Does This Halloween Practice Foretell a Scary Future?

From the outset of this blog, I have made it a point to work Halloween into MauledAgain, usually looking for the silly or goofy but occasionally taking a more serious approach. The posts began with Taxing "Snack" or "Junk" Food (2004), and have continued through Halloween and Tax: Scared Yet? (2005), Happy Halloween: Chocolate Math and Tax Arithmetic (2006), Tricky Treating: Teaching Tax Trumps Tasty Tidbit Transfers (2007), Halloween Brings Out the Lunacy (2007), A Truly Frightening Halloween Candy Bar (2008), Unmasking the Deductibility of Halloween Costumes (2009), Happy Halloween: Revenue Department Scares Kids Into Abandoning Pumpkin Sales (2010), The Scary Part of Halloween Costume Sales Taxation (2011), Halloween Takes on a New Meaning and It Isn’t Happy (2012), Some Scary Halloween Thoughts (2013), The Inequality of Halloween? (2014), When Candy Isn’t Candy (2015), Beyond Scary: Tax-Based Halloween Costumes (2016), Another Halloween Treat? I Think Not (2017), If Halloween Candy Isn’t Food, Is it Medicine? (2018), The Halloween Parent Tax: Seriously? (2019), Halloween Chocolate Construction Project (2020), The Tax Consequences of Halloween Candy Buy Back Programs (2021), and Two Not Very Amusing, But Scary, Halloween Tax Challenges.

Last week, reader Morris directed my attention to a story that addressed an issue I discussed in The Halloween Parent Tax: Seriously? back in 2019. In that commentary I reacted to the practice of parents taking some or even quite a bit of their children’s candy, with the justification that it teaches them about taxes and prepares them for the “real world.” I pointed out that when my parents consumed a small portion of what my siblings and I brought home from our multi-neighborhood, four-hour Halloween candy collection, it was a lesson in sharing. We learned why it was appropriate and generous to offer candy to our parents in appreciation of their help, not only in accompanying us around the neighborhood when we were younger but also in assisting the design and construction of costumes. So even when we grew older, designed and made our own costumes, and went out on our own, we continued to share candy with our parents.

In the story shared by reader Morris, I learned that New Zealand’s Inland Revenue Department had tweeted that “parenting trends like a lolly tax teach kids responsibility by taking some of their lollies and taxing their trick or treat haul.” It suggested that parents take 33 percent of their children’s candy because that is the top income tax rate in New Zealand. The tweet was quickly criticized, particularly by members of Parliament who object to the government’s tax policies. The story itself shares some of the interesting comments made by people who viewed the tweet as inappropriate. Though the Department explained that the tweet was intended to be “lighthearted” and “in the spirit of Halloween,” it apologized and then deleted the tweet. Of course, the Department did not invent the concept of the “candy tax,” “parent tax,” or “dad tax,” to mention three of the phrases used to describe the parental confiscation of candy, as the idea was shared initially on a variety of parenting blogs and social media platforms. The story also referred to a 2019 survey that revealed 74 percent of parents admitted eating some of the children’s candy, with 17 percent taking more than half. Wow.

It is worth repeating what I noted in The Halloween Parent Tax: Seriously?:

So although some people think Halloween presents an opportunity to teach children that “the government” is going to “take some of what you earn,” I think it provides an even better opportunity to teach children the concepts of generosity, empathy, and sharing. Those character traits are disappearing too rapidly among certain segments of society.

Now, four years later, in a world increasing afflicted by self-centeredness, I wonder what lessons are actually being learned by children who observer their parents taking substantial portions of their candy, not through sharing but by fiat. Thirty years from now, how will today’s children raised under those circumstances treat their children? How will they treat other people? Will generosity, empathy, and sharing be part of their worldview? The reality could turn out to be scarier than Halloween.

Will “Tax and Spending” Get Support in a Place Traditionally Hostile to Taxes and Government Spending?

Eleven years ago, in How Not to Spend Tax Revenues, I criticized the school district in Allen, Texas, for spending $60 million on a high school football stadium. School district officials explained that it was not their intention to recoup the costs through revenues from the stadium, pointing out that it was not practical to do so. The bonds undertaken to fund the construction are being paid back by the taxpayers. The stadium, for high school students, has a 38-foot wide high-definition video screen, spacious weight rooms, separate practice areas for the wrestling and golf teams, and concrete rather than aluminum stands. The absurdity of the cost was highlighted by the fact that in 2012 dollars, the Cotton Bowl cost $4.5 million, and the stadium being built at the time by the University of North Carolina-Charlotte cost about $45 million. I pointed out that someone’s making money on this deal, and it isn’t the taxpayers and it isn’t the students.

What surprised me at the time was the inconsistency exhibited by those who object to “excessive government spending” but who vote for what one person called “monumentally stupid” and another called “pathetically ridiculous.” Dare I say that opposition to spending peaks when the dollars would benefit “the others” but disappears when it helps “one’s own.” As I pointed out in the 2012 commentary:

The father of one football player provided a comment that could be considered a response: “There will be kids that come through here that will be able to play on a field that only a few people will ever get the chance to play in.” So it’s good to fork over tens of millions of taxpayer dollars to benefit a few kids? In return, what do the taxpayers get? A more educated nation? A nation whose citizens are competitive in a global marketplace? A healthier citizenry? Or just another version of taxpayer-funded entertainment for the benefit of a select group? What about facilities for the debate team? The language clubs? The science fair? The math contestants? Do they not matter?

Apparently my 2012 commentary didn’t find its way to a sufficient number of people, or perhaps they ignored it, or perhaps they didn’t understand it. Why do I say that? Keep reading.

The other day reader Morris directed my attention to this report about a proposed high school stadium in Prosper, Texas. The school district in that town has put several bond propositions on the ballot, one of which, if approved, would authorize the borrowing of $94 million to build a second high school football stadium. In an attempt to justify what would be the most expensive high school stadium in Texas (and, I think, perhaps anywhere), a spokesperson for the school district claimed that the stadium should not be considered a stadium but “the district’s largest classroom.” The spokesperson explained that students would run concessions, organizations such as the band, cheerleaders, and spirit squad would “contribut[e] to the game day atmosphere,” the stadium would be used for community events, several spring sports, and graduation. Note that the existing stadium would not be closed but instead football teams would “rotate” between the two facilities.

In all fairness, the district is also presenting three other bond propositions. One would finance six new elementary schools, a second early childhood school, two ne middle schools, a new high school, an outdoor learning center, an administration and professional learning center, and modernization and expansion of existing schools. Another would provide updated technology for students, teachers, and staff. The third would finance a new performing arts center. And in all fairness, it appears that voters could approve one or more of the propositions without approving all of them.

So what will the voters do? Approve all, which would require significant increases in tax revenues, something abhorrent to most Texans? Approve the financing for a professional-level football stadium for a high school and reject the others? Vote for the stadium and the new schools but turn down the technology upgrades and performing arts center? Approve all but the football stadium?

What the voters do will tell us quite a bit about what the voters think is important. It will also reveal some truths about the extent to which objections to “tax and spending” is an objection only to certain taxes and spending. It will be interesting to learn, years from now, how much complaining blossoms as taxpayers in the district begin looking closely at their tax bills.

Does the Size of the Tax Gap Matter?

The tax gap is the difference between what taxpayers should be paying if they comply with the tax law and what taxpayers actually are paying. For each type of tax in each jurisdiction there is a tax gap. There are sales tax gaps, real property tax gaps, and, of course, income tax gaps. The income tax gap that gets most of the attention is the federal income tax gap because it is the largest of the tax gaps.

According to an IRS news release issued yesterday,* the federal income tax gap for 2020 is projected to be $601 billion, and for 2021, $688 billion. The amounts are projections because audits and case closings are not yet completed. Projections for earlier years in the mid-2010s were lower, ranging from $596 billion to $550 billion.

Yet in 2021, according to this report, the then IRS Commissioner pegged the tax gap at “some $1 trillion . . . every year.” That’s a significantly higher number. It’s unclear whether the Commissioner was using a different algorithm to measure the tax gap or if he was acknowledging the claim many of us have made, that the tax gap is much higher than the official amounts released by the IRS.

But does the amount of the tax gap matter? In some respects, yes, it does. The larger the gap, the more the nation must borrow and the more it must cut spending, or some combination thereof. That’s a serious problem for the country. On the other hand, arguing about the size of the tax gap is similar to a driver contesting a speeding ticket by reacting to the police officer’s claim that the driver was operating a vehicle at 130 miles per hour with a defense that the driver was going “only 100 miles per hour.” At either speed, the risks are extraordinary and totally unacceptable.

So even using the lower numbers, it means that over the past decade, somewhat in the range of $5 trillion in federal income taxes has been unpaid and uncollected. Imagine if it were possible to collect that amount. It would have a significant impact on the economy and on the lives of every American.

Of course, that amount cannot be collected. There are two principal reasons. First, some of the taxpayers who owe these taxes have little or no funds or property. Trying to collect the funds would indeed be trying to “get blood from a stone.” Second, as a political matter, the anti-tax anti-government folks who are dead set on collapsing government simultaneously complain about the federal budget deficit, complain about the social conditions that are the consequence of spending cutbacks, and oppose funding the IRS to give it the ability to try to collect at least some of the outstanding unpaid taxes.

Arguing about the size of the tax gap is a distraction from the more important and more serious problem. Legislative paralysis, incompetence, grandstanding, and acquiescence to high-end donors is crippling the nation.

*Thank you, reader Morris, for finding the IRS news release. You were better at this than I was, and better than the search engines.