MauledAgain

An idea popped into my head, and nothing I was doing at the time accounts for why it did. My thought was simply, why are the proceeds of life insurance excluded from gross income no matter the amount? The purpose of the life insurance proceeds exclusion, which has been in the federal income tax law, and most state income tax laws, since near the beginning of income tax time, is to spare survivors from paying tax on the insurance proceeds needed to replace the income stream that the decedent would have earned. During the past few decades, clever planners have found ways to exclude life insurance proceeds from state and inheritance taxes, mostly through the use of irrevocable life insurance trusts coupled with what are called Crummey powers. In essence, these plans have created arrangements that are far more similar to investments than they are to sources of support for struggling survivors. Over the years, of course, life insurance policy amounts have increased to reflect increases in the cost of living, but there is a big difference between a four or five million dollar policy whose proceeds can support the decedent’s dependents for a lifetime if properly managed, and the policies that pay out tens of millions, and in some instances hundreds of millions in tax-free returns.

Curious, I tried to determine if anyone had ever introduced legislation putting a cap on the exclusion. The cap would reflect an amount consistent with the purpose of letting the decedent’s dependents meet the cost of basic housing, food, medical care, and similar expenses. I did not find anything, but that could be a consequence of how search engines work and how I phrased the many different search expressions that I used. The closest proposal I could find is Calvin Johnson’s shelf project proposal to tax the investment earnings portion of life insurance policies to the policy owner.

Nor could I find sufficient data on how many life insurance policies generate more that, say, five million dollars in payouts. I did find information about the eye-catching huge payouts and policy amounts, some exceeding $100 million and the largest, so it seems, coming in at about $200 million. That means I cannot compute the amount of life insurance proceeds that are collected in excess of, say, five million dollars. And that means the tax savings generated by the income tax exclusion cannot be computed. Similarly, I don’t have an amount for how much in life insurance escapes the estate and inheritance taxes. But surely it is not a trivial amount. Of course, a proportionate amount of the premiums paid for the policy should be subtracted from what would be included in gross income.

The use of high value life insurance policies, whether in trusts or otherwise, adds to the compounding effect that continues to widen the income and wealth gaps. Most people either cannot afford to buy life insurance or can only afford to purchase a policy that meets the basic needs of their dependents. People fortunate enough to obtain life insurance paid by their employers are almost always afforded a rather small amount, rarely beyond five figures, unless perhaps they are high-ranking officers of the company. The current tax treatment of mega-sized life insurance policies is inconsistent with what needs to happen in a balanced economy.

The headline caught my eye. It was attached to this story. The headline explained, “Two identical cars, but two very different Massachusetts excise tax bills.” What happened?

Michael Culver’s wife bought a BMW SUV. Michael liked it so much that he replaced his car with one identical to hers, with the exception of a $350 technology package on her car that isn’t on his car. Even the color is the same. So when they received their Massachusetts excise tax bills for the cars, they were surprised that the tax on Michael’s car was $659 and the tax on his wife’s car was $816. Could a $350 option account for a $157 difference in the tax? Of course not.

The excise tax is computed by the state Registry of Motor Vehicles, and is based on the manufacturer’s suggested retail price. The MSRP of both of the cars in question was the same: $43,950. Because the tax is collected by the local tax collector, Michael called the local tax collector. That office replied that it was following the values it had received for the cars, so it suggested Michael contact BMW. Because the vehicles are leased, the tax bill is sent to the lessor, in this case BMW, which simply passes the amount along to the lessee driver. The driver doesn’t see the actual bill. BMW told Michael to call the dealer, but the dealer was unable to explain the discrepancy.

So Michael turned to WCVB NewsCenter 5 for help. Their investigators discovered that the error was made by the Registry of Motor Vehicles, which entered the wrong value for Michael’s wife’s car. The value should have been $43,950, the same as entered for Michael’s car, but for some reason the Registry employee entered a value of $54,404 for the wife’s car. The Registry of Motor vehicles corrected the entry for the value. That change, however, still left Michael and his wife needing to deal with the excise tax overpayments for the past few years, which total more than $400. Eventually BMW credited the Culvers’ account and now must get the state to issue a refund.

Michael asked, "Across the state, how many people are getting the wrong values for their cars reported and paying more excise taxes than they should?" He added, “"There's no way that someone like me can follow this or knows what to do to follow it or even knows that they should. You just get an excise tax bill and you pay it. . . . I've never looked into this in my past leases and this mistake might have happened in the past. I think that a lot of people could be impacted by this." The best guess is that this is not the only inaccurate value entry made by the Registry of Motor Vehicles. And the best guess is that very few people are aware of the need to review the government-prepared bill.

The folks at WCVB advise, “It's a good idea the first year you lease a car to ask for a copy of the actual excise tax bill from either your lease company or your town so you can make sure the car's valuation is correct.” That is good advice, but how many people will do that? How many people check the value amount and arithmetic on real property tax bills? The best guess is not many. So how many people would check the entries and arithmetic on a government-prepared income tax return? The best guess is some, and many of those will end up paying a tax professional to do that checking, which means people will still be paying fees in connection with getting their income taxes filed. This is one of the many objections I have raised over the years for the theoretically interesting but pragmatically unfeasible “Ready Return” concept. For those interested, my commentaries on the flaws of Ready Return include Hi, I'm from the Government and I'm Here to Help You ..... Do Your Tax Return, ReadyReturn Not a Ready Answer, Ready It Was Not: The Demise of California’s Government-Prepared Tax Return Experiment, As Halloween Looms, Making Sure Dead Tax Ideas Stay Dead, Oh, No! This Tax Idea Isn’t Ready for Its Coffin, Getting Ready for More Tax Errors of the Ominous Kind, Federal Ready Return: Theoretically Attractive, Pragmatically Unworkable, First Ready Return, Next Ready Vote?, 14-part series, Simplifying theTax Return Process, Surely This Does Not Boost Confidence In The ReadyReturn Proposal, Imagine ReadyReturn Afflicted with This Sort of IRS Error, Debating the ReadyReturn Proposal, In Writing, and Yet Another Reason the IRS is Not Ready for ReadyReturn. I also published a 14-part series on the concept’s shortcomings, with an index, and engaged in a published debate, Perspectives on Two Proposals for Tax Filing Simplification, with Prof. Joseph Bankman, one of the most vigorous proponents for government-prepared tax returns.

If something as simple as an excise tax return based on a number multiplied by a percentage can so easily be botched even in the hands of the state, how confident should anyone be that the IRS or a state revenue department will be any less inaccurate when dealing with income taxes that involve many numbers, many computations, and complex rules requiring many input decisions. Even so-called “pre-populated returns,” which for many would be, in effect, “prepared returns, pose the same input-entry risk. And that’s just one of the many risks presented by government-prepared and government-pre-populated income tax returns.

I read a Philadelphia Inquirer article this morning in which the author notes that rebuilding houses and other structures in the wake of Hurricane Ida will “cost a lot more than usual – and take much longer, too.” That thought had occurred to me last week while Ida was wreaking havoc on its long path of destruction, because I already was keenly aware of material and labor shortages. Those shortages arise from a combination of increased demand and decreased supply. The supply decreases are mostly in the form of delivery delays, because of disruptions in manufacture, processing, and transportation. For example, shutting down one of the world’s largest ports in China because a worker tested positive for Covid leaves supplies sitting on docks and in ships rather than getting to their destination.

Much of the cost increase and delivery delay can be attributable to increased demand. As an advocate of demand-side economics, this does not surprise me. As I have pointed out repeatedly, funneling tax breaks to businesses in the hope that it would create jobs is a waste, because businesses do not create jobs simply because they have more profit or reduced tax liabilities. Businesses create jobs when they have work for people to do. And work for people to do is necessary when there are customers who want to purchase the goods and services offered by the businesses. That is what is happening now. Pandemic relief funds channeled to consumers is helping to fuel demand, which was skyrocketing even before Ida and other natural disasters created even more need for goods and services. As the article put it, “Businesses were caught off-guard by a surge in customer demand.” That’s what creates jobs.

Granted, increased demand leads to inflationary pressures, and the economy already has witnessed increased prices for all sorts of things. For some items, the increase is startling, far more than the 3 or 10 or 20 percent that is so distressing. The lesson, of course, is that economies should be grown the way water should be heated for certain types of delicate cooking, through a slow and controlled simmer rather than a full-blast race to a raging boil. That is possible in “normal” times, but the pandemic’s effect in 2020 was the equivalent of putting the pot of water into a deep freezer, which made the recovery the equivalent to a raging boil as the economy tried to recover as quickly as possible.

There also is a shortage of workers. This is what happens when businesses face increasing demand. They need employees and compete for employees, which drives up wages but also contributes to inflationary pressure. The trick is to get a balance into the system so that runaway inflation and runaway wage increases don’t derail economic growth. It has now become a workers’ market. The article explains, quoting an economist, “Workers — they have the power — They can go where they can make the most money.” Is this a surprise? Not at all. Though many people are aware of the Black Death, what often isn’t taught outside of history departments is that the sharp decline in the number of workers encouraged peasants to leave the land to which they were attached by the strictures of feudalism and to go elsewhere in search of cash wages. That pandemic totally reshaped the economies of Europe and pretty much brought feudalism to an end. The current pandemic is doing the same thing to the existing economy. And as some have characterized Darwin’s theories, perhaps in oversimplified exaggeration, one must evolve or die. There is no retreating to the way it once was. Perhaps this time, money-addicted oligarchic capitalism will suffer the same fate as feudalism, especially as money-addicted oligarchic capitalism, in many respects, shares the features of feudalism.

Reader Morris directed my attention to a Bloomberg L.P. article by Jared Dillian published as a Washington Post story. The headline caught my eye. It declares, “Americans Who Say They Pay Taxes Are Probably Lying.” Really? The odds are that people who pay taxes are lying that they pay taxes? Perhaps the odds are high that people overstate the amount of taxes that they are paying, though I doubt it, but that’s different from claiming that the odds are high that taxpayers lie when they say they are doing what makes them taxpayers. But then I figured, well, often the headline is not written by the author, and it’s a tax story, so perhaps the headline writer didn’t quite get the gist of what was being written. So, I continued to read.

The article begins with a reference to the Urban-Brookings Tax Policy Center report saying that 61% of U.S. households had paid no federal income tax in 2020. Dillian, noting that the percentage was pandemic-driven and would likely return to the usual mid-40-percent range, decided “now is probably a good time to have a discussion about what the right percentage of people paying taxes should be.”

Dillian, in a preliminary hedge, conceded that “while about half of Americans don’t pay income taxes, almost everyone who is employed pays payroll taxes,” though he refers only to the payroll taxes that fund social security and not those that fund Medicare. He sets payroll taxes aside as a form of funding a person’s future retirement and medical benefits. He distinguishes them from income taxes which “are intended to fund government spending, which has been increasing every year.: He points out that, “The burden of funding the government falls on a smaller number of taxpayers.”

At this point, I reacted as I do when people complain about “the government,” as though “government” is one indivisible entity. Sometimes I wait, and sometimes I am rude by interrupting, to ask, “which government?” And I do so here. I presume he is talking about the federal government, because if he were talking about state and local governments, the proposition that the burden of funding those governments falls on a smaller number of taxpayers is flat out wrong. Those governments collect sales taxes, property taxes, and several other types of taxes that vary from state to state, and when those taxes are considered as a group, pretty much everyone other than infants and most children pays taxes.

Dillian then offers his opinion on “the right number of people who should be exempt from paying income taxes,” and again I presume he is referring to federal, and not state and local, income taxes. Without getting into the details of his ideas, he makes the point that “except for the truly indigent,” which in his opinion are households with annual income less than $28,000, “we can all chip in.” He claims, “The idea of someone paying no income taxes is offensive to us all, no matter what their wealth and income.” Really? He just finished exempting those he considers truly indigent so would it be offensive if the truly indigent did not pay income taxes? And is he speaking for everyone when he claims that “us all” are offended by the existence of people who do not pay (presumably federal) income taxes? Or is “us all” a reference to those who want to reduce the federal (and state and local) income taxes paid by the wealthy by shifting the burden to those who are far from wealthy even though they are either less able to pay or incapable of paying because they are trying to survive on starvation wages?

Yet if Dillian were to consider who pays taxes of any kind, he would realize that his goal of making certain that everyone has “skin in the game” is accomplished every year. True, there may be a tiny fraction, perhaps one percent or less, of Americans who pay no taxes at all. But once one considers not only income taxes, but also sales taxes, real property taxes, personal property taxes, tobacco taxes, alcohol taxes, and all the others, it is difficult to identify someone who is living in this country and not paying taxes.

So then I thought, perhaps Dillian neglected to use the adjective “federal” in places where it would clarify his position and render irrelevant some of my criticism. But then I returned to the headline. Suppose it read, “Americans Who Say They Pay Federal Taxes Are Probably Lying.” But that doesn’t work. There are federal fuel taxes, alcohol taxes, tobacco taxes, firearms taxes, environmental taxes, telephone taxes, air transportation taxes, sport fishing equipment taxes, fishing rod and fishing pole taxes, electric outboard motor taxes, fishing tackle box taxes, bow, quiver, broadhead, and point taxes, arrow shafts taxes, coal taxes, tire taxes, gas guzzler automobile taxes, vaccine taxes, heavy truck, trailer, and tractor retail taxes, ship passenger taxes, and indoor tanning services taxes. There probably are others I didn’t manage to find, and surely a similar and perhaps longer list at the state and local level (such as entertainment ticket taxes). So surely some, and perhaps a sizeable portion, of the people Dillian claims do not pay taxes or, to give him the benefit of the adjective, do not pay federal taxes are, in fact, paying taxes and paying federal taxes.

So what it comes down to is another instance of objection to a federal income tax that impacts the wealthy and the almost wealthy much more than it impacts the not so wealthy while it exempts the poor. That is exactly what the federal income tax was designed to do. Yes, we can quibble about rates and bracket margins, but the goal is to offset the regressive nature of the non-income taxes with an income tax that adjusts for the fact that without a federal income tax, the wealthy would be paying a tiny fraction of income in taxes while the poor and middle class would be paying larger percentages of income in taxes. Why was this done? As the economy shifted in the late nineteenth century to one in which a handful of barons controlled the means of production, the existing regressive-only tax system contributed significantly to the era of the corrupt Gilded Age. The progressive income tax mitigated the harmful effects of most wealth being held by a few, and that worked for decades until misguided and perhaps not-so-well-intentioned lobbyists found ways to sell to the American middle class the package that essentially restored the groundwork for a second corrupt Gilded Age. And now that backlash is growing, the defenders of regressive taxation, which contributes to the compounding of wealth and income inequality, are dredging up whatever arguments they can make to sell the false notion that the wealthy are bearing the brunt of the nation’s tax burden by focusing on the federal income tax while ignoring all the other taxes that are paid disproportionately (to income) by those who are not wealthy.

In fairness, Dillian makes a good point that has nothing to do with taxes, at least not directly. He notes that there is no military draft or compulsory service. He notes that voting is not mandatory. These are problems because they create an environment encouraging people to withdraw from discourse in the public arena. But those aren’t tax issues. Yet Dillian suggests that to get U.S. citizens to contributed by “participating in civic society” more of them should pay federal income tax. But increasing taxes on the poor and middle class, while reducing federal income taxes on the wealthy, isn’t going to reinstate the draft or create a compulsory service program. It isn’t going to do much to increase public discourse, nor directly increase voting participation. Perhaps it might encourage those haven’t been voting but somehow come to understand the impact of the “crumbs for some, feasts for the wealthy” string of tax cut ploys to “get out and vote,” though I suspect it will be other issues that will motivate increased voter turnout.

Dillian writes, “I happen to think it is unfair that 61% of Americans have no income tax liability.” Well, I happen to think that without the adjective “federal,” his statement is inaccurate, because a sizeable portion of the 61 percent pay state and local income taxes. And if he inserted the adjective “federal,” then I would simply disagree and state that what is unfair is the ability of a handful of people to live luxuriously on the backs of underpaid workers and people subjected to a long list of regressive taxes.

Dillian concludes by asserting, “The next time you hear someone tell you with great indignation that they’re a taxpayer, remember that there’s a 61% chance that they are lying.” That is nonsense. The odds of someone other than an infant of child lying when they state that they pay taxes is less than one percent, probably less than one-tenth of one percent. And even if, again, the adjective “federal” is inserted into Dillian’s claim, the odds would not be correct because there are federal taxes other than income taxes. And even if the adjectival phrase “federal income” was inserted, the 61 percent figure would be correct only if everyone made the statement, but there are honest people out there who would state, for example, “In 2020 I did not pay federal income taxes” or “In 2020 my federal income tax liability was zero and I received a refund of the federal income taxes that I paid.”

The insistence that all people should be paying federal income taxes is bad enough. When adding in the conflicting position of exempting the indigent yet using the adjective “all” makes it worse. What caps it off is the failure to put the issue in proper perspective by insinuating that 61 percent of taxpayers do not pay taxes, which paints a picture very different from reality and has emotional effects on at least some unwitting people that are counterproductive to understanding reality. It is difficult to buy into a commentary so replete with these sorts of exaggerations and contextually inaccurate and misleading assertions.

For years, the IRS has had in place a tax whistleblower program, under which it makes payments to persons who provide information that the IRS uses to collect taxes otherwise being evaded. The program is established under Internal Revenue Code section 7623(b). There are various procedural rules for filing a claim for the reward, a list of individuals ineligible to participate (mostly tax and other officials), and rules for computing the amount of the award. To qualify for an award, the information provided to the IRS must relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax, and additional proceeds in dispute exceed $2,000,000; and relate to a taxpayer, and for individual taxpayers only, one whose gross income exceeds $200,000 for at least one of the tax years in question. In addition, if the information does not qualify for an award under section 7823(b), the IRS has discretion to make an award under section 7623(a), which provides the IRS with wide-open discretion. The program is successful, with the IRS collecting more the $5.9 billion between 2007 and 2020, and paying more than $1 billion in awards.

But some people don’t like the idea of being ratted out. According to this story, the finance minister of Baden-Wuerttemberg state in Germany proposed a plan to let people make anonymous tips about tax evaders. In response, he was subjected to hate mail, including racist tweets, as well as accusations of proposing totalitarian measures. Critics likened the idea to Nazi and Stasi practices. According to the story, “In Germany, tax evasion is considered a widely practiced ‘national sport.’” Apparently those engaging in tax evasion don’t like the plan because it threatens to put an end to their game.

Once upon a time, people protected each other by reporting crimes that they observed. Now, a cultural rejection of doing so has silenced witnesses, whose recession into the background because of fears that they will be tagged and targeted as snitches has made it increasingly difficult to solve crimes and identify perpetrators. Of course, failure to take steps to assist in identifying criminals makes it easier for the criminal to repeat the offense, time and again.

Understandably, people ought not be rewarded for intruding into other people’s personal lives to look for possible crimes. That difference is a serious distinction that puts the proposal in a different category than the sort of privacy intrusions characterizing Nazi and Stasi practices. When a crime is being committed in a public venue, reporting the crime or testifying about the crime is not an invasion of privacy. No one should be rewarded for hacking into someone’s computer to look for their tax software inputs and outputs, but when an employer asks an employee to collect receipts without entering the amount into the point-of-sale interface or into the appropriate accounting software field, the employee who chooses to report that employer is not invading the employer’s privacy. When someone brags at a party about having circumvented the tax laws by laundering money, transmitting that information to the tax authorities is not an invasion of privacy.

No employer for whom I have worked has ever asked me to assist in tax evasion. I have never heard anyone brag at a party about their tax evasion success. I have witnessed crimes, and accidents, and have reported and provided the relevant information. None of those crimes, though, involved tax evasion. At least not yet. And hopefully never. But it leaves readers with this question: what would you do if you were asked to help someone evade taxes?

From time to time the question of whether an economic outlay is a tax has been a question posed to me and occasionally mentioned in a commentary on this blog. Often the question involves the distinction between a user fee and a tax. But several days ago, in Black Voters Matter Fun v. Georgia, the United States Court of Appeals for the Eleventh Circuit was asked to decide if the cost of putting a postage stamp on a mailed absentee ballot amounted to a prohibited poll tax. An affirmative answer would require George to pay for the postage in much the same way many businesses and some charities provide postage pre-paid envelopes.

Voters in Georgia who vote by absentee ballot have three options for how they can return their ballots. They can return the ballot in person at the county election office, they can deposit them into a ballot drop box, or they can mail them to the county election office. They are not obligated to use postage stamps because if they want to avoid paying for a postage stamp they have two other options that do not require postage stamps.

The district court dismissed the plaintiffs’ complaint, rejecting the claims that requiring postage constitutes imposition of a poll tax. The Eleventh Circuit affirmed, reasoning that unlike a tax, which is an enforced contribution to support government functions, the payment of postage is not something enforced by the state but voluntarily assumed by voters who choose not to deliver their ballots in person or to use a drop box. Additionally, the postage is charged by, and the cost of the stamp is collected by, the United States Postal Service and not by the state of Georgia which is administering the election. Put another way, the voters who choose to mail their absentee ballots and who pay for a postage stamp are paying for a service offered and delivered by a third party. It is no different from the cost of the gasoline incurred by voters who drive to the country election office to deliver their ballots or who incur a fraction of a penny’s cost of wear and tear on the heels and soles of their shoes if they choose to walk to that office or to a drop box.

The court rejected the plaintiff’s argument that if a payment to any government is not a penalty it is a tax. Aside from the issue of whether a payment to the Postal Service is not a payment to Georgia, the court gave examples of payments to governments that are neither a penalty nor a tax. It described the payments made for electricity provided by the Tennessee Valley Authority as a payment for delivery of electricity. It described the cost of an Amtrak ticket as a fare, not a tax or a penalty. It also noted that a toll is neither a tax nor a penalty, but a user fee. It also pointed out that the fee to enter a National Park or the cost of a souvenir purchased at a National Park gift shop is not a tax, nor is it a penalty.

In its concluding footnote, the court wrote, “We note that the Plaintiffs’ claims border on the frivolous. At this time, however, we are not imposing sanctions.” For most people, understanding what a tax is and isn’t, distinguishing taxes from user fees, and comprehending the difference between a tax and a payment to a government for goods or services isn’t easy. Even for some lawyers, these nuanced distinctions aren’t always the easiest thing to grasp. So the decision not to impose sanctions makes sense.

I have written many commentaries about the mileage-based road fee, including 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) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, and In Praise of the Mileage-Base Road Fee. Now it is time for another one.

It was the headline to a opinion piece on the pending federal mileage-based road fee pilot program that caught my eye. It stated, “Mariya Frost of the Washington Policy Center shares her opinion that a proposed national mileage tax pilot program should be rejected.” Upon closer review, it indeed was written by Mariya Frost, but what she wrote doesn’t seem to be a call for an outright rejection of a federal pilot program, nor does it appear to be a rejection of the mileage-based user fee concept.

Frost objects to the fact that the pilot program language is “buried deep in a larger infrastructure package that lawmakers have to vote for or against in totality.” Indeed it is. And, as Frost notes, this sort of conglomeration legislation, which is pervasive and has been around for quite some time, “is a problem.” She correctly notes that “in the interest of transparency, it shouldn’t be tucked away in a larger bill.” She also explains, “it takes away the opportunity for lawmakers to vote directly on the pilot or subsequent implementation.” I agree. Yet what Frost criticizes is not the pilot or the mileage-based road fee, but the legislative process in general. That is a serious problem that needs correction, but it does not address the merits of the pilot or the fee.

Frost also objects to pending attempts and anticipated attempts to use a mileage-based road fee for purposes other than maintaining and repairing roads, bridges, and tunnels. She notes that portions of existing fuel tax revenues are diverted to other purposes, particularly public transit and “environmental outcome.” To the extent that public transit passengers would otherwise use roads and highways, financing a reduction of highway use, which reduces the need for and cost of repairs, funding public transit is an indirect funding of roads and highways. So on this point I am not prepared to agree with Frost. As for “environmental outcomes,” I’m uncertain as to what that means and so I can only speculate. If it means the cost of dealing with the environmental impact of a road widening or new road, that expense is part of the cost of maintaining or constructing the road. If it means financing some unrelated environmental mitigation project miles from the highway, then I would agree, it is inappropriate to use fees collected from highway users for something unrelated, just as it would make no sense to use road fees to pay for the construction of a privately-owned sports stadium. One of the advantages of a mileage-based road fee is that it would put an end to the current practice of overcharging users of the Pennsylvania Turnpike system so that revenues can be used to maintain highways that are untolled because powerful interest groups want to use those highways while shifting the cost to drivers not using those highways.

Frost describes the pilot program as a “massive policy shift.” It isn’t. As I’ve described in earlier posts, it’s simply a simulation to gather information, it is voluntary, and no one will actually pay anything. It is no different from the pilot programs administered by states and by several interstate groups, such as the one in which I participated. In fact, Frost notes that she participated in such a pilot, so she knows how they work. Nothing will happen in terms of an actual change, which would be a massive policy shift, until legislation to that effect is proposed and enacted. And, yes, that legislation should be a stand-alone item and not buried in some conglomerate bill.

According to several reports, including this one, the fuel tax rate in New Jersey will decrease on October 1. Why?

New Jersey law requires that about $2 billion in fuel tax revenue be collected each year. So when driving, and thus fuel consumption, dropped significantly in 2020, the two fuel tax rates, one for gasoline and the other for diesel, were increased. According to this story, the rate of gasoline tax increased from 41.4 cents to 50.7 cents on October 1, 2020. Now, because of an increase in driving, and thus fuel consumption, the rate on gasoline will drop from 50.7 cents to 42.4 cents. New Jersey officials attributed the increase in driving and fuel consumption to a “swifter than expected economic recovery.” So, as promised in the legislation enacted a few years ago, when consumption increases, the tax rate drops.

Unlike tax cuts that primarily benefit the wealthy, and unlike tax cuts that require reductions in public services, this tax cut benefits the typical not-very-wealthy and not-wealthy-at-all taxpayer, and does not require cuts in public services. Perhaps this sort of “targeted revenue amount” approach could be applied by the other jurisdictions to fuel taxes. Perhaps it could also be applied to other taxes and user fees. Of course, the happiness when rates decrease will be drowned out by the cries of pain when rates increase.

An interesting article today in the Roanoke Times. Ray Cox writes about Virginia residents who evade Virginia sales taxes on vehicles by setting up limited liability companies in Montana, which has no sales tax, and putting title to their vehicles in the limited liability company. The cost of doing this is much less than the sales taxes that are evaded. I doubt it’s only Virginia residents who are doing this. Cox wrote in response to readers who also complained about people obtaining antique tags, thus saving taxes, for vehicles that are not antiques, and farm plates for vehicles not used on farms. For more on how these evasion techniques are designed, and why they violate Virginia law, read the article.

What caught my eye were several of the comments to the article. One reader explained that the taxes being evaded are minimal, “yet some whine about it anyway,” and then proceeded to the usual talking point about “half” of Virginia residents not required to pay income taxes but who “suck up millions of benefits paid by tax dollars.” Fortunately, another commenter noted that the percentage of Virginia residents not subject to Virginia income tax is less that half of the residents. Another reader suggested, “That guy needs to lighten up. Stop worrying about others and worry about himself.” Again, fortunately, another reader explained, “When others don't pay their share of taxes, then ‘self’ has to pay more. So yeah, he's justified.” And that’s the point. We live in a civilized society, not in hermit land or the Wild West. Though sometimes what a person does has no effect on others and need not be the subject of public discourse, much of what a person does affects others. Somehow that lesson either isn’t being taught, isn’t being taught well, or is being pushed out of too many conscious minds by the purveyors of the “it’s all about me” approach to life.

We should worry about others when others are evading taxes, robbing banks, setting off explosives along parade routes, firing guns into crowds, refusing to wear masks, preparing food in restaurants without washing hands, running red lights, not stopping for school buses, driving while intoxicated or texting, bullying classmates, and kidnapping children, to give just some examples of how the actions of one person affect others. Those who thing their supposed rights have no limits fail to understand that in order for their rights to have no limits the rights of others must be limited. That is why I believe that those who claim to have unlimited rights aren’t the advocates of rights for everyone that they claim to be, but simply are exercising a form of bullying. Society breaks down when people turn a blind eye to what breaks down society. That is why some people worry about tax evaders.

It’s finally time to answer the question, “How did MauledAgain get its name?” To do that, I need to remind readers that for many years I taught, in addition to other courses, the basic federal income tax course and the basic course in taxation of business entities. The basic federal income tax course was a prerequisite for the business entity taxation course. The basic course was taught in the fall semester, and the business entity course was taught in the spring semester.

Many years ago, in the early 1990s, one my colleagues approached me and, though I don’t remember the exact words, said to me, “You’re the subject of graffiti in the men’s room.” Pressed for details, he simply told me to see for myself and directed me to look at the far stall in one of the school’s men’s rooms. So off I went.

What did I discover? I had to read some of the graffiti before I saw this: “I took the basic tax exam. I’ve been Mauled.” Below that, in different ink and different handwriting, someone wrote, “Me too, and I then took the business tax exam. I was Mauled again.”

No, I do not know who wrote those two contributions to literature. If ten or twenty former students claim to be the authors, I have no way of confirming their claims or identifying the authors. The graffiti is long gone, as the rest rooms in the old law building were renovated, and even had that not happened, I would not try or think feasible any sort of handwriting analysis.

So when I started this blog in response to the then-dean expressing surprise that one of the law faculty’s then most technically proficient members didn’t have a blog, I needed to find a name for it. The men’s room graffiti episode had never left my mental memory bank, and somehow it popped into my forward consciousness as I pondered naming the blog. And, the rest, as they say, is history.

And spare the jokes and word play. I’ve already thought of dozens, some funny, some awful, some insulting, some puzzling. But I will spare the world the groans and eye rolls.

John Tsitrian, whose commentary about road funding was the subject of my recent post, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, has written a reply. It appears that our disagreement rests on how the financial burden of maintaining and repairing highways, bridges, and tunnels should be apportioned.

Tsitrian and I agree on several basic underlying facts. First, the nation’s highway infrastructure is in bad shape and needs quite a bit of attention, ranging from inspection through repairs. Second, roads are important for society and the economy. Third, the increasing fuel efficiency of gasoline and diesel powered vehicles and the increasing shift to electric vehicles has been causing fuel tax revenues to decline. Fourth, fuel taxes are, as a practical matter, user fees even though called taxes. Fifth, the mileage-based road fee is a user fee. Sixth, the status quo, which I define as fuel taxes, is untenable.

Tsitrian thinks that using general funding rather than user fees would be “fairer and probably more economically beneficial way to spread the cost of our road system, which benefits everybody, regardless of how much they drive or even if they don’t drive at all.” Though it is true that the road system benefits everyone, or at least almost everyone save, maybe, for the hermits living off-grid, what also is true is the fact that people do not use the road system equally. Some people drive 3,000 miles a year and rarely order items online. Other people drive 15,000 miles a year and have online deliveries multiple times a week. Using general funds would apportion the cost, not in proportion to use, but in proportion to income, value of real property owned, or some other basis unrelated to road use. That is not fair. It would shift cost from heavy users to light users. Tsitrian admits as much when he contends that shifting to the use of general funds, which he agrees would simply replace fuel taxes with other taxes, would even out the tax burden among all taxpayers. But the fact that all, or almost all, taxpayers use the roads does not mean that they all should be charged the same amount, unless they all used the roads equally, which certainly is not the case.

The cost of paying for roads, whether through fuel taxes or a mileage-based road fee, ultimately falls on the user. A person who uses the road to go to the grocery store pays a fuel tax and would pay a mileage-based road fee, designed to cover the cost of the wear-and-tear that the person’s vehicle puts on the road. A delivery company that pays a fuel tax and that would pay a mileage-based road fee, which also would cover the cost of the wear-and-tear that the truck puts on the road, passes that cost either to the recipient (who might not own a vehicle or have a driver’s license) or to the shipper, who in turn would pass the cost along to the recipient customer. So, under the current system and under the mileage-based road fee, the ultimate cost indeed already falls upon the people and entities who are beneficiaries of road use. The key point is that the cost would be apportioned in a manner reflective of that use, which would not be the case if general funds were used.

Tsitrian opposes the mileage-based road fee because he thinks it “retains the untenable tax burden on drivers.” But as I point out in the preceding paragraph, that burden, as is the case with the fuel tax, would be based on to the ultimate beneficiaries of the road system, whether it is the driver enjoying a scenic ride or going to the store or the customer sitting at home getting package delivered by trucking companies and delivery vehicles. He notes the pilot program in the pending federal infrastructure legislation, which is far from the first pilot program for mileage-based road fees. Even though those state pilot programs have demonstrated the superiority of mileage-based road fees compared to fuel taxes, a federal pilot is necessary to answer logistical matters germane to the federal fuel taxes whereas the state pilot programs provided that information for particular state fuel taxes.

The mileage-based road fee** is much more fair that fuel taxes because it solves the existing problem of electric vehicle owners not paying fuel taxes, and paying little or nothing in terms of vehicle fees, thus shifting the cost onto users of non-electric vehicles. The mileage-based road fee is a user fee, but it ought not be condemned simply because the fuel tax, which is in effect a user fee, has become untenable.

Tsitrian continues to insist that, “Meantime, consumers would enjoy a bonanza of spendable income once they’re spared the onerous taxes they have to pay at the gas pump.” That simply isn’t the case. The fuel taxes would be replaced by increases in income, real property, sales, or other taxes. What would occur are two shifts. People who are relatively light users of roads would save what little they pay in fuel taxes and then face higher, perhaps much higher, other taxes, thus realizing a decrease in spendable income. On the other hand, people who are relatively heavy users of roads would save what they pay in fuel taxes and then face lower, perhaps much lower, other taxes, and they would realize an increase in spendable income. The increase and decrease would net to a wash. Total spendable income would not increase. It simply would cause disruptive shifts that would increase, rather than decrease, unfairness in road funding.

Tsitrian sets aside my concern that using general funds would “put road building in the crosshairs of political warfare.” He concedes it is possible but thinks that politicians would face backlash from individual and corporate interests. That might happen in a healthy political system but we don’t have a healthy political system. Corporate and individual backlash has not prevented government shutdowns. It has not prompted legislatures to act responsibly to fix potholes and deteriorating bridges afflicting individuals and businesses on a grand scale. The legions of vehicle owners paying for flat tires, wrecked suspensions, injuries, and deaths haven’t moved legislatures, so I doubt very much that a legislature proposing to cut road funding because the general fund is too low and the amounts in it are needed for other purposes will act responsibly and maintain road funding. The only corporate and individual backlashes to which legislators pay attention are those coming from their big donors.

The bottom line is that I don’t understand why drivers who use the road, including those who can pass the cost of using the road to customers, should be relieved of paying for the use of roads, with the burden being imposed disproportionately on all people no matter their relative use of the road. Liquor taxes are paid by those who purchase alcohol, and tobacco taxes are paid by those who purchase tobacco products. This reflects the matching of burden with the cost imposed on society. As an advocate of user fees generally, I stand in favor of repeal of fuel taxes and revenue replacement with mileage-based road fees. Will that happen? Time will tell us.

** For my other analyses of the mileage-based road fee, see 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) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, and Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?.

Today’s post, according to blogger.com, is number 3,000. I haven’t counted to confirm the accuracy of that information. Considering that I have been writing commentaries on MauledAgain for more than 19 years, 3,000 is not out of line. I’ll trust blogger.com and not worry that it missed one or two posts or overcounted.

Long-time readers of this blog might ask if I made a big deal about post number 1,000 or post number 2,000. I noted post 1,000 in A MauledAgain Millesimal Event. When I reached post number 2,000, I didn’t write about it. I suppose I didn’t think it was a big deal. So why mention that this is post number 3,000?

There aren’t all that many things I’ve done for 19 years. Of course, I’ve lived longer than that. I’ve been living in the same house for 30 years. I’ve been a member of my church for 32 years. I’ve been a law faculty member, full-time or retired-as-adjunct, for 40 years. I’ve been writing tax and other books, law review articles, and similar publications for 46 years. I’ve been researching and compiling genealogies and family histories for 48 years. The list of things I’ve done for durations of less than 19 years is much longer, and not worth reciting.

For the first two years, I posted on the blog at irregular intervals, though usually several times a week. There were days on which I posted two commentaries. About 17 years ago, because of my teaching schedule, I fell into a practice of posting three times a week, on Monday, Wednesday, and Friday. When I knew I would not be able to post on a particular day, I wrote the commentary earlier and set it up to appear on a specified day. That became a habit, and I routinely wrote commentaries ahead of time as insurance against the unexpected interruption on a Monday, Wednesday, or Friday morning. When I knew that I would be away from the computer, or lacking reliable access to the internet, for periods of time, I would write several commentaries ahead of time. On several occasions I wrote entire series and set them up to post automatically over a period of weeks or even a month or two.

Why am I reciting this history? Readers have become accustomed to posts appearing every Monday, Wednesday, and Friday. On several occasions when I inadvertently mistyped a date or time for a scheduled post to publish, or when blogger.com had a hiccup, readers have emailed me to ask if I was ok. The answer was either, “Yes, thanks for alerting me, I checked and fixed my timing typo,” or “Yes, thanks for alerting me, I checked so let’s wait for blogger.com to come back online.”

Because I now plan to return to posting at irregular times, I don’t want readers worrying that there is a problem. I am not disappearing. I plan to post in real time, though I may schedule some posts in advance. So that means posts may appear any day or any time. There may be weeks when there are only two posts, or perhaps just one, and there may be weeks when there are four or five or more posts. Why am I doing this? My schedule needs more flexibility, and I want to be reactive in a more timely manner. Yet is is not unlikely that the Monday-Wednesday-Friday pattern will recur from time to time, even this week and next!

Though 19 years is a long time, there are blogs that have been around longer. Though blogging began in the mid-1990s, in 1999 there supposedly were only 23 blogs in existence. MauledAgain wasn’t one of them. Tax blogs have come and gone. I’m not sure how many existed before MauledAgain first published, but if it was not the first it was one of the first. Because so many tax blogs either disappeared or haven’t had a post for quite some time, I stopped worrying about keeping “Links to Other Tax Blogs” up to date. And unless I deliberately decide to stop posting permanently, and if I do I will let that be known, one day this blog will join those that without any announcement or fanfare simply become a blog that hasn’t had a post for quite some time.

The Infrastructure Investment and Jobs Act that passed the Senate contains, in section 13002, authorization and funding for a national pilot program for a mileage-based road fee. I have written about, and advocated for, the mileage-based road fee many times during the past 17 years, 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) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, and Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?.

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.

The concept is simple. For the federal tax system to work, there must be reporting of transactions relevant to taxation. That’s why employers issue Forms W-2 reporting wages and other information. That’s why banks issue Forms 1099 reporting interest paid. That’s why real estate sellers issue Forms 1099-S reporting sales and exchanges of real estate. There is a long list of information returns that individuals and organizations must file.

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.

Reader Morris alerted me to a letter in the Pocono Record with a headline claiming that “the mileage tax is a bad idea.” The letter was written in response to one of the recommendations made by the Pennsylvania Transportation Revenue Options Committee for raising revenue to deal with the Commonwealth’s transportation infrastructure crisis. Almost a month ago, in The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, I addressed not only the silly “package tax” recommendation but also the mileage-based road fee criticized by the letter writer. Even though I support the mileage-based road fee, as explained 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) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, and The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, I criticized the proposed delay in implementing that fee and noted that it would not be sufficient to cover the existing transportation funding deficit.

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.

Years ago, Philadelphia decided that to encourage home buying in the city, it would provide a ten-year period of substantially reduced real property taxes on properties purchased during the qualifying period. The tax abatement would persist even if the property was resold to a new owner during the ten-year period. Though enacted with the best of intentions, this tax break, like most others, also presents disadvantages. For example, in A Tax Problem, A Solution, So Why No Repair?, I described the shock felt by a new owners when the abatement period ended shortly after the purchase, though the surprise would have been ameliorated had the new owner and the real estate agents done some research. And as mentioned in Goofy Tax Proposal Withdrawn in the Nick of Time, the abatement generated revenue losses that City Council tried to relieve, though it first rejected by a one-vote margin a proposal to offset the revenue loss with a tax on the tax break.

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.