MauledAgain

If there is anything on which almost everyone, no matter which side of the aisle they inhabit, concurs, it is the need to repair, improve, and maintain the nation’s transportation infrastructure. Stories of closed bridges, collapsing roadways, potholes, traffic congestion, and travel delays are not only easy to find but also pop up every which way we turn.

Some states have already raised fuel taxes to fund highway repairs and maintenance. Proposals are pending in most other states. And, not surprisingly, proposals to raise the federal fuel taxes are again being introduced in Congress. Some are simply designed to make up the deficits caused by failure to adjust the existing tax for inflation. Others would increase the tax even more.

It also is not surprising that the anti-tax movement is rising up yet again to oppose any tax increases. The latest condemnation comes from Americans for Prosperity in this statement. This group makes four points.

First, raising the gasoline tax would offset roughly one-fourth of the benefits of the 2017 tax legislation. Whether this is true isn’t the issue. What matters is that a gasoline tax would affect lower-income Americans more severely than it would affect the oligarchy, noting that the former “already pay a larger portion of their income to cover basic needs like food and fuel.” The Americans for Prosperity statement uses this fact as a justification for opposing the tax increase. The solution, of course, is to make certain that lower-income individuals have sufficient after-tax income to pay for basic needs. Income inequality comes at a price.

Second, “The better way to modernize and repair our nation’s roads and bridges is to target federal gas tax dollars toward the construction and maintenance of critical national priorities.” What Americans for Prosperity is saying is that it thinks federal gasoline tax funds “are being diverted to projects that have nothing to do with roads and bridges, or which are inherently local in nature.” If the funds are being used, for example, to fund public transportation in order to reduce stress on roads and bridges and reduce the cost of maintenance and repairs, there isn’t anything wrong with that use of the funds. On the other hand, if the gasoline tax revenues are being used to finance sports arenas, libraries, or ski resorts, the diversion is very wrong. As for funds being used for “inherently local” roads and bridges, in a twenty-first-century world it is important to understand that those local roads and bridges are part of a national network.

Third, “The better way to modernize and repair our nation’s roads and bridges is to . . . allow state’s greater flexibility to address their needs.” In its statement, Americans for Tax Prosperity argues for the elimination of laws and regulations that it claims increase the cost of projects. It argues that costs can be reduced if wages of those working on infrastructure are reduced. Those workers, of course, need income to pay for “basic needs,” something that would be more difficult when bringing home reduced income.

Fourth, “The better way to modernize and repair our nation’s roads and bridges is to . . . unleash private investment.” When I read the headline of the statement, “Better Ways to Address Roads and Bridges than Punishing Tax Hikes,” I knew this was the point of the statement. Of course, the anti-tax movement wants privatization of everything. Why? It permits private equity companies, hedge funds, and other enterprises, insulated from the ballot box, to take over basic and other needs, to set whatever prices they wish – as evidenced by their continued opposition to antitrust laws – and eventually to charge tolls for every road that will make the proposed gasoline tax increases look like petty cash. That is why I am not persuaded by the “higher gasoline taxes hurt lower-income people” argument if the alternative is privatization, because privatization means even higher tolls that hurt lower-income people even more severely.

Readers of this blog know that I am no fan of privatization, because privatization does not work, and these private enterprises have a goal, maximization of the bottom line at all costs, that is inconsistent with the goal of maintaining and improving the public welfare. Why privatization does not work is something I discussed in Are Private Tolls More Efficient Than Public Tolls?, When Privatization Fails: Yet Another Example, How Privatization Works: It Fails the Taxpayers and Benefits the Private Sector, Privatization is Not the Answer to Toll Bridge Problems, and When Potholes Meet Privatization. As I noted in So Guess Who Pays for the Senate’s Tax Cuts for Corporations and Wealthy Americans?, the anti-tax/privatization movement is part of a “plan to eliminate or privatize Medicare, Social Security, national defense, and everything else so that eventually the oligarchy owns everything.”

As for the highway, bridge, and tunnel funding challenge, there is a twenty-first century solution. I have explained, defended, and advocated for the mileage-based road fees for many years, in posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, and Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign. When a reader asked how my support for the mileage-based road fee fit with my preference for a progressive income tax, I answered that question in Is a User-Fee-Based System Incompatible With Progressive Income Taxation?.

As companies merge, as hedge funds and private equity funds purchase companies, strip them of assets, and toss them aside, as local businesses are overwhelmed by national and global chains that give little regard to local concerns, as consumer choices are reduced because the number of providers from which to select decreases every year, and as private industry that cannot be held responsible at the voting booth becomes the replacement for government, the foundations of democracy will erode and the republic eventually will collapse. Given the choice of paying taxes for services that can be shaped by people elected in voting booths or paying tolls, fees, and other charges to a faceless private oligarchy operating in a market free for the wealthy, those who can look into the future unfettered by limbic systems surely would understand and accept the need for liquid fuel taxes or even better, mileage-based road fees, that keep pace with reality.

A few days ago, as reported in this article, Michigan’s governor Gretchen Whitmer has proposed expanding the 6 percent corporate income tax to include S corporations and LLCs. Under current law, the income of those entities is taxed to their owners. Individual owners are taxed at a 4.25 percent rate. Whitmer’s goal is to raise revenue that would permit the repeal of the income tax on pensions. Under the proposal, owners would not be taxed on the income of these entities, and entities with less than $50,000 of income would not be subject to the corporate income tax and their income would be taxed to their owners, as under current law.

A bit of history helps. Before 2011, Michigan had a business tax, the effect of which was to tax both S corporations and LLCs and their owners on the entities’ incomes. It was a double taxation that some thought was hurting Michigan’s economy. In 2011 the business tax was repealed, but for some exceptions not relevant to the current debate. At the same time, pensions, which had been exempt from the income tax, were made subject to it. So while business owners were gleeful, pensioners fumed.

Depending on one’s point of view, reaction to Whitmer’s proposal was surprising or not surprising. Groups representing small businesses objected, claiming that the proposal would reintroduce double taxation of small business income. That’s not how I read the proposal.

A former Lieutenant Governor noted that the tax on the income of S corporations and LLCs would increase by 41 percent. That’s about right, as a 6 percent tax is 1.75 percentage points higher than a 4.25 percent tax, and 1.75 percentage points is roughly 41 percent of 4.25 percent. He also noted that these entities would need to file an additional tax return. That makes no sense to me, as these entities need to file a return in order to disclose the amount of income and other items being passed through to their owners. So his claim that these entities would face increased tax return preparation expenses runs very shallow.

Others claim that the proposal amounts to a tax on small businesses. Yet with the exclusion of the first $50,000 of income from the proposal, roughly 40 percent of small business S corporations and LLCs would not face additional tax. Truly small business operations would be unaffected.

Still others claim the proposal is a job killer, but that assumes the businesses would cut employees and does not take into account the impact of pensioners who, as customers with more after-tax dollars, could boost the revenue of those businesses. Similarly, those who claim the proposed increase would “divert money away from economy” fail to take into account that the money flowing out of the economy into the Treasury would be offset by the money no longer sent to the Treasury by pensioners. In other words, it’s at least a wash. It very well could be more than a wash, because it is, in effect, a form of demand-side economics, which is much more favorable to genuine businesses than is the failed supply-side economics nonsense.

But the best twist is an interesting one. The Michigan Treasury Department explained that most businesses would be able to deduct the proposed corporate income tax on their federal income taxes. Is that so? Many individual owners of S corporations and LLCs who are paying Michigan income taxes on the incomes of those entities are no longer getting the benefit of the federal income tax deduction for those state taxes because of the $10,000 cap on the federal deduction. Shifting the tax back to the entities as a corporate income tax makes the tax deductible for federal income tax purposes if the entity chooses to file as a corporation for federal income tax purposes. Otherwise, if the entity continues to be taxed as a pass-through for federal income tax purposes, the Michigan income tax that it pays continues to flow through to the tax return of the owners, where it probably, though not necessarily, is rendered useless by the $10,000 cap.

For any individual owner of a Michigan S corporation or LLC, the impact is best described by running the numbers and by making good guesses on future revenues and expenses. The idea that the proposed change would impact all S corporations, LLCs, and their owners in the same way is fallacious.

A recent article, thanks to its headline, appeared to focus on what taxpayers intend to do with their income tax refunds, but it touched on multiple facets of income tax refunds. The article’s focus is on federal income tax refunds, but presumably not much is different, other than scale, with state income tax refunds.

The article begins with the claim that “It's hard to not get excited about receiving a tax refund.” That’s true, I suppose, in most instances. But those who try to minimize the amount of money they lend to a government interest-free might not be too excited if they compute the lost interest.

The article notes that “On average, taxpayers expect to receive $3,030 back from the IRS.” Expectations are one thing, reality is another. Yet in this instance, it appears that the average refund, now at $3,143, is within the statistical ballpark of the expectation. The problem is that these are averages. Though averages matter, they can be misleading. An average refund of $3,143 could be one taxpayer getting a $2,000,000 refund and 999 taxpayers each getting a $1,144 refund. Of course, the expectations could have been in line with those outcomes, or they could have been one taxpayer expecting a $50,000 refund and 999 taxpayers expecting a $2,983 refund. Perhaps at some point there will be a survey that maps out individual expectations against individual realities. If the expectations are measured by what the taxpayers are seeing on their already-filed tax returns, of course actual refunds will be close to expected refunds. Yet with tens of millions of taxpayers being surprised by refunds much lower than expected, or even facing amounts due when expecting a refund, it is safe to assume that many taxpayers are encountering unexpected outcomes, most of them unpleasant.

The article explains that of people expecting refunds 43 percent plan to pay off some of their debt. Considering that consumer debt is at an all-time high, financial advisors tend to think these plans are good ones. Another 43 percent planned to invest the refund, put it in a non-retirement savings account, or make a major purchase of a necessary item. Only eleven percent, though, planned to set the refund aside for retirement. As for luxury purchases, only five percent admitted to having such a plan, perhaps the person getting a huge refund that brings up the average. Of the people surveyed, the largest group of respondents, coming in at 38 percent of those polled, did not expect to receive a refund.

The article concludes by suggestion that “getting nothing back from the IRS might be a good thing” because “Neither owing a balance nor receiving a refund is an indication that you paid exactly the amount of tax liability you owed.” That’s true, but it is extremely unlikely to hit the nail on the head in this regard. The odds are stacked against it. And in a year when the tax laws are significantly changed, calculating withholding and estimated taxes to equal exactly one’s tax liability is like trying to play archery on a field in New York looking for a bull’s eye on a target in Las Vegas.

Note: for those who read the article and wonder why I am giving different percentages, look at the chart accompanying the article. For example, three percent of those surveyed plan to spend their refund on luxury items. That three percent constitutes five percent of the 62 percent who expect a refund.

Most people dislike paying taxes. Yet whatever antipathy is directed against the imposition of a tax, or the tax rates, or what is included in or excluded from income, an even harsher hatred is aimed at tax collection. Outrage ensued back in 1979 when IRS agents, who decided to seize a car from a couple who owed back taxes, smashed the windows of the car and dragged the couple out of the car, an event recounted in this article. At the time, I remember several people commenting rhetorically, “So what could be worse? What’s next? Grabbing your kids?”

Yes, as bad as that was, it can be, and did get, worse. According to this story from several days ago, a family in Germany allegedly failed to pay amounts it owned to the town in which it lived. Among the overdue payments was a dog tax. Town officials, claiming that they had seized the family’s nonessential household goods, and presumably whatever financial assets the family had, decided to, and did, seize the family’s pet dog. The town then sold the dog online for the equivalent of $854.

Social media exploded with criticism of what happened. The officials claim that they had no other choice because there was nothing else to seize. I wonder, if the family did not own a dog but still owed other amounts, including taxes, to the town aside from the dog tax, would the officials have seized one or more of the children? Where is the line to be drawn?

Almost two years ago, in Commas and (Tax) Statutes, I wrote about the importance of commas, including the importance of commas in tax and other statutes. Specifically, I explained what had happened in O’Connor et al v. Oakhurst Dairy et al, in which the significance of the Oxford comma was front and center. It is helpful to review my explanations:

The Oxford comma is used to separate the next-to-list item in a list. For example, one could write, “I gave the instructions to Bob, Mary, Rachel and Tony.” Proponents of the Oxford comma argue that the sentence should be, “I gave instructions to Bob, Mary, Rachel, and Tony.” In this instance, with or without the Oxford comma, a reader can easily determine that the instructions were given to four people. But sometimes the absence of the Oxford comma can make a difference in meaning.

* * * The [O’Connor] case involved a dispute between a diary company and its drivers over the drivers’ rights to overtime pay. Under Maine law, which governed the employment relationship, overtime pay generally is required if the employee works more than 40 hours in a week. Among the exceptions to this requirement is Exemption F, which states that overtime pay protection does not apply to “The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: (1) Agricultural produce; (2) Meat and fish products; and (3) Perishable foods.”

The drivers argued that these words refer to the single activity of “packing,” whether the “packing” is for “shipment” or for “distribution.” The drivers explained that though they handle perishable foods, they do not engage in “packing” them. Thus, the drivers contended that they were not within the Exemption F exception.

The dairy argued that the statute refers to two distinct exempt activities, one being “packing for shipment” and the other being “distribution.” Under this interpretation the drivers are within the Exemption F exception because they unquestionably distribute perishable foods.

When the case was filed in the district court, it was referred to a Magistrate Judge, who decided that the dairy’s argument was the better one, and recommended granting the dairy’s motion for partial summary judgment. The district court agreed, and granted summary judgment for the dairy on the ground that “distribution” was a stand-alone exempt activity. The drivers appealed.

The Court of Appeals began by setting aside an unpublished opinion of the Maine Superior Court cited by the dairy. The Maine Superior Court had ruled that Exemption F provides an exemption “for the distribution of the three categories of foods.” The federal Court of Appeals pointed out that it is not bound by a Maine Superior Court decision because a Maine Superior Court decision does not bind the Maine Law Court. The Court of Appeals also noted that the cited case had been appealed to the Maine Law Court, which did not follow the Superior Court’s approach but decided the case on other grounds.

The Court of Appeals concluded that Exemption F was ambiguous, even after taking account of interpretive aids, the law’s purpose, and the law’s legislative history. The dairy argued that the words “distribution” and “shipment” are synonyms, that accordingly “distribution” is not a type of “packing,” and that “shipment” describes the exempt activity of “packing” whereas “distribution” is a separate exempt activity. The dairy also relied on the linguistic convention of using a conjunction to mark the last item on a list, and thus argued the lack of a conjunction before “packing” made “distribution” a separate item. The dairy conceded that if a comma had been placed after the word “shipment,” its interpretation would be unquestionable, but tried to block the conclusion that the lack of the comma required the opposite outcome by pointing out a rule in the Maine Legislative Drafting Manual that stated, “when drafting Maine law or rules, don’t use a comma between the penultimate and the last item in a series.”

The drivers argued that “shipment” and “distribution” are separate activities. They explained that “shipment” refers to outsourcing delivery to third-party carriers, and “distribution” refers to a seller’s in-house transportation of products to recipients, relying on dictionary definitions. The Court of Appeals noted that if the dairy was correct in treating “shipment” and “distribution” as synonyms, it would be odd for the legislature to use both terms. Additionally, the court noted that in other statutes, the Maine legislature treated “shipment” and “distribution” as different activities. Thus, using both terms was consistent with an exemption for “packing for shipment” and “packing for distribution.” The drivers also argued that because each exempt activity was described by using a gerund – a word ending in “ing” – the use of “shipment” and “distribution” should be treated as having the same grammatical role under the parallel usage convention. Thus, the drivers concluded, those two words are objects of the preposition “for” that follows the gerund “packing.” The drivers responded to the dairy’s reliance on the Maine drafting manual by highlighting a caution in the manual that drafters should “be careful if an item in the series is modified.”

After explaining why the arguments based on grammar did not resolve the matter, the Court of Appeals proceeded to explain why the arguments based on legislative history did not provide an answer. The court turned to the principle of interpreting a statute in favor of those whom the statute is intended to protect. In this instance, it was intended to protect employees. Accordingly, the Court of Appeals held that the drivers were not within the overtime requirement exception, and reversed the district court.

I then pointed out that the dispute between supporters of the Oxford comma and those who do not agree will continue. Though I did not know at the time, the dispute between the dairy and the drivers continued. Apparently the dairy was ready to try to take the case to the Supreme Court, but instead, according to this report, brought to my attention by a reader, the dairy settled the case and paid $5,000,000 to the drivers.

In the meantime, while the parties argued about the meaning of the statute, the Maine legislature amended the statute. Perhaps they had noted my advice at the end of Commas and (Tax) Statutes, specifically, “Those who draft statutes, regulations, rulings, contracts, or any other document need to pay very careful attention to each word and each punctuation mark, including the comma.” But though the legislature sought to fix the statute so that in the future a case like this would come out the other way, it avoided the comma. Instead, it replaced all of the commas with semicolons! It also changed the word “distribution” to the phrase “distributing,” a change perhaps reflecting my observation that “distribution” was not a gerund as were the other words used to describe activities. The statute in question when the case arose had denied overtime pay protection to “The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: (1) Agricultural produce; (2) Meat and fish products; and (3) Perishable foods.” Now the statute denies overtime pay protection to “The canning; processing; preserving; freezing; drying; marketing; storing; packing for shipment; or distributing of: (1) Agricultural produce; (2) Meat and fish products; and (3) Perishable foods.”

Why the semicolons? Had the commas been left in place and a comma added after “shipment,” the dispute would have disappeared. Is it possible that the legislature wanted to avoid being perceived as taking sides in the Oxford comma debate? I hope not. For the reasons that I have shared, the Oxford comma is essential in many instances, and in the instances in which it is not essential, it does no harm. The use of the semicolon in the statute violate the grammar rule that semicolons are used in a list only if one of more of the items in the list themselves contain commas. So now the semicolon debate will heat up.

Reacting to Friday’s commentary, When Paying Taxes in Cash is Prohibited, reader Morris asked, “How does California's FTB get away with their no cash policy?” He was referring to the California Franchise Tax Board’s policy of not accepting cash as payment for taxes. The California Taxpayers Association has provided its analysis of the no-cash policy along with some background.

One point to note is that California’s Franchise Tax Board permits taxpayers to file an application to pay taxes in cash. The primary reason for this exemption application appears to be the fact that growers and sellers of legal marijuana in the state find it difficult or impossible to open bank accounts, because financial institutions are concerned with compliance with federal law. There is a bit more information in this commentary from a law firm in California.

The Franchise Tax Board claims that it is legal for it to refuse cash payments. According to the California Taxpayers Association, the Board relies on a California statute and two cases. It points to section 19005 of the California Revenue and Taxation Code, which provides that payment in the form of check, electronic funds transfer, credit card, or other payment device is acceptable. The Board claims that under the Coinage Act of 1965, 31 U.S.C. section 5103, it is not required to accept currency as a form of payment, and to this point the Board cites Tenn. Scrap Recyclers Ass’s v. Bredesen, 556 F.3d 442 (6th Cir.2009), and Genesse Scrap & Tin Baling Co. v. City of Rochester, 558 F. Supp. 2d (W.D.N.Y 2008).

There are multiple flaws in the Board’s position. First, section 19005 does not prohibit payment with cash; it merely permits payment by check, electronic funds transfers, credit cards, and other payment devices. Second, its claim that the Coinage Act of 1965 does not require it to accept payment in currency flies in the face of what the United States Treasury has promulgated with respect to that federal statute. In response to someone who asked, “I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn't this illegal?” the Treasury provided this explanation:

The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal tender," which states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy.

In other words, there is a difference between payment for goods and services and payment of taxes and debts. Third, decision in Tenn. Scrap Recyclers Ass’s v. Bredesen, 556 F.3d 442 (6th Cir.2009), and the cases it cites, including Genesse Scrap & Tin Baling Co. v. City of Rochester, 558 F. Supp. 2d (W.D.N.Y 2008), deal with payment for scrap metal in transactions that include payments for goods, not payment of taxes or debts. Those courts explained that a requirement to pay for goods or services by check or money order and not cash, whether imposed by a government or as terms of a privately negotiated contract, does not change the status of cash as legal tender nor make checks or money orders legal tender. The court provided that explanation because the parties in those cases objecting to the “no cash” rule argued that the rule ignored cash as legal tender and treated checks and money orders as legal tender. Because they were not dealing with payment of taxes, the question of whether the use of cash to pay taxes can be prohibited was not in issue, and thus citing those cases as relevant to the question is inappropriate.

As the California Taxpayers Association pointed out, the federal Coinage Act of 1965 takes priority over section 19005 of the California Revenue and Taxation Code even if section 19005 is interpreted as barring the use of cash, which it arguably does not do, rather than simply permitting the use of checks and other devices to pay taxes. At some point, someone who is prevented from paying taxes with cash, in California or any other place with a statute prohibiting cash payment of taxes, is going to litigate this issue. It might even end up in the Supreme Court. My guess is that one reason California made the exception for cash payments, which might make a case coming out of California not appropriate for reaching that issue – because the taxpayer was given the exemption as a means of escaping the prohibition – is that California did not want its marijuana growers and sellers to litigate the issue in a federal court.

So my answer to reader Morris is as follows. By providing the exemption, California is not, strictly speaking, prohibiting the use of cash to pay taxes, though at some point someone will be denied the exemption and want to pay in cash. The reason that California continues to “get away” with its policy is that no one has yet challenged it in a manner that would bring judicial evaluation. The issue remains unsettled.

It’s soda tax time again! This is an issue on which I have commented many times, including posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, Putting Funding Burdens on Those Who Pay the Soda Tax, Imagine a Soda Tax Turned into a Health Tax, Another Weak Defense of the Soda Tax, Unintended Consequences in the Soda Tax World, Was the Philadelphia Soda Tax the Product of Revenge?, and Did a Revenge Mistake Alter Tax History?

Recently, reader Morris asked me, “What is your opinion on the 5 new bills in California to reduce soda intake?” He pointed me to an article describing those five proposals. One, of course, involved taxes, and it simply is a replication of the “sugary beverage” taxes enacted in Philadelphia and some other localities that pose more problems than they provide solutions. The other four proposals also pose more problems than solutions. Those four other proposals are to reduce unsealed soda container sizes, print warning labels on sugary beverages, remove sugary beverages from checkout lanes, and stop soda companies from offering promotions to retailers.

Rationales for these ideas, though appearing to be sensible, distract attention from a wider problem. The problem is the inability or unwillingness of many Americans to eat and drink and live in a healthy manner. Though sugary beverages presumably are the primary source of sugar consumption, and though excessive sugar consumption can trigger a variety of health problems, focusing on sugar while ignoring all the other unhealthy foods and beverages, to say nothing of unhealthy lifestyles, is not unlike enacting restrictions on drone use by people of a certain age while ignoring misuse of drones by those in other age groups simply because there is somewhat more abuse of drones by people in that certain age group.

When a problem exists, focusing on one cause while ignoring all others is foolish and ineffective. If a house is insufficiently insulated, does it make sense to put in energy-efficient windows while ignoring the lack of attic insulation? If the nation is to become healthier, it will take much more than restrictions on the consumption of sugary beverages. Advocates will claim that restrictions on soda are “a start,” but that’s like locking one door while leaving the others open. As I’ve asked in the past, where are the restrictions on food and beverages that are no less damaging in the long run that soda consumption? What about the excess consumption of donuts, pies, and cakes? Or fast food? Or food tainted with pesticides or that are genetically modified? Perhaps in light of the adverse health effects of red meat and fatty foods, when will there be a focus on sales of bacon?

The flaw in focusing on a “soda tax” is demonstrated by the reach of the Philadelphia soda tax. It doesn’t reach a variety of foods containing high amounts of sugar. Yet it applies to beverages that contain relatively small amounts of sugar and that are in other respects much healthier than cakes and pies. There are plenty of people who drink soda but who are in great shape, and there are too many people who don’t drink soda but who suffer from serious health problems caused by the ingestion of foods and beverages that the soda tax advocates ignore.

So what do I think makes more sense? Being a fan of education, I certainly support putting warnings on dangerous things, including dangerous foods and beverages, though realistically I realize that warnings don’t deter everyone. But health education needs to be more than warning labels. It needs to be emphasized in the K-12 schools. It needs to be powerful. When supporters of warning labels attribute the decrease in tobacco smoking to those labels, they overlook two things. That decrease has been accompanied by an increase in vaping, despite warnings. And what I think worked are those television public service announcements showing the impact of smoking on individuals, who describe life using an electrolarynx or dealing with a throat stoma. Surely similar public service announcements can be crafted to show the dangers not only of excessive intake of soda but of ingesting unhealthy foods, failing to exercise, and omitting healthy life routines. Forcing people to live healthily doesn’t work, has never worked, and will not work. Encouraging people, through education in schools, intense public service announcements, and warning labels, can work, if it is honest and sensible.

Three and a half years ago, in Does It Make Tax Cents?, I commented on a story about a Pennsylvania taxpayer who paid a tax by dumping 50,000 pennies and some dollar bills and higher denomination coins. Sixteen months later, in It Still Doesn’t Make Tax Cents, I commented on someone’s attempt to pay a parking ticket with loose coins. Two days later, in Trying to Make Cents of Two More Coin Payment Stories, I shared my thoughts on someone’s attempt to pay a $4,000 fine with coins, a tale told in two stories.

Though attempts to pay taxes and fines with coins, particularly pennies, get attention, there hadn’t seemed to be any attention given to the payment of taxes and coins with cash. Presumably, being handed 1,000 one-dollar bills isn’t quite the horror of being handed 1,000 or 100,000 pennies. But things are changing.

Recently, businesses in Philadelphia, and elsewhere, are adopting “no cash payment” policies. They claim that customers can be served more quickly, and lines move faster, when credit cards, debit cards, and iPhone apps are used to make payments. Of course, this presents a problem for people who, for whatever reason, do not possess those types of cards and apps.

According to this report, these “no cash payment” policies brought a reaction from a member of Philadelphia City Council. Bill Greenlee sponsored a bill banning stores that adopt such a policy. Along with other members of Council, he is concerned that as the practice grows, people without the ability to pay with other than cash will find themselves unable to acquire necessary goods and services. Greenlee noted that other jurisdictions either have enacted bans on “no cash payment” policies or are contemplating doing so.

Proponents of the “no cash payment” policies claim that a prohibition will stifle innovation. Another criticism seems more striking. The City of Philadelphia does not accept cash payments for a variety of transactions.

There is a Pennsylvania statute already in place, and in place since 1984, that provides:

It shall be unlawful for any person to refuse to rent or sell property or services to any individual for the reason that the individual does not possess a credit card. Nothing in this section requires the acceptance of any particular form of payment.

The statute does not prohibit governments from adopting a “no cash payment” policy for transactions not involving rent or sales of property and services.

What caused me to think and write about this was the reaction of Upper Darby Township to a situation in its Tax Office. As reported in this story, after an employee of the Tax Office was caught, and admitted to, stealing cash tax payments, the township adopted new policies to prevent the problem from resurfacing. It changed the tax payment system, and adopted a provision prohibiting taxpayers from paying taxes with cash.

As I wrote in It Still Doesn’t Make Tax Cents,

For the curious, it is permissible to pay taxes, debts, dues, and other charges with coins. According to 31 U.S.C. section 5103, “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.” It also is permissible for private businesses and organizations to refuse to take currency or coins as payment for services or the sale of goods. The difficult question, which continues to be debated, is whether a person, business, organization, or government agency can refuse to accept currency or coins as payment for a debt, a public charge, a tax, or dues. Though debates continue to flourish over this question, the answer is no.

The deeper question is why a government can have a “no cash payment” policy for tax payments. Although the Pennsylvania statute applies to rent, goods, and services, and not taxes, debts, and dues, there is a federal statute that treats coins and currency as legal tender for taxes, debts, and dues. And as I also pointed out, a well-written statute would clear up this issue, though it would need to be a coherent statute that treated people without credit cards, debit cards, and iPhone apps in the same way no matter what it is they are trying to pay.

In a series of commentaries, including The Realities of Income Tax Withholding, Indeed, Check Your Withholding, and Do It Now, and Time Runs Out on Tax Withholding Adjustments, I cautioned people against getting excited about take-home pay increases that will be offset, to a greater or lesser extent, by refund reductions and tax due amounts when filing season rolls around in 2019. And now that we are in tax filing season, people are discovering what is not news to those of us who paid attention. Numerous articles, including this Philadelphia Inquirer report, are sharing the experiences and reactions of taxpayers navigating what is, to them, a surprising and often unwelcome tax filing process.

The IRS reports that total refunds and the average tax refund have both decreased. People are discovering that their refund is not as large as expected, and, of course, many people expect their refunds to be in line with previous year refunds. Not a few are discovering that they owe tax and must transfer funds or write a check to the Department of the Treasury.

Arguments about the impact of the legislation focus on whether people are paying less tax than last year or more tax than last year. The flaw in that approach is that the only time it works is when a taxpayer’s income remains unchanged. A person who experiences a significant increase in income will almost certainly face a higher tax liability, even if rates are reduced. Likewise, if income drops significantly, tax liability will go down even if there were no tax cuts.

The only fair measure of the impact of the tax law changes on an individual is to compare total tax liability to total income. It makes no sense to compare to taxable income, because the tax law changes cause many taxpayers’ taxable incomes to change even if their income doesn’t change. In other words, what percentage of income must be paid as federal income tax?

Estimates of how many people are seeing a reduction in the percentage of income that must be paid as federal income tax are not available. Instead, we get statements such as the one issued by the Department of the Treasury claiming that most people are “seeing the benefits of the tax cut in larger paychecks throughout the year, instead of tax refunds.” But there is no benefit unless that percentage goes down. Does it? That percentage is not computed on the federal income tax return. It must be computed separately. I wonder how many people, and how many tax return preparers, are doing this calculation.

One Senator claimed that because the average refund is down $170 that people experiencing a reduced refund are encountering a tax hike. Some are, and some aren’t. The reduction in a refund does not answer the question. The Department of the Treasury could provide the information, considering it knows each filer’s income and tax liability, but I doubt it has the inclination, the time, or the financial resources to do the computation and publish summaries.

Another Senator cautioned that relying on early season refund statistics is misleading because the refund statistics change from week to week. That’s true, but again, that’s an argument about which set of useless information should be used. Worse, early filers are usually those expecting a refund. What is going to happen when the later filers, many more of whom expect to owe taxes, join the filing parade?

Another Senator claimed, “That big refund they've gotten used to — that's a goner now that Trump's tax changes are the law of the land, and many might owe the government money. It sure looks like the Trump administration decided to put politics first, lowball the estimates of how much tax should be withheld from everybody's paychecks, and lure people into the false sense of security that they'd gotten a big tax cut, courtesy of Donald Trump." Of course, that’s exactly what happened. It’s a technique often used in private sector business deals, with the front end looking fantastic for the consumer and the back end turning out to be an ocean of interest charges.

Those of us who understand these things saw what was happening. People were warned. The IRS repeatedly told people to check their withholding. Not everyone listened. And now, some are paying the price. When the fine print isn’t examined, when projected computations are not done, when careful analysis is omitted, when limbic impulses overwhelm reason, prices get paid. And those who think that a reduced refund or the need to write a check or transfer funds to the Department of the Treasury is the only price they will be paying need to think again, and again. These refund decreases and tax payment increases are just the first installment in the total price that will be paid.

A little less than six years ago, in The “Rain Tax”?, I examined the storm management fee enacted by Maryland, which critics called a “rain tax.” I explained that it was not a “rain tax” because the water that runs off properties can be from sources other than rain, such as vehicle washing and lawn watering. I responded to one critic’s concern about the computation of the tax. I also responded to a long list of objections raised by opponents of the fee.

The New Jersey legislature has passed a bill that would permit local governments to set up stormwater entities to collect fees on property owners and occupants who contribute to stormwater runoff. And, not surprisingly, it has opponents. Last Thursday, in a letter to the editor of the Philadelphia Inquirer that does not appear to be online, David F. Lipton of Toms River, N.J., called it a “rain tax,” described it as a “lawyer’s dream,” and a “constitutional nightmare.” Lipton put the phrase “rain tax” in quotes, and it probably was an editor who used the phrase in the caption for the letter. So considering I’ve explained why this sort of fee is not a “rain tax,” I’ll set that aside.

Why is it a lawyer’s dream? Lipton explains that the provision in the bill permitting a “fee based on a ‘fair and equitable approximation’ of how much runoff is generated from their property.” Yes, that sort of language will invite in the lawyers. But as I wrote in The “Rain Tax”?, those computing the fee “can look to localities in a state such as Pennsylvania, which impose storm water management requirements on construction projects, to learn how to identify impervious surfaces, which actually isn’t rocket science. They can then calculate the total square footage of impervious surfaces in the county, which administers the fee.” It’s not rocket science. Yes, lawyers will jump on the words “fair” and “equitable” to develop arguments for why their clients should not pay the fee, or should pay a lower fee. Some of those arguments will be valid, which is why lawyers exist. Imagine being a property owner from whose property water runs off into the public street, though the water is coming from an adjacent property whose owner has not mitigated that runoff. Of course there will be litigation. There always is litigation when dealing with taxes. If a prerequisite for a tax would be a guarantee of no controversy, there would be no taxes. Though that would delight many, it also means there would be no government, no viable society, no safety, no freedom, and no justice.

Lipton also mentions what happened when the New Jersey legislature enacted a bill that permitted each local government to have its own entity to compute and impose connection fees for new users of the sewage system. The New Jersey Supreme Court held that this approach would allow unequal treatment, violating the New Jersey Constitution. Thus, a statewide system had to be used. Lipton predicts that allowing each of more than 550 local governments to set their own standards will be struck down for the same reason. He’s almost certainly correct. I say “almost” because predicting what a court will do is risky.

But does this mean that the stormwater management fee is unfair? Aside from the constitutional issue Lipton mentions, no, it’s not unfair. In fact, it is a good example of how a user fee should work. It’s a fee that can be avoided by engaging in water runoff mitigation. And that is fair to the environment, and those who use it now and will use it in the future.

The Philadelphia soda tax saga, like some other topics I have addressed over the years, is a tale that does not seem to have an end. I have written about the tax in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, Putting Funding Burdens on Those Who Pay the Soda Tax, Imagine a Soda Tax Turned into a Health Tax, Another Weak Defense of the Soda Tax, Unintended Consequences in the Soda Tax World, and Was the Philadelphia Soda Tax the Product of Revenge?.

The last post in that series examined the claims that union leader John Dougherty and City Council member Bobby Henon pushed for the soda tax in an effort to punish the Teamsters Union. Dougherty allegedly was angry with the Teamsters union for a television ad it had run that put Dougherty “in a negative light.” The ad suggested that Dougherty and Jim Kenney, running at that time for the mayor’s office, which he won, “supported police brutality.” Now, according to this Philadelphia Inquirer report, it turns out that the Teamsters did not arrange or pay for the attack ad. It was the Carpenters union that sponsored the ad, funded by an outfit called Leadership Matters, Inc., which “registered in Pennsylvania a week before the ad aired, just before the May 2015 primary.”

Why would Dougherty make a mistake in identifying who was behind the ad? Both the Teamsters union and the Carpenters union were supporting a different candidate in the mayoral primary, opposing Jim Kenney who was supported by Dougherty. It is understandable that someone would be confused about who is behind a political campaign ad, because national and state election laws, and judicial opinions, have created an environment in which the actual force behind the ad can hide behind a screen of multiply-layered organizations that pop up just before and disappear just after and ad or series of ads. On the other hand, without solid evidence of who is behind an attack ad, reacting to the ad needs to be delayed until that evidence can be ascertained. And, even if the actual identity is known, taking revenge by pushing for a tax that harms individuals not connected with the attack ad controversy isn’t a good long-term strategy. That the tax generates revenue that is put to good use does not in and of itself justify the tax nor the process, or particular elements of the process, that leads to its enactment.

Now, with the soda tax continuing to be the focus of intense political debate, the upcoming election season in Philadelphia is certain to be even more heated than elections in Philadelphia usually are. For those not familiar with Philadelphia politics, election season is always very heated. Though sometimes tax issues get a good bit of attention during a Philadelphia campaign, this time a tax issue might be taking center stage. Charges and denials about the origin of the soda tax are going to be flying in every direction. So guessing an answer to whether this is my last commentary on the Philadelphia soda tax should be easy, barring something taking me out of the blogging circuit.

At some point, enough people are going to realize that the “give us a tax break and we’ll create jobs” promise is as empty as the pockets of the people who have been axed by the tax break recipients. I have written about this stream of broken promises, and how governments can avoid falling into the trap of believing those promises, in posts such as How To Use Tax Breaks to Properly Stimulate an Economy, How To Use the Tax Law to Create Jobs and Raise Wages, Yet Another Reason For “First the Jobs, Then the Tax Break”, When Will “First the Jobs, Then the Tax Break” Supersede the Empty Promises?, No Tax Break Until Taxpayer Promises Are Fulfilled, and When Job Creation Promises Justifying Tax Breaks Are Broken.

So it’s not surprising, but frustrating, to learn of another example of job creation going to the dark side of job destruction. According to this Bloomberg report, the 23 banks considered by the Federal Reserve to be the most important to the nation’s economy reduced their tax liabilities in 2018 by $21 billion, and during that same year cut 4,300 jobs. Additional cuts are planned. The ratio of employee compensation to revenue shrank. These banks saw their effective federal income tax rate fall from 28 percent to below 19 percent. Wouldn’t that sort of rate reduction be useful for individuals? So someone please explain why these banks needed tax relief? Surely it wasn’t to create jobs.

It’s easy to come up with lists of what could have been done with $21 billion. According to the Bloomberg report, that’s more than enough to fund NASA for fiscal 2019. It’s more than double what the FBI spends in its crime-fighting endeavors. At least NASA and the FBI generate benefits for the public at large. What did those banks do with the $21 billion? One bank spent $1.45 million, a miniscule fraction of its tax saving, for $1,000 employee bonuses. Several boosted their minimum wage, helping a fraction of the work force. Most of them passed a good chunk of their tax savings to shareholders, many of whom were also getting the lion’s share of the tax cuts enacted for individuals.

Companies that ask for tax breaks based on promises to create jobs, and that proceed to cut jobs, should be required not only to return the tax breaks but to pay interest and penalties on the amount procured through the making of false promises. Of course, as I’ve been advocating, the best way to avoid being fleeced by those making false promises is not to provide what is sought by the promise maker until the promise maker delivers on the promise and becomes a promise deliverer. It’s that simple.

Reader Morris sent me a tweet by Grover Norquist, who claimed “Slavery is when your owner takes 100% of your production. Democrat congresswoman Ocasio-Cortez wants 70% (according to CNN) What is the word for 70% expropriation?” I’m not on Twitter, primarily because squeezing complex concepts into a limited number of words is a recipe for errors, misunderstandings, and manipulation. I dug round, found the link to this particular tweet by Norquist, and read the comments. Many of the comments made the same point that I made when I replied to reader Morris after he sent me the tweet.

Norquist claims that Ocasio-Cortez “wants 70% . . . of your production.” That simply is not what she has proposed. She has proposed a marginal rate of 70 percent on income above $10,000,000. So unless a person has income exceeding $10,000,000, the proposed 70 percent rate is irrelevant. Norquist apparently is trying to play the fear card, trying to cause someone earning $50,000 a year to think that the federal government would take $35,000.

Here’s the basic point about marginal rates. They are not average rates. They are not effective rates. Here is an example. Using 2018 tax rates, an unmarried person with taxable income of $12,000,000 has a tax liability of $4,405,689, an average rate of 36.7 percent. Using 2018 tax rates, but amended with the 70 percent proposal, the same taxpayer would have a tax liability of $5,805,689, an average rate of 48.3 percent. That’s nowhere near a tax of $8,400,000, which is what Norquist wants people to believe. As one comment put it, “You'd think the president of Americans for tax reform would understand this. I'm betting he does, and is betting 30% of Americans do not.” That comment suggests that Norquist is not suffering from ignorance but is playing with deception. The only flaw is the understatement of how many Americans do not understand how marginal rates work, and thus do not understand the 70 percent proposal.

In 2013, YouGov ran a poll, and the published results are sad. When asked, “Suppose that your income put you at the very top of the 28% tax bracket and you earned one more dollar such that you were now in the 33% tax bracket,” 52 percent selected the correct answer, “My tax bill would go up a very small amount, but 48 percent selected the incorrect answer, “My tax bill would go up substantially.” What was even more revealing was the split between Democrats and Republicans. Of the Democrats who responded, 63 percent answered correctly and 37 percent did not. Of the Republicans who responded, only 38 percent answered correctly, while 62 percent did not. Is it any wonder that there is such an opportunity among Republicans for Norquist and others to share false, misleading, or insinuative information about the 70 percent proposal? As another comment explained, addressing Norquist, “You certainly understand it’s not 70% of anyone’s entire income. You know it’s income over $10 million. So you are trying to mislead people.” Or as another comment framed the situation, “They play to their base's ignorance and then the damage is done.” That same ignorance is what causes “A lot of middle class folks [to] not even realize that they pay a higher effective income tax rate than Billionaires do.”

Whether a 70 percent marginal tax rate on taxable income above $10,000,000 is the best solution is open to debate. Perhaps the rate should be lower, or higher. Perhaps the cut-off should be $5,000,000 with a lower rate, or $25,000,000 with a higher rate. Perhaps there should be several rates and several brackets. That debate, though, needs to take place AFTER most people understand the realities of how marginal rates function.

Norquist and others in the anti-tax crowd suggest, and often declare, that a 70 percent rate would destroy the economy, cause huge job losses, and devastate industry. As another comment put it, “The word for a 70% top tax rate in 2019 is no one is sure. But in the 1950s, a 90% top tax rate equaled one of the best periods in American history when it comes to the growth in wealth per US household. The US could not have built the suburbs without this tax revenue.” As indicated in this chart, the top marginal federal income tax rate equaled or exceeded 70 percent from 1917 through 1921, and from 1936 through 1980. For almost one-half of the history of the federal income tax, top marginal rates of 70 percent or more were the norm.

Issues surrounding federal income tax rates intersect with other issues. It is important to understand how playing with these other issues is used to twist and obfuscate the reasoning necessary to reform the federal income tax so that it does not enhance income and wealth inequality, which, by the way, are far more likely to destroy the economy, cause huge job losses, and devastate industry.

One issue is the charge that high income tax rates constitute “socialism.” Depending on how one defines that word, one can label the interstate highway system as socialism, or one can classify the years with those top marginal rates of 70 percent or more as controlled capitalism, very different from “socialism” as defined by those who think it means a political system that has taxation. Norquist’s attempt to equate high marginal income tax rates with Nazi Germany, because the word “socialist” is in the name “National Socialis German Workers’ Party” was met with the retort, “Grover, the National Socialists (Nazis) were actual socialists like the [Iranian] Republican Guard are actual Republicans. Stop with the BS, you should know better.”

Another issue is Norquist’s claim that high income taxes are, or come close to, slavery, based on his flawed notion that slavery is what happens when someone takes 100 percent of another person’s production. The flaw is that a slave has no choice and must generate production, whereas those who are not slaves and do not want to generate production that is taken by another have the option of not generating production.

One comment addressed the underlying problem: “I can’t understand how so many people don’t know what marginal tax rates are.” The answer is simple. Insufficient education.

In Reaching New Lows With Tax Ignorance. I wrote “Ignorance has become an epidemic.” I think it poses a threat to the survival of democracy, and perhaps even the survival of the species, considering what ignorance has already destroyed. I have written about the horrible consequences of ignorance in numerous posts, so many that the following list is probably incomplete. I have focused not only on tax ignorance but ignorance generally in posts such as Tax Ignorance, Is Tax Ignorance Contagious?, Fighting Tax Ignorance, Why the Nation Needs Tax Education, Tax Ignorance: Legislators and Lobbyists, Tax Education is Not Just For Tax Professionals, The Consequences of Tax Education Deficiency, The Value of Tax Education, More Tax Ignorance, With a Gift, Tax Ignorance of the Historical Kind, A Peek at the Production of Tax Ignorance, When Tax Ignorance Meets Political Ignorance, Tax Ignorance and Its Siblings, Looking Again at Tax and Political Ignorance, Tax Ignorance As Persistent as Death and Taxes, Is All Tax Ignorance Avoidable?, Tax Ignorance in the Comics, Tax Meets Constitutional Law Ignorance, Ignorance in the Face of Facts, Ignorance of Any Kind, Aside from Tax, Reaching New Lows With Tax Ignorance, Rampant Ignorance About Taxes, and Everything Else, Becoming An Even Bigger Threat, The Dangers of Ignorance, Present and Eternal, and Defeating Ignorance, and Not Just in the Tax World. The answer is education. Yet, attempts to educate Americans face high hurdles. As I wrote in Defeating Ignorance, and Not Just in the Tax World:

The challenge in using education to combat ignorance is two-fold. First, those who profit from ignorance use their resources to curtail access to education, particularly quality education. Their efforts include underpaying teachers, underfunding schools and educational resources, and consigning lower income individuals to low quality schools. Second, those who profit from ignorance use their resources to distort curricula, to fill textbooks with misinformation, to leave important material out of educational materials, and to indoctrinate students, particularly those who grow up in cultural bubbles. The effort to keep Americans ignorant or misinformed, which is pretty much the same thing as ignorance, is intense, well-funded, and dangerous. The fear of letting people think for themselves, a skill that I was fortunate to learn and that I have tried to instill in my students, motivates the purveyors of ignorance to take steps that are inconsistent with the survival of a healthy democracy. Put another way, tyrants, dictators, and oligarchs delight in the spread of ignorance. * * * For all of the damage being done, the deeper entrenchment of ignorance in the citizens of an endangered democracy might be the most serious, longest-lasting, and most difficult to reverse.

Certainly Norquist’s tweet does not go into the “effectively combating ignorance” column. It is yet another entry in the “development and perpetuation of ignorance” list. Sad.

Proponents of the 2017 tax cuts for large corporations and the wealthy bragged that this tax giveaway would generate good-paying jobs and raise wages. They pointed to what turned out to be miniscule bonus payments by a tiny fraction of the employers who were rolling in cash after they cut their taxes to even lower levels. I wrote about this sleight-of-hand in posts such as Those Tax-Cut Inspired Bonus Payments? Just Another Ruse, That Bonus Payment Ruse Gets Bigger, Oh, Those Bonus Payments! Much Ado About Almost Nothing, Much More Ado About Almost Nothing, You’re Doing What With Those Tax Cuts?, Arguing About Tax Crumbs, Don’t Want a Crumb? Here’s Dessert But Give Back Your Appetizer and Beverage, and How Tax Cuts for Large Corporations and Wealthy Individuals Impact Jobs. Rather than creating jobs, the 1,000 largest publicly traded companies reduced net employment by 140,000, as reported in this New York Times article. And, as Noah Smith pointed out in his Philadelphia Inquirer article, those bonus payments praised by the tax-cut folks constituted a trend that was “exaggerated,” a conclusion supported by an economic study he cited that demonstrated how those bonuses did not generate a significant increase in 2018 compensation.

Perhaps one reason that the bonuses did not do much in terms of worker compensation was the fact that there is a difference between announcement of a bonus, which gets the tax-cut acolytes all excited, and actual payment of the bonuses. What happened at Aramark demonstrates why talk is cheap and actions matter.

At first, in late 2018, as reported in this article, Aramark, a beneficiary of those 2017 tax cuts, and reporting its highest profit margin ever, based on profits of $1.1 billion, announced not only a reduction in its contributions to employee retirement plans, but also a delay in payment of bonus payments that had always been paid in December. Instead, the bonus payments would be paid on February 15, 2019. Then, in early February of this year, as reported in this article, the company announced that there would be no bonus payments for managers in the four lowest of eight compensation levels. Instead, “select” employees would receive one-time awards.

This is a company that racked up $237.8 million in tax reductions thanks to the 2017 tax giveaway. Ought not at least some of that money be used to increase contributions to retirement plans? Instead, not only was the company contribution not increased, it was reduced. Ought not some of that tax break money be used to pay bonuses, and even increased bonuses? Instead, bonus payments have been eliminated for many employees. The CEO, incidentally, whose total compensation is $16,000,000, received a bonus of $2,600,000. As reported in this article, though the $16,000,000 was a reduction from $16,300,000, Institutional Shareholder Services, a shareholder advisory firm, tagged the compensation as “high relative to peers.”

Aramark has a clawback policy that permits it to recover incentive compensation paid on “misstated financial results.” It has expanded that policy to cover more than 165 executives. It seems to me that there also ought to be, for all companies, a tax break clawback provision that permits the federal government to recover tax breaks paid on misstated promises of increasing compensation for all employees. As I wrote in What’s Not Good Tax-Wise for Most Americans Is Just as Not Good for Small Businesses:

If, indeed, the goal of the Congress and the Administration is to assist all Americans, including small business owners, then it would have proceeded, and would proceed, in a manner consistent with the platitudes too many of its members tweet, bark, and spew. Instead of handing out tax breaks to large corporations and wealthy individuals while driving up the deficit that will wreck the economy, Congress and the Administration should have, and could have, made tax breaks available only after the tax break recipient performs what has been promised. This is what I suggested in How To Use Tax Breaks to Properly Stimulate an Economy, How To Use the Tax Law to Create Jobs and Raise Wages, Yet Another Reason For “First the Jobs, Then the Tax Break”, and When Will “First the Jobs, Then the Tax Break” Supersede the Empty Promises? Of course, my suggestions fall on deaf ears in the nation’s capital, because it is no secret that adopting this approach would expose what is really happening behind the curtain of deflections, misstatements, and fabricated claims. What is happening is not good for the vast majority of Americans, nor is it good for small business.

I wonder, if the tax cuts had been tied to actual job creation performances and not empty promises, whether more jobs would have been created or far fewer large corporations and wealthy individuals would have lined their pockets. I have yet to read any sensible argument why making tax breaks conditioned on actual performance rather than on false promises is a bad idea or something that cannot be implemented. The number of broken promises in society needs to be reduced, and hopefully eliminated, and anyone who objects to taking steps that reduce or eliminate broken tax promises perhaps should be given the opportunity to experience life on the other side of a broken promise.

Last week, when the U.S. Attorney’s Office issued an indictment of eight individuals, as described in this report, among others, I didn’t dig into the details. But then another report appeared that caught my eye. I saw the phrase “soda tax.” What’s THAT about?

As readers of this blog know, the soda tax has been the subject of posts since 2008. I have written about its flaws in posts such as What Sort of Tax?, The Return of the Soda Tax Proposal, Tax As a Hate Crime?, Yes for The Proposed User Fee, No for the Proposed Tax, Philadelphia Soda Tax Proposal Shelved, But Will It Return?, Taxing Symptoms Rather Than Problems, It’s Back! The Philadelphia Soda Tax Proposal Returns, The Broccoli and Brussel Sprouts of Taxation, The Realities of the Soda Tax Policy Debate, Soda Sales Shifting?, Taxes, Consumption, Soda, and Obesity, Is the Soda Tax a Revenue Grab or a Worthwhile Health Benefit?, Philadelphia’s Latest Soda Tax Proposal: Health or Revenue?, What Gets Taxed If the Goal Is Health Improvement?, The Russian Sugar and Fat Tax Proposal: Smarter, More Sensible, or Just a Need for More Revenue, Soda Tax Debate Bubbles Up, Can Mischaracterizing an Undesired Tax Backfire?, The Soda Tax Flaw in Automotive Terms, Taxing the Container Instead of the Sugary Beverage: Looking for Revenue in All the Wrong Places, Bait-and-Switch “Sugary Beverage Tax” Tactics, How Unsweet a Tax, When Tax Is Bizarre: Milk Becomes Soda, Gambling With Tax Revenue, Updating Two Tax Cases, When Tax Revenues Are Better Than Expected But Less Than Required, The Imperfections of the Philadelphia Soda Tax, When Tax Revenues Continue to Be Less Than Required, How Much of a Victory for Philadelphia is Its Soda Tax Win in Commonwealth Court?, Is the Soda Tax and Ice Tax?, Putting Funding Burdens on Those Who Pay the Soda Tax, Imagine a Soda Tax Turned into a Health Tax, Another Weak Defense of the Soda Tax, and Unintended Consequences in the Soda Tax World. Thus my interest in this bit of news.

It turns out that two of the indicted individuals, electricians union business manager John Dougherty and City Councilman Bobby Henon, who were significant advocates for the Philadelphia soda tax, allegedly pushed for enactment of the tax in an effort to punish the Teamsters union. Dougherty allegedly was angry with the Teamsters union for a television ad it had run that put Dougherty “in a negative light.” The indictment claims that Dougherty told another union official, “Let me tell you what Bobby Henon’s going to do, and he’s already talked to [elected local public official]. They’re going to start to put a tax on soda again, and that will cost the Teamsters 100 jobs in Philly.” It also claims that when a member of the mayor’s administration started to explain why the soda tax would be good for the city, Dougherty replied, “You don’t have to explain to me. I don’t give a f—. Listen, my goal is to make sure you are alright, that’s all.” Allegedly, Dougherty and Henon stayed in touch during the time the soda tax proposal went through the legislative process. Some commentators consider the allegation as fuel for increased opposition to the soda tax from the beverage industry. It seems that the Teamsters union would also be aggravated by the disclosure, considering it has opposed the tax from the outset. Worse, the indictment alleges that Henon, a member of City Council, pushed for the tax as “part of a corrupt bargain he struck with Dougherty in exchange for a $73,131 salary from Local 98 and tickets to sporting events worth $11,807.”

The mayor of Philadelphia, Jim Kenney, explained, “It may have been a revenge plot by Local 98, but it wasn’t to do with me.” He claimed that his finance director suggested a soda tax shortly after he was sworn in as mayor. The soda tax had been proposed and rejected during the term of his mayoral predecessor. Kenney and Dougherty have known each other since childhood, went to school together, and have been active in Democratic politics in the city for a long time. Henon, in the meantime, denied any wrongdoing.

Several days later, two members of the Kenney administration issued a reply. Essentially, they repeat the mayor’s claim that the idea for the soda tax originated with the finance director and that Dougherty had nothing to do with it. They explain that the discussion started with a recognition of the city’s need for revenue to fund pre-K, rehabilitation of parks, recreation centers, and libraries, and other projects. They claim that they had no knowledge of Dougherty’s alleged effort to harm the Teamsters union until the indictment was released. They claim that “the tax was the result of creative thinking around improving education for our children and economic development in our neighborhoods.” After not finding money in the budget because they didn’t want to make more spending cuts in other programs, they considered new revenue sources. They claim that they “reviewed multiple options to raise new revenues,” but they do not identify those options, Instead they “decided to pursue the beverage tax because it provided the necessary revenues, it would not negatively impact other revenue sources needed to fund the School District of Philadelphia or other city services, and the reduced consumption of sweetened beverages has other health benefits that benefit Philadelphia.” A tax on donuts, candy, pies, cakes, fried foods, or other unhealthy food items would also raise revenue and have health benefits. Would such taxes harm the Teamsters union? I don’t know. Were such taxes among the “multiple options”? I don’t know. It seems to me that more information about the origin of the soda tax would be helpful and arguably necessary. Of course, these city officials point out the benefits generated by the revenue raised by the soda tax, but the same benefits arguably would be generated by a lower tax on a wider array of unhealthy foods and beverages.

It remains to be seen what actually transpired behind the scenes. My guess is that a multitude of factors were at play, and not all of them were as noble as the soda tax advocates would want us to believe.