MauledAgain

Proposals to impose taxes on sugar-containing beverages and to increase taxes on alcohol have resurfaced, this time at the federal level, as suggestions for coming up with the funds required to implement any sort of serious health care reform.

The sides are shaping up in the debate. For example, the Center for Budget and Policy Priorities thinks such a tax makes sense. On the other hand, In The Return of the Soda Tax Proposal, focusing on the one-cent per ounce tax on sugared drinks prposed by Kelly D. Brownell, director of the Rudd Center for Food Policy and Obesity at Yale University, I concluded:

I simply don't think that a tax on sugar-containing beverages, or even a tax on supposed unhealthy foods, will make a difference, because it doesn't attack the root cause of the problem. What activity or item can be taxed when the problem is a psychological one rooted in lifestyle and culture? Even if it could be identified, and I don't think it can be, would it be appropriate to tax it? No.

A google search for " sugar beverage tax 'health care reform'" turns up thousands of hits. Everyone has an opinion.

The advocacy for and against increases in the scope and level of so-called "sin taxes" has brought all sorts of rhetoric to the table, but none tops this comment from Representative Stephen Lynch of Masachusetts, as reported in this BNA article. According to Lynch, "I have one of the most Irish districts in the United States of America and there are folks in my district that would consider a massive increase on the beer tax as a hate crime.” It might be worth noting that Lynch's district includes brewers Samuel Adams and Harpoon.

There are people who hate taxes, and there are people who think that this nation's labyrinth of tax systems is a crime, but this is the first time I've seen or heard taxation described as a hate crime. Lynch's comment can be seen as itself a hate crime, a notion raised by John Cummings in his BizTaxBuzz post on the issue. He simply notes, "No reports yet on whether any of Mr. Lynch’s constituents regard this statement itself as a hate crime." Cummings does not explain why the comment itself might be a hate crime, but one wonders about the implications in the statement by Lynch. The connection between people of Irish descent and drinking, a stereotype prevalent in culture beyond Lynch's observation, suggests both that Irish descent makes drinking inevitable and that there is some sort of Irish monopoly on alcohol consumption of the sort to generate these types of comments. In Drinking Occasions, Dwight B. Heath explains, citing Richard Stivers, "Hair of the Dog: Irish Drinking and American Stereotype, "The stereotype of Irish drinking and drunkenness is still often applied to Irish-Americans, although they actually have a much higher rate of abstention than most other segments of the U.S. population."

Although it appears Cummings was correct when he stated, Sin Taxes Fizzle in Congress, the more troubling aspect of the discussion is not that the proposal was made, for thinking through a proposal, no matter its feasibility, is educational, but that it generated the sort of comment that Lynch put forth. It's troubling not only that he milked a stereotype to make a point that could have been made in other ways, but that he equated taxation to a hate crime. Considering what has happened in the past several weeks in this nation, as violence unquestionably qualifying as hate crimes erupted in too many places, he could have found a better choice of words. Taxation is not a hate crime.

In Forget Lives, Liberties, and Happiness: The Pursuit of Wealth and Power, I responded to two questions posed by Peter Pappas of The Tax Lawyer's Blog. Today, in Tax Law Professor James Maule Responds, Mr. Pappas makes some important and thought-provoking points in his rebuttal. It helps to read these three posts before wading into this one. Mr. Pappas explains that in his comparison of the "wealth-creation artist" to the "symphony-creating artist" he "assumed that each would not pursue their art by engaging in immoral conduct" but that I begin "with the premise that anyone who desires great wealth must be willing to harm others and the environment in order to achieve that end" but that I don't "make the same assumption about the music composer." He's right, except that these aren't premises, but observed outcomes.

Mr. Pappas points out that among composers and other artistic talents one can find people who are "equally or more obsessive and ruthless in pursuit of his or her art than is the wealth-seeker." Absolutely. I did not intend to suggest that all symphony-creators were paragons of virtue, goodness, and sinlessness. Oddly, two of the three examples provided by Mr. Pappas involve artistic genuises who did themselves in, perhaps before they had a chance to engage in or extend the ruthless behavior that otherwise awaited the world. I did intend to suggest that "wealth-seekers" who succeed in accumulating amounts far in excess of their needs do end up, sometimes intentionally, sometimes unwittingly, and almost always remorselessly, imposing huge costs on others, excessively harming the environment, unduly putting the economic well-being and security of nations at risk, engaging in monopolistic or oligopolistic behavior, riding on the backs of others, and unduly infringing the rights of others. By definition, it is impossible to accumulate huge amounts of wealth without pushing others aside, a fact demonstrated by the repeated and unrelenting pursuit of monopolies and oligopolies by the wealth-seekers. In other words, it is possible to become a great artist without exploiting others or damaging the world. By definition, the "pursuers of great wealth" must exploit others and damage the world, for if they were not to do so, the world's resources would remain distributed among all people in rather even distribution, with variations of far less magnitude than exist today. Borrowing from Mr. Pappas, "to suggest otherwise flies in the face of human experience."

Mr. Pappas notes that "the pursuer of great wealth" benefits society by supporting his or her own family and extended family, creating jobs, contributing to charity, paying taxes, and meeting the demand for goods andservices. I disagree. The people who are doing these things aren't pursuers of great wealth. They're pursuers of making a living through independent action. They're entrepreneurs. They probably do provide more for society than do symphony-creators if one accepts a measurement of worth that reflects dollars and that precludes psychic value. No matter, the point isn't whether entrepreneurs are more worthwhile than composers, but whether the power-hungry pursuer of great wealth is a benefit or burden to society. Unfortunately, some of the world's power-hungry wealth pursuers began as enterpreneurs and then ran amok, giving entrepreneurs a bad name. Entrepreneurs create wealth. Wealth seekers desire and take the wealth created by others.

It is important to understand the distinction between a wealth creator and a wealth seeker. The slaves on the Southern plantations created wealth. One problem was that they ended up with very little of it, just barely enough to survive. The same can be said of the track and yard workers employed by the railroad barons and the migrant farmworkers employed by huge agribusinesses. The argument that entrepreneurs create wealth is a truism that misses the point. Yes, entrepreneurs contribute to the creation of wealth by providing services in the management of workers, the organization of projects, the implementation of ideas. And most entrepreneurs generate some modest amount of return, compensating them for their efforts. Most entrepreneurs earn not much more than their employees. Most entrepreneurs don't try to stomp out their competition. Most entrepreneurs end up being destroyed by the monopolists and oligopolists. Most entrepreneurs are wealth-creators, but they, just like the workers, become the victims of the wealth-grabbers.

As the wealth-grabbers muscle their way into domination and control of a market, entrepreneurs face the choice of closing up shop, caving in and selling out, or becoming yet another money-grabber. Whether the product is illegal drugs or operating system software, black market alcohol or telecommunications, this is how the modern but damaged capitalist system plays out. Greed, and psychological addiction to money and power, infect the market place. Among the billionaire wealthy are those who claim they needed to do what they did in order to survive, while their employees scrape by on minimum wage. Survival for the latter means this evening's dinner, whereas survival for the former means keeping within striking distance of whoever currently tops the asset ownership list.

The problem isn't the entrepreneur who earns twice or three times, or even ten times, the average compensation of his or her employees. It's the CEO or conglomerate owner who pulls in pay and perks that are thousands and tens of thousands times the average salary of the rank-and-file. However one puts a value on what the wealth-seeker creates, it surely isn't tens of thousands times the value of what the minimum wage employee produces. Either those employees need hefty raises, or the CEO and conglomerate owner need pay cuts. For those who claim that CEO and similar pay is determined by "the market," keep in mind that few people enter that market, that it is a market frequented and controlled by a handful, and that the reciprocal and mutual treasure-dividing is out-of-bounds for most people, including the entrepreneurs who seem to think that criticism of the wealth-grabbers threatens the well-being of the wealth-creating entrepreneur.

Joe Kristan, of Tax Update Blog, commented on Mr. Pappas' post by adding "well-meanng meddlers who hobble honest wealth producers with high taxes and foolish regulation cause far more harm than dishonest wealth-seekers." Joe and I will need to agree to disagree on this one. If the wealth-grabbers didn't hobble the environment, would we not see reduced government spending on, and thus less need for taxation to fund, environmental remediation? Would we not see less need for environmental protection regulations? If the wealth-grabbers paid living wages instead of controlling markets so that a store manager was valued at 1/10,000th of the CEO, would we not see reduced government spending on, and thus less need for taxation to fund, social services? If the wealth-grabbers' companies funded the rank-and-file retirement plans as generously as they do those of the big-wigs, sould we not see reduced government spending on, and thus less need for taxation to fund, social security? Would we not see less need for deferred compensation regulation? If the greed merchants made full and fair disclosure and did not package junk into derivatives, would we not see reduced government spending on, and thus less need for taxation to fund, rescue of the afflicted? Would we not see less need for financial market regulation? The saddest part of the entire debate over wealth and taxes is that the very rich have persuaded the not-very-rich into arguing for the very arrangements that, if continued, will guarantee increasing centralization of wealth in a very few and continued destruction of the wealth-creating, make-a-living-not-a-killing entrepreneur. Increasing income tax rates, for example, on taxable incomes exceeding $1,000,000 and increasing them even more on taxable incomes exceeding $10,000,000 isn't going to hamstring the honest make-a-living entrepreneur, but it should provide some, hopefully enough, disincentive for the amassing of even larger accumulations of wealth and attendant incomes through the make-a-killing lifestyle. Given the choice between letting an elected government take the money and run things, or letting a self-appointed nobility, excuse me, oligopoly, take the money and run things, I'll vote for the former.

Mr. Pappas concludes by pointing out that "many great artists have been funded by rich patrons." Patrons, he notes, that are the "very same types he castigates as obsessive, greedy and dysfunctional." He claims that "[w]ithout a Lorenzo de Medici there would have been no Michelangelo." We don't know that. Absent a parallel universe, there's no proving nor disproving this claim. We do know there was a Michelangelo doing things before he connected with the de Medici. We do know that he eventually came to realize that repressiveness of the de Medici wasn't worth it. Surely an apologist for the de Medici might claim that THEY (not only Lorenzo but his son and others) created the art of Michelangelo. Hah. And even if it could be proven that Michelangelo would have accomplished less than he did, or nothing, it would not have justified the behaviors of the de Medici. A few centuries later, in the same European peninsula, someone discovered that making the trains run on time isn't enough to justify the greed. In the long run, wealth grabbing is a very poor idea.

My post of several weeks ago, Pay Taxes, Be Happy, has triggered two questions for me from Peter Pappas of The Tax Lawyer's Blog. In Tax Happiness: Inventors of Sauna Happier than Inventors of Polio Vaccine, he asks of me:

Why do you assume that a person having a self-interested life goal of maximing wealth is any less noble than a person having a self-interested life goal of creating a transcendent symphony?
Why can’t “making a killing” be my art and composing a symphony be yours?

Before answering, permit me to highlight the points I made in Pay Taxes, Be Happy, because it will help to see where Mr. Pappas is extracting his conclusions that I take the position that "a person having a self-interested life goal of maximing wealth is any less noble than a person having a self-interested life goal of creating a transcendent symphony" and that I object to his treating "making a killing" as his art and composing a symphony as mine. I understand he is speaking in metaphors because neither he nor I think I'm about to write a symphony, now or forevermore, and he and I both know that being a tax professional pretty much kills our chances of "making a killing."

In Pay Taxes, Be Happy, I examined the premise by Thomas Kostigen, in The Happiest Taxes on Earth that the reason people in high-tax nations are happier than those in lower-tax nations is less concern about procuring the essential services extensively provided by governments in the former and far less extensively provided by governments in the latter. I suggested that another factor for unhappiness with taxes is the perception, on the part of some, of taxes as nothing more than a reduction in the possibilities of accumulating wealth. I noted that if the extent to which governments provided needs was the determinant with respect to happiness and taxes, then one would expect the deepest unhappiness about taxes to come from those whose basic needs have not been met, but yet the crusade for the elimination of taxes on everything but wages has been led by those already swimming in huge amounts of wealth. I asked a question, namely, "Why are some people content to make enough, or perhaps not quite enough, to meet their basic needs while devoting their lives to a career, occupation, or profession that fulfills them in other ways while others are so intent on 'making a killing' that they never find happiness even as their after-tax incomes skyrocket?" I also asked, "Is it possible to be so addicted to money for its own sake that resistance to taxation, even when that taxation procures benefits, is unavoidably wired into the person's psyche?" Though it should be easy to guess how I would answer the second question from the way I phrased it, I do not know the answer to the first question that I posed. I doubt psychologists and other mental health professionals can give us a definitive response.

Turning now to the questions from Mr. Pappas, I respond to the first by explaining that although we don't know why some people are obsessed with accumulating wealth beyond what is required for life, we do know that the obsessive pursuit of wealth generates a variety of life difficulties, dysfunctions, propensity toward unwise and even illegal behavior, intensification of other addictions, and a variety of other ills. In the long run, an individual's pursuit of wealth harms society. In contrast, those who put other values ahead of wealth accumulation for its own sake or for the sake of acquiring disproportionate power end up benefitting society, whether through unpaid volunteer work, dedication to underpaid careers such as nursing and hospice care, or even, I suppose, through the creation of a great symphony or work of art. A world filled with hospital aides, Red Cross volunteers, inner city mural artists, and minimum-wage-earning services workers suggests a more peaceful, nurturing planet that one filled with greedy, money-obsessed, wealth-accumulating power addicts adept at shifting cost onto others. And that leads to the answer to the second question from Mr. Pappas.

There is nothing wrong per se with someone trying to turn "making a killing" into his or her art. The problem is that doing so is guaranteed to harm society. Is it possible to make a killing without imposing huge costs on others? Is it possible to make a killing without excessively harming the environment? Is it possible to make a killing without unduly putting the economic well-being and the security of nations at risk? Is it possible to make a killing without engaging in monopolistic or oligopolistic behavior? Is it possible to make a killing without riding on the backs of others? Is it possible to make a killing without undue infringement of the rights of others?

When one examines the lives of the "captains of industry" who made killings in the late 19th century, or the biographies of those who reached billionaire status during the 20th century, one finds all sorts of social evils being generated and compounded by the practices that were put in place. How many track and yard workers died so that the railroad barons could live in a luxury that probably hastened their own deaths? How many Ford Pinto owners, drivers, and passengers died so that anonymous shareholders could maximize profits? How many retirement finances were destroyed so that the big-wigs of Enron and dozens of other enterprises, some known, some yet to be outed, could wallow in money? How many jobs were lost because speculators, gamblers, and money addicts wanted to squeeze non-existant profits out of derivatives? Perhaps they call it "making a killing" because it kills so many people, destroys so many jobs, and ruins so many lives?

Next, turning to a question not asked by Mr. Pappas, I wonder if his list of "Great American Inventions and Discoveries" and "Great Nordic Inventions and Discoveries" proves the point that he seems to be trying to make with it. First, his list of "Great Nordic Inventions and Discoveries" is rather short. It suggests that there are so few. He lists the sauna and "the secret foreign bank account." He doesn't mention the discoveries and inventions of Niels Bohr, Jakob Nielsen, Peter Toft, Kragh and Jorgensen (the Kragh-Jorgensen rifle (used, incidentally, by the US military)), Peter Laurits Jensen, and Hans Christian Oersted (who discovered electromagnetism). And those are just the Danes. How about Anders Celsius, Carolus Linnaeus, Svante August Arrhenius, Kai M. Siegbahn, and Alfred Nobel? Those are but a few of the Swedes who have contributed discoveries and inventions that are used throughout the world. Finland gives us, to name two, Eric Tigerstedt and Artturi Ilmari Virtanen. From Norway, there's Ole Evinrude (for the curious, he invented the outboard motor), Jens William Aegidius Elling, Tor Sornes, and Erik Andreas Rotheim, among others. Second, the population of the United States, currently more than ten times the populations of Finland, Norway, Denmark, and Sweden combined, needs to generate ten times as many inventions and discoveries just to keep pace. I wonder if perhaps there is a higher proportion of scientific discovery in the Nordic countries because they're willing to impose taxes to fund education of a higher quality. Third, some of the discoveries that he puts on the American list were made at times when the tax rates were high. So perhaps it would make sense to have the list sorted into "Great Inventions and Discoveries Produced During Low Tax Times" and "Great Inventions and Discoveries Produced During Higher Tax Times" rather than assuming that taxes in America have always been lower than those in the Nordic nations. Fourth, when attributing discoveries and inventions to a supposedly low-tax America, one needs to consider the issues of whether Bell, or the Italian Meucci, invented the telephone and whether Edison, or the German Heinrich Goebel, invented the light bulb, to give but two examples of mis-attribution.

Finally, the irony in using inventions and discoveries as some sort of proof that low taxes are best, Mr. Pappas turns our attention to the too common story of the money generated by an invention or discovery going not to the person whose skill, sweat, diligence, persistence, and creativity benefitted the world, but to the appropriators who turned the gift to their own advantage. I stand by my conclusion in Pay Taxes, Be Happy:

Yet the implied suggestion in Kostigen's observation won't matter to those who are so addicted to money that they would no more adjust their attitudes toward paying taxes than they would relent in their distaste for paying for anything. They want it, they want it all, and they want it now. For them, Queen wrote their anthem. Nothing in a tax code, nothing on a "your taxes at work" sign, nothing in a blog is going to cure the deep insecurity that drives this distaste for paying taxes. Sadly, nothing, not even all the wealth in the universe, can satisfy these people and bring them happiness. Somewhere, somehow, someplace, something didn't get through to them. Even if they cannot change, perhaps the focus should be on preventing them from warping the minds of those whose resistance to paying taxes would diminish if they understood what they were getting for the taxes that they paid. It ought not cost much to do this, and there's no good reason to pass up on the opportunity. The public officials who undertake this effort will be happy that they did so.

It ought not be difficult to understand that, in the long run, our prospects are brighter if the nation runs as a cooperative team of citizens and not as a collection of money-crazed killing-maker wannabes deluded into thinking they will become like those who have managed to splinter the pursuit of "life, liberty, and happiness" and who want to rewrite the core document as "the pursuit of wealth and power by those of us who have appointed ourselves to run things." It is for that reason that I would support the proposition that accumulating good deeds is more noble than accumulating wealth.

Courtesy of Paul Caron's Tax Prof Blog posting, The High Tech Alternative to "My Grandmother Died," I became aware of an Inside Higher Ed article, The New Student Excuse?, in which the author explains that a new web site is offering corrupted files for sale. Why would someone want to pay for a corrupted file, considering that usually we find people paying experts to salvage data from a corrupted file? The gist of this new "service" is to provide a means for students to buy time when they've missed or are about to miss a deadline for a paper or other assignment. The student is advised to rename the purchased corrupted file with a name that is consistent with the assignment and to send it to the professor. Supposedly, the professor will invest "several hours if not days" to discover that the file is corrupted. This delay, the student is told, provides time that can be used to finish the paper. The sales pitch contends that this approach is far better than claiming that one's grandparent has died.

The web site tries to distinguish the services it offers from cheating. Hello? Procuring extra time to do an assignment is cheating, if it is done through deception and not, for example, by a request for an extension or by qualification for disability accommodation. Considering that the website sells files of various sizes, to correspond with assignments of varying lengths, the purpose of the "service" offered by the website is obvious to anyone with a functioning brain.

What is the identity of this web site? At first I thought it best not to give publicity to this outfit. Then I realized that its existence is already known by most students and that it is the less web-savvy professoriate that needs to be made aware of what is happening in cyberspace in terms of the corrupted file ploy. After seeing the "Keep this site a Secret" tag on the website, and even though understanding that there probably is some reverse psychology at work, I decided to disclose the URL: It's Corrupted-Files.com, perhaps one of the most superficially and textually correct but substantively disingenuous web site names out there.

According to the The New Student Excuse? article, the owner of the site, whose identity is hidden, claims the site was created "as a goof," that there was no intention to sell files, but that business has been on the order of three or four downloads a day. The owner explains that this was a technique the owner used in college. The owner explained, "I didn't have much time to do my schoolwork. When I couldn't get an extension, I sent my professors a corrupted file to buy me time. I know this was not the most ethical thing but as a young entrepreneur, I did not have much of a choice as I valued my employees well above my academics." Sorry, site owner, but if you value people more than academics, you don't put your classmates to the disadvantage they suffer when you buy yourself extra time that isn't within the rules of the course. And if sales were not intended, why does the site have a "Buy Now" icon that, when clicked, lets the user make a purchase through payment options that required the site owner to establish? The claim that there was no intention to sell files is inconsistent with the existence of the purchase option. In short, it's not believable.

The site owner claims that the corrupted file ploy is not cheating. How so? Says the site owner, in describing how the question was answered when posed by a faculty member: "Well ... it's a fine line Prof. H. It's basically just a good excuse vs. outright cheating. Let's face it, how many times have you heard, 'I had a family emergency' or 'my grandma passed away?' I am simply offering a better excuse. It's not cheating in the traditional sense as the student is still doing their own work and not using a roommates' old paper or being foolish enough to purchase one online. If the student is desperate, it is fair to assume he/she has considered these paths. In such a situation, would you rather have a student make up an excuse and hand in their own work a bit late or submit someone else's work on time?" The owner of Corrupted-Files.com seems to think that the only definition of cheating is using another's work as one's own. Cheating involves accessing the test questions illegally before the test is administered, altering grades after the fact, and lying about the reason a deadline is missed. Defending the corrupted files ploy as acceptable because it's simply another way of accomplishing what others have been accomplishing in other ways is much like defending shooting as simply another way of accomplishing what people have been accomplishing through stabbing and poisoning. That it is different doesn't make it any better.

Asked why the site has not been taken down, the site owner explains that his current business colleagues and employees think it is humorous. You've got a sick sense of humor, folks. But that's not the real reason. The site owner added: "Plus, it does help students save face with their professors as CF is an alternative to buying a paper online or using a friend's old paper. CF simply buys the student time and encourages them to do their own work and not to procrastinate next time around." Excuse me, how does this site encourage people not to procrastinate? It enables their procrastination by saying, in effect, "If you waste time, if you miss deadlines because you're partying and don't have a valid excuse acceptable to the faculty member, here's the antidote." There is absolutely no incentive, no adverse consequence, that teaches any lesson that would be interpreted as, "Grow up, take responsibility, learn to manage time, tell the truth." Absolutely none.

Now some advice to faculty who buy into the corrupted file excuse. When I assign work that requires a short answer, I insist that it be sent in the body of an email and not as a file attachment. This is one reason. I don't like files because they use email server space, take time to open, potentially carry viruses, and slow down the grading process. When a file is necessary, for example, a directed research paper, I open the email when it is received, so there is no delay, or, at worst, a very short delay, in discovering if the file is corrupted. If it is corrupted, I would request a copy of the backup. If there is no backup, the student would learn that making backups is a law practice skill and failing to make backups is a reason not to be considered ready for law practice. Interpret that as one wishes. I would explain to the student that no client would accept the collapse of a deal because of a fake corrupt file, and that no court would accept a late filing because of a fake corrupt file. Assuming that the client or court won't get wind of what is happening, though it may take time, is foolish. One instance of this ploy and one's professional career is over, or ought to be. There are enough honest people wanting to be lawyers that there's no point in hesitating clearing the dishonest folks out of the profession to make room for the people with integrity.

The reason that these sorts of "games" are being played is that the people playing them think that it is acceptable. It is a cultural problem. It's not simply that someone doesn't understand how cheating comes in more forms than using someone else's work or that someone doesn't understand that faking a problem in order to buy time that is not otherwise permitted is wrong. The deeper problem is a lack of consideration for other people. A truly considerate person does not take advantage of another person by cheating. An interesting indication of this post-modern cultural phenomenon is found in the recent claim by IndyCar racer Danica Patrick that using performance-enhancing drugs would only be cheating if she got caught. According to a recent report, Patrick claims she was joking. I suppose she was joking just as the Corrupted-Files.com site owner thinks what is being done is a "goof" and "humorous." How many people heard Patrick's statement but not her belated and weak explanation? How many of those people are youngsters, particularly young women, who look up to her? What sort of message did she send?

I don't buy Danica Patrick's statement, joke or no joke. If the definition of something turns on whether the person gets away with it, the entire social structure of civilization has been turned upside down. If someone breaks into Patrick's home, steals her property, and manages to get away with it, should her insurance company reject her claims because there was no burglary? If someone takes her car and isn't caught, has there been no auto theft? What if someone forcefully has their way with her without her consent? Would there be no crime if the perpetrator is not caught?

In her explanation and apology, Patrick noted that there is concern about the use of performance-enhancing drugs and that the problem, particularly as evidenced by recent issues in baseball, is real. She admitted that "kids" think they need to do this to get ahead, and that it is "very dangerous." The issue, though, goes beyond the use of performance-enhancing drugs. It goes to the root of Patrick's more broadly applicable comment, "Well, then it's not cheating, is it? If nobody finds out?" Yes, it is cheating. And it is cheating whether it occurs on a race track or in a classroom, with illegal drugs or faked corrupted files, whether the person is caught or not caught.

Fortunately, as is the case with Corrupted-Files.com, people are speaking out adamantly to reject the message imbued in Danica Patrick's response. The reason that cheating is so wrong is evidenced by this statement by Travis Tygart of the US Anti-Doping Agency: "Although joking about the use of dangerous and unhealthy drugs that cheaters use to rob clean athletes of their dreams is no laughing matter." And that is what cheating does. It steals grades from honest students, trophies from clean racers, dignity from victims, and justice from society.

Another case involving the deduction of in vitro fertilization expenses has been decided by the Tax Court, but this time the issue isn't whether the treatment is a deductible expense but whether the taxpayer's source of the funds makes a difference. Late last year, in Are In Vitro Fertilization Expenses Deductible? I described Magdalin v. Comr., in which the Tax Court held that a man was not allowed to deduct the costs of having an anonymous female donor's eggs fertilized with his sperm and of having two other women carry two of the embryos through the gestation period. In the latest case, McGrath v. Comr., the IRS did not dispute that in vitro fertilization services provided to a married couple constituted medical care. Instead, the IRS contended that the amount paid was not deductible by the couple.

In McGrath, the married couple entered into a contract for in vitro fertilization services. The contract provided that if the services were not successful, a full refund would be made to the couple. The wife's father decided that he would pay the invoice as a wedding gift to the couple. Three years later, the procedures having failed, the couple received a refund of the fees.

The IRS argued that because the wife's father paid for the services on her behalf, she did not pay the medical expense and thus was not entitled to a deduction. The IRS cited five cases in support of its proposition that "taxpayers are not entitled to deduct medical expenses which they did not pay or which were reimbursed by some other source." The IRS paraphrased section 213, which allows the medical expense deduction for medical expenses "not compensated for by insurance or otherwise." The taxpayer did not file the pretrial memorandum or the brief that the Court ordered her to file, and thus the Court explained, "We do not know what petitioner's position is." Deciding that no error in respondent's determination or analysis was apparent, the Court held for the IRS, without getting into unspecified "[a]lternative arguments made in respondent's brief."

One way of looking at this case is that it's a simple matter of a taxpayer who failed to present an argument and thus lost by default. As such, it wouldn't mean much because the next taxpayer might take advantage of the opportunity to explain to the Court why the IRS allegedly is wrong. However, the Court's explanation that "no error in respondent's determination or analysis is apparent" suggests that the case is more than a default but rests in part on the Court's approval of the IRS argument.

Another way of looking at the case is that because the fees were reimbursed, the outcome makes sense even without any arguments from the taxpayer. The flaw in this perception of the case is that there is a difference between a deduction in one year and gross income in a later year on account of the refund of the fees and a simple lack of deduction in the first year. There are two reasons for the difference. One is the possibility that the taxpayer's marginal rate in the earlier year is higher than the marginal rate in the year of gross income from the refund. The other is the certainty of time value of money.

Yet another way of looking at the case is to explore the sense of the IRS proposition to the extent it stands for a principle precluding medical expense deduction if the check is written by another person. There is no question that if the taxpayer had been reimbursed by a third party under contractual obligation to do so, there is no deduction for the taxpayer. The payment of the medical expense by the third party, such as an insurance company, is a payment that would not have been made absent the medical treatment and the resulting medical expense. However, when the payment comes in the form of a gift from someone under no obligation to make the payment, should the medical expense be treated as reimbursed? The better argument is no, there is no reimbursement because there is no obligation. If the argument, however, rests on the assertion that the taxpayer did not pay the expense, then a taxpayer in a similar situation is best advised to have the donor write a check, not to the medical service provider, but to the taxpayer. That makes it possible for the taxpayer to write a check to the medical service provider. The taxpayer has paid the medical expense and the barrier to deduction raised by the IRS does not exist. Had the taxpayer borrowed the money and wrote the check, the deduction would have been permitted. What if the lender wrote the check to the medical services provider, considering that lenders often wish to see the money go where the borrower claims it is going? The deduction would be allowed, on the theory that the lender is writing the check on behalf of the taxpayer. Then how does one reconcile this analysis with the position argued by the IRS, and seemingly accepted by the Tax Court, in a case in which the facts state that the medical expenses in question were ones "her father paid on her behalf"?

The cases cited by the IRS involve medical expenses reimbursed on account of an obligation. In Morgan v. Comr., 55 T.C. 376 (1970), the taxpayer was compensated for medical expenses through a settlement of his tort claim. In Litchfield v. Comr., 40 T.C. 967 (1963), the taxpayer was compensated for medical expenses by payments from other parties to a legally enforceable multiple support agreement. In Robertson v. Comr., T.C. Memo. 2000-100, aff'd, 15 Fed. Appx. 467 (9th Cir. 2001), taxpayer introduced into evidence checks drawn on joint accounts maintained either with her mother or her sister, signed, with one exception, by the mother or the sister, causing the court to question whether the payments were for medical treatment of the taxpayer. The court also noted that the taxpayer did not prove who provided the funds in the joint account and under what circumstances the checks were written. In Hill v. Comr., T.C. Memo 1978-98, the taxpayer proved that he wrote checks to pay certain medical bills for which he was not reimbursed, but did not prove if other bills were paid by him or at all nor that he was not reimbursed. In Doody v. Comr., T.C. Memo 1973-126, the taxpayer failed to prove that she incurred any medical expenses, and failed to persuade the court that she was entitled to a deduction for acting as a self-insurer or for the value of self-treatment.

With the exception of the Robertson case, none of these cases bears on the question of whether the payment of medical expenses with funds received as a gift are not deductible because the gift is the equivalent of "insurance or otherwise." In Robertson, the issue would have been presented directly had the taxpayer proved that she was entitled to the funds in the account without any obligation to repay those funds to her mother or sister. In other words, unlike McGrath, Robertson did not prove that she received a gift from her mother or sister.

Whichever way one takes the analysis, the tax law is muddied. If the IRS would not have challenged McGrath had the check been written by her to the medical services provider after cashing a wedding gift check from her father, then the IRS is exalting form over substance. If the IRS would have challenged McGrath even if her father wrote her a check and she then used the money for the medical treatment, the IRS is putting a significant number of medical expense deductions at risk, because it is not unusual for family members to give cash to a relative in need of medical treatment. Worse, the tracing rules that would need to apply would resemble the insanely complex interest tracing rules. One would need to prove that the cash from Aunt Minnie was used for food and not medical bills even though the gift and other sources of money were commingled in the same checking account of the taxpayer.

The bottom line is that McGrath's father was not compensating her. He was not her insurer. He was not under any obligation to provide funds. He simply made a gift. That is very different from the tort claim settlement in Morgan, the contractually enforceable reimbursement in Litchfield, the inadequate evidence in Hill, or the self-treatment concept in Doody. It is unfortunate that the taxpayer did not present these arguments, but as often happens with pro se litigants, the lack of adequate representation of the taxpayer puts the Court in a very difficult position.

The sum involved in McGrath was substantial. It was a fee of almost $35,000. It would behoove taxpayers to exalt form over substance, if for no other reason than to make audits less likely because under this arrangement the taxpayer can produce a check written by the taxpayer, something that McGrath was unable to do.

With tax law being so wrapped up in various health care reform proposals, one hopes that this sort of problem and others like it are resolved in ways that don't make tax law or health law more complicated. Americans, whether healthy or ill, don't need this sort of nonsense.

More than a year ago, in The Return of the Federal Gasoline Tax Increase Proposal, I reacted to the proposal by the National Surface Transportation Policy and Revenue Study Commission (NSTPRSC) for an increase in the federal gasoline tax. I explained why the opponents of an increase, as well as the advocates of a reduction, suspension, or elimination of the tax, weren't looking realistically at the situation. It's a topic about which I've written many times, and that previous posting has links to most of the essays that I've provided on the topic. Early this year, I revisited the proposal in Whatever a Tax Increase is Called, Someone Needs to Sell It. But not much has been happening.

At a hearing earlier this week, Senator George Voinovich, a Republican from Ohio, commented that an increase in the gasoline and diesel fuel tax was "unavoidable." According to this editorial, his comment followed the disclosure by Senator Barbara Boxer that the Federal Highway Trust Fund may run out of money by August. The editorial opposes any increase in the tax. So, too, do many Americans.

I do not understandthe anti-tax sentiment when a tax is paid for direct benefits. Among my questions for the anti-tax crowd are these: "What do you propose be done? Should the nation's highways and bridges be permitted to deteriorate so that there are more incidents like the bridge collapse in Minnesota? Would you prefer a tax on everyone but yourself or yourself and your friends? Is this really about your insistence that you can go straight from the left-turn lane because you are special? Does your position reflect some sort of philosophy that you should get what you want for nothing? Are you unable to recognize that highways and bridges aren't free and that someone must pay for their construction, maintenance, and repair?"

Some of the group that opposes increases in the gasoline and other fuels taxes claim that an increase would, to quote the editorial, "damage the economy badly." I disagree. If the gasoline tax is not raised, roads will fall apart. The goods that are shipped by truck will be delayed in reaching their destinations and might not be delivered at all. Would that be good for the economy? On the other hand, faced with higher overall gasoline costs, Americans may think seriously about getting rid of the fuel-gobbling vehicles and replacing them with alternative transportation. Yes, it would be economically painful in the short-run, but it would generate long-term benefits. Post-modern American culture, characterized by "I want it all and I want it now" and afflicted with the urge to kill the goose that lays the golden eggs, has been poisoned by an inability on the part of most people to think in long-term increments. Highway deterioration is but one of the many catastrophes that loom for this nation if people don't restructure the way their short-term outlook masks long-term realities.

Technically, an increase in the gasoline tax is NOT an increase in what a person pays for gasoline. It's an increase in what drivers are charged for upkeep of the roads that they use. It would be much easier to make this point if the gasoline tax were separately invoiced, because those little stickers at the gasoline pump disclosing the portion of the per-gallon price that is remitted by the station operator as taxes doesn't seem to get through to people. This is yet another reason I prefer the mileage-based road fee in lieu of the gasoline tax, As I explained in Change, Tax, Mileage-Based Road Fees, and Secrecy, I am a fan of the mileage-based road fee, and although the NSTPRSC recommended one, it was disappointing that some unidentified someone in the Administration nixed the idea before the public could be educated about it.

August is only two months away. At best, the end of August is almost three months away. Time flies. The snails-pace style of Washington is going to steer this nation into a transportation disaster. The knee-jerk anti-tax crowd isn't doing anyone any favors, including themselves. When cars fall off bridges, no one is there to give special treatment to the folks who at the moment are proud of their opposition to the idea that drivers ought to pay for the transportation network that they use.

In his Philadelphia Daily News column, "Budget Will be Late, Painful", John Baer, after predicting that Philadelphia's sales tax and Pennsylvania's income tax will increase, posed this challenge:

Maybe somewhere in the process, someone can explain: (a) how so many families go year after year without increased income - and sometimes less income - yet manage to make ends meet, while government spends more every year no matter what; and (b) if so many government programs do such good and needed work, why it seems that the needs never lessen.

These are good and important questions. It's not the first I've heard them. The first has been asked of me during the past decade on many occasions.

Is it established that "many" families manage to make ends meet? I think not. I think that many families appear to make ends meet but are doing what governments do, namely, borrowing and borrowing. This, of course, begs the question, so what of the families that do make ends meet and that are not deep in debt? The answer is that some people, very small in numbers, know how to cut back and, better yet, know how not to over-extend in the first place. It's not so much a question of economics and taxes but a question of outlook on life. Once upon a time, with few exceptions, Americans shared the belief that one earned what one wanted, one "saved up" for planned purchases, one learned how to get by without things that others had but that weren't absolutely essential to survival, and that no one was entitled to something simply because it was desired. During the past five or six decades, that attitude has eroded into a philosophy shared by a shrinking minority, though perhaps circumstances will push it back into vogue. A variety of interlinked factors coalesced into an approach characterized by "I want it and I want it now." Advertisers persuaded adults and children alike that the newest and latest, often just a tweak of a perfectly good not-so-new item, was essential to life. Peer pressure among children became difficult, for some reason, to resist, perhaps because it is easier to borrow and spend to stop a child's insistent begging than it is to teach fiscal and budgetary responsibility to one's offspring. More and more people measured their self-worth by what they owned rather than by who they were and what they did unto others. A materialistic culture, permeated by the "me first" hallmark of the "me generation," as my late American Civilization professor at Penn put it, overwhelmed common sense and logic. Fewer and fewer people learned how to control spending and live within their means.

With this understanding, it is easier to explain why "government spends more every year no matter what." The pressure that children put on parents to buy them every toy or gadget owned by someone in their peer group translated into pressure by voters and citizens on governments to provide them with goods and services, often justified by the "if they get it, I get it or something else" outlook on life. Over time, more and more legislators came from the generations that had not learned fiscal restraint and that were accustomed to a life in which every or almost every request received a favorable response. Learning to say no, an attitude hawked by some politicians as the answer to eliminating drug abuse, did not become a part of the legislative lexicon when it came time for law makers to deal with their spending addiction. Needless to say, legislators who say no aren't legislators for very long, because the voters have a power that children don't have over their parents, namely, they kick out those who are trying to be responsible in favor of those willing to spend other people's money in order to acquire and retain political power.

A technical point is in order. So long as population grows each year, government spending will grow simply to keep up. The question ought to refer to "per capita spending." Even so, Baer's question would remain and would illuminate the same point had the words "per capita" been inserted after the word "more." Per capita spending increases because voters want more and more. The word to use might be "insatiable."

The second question is a trick. It implies that "so many government programs do" NOT "do such good and needed work." It is easy to list the government programs that have done marvelous things for life in this country and throughout the world. Government spending, for example, put people on the moon, a feat that in and of itself may have purchased some sort of ego gratification for some Americans. But the side effects of the government-funded research that went into the space program are numerous, affecting all sorts of technologies that impact the daily lives of most people. In those days, the space program was well managed and the money well spent. Government spending has cleaned up the air and water polluted by the seemingly more cost-efficient private sector. Had private industry paid the true cost of its so-called "free market" endeavors, government spending would have been reduced and the supposed supremacy of private enterprise would have been subject to even more doubt. Government spending on education has reduced the number of ignorant people that would be wandering the planet, and in the long run increases the chances of important discoveries or advances coming our way courtesy of someone whose brain has been put to good use because government-funded education stepped in where parental neglect would have guaranteed another individual incapable of self-sufficiency.

The answer to the second question rests not on the flaw in its premise, but on the realities of life. Government funding helped make polio a thing of the past but that didn't mean there would be no need to spend even more money on research to deal with HIV, ebola, swine flu, and a long list of diseases waiting to step in and provide health challenges after a government program indeed successfully solved a particular health crisis. Tuberculosis was almost wiped out, but returned with a vengeance, in part because people do not follow appropriate procedures when dealing with their own health and hygiene. Perhaps cuts in government funding for health education had something to do with this? The notion that government financial assistance to solving a problem is wrong because the problem isn't solved, or is replaced by another, itself is flawed because it overlooks the role of government funding as a partner in a larger endeavor that requires people to step up and take responsibility for their own actions. Government spending on health care, for example, could be reduced if people acted more sensibly when it comes to nutrition, exercise, smoking, and other risk-taking. But as is the case with children who learn very little about responsibility about fiscal matters when parents dish out the funds without accompanying education or enforcement of rules, so, too, when governments pay for health care without compelling recipients to acquire health and fitness education or to abide by health-preserving rules, the outcome is a black hole of expenditure. How many citizens are willing to pay for government health care assistance by subjecting themselves to compliance with government health care rules? Probably about as many children who are willing to pay for benefits from parents while subjecting themselves to obedience to their parents. It's easy to agree in order to get what's wanted, but it's also too easy to break the promises.

The unusual characteristic of government spending is that it is nothing more than citizen spending. Citizens elect legislatures. Citizens make demands on legislatures. Citizens vote for legislators who dish out benefits of one kind or another. Some of the citizens most demanding of government services, direct or indirect, are among those most demanding of tax cuts. A politician running on a platform of citizen responsibility will garner few, if any, votes. Until that changes, the downward spiral will continue.

Over on AnswerBag someone named morrisonhimself asked an interesting pair of questions: "If taxation is not theft, what is it? If theft is defined as taking from another by use of force, how can taxation not be theft?" From "Im Alec" came a good response, one that causes me to suspect "Alec" has engaged in some legal studies and perhaps is a lawyer. He explained that theft is not the taking of something by force. He gave examples of when taking by force is not theft, and when theft can exist without the use of force. That prompted morrisonhimself to attempt, unsuccessfully, to amend his question to add "initiatory" before the word force. I don't think doing so would change the analysis.

"Alec" proceeded to note that "it is a matter of debtate whether the government is entitled to levy taxes, and how much they are entitled to do so." He noted that if governments have that right, tax collection is not theft. "Alec" then attempted to demonstrate that taxes are equivalent to membership fees, the price paid for being a member of an organization. So morrisonhimself countered by explaining that he had not "joined" the government that compels him to pay taxes. He then described the Soviet Union's response to people who wanted to leave, namely, requiring them to repay the country for the education that they had received. He concluded by alleging that no one ever asked him if he wanted this, and asked how one can be expected to pay for something that is "forced" on that person.

The difficulty with understanding most taxes is that people do not see the connection between what they pay and what they get. Surely morrisonhimself cannot claim that every benefit ever bestowed on him by the government, or every privilege ever claimed by him that was provided by tax dollars, was unwanted. This is why user fees are easier to understand and easier to explain. Would morrisonhimself object to paying tolls for using a toll highway? If he can accept that charge, why would he object to paying taxes that fund the traffic signal that prevents him from being t-boned at an intersection, the snow plows that remove the snow from the highways on which he drives, or the weather information of which he avails himself that is made possible through government funding of NOAA? It becomes more difficult for most people to understand the benefits that they obtain when the taxes that they pay are used to finance litigation to stop a particular company from polluting the community's drinking water, because the connection is not as immediate and is not "in the face" of the taxpayer. It becomes even more difficult for many people to understand the benefits that they obtain when property or other taxes are used to fund the public school system, because there is so much attenuation between the education purchased by the tax payment and instilled in the student and the benefits enjoyed by everyone when the student grows up and makes contributions to society through discoveries, volunteer efforts, community leadership, and other indicia of a civilized society. Too many people want an instant quid pro quo, in part because they've never learned how to examine things through a long-term lens. The culture of materialistic instant gratification will do that to a society.

Are tax dollars mis-spent? Certainly. That, however, is not an indictment of taxation but a flaw in the government expenditure process. The solution is not to attack the concept of taxation but to fix the flaws in expenditure decision making. Many of those flaws arise from the attitude of special interest groups that think their dollars, being directed into campaign funds and PACs, are more important than the dollars paid by taxpayers. I wonder whether morrisonhimself has ever contacted a legislator to make a case for reducing government spending on a particular item or project.

What morrisonhimself appears not to understand is that, as "Alec" pointed out, he can avoid the taxpaying responsibilities that he faces as a resident of a particular jurisdiction by moving to another jurisdiction. For example, he could move from a high-tax state to a low-tax state. He might find that life in the latter locale isn't quite as nice, whether on account of more inadequately educated citizens of fewer government services. If it's federal taxation that he abhors, he could move to another country. Perhaps he would appreciate the government-funded health care that some nations provide, but I wonder how he would react to the much higher tax bill that he would face.

One wrinkle in the response by "Alec" to morrisonhimself in terms of the membership analogy is that when a person is born, that person lacks capacity, literally and legally, to decide where to live. But by the same token, infants rarely pay taxes and if they do so, it's almost always as a surrogate with respect to the wealth of someone else in the family. Until morrisonhimself reached the age of majority, he had no choice not only in terms of where he lived and to whom he paid taxes, but also in terms of a long list of other rights and responsibilities that attach to the attainment of majority. But once he reached majority, all sorts of doors opened to him. Surely he can find some place on earth where governments do not collect, do not try to collect, or cannot collect taxes. Instead, he could be paying protection money to a tribal chief, but, wait, isn't that how taxation and government got started, and wouldn't morrisonhimself simply have removed himself to a place that has yet to catch up with modern forms of social organization?

Underneath morrisonhimself's question is a more alarming perspective. Some people have the impression that they can have whatever they want simply by asking for it or by taking it. How do they acquire this mindset? I daresay that it is built into them. If a child is handed whatever the child wants, without learning the concomitant financial responsibility, the child grows up expecting to be the recipient of whatever the child wants. The parent who requires a child to do chores in exchange for things beyond basic needs, or, better yet, to do chores as a member of a family, teaches the child that life's material things aren't free. A more sophisticated arrangement would be to permit children to earn credits for doing chores and to permit them to trade credits or turn them in for what they need or want. Parents who shower their children with whatever they think the children need, along with what the children want, are teaching the children a bad lesson. These children grow up to be people who think that they can have what they want, who believe that everyone else will cater to them as have their parents, and who often become dangerous, violent, sneaky, or obnoxious when they discover life is not as their parents led them to believe.

Much of this can and should be taught in schools. But perhaps it would require some tax dollars to fund programs that teach tomorrow's voters about taxation. Unfortunately, too many of today's voters would rather forego education for tomorrow in favor of self-centered materialism of today. Perhaps another way of teaching this lesson would be to absolve people like morrisonhimself of any tax obligations on condition that if they avail themselves, directly or indirectly, of any government-provided benefit they will be arrested for theft. The conundrum is that they would be placed in prison, and face arrest under the terms of their tax exemption for stealing the room and board provided by the prison. While there, perhaps they could acquire an education about civilization, society, civic responsibility, and taxation. Perhaps a caring society would waive the tuition.

A recent posting on TaxProfBlog directed my attention to The Case for Taxing Email, which suggests there may be some merit in the claim that We Need an Email Tax. The author of this suggestion, one Edward Gottesman, is a lawyer and chairman of an international investment company. His idea is an old one, periodically brought into the daylight so that everyone can be reminded of how impractical and ineffective of an idea it is.

Gottesman's chief justification for the idea is his assertion that such a tax would eliminate, or at least significantly curtail, spam email. He thinks that a tax of "perhaps no more than 2p, or 3c, on every email sent" will solve the spam problem. He contends that "a peddler sending 1m messages a day hawking cross-border pharmaceuticals, for instance, would have to balance the uncertain revenues against the tax cost of £100,000 or $150,000 a week." Gottesman claims that the email address of the sender makes it easy to identify the person responsible for the tax. He advocates uinst the OECD as the facilitator of tax collection. He recognizes that the tax would be regressive, but tosses that aside with an assertion that the tax or some other unidentified factor would cause a decrease in the price of broadband access. He claims that blogs and social networks would preserve "internet freedom" as taxation cut into email use. He rests his analysis on the need to persuade people that email is not free, and that the tax would "remind us" that we should pay for email.

It's not surprising that the chair of an investment company would advocate a tax on something other than investors, such as a tax on email that would afflict everyone and that would have its smallest economic impact on the big-time international investors for whom Gottesman labors. It is surprising, and disappointing, that someone trained in the law would jump on the "email tax" bandwagon rather than apply to the proposition the sort of keen and rigorous analytical thinking that law schools try to teach their students to do.

My reaction to the proposal can be summed up in two words: What nonsense. Of course, justifying that conclusion requires some analysis.

1. Gottesman presumes that spammers will gladly pay the tax, or pay it at all. The same skills that spammers use to work around spam filters and to hide their identites will be put to work finding ways to avoid the tax. The last time I checked, the OECD does not have a bureau of tax collectors nor a standing army.

2. Gottesman presumes the taxing authority of one country has jurisdiction to collect the tax from spammers in another country, and rests his case on a theoretical OECD-based email tax treaty. Gottesman does not explain how Country A would know that spam reaching its residents originated in Country B so that it could present an invoice to Country B, which obviously would have a similar problem.

3. Gottesman assumes that any email sent by a spammer will reveal the spammer's true email address. Apparently Gottesman has never had spam emails sent to people under his name, and thus has not experienced the reaction of people who thought he was the spammer. Does Gottesman think that bob@yougottabuythisproductrightnow.com is a valid email address or a real person?

4. Gottesman assumes that the email tax would curtail spam. It would not. Spammers spam because they make money, and they make money because a small but sizeable percentage of the species responds to spam. The people hawking wares on television infomercials pay for the privilege of doing so, and they gladly pay, because they make a profit even after paying that charge. Most spammers are making money, else they would not be spamming, and even if they were to pay the tax, which is doubtful, many would still make money. Postage doesn't stop Verizon from sending me 3 or 4 "get FIOS from us" postcards, letters, and brochures every day, and an email tax would not stop Verizon from sending me the matching email.

5. Gottesman seems to think that the transaction costs of implementing and administering an email tax would not exceed the revenue from such a tax. He's wrong. The number of issues that would arise, the procedural complaints, the definitional arguments, the constitutional claims, and the evidentiary hearings would cripple the email tax system.

6. Gottesman presumes that taxing email would make spam a thing of the past, and although he mentions blogs and social networking, he appears to ignore the reality that spammers, like all advertisers, follow the crowd, and already have invaded twitter. Eventually Gottesman would suggest a twitter tax, a facebook tax, a blog tax, and so on. I'd like Gottesman to explain why the existence of various telephone taxes didn't deter the auto warranty telephone spammers.

7. Gottesman must have an axe to grind with respect to spam, but he doesn't seem to worry about imposing a tax on phishing sites, 1-pixel hidden links, badly designed software, or other practices that not only are at least as annoying as spam but that also are far more nefarious.

8. Gottesman asserts that without the tax email is free and ought not be. Hello! People, or their employers or organizations of which they are members, pay fees to their ISPs in order to have email service. Even some spammers are paying internet access fees though others of them surely are finding ways to access the internet through hijacked connections.

9. Gottesman appears to be unaware that during the past 6 weeks the onslaught of spam has been reduced dramatically. I've noted this to a number of friends and colleagues, and they have made the same observation. Though some of this is the consequence of more sophisticated spam filtering, another important reason is the arrest of those few individuals who are responsible for most of the unwanted spam traveling the internet. Recently two brothers and their confederates were arrested for spewing spam that targeted college students. Not that long ago, another spammer was sentenced to prison for his efforts.

10. Gottesman must subscribe to the theory that the only way to deal with a problem is to turn to the tax law. Perhaps I ought not complain about this approach to problem-solving. It's a compliment, isn't it, that the tax experts are the ones to whom people turn when there is a problem with employment, energy, environment, and, yes, now spam? The reduction of spam, already underway, belongs in the hands of software engineers, programmers, law enforcement officials, and educators. Yes, educators, who can do a huge service for the country by teaching people to ignore spam so that it goes away. So long as spammers get responses to more than 8 percent of their emails, they'll try to keep going.

This isn't the first time that the impulsive "tax email" reaction to the receipt of spam has found its way into the public arena. The outcome should be the same as it has been in every instance. It's an idea that won't work. Perhaps Gottesman can persuade his international investors to finance some high quality research into effective law enforcement techniques to identify, arrest, indict, and sentence spammers. That would be far more beneficial to society than an email tax. And it would be much more welcome, much more appreciated, and much more constructive.

Two members of the Senate, one a Democrat and one a Republican, have joined forces, demonstrating that bipartisanship is very much alive when it comes to reducing taxes on investors, most if not all of whom are far removed from the ranks of the impoverished and struggling middle class. The so-called Generating Retirement Ownership Through Long-Term Holding Act of 2009, would exclude mutual fund capital gain dividend income from gross income if the dividend is reinvested in the mutual fund. Perhaps the clever acronym development will rack up the votes that might not otherwise be attainable based on the merits, or demerits, of the proposal.

According to a news release from one of the bill's co-sponsors, the goal of the legislation is to "keep retirement savings earning more money for a longer period of time." Nothing in the legislation, however, limits the proposed tax break to retirement funds. What the co-sponsors appear not to understand is that retirement funds do grow tax-free because the income earned by retirement fund investments in mutual funds are not taxed until the retirement of the employee. This treatment applies to qualified retirement plans, and if Congress wants to expand the scope of those plans it ought to do so directly. The proposed legislation has nothing to do with expanding qualified retirement plans, but with obtaining yet another ill-advised tax break for mutual fund investments that are not held by qualified retirement plans. It is yet another example of a tax break for one group masquerading as a benefit for another group for whom sympathy is more easily forthcoming but that would not benefit from the proposed tax break. Hasn't a decade of this sort of tax policy experience taught any lessons to members of Congress?

The news release also justifies the proposal by claiming that it would "allow investors to keep their money working instead of removing part of it each year because of capital gains taxes paid on growth in mutual funds." Aside from the fact that capital gains taxes are so low as to be fairly insignificant, why should mutual fund investors get a better deal than stock investors, bond investors, people who leave interst in a checking account, or even wage earners? The news release further reveals the tax ignorance of the bill's co-sponsors when it claims that the proposal "allows investors in mutual funds to be treated the same as those investing in the stock market--they pay taxes only when shares are sold." Investors in stock pay taxes on dividends and on other realizations of gain even if they do not sell the stock, and the current treatment of mutual funds is consistent with that approach. If a mutual fund sells stock, its owner is treated as having sold stock, and that owner, the investor, should be taxed just as a partner is taxed when a partnership recognizes capital gains. Mutual funds, after all, are just a sophisticated form of partnership.

The news release then tries to evoke sympathy for investors who have made money. It explains that "after the market decline last year, many investors found themselves in the unfortunate situation of paying capital gains taxes on their reinvested dividends even as their fund accounts lost value." The existence of capital gains dividends in a mutual fund means that someone has made money, not lost money. Should taxes be eliminated or deferred on gambling winnings because the gambler lost $10 after having won $30? Imposing a tax on the net gain of $20 makes the most sense.

The news release claims that 90 percent of mutual fund investors are saving for retirement. The same can be said of most people investing in certificates of deposit, stock, money market funds, and a variety of other investments. The proposal would be truer to its expressed goal if it provided similar benefits to other investments and not just mutual funds.

Perhaps the redeeming aspect of the news release is its disclosure that this is "the third time that legislation has been introduced." That means that it has twice been rejected. Hopefully, it will meet the same fate on this occasion. Three time is the charm.

Three years ago, in Blawg Review 59, published on Memorial Day, the editor wrote:

Editor's view: Memorial Day is a holiday we haven't ruined

Memorial Day is one of the best holidays we have because it's one of the few we haven't ruined by shifting the focus to consumption and entertainment.

Memorial Day, thankfully, isn't about us -- it's about them.

Them includes two groups: first, those who died serving our country; and second, children, whom we have an obligation to teach about the sacrifice of those who came before.

But now it seems Memorial Day has turned into a shopfest. Kay Bell at Don't Mess with Taxes reports that Texas and Virginia have announced sales tax holidays for Memorial Day shoppers. In Texas, the sales tax is waived for purchases of items marked with the Energy Star certification. In Viriginia, a seven-day sales tax holiday applies to the purchase of "certain hurricane preparedness equipment."

It's not difficult to understand the goal of encouraging spending by reducing sales taxes. We're told that the economy needs to be stimulated and that increases in consumer spending would contribute to a recovery because the recession has been marked by significant decreases in consumer spending. The economic quandry is whether consumers, many of whom have cut back spending because they lack funds, should incur debt in order to make these purchases. An important question is whether someone is more likely to rush out and purchase a $100 item if the total cost is $100 rather than $105, $106 or $107. Can a few dollars make that much of a difference? Perhaps to a few, but a very few, a few so few that the impact on the economy would be negligible at best.

What is difficult to understand is why states would make Memorial Day the focus of a shopping advocacy campaign. Why not the day before Memorial Day? Or the weekend preceding it? Or, considering that in 2009 it is on the earliest possible date, on the weekend following it? Although Virginia spreads the tax relief over seven days rather than limiting it to Memorial Day itself, there still is the question of why states are diverting people's attention from the purpose of Memorial Day to a task that easily can be accomplished on most other days.

On that same day three years ago, I shared some thoughts about the significance of Memorial Day and the connection between war and taxation in A Memorial Day Essay on War and Taxation. A google search tells me that a few people have read it. Here's hoping a few more do so. I repeat the concluding paragraph:

To all those who have served, and who serve, I and every other citizen owe thanks. Here it is. Thank you. Now let us go and do what needs to be done to put meaning into those words. Let us make a collective investment in our appreciation, and provide the full revenue support that is required for whatever it is the nation decides to do.

Let's hope it's something more significant and meaningful than sales tax relief gimmicks.

While I was away, Paul Caron's TaxProf Blog posting alerted me to an OECD report, which I think is this one, in which it reported that the nations whose people ranked the happiest in a new survey are those with tax rates among the highest. Thomas Kostigen suggests that the reason may be that these particular nations provide so much for their citizens that their taxpayers feel that they get something in return and know what it is, whereas in the United States people "are never really quite sure of what we get in return for paying them, other than the world's biggest military." People who worry about being able to get health care and other services tend not to be happy, according to Kostigen.

There may be another factor at work. In What Makes Us Happy, in this month's Atlantic Magazine, Joshua Wolf Shenk, describing a 72-year-long longitudinal study at Harvard, notes "that money does little to make us happier once our basic needs are met." One might expect, therefore, that taxation would generate unhappiness among lower-income taxpayers whose chances of reaching the "basic needs" level of after-tax income are diminished by taxation. Yet the loudest cries in this nation against taxation come from those whose basic needs have been met, and who feel threatened by taxation that reduces their after-tax income to levels that are still significantly above the "basic needs" level. The answer, it appears, is closely related to the same impetus that fuels the greed that has put the national economy into such a dire condition. For some people, no amount of money is enough. I suspect that they not only resent paying taxes, they also balk at paying for goods or services if they can find a way to get them for free. Somehow they've become accustomed to the notion that they are owed whatever it is that they want. Some people work this out through burglary, robbery, and vehicle theft, while others do so by cooking books, selling low-quality goods and services, monopolizing markets through bullying, and, yes, evading taxes while complaining about the taxes that they are paying.

Why is this? Why are some people content to make enough, or perhaps not quite enough, to meet their basic needs while devoting their lives to a career, occupation, or profession that fulfills them in other ways while others are so intent on "making a killing" that they never find happiness even as their after-tax incomes skyrocket. Is it possible to be so addicted to money for its own sake that resistance to taxation, even when that taxation procures benefits, is unavoidably wired into the person's psyche? Some years ago, on a first date that for reasons to be disclosed momentarily never became a second date, I was asked how I would spend the money if I won a lottery that paid me $10,000,000 a year. I replied that after paying taxes, paying off the mortgage, seeing to the financial security of my children, and setting aside a small reserve fund, that I would give away a good chunk of the winnings. That pretty much ended conversation. When recounting this story to a friend several days later, she told me that I had flunked the test because I did not explain that I would make the money available to my wife or girlfriend. I laughed, because if that was indeed the explanation for the faded conversation, I was thrilled to have flunked. I don't mind having enough money to be comfortable, but I don't want to get to the point where I have so much money that I invest significant time worrying about it. Yet I am not alone, and I may be in the minority.

Kostigen's observation that this nation's taxpayers aren't sure what they get in return for their taxes suggests that if people did know that they'd be less resistant to paying. That may be true for some people. For those folks, it might make sense to install signs that indicate what the taxes procure. Throughout Pennsylvania there are signs telling us that one or another group has adopted a stretch of highway for purposes of keeping it litter-free. Why not signs indicating how many tax dollars were invested in a bridge, traffic signals, or police patrols? I've seen signs during construction indicating that a particular number of toll dollars are being used for the project, but when the construction ends, the sign goes away. Keep it. Perhaps move it to a safer location, but let people be reminded that they're getting something for the toll that they have paid. Perhaps police vehicles should carry a logo that reads, "$x of your local property taxes funds this vehicle and the salary of the officer in it." Despite the ease with which the internet makes it possible to read federal, state, and local government budgets and expenditure reports, people don't bother to do so. They need the information shoved into their faces.

Yet the implied suggestion in Kostigen's observation won't matter to those who are so addicted to money that they would no more adjust their attitudes toward paying taxes than they would relent in their distaste for paying for anything. They want it, they want it all, and they want it now. For them, Queen wrote their anthem. Nothing in a tax code, nothing on a "your taxes at work" sign, nothing in a blog is going to cure the deep insecurity that drives this distaste for paying taxes. Sadly, nothing, not even all the wealth in the universe, can satisfy these people and bring them happiness. Somewhere, somehow, someplace, something didn't get through to them. Even if they cannot change, perhaps the focus should be on preventing them from warping the minds of those whose resistance to paying taxes would diminish if they understood what they were getting for the taxes that they paid. It ought not cost much to do this, and there's no good reason to pass up on the opportunity. The public officials who undertake this effort will be happy that they did so.

On my return from my daughter's graduation, I dug through the newspapers that had arrived during my absence. I didn't expect to see a headline like this in the sports section of the Philadelphia Inquirer: Tax Ruling Wins National Hunt Cup. A quick glance at the first paragraph explained it all. Someone named a horse Tax Ruling. Specifically, Tax Ruling is a 6-year old brown gelding. According to the article, Tax Ruling "doesn't like the heat," "loves being on the front end," "can be a little fussy," and is a "little quirky if he doesn't get his own way." Does that describe a horse or a tax auditor? Tax Ruling won a race by beating, among others, The Price of Love.

My mind immediately began to think of the great contribution that tax law could make to horse racing. No, I'm not talking about tax breaks. Those already exist. I've refer to them while teaching the basic tax course, and have complained about them in posts such as Not to Its Credit. Even the Commonwealth of Pennsylvania found a way to involvehorses in revenue raising.

What crossed my mind were all the fun horse names that the tax law can provide. It's very possible that somewhere, sometime, someone gave one of these names to his or her horse. But perhaps not. Consider this a public service, a gift to the horse industry for use when name selection is a challenge.

Accrual Method
Accumulated Earnings
Active Management
Adjusted Basis
Alimony Recapture
Arbitrage Bond
Capital Expenditure
Capital Gains
Cash Method
Claim of Right
Competent Authority
Consolidated Returns
Constructive Dividend
Deduction Limitation
Deferred Compensation
Distributive Share
Double Taxation
Earned Income
Flow-Through Entity
Hobby Loss
Holding Period
Horizontal Equity
Imputed Income
Inflation Adjustment
Information Return
Installment Sale
Involuntary Conversion
Jeopardy Assessment
Joint Return
Kiddie Tax
Like-kind Exchange
Liquidating Distribution
Loss Carryforward
Marginal Rate
Passive Activity
Parsonage Exclusion
Patronage Dividend
Percentage Depletion
Permanent Establishment
Phaseout Threshhold
Portfolio Income
Principal Residence
Private Inurement
Revenue Neutraility
Standard Deduction
Substantial Underpayment
Substituted Basis
Tax Avoidance
Tax Evasion
Tax Expenditure
Tax Loophole
Tax Shelter
Transfer Pricing
Transferred Basis
Treasury Regulation
Two-Percent Floor
Unadjusted Basis
Unearned Income
Vertical Equity

This list could be much longer. What I've presented is a sample. Others surely could enhance the litany.

It could have been worse. Imagine the track announcer informing the crowd, "It's Tax Shelter following Passive Activty, but here comes Treasury Regulation with Deduction Limitation. It looks like Substantial Underpayment is back in the race. Capital Expenditure has fallen behind, and Revenue Neutrality has broken down. It's Treasury Regulation, gaining on Tax Shelter, and on the inside it's Jeopardy Assessment." Yes, imagine how the tax law could saddle the horse racing industry.

Yesterday it was Sarah's turn. My daughter graduated from Smith College. Last week's trip to Ann Arbor, Michigan, was just the first graduation journey of the season. This one, a bit shorter and in a different direction, took me back to New England.

Congratulations, Sarah. You have done well. I am delighted, and I know you are thrilled. You've studied, you've learned, and you have polished many skills. You now have letters after your name. We know you worked and worked, piling on all sorts of academic challenges. That neurobiology stuff is way beyond tax law. Perhaps you'll make a career of analyzing the brain circuits of tax practitioners.

As scientific as were many of her courses, Sarah also possesses outstanding artistic skills. She has won awards for her drawings, and has been using pen, crayon, chalk, charcoal, paint, and just about every other substance imaginable to produce portraits, landscapes, and still life. Going to an art museum with her is an experience. She has provided artwork that has decorated my office door for years. It seems serendipitous that in the month she graduated I had to take all of it down because the law school is moving into a new building. Yes, I'm taking the art with me.

Here is a tidbit from the "trivia in which perhaps few others are interested" category. Sarah is not the first descendant of Thomas Maule of Salem, Massachusetts, to earn a degree from Smith College, but she is one of a very few. Nancy Jane Maule, to whom Sarah is a fifth cousin three times removed, graduated almost 60 years ago. Caroline Haigh West, my fifth cousin, the 3-great-granddaughter of Sarah Ann Maule (the sister of Sarah's 5-great-grandfather), graduated from Smith College 30 years ago. A few years later she graduated from what is now the Penn State University Dickinson School of Law 1985, and was a first-year student during my last year on its faculty, though at the time neither of us knew of the connection. So Sarah is the third. Honorable mention goes to Gretchen Leutheuser, who married Charles Somers Davis, great-great-grandson of Sarah Ann Maule (the sister of Sarah's 5-great-grandfather) and who graduated from Smith almost 40 years ago. If there are others, I've not yet discovered them.

For the moment, Sarah is not another Dr. Maule. Give her time.

Today is graduation day at the Law School. While students look back at what they have accomplished, they also are looking forward. The financial and employment stresses pulsing through the third-year class are impossible to miss. The looking forward part of the equation reflects, in no small part, what happened during the time to which they are looking back. Have they accomplished enough to persuade an employer to give them an opportunity to apply what they have learned and to sharpen their skills? Some have. Others, though developing sufficient skills, have run into a buzzsaw of a turbulent economy. Still others never quite got it. It's a difficult time to be graduating from law school, and these students are caught in the gap between the business-as-usual of years past, and the hopefully reformed legal education paradigm of the near-term or longer-term future.

Almost two months ago, in How A Transformative Recession Affects Law Practice and Legal Education, I analyzed the intersection of legal education, law practice, and the economy, and concluded, among other things, that the long-term impact on legal education might take one or more of several forms, including this one:

One other possibility remains. Bar associations and bar admissions committees, and perhaps state supreme courts, will question the wisdom of limiting bar applicants to graduates of accredited law schools. Enterprising practitioners, perhaps law firms joining together in collaborative and creative efforts, will form schools focused on preparing people to practice law. Properly operated, they need not charge the tuition rates currently being charged. Wise organizers will hire people with law teaching experience and ability, who have more attachment to teaching and less concern about scholarship, to administer and teach in these new institutions. They should be able to provide more experience in the nature of clinics, practical writing, transactional courses, and marketable post-graduation skills. With sufficient clout, they and their practitioner organizers should be able to persuade bar admission authorities to accept their graduates as bar exam candidates. By hiring bright, accomplished law graduates to team teach with experienced practitioners, they will foreclose the expected arguments from the law school monopoly that only faculty at law schools of the present kind know how to teach law. Ultimately, universities will see this development as a threat to their law school revenue sources, and seek to imitate or take over these institutions, at a far greater cost than would have been the cost of reforming their own law schools. Despite that disadvantage, it would provide the benefit of returning law schools to their principal mission, and like other industries, cause legal education to emerge from this transformative recession in a new and more robust form as will happen in other professions and areas of business.

Even if it does not come to pass in precisely this way, the possibility should compel legal educators, including law faculty, to think seriously about where they've been, where they are, and where they might be going, voluntarily or involuntarily. The threat of change ought be considered not as a risk but as a welcomed encouragement.

I know there are people who think my warnings and predictions are total nonsense. Several days ago, news broke that something not unlike the "law firms … form[ing] schools focused on preparing people to practice law" had arisen. In Diamonds May Be a Law Firm's Best Friend in Economic Downturn, Gina Passarella of the Philadelphia Legal Intelligencer gave this report, referring to the "current economy and a clear shift to a buyer's market""

The latest example of that shift comes from Drinker Biddle & Reath, which told its incoming associates last week that it would lower starting salaries for the first six months of the year to $105,000. The associates will then be in a training program for those six months without the pressures of a minimum billable requirement. The salary will then go back up to "market rate" at the end of the six months. During the training period, associates will have formal training but will also be expected to shadow partners in more of an apprenticeship model.

In other words, the new associates are going to continue their schooling. Though they will not be charged tuition, they will see their salaries cut by tens of thousands of dollars. Economically, that's equivalent to being hired at the previously prevailing rate and then paying tuition.

Why is the Drinker firm doing this? The answer was provided in that same How A Transformative Recession Affects Law Practice and Legal Education post: "When they [law school students] learn that fewer and fewer law firms are hiring law school graduates because clients are not willing to pay for what little law school graduates bring to the table, some will turn away from the idea and others will join in the increasing chorus to reform legal education." Or as Drinker chairman Alfred Putnam Jr. explained, "[H]e thought about deferring the 34 associates who would be affected, but at the end of the day they would still be first-years, just a year later. Putnam said clients are particularly averse to paying for first-year associates, and this was a way to make them 'saleable.'" He noted that, "[E]ven for very robust firms that continue to have profitable work flowing in the door, there is a marked shortage of work for newly made lawyers. In addition, the days of large law firms assigning (and clients paying for) 'armies' of very junior lawyers to large-scale litigation or transactions are over -- likely never to return." This was in a letter that Putnam sent to the associates. Putnam expects this new model to continue.

Can you imagine entering law school, thinking that if you did well you would graduate into a position paying $150,000 a year, sufficient to pay off the $100,000 or more of loans undertaken to finance the law school education, only to discover that even though you did do very well your salary would be roughly $45,000 less because you needed more training to reach the point at which clients would pay for your services? How long will it be before a sharp, creative, and determined young associate sues his or her alma mater for a $45,000 refund? Whose fault is it that the associate isn't ready to practice? The associate, who did what was asked by the faculty and was told that he or she had done very well, with a high cumulative average, honors, and perhaps even Order of the Coif? The law firm, which didn't warn law schools, and hammer home to them the fact that their graduates were increasingly less prepared and acceptable to clients? Or the law schools, to a greater or lesser extent depending on the degree to which they have made available to all of their students educational experiences that match what law practice demands? Will the eventual consequence be pressure to eliminate the third-year of law school so that students can invest a year, perhaps at little or no salary but without tuition outlays, in training at law firms? This suggestion, which has been around for decades, was highlighted by Joan Arnold, a partner at Philadelphia's Pepper Hamilton firm, who remarked that "there needs to be a seismic shift in the way attorneys are trained before they even join a firm." Joan, by the way, is a Villanova graduate and a member of the school's Graduate Tax Program adjunct faculty.

Perhaps a useful, but frightening, analogy can be drawn from reports beginning to emerge from investigations into the crash of the Continental Connections flight in Buffalo a few months ago. According to this CNN report, the pilot had learned the theory of operating the stick-pusher emergency system but "had never trained in a flight simulator" with that system. Another pilot, making an analogy not unlike the "watching me ride the bicycle doesn't cause you to get in shape" message I give to my students, explained "It's similar to picking up and throwing a groundball in baseball. You can study it academically all you want but you really need to develop the proficiency, the skill, the muscle memory required to do that."

If there is any doubt that even the so-called best law schools aren't getting the job done that needs to be done, one needs only to read a response given by Justice Antonin Scalia during a talk at American University Washington College of Law. According to this New York Times report, a student asked what she needed "to do to become 'outrageously successful' without 'connections and elite degrees.'" After telling her "Just work hard and be very good," Scalia told her that her chances of being selected as a clerk to a Supreme Court justice weren't good. His explanation was a backhanded slap at legal education: "By and large, I'm going to be picking from the law schools that basically are the hardest to get into. They admit the best and the brightest, and they may not teach very well, but you can't make a sow's ear out of a silk purse. If they come in the best and the brightest, they're probably going to leave the best and the brightest, O.K.?" [emphasis added] In other words, law schools are unable to wreck the intellectual skills of the best law students who, as some faculty recognize, pretty much teach themselves and often accomplish what they do despite what some members of law faculties do or fail to do. But what of the bottom 90 percent of the class? Though I disagree with Scalia that none of the best and the brightest end up at other than the elite fifteen, he probably thinks it is too time consuming to try to ferret out the outstanding students who are "hiding" in the 185 or so law schools that aren't in the top cluster.

The economic tailspin did not cause the sea changes that are and that will be swamping law practice and legal education. When the wind blows over a fence whose posts have been rotting for years, is the wind to blame? The recession may have been the catalyst, but had legal education been producing law graduates capable of doing work worth hundreds of dollars an hour during the year after graduation, the impact of the economic downturn would have played out very differently. That's water over the dam, but surely work must begin now to prevent even worse consequences the next time things go haywire, and though that may be some years in the future, the legal education crisis is not going to be resolved in a matter of days, weeks, or months. There's enormous amounts of work to be done, and highly challenging arguments to be made to persuade law faculties that the work should be done, before anyone can get started on that work.

But today, at least for a few hours, the graduates hopefully can put these thoughts aside, and enjoy their moment. Tomorrow will arrive soon enough.