion. A bit of background is important to understanding the issue.

Last year, California enacted increases in vehicle fees and gasoline taxes in order to fund repairs to crumbling highway infrastructure. The anti-tax crowd objected, and placed on this November’s ballot a proposal, Proposition 6, which would require voter approval of any increase in vehicle fees or gasoline taxes enacted after January 1, 2017. One might think the positions of those favoring and those opposing Proposition 6 are clear. So what is the language problem?

On the ballot, Proposition 6 is titled, “ELIMINATES CERTAIN ROAD REPAIR AND TRANSPORTATION FUNDING. REQUIRES CERTAIN FUEL TAXES AND VEHICLE FEES BE APPROVED BY THE ELECTORATE. INITIATIVE CONSTITUTIONAL AMENDMENT.” Proposition 6 proponents do not like that wording, because it does not “convey quickly enough its mission,” which is the repeal of the 2017 fee and tax increases. Though there is a process for challenging ballot language, but Proposition 6 proponents did not do so. Instead, proponents published advertisements, disseminated literature, and made robocalls telling voters that there was a mistake in the Proposition 6 language on the ballot. The mailer was designed to appear as though it was an official publication of government officials. This prompted those officials to alert voters that there is no Proposition 6 ballot error. Their advertising and mailers use the words “GAS TAX REPEAL INITIATIVE.” Proponents explained that they prefer to spend money educating voters rather than paying lawyers to contest the ballot language.

Opponents of Proposition 6 have characterized the supporters’ advertising, mailers, and calls as “deceptive.” They point out that the ballot language isn’t what they most preferred, which would be “The attack on roads and bridges.” They note that even though the language of the ballot isn’t what they wanted, they are “not trying to deceive voters.” Their campaign against Proposition 6 consists of showing voters how the increased revenues would fix roads and bridges in their neighborhoods.

Polling by a nonpartisan organization shows that between January and October of this year, support for Proposition 6 fell from 47 percent to 41 percent. Proponents of the proposition attribute the change to the inclusion of the ballot title in the more recent polling. Opponents attribute the change to how their campaign against Proposition 6 is resonating among voters. It probably also helps that opponents have raised $44 million, whereas proponents of Proposition 6 have raised $5 million.

One recipient of the official-looking mailer explained his dislike for it by noting that, “I felt like they were trying to pull one over on people who want to believe voting against every tax is a good thing.” On the other hand, a supporter argued that the mailer “ is just getting the conversation started about what the phrasing actually means on the bills we're voting on. I think the layperson doesn't understand the government rhetoric. They make it as complicated as possible."

Though surely there are better ways to title the ballot measure, claiming that the title is rhetoric and that people don’t understand the language is quite an overstatement, and does not justify trying to make campaign statements appear to come from election officials. There is a process for contesting ballot language, and a decision not to follow that process might turn out not to have been wise.

What title would I have put on the ballot? Something along these lines: “REQUIRE VOTER APPROVAL OF FUEL TAXES AND VEHICLE FEES ENACTED TO REPAIR HIGHWAYS AND BRIDGES, THUS ELIMINATING EXISTING AND FUTURE ROAD REPAIR PROJECTS.” In crafting this language, I try to avoid the proponents’ favored language, which omits the impact of approval, and I try to avoid putting the funding consequence ahead of the purpose of the proposal. I am confident neither side would be happy with my language, which perhaps suggests it sits nicely in the middle.

From the outset of this blog, I have made it a point to work Halloween into MauledAgain, usually looking for the silly or goofy but occasionally taking a more serious approach. The posts began with Taxing "Snack" or "Junk" Food (2004), and have continued through Halloween and Tax: Scared Yet? (2005), Happy Halloween: Chocolate Math and Tax Arithmetic (2006), Tricky Treating: Teaching Tax Trumps Tasty Tidbit Transfers (2007), Halloween Brings Out the Lunacy (2007), A Truly Frightening Halloween Candy Bar (2008), Unmasking the Deductibility of Halloween Costumes (2009), Happy Halloween: Revenue Department Scares Kids Into Abandoning Pumpkin Sales (2010), The Scary Part of Halloween Costume Sales Taxation (2011), Halloween Takes on a New Meaning and It Isn’t Happy (2012), Some Scary Halloween Thoughts (2013), The Inequality of Halloween? (2014), When Candy Isn’t Candy (2015), Beyond Scary: Tax-Based Halloween Costumes (2016), and Another Halloween Treat? I Think Not.

About a week ago, in Halloween is Spooky, Taxes on Halloween Treats Are Even Spookier, a writer at InformationStation, pointing out that Americans spend about $8.4 billion on Halloween costumes, decorations, greeting cards, and candy. The writer explained that in many states, the sales tax applies to the purchase of candy, even though most sales tax statutes exempt food and grocery items. In states that do not exempt candy, the rationale apparently is that candy is not food.

More than a decade ago, in Halloween and Tax: Scared Yet?, I described my surprise at discovering some candy bars contained flour and thus were not treated as candy for sales tax purposes in several states. In When Candy Isn’t Candy, I revisited the issue, pointing out the silliness that telling a child standing at the door with a sack or pillowcase that the candy bar being dropped into the container isn’t candy. Last year, in Another Halloween Treat? I Think Not, I addressed the notice from the Tennessee Department of Revenue explaining that candy is not eligible for the lower sales tax rate applicable to food and food ingredients because candy is not food.

Perhaps someone will argue that chocolate candy ought to fit within the sales tax exemption applicable to drugs. After all, chocolate is medicinal. Aside from all the other benefits of chocolate, the receipt of candy at Halloween makes people happy, and being happy brings good health, which is a good thing. Yes, I am doing my best to justify eating candy. It’s a taxing effort, and I don’t stand a ghost of a chance of persuading my physicians that it’s good for me to ingest sugar.

Perhaps the title of this commentary should be A Tax I Have Not Supported and Still Do Not Support, but that’s probably a bit too long. If I shorten it to A Tax I Have Not and Do Not Support, the grammar police will be disappointed.

Some readers of MauledAgain have concluded that I support unlimited taxation and taxes of every kind. Yet careful readers would have noted that not every tax gets my support. For example, I opposed the Philadelphia soda tax, and despite its survival when challenged in court, I continue to consider its to be flawed in many respects. It is an example of “It’s easy to tax this, so let’s tax it.”

Another tax that I have not only opposed but that has baffled me is the medical devices tax. It was enacted as part of the Affordable Care Act. When I first learned of it, I wondered, “Why tax something that is designed to lower the cost of health care?” My reasoning was that these devices prevent more expensive health problems in the future. To me, taxing medical devices was as unwise as taxing vaccines. Few, if any, states, for example, impose sales taxes on prescription drugs.

So why was an excise tax on medical devices enacted as part of the Affordable Care Act? Simply because it is a tax that raises revenue, and revenue is necessary to underwrite the costs of extending health care to more citizens. Why was this tax chosen rather than some other tax, for example, a tax on excess health care industry profits or on health care industry over-billings? Why not seek revenue from health insurance coverage denial decisions that turn out to be wrong and cost doctors, hospitals, and patients more money than they otherwise would have spent?

The tax has never gone into effect. It has been delayed several times. Proposals to eliminate it have surfaced since the day it was proposed. Some of those proposals have been passed by the House or the Senate, but somehow the two bodies haven’t managed to team up and get the tax removed. Now another effort is underway to remove the tax. Arguments in support of repeal, such as Wayne Winegarden’s piece in Forbes and a study by the Tax Foundation, are beginning to resurface.

Why all the bother if implementation of the tax keeps getting delayed? The primary problem is the uncertainty. The tax hangs like a sword over the medical device manufacturers who would pay the tax, making it difficult for them to engage in long-term planning. Some reports indicate that jobs in the industry have been lost because of the uncertainty. Readers of this blog know that I am not a fan of tax uncertainty.

So why has the tax not been removed? Because when computing long-term revenue for purposes of federal budgets, which must satisfy certain projections, the revenue expected from the tax is used to help meet those requirements. That is nonsense. What’s next, a proposed tax on breathing air that would come into effect in 2024 for purposes of balancing the long-term federal budget? Is it any wonder that I am among the vast majority of Americans who give the Congress very unfavorable ratings?

The health care system needs to be fixed. It’s a mess. It is saddled with inefficiency, price gouging, artificial restrictions, and insufficient preventive care. However it is fixed, if at all, a tax on what people should be doing, such as manufacturing medical devices, getting vaccinations, and exercising, ought not be burdened with a tax to fund the treatment of diseases and injiries caused by smoking, vaping, misuse of dangerous substances, drunk driving, reckless behavior, air pollution, water pollution, food pollution, and other activities and practices that are killing humans. Surely a species that calls itself sapiens sapiens can figure this out.

The idea of trying to amass tens of millions or billions of dollars has never appealed to me. What would I do with it? I don’t need it. But there are people who need it, because money breeds money, and those who never have, in their own minds, enough money, need every bit that they can get. Is it for bragging rights? Is it to purchase the world and lord over it as global god? Is it addiction? Is it compensation for some unrecognized subconscious shortcoming?

There are many ways of amassing money. Hard work. Luck. Winning the birth lottery. Theft, robbery, embezzlement, fraud. Investment. When it comes to investment, most people think of bank accounts, stocks, bonds, real estate, precious metals, and commodities. But there are other types of investment, available to those who already have amassed large sums of money. There’s the hedge fund. There’s private equity. They’re not secrets, though most Americans aren’t familiar with how they work.

Hedge funds pursue high risk investments in hopes of hitting it big. Private equity consists of funds not listed on a public exchange. In one sense, the sole proprietor who owns a $300,000 landscape business owns private equity, though those are not the sort of investments that come to mind when people familiar with private equity think of it.

What do hedge funds and private equity do? One path of investment is to acquire public companies and turn them private, or to invest in public companies that are in trouble and hope they turn it around. But increasingly, private equity and hedge funds are grabbing distressed businesses simply to extract the last bits of value and to abandon what’s left. As explained in this article, too often, when given the opportunity to turn a distressed business in the direction of modernization, hedge fund and private equity managers prefer to take out money than to invest enough to turn the business around. This is what has happened with Sears, in which a controlling interest was purchased by hedge fund ESL Investments. It failed. Toys ‘R’ Us was acquired by KRR, Bain Capital, and Vornado Realty Trust. It failed. It happened to Gymboree, another Bain Capital investment. It failed. It happened to Payless ShoeSource, owned by Blum Capital and Golden Gate Capital. It failed. It happened to Radio Shack, in which Standard General had a substantial interest. It failed. Twice. It happened to Fairway, owned by Blackstone. It failed. The same outcome fell upon The Limited, Wet Seal, Claire’s, Aeropostale, Nine West, Brookstone, David’s Bridal, and Sports Authority.

From the perspective of the hedge funds and private equity, these aren’t tragedies. These have been good investments. From the perspective of employees, customers, and the malls in which these businesses rented space, these transactions have been disaster. Granted, retail stores have faced competition from their on-line counterparts, but would not saving one of these retailers included plans to go online? That didn’t happen. It didn’t happen because the new owners preferred not to put in even more money but to take out what was left. Worse, according to investment officer Jack Ablin, “many private equity investors lack the expertise to make the shift from traditional retail to online commerce.” Yet, surely they had the money to hire people who had the expertise. They didn’t, because, according to that investment officer, those investors “were also reluctant to commit more capital for the long-term to transform these struggling retailers.”

As noted in this article, “Moody's Investor Service said David's and Sears are both less likely to pay their creditors because they are owned by private-equity investment firms, whose ‘aggressive financial policies,’ heavy borrowing, and focus on taking money out of firms tend to result in a lower likelihood that retailers they own will pay their debts. Some 92 percent of companies owned by 16 large private equity firms are rated at junk-bond levels, compared to 40 percent of operator-owned or corporate-owned stores.” How does it work? According to Ted Gavin, a partner in a turnaround firm, "A lot of retailers that have gone belly-up are private-equity-owned. It's pretty constant. They make incestuous loans to these companies at high rates, and they charge excessive fees. Cumbersome debt burdens, and owners taking fees simply for being an owner, does nothing good, and can precipitate distress."

Thousands of stores have closed. Hundreds of thousands of jobs have disappeared, in numbers far greater than the handful of jobs created by expanding online retailers. Shopping malls sit vacant, or have become virtual ghost towns with a smattering of open stores. And there’s more.

Serendipitously, at about the same time I was reading the articles I’ve mentioned, I was made aware of a situation that cuts closer to home. More than thirty years ago, I became a customer of a small, local heating and air conditioning company. A decade later, that company was bought out by a larger company. Then a few years later, that larger company was bought out by an even larger company. A decade after that, the even larger company was bought out by a very large company. Each time, the office staff and technicians with whom I dealt carried on. Continuity prevailed. Very recently, a competitor company, owned by a private equity firm, gobbled up the company currently handling my heating and air conditioning services. It let most of the office staff and technicians go, the opposite of job creation. It has been grabbing every competitor it can, across a half dozen states. It is buying customers, in an effort to sell units rather than focus on maintenance and repair. It installs one brand, its technicians are expert only with that brand, and the advice to customers with other brands, no matter the age, is to purchase new units. It has decided not to renew most existing service contracts. Surely it is no secret that the company’s goal is to control the market, if not establish a monopoly. Reviews are mediocre at best and customers complain about high prices. When I called because I needed something adjusted on one of my heaters, I was told the company doesn’t service that unit. It did not matter that I have a service contract in place. Bigger is not better, and being a number rather than a customer with whom office staff and technicians are familiar also is not better. Well, it’s better for those private equity investors whose need for more money is unlimited and eternal.

Is it only a matter of time before private equity disease puts this company into the list of failed enterprises? I do not intend to sit around to see if that happens. It’s too risky. At the moment, there still exist some of those smaller, local operations much like the one with which I started some decades ago. As for the existing service contract, my plan is to terminate it once I have a new one in place with another company, ask for a refund, and learn how much effort it will take to get that refund.

I wonder how things would have turned out if tax cuts had not been handed out to these folks during the past two decades. I wonder if they would have had the resources to do what they have done, are doing, and intend to continue doing. Retail stores probably still would have failed – they have, for many decades – but the resources that remained would not have been channeled into the hands of those already drowning in wealth. Perhaps not as many stores would have closed. Perhaps not as many people would have lost jobs. Perhaps some businesses would have hired people willing and able to take them online.

There are many lessons to learn from these events. Sometimes learning a lesson is helpful for the future. Sometimes learning a lesson comes too late, and the future is altered forever, often in a bad way. Perhaps we have run out of time.

For almost a decade and a half, 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?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, and Progress on the Mileage-Based Road Fee Front?.

Now comes a report that the mileage-based road fee has become an issue in the race for governor of Illinois. According to Eric Zorn, Democratic candidate J. B. Pritzker has said that the mileage-based road fee is “something we should look at.” He added, “We have to be careful about how it gets implemented, and that’s why it should only be a test at this point.” The Republican candidate, Bruce Rauner responded, according to Zorn, with indignation, saying, “Pritzker came out and said, ‘Let's tax everybody by the miles they drive — let’s put a box in people’s cars — track how many miles when they drive to work, when they drive to school, when they go to the grocery store.’ That is big government, big taxing.” A Rauner campaign add claims, “He wants a car tax. How much is it going to cost us just to drive to a family member’s house?” Pritzker then deftly claimed that he “has never proposed a vehicle mileage tax.”

What a mess. Rauner’s only solution to the crumbling highway system in Illinois is to lower the wages of construction workers. Neither candidate is willing to support an expansion of the sales tax, or subjecting retirement income to the income tax.

Pritzker, in Zorn’s opinion, is cowardly for not fighting back and explaining why Rauner is wrong. I agree. He considers Rauner a coward for not offering any constructive ideas to deal with a serious problem. I agree.

It is clear from Rauner’s statements that he either does not understand the mileage-based road fee or despite understanding it, has chosen to engage in misrepresentation as part of his campaign. Collecting a tax to maintain roads on which people drive is not big government nor is it big taxing. It is simply the charging of a fee adequate to cover the costs of what is being provided to the people who pay the fee. He also fails to recognize, let alone mention, that enacting a mileage-based road fee would be accompanied by an elimination of the Illinois gasoline tax. He, and other opponents of the fee, fail to explain that road users have been paying less and less gasoline tax because their vehicles are more fuel efficient, yet their vehicles do as much, if not more, damage to the roads because most of the vehicles are just as heavy, if not heavier,.

Zorn advocates a shift to the mileage-base road fee, as do many other commentators, public policy analysts, economists, politicians, scientists, and people with a good bit of common sense. He notes, as I have, that the fee could be tailored at different rates based on the weight of vehicles, the residency of vehicle owners, the time of day, the density of the traffic, that the fee could be waived for charities, and that technology permits abating the fee for miles driven on toll roads. He notes that the biggest concern about the fee is privacy, an issue I put to rest in Mileage-Based Road Fees: Privatization and Privacy and Is the Mileage-Based Road Fee a Threat to Privacy?.

Zorn points out something I’ve tried to emphasize in my advocacy for the mileage-based road fee. He states, “But under such a user-pays system, what we pay would more fairly reflect the benefit each of us receives from having access to a smooth network of roads.” Perhaps what inspires the opposition is the sense of entitlement that has infected so many people, rich and poor alike, that they ought not be required to pay for what they take, what they use, and what they damage or destroy. What makes it worse is the inability of so many people to understand that it makes more sense to pay this fee, even if it amounts to more than the gas tax being paid, than it does to run the risk of paying multiple times more for car repairs, injuries, and even deaths caused by deficient highways, because those events are almost certain to happen to most people over a long enough period of time. Ignorance, whether Rauner’s inability to understand the mileage-based road fee or taxpayers’ inability to think through the arithmetic, once again demonstrates why it is the underlying reason for so many problems and the chief threat to the evolution and survival of the human species.

Ignorance is high on my list of dislikes. Unlike some things that I don’t like, ignorance can be avoided, and in most instances it is easily avoided. When ignorance is prevalence, liars find it easier to do their evil work. Readers of this blog know that dislike ignorance of any kind, and though I tend to focus on tax ignorance, I also pay attention to financial ignorance and some other types of the malady. I’ve written about it so often that I doubt I can find every post in which I described the ill effects of ignorance. Some of them include Tax Ignorance, Is Tax Ignorance Contagious?, Fighting Tax Ignorance, Why the Nation Needs Tax Education, Tax Ignorance: Legislators and Lobbyists, Tax Education is Not Just For Tax Professionals, The Consequences of Tax Education Deficiency, The Value of Tax Education, More Tax Ignorance, With a Gift, Tax Ignorance of the Historical Kind, A Peek at the Production of Tax Ignorance, When Tax Ignorance Meets Political Ignorance, Tax Ignorance and Its Siblings, Looking Again at Tax and Political Ignorance, Tax Ignorance As Persistent as Death and Taxes, Is All Tax Ignorance Avoidable?, Tax Ignorance in the Comics, Tax Meets Constitutional Law Ignorance, Ignorance in the Face of Facts, Ignorance of Any Kind, Aside from Tax, Reaching New Lows With Tax Ignorance, and Rampant Ignorance About Taxes, and Everything Else, Becoming An Even Bigger Threat.

What prompts me to write today is a new manifestation of ignorance circulating on social media. Typeset in various solid color backgrounds are these words: “Were any of you aware that ALL the Democrats voted AGAINST the 2.8% Social Security cost of living increase?” My distaste has nothing to do with the political party that is mentioned, for surely the same nonsense with a different political party being mentioned will surface someday, but reflects my disgust at the inability of Americans who vote to understand that there has been no vote against Social Security cost of living increases. As an aside, note that the clown who wrote this message doesn’t bother to specify whether those allegedly voting against the increase were members of the House, the Senate, a state legislature, or participants in a referendum. That, of course, is a red flag that can be noticed by those who understand what they ought to understand.

Social Security cost of living increases are automatic. As described in the Social Security Administration’s explanation, legislation enacted in 1973 provides a formula that measures the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W, which is calculated each month by the Bureau of Labor Statistics. The cost of living adjustment equals the percentage increase, if any, in CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year in which there was a cost of living adjustment.

This is not the first time nonsense about social security cost of living increases has circulated. A few years ago, when inflation was so low there was no increase, someone or some organization tried to pin the outcome on Congress, as described in this rebuttal of that ignorant claim. And a decade ago, another, or perhaps the same, person or organization tried to pin the lack of an increase on certain members of Congress, even though the reason for no increase was the fact that the cost of living had gone down due to plunging oil prices, as noted in this FactCheck article.

Why does this ignorant nonsense keep popping up? Notice that it pops up when there is no increase and now, even when there is an increase. Someone or some organization or group of organizations with an agenda is behind this, just as someone or some organization or group of organizations is behind all of the nonsensical and ignorant misinformation being spewed into modern culture. My guess is that the goal is distraction, to avert people’s eyes and ears from the now openly expressed plans to cut or eliminate Social Security, Medicare, and Medicaid. Perhaps it is some sort of damage control.

The antidote, as I’ve expressed for decades, is education. It’s a question of whether enough humans, who insanely call themselves sapiens sapiens, can figure out how to use their brains to think for themselves and to ponder the likelihood of a claim being true, false, or half-baked before spreading it among others. Being theological for a moment, I consider the Last Judgment not so much the “here are a list of your sins” authoritative approach preached by some denominations, but a matter of educational discourse beginning with a statement and question, “I gave you many gifts, including a brain. What did you do with them?” We will have all eternity to ponder the responses. Heaven may be the satisfaction of realizing we did our best despite occasional failures, and Hell may simply be the realization that we didn’t take full advantage of the ability to think for ourselves, recognize truth, and despise ignorance and lies.

Three years ago, in When the Rich Beg, for Tax Breaks, I wrote about the request by Disney Corp. to extend by 30 years a tax break it negotiated in 1996. As I explained in that commentary:

The exemption provides that if the city of Anaheim ever enacts an entertainment gate tax, it will not apply to Disneyland. Anaheim has not enacted such a tax, but faced with increasing financial pressures, it’s not guaranteed that it would not enact such a tax in the future.

So what is the basis for Disney escaping the tax? Apparently it plans an expansion of Disneyland, which it promises will several thousand construction jobs and about 2,000 permanent jobs.

I criticized this reasoning as follows:

The problem with this justification is that every business and every individual contributes to the creation of jobs, and those jobs benefit the economy because the individuals holding the jobs earn money that they spend, in turn infusing economic energy into businesses. Even self-employed individuals ratchet up the economy. If creating a job justifies tax breaks, then everyone is entitled to being exempt from taxation. Of course, that’s part of the plan. Without taxes, there is no government. Necessary services would be privatized, far beyond what already has been put into the hands of the back-room oligarchs, and instead of paying taxes, citizens would be paying fees to enormous enterprises who could charge what they want, as there would be no government to regulate them or district attorneys or attorneys general to prosecute them for mistreating the citizenry, oh excuse me, the serfs.

So if Disney doesn’t receive its desired tax break, what would it do? Pack up and leave? The cost of doing so far exceeds the value of the tax break. Refuse to expand its facility? Perhaps, but again, it would be cutting off its nose to spite its face. No, what it would do is add the tax to the cost of a ticket. And that makes sense. It shifts to those making use of the services provided by Anaheim to Disney a cost that otherwise would be imposed on all taxpayers, including those who do not benefit from, or make use of, Disneyland.

Reader Morris has alerted me to news from a few weeks ago that the exemption preventing Anaheim from subjecting Disney to a gate tax, along with other tax breaks, will not be renewed. What’s interesting about this development is that the city council voted unanimously to terminate the exemptions and tax breaks after Disney officials asked them to do so. The president of Disneyland Resort called the tax breaks “divisive.” It appears, though, that by relinquishing those tax breaks, Disney qualifies for an exemption from a question on next month’s ballot that would raise the minimum wage to $18 per hour by 2022 for employees of companies receiving tax breaks from Anaheim. Disney has financed opposition to the ballot question.

Though some expressed hope that the request to terminate the tax breaks “signals a new era of goodwill and trust between Orange County’s largest city and its largest employer,” continuing debates among city officials about the role Disney plays in Anaheim politics suggests that goodwill is not in the spotlight.

When I read the headline of the article reader Morris sent me, “Anaheim council accedes to Disney’s request, nixes tax breaks,” I thought, “Great. A large corporation has seen the light.” Then I read the article. Oh, well, they say hope springs eternal. Perhaps it is foolish of me to think that those focused on the acquisition of dollars and infinite growth of the “bottom line” would discover the wisdom of moderation and balance.

Readers of this blog know that I am not a fan of supply-side trickle-down economic theory and the tax policy based on it. One of my many commentaries on the topic closely analyzed the failure of the theory in Kansas, as described in Kansas Demonstrates Again Why Supply-Side Economics Fails. As I had written in an earlier post, The Tax Fake That Will Not Die, “Supply-side economics is a fake.”

Several days ago, Noah Smith looked at the results of the latest federal supply-side trickle-down exercise. In his Philadelphia Inquirer article, Smith examined the impact of the 2017 tax cuts. He explains that those cuts, particularly the corporate tax cuts, were supposed to generate wage increases. Like its predecessor supply-side tax cuts, this tax cut also failed to do what tax cut advocates expected and advertised. Despite those previous failures, the supply-side acolytes claimed that corporate tax cuts would be more effective because corporate tax rates were relative higher, corporate taxes affect not only the wealthy but also employees and customers, and corporate taxes are more harmful to investment than individual taxes. How did that work out?

At first glance, tax cut proponents shine the spotlight on an apparently booming economy, a small uptick in corporate investment, and unemployment is low. Smith points out that perhaps some, or even much, of the economic growth is doe to “demand-side fiscal stimulus effects.” Yet wages remain stagnant. Higher employment among low-wage job holders doesn’t do much for those who are trying to make ends meet. Smith describes studies showing that “Two common measures of real wages are still below the peaks they hit in the third quarter of 2017.” Another study concluded that a comparison of “the size of the effective tax cuts received by various industries with the change in their wages between the first half of 2017 and the first half of 2018” did not reveal any correlation between the two. The same study concluded that there was “no correlation between tax cuts and employment changes at the industry level.” According to Smith, “That's bad news, since more hiring and tighter labor markets should be the mechanism by which corporate tax cuts raise wages.” Yes, it’s bad news for wage earners, and it ought to be bad news for supply-side theory devotees.

Smith then dismisses those bonus payments praised by the tax-cut folks. Smith concludes that the bonus trend was “exaggerated,” and that an economic study demonstrated that the bonuses did not generate a significant increase in 2018 compensation. Smith notes that the study implies that the bonus claims “were mostly a publicity move.” No kidding. Again, readers of MauledAgain know that I have consistently characterized the bonus payments as what they really are, namely, crumbs, as explained in posts such as Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, That Bonus Payment Ruse Gets Bigger, Oh, Those Bonus Payments! Much Ado About Almost Nothing, Much More Ado About Almost Nothing, You’re Doing What With Those Tax Cuts?, Arguing About Tax Crumbs, and Don’t Want a Crumb? Here’s Dessert But Give Back Your Appetizer and Beverage.
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Smith asks, “So, what's going on? Why isn't the tax cut raising wages?” He gives two answers. First, he suggests, “Perhaps the impact of tax cuts will be felt only over a period of years rather than months. After all, it's important not to read too much into short-term economic data.” Second, he explains, “ But, it also might be the case that the supply-siders are simply wrong. Perhaps those who believed that a substantial amount of the corporate tax cut would go to workers were doing their empirical studies incorrectly, or plugging the wrong numbers into their models. Or maybe U.S. corporations were simply so successful at avoiding taxes before the tax cut that the new lower rate hasn't really done anything other than to allow them to save money on accountants and lawyers.” Or perhaps the belief that people grabbing tax cuts will share what they took from the buffet with the people at the back of the line ignores the practical reality of greed and money addiction among the oligarchs.

Smith closes with a prediction. He writes, “ Either way, if Trump's corporate tax cuts end up having no observable effect on workers' pay, it will be the final blow to the supply-side worldview.” Putting aside the fact that these aren’t Trump’s corporate tax cuts but a tax giveaway to corporations advocated by many Republicans long before Trump arrived on the political scene, the question is, will the next inevitable economic and financial crash dissuade the supply-siders and convert them to the realistic demand-side approach? Two years ago, in Tax Perspectives of the Wealthy: Observing the Writing on the Wall, I wrote, “The death of supply-side, trickle-down economic theory is a slow one, but its final breath draws nearer.” Yet a year later, the title of one of my posts revealed my dismay at the inability of supply-siders to recognize the failure of their dream: The Tax Fake That Will Not Die. I now worry which dies first, stubborn supply-side ignorance or the American economy and the nation and dreams that depend on it.

A few days ago, the Philadelphia Inquirer ran an article that discussed how the two candidates for the state’s governorship were dealing with tax issues. The article began by noting that in response to a recent poll asking voters to identify the most important issue in the race, the most popular answer was “taxes.” I expected to learn that 30, 40, 60 percent of voters considered tax issues to be the most important. I was surprised. Only 12 percent identified taxes as the most important issue. Next on the list, at 10 percent, was education.

The most disliked tax in Pennsylvania is the real property tax. I’ve written about this antipathy toward real property taxes in several posts, including Killing the Geese, Taxes and School Funding, A Perplexing Tax Vote Decision, Which Do You Prefer: Income Tax, Earned Income Tax, Sales Tax, Property Tax?, and Pennsylvania’s “Eliminate the Property Tax” Effort Surfaces Again. The underlying theme is the series of proposals to eliminate that tax, and as I have pointed out repeatedly, the challenge is finding replacement revenue.

According to the Philadelphia Inquirer article, the two candidates, who have slightly different approaches to the issue, apparently have not put the question in the spotlight. The Republican candidate supports eliminating the real property tax to the extent imposed by school districts, but not those imposed by municipalities and counties, but does not reveal the extent to which he would raise other taxes to make up the lost revenue. Four years ago, the incumbent Democratic candidate, while campaigning, advocated reform or repeal of the real property tax, but since his proposal in his first budget to replace the tax with an increase in sales and income taxes was rejected by the legislature, he has been silent.

Commentators explain that solving the real property tax problem is difficult. One problem is that the governor cannot dictate what local governments and school districts do with the tax, in terms of rates. State funding for education can affect what school districts do, but those spending decisions are primarily the bailiwick of the legislature. Even though Pennsylvania voters approved an amendment to the state constitution permitting the legislature to exempt primary residences from the real property tax, the legislature has done nothing in response.

Not surprisingly, though the Democratic incumbent’s budget proposal four years ago, the one that was rejected, increased sales and income taxes, the Republican challenger co-sponsored legislation along the same lines, though he also has claimed that he would reduce government spending to reduce the need to increase other taxes. Oddly, the incumbent governor does not support the legislation co-sponsored by his opponent because he does not want to raise the sales tax rate on certain items nor subject certain tax-exempt items to the sales tax.

What the state needs is a serious conversation about how its citizens want to pay for the services that they demand. The discussion requires evaluating the impact of different types of taxes, identifying which segments of the citizenry are most affected by different permutations of the various taxes, considering the fairness of how tax burdens are distributed, and estimating the revenues generated by different taxes. It is a complex topic, it does not lend itself to sound bites and tweets, and needs to be free of hyperbole, misstatements, propaganda, and the influence of special interest groups and lobbyist money.

In my criticism of the 2017 tax legislation that handed large tax breaks to big corporations and the wealthy at the cost of exploding federal budget deficits and unsustainable increases in public debt, I used the word “crumbs” to describe the tiny net tax breaks handed to the typical taxpayer. I also used the word “crumbs” to describe the puny bonus payments and alleged pay increases that were held up by the tax cut acolytes as “proof” that their failed supply-side trickle-down economic policy works. Some of the commentaries in which I explained the difference between feasting at the table and being a dog to whom crumbs are tossed include Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, That Bonus Payment Ruse Gets Bigger, Oh, Those Bonus Payments! Much Ado About Almost Nothing, Much More Ado About Almost Nothing, You’re Doing What With Those Tax Cuts?, and Arguing About Tax Crumbs. In Arguing About Tax Crumbs. I defended the use of the term, by myself and others, against outcries from those who disliked the characterization even though the relationship between the size of a crumb or two to a full loaf is pretty much in line with the relationship between the size of tax cuts provided to the wealthy and the size of tax cuts and bonus payments available to typical Americans.

Recent news about Amazon’s pay hikes for its workers sheds even more light on the smoke-and-mirrors aspect of the buffet table greed of the oligarchy. As reported in this story, many Amazon workers, overjoyed at the initial disclosure of a new $15 per hour Amazon minimum wage, discovered that Amazon will stop giving its workers stock options and has terminated its monthly bonus payments. Workers who did what I suggest everyone do when dealing with financial decision, that is, “run the numbers,” discovered that after getting a wage increase but losing stock options and bonus payments, their total compensation will go DOWN, not up. I wonder which Amazon employee figured out the public relations stunt that essentially permits the company to cut pay for some employees, leave pay the same for others, but yet proclaim it is raising worker pay. Some workers are not getting raises because their pay already exceeds $15 per hour but they will be losing their bonuses and stock options. Others are getting increases of $1 or $2 per hour, which is insufficient to offset the loss of bonuses and stock options. The pay raises will consume less than one percent of Amazon’s revenue, and will be more than offset by the curtailment of bonus payments and stock options. Some part-time workers will benefit from the changes.

It appears from the reactions of Amazon employees that increasing numbers of people are finding a way to look past the smoke and mirrors and to see the reality hidden by the tweets and sound bites, to discern the truth from inside the maze of misrepresentations, exaggerations, and out-of-context claims. The worship of the bottom line, considered almost divine the closer it gets to infinity, is a manifestation of the calamitous consequences of money addiction. Something is very wrong and hopefully not only is here a quick diagnosis of the disease by enough people but also a fast discovery of a cure.

So now comes the latest report on consumer spending, as discussed in this article. The increase in consumer borrowing in August was much more than predicted, and much more than the July increase. Increases occurred in auto loans, student loans, and credit card balances. Why? If those December 2017 tax cuts, touted as benefitting all Americans, worked as their advocates claim, cash would be trickling down, and the need to borrow would decrease, and surely not increase. What about those bonus payments that the tax cut advocates held up as proof that trickle-down economic theory works? When I and others described them as crumbs, as discussed in Arguing About Tax Crumbs, we were criticized, yet it seems that in order to buy cars, get an education, or purchase anything else, Americans who are not members of the economic elite must resort to ever-increasing amounts of debt. So it turns out that one of the biggest assets in the portfolios of the oligarchy is the debt owed by everyone else (too many of whom continue to adore, support, vote for, and defend the very folks to whom they are indebted).

Almost three-quarters of economic activity is fueled by household spending. Household spending has increased because consumer borrowing is increasing at a rapid rate. In other words, when people rejoice at economic growth reports, they are rejoicing at increases in the amount that poor and middle-class Americans owe to the billionaires. Anyone who studies economic history knows how this story plays out. Good luck.

Reactions to the New York Times story about the Trump family alleged tax fraud and related tax schemes has brought a flood of demands for release of Donald Trump’s tax returns, demands that he be charged with tax fraud, inquiries about the likelihood of IRS audits, and discussions about the implications of the report and the possibility of additional information being uncovered. None of that is surprising, either the information that has been disclosed, the allegations, or the reactions.

What did surprise me was the reaction of John Crudele in his New York Post commentary. The headline for the commentary, “Why I doubt Trump evaded paying taxes” reflects his conclusion that “I don’t know whether Donald Trump was screwing around on his income taxes like The New York Times alleges or not.” That’s the only logical position one can take. Yes, one can guess, suspect, believe, wonder, and perhaps even worry. But to “know” is not yet possible. More information is needed. What surprised me is not the doubt, but the justification for the doubt.

What convinces Crudele to doubt the conclusion reached in the New York Times story? Crudele describes information from “a very good source” that when New York investigated a large group of taxpayers in the 1980s for possible sales tax evasion, Trump came out clean, having paid all of the sales taxes that he owed. Apparently at the time, “a lot of rich folks were having their purchases shipped to states with lower sales taxes.” If I were to guess or speculate, I would hesitate to think that people who were not “rich folks” might also have been engaging in this approach. Perhaps people, rich or not, are still doing this.

But should the fact that a person paid sales taxes weaken the claim that the person did not pay all of the income, estate, gift, or other taxes that the person should have paid? Should the fact that a person pays her electric bill be interpreted as meaning that she pays her lawn care bill? Should the fact that a person does not rob banks carry weight in arguing that the person does not embezzle? Should the fact that a person has never been issued a speeding ticket be a factor in concluding that the person did not fail to stop at a stop sign?

Almost every criminal has obeyed some laws. Almost every law-abiding person has violated some law, ordinance, or regulation, perhaps unknowingly. The fact that someone paid sales tax is irrelevant in determining whether that person did or did not pay an income tax, a gift tax, an estate tax, or even a highway toll.

Several days ago, Carolyn Hax was presented with a question that she answered in her advice question. The question caught my eye because the word “legally” was in the first line. But the question did not reveal the tax aspect. Here is what the person wrote:

Is it tacky or deceitful to legally get married as much as nine months in advance of a wedding ceremony? I'm recently engaged (yay!) to a great guy. We chose a date nearly a year from now because my fiance travels for work all through the spring, and we want to accommodate parents, stepparents, and family traveling from many other states.

However, we're both small-business owners and it looks like it would benefit us financially to marry before 2018 is over. I recently told a friend this idea and she was appalled, that it amounted to us putting on a "show" wedding. For me and my fiance, getting legally married as a business/tax decision doesn't have any of the emotional meaning that standing up in front of our friends and family would.

We're having a "no gifts" wedding, so it doesn't feel like we're even asking friends for anything other than joining us for a celebration of vows. Is my friend right, could it be perceived as dishonest? Should we keep this idea to ourselves?

What mattered more to me than Carolyn’s response was the fact that the tax law was putting two people in what they perceived to be a quandary, causing them, or at least one of them, anguish, and motivating at least one of them to write a letter to an advice columnist. It would not be surprising if the two people invested time in discussing what they ought to do.

Carolyn’s answer made sense. So what if the celebration ceremony takes place at a time after the marriage ceremony. She pointed out that getting married one day and having the celebration at a later date “doesn’t hurt anyone.” She noted that it is not uncommon for memorial services to be held months after a burial. She also explained that no matter what the couple decided, there will be people who are critical of the decision, so why bother “chasing approval.”

Yet it is unfortunate that the tax law put this couple in a bind. Accelerating the marriage in order to reduce taxes probably has happened more than a few times. Usually, if the decision to move up the date is made in time, it doesn’t create the logistical problems facing the couple in question. Or, if all or almost all of the guests live nearby, the logistical challenge might not be so overwhelming. I suspect that this couple was put into this time-crunched decision situation because the changes in the tax law were rushed through the Congress, and put into effect before people and businesses have had a chance to adjust. Note that this couple is not alone in trying to make decisions because of the tax law changes, though for most businesses dealing with this conundrum the problem is lack of guidance to interpret a badly written tax law. Hopefully the couple has had good advice and doesn’t discover a few months or a year later when filing their tax return that they would have been better off not accelerating the wedding.

We need a tax law that does not make the marital status of a taxpayer relevant. That can be done by treating people as individuals and not using the tax law to encourage or discourage marriage. The issues of marriage penalty and marriage bonus have been discussed by tax commentators for decades. Congress, however, continues to be mired in the distant past when it comes to the interaction of tax with present-day relationships. I doubt we will see any repairs in the near future.

When I taught the basic income tax course, one of the questions that popped up early in the semester was, “What is income?” That question must be answered before turning to the question of whether an item of income is included in, or excluded from, gross income. One of the elements in the definition of income is the principle that there needs to be an accession to wealth. It is for that reason when a person borrows money there is no income, and thus no gross income, because the increase in cash is offset by an increase in the obligation to repay, and thus the person is not wealthier. Similarly, withdrawing previously taxed money from a savings account does not generate income because the taxpayer is simply moving money from one pocket to another.

These principles came into play in the recent case of Park v. Comr., T.C. Summ. Op. 2018-46. The taxpayer, a member of the military, purchased a house in 2208 and took out a first and second mortgage with a bank. In 2011, the taxpayer fell behind in making payments on the mortgages but he resumed making payments in May 2012. During 2014, the taxpayer received a $13,508.58 check from the bank, and cashed it. The check was accompanied by a letter that stated, “[b]ased on a recent review of your account, we may not have provided you with the level of service you deserve, and are providing you with this check.” The letter suggested that the taxpayer might wish to consult with someone about any possible tax consequences of receiving the funds, and included a telephone number for him to call if he had any questions. The letter thanked the taxpayer for his military service. The taxpayer called the telephone number several times, but was unable to obtain any additional information. The taxpayer concluded that he had overpaid his mortgages during the time he was deployed overseas, and so he did not report any portion of the $13,508.38 on his 2014 federal income tax return. The bank sent the IRS a Form 1099-MISC, reporting other income of $12,789, and a Form 1099-INT, reporting interest income of $719 from the bank to the taxpayer for 2014. Because the taxpayer did not report those amounts on his return, the IRS issued a notice of deficiency on June 6, 2016, determining that the taxpayer had failed to report income from the bank. Several weeks later, the taxpayer filed a petition with the Tax Court.

The taxpayer explained that it was his understanding that the funds were not taxable income because they represented a return of overpayments on the mortgages. He issued a subpoena to the bank for records related to the check, but the bank replied that it was “unable to locate any accounts or records requested with the information provided.” The IRS argued that the taxpayer failed to provide credible evidence that its determination was incorrect.

The taxpayer argued that the bank’s issuance of the Forms 1099 was a mistake. The Tax Court noted that the letter from the bank indicated that it had made a mistake and was “correcting a wrong it had committed” with respect to the taxpayer’s accounts. The Court concluded that the taxpayer presented credible evidence that $12,789 of the payment was a return of an overpayment, and that the other $719 was interest on the overpayments that was required to be included in gross income. In other words, the taxpayer, by overpaying on the mortgage, moved money from one account to another, and when the bank returned the overpayments, the taxpayer, in effect, moved the money from the second account back to the first.

The taxpayer had to endure this judicial proceeding, investing time and energy, and probably some funds, because the bank made a number of mistakes. The bank failed to explain in its letter how it computed the amount of the check and why it concluded there had been an error. Perhaps the bank was taking money out of the taxpayer’s checking account to apply to the mortgage at the same time that it was receiving checks from the taxpayer. The bank failed to maintain records and thus was unable to reply to the subpoena with any information useful to the taxpayer. Or perhaps the bank had the records but was unable to find them. Or perhaps the bank had the records but did not want to become involved in the case. The bank failed to explain the basis on which it concluded that a Form 1099-MISC had to be issued. In other words, the bank inconvenienced its customer. The issuance of a Form 1099 is a serious matter and ought not be left to computers and software, which is surely what happened in this instance. Just wait until the robots start decided to issue Forms 1099. Can a robot be sued? That is an issue I’ll leave for others to discuss on blogs dealing with torts, contracts, and crimes. Incidentally, imagine what could have happened to this taxpayer had the IRS prepared his return based on the information it had.

Readers of this blog know that I am an advocate of user fees in situations where user fees make more sense and are more efficient than using general tax revenues. Perhaps the most widespread user fee is the highway, bridge, and tunnel toll. It is no surprise that just as people try to find ways to avoid general taxes, they also look for ways to avoid user fees, including tolls. Most income tax evasion methods aren’t material for great movies, and evading user fees on tobacco and liquor often involves smuggling, which has found its way into movies and television shows.

Though evasion of income taxes and tobacco and cigarette duties has inspired all sorts of creativity, toll evasion seems to have taken the art of creativity to a new level. Reader Morris pointed me to a YouTube video in which Florida state troopers stop toll evaders using a variety of tricks in attempts to escape the photographing of their license plates by toll plaza cameras. Take a look, it’s eye opening, and as warned at the end, don’t try any of these “techniques.”

I can attest that the license plate photography system works. Recently I drove to Massachusetts and Rhode Island, and when I drove through the New Jersey Turnpike exit to get on the Garden State Parkway the E-Z Pass sign said “GO TOLL UNPAID.” Huh? I knew I had enough funds in the E-Z Pass account. I encountered the same message at the Garden State Parkway toll booths, but of course there’s no messaging in high-speed E-Z Pass lanes. So on my return I checked with the E-Z Pass folks. It turned out that my transponder was more than 16 years old, and the customer service representative said to me, “You have a transponder from the Stone Age. We’ll swap it out for a new one.” In the meantime, the Pennsylvania Turnpike Authority, the New Jersey Turnpike Authority, the agency that operates the Garden State Parkway, and the New York Thruway Authority (which collects the Tappan Zee Bridge toll) used the photo of my license plate to charge my E-Z Pass account. There were no penalties, and it was obvious I was not evading tolls. The new transponder is smaller and different from the old one. I had not known that transponders can “go bad,” so a tip: if your E-Z Pass transponder is more than five years old, ask for a replacement. It’s free of charge.