Wednesday, March 30, 2022

Tax Breaks For Starving Team Owners 

Let’s put one and one and one together:

1. New York’s governor, as reported in many sources, including this one, has agreed to take steps to have the state contribute $600 million and Erie County contribute $250 million to the cost of building a new stadium for the Buffalo Bills.

2. The owner of the Buffalo Bills, Terry Pergula, is worth, according to the Forbes 400, $5.7 billion. A year ago he was worth $5.4 billion, and in 2016, $4.1 billion.

Interlude: Those who are unfamiliar with my opposition to public funding of, and tax breaks for, businesses owned by multimillionaires and billionaires can peruse my previous commentaries, including Tax Revenues and D.C. Baseball, four years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, Tax Breaks for Broken Promises: Not A Good Exchange, Tax Breaks for Wealthy People Who Pretend to Be Poor, When One Tax Break Giveaway Isn’t Enough, It’s Not Just Sports Franchise Owners Grasping at Tax Breaks, and Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park. Of course, New York’s governor is praising the proposal as justified by the typical “doing good for the public” and “creating lots of jobs” claims, but as I explained in Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park. “but this reasoning would support tax breaks for almost everyone, thus destroying government and civilization.”

3. A few days before reaching the agreement with the owner of the Buffalo Bills, New York’s governor proposed a budget that, as reported in various sources, including this one, reduces the funding of the Office of Children and Family Services by $800 million.

Now do the math.

Wednesday, March 23, 2022

Yet Another Reason Fuel Tax Suspensions and Reductions Are Unwise 

About a month ago, in Suspending the Federal Gasoline Tax Won’t Blunt Inflation And Will Harm Some People, I explained why reducing or suspending gasoline and other fuel taxes is an unwise idea. I explained that doing so would cause delays in road, bridge, and tunnel maintenance and repair, in turn generating more accidents, property damage, personal injuries, and deaths when vehicles hit potholes or other unrepaired structural elements.

I described fuel tax reductions and suspensions as “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.” I noted that suspending a tax that would save people less than $100 in a full year “is like using a garden hose to fight a forest fire.” And I characterized these fuel tax suspensions as “window dressing,” simply “a maneuver designed to help as elections approach,” with a “ ‘look what I did for you’ boast rest[ing] on a $97 savings, offset of course by the bills for new tires, repaired suspensions, refurbished wheels, medical care, and funeral expenses.”

I have made these arguments in other commentaries during the past decade 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. I have noted that, “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.”

Today I became aware of yet another reason to avoid reducing or suspending gasoline and other fuel taxes. In Costly Gasoline Spurs Tax Cuts That May Delay Demand Destruction, Saket Sundria points out that these tax reductions and suspensions will discourage people from taking steps to reduce demand for gasoline. Why is that important? Demand is an element in the cost of anything. As demand increases, prices increase, and as demand drops, prices drop. Reducing demand for gasoline reduces its price, at least in a genuinely free market which, of course, does not exist, and thus discouraging reduced demand is inconsistent with the goal of reducing price. Thus, reducing or suspending fuel taxes may very well cause less reduction in demand, and even increases in demand, thus causing prices to increase, which is contrary to what drivers seeking tax suspensions are trying to achieve. Sundria makes an excellent point, and I welcome it as another argument against foolish fuel tax reductions and suspensions. Thinking things through to their logical end, as Sundria has done and as I try to do, is a challenge from which too many people flee. Unfortunately, Sundria’s analysis, like my commentaries on the issue, falls on the deaf ears of officials anxious to appeal to voter emotion in order to get re-elected.

Friday, March 18, 2022

When Income Exceeds $500,000 Annually, Are Vehicle Subsidy Payments Necessary? 

According to this Philadelphia Inquirer report, gubernatorial candidate Josh Shapiro has proposed using “surplus * * * federal pandemic aid” to “send payments to car-owning households.” The proposal is a reaction to increases in gasoline prices, though those prices have edged downward in recent days. Shapiro also has proposed eliminating state sales and gross receipts taxes on cell phone bills. Unlike his proposal to expand the property tax and rebate program, which provides monetary assistance to low-income individuals, the proposal to pay $250 per vehicle to households regardless of the economic status of the householders makes no sense. Though increased gasoline taxes, which incidentally are not as high in real terms as they have been in the past, are a financial burden for low-income and some middle-income families, it is difficult if not impossible to visualize a person with $500,000 or more of annual income agonizing over how to meet expenses when the cost of gasoline goes up by $97 annually for the average motorist (as I explained in Suspending the Federal Gasoline Tax Won’t Blunt Inflation And Will Harm Some People). Worse, though excluding corporate and government vehicles from the payout, the proposal does not appear to limit what is paid to the multi-millionaire who collects vehicles and has several dozen sitting in the 30-car garage of a multi-million-dollar palatial residence. Don’t think these exist? Imagine this abode being located in Pennsylvania with its garage filled to capacity. How badly in need of $250 per vehicle would the owners be?

Understandably, a refined proposal that takes into account income levels and includes limitations on the number and type of qualifying vehicles per household requires more words and more detail. Understandably, trying to convey a refined proposal in the context of a political campaign, in a sound bite, or on a political placard is difficult, especially in this age of character-limited tweets and abbreviated attention spans. That, however, is no excuse for not giving due deference to wise policy and the precision it requires.

Monday, March 07, 2022

We Don’t Know How Many People Are Tax Cheats, Do We? 

WalletHub has released its 2022 tax survey. It’s worth a look. A variety of questions were posed to respondents, and six tax law professors were asked to offer their thoughts on why some of the questions generated the results that were obtained.

Of all the questions, one that got my special attention this time around was one that was not posed to the six tax law professors. Specifically, when asked “Do you think any of your neighbors cheat on their taxes?,” 52 percent answered “no,” and 48 percent answered “yes.” So through extrapolation, half of Americans think their neighbors are cheating on their taxes. Note that the other questions and answers were just as interesting, but they were similar or identical to questions asked in previous WalletHub tax surveys that I mentioned in earlier commentaries, such as If Not Tax Return Preparation, What Else?, and So What Would YOU Do to Avoid Taxes?.

Does the perception that half of American taxpayers are cheating match reality? Without some sort of comprehensive audit, the best that can be done is to rely on other measurement methods. For example, in a 2020 CreditKarma survey, “only about 6% of survey respondents said they have knowingly cheated on their income taxes. Which means that the majority, roughly 94%, said they’ve never knowingly cheated.” I see two problems with this survey. Surely there were respondents who had cheated but lied, perhaps because they worried that somehow the IRS would track them down through the survey response database. And is it possible to unknowingly cheat? I think not. Carelessness and mistakes do not rise to the level of cheating without intention, and by definition there is no intention when the error is unknowing. Negligence, yes, but negligence is not intentional.

A 2019 article from Vox, carrying the headline “More people are cheating on their taxes, but fewer are going to jail,” offers some additional insights into the question. The article suggests several questions. When it mentions the millions of Americans who fail to file tax returns, should those individuals be considered cheaters? Technically, they are not committing tax fraud because they are not making any representations or misrepresentations about their income, deductions, credits, or other tax factors because they aren’t making any representation at all. But I suspect many people would consider someone who fails to file, even if not taking affirmative steps to hide income, as cheaters. The article shares IRS information that as of 2017 about 6.9 million employers failed to pay their payroll taxes, and that the number of employers not paying those taxes in at least five years tripled from about 5,000 in 1998 to about 17,000 in 2015. We don’t know, when people are responding to the question asking them if they think any of their neighbors are cheating on their taxes, if they are thinking only about income taxes or also taking into account payroll and other taxes, and whether they are thinking of federal or federal, state, and local taxes.

Last year, according to many reports, including this Reuters article, the IRS Commissioner measured the tax gap, the difference between what taxpayers paid and what they should have paid, as one trillion dollars, more than double what it was estimated to be ten years ago. He attributed the gap not simply to mistakes but also to affirmative evasion through cryptocurrencies, overseas transactions, and deliberate misclassification of business income. What remained unmentioned was what percentage of taxpayers are contributing to the portion of the tax gap that reflects cheating. Is it a growth in the number of cheaters? Is it an increase in the amount of evaded tax liabilities by the same small handful of mostly wealthy individuals whose incomes have soared and therefore whose opportunities to cheat, in terms of tax dollars, have also increased?

On its website, EPCaine & Associates reproduces a graphic from a Tax Foundation report that I cannot find, in part because there is no link on the website to the report. It is a 2013 report that estimates the number of people who cheat on their taxes as 1.6 million. Without seeing the report, it is difficult if not impossible to determine if that is an estimate with respect to income taxes or with respect to income, payroll, excise, and other taxes, and it also is unclear whether it refers to federal or federal, state and local taxes though the graphic appears to refer to federal taxes because it focuses on the IRS.

So the answer to the question, “Does the perception that half of American taxpayers are cheating match reality?” is a simple, “I don’t know.” I don’t think anyone knows. We could come close to knowing, if every tax return at every level of government were audited. Even that would not necessarily reveal cheating with respect to taxes for which returns are not filed and that can be evaded through other sorts of activities. Of course, neither the resources of time and money for, nor the tolerance of, such wholesale audits exist. It’s not unlike a question, “Do you think any of your neighbors cheat on their spouses, committed partners, significant others, etc.?” and the issue of whether the response matches reality, the answer to which requires an answer to the question, “How many people cheat on their spouses, committed partners, significant others, etc.?” I will leave those discussions to others.

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