Monday, May 29, 2023

Indeed, Freedom Is Not Free 

Sometimes when I reread what I wrote in the past, I think that perhaps I could have done a better job with the message, the vocabulary, the grammar, and the sequence of paragraphs. Other times, I think I did about as good a job as I could expect. And occasionally, though I conclude that what I wrote hit the nail on the head, a bit of tweaking is in order to reflect changes in the world around us.

So this Memorial Day, I will simply edit what I wrote two years ago in The Price of Freedom Is Much More Than Taxes. I wrote that commentary to expand the scope of my previous essays on freedom, which had focused on the fiscal aspects of freedom. In particular, I had addressed the connection between the payment of taxes and the things people take for granted as part of their “freedom.” Back in 2011, I had written, in Free, Freedom, Fees, and Taxes, that “In order for a person to have something for free, someone else must pay.” I had written that claim in connection with the conundrum faced by New Jersey beach towns facing opposition from visitors to the enactment of beach fees. I asked, “But when tourists use a beach for free, requiring lifeguards, safety patrols, litter removal, public restrooms, parking, and other amenities, who pays? Should 5,000 pay for the freedom of 295,000?”

So shifting from the fiscal aspect of freedom to a more general perspective:

Consider an example. The person who claims that they are free to drive 30, 40, 50 miles per hour over the speed limit – and if you think that isn’t happening, I invite you to take a ride on the roads I travel – can end up imposing the cost of that “freedom” on the people they kill and injure when they learn, too late, that there are reasons a person should not, and cannot, drive at 95 miles per hour on a road subject to a 55 miles per hour speed limit. Similar examples can be based on drivers who run red lights, who drive while under the influence, or who operate muffler-less off-road vehicles on public highways at all hours of the night.

Too often, those who claim that this unregulated “freedom” is sacrosanct point to the arrival of Puritans in what is now Massachusetts. They are idolized as seekers of freedom, trying to escape religious and political persecution. Yet when they arrived in the Massachusetts Bay Colony, they immediately started acting in the same manner as had their tormenters, in turn suppressing those whose religious beliefs or political positions conflicted with those set down by the Puritans. The contrast with Pennsylvania, also settled by victims of religious persecution, but where those of diverse origins and religions were welcomed, is startling. I didn’t learn this in school because it isn’t taught in this manner, nor is this lesson noted. I learned this when I did the research to write the biography of Thomas Maule of Salem, reading not only his works and those of others, both in his day and thereafter, but also studying the social and cultural environment in which his fellow citizens, of a different religious persuasion, acquitted him of the seditious libel charges brought by Puritan authorities who resented being tagged as hypocrites. And they truly were. Seem familiar? Today the nation is being tormented by “freedom lovers” who are trying to prevent Americans from learning the truth about the hypocritical Puritans whom they not only worship but whose hypocrisy they emulate and imitate.

The question at the moment is what sort of “freedom” will this nation embrace? To ignore this question is to dishonor those who fought and died for freedom, because answering the question incorrectly makes the price they paid a price paid in vain. Will the model be the “freedom” to escape torment and persecution only to torment and persecute others? Or will the model be the “freedom” to welcome those with different perspectives while refusing to adopt the methods of those from whom freedom was sought?

Indeed, freedom is not free. It comes with a cost. The cost is more than monetary. The cost can be the reduction of speed, the stopping at a red light or stop sign, the obedience to the yield sign, the ceasing of the 1 a.m. fireworks, the toning down of the party noise at 2 a.m., the picking up of the pet’s poop, the use of a trash or recycling container rather than the gutter when disposing of trash, the extinguishing of the cigarette when in a closed space or close to others, the use of words rather than weapons when in a disagreement, telling the truth, and learning to think critically.

Freedom is not free. It disappears when the cost, whether in lives, taxes, or proper behavior, no longer is paid. Memorial Day means little if the freedom for which the fallen fought is disregarded, abused, or limited to fewer than everyone. The cost of freedom is much more than taxes.

I return again to the notion that freedom is not free. There is a price to be paid. A price paid in lives, in blood, in time, and in money. Those who pay in time and money but not in lives and blood surely owe a debt to those who shed blood and gave up their lives. And those who aren’t paying at all, for them we pray that they be enlightened.

Friday, May 26, 2023

Supreme Court Puts An End to a Bad Tax Practice 

Almost three years ago, in Who Gets Surplus Proceeds From a Tax Sale?, I explained that I had learned a about a dozen states that seize property for failure to pay property taxes don’t simply take from the sales proceeds the unpaid taxes, interest, and penalties while returning the excess to the property owner, but instead pocket all of the sales proceeds. What brought this to my attention was a Michigan Supreme Court decision that held this practice in Michigan to be a violation of the Michigan Constitution.

Yesterday, the United States Supreme Court handed down a decision, , Tyler v. Hennepin County, Minnesota that involved a similar practice in Minnesota in which the excess of the sales price over the delinquent taxes was not returned to the property owner. In this instance the property owner challenged the practice under the Takings Clause of the Fifth Amendment to the U.S. Constitution and under the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution. The district court dismissed the property owner’s challenge for failure to state a claim, and the Court of Appeals for the Eight Circuit affirmed the decision. The Supreme Court granted certiorari, and held that the property owner plausibly alleged that the retention of the sales surplus violated the Takings Clause. The Court explained that a government cannot take more from a taxpayer than is owed, and that this principle has its origins at least as far back as the Magna Carta, and that most states had statutes adopting this principle. Minnesota did not provide a way for the property owner to recover the excess in the case of delinquent real property taxes even though it did provide for return of the excess when property was seized on account of delinquent income taxes and personal property taxes. The Supreme Court rejected Minnesota’s argument that the property owner did not have a property interest in the excess sales proceeds because she constructively abandoned her home by failing to pay the property tax.

The outcome is not, to me, surprising. The obvious impropriety of what Minnesota and the other states have been doing is apparent from the fact that the Supreme Court’s opinion was unanimous, something that doesn’t happen very often these days. What is surprising are the decisions of the district court and the Eighth Circuit.

In Who Gets Surplus Proceeds From a Tax Sale?, I described the retention by the state or local government of the sales proceeds as “unconscionable.” It should not have required a Supreme Court decision to make it clear to states and localities that retaining the excess sales proceeds is wrong. The Supreme Court got it right and it’s now time for states that permit retention of excess sales proceeds to amend their statutes.

Wednesday, May 24, 2023

A Different Sort of Tax Fraud Scheme 

The Office of the U.S. Attorney for the District of Massachusetts has issued a press release announcing the sentencing of a father and son for a tax fraud scheme grounded in lottery ticket transactions. According to the release, the father and the son recruited a large group of co-conspirators to help them hide their activities from state lottery officials. Between 2011 and 2020, the father and son approached people who held winning lottery tickets and who were willing to sell the tickets for a cash discount. This prevented the state lottery commission from identifying the actual winners and prevented the commission from withholding taxes, back taxes, and child support from the lottery winnings. The father and son recruited and paid convenience store owners who were lottery agents in order to find the people who held winning tickets. They then used those agents to cash in the wining tickets, claiming the prizes as their own. Over those ten years the father and son purchased and redeemed more than 14,000 winning lottery tickets.

The father and son reported these winnings on their tax returns. To avoid the tax liability, they claimed fake gambling losses to offset the winnings. The net effect was that no federal or state income taxes were collected on the lottery winnings involved in the scheme. The defendants caused $6 million in federal income tax to go unpaid.

The father and son were each convicted of one count of conspiracy to defraud the IRS, one count of conspiracy to commit money laundering, and one count of filing a false tax return. Another son of the father had already pleaded guilty for his part in the scheme and awaits sentencing. The father was sentenced to five years in prison and the son to 50 months in prison.

It is unclear if or to what extent Massachusetts is dealing with the state income tax revenue lost because of the scheme. The state lottery commission is revoking and suspending the lottery licenses of the more than 40 lottery agents identified as having participated in the scheme. It also is unclear if the persons who sold the lottery tickets at a discount reported the amounts they received though it is doubtful they dd so, and it also is unclear if the IRS and the Commonwealth of Massachusetts are taking steps to identify these individuals.

The special agent in charge of the IRS Criminal Division in Boston noted that the father and the two sons had chosen to engage in a decade-long scam rather than “using business savvy and skill to build a legitimate multi-generational business.” Perhaps it was easier, physically and intellectually, to throw together the illegal scheme than to endure the challenges of starting a legitimate business. Perhaps psychologists can elaborate, though professionals have been trying, for generations, to figure out why some people turn to crime rather than engage in appropriate behavior.

Thursday, May 11, 2023

Another Instance Illustrating Why Using the Tax Law to Influence Behavior is Unwise and Inefficient 

Yesterday I commented on the revocation of tax breaks by the city of Mishawka, Indiana, after the taxpayer given the tax breaks failed to comply with conditions attached to those breaks. One of the conditions required the taxpayer to reduce or eliminate foul odors coming from its plant.

At the end of yesterday’s commentary I provided my answer to the question from reader Morris, who had directed my attention to the story. He had asked, “Is this the first tax break revoked due to stinky odor.” My response was that “I don’t know of any other instance in which a tax break was repealed because a taxpayer failed to eliminate stinky smells.”

Today, reader Morris followed up by directing me to this story. The story doesn’t address the question about tax break revocations on account of failure to eliminate or reduce smells, because it involves a failed attempt by the city of Kalamazoo, Michigan, to enact a tax break that imposes that condition.

According to the story, the Kalamazoo City Commission enacted a tax break for the expansion of a very large paper recycling and production factory provided that it make efforts to reduce smells coming from the factory. However, the state of Michigan told Kalamazoo that it does not permit tax breaks that are contingent.

The situation involves more than bad smells. According to the story, people living near the factory have been experiencing health issues. The state of Michigan is investigating “the prevalence of asthma in the neighborhood” of the factory. There has been one instance of someone with asthma dying at the age of 17. The area also evidences a “14-year life expectancy gap.”

These stories illustrate the problem with trying to use tax laws to deal with issues that aren’t tax issues. As readers of MauledAgain know, I consider the use of the tax law to deal with issues that should be handled by government departments and agencies other the IRS or a Revenue Department to be unwise and inefficient. If there are, for example, bad smells coming from a building, that problem should be handled by the federal, state, or local agency responsible for property use, zoning, and nuisances. If there are, for example, adverse health consequences caused by a person’s or company’s activities, that problem should be handled by the federal, state, or local agency responsible for health care.

Legislators who are unwilling to take the heat for blocking donors and supporters from conducting inappropriate operations find it easier to try using tax systems to change that behavior. That approach, in the long run, doesn’t work, as evidenced by the ever-growing list of tax breaks intended to make life better. If tax breaks did the job, there would be no need to continue piling on more and more tax breaks. Imagine those who are caught for committing bank robberies being told that they would be given money or a tax break if they stopped robbing banks. Would bank robberies stop? Would the recipients of these tax breaks retire from a life of crime?

The underlying problem is that we now live in a world in which everything has been or is being monetized. Money has always been an idol for some, and now it’s becoming an idol for many. Parents paying children to eat vegetables, governments paying factories to stop spewing bad smells, legislators paying people to make sensible health decisions, the list gets longer and longer. Until we return to a culture in which things are done because they are the right thing to do rather than a culture in which it takes money to get people to do the right thing, civilization will continue to decline. To the extent using tax law to control behavior adds to the problem, it needs to stop.

Wednesday, May 10, 2023

Corporation’s Compliance with Tax Break Conditions Stinks 

Reader Morris contacted me today, asking this question, “Is this the first tax break revoked due to stinky odor?” He pointed me to this story. Curious, I read the story, which indeed might involve a novel set of facts related to a tax matter.

In 2021, the city of Mishawka, Indiana, granted tax breaks to the Wellness Pet Company, which makes pet food. The tax breaks were intended to help the company expand the factory and install equipment to reduce or eliminate the odors emanating from the plant.

During the past two years, only three percent of the improvements to real estate contemplated by the city and the taxpayer were made. Only 20 percent of what was intended with respect to personalty was accomplished. When asked, the company was unable to explain when it anticipated making the improvements on which the tax breaks were conditioned. According to the city, the parent company chose to expand operations in other locations rather than in Mishawka. The company did install odor abatement equipment but apparently it does not work well enough. Reader Morris let me know that he was near the site and the odor was foul.

So a few days ago, the city’s council voted unanimously to repeal the tax breaks. It remains to be seen if the company cries foul and sues the city.

So to answer the question from reader Morris, I don’t know of any other instance in which a tax break was repealed because a taxpayer failed to eliminate stinky smells.

Wednesday, May 03, 2023

These Problems Won’t Be Solved By Tax Breaks 

Today’s Philadelphia Inquirer featured a Spotlight article examining the reception given by the Pennsylvania legislature to Governor Shapiro’s proposal to provide an income tax credit to individuals who are newly hired as police officers, teachers, and nurses. The proposal is an attempt to deal with the shortages faced by those professions. The credit would be nonrefundable, and limited to $2,500, which means that the full credit would be available only to those with taxable incomes exceeding $81,433.

In response, Republicans in the Pennsylvania Senate rejected the idea. Instead, they want to reduce Pennsylvania’s corporate and personal income tax rates. They profess a desire to bring “big businesses” into the state. One Republican noted that there are shortages in other industries, mentioning “bus drivers, EMTs, correction officers, and CDL drivers.”

None of this makes any sense. Yes, there is a problem. No, neither the governor’s proposal nor the Republicans’ desires fix it.

Many of the people leaving the professions in question, or refraining from joining them, are doing so for reasons far more important than money. Yes, income helps, though tax credit that might not exceed $1,000 or $1,500 for most people in those professions isn’t going to tip the scales, especially for people who say things like, “Even for half a million dollars I wouldn’t stay in (or keep) this job.”

Of course, reducing tax rates for corporations doesn’t do a thing to increase employment in the policing, teaching, or nursing industries. Nor would it solve the problem in other industries. Reducing the personal income tax rate also doesn’t solve the problem, and worse, provides the best financial benefits to those most unlikely to be found in the affected professions. Bringing “big businesses” into the state not only fails to provide more police officers, teachers, nurses, EMTs, and others, but would increase the demand for police officers, teachers, nurses, EMTs, and others.

Before parading out solutions such as tax credits, tax breaks for corporations, or reducing tax rates, political leaders need to identify WHY people are leaving professions such as teaching and nursing, and declining to become teachers and nurses. As I’ve often commented, there are problems that tax breaks do not and cannot fix.

People don’t want to work in professions that are disrespected. People don’t want to work in industries that are neglected by politicians. People don’t want to work in jobs that are unnecessarily dangerous. People don’t prefer jobs in which they are overworked, and when staff shortages fuel that decision, the problem grows exponentially. People don’t want to be employed in situations that wreck work-life balance. People don’t like jobs where they get insufficient support and ineffective training. People don’t want to work in companies that are stacked with incompetent supervisors.

Money won’t fix those problems. In fact, money has caused or aggravated many of those problems. But as long as society has become a place where everything has been or is being monetized, staffing shortages will get worse. Education quality will decline. Health care services will become even more inadequate. Crime will continue to escalate.

What the politicians have done and have been doing isn’t working. The answers lie beyond tax.

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