MauledAgain

Having shared my thoughts about the relationships among employment, outsourcing and tax policy, it's time to explain what's going on with outsourcing in the world of tax return preparation.

The facts are fairly simple. U.S. tax return preparation businesses are sending tax returns overseas for preparation. The numbers are in the tens of thousands and by next year are expected to reach into the hundreds of thousands.

The matter is starting to get attention. This is good because there are some serious issues involved. But first, some more background.

1. Why is this happening? Simple. It's cheaper. The hourly rates paid to tax return preparers in India (which is where most, if not all, of the returns are going) are far less than those paid to tax return preparers in the U.S.

2. How would preparers in India know how to do a U.S. or a state income tax return? They take a 12-week crash course. Most presumably already read and write English, although the tax stuff is its own language so there's still a hurdle.

So what's the big deal?

Big Issue Number One: The U.S. professional hired to do the return is shipping the taxpayer-client's financial information over the Internet to people in another country. The U.S. professionals THINK they have control over the data, but we all know what hackers can do. We all know about the password on a post-it stuck onto the monitor. We all know about unscrupulous people leaking information. We all know that privacy isn't valued in the same way in all places. Do you want YOUR financial data AND YOUR SOCIAL SECURITY NUMBER and a whole bunch of other stuff making theft of your identify easy going to some place you've not been? What ever happened to dealing with the trusted, known, in-town professional? We can thank the new-world-order-corporate culture for this one. The dollar rules, and no slowing down for whomever is hurt in the stampede to the almighty dollar.

Big Issue Number Two: It's bad enough "they" do this. It's worse that they don't tell their clients. Should not clients have the right to say "if you are sending this overseas I will take my business elsewhere?" Of course. But the professionals who are doing this know that they'd lose their clientele if they disclosed what they were doing, so they don't let on. Don't they realize the mess they will be in the first time someone suffers identity theft or bank account clean-out because of this tax return preparation outsourcing? When the lawyers line up to take these cases, I'm sure the "we hate lawyers" crowd will start jeering. The lawyers wouldn't be needed if some decent ethics were being practiced.

Big Issue Number Three: Before the net is cast wide over all tax return preparers, be aware that many of them do NOT like the outsourcing idea and do not outsource. Good for them. They are motivated by a longer-term perspective that gives credit to the idea that one needs to look past the end of the short-term dollar. What's being outsourced are the "easy" or "easier" returns. The tough, complicated ones aren't being outsourced, in part because what's needed to do those returns can't be taught in the crash course. Eventually, the tax return preparers here in the U.S. doing the complex returns will move on, to retirement, to other professions, or to the next life. Traditionally, their replacements "moved up the ladder" from the ranks of those who were doing the easy and not so complicated returns. But if the outsourcing trend continues, there won't be anyone in the ranks. Then what? The ones who made the quick buck from outsourcing will also be retired, and our children and grandchildren will have not only the federal budget deficit mess to clean up but this mess, too.

These aren't the only issues. There is an issue of whether it is good national security policy to outsource, particularly tax returns. (The outsourcing of military parts manufacture and the non-existence of the tool and die industry in this country, and the effect on the nation's ability to defend itself in war, is yet another topic, one that I will leave to others.) There is an issue of whether business decisions should be made solely in reference to the bottom-line. There is an issue of whether the bottom-line is today's bottom-line or the long-term bottom-line. There is an issue of whether abuse of freedom (from government regulation) --- which some say sparked some of these problems --- will bring the usual counter-reactive suppression of such freedom, that is, a surge in government regulation. From the fire to the frying pan.

All of these issues, big and not so big, are issues that need to be discussed. This is particularly so in an election year. Sound bites don't work. The citizenry needs to be educated. A good start is disclosure.

SO: WHEN YOU TAKE YOUR TAX RETURN TO SOMEONE FOR PREPARATION, ASK THEM FOR A GUARANTEE IN WRITING, SIGNED, THAT THEY ARE NOT SHIPPING YOUR FINANCIAL AND OTHER INFORMATION TO AN OUTSOURCED SERVICE. Unless, of course, you don't care. I hope that you do.

It's one of those aha moments. Listening to a report on the local news radio that job increases in February were a fraction of what was expected but that the economy is booming, an inconsistency that some attribute to outsourcing, "it" suddenly made sense. Of course if the economy is booming and the jobs fueling the boom and being fueled by the boom are overseas, then domestic job growth will be very small.

The solution? Well, people can run around and blame the current President, but he's not the one firing people and moving jobs abroad. Is it the Congress? Maybe. The trend began in the 90s but no one seems to want to say anything about the past president (not that he fired anyone, either).

Enough of the blame searching. It accomplishes nothing. How about a solution?

Tax cuts have been advertised as good for the economy. Well, they have been. But the tax cuts have NOT been good for job creation (even though the current president so claims). So, the answer is to tailor the tax cuts to job creation. I'm not talking about those nickel and dime employment credits. I'm talking about job location.

So, let's simply deny deductions for compensation paid to outsource workers and independent contractors who aren't domestic enterprises. No deduction for creating jobs elsewhere. Unless the unemployment rate falls to the natural 1% baseline (there always will be unemployment at that level because of people quitting jobs, small employers dying, etc.) If the jobs are funded through foreign subsidiaries, require the American taxpayer owner of the foreign subsidiary to pay tax on the subsidiary's income, whether or not distributed to the American owner, and computed without deductions for compensation and related expenses.

Maybe THAT will send a message to the overpaid corporate executives, namely, you were given tax cuts not to pad your bottom line and increase your own pay but to give our citizens an opportunity to work.

To the argument that the jobs must be outsourced overseas because there are insufficient numbers of skilled workers in this country, employers can be allowed a deduction for the expense of training and re-training employees, whether on-site or through payments to educational institutions.

To the argument that the proposal ignores the globalization of the economy, the response is that the tax law ought not encourage the payment of poverty wages to folks in underdeveloped countries. To mollify the advocates of the global economy argument, perhaps a deduction can be allowed for outsourcing costs that include American level wages paid to workers in other countries. Guaranteed no employer is going to find that an attractive option. And that will demonstrate what this outsourcing is all about. Greed.

And to the Presidential candidates (all 4 or 5 of you): let's see if you pick up on this idea and do something positive with it rather than sniping at each other. The nation deserves better than mere blame casting.

They say March comes in like a lion and leaves like a lamb. Weatherwise, that is. Didn't happen this year. The past few days have been several months "ahead of time" (making up for a miserably cold global warming winter).

But the entrance of March has brought a flood of tax stories. The newpapers continue to grind out infomation. And April 15 is still more than 40 days away.

Story Number One

A federal court issued an injunction against Daniel Gleason, a fellow who was selling a "Tax Toolbox"... one of those "yes, if it's too good to be true it isn't" tax evasion blueprints that claim numerous gullible victims each year. The court also permanently barred Gleason from falsely claiming he is a lawyer. Gee, the law already prohibits people from doing that but apparently Gleason needed to have it put to him personally. Gleason also falsely represented he was an adjunct professor of business law and federal taxation, and an author, editor and reviewer of articles for Newsweek magazine. Yep, the Court told him to stop making those statements. I wonder if he will comply.

He also guaranteed his tax return preparation customers that they would receive tax refunds. But Federal law specifically prohibits tax return preparers from making such guarantees. That law didn't stop Gleason. So the court required Gleason and his sales associates to post a copy of the injunction on their websites for a year. Why a year? Why not forever? A year from now it will still be illegal for him to make these false representations. The court also required Gleason to notify his customers about the injunction and to give the Justice Department, within 14 days, records identifying those customers. I'd like to see the letter he sends to his customers.

More info: The Gleason case

Story Number Two

The Philadelphia Inquirer did a write-up on the "stealth tax" which is what people are calling the Alternative Minimum Tax (AMT). The AMT was designed to make certain wealthy taxpayers did not avoid income taxation by using tax benefits available generally only to the wealthy. But because the dollar amount used to identify "wealthy taxpayers" isn't adjusted for inflation, more and more taxpayers are becoming subject to this tax. Not wealthy taxpayers. Middle-class taxpayers. Taxpayers who are surprised to find out that there is this parallel income tax system. That sneaks up on them. Hence the use of the term "stealth."

Much has been written about the AMT. Much more will be written, because by the end of the decade tens of millions of taxpayers will be caught in the AMT trap. Pressure is mounting to fix the problem but the revenue cost is very high. It's about 60 billion dollars, the amount of tax revenue reportedly lost on account of the reduction of dividend taxation to 15 percent.

Anyhow, the real problem is that the AMT is a symptom. Good physicians remediate symptoms so that they can CURE the disease. If the disease is curable. This particular tax disease IS curable. Fix the income tax system the way it ought to be fixed and there is no need for an AMT.

Right now it's all smoke and mirrors. Some people apparently prefer that it remain that way. I don't.

Story Number Three

This isn't from the newspapers. It's from a discussion on the ABA Tax Section list serve.

Someone posted a question asking how people in practice were complying with the requirements of section 751(a), a complicated provision that applies to sales of partnership interests and that is designed to separate capital gains from ordinary income. Capital gains are generally taxed at lower rates than is ordinary income. The person asking the question pointed out that in order to comply, one needs a valuation of each of the partnership's assets and not just the partnership interest generally, and that the information wasn't readily available. So I replied:

The tax law requires that there be a valuation of the partnership assets when there is a transfer that is a sale for tax purposes. Identifying the person who bears the cost of the effort to value the assets is a matter for the parties. Ideally, the question was addressed in the partnership or LLC agreement. Ideally. Additionally, the agreement would have a provision giving the partner the right to have the requisite information provided (rather than relying on an implicit reading of the state law right to access the partnership books).

So I'd check the agreement to see what's in it on this matter. Alternatively, if that doesn't resolve the problem, then I'd approach the managing partner and explain that it's better to get this done than to have the transferor partner attach a statement to her return that says "section 751(a) possibly applicable but partnership has not (or will not) provide the information." Guaranteed, any sensible managing partner will get the valuation breakdown that is needed. It's cheaper than having the IRS do it.

I remain curious as to what is, in fact, going on in practice outside of the world in which my students and grads circulate.

One subscriber replied that the biggest problem in tax law isn't "the interpretation or understanding of the law but establishing to factual information to apply the law."

I replied:

Indeed. I keep stressing to my students that getting the facts (accurately, fully, and without surprises) is the tough part. Once the facts are known, ascertaining the law is usually easy (aside from a few splits of authority and a few "no answer" situations). Just got off the phone with a friend who had a question but within three sentences we realized that we didn't know the facts. I'm sure the phone will be ringing again. :-)

And that's part of the mess that the federal (and state) income tax law creates. It reflects a huge amount of micro-managed social engineering, so it requires taxpayers to keep track of all sorts of things that ordinarily would not be tracked. The non-tax business world has a market that lets someone sell a partnership interest, but the tax law then imposes an additional time and money burden by requiring the taxpayer to get valuations of each asset of the partnership. If we go back to my toll bridge comparison, imagine if the toll required the driver and passengers to keep track of the number of times each person in the car had yawned during the preceding 10 miles or 20 minutes of driving, whichever was less, but reduced by 28.5 percent if the driver and passengers had not had coffee at any time during the past 45 minutes other than coffee purchased at places more than 8 miles or 12 minutes driving time, whichever less, from the road with most direct access to the brider. If my example seems bizarre, it is, but it's the way "they" write tax laws.

Another subscriber pointed out that the obscure provisions in the tax law have the strange effect of penalizing the taxpayer who pays professional fees to locate those provisions and to determine whether they apply to the taxpayer (they often don't) whereas the taxpayer who doesn't know about the obscure provision and whose tax advisor doesn't check for them has a lower cost of complying with the law, except in the not-so-common situation in which the obscure provision applies to that taxpayer. Does anyone in Congress do his or her own tax return? If any member of Congress or staff aide is reading this, and you know that the member of Congress does, let me know. I'll do a nice write-up, bi-partisan approach. Imagine "I do my own tax return" as a campaign slogan. [need those hahaha graphic emoticons and haven't figured out yet how to put them in here.]

Story Number Four

Again, not a recent newspaper story but a tangent spinning from the previous discussion. I pointed out that one solution is to divide partnerships into tax shelters and not tax shelters, and to subject the tax shelters to the complex provisions designed to prevent abuse and to let the not tax shelters file taxes in compliance with simpler tax laws. That approach could be used with taxpayers generally, and though Congress and the IRS claim that it is (pointing out, for example, that people can use 1040-EZ (isn't that a great name for a tax form? haha)), the truth is that the previously mentioned AMT attacks taxpayers from one side, and the earned income tax credit, designed to assist low income taxpayers, creates a complex tax return preparation mess for low-income taxpayers. Nothing is EZ, really.

I also pointed out that eliminating the lower tax rates for capital gains would cut the tax law size down significantly and simplify things. To the advocates of low tax rates for capital gains who argue that part of the gain is inflation and ought not be taxed, I suggested indexing basis in the asset for inflation, as is done with many other provisions in the tax code. That suggestion brought a response that unless debt and other things also were indexed there would be possibilities for abuse.

Of course. I'd rather have indexing, where computers can multiply numbers by an index such as 1.015 than to chew up time and money deciding if a taxpayer's intent and behavior were such as to make a piece of real property inventory (ordinary income) or an investment (capital gain). Computers can't resolve the subjective stuff, yet. Back we are at the "it's the determination of the facts that makes some things in tax law so complex" argument that makes so much sense. If we don't need to know where the coffee was purchased and how many times we yawned, we're across that toll bridge in a jiffy. So we can get to the business of living.

Later I'll explore the capital gains preference and the indexing question. For now, I just wanted to include it in the roar of the March tax lion. Or is that tax lying? Or tax march? Or tax parade? (Years ago, Commerce Clearing House issued its weekly tax news updates in something called "Taxes on Parade." Try arranging one of THOSE in your hometown!)

Story Number Five

Last, but not least, is a report about the impact of the reduced tax rate on dividends. Several researchers decided to examine the facts concerning dividend payouts, and to determine if taxing dividends at the same rates as interest, wages, and lottery winnings unfavorably restricted dividend payouts. So Jennifer L. Blouin, Jana Smith Raedy, and Douglas A. Shackelford issued "Did Dividends Increase Immediately After the 2003 Reduction in Tax Rates?" This is an NBER Working Paper 10301, Feb. 2004, which you can read here.

The authors learned that dividend payouts by public companies increased a bit in the first quarter after the tax rate on dividends was reduced, but that this happened mostly in companies owned primarily by individuals. And most of the increases were special dividends rather than increases in the routine quarterly dividend. Only 17 companies (SEVENTEEN!) meaningfully increased dividend payouts.

Another story, in the National Journal's February 28, 2004 issue ("Dividend Tax Cut Benefits Only a Few") explained that among the 17 companies was Iomega, which although earning $5 million during the first 9 months of 2003, paid out $257 million in special dividends. How? Well, Iomega had done well before the dot.com technology nose-dive in 2000, and it had stashed about $500 million in offshore accounts to avoid taxes. Once the rate on dividends was reduced, Iomega pulled half of its cash reserves out and moved them to the shareholders at the low rates.

My question is whether having the shareholders spend or invest the $257 million is better for the economy than having Iomega spend or invest it. And that's the question to which there is no clear answer, as discussed in some earlier posts. Considering that the shareholders of Iomega are the ones who would be deciding what Iomega would do with the money, it's not a case simply of moving the decision making from an corporation to individuals (even if one accepts that corporations are "impersonal" whatever that means).

Another question is simply, if it's good to reduce the taxes on the $257 million, then isn't it just as good to reduce taxes on wages and interest income? Of course, if that happens and government spending doesn't get reduced, there are huge deficits, which are, of course, tax increases in their own strange way. Shouldn't the process be (1) how much must we or are we willing to spend? (2) how much tax revenue is needed to do that? (3) how is the tax burden allocated among the taxpayers? Perhaps (2a) can be added: how much tax are taxpayers willing to pay? If the answer is "not as much as is being spent" then cut the budget. Here comes a theology connection: Many churches (mine included) set preliminary budgets (through elected boards, committees or the like) and then go to the membership seeking pledges. Once pledges are tallied (and estimates made for pledges not yet returned), then the budget is re-examined. The idea that "we should spend $5x while pledging $2x" is tough to sell. But that's what politicians try to sell to the voters. Many voters are taxpayers, and (too) many taxpayers do not vote. That's another disconnect that doesn't work well in post-modern corporate America. Another topic for another day.

How will all of this play out in November? Not well. It can't be reduced to a soundbite (oh, they'll try, but they'll give us nice-sounding but substantively misleading and erroneous quips). It requires study. It forces us to look seriously at the "I want the government to provide the following [fill in your favorites from the incomplete list of jobs, health, safety, highways, education, etc.] but I want taxes to be decreased." Spin all we want, and apply post-modern thought, yet 2 plus 3 equals 5. At least it does in the world of dollars. Disagree? Hand three one-dollar bills to a sales clerk for a $5 purchase. See what happens. :-)

My thanks to Prof. Evelyn Brody for bringing these two reports to my attention.

Well, don't let the tax lion get you before it gets chased out by the tax lamb. More, later.

One of the intended consequences of this blog is to plant ideas and energize discussion. To that extent, this blog is beginning to succeed. Word is getting out. One person wrote "A friend sent me your web site address." Now there's the start of five minutes of fame!! [Eventually I'll figure out how to put a pictorial emoticon in here, showing a laugh]. I've had comments from several folks, which I will share.

Note: I play it safe and identify people if they so request. Please do let me know whether you want the publicity or prefer the anonymity. Far better to go back and add a name than to try the impossible task of removing one!!

Ron Feinman shared this:

"I liked your analysis of the "spin" on the respending of the taxes by the taxpayer for dividends.

"I wonder what would happen if you included in your analysis a comparison with what happens to those tax dollars if the tax cut isn't implemented -- i.e they stay with the government and 100% are spent immediately.

"No matter what the velocity of money, the government spending produces more stimulus and (according to your spiral) more tax dollars.

"Of course you might note the savings rate (I suggest it's higher for the wealthy) provides a drain on the money to be spent from the tax savings. That is the government spends 100% of its tax dollars and the rich save a portion creating less flow."

Good questions. Ultimately it comes down to this: is it better for a given amount of money to be paid in taxes and spent by the government or to be left with citizens and spent by them? The answer is one of those "it depends" musings. The existence and size of the deficit is a factor. The nature of the spending matters; for example, in time of war the government can and must spend for the sort of goods and services that citizens generally cannot purchase. (Well, in recent years a lot of military hardware is out there for purchase, but it's illegal, and anyhow, last I looked, there weren't any aircraft carriers on e-bay. Yet. Groan.) Lastly, there is an issue of efficiency, that is, does the private sector get more for its dollar when it spends a dollar than does the federal government? New reports and anecdotes suggest, yes, that the dollar spent in the private sector is more efficient and has a greater impact on gross domestic product. But that doesn't answer the question.

The original question arose when I pondered how tax cuts could increase federal revenue. Clearly tax increases increase federal revenue. If tax cuts also increase federal revenue, then increases in federal revenue are unavoidable. Hmmm. Of course, the federal government, as the writer points out, doesn't appear to save or invest so it pumps more back into the economy than would the citizen retaining and spending what otherwise would be a tax payment. I'm unsure about this proposition. For one thing, the government does invest. It purchases and builds assets, such as buildings, military bases, equipment, and other long-term assets. For another, when a citizen invests (saves), it generates interest income, which is taxed (whereas interest payments aren't always deductible), which has a net increase effect on federal revenue. The investment, in turn, provides resources for others, for example, a business that borrows (uses the citizen's investment with the bank) in turn pays a salary that is taxed, or pays for supplies that enter into the taxable income computation of the vendor.

With all these variables, is it any wonder that different "parts" of the government reached such contrasting conclusions about the impact of cutting taxes?

Another writer pointed out that the deficit itself is a "hidden tax" that causes the value of the dollar to drop against foreign currency. This writer wondered if he was the only one considering this aspect of the economy. He's right, I surely didn't factor it into the equation. Living abroad, this writer is very aware of how the drop in dollar value diminishes the value of his income but yet causes an increase in the value (in dollars) of his assets. There's a long-term consequence sitting here, as he points out, and I join him in wondering if anyone in the Congress or Administration is studying the matter.

A third writer wrote "An interesting topic might be to review the subject of existing generation skipping trusts. I believe in the late 60's new trusts were banned but existing trusts were allowed to remain. Some will be in existence for perhaps another 100 or more years. In the debate about estate taxes it seems only fair to propose to eliminate immediately this shelter and perhaps tax the assets at the tax rate now in existence. Senators such as Ted Kennedy seem quite willing to tax others as long as they can retain their own exemption for taxes they believe are fair for others. "

Indeed, it is an interesting topic. Onto the "to write about" list it goes. Funny, I had some concern I'd not have enough ideas to keep this blog going, but I need not have worried. My brain, the growing number of tax stories in the newspapers (an AMT article today), and now ideas from visitors will keep the selection large and rich. Well, not THAT kind of rich, ha ha. Seriously, there is something unsettling about the "grandfathered" trusts, especially because a few years ago Congress did not hesitate to make some tax increases retroactive even though taxpayers who had died were denied any chance to restructure their tax planning to take the tax increases into account. Let me ponder this for a while. As they say, I'll get back to you.

Finally, yet another writer simply said, "Excellent blog -- taxation with a little humor." Thanks. I try. I teach this stuff. If it weren't for the humor, the course would be intolerable. OK, sometimes the humor gets a bit crazy, but it works for most students. Here's an example: Students have "spring" break this week, and I reminded them it's a good time to review, assimilate, and get a handle on things so that they can dig in during the second half of the semester. Knowing that many are heading out for a week of vacation, I urged them to take their tax books. "You just don't know who will sit next to you on the plane, or on the beach, look over at what you are reading, and decide to strike up a conversation. Surely you won't be at a loss for words and it will be easy to chat. After all, tax is tough to resist." Coming next: "How to Meet People By Reading and Doing Taxes" soon at amazon.books.com. Here I REALLY do need an emoticon with a look of "you're kidding, right?" Yes. Rest easy. No pick up books from me.

Thanks to all who wrote.

From James Howard, a tax professional who is a ABA-TAX list colleague:

"I scanned today's blog and believe there's another alternative for social security. It's not an obvious one, and it's probably not even reasonable, but one I thought of in a discussion of tax lawyers yesterday. Everyone hates the estate tax, right? [So let's] repeal the estate tax when social security is fully funded. In the interim, remove estate tax revenue from the general revenue and apply all receipts to funding social security benefits. Isn't the whole concept of the estate tax a redistribution of wealth? If the estate tax goes into general revenue to pay government expenses, such as contract obligations, is there really a redistribution? Put that money in social security and you have an immediate and direct redistribution."

"Probably will never get any traction, because the Rep's won't defer on the tax repeal for that long and the Dem's won't tolerate the loss of receipts. But as a policy matter, it accomplishes 2 goals, elimination
of the estate tax and shoring up social security. With 3-4% of the gross revenue being added to social security, I think you could get to a level of full funding pretty quick."

This is an interesting idea. It can be categorized as a "challenge": Look, Congress, if you're serious about not letting Social Security wither and shrink, it has to be funded. It's primarily an income/wealth redistribution arrangement, so where's a good place to get the funds? The estate tax. If you're willing to make the repeal of the estate tax permanent, then make that repeal conditioned on funding social security the way you require private employers to fund pensions. No more pay as you go. Can you do that, Congress? Can you show the citizens that you're serious about this?"

Sadly, I agree that the chances of this happening aren't high. That's too bad. Goodness, at the moment I'd go for a high chance of it being discussed and made visible. That's what blogs are for (at least if anyone from Capital Hill is reading this). Thanks, James Howard, for an idea that wasn't in my head but that has found a nice place there not too far from the fire.

Now if I can figure out how to set up a poll like they have on the cable news websites.... :-)

Six stories on the front page of the Philadelphia business section and THREE are about taxes.

One of the stories is a followup on the Pennsylvania tax breaks for profitable companies and their owners who apparently cannot build or rent office space in Philadelphia without taxpayer assistance. I've already written about this, but some new news: (1) we can see a few more names of persons who would benefit or who already are getting the tax break, (2) proposals are being made to limit the tax breaks to persons who actually generate new jobs, and (3) the chairman of one company getting benefits said it was "offensive" to call the tax breaks a result of cronyism. OK, well, you didn't see that charge here. Cronies or not, a bad thing is a bad thing.

The second story describes IRS intentions of getting tough on "high risk tax evaders." Who's the target? This group:

wealthy people hiding income. (They wouldn't do that now, would they? haha)

tax professionals inventing questionable tax shelters (a profession in and of itself these days)

people mis-using charitable tax-exempt status (is nothing sacred?)

people hiding income off-shore (wouldn't it be annoying if they asked for military assistance to retrieve their hidden funds?)

Let's have some fun. Here's a list of the sort of stuff the tax evaders get into (and note that no one would do any of this but for the saving of taxes with schemes that aren't economically feasible other than the tax evasion and avoidance effect): In the area of reducing taxable gain, they use arrangements with names like Tempest, InsureCo, Basis Importation, 79-21, BLAST, B-FLIP, Asset Monetization/Asset Protection (Triple By-Pass), 501(c)(15) Co., LADD, Leveraged Disposition, Othello, Prepaid Lease, Mixing Bowl, Enhanced Mixing Bowl, CPLS II, Basis Leap, Busted 351, Venture Capital Planning, Leveraged 704(c), PIF, SC2 Gain Mitigator, and PERX. To avoid or evade taxes in the international arena, they resort to things with names like U.S. Withholding Tax Eliminator, A&M Base Shifting, Alhambra, Pathfinder, and Short Option. To jack up losses and deductions, there's CCB, 172(f), Mitigation, 382, FEIGHT, CLC, Dot-Bomb-Monetization, and PALS (partnership allocating loss strategy) -- Income Absorption. Or how about Insureco, 501(c)(15) Captive, PINSCO (Personal Insurance Company), Captive Tune-Up, 21% Solution, WITS, E Replacement (WITS for Homebuilders), and Employee Benefits Captive? They take S corporations and use them for what they weren't intended to do, with things like SC2, SC2 Variation #1, SC2 Gain Mitigation, SC2 CLAS, S-corp Basis Enhancer, and SC2 Redemption Strategy. And then there's the finance and leasing stuff: AF-EXO (Alternative Financing for Exempt Organizations), Dot-Bomb-Monetization, Enhanced Venture Leasing, Inbound Cross Border Leasing, LIFT, PERX, PIF (Partnership Investment and Financing Structure), SLOTS (Sale Leaseback of Tenant Improvements), TAT. Or they go the accounting strategy route, with Bad Debt Reserve Acceleration Strategies, Inventory Methods Review, Contested Liability Acceleration Strategy, California Franchise Tax Acceleration, MEALS, Acceleration of Prepaid Expenses, Service Company Strategy, and IBNR: Incurred But Not Reported. These things sound like Pentagon weaponry, cleaning products, and video games. But it's no game. The last one says it all: "incurred but not reported." The last time I jumped on tax avoiders (namely, the tax protest crowd), I got all sorts of email from people who had fancy ways of telling me I was wrong to criticize them for wanting a free ride from the rest of us.

Who creates this stuff? To paraphrase Cal Johnson, who teaches tax law at Texas, it's a bunch of very bright people paid big bucks to outsmart IRS employees. The IRS, not permitted nor funded to pay big bucks, can't compete. The IRS is being out-brained. And it's being out-numbered.

So, the IRS wants more money to do this enforcement. They're asking a Congress that annually REDUCES the IRS budget. What fools. There has been a cadre of politicians who earn votes by running for election and re-election on an anti-IRS platform. It plays well to the crowds who don't realize that they're being persuaded to vote for someone whose chopping of the IRS ultimately will shift the tax burden from the tax cheats to these voters. Except that polls show a majority of Americans are willing to cheat on their taxes. Big surprise. Honesty isn't exactly king (or queen) in this nation anymore (and no political party is free of responsibility).

During the past 8 years, the number of IRS revenue officers is down 27%, the number of special agents (who investigate criminal tax fraud), down 13%, and the "tax gap" is officially $311 billion. Unofficially it's surely twice that or more. Budget deficits? Why blame enacted tax cuts when most of the deficit arises from "self-appointed tax cuts." How do you react to the idea of paying a higher bridge toll to offset bridge toll losses from people driving through the EZPass lane without paying, while the bridge revenue authority fires all its toll takers and police officers? Well, that's where things have been headed. What's really outrageous is that the IRS bashing that led to the funding cuts were orchestrated by hearings at which witnesses presented what is now admitted to be fraudulent testimony about alleged IRS abusive treatment of taxpayers. Not only did most of the stuff not happen, but there are clowns in Congress who think it is abusive for the IRS to send a letter to someone who owes taxes and to ask for payment. How DARE they ask someone to pay a bridge toll? Amazing.

And that brings us to the third story. Alan Greenspan once again is predicting (correctly) that the Social Security and Medicare/Medicaid system funds are going to go broke. Well, they can't go broke they way you and I can, because the government can print more dollars or borrow money to meet the obligations, but the problem is that the amounts going OUT of these funds is going to exceed the amounts coming IN by a lot. A WHOLE LOT. Right now the value of the amount due to recipients under current law is FOURTEEN TRILLION DOLLARS. And the value of what is available now plus what is scheduled to come in is a mere THREE AND A HALF TRILLION DOLLARS. The shortfall? TEN AND ONE HALF TRILLION DOLLARS. Put that in perspective. People are (rightly) worried about a quarter to half trillion dollar federal deficit.

So what happens?

1. If the government prints money, it will generate inflation. Retirees and other recipients of these programs will demand cost of living adjustments. Inflation also stagnates the economy (were you there in the late 70s? Do you remember 18% home mortgage interest rates? I do.) Long-term, very bad move.

2. If the government borrows money, it increases the federal deficit. It put pressure on the capital markets. Interest rates increase. It becomes more expensive, if not impossible, to start businesses and buy homes. Long-term, bad move.

Most economists believe that absent a better solution, the standard of living in America WILL DECLINE if either or both of the preceding paths are taken. Hey, Congress, are you listening? Hey, voters (with or without great grandchildren), are you listening?

Are there other options?

Indeed there are.

1. Raise the payroll taxes. This won't sell, will it? Well, one bit will. At present there is a cap on the amount of wages that can be taxed for Social Security. Eliminate it. Why should someone making $1,000,000 a year pay the same social security tax as someone making $100,000? The answer traditionally has been that they both would get the same benefit. That argument, though, didn't stop the Congress from eliminating the cap for the OASDI portion (the 1.45% part of the tax). Eliminating the cap will affect relatively few (though politically powerful) wage earners, so it would sell at the grass roots level. But of course it won't raise all that much money. It's not enough.

2. Cut back benefits. OUCH OUCH OUCH. I debate this with other tax law professors and I'm in the minority. See, I look at the official name of Social Security and one word pops out. You see "FICA" on your paystub and on your W-2. What does it mean? Federal INSURANCE Contributions Act. Yes, insurance. Insurance is something we purchase with no guarantee of return (other than whole life insurance, and for that the price is very high). The rest is a gamble that we want to LOSE! If I can get through life never collecting on my fire insurance policy, or my disability insurance policy, hey, I'd be much happier than if I had to file a claim. Ditto for auto theft insurance, auto collision insurance, and the rest of them. Gee, if you can tell me how to avoid my beneficiaries collecting on life insurance, you're onto something. Somehow people have come to view social security as an ENTITLEMENT. Why? Do we get paid fire insurance if there is no fire? Car theft insurance if there is no theft? NO. Some folks, of course, TRY to collect when there is no car theft, and well, not a good idea. So let's stop paying social security to people who aren't poor or who are covered by pension plans, IRAs, Roth IRAs, and all the other tax-favored retirement savings plans.

3. Let's tax social security receipts that exceed what the employee paid in. That sounds bad, but it isn't. The tax law already taxes some social security receipts, but it uses a convoluted formula that drives everyone nuts when they see it and try to apply it. Ask the students in the Basic Federal Income tax class. Ask your grandparents. Or anyone you know who gets social security. The complexity arises from a desire not to tax people who are scraping by on social security. Well, if the standard deduction and personal exemption are set at the right level (that is, don't tax poor people) then there's no harm in treating social security as gross income because it won't be taxed if the person has no other income or very little other income. Another reason for the complexity is the notion that a person should not be taxed on a recovery of their own savings. True. The Social Security Administration has a record of a person's contributions, so if the person contributed $10,000, the first $10,000 of social security ought not be taxed. Then the rest of it is included in gross income and taxed if the person's other income is enough to trigger tax liability (that is, not poor).

4. Increase the retirement age. This has been happening and I predict it will continue. After all, 70 years ago, when social security was first put into the law, not that many people lived to retirement age and most died within a few years of retirement. Now, many people in their sixties are active and healthy, and most will live for another 20 or more years. Oh, say the critics, increasing retirement age will compel people in poor health to keep working. No, it won't. They'd be eligible to retire if the statute is properly drafted. Oh, say the critics, you're forcing people to work. Or at least discouraging retirement at 65. Good, I reply. It's good to do things. It's good to work. Why not permit a scaling back of hours rather then the "all or nothing" retirement arrangement? After all, some companies already permit this. Oh, say the critics, you're taking jobs from the younger people? What younger people? When social security was enacted there were 20 workers for every retiree. In 1950, 16 workers for every retiree. Now, there's about 5, and by 2025, only 2 and a quarter workers for every retiree. It's not a matter of too many workers and not enough jobs. It's a matter of job - worker matching. And we'll get into overseas outsourcing later.

5. Let's cut out the fraud. What fraud? Well, those folks that are trying to avoid income taxes with all those tax shelters? They not only are trying (and often succeed) in avoiding the INCOME tax, they also avoid the social security and other payroll taxes. It's not that the amount in question is enough to offset a ten and a half TRILLION dollar deficit, but it is wrong to put the burden of that shortfall on honest, hard-working Americans when there are a growing few who are trying to stick their good life on everyone else's tax back. A crackdown here sends a message: this sort of behavior is no less a threat to the well being of America than is any other assault.

# posted by James Edward Maule @ 4:36 PM

Full story from the Philadelphia Inquirer

Favorite quotes and reports:

1. By Paul Levy, head of the Center City District: "The city's array of local taxes, designed for the industrial age, are hampering growth of knowledge industries that are the key to the region's future."

Why I like it: It's easy to explain by that bridge-toll comparison I use so much. Suppose that when bridges replaced ferries and automobiles replaced wagons, the toll continued to be computed on the basis of the number of mules that you were taking across the river. Because it is easy to see the silliness, it's easy to understand how the public would bring pressure on whoever set the bridge tolls to get out of the past and into the present. Other types of revenue (such as taxes) aren't so easy to understand, so the public doesn't understand why or how the system is so bad, and even after it realizes how inefficient the system is it doesn't know what to advocate. This opens the door to the politicians whose desire to be and remain elected surpasses their sense of service-leadership. The few politicians who aren't that way (yes, there are some) just don't have the clout.

2. Levy "proposed business tax breaks, akin to those in the commonwealth's Keystone Opportunity Zones, for all companies that create jobs, not just those moving to new buildings."

Why I like it: It puts the spotlight on the disservice that governments do to their citizens when they fashion tax provisions designed to benefit a few, when there are far more who do just as much, if not more, for the common good of the society. I've already shared my views on the silliness of extending the tax break to companies that don't need it, in Tax Breaks, Politician Takes. It's nice to see that there are others who understand the double whammy of a tax break that favors some but not all, and a tax break that favors those who are least in need.

Feel free to send the URL for these comments to your favorite legislator or executive branch administrator. Or your least favorite.

Well, it's fun enough, isn't it, to work through a tax return line by line, pausing every now and then to jump to another form or a worksheet, travel through that morass, and then bring a number back to the place where one left off. It's even more fun to explore the numbers that ultimately generate the forms, the lines on the forms, the instructions, and the joys of tax return preparation.

Most people don't go near this topic. It rarely makes the front pages or the soundbite news shows, but it's a topic at the very heart of the tax policy debate. And there will be a LOT of that during the summer and early fall. Election campaigns, especially presidential ones, tend to bring taxation discussions to the surface, but much of the chatter is just that, peppered with spin.

Last year Congress decided to lower the rate of tax on some corporate dividends. Of course, the major policy issue is why? If it is to reduce the tax burden on retirees depending on investment income, then the rate on interest income should have been reduced. It wasn't. If it is to encourage investment, doesn't the reduction of tax on pay-outs from the corporation encourage withdrawal of monies from the corporation supposedly being encouraged to invest and produce? And what tax reduction awaits those who invest or operate business through partnerships and LLCs? Oh, say the supporters of the lower dividend rate, it's to eliminate the double taxation of corporate profits. Corporate profits are taxed to the corporation, and when the after-tax profit is paid out as dividends, it is taxed again. But advocates of "corporate shareholder tax integration" (the notion that corporate income should be taxed once) don't offer reduced dividend taxation as the most efficient or most sensible approach. No matter, the folks who advocate the reduced dividend tax rate are the folks who brought us the reduced capital gains tax rate. And that is a topic that deserves its own post, which it will get, later. The short of it is that when two people go into the coffee shop for a latte, the person behind the counter doesn't ask if the dollar bills being offered in payment are "wages dollars," "capital gain dollars," or "dividend dollars." Note that the folks with the capital gain and dividend dollars will have more of them, proportionately, than does the person with the wages dollars.

All of that is bad enough. Now comes the spin. The Congress, through its Joint Committee on Taxation, estimates that the reduction of tax rates on dividends from 25%, 28%, 33% and 35% to 15% will cost 66.1 BILLION dollars for 2004 alone. Well, that makes sense. If the goal is to reduce taxes, one would expect that a tax cut would reduce tax revenue.

It isn't difficult to imagine that someone might challenge the computation and decide that the cost is 60 billion or 68 billion or some other amount. That's fairly common with just about every change made to the Internal Revenue Code other than the ones affecting procedure and paperwork. But the White House budget describes the dividend tax cut as a "negative tax expenditure", that is, something that INCREASES tax revenue by 26.7 billion dollars. How's that? Well, the argument is that the taxes not paid by the recipients of dividends are in turn used by them to purchase goods and services, and the providers of the goods and services then pay taxes on the income from selling those goods and services.

So, let's see. Dividend recipients save $66 billion, and spend the $66 billion. The people receiving the $66 billion pay taxes of, say, $22 billion on the $66 billion of income from the sale of goods and services (and that's not quite right, because someone selling goods isn't taxed on the sale price, but on the sale price minus the cost of the goods sold). That means the net cost of the dividend tax cut is $44 billion. But it's still a revenue loss.

Ah, wait. The people who received $66 billion in revenue from the purchase of goods and services by the dividend recipients will in turn spend the $44 billion they have left over after paying the $22 billion in taxes. So that the people selling goods and services to THEM will have $44 billion of income, generating taxes of, say, $14 billion. So the net cost of the dividend tax cut would be $30 billion.

One can play this loop over and over. Economists call it the economic multiplier. Where does it get us? Theoretically, the cost of the dividend tax cut can be reduced to zero. Maybe. But how does it then go in the other direction and generate additional tax revenue?

Now we get to another piece of tax policy argumentation. Theoretically, people who are invested in things that generate interest income will pull their investments out of those things and put it into dividend-paying stock. Well, won't that REDUCE tax revenue? Well, it would unless the dividends are paid at a higher rate than the interest rate. For example, if $100 generates $2 of interest income taxed at 25% (50 cents of tax), then the $100 needs to generate a dividend of $3.33 so that the 15% rate generates the same 50 cents in income. Does the market do that? Perhaps. If everyone is moving money INTO stocks, then stock prices will react to the demand for stocks and increase. Presumably, the increased trading in stocks will generate capital gains which, though taxed only at 15%, will generate tax revenue.

There's a lot of "ifs" going on this analysis. There's a lot of guessing. There's a lot of financial pyschological prediction. Maybe. Maybe not. Perhaps. Could be.

The point is, no one really knows until after the fact what will happen. Some tax cuts do in fact stimulate the economy and in turn generate even more revenue. Other tax cuts don't. Can one distinguish between the two types based on the nature of the tax cut? No. The outcome isn't so much whether the tax rate is cut on dividends instead of interest, or dividends instead of wages, or capital gains instead of wages. It appears that it is more a matter of the national mood, international trade and politics, and a variety of other measurable economic data and immeasurable psychological data.

What's sad is that these numbers get trotted out by their respective adherents as though they were handed down from on High. No one, at least not on the soundbite news, bothers to explain that they are nothing more than conjecture. People make voting decisions based on information of this sort, and yet it isn't information. People also reserved rooms in Houston, Texas, thinking the Philadelphia Eagles were a shoo-in. But in economics, taxation, and elections, nothing is certain except that we will continue to be spun, as the numbers are tossed in circles and circles.

It's dizzying, isn't it?

The next time you get annoyed, frustrated, bewildered, shocked, or overwhelmed by a federal income tax form or by trying to fill one out, say to yourself, "It could be worse."

It could.

It is.

Come live in Pennsylvania and see what happens when you set up an LLC.

An LLC is a limited liability company. It's not a corporation, it's not a partnership, it's not a trust. It is an entity invented in Wyoming several decades ago, and now permitted in all states.

For federal income tax purposes, LLCs with one member are treated as sole proprietorships and those with two or more members are treated as partnerships. The LLC can elect to be treated as a corporation but that rarely, if ever, happens. Most states follow the federal approach.

But what does Pennsylvania do? At first, Pennsylvania treated LLCs as corporations for state corporate income tax purposes and for state capital stock tax purposes (the latter is the tax that has driven businesses OUT of the state, causing the legislature to schedule its phaseout, but that has been put on hold because the state needs money. Of course the state needs money.... businesses and their jobs have been leaving).

Then Pennsylvania decided to treat LLCs as partnerships for state income tax purposes. But they treat the LLC as a corporation for capital stock tax purposes.

Understand that LLCs don't have capital stock because they're not corporations. So that makes the idea of imposing a capital stock tax on them as sensible as imposing a gasoline fuels excise tax on the sale of shoes, or better yet, imposing a bridge toll on people who don't cross the bridge.

OK, so there are some conceptual problems here. Sometimes I wonder if the folks making these decisions took a tax course. I surely hope they weren't students in my courses. What an embarrassment.

But the real problem is the practical one. LLCs are required to fill out a capital stock tax form that is designed for corporations. The form asks for the names of corporate officers. Duh, there aren't any. It asks for the name of the corporation. OK, cross out the word corporation and ink in "LLC" and maybe (after a few more years of doing this) someone will get the message. The form asks for shareholders' equity at the beginning and end of the year. LLCs don't have shareholders so they don't have shareholders' equity. But, well, we can figure out what the Department of Revenue wants to know, so plug in a number for something approximating members' equity. They ask for percentage of stock owned by each shareholder. Huh? In fact, if the LLC is set up to make special allocations, there is no one fixed percentage. So one has to write in "varies" across the tiny spaces provided for percentage numbers.

Then there is the manufacturing exemption, and the reconciliation schedules, and, new for this year, a multiple-column multiple-row classification matrix. By the time one is finished:

The federal income tax return for the LLC is 2 sheets (4 pages) plus a K-1 for each member partner.

The Pennsylvania income and capital stock tax return for the LLC is 8 sheets (16 pages) with 2 of the sheets being a fold out exemption schedule. Plus, of course, a K-1 for each member partner and a second K-1 for each nonresident member partner.

The irony is that almost all LLCs are small business operations. So they qualify for the $125,000 "valuation exemption" for the capital stock tax. But they still must fill out the forms, which could be as many as 10 pages including schedules.

And the form has such entries as this: If line a is more than twice as much or less than half as much as line b, enter ..... WAIT! Is this algebra class? Sometimes I think that computer game players who need a job line themselves up to create tax forms with sections that aren't unlike the "aha secret place to click to get more ammo" features one finds in computer games.

The "paperwork burden" that Pennsylvania imposes is absurd. The LLC either pays someone to do the returns, or a member of the LLC does the return. The cost of paying someone, or the value of the time, can be significant when compared to the income each member draws from the LLC. This is especially so if the LLC is a start-up company.

The Department of Revenue offers electronic filing. No way. This is the same Department of Revenue that won't permit taxpayers to download the capital stock tax forms from its web site.

Maybe Vincent Fumo can muscle the water companies or some other utility to make contributions so he can set up a "fix the Pennsylvania tax system and its tax administration and tax filing systems" Foundation. If it does half the job he claims his South Philly "We can use PECO dollars better than PECO customers can use reduced rates" Foundation does, he'd make the news for a good reason.

I'd volunteer to go fix it myself if they gave me the authority, but I doubt the folks in Harrisburg would appreciate the outcome. Taxpayers would, but hey, what do taxpayers know? (he says with more than a tinge of sarcasm).

Let me duck so I don't get run over by the stampede of LLCs joining in the exodus of businesses from Pennsylvania. I'll hang around just in case the Governor decides that I deserve to be a Keystone Opportunity Zone, with tax credits that let me not worry about filing forms or paying taxes. Oh, wait, the KOZ form is probably another 45 pages with questions asking me to report the number of shareholders in my LLC.

Stay tuned. There are more tax returns yet to do.

Here in the Philadelphia area (and the rest of Pennsylvania for that matter) much is being written about the proposal to give Comcast a tax break for keeping its corporate offices in Philadelphia.

It all goes to show that whatever the feds can do, the states and localities can do just as well.

Find an industry or company that is doing quite well, and find a way to throw more money their way. Not that the outcome will be a reduction in the cost of the company's product or services. Or even a reduction in the rate of increase of the company's pricing.

The Governor of the Commonwealth defends his proposal by claiming that Comcast will bring 1,000 more jobs to the region if it gets the tax break, and very easily could add another 2,000 jobs in the future.

And without the tax break? I suppose the Governor's reasoning suggests that without the tax break Comcast will not add the jobs. That means Comcast either will require its existing workers to do more work, or Comcast won't do the work that the 1,000 hypothetical new employees would have done, or Comcast won't go out and offer to purchase Disney.

If Comcast has enough money to purchase Disney, how does it not have enough money to hire 1,000 new workers? Sure, perhaps Comcast doesn't have enough money to do both, but if it genuinely needs 1,000 new employees to make quality cable service available at reasonable prices to customers in its monopoly-controlled service area, then spend the money on the jobs and retreat from or postpone participation in the "Bill Gates purchase the world" competition.

But that's not what this is REALLY about, and the people involved must think that the rest of us will fall for the "more jobs" mantra because jobs are difficult for some people to find at the moment. Note, some people. Nurses, accountants, natural gas riggers, hey, some folks have the skills that are in short supply. And what about a guarantee that if Comcast gets the tax break and fails to create 1,000 new jobs it pays the escaped taxes, with interest and penalties? There's no need for a "no way Comcast loses" flavor to the deal, is there?

No, what this is about is extortion. Companies do this. Sports franchises do this. Athletes do this. Anyone who thinks he, she, or it can get away with the "I'm running away from home unless you increase my allowance and reduce my chores list" gambit tries to pull it off. (Hey, do kids have chores anymore?)

The response ought to be, "then leave." Where will you go? California? New York? Some state with higher income tax rates? Or some state with seemingly a lower tax burden? (Note, "seemingly") And after you and all your employees show up, putting additional demands on that state's government and its localities for services, you'll discover that taxes will go up. Including yours. And especially your employees'.

Take a lesson, corporate managers, from the sports teams that leave a city because the locals can't or won't give in by spending tens of millions of tax dollars for a playhouse for athletes who earn poverty wages (oh, excuse the sarcasm). Then these teams, wooed by the greener grass on the other side of the fence in some other town, pick up and leave. Supposedly the locals suffer for their insolence in not publicly funding a private enterprise. Gee, Los Angeles has really suffered since Al Davis went back to Oakland and the Rams went to St. Louis. (more sarcasm, but this topic really invites it.)

And how long did the honeymoon last? Count the number of such teams that moved back, or moved yet again. Give Al Davis of the Oakland Raiders a call. He's quite experienced in the game, and I'm sure at this point he'll has a totally different perspective than he did years ago. Better yet, call the towns that did the wooing and ask them if they're all that happy about their success. Call the folks in Phoenix and ask them about their joy in having enticed the Cardinals to leave St. Louis and traipse west into the desert. Sometimes departures are good for everyone involved, except those who depart.

The advocates of these individualized tax breaks argue that they are necessary, because without them all of the state's citizens will suffer in some way. Well, even WITH the tax breaks the citizens will suffer because someone has to make up the revenue loss. Oh, no, say the advocates, the additional revenue will come from the 1,000 new employees who arrive and pay income taxes. True. Except that the 1,000 employees and their families will impose additional demands on state and local government services, such as the need for 1,800 additional seats in schools, teachers to go along with them, highways (which will become more clogged), etc. etc. And so local real estate taxes will go up. Bridge tolls will go up. The cost of lost time sitting in traffic jams will go up.

What the "Comcast needs a tax break" advocates don't want to hear are the pleas of the "all businesses need a tax break" advocates. Why not a tax break for the mom and pop grocery store in Chinatown? Why not a tax break for the self-employed home hospice care giver? Why not a tax break for the landscaper? The three-person tree removal companies? The woodworking outfit? After all, together these businesses could create not 1,000 but 2,000 or 5,000 or 10,000 jobs if their taxes were reduced. Instead, they see an increase in the state income tax, a deferral of the repeal of the antiquated capital stock tax, a revenue department that still doesn't quite grasp how an LLC should be taxed.

Well, the reason these small businesses don't get tax cuts is two-fold. First, they don't have clout. Second, without the tax cuts they become more vulnerable to the mega-companies buying out the world. Don't you want your landscaping done by the ComcastDisney Lawn Mowing Subsidiary? How about nursing care from the ComcastDisney Nursing Practice?

Why don't they have clout? They don't get to rub shoulders with the "movers and shakers." They aren't invited to the meetings and parties where the decisions get made. They can't afford big-time political campaign contributions. Standing alone they don't have enough to offer. Until now, they haven't had enough incentive to stand together, these owners of small businesses that offer goods and services in a wide expanse of industries and service fields.

Here's why this sort of "tax break for the big and wealthy" doesn't work. To make up the revenue loss, costs are increased for the "small and not wealthy" businesses. Costs include not only taxes, but decreased public services, increased time waste, and lost revenue on account of the continuing exodus of residents from Philadelphia to other places. As small businesses then join the flood of people crossing City Line Avenue, the city's tax position worsens, it raises taxes yet again, and the cycle accelerates. Eventually the Comcasts will leave, long-term leases or not. (They'll find lawyers who can get them out of those leases, and that's assuming they don't have escape clauses written in at the outset, which surely they must.)

There's the story of the guy who killed the goose that laid the golden eggs. There's also the story of the exiles who ate the seed corn. Somewhere in here Comcast might figure out that it would be better off NOT getting a tax break. Not only in terms of public relations, but in terms of long-term present value analysis that looks not only at the corporation's projected financial statements but also at the projected financial statements of the city and state from whom it is trying to extract these tax breaks.

Unless of course, Mr. Roberts, after you acquire Disney with the money you've saved in tax breaks, you decide to distribute the acquired Disney shares to each of your cable subscribers. Now THAT would be rather innovative, wouldn't it? And a public relations coup that would dwarf the effect of announcing that flush with the financial werewithal to acquire Disney you really don't need the tax breaks.

Think about it. (And if you do it, I won't even charge you for my advice.)

I should know better than to think that commentary on marriage and taxes can fit into a brief posting to this weblog, but the question is out there, at least for those not familiar with the intricacies of tax law:

"Will the same-gender couple marriages in San Francisco be recognized for tax purposes?"

The answer is no. The IRS has interpreted the federal tax laws dealing with marriage (e.g., joint returns by married couples, the estate and gift tax marital deductions for transfers to one's spouse, the gain deferral provision applicable to transfers between spouses and transfers incident to divorce) as limited to persons who are validly married under state law. The courts have agreed. The San Francisco same-gender couple marriages aren't valid under existing California law.

"What about same-gender couple marriages in Massachusetts if it turns out that the legislature in Massachusetts doesn't resolve the issue and the decision of the Supreme Judicial Court takes effect as scheduled?"

The answer here is that a federal statute not in the Internal Revenue Code limits recognition of marriage for purposes of federal law to marriages between a man and a woman. So despite the IRS definition of marriage as a marriage valid under state law, the same-gender couple marriages that would presumably take place in Massachusetts won't be recognized for federal income tax purposes. I'm no expert on Massachusetts state income tax, but I suppose that for state income tax purposes Massachusetts would be required to treat same-gender marriages as it treats different-gender marriages in terms of joint filing and whatever other tax benefits and tax detriments affect married couples in Massachusetts.

Civil unions? Not marriages for federal income tax purposes.

So that answers the questions, but there's more to consider.

A couple that is treated as married for federal income tax purposes usually is worse off, in terms of the federal income tax, than if they were not married. That's the so-called "marriage penalty." (The couple is better off for purposes of the federal estate, gift, and generation-skipping transfer taxes.) But sometimes they are better off; that's the so-called "marriage bonus." Generally, if the each of the two persons has roughly the same income, they're worse off, and if they have substantially different incomes, they are better off. The best "marriage bonus" is attained when one spouse has no income. (Interesting insight, isn't it, into what the tax law encourages?)

I've written several journal articles discussing the marriage penalty and bonus, and related issues. E.g., Tax and Marriage, Unhitching the Horse and Carriage, 67 Tax Notes 539 (1995). It's on-line only through subscription web sites such as Lexis, Westlaw, and Tax Notes, so there's no point in trying to link to what would be a dynamic link.

Anyhow, many others in the tax profession, mostly law faculty but also several practitioners, have also written on this topic. So if you're interested, there's a lot out there to read. Not only is the problem analyzed and dissected, a variety of solutions are offered.

My solution? I don't think marital status ought to have anything to do with taxation. Now that gets some people upset, because they think that it would mean the end of civilization if the tax law did not in some way encourage or reward marriage (even though the income tax "marriage penalty" does far more economic damage than is offset by the benefits of estate and gift tax marital deductions). Pennsylvania's income tax, for example, though permitting joint filing, doesn't treat married couples different from single persons (principally because there is a flat tax rate). Despite what some may think, civilization in Pennsylvania has not ended.

My solution reflects not so much my unwillingness to accept the notion that married persons SHOULD be treated differently from single persons for tax purposes, as it is a rejection of the discrimination between husbands and wives and other combinations. Consider, for example, two sisters who remain in the family home, care for their elderly parents, and in turn maintain the household after their parents die. Their economic position is no different than that of a married couple. They have similar non-tax concerns; for example, the spousal hospital visitation preference that is one of the concerns raised by same-gender couples seeking marital status is no less a concern for the two sisters. Of course, anyone can execute powers of attorney and other legal documents, but not only do many hospitals, banks, and other institutions deal inadequately with these documents, it's sadly just not something that many people think about or get around to doing. The same is true of wills, burial directions, health care powers of attorney, medical directives, etc. etc. (As an aside, many institutions accept declarations of marital status without getting into paperwork proof whereas they won't accept declarations of other legal relationships (such as a power of attorney) without a process that is not unlike the annoyance of filing a tax return!)

The broader solution, beyond treating people as individuals when it comes to tax returns, is to treat people as individuals when it comes to everything else (setting aside the question of minors and the limitations on their capacity to function as individuals with respect to legal matters). Think for a moment, again, of the toll booth. "Welcome to the Ben Franklin Bridge." "How much is the toll?" "Well, there's $1 for you, and if the woman in the passenger seat is your wife, it's another 50 cents, but if not, it's another $1." "She's my wife." "Prove it." How long would Americans (or people in any country, for that matter) put up with this silliness?

So what to do about the hospital visitations, domestic benefits, health care coverage, and all the other incidents of marriage? Permit people to name a "designee" for purposes of hospital visitation, medical decisions, default beneficiary under insurance policies and retirement plans, and so on. Would a person be permitted to name a different designee for different purposes? Yes, but it usually would be unwise for a variety of reasons. Would a person be required to name a spouse? No. Sometimes a spouse is NOT the best person to have a power of attorney, or to be a beneficiary, to make medical decisions, or to be a "designee."

Would a person and the designee file a joint tax return and get tax benefits? No. Because there wouldn't be any joint returns or tax benefits on account of having a relationship of any sort with any person. No deductions for boyfriends, no exemptions for fiancess, no bridge toll discounts for mistresses, and so on. Excuse the sarcasm there, but the attempted use of tax law to influence people's behavior in areas in which even the psychological experts don't quite understand why people behave as they do is a grand example of Congressional and lobbyist hubris.

So what happens to marriage?

Nothing.

And everything.

Marriage should be to the state as is birth and as is death. And as would be the naming of a designee. Or the revocation of such a naming. Or the ending of a marriage. That's the libertarian in me talking. Hear me out.

Consider birth. The state records births (and people are under obligations to register births with the state when they occur). Note that it is the state and not the federal government that does the registration (though the issuance of social security numbers to children for purposes of claiming tax dependency exemptions brings the federal government very close to operating a central birth registry). And even as a libertarian, I recognize the need for society (through government) to know when a person arrives (either as a visitor, an immigrant, or as a new-born).

No state (nor the federal government) requires the filing of an application for permission to bring about a birth. (If the government tried to do that, the ranks of the libertarians would swell to enormous proportions.) Though some may advocate requiring licenses to cause birth, that is flat-out inconsistent with the concept of personal liberty as enshrined in the Constitution. Governments are known to have encouraged births, discouraged births (e.g., the People's Republic of China), and to have been indifferent. Governments and others can advocate and fund programs to teach people (read: youngsters) about the consequences of causing birth, but licenses for doing so aren't issued.

The same is true of death. Again, even though there are some who might favor such an idea (I don't), governments do not require licenses to die. That's pretty much for practical reasons, but most plans advanced by advocates of euthanasia include some sort of pre-death regulation. That is yet another factor that makes euthanasia a controversial topic (and one in which the government ought not be involved).

So why, of the three chief genealogical events (birth, death, marriage), is marriage singled out (sorry, couldn't resist) for special treatment? Is it any more significant than causing birth? Hardly. Is it because traditionally, births were caused only as a follow-up to marriage? Many so think, but history demonstrates that most "traditional" practices end up being 19th and 20th century customs that were unlike their 16th century predecessors. For example, the current out-of-wedlock birth rate isn't very different from the out-of-wedlock birth rate in medieval England.

The reason, I think, is the incompletion of the church-state separation that began during the Protestant Reformation, that sharpened during the Enlightenment, and that was incorporated into the First Amendment. True, full separation of church and state has not happened. The marriage situation is a good example.

States record births. States do not record the christening, the baptism, the bris, the sealing, or the dedication (to name but a few of the religious ceremonies that accompany the arrival of a new child). Clergy do not record births on behalf of the parents who bring their child for a religious celebration of the birth.

States record marriages. States provide for ceremonies for the "performing" of marriages. Technically, the state is providing for the "witnessing" of a marriage. Must one marry in a government building? In front of a government official? No. One can marry in front of clergy and the state accepts it. That means, at one level, the state is accepting or rejecting clergy in terms of the validity of the marriages they "perform" or witness. That alone is a First Amendment problem. Most European countries have this figured out. One marries in front of a government official, and if one chooses to have a religiously witnessed or blessed marriage, one does so. They are two independent ceremonies. As is the recording of a birth and the baptism of a child. And, interestingly, as is divorce (where the disparity between treatment by church and treatment by state is very sharp).

In most civilizations, marriage has its roots in religious ceremony (as do just about every other ritual or practice in society). Unlike the cutting of hair, the attainment of legal age, the acceptance in the warrior group, or the recording of birth, civil union has not separated itself from religious marriage. Because no one advocates interfering with religious definition of marriage (other than the difficult-to-defend arrangement that ended polygamy in Utah), the question is one of how the CIVIL government ought to deal with relationships between people.

And that's how I came to think that the naming of a "designee" is the solution. It doesn't try to match religious marriage with a civil imitation thereof. For those inclined to think along the following terms, it leaves to God the things that are God's and to Caesar the things that are Caesar's. It lets a person have multiple spouses for religious purposes (if the religion so professes) but limits the person to one designee for civil purposes.

I know of no religion that would permit the two sisters (from that example a few paragraphs back) to marry. I know of a few religions (or denominations) that bless same-gender unions, and there may be a few that technically permit same-gender marriage. Most religions and denominations (there have been a few exceptions) permit marriage. Some accept divorce, others do not. Most have some sort of ceremony on the arrival of a new-born. Most (if not all) have some sort of ritual upon death. At present, all of these events (other than marriage) are independent of the civil transaction. It should be so with all.

Will civilization as we know it end if same-gender couples are permitted to marry? I doubt it. The problem is that the state ought NOT be defining marriage because in doing so it intrudes into religious matters. The state ought to be defining the rights of named "designees". Does the state have an interest in encouraging marriage? It has an interest in encouraging stable relationships of all sorts. It has an interest in the welfare of children. It has an interest in domestic (family) tranquility. To date, the state has not demonstrated that it (or its bureaucrats or officials) are any more skilled at bringing these things about than are the clergy, members of communities of believers, agnostics, atheists, or secularists. It's time for the state to stop trying to do the same or a better job than the churches, temples, mosques, worship halls, and synagogues are doing and time to develop methods to improve the efficiency and effectiveness of civil transactions.

Marriage is a specific type of relationship between people that even now the law considers as something that is witnessed rather than created. The state can no more create marriage than it can create love.

Well, long as this is, it isn't and wasn't intended to be a treatise or a full-blown proposal. It's a thought. Maybe it will have some useful effect. After all, the path that the nation is on at the present is divisive, emotional, and politically charged. Perhaps it makes more sense to sort out the issues and think them through so that a new landscape can be designed before trying to resolve matters by working within existing frameworks.

Your comments are welcome.

I heard a commercial this morning on my drive to the gym. It shed some fascinating light on what I consider one of the core problems in the administration of the tax law.

The commercial begins with an assertion that no longer is a car shopper limited to a choice of new and used. Now there's a THIRD category, neither new nor used. What is it? The Lexus certified PRE-OWNED vehicle. Huh? PRE-OWNED? Isn't that just a fancy way to say used without saying used? It's bad enough to use the word, but the commercial surely is claiming that pre-owned is neither new nor used. Sure, some of us can see through the lie, but what about youngsters and those lacking the requisite perception skills? Let's face it. Either the car is new or used. If it has been owned and used, you can call it pre-owned, but that doesn't mean it is neither new nor used. Stop with the spin.

The tax law often makes distinctions between recourse and non-recourse loans. If a loan is recourse, the lender can take the assets of the borrower if the borrower defaults. If a loan is non-recourse, the lender can take only the assets that have been pledged to the repayment of the loan, that is, the loan is secured by the asset but there is no personal liability. A loan can be partially recourse and partially non-recourse, but the tax law treats each part as a separate loan.

Why the difference? Because there is personal liability on recourse loans, and not on non-recourse loans, the impact of the loan on a partner's basis in a partnership interest differs. Without getting into the technical stuff, basis is "good" because it allows losses to pass to the partner for use (perhaps) on the partner's individual return. A recourse loan creates basis for the partners who are personally liable for the loan. Limited partners aren't, by definition, liable. So they don't get basis from a recourse loan. They get basis, however, from a nonrecourse loan.

So the incentive for a tax shelter promoter is to have the financing of the project be nonrecourse. Then basis can be obtained by (and losses passe through to) the limited partner investors. OK, then make the loan nonrecourse. That is more easily said than done (try it next time you take out a mortgage on your house: ask the lender for a nonrecourse loan and let me know if they stare you down or break out in hysterical laughter). So the lender wants recourse (especially if the project is something other than real estate) but the promoter wants nonrecourse.

How do they try to make people happy? Let's quote an attorney who once asked me, "So how can we make the loan recourse for the lender and yet get the IRS to believe that it is nonrecourse?" My answer is that you can't. That's what the IRS and the courts say. But that hasn't stopped people from trying to "hide" the personal guarantees or other recourse devices by keeping them outside of the main loan documents and outside of the partnership agreement. Some get caught, some don't. It takes dozens of pages of IRS regulations just to deal with this issue. (Section 752 of the Code and its regulations if you're really dying to get into this).

So what's the connection to the Lexus ad? Well, the tax shelter folks want to pretend that a recourse loan isn't recourse, when presenting the facts to the IRS. Lexus wants its customers to think that a used vehicle isn't used. Look, it's recourse or it's nonrecourse, it's used or it's new, a woman is pregnant or not pregnant. It boggles my mind that so much energy goes into the art of pretense.

It's nothing new. Take a look (here comes the theological connection) at the Gospel of Matthew, chapter 23, verses 25 and 27. It doesn't work to clean the outside of a dirty cup, leave the inside unwashed, and then claim that the cup is clean. Sure, it's human nature. Well, maybe not. Maybe society can get past this culture of pretense. It afflicts tax law, it afflicts advertising, and it afflicts a long list of activities and situations that generally are troublesome in one way or another.

I can understand the motives of the tax shelter promoters. If you can't get a nonrecourse loan from the lender, the deal is pretty much dead. Well, maybe it ought to be, considering how most of those deals turn out to be good for the promoters and bad for the investors. But what's Lexus' problem? It wants to sell a used car that it has certified, and rehabilitated? Then say so. It's a certified and restored used vehicle. But don't claim that it's neither new nor used. That's just plain stupid. And wrong.

I wonder if this pretense stuff was really the problem that led to the decline of the Roman Empire? That's for another day.

I'm in the late stages of writing a BNA Tax Mgmt Income Tax Portfolio on "Tax Incentives for Low-Income Areas." At first glance, it's easy to explain what it's about. It's an analysis of tax law provisions that encourage taxpayers to conduct business or to make investments in ways that pump money into areas that are poverty stricken.

Sounds good. Noble. Effective. Worthwhile. Efficient.

But is it? If it requires a full Portfolio (pretty much a book, unless one insists that a book cannot be spiral bound), then there's surely a lot going on.

Indeed, there is. First, there is the question of what is a low-income area. Pretty simple, right? Let's say, an area where n% of the population has income less than $y. Well, that's not far from the approach taken, except that there are different types of low-income areas. There are empowerment zones, enterprise zones, renewal communities, a special District of Columbia zone, and so on. Why? The short and simple answer is political expediency. So the n% and the $y varies, depending on what sorts of advantages are to be provided. The number of zones that the government can designate has been increased twice since the concept first found its way into the tax code more than a decade ago.

Second, what sort of business or investment should be encouraged? Most of the provisions, for example, don't permit benefits to activities such as golf courses, spas, and similar entertainment facilities. I guess (being sarcastic) that poor people don't have time for, or need, spas? There are more than a dozen types of investments and business activities that qualify for benefits. Things like "qualified equity investment," "renewal community business," "enterprise zone facility," "enterprise zone business," "qualified business entity," and my favorite, the "qualified zone academy." Each of these (and many other) terms are in turn defined by reference to other terms which themselves need to be defined. Each is somewhat like and yet a little different from the other, so the room for taxpayers to trip over the minutiae of technicalities is very high.

Third, what sort of benefit should be provided? An exclusion from gross income? A deduction? A credit? These are, of course, all good things because they reduce income tax liability. But they're not equal. A $100 credit is much better than a $100 deduction, because the credit reduces tax liability by $100 but the deduction reduces tax liability by $100 multiplied by the taxpayer's marginal tax rate (assuming, of course, that the deduction survives a gauntlet of floors, ceilings, limitations, phaseouts and other contraptions invented, for the most part, by those unwilling to put the real tax rates front and center (that'll be the subject of another posting, later). So? Well, at last count there are 16 different benefits, most in the form of credits and deductions. Some types of qualified activities or investments trigger one of the benefits, and others trigger more than one. Some benefits are available to only one type of qualified activity or investment but others are available to more than one. Charting this out pictorially would require a 4-D arrangement. Ah, the Matrix. Yep, that's where tax specialists go when they die. JUST JOKING.....

As I learned all of this and then wrote a book explaining it, I began to wonder. WHY? Why such a hodge-podge? Why all the definitions, rules, benefits, different areas?

WHY NOT JUST GIVE EACH POOR PERSON $T each year? That would be a LOT EASIER to administer. It wouldn't take 25 tax provisions. In fact, IT WOULDN'T EVEN BE IN THE TAX CODE. Of course, in recent years all sorts of non-tax public welfare stuff has been put into the tax code. Probably because the IRS is better at administering this stuff than the agencies that ought to be dealing with it.

Is it because Congress doesn't want people to know that it has enacted all these provisions that help the poor? And that amount to a type of dole?

NO.

Because a lot of this money doesn't reach the poor. The poor don't pay federal income tax and generally don't file tax returns other than, in some cases, to get the refundable earned income credit (another complex mess from Dr. Frankenstein's lab).

So that might be part of it. Of course, if $T were distributed to each poor person, that person would have spendable dollars that would flow back into businesses in the normal course of the everyday marketplace. THAT is a better form of government assistance to the economy than these contrived plans that provide employment to bureaucrats and deal managers and, yes, indeed, people who write books about it.

But I think there is something more involved. When each poor person would be given $T, he or she could use that money as he or she wished, within the bounds of existing law. In contrast, if the money is funneled through enterprise zones and qualified businesses and qualified property, the use of the money is HIGHLY REGULATED AND CONTROLLED. The present system not only is complex, it is a device for bureaucratic CONTROL of what should be laissez-faire (French for "LEAVE IT ALONE!!" (sort of) :-) ) market economics.

There have yet to be any studies demonstrating that these "incentives" (in contrast to general tax reductions for the middle class, or increases in the earned income credit for the working poor) have had any real effect. General economic news tends to suggest, no, not really.

Incidentally, this is not a partisan problem. These provisions have been planted and nurtured (and repeatedly amended, expanded, and upsized) by both Democratic and Republican administrations and Congresses. Ah, something the major political parties have in common (despite what they say): CONTROL PEOPLE'S BEHAVIOR THROUGH THE TAX CODE.

And that would take us to things like the TAX CREDIT FOR ADOPTING A CHILD. ("Hey, Mabel, we get $500 off our taxes this year if we adopt a kid." RIGHT!!!). As if one can raise a child for $500. "Yes, John, we adopted you because it saved our taxes." God forbid someone gets adopted because the parents want to love and nurture a child. I really believe that NO ONE has let this $500 tip the balance one way or the other when it comes to such a serious decision as adoption (but isn't someone planning to pay people to get married or something like that? It's getting scary.) But this post is long enough, so perhaps I'll come back to that topic on another day.

Listserves are great. I belong to at least a dozen. Don't worry, Dean, other than the several for family history they're all law related.

One of the benefits from the listserves is the steady parade of exam question possibilities that I can pose to my students. When they claim the question is unrealistic or irrelevant, I salute my listserve associates by explaining to the students that a practitioner's practice-world client indeed had the problem presented to the students. (The academy - practice dichotomy I'll leave for another day).

Last night someone posted a question to a tax listserve concerning the deductibility by a would-be lawyer of bar review and bar exam expenses. My students ought to be able to answer that question because we cover it in the course. Why do I include it? I've learned that when students are dealing with topics that relate to their lives or their planned lives they pay closer attention.

Anyhow, in the listserve discussion I pointed out that the expenses aren't deductible because they prepare the would-be lawyer for a new trade or business, that of being a lawyer. Not only has the IRS said that in regulations, there are cases in which the courts have so held.

Then I pointed out that according to the IRS someone who already is a lawyer and who pays expenses to study for, and take, the bar exam in another state is not permitted to deduct those expenses because (according to the IRS) the practice of law in one state is a DIFFERENT trade or business than practicing law in another state. Standing alone, that seems to make sense. The law in one state differs from the law in another (even though in recent years the disparity is beginning to diminish). If someone licensed to practice law in Pennsylvania tried to practice in New York, at least in theory, he or she would be unable to do so because he or she lacks knowledge and understanding of New York law.

But wouldn't the same hold for teachers? Suppose someone who is licensed to teach in Ohio moves to North Carolina. This may not be true today, but at the time in question, North Carolina requires the teacher to take courses in subjects such as North Carolina government, the history of North Carolina, North Carolina geography, and the like. Are the expenses incurred by the teacher deductible? The answer turns on whether being a teacher in Ohio is the same thing as being a teacher in North Carolina. Teachers in Ohio probably don't know much about North Carolina government, history, or geography. Just like Pennsylvania lawyers don't know much about New York legal procedure or parking regulations. Yes, Ohio teachers know the same algebra that North Carolina teachers know. But Pennsylvania lawyers know the same federal environmental law, Constitutional law, and criminal law that New York lawyers know.

What did the IRS conclude? That being a teacher in one state is the same trade or business as being a teacher in another state, even if the subject matter differs.

I make certain my students learn about this. It's such fun letting them discover how far from ideal the tax law really is.

Does the IRS have something against lawyers? I doubt it, considering many of its employees are lawyers. Does the IRS especially like teachers? At the time of the IRS ruling on the matter, teachers were in short supply. Maybe that had something to do with it.

There are many teachers in my extended family, including my sister and my niece-in-law. Let's see if they decide to share a "teachers are special and more important than lawyers" with us. Then I'll let my OTHER sister (who is a lawyer) respond. And I, the compromised lawyer-teacher, will sit back and watch!

I finally succeeded in getting Turbotax loaded and running. It took a while because of some problem with kernel32.dll, and ended with a work around. The downside is that having loaded the program, it's now, yes, TAX TIME!! Yippee.... (sarcastically).

There's a huge pile of paper to dig through, to find the stuff relevant for the return. It's getting difficult to remember the years I did the returns by hand. I've been using Turbotax for 11 years. It's a fine program, but it cannot dig through the paperwork and digital files for me. And it can't do the "pre-entry human decision" stuff.

I can't imagine what it's like for folks who don't have tax education, and who have to sift through all their papers. Sure, take the big box to the tax return preparer, but having been on THAT side of the desk, I can guarantee that sometimes ONLY THE TAXPAYER KNOWS. I can't complain... God gave me a brain that understands (most of) income taxation. But it still is absurd that so much energy, talent, brain power, and money goes into tax compliance (that's the return filing part), and, worse, "creative" tax planning that recently has come to border on, and too often, is in fact, fraud.

Imagine if "they" simplified the tax system and all these resources could be turned to something more productive (say, curing cancer, improving the education system, fixing the health care system....)

Well, each day I do a little bit of data entry. When I need a break from writing the technical stuff ABOUT taxes. It's early still. The fun will be in April when friends start calling, their panic evident as they realize April 15 is around the corner and they haven't even thought about the tax thing.

That's one reason I get started on mine early.

Eventually I share my ideas of how the tax system can be repaired. Stay tuned.