Tuesday, September 26, 2023

Stop the "Stop EV Freeloading Act" Because The Mileage-Based Road Fee Is a Much Better Way to Go 

Senator Deb Fischer has introduced the “Stop EV Freeloading Act,” a description of which is provided here. The justification for the proposal makes sense, as do all the other attempts to deal with the fact that fuel taxes are not collected with respect to electric vehicles. But the proposed solution is unfair and burdensome in terms of compliance and paperwork.

Fischer proposed a two-tier tax. A tax of $1,000 would be imposed “at the manufacturer level, at the point of sale.” The $1,000 is computed by multiply 10 (because the average lifespan of an electric battery is 10-15 years) by $100 (the high end of the average $87 to $100 in federal liquid fuel taxes paid with respect to light-duty vehicles to the Highway Trust Fund). Another tax of $550 would be imposed on each battery module weighing more than 1,000 pounds, imposed at the manufacturing level. The $550 is the cap on the excise tax paid with respect to heavy trucks.

The rationale for the proposal rests on the claim that these taxes would “offset the damage to roads and bridges” caused by electric vehicles. The problem with the proposal is that it assumes each electric vehicle causes the same amount of damage. Yet the amount of damage caused by a vehicle varies depending on the number of miles driven, the weight of the vehicle, the distribution of the weight based on the number of axles and wheels, and the type of road surface on which the vehicle is driven. The proposal subsidizes high-mileage drivers at the expense of low-mileage drivers. That’s not fair. The proposal would require manufacturers to keep all sorts of records and fill out a variety of forms in order to comply with the manner in which the taxes are imposed and collected.

There’s a better way. Readers of MauledAgain already know, and probably knew when they started reading this commentary, what I am about to write. Yes, it’s the mileage-based road fee. I’ve written about this easy-to-apply-and-enforce concept many times, including 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?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, In Praise of the Mileage-Base Road Fee, What Appears to Be Criticism of the Mileage-Based Road Fee Isn’t, Though It Is a Criticism of How Congress Functions, Ignorance and Propaganda, A New Twist to the Mileage-Based Road Fee, The Mileage-Based Road Fee: Simpler, Fairer, and More Efficient Than the Alternatives, Some Updates on the Mileage-Based Road Fee, and How to Pay for Street Reconstruction. So how about it, Senator Fischer, why not go for the simpler rather than the more complicated? Why not go for what’s fair rather than what’s imprecise? Why not follow the lead of the states that are already working with, experimentally or more conclusively, the mileage-based road fee? And by calling it what it is, a fee and not a tax, it will be easier to obtain support because there is a direct connection between what is being paid and what is being obtained for that payment.

Thursday, September 21, 2023

What Is “Net Annual Taxable Income” for Alabama Homestead Exemption Purposes? 

Reader Morris sent me an email the other day, captioned “I am confused.” After looking at the sources he provided, I think everyone is or should be confused, unless I am missing something that I did try to find.

Reader Morris directed me to an MSN explanation of the Alabama homestead tax exemption for seniors. The explanation first noted that one of the requirements is that the person must “have a net income of $12,000 or less,” but in a subsequent paragraph described the requirement as, “Your net taxable income on your most recent federal income tax return should not exceed $12,000.”

In an attempt to resolve that discrepancy, reader Morris also sent me another link, this one to section 810.-4-1-.23 of the Alabama Administrative Code. This provision requires the person to have “net annual taxable income of $12,000 or less, as shown on the taxpayer's and spouse's latest United States income tax return.”

So now we have three articulations, each one slightly different. The one that is controlling is the one in the Administrative Code. But what is “net annual taxable income . . . as shown on the . . . latest United States income tax return”? I searched the Income Tax Code on the Cornell University Law School Legal Information Institute site for “net annual taxable income” and found nothing. Curious, I then searched for “net taxable income,” and came up with only one reference, that to a provision once used in section 911 but repealed by Public Law 95-600 some time ago. So, again, nothing. Nor did I find anything in the Treasury Regulations promulgated under the Internal Revenue Code.

So what did the Alabama legislature and Department of Revenue mean when it used the term “net annual taxable income”? There is no definition in section 810.4-1-.23. That’s not surprising, because the language is in effect saying, “We aren’t giving you the definition because we are relying on the definition used for federal income tax purposes.” The challenge is figuring out what that term means for federal income tax purposes. A similar puzzle is why the author of the MSN commentary used both “net income” and “net taxable income” instead of “net annual taxable income” Perhaps the legislature, the Department of Revenue, and the MSN author mean, “taxable income”? I don’t know.

But perhaps I’m missing something. Over the years I’ve learned that statutes and regulations often resemble word-based treasure hunts, in which a term is defined in some obscure place, not necessarily with cross-references that assist someone in resolving the definition of a term. But I remain curious, and invite anyone who has the definition of “net annual taxable income” as Alabama intends for it to be defined to let us know.

Saturday, September 02, 2023

Are Business Expenses Tax Expenditures and Does Tax Expenditure Have an Opposite? 

The other day, in Is a “Tax Expenditure” Necessarily Bad Policy?, I reacted to David Henderson’s commentary in which he claims that the term “tax expenditure” rests on the “implicit assumption . . . that there shouldn’t be a deduction for home mortgages.” I pointed out that treating all tax expenditures, that is, every exclusions, deduction, or credit, as something that “shouldn’t be” an exclusion, deduction, or credit would remove all exclusions, deductions, and credits from the tax law.

Reader Trent Robinson shared with me his understanding that deductions for ordinary and necessary business expenses are not normally considered a tax expenditure even though those expenses do have the effect of decreasing tax liability from what it would be absent those expenses being deducted. I replied to Trent that I think he makes a good point about ordinary and necessary business expenses. For example, should cost of goods sold, sometimes characterized as a deduction, be tagged as a “tax expenditure”? To the extent that Henderson suggests deductions are tax expenditures because deductions exist at the whim of Congress, should trade or business expenses be considered absolutes along the lines of cost of goods sold? Though it makes sense to answer in the affirmative, the reality is that there are all sorts of business expense that are ordinary and necessary but that Congress has chosen either to deny or to limit. Congress limits the amount that can be deducted as compensation, limiting it to what is reasonable. There are limits on the deduction of meals, entertainment, and travel expenses. Deductions are not permitted for certain fines and penalties paid in the course of operating a business. So even with trade or business expenses Congress is making judgments about which expenses should be subsidized through a tax expenditure and which ones should not.

Trent Robinson also noted that some legitimate expenses to generate non-business income are not allowable, often because Congress needed revenue raisers and denying or limiting these expenses as deductions was the most politically expedient method of increasing taxes. He asked, should there be a concept of a negative tax expenditure, perhaps with a different name, that is worth measuring and reporting on? I replied, that a name for expenses that are not deductible (or income that is not excluded) could “revenue generator” because in contrast to expenses that are allowed as deductions and income that is excluded, income that is not excluded and expenses that are not deductible tax liability.

Every income exclusion, every deduction, and every credit (aside from credits in the true nature of a reduction on account of actual payment or prepayment of taxes) involves policy decisions and political considerations. What matters is not so much the name given to them, or to their opposites (inclusions and disallowed deductions), but whether they are wise and fit a well-designed revenue system.

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