Monday, May 06, 2019
Using Taxes to Bail Out Wrongdoers
The story is sad and infuriating, has happened too often, and continues to happen. Because of wrongdoing by an accuser, a police officer, a prosecutor, a judge, an expert witness, or multiples or combinations of them, an innocent person is convicted and imprisoned. Years later, exculpatory evidence is found, and the innocent person is released. And then the innocent person sues the jurisdiction where the wrongful conviction occurred. This happened, for example, to a group known as the Beatrice Six. Six individuals were falsely convicted of raping and murdering a woman in Beatrice, Nebraska, in 1985. Twenty-four years later, in 2009, the truth came out and they were released.
The six were convicted in part because of forensics presented by Joyce Gilchrist, who later was determined to have assisted in other false convictions. The six also were forced into giving false confessions. The forensic scientist who did the original analysis was not called to testify, even though she had determined there was no forensic match between the defendants and the crime scene. After being released the six falsely convicted individuals sued Gage County, where the crime and convictions had occurred, but by the time the case went to trial in 2014, the lead plaintiff had died. Two years later, a jury awarded the plaintiffs or their successors in interest $28 million. The county appealed, but lost. On March 4, 2019, the United States Supreme Court denied the final appeal. Attorney fees and interest have raised the cost to $31 million.
So Gage County needs to come up with $28 million. It raised property taxes to the maximum permitted under state law. Because that was not enough, the county sought state legislative approval to impose a sales tax. As reported a few days ago in this story, the Nebraska legislature approved the request, the governor vetoed the legislation, and the legislature overrode the veto. The governor vetoed the legislation because he wanted the tax to be approved by voters. Usually, voters must approve sales tax increases. It was predicted that voters would not approve the sales tax because many of them did not live in the county in 1985, and some still believe that the six are guilty despite the exonerating DNA evidence. Compounding the problem is the county’s failure to have adequate insurance at the time of the false conviction to cover these sorts of claims.
Interestingly, some legislators who are members of the anti-tax movement voted for the tax increase. One of them has provided an explanation that ought to be printed in bold lettering and placed in the front of every legislature in the country: “This is a time when campaign promises become meaningless and situations must be solved.” I’m thinking, for example, of the funding required to fix infrastructure, to protect Americans from catastrophic health costs, and to build up adequate cyber-security against attacks by enemies.
The justification for approving the sales tax is to prevent the cost from falling entirely on property owners who pay property taxes. What is unclear to me is how much of the sales tax will be paid by people who are not property owners in the county. Aside from renters who make purchases, the only other source would be visitors and tourists, who probably aren’t numerous. Using a sales tax will shift some of the burden from farmers with large land holdings, but reduced income, to town residents, whose property taxes typically are lower than those imposed on farmers.
I don’t know if anyone other than the county was sued. Perhaps Joyce Gilchrist, the police, the prosecutors, and the others who were involved in the false conviction were sued. Perhaps they are long gone from this planet. Perhaps they are bankrupt. The problem that I see is the shifting onto taxpayers the price that must be paid when officials, some elected, some not, and third parties recruited by those officials, act wrongly. It is said that holding officials responsible for the costs of their bad decisions would discourage people from running for office. Yet it’s not a question of holding people responsible for the outcomes of decisions made in good faith. When there are intentional failures to comply with the rules, to follow the proper procedures, or to everything that must be done, asking innocent taxpayers to bear the burden of those failures is difficult to justify. Perhaps taxpayers who voted for those officials knowing that those officials are prone to acting wrongfully should be taxed, but there is no way to identify those taxpayers, some wrongdoing officials aren’t elected, and proving that taxpayers knew that officials were prone to act wrongfully and would do so once elected is near impossible.
The answer, I think, is for taxpayers to prevent these sorts of taxes by paying attention to what is happening in government and politics. Too many people “aren’t interested” in “those things.” Too many people fail to take everything into account when evaluating government officials and candidates, often getting caught up in one issue to the detriment of all else. Worse, taxpayer oversight of government officials is lacking, as often the only recourse is the ballot box which turns up every other year or even longer. Oversight of government officials by other government officials, though fine in theory, has failed when it comes to practical application. We are seeing that now, on a scale much larger than Gage County, Nebraska. When the time comes to pay the price for the misdirected tax cuts, for the environmental damage, for the death and destruction due to infrastructure failure, and for other deliberate and wrongful decisions, perhaps American taxpayers will understand, “you were warned, you did not listen, you are now paying the price.” So sad.
The six were convicted in part because of forensics presented by Joyce Gilchrist, who later was determined to have assisted in other false convictions. The six also were forced into giving false confessions. The forensic scientist who did the original analysis was not called to testify, even though she had determined there was no forensic match between the defendants and the crime scene. After being released the six falsely convicted individuals sued Gage County, where the crime and convictions had occurred, but by the time the case went to trial in 2014, the lead plaintiff had died. Two years later, a jury awarded the plaintiffs or their successors in interest $28 million. The county appealed, but lost. On March 4, 2019, the United States Supreme Court denied the final appeal. Attorney fees and interest have raised the cost to $31 million.
So Gage County needs to come up with $28 million. It raised property taxes to the maximum permitted under state law. Because that was not enough, the county sought state legislative approval to impose a sales tax. As reported a few days ago in this story, the Nebraska legislature approved the request, the governor vetoed the legislation, and the legislature overrode the veto. The governor vetoed the legislation because he wanted the tax to be approved by voters. Usually, voters must approve sales tax increases. It was predicted that voters would not approve the sales tax because many of them did not live in the county in 1985, and some still believe that the six are guilty despite the exonerating DNA evidence. Compounding the problem is the county’s failure to have adequate insurance at the time of the false conviction to cover these sorts of claims.
Interestingly, some legislators who are members of the anti-tax movement voted for the tax increase. One of them has provided an explanation that ought to be printed in bold lettering and placed in the front of every legislature in the country: “This is a time when campaign promises become meaningless and situations must be solved.” I’m thinking, for example, of the funding required to fix infrastructure, to protect Americans from catastrophic health costs, and to build up adequate cyber-security against attacks by enemies.
The justification for approving the sales tax is to prevent the cost from falling entirely on property owners who pay property taxes. What is unclear to me is how much of the sales tax will be paid by people who are not property owners in the county. Aside from renters who make purchases, the only other source would be visitors and tourists, who probably aren’t numerous. Using a sales tax will shift some of the burden from farmers with large land holdings, but reduced income, to town residents, whose property taxes typically are lower than those imposed on farmers.
I don’t know if anyone other than the county was sued. Perhaps Joyce Gilchrist, the police, the prosecutors, and the others who were involved in the false conviction were sued. Perhaps they are long gone from this planet. Perhaps they are bankrupt. The problem that I see is the shifting onto taxpayers the price that must be paid when officials, some elected, some not, and third parties recruited by those officials, act wrongly. It is said that holding officials responsible for the costs of their bad decisions would discourage people from running for office. Yet it’s not a question of holding people responsible for the outcomes of decisions made in good faith. When there are intentional failures to comply with the rules, to follow the proper procedures, or to everything that must be done, asking innocent taxpayers to bear the burden of those failures is difficult to justify. Perhaps taxpayers who voted for those officials knowing that those officials are prone to acting wrongfully should be taxed, but there is no way to identify those taxpayers, some wrongdoing officials aren’t elected, and proving that taxpayers knew that officials were prone to act wrongfully and would do so once elected is near impossible.
The answer, I think, is for taxpayers to prevent these sorts of taxes by paying attention to what is happening in government and politics. Too many people “aren’t interested” in “those things.” Too many people fail to take everything into account when evaluating government officials and candidates, often getting caught up in one issue to the detriment of all else. Worse, taxpayer oversight of government officials is lacking, as often the only recourse is the ballot box which turns up every other year or even longer. Oversight of government officials by other government officials, though fine in theory, has failed when it comes to practical application. We are seeing that now, on a scale much larger than Gage County, Nebraska. When the time comes to pay the price for the misdirected tax cuts, for the environmental damage, for the death and destruction due to infrastructure failure, and for other deliberate and wrongful decisions, perhaps American taxpayers will understand, “you were warned, you did not listen, you are now paying the price.” So sad.
Friday, June 22, 2012
Some Tax Things Cannot Be Forced
A recent Nebraska case, Bock v. Dalbey addressed the interesting question of whether a spouse can be forced to file a joint return. The court’s response was a resounding no. It rested its conclusion on the rationale that “a trial court can equitably adjust its division of the marital estate to account for a spouse’s unreasonable refusal to file a joint return.” The court noted that in the few instances other courts have considered the question, several have reached similar conclusions because of “the possible exposure to liability” for the other spouse’s unreported income or wrongly claimed deductions and credits. The court agreed with decisions of courts in the District of Columbia, Iowa, Florida, Oklahoma, New York, and Oregon. The court chose not to follow contrary decisions in Illinois, Minnesota, New Jersey, Ohio, and North Dakota. At least one of these courts, though refusing to deny the trial court discretion to compel the filing of a joint return, advises trial courts, where possible, to go the route of letting the spouses file separately and making adjustments in the equitable distribution.
The Nebraska court specified four reasons it considers its conclusion the better alternative. First, the return may end up not being treated as a joint return for federal income tax purposes if the compelled spouse demonstrates there was no intent to file a joint return and it was done under compulsion. Second, an order to compel the filing of a joint return is a mandatory injunction, something that is “an extreme or harsh remedy that should be exercised sparingly and cautiously.” Third, predicting the compelled spouse’s liability exposure is difficult to predict, and the compelled spouse could end up with more tax liability than predicted or expected. Fourth, if the spouses are compelled to file a joint return, they usually will have very little time to do so within the federal tax law deadlines and thus risk being held in contempt. Buried in this reason was a fifth one, namely, if the compelled spouse appeals but the joint return was filed, the joint return cannot be revoked, and if the compelled spouse waits until an appeal is processed, the deadline will be missed.
As I tell my students in the basic federal income tax class, there are few, if any, areas of law practice unaffected by tax. To practice domestic relations law without understanding all of the nuances, is more than simply risky. It’s not enough to understand the black letter law of alimony gross income and deductions and the rules dealing with allocating dependency exemption deductions. Domestic relations lawyers ought to read this case, and prepare themselves to help educate their clients who are negotiating divorce and separation terms.
Of course, the issue considered in this case presents yet another reason for the abolition of the joint return and the taxation of individuals as persons independent of their marital, living, relational, or other arrangements or status. But additional discussion of that topic must await another day.
The Nebraska court specified four reasons it considers its conclusion the better alternative. First, the return may end up not being treated as a joint return for federal income tax purposes if the compelled spouse demonstrates there was no intent to file a joint return and it was done under compulsion. Second, an order to compel the filing of a joint return is a mandatory injunction, something that is “an extreme or harsh remedy that should be exercised sparingly and cautiously.” Third, predicting the compelled spouse’s liability exposure is difficult to predict, and the compelled spouse could end up with more tax liability than predicted or expected. Fourth, if the spouses are compelled to file a joint return, they usually will have very little time to do so within the federal tax law deadlines and thus risk being held in contempt. Buried in this reason was a fifth one, namely, if the compelled spouse appeals but the joint return was filed, the joint return cannot be revoked, and if the compelled spouse waits until an appeal is processed, the deadline will be missed.
As I tell my students in the basic federal income tax class, there are few, if any, areas of law practice unaffected by tax. To practice domestic relations law without understanding all of the nuances, is more than simply risky. It’s not enough to understand the black letter law of alimony gross income and deductions and the rules dealing with allocating dependency exemption deductions. Domestic relations lawyers ought to read this case, and prepare themselves to help educate their clients who are negotiating divorce and separation terms.
Of course, the issue considered in this case presents yet another reason for the abolition of the joint return and the taxation of individuals as persons independent of their marital, living, relational, or other arrangements or status. But additional discussion of that topic must await another day.
Wednesday, April 15, 2015
Free Houses, Free Land: Gross Income?
For those seeking free houses and free land, The Penny Hoarder has a list of cities that are giving away houses that need fixing up, cash rewards to people renting living space in the city, and cash rewards to people who live and work in the city. In some instances the cash rewards can be as high as $20,000. One city is offering almost 3 acres of land, worth $175,000, to any business that creates 24 new jobs in the city. In some instances, the recipient must be employed by a company that is a partner with the city in operating the program. In other instances, a person receiving an empty building lot for free must promise to build a house and live in it for a specified period of time. Among the cities and towns engaged in this sort of rehabilitation effort are Detroit, Michigan, Lincoln, Kansas, any city in Saskatchewan, Canada, Camden, Maine, and Curtis, Nebraska.
So, of course, when I read this article, my first thought was a tax one. If a person accepts the offer, and receives free land or cash rewards, does the person have gross income for federal income tax purposes? It’s possible that there is a state income tax exclusion for these programs, and I don’t address that question because I haven’t researched it.
The answer is yes. There is no federal income tax exclusion that applies to this transaction. The notion that it is a gift, and thus excluded from gross income, fails because the recipient must do something or several things in order to receive the benefit. Not only does that fact block the gift exclusion, it also strengthens the gross income argument because it gives the transaction a compensation flavor. The amount is being received in exchange for doing something that benefits the city or town paying for it.
As unfair as it might seem to some people who think this sort of transaction ought not be taxed, that result is not unjustified. A person who wins a lottery is taxed, even though the same folks also tag that outcome as unfair. If the compensation earned by someone harvesting vegetables or fixing flat tires is taxed, then the compensation earned by someone building a home in a city also ought to be taxed.
I don’t know if anyone has taken up any of these cities or towns on the offer. Not too many people are anxious to relocate to Detroit, Michigan, Lincoln, Kansas, Camden, Maine, or Curtis, Nebraska. That’s one of the reasons these programs exist. But if someone does accept the offer, I wonder what their reaction will be when they receive a Form 1099. Worse, when they realize that they face a serious liquidity problem if the compensation is in the form of land or a house, I don’t think their reaction is going to be all smiles and handclaps.
So, of course, when I read this article, my first thought was a tax one. If a person accepts the offer, and receives free land or cash rewards, does the person have gross income for federal income tax purposes? It’s possible that there is a state income tax exclusion for these programs, and I don’t address that question because I haven’t researched it.
The answer is yes. There is no federal income tax exclusion that applies to this transaction. The notion that it is a gift, and thus excluded from gross income, fails because the recipient must do something or several things in order to receive the benefit. Not only does that fact block the gift exclusion, it also strengthens the gross income argument because it gives the transaction a compensation flavor. The amount is being received in exchange for doing something that benefits the city or town paying for it.
As unfair as it might seem to some people who think this sort of transaction ought not be taxed, that result is not unjustified. A person who wins a lottery is taxed, even though the same folks also tag that outcome as unfair. If the compensation earned by someone harvesting vegetables or fixing flat tires is taxed, then the compensation earned by someone building a home in a city also ought to be taxed.
I don’t know if anyone has taken up any of these cities or towns on the offer. Not too many people are anxious to relocate to Detroit, Michigan, Lincoln, Kansas, Camden, Maine, or Curtis, Nebraska. That’s one of the reasons these programs exist. But if someone does accept the offer, I wonder what their reaction will be when they receive a Form 1099. Worse, when they realize that they face a serious liquidity problem if the compensation is in the form of land or a house, I don’t think their reaction is going to be all smiles and handclaps.
Friday, August 28, 2009
State Tax Consequences of Cash-for-Clunkers
Although the IRS has made it clear, following the language of the enacting statute, that the amounts paid by the government to auto dealers as part of the cash-for-clunkers program is gross income to the dealers but not the purchasers, there are some important questions to be answered with respect to the state tax consequences of the program.
Over at Right Wing News, to which Paul Caron directed my attention, we are told, in a post entitled "Tax for Clunkers":
The point about the sales tax is correct for purchasers in South Dakota, but not necessarily for those in other states. For example, the Minnesota Department of Revenue has advised that "the CARS incentive is deducted from the selling price before Minnesota motor vehicle sales tax is applied, effectively reducing the taxes owed." The Illinois Department of Revenue has reached the same conclusion, as have the revenue departments in Mississippi, Connecticut, Iowa, and California. On the other hand, revenue officials in Rhode Island, Nebraska, and Nevada agree with their counterparts in South Dakota. In releases not on the Internet, Florida, Georgia, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Texas, and Wisconsin line up with the states not subjecting the CARS payment to the sales tax, whereas Idaho, New Jersey, New York, Ohio, and Virginia take the route taken by South Dakota. Washington does not subject the CARS payment to its transportation tax. As of this writing, other states have not published guidance. Here's a chart on the sales tax question that is worth a look, which I discovered after I looked at a bunch of state revenue department web sites.
Why the difference? It depends on the wording of the statute. For example, California and Wisconsin treat the $4,500 as a tax-exempt sale to the United States. Other states have statutes that define the taxable cost as the net amount paid by the purchaser. I wonder how many of the assorted bloggers repeating the "the CARS payment is subject to sales in many states" mantra actually searched for, read, and analyzed the statute. The count at this point has more states NOT subjecting the rebate to sales taxation than taxing it. At best, the adjective should be "some."
And when it comes to the state income tax, I'm nowhere ready to agree with the conclusion that "many states will charge income tax on the $4,500 . . . to the car buyer." Most states base their taxable income on federal taxable income, and provide for adjustments to increase or decrease that amount. Because the CARS payment is NOT included in federal taxable income, it will NOT be included in state taxable income unless the state legislature enacts a provision requiring an add-back adjustment. Thus, for example, the Arizona Department of Revenue has explained that the CARS payment is NOT subject to Arizona state income tax in the hands of the purchaser. The same conclusion applies in Nebraska. I'm unaware of any state legislature that has enacted add-backs for the CARS payment. Perhaps some state legislatures will do so, but there's a limited time in which to act, and not all state legislatures are in session or will be in session before such a statute would need to be passed.
The lesson here is that one needs to research things for one's self, and to research things before broadcasting to the world an assertion that not only is incorrect or misleading but that relates to a topic of such widespread interest that the risk of misinformation propogating throughout the world is very high. If the inaccuracies are intentional, there is another lesson, and that is the need for systems that deter people from skewing policy debates with what must be called propoganda. If the inaccuracies are the result of negligence, decency demands that corrective statements be issued, even though it is so difficult to chase down a falsity and purge it from the minds of those who have been lulled through ignorance and reluctance to think for themselves into believing an untruth. As I repeatedly tell my students, first figure out the facts. Don't be in such a rush to provide a legal conclusion on the basis of uncorroborated allegations. It's a tough message to sell in a world where "conclude first, think later (if at all)" permeates the culture.
Over at Right Wing News, to which Paul Caron directed my attention, we are told, in a post entitled "Tax for Clunkers":
Yep, you read that right. In many states car buyers that turned in their "clunkers" for up to $4,500 off the cost of a new car are finding out that they have to pay state sales tax on the $4,500 too. And still others just might find out next year that they'll have to pay income tax on that "free" government money.These assertions have been picked up and repeated throughout the internet world, and soon may leak into print publications.
Many South Dakotans, for instance, have been shocked to find that the wonderful gift from Obama was still added in with the cost of the automobile for the sales tax calculation, so their tax went up accordingly despite that they didn't pay the $4,500themselves.
Some states calculate sales tax by subtracting from the total cost of a new purchase the trade-in allowance of a buyer's old car. But in the case of cash for clunkers, there is no trade-in allowance and the $4,500 remains added to the car purchase.
Even worse, many states will charge income tax on the $4,500 because the sum will be determined to be the same thing as income to the car buyer.
The point about the sales tax is correct for purchasers in South Dakota, but not necessarily for those in other states. For example, the Minnesota Department of Revenue has advised that "the CARS incentive is deducted from the selling price before Minnesota motor vehicle sales tax is applied, effectively reducing the taxes owed." The Illinois Department of Revenue has reached the same conclusion, as have the revenue departments in Mississippi, Connecticut, Iowa, and California. On the other hand, revenue officials in Rhode Island, Nebraska, and Nevada agree with their counterparts in South Dakota. In releases not on the Internet, Florida, Georgia, Indiana, Kentucky, Louisiana, Massachusetts, Michigan, Texas, and Wisconsin line up with the states not subjecting the CARS payment to the sales tax, whereas Idaho, New Jersey, New York, Ohio, and Virginia take the route taken by South Dakota. Washington does not subject the CARS payment to its transportation tax. As of this writing, other states have not published guidance. Here's a chart on the sales tax question that is worth a look, which I discovered after I looked at a bunch of state revenue department web sites.
Why the difference? It depends on the wording of the statute. For example, California and Wisconsin treat the $4,500 as a tax-exempt sale to the United States. Other states have statutes that define the taxable cost as the net amount paid by the purchaser. I wonder how many of the assorted bloggers repeating the "the CARS payment is subject to sales in many states" mantra actually searched for, read, and analyzed the statute. The count at this point has more states NOT subjecting the rebate to sales taxation than taxing it. At best, the adjective should be "some."
And when it comes to the state income tax, I'm nowhere ready to agree with the conclusion that "many states will charge income tax on the $4,500 . . . to the car buyer." Most states base their taxable income on federal taxable income, and provide for adjustments to increase or decrease that amount. Because the CARS payment is NOT included in federal taxable income, it will NOT be included in state taxable income unless the state legislature enacts a provision requiring an add-back adjustment. Thus, for example, the Arizona Department of Revenue has explained that the CARS payment is NOT subject to Arizona state income tax in the hands of the purchaser. The same conclusion applies in Nebraska. I'm unaware of any state legislature that has enacted add-backs for the CARS payment. Perhaps some state legislatures will do so, but there's a limited time in which to act, and not all state legislatures are in session or will be in session before such a statute would need to be passed.
The lesson here is that one needs to research things for one's self, and to research things before broadcasting to the world an assertion that not only is incorrect or misleading but that relates to a topic of such widespread interest that the risk of misinformation propogating throughout the world is very high. If the inaccuracies are intentional, there is another lesson, and that is the need for systems that deter people from skewing policy debates with what must be called propoganda. If the inaccuracies are the result of negligence, decency demands that corrective statements be issued, even though it is so difficult to chase down a falsity and purge it from the minds of those who have been lulled through ignorance and reluctance to think for themselves into believing an untruth. As I repeatedly tell my students, first figure out the facts. Don't be in such a rush to provide a legal conclusion on the basis of uncorroborated allegations. It's a tough message to sell in a world where "conclude first, think later (if at all)" permeates the culture.
Monday, November 12, 2012
Taxes and Colors
In a recent commentary, Jeffrey Frankel explores the correlations between the voting patterns of individual states and the social, cultural, educational, and financial behavior and views of individuals living in those states. His point is that these sorts of generalizations are dangerous, and he supports his point by showing what happens when doing so is extended beyond the common stereotypes tossed about in the press and through social media.
What disturbs Frankel is the notion that people in rural areas and in the exurbs reflect self-sufficiency and personal responsibility, whereas people in urban areas wallow in decadence and are dependent on government. Using data drawn from various sources, he concludes that statistically, people living in so-called red states “are, on average, less prone to pay income taxes, more prone to receive subsidies from the federal government, less physically fit, less responsible in their sexual behaviour, more prone to inflict harm on themselves and on others through smoking, drunk driving and misuse of firearms, and more prone to freeride on the healthcare system, compared to blue-staters.” He adds that “it is the states with high percentages of people who pay no income tax that tend to vote Republican.” Put another way, blue states are makers and red states are takers. He shares similar observations with respect to rates of obesity, exercise, healthy nutrition, smoking, fatal accidents due to drunk driving, firearms assaults, safe sex, pregnancy, sexually-transmitted disease, sexual activity, and contraception use.
To me, and I could be wrong, the problem with analyzing this sort of data by state is that it treats everyone in the states as a homogenous group. Yet in so-called red states, with one or two exceptions, 40 to 45 percent of the vote goes blue, and in so-called blue states, with several exceptions, 40 to 47 percent of the vote goes red. On the other hand, if red voters outnumber blue voters in states with higher rates of zero tax payments, smoking, lack of exercise, firearms assaults, etc., and if they were not responsible for these higher rates, is it possible for the smaller number of blue voters to jack up a state’s rates to levels higher than those in states whose residents are predominantly blue voters? Charles Murray, a noted conservative-libertarian, took a look at this in his book, Coming Apart. He did his analysis by zip code, not state. He determined that in areas with high levels of income and education, traditional values of diligence and family were strongest. He concludes that those who practice desirable values fail to encourage others to follow along, being too attached to what he calls non-judgmentalism, whereas those who preach these values tend to fall short in living up to them.
Again, the problem I have with Murray’s conclusion is that the people in the red states who are preaching something may not be the people who are behaving in a contrary manner. But once again, the numbers are such that I wonder how, if a majority of residents are preaching and practicing hard work and personal responsibility, the state ends up on the low end in the rates of contrary behavior. Yet in looking at positions with respect to government spending, the same pattern emerges. Opposition to government spending is paramount in red states, or, more specifically, among red voters who make up the majority of voters in red states. Yet opposition to cutting social security benefits is very strong in Arizona, opposition to cutting agricultural price supports is very strong in Oklahoma, Kansas, Nebraska, and similar prairie states, cutting water subsidies encounters opposition in states like Utah, and so on. To be fair, opposition to cutting other programs is no less strident in blue states and among blue voters. The disconnect between political philosophy and political practice looms large.
How does this square up? Frankel offers this analysis:
What disturbs Frankel is the notion that people in rural areas and in the exurbs reflect self-sufficiency and personal responsibility, whereas people in urban areas wallow in decadence and are dependent on government. Using data drawn from various sources, he concludes that statistically, people living in so-called red states “are, on average, less prone to pay income taxes, more prone to receive subsidies from the federal government, less physically fit, less responsible in their sexual behaviour, more prone to inflict harm on themselves and on others through smoking, drunk driving and misuse of firearms, and more prone to freeride on the healthcare system, compared to blue-staters.” He adds that “it is the states with high percentages of people who pay no income tax that tend to vote Republican.” Put another way, blue states are makers and red states are takers. He shares similar observations with respect to rates of obesity, exercise, healthy nutrition, smoking, fatal accidents due to drunk driving, firearms assaults, safe sex, pregnancy, sexually-transmitted disease, sexual activity, and contraception use.
To me, and I could be wrong, the problem with analyzing this sort of data by state is that it treats everyone in the states as a homogenous group. Yet in so-called red states, with one or two exceptions, 40 to 45 percent of the vote goes blue, and in so-called blue states, with several exceptions, 40 to 47 percent of the vote goes red. On the other hand, if red voters outnumber blue voters in states with higher rates of zero tax payments, smoking, lack of exercise, firearms assaults, etc., and if they were not responsible for these higher rates, is it possible for the smaller number of blue voters to jack up a state’s rates to levels higher than those in states whose residents are predominantly blue voters? Charles Murray, a noted conservative-libertarian, took a look at this in his book, Coming Apart. He did his analysis by zip code, not state. He determined that in areas with high levels of income and education, traditional values of diligence and family were strongest. He concludes that those who practice desirable values fail to encourage others to follow along, being too attached to what he calls non-judgmentalism, whereas those who preach these values tend to fall short in living up to them.
Again, the problem I have with Murray’s conclusion is that the people in the red states who are preaching something may not be the people who are behaving in a contrary manner. But once again, the numbers are such that I wonder how, if a majority of residents are preaching and practicing hard work and personal responsibility, the state ends up on the low end in the rates of contrary behavior. Yet in looking at positions with respect to government spending, the same pattern emerges. Opposition to government spending is paramount in red states, or, more specifically, among red voters who make up the majority of voters in red states. Yet opposition to cutting social security benefits is very strong in Arizona, opposition to cutting agricultural price supports is very strong in Oklahoma, Kansas, Nebraska, and similar prairie states, cutting water subsidies encounters opposition in states like Utah, and so on. To be fair, opposition to cutting other programs is no less strident in blue states and among blue voters. The disconnect between political philosophy and political practice looms large.
How does this square up? Frankel offers this analysis:
Do these statistical relationships between personal responsibility and voting behaviour have analytical implications? How can one explain such counter-intuitive results? I have pondered this puzzling question. I am still not sure of the answer. But here is what I have to offer.Yes, it’s a theory, and it’s one that I explored last month in Dependency, Government Spending, Tax Breaks, and Middle School, concluding, “For one group of dependent Americans to attack another is absurd, especially when the attacking group thinks it can pull off this sort of nonsense because its dependency is not as visible.” Perhaps it is time for voters who dominate the outcomes in the red states to reconsider their antipathy toward government spending, now that it is apparent that most red states send to the U.S. Treasury less than they take back from it. Perhaps it is time to practice what is preached.
* * * * *
It stands to reason that some people are less self-aware than others, and less knowledgeable on how the budget adds up, for whatever other reason. We hear repeatedly of seniors who tell politicians to keep the federal government away from their medicare, of ranchers who support the Tea Party or right-wing militia while collecting farm subsidies.
The people who suffer the biggest gap between their perceived and actual share of the federal pie are likely to be getting a disproportionate share and yet to believe the opposite. If they believe that others are getting more than they themselves are, they are more likely to buy into the angry belief that other social groups are freeriding on society, and the ideology that government spending is wasteful and needs to be cut back, without realising that this includes the benefits they themselves receive. Perhaps these people are more likely to vote for Republican politicians, who tell them what they want to hear. It’s a theory, anyway.
Monday, September 06, 2010
Legislative Tax Procedure: Confusion Runs Rampant
Somehow, they just don’t get it. Considering how law students struggle with procedure and process – one of the most critical aspects of lawyering and law-making – it’s not surprising that journalists also don’t get it. On Friday, in More Democrats Balk at Raising Taxes for Rich, David Lightman of McClatchey Newspapers writes, “Tax cuts enacted in 2001 and 2003 expire at the end of this year. . . However, a small but growing number of moderate Democrats are balking at boosting taxes on the rich. . . Without their support, the push to raise rates on the rich will probably fail.”
He, and many others, have it backwards. If Congress does nothing, tax rates on the all taxpayers, including the wealthy, will go back to what they were in 2000. In other words, tax rates on the rich will increase unless Congress acts affirmatively to prevent that from happening. So the folks who need to gather votes are the folks who want to extend the tax cut bestowed on the wealthy nine years ago. Let’s look at the numbers shared in the article.
According to the article, it’s in the Senate where things matter, because in the House, the Republicans who presumably would vote to extend tax breaks for the wealthy are so outnumbered that even if a few moderate Democrats join them, it won’t happen. But the Senate, with its quirky rules that make simple majorities into minorities and give controlling power to 40 Senators, poses a strange phenomenon. If 41 Senators can block legislation, even with the defection of some moderate Democrats, a sufficient number of Senators who oppose extending tax breaks for the wealthy can block legislation that would do so.
Where it gets confusing is when alternative legislation is tossed into the mix. The Administration proposes extending tax breaks for those with adjusted gross incomes under $200,000 ($250,000 for joint returns) but not extending tax breaks for the wealthy. To get this legislation through the Congress, the Administration needs to find 61 Senators to support it. It probably would pass the House. But 41 Senators could block it.
In other words, Congress will come to loggerheads. This sort of stalemate is familiar, so it’s not surprising. It’s simply frustrating, because taxpayers and their advisors need to know what the 2011 federal income tax landscape will resemble. Note that similar planning concerns afflict estate planners and their clients. Thank you, Congress.
The confusion also manifests itself in this sentence: “The bigger problem for Democrats is in the Senate, where Reid’s immediate problem is getting the 60 votes needed to cut off debate on the [Administration] measure. Democrats control 59 seats, and at least three – Bayh, Ben Nelson of Nebraska, and Kent Conrad of North Dakota – have signaled they won’t back a permanent repeal of the tax cuts for the wealthy.” The catch is that there is no permanent repeal to back. It is going to happen, unless supporters of extending the tax rate reductions can pull together 60 votes to get an extension through the Senate. So if these moderate Democrats sit back and refuse to support a measure, the outcome will be precisely what they say they oppose. But if they step up and affirmative vote for tax breaks for the wealthy, they put themselves at risk when elections roll around.
Is it any wonder that getting sensible, rationale debate on these issues is so difficult? If the rules of the Congressional game aren’t understood, what are the chances that the outcome will be what people want it to be, even setting aside the wisdom of any of the particular positions being put forth? Congress has painted itself into a corner. It would be tempting to leave it there, except that when Congress paints itself into a corner, it puts the public in a bind. The first step in getting this mess straightened out is inspiring journalists to educate the public with the correct information. I seriously doubt that will happen. I’ve tried, but MauledAgain doesn’t have the circulation of McClatchey Newspapers or any of the other huge media outlets that can’t seem to figure out how to explain something that, all tax things considered, isn’t all that complicated.
He, and many others, have it backwards. If Congress does nothing, tax rates on the all taxpayers, including the wealthy, will go back to what they were in 2000. In other words, tax rates on the rich will increase unless Congress acts affirmatively to prevent that from happening. So the folks who need to gather votes are the folks who want to extend the tax cut bestowed on the wealthy nine years ago. Let’s look at the numbers shared in the article.
According to the article, it’s in the Senate where things matter, because in the House, the Republicans who presumably would vote to extend tax breaks for the wealthy are so outnumbered that even if a few moderate Democrats join them, it won’t happen. But the Senate, with its quirky rules that make simple majorities into minorities and give controlling power to 40 Senators, poses a strange phenomenon. If 41 Senators can block legislation, even with the defection of some moderate Democrats, a sufficient number of Senators who oppose extending tax breaks for the wealthy can block legislation that would do so.
Where it gets confusing is when alternative legislation is tossed into the mix. The Administration proposes extending tax breaks for those with adjusted gross incomes under $200,000 ($250,000 for joint returns) but not extending tax breaks for the wealthy. To get this legislation through the Congress, the Administration needs to find 61 Senators to support it. It probably would pass the House. But 41 Senators could block it.
In other words, Congress will come to loggerheads. This sort of stalemate is familiar, so it’s not surprising. It’s simply frustrating, because taxpayers and their advisors need to know what the 2011 federal income tax landscape will resemble. Note that similar planning concerns afflict estate planners and their clients. Thank you, Congress.
The confusion also manifests itself in this sentence: “The bigger problem for Democrats is in the Senate, where Reid’s immediate problem is getting the 60 votes needed to cut off debate on the [Administration] measure. Democrats control 59 seats, and at least three – Bayh, Ben Nelson of Nebraska, and Kent Conrad of North Dakota – have signaled they won’t back a permanent repeal of the tax cuts for the wealthy.” The catch is that there is no permanent repeal to back. It is going to happen, unless supporters of extending the tax rate reductions can pull together 60 votes to get an extension through the Senate. So if these moderate Democrats sit back and refuse to support a measure, the outcome will be precisely what they say they oppose. But if they step up and affirmative vote for tax breaks for the wealthy, they put themselves at risk when elections roll around.
Is it any wonder that getting sensible, rationale debate on these issues is so difficult? If the rules of the Congressional game aren’t understood, what are the chances that the outcome will be what people want it to be, even setting aside the wisdom of any of the particular positions being put forth? Congress has painted itself into a corner. It would be tempting to leave it there, except that when Congress paints itself into a corner, it puts the public in a bind. The first step in getting this mess straightened out is inspiring journalists to educate the public with the correct information. I seriously doubt that will happen. I’ve tried, but MauledAgain doesn’t have the circulation of McClatchey Newspapers or any of the other huge media outlets that can’t seem to figure out how to explain something that, all tax things considered, isn’t all that complicated.
Monday, January 04, 2010
Taxes, Happiness, and Unhappiness
Thanks to a tip from Paul Caron's TaxProf blog posting, I turned my attention to a Wall Street Journal Opinion article, Are Taxes the Root of Unhappiness?. The article looks at a new study reported in Science magazine that ranked state populations based on happiness levels. The study reported in Science magazine took data from a recent "Behavioral Risk Factor Surveillance System" and a six-year-old economics paper that explored quality-of-life information, and "regressed the subjective measure of well-being … against the objective measure." To no one's surprise, the objective and subjective measures correlated rather nicely. In other words, "quality of life heavily influences happiness." The study also supports the notion that people pretty much know when they're happy and unhappy, and have good reason for how they feel. So what's the tax angle?
The tax angle is that Allysia Finley, the author of the Opinion article, concludes that there is a correlation between states with high state and local tax burdens and states with high levels of unhappiness, and a correlation between states with low state and local tax burdens and high levels of happiness. Her premise seems to be that people who pay relatively higher proportions of their income in taxes have less to spend on the things in life that make a person happy. There are three major flaws in her reasoning.
The first major flaw is that happiness flows from things that can be purchased. True, accumulation of material wealth and consumption ("vacations, hobbies, home improvements, eating out and child care," in Finley's words) can bring happiness. But there are many other things in life that bring happiness. One excellent example is the satisfaction that comes from helping others and pitching in, experiences that highlight the efforts of those engaged in volunteer work and community service. It may be that those who have not experienced the joy of giving mistake self-serving material acquisition and consumption as happiness. They don't know what they're missing.
The second major flaw is the assumption that correlation implies cause and effect. Finley acknowledges the danger of making that leap but notes that "but there's something going on here." My suggestion is that what contributes to unhappiness or lessens happiness is the frustration arising from watching politicians, namely legislators, executive branch officials, and even judges, fail to use taxes in ways that enhance quality of life for a wide swath of the population. Taxes are high in states that tend to have more need for public intervention. States are not equal in this respect. Consider several of the examples highlighted by Finley. She notes that unhappiness levels in California are high despite its presumably fine weather. Yet California's weather includes Santa Ana winds that fuel wildfires, mudslides triggered by the torrential rains that fall upon land left barren by those fires, earthquakes if I can be so bold as to include that phenomenon in the category of "weather," avalanches, snowstorms, droughts, and a wide variety of meteorological mishaps that belie the myth of California being a fair weather paradise. If those tribulations don't bring unhappiness, consider the position of California as a state that must absorb and deal with hundreds of thousands of immigrants, both legal and illegal, who arrive with almost nothing and put burdens on the state until such time, if at all, they become self-sufficient and contribute to the economic well-being of the state. The same challenge afflicts New York and New Jersey, two additional states to which Finley points in trying to persuade us that taxes cause unhappiness. A significant proportion of immigrants arriving on the East Coast end up in those two states. Wyoming, South Dakota, Nebraska, and Kansas don't face the sort of challenges faced by New York, New Jersey, California, and many of the other "high tax" states.
The third major flaw is that the correlation between high taxes and unhappiness advanced by Finley isn't borne out by the information available. Paul Caron's TaxProf post includes a chart that's worth examining. True, California, Connecticut, New York, and New Jersey score high in unhappiness and in taxes. But how does one explain Indiana and Michigan, which also score near the top in unhappiness but are average in terms of tax burden? Could it be that insufficient tax revenues contribute to the factors that generate the unhappiness? Or consider West Virginia, a state with a tax burden exceeded by 44 other states, yet only 34th in happiness. On the other side, yes, Louisiana ranks first in happiness, and has the next-to-lowest tax burden, but what about Hawaii, coming in second in the happiness scores, and yet having a tax burden higher than 36 other states? Tax burdens in Florida and Arizona are average, and yet they claim third and fifth place, respectively, in the happiness sweepstakes.
It's not the tax rate or tax burden per se that contributes to unhappiness. If tax dollars were used properly for the improvement of quality of life, happiness would increase. Perhaps there are lessons to be learned from studies, if those studies were to be undertaken, between levels of happiness among those contributing to charities that efficiently and properly use the contributions that they collect, and those who contribute to charities that misuse the funds that they raise. What's needed is some sort of corruption and inefficient government index that can be plotted against the tax rank and happiness score sequences.
Finley's premise suggests that if all taxes were repealed, happiness levels would approach infinity. I suggest the contrary. If all taxes were repealed, happiness levels would plummet to near zero. The flaw in the sort of analyses of which Finley's is one example, is that they plot data on a linear basis rather than a logarithmic or differential calculus basis. In other words, the relationship is best portrayed by U-shaped curves and not straight lines. Mathematics aside, perhaps imbuing the culture with a better sense of the meaning and worth of giving, in contrast to the greed of getting, would bring significant changes to the underlying information that Finley and others use in their anti-tax campaigns. Doing that would require a change in education processes and values. That's an issue that reaches far beyond taxes.
The tax angle is that Allysia Finley, the author of the Opinion article, concludes that there is a correlation between states with high state and local tax burdens and states with high levels of unhappiness, and a correlation between states with low state and local tax burdens and high levels of happiness. Her premise seems to be that people who pay relatively higher proportions of their income in taxes have less to spend on the things in life that make a person happy. There are three major flaws in her reasoning.
The first major flaw is that happiness flows from things that can be purchased. True, accumulation of material wealth and consumption ("vacations, hobbies, home improvements, eating out and child care," in Finley's words) can bring happiness. But there are many other things in life that bring happiness. One excellent example is the satisfaction that comes from helping others and pitching in, experiences that highlight the efforts of those engaged in volunteer work and community service. It may be that those who have not experienced the joy of giving mistake self-serving material acquisition and consumption as happiness. They don't know what they're missing.
The second major flaw is the assumption that correlation implies cause and effect. Finley acknowledges the danger of making that leap but notes that "but there's something going on here." My suggestion is that what contributes to unhappiness or lessens happiness is the frustration arising from watching politicians, namely legislators, executive branch officials, and even judges, fail to use taxes in ways that enhance quality of life for a wide swath of the population. Taxes are high in states that tend to have more need for public intervention. States are not equal in this respect. Consider several of the examples highlighted by Finley. She notes that unhappiness levels in California are high despite its presumably fine weather. Yet California's weather includes Santa Ana winds that fuel wildfires, mudslides triggered by the torrential rains that fall upon land left barren by those fires, earthquakes if I can be so bold as to include that phenomenon in the category of "weather," avalanches, snowstorms, droughts, and a wide variety of meteorological mishaps that belie the myth of California being a fair weather paradise. If those tribulations don't bring unhappiness, consider the position of California as a state that must absorb and deal with hundreds of thousands of immigrants, both legal and illegal, who arrive with almost nothing and put burdens on the state until such time, if at all, they become self-sufficient and contribute to the economic well-being of the state. The same challenge afflicts New York and New Jersey, two additional states to which Finley points in trying to persuade us that taxes cause unhappiness. A significant proportion of immigrants arriving on the East Coast end up in those two states. Wyoming, South Dakota, Nebraska, and Kansas don't face the sort of challenges faced by New York, New Jersey, California, and many of the other "high tax" states.
The third major flaw is that the correlation between high taxes and unhappiness advanced by Finley isn't borne out by the information available. Paul Caron's TaxProf post includes a chart that's worth examining. True, California, Connecticut, New York, and New Jersey score high in unhappiness and in taxes. But how does one explain Indiana and Michigan, which also score near the top in unhappiness but are average in terms of tax burden? Could it be that insufficient tax revenues contribute to the factors that generate the unhappiness? Or consider West Virginia, a state with a tax burden exceeded by 44 other states, yet only 34th in happiness. On the other side, yes, Louisiana ranks first in happiness, and has the next-to-lowest tax burden, but what about Hawaii, coming in second in the happiness scores, and yet having a tax burden higher than 36 other states? Tax burdens in Florida and Arizona are average, and yet they claim third and fifth place, respectively, in the happiness sweepstakes.
It's not the tax rate or tax burden per se that contributes to unhappiness. If tax dollars were used properly for the improvement of quality of life, happiness would increase. Perhaps there are lessons to be learned from studies, if those studies were to be undertaken, between levels of happiness among those contributing to charities that efficiently and properly use the contributions that they collect, and those who contribute to charities that misuse the funds that they raise. What's needed is some sort of corruption and inefficient government index that can be plotted against the tax rank and happiness score sequences.
Finley's premise suggests that if all taxes were repealed, happiness levels would approach infinity. I suggest the contrary. If all taxes were repealed, happiness levels would plummet to near zero. The flaw in the sort of analyses of which Finley's is one example, is that they plot data on a linear basis rather than a logarithmic or differential calculus basis. In other words, the relationship is best portrayed by U-shaped curves and not straight lines. Mathematics aside, perhaps imbuing the culture with a better sense of the meaning and worth of giving, in contrast to the greed of getting, would bring significant changes to the underlying information that Finley and others use in their anti-tax campaigns. Doing that would require a change in education processes and values. That's an issue that reaches far beyond taxes.
Wednesday, January 02, 2019
Tax Ignorance or Bad Writing?
A few days ago, reader Morris directed me to a web site and asked me, “tax ignorance or bad writing.” Curious, I took a look, and spotted several statements at least some of which had inspired reader Morris to send the note to me. Perhaps he saw other questionable statements that I overlooked. Here they are:
A related problem is the attempt to bunch losses and deductions with gains and income when trying to define income. A person does not “pay taxes on” capital gains and losses. A person must include capital gains in gross income. Capital losses can offset those gains in the process of computing taxable income. Taxes are not paid on capital losses. The same is true of rental expenses.
Nor is it correct to state that if a person receives a gift or inheritance, “calculating your taxable income can become more complex.” Gifts and inheritances are not included in gross income, and thus are not included in taxable income. They are left out of the process, so there is no way they can make the process of computing taxable income more complex. On a related note, the sudden shift into state inheritance taxes is confusing because inheritance taxes have nothing to do with the computation of federal taxable income.
The idea that a 401(k) plan is a type of income is bewildering. Distributions from 401(k) plans are what get considered in determing gross income. Do reimbursements for medical expenses come from life insurance, or do they come from health insurance?
The notion that “a good way to understand what you should report and what you don't need to is to think about earned income versus unearned income. If you earned it, report it as taxable income. If you didn't earn the income, you probably don't have to report it” is completely wrong. Earned income, in the federal income tax world, is income derived from performing services. Some earned income is included in gross income, and some earned income Is excluded from gross income. Unearned income refers to income from investments, and again, some unearned income is included in gross income and some unearned income is excluded from gross income.
I think what leads to the bad writing is the ever-increasing demand for sound bites and tweets, as Americans, and others, seem to be losing the ability to process multi-step analyses, to hear or read comprehensive descriptions, or to understand complete sets of instructions. This tendency to reduce things to overly simplistic sound bites and tweets nourishes the tendency of too many people to look at things as binary possibilities rather than as realities on a spectrum. The article to which reader Morris directed my attention can easily be fixed, but it would require the addition of at least several sentences, or perhaps two or three paragraphs. When the reaction becomes, “Oh, but readers won’t last that long,” I fear that the same could be said of everything else that depends on having attention spans of more than 15 seconds. The willingness to humor and enable those short attention spans leads to bad writing, which in turn increases ignorance, which in turn leads to more bad and erroneous writing, which in turn spirals us down, down, down, eventually into oblivion.
* * * For instance, if you receive money from life insurance proceeds, a gift or an inheritance, rather than work-related wages, calculating your taxable income can become more complex. * * *My conclusion is that we’re looking at some bad writing. The primary problem is the insistence on trying to define taxable income by listing items that are or are not included in GROSS income, which is not the same as taxable income. Deductions can offset some or all of a person’s gross income. So it is wrong to state that any particular amount of income is included in taxable income because it is premature to determine the impact of that income until deductions are taken into account.
* * *
The list of what type of revenue is taxable, according to the IRS, is long, but a good way to understand what you should report and what you don't need to is to think about earned income versus unearned income. If you earned it, report it as taxable income. If you didn't earn the income, you probably don't have to report it.
* * *
If you receive long-term disability benefits before you're retired, that's also considered taxable income. Union strike benefits are also taxable, as are jury duty fees. Unemployment benefits are also considered taxable income. So are royalties and license payments, interest or dividends from investments and severance pay from a previous place of employment. Even money you win from a game show is considered taxable income.
* * *
Here are some of the types of income categories that you must pay taxes on:
* * *
Capital gains and losses.
* * *
Rental income and expenses.
* * *
401(k) plans.
* * *
What is nontaxable income?
As a general rule, among what you don't have to report includes gifts and money you inherit, child support payments, welfare benefits, damage awards for physical injury or illness, cash rebates from a dealer or manufacturer for an item you purchase and reimbursements for qualified adoption expenses. Still, there are some exceptions. For instance, while you won't have to pay an inheritance tax on the federal level, six states – Iowa, Kentucky, Maryland, New Jersey, Nebraska and Pennsylvania – currently collect an inheritance tax. Inheriting property versus money can also sometimes involve paying taxes.
* * *
Here are some of the types of income categories that are not taxed:
* * *
Life insurance reimbursements for medical expenses not previously deducted.
* * *
A related problem is the attempt to bunch losses and deductions with gains and income when trying to define income. A person does not “pay taxes on” capital gains and losses. A person must include capital gains in gross income. Capital losses can offset those gains in the process of computing taxable income. Taxes are not paid on capital losses. The same is true of rental expenses.
Nor is it correct to state that if a person receives a gift or inheritance, “calculating your taxable income can become more complex.” Gifts and inheritances are not included in gross income, and thus are not included in taxable income. They are left out of the process, so there is no way they can make the process of computing taxable income more complex. On a related note, the sudden shift into state inheritance taxes is confusing because inheritance taxes have nothing to do with the computation of federal taxable income.
The idea that a 401(k) plan is a type of income is bewildering. Distributions from 401(k) plans are what get considered in determing gross income. Do reimbursements for medical expenses come from life insurance, or do they come from health insurance?
The notion that “a good way to understand what you should report and what you don't need to is to think about earned income versus unearned income. If you earned it, report it as taxable income. If you didn't earn the income, you probably don't have to report it” is completely wrong. Earned income, in the federal income tax world, is income derived from performing services. Some earned income is included in gross income, and some earned income Is excluded from gross income. Unearned income refers to income from investments, and again, some unearned income is included in gross income and some unearned income is excluded from gross income.
I think what leads to the bad writing is the ever-increasing demand for sound bites and tweets, as Americans, and others, seem to be losing the ability to process multi-step analyses, to hear or read comprehensive descriptions, or to understand complete sets of instructions. This tendency to reduce things to overly simplistic sound bites and tweets nourishes the tendency of too many people to look at things as binary possibilities rather than as realities on a spectrum. The article to which reader Morris directed my attention can easily be fixed, but it would require the addition of at least several sentences, or perhaps two or three paragraphs. When the reaction becomes, “Oh, but readers won’t last that long,” I fear that the same could be said of everything else that depends on having attention spans of more than 15 seconds. The willingness to humor and enable those short attention spans leads to bad writing, which in turn increases ignorance, which in turn leads to more bad and erroneous writing, which in turn spirals us down, down, down, eventually into oblivion.
Monday, January 17, 2011
A Whole New Take on Death and Taxes
The title of the post on Paul Caron’s TaxProf Blog froze my eyeballs in their tracks. It simply said, Pay Your Taxes or We’ll Kill Your Dog. Living in an area that has me rooting for a team whose starting quarterback had been sent to prison for doing such a thing, and having a friend who is very active in dog rescue work, I wondered, “To what could this possibly refer?” Surely, I thought to myself, this must be something going on in an undeveloped or developing nation, where the culture accepts this sort of threat. But, no, I was wrong.
According to the Time Magazine article cited by Paul, this “tax arrangement” exists in Switzerland. Switzerland! The municipal council of the town of Reconvilier, frustrated by increasing numbers of dog owners failing to pay the $48.50 dog ownership annual fee, announced that it would take steps to collect the unpaid taxes, including enforcement of a 1904 law permitting seizure and killing of dogs with respect to whom the tax has not been paid. What made matters worse is that the head of the council, in describing actions taken 30 years ago, stated, “A lethal injection is sentimentality. We took them to a knacker’s yard, shot them in the head, and it was done . . . Euthanasia is for humans, and in our era, we’re not going to dilute the truth.” In reaction to the not unexpected expressions of outrage and dumbfoundedness, the council head explained that the unpaid taxes could be paid in installments and that killing dogs would be an extreme and unlikely outcome. He added, “This isn’t about eliminating all the little doggies! We don’t even have an extermination worker – our police forces aren’t even armed!”
A reader of TaxProf Blog pointed out that there are jurisdictions within the United States that have similar laws on the books. A reader named “US Law” quoted section 19-20-2 of the West Virginia Code:
Though statutes providing for the killing of dogs with respect to whom their owners have not paid applicable taxes have been on the books for quite some time, there is something not only immoral but also illogical in the killing aspect of the remedy. If a person does not pay a vehicle registration fee, do states confiscate the vehicle and then send it to the car smashing machine at the junkyard? No, the state auctions the vehicle in an attempt to raise revenue. If a person does not pay real property taxes, the state or local government files a tax lien and eventually can end up owning the property. Does it burn down the house or other structures on the property? No, again, it sells the property at a tax sale. If a person fails to pay an occupation tax, the state might shut down the person’s business, but it doesn’t put the person on death row. If a person does not pay a per capita tax, does the local government cut off the person’s head? Hardly.
The only good thing to come out of the Switzerland story is that it makes people aware of something formerly unnoticed and might trigger movements to take these laws off the books. Sometimes, the best way to teach a lesson to others is to set a good example. Are you listening, state legislators?
According to the Time Magazine article cited by Paul, this “tax arrangement” exists in Switzerland. Switzerland! The municipal council of the town of Reconvilier, frustrated by increasing numbers of dog owners failing to pay the $48.50 dog ownership annual fee, announced that it would take steps to collect the unpaid taxes, including enforcement of a 1904 law permitting seizure and killing of dogs with respect to whom the tax has not been paid. What made matters worse is that the head of the council, in describing actions taken 30 years ago, stated, “A lethal injection is sentimentality. We took them to a knacker’s yard, shot them in the head, and it was done . . . Euthanasia is for humans, and in our era, we’re not going to dilute the truth.” In reaction to the not unexpected expressions of outrage and dumbfoundedness, the council head explained that the unpaid taxes could be paid in installments and that killing dogs would be an extreme and unlikely outcome. He added, “This isn’t about eliminating all the little doggies! We don’t even have an extermination worker – our police forces aren’t even armed!”
A reader of TaxProf Blog pointed out that there are jurisdictions within the United States that have similar laws on the books. A reader named “US Law” quoted section 19-20-2 of the West Virginia Code:
It shall be the duty of the county assessor and his or her deputies of each county within this state, at the time they are making assessment of the personal property within such county, to assess and collect a head tax of three dollars on each dog, male or female; and in addition to the above, the assessor and his or her deputies shall have the further duty of collecting any such head tax on dogs as may be levied by the ordinances of each and every municipality within the county. However, no head tax may be levied against any guide or support dog especially trained for the purpose of serving as a guide, leader, listener or support for a blind person, deaf person or a person who is physically or mentally disabled because of any neurological, muscular, skeletal or psychological disorder that causes weakness or inability to perform any function. Guide or support dogs must be registered as provided by this section. In the event that the owner, keeper or person having in his or her possession or allowing to remain on any premises under his or her control any dog above the age of six months, shall refuse or fail to pay such tax, when the same is assessed or within fifteen days thereafter, to the assessor or deputy assessor, then such assessor or deputy assessor shall certify such tax to the county dog warden; if there be no county dog warden he or she shall certify such tax to the county sheriff, who shall take charge of the dog for which the tax is delinquent and impound the same for a period of fifteen days, for which service he or she shall be allowed a fee of one dollar and fifty cents to be charged against such delinquent taxpayer in addition to the taxes herein provided for. In case the tax and impounding charge herein provided for shall not have been paid within the period of fifteen days, then the sheriff may sell the impounded dog and deduct the impounding charge and the delinquent tax from the amount received therefor, and return the balance, if any, to the delinquent taxpayer. Should the sheriff fail to sell the dog so impounded within the time specified herein, he or she shall kill such dog and dispose of its body.West Virginia is not alone with this tax enforcement approach. Under section 17-526 of the Nebraska Revised Statutes, the approach is similar:
Second-class cities and villages may, by ordinance entered at large on the proper journal or record of proceedings of such municipality, impose a license tax in an amount which shall be determined by the governing body of such second-class city or village for each dog or other animal, on the owners and harborers of dogs and other animals, and enforce the same by appropriate penalties, and cause the destruction of any dog or other animal, for which the owner or harborer shall refuse or neglect to pay such license tax.In Utah, section 10-8-65 of the Municipal Code states, “They may license, tax, regulate or prohibit the keeping of dogs, and authorize the destruction, sale or other disposal of the same when at large contrary to ordinance.” There probably are similar provisions in the statutes of other states. So before fingers are pointed at Switzerland, it would be prudent to engage in some self-examination of laws in the United States. There is something absurd about inflicting punishment on the dog, who hasn’t done anything wrong, rather than on the owner. Fortunately, there are some states that do not take out the tax nonpayment on the dog, but instead look to the imposition of fines on the deadbeat owner, at times classifying the failure to pay as a misdemeanor.
Though statutes providing for the killing of dogs with respect to whom their owners have not paid applicable taxes have been on the books for quite some time, there is something not only immoral but also illogical in the killing aspect of the remedy. If a person does not pay a vehicle registration fee, do states confiscate the vehicle and then send it to the car smashing machine at the junkyard? No, the state auctions the vehicle in an attempt to raise revenue. If a person does not pay real property taxes, the state or local government files a tax lien and eventually can end up owning the property. Does it burn down the house or other structures on the property? No, again, it sells the property at a tax sale. If a person fails to pay an occupation tax, the state might shut down the person’s business, but it doesn’t put the person on death row. If a person does not pay a per capita tax, does the local government cut off the person’s head? Hardly.
The only good thing to come out of the Switzerland story is that it makes people aware of something formerly unnoticed and might trigger movements to take these laws off the books. Sometimes, the best way to teach a lesson to others is to set a good example. Are you listening, state legislators?
Monday, September 27, 2004
Net Federal Spending by State: Correlations?
Today, Paul Caron's TaxProf blog carried an item analyzing net federal spending by state with the state's character as a "red state" (electoral votes won by Bush in 2000) or "blue state" (electoral votes won by Gore in 2000). Paul points out that of the 32 states (including D.C.) that benefit from net federal spending (more federal expenditures in state than are paid in federal taxes from the state), 76% are red states (17 of the 20 states with the highest net federal spending are red states). Paul also points out that of the 16 states that are are disadvantaged in terms of net federal spending (paying in more taxes than receiving in federal expenditures), 69% are blue states (11 of the 14 states with the highest net tax pay-in are blue states.
The net federal spending report, from the Tax Foundation points out that the net federal spending or net tax pay-in for a state is affected by political factors such as the power of the Congressional delegation from the state and the state's ability to finesse its spending to maximize federal funding, and non-political factors such as age (social security benefits), per capita income, and percentage of federal employees (D.C., Virgina, Maryland). I would add factors such as weather (hurricane relief to states such as Florida and Alabama), and federal land ownership (western states).
Though I haven't figured out how to post a colorful graphic as Paul has, here is a listing of all the states (and D.C.) along with the partisan composition of their Congressional delegations and the governorship (and the 2000 electoral vote). I'll let readers decide for themselves if there is a correlation with any of these characteristics:
Partisan composition data as of 2004 fromhttp://www.thegreenpapers.com/G04/composition.phtml
The net federal spending report, from the Tax Foundation points out that the net federal spending or net tax pay-in for a state is affected by political factors such as the power of the Congressional delegation from the state and the state's ability to finesse its spending to maximize federal funding, and non-political factors such as age (social security benefits), per capita income, and percentage of federal employees (D.C., Virgina, Maryland). I would add factors such as weather (hurricane relief to states such as Florida and Alabama), and federal land ownership (western states).
Though I haven't figured out how to post a colorful graphic as Paul has, here is a listing of all the states (and D.C.) along with the partisan composition of their Congressional delegations and the governorship (and the 2000 electoral vote). I'll let readers decide for themselves if there is a correlation with any of these characteristics:
| State | Fed Expenditures per Dollar of Taxes | House Delegation (D-R-I) | Senate Delegation (D-R-I) | Governorship | 2004 Presidential Vote |
| New Jersey | $0.62 | 7-6-0 | 2-0-0 | D | D |
| Connecticut | $0.64 | 2-3-0 | 2-0-0 | R | D |
| New Hampshire | $0.68 | 0-2-0 | 0-2-0 | R | R |
| Nevada | $0.73 | 1-2-0 | 1-1-0 | R | R |
| Illinois | $0.77 | 9-10-0 | 1-1-0 | D | D |
| Minnesota | $0.77 | 4-4-0 | 1-1-0 | R | D |
| Massachusetts | $0.79 | 10-0-0 | 2-0-0 | R | D |
| Colorado | $0.79 | 2-5-0 | 0-2-0 | R | R |
| California | $0.81 | 33-20-0 | 0-2-0 | R | D |
| New York | $0.81 | 19-10-0 | 2-0-0 | R | D |
| Delaware | $0.85 | 0-1-0 | 2-0-0 | D | D |
| Wisconsin | $0.87 | 4-4-0 | 2-0-0 | D | D |
| Michigan | $0.90 | 6-9-0 | 2-0-0 | D | D |
| Washington | $0.91 | 6-3-0 | 2-0-0 | D | D |
| Texas | $0.92 | 16-16-0 | 0-2-0 | R | R |
| Indiana | $0.99 | 3-6-0 | 1-1-0 | D | R |
| Oregon | $1.00 | 4-1-0 | 1-1-0 | D | D |
| Florida | $1.00 | 7-17-0* | 2-0-0 | R | R |
| Georgia | $1.01 | 5-8-0 | 1-1-0 | R | R |
| Ohio | $1.02 | 6-12-0 | 0-2-0 | R | R |
| Wyoming | $1.05 | 0-1-0 | 0-2-0 | D | R |
| Rhode Island | $1.06 | 2-0-0 | 1-1-0 | R | D |
| North Carolina | $1.07 | 6-7-0 | 1-1-0 | D | R |
| Pennsylvania | $1.08 | 7-12-0 | 0-2-0 | D | D |
| Vermont | $1.12 | 0-0-1 | 1-0-1 | R | D |
| Utah | $1.14 | 1-2-0 | 0-2-0 | R | R |
| Kansas | $1.14 | 1-3-0 | 0-2-0 | D | R |
| Nebraska | $1.19 | 0-2-0* | 1-1-0 | R | R |
| Arizona | $1.20 | 2-6-0 | 0-2-0 | D | R |
| Maryland | $1.20 | 6-2-0 | 2-0-0 | R | D |
| Iowa | $1.22 | 1-4-0 | 1-1-0 | D | D |
| Tennessee | $1.24 | 5-4-0 | 0-2-0 | D | R |
| Maine | $1.31 | 2-0-0 | 0-2-0 | D | D |
| Missouri | $1.32 | 4-5-0 | 0-2-0 | D | R |
| South Carolina | $1.32 | 2-4-0 | 1-1-0 | R | R |
| Idaho | $1.34 | 0-2-0 | 0-2-0 | R | R |
| Louisiana | $1.44 | 2-5-0 | 2-0-0 | D | R |
| Kentucky | $1.46 | 2-4-0 | 0-2-0 | R | R |
| Oklahoma | $1.47 | 1-4-0 | 0-2-0 | D | R |
| Virginia | $1.47 | 3-8-0 | 0-2-0 | D | R |
| Hawaii | $1.52 | 2-0-0 | 2-0-0 | R | D |
| Arkansas | $1.53 | 3-1-0 | 2-0-0 | R | R |
| South Dakota | $1.59 | 1-0-0 | 2-0-0 | R | R |
| Alabama | $1.61 | 2-5-0 | 0-2-0 | R | R |
| Montana | $1.64 | 0-1-0 | 1-1-0 | R | R |
| West Virginia | $1.74 | 2-1-0 | 2-0-0 | D | R |
| Alaska | $1.82 | 0-1-0 | 0-2-0 | R | R |
| Mississippi | $1.84 | 2-2-0 | 0-2-0 | R | R |
| New Mexico | $1.89 | 1-2-0 | 1-1-0 | D | D |
| North Dakota | $2.03 | 1-0-0 | 2-0-0 | R | R |
| District of Columbia | $6.17 | n/a | n/a | n/a | D |
Spending data for 2002 from http://www.taxfoundation.org/ff/taxingspendingupdate.html
* 1 vacancy
