Wednesday, February 23, 2022

Suspending the Federal Gasoline Tax Won’t Blunt Inflation And Will Harm Some People 

Inflation is running rampant, though not quite as outrageous as it was in the 1970s. Almost everyone – more on that in a few paragraphs – is unhappy and distressed. That’s understandable. People forced to choose between food and medicine, or between diapers for an infant and school supplies for the first grader, are struggling. Solutions are demanded. Solutions are needed. Solutions to problems require thinking. Careful thinking.

So into this challenge step some members of Congress, led by Representative Tom O’Halleran and Senator Mark Kelly, have introduced legislation to suspend the federal gasoline tax. Under the proposal the tax would not be collected during 2022. According to the sponsors, “The bill would help lower high gas costs for Arizona families by temporarily suspending the 18.4 cent federal gas tax until January 1, 2023.” Both lead sponsors are from Arizona, though presumably they intend to claim that it would help families across the country. But it wouldn’t.

During the past decade, I have explained why it is cheaper, in the long run, to increase taxes and user fees dedicated to highway, bridge, and tunnel maintenance and repairs than to wait until the invoices for new tires, repaired suspensions, refurbished wheels, medical care, and funeral expenses arrive. I have written about the challenges posed by this particular American short-sightedness in posts such as Potholes: Poster Children for Why Tax Increases Save Money, When Tax Cuts Matter More Than Pothole Repair, Funding Pothole Repairs With Spending Cuts? Really?, Battle Over Highway Infrastructure Taxation Heats Up in Alabama, When Tax and User Fee Increases Cost Less Than Tax Cuts and Tax Freezes, Road Taxes and User Fees as a Form of Pothole Insurance , and Death as a Price for Taxes and User Fees. As bad as refusal to keep highway user fees and taxes in line with increases in the cost of living, it is even more foolish to cut those taxes and user fees.

I pointed out the problem in Paying the Price for Anti-Tax Damage, in which I reacted to some anti-tax legislators realizing the long-term danger in their position when I wrote:

Some Republican legislators and politicians are beginning to realize that their promises in earlier years that tax cuts would not cause reductions in services were ill-founded. Hit a pothole, incur hundreds of dollars or more of repair costs, and those tax cuts or avoided tax increases pale in comparison. Decades of disinvestment in the arteries that supply the nation’s economy are now coming home to roost. The foolishness of the anti-tax pledge is being revealed for the menace that it is. Of course, people were warned – by me and others – but too many did not listen, and now everyone is paying the price.
Note that the current proposal is being advanced by Democrats and the chatter is that Republicans won’t go along. Politics indeed makes for strange alliances.

What’s being proposed is a reverse lottery. Instead of paying $1 for a chance to win $10,000, motorists would be getting a few dollars for a chance to avoid hitting a pothole or being on a bridge as it collapses. Instead of a lucky few or a lucky one, there will be an unlucky few. In this time of so much self-centeredness, and the absurd optimism held by some who think – or perhaps feel – that they will encounter only good fortune and never be touched by bad luck, it is not surprising that a proposal putting the chance of tiny economic benefits for an individual is considered worth the price to be paid by a community which will suffer when the unlucky crash after hitting a pothole or go tumbling into a ravine when a bridge collapses.

Worse, relieving people of an 18 cent per gallon gasoline tax is like using a garden hose to fight a forest fire. The average American drives about 13,000 miles a year, plus or minus a bit. The average car gets about 25 miles per gallon. So the average gasoline purchase is about 540 gallons per year. Suspending the gasoline tax would save the average motorist about $97 in a year. Granted, for some folks, $97 is a welcome amount but the folks for whom $97 is a significant amount are unlikely to be driving 13,000 miles a year let alone even owning a vehicle.

Offering a federal gasoline tax cut as a “remedy” for inflation is nothing more than window dressing. It is a maneuver designed to help as elections approach and the “look what I did for you” boast rests on a $97 savings, offset of course by the bills for new tires, repaired suspensions, refurbished wheels, medical care, and funeral expenses.

High inflation hurts. I doubt that it hurts the wealthy very much given that the stock market provides an offset. But high inflation is walloping the poor and much of the middle class. They need help. But a suspension of a puny gasoline tax is a drop in the bucket, and for those who suffer the consequences of transportation funding being shut-off, in the form of property damage, personal injury, and death, it will be devastating.

Saturday, February 19, 2022

Unintended Consequences in the Soda Tax World Present Questions 

I have been writing about the soda tax for about 14 years, though I haven’t written very much in recent years, perhaps because I have said all that I think needs to be said. My thoughts can be found 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, The Soda Tax “War” and a Pathway to Tax Peace, and The Primary Goal of the Philadelphia Soda Tax: Not a Reduction in Soda Consumption.

But occasionally a story or an email comes along that re-awakens the part of my brain that focuses on the soda tax. Several days ago a reader alerted me to this story, with the eye-catching headline, “Seattle's Soda Tax Goes Horribly Wrong.” The report described a study comparing Seattle, which enacted a soda tax, and Portland, which did not, and determined that in Seattle sales of beer, though not wine, increased as sales of soda decreased. Though beer, and wine, are taxed in Seattle, they are taxed at what amounts to a lower per-ounce rate. The article points out that 16 ounces of regular soda has roughly 140 calories whereas beer has roughly 200 calories for the same amount.

The reader who sent the email wrote, “I believe you predicted this result several years ago.” I replied that I did not think I had addressed this consequence of a soda tax, instead focusing on other issues. Those included the silliness of taxing sugary beverages but not other products containing sugar, of language that brought beverages within the scope of the tax that are healthy rather than unhealthy, shortfalls in predicted revenues, discrepancies between planned and actual uses of the revenue, and litigation over the tax.

But as I sat down to write this post, I searched my blog and discovered that two years ago, in Unintended Consequences in the Soda Tax World, I had described reports and studies showing that the same thing happened in Philadelphia, though as soda consumption decreased, there was an increase not only in the consumption of beer, but also wine and certain liquors. Though I did not predict this result, I did write about it, which means that the part of my brain that focuses on the soda tax did not fully awaken when I read the email.

In my reply I also shared a question that popped into my brain after reading the email. Are children, who also consume significant amounts of soda, also shifting to beer? Hopefully not. And now I add more questions. So is soda consumption among Seattle children not declining? Is it declining and being replaced with some other beverage? If so, is it a beverage that does not appeal to former soda-drinking adults as much as beer? And, I suppose, in the meantime, people of all ages continue to consume donuts, cookies, pies, cakes, and candy, so what is happening to sugar consumption?

Tuesday, February 15, 2022

When Fraudulent Tax Return Preparation Becomes a National Enterprise 

From time to time I write about the antics of tax return preparers who commit fraud, though I don’t write about every indictment, conviction, and sentencing because those number in the thousands. Instead, I select those that I think are of greater interest. Those commentaries include Tax Fraud Is Not Sacred, More Tax Return Preparation Gone Bad, Another Tax Return Preparation Enterprise Gone Bad, Are They Turning Up the Heat on Tax Return Preparers?, Surely There Is More to This Tax Fraud Indictment, Need a Tax Return Preparer? Don’t Use a Current IRS Employee, Is This How Tax Return Preparation Fraud Can Proliferate?, When Tax Return Preparers Go Bad, Their Customers Can Pay the Price, Tax Return Preparer Fails to Evade the IRS, Fraudulent Tax Return Preparation for Clients and the Preparer, Prison for Tax Return Preparer Who Does Almost Everything Wrong, Tax Return Preparation Indictment: From 44 To Three, When Fraudulent Tax Return Filing Is Part of A Bigger Fraudulent Scheme, Preparers Preparing Fraudulent Returns Need Prepare Not Only for Fines and Prison But Also Injunctions, Sins of the Tax Return Preparer Father Passed on to the Tax Return Preparer Son, Tax Return Preparer Fraud Extends Beyond Tax Returns, When A Tax Return Preparer’s Bad Behavior Extends Beyond Fraud, More Thoughts About Avoiding Tax Return Preparers Gone Bad, Another Tax Return Preparer Fraudulent Loan Application Indictment, Yet Another Way Tax Return Preparers Can Harm Their Clients (and Employees), When Unscrupulous Tax Return Preparers Make It Easy for theblo IRS and DOJ to Find Them, Tax Return Preparers Putting Red Flags on Clients’ Returns, When Language Describing the Impact of Tax Fraud Matters, Injunctions Against Fraudulent Tax Return Preparers Help, But Taxpayers Still Need to Be Vigilant, Will the Re-Introduced Legislation Permitting Tax Return Preparer Regulation Be Enacted, and If So, Would It Make a Difference?, Can Fraudulent Tax Return Preparation Become An Addiction?, Tax Return Preparers Who Fail to File Their Own Returns Beg For IRS Attention, Using a Tax Return Preparer? Take Steps to Verify What Is Filed on Your Behalf, When Dishonest Tax Return Preparers Are Married, There Was Nothing Magical About This Tax Return Preparation Business, Don’t Get Burned By a Tax Return Preparer, Tax Fraud School: When It’s Not Enough to Be a Fraudulent Tax Return Preparer, It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns, Overused Fraudulent Tax Return Preparation Ploys, and The Slippery Slope of Tax Return Preparation Fraud.

This time, the press release from the Department of Justice looked like many of the other announcements describing the sentencing of a tax return preparer convicted of preparing false tax returns. According to the press release, a Maryland woman was sentenced to three years in prison for preparing 13 false income tax returns that collectively sought more than $6.6 million in fake refunds. But unlike many situations in which a tax return preparer sets up shop in a particular locality and commits fraud when clients walk in the door or otherwise contact the preparer, this woman was part of a scheme in which she and others held seminars throughout the country in which they promoted the use of fraudulent schemes.

The details of those schemes had been set out in an earlier press release, in which the Department of Justice announced it had filed a complaint seeking a permanent injunction against the preparer and her tax preparation business. The complaint alleged that her scheme used a so-called “redemption theory,” in which individuals claim that the federal government keeps secret accounts for citizens that can be accessed by filing certain forms with the IRS. In this instance the preparer filed fraudulent IRS Forms 1099-A (Acquisition or Abandonment of Secured Property) and 8281 (Information Return for Publicly Offered Original Issue Discount Instruments) for her clients, with information that set up huge but false refunds totaling in the million. The “redemption theory” has been rejected multiple times by the IRS and by the courts. An excellent description of the theory, its creation and spread, the damage it causes, and its repeated rejection can be found in this Hartford Current article from ten years ago.

In a subsequent press release, the Department of Justice announced that it had obtained an indictment charging the preparer and two others with conspiracy to defraud the United States by aiding and assisting in preparing false trust tax returns and by filing their own false amended personal income tax returns. The preparer was also charged with helping the other two prepare their false amended returns. The three who were charged, working with a fourth individual, prepared tax returns claiming false withholding and false credits. When the IRS tried to recoup a $500,000 false refund issued to one of the trusts, the preparer conspired with the others to obstruct the IRS.

In yet another press release, the Department of Justice announced that the preparer was convicted of preparing three false income tax returns that claimed more than $1.1 million in fraudulent refunds. These chargers related to the indictment announced in the press release described in the preceding paragraph. It was on these and other charges that the preparer was sentenced as described in the second paragraph of this blog post.

Though it is not unusual for tax return preparers who engage in fraudulent practices to learn from one another, probably through networks and communications that extend nationwide, it was news to me that they actively campaign across the country seeking victims to use in their fraudulent schemes. If fraudulent tax return preparation isn’t just a matter of local preparers engaging in copycat techniques, but part of a national scheme, the danger posed by fraudulent tax return preparation is much more serious than it already has been perceived to be.

Perhaps more developments await this particular preparer and the others involved in this latest episode, but it seems to me that three years in prison is far too short a sentence. A mortgage underwriter who engaged in the same fraudulent technique, as described in It’s Not Just Tax Return Preparers Assisting in the Preparation of Fraudulent Tax Returns and who procured $4 million in false refunds was sentenced not only to restitution but also 12 years in prison. How is it, then, that someone who procures $6.6 million in false refunds and engages in a national campaign to market the scheme receives a sentence of only three years? Fifty percent more false refunds but only 25 percent of the sentence? Perhaps this preparer is cooperating in some manner with authorities. Or perhaps she had a better lawyer.

Wednesday, February 09, 2022

Fun With Math, Or How Failure to Compute Threatens All of Us 

While doing some background research after reading an article that Reader Morris invited me to read, the subject of which is not the focus of this commentary, I came upon a tweet that reacted to the news that the federal government had seized $3.6 billion in Bitcoin. The details have been reported in a variety of sources, including this article.

The tweet that popped up, because in its thread there were comments related to the separate and different issue discussed in the article from reader Morris, caught my eye. According to this tweet, reacting to someone else’s earlier tweet referencing the seizure, “This is enough money to give each person in the world a half a billion dollars but guessing the government will just keep it for themselves.”

Because I enjoy numbers, I did two quick computations. First, using 7.9 billion as the population of the world, clearly a rough number because even as I write and as readers read this the population keeps changing, I figured that it would take $3,950,000,000,000,000,000 to provide each of the 7.9 people in the world 500 million dollars. That’s three quintillion nine hundred fifty quadrillion dollars. That’s much, much more than $3.6 billion dollars. My second computation was to figure out how much money each person in the world would get if the $3.6 billion were to be distributed equally to each person. The answer? Slightly more than 45.5 cents.

So before anyone joins a “distribute the seized bitcoin to each person in the world equally” campaign, they should consider whether it’s worth it. It’s not. But I wonder, would anyone jump on to such a campaign? The answer is “probably.”

Curious, I did a bit more research and discovered that, according to Politifact.com someone in 2021 had posted on Instragram this question: “If Bezos has 200 billion dollas, and there’s 7 billion people on earth, why can’t we each get a billion and (he’d) be left with 193 billion dollas.” The Instagram post received, as of the time the Politifact commentator, Krishnan Anantharaman was writing, more than 128,000 likes. That’s frightening. As Anantharaman explained, the answer to the question is, “There’s a reason we can’t, and it’s not selfishness or the gift tax. It’s arithmetic.” Indeed.

Anantharaman did the same two computations that I did and, yes, I did mine before finding his commentary on the seized Bitcoin redistribution comment. According to Anantharaman, using world population estimates at the time he was writing, it would require 7.8 quintillion dollars to give every person in the world $1 billion. Or, put another way, rounding up Bezos’ actual wealth of $197 billion to an even $200 and then distributing it equally among every person in the world would generate roughly $25 for each person.

What’s frightening isn’t just the math-deficient tweet and the math-deficient Instagram post. What’s even more frightening is the number of people who react(ed) emotionally, with a “sounds good to me so let me click the ‘like’ button” approach to what in reality demands critical thinking. Perhaps someone looked at the numbers, did the math, and agreed with the conclusions put forth in the tweet and the post. I doubt it. I am very confident that the “looks good, like it” mentality that is eroding respect for science is what generated all of those ‘like’ reactions. Arithmetic can be challenging when first encountered, but the existence of calculators makes it accessible for almost everyone. But it takes time to stop and investigate, to pause and compute, to take a deep breath and think. It’s no wonder that the skills requiring deep, intense, and time-consuming efforts are falling out of favor among a growing segment of the population. These sorts of no-think reactions characterized by the lack of investigation, research, thinking, and computation threaten the very pillars on which advanced civilization rests.

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