Monday, August 16, 2021
Using General Funds to Finance Transportation Infrastructure Not a Viable Solution
The proposed pilot, which relies on volunteers, is pretty much along the lines of the one in which I participated several years ago. The one in which I participated simply sent a pro forma “what if” invoice that I was not required to pay, whereas the federal pilot will collect and then return a user fee. It’s not clear why the pilot will go through those motions but it might have something to do with analyzing the data.
The inclusion of the pilot program in the legislation has sparked a variety of reactions. One, in a commentary brought to my attention by reader Morris, carries the headline “Might be time to start thinking of funding our roads with something other than user fees, like gasoline or mileage taxes.” Understanding what the author, John Tsitrian, means by “something other” requires reading the commentary and then guessing. He defines something other as “general funding” but doesn’t identify what taxes or fees should be implemented or increased to provide the necessary monies in the “general funding” account.
Tsitrian rests his theory on the claim that “all of us, no matter how much or how little we drive, are ‘users’ of our roadways.” That is almost completely true, in the sense that transportation infrastructure benefits not only drivers but also those who don’t drive but are driven or who receive items delivered by vehicles. Perhaps there are a few people who are so “off the grid” that they are unaffected by road use, but if they exist they are so small in number that their existence does not detract from Tsitrian’s point.
But though everyone, or almost everyone, uses or benefits from the use of transportation infrastructure, the degree of use varies. Fuel taxes and mileage-based user fees allocate the cost of building, maintaining, and repairing roads proportionate to the use. People who benefit from road use but who don’t drive pay a proportionate share of those fuel taxes because taxi, Uber, Lyft, and similar drivers pass the taxes along to their passengers in the cost of the ride. People receiving deliveries pay delivery charges that take into account the fuel taxes paid by the owners of the delivery vehicles. So, bottom line is that everyone benefitting from the use of roads is paying, directly or indirectly, the fuel taxes used to maintain and repair the roads. The problem, of course, is that the total taxes being collected falls far short of what is required. So when Tsitrian argues that, “It seems much more equitable for the cost of building and maintaining our highways to be spread out over the entire populace,” and that “Now’s the time to consider that concept,” he misses the point that the incidence of fuel taxes already is spread out over the entire populace. And when he claims that the mileage-based user fee “unfairly puts the burden on drivers who use a system that is an essential feature of life for all of us, whether we drive or not,” he ignores the reality that drivers whose driving benefits others would pass the fee along to passengers and customers in the same manner they currently pass the fuel tax along to their passengers and customers.
Tsitrian then claims that, “Eliminating taxes for drivers would put a substantial amount of money into circulation throughout our economies, which would probably have some noticeable impact on local, state and federal GDPs.” The reality is simple. Though people would stop paying fuel taxes they would face increases in whatever other taxes are used to fund the “general funding” that Tsitrian wants to use to fund highway repair and maintenance. The only way that the elimination of fuel taxes would put more money in the pockets of drivers is if no other taxes or fees are enacted or increased. That scenario requires either reduction or elimination of highway repair and maintenance, or reductions in spending for other services funded by general funds.
Another problem with Tsitrian’s proposal is that leaving highway funding without a dedicated funding source subjects the maintenance and repair of highways to the vagaries of legislative budget debates. One can imagine even more closed highways and bridges, and even longer periods of closure, because general funds are frozen while legislatures wallow in gridlock. There are enough problems with transportation infrastructure funding without needing to add yet another roadblock to the restoration of the nation’s bridges, tunnels, and highways.
Friday, August 13, 2021
Cryptocurrency Tax Reporting Legislation Demonstrates the Flaws of How the Senate Operates
The concept, as a theory, is fine, but it encounters practical reality when new types of transactions are developed. In recent years, cryptocurrency transactions have been unreported because they don’t fit within existing requirements. This, of course, opens the door to a significant amount of tax avoidance and a more-than-negligible amount of tax evasion. So the Senate included cryptocurrency information reporting requirements in the pending infrastructure legislation because it raises revenue to offset the cost of the planned expenditures. And then the fun started.v A dispute arose because some people in the cryptocurrency world did not like the definition of the word “broker.” That matters because the information reporting requirement would be imposed on brokers. The industry argues that the current language would require information reporting by intermediaries such as miners and network validators who are not traditional brokers and who arguably do not have the user information that must be provided as part of the information reporting. The dispute delayed passage of the legislation for days.
Finally, as reported by many sources, including this Politico report, a bipartisan compromise was worked out. The compromise found support among people in the cryptocurrency industry, accountants and tax professionals, the Secretary of the Treasury, and Senators on both sides of the aisle spanning the political spectrum. And then the fun began.
One of the authors of the compromise, Republican Senator Pat Toomey of Pennsylvania, attempted to attach the compromise to the legislation. But Republican Senator Richard Shelby of Alabama threatened to block the amendment. The Senate rules dealing with the legislative process permit one Senator to block the amendment. But Shelby revealed that he was not against the compromise amendment because he offered to refrain from blocking the amendment if Toomey would include in his motion Shelby’s amendment to boost defense spending by $50 billion. Toomey agreed. But then Independent Senator Bernie Sanders of Vermont, objecting to the military spending increase, blocked Toomey’s revised amendment. So the compromise died.
Is this any way to work for the benefit of the people? Does it make sense to give one Senator a de facto veto power over legislation? Of course, this isn’t the only example of the absurdity of the rules under which the Senate works. A good bit of the political gridlock hampering progress is caused by, and is reflected by, the rules of the Senate. Much has been written about these issues, so I will simply let the tale of the cryptocurrency information reporting legislation illustrate the mess.
Wednesday, August 11, 2021
Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?
The author of the letter to the Pocono Record, Philip Cohen, raises two concerns. One concern is that fuel pumps in Pennsylvania do not disclose how much of the price consists of fuel taxes, in contrast to his experience when he had lived in New York State. It certainly is a good idea to show the portion of the price that consists of taxes. I am unaware of any law requiring fuel vendors to do so. However, I also am unaware of any law prohibiting them from doing so. And, in my travels throughout Pennsylvania over the years, I have encountered fuel stations that do publish the amount of the taxes. I am surprised that most don’t. Why? Fuel vendors and their employees are on the front lines when customers complain about the cost of fuel. Some customers think that fuel vendors rake in huge profits, though the reality is that they don’t. So it is in the best interest of fuel vendors to post the tax amount, in effect saying to customers, “you think that we’re raking it in with these prices being what they are, but in reality, here is the amount of the price per gallon that we simply turn over to federal, state, and local taxing authorities.” Granted, any interested consumer can research the amount of fuel tax paid in a particular locality, but the reality is that too few people bother to do research. For the record, the federal fuel excise tax is 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel. The Pennsylvania motor fuel tax rate is 57.6 cents per gallon on gasoline and 74.1 cents per gallon on diesel fuel. These facts are not secret, and even if not posted on a fuel pump, are readily available to any fuel purchaser who is interested.
Cohen’s other concern is that the suggested 8.1 cent-per-mile fee in the Pennsylvania Transportation Revenue Options Committee report will “confiscate as much as $1,215 per year from each of us,” basing that amount on “a typical resident driving 12 to 15 thousand miles per year.” Putting aside the fact that the tax is imposed on fuel purchasers and not “each of us” because not everyone drives a vehicle, how does Cohen’s analysis play out? Consider a vehicle that gets 20 miles per gallon and that is driven 12,000 miles, and assume all of the driving and fuel purchasing is done in Pennsylvania. That vehicle will require 600 gallons of gasoline for the year. The federal and state fuel taxes on 600 gallons would be $456. A mileage-based road fee of 8.1 cents per mile would amount to $972. The same fee would be paid by a vehicle that gets 10 miles per gallon though the fuel required for that vehicle would be subject to $912 in federal and state fuel taxes. An electric vehicle would also pay $972 whereas currently no fuel taxes are imposed on it. As Cohen points out, the justification of the shift is the continuing increase in motor vehicle fuel efficiency and the increased use of electric vehicles. As fuel tax revenue fails to keep up with the cost of maintaining and repairing the roads, bridges, and tunnels used by vehicles, that infrastructure has continued to deteriorate and in some instances fail. If only Pennsylvania fuel taxes are taken into account, the comparison for a vehicle getting 20 miles per gallon would be the proposed $972 Pennsylvania mileage-based road fee and current Pennsylvania fuel tax of $345. For the vehicle getting 10 miles per gallon the $972 amount would replace a $690 Pennsylvania fuel tax. No matter how computed, the proposed mileage-based road fee would increase what drivers pay.
Why the jump in the amount that drivers would pay? The answer is simple. For too long, fuel tax revenues have failed to keep up with inflation and the costs of maintaining and repairing the transportation infrastructure. It’s time not only to reset the revenue stream for the future but it’s also necessary to pay off the deficit that has grown over the past several decades because of pressure from anti-tax groups to curtail fuel tax revenue in efforts to privatize the infrastructure so that profits will flow to the private equity and other oligarchic revenue collection mechanisms. Those mechanisms, incidentally, and their owners, are beyond the reach of the ballot box. Without an increase in transportation revenue, and an adjustment that imposed the burden equally based on miles, the cost of driving will ultimately be set by private sector oligarchs whose decisions will be imposed on an impotent public. I would not use the word "confiscate" to describe adjusting the cost of driving on a road to match the expense of maintaining and comparing that road.
Though the headline to the letter claims that “the mileage tax is a bad idea,” Cohen doesn’t make that claim in his letter. Of course, I’m long familiar with the fact that headlines often are written by someone other than the author of an article, letter, or commentary. True, the use of the word “confiscate” suggests that Cohen doesn’t like the proposed mileage-based road fee, but his only point, aside from the request for disclosure at each fuel pump of the taxes being charged, is that, “Until the commission publishes total tax per gallon paid at the pump, there should not be any changes to the system.” Publishing the tax per gallon is easy enough to do and can be done quickly, even though the information already is available. So assuming that posting the taxes at each pump is accomplished, does that mean Cohen is fine with going forward with the proposal? That is unclear from his letter. The discussion of transportation funding in Pennsylvania, as in the rest of the nation, is far from over.
Monday, August 09, 2021
Yet Another Bad Consequence of Unwise Tax Breaks
Eventually, Philadelphia enacted changes to the abatement program. In 2019, it enacted a scaled-down reduction in the abatement percentage, so that over the ten year period the abatement fell by ten percentage points each year, so that, for example, in the second abatement year only 90 percent of the tax was abated. The change was set to occur with respect to applications filed after December 31, 2020. Then, because of backlogs, another change pushed the effective date to applications filed after December 31, 2021. The abatement for commercial and industrial property also was reduced, from 100 percent to 90 percent, but is not phased out over the ten-year period.
This change has sparked another problem that would not exist but for the abatement and the attempt to offset its other disadvantages. According to this Philadelphia Inquirer article, developers are rushing to get applications filed before January 1, 2022, in order to avoid the scale-back of the tax break. Developers who plan to build properties must have their sites ready for the construction by December 31, 2021. Developers wanting to build on sites currently occupied by historic properties that are not certified for protection against demolition have been posting demolition notices. Apparently it takes too long to do what is necessary to prepare a property for rehabilitation in time for the application deadline. The article notes that in one week, demolition notices were posted on for “the historically designated St. Laurentius Church in Fishtown, two early 20th-century banks in Kensington, and two rowhouses on a beautifully preserved, 19th-century block in Powelton Village.” The article reminds readers that already there have been demolition notices, and demolition, of properties including “a Romanesque-style Catholic church in West Philadelphia’s Haddington neighborhood, a severely damaged, but still magnificent synagogue in Strawberry Mansion, a handsome industrial building on Spring Garden Street, the historically designated home of a notable 19th-century painter in Germantown, and a slew of elegant 19th-century townhouses on the stretch of Christian Street known as ‘Black Doctor’s Row.’” The article reports that, “The demolition targets increasingly include designated buildings, which are supposed to be protected by the Historic Commission but are flagrantly neglected by owners who have little fear of official sanction.”
Though other factors, such as demand for housing and low interest rates, also encourage demolition, the head of the Preservation Alliance notes that Philadelphia’s “development policies are geared toward demolition and replacement. This is all happening in a city with an abundance of properties that could be restored.” Fortunately, the changes made to the abatement program do provide a better tax break for renovated properties, though zoning law breaks that parallel the tax breaks, such as the replacement of a building with a taller building that generates more rent, push developers in the direction of demolition rather than renovation. Thus, for example, the article explains that in the 3700 block of Lancaster Avenue, a block-long row of 19th-century houses in near-perfect condition will be split in two by a developer who plans to demolish a pair of the homes in the “exact middle” in order to build a 16-unit apartment complex.
Though the tax abatement was intended to convert vacant office buildings into housing, it is encouraging the destruction of occupied properties. This, in turn, increases the demand for housing as the evicted occupants seek a new place to live. It has become a vicious cycle.
What really drives the demolition frenzy isn’t a matter of housing demand and low interest rates. If that were the primary driving force, tax breaks would not be needed, because the market would function efficiently. Instead, what is driving the destruction of occupied properties in order to build replacements is the desire to increase rents. In other words, it’s the desire to make money. The developers doing the demolitions aren’t low and middle income folks trying to move up a bit on the economic ladder. It’s people with money who have no use for the money other than to find ways to make more money because they never have, and never will have, enough money. Though a handful of developers are respectful of history and historical architecture, by preserving facades while reconstructing behind them, or adding floors consistent with existing architectural design, most go the cheaper route of total destruction because preservation is more expensive and thus adverse to the goal of maximizing money.
Perhaps the solution is a demolition tax imposed when properties not in need of demolition are destroyed. Perhaps the abatement tax break should be limited to developers who maintain existing structures, or a meaningful portion of structures, while doing rehabilitations that avoid demolition. It’s unfortunate that this sort of approach wasn’t considered when the abatement was first enacted, and it’s just as unfortunate that this sort of approach is almost certainly not going to be adopted. There’s too much money standing in the way of preservation and common sense.
Friday, August 06, 2021
Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention
In one of those blog posts, When Unscrupulous Tax Return Preparers Make It Easy for the IRS and DOJ to Find Them, I observed that one tax return preparer was detected because she foolishly claimed that clients attended school at particular institutions despite knowing that they had not done so. When IRS computers or IRS personnel cross-check the school listed on the tax return with information about students matriculated at that school, the misinformation will jump out. And perhaps clients, concerned that they will be charged with fraud, contact the IRS or another tax professional when they take a closer look at the return they signed. As I wrote in that post, “Some unscrupulous tax return preparers might be difficult for the IRS to spot, or perhaps avoid detection for long periods of time. But others seem to be raising red flags so obvious that they might was well post ‘Fraudulent Tax Returns Prepared Here’ signs in their storefront windows or on their websites. Lack of ethics combined with lack of knowledge about how tax returns are examined and audited is a recipe for a much shorter time as a preparer.”
A few days ago, the information in this Department of Justice news release revealed another red flag that a tax return preparer can wave. A tax return preparer in North Carolina pleaded guilty to aiding and assisting in the preparation of a false tax return and to filing a false personal income tax return. The preparer prepared fraudulent returns for clients that reported false wages and business incomes to increase the clients’ refunds. He also filed a false personal income tax return for 2014 and failed to file tax returns reporting his income for 2015 through 2019.
I do not know exactly how the IRS determines when to investigate a tax return preparer. I can guess that it has a system to examine returns with similar false information to see if the same preparer is responsible for some, most, or all of those returns. That is probably how the IRS tracked down the preparer who was claiming clients attended schools they did not attend. I am also guessing that the IRS has a system to determine if tax return preparers have timely filed their own tax returns, and that it also audits those returns either systematically or using some random sampling. What I do know is that a tax return preparers who fail to file their own tax returns are pretty much waving red flags inviting the IRS to start investigating. One wonders if there is some sort of subconscious desire to be caught playing out in these situations. I don’t know. I’ll let the psychologists explore that question.
Wednesday, August 04, 2021
They Were Warned, They Did Not Listen, They Are Paying the Price for Tax Fraud and Other Crimes
Another hypothetical will help. A person pays $30,000 to the University of Their State as tuition for their child's education. The university is a qualified organization. Is it a gift? No, of course not. The $30,000 is paying for $30,000 of education. Yes, I know that sometimes it's tempting to treat the education as worth a dime, but that's not how the tax law looks at it. If the person deducted the $30,000 and then on audit offered a cancelled check as proof, the IRS would not be amused. The word "penalties" comes to mind, and in some instances so too would the word "fraud." (As for the disappearance of cancelled checks under the new banking law, well, eventually I'll need to change that part of the hypothetical, but not today.)And now comes a Department of Justice press release about taxpayers who did not read my 2004 blog post or any other publication that shared the same message.Time for a related story in the nature of an amusing aside that demonstrates what can happen to people who game the system. The IRS audited a person whose charitable contributions were very high considering his income. On audit, he produced checks written to his church. Puzzled, the IRS contacted the pastor of the church (with the taxpayer's approval, I think). The pastor explained that he knew the fellow, that the fellow was in regular attendance, and was an active member. Asked about the extent to which the fellow's devotion would inspire him to give such a large portion of his very modest income to the church, the pastor explained that the fellow approached him several years earlier and suggested that there was a risk in leaving the Sunday collection laying around and that he could help by writing the church a check for the cash that was in the collection basket. That, folks, is a quid pro quo. As in you do fraud, you get penalized.
According to the press release, Jason Ellis pleaded guilty to filing a false tax return as part of a years’ long tax evasion scheme with Rabbi Yisroel Goldstein. Until several years ago, Goldstein was the director and head rabbi at Chabad of Poway, a tax-exempt religious organization and he also operated several non-profit entities affiliated with the Chabad, including the Friendship Circle of San Diego. Beginning in 2008, at Goldstein’s request, Ellis, an employee of Qualcomm, donated $1,000 to Friendship Circle. He then requested Qualcomm to make a matching donation through its corporate matching program, and Qualcomm did so. Goldstein and Ellis then met in person, and Goldstein returned $1,000 in cash to Ellis. They did not inform Qualcomm that the donation it had matched had been reversed. They engaged in this same donation-corporate-match-return-donation-to-Ellis scheme every year through 2017. In 2016, Ellis was promoted to the position of Director at Qualcomm, which meant that Qualcomm would match up to $5,000 of charitable donations made by Ellis. In 2016 and in 2017, Ellis and Goldstein engaged in the scheme but with $5,000 rather than $1,000 being donated and returned in cash to Ellis. For the period 2008 through 2017, Ellis made 10 donation to Friendship Circle, each matched by Qualcomm. The donations by Ellis totaled $18,000, all of which were returned to him, and Qualcomm contributed a total of $18,000 in matching donations. In 2018, Ellis donated $5,000 but did not get any cash back from Goldstein. In 2019, Ellis did not make a contribution to Friendship Circle, but received an unexpected donation receipt for $5,000 from the organization, which Ellis used to falsely claim a $5,000 tax deduction on his 2019 return, even though he knew he was not entitled to the deduction because he had not donated $5,000 to Friendship Circle in 2019.
That wasn’t all. Between 2015 and 2019, Ellis paid preschool tuition to the Chabad for his children. He falsely claimed these payments as charitable contribution deductions, totaling $55,600, knowing that they were tuition payments and not tax-deductible charitable contributions.
Through these various schemes Ellis evaded over $27,000 in taxes.
In July 2020, Goldstein pleaded guilty to fraud charges, admitting that he participated in a complex, years-long, multi-million-dollar tax evasion scheme and other financial deceptions involving theft of public money. Goldstein’s plea agreement described the tax evasion scheme involving Ellis. Ellis was the ninth taxpayer to plead guilty to the crimes discovered in the investigation of Goldstein. Two other taxpayers have agreed to deferred prosecution agreements. Goldstein has agreed to cooperate with the investigation, which is continuing. The charges against the individuals involved in Goldstein’s scheme include filing false tax returns, wire fraud, money laundering, aggravated identity theft, conspiracy to defraud the United States, conspiracy to file false tax returns, and conspiracy to commit wire fraud. Had they read what I, and others, have written about these two types of fake charitable contribution deduction schemes, and declined to participate, they would be in a much better place.
Monday, August 02, 2021
Another Problem With Tax Credits and Deductions for Doing The Right Thing
There is another problem with using tax credits and deductions, that is, monetary rewards, to encourage appropriate behavior. It is most easily explained with an example. There are suggestions that people who have not been vaccinated against coronavirus be given a tax credit for doing so. There also have been suggestions for other sorts of benefits, including cash “bonuses,” lottery tickets, priority parking, and product discounts. Though the intent of these incentives is clear, to push vaccination percentages to levels that reduce the risk of vaccine-resistant variants emerging from the reservoir of unvaccinated individuals, it essentially rewards the holdouts while making at least some individuals who got vaccinated in the spring feel like fools. It puts a bonus on holding out. What happens when the next pandemic – and there will be one, and probably within the next ten years – pops up and everyone, or some significant portion of the population, holds back taking preventative steps, such as masking, getting vaccines, etc., because they anticipate monetary rewards for taking those steps?
Consider another example. Under current law, individuals are required to hold a driver’s license before operating a vehicle on public highways, putting aside those using learner’s permits. Under current law, those driving without a license are punished, but they are punished only if they happen to get caught. Many people driving without a license, including those who never had a license, those who have failed to renew a license, and those whose licenses have been revoked, don’t get caught, or escape for long periods of time before they are caught. Often they are caught under circumstances that cause death, injury, or property damage to another person. Imagine if a state decided to reduce the number of unlicensed drivers by offering cash, lottery tickets, priority parking, or product discounts to unlicensed drivers. Would that not discourage people from getting or renewing licenses so that they would qualify for the giveaway? Of course it would. Improved enforcement and effective punishment, whether in the form of fines, jail, or community work programs, is a much better way to encourage drivers to get and renew their licenses.
The tax law does include penalties, but almost all of them are for violating some aspect of the tax law. If the Congress is willing to use the tax law to reward people who save for retirement, fix railroad tracks, go to school, purchase energy efficient property, produce electricity from specified renewable sources, and sequester carbon oxide, ought it not be willing to use the tax law, in the form of additions to tax, to punish people and companies that fail to fix their railroad tracks, go to school, or sequester carbon oxide? When it comes to the proposals to provide tax credits for voting, writing a will, or getting a vaccine, why not a penalty for failing to vote, execute a will, or get a vaccine? Of course, because I oppose using the tax law to provide rewards for behavior I also oppose using the tax law to provide punishments. Whether behavior is regulated through reward or punishment, and even though using rewards can be counterproductive, it ought to be done by the government agency that deals with the behavior in question, not by the IRS or a state revenue department.
Isn’t it interesting that the same Congress so quick to criticize the IRS are so quick to put the IRS in charge of tax breaks that deal with just about every aspect of the lives of the nation’s citizens? Isn’t there something deeply hypocritical about that? Could it be that deep down members of Congress trust the IRS to administer their and their lobbyists’ pet projects while then using pretensive outrage at the IRS to stir up the populace?
Friday, July 30, 2021
A Tax Expert Is Just a Phone Call or Email Away
The paragraph in question seems simple enough:
It’s widely recognized that the U.S. federal tax code is complex, labyrinthine and interminable. The tax code or Title 42 of laws that the IRS enforces involves no less than 2,600 pages or well over 1 million words. Much of the tax code law, however, also involves IRS regulations, revenue rulings, clarifications, court decisions, notations and other information that together amount to a compilation of 70,000 pages.So why did I react as I did? It wasn’t the first sentence. That repeats an undeniable truth.
But in the second sentence, the reference to “tax code or Title 42 of laws” is wrong in several respects. First, it’s the Internal Revenue Code, not the tax code though one can accept the colloquial articulation of “tax code” as shorthand for “Internal Revenue Code,” though “tax code” is ambiguous because it could refer to any one of the many revenue codes in effect in this country. Fortunately, the context of the article ameliorated the ambiguity. Nor is it a tile “of laws.” It is a title of the “United States Code.” Again, to refer to a “title . . . of laws” is to be ambiguous, because there are state and local laws that contain a title 42. But the worst part of the second sentence is the identification of the Internal Revenue Code as title 42. It isn’t title 42. It’s title 26. Title 42, for those curious, deals with public health, social welfare, and civil rights. Not tax.
The claim in the third sentence is somewhat exaggerated. It would be one thing to state that the Internal Revenue Code fills about 2,600 pages, because it is about 2,000 pages, but to claim that it fills “no less than 2,600 pages” overstates the reality, unless, of course, the font size of the typeface is increased several points. As I’ve often stated, because of font size, margination, and other typesetting decisions, a better measure is the number of words in the Internal Revenue Code. So what about the 1,000,000 word claim? Putting 1,000,000 words into 2,000 pages would require 500 words per page. That is possible with small font, single spacing, and margin-to-margin density. But the Internal Revenue Code pages have quite a bit of white space, because the use of subsections, paragraphs, and other elements requires stopping paragraphs partway through a line, and the same is true of the captions of some of the elements. That is why the best estimate of the number of words in the 2,000 pages is between 500,000 and 600,000. Even using the 2,600 page figure it is difficult to get to 1,000,000 words.
The final sentence brings a more precise description of the 70,000-page figure that the anti-tax crowd tosses about in its efforts to justify its version of tax reform, which usually ends up as additional text implementing tax breaks for the supporters of the legislators who hypocritically complain about tax complexity. Yes, when the Internal Revenue Code is accompanied by Treasury Regulations, revenue rulings and other administrative issuances, annotations of court decisions, and commentary, as is found in the “tax law compilations” from commercial publishers, the collection reaches 70,000 pages.
I’ve been writing about this “size of Internal Revenue Code” – “size of tax law” debate for almost as long as I’ve been writing this blog. My attempts to educate people begin with Bush Pages Through the Tax Code?, and continue through Anyone Want to Count the Words in the Internal Revenue Code?, Tax Commercial’s False Facts Perpetuates Falsehood, How Tax Falsehoods Get Fertilized, How Difficult Is It to Count Tax Words, A Slight Improvement in the Code Length Articulation Problem, and Tax Ignorance Gone Viral, Weighing the Size of the Internal Revenue Code, Reader Weighs In on Weighing the Code, Code-Size Ignorance Knows No Boundaries, Tax Myths: Part XII: The Internal Revenue Code Fills 70,000 Pages, Not a Surprise: Tax Ignorance Afflicts Presidential Candidates and CNN, The Infection of Ignorance Becomes a Pandemic, Getting Tax Facts Correct: Is It Really That Difficult?, Reaching New Lows With Tax Ignorance, Incorrectly Breaking Down the Internal Revenue Code, Is Tax Ignorance Eternal?, So How Long Does It Take to Read the Internal Revenue Code?, and Much More Than the Internal Revenue Code.
According to the byline, Joseph Chamie is a consulting demographer, a former director of the United Nations Population Division. He picked up his information about the size of the Internal Revenue Code from Vox and the Tax Foundation, and neither article came close to nailing it. There are tax professionals who could have steered him to an article such as Andrew Grossman’s 2014 explanation in Slate, or goodness, to my ongoing thread addressing the issue. Though Chamie didn’t go to the extremes many others have gone, the importance of everything else he says in his article, with which I agree, is overshadowed by that one paragraph that both causes tax experts to pull back and also increases the circulation of ambiguous, inarticulate, and misleading information about tax law. I wish he had called or emailed someone who understands the scope of the Internal Revenue Code and tax law.
Update: After I wrote this commentary, the reference in the Hill article describing the Internal Revenue Code as "title 42 of laws" was changed to "title 26 of laws." That partly fixes the miscite. The correct cite is title 26 of the United States Code.
Wednesday, July 28, 2021
Is a Tax Credit or Tax Deduction the Answer to Every Problem?
For the past many decades, legislators at both the federal and state level have been persuaded to use the tax law to encourage people into making decisions that the legislators think are decisions that ought to be made. In the federal tax law, there are credits for adopting children, going to school, saving for retirement, purchasing energy efficient property, placing in service low income housing, making expenditures to provide access to disabled individuals, producing electricity from specified renewable resources, making expenditures to maintain railroad tracks, producing oil and gas from marginal wells, training mine rescue teams, and sequestering carbon oxide, to name but a few examples. Similarly, in the federal tax law there are deductions for making charitable contributions, saving for retirement, and setting aside funds for health care, again to name but a few examples. In state tax laws there are similar credits and deductions and long lists of other activities or expenditures for which the taxpayer is allowed to claim a credit or deduction.
The theory behind these tax breaks is that people will do something for money, in the form of tax liability reduction and in some instances a refundable credit, that they otherwise would not do. There are many examples of when people do something for money that they otherwise would not do. A person who mows lawns isn’t going to mow a lawn unless paid, aside from taking care of a friend or family member. That sort of situation doesn’t bother anyone. In contrast, there are individuals who do something they ought not to do because they are paid to do so. These sorts of situations often fall into the category of criminal behavior, on the part of both the actor and the payor. And then there are the situations where someone should do something whether or not they are paid, but because they fail to do what they should do, they are tempted or encouraged or “bribed” with a tax credit.
So now we are seeing proposals for additional tax credits to “induce” people to do something that they ought to do without being paid to do so. Kimberly Wehle, a law professor at the University of Baltimore School of Law has suggested a tax credit for voting. Margaret Ryznar, a professor of law at Indiana University McKinney School of Law, has proposed a tax credit for writing a will. The U.S. Travel Association wants a tax credit for taking a vacation. Renu Zaretsky of the Tax Policy Center asks if there should be a tax credit for getting the Covid vaccine.
Brushing and flossing one’s teeth reduces future dental care costs, so perhaps there should be a tax credit for brushing and flossing one’s teeth? How about a tax credit for putting a neighbor’s newspaper on the porch when it is raining because that is a good deed deserving of reward? How about a tax credit for eating nutritious food instead of junk food, which would reduce health care costs? How about a tax credit for folding laundry, or vacuuming the carpet? How about a tax credit for not driving while drunk, or for turning off the cell phone when driving? Where should the line be drawn?
How about a tax credit for stopping at stop signs and red lights? The current system of imposing a fine or revocation of a driving license doesn’t seem to be working all that well. The argument whether rewarding good behavior is a better approach to affecting behavior than is punishing bad behavior has been debated for centuries. Should a child be given money, extra dessert, or other privileges for cleaning their room, or should they be deprived of video game time, or some other fun activity if they fail to clean the room? I wonder whether the increasing numbers of children who are rewarded for behaving properly is creating a society that will behave properly only if rewarded and cannot comprehend, adjust to, or alter behavior to fit with punishment for behaving badly.
I wonder if the people who proposed adding even more credits and deductions to federal and state tax laws are among the almost unanimous group of people who complain that the tax law is too complicated. To the extent that incentives are needed to get people to do what they should be doing in any event, sad as that is, those incentives should be separate and apart from the tax law. Whether giving people cash or lottery tickets to get vaccinated, or money when they vote, or free items when they execute a will present a different set of questions beyond the scope of this commentary. Others have addressed those arguments, and those discussions are easy enough to find for those who are interested.
The answer to my question is clear. Tax credits and deductions are not the answer to every problem. They aren’t even the answer to most problems. They are the answer to few, if any, problems. The IRS and state revenue departments should not be in the business of determining if someone voted, or executed a will, or went on vacation, or got a vaccine, or brushed their teeth, turned off their cell phone while driving, adopted a child, saved for retirement, or fixed railroad tracks. Relieving the IRS and state revenue departments of these types of tasks might just cause people who see the IRS and state revenue departments as monsters to realize that much of what they do that causes the fear and dislike are tasks best assigned to other agencies.
Monday, July 26, 2021
A Space Tourism Tax, or Perhaps Fee?
His question raised one of my own. Did the individuals who purchased 600 tickets from Virgin Galactic or the unidentified number who purchased tickets from Blue Origin pay any sales tax on those purchases? If they are, as I suspect at least most of them are, residents of states with sales and use taxes, then they should have paid either a sales tax collected by the space tourism companies or a use tax if the company did not collect the sales tax. They are being treated in the same manner as someone who purchases a ticket to visit Legoland. If they are not paying the tax, then the question is whether the states to which the sales or use tax is owed have stepped in, are stepping in, or will step in to collect it.
Blumenauer is correct that there is significant revenue flowing into the coffers of the space tourism companies. Blue Origin has already booked almost $100 million in ticket sales. Virgin Galactic has sold 600 tickets for up to $250,000 each. Plans are in the works for orbital flights and lunar fly-bys, with ticket prices believed to be the millions. So it is true, as Blumenauer notes, that "We're talking about something that is not a huge burdensome tax. These are people can afford to pay whatever the tax will be." But that alone does not justify a federal ticket tax, especially if it is aimed at one specific type of ticket and not others. The purchase of tens of millions of dollars of tickets by the wealthy means that state sales and use tax collections will increase significantly, though it would not surprise me if there are some arrangements in place, to put it nicely, to shield those purchases from state sales and use taxes.
Blumenauer comes closer to justifying federal revenue collection from space tourism when he notes that the space tourism vehicles contribute to pollution of various types, whether carbon emissions or water vapor that can damage the ozone layer. He also notes that the space tourism business has benefitted from taxpayer-funded federal space programs. So instead of calling his proposal the Securing Protections Against Carbon Emissions Tax Act, he should call it the Securing Protections Against Contaminating Emissions Fee, which not only is more accurate in terms of its purpose, sets it apart from sales and use taxes, and properly designates it as a fee, but also preserves the catchy acronym someone developed for the name of the proposed legislation.
The proposed bill would not impose any tax or fee on spaceflights for scientific research purposes. On the other hand, as Blumenauer puts it, “However, things that are done purely for tourism or entertainment, and that don't have a scientific purpose, should in turn support the public good."
Blumenauer admits that his bill is “meant to be a starting point of a conversation that's important to get ahead of.” He shared his concern by noting, “Perhaps we're already behind." That is a good idea. Conversations about the proposal are helpful, especially in refining the details. He started the conversation, I have continued it, and presumably as days go by others will share their reactions. Where things end up remains to be seen.
Friday, July 23, 2021
It Failed Again: Congress Still Has Not Learned the IRS Funding Lesson
Recently, a glimmer of hope appeared when, according to various reports, including this one, the current Administration proposed a 10 percent, or $1.2 billion, increase in IRS funding, with most of it dedicated to “increasing resources for oversight of corporate and wealthy Americans' tax returns and ensure compliance.” The funding would help the IRS replace the 21,000 employees lost since 2010, which hampered its ability to deal with tax evasion by the wealthy, who now fail to report more than one-fifth of their income according to a recent National Bureau of Economic Research study. The glimmer became brighter when news broke that a bipartisan agreement had been reached on an infrastructure package that included $40 billion in funding for the IRS so that it could collect taxes that aren’t being paid. Though some might ask why IRS funding would be included in the infrastructure legislation, the answer is that a good bit of infrastructure can be built and repaired with the funding provided by collecting the unpaid taxes.
But now the glimmering light has been plunged into the darkness. Several days ago, as reported in this Politico story, among others, the Republicans have backed out of the agreement. They refuse to increase IRS funding to pay for infrastructure. Why? They gave several reasons. One was the concern that the same anticipated revenue would be included in budget reconciliation that can be passed without Republican support. Another was that Republicans “just didn’t want to give more money to the IRS,” explaining that they “did have pushback.” From whom? Who objects to funding the IRS with $40 billion so that multiple times that amount in revenue can be collected? Law-abiding taxpayers? Hardly. As this Slate headline aptly puts it, “America’s tax cheats continue to have no greater ally than the Republican Party,” also pointing out that “Republicans have showed their core philosophy when it comes to taxes. The party doesn’t just believe taxes should be low. They believe paying them should be optional.”
So why did that “pushback” succeed? The anti-tax crowd used a typical scare tactic, claiming that the increased IRS funding would simply bring flood of auditors into small businesses. That is, of course, hogwash. The auditors would be cracking down on wealthy individuals and large corporations who, as recent reports demonstrate, account for much of the tax gap. Inconveniencing small businesses with tax audits won’t raise the revenue because truly small businesses, in terms of revenue, don’t generate enough income to provide opportunities to avoid or evade substantial amounts of taxes. Of course, businesses that are small in terms of number of owners but that are huge in terms of revenue and unpaid taxes, yes, they also should be audited and they ought not be hiding behind the misleading claim of being “small” and inappropriate targets for IRS crackdowns.
So without the collection of unpaid taxes, how will infrastructure be funded? The Republicans and Democrats alike, once IRS funding increases are off the table, are offering what some are calling “pixie dust,” as reported in stories such as this Business Insider report. There are proposals to shift stimulus money, sell oil from the Strategic Petroleum Reserve, cut payments to Medicare providers, and use funds from the 5G spectrum sale. But as independent experts note, these measures do not provide anywhere near the necessary funding, and attempts to pay for infrastructure without raising taxes, cutting other spending, or collecting unpaid taxes will not work.
Back in 2011, when a previous Administration was trying to increase IRS funding to chase down unpaid taxes, I asked, in Another Way to Cut Taxes: Hamstring the IRS, I explained that every dollar put into IRS funding brings back somewhere on the order of ten dollars, noted that few, if any, free market advocates would walk away from that sort of deal, and that the private sector wouldn’t toss that opportunity aside. I declared that the fiduciaries of the public trust should also refrain from ignoring the benefits of funding the IRS because “America deserves no less.” In Has Congress Learned the IRS Funding Lesson, or Will It Fail Again?, I noted, “It remains to be seen whether the current Congress is better at investing that the Congresses of the past decade.” We now have an answer. Congress has again failed. It has failed the nation, it has failed the people, and it has failed the test of its members fulfilling their fiduciary duties.
Wednesday, July 21, 2021
Can Fraudulent Tax Return Preparation Become An Addiction?
Though tax return preparer tax fraud often exists in something as simple as failing to report income or overstating deductions and credits, it also can be part of a more complicated scheme. Last week, in this press release, the Department of Justice not only explained that two Philadelphia individuals, Yolonda Thompson and Albert Upshur, had been convicted of tax fraud, but explained the larger plan of which it was a part. Between 2010 and 2013, the two prepares set up a fraudulent debt-relief scheme, which they marketed as the Debt Payoff Program. They formed the Yolonda Denise Thompson Living Trust. Participants in the Debt Payoff Program were told that if they paid money to Upshur, let Thompson prepare their tax returns, and filed those tax returns, the trust would provide funds that they could use to pay off mortgages and other debts. Thompson prepared those tax returns and the participants filed them, but they fraudulently claimed income tax refunds to which the participants were not entitled. Collectively, the returns filed by the participants claimed improper refunds of more than $300 million. Worse, when the IRS began to investigate the Debt Payoff Program, “Thompson and Upshur attempted to obtain money from the IRS by other fraudulent means, including using checks drawn on closed bank accounts and fake financial instruments.” After the IRS notified the two preparers that they were under criminal investigation, and assessed civil penalties against them, they continued to file false tax returns and other false tax documents for themselves and others. They face prison sentences of five years for a conspiracy count and three years for each false return count.
It boggles the mind that someone who is told that they are under criminal investigation continues to engage in the activities that are the subject of the investigation. Is it simply a matter of the person thinking that it is not a crime and therefore there is no reason to stop? Is it simply a matter of someone trying to be defiant even though they know the behavior is a crime? Or is it, as I think perhaps it is, an inability to turn away from bad behavior because the person is addicted to that behavior? In other words, is it a case of someone knowing what they are doing is wrong and being unable to stop, especially when the consequences of continuing continue to grow in severity? And if so, what is the solution? I leave that question to those with expertise in criminal law, sentencing, post-conviction rehabilitation programs, and recidivism studies. Perhaps someone has done research to determine to what extent tax return preparers convicted of preparing fraudulent returns return to the same behavior or some other fraudulent financial activity after completing the terms of their sentencing.
Monday, July 19, 2021
The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”
The proposed tax in Pennsylvania isn’t a tax, but a fee. It has the fancy name of “E-commerce convenience fee,” and would be a flat fee imposed on the buyer who is receiving a shipment. So eventually someone will need to decide if the proposal is for a tax or a fee. As structured, it is a fee but proponents and others are also calling it a tax. Whatever it is and whatever it is called, it’s a bad idea.
What’s the purpose of the proposed fee? To close an $8 billion funding deficit facing the Department of Transportation. The impetus for the proposing that the revenue be derived from package shipment appears to be the increase in parcels shipped into or within the state. There were roughly 554.8 million shipments in 2019, and roughly 731.5 million in 2020. With the proposed fee being 25 cents per package, the estimated revenue of $182 million is a drop in an $8 billion shortfall bucket. So it’s puzzling that one story characterizes the proposed revenue as “big bucks for our roads.” A Pittsburgh Post-Gazette story reports that the fee would be $1, but even the roughly $750 million raised by such a fee isn’t much more than several drops in that $8 billion shortfall bucket.
There are suggestions that some shipments would be exempt from the fee, though the only example provided as possibly qualifying for exemption is prescription medications. If prescriptions are exempt, what about medical devices such as hearing aids or walkers? What happens if a package contains both exempt and non-exempt items?
There are fairness issues. Clearly the fee would be passed by the companies to the customers. That would impose a burden on people who are homebound or otherwise unable to get out to do shopping that would not be imposed on those who can run errands rather than rely on delivery. One opponent of the proposal suggested that the revenue should come from increases in the tobacco, alcohol, and cannabis taxes because those items are things “people utilize by choice” whereas those who are homebound use delivery services by necessity. The Secretary of Transportation has argued that those who use deliver services, or ridesharing, “are beneficiaries of the national highway system even if they never get behind the wheel of a car.” The flaw in this argument is the fact that the operator of the delivery vehicle or the ride-share automobile already is paying a fuel tax and is passing that cost on to the customer.
Aside from fairness, there are technical issues. What happens if a package is misdelivered to the wrong address and the delivery company must pick it up and relocate it to the correct address? Does the proposed fee apply a second time? What happens if the seller sent the wrong item, or for some other reason the customer needs to send the package back and have the seller send the correct item? Will there be a fee on the return delivery and yet another fee on the second, correct, delivery? What happens if the package ships through multiple companies – and, yes, that happens – or through multiple modes such as train, truck, and airplane? Are multiple fees imposed? Or is the fee somehow allocated among the shippers? If the fee is allocated, which of the companies is expected to do the computation?
And, of course, this proposal leaves hanging the question of how the remaining $7.818 billion in transportation funding shortfall would be handled. Those who read this blog know my answer to the entire funding problem. I’ve written about it many times, and yet rather than getting up to twenty-first-century speed the legislature and others continue to live in the past, when the equitable, efficient, and sensible thing to do is to tie the revenue directly to the needs with the mileage-based road fee. On at least four dozen times I have written about the need to shift to a mileage-based road fee to fund the repair and maintenance of the nation’s highways, bridges, and tunnels. I have done so 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, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , and The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”. I invite legislators and others involved in transportation infrastructure policy discussions to read these posts to learn why it doesn’t make sense to be playing around with inefficient and inequitable funding proposals that don’t even purport to raise the necessary revenue..
The Pittsburgh Post-Gazette story reports that the proposal also includes “a tax of 8.1 cents a mile for each mile a vehicle is driven.” But that proposal would not go into effect any earlier than 2026 and, of course, would require enactment by the legislature. That “tax,” which should be called a fee because it is the payment of money for the use of a specific benefit, would wipe out the $8 billion deficit. However, because the same story reports that the gasoline tax would be repealed, the 8.1 cents a mile fee, though wiping out the existing deficit, would not make up the revenue lost by eliminating the gasoline tax. The proposal suggests that the per-mile fee be implemented at the outset for electric vehicles. Also suggested are increases in state rental car taxes, passenger vehicle registration fees, and the sales tax on vehicle purchases. If the mileage-based road fee were to be implemented at an appropriate rate that reflects the costs imposed on transportation infrastructure by vehicles, there would be no need to afflict people with difficult-to-administer nuisance taxes and fees such as the package delivery fee and increases in sales taxes.
The Transportation Revenue Options Committee has not released its report. The information that is being publicized isn’t necessarily what will be in the report. And once the report is released, there is no telling what the legislature will do. It is not beyond the realm of possibilities that the legislature does nothing. And if it does nothing, it would not be the first time it responded to a major issue in that manner.
Friday, July 16, 2021
From Cold Calling to Student Response Systems
Cold calling is not unique to law schools. Any time that a teacher calls on a student who has not asked to be questioned, the student is encountering cold calling. In any environment, whether fifth grade, an undergraduate history course, or a law school course, being called on and thus asked to respond in front of one’s classmates and the teacher can be intimidating. For someone who is prepared, there can be doubt about how the response will be received and there can be a general anxiety about speaking in front of others, especially in a classroom setting. For those who are not prepared, it can be excruciating, and downright awful. So it’s no surprise that cold calling contributes to anxiety and worse.
For me, cold calling generates a mixed reaction. I can think of reasons it is inefficient and perhaps ineffective, as well as being harmful. Yet I also can think of reasons it is helpful and sensible. I will explain.
When I started teaching law school, I engaged in cold calling. That’s what most of my law school professors did, though I was keenly aware of its adverse impact. So I permitted students, as have and as do other faculty, to respond with “not prepared” or “pass” and then proceed to someone else. But often, rather than admitting a lack of preparation, or even avoiding responding when prepared, a student would answer in a way that indicated the student was not prepared. Though some faculty, especially years ago, would “stick with” that student through a frustrating exchange of “Socratic method” questioning, I was among those who tried to determine if the student was prepared and needed help refining the nuances of the response or was trying to wing it. I would stick with the former but move on from the latter. Of course, all of this took time, and ultimately reduced the coverage of the course. Thus my reaction that cold calling is inefficient, and in some instances ineffective.
It was during this first year of teaching law school that a student approached me and asked that I not ever call on them. This wasn’t the typical just-before-class-request to spare a student that day because of something awful that had happened to the student or the student’s family or friend. This was a request to be exempted permanently from cold calling. I asked why. The answer was along the lines of “I am terrified speaking in front of more than one person.” I asked, “What will you do when you are in a courtroom, or a deposition, or at a meeting with several senior partners and associates in the firm?” The answer, “I won’t be doing litigation nor working for a law firm.” “What will you be doing?” “Something else.” So we talked about lawyering in corporate counsel offices, in government positions, as a judge’s law clerk, but the student thought that there was some place that a lawyer could simply read cases and write memos without interacting or speaking with more than one person. I decided to accommodate the student, even though I was confident that the student, like any lawyer, would encounter the equivalent of cold calling in the future. Judges ask questions. Senior partners come into offices, or call, or show up on Zoom, and ask questions.
So I ended up relying on volunteers. I always welcome questions and responses from volunteers, though admittedly that leads to some students actively participating and others remaining silent and passive. There is the danger that one or two or a handful of students will dominate any discussion, so special care must be taken to go first to the student whose hand is raised for the first time ever or for the first time in a while.
Some faculty try to reach a middle ground by telling a small group within the class that they will be “up” for the next class or the next two classes or the next week. Though this lets the rest of the class breath a sigh of relief, and perhaps even put aside concerns about doing the required reading before class, it still puts those within the group on the “hot seat,” and that is no less stressful. In other words, whether or not a student knows that the cold call is coming, the anxiety exists. The anxiety isn’t only “will I be called on?” but also “what will the question be?” and “will I answer well enough to avoid embarrassment, ridicule, or some other adverse impact?”
I found what I think is the solution, or I should say that what I think is the solution was presented to me by now Dean Paul Caron, he of the TaxProf blog. Many years ago, he introduced me to what were then called “clickers” and what has evolved into what are student response systems. Yes, the technology has taken us from hand-held devices pointed at infrared receivers mounted on the wall – a story for another day – to students using digital devices to respond over the internet. By using student response systems, I can ask the same question simultaneously of all students, not just one. Students can respond without revealing their identity or their answers to other students. The responses tell me whether I need to invest more time in the issues raised by the question or can move along to the next set of issues. Sometimes I am surprised, and learn that what I thought students understood wasn’t, or that what I thought was stumping the students generated correct responses from all students. Most students enjoy seeing the results, whether to find out how everyone fared or to learn the answers to warm-up questions such as “Do you have a will?” or, in years past, “Have you prepared your own tax returns?” And, of course, the array of answers permits me then to invite students to explain why they selected that answer.
Granted, when lawyers appear before a judge, whether in person or remotely, they won’t be using these response systems. The same can be said of the other situations in which lawyers find themselves. But what I think happens is that as students use the response system and realize that, yes, they DO know the answer and they DO understand the material, their confidence builds. As confidence builds, anxiety decreases. The goal of education, in any field, is not only to help students acquire knowledge and understanding, but also to help them build confidence. The use of student response systems, a component of a broader formative assessment approach that I started using despite opposition and long before it became all the rage in segments of legal education, might not guarantee confidence growth in all students, but it helps and surely is an improvement over what once was and in some instances still is.
