MauledAgain

On Wednesday, in The Math of Tax and Spend, I noted that “The world continues to wait for an answer to the question, ‘So if state taxes are cut, what spending programs should be reduced or eliminated?’ I had asked that question in New Jersey to Follow in California’s Tax Footsteps?.

It seems I’m not the only one with this question. It was posed to one of the candidates in the Republican primary campaign for U.S. Senator from Florida. Mario Rubio is challenging Charlie Crist, currently governor of the state, and an intense argument has developed between each of them, and their supporters, on, among other things, economic issues. The debate pits Rubio’s classic attack on taxes and spending – cut both, he says – against Crist’s decision, as governor, to accept federal stimulus monies to balance the Florida budget. The segment of the Republican party backing Rubio holds firm to the “cut taxes, cut spending” ideology, and Rubio claims that he would have refused the federal stimulus funds. According to this report, Rubio claims he would have cut $6 billion from the $65 billion Florida budget. According to this essay, “When asked by the press to specify how he would have pulled the state out of the economic emergency, Rubio reportedly replied, ‘I don't have the budget in front of me.’” Brilliant. Just brilliant.

Permit me to translate. “I don’t know. I haven’t studied the budget even though I’m quick to denounce the spending authorized by it. All I know is that I should stand up here and preach tax cuts and spending cuts. I’m certainly not going to identify any spending cuts because that would either cost me votes or make me look like an unsympathetic fool who has no understanding of what spending cuts would to do people.” According to the essay, a governor who takes steps to deal with his state’s economic collapse, who knows the budget must be balanced, who knows there’s little if any revenue available from the few fees and taxes that the legislature agreed to increase, who knows that spending cuts would hamper public schools, impair public health, require the dismissal of state workers, reduce jobless benefits, and curtail state services, was “caught in a classic dilemma.” It’s easy, the essay notes, to sing the praises of cutting taxes while campaigning, but it’s not easy to act responsibly when dealing with reality. Didn’t Marie Antoinette have a similar problem in understanding life as it was for the tens of millions not wallowing in untaxed luxury?

The classic “cut taxes” philosophy strikes me as just that. It reminds me of so many other instances in postmodern culture where theory holds sway, but provides little, if anything, of practical value. Think of those folks who are quick to criticize something, but when asked what they would do instead, mumble, “I don’t know.” To those folks, I respond, "Then figure it out, and couple the criticism with at least one constructive suggestion." In other words, don’t simply criticize government spending. Go through the budget, identify the items that should be cut, and then stand up to make an argument for those spending reductions. Maybe it’s possible for one hook and ladder company to cover the entire city. Demonstrate how that could be accomplished. Perhaps it makes sense to eliminate all spending that assists the impoverished. The alternative, sick, dying, and criminally behaving individuals, might appear to be a better alternative for those voters hung up on taxation levels. Perhaps taxes could be reduced if all prisons were closed and prisoners released. Stand up and make that argument. And if the fall-back of “cut waste and mismanagement” becomes the tax cut advocates’ only hope, step up with specific identification of the waste and mismanagement, identifying those who are mismanaging, explaining what should be done differently, and sharing the computation of savings that would permit the sorts of tax cuts that are being advocated. At least the late Senator William Proxmire blessed the nation with his Golden Fleece Award, though the amounts involved were less than a drop in the ocean of federal spending. Though he had to recant on some of them, at least he tried. That's far more than what Rubio and his colleagues in the cut-taxes-and-spending camp are offering us.

There is a difference between demagoguery and leadership. Demagogues rely on sound bites that encapsulate fear, prejudice, and gross oversimplification. Good leadership offers solutions that work, shares specificity that allows evaluation of the proposed solutions, sets an example by engaging in careful study of problems and possible solutions, and understands the needs and concerns of those who are asked to follow. Attachment to abstract ideas for which no practical implementation plans or analysis of consequences are set forth is not political leadership. Resolving the tax and spending problem in this country, at every level of government, requires something more than platitudes and ideological slogans.

The world continues to wait for an answer to the question, “So if state taxes are cut, what spending programs should be reduced or eliminated?” This is a question I asked a few weeks ago in New Jersey to Follow in California’s Tax Footsteps?. At the federal level, there are two additional choices not available to the states, namely, deficit spending and printing money. States, though, need to cut spending if they cut taxes.

The latest show in the “cut taxes” parade took place in Harrisburg last weekend. According to this report, several thousand protesters swarmed the state capital to condemn tax increases and proposals for tax increases. Though sponsored by the Pennsylvania Tea Party Patriots, an organization with an agenda focused on tax reduction and elimination, the protesters who showed up carried signs dealing with all sorts of other issues. It must have been noisy, because one politician tried to influence interpretation of the event by noting, “Although you hear hooting and hollering, these are not radicals. The silent majority is waking up.” I might buy into that perception had tens of millions of people attended the event. Several thousand isn’t a majority in any state. It’s not even close.

The article mentions a woman who expressed concerns about “government spending and the future of her five grandchildren.” She ought to be concerned. She ought to think how tax cuts would affect her children’s future. She should be asked, “If taxes are cut, which programs should be curtailed? Do you want the state to reduce or eliminate funding for education? What would that do for your grandchildren’s future? How about the health department? Or the state police? Or highway and infrastructure expenditures? Do you think your grandchildren have a great future in a place that doesn’t tend to public health, provides reduced or non-existent crime prevention, detection, and solving, or that lets its citizens drive over crumbling highways and failing bridges and overpasses?” After the usual theoretical platitudes and emotional screeds are heard, she, and her colleagues in the anti-tax business, ought to be asked to describe how the country and the state would function in their utopia of no or low taxes.

I wonder if this woman would be happy to have her Social Security cut. There’s a way to reduce spending. I’m sure she would scream that she “paid for it” and that she would have difficulty understanding, or accepting, that what she is getting far exceeds the sum of what she put in plus the earnings on that investment. I wonder if she can see that most citizens are taking more from government than they are contributing to it, and that most of those screaming about high taxes would scream even more loudly when their time at the public trough ends. The challenge is getting people to understand that when they drive on allegedly free highways they are consuming government expenditure dollars, that when they do business or converse with an educated person they are benefitting from the government dollars invested in that person’s education, when they walk their relatively safe suburban and rural streets they are benefitting from taxpayer-financed police protection, and when they purchase gasoline from a pump that claims to dispense the stated number of gallons they are benefitting from tax-funded government inspection of fueling stations. Hidden benefits are rampant. The proof lies in the deficits and budget shortfalls afflicting every level of government throughout the nation.

Many of those drawn to these various anti-tax rallies have convinced themselves that they are getting the short end of the deal, that much of what they are paying in tax dollars isn’t being returned to them. That’s because they cannot or refuse to see the tangible and intangible benefits they accrue from government spending. It is possible, of course, that some individuals could demonstrate that they don’t get as much back as they pay in, though the huge scale of government spending deficits and budget shortfalls suggests that very few would fall into this category. Even in an ideal world, there are individuals who take more than they give, particularly when they are afflicted with needs surpassing their resources. Society, through government, has an obligation to step in, and fulfilling that obligation costs money. Some anti-tax advocates claim that the private sector can and should deal with these situations, but history tells us that the private sector, though sometimes performing admirably, consistently comes up short.

What it comes down to might be a matter of allocation. Many of the haves, on whom most tax burdens rest, want taxes to benefit the haves, and not the have-nots. Is it coincidence that the anti-tax groups have become enlivened during the past year? Is it a reaction to the election results of a year ago? Is it an outlet for the emotional distress of discovering how eight years of tax cutting contributed to an economic disaster the effects of which will continue to threaten the country long after experts declare the recession to be over? Whatever it is, many of us continue to await their proposals. I know I’d like to see a list along the lines of “Cut $x from program y” so that discussion could take place with respect to these ideas. But the only thing I hear, see, or read is a “cut taxes” chant that has become the mantra of a group seemingly incapable of contributing to both sides of the tax-and-spend equation.

Last week, in Partnership Taxation, I alerted students to the trap that exists in section 751 and the need for them to be very careful when dealing with the identification of partnership assets subject to section 751. There is a wrinkle that seems to serve no purpose other than to confuse taxpayers, tax practitioners, and tax students. Some background is helpful.

When a partner “sells” a partnership interest for tax purposes, the tax law (section 751(a), to be specific) treats the gain or loss recognized on the sale as capital gain or loss, except to the extent it is attributable to the partner’s share of section 751 assets in the partnership. The purpose of this provision is to prevent the partner from “converting” ordinary income into capital gain. Accordingly, even though the partner is treated as having sold a thing called a partnership interest, which reflects an “entity” approach similar to a shareholder selling stock in a corporation, an “aggregate approach” is used with respect to section 751 assets. In effect, the analysis “looks through” the partnership interest to the underlying asset.

A similar provision (section 751(b), to be specific) applies to distributions to a partner that changes the partner’s interest in section 751 assets. The purpose of the provision is the same, to prevent the partner from obtaining capital gain treatment with respect to assets that would generate ordinary income.

So what’s the catch?

The catch is that the definition of section 751 assets differs for purposes of section 751(a) and section 751(b). The definitions are identical except with respect to inventory items. For purposes of section 751(a), which applies to sales of partnership interests, all inventory items are treated as section 751 assets. But for purposes of section 751(b), which applies to distributions, inventory items are treated as section 751 assets only if they are “substantially appreciated.” To be substantially appreciated, the inventory items must have a fair market value that exceeds 120 percent of their adjusted basis, with a rule disregarding inventory items acquired to manipulate these numbers.

Why the difference? The short answer is that I don’t know. Once upon a time, the definition of section 751 assets was the same for purposes of both section 751(a) and section 751(b). Inventory items were included only if they were substantially appreciated. Why not include all inventory items? I cannot think of a legitimate, reasonable, worthwhile, defensible reason. If the goal is to prevent the conversion of ordinary income into capital gain, it ought not matter whether the inventory is 104% appreciated or 123% appreciated. It’s not a de minimis rule, because inventory can flunk the substantial appreciation test while having tens or hundreds of millions of dollars of ordinary income inherent in the inventory. Putting aside the fact that this entire discussion would be irrelevant if capital gains and ordinary income were not treated differently, it makes no sense to treat some ordinary income as ordinary income and other ordinary not as ordinary income, but that is how things stood until Congress amended section 751.

When news broke that section 751 was going to be amended, I rejoiced. Well, I didn’t really rejoice, but I was glad, because it meant I could free up some class time because the definition and computation of substantial appreciation would be tossed out of the course. Unfortunately, when the amending legislation worked its way through Congress on its route to enactment, the amendment was tweaked so that we ended up with the “dual definition” of section 751 assets. Why? Again, I don’t know. Why should the ordinary income in inventory that is 104% appreciated be ordinary income when dealing with a selling partner but not ordinary income when dealing with a distributee partner? It’s tough to visualize the special interest group behind this one, because partners rarely know ahead of time whether they’ll end up as a selling partner or distributee partner.

The effect of this difference is to confuse people. True, it creates exam material for tax law professors. That provides the opportunity to identify students who are careful and precise and those who are not, but I prefer to do that using Code provisions that require care and precision for explicable reasons. Nonetheless, I’ve been known to include section 751 asset definition questions on exams and in semester exercises.

Not only is there confusion in terms of the dual definition, there’s also a variety of circumstances where the substantial appreciation rule generates surprise results. For example, assume a partnership has actual inventory with an adjusted basis of 100 and a fair market value of 110, and assume it also has unrealized receivables of 30. Standing alone, the inventory is not substantially appreciated, but when the inventory items, which include the receivables, are aggregated, the inventory items are substantially appreciated. Considering that section 751 assets are often referred to as “hot assets,” (don’t ask), one can refer to this situation as “receivables heating up the inventory.” Consider a partnership that owns inventory with an adjusted basis of 100 and a fair market value of 130. Standing alone, the inventory is substantially appreciated. But assume the partnership also has realized receivables of 60. When aggregated, the inventory items (adjusted basis 160, fair market value 190) are not substantially appreciated. The receivables have “cooled down the hot inventory.” Why should the ordinary income treatment, or not, of a distributee partner turn on theses sorts of “computational games”?

Something else I do not know is how much revenue would be raised if all inventory were treated as section 751 assets for purposes of both sales of partnership interests and distributions to partners. Surely it is some positive number, but whether it is in the tens of millions, hundreds of millions, or even low billions is a question I cannot answer. Perhaps someone else, perhaps a revenue estimator, could crank out the numbers. What I do know is that the tax law would be simplified, by a smidgen, if the definition of section 751 assets for the purposes of sales of partnership interests were extended to distributions. So I return to the question, why not do so? Whatever may have been the reason for not doing so when section 751 was amended, assuming there was a reason, it surely wasn’t and isn’t one that justifies this sort of complexity.

So here’s a proposal that brings simplification and revenue increases, and that can be justified on the grounds that the income in inventory that is not substantially appreciated ought not be taxed at capital gains rates even if one accepts the idea of special low tax rates for capital gains. This sounds like a “shelf project” for Calvin Johnson. Yes, when this is posted, I’m passing on to him the URL for the post. I wouldn’t be surprised to learn he’s “already on it.” Even if it’s a small revenue increase, he keeps telling us we’re going to need every dollar to deal with a looming budget deficit crisis that will severely threaten the nation. He’s right. So I guess I’m going to become a lobbyist, arguing for this change to section 751. But I’d like to think that I’m lobbying for the nation’s economic and budgetary welfare. Of course, I’d rather be lobbying for repeal of the special low tax rates, but it’s worth having a backup plan in the unfortunately likely event Congress cannot be persuaded to ditch a disproven rate giveaway.

Hopefully, someone will appreciate this effort. Perhaps even substantially.

Pittsburgh’s having tax problems again. In No One Drinks to This Tax, I explained how the governor of Pennsylvania tried to soothe the owners of small pubs and bars facing implementation of a newly-enacted drink tax in Pittsburgh by suggesting that Pittsburgh would follow the same selective enforcement approach used in Philadelphia. I followed that post with Another Sip of the Drink Tax, I explored information shared with me by a Pittsburgh-area reader, who alerted me to the purpose of the tax, namely, to fund the financially-troubled Port Authority Transit system. In what should not be a surprise to those who are familiar with my perspective on user fees and taxes, I objected to the shifting of transportation funding from transit users to bartenders and wait staff, which is what studies indicated happens in these situations.

Apparently Pittsburgh officials haven’t learned anything, though surely they don’t read this blog, because they’re now proposing another foolish tax idea, namely, a tax imposed on college tuition. According to this story in the Philadelphia Inquirer from the Pittsburgh Post-Gazette, the mayor and his staff are asking Pittsburgh City Council to approve a budget that includes a one percent tax on tuition received by Pittsburgh colleges and universities. According to the mayor, because institutions of higher education have raised tuition by more than one percent, the city’s proposal “falls right in line with orientation fees, with transportation and security fees, with lab fees,” and he suggests the schools could reconsider other charges.

According to the Pittsburgh Post-Gazette story, the tax would not be a tax on the students. It would not be a tax on the schools. It would be a tax “on the privilege of getting a higher education in Pittsburgh.” Can someone tell me how the city of Pittsburgh can take credit for the education provided by the schools that located themselves in the city? Perhaps the schools should be charging Pittsburgh a fee for bringing jobs and business activity to Pittsburgh. What would happen to Pittsburgh if all of the institutions of higher learning in that city moved elsewhere? Surely Johnstown, Erie, Altoona, and other places would welcome the jobs and economic activity that the schools would bring.

Now, as an advocate of user fees, I can understand the City of Pittsburgh charging schools, and other organizations, within its borders for the services it renders. Even though the schools, and some of the other institutions are tax-exempt, it makes sense to require them to pay for water provided by city water works, for trash pickups made by city refuse collection crews, for police services rendered on the campus, and so on. In the past, the schools in Pittsburgh, acting collectively through an organization called the Pittsburg Public Service Fund, contributed millions of dollars to the city. But last year the city refused to accept the donation, presumably because $5.5 million was insufficient.

Why is the mayor proposing this tax? First, there’s a deficit in the city budget. Second, he thinks that adding another one percent hike to college tuition is “just a nibble compared with the bite that college fees and tuition hikes take out of student and parent wallets.” It would be helpful to his position if he set forth a cost accounting analysis of the services provided to the colleges and their students. Whether that turns out to be one percent of tuition, ten percent of tuition, or one-tenth of one percent of tuition remains to be seen. Picking a number out of thin air, specifically one percent, suggests that not much thought has gone into the proposal. Certainly not persuasive, rational, analytical, specific thinking. The mayor suggested that if it’s acceptable for colleges and universities to charge fees, they ought to charge a fee for the city. How’s that? If a college charges a fee for providing meals to students, it’s providing something for something. Why should the schools charge a fee “for the city”? If the city wants to charge for services, it ought to do so by charging a fee that reflects the cost of providing the services. Do I detect a lack of logic? I surely do.

Where would the tax revenue raised by the tuition tax go? Almost all of it would provided funding for the city’s pension fund and for capital improvements. Hello? Why would it not be used to pay for services provided to the schools?

The mayor claims that he is prepared for “a fight, or a battle, if you will” to deal with the budget deficit. That was his reaction when the institutions of higher learning in Pittsburgh “blasted” the proposal. To the assertion that the tax would reduce the institutions’ competitiveness, and it would, the mayor responded that “if there was a competitiveness issue, it was the schools' fault.” Brilliant. Absolutely brilliant. In the meantime, the mayor has set aside proposals to impose taxes on hospital bills, parking fee surcharges, and water rate increases.

The schools in Pittsburgh claim that the proposed tuition tax is illegal. It is likely that if Pittsburgh’s City Council enacts the tuition tax, litigation will follow. One of the issues is whether the state legislature needs to endorse the tax, because cities and other localities are limited to enacting taxes within the scope of state legislation giving them power to do so. Arguably, there is no state law allowing the imposition of a tuition tax. The controversy over the proposed tuition tax won’t be the first brouhaha of the 29-year-old mayor’s short political career. Far from it, if even half the reports summarized and cited in his Wikipedia biography are true. Reportedly, it’s not his first foray into a tax controversy, though the previous one involved allegations of tax benefits for certain non-profit entities in exchange for sponsorship of participation in a golf tournament.

Some schools, however, claim that any sort of tax is “an attack” on nonprofit status. However, the issue is clouded by use of the term tax, and would be clarified by the use of the term “user fee.” The schools in Providence claimed that they were dealing with their own budget deficits, but it seems to me that schools ought to be paying fair value for what they receive from state and local governments. If they need to cut back on water use, on police services, on trash collection, then they ought to do so. The argument “we’re tax exempt so we get these services for free” is just as silly as the explanations advanced by the mayor of Pittsburgh.

The mayor of Pittsburgh probably got his idea from the mayor of Providence, Rhode Island. But he should have finished reading the story. The attempt by Providence’s mayor to impose a fixed-dollar fee was rejected, an attempted negotiation for voluntary payments fell through, and when he tried to get the legislature to enact a reduced-rate property tax on non-profit organizations, the state legislature balked. When the Pittsburgh mayor said, “I have an idea,” someone should have saved him by saying, “It’s not a good one.”

Here’s a suggestion for the city of Pittsburgh. Enact user fees set at the value of the services provided by the city. Here’s a suggestion for the non-profit organizations, including institutions of higher learning, operating in Pittsburgh. Don’t treat tax exemption as though it means everything is free. Support the city if it attempts to enact user fees set at fair value, and pay them. It’s an arrangement that has been adopted elsewhere, and it works. Had some research been done before the “good idea” was publicized, a lot of embarrassment, bad publicity, and bad tax policy could have been avoided. It’s not too late to prevent tax-dollar-consuming litigation from impeding progress. That’s my idea, and it is a good one.

Earlier today, Mary O'Keefe reacted to my Tax-Free Beverages: Let Them Drink Chocolate? post with a question. Had I read the article, Nutrition: Chocolate Milk May Reduce Inflammation, in the New York Times? I had not. I am grateful for the tip from Mary.

So there's further proof, assuming the studies aren't fabricated products of dairy industry influenced-focused funding, that chocolate is medicinal. Taxing medicine is a horrific idea, and most, perhaps all, state and local governments choose to refrain from imposing sales taxes on prescription medications. Almost all similarly exempt over-the-counter medicines. So, if white milk isn't taxed, and chocolate gets the medicine exemption, chocolate milk should survive the taxation attempt, just as strawberry-flavored milk would escape because of the fruit exception.

Here's the catch. Red wine does a better job of reducing inflammation. Most children who drink chocolate milk probably graduate to soda, coffee, and beer. Perhaps the health care bill should be amended to include a tax credit for people who engage in healthy dietary habits, such as eating fruit, say, strawberries, chocolate, say, covering the strawberries, and drinking red wine. Maybe any chocolate-covered fruit would qualify. Now I'm off to think up a fancy name for this credit, one that is catchy and also generates a fun acronym.

Amidst the furor over children’s access to sugar, particularly sugar-laden beverages, in schools, and proposals to impose a tax on sugary drinks, another front has opened up in the battle for children’s taste buds and dietary intake. For my earlier thoughts on this tax idea, see What Sort of Tax? and The Return of the Sugar Tax Proposal. According to an article with an informative title, Industry Pushes Chocolate Milk in Schools, the dairy industry is starting a campaign to encourage more children to drink milk while at school by touting the allure of chocolate milk. People are quickly taking sides.

It appears that the dairy industry thinks that adding chocolate to milk will encourage students who wouldn’t otherwise drink milk to reach for it at mealtime. Some educators and health-care professionals, particularly those concerned about childhood obesity, prefer to keep chocolate milk out of the schools, and claim that if the only available milk is the usual white milk, students will drink it. These folks see chocolate milk as a sugar-delivery vehicle in the same “food group” as soda and candy. The dairy industry thinks otherwise, and one of its campaign’s goals is to cause people to see chocolate milk as in a separate category because of the nutrients it provides. Opponents of chocolate milk sales in schools claim that there are no signs of calcium deficiency in children attending schools that don’t offer chocolate milk. They also claim, pointing to anecdotal evidence, that children will drink white milk if it’s the only thing available. While the debate picks up steam, no one has yet to calculate the number of schools that offer chocolate milk, the number of those schools thinking about pulling it off their shelves, and the number of schools that don’t offer chocolate milk but that are considering adding it to replace soda and other beverages removed from the menu.

What would help would be a gathering of facts rather than anecdotes, isolated studies, and theoretically-based conjectures. For example, there’s no debating the value of milk as a substance delivering essential nutrients to its consumers. Using information from this nutrition site, I created a table to compare the various characteristics, including sugar content, of four types of milk – there are dozens but I went with the most common:

Type	Chocolate Milk	Reduced Fat Chocolate Milk	Whole Milk	2% Milk
Calories	208	190	146	122
Fat (grams)	8.48	4.75	7.93	4.81
Cholesterol (mg)	30.00	20.00	24.40	19.52
Carbohydrates (grams)	25.85	30.33	11.03	11.42
…sugars (grams)	23.85	23.88	12.83	12.35
Protein (grams)	7.93	7.47	7.86	8.05
Calcium (mg)	280.00	272.50	275.72	285.48
Iron(mg)	0.60	0.60	0.07	0.07
Potassium (mg)	417.5	422.5	348.92	366.00
Vitamin A (Int’l Units)	237.5	567.5	248.88	461.16
Vitamin C (mg)	2.25	trace	trace	0.49

Nutritionally, chocolate milk provides more calories, more sugar, slightly more fat, and slightly more cholesterol than does white milk. It also provides Vitamin C and iron, whereas white milk pales in comparison, and chocolate milk also provides somewhat more potassium. The question therefore becomes one of whether the increased caloric and sugar intake is a price worth paying to get children to drink milk instead of something else. Despite the anecdotal evidence, and the assertion by one chocolate milk elimination advocate that children will not go on a “thirst strike,” it isn’t unlikely that children have turned, and would turn, to water instead of white milk. Water had the advantage of providing nothing much in the way of calories, sugar, or fat, but it also provides nothing much in the way of vitamins, calcium, other minerals, and anything other than thirst quenching qualities.

For teachers, the disadvantage of chocolate milk is that chocolate wires students at least as much as do sugar-containing foods and beverages. What is it like to teach the first class after lunch? Once upon a time, students were sent out to “recess” after lunch, presumably to burn off the energy generated from their meal, to give teachers a chance to eat their own lunch, and to pump fresh air into the youngsters’ lungs. Does recess still exist? It does, in some places, but where it persists, it has been eroded both in terms of time and in terms of permissible activities. So although sugar ingestion and caloric intake deserve attention, and although a good argument can be made that chocolate milk encourages at least some children to drink milk, the chief concern is the challenge of dealing with the consequences of children filled up on chocolate.

At one school, according to the article, a school superintendent reacted to a student petition in favor of flavored milk, and decided that the school would have “flavored milk Fridays.” On that day, students can select not only white milk, but chocolate milk and strawberry milk. Perhaps strawberry milk counts as a fruit serving? I remember some of my elementary school classmates drinking pink milk. Sorry, the color didn’t work for me. It still doesn’t. I wanted my chocolate. Of course, it was white milk for me. My parents and my teachers knew well enough that the last thing they or the school wanted or needed was school-age Jim Maule on chocolate.

Ultimately, several big decisions loom if a tax on sugar-laden foods moves forward. If chocolate milk is subjected to such a tax because it contains sugar, ought not white milk also be taxed? Granted, many fruits contain sugar, but I expect a “fruit exception” to be drafted into “sugar tax” legislation. If an exception is made for white milk, logic would dictate that combining exempt white milk with exempt strawberries should create tax-free pink milk. As for the chocolate milk, full use should be made of the vegetable exception. Chocolate is a vegetable, is it not?

One of the tax policy ongoing debates that tends to get little attention in mainstream media is the question of how the United States should tax income that its citizens and corporations derive from activities abroad. Part of the reason for the inattention is the complexity of the issue. Trying to explain the current system in anything short of a book is difficult and trying to explain the options requires almost as much textual space.

The current debate focuses on the advantages and disadvantages of shifting federal income taxation to a territorial system. Under a territorial system, a nation taxes income generated within its borders and ignores income derived elsewhere. Most countries use a territorial system. It is claimed that only the United States, Vietnam, Eritrea, and North Korea do not use a territorial system. According to this report, Oman is moving away from the territorial system. The alternative to the territorial system is the world-wide system, under which a nation taxes its citizens and corporations on income from all geographical sources. Because this approach can cause its citizens and corporations to find themselves paying tax both to the United States and the country in which the income is generated, the United States uses a hybrid system, under which it permits its citizens and corporations to claim a credit for the taxes paid to foreign countries. In practice, it’s far more complicated, because tax treaties between the United States and foreign countries tweak this arrangement, and if corporations use foreign subsidiaries to generate the income, that income isn’t taxed until and unless it is distributed by the subsidiary to its parent United States corporation, but even this description oversimplifies the tax law. Furthermore, the United States exempts from taxation some or all of the wages earned abroad by United States citizens. This, too, is an attempt to provide a simple yet technically accurate description of section 911.

Although the current Administration has delivered proposals that would move the United States closer to the world-wide system, there is a growing chorus of voices clamoring for adoption of a territorial system. For example, in this post, Keith Hennessey explains how the world-wide system disadvantages United States corporations. Support for shifting to a territorial system comes from, to give a few examples, the Heritage Foundation, the Tax Foundation, the National Foreign Trade Council, and the Peterson Institute for International Economics. So, too, did the President’s Advisory Panel on Federal Tax Reform, but its web site seems to have disappeared. It isn’t difficult to find many more advocates of the territorial system.

Though I understand the arguments that suggest a territorial system makes United States corporations more competitive because it reduces their overall tax burden, I don’t understand how that necessarily translates into good tax policy. I suppose the underlying premise is that if it is good for a United States corporation, it is good for the United States. That’s the “If it’s good for GM, it’s good for America” mindset that has demonstrated its own shortcomings. Yes, I understand that, in theory, if a United States corporation is more competitive, it supposedly creates more jobs, but there’s nothing to guarantee that those jobs are created in the United States. Nor is there a guarantee that the presumed increas in profits generated by increased competitiveness would go anywhere but into the pockets of the corporate officers and shareholders, who are not necessarily United States taxpayers.

But there’s an even deeper question that I must ask, that reflects the difficulty I have in accepting territorial taxation as the best approach, particularly when coupled with the notion that at least some element taxation should reflect payment for services afforded by the government and its citizens. Permit me to be a law professor and to pose a hypothetical. A group of citizens of nation A are living abroad in nation B, paying taxes to nation B but not to nation A, because nation A's tax system is territorial. An uprising occurs in nation B. The citizens of nation A want to be rescued. They would gladly accept the assistance of the nation A military. Yet we are told they are unwilling to pay taxes to fund the cost of nation A keeping a military in place to provide rescue services. Is this simply another instances of “I want it, I want it all, I want it now, and I don’t want to pay for it”? Or is it expected that nation A will rescue these citizens and then send them an invoice, much the same way the town ambulance sends a bill after its services have been used?

I posted this inquiry to a listserv frequented by tax practitioners. Off-list, I received replies suggesting the same reaction as was encapsulated in an on-list response, “Good point.” Of course, everyone could see through the hypothetical because the nation whose military most frequently comes to the rescue of people in trouble during uprisings is that of the United States. Occasionally, a few other countries step in, but most do not and cannot do so. The United States even comes to the aid of people who are not its citizens. Perhaps the thinking is that if the United States is willing to help non-citizens without sending an invoice, it also should come to the aid of its own citizens who are abroad without sending an invoice or imposing a tax. That reasoning breaks down when one realizes that citizens living within the territory of the United States have no less a claim for assistance without invoices or taxes. Doesn’t this put things on the road to elimination of taxes? Or is it again a matter of a particular group finding ways to demonstrate that the disadvantages of its members paying taxes outweigh whatever justification exists for subjecting them to taxation, with the hope that no other group, or few other groups, will jump on the “don’t tax us” bandwagon, knowing that if everyone found a way to make the same sort of arguments there would be no one left to tax? Proponents of territorial taxation respond that citizens and corporations living and doing business abroad pay taxes to the nations in which they are resident, but many qualify for relief from most, if not all, taxation under laws and programs enacted by these nations to attract business to their shores. The price that is paid is diminution in services provided by those governments to its own citizens, thus causing them, and even their governments, to appeal to the international community for aid in a variety of forms. Much of that aid is funded by United States taxpayers. And even where citizens and United States corporations resident abroad pay meaningful taxes to foreign countries, how many of these citizens and corporations decline to look to the United States for rescue services when an uprising or other civil unrest threatens them? Would they still support territorial taxation if it came with a price tag, namely, no one answering the phone when they call for help?

Perhaps a territorial system would work if it were accompanied by a special services fee. How should this fee be calculated? Because corporations measure themselves through a combination of income and asset value, a percentage of the income and asset values that are “insured” by the United States military, and its judicial system, would make for a sensible tax. The rate need not be very high, if imposed across the board, to pay for the cost of that protection. For individuals, a percentage of asset values is much more difficult to administer, because individuals do not file the sort of financial statements that corporations are required to provide, so a small percentage of income, or perhaps a flat fee, would be appropriate. What would not work is self-insurance, because there’s no feasible way to separate those who have “waived” any benefits provided by the United States from those who are chipping in for the costs imposed on this country of protecting its citizens abroad.

Imposing some sort of user fee as an offset to a shift from global-wide to territorial taxation makes sense. Whether others, including the Congress, see it that way remains to be seen.

So the “lower taxes” candidate won the governor’s race in New Jersey. That doesn’t mean taxes will be reduced, because the New Jersey legislature will have something to say about that. And the governor-elect may discover that reducing taxes isn’t necessarily the best choice.

If the governor-elect succeeds in lowering taxes, what will happen? It’s not as though there’s no precedent for this sort of thing. The anti-tax crowd has done well in California. Proposition 13 has been described as the opening salvo in the attempt to reduce and even eliminate taxes and to derail tax increases. Many are of the opinion that its requirements, and those of follow-up restrictions, are a major factor in the budget crises that have tormented California during the past decade. Recently, California was ordered to release 27% of prisoners from its prisons, because the prisons are too crowded and lack sufficient health care services for inmates. Over-crowding occurs when the state’s population increases, criminal offenses increase, arrests increase, and convictions increase, but the state lacks funds to build or expand prisons and has insufficient resources to maintain the prisons that do exist. Though some claim that there are 40,000 prisoners who can be released without threat to the public safety, the steady stream of news stories about ex-prisoners continuing their crime sprees when released, particularly when released before serving their full sentences, isn’t going to calm a jittery public. Nor are prisons the only problem in California. One-day-a-week furloughs for state employees have caused traffic snarls, and the full cost of cutting funding for education won’t be seen for at least a decade even though the immediate price is more than sufficiently worrisome to those who understand the role of good education in the development of an informed citizenry. Essential infrastructure projects are left unfinished, bridges are falling apart, cuts have been scheduled for in-home services to the elderly and disabled, income tax refund checks no longer are being issued, and useless IOU notes are being issued to those owed money by California. To make matters worse, some of the cuts in service proposed by the California governor and legislator have been blocked by federal judicial orders. Simply put, California is falling apart. And not because of earthquakes.

When asked to approve tax increases, Californians voted no. They also rejected caps on state spending. Hello? Is the “don’t tax me, but spend money on me” outlook on life sweeping through California as a precursor to sweeping through the nation? It is said that trends begin in California. This is a bad one. A very bad one.

Now New Jersey gets a chance to see what happens when tax revenues are reduced but demand for government spending continues unabated. Is no one taught the skills required to balance budgets? Are fiscal discipline and common sense lost abilities? Are there any political leaders still standing who have the courage to explain the true cost, tax-wise and otherwise, of the things that the people demand? Is the nation paying the price for too many years of too many people refusing to say “no” to the demands of those who are unable to comprehend that money does not grow on trees?

Perhaps New Jersey residents will get to experience the latest California budget solution trick, and a trick it is. According to this story, California is increasing income tax withholding on wages. It’s not a tax increase, but it’s a compelled interest-free loan to a government that isn’t issuing income tax refunds. Taxpayers who understand how withholding works, and most don’t, will file amended withholding certificates with their employers, claiming more exemptions, and thus offsetting the impact of this “get cash now” stunt that some wizard in Sacramento conjured up while trying to figure out how to rescue the state from its self-imposed budgetary mess. The best reaction comes from Christopher Thornberg, a principal with Beacon Economics in Los Angeles, who explains that the withholding and similar ploys don’t solve the problem, "they just more or less hid it. I call it a fraud." Indeed.

The question that hasn’t been asked enough times, and for which meaningful answers haven’t been forthcoming, is this: how much spending will be cut from each New Jersey program on account of the governor-elect’s planned spending cuts? Will there be a decrease in highway repairs? A reduction of assistance to the disabled? Pink slips handed to half of the K-12 teachers in the state? Closing all prisons and releasing all prisoners? Firing all of the state police?

The standard response from the anti-tax crowd is that cutting taxes increases government revenue. Tax-cut advocates rely on the disproven “trickle down” theory, a theory to which some die-hards cling as tightly as flat-earthers embrace their belief that all of us should fear boarding ocean-going ships because they will falling off the edge of the earth. Here’s some news. The earth isn’t flat, and trickle-down is yet more proof that a theory isn’t worth much until it is proven to work. And this one doesn’t.

Hopefully, New Jersey residents and taxpayers will be glued to their television sets, iPhones, and computers to learn which of their favorite state programs or state-provided services will be axed so that their taxes can be cut. Then, I suppose, they will go shopping with those tax cuts in hand, trying to buy themselves some plowed highways, police protection, disaster assistance, beach cleanups, and similar items no longer provided by the state. Or perhaps they’ll use the tax cuts to offset the impact of increased wage withholding that will generate IOUs the following spring. They, and we, will discover what tax cuts can buy.

Friday’s post, Unmasking the Deductibility of Halloween Costumes got the sort of attention that wild costumes attract at off-the-wall Halloween parties. A quick google search picked up these mentions:

• Tax Prof Blog: Deductibility of Halloween Costumes
  
• The Wandering Tax Pro: What’s the Buzz? Tell Me What’s A Happennin’ (“* Since today is Halloween I must include at least one holiday-specific tax post. Prof Jim Maule’s as usual scholarly and well-documented “Unmasking the Deductibility of Halloween Costumes” at MAULED AGAIN certainly fits the bill.”)
  
• Wall Street Journal Popular Tax Stories from Around the Web: Unmasking the Deductibility of Halloween Costumes
  
• Trigeia: Deductibility of Halloween Costumes
  
• Twitter: Deductibility of Halloween Costumes: Jim Maule, Unmasking the Deductibility of Halloween Costumes
  
• Megite: Deductibility of Halloween Costumes

The post also brought an email from Jamal Razavian, who wrote:

I agree with your analysis in your October 30, 2009 post regarding the fact that a Halloween costume, though it may be unsuitable for everyday use, is almost certainly insufficiently related to the taxpayer’s trade or business activities to be deductible. It is quite problematic that Ms. Walker (who provided the advice) fails to discuss the nuances that are relevant to the deductibility of Halloween costumes. Even more problematic, based on a casual review of that website and her own professional site, I noticed that the Ms. Walker generally does not discuss the difficult nuances present in the tax law, instead choosing to focus on blanket statements (which may or may not be inaccurate depending on the advisee’s particular circumstances). My fear is that tax laymen will read advice of this type and (i) mistakenly come to believe that there are more easy answers in tax than there truly are, or (ii) follow such advice blindly and misreport their own income. I worry about the Service’s ability to administer the revenue system when individuals like Ms. Walker are out there providing inaccurate and misleading advice, and I wish there was more the Service could do to prevent such abuses.

My response to Mr. Razavian:

Absolutely. There is, as you point out, a broader “text” to the question, but I chose – in an unusual attempt at being diplomatic – to focus on the Halloween costume issue (topical!!) rather than the entire site. The internet is replete with sites operated by tax protesters, people who lack expertise, and a variety of people who mean well but don’t quite understand tax law. The problem reaches beyond tax law to other areas of law and other professions and trades. Would it make sense to have the IRS “certify” web sites as providing accurate information? Would that be feasible? Would it be easy to circumvent? Would it require constant “re-accreditation” by the IRS? Your comments raise some good questions. Perhaps the more I think about them the more I’ll discover another post. If I do that I can give you attribution if you wish, or leave you as an anonymous reader, whichever you like.

Mr. Razavian chose attribution, and I have decided to expand on my comments concerning the flood of incorrect, misleading, inaccurate, and over-simplified information drowning those who travel the information highway.

The internet simply magnifies and disseminates more widely the same sort of misguided advice and information that inhabited, and still inhabits, newspapers, journals, magazines, radio, and television. Too many people, particularly those whose entire lives have been accompanied by internet access, think that “if it’s on the internet, it’s true.” The modern cultural affinity for sound-bites that impose little or no burden on the use of brain cells compounds the problem. Some years ago, before internet use became pervasive, a student in one of my basic tax courses came up to me after class and commented, almost in these words, “I notice you expressed amazement that many of us could not follow the multiple-step analysis you took us through. You should understand that you lose us after three steps. We’re the MTV Generation and we can’t hang on to more than a few things at once.” He appeared to be several years older than most of his classmates, and perhaps that was why he had taken the time to sit back and think about his, and his classmates’, thinking. What I learned from him, yet another student who taught me something specific about teaching, was that it would take a concentrated, transparent, and deliberate effort on my part to break students of the bad academic habit that they had acquired, a habit that discouraged them from focusing and working through things more complicated than three-item soundbites. Pressure for the “quick and easy” tempts teachers, writers, and media commentators to keep it “short and simple,” but the danger is that “simple things for the simple-minded” will transform the country into something lacking viability. Accurate and complete analyses of questions such as the deductibility of Halloween costumes require more paragraphs than what most people are willing to read. “Better wrong than well read” might yet become a rallying cry for the self-appointed guardians of postmodern culture.

What can be done to protect people from the incorrect, misleading, inaccurate, and over-simplified information available on the internet, particularly with respect to tax law? Is it enough for the IRS to certify a web site? I don’t think so. First, the IRS does not have the resources to survey the internet and identify all sites providing tax information. Because the internet is an evolving world, the task faced by the IRS would be a continuing one, and could easily swamp the agency. Second, assuming it had the resources, the IRS would be reluctant to certify sites that were providing accurate analyses with respect to issues on which the IRS and taxpayers held inapposite positions pending judicial or legislative resolution of the issue. For example, would the IRS certify a site that explained why taxpayers should follow the Bolton decision when computing section 280A limitations on vacation home deductions? Third, within minutes of an announcement that the IRS would be engaging in a “tax web site certification” project, the scammers and hackers would get to work trying to pin certifications on sites deserving of nothing more than a thumbs-down logo. Unfortunately, the state of technology is such that these malfeasants would succeed. Fourth, it is unlikely that certification would mean much to some, perhaps many, of the people who are drawn to, and rely on, misinformation sites. It is unlikely that they are visiting the IRS web site where, though deficient in providing taxpayer perspectives on debatable issues, the agency does provide a significant amount of quality tax information.

The answer, it seems to me, is tax education of the citizenry at an early age, with some sort of transitional catch-up for all the people who have made it through 12, 16, 19, or even 22 years of education without learning basic tax principles and concepts, without getting good advice on where to look and where not to look for tax information, without being given the opportunity to learn how tax law is enacted and developed, and without a glimpse into what the IRS and state revenue departments really do. That’s why I want to bring to everyone’s attention Prof. Marjorie Kornhauser’s Tax Literacy Project. In her own words, it is designed to “use popular media to informally educate young adults about basic aspects of taxation.” A brief write-up of the project appears in Law prof's mission is to make tax policy interesting, and it deserves reading by every person concerned about the dangers that tax illiteracy poses to the republic. In other words, it deserves reading by everyone over the age of twelve.

In How Can Asking Questions Improve Tax and Spending Policies?, I considered what would happen if the Norwegian practice of disclosing taxpayers’ incomes and tax liabilities were adopted in the United States. After suggesting some of the consequences that would follow, I predicted that it would not happen. Well, perhaps it won’t happen, but it did, once, a long time ago. A former Commissioner of the Internal Revenue Service pointed out to me that in the Income Tax Act of 1862, provision was made for disclosure of tax returns to the public.

So there is precedent in this country for doing what Norway does. Those who enjoy reading 19th century tax legislation, and perhaps those who don’t, will find this instructive. In the Act of July 1, 1862, ch. 119, 12 Stat. 432, Congress provided, in sections 8 and 93, the latter specifically dealing with the “duty” on incomes, that taxpayers were required to make lists of items subject to taxation and that if the taxpayer did not do so, the assessor would create the list. In section 15, the statute provided:

And be it further enacted, That the assessors for each collection district shall, by advertisement in some public newspaper published in each county within said district, if any such there be, and by written or printed notifications, to be posted up in at least four public places within each assessment district, advertise all persons concerned of the time and place within said county when and where the lists, valuations, and enumerations made and taken within said county may be examined; and said lists shall remain open for examination for the space of fifteen days after notice shall have been given as aforesaid….

The goal of the legislation was to encourage tax compliance. Perhaps in those days people had more shame about understating tax liability.

Thereafter, disclosure of tax return information followed a choppy path. As Paul M. Schwartz points out in The Future of Tax Privacy, the Treasury Department subsequently “prohibited newspaper publication of annual tax assessments, but permitted public inspection.” More than twenty years later, legislation adopted Treasury’s approach and required additional legal authorization for publication of returns. Thirty years after that enactment, Congress required Treasury to make lists of taxpayers’ names, addresses, and income taxes paid, and to let the public inspect them. Needless to say, opponents of this legislation reacted to it and a Supreme Court decision upholding the legislation by pushing through an amendment that removed income taxes paid from the list. A subsequent attempt to disclose not only names and addresses but also gross income, deductions, and other items was enacted but repealed before it went into effect. Only in 1966 did Congress specifically ban newspaper publication, and ten years after that incorporated a tax privacy concept in the tax law. The history of tax information disclosure is much more complicated than my simple overview suggests, and those who are interested should take a few minutes to read Schwartz’s article. He not only explores the various arguments advocating and opposing tax information disclosure, which have been advanced for as long as there has been an income tax, but also shares stories of what happened when the Italian government posted on its web site a list of all taxpayers and their earnings and taxes, what happened when technical problems permitted H&R Block clients to see other taxpayers’ information instead of just their own, and how several Presidents accessed tax information with respect to specific individuals for political purposes.

Suppose the question were put to a national referendum. How would you vote? Disclosure of names, gross incomes, and reported income tax liabilities and payments? Or protection of that information from all but a very few within the IRS?

Ah, yes, Halloween again looms, and once again it’s time to make MauledAgain particularly frightening. In years past, I have focused on sugar, candy, and, yes, pumpkins:

In 2004, I looked at the idea of Taxing "Snack" or "Junk" Food. In 2005, I had some fun with Halloween and Tax: Scared Yet?. For 2006, in Happy Halloween: Chocolate Math and Tax Arithmetic, I simply lamented my inability to find four-pack versions of Reese's Peanut Butter Cups. In 2007, I added Tricky Treating: Teaching Tax Trumps Tasty Tidbit Transfers, while also noting that Halloween Brings Out the Lunacy. Finally, 2008 brought us A Truly Frightening Halloween Candy Bar.

A few weeks ago, an email came my way that opened with this question: “Can you deduct the cost of your Halloween costume as a business expense?” It then answered the question:

No, if you bought it to go trick-or-treating with your kids.

Yes, if you bought it to attend a client's Halloween party.

For both? Then proportion the cost based on % of use.

You can find this question and answer on the web at Ways Through the Maze: A Tax Guide for Indies.

Though I agree with the first part of the response, I recoil in horror at the second. Unquestionably there is no deduction if the costume is purchased for a Halloween outing with the children. But if the purchase is for a client’s party, the answer depends on whether the cost of attending the party is an ordinary and necessary expense of carrying on a trade or business. And that means that the third part of the response, dealing with percentage of use, requires a more sophisticated determination than simply hours at a party compared to hours with the children, but rather a comparison of deductible use versus non-deductible use.

The rule with respect to clothing that gets everyone’s attention is the rule that precludes a deduction if the clothing can be worn for everyday purposes. Many people think that if the clothing cannot be worn for everyday purposes that the deduction is allowable. But in so thinking they trick themselves. They miss the position of the rule in the larger scheme of things. The non-deductibility rule doesn’t become relevant until it is determined that the clothing can otherwise be deducted. Thus, before getting to the question of whether a costume can be used for everyday wear, one must determine if the cost of attending the party is deductible. Those costs include not only the apparel that one wears, but the transportation expenses of getting to and from the party. And even if the cost of attending a Halloween party can somehow turn out to be deductible, the cost of the costume might still be non-deductible because it is suitable for ordinary wear. Think about the lazy law professor who shows up in a flannel shirt and jeans, passing himself off as a lumberjack.

So is it possible to deduct the cost of attending a Halloween party, even assuming the costume is not useful for ordinary wear? A look at some authorities is instructive.

In Starrett v. Comr., T.C. Memo 1990-183, the Tax Court looked at the expenses paid by the host of a Fourth of July party and a “Christmas open house” that the taxpayer characterized as “business promotions.” The court concluded that the taxpayer had not demonstrated that the party expenses were ordinary and necessary. That’s not to say that party expenses never are deductible, but it points out the trap of assuming party expenses always are deductible. The court also pointed out that entertainment expenses must meet the requirements of section 274. Thus, they must be directly related to, or at least associated with, the active conduct of the taxpayer’s trade or business. For the “directly” requirement to be satisfied, the taxpayer must demonstrate that the taxpayer has more than a general expectation of deriving a specific business benefit at some future time and that the taxpayer actively engages in business during the period of entertainment. Though the latter may occur at some parties, one must wonder what sort of business goes on at Halloween parties. For the “associated” requirement to be satisfied, the taxpayer must demonstrate that the entertainment directly precedes or follows a substantial and bona fide business discussion. So even if the taxpayer had worn bizarre clothing to the party that was inappropriate for ordinary use, there would have been no deduction permitted to the taxpayer.

It is extremely unlikely that the deduction requirements can be satisfied by a taxpayer hosting or attending a Halloween costume party. In Gardner v. Comr., T.C. Memo 1983-171, the Tax Court considered the deduction claim of a dentist who hosted 200 guests at a cocktail party during which attempts were made to foster business relationships. The court rejected the taxpayer’s claim that the party was “directly related” to the active conduct of the dental practice, and noted that the regulations describe cocktail parties as examples of entertainment situations which generally are considered not directly related to the active conduct of a trade or business. The rationale provided in Regs. Section 1.274-2(c)(7)(ii) is that the party is “essentially a social gathering and there is little or no possibility of engaging in the active conduct of a trade or business because of the substantial distractions inherent in such form of entertainment.” The court explained, “Clearly a large party such as was given by petitioners in this case does not lend itself to substantial business discussions. . . . Indeed, the very size of the party dooms the claimed deduction to failure. Surely petitioner could not have expected to have had substantial business discussions with all or even most of those attending. Rather, the party has every appearance of a social gathering intended for the purpose of renewing acquaintances and enjoying a pleasant evening.” When put in the context of a Halloween party, how can one possibly argue with a straight face that discussion, particularly when masked, with another person who if not masked most likely is face-painted or otherwise circulating incognito, can reach the level of serious business dialogue?

Theme parties take a serious hit when it comes to deductibility. In Steinberg v. Comr., T.C. Memo 1995-116, the Tax Court held that the cost of a birthday party for a physician’s one-year-old son was not deductible. Anyone who has been at a child’s birthday party would find it very difficult to swallow an argument that serious business discussions were underway during the event. In this regard, Halloween parties are no less chaotic and perhaps even more out-of-control than birthday parties for children.

Though these cases focus on the cost of throwing a party, the same analysis should apply to the cost of attending a party. In Preston v. Comr., T.C. Memo 1961-250, the Court lumped the cost of “attending parties” with other expenses that it categorized as “entertainment expenses” and then proceeded to hold those expenses non-deductible.

The only mention I could find of Halloween parties involved the deduction, as a charitable contribution, of the cost of tickets to a Halloween Ball held to raise funds for a charity. The cost of costumes or other apparel acquired for the event is not mentioned. So the IRS has not treated us to a specific analysis in this context.

So if a costume is purchased for use at a Halloween party, the taxpayer doesn’t have a ghost of a chance when it comes to deducting the cost. Hopefully, people aren’t goblin up the advice being shared by those who claim that the cost of a Halloween costume purchased for use at a client’s party is deductible.

Last week, the City of Philadelphia Task Force on Tax Policy and Economic Competitiveness delivered to the mayor and City Council its final report,Thinking Beyond Today: A Path to Prosperity. Although the report includes analyses of and recommendations with respect to things such as business activity regulations, zoning, publicity, government procedures, health care and pension spending, and other steps to making the city economically viable, it’s the tax proposals that caught my attention.

The premise of some of the tax recommendations is that the city should tax things that are immobile and not things that are mobile. The thinking, it appears, is that jobs can “walk” away from taxes whereas fixed assets cannot do so. Thus, the Task Force suggests that the planned cuts to the wage tax and the business privilege tax be resumed in 2012 and that wage tax rates be “more aggressively” reduced. There is a practical flaw in the premise. If the taxes on fixed assets, such as buildings, are too high, they are abandoned. That does not bode well for economic development. There is another flaw in the proposal, one that rests on principle. Jobs impose burdens on the city, no matter where the employee resides. The cost of providing infrastructure for people commuting into the city, the cost of police protection, traffic maintenance, and the other services rendered to nonresidents, if not borne by those who benefit, will be imposed on city residents. Municipalities throughout Pennsylvania have been imposing taxes, such as the Emergency and Municipal Services Tax, designed to shift to nonresident employees their share of the services provided by the local government in question. This approach, which pushes taxation in the direction of user fees, makes more sense.

The Task Force also suggests increasing the amount of revenue derived from the real property tax. If revenue increases arise because the currently flawed real property tax system in the city is fixed and assessments are adjusted to market value, this suggestion is worth pursuing. To its credit, the Task Force also recommends fixing the real property tax system. On the other hand, if revenue increases are accomplished through increases in the real property tax rate, that’s counterproductive. As much as wage taxes theoretically drive employees and businesses out of the city, so, too, real property tax increases will drive not only employees and businesses out of the city, it will also encourage tax-paying residents to flee. The Task Force proposes to avoid this latter effect with a homestead exemption, designed to shift the real property tax burden to commercial and industrial properties. This, however, simply exacerbates the former effect, for it means that businesses will face higher real property ownership costs or rental fees, and despite reductions in business privilege and wage taxes, will continue to relocate outside the city. For this shift to encourage the opposite effect, businesses moving to the city, the wage and business privilege tax decreases need to exceed the real property tax increases. But if this happens, the city’s budget deficit grows.

At a technical level, the Task Force recommends that the city adopt “market-based” sourcing in determining how much of a service company’s profits should be taxed by the city when the company performs services both within and beyond the city limits. Under this approach, which has been adopted by many states and localities, the company is taxed on profits derived from services rendered in Philadelphia and not on profits generated from income-producing activities in Philadelphia. In other words, if the activity is performed in Philadelphia but is delivered outside the city, the only profits that would be taxed are those arising from the delivery of services in the city, which could be as little as zero. Similarly, if the company engages in the income-producing activity outside the city but delivers it into the city, the only profits that would be taxed are those arising from the delivery of services in the city, which could include profits not currently being taxed. This approach currently is used for manufacturing companies, so extending it to service companies makes sense, provided that the company is taxed in some way, or charged a user fee, for the burden it imposes on the city by engaging in business activities in the city. Opponents of such taxes and fees would claim that the companies ought not be taxed because they are “doing a favor” to the city and its residents by bringing jobs and business activity to the city, but that argument too much resembles the “trickle down” justification for federal income tax cuts benefitting the wealthy and causing economic distress for everyone else.

The other technical recommendation is to shift from a three-factor formula for apportioning income to a single sales factor formula. This is another shift that has been taking place throughout the nation, and it does make sense to drop the property and payroll factors because if those factors are to be taxed they should be taxed directly, as they are. It is almost a double counting to bring them back into the analysis for income and receipts taxation. According to the Task Force, this change would decrease tax revenue, but is justified because failure to make the change will impede efforts to bring businesses into the city.

Another technical recommendation is that the city conform its tax laws to those in use by federal and state revenue agencies. For example, the city’s definition of unearned income differs from that used by the Commonwealth of Pennsylvania. Again, it makes sense to remove what is an opportunity for confusion and unintentional noncompliance, and to eliminate the expense of getting the taxpayer to fix the problem. Unfortunately, Pennsylvania is one of those very few states that itself uses a set of tax definitions that is nowhere near conformity with the federal tax system. Getting the city to conform to the state is but one step, and getting the state to conform to the federal system would help the city improve tax compliance. In that regard, the Task Force also recommends establishing an office of a Tax Advocate, patterned after the IRS Tax Advocate position. That is a good idea, and one too long delayed. The Task Force also recommends improvements in taxpayer service, increasing competence of tax agency employees, improving coordination with the Pennsylvania Department of Revenue, and consolidating tax enforcement and collection resources. These, too, are good ideas, but one easily can imagine the objections that will be raised by those with vested interests in the present system.

The recommendation for tax amnesty, although patterned after similar programs in other places, is questionable in terms of long-term impact. Tax amnesty tells those taxpayers who have complied, “Fools. Had you cheated, you’d be off the hook. You could delay paying your taxes without paying interest while the cheaters had interest-free use of the money that they should have been paying in taxes.” It tells people who are thinking of following a path of noncompliance, “Not only is there a good chance you won’t get caught, but there’s a chance another tax amnesty program will bail you out in the future.” On the other hand, an amnesty that waives criminal tax penalties for taxpayers who turn themselves in might be worth pursuing.

Though some suggestions in the report are questionable in terms of impact, many others are worth implementing quickly, in part because they reflect common sense and should have been implemented by city officials years ago. There will be debate over the substantive proposals, with discussion beginning when several city council members complained that their ideas had not been included, but that is how progress is made. As the vice-chairman of the task force stated, as quoted in Report: City Should Shift Tax Burden to Property Owners, "[T]he cost of inaction is even more troubling."

The chairman of the Task Force noted, "Recommendations to improve the tax structure have been offered in report after report, but while there have been some improvements, implementation has not been comprehensive due to concerns about the costs and risks of change." It remains to be seen whether this report is just another in the long line of tax reform reports that have been shelved or the beginning of genuine tax reform in a city that for too long has been an example of what happens when tax policy is not well thought out and tax administration is inconsistent and politicized.

One of the friction points in the debate between those advocating major tax reductions or even elimination and those advocating funneling money through government programs is the allegation that government involvement in projects and activities generates higher inefficiencies because of presumed waste. Another friction point is the contention by those trying to reconcile these competing positions that some of the problem arises from taxpayer noncompliance. On Friday there came news of two totally different inquiries, both involving governments on different sides of the Atlantic Ocean, that might illuminate a path to working out the conundrum.

The first article, City Peers Deep into Life at BRT, described what the mayor of Philadelphia recently did with respect to the Board of Revision of Taxes. As I’ve related in a series of posts, the most recent being Revising the Board of Revision of Taxes, the BRT is on the verge of a sweeping overhaul. In Revising the Board of Revision of Taxes and the many previous posts cited therein, I have explored, relying in part on a variety of Philadelphia Inquirer articles, the flaws in the administration of the Philadelphia real property tax, commented on the reasons, suggested ways to make the system responsive and responsible, and challenged political leaders to do what needs to be done. The mayor, according to City Peers Deep into Life at BRT, has decided to ask each employee to describe his or her job “in detail.” Bravo! The mayor claims that he is “trying to figure out how the organization functions and operates.” The joke answer is, “It doesn’t.” Seriously, BRT employees worry that their positions will be eliminated, a justifiable fear considering that many of them hold patronage jobs and at least some of them have little or no expertise in real property taxation. It’s not unusual for someone taking over as chief administrative officer of a business, an agency, a school, or any other organization to try to determine who does what and why, and then to give serious thought to how efficiencies, whether in terms of money, services to customers, or product development, can be improved. It’s clear from reading City Peers Deep into Life at BRT that if a person moving into the CEO’s office of a corporation encountered what goes on at the BRT, heads would roll, figuratively. Reading that latest Philadelphia Inquirer is an essential task for anyone who wants to see how badly things can get when politics takes over a government agency.

The second article, Seeing What Every Liv, Knut, and Terje Earns, describes the issuance by Norwegian tax authorities of the skatteliste for 2008. A skatteliste is the tax list, which discloses the annual income and total wealth of Norway’s taxpayers. The article explains the “media frenzy” that comes with the release of the information. No kidding. Because the information is in digital form, it takes mere seconds to ascertain information about neighbors, friends, celebrities, and anyone else about whom people are curious. This is not a new practice. It had been followed until a few years ago, when a conservative government outlawed the practice, but a change in government brought a repeal of the prohibition. The practice has its advocates and critics. Advocates focus on transparency and social equality they deem essential to the functioning of a social democracy. Opponents see invasion of privacy, impetus to criminals seeking worthwhile targets, and inspiration for playground bullies to taunt classmates whose parents are not as well-off as their own and busybodies to question neighbors about their lifestyles.

So would the collection of tax and government spending become more efficient and less objectionable if the nation started asking some tough questions? Does it make sense to ask every federal, state, and local government employee to describe in detail what he or she does? Would it make sense to ask supervisors and co-workers the same question not only of themselves but of others in the office? Would that not make it easier to clear out the deadwood in terms of inefficient programs, unproductive employees, and other questionable investments of taxpayer dollars? Ought not taxpayers, who are in some sense the employers, know what they’re paying people to do? Understandably, one would not ask for the release of national security information, the names of suspects being investigated, the details of information being disclosed in grand jury rooms and military policy meetings, but would it not create pressure on the Congress to take more responsibility for its funding decisions if it turned out that in some offices 10 people were being paid to do what 3 people could do?

And does it make sense to disclose to the public what people report on their tax returns? Unquestionably, whatever the folks in Norway may have decided to do, the cultural tradition in this country, and probably in many others, is that one of the most impolite questions to ask of someone is how much they earn or how much they are worth. Yet the salaries of many people are public knowledge. In some states, the compensation paid to public employees, including faculty at state universities, is included in legislative budget proposals. The salaries of many public officials are in the public record. Even in the private sector, the salaries of the tax-exempt organizations’ five highest-paid employees are reported to the IRS on forms available to the public (and that will soon change to include compensation information on many more employees of those organizations). Filings with the Securities and Exchange Commission include salaries for certain private sector corporate employees. The salaries of many professional athletes are tossed about in newspapers, on blogs, and in digital message board discussions. Somehow Parade magazine manages to use these sources, and others, to report periodically on what Americans from a wide array of locations and careers are earning. There even are books listing the names and salaries of America’s millionaires, but one ought not assume the information is correct.

It’s understandable why some people would not their salaries or net worth disclosed. It’s easy to construct scenarios in which people’s behavior would change if they knew another person’s income and wealth, and in which a person’s own behavior would change if they knew that everyone else knew their income and wealth. Excuse the cynicism, but imagine what the dating world would be if people walked around, in effect, with name tags that included income and wealth. No thank you. Imagine the sort of questions asked of public officials who disclose income and related information, such as charitable contributions, being asked of every citizen. Would not churches with policies of tithing find themselves dealing with congregational murmurs about the giving habits of their members? My biggest concern is that the numbers disclosed by the government in Norway are numbers provided by taxpayers, so there’s no assurance that the figures would be correct. The person trying to hide income from someone else is probably going to try to hide it from the government. On the other hand, this sort of disclosure might cause more instances of what happened thirty years ago in the Washington, D.C., area, when neighbors in a neighborhood of modest homes and lifestyles noticed one house where a collection of high-end luxury vehicles started turning up. Inquisitive neighbors did not call the police or FBI, they called the IRS (it’s D.C., remember) and it turned out they had uncovered a federal employee who was embezzling from the agency for which he worked. In other words, disclosure of income and wealth data (although the latter doesn’t show up as such on income tax returns) might shame Americans into full tax compliance, which we know would cut significantly into the federal budget deficit. Wouldn’t it be interesting to see who manages to get special low tax rates for huge portions of their income?

If people’s income were to be disclosed in Norwegian fashion, the questions would turn full circle. It would not be long before people turned to one another and asked, “So what do you REALLY do?” and asked for an answer that was “in detail.” The process could be educational. We could learn about jobs that appear easy but aren’t, jobs that appear difficult but are easy, and all sorts of other information that would bring transparency that strengthens the nation, its governance, its economy, its tax policies, and its work ethic. But it isn’t going to happen. At best, the proposal could serve as a bridge to bring together both sides of the Congressional political aisle, reminding the nation’s leaders that we do have things in common. Perhaps transparency and strength, wisdom and responsibility could take off from that discovery. Perhaps if the nation wants the same health care coverage Congress gets, it could subject itself to the same financial disclosure rules with which members of Congress must comply. Perhaps that’s as good a question to ask as is what do you do and how much do you make. Perhaps.

Thanks to Paul Caron’s TaxProf Blog post, I found my way to The Report of the Treasury Inspector General for Tax Administration, Ensuring the Quality Assurance Processes Are Consistently Followed Remains a Significant Challenge for the Volunteer Program (Sept. 15, 2009). Fancy title aside, the report examines “whether taxpayers receive quality service, including the accurate preparation of their income tax returns, when visiting Internal Revenue Service (IRS) Volunteer Program1 sites.”

The news isn’t good. The Treasury Inspector General for Tax Administration (TIGTA) sends auditors to Volunteer Income Tax Assistance( VITA) and Tax Counseling for the Elderly (TCE) sites to have tax returns prepared. The auditors presented 49 returns, and only 29 were properly prepared. That’s 59 percent. Had the auditors filed these test returns, 17 taxpayers would have missed out on a total of $4,318 in tax refunds and 3 would have received a total of $4,575 in unwarranted refunds. The 59 percent accuracy rate represents a 10-point decrease from the 69 percent rate achieved during the previous filing season.

What’s going on? According to the TIGTA report, the people trained by the IRS or by others using IRS training materials “do not always follow required procedures designed to assist in the accurate preparation of tax returns.” We’re told that “some volunteers did not consistently use the required intake and interview process or perform a quality review to ensure that an accurate tax return was prepared.” We’re also told that “the IRS-developed intake sheet was not effective to ensure that taxpayers received the additional property tax deduction when appropriate.” To me, this seems to indicate that somewhere along the line the people “on the front line” preparing tax returns either lack required skill sets, have been short-changed in training, aren’t properly supervised, don’t know how to pay attention, are careless, or are afflicted with some combination of the preceding problems. Whether some, none, or all of those deficiencies are the responsibility of the IRS is problematic.

The IRS has been aiming for higher quality. According to TIGTA, the IRS has implemented a “100 Percent Quality Review” of every volunteer-prepared return, schedules anonymous visits along the same lines used by TIGTA to gather information for its report, conducts “Quality Statistical Sample (QSS) Reviews,” and does “Post Reviews of 100 percent of QSS Reviews.” Yet TIGTA determined that “IRS QSS reviewers did not consistently follow required procedures” and that “[p]rocedures were not consistent from site to site and did not always conform to applicable guidelines in place to ensure the effectiveness of the tax return review process. “ A random sample by TIGTA of “Post Reviews showed that 6 (14 percent) QSS Review files lacked sufficient taxpayer information to support the reviewers’ conclusions.” As a result, missing information in the files “could cause the IRS to report incorrect accuracy rates.”

But the IRS also argues with the TIGTA results. It claims that when it sampled return preparation, the error rate was only 21.5 percent and not 41 percent. TIGTA notes that the IRS analysis rests on a much larger sample size, but though larger sample sizes are expected to be “more reliable,” one must consider that “improvements are needed to the quality assurance process used to monitor program effectiveness before accuracy rate results can be considered reliable.” In other words, not only are there accuracy problems in the returns being prepared under IRS supervision, there are accuracy problems in the processes being used by the IRS to determine if there is accuracy in the return preparation.

The IRS replied that the decline in accuracy from 69 percent to 59 percent reflects the inclusion by TIGTA of a “scenario that is not a traditional issue for the volunteers.” TIGTA rejoined that the scenario involved a new tax law topic that the IRS had included in its training programs. The IRS claim isn’t unlike the student who complains that a grade isn’t a true measure of the student’s competence because one of the examination questions involved something that was new, even though the person teaching the course took time to focus students’ attention on the issue. Tax law being what it is, there always are changes when a new tax season rolls around, so there always is at least one “scenario that is not a traditional issue.” The goal for tax return preparers is to be competent with respect to current, not traditional, tax law.

The IRS also explained why it could not track accuracy rates on a site-by-site basis. Why? It lacks the resources. In all fairness to the IRS, this one, like so many other problems with tax law and tax administration, must be attributed to its cause, the Congress.

It’s not just IRS-trained volunteers who are making mistakes. IRS employees are falling short. For example, TIGTA also recently released its Evaluation of the Planning, Computation, and Issuance of the Recovery Rebate Credit (Sept. 9, 2009), in which it disclosed that more than a quarter million taxpayers did not receive payments because of IRS errors, and almost 150,000 taxpayers received payments for which they were ineligible because of IRS errors. And that’s just one of the thousands of exclusions, deductions, credits, and other items that the IRS must handle. Thanks again to Paul Caron’s TaxProf blog for putting me in touch with this report.

Why does all of this matter? It matters for two reasons. One reason is the obvious one, the one that concerns TIGTA and anyone else paying attention. It is unconscionable that 41 percent, or even 21.5 percent, of people turning to IRS-trained tax return preparers for help in doing their tax returns to end up with an outcome that is wrong, and often way wrong. It just isn’t right. The other reason is one that causes me much more concern. It’s the attempt to institutionalize government-prepared tax returns, with a burden on taxpayers to audit those proposed returns to ascertain if they are correct. My previous criticisms of the “Ready Return” and its variants, which appear in Oh, No! This Tax Idea Isn't Ready for Its Coffin, and the previous posts cited therein, are based in part on a concern that huge numbers of taxpayers will end up with erroneous returns and, despite having a theoretical opportunity to review the government-generated return, won’t find the errors because they cannot afford to hire someone with the requisite knowledge, understanding, and experience to do the job. Perhaps these folks will take their Ready Returns to IRS-trained volunteers, where they have a 59 percent chance that the errors will be spotted. Worse, perhaps they will be told to challenge things that turn out to be correct. As I noted earlier this week in Why the Nation Needs Tax Education, “Part of the problem is that even some employees of revenue agencies, including the IRS, don’t understand tax law or understand it insufficiently to get it right enough of the time.”

The solution, of course, is a tax system that does not provide as many traps for the unwary, opportunities for error, and unwarranted complexity as does the current arrangement. Until that happens, stories of mistake-filled returns, erroneous refunds, audit blunders, and other failures will multiply, and the resilience of a tax system built on self-compliance, which requires taxpayer confidence in the system’s fairness and reliability, will weaken to the point of collapse.

On Sunday, the Philadelphia Inquirer printed an editorial that advocated enactment of a federal value-added tax as a source of revenue to fund health care reform. The authors argue that because slowing the growth of health care costs will take time, the only way to cover the cost of extending coverage is to enact a tax to pay for the shortfall. Though the concerns that triggered the article make sense, the proposed solution is not the repair that the federal revenue system requires.

The authors contend, “There is no way to restore this nation to fiscal health without higher taxes.” They’re correct. The sorts of budget deficits that have been racked up during the past 18 months by the federal government threaten the survival of the nation. That’s not hyperbole and I’m not alone in that assertion. But the authors then argue that the higher taxes must be enacted “for the middle class as well as for the rich.” Why? What created this mess are the tax cuts for the rich. Those who argued for, and got, those tax cuts claimed that by reducing their tax burden they would repay the nation two-fold or three-fold or whatever-fold because of some theory called “trickle down.” There’s been trickle down on the unwealthy but it hasn’t been economic betterment. It’s time for the beneficiaries of unwarranted and unwise tax cuts to pay the piper. Bringing the middle class into the mix simply opens the door for the lobbyists employed by the wealthy to make certain that the middle class gets the short end of the stick.

The authors correctly note that health care reform will cost money, that cutting health care costs or even the rate of increase in those costs will happen, if it happens at all, over a long period of time, and that Medicare faces more financial stress as the number of retirees increases. Each of these challenges deserves separate attention. Some sort of revenue injection into the health care system, whether increased premiums or publicly-financed cost defrayals, is required. Cutting health care costs and trimming the rate of increase of those costs isn’t a tax issue. The Medicare issue requires changes in the definition of benefits, including raising the age at which individuals are eligible for Medicare coverage, and cleaning out the waste, corruption, fraud, and inefficiencies in the system.

The authors also make a profound statement when they tell us, “The dirty secret is that the revenue generated under current tax laws cannot pay for the government services – health care and everything else – that Americans want for their children, their parents ,and themselves.” Bingo. Haven’t I been arguing that point since the day this nation went to war with leaders who claimed that there was no need to raise taxes to pay for the war? Is it not fiscal insanity, and decision-making that puts the national existence in jeopardy, to put the preservation of tax cuts for the nation’s elite above the well-being of its citizens? Someday the nation will figure out that the biggest economic cost of the current war is not the lost equipment, the corporate profiteering by the elite and their friends, and not the economic disadvantages of international disapproval, but the collapse of the American economy. There’s still time to reverse this outcome, but it requires rapid and courageous decision making. What are the odds of that happening, considering what we see transpire in the nation’s capital day after day?

The authors, though, take a wrong turn when they argue that tax increases should be enacted now but phased in slowly. There’s no time to wait. The longer the nation waits to deal with the deficit, the more quickly the nation will spiral into the black hole of no return. It’s bad enough the unwarranted tax cuts of almost a decade ago were enacted, it’s worse that they weren’t rescinded when war broke out, and it’s outrageous to postpone the day of reckoning on the theory that requiring the financial elite to give back what they should not have had in the first place will cause economic disaster. The current economic disaster arose in part because the promised benefits of cutting the taxes on wealthy citizens never materialized, and it’s foolish to permit the same sort of flawed thinking to carry the day when it comes to unraveling the mess to which that flawed thinking has already contributed.

The authors, after taking that wrong turn, then take their good idea of fixing the tax mess and drive it off the cliff. They argue that “Congress should enact a value-added tax.” In describing for their readers what it is, namely, “the equivalent of a broad-based sales tax on all goods and services,” though that’s not quite what it is, they fly right by all of the defects and flaws inherent in sales-based taxes. Sales taxes are easy targets for lobbyists. Consider the example discussed in Another Step Toward Elimination of All Taxes, which involves a sales tax exemption for helicopters. Or consider the questions raised in Tax as a Measure of Values, the latest in a series of posts criticizing the Pennsylvania legislature for subjecting cigarettes and cigarillos but not cigars or smokeless tobacco to the state sales tax, and for carving out sales tax exemptions for tickets to sporting events while imposing the sales tax on tickets to cultural events. Do the authors of the editorial believe for one moment that the Congress would enact a VAT that has no exemptions, or that if did enact such a statute that it would remain untouched by lobbyists as time moved ahead?

The VAT proposal suffers from an even more serious flaw. It would shift the tax burden to lower and middle income individuals in terms of the percentage of income turned over to the government under the VAT. The VAT, in other words, is a regressive tax. A family of four earning $50,000 and spending $40,000 (after paying other taxes of $10,000) would pay $4,000 under a 10% VAT. That’s 12.5% of income. In the meantime, a family of four earning $100,000, after paying $25,000 in other taxes and setting aside $10,000 in savings, would spend $65,000, thus incurring VAT liability of $6,500. That’s 6.5% of income. When states enact sales taxes and encounter this regressivity phenomenon, they enact exemptions for food, clothing, and shelter, or other so-called “necessities.” Thus, assuming that both families are spending $30,000 on food, clothing, and shelter, the $50,000 family would pay a VAT of $1,000 (10% of ($40,000 - $30,000)), and the $100,000 family would pay a VAT of $3,500 (10% of ($65,000 - $30,000)). That’s an 2% of income for the $50,000 family and 3.5% of income for the $100,000 family. The fun begins, though, when it’s time to define food, clothing, and shelter. Are designer jeans “necessities” within the clothing exemption? Are cigars “necessities”? What about helicopters? Others have written extensively on the disadvantages of sales taxes, and there’s no need to repeat them here.

Once upon a time, it would be amazing to see how defenders of tax breaks for the elite and special low tax rates for the types of income constituting much of the elite’s overall wealth increases rush to offer a substitute for the repeal of that special treatment. Now, it’s no longer amazing. It’s par for the course. It’s disappointing. It’s deeply troubling. In terms of what it means for this country’s future, it’s dangerous. How much longer will the failed promises of the past continue to find takers among those charged with the stewardship of the country?