MauledAgain

It begins with an email from a student to a tax law professor, who shares the question with other tax law professors.

The student had been watching Food Channel, which put up a factoid that said in 1893 the Supreme Court ruled that a tomato was a vegetable, making it subject to a vegetable import tax. Fruits were not taxed. The student wanted to know if this was true, and could the Supreme Court do this?

It is impressive that within minutes, two tax law professors came through with responses, identifying the case (Nix v. Hedden, 149 U.S. 304 (1893), along with the explanation that the Supreme Court relied on the "ordinary meaning" of the words fruit and vegetable. Before there was a federal income tax, tariffs were important revenue sources, requiring courts to decide if dictionary definitions should be used when statutes failed to define terms. See Aprill, The Law of the Word: Dictionary Shopping the Supreme Court, 30 Ariz. St. L. J. 275 (1998).

Yet another response brought this quote from the case:

Botanically speaking, tomatoes are the fruit of a vine, just as are cucumbers, squashes, beans and peas. But in the common language of the people, whether sellers or consumers of provisions, all these are vegetables, which are grown in kitchen gardens, and which, whether eaten cooked or raw, are, like potatoes, carrots, parsnips, turnips, beets, cauliflower, cabbage, celery and lettuce, usually served at dinner in, with or after the soup, fish or meats which constitute the principal part of the repast, and not, like fruits generally, as dessert.

And tax law professors being the way they are, while I was drafting a response, someone asked how happy we would be if a fruit salad ordered at a restaurant came with tomatoes and beans, both of which are classified as fruits by botanists. Someone else noted that in North Carolina it is said that tobacco is a vegetable (but I wonder if something that should not be eaten is a vegetable, but wait, brussel sprouts are vegetables). Another person reminded us that ketchup is a vegetable (remember the school lunch issue from a few years ago?).

I then shared this typical MauledAgain response (with the requisite dig at Congress):

But what of the cranberry, often served with turkey during the meal?

Or pineapple, often served with ham?

Or apples, not rarely served as a side with dinner.

And then there's duck in orange sauce......

Perhaps the Congress, in using words that do not have established meanings (after all, people have been arguing over the classification of tomatoes ever since they were discovered), should have defined the word vegetable in a manner that eliminated the need for Supreme Court consideration.

Remember of course, the most important definition. Chocolate is a vegetable. Really.

Which brought this retort (retorte?):"Orange you glad we moved to an income tax system?" The professor who started the discussion replied off-list with ":))))))))))))))))" which I suppose was a reaction to the "chocolate is a vegetable" quip. (Chocolate IS a vegetable. Vegetables are good for heart health. Recent studies tell us chocolate is good for heart health. Therefore, chocolate is a vegetable.)

The deep discussion of Supreme Court tax analysis with respect to tomotoes having reached this point, I made another scholarly contribution to the tax world with this:

I came very close to sending an email about the way the Supreme Court SLICED through the case, hoping the justices GRILLED the attorneys, and didn't let themselves get STEWED about the issue. Oh, for a moment my resistance was stronger than the temptation. But this email got me SOUPED up, and at least via email there's less risk someone will be tempted to PASTE me after I do this to everyone. I haven't been near the SAUCE, and I just got in from doing some work outside which caused me to become SUN-DRIED.

The original poster replied, "I should post more often. This group will bite on anything :)" and I, of course, had to send this message: "Brilliant, but remember that some of the arguments made on this list are tough to swallow. Chew on that for a while. :-)"

I hope that my taxprof colleagues don't get all JUICED up over this publicity.

With thanks to Prof. Ellen Aprill of Loyola, Prof. Bryan Camp of Texas Tech, Prof. Sam Donaldson of Washington, Prof. Linda Galler of Hofstra, Prof. Alan Gunn of Notre Dame, Prof. Calvin Johnson of Texas, Prof. Michael Lang of Chapman, and Prof. John Swain of Arizona, and with special thanks to Prof. Paul Caron of Cincinnati, who maintains the list on which this gourmet discussion took place, and who will hopefully be blogging this topic on the famous TaxProfBlog, with a reference to this posting as I try to drag along on his coattails.

Tax bills originate in the Ways and Means Committee. As in how many ways can we change what we mean?

Today the House-Senate Conference on HR 4520, the American Jobs Creation Act of 2004, came to an agreement. Will this one be called AJCA? Ouch.

If and when the House and Senate approve the Conference Report, it will be sent to the President for signature. When and if signed, it becomes law, though its provisions have all sorts of effective dates.

I touched on this bill in one of its previous incarnations in the context of a larger discussion on tax and economics. The bill has changed. Even if you aren't a tax professional, it's quite an education to browse through the titles of the sections in the Chairman's Mark of the bill. Doing so provides a bifocal view of the existing complexity of the tax law and the layers of complexity added by this bill if and when it is enacted. If you look closely you will see the most ironic provision, one that sets up a commission to study reform and simplification of the tax law. I guess that's like a group of litterers setting up a commission to study the adverse effects of littering and ways to stop littering. Yes, there are times when tax law and litter seem closely related and it's not because paper is involved in both.

I've been informed that a law professor who teaches in the state of Michigan and who specializes in the value added tax has VATMAN1 on his plates. He couldn't get VATMAN because it was taken. So for what else is VAT an acronym?

Paul Caron has posted up (on TaxProfBlog) photos of a Texas license plate with TAX CUTR and a Massachusetts plate with TAXHIKER. I'm very sure Paul (or someone helping him) is having fun with Adobe Photoshop.

The thought of putting TAXJEM on my plate met with an "Anonymity is key to a tax prof" advisory from an associate dean. Anonymity? For ME? Impossible. They wish we tax profs were anonymous. Never. We were engineered for the spotlight, just a hearbeat away from the grand stage.

Previous tax license plate postings:

More Tax License Plates

A License to Tax?

Listening to the vice-presidential candidate debates, I was puzzled by several comments concerning taxes (as taken from the transcript of the debate). Once again, politicians who have been involved in setting tax policy don't seem to understand it. What a marvelous bipartisan inadequacy.

Let's start with the incumbent. When responding to Edwards' response to the question of whether Kerry could lower the deficit and not raise taxes, Cheney asserted that Kerry-Edwards were determined to "go after" people in the "top bracket," and continued:

Cheney: "They talk about the top bracket and going after only those people in the top bracket. Well, the fact of the matter is a great many of our small businesses pay taxes under the personal income taxes rather than the corporate rate. And about 900,000 small businesses will be hit if you do, in fact, do what they want to do with the top bracket."

Wait. There are about 25 million small businesses in this country. One can argue about the precise measurement depending on how one counts and whose information is used but the order of magnitude isn't in dispute. That means roughly 24 million small businesses would NOT be affected by changes in the top bracket.

Interestingly, Cheney later pointed out, in an anecdote, that product liability insurance premiums may have a bigger adverse impact on small business hiring. Maybe a high tax on contingent fees would generate some revenue?

Now let's turn to the challenger. When asked the question about Kerry's plans to reduce the deficit and not raise taxes, he replied:

Edwards: "And I want everyone to hear this, because there have been exaggerations made on the campaign trail: Roll back tax cuts for people who make over $200,000 a year; we will do that."

A bit later, he adds:

Edwards: "We are for more tax cuts for the middle class than they're for, have been for the last four years. But we are not for more tax cuts for multimillionaires. They are."

Wait. Does that mean that rolling back tax cuts for "people who make over $200,000 a year" is the same as opposing tax cuts for multimillionaires? And what does "make" mean? Gross income? Taxable income? And what about married couples filing joint returns? If "make" means gross income, two spouses each with a $98,000 salary and $2,001 in interest income would have their tax cuts rolled back.

No one seems to comprehend that the top bracket is TAXABLE income over roughly $319,000 (which translates to gross income from $325,000 to infinity). No one seems willing to discuss the idea of creating a new bracket for millionaires and another new bracket for multimillionaires. Lumping taxpayers who earn $500,000 a year with taxpayers who earn $15,000,000 a year is as silly as lumping taxpayers who earn $10,000 a year with taxpayers who earn $150,000 a year.

They don't talk about it because (a) it's complicated, (b) it requires a long audience attention span, (c) it doesn't generate great sound bites, (d) and they don't really understand it.

I'm not impressed. As usual.

With the presidential campaign debate over domestic issues (including taxes and the economy) looming on the horizon, I decided to share some thoughts about taxes and the economy in the context of the disagreement over tax cuts that gets so much attention. My thoughts are mostly questions rather than answers.

At present, the federal government is incurring a deficit, that is, it is spending more money than it is collecting in tax and other revenue. One can argue about the measurement, because there are so many ways to classify the specific income and expenditure items and to determine the year in which they should be accounted, but no matter how that is resolved, the deficit exists, it exists for the current and past years, and it is projected to exist for future years. A key point is that no matter who is elected, the deficit will exist. No President and Congress, however aligned, is going to take the step of raising taxes to the levels to which they need to be raised to eliminate the deficit even if coupled with reduced spending. That's not the issue.

The issue is whether some portion of the deficit should (and will) be eliminated through tax changes. I say "changes" rather than "increases" because the issue is more complicated than simply setting rates.

One charge that is made is that the tax cuts enacted in June 2001 (and subsequently tweaked in March 2002 and May 2003, and extended on September 30, 2004) caused the deficit. More reasonable minds assert that the cuts caused part of the deficit, acknowledging that the cost of the conflict in Iraq and the expansion of the Medicare prescription drug program contribute significantly to the deficits.

A recent study (Household Expenditure and the Income Tax Rebates of 2001) suggests that the rebates received as part of the 2001 tax cuts generated more consumption expenditures on the part of households with lower liquid wealth and low income than for higher income individuals. This is not a surprising conclusions. People with less income and less wealth have a longer or much longer list of consumption items (clothing, food, medicine, etc) which they need to purchase and for which a tax rebate provides the need than do upper income taxpayers. So what? The "so what" is that in mid-2001 the economy was reeling from a recession set in motion before 2001, and was about to hurl into a deeper recession by events several months in the future. Recessions reflect, to some extent, insufficient consumption, generated by reduced income (which in turn causes businesses to spend less, causing even less income). Recession, like inflation, is spiral in effect, constrained only by the forces underway in the economy that have a countervailing effect. If the countervailing effects are few in number or strength, things get out of control. After the Great Depression (a recession gone out of control), the government enacted a variety of controls (such as the Federal Reserve Board's control of the interbank funds interest rate) so that countervailing pressure could be brought deliberately rather than in a happenstance uncontrollable manner. Thus, if the government delivers rebates to taxpayers who spend the rebates, the recession is dampened (and theoretically reversed). Accordingly, lower wealth and lower income taxpayers, make better use of rebates in this regard. So, the argument goes, if what is needed is consumption, funnel the rebates and the tax cuts to the lower wealth, lower income taxpayers because they'll spend it.

But does taxpayer use of the rebate forecast taxpayer use of the tax cuts that went into effect in 2001? Perhaps. I'll assume that the answer is probably, because even with the rebate most, if not all, lower wealth and low income households still had a long list of items which they need to purchase.

The position that tax cuts should be directed to the lower wealth and low income households in order to energize the economy encounters at least three strong and popular objections. They are related. First, it is argued that tax cuts should go to those who pay taxes, consistent with the tax burden being borne. If everyone gets a 10% tax cut, the high income taxpayer with a $100,000 tax bill will get a tax cut that is 20 times the tax cut received by the taxpayer with a $5,000 tax bill. Second, it is argued that the high income taxpayers will use their tax cuts in ways that will "trickle down" to other taxpayers. Third, to the extent the tax cuts are directed disproportionately toward low income taxpayers, the government is engaging in wealth redistribution, a policy and practice inconsistent with the philosophy of limited government and libertarian principle.

These objections raise questions. One question seeks to identify what high income taxpayers do with their tax cuts. It appears that they are not spending them to the same degree as do the low income taxpayers. That makes sense. One can eat only so much food, one can wear only so many clothes (though someone obsessed with clothes or shoes can rack it up in this category), one can take no more than 52 weeks a year of vacation, etc. Presumably, the tax cuts directed toward the high income taxpayer are invested. This is the basis of the "trickle down" argument. The investment can take the form of expanding a business owned and operated by the high income taxpayer, thus generating one or more lower-income jobs that would absorb an unemployed person (or a person employed at a lower wage whose job would then open for the unemployed person). The investment can take the form of the purchase of stock in a corporation (same scenario, simply removed one step), or in a mutual fund (same, removed two steps), or in a bank or other financial institution which in turn lends the money to someone who is either (a) starting or expanding a business (same scenario, removed so many steps I've lost count or (b) spending the money, which infuses business with more receipts, helping it to expand. The investment might also be the purchase of a capital good (home or home improvement, car, appliance) by the higher income taxpayer or by the lower income taxpayer borrowing money from the bank in which the higher income taxpayer invested, thus creating jobs for construction workers, auto workers, etc. I'm a bit convinced by this aspect of the argument, because it truly is difficult to find a construction worker or home repair laborer (and that was before Florida became the "winter of 2004" destination for construction workers).

But as a general proposition, despite the demand for construction workers, it hasn't quite worked out this way. Unemployment hasn't changed all that much. Something is out of kilter. Could it be that the investments made by high income taxpayers of their tax cuts are being made abroad? Perhaps. And would these foreign investments be financing off-shore employment? Perhaps. Is that good for the U.S. economy? In the short run? In the long run?

Some say it is not. Return, now, to the objection that it is better to let the taxpayer decide what to do with a dollar than to let the government to take that dollar and decide what to do with it. This objection necessarily is constrained by the reality that the government will take some dollars in order to finance national defense, national parks, and other programs. In other words, taken to its extreme, this objection would put government revenue at zero and government expenditure at zero. There would be no government. There are people who advocate this extreme position but they are few in number.

When there is a surplus, because the economy is humming along and tax and other revenues increase faster than does government spending, the question of whether the surplus should be returned proportionately or directed totally or disproportionately to low income households poses an interesting question. Would the tax cuts be better used by the low income households? Recall that these households would spend the money. In this economic environment, with the economy humming along, throwing more money into the consumption bucket would increase the spiral, cause shortages of goods and services, and trigger inflation.

On the other hand, if there is a deficit, a tax cut means that the deficit is larger (no matter who gets the cuts). Then the question is whether the deficit would be reduced more quickly if the tax cuts were directed to the low income households or to the high income households. If the high income households are going to funnel their tax cuts to enterprises abroad, the tax revenue would be less than if the money were spent (by any sort of taxpayer) on domestic consumption. After all, the folks being paid to clean gutters and build home improvements, etc., now have higher income and thus will pay more taxes.

Here is the conundrum. The tax cuts were enacted when it appeared that (a) there was and would be a surplus and (b) the economy was in recession and needed a boost. Though the cuts were not directed as disproportionately to the low income households as some may have desired, there was some sort of positive impact. And then a mostly unnoticed declared war went hot in very visible places and life, including economic life, changed. Permanently, but that's another posting someday.

The need for increases in government spending (even aside from the Medicare prescription drug program expansion) quickly became apparent to some and eventually to most. The conditions which had justified a tax cut evaporated. The tax cuts should have been delayed, at least for higher income taxpayers. After all, during war, taxes increase. When I tell my students the marginal rates during the Second World War (which I know from research and not first-hand experience), they gasp. Vietnam brought a tax "surcharge" (a tax increase by any other name is a tax increase). So what happened? Not only were the tax cuts not delayed or discarded, they were subsequently extended.

Why?

Begin with a President who refuses to take away a tax cut, having seen first-hand the adverse effect similar decision making had on his father's re-election bid in 1992. Even Ronald Reagan had to scale back his initial tax cut, but he was gifted with a personality, charm, demeanor, wit, and private meeting persuasion skill that does not exist in any of today's political headliners. In other words, Ronald Reagan could "get away" with raising taxes (and the timing was such that it did not adversely affect him).

Then add in a Congress controlled by the tax-cutting wing of the Republican Party. Having promised constituents that they would go to Washington to cut back the size and intrusiveness of government, including taxation, they are not in a position to go back on that promise so long as they value re-election over economic necessity.

Yet with all the accusations being tossed about concerning the deficit and the horror of the tax cut, the Congress extended the tax cuts in a bill signed into law a few days ago. The vote?
In the House, 339-65. in the Senate, 92-3. Surely the tax-cut Republicans don't hold that sort of majority. No, this was a bipartisan effort. Politicians of all parties (431 to 68) had something in common: the need to trumpet to the voters back home that they had voted to extend a tax cut. "Aren't we nice?"

It's like giving candy to a diabetic child. What the nation needs is fiscal discipline. If the nation is going to provide all that it has promised, the nation needs to pay for it. One can argue the merits of what should be spent on prescription drugs, social security benefits, homeland security, national defense, and the tens of thousands of other expenditures in the federal budget or waiting to be added (no matter who is elected). Tax revenue must equal expenditures. Raise one or cut the other. One can debate how the tax burden should be allocated, and I am not going to reinvent that wheel. Suffice it to say that the worst thing that can be done is to increase spending (something both candidates propose to do, because votes come more easily that way) without raising taxes (something one candidate promises not to do and something the other candidate seems to support though with campaign trail words very different from the realities of the plan).

Yet that is where we are. One last piece needs attention. If government expenditures exceed revenues, how is cash flow managed? Is there a huge Federal credit card? No, there is something better. The government borrows money. From whom? From two sources. Remember the question about the high income taxpayers and what they're doing with their tax cuts? They're investing in U.S. Treasury bonds (and other obligations). And foreign governments (especially China), awash in U.S. dollars because of the trade deficit, are also buying U.S. Treasury obligations.

So, instead of the Congress directing tax cuts to people who would spend the money because they have no choice, the Congress directed most of the tax cuts to the high income taxpayers who then loaned the money back to the government so that it could spend it. When the smoke clears, the government (us) is indebted to the high income taxpayers (and to China, if that makes anyone feel any better).

My next-to-last question: so how is this all that different from a feudal economy, in which the low income serfs were beholden to the high income nobles and royalty (and, tossing in some theology and annoying a few folks, the very high income church)?

Someday, we will wake up and the creditors will be at the door. My last question: Who is going to pay?

This is real. From a reader:

have you considered approaching a publisher about a compilation of the "Best of Mauled Again?" I think your work has a much wider audience than it is able to reach via the Internet. While many articles are timely in nature, most have pervasive timeless themes. I think it provides a fundamental understanding of our system of taxes, both in criticism and foundation of its intent(s). It's worth a thought. The publisher would have to be one who can reach a mass market, not merely a legal or educational market. Think about it!

So, of course, never at a loss for a reply, I asked:

I wonder if a paper publication of a blog is inherently inconsistent or
oxymoronic? Perhaps not. Perhaps it makes for good beach reading, where sand deters taking along the wireless laptop!!

And then along came this food for thought:

I think that cross-platform publishing enhances messages that are powerful. Not everyone (believe it or not) is computer literate. What percentage of the population

a.) can define blog

b.) reads a blog regularly

c.) actually corresponds with a blogger, making them a bloggee..or would that be a blogger groupee .oh, that's me!

I don't know the answers, but I suppose some of you would have an idea of whether it makes sense to "paper the blog" as a concept. Even if that makes sense, how many people would want to be seen on the beach reading a book called "The Best of MauledAgain"?

Well, perhaps they'd think it was an anthology of stories about zookeepers who went back into the cage yet one more time.....

I'm beginning to understand what it must be like to be a newspaper editor, as yet more feedback arrives. Unlike the many letters to editors criticizing what's been written, this feedback refuels my ego. Uh oh, right?

A reader, who wishes to remain anonymous, wrote:

I've been updating myself again with the latest posts on your blog.

Many interesting and well done articles, including the baseball and school supplies topics. I read one of the Soapbox articles, Learning to Teach and Teaching to Learn, which one can only hope the students
who need to read it will truly "get" your point. Unfortunately, they either won't read it or won't "get" it. The problem there stems from years of exposure of students to high school and college teachers who are not required to have an in-depth knowledge of the philosophy of teaching and education. Rather, they are permitted to teach because they have an expertise in a specific field. Even though my car mechanic may be an expert in repairing engines, would he be capable of teaching others his craft?

Probably not. Many higher-level teachers continue to view students as "tabula rasa" (a blank slate waiting to be written upon) and as a result students learn to become receptive containers, rather than critical thinkers and learners. A course in the principles of the Socratic Method should be a requirement for every teacher at every level.

I replied:

The reason law school is so "tough" is that most faculty (not all) try to get the students to think. Once upon a time it was a universal truism of law faculty but it is eroding rapidly. The desire to be "loved" (there are more insecure faculty than I would have imagined) and the unwillingness to deal with all that needs to be done to get students thinking (quality feedback is time consuming) combine to encourage playing to the student evaluations.

I refrained from commenting about the outcry that would arise if "socratic" or even "quasi-socratic" methods were imported into K-12 and college education (even though it exists in some classes in some schools at that level). After all, no one really does it very well.

To my reply came a rejoinder that made me laugh (and has me wondering....):

This can also be said of many college professors and maybe high school teachers. The only teachers who don't worry about being "loved" are the elementary teachers because little kids just automatically love us! Maybe that's the secret....give your students crayons, scissors & glue sticks and have them draw pictures to show that they "think" and they'll do great!

Glue sticks? In a law school?

NAH.

Who would have guessed that the tax license plate posting would bring so much traffic to the site and trigger the largest number of responses?

Yes, more tax-related license plates have been brought to my attention:

TAX REBL - The license plate of convicted felon and tax protestor Lynne Meredith (see this very interesting write-up).

0 TAX - license plate of Portland, Oregon tax lawyer and former tax law professor at the University of Cincinnati School of Law Gersham Goldstein (which only goes to prove that some law schools try to corner the market on creativity). Speaking of creativity, I'm sure that other areas of the law have inspired some interesting license plates, but I think the tax folks are in the lead.

The owner of TAX GEEK emailed me, and passed along some plates she has seen:

501 C3S (rather clever, and my google search wouldn't have caught this one)

TAX ESQ

TAX GEEK explains that she "got the idea for TAX GEEK after seeing TAX NERD on a Virginia license plate in DC."

She adds: "It's been fun seeing the smiles on the highway and around Richmond." I wonder what sort of reactions the other tax vanity plates evoke.

The guessing game can begin to identify the owner of TAX NERD, with information found in this report.

You can go to Paul Caron's TaxProfBlog to see photographs of some of these plates. Yes, Paul is a current tax law professor at the University of Cincinnati School of Law (and I wonder what's on his license plate). Still waiting to find out if these are actual photographs or done up in PhotoShop. See, one of the vanity tags is on the wrong state's plate!

Or a tax license?

The getting-very-famous (or at least more famous than MauledAgain) TaxProfBlog has run into a tiny problem. It seems that an accounting professor at Rutgers has a "TAX PROF" vanity license plate, causing Paul Caron of the TaxProfBlog to ask, in all good humor, for a volunteer intellectual property lawyer. Take a look at the photo and comments by Paul.

A former colleague, who years ago taught me tax and who died a few months ago, proudly motored about with "TAX MAN" imprinted on his vanity Pennsylvania plate. Years ago I asked him why he wanted the world to think he was a tax collector, or perhaps a Beatles fan enamored of one particular hit.

Another colleague, still very much alive, reminded me that one of our recent graduates had "TAX CHIC" on her license. I checked in with her today, and, yes, she still has it. And, yes, she is practicing tax. Not much of a surprise, considering she lived and breathed tax as she progressed through the J.D. and LL.M. programs.

So I've set out to make a list of actual tax-related vanity license plates. There are more than a few web sites with lists, large and small, of vanity license plates. Some are geographically limited. There are very many web sites devoted to license plates generally, particularly collecting and trading.

Here's what I've found so far, after allowing myself no more than one hour to wander into an exploration that could become a month-long project. Maybe I can get funding for "Law and Tax Vanity License Plates: An Extrapolation of Cultural Perspectives on Taxation at the Halogen Headlight Level." Sounds scholarly.

TAX RFND on a Red Acura NSX in Los Angeles, CA (from this site)

B4RTAXS Before our taxes, on a new Mercedes (from this site)

NY: FELIXTAX (from this site)

TAXGUY (from this site)

The following are from the official West Virginia list:

TAXFREDM
TAXKUTTR
TAXLAND
TAXLAW
TAXLESS
TAXMAN
TAXMAN2
TAXPREP
TAXPRO
TAXRENT
TAXSLAYR
TAXSTORE
TAXTIPS

These three are from this site) (and I particularly like the first):

IH8 TAX (Sudbury, Ontario) - [ on a tax accountant's car, parked at Legislature )
TAX BAK
TAX MAN

This just in: In Virginia, a TAX GEEK plate has been observed.

So if you have any ACTUAL tax vanity license plate information, please send it along. I'll periodically update the list.

A new poll reveals that 61% of us have lost faith in leaders and institutions during the past four years. It isn't clear if that's 61% in addition to those who lost trust more than four years ago.

Quotes in the news report make it astoundingly clear that people are skittish. No wonder.

It's not really news, though. That's why I ask about the meaning of the 61%. By now, it wouldn't surprise me if 98.6% of us have lost trust. The list of folks in whom trust has almost disappeared is the same list I've seen at various times during the past few decades: politicians, corporate executives, lawyers, entertainers, and journalists. Oh, yes, lawyers come in pretty much at the bottom. I didn't see a mention of schools or religious institutions in this report. Or law professors. Or tax law professors.

So who DOES get trusted? A person's own family and firefighters, followed by neighbors, police and doctors.

The poll suggests that the reasons include the situation in Iraq, the 2000 election mess in Florida, white-collar crime, and terrorism.

Why make something so complicated? To me, it's easy to understand. Trust has diminished because people react to the inability of other people to accept responsibility, act honorably, put duty and honor above "it's all about me" selfishness, and to take pride in their efforts. Layer onto that the insulation that protects people responsible for a mess from the people whom they've hurt, sprinkle in the "no fault" mentality that represents "it's anyone's fault but mine" post-modern philosophy, and there's a recipe for carrying a mirror so one can watch one's back.

Wouldn't it be nice if a customer whose account has been butchered can talk to the clown who makes the mistakes? Wouldn't it be nice to talk to the programmer who still doesn't quite understand what the software user really needs? Wouldn't it be nice to talk with the faceless bureaucrat who is hidden away behind a screen? It's so much easier to shirk responsibility and to let one's self get by on a lesser standard when the aggrieved person is a concept and not an actual being with a face and personality.

It's simply this: the depersonalization and incorporation of American has eroded trust. Trust reflects a personal relationship. Post-modern society has chopped away at these foundational legs of culture. It's getting very wobbly.

News that a "Top Tax Lawyer Pleads Guilty to Felony Tax Evasion" may come as a surprise to some, but for me it's only in the who and not the what. After all, lawyers as a group do not have a stellar compliance record when it comes to taxes. As I mentioned in a previous post,

...the worse thing to do when in financial trouble is to avoid paying taxes by hiding income.

In this instance, though, it doesn't appear that the lawyer in question was in financial difficulty.

His former partner describes his tax woes as "some mistakes" and attributed the problems to his being "a little bit careless in his bookkeeping." I wonder why, if it was a matter of carelessness and mistakes, and not wilfulness, why he would plead guilty to a crime. By doing so he faces up to two years in prison. And he may end up being suspended or disbarred.

According to federal prosecutors, he failed to report as much as $1.5 million in gross income over 4 years. That's a pretty big mistake. Even for someone who is not one of the nation's top tax and estate planning experts, let alone for a tax attorney.

If it genuinely was carelessness, it is possible that an undiagnosed health problem, perhaps one associated with getting on in years, could be the culprit. If so, it's unfortunate that jail time awaits a person who would have been best served by medical care.

There are more lessons here than simply "don't omit gross income from the tax return." We need to learn to pay attention to those with whom we interact and to watch for changes in behavior or personality that might signal a need for medical or other attention. Maybe that's what happened here. Maybe not. After all, if it is what happened, the guilty plea makes no sense. And we need to learn that any one of us, no matter how skilled or famed, can get into trouble very quickly if we let our guard down.

I doubt we'll ever know the complete story. It is a sad ending to an otherwise fine career.

UPDATE: Some readers have questioned whether I'm cutting "slack" to this tax attorney that I would not allow to other taxpayers who commit tax fraud. I certainly don't intend to cut any slack, but until the facts are known, I'm simply giving the benefit of the doubt to the partner who used the terms "mistake" and "carelessness" to describe what was done. If compelled to take a stance without having additional facts, I'd consider the seriousness of a guilty plea and the pattern of tax fraud indictments not being issued without very strong evidence, and conclude that indeed, there was fraud. If there is a plausible "carelessness" argument, a guilty plea is not the expected reaction.

And if it's shown that what was done involved deliberate and wilful evasion, then my reaction to the use of the terms "mistake" and "carelessness" will be revised, and my disdain for trying to make fraud appear to be mere negligence will be very obvious. Back in November 2003, when the indictment was issued, I posted to the ABA-TAX listserve a comment that I had read the indictment and found nothing that explained what was done (or not done) that led to the indictment. It is a very brief and generic indictment, which is available here. The only clue is that taxable income was allegedly understated, which means that it could be a matter of understated or omitted gross income, overstated deductions, overstated credits, or some combination.

FURTHER UPDATE:

The press release from the Department of Justice gives some additional information about the situation. The attorney in question understated business receipts, and did not use the business and bank records of the actual receipts. He also failed to report gain from selling an interest in his law practice to another attorney. And he also failed to report receipts deposited into his personal bank accounts that represented payments from clients for services provided before the other attorney became a partner.

The guilty plea includes an acknowledgement that these omissions were made knowingly and willfully. Under these circumstances, it is extremely difficult to understand the other attorney characterizing what was done as a "mistake" on account of "carelessness."

Today, Paul Caron's TaxProf blog carried an item analyzing net federal spending by state with the state's character as a "red state" (electoral votes won by Bush in 2000) or "blue state" (electoral votes won by Gore in 2000). Paul points out that of the 32 states (including D.C.) that benefit from net federal spending (more federal expenditures in state than are paid in federal taxes from the state), 76% are red states (17 of the 20 states with the highest net federal spending are red states). Paul also points out that of the 16 states that are are disadvantaged in terms of net federal spending (paying in more taxes than receiving in federal expenditures), 69% are blue states (11 of the 14 states with the highest net tax pay-in are blue states.

The net federal spending report, from the Tax Foundation points out that the net federal spending or net tax pay-in for a state is affected by political factors such as the power of the Congressional delegation from the state and the state's ability to finesse its spending to maximize federal funding, and non-political factors such as age (social security benefits), per capita income, and percentage of federal employees (D.C., Virgina, Maryland). I would add factors such as weather (hurricane relief to states such as Florida and Alabama), and federal land ownership (western states).

Though I haven't figured out how to post a colorful graphic as Paul has, here is a listing of all the states (and D.C.) along with the partisan composition of their Congressional delegations and the governorship (and the 2000 electoral vote). I'll let readers decide for themselves if there is a correlation with any of these characteristics:

State	Fed Expenditures per Dollar of Taxes	House Delegation (D-R-I)	Senate Delegation (D-R-I)	Governorship	2004 Presidential Vote
New Jersey	$0.62	7-6-0	2-0-0	D	D
Connecticut	$0.64	2-3-0	2-0-0	R	D
New Hampshire	$0.68	0-2-0	0-2-0	R	R
Nevada	$0.73	1-2-0	1-1-0	R	R
Illinois	$0.77	9-10-0	1-1-0	D	D
Minnesota	$0.77	4-4-0	1-1-0	R	D
Massachusetts	$0.79	10-0-0	2-0-0	R	D
Colorado	$0.79	2-5-0	0-2-0	R	R
California	$0.81	33-20-0	0-2-0	R	D
New York	$0.81	19-10-0	2-0-0	R	D
Delaware	$0.85	0-1-0	2-0-0	D	D
Wisconsin	$0.87	4-4-0	2-0-0	D	D
Michigan	$0.90	6-9-0	2-0-0	D	D
Washington	$0.91	6-3-0	2-0-0	D	D
Texas	$0.92	16-16-0	0-2-0	R	R
Indiana	$0.99	3-6-0	1-1-0	D	R
Oregon	$1.00	4-1-0	1-1-0	D	D
Florida	$1.00	7-17-0*	2-0-0	R	R
Georgia	$1.01	5-8-0	1-1-0	R	R
Ohio	$1.02	6-12-0	0-2-0	R	R
Wyoming	$1.05	0-1-0	0-2-0	D	R
Rhode Island	$1.06	2-0-0	1-1-0	R	D
North Carolina	$1.07	6-7-0	1-1-0	D	R
Pennsylvania	$1.08	7-12-0	0-2-0	D	D
Vermont	$1.12	0-0-1	1-0-1	R	D
Utah	$1.14	1-2-0	0-2-0	R	R
Kansas	$1.14	1-3-0	0-2-0	D	R
Nebraska	$1.19	0-2-0*	1-1-0	R	R
Arizona	$1.20	2-6-0	0-2-0	D	R
Maryland	$1.20	6-2-0	2-0-0	R	D
Iowa	$1.22	1-4-0	1-1-0	D	D
Tennessee	$1.24	5-4-0	0-2-0	D	R
Maine	$1.31	2-0-0	0-2-0	D	D
Missouri	$1.32	4-5-0	0-2-0	D	R
South Carolina	$1.32	2-4-0	1-1-0	R	R
Idaho	$1.34	0-2-0	0-2-0	R	R
Louisiana	$1.44	2-5-0	2-0-0	D	R
Kentucky	$1.46	2-4-0	0-2-0	R	R
Oklahoma	$1.47	1-4-0	0-2-0	D	R
Virginia	$1.47	3-8-0	0-2-0	D	R
Hawaii	$1.52	2-0-0	2-0-0	R	D
Arkansas	$1.53	3-1-0	2-0-0	R	R
South Dakota	$1.59	1-0-0	2-0-0	R	R
Alabama	$1.61	2-5-0	0-2-0	R	R
Montana	$1.64	0-1-0	1-1-0	R	R
West Virginia	$1.74	2-1-0	2-0-0	D	R
Alaska	$1.82	0-1-0	0-2-0	R	R
Mississippi	$1.84	2-2-0	0-2-0	R	R
New Mexico	$1.89	1-2-0	1-1-0	D	D
North Dakota	$2.03	1-0-0	2-0-0	R	R
District of Columbia	$6.17	n/a	n/a	n/a	D

Partisan composition data as of 2004 fromhttp://www.thegreenpapers.com/G04/composition.phtml

Spending data for 2002 from http://www.taxfoundation.org/ff/taxingspendingupdate.html

* 1 vacancy

Paul Caron has an item on his TaxProf blog this morning, citing a Washington Post article that quotes the President describing describing the tax code as "a million pages long." He's wrong, because it's supposedly only 17,000 pages (as if that's an improvement).

Had the President described the tax code as being more than a million WORDS long he would have hit paydirt. As of 2000, the last year for which I have a count, the Code contained 1,669,514 words. In 1954, when its predecessor (the Internal Revenue Code of 1954) was enacted, there were "only" 409,421 words.

The number of pages, of course, depends on page size, font size, kerning, and a bunch of other variables. To many people, it feels like a million pages. Perhaps the President uses the large print edition, with one or two words per page. Or perhaps he uses the illustrated edition that has a photograph page for every word. Ever see a picture of adjusted basis?

As of 2000, tax regulations contained 7,307,000 words. In 1954, tax regulations had already crossed the million-word mark at 1,033,000.

I've never seen a count of the words in IRS rulings, court opinions dealing with taxation, and tax commentary. I'd guess more than a hundred million words. My publisher tells me that I've contributed more than a miniscule portion of that total (and that's not counting the legislation and regulations I drafted several decades ago).

So it's partly my fault.

Sorry.

Very low on the national news headline radar, but getting some attention in the sports pages, is the allegedly imminent move of the Expos from Montreal to Washington, D.C. Though baseball's cerebral challenges and its bucketloads of statistics have always interested me, it's the public finance and taxation aspect of the story that gets my attention today.

Negotiations between major league baseball and D.C. officials have progressed so far that the location for a new stadium has been identified. It would be on the shores of the Anacostia River south of the Capitol.

The new stadium would cost more than $400 million. Some of that cost would be expended to acquire the site, which consists of more than two dozen parcels used for a variety of purposes. All are privately owned. This news surely pushed up the value of these parcels. Yet some of these owners don't want to move, and don't want to sell. Unless, of course, they get much more than current market value. If that happens, the price of the stadium goes up.

Major league baseball wants D.C. to fund the stadium. D.C., an area that has had, and continues to have, serious financial problems, which depends on the Congress for appropriations to assist it in balancing its budget, and which can barely provide services to its residents, is being asked to come up with money to pay for a stadium to be used by a bunch of multi-millionaire team owners and their almost-as-wealthy employees. In addition to charging the team rent for use of the stadium, a tax on concessions, D.C. proposes to impose a tax on other businesses, and has set out to try to "sell" this plan to them. In the meantime, three candidates for D.C. Council who oppose public funding won their elections last week. Surprise. The citizens have spoken. So now D.C. is trying to rush this deal to completion before the newly elected members of the council take office.

Once upon a time, if a business chose to move one of its facilities, it found a location, negotiated a price, worked out any zoning problems, and carried on in true free market tradition. That's not how it happens anymore. Businesses that choose to move approach two or more governments and bargain for public financing and/or tax breaks. Sports teams are among the most notorious for seeking public financing of their private enterprises.

The argument that is used by the sports teams and by other businesses is that they are bringing "economic growth" to an area. Therefore, so the argument goes, because they are improving the economic condition of the community, the community ought to pay. Through the government. So governments trip over each other trying to entice the business to their neighborhoods.

There are three huge flaws in the argument.

First, there is no guarantee that the newly arrived sports team or business will bring economic growth. Yet any attempt to obtain a pay back of the governmental financial assistance if the promises of the sports team or business aren't met is rejected. Why can't the team or the business put its money where its mouth is? Simple. They want the risk to be shifted to the taxpayer.

Second, the community gets its chance to pay without the need for tax revenues to be funneled to the team or business. If the team or business is selling something that people want, they will come. They will buy tickets or pay for the goods or services being sold. They will patronize the subsidiary businesses that sprout up around the principal team or business location. They will watch the team on television, pushing up ratings, and increasing the amount of money that networks and advertisers are willing to pay to the team. A tax, in contrast, is a forced extraction of money that lacks the voluntariness of the free market.

Third, the idea that governments need to cave because the team or business otherwise would not locate in the area is tempered by the fact that the team or business needs to locate somewhere. There are only so many cities that can support a professional sports team. Most businesses need to be near a port, or an airport, or a good highway system, or the source of raw materials. No one city can "grab" all the teams or all the businesses, and when a city gets too big in that respect, businesses begin to avoid the city because its success in attracting businesses breeds its rewards of congestion, higher infrastructure needs, crime, and other disadvantages. In the long run, it balances out.

It is interesting that D.C., which could use revenue to fund schools, playgrounds, and other beneficial social services, is expected to come up with revenue for a baseball stadium when it hasn't been able to find the revenue to meet more important needs. And that is one of the reasons there is opposition on the current D.C. council that makes it less than a slam dunk that the proposal would get the necessary approval.

Although other teams have persuaded other cities or states to pay much or almost all of the stadium cost, such as Camden Yards for the Baltimore Orioles, or the new Padres stadium, the tide is turning. The teams in Philadelphia, Pittsburgh, and St. Louis are getting less than half the costs from publicly financed sources. The San Francisco Giants failed to get any money out of San Francisco or California to build their new stadium. What? Government fiscal sanity in California? Indeed.

The history of public funding of private enterprise sports facilities in D.C. is inconsistent with what major league baseball is trying to get. The NHL and NFL arenas were built with private money, though a relatively small amount was spent by public authorities on roads.

One of the reasons D.C. is getting attention from major league baseball is that the other locales trying to lure the Expos are not offering 100 percent public financing. But they are offering a good-sized chunk.

For critics, including myself, the idea of taxing citizens, directly or through business taxes passed on in increased prices, to build a facility for a private enterprise is nothing more than a breach of public trust. The argument that the local or state government is making an investment that will bring returns has been refuted. Andrew Zimbalist, an expert sports economist, does as much in his many writings, and summarizes his findings in this interview. And the citizens of D.C. who had an opportunity to vote sent a concordant message when they elected three council members who oppose the use of public funds to shore up private enterprise.

Let's face it. The Montreal Expos are a business that fell on hard times, mostly through mismanagement and the impact of the player strike. The team cannot survive in Montreal, and it lacks the money to move elsewhere. Hence, major league baseball is trying to make everyone else, but mostly folks in D.C., bail out the team. Why not have the players and owners, whose foolishness led to the strike that catapaulted the Expos into financial oblivion, bail out the team? Is major league baseball playing on the sympathy of low and middle income D.C. citizens to make them willing to bail out a bunch of millionaire and multi-millionaire owners and players? No, with negative D.C. Council reaction looming on the horizon, major league baseball and its cronies in government are trying to rush something through and jam it down the throats of the citizens before the newly elected Council members are seated. THIS is democracy?

Even supporters, such as Michael Wilbon, in his Washington Post article, A Stadium Grows, a City Will Blossom, admits that the economic benefits he claims will result from the proposed deal will not flow back to the citizens. He writes:

I'm not about to argue that any stadium built for a professional sports franchise is going to benefit working class and poor people. Primarily, it's going to benefit folks who own the franchise, and people who entertain in luxury boxes that lease for $200,000 or more per season. But it can greatly benefit businesses that attach themselves to sporting palaces.

It doesn't take much to see where this is going. I admire Wilbon's honesty. I don't understand his sympathy for taxation designed to enrich the already rich.

While the baseball dealings swirl and whirl, the D.C. United soccer team announced that it intended to seek approval to build a new soccer stadium in the vicinity of the proposed baseball stadium. The stadium would be privately funded. How refreshing. Oh, for those who don't know, major league soccer players earn far less than do major league baseball players, whether measured by averages, medians, or maximums.

Somehow, it never fails. A person's financial problems make the news, and sometime later the other shoe drops: the person has tax problems.

A story in today's Philadelphia Inquirer reports that Neil Stein, famous for his several popular, elegant restaurants, was indicted for skimming receipts from his businesses so that he could avoid federal income taxes. He's been charged with filing false tax returns. He's also being investigated for possible mail and bankruptcy fraud charges, as well as more tax charges.

The amount involved in the federal income tax fraud case is $120,000, but the IRS contends that Stein owes $4.5 million in back taxes. It's possible, of course, for tax fraud charges not to attach to all of a taxpayer's unpaid taxes. Plus, the city of Philadelphia and the Commonwealth of Pennsylvania have already obtained rulings that Stein owes $1.1 million in city taxes and $773,000 in state taxes.

Each semester I explain to my students that the worse thing to do when in financial trouble is to avoid paying taxes by hiding income. It's better to file a return without paying the taxes. No fraud, no crime. Lots of aggravation, but no jail time. Stein's bankruptcy lawyer is one of my former students, who is getting a first-hand look at what happens when someone tries to outsmart the IRS.