MauledAgain

Over at Mother Jones, Kevin Drum advocates changes in the way Social Security is funded. In his commentary, he argues that the payroll tax should be abolished, that because Social Security payments are mandatory they do not require Congressional appropriations and would be made no matter the situation with the federal budget, and that “for the next couple of decades Social Security will be partially funded by income taxes anyway.” He claims that the “trust fund, after all, is nothing but a bunch of government bonds in a filing cabinet somewhere in Virginia.” He argues, “If payroll taxes are insufficient to cover Social Security payments, the bonds are cashed in. And where does the money to redeem the bonds come from? The general fund, of course, which consists primarily of money from income taxes.” He argues that progressives should support his proposal because the payroll tax is regressive.

Drum is correct that payroll taxes are progressive. People earning more than the $137,700 Social Security cap pay a lower percentage of their wages than do people earning $137,700 or less. The fix to that problem is simple. Repeal the cap. It does not require eliminating the trust fund. Repealing the cap makes the payroll tax a flat tax. I agree with Drum that the regressive nature of the payroll tax is undesirable, and to the extent he would support repeal of the cap, we are in agreement.

But when it comes to the trust fund, I disagree with his proposal. Why does the trust fund exist? It exists to ensure that payroll tax receipts do not go into the general fund where they can be spent without accountability to the Social Security payment mandate. Drum makes much of the fact that the trust fund “is nothing but a bunch of government bonds.” Technically, the excess in the trust fund, that is, the excess of receipts over expenses (chiefly Social Security payments), have been invested. They were invested in what has been perceived to be the safest investment, Treasury bonds. Thus, when those investments are cashed in during periods when Social Security payments exceed payroll tax receipts, the trust fund is using its investments. It matters not how the debtor digs up cash to redeem the investment. The Treasury can redeem the Bonds by using any sort of receipts, not simply income taxes, or by issuing replacement bonds purchased by the public. It need not tap income tax revenues.

There is another catch to the repeal of the payroll tax. Drum notes that Social Security payments are made automatically under the current system, but he neglects to mention that the amount of an individual’s payment depends on several factors which reflect the payroll tax. To qualify, the individual must have earned wages subject to the payroll tax for at least 40 quarters. The computation of the payment requires determination of how much the individual earned in qualified wages subject to the payroll tax over the person’s earning history. If the payroll tax is eliminated, another method of computing Social Security payments would be necessary, and that opens up the political battle that Drum claims would not exist if the payroll tax is eliminated.

Worse, Drum makes no effort to deal with the transition issues that his proposal raises. Are Social Security payments currently being made left alone? What happens to the person who retires and seeks Social Security days, months, or a year or two after Drum’s proposal is implemented? Does the person lose credit for the quarters they worked and the eligible wages they earned? Is the balance in the trust fund dumped into the general fund?

And, of course, payroll taxes also fund Medicare. Drum makes no mention of Medicare They also fund other programs. Drum also makes not mention of those.

If Drum wants to go after federal trust funds because he thinks the general fund is sufficient, does he propose to eliminate not only the Social Security trust funds (technically there are two, the old-age and survivors insurance fund and the disability insurance fund), but also the two Medicare trust funds, the Civil Service Retirement and Disability Fund, the Military Retirement Fund, the Employees Life Insurance Fund, the National Railroad Retirement Investment Trust, the Employees and Retired Employees Health Benefits Funds, the Foreign Service Retirement and Disability Fund, the Rail Industry Pension Fund, the Foreign National Employees Separation Pay Fund, the Judicial Survivors' Annuities Fund, the Judicial Officers' Retirement Fund, the District of Columbia Judicial Retirement and Survivors Annuity Fund, the Armed Forces Retirement Home Fund, the United Mine Workers of America Combined Benefit Fund, the Foreign Service National Separation Liability Trust Fund, the United States Court of Federal Claims Judges' Retirement Fund, the Court of Appeals for Veterans Claims Retirement Fund, the Tax Court Judges Survivors Annuity Fund, the Unemployment Trust Fund, the Railroad Social Security Equivalent Benefit Account Fund, and the Black Lung Disability Trust Fund? All of these either are funded with payroll taxes or amounts based on wages, or serve similar purposes as does Social Security. Does he propose eliminating and dumping into the general fund the Transportation Trust Fund, the Foreign Military Sales Trust Fund, the Airport and Airway Trust Fund, the Oil Spill Liability Trust Fund, and the other 89 or more trust funds held by the federal government?

Drum’s claim that “[t]here are several upsides to funding Social Security through the general fund and literally no downsides” is not supported by the evidence. There are downsides. There are too many downsides. Drum is confident that the trust fund is not necessary because “when Social Security was first started, [the trust fund . . . was a useful way of guaranteeing that Social Security couldn’t be touched in the future,” and that although it “may have been necessary 90 years ago, . . . it’s not anymore [because it’s] not the funding source that stops Congress from cutting Social Security payments, it’s the broad support for the program itself, [as it is] just too damn popular to screw around with.” Tell that to the private equity investors, their politician puppets, the GOP, and the others who want to eliminate Social Security and toss it aside as they have eliminated pensions over the past forty years, in the name of “privatization” and “capitalism” run amok. Tearing down a serious wall of defense against the money-addicted oligarchs is not, as Drum claims, “something that any progressive should support.” No one, progressive, moderate, conservative, or sensible, should support destruction of yet another pillar of American democracy. What should be supported is elimination of the payroll tax cap. It’s that simple.

According to many reports, including, for example, this one, the President claims he is “considering a capital gains tax cut in an effort to create more jobs.” It is unclear whether he is referring to the previously-circulated idea of indexing basis, an idea I excoriated in The Menace of Impetuous or Manipulative Tax Policy Announcements, or to his intent to issue a unilateral reduction or elimination of capital gains rates.

This time, as reported by several sources, including Accounting Today and Ventural Broadcasting, two top White House officials have admitted that the President cannot cut capital gains tax rates unilaterally by executive order. They admitted that changes in tax rates are within the purview of the Congress. Though they seem to have remembered what they learned in their Civics course, or perhaps made the effort to find out how law-making is done in this country, it seems the President doesn’t have a clue. Presumably they have shared their knowledge with the President, but how that conversation went isn’t something disclosed to the public.

Some Americans, understandably frustrated with how politics works and convinced that a businessman would do a better job of “running” the country, voted in favor of putting a businessman in the White House. Of course, the alleged businessman was a dabbler in real estate using inherited money, and a failure at running businesses. Between stiffing workers and suppliers and going bankrupt multiple times, he demonstrated everything that a successful businessman is not. As the meme puts it, they wanted him to “run the country the way he ran his businesses,” and he certainly has.

In business, the CEO of a non-public enterprise is king, czar, emperor, and lord. The CEO answers to no one. Smart CEOs get an education by going to class, surround themselves with advisors who understand what the CEO does not, listens to and takes advice from those with superior experience, intelligence, and knowledge, and with their help navigates the treacherous world of reality. The Presidency is not a CEO position. It is the top office in one of three branches of government. Its powers are constrained. Changes in tax rates, and changes in the Internal Revenue Code, must originate in the House of Representatives and be approved by the full Congress. Though a CEO can unilaterally and even arbitrarily increase or decrease the prices at which the company sells goods and services, a President cannot unilaterally or arbitrarily change tax rates or eliminate taxes.

Of course, it is possible that the President has no intention of unilaterally cutting capital gains rates. So why propose doing so? Because some of the people who would benefit from such a move, and even people who would not but who some sort of philosophical antipathy towards taxes, and perhaps people who think he is on a path leading to his unilateral repeal of taxes that they pay, find in such an announcement “proof” that he is the “hero” they have come to think he is. The announcement gathers votes. As I wrote more than seven years ago, in The Disadvantages of Tax Incentives, “The well-being of the national economy demands stability, continuity, predictability, and reliability in the tax system. By putting personal electoral goals ahead of the nation’s well-being, Congress is selling the nation short and ultimately risks selling it out.” Rather than taking my advice, Congress continued on a path that in some ways encourages the same sort of behavior by the Executive Branch. Again, I warn, “By putting personal electoral goals ahead of the nation’s well-being, the Administration is selling the nation short and ultimately risks selling it out.”

So the President unilaterally orders the suspension of payroll tax collection, leaving the Treasury to figure out the messy details of how to deal with the possibility that the taxes would need to be withheld and paid in the future. The President’s has no authority to eliminate those taxes, and even his authority to defer the taxes for the entire country is debatable. Worse, he has limited the deferral to taxes due on wages below a specified limit, a power not evident in the statute on which he claims to rely. And, of course, as I have explained in posts such as Taxes and the Virus, Do Lower Taxes, Less Regulation Create Jobs? Do Payroll Tax Cuts, Employment Credits, More Section 179 Expensing, Unemployment Benefits Create Jobs?, Another Foolish Tax Idea That Won’t Go Away, and They Just Won’t Stop With This Foolish Tax Idea, cutting the payroll tax does little or nothing in the short-term while imposing significant long-term costs on the economy. Deferral of payroll taxes is worse, because it simply fools people into thinking they have an increased take-home pay while failing to explain that in the near future they will face even higher withholding than they did before the deferral. Worse, the President promises, if re-elected, to eliminate payroll taxes, which would destroy both Medicare and the Social Security system. This from a guy who claimed he would never cut either program. And, of course, payroll tax cuts are meaningless for people who are unemployed.

Now, according to many reports, including, for example, this one, the President claims he is “considering a capital gains tax cut in an effort to create more jobs.” It is unclear whether he is referring to the previously-circulated idea of indexing basis, an idea I excoriated in The Menace of Impetuous or Manipulative Tax Policy Announcements, or to his intent to issue a unilateral reduction or elimination of capital gains rates. Of course, cutting capital gains does not create jobs any more than the other tax breaks dished out to wealthy individuals and large corporations do. Jobs are created when someone needs workers, but if there is nothing for workers to do or there is an empty supply of people with necessary skills, jobs are not created.

Once a President decides that taxes can be deferred or eliminated at the President’s whim, or that basis can be adjusted by fiat, or that tax rates can be changed by dictate, the door is open for a complete return to feudalism. What’s to stop a President from declaring that individuals with annual incomes exceeding $1,000,000 or net worth exceeding $10,000,000 are exempt from all taxes? What’s to stop a President from declaring a disaster in states whose electoral college votes were cast for the President and absolving their residents from taxation while increasing tax rates on residents in the other states? In theory, the Congress can, but the Congress is weak because the Senate majority is beholden to oligarchs. In theory, if an individual found a way to sue to stop this sort of behavior, the Supreme Court ultimately could, but it, too, has become politicized and cannot be trusted to issue decisions in the best interest of the people.

More than seven years ago, in The Disadvantages of Tax Incentives, I wrote, “The well-being of the national economy demands stability, continuity, predictability, and reliability in the tax system. By putting personal electoral goals ahead of the nation’s well-being, Congress is selling the nation short and ultimately risks selling it out.” Rather than taking my advice, Congress continued on a path that in some ways encourages the same sort of behavior by the Executive Branch. Again, I warn, “By putting personal electoral goals ahead of the nation’s well-being, the Administration is selling the nation short and ultimately risks selling it out.”

There are those, who looking at their own wallets and lives, are thrilled with these dictatorial changes to the tax law. Of course, they probably are looking at the short-term consequences and, as usual, ignoring the long-term ramifications. And surely they are not considering what happens, with this sort of precedent in place, when a future President decides to increase taxes on the wealthy, eliminate special capital gains rates, and subject capital gains to taxation at death. What goes around comes around. What’s good for the goose is good for the gander. Karma. Those cheering dictatorial orders, despotic decrees, and autocratic approaches to government are being extremely short-sighted. A slide into tyranny doesn’t always turn out the best for the instigators. History teaches that lesson, one that surely escapes a person who thinks the Second World War ended in 1917. If this is the best that we can do as a nation, the future indeed is bleak.

Two weeks ago, in Another Tax Return Preparation Enterprise Gone Bad, I suggested, “Perhaps they are turning up the heat on tax return preparers gone bad. They being investigators and attorneys at the Department of Justice, though they usually work in cooperation with agents and auditors from the Internal Revenue Service.” That post described a grand jury indictment of tax return preparers in North Carolina based on their filing of false returns for clients. Four months ago, in More Tax Return Preparation Gone Bad, I described the sentence handed down to a tax return preparer convicted of filing false returns for clients. And now another tax return preparer in trouble. According to this United States Department of Justice news release, a tax return preparer in Newport News, Virginia, has pleaded guilty to aiding and assisting the preparation of a false tax return. According to the indictment, which I somehow missed when it was released, the preparer filed false returns on behalf of her clients over a five-year period, claiming credits and deductions for which the clients did not qualify. Worse, she did not sign the returns as the paid preparer, making the returns appear to have been prepared by the clients. On top of that, when asked by the clients for copies of the returns she filed on their behalf, she did not provide the copies to the clients.

I have written about noncompliant tax return preparers in what seems to be the distant past. For example, back in 2009, in Tax Fraud Is Not Sacred, I described the indictment of a tax return preparer who offered free tax return preparation services to members of a church, who included false deductions and credits on the returns, and who pocketed part of the refunds. Perhaps indictments of tax return preparers are increasing because of increased investigations, or perhaps they have been holding steady and I’m simply becoming more aware of them.

I will simply repeat what I have written several times in the past: “The lesson at the moment? Choose a tax return preparer as carefully as choosing a surgeon or child care provider. In other words, do research, talk to friends and neighbors, look at online reviews, and interview the preparer.” Once again, this most recent indictment does nothing but corroborate the wisdom of my advice.

In California, citizens can propose legislative changes by putting a referendum, or proposition, on the ballot. The details of how that process works are one thing, but another is the language of the proposition and the voter information guide that is published to explain the proposition. This fall, California voters will have a chance to support or reject Proposition 15. This proposal would repeal portions of the famous Proposition 13 that limited the extent to which property taxes could be increased. Proposition 15 would permit local governments to assess business property based on actual market value rather than the artificially limited amounts set by Proposition 13.

The voter information guide includes language drafted by supporters and opponents of the proposal. The fun begins with the language provided by opponents of the proposal. According to this story, the dispute over the language was litigated and a court issued a ruling that illustrates the extent to which the anti-tax movement will go to oppose taxes.

The proposed changes do not apply to homeowners, just businesses. Opponents of Proposition 15 wrote that the initiative would let local governments raise property taxes on residences because there are small businesses operated out of homes. But the language of Proposition 15 specifically exempts home-based businesses from assessment at actual market value. The judge described the language offered by the opponents as “misleading if not outright false.”

Supporters included, in their portion of the guide, language stating that Proposition 15 would not impact homeowners and renters. Opponents asked that this language be removed. The judge refused that request because the language was accurate.

The communications director for the organization behind Proposition 15 stated, “The court's ruling today is concrete evidence that there are consequences for running a campaign based solely on debunked scare tactics.” Unfortunately, sometimes the consequences are that the misleading statements, half-truths, and lies circulate unimpeded and generate outcomes that would not have been the result had truth prevailed.

In this instance, the misstatements also provided a distraction. Rather than focusing on the wisdom of denying property tax relief to profit-generating, cash-rich businesses, which might be a good or bad idea, opponents try to drum up support by getting voters to think terrible things are going to happen to them personally. This technique can be effective but it doesn’t make it admirable nor appropriate.

In a series of posts, including Taxes and the Virus, Do Lower Taxes, Less Regulation Create Jobs? Do Payroll Tax Cuts, Employment Credits, More Section 179 Expensing, Unemployment Benefits Create Jobs?, and Another Foolish Tax Idea That Won’t Go Away, I criticized a proposal by the current Administration to cut payroll taxes as a solution to deal with at least some of the economic problems caused by the spread of the SARS-CoV-2 virus that causes the Covid-19 disease, as well as the payroll tax cut enacted during the previous Administration. I pointed out that anyone who understands economics, taxation, and tax policy knows that this approach is ineffective, and that I am not alone in my criticism. I noted that although I opposed the payroll tax cut enacted during the previous Administration, I viewed it as an experiment. But because that experiment failed, those who do understand economics, taxation, and tax policy, even some who supported the experiment, admit that, as I wrote, “The payroll tax cut did little, if anything, to fix the problems, because the economy is no better at this point than it was when that cut was enacted, and it might even be, by some measures, worse. As a short-term band-aid, it was worth the attempt. As long-term surgery, it fails. It costs too much. It undermines funding for the Social Security program.”

Yet despite the evidence, the current Administration won’t give up. Even though the proposal has met bipartisan objections in the Congress, the desire for a splashy though ineffective token offering for political purposes continues to demonstrate the inability of the current Administration to come to grips with economic reality. So, several days ago, in a Wall Street Journal commentary, White House economic adviser Stephen Moore argued that the President can and should order a stop to the paying and collecting of the payroll tax. He was joined in the commentary by Phil Kerpen, founder of the Committee to Unleash Prosperity, of which Moore is a founder. Moore and Kerpen think that the President should declare a “national economic emergency” and then order the IRS to postpone tax filing deadlines for the payroll tax. It is worth noting not only that the Committee to Unleash Prosperity supports the sounds-good-won’t-work flat tax and a variety of anti-tax, anti-government, and anti-regulatory proposals, but also that another of its founders is Arthur Laffer, whose track record of failure with the deceptive trickle-down supply-side approach to tax policy is well known and responsible for much of the nation’s current economic mess. Perhaps what influenced Moore and Kerpen is the fact that the President has already explained that he is contemplating taking steps to circumvent Congress. Or perhaps they are egging him on to do idiotic things. Yes, that’s what the nation needs, a President who treats one of the three branches of government as meaningless because it won’t march in lockstep with his absurd drumbeats. Yes, that was a sarcastic comment. It reflects the reality that suspending the payroll tax requires Congressional approval especially when, as was the case with the payroll tax cut enacted during the previous Administration, funds were allocated to the trust funds to offset the impact of the cut.

According to many reports, including this one, reaction has ranged from dubious to outrage. According to the report, “Tax policy experts doubt that President Donald Trump has the authority to unilaterally suspend payroll tax collections.” The experts included not only the Urban-Brookings Tax Policy Center, a nonpartisan think tank supported by the center-left Brookings Institute and the Urban Institute, but also from the conservative American Enterprise Institute.

A look at the details of Moore’s and Kerpen’s proposal reveals how ridiculous their proposal is. They want to cut the payroll tax to zero for workers making $75,000 or less. There is no effective mechanism to implement this sort of proposal without legislative authorization. And, of course, a payroll tax cut does nothing for people who are unemployed. Imagine the joy of seeing one’s payroll tax withholding drop from zero to zero. It also does nothing for people who aren’t working because they are unemployed.

Attempts by Moore and Kerpen to rely on Internal Revenue Code section 7508(a) are misplaced. When the IRS relied on that section to postpone federal income tax filing deadlines, it was because the IRS was not in a position to process the returns. In contrast, payroll tax withholding and payment can proceed whether or not the IRS is operating at full capacity or even operating at all.

Here’s the clincher. Moore and Kerpen wriite, “The Democratic plan includes a six-month extension of the $600-a-week unemployment bonus and $3 trillion in new spending. It would sink the economy and imperil Mr. Trump’s re-election.” Wow. Where were Moore and Kerpen when trillions were dished out to the wealthy oligarchs and big corporations? Why was that giveaway not opposed by them as something that would sink the economy? And it did, because it meant that when the pandemic hit, the workers supposedly helped by handing money to oligarchs lost their jobs because unlike the oligarchs, they weren’t given the sort of tax breaks that would permit them to squirrel away a sufficient rainy day fund. But it’s worse. Why should the re-election of any president be a justification for any sort of tax or economic policy? Granted, any politician seeking re-election will examine any proposal in terms of its effect on re-election chances, but to try to sell that to Americans reveals the true intent of Moore and Kerpen, which is to get their hero re-elected. Throwing a nickel-and-dime bone to the working class as a ploy to get votes is an insult to the recipients because it tells them they aren’t worth as much as are the oligarchs who use their tax break money to make large campaign donations in exchange for government positions. And, of course, those nickels and dimes come at a price, which is a reduced or eliminated Social Security and Medicare coverage for those very same workers. It’s nothing more than another con game.

When I read the headline in this story, “Rhode Island mistakenly issued tax refund checks signed by Walt Disney and Mickey Mouse,” I immediately thought, “Wow, someone hacked the Rhode Island Department of Revenue and instead of stealing money or information, or perhaps in addition to doing so, pulled off a sophomoric prank.” I also thought, “There are people who think taxes and tax systems are ‘Mickey Mouse,’ so I wonder what they are thinking when they received these checks.” Then I thought, “Perhaps the recipients aren’t looking closely and think they are getting a free or discounted trip to a Disney resort.”

Then I read the article. Was I ever wrong. What happened was totally different from what I expected, and thus I was caught in an instance of situational irony. It turns out that there was a software error, and that the “invalid signature lines were accidentally sourced from the Division of Taxation's test print files.” There was no hacker. The checks, involving corporate tax refunds, sales taxes, and a few other taxes, were thereafter voided, meaning they cannot be deposited. Replacement checks are being mailed.

There are some lessons from this story. First, mistakes happen. Second, it could have been worse. Third, the more important the task, the more double-checking (sorry, couldn’t resist) and even triple-checking needs to be done. Fourth, headlines can be incomplete and even misleading. Fifth, don’t rely solely on a headline, the tweet, or the sound bite in making a decision, reaching a conclusion, or reposting the tidbit, but do research, including reading the article. Sixth, if you receive a check signed by Mickey Mouse or by a dead person (yes, Walt Disney left long ago), be suspicious and don’t run to the bank.

So that’s why I didn’t stop and write something when I read the headline. Had I done so, I would have written nonsense. Instead, I read the article and ended up writing something different from what I had first thought. First impressions are said to be lasting, and though some think they usually are correct, as David Handler put it, “I don't know if you've ever noticed this, but first impressions are often entirely wrong.” Indeed.

Though I’ve not yet found the text of the Senate’s proposed Health, Economic Assistance, Liability Protection and Schools Act, summaries from some Senators, as reported in various sources, including this overview, indicate that the bill would eliminate the 50 percent limitation on the deduction for business meals from the date of enactment until the end of the year. Why is this provision included in legislation intended to ease the economic damage caused by the pandemic?

According to this report, the removal of the meals deduction limitation “was pushed by President Donald Trump.” Why? According to another report, the President has been pushing for this change since he had a conversation with “well-known chef Wolfgang Puck,” after which he tweeted, ““This will bring restaurants, and everything related, back - and stronger than ever." Senator Tim Scott of South Carolina inserted the provision in the current Senate bill, claiming that it "will lead to more customers, more opportunities for hardworking waitstaff and kitchen staff, and much needed revenue for small businesses across the country."

What nonsense. Though restaurants are facing a decline in revenue, in many instances forcing permanent closure, the reason isn’t on account of people staying out of restaurants because of the meals deduction limitation. People aren’t going to restaurants because inside dining is unsafe, outside dining is limited by space and weather issues, and patronizing restaurants is beyond the budgetary reach of the tens of millions of Americans dealing with their own revenue shortfalls.

One senior member of the House Ways and Means Committee describes the proposal as be "the latest example of a tax provision tailor-made to benefit the Trump family finding its way into major tax legislation.” This explanation highlights the differences between the economy that exists for the economic elites and the economy in which 99 percent of Americans live. Repeal of the meals deduction limitation will not bring more people into the restaurants that ordinary Americans usually patronize.

The foolishness of the proposal is highlighted by the fact that even some Republicans oppose it. it is being criticized by tax policy experts “across the ideological spectrum.” For example, Kyle Pomerleau of the American Enterprise Institute, hardly a progressive on tax issues, had this to say in his blog about a month ago:

More permissive treatment of business meals and entertainment would make it easier for business owners and their clients to disguise personal consumption as business expenses. And without the hard rules under current law, there would be a greater strain on tax administrators to determine whether a party is a “promotional expense” or just a party.

Expanding the deductibility of meals and entertainment is also poorly targeted in the context of COVID-19. Proposals to expand the deductibility of business meals and entertainment would reduce the after-tax cost of these activities and may encourage some additional activity at the margin but would have a limited impact on the economy and these industries. Simply put, many Americans continue to be uncomfortable with dining out in the presence of the virus.

Ultimately, the most effective way to help the restaurant and entertainment industries is to get the virus under control.

And that is the problem. Instead of tinkering with symptoms, the Congress needs to fill the void in national leadership by focusing on legislation that directly addresses the pandemic, in terms of prevention, mitigation, and cure. It’s not enough to focus on vaccine development while people fail to wear masks where necessary, and while people attend crowded parties without adequate physical distancing. Members of the Congress who continue to think playing with the tax law in order to benefit their wealthy patrons are doing the nation more than a disservice. They are diverting attention away from what needs to be done.

Readers of MauledAgain know that I have long criticized the handing out of tax breaks based on promises that are broken, such as claims that the tax breaks will create jobs, reduce or eliminate some undesirable situation, or contribute to economic improvement for those in most need of financial assistance. I have written about the need to require delivery on these promises in posts such as How To Use Tax Breaks to Properly Stimulate an Economy, How To Use the Tax Law to Create Jobs and Raise Wages, Yet Another Reason For “First the Jobs, Then the Tax Break”, When Will “First the Jobs, Then the Tax Break” Supersede the Empty Promises?, No Tax Break Until Taxpayer Promises Are Fulfilled, When Job Creation Promises Justifying Tax Breaks Are Broken, Broken Tax Promises: When Tax Cut Crumbs Are Brushed Away, Why the Job Cuts By Tax Cut Recipients?, Broken Tax Promises Should No Longer Be Accepted, Tax Breaks Done Correctly in Indiana, and Tax Break Recaptures and Claw Backs: Contracts, Conditions, and Language.

In Tax Break Recaptures and Claw Backs: Contracts, Conditions, and Language, I described how Ohio officials want General Motors to repay $60 million of tax breaks it received in exchange for its promise to keep open a facility in Lordstown, Ohio, until 2027. Instead, last year General Motors shut down that facility. The contract between the Ohio Tax Credit Authority, which is part of the Ohio Development Services Agency, and General Motors included a recoupment provision, but General Motors does not want to repay the tax breaks.

There now is more news about the situation. According to this report, the Ohio Tax Credit Agency could have moved forward with recoupment decisions at its July 27 meeting but decided instead to deal with the issue when it meets on August 31. The Development Services Agency is recommending to the Tax Credit Authority that it seek recoupment of the tax breaks because General Motors breached the agreement.

In turn, General Motors has rejected repaying the tax breaks. It has argued that repayment “would be inconsistent with the spirit of economic development and our significant manufacturing presence” in Ohio and the Mahoning Valley. Consider the precedent that would be set if this sort of argument is accepted. Suppose a retail company with ten locations hires a cleaning company to clean each of the ten stores every evening after closing. The cleaning company fails to clean one of the stores. The retail company, having paid in advance for the cleaning services, seeks a refund of what it paid for cleaning the store that the cleaning company failed to clean. If the cleaning company argues that it ought not be required to refund the payment because it is cleaning the other nine stores, the retail store management should laugh in the faces of the cleaning company management. And when, and if, the matter reached a judge, the outcome should be obvious, whether or not the judge laughs at the absurdity of the argument.

Ohio’s Attorney General has filed a brief with the Tax Credit Authority, demanding that General Motors repay the tax credits. He described the amount in question as “1 percent of its savings from closing the plant” and rejected General Motors’ position that repayment would be punitive.

As I wrote in Tax Break Recaptures and Claw Backs: Contracts, Conditions, and Language, it would have been better to set up the agreement so that General Motors received a prorated portion of the tax breaks each year the old facility was open. Under that arrangement, if the facility closed, the tax breaks would stop. If General Motors wanted tax breaks for its new facility, it could negotiate another agreement, with the tax breaks being delayed until the facility opened and employees were hired, again with the tax break being prorated and made available at the end of each year, or calendar quarter, that General Motors complied with fulfillment of its promises. I also wrote:

There are lessons to be learned from what Ohio is facing. The Congress and legislatures in other states, including local officials, should examine what Ohio has done, note what has worked, what has not worked, and what can be improved, and act accordingly in the future. They are welcome to read my MauledAgain posts on this topic, easily located by referring to the links at the beginning of this commentary. After all, I am an educator and I have always welcomed the opportunity to educate legislators, though they rarely welcome my instruction. There’s still time to fix the tax break giveaway mess. Let’s see if any of them have learned anything.

Hopefully, legislators and taxpayers throughout the nation are watching the Ohio situation closely and learning why tax break giveaways based on future promises need to be ditched, preferably entirely, but if not, replaced by tax breaks based on past performance.

Perhaps they are turning up the heat on tax return preparers gone bad. They being investigators and attorneys at the Department of Justice, though they usually work in cooperation with agents and auditors from the Internal Revenue Service.

Back in March, in More Tax Return Preparation Gone Bad, I reacted to a United States Department of Justice news release, that described how a former operator of a Liberty Tax franchise in Florida was permanently barred from operating a tax return preparation business and preparing federal income tax returns for others, and how he also was ordered to pay back $175,000 he received from filing false tax returns on behalf of clients. The news release noted that the court ordering these restrictions had previously issued similar orders against two other Liberty Tax franchise operators.

Now comes news, from another United States Department of Justice news release, that a grand jury has indicted seven tax return preparers in North Carolina. In one indictment, seven tax return preparers in Charlotte were charged with conspiring to defraud the United States. Four of the preparers named in the indictment had also been previously charged in another indictment.

According to the indictment, over a period of years the owner of Kapital Financial Services and six employees “allegedly conspired to falsify clients’ tax returns by claiming deductions, business losses, American Opportunity credits, education credits, and earned income tax credits that the clients did not incur, in order to fraudulently increase refunds to be paid by the IRS.” Two of the employees also were charged with filing false tax returns in their own names for some of the years in question.

For a long time there has been widespread concern, among taxpayers and officials of federal and state tax agencies, that too many tax return preparers not only are insufficiently trained and deficient in tax knowledge and understanding and that too many preparers engage in fraud, often without the knowledge or cooperation of their clients. Sadly, efforts to protect people from unscrupulous tax return preparers have not been as successful as one would hope. I addressed this issue in Tax Return Preparer Regulation: What About Attorneys and CPAs?. I concluded that commentary with these words:

If the goal of preparer regulation simply is to stop preparers from stealing refund checks, then limiting examination and certification to preparers who are not attorneys and CPAs might be defensible. But if the goal is to produce more accurate returns, and thus improve revenue and compliance across the board, as it ought to be, I maintain that most lawyers and many CPAs aren’t as expertised as they need to be. In all fairness, Congress has created a tax law that rivals quantum physics in terms of difficulty, which surely makes attaining competence just that much more elusive, but that does not diminish the need for tax competence by all preparers. Demonstrating that competence ought to be accomplished by actual testing and not by erroneous presumption.

As I wrote in More Tax Return Preparation Gone Bad, “The lesson at the moment? Choose a tax return preparer as carefully as choosing a surgeon or child care provider. In other words, do research, talk to friends and neighbors, look at online reviews, and interview the preparer.” This most recent indictment does nothing but corroborate the wisdom of that advice.

Learning is a life-long process, at least for most people. It is, for me. My impression about the disposition of surplus proceeds from a tax sale has been altered.

It helps to begin with background. When an owner of real property fails to pay real estate taxes, the property eventually is put up for sale by the jurisdiction to whom the taxes are owed. This, of course, is a very simplified statement of a process that can take months, if not a year or two, and that can involve several stages of sale attempts. Once the property is sold, the proceeds are used to pay the taxes that are owed and the costs of the sale. What happens if, as often is the case, the proceeds exceed the unpaid taxes and the costs of the sale? I had always been under the impression that the surplus proceeds belong to the owner of the property. That is true in many states, including the one in which I live.

To my surprise, under Michigan law, if there are surplus proceeds from the sale of real property on which taxes have been unpaid, those surplus proceeds are taken by the jurisdiction that sells the property. In 2014, Oakland County sold a property because $8.41 of real property taxes had not been paid. The property sold for $24,5000, and the county kept what was left after the costs of the sale had been paid. The property owner sued. On July 17, the Michigan Supreme Court issued a decision, holding that the county was not permitted to keep more than the taxes that had been unpaid. Because the lawsuit was brought as a class action, the decision affects not just the sale in question but others within the state.

Apparently, according to the property owner’s lead attorney, about twelve states have laws permitting the taxing jurisdiction to retain not only an amount to pay the unpaid taxes but also any surplus proceeds from the sale. Whether the Michigan decision will influence legislatures and courts in those other states remains to be seen. Comments from the property owner’s attorney suggest that attempts will be made in those other states to get similar rulings from those states’ highest courts.

When the Michigan Supreme Court stated, “The government shall not collect more taxes than are owed,” it was saying something that most people, including myself, would take as obvious and sensible. Thus, it was a surprise to learn that some states have laws permitting the state to collect far more than what a delinquent taxpayer owes, even after adding interest and penalties.

If statutes permitting taxing jurisdictions to take, in effect, all of a property owner’s equity if taxes are unpaid are intended to function as incentives for property owners to pay real estate taxes, then those statutes are not well designed. Few property owners are aware of this draconian provisions. These statutes, in effect, impose on the delinquent property owner a penalty equal to the excess of the property owner’s equity over the unpaid taxes and costs of sale. In the Michigan case, the property owner was being subjected to a penalty of near $24,000 because of an $8 unpaid tax debt. That is unconscionable. And as the Michigan Supreme Court concluded, a violation of the Michigan Constitution.

Several months ago, in Taxes and the Virus, I criticized a proposal by the current Administration to cut payroll taxes as a solution to deal with at least some of the economic problems caused by the spread of the SARS-CoV-2 virus that causes the Covid-19 disease. I pointed out that anyone who understands economics, taxation, and tax policy knows that this approach is ineffective, and that I was not alone in my criticism. The current Administration is not the only one to have proposed payroll tax cuts as a response to economic turmoil, and in fact the previous Administration succeeded in temporarily cutting the payroll tax. And, yes, I also criticized that proposal, and explained its failures, in Do Lower Taxes, Less Regulation Create Jobs? Do Payroll Tax Cuts, Employment Credits, More Section 179 Expensing, Unemployment Benefits Create Jobs?. I wrote, “The payroll tax cut did little, if anything, to fix the problems, because the economy is no better at this point than it was when that cut was enacted, and it might even be, by some measures, worse. As a short-term band-aid, it was worth the attempt. As long-term surgery, it fails. It costs too much. It undermines funding for the Social Security program.” In other words, though I did not think it would work, I accepted the failure of that Administration to take a position consistent with mine, and viewed what it did as an experiment. But the experiment failed, and there is no need to engage once again in the foolishness of a payroll tax cut.

The current Administration apparently doesn’t know when or how to adapt to reality. Having failed several times to convince Congress to cut payroll taxes, the current Administration, according to many reports, including, for example, this one from The Hill, again is trying to push through a payroll tax cut. Fortunately, according to several reports, including this Philadelphia Inquirer story, the payroll tax cut proposal has been kept out of the most recent legislation proposed by Republicans, at least for the moment.

Why is a payroll tax cut a bad idea? Its effects are too slow, it does not increase cash flow to the unemployed, it does not help employers closed or operating under limited conditions because of the pandemic re-open or expand operations, it devastates the Medicare and Social Security programs, and it hurts workers in the long-term because it reduces their Social Security and Medicare payments when they retire. It has no positive effect on long-term hiring and business decisions. It creates additional cash flow to those who are not in need of additional cash flow.

There are ways to fix the economic mess that has been worsened by the pandemic. Those in power, however, are unwilling to do what needs to be done, because those who keep them in power, namely, those who really are in power, are loathe to admit that the root of the problem is the decades-long shift of income and wealth to the economic elite. They are, of course, the ones who really are in power, and refuse to admit that the income and wealth shift not only has failed to provide the benefits advertised each time tax breaks are handed out to those who are far from needy but also has damaged the economy so that it has been less positioned to weather the storm of a pandemic.

As I wrote in Taxes and the Virus, “It is becoming increasingly disappointing and dangerous that every time an economic crisis pops up, proposals are made that in the short-run and long-run shift wealth to the oligarchy. The sales pitches made for these proposals are disturbing. And every time they are bought by legislators they cause another crisis, which then provides the opportunity for yet another bad proposal to be made. Yes, I do think it is all part of a much bigger plan. But when plans backfire, as this one will, it’s not the planners who pay the price. That’s wrong, sad, and unacceptable.” And so it’s déjà vu time, as once again a failed experiment is trotted out and hyped by an Administration totally over its head when it comes to fixing the economic mess, other than fixing things so that the economic elite continue to prosper. This time, though, because there is bipartisan opposition to the foolishness of a payroll tax cut, the current Administration is threatening to hold hostage other economic legislation that is necessary. This is not the sort of appropriate governing style needed in a time of crisis.

About a month ago, in A Reason Not to Run for Tax Collector (or Any Other Office)?, I commented on a story about an incumbent tax collector who stalked and impersonated a political opponent and impersonated a student in order to make false allegations about the opponent. He also created a fake Twitter account, pretending to be his opponent and making his opponent appear to be a segregationist and white supremacist. As a result, the tax collector faces federal charges.

In that post, my focus was on the refusal of many otherwise qualified individuals to run for public office. The lies, ignorance, dirty tricks, altered images, fake videos, and false allegations permeating political campaigns are deterring those who would bring much-needed ideas and accomplishments to the public arena. I lamented the disappearance of “the days when politicians, candidates, and office holders engaged in rational, intelligent, honest, and sensible discussions and arguments about issues.” I rued how “mentality of win-at-any-price, devoid of critical thinking and cogent analysis, and reflecting any sense of quality values, has infected the political process.”

Now comes news that the same tax collector, using information from surrendered drivers’ licenses, manufactured fake IDs with his picture on it. This, too, had triggered a federal indictment. Apparently, in Seminole County, individuals wanting to replace or renew a driver’s license could do so at the tax collector’s office, where they would surrender their old licenses, expecting them to be shredded. The tax collector, instead, created fake IDs. It is unclear why he wanted the fake IDs.

The tax collector has resigned his post. Many good, decent people stay out of politics. One of the least liked positions in government is that of tax collector. Most people don’t like taxes, and pay them grudgingly, and certainly don’t hold the tax collector in high regard. So finding good, decent people to run for that office is difficult enough without having people in that office behave in ways that make the tax collector even more disdained in the minds of voters. Political corruption does damage in some man ways, not the least of which is deterring good, decent people from seeking public office.

Every business day I receive several emails from different tax publishers summarizing the previous day’s developments. These include cases, rulings, announcements, and stories. I have noticed that over the past few years, and increasingly over the past few months, that developments have shifted away from action to talk.

The other day, as I was perusing the summaries in one particular email, I noticed the verbs that described the developments. Curious, I categorized them.

Those that indicate action were these, with the number of instances in parentheses if exceeding once:

has updated; has released, releases (9); extends deadline (2); issued guidance; unveiled; announces (4); affirms; dismissed

Those that indicated talk were these, with the number of instances in parentheses if exceeding once:

discusses; explains (2); had offered; doesn’t worry; isn’t concerned; is urging; echoes calls; lays out suggestions; has requested comments (2); likely to be; will likely include; reminds (2); needed; cautions; criticizes (2); says (2); proposes (2); urge

Most of the 20 developments involving action reflect IRS announcements, releases, and decisions. The 24 developments involving talk reflect an increasing flood of suggestions, requests, criticisms, and predictions.

There’s nothing wrong, of course, with suggestions and criticisms. I offer those on a regular basis, and not only on this blog. The problem is the inadequate number of actions. Tax practitioners, for example, continue to struggle with issues for which there are no definitive answers. Some of their questions have been percolating for years, even decades. The same sort of problem afflicts other areas of life, too many suggestions, and too few resolutions. I’d like to see more developments using verbs such as fixes, solves, clarifies, decides, and unravels.

Criticism works best when it is constructive, that is, when it is accompanied by a proposal to solve the problem underlying the criticism. I try to do that when offer criticism, though every now and then I don’t have a solution to offer. Yes, it is good to encounter a flood of proposals, suggestions, and criticisms, but when nothing is done, and the criticisms continue, or when something is done but in way that brings more criticisms and yet remains uncorrected, the lack of progress poses even greater risks. Though many want to be “in charge,” too few are able and willing to make decisions and to fix decisions that turn out to have been unwise. As I was told when I was a child, “Talk is cheap but actions speak louder.” Indeed.

It wasn’t a television court show. It was the Maury Show, season 22, episode 115, on a rerun. It showed up when the previous show ended and I didn’t pay attention to changing channels. I turned my total attention to the television when I heard the word “tax.” How did tax become relevant to a show that focuses mostly on paternity issues?

A woman claimed that a man is father of her child, She wants him to help raise the child. He denied he is the father. The woman exclaims that of course he is the father, and he knows it because he claimed the child as a dependent on his tax return.

The man replied that he never denied being the father. He claimed that he was unsure, and thus was not ready to admit being the father. He didn’t say anything about the woman’s allegation that he claimed the child as a dependent on his tax return. Because the show focused on DNA testing, the tax issue apparently was ignored as irrelevant. So there was no lie detector test focusing on that issue, and no determination of what he did or didn’t do on his tax return. The DNA test established that the man indeed was the father of the child. So if he did claim the child as a dependent, and yet was unsure that he was the father, why did he claim the child? We don’t know.

What’s the tax lesson? There are several. First, any person claiming not to be the parent of a child ought not take an inconsistent position by treating the child as a child for income tax purposes, whether for an exemption or a credit. Second, if there is any doubt that the taxpayer is the parent of a child, establish parentage before treating the child as a child for income tax purposes. Third, understand that treating a child as a child for tax purposes can create problems if it subsequently is determined that the child is not the taxpayer’s child. Fourth, understand that treating a child as a child for tax purposes makes it a foolish thing to deny parentage, because it erodes credibility.

There’s another more general lesson. Don’t make allegations about what someone has done on a tax return without some sort of proof. Had the show pursued that issue, it would have been interesting to find out why the woman made the assertion she made about the man’s tax return, and how she was able to learn what he did. The two were not married, so the return was not a joint return. So how did she get her hands on the return? Or was she simply relying on something he said? Or was she making it up?

Ultimately, claiming someone as a child on a tax return doesn’t establish that the person is the taxpayer’s child. But it does prove what the taxpayer was thinking in terms of the taxpayer’s relationship with the person claimed as a child.

On Friday, in Tax Practice What You Tax Preach?, I criticized Grover Norquist and his Americans for Tax Reform Foundation for taking Paycheck Protection Program Funds even though he and his foundation are zealous opponents of government handouts, government, and taxes. I noted that “people, companies, and entities that are opposed to taxes and the disbursement of tax receipts by the federal government . . . exhibit. . . a significant degree of hypocrisy when they join the crowd” lining up for government assistance. I also wrote, “After all, to build a program based on objections to government “handouts” and the cutting of taxes in order to eliminate “handouts” should require consistency in behavior by not asking for that assistance.”

Recently, news reports, such as this Reuters story, have brought to public attention the fact that the Ayn Rand Institute applied for, and received, Paycheck Protection Program money. The Institute has produced an attempted justification, but its reasoning is pitiful. Essentially, the Institute argues that although it opposed government involvement in the economy, nonetheless the money from the program is simply a “restitution” of taxes that have been paid to the government under threat of force. Why is this argument pitiful? According to its own web site, the Institute is tax-exempt. If it doesn’t pay taxes, why the “restitution?”

As I wrote in Tax Practice What You Tax Preach?, “If you don’t like taxes and government handouts, don’t ask for one and don’t accept one.” To that, I would add, “Especially if you don’t pay taxes.”

As I also wrote on Friday:

Perhaps there is a silver lining in what has happened. Perhaps Americans will come to understand that the anti-tax, anti-handout, anti-government crowd isn’t simply against taxes, government, and handouts. They’re against paying taxes, against handouts for others, against a government that cares for the truly needy. They are, however, in favor of others paying taxes while themselves benefitting from tax breaks and handouts directed to themselves, all the while turning government into government of the few, by the few, and for the few.

Each day that goes by, increasing numbers of Americans are beginning to peek behind the curtain, and realizing the fallacies preached by the anti-tax, anti-government crowd.

The stupidity continues, and grows. Not quite a month ago, in Another Unwise Tax Proposal, I criticized a proposal by the Administration for a tax credit of as much as $4,000 for “vacation expenses.” The goal, according to its supporters, is to revive a segment of the economy hard hit by the pandemic. My criticism focused on several flaws. First, the proposal addressed only one of many segments of the economy suffering from pandemic-related issues. Second, I noted that Americans who are suffering economically, enduring job losses and running out of funds, aren’t about to head off for a vacation. Third, I noted that a tax credit, if not refundable, means little to Americans who have little or no tax liability. Fourth, I pointed out that many Americans are hesitating to go on vacation because they are concerned about contracting the CoVid-19 virus, a concern that surely has sharpened during the surge since I posted my Another Unwise Tax Proposal commentary. Fifth, I suggested that any industry that wants customers and clients to return must invest in the things that need to be done to minimize the risks, such as sanitizing facilities, implementing distancing, requiring masks, and pushing for legislation mandating national contact tracing, adequate supplies of PPE, accurate reporting, punishment of officials who hide information in order to enhance their own political agendas, restoration of national pandemic teams, and other steps.

I closed my criticism of the proposal to pay people to take unnecessary health risks by sarcastically asking, “What’s next? Tax credits to encourage people to drink alcohol, watch movies, and party?” Perhaps I should have made it clear I was being snarky. Why? Because now, as reported in this Philadelphia Inquirer article reprinted from the Washington Post, the Administration is proposing tax breaks for people who attend baseball games.

The stupidity of a tax break for attending baseball games is astounding. In no particular order, here are the reasons the proposal demonstrates a complete lack of intelligent thinking. First, attending events at which there are large gatherings is very high on the list of most risky CoVid-19 transmission activities. Second, with the shutdown of minor league baseball, the number of places where baseball games are scheduled to be played is much lower than usual. Third, it isn’t even definite that major league baseball will return or, if it does return, that it will complete its planned shortened season. Fourth, under current plans, there will be no fans at the games, making it rather impossible for someone to do what is needed to claim the proposed tax break.

What’s even more bizarre is that, unlike the tourism and hotel industries lobbying for the proposed “vacation tax break,” a major league baseball official described the “baseball tax break” idea as “a little weird.” To me, that suggests that the proposal is not a consequence of lobbying by major league baseball. Perhaps some team owners are lobbying outside major league baseball’s official channels? Or perhaps this is another one of those bizarre thoughts that pops into the mind of the Administration and is emoted before it goes through the frontal cortex filter? In short, it should not take much intellectual effort to realize that tax breaks encouraging activities that people do not want to do or cannot do are a waste of time and money.

Clearly the Administration, like everyone else, wants life to be normal. It isn’t and it cannot be. So the Administration, unlike most people, wants to make life appear to be normal by carrying on life as though a dangerous pandemic did not exist. Most people are aware, or becoming increasingly aware, that ignoring the pandemic is stupid. So the Administration takes the approach that tax breaks, or more simply, money, will encourage people to do something they do not want to do, or even something they cannot do. But there are limits to the power of money, at least for the majority of Americans who understand the importance of integrity, common sense, empathy, kindness, and generosity. It is not surprising that someone who worships money but is bereft of integrity, common sense, empathy, kindness, and generosity can come up with no other pandemic remedial plan that using money to encourage people to act stupidly rather than showing leadership and supporting what needs to be done to deal with the health problem that underlies the difficulties afflicting the economy. After all, the troubled economy is but a symptom of a deeper problem, and tossing would-be band-aids at a hemorrhaging economy while neglecting attention to treating the malady is the hallmark of stupidity, in medicine, in economics, in politics, and in life.

Though Grover Norquist and I agree that it is futile to put tax return preparation in the hands of the Internal Revenue Service, we part ways on a long list of issues. I have written about his dangerous anti-tax campaigns in posts such as Debunking Tax Myths?, If the Government Collects It, Is It Necessarily a Tax?, Tax Policy, Elections, and Money, Tax Ignorance or Tax Deception, and Clamoring for Tax Basis Indexing AND Special Low Rates: Inspired by Greed. To me, it is unfortunate that he has used bullying tactics in trying to force his anti-tax ideology onto the nation. I have dissected his anti-tax, anti-government arguments and demonstrated the deep flaws in his premises and his reasoning. I have also pointed out the atrocious outcomes in places where his anti-tax and anti-government philosophy has prevailed.

Norquist, at least, unlike others who disguise their purposes, had never hesitated to proclaim his crusade against taxes and his efforts. To use his words, his goal is to “drown [government] in the bathtub.”

So it’s mind-boggling to learn, as reported in this Bloomberg report and many similar stories, that Americans for Tax Reform Foundation, one of Norquist’s political arms, applied for, and obtained, a loan of between $150,000 and $350,00 from the Paycheck Protection Program. How is it that an opponent of taxes and federal spending is willing to let one of his entities grab tax dollars dished out by the federal government?

Unquestionably, there are flaws in the Paycheck Protection Program. Norquist is not the only participant whose readiness to grab some dollars has disturbed and even angered some, perhaps many, Americans. Lobbyists for friends of the Administration, companies owned by or connected to Cabinet members and member of Congress, billionaires and millionaires, cash-deep corporations, and others who surely were not in need of assistance have jumped on the gravy train. Many small businesses, the ones most in need of paycheck assistance, have received pittances, and some ended up with nothing.

It is admirable to assist businesses that faced two problems. Operating day to day and depending on revenue flow to pay the bills, the shutdown triggered by the pandemic cut off that revenue flow. In the absence of reserve capital, these businesses would be forced to furlough or terminate employees, with a cascading negative effect on the economy. These businesses needed and need assistance. Businesses with deep cash reserves did not and do not need assistance. Nor do businesses that continued to operate, including some whose revenue increased.

Businesses in need of assistance include barber shops, hair salons, arts and cultural entities, transportation firms, entertainers, tattoo artists, sports equipment manufacturers, restaurants, hotels, theaters, dentists, amusement parks, pet sitters, mobile notaries, house cleaners, and other companies and self-employed individuals whose revenue depends on getting out and about. In contrast, the coronavirus created a boom for some businesses, such as delivery firms, online sellers, and, yes, lobbyists. See this Fulcrum article (“But as millions of Americans struggle to pay their rent on time, one industry is booming. Lobbyists on Capitol Hill are in sky high demand.”) Indeed, Norquist’s foundation is not the only lobbyist that lined up for government assistance. Surely the folks opposed to tax increases, panicking at the thought of tax increases necessitated by the pandemic, and flush with cash, continue to pump their resources into the Americans for Tax Reform Foundation to help it continue to pursue its the goals.

It is understandable that when something is being handed out, people and companies will show up with extended hands. But people, companies, and entities that are opposed to taxes and the disbursement of tax receipts by the federal government are exhibiting a significant degree of hypocrisy when they join the crowd. After all, to build a program based on objections to government “handouts” and the cutting of taxes in order to eliminate “handouts” should require consistency in behavior by not asking for that assistance. Do participants in anti-smoking campaigns light up cigarettes and cigars? Do advocates of restrictions on gambling go to casinos and lay down money? Do prohibitionists drink alcohol? There probably are a few anti-smokers, gambling opponents, and prohibitionists who don’t practice what they preach, and that is unfortunate for them and for their campaigns. It makes the message ring hollow. If you don’t like taxes and government handouts, don’t ask for one and don’t accept one.

Perhaps there is a silver lining in what has happened. Perhaps Americans will come to understand that the anti-tax, anti-handout, anti-government crowd isn’t simply against taxes, government, and handouts. They’re against paying taxes, against handouts for others, against a government that cares for the truly needy. They are, however, in favor of others paying taxes while themselves benefitting from tax breaks and handouts directed to themselves, all the while turning government into government of the few, by the few, and for the few.

Two years ago, in Raising Tax Revenue By Encouraging Risky Behavior, I criticized the Pennsylvania legislature for repealing certain restrictions on the purchase and sale of fireworks by non-professionals in order to rake in additional revenue based on both the sales tax applicable to fireworks and the special, additional 12 percent sales tax on “amusement products.” I noted the foolishness of encouraging people to engage in risky behavior in order to raise revenue from the taxes that are imposed on risky behavior in order to reduce instances of that risky behavior. I compared the legislature’s action to the passing of laws encouraging people to smoke in order to increase revenue from tobacco taxes.

The legislation that permits just about anyone to purchase and set off fireworks had several restrictions reflecting the danger involved in fireworks activity. Yet even though the legislation forbids the use of fireworks by minors or intoxicated individuals or within 150 feet of buildings, these restrictions are difficult to enforce and apparently aren’t being enforced in most cases involving noncompliance. I predicted this outcome, pointing out that laws against firing guns into the air to celebrate events is rarely enforced. When I wrote, “An increase in fireworks sales and use surely will be accompanied by an increase in explosions, fires, personal injuries, and even death. Yes, it’s only a matter of time before someone loses a hand or gets blown up,” I had little hope that the legislature would reverse course but I did admit to myself that I would not mind being proved wrong. Sadly, at the end of June, as reported by many sources, including this one, a Scranton, Pennsylvania, man was killed when a firework exploded on the ground. Earlier in June, a homeowner was killed and his friend badly injured when two tractor trailers parked in his backyard and filled with fireworks exploded, terrifying neighbors.

According to this recent Philadelphia Inquirer story, not only are people complaining about fireworks being set off close to their homes, they are also annoyed and even irate at the noise, especially at night. For example, between May 29 and June 29, Philadelphia received more than 8,500 complaints about fireworks being set off near buildings, at night, or under other circumstances creating noise or other problems. And this is before the July 4 weekend, which made those 30 days seem tame.

Some municipalities are lobbying for permission to enact local laws prohibiting the use of fireworks by non-professionals and imposing restrictions on the use of fireworks by licensed professionals. Opposition comes from those who do not want the state to lose revenue from fireworks sales. Nonetheless, the state Senate voted 48-2 to permit certain municipalities to prohibit use of fireworks by non-professionals. However, the General Assembly adjourned for the summer without considering the legislation.

As I pointed out two years ago, these sorts of unintended and tragic consequences, surely foreseeable by anyone using common sense, are the outcome when “legislation is rushed, squeezed into other bills, and enacted without public hearings and discussion. This is what happens when revenue policy is a patchwork of concepts rather than a reflection of an overall analysis of taxes, the economy, behavior, and social benefits.” Rather than letting the danger continue through the summer, members of the Pennsylvania General Assembly need to hurry back to Harrisburg and pass the legislation that has already cleared the Senate. Additional delays mean more deaths, more injuries, more explosions, more disruption, more complaints, and more risk of unhappy neighbors taking the law into their own hands.

Readers of MauledAgain know that I have long criticized the handing out of tax breaks based on promises that are broken, such as claims that the tax breaks will create jobs, reduce or eliminate some undesirable situation, or contribute to economic improvement for those in most need of financial assistance. I have written about the need to require delivery on these promises in posts such as How To Use Tax Breaks to Properly Stimulate an Economy, How To Use the Tax Law to Create Jobs and Raise Wages, Yet Another Reason For “First the Jobs, Then the Tax Break”, When Will “First the Jobs, Then the Tax Break” Supersede the Empty Promises?, No Tax Break Until Taxpayer Promises Are Fulfilled, When Job Creation Promises Justifying Tax Breaks Are Broken, Broken Tax Promises: When Tax Cut Crumbs Are Brushed Away, Why the Job Cuts By Tax Cut Recipients?, Broken Tax Promises Should No Longer Be Accepted, and Tax Breaks Done Correctly in Indiana.

Though I don’t prefer using the tax system to encourage or discourage specific social behavior, I prefer, if the tax system is to be so used, that the tax breaks be handed out after the promised job creation, pollution reduction, or other benefit has been delivered. Another possibility, better than the promise-based handout, is some sort of recapture or claw back, but the problem with this approach is the high risk of noncompliance, perhaps because the taxpayer no longer has funds, perhaps because political pressures block or hinder collection of what is required to be repaid, or perhaps because political pressure retroactively reduces or eliminates the recapture or claw back.

A reader brought my attention to a recent situation involving a state’s attempt to recoup tax breaks. According to this story, in 2019 General Motors shut down a facility in Lordstown, Ohio, that it had promised to keep open at least through 2027 in exchange for tax breaks. Now the Ohio Attorney General wants General Motor to replay $60 million of those tax breaks.

Apparently a recoupment was included in the contract signed by General Motors. Though kudos are in order for the Ohio officials who included this provision, current officials are now facing the challenge of collecting the $60 million. Though the Attorney General stated, “Accountability is the key to good business and we’re holding GM accountable for not living up to its end of the contract,” the governor, who is of the same political party as the Attorney General, gave a different message, explaining that “the state is not actively seeking the money's return but is focused on how the automaker can create Ohio jobs.”

In the meantime, General Motors is building a new facility next to the one it closed, though it will eventually employ fewer than one-third of the workers formerly employed at the closed facility. General Motors wants the state to take into account “its significant manufacturing presence in Ohio.”

I have not read the agreement into which Ohio and General Motors entered when the tax breaks were handed out. Perhaps there is language that provides for some sort of offset to the claw back that reflects the construction of a new facility. Perhaps only two-thirds of the tax break should be recaptured. Perhaps more should be recaptured because there is a period of several years between the closing of the old facility and the opening of the new one during which employment drops to zero or near zero.

Of course, the ideal would have been to enter into an agreement that made available to General Motors a prorated portion of the tax breaks each year the old facility was open. Once the facility closed, the tax breaks would stop. If General Motors wanted tax breaks for its new facility, it could negotiate another agreement, with the tax breaks being delayed until the facility opened and employees were hired, again with the tax break being prorated and made available at the end of each year, or calendar quarter, that General Motors complied with fulfillment of its promises.

There are lessons to be learned from what Ohio is facing. The Congress and legislatures in other states, including local officials, should examine what Ohio has done, note what has worked, what has not worked, and what can be improved, and act accordingly in the future. They are welcome to read my MauledAgain posts on this topic, easily located by referring to the links at the beginning of this commentary. After all, I am an educator and I have always welcomed the opportunity to educate legislators, though they rarely welcome my instruction. There’s still time to fix the tax break giveaway mess. Let’s see if any of them have learned anything.