More Bad Tax Law: The Price For Not Listening to The Citizenry

It was just a week ago, in Bad Tax Law: The Price for Railroading, Special Interests, and Deficient Thinking, that I expressed my surprise and delight when a former tax counsel for the House Ways and Means Committee admitted that the 2017 tax law change causing church employees to be taxed on parking provided by a church did not get the “months and months of planning and consideration” that was invested in areas of the tax law best described as being of the most importance to large corporations and the wealthy. My surprise reflected my long-standing dissatisfaction with how Congress deals with tax, and for that matter all other sorts of, law.

For example, in Apologizing for the Tax Law Efforts of the Congress, I had this to say about its efforts:

I confess that my reaction when students groan in reaction to the bewilderment and frustration sweeping over them as the course works its way through just a small bit of the tax law surely is not an expression of remorse on behalf of the Congress. No, I yield to the temptation to criticize the consequences of the inattention, the ignorance, the vote-grabbing, the currying of favor with special interests, the sloppiness, and the last-minute rushing on the part of Congress that causes the nation to have such an abysmal tax law.

The legislative process is flawed. Why? In Birthdays in the Tax Law (and Obituaries?), focusing on the definition of “attaining” an age, I explained why a simple concept had become muddled:

So that means the phrases “attains the age” ends up with two different interpretations. Does it make sense to give a phrase two different meanings when the statute using the phrases does not do so? Of course, this is once again a matter of Congress not thinking through the implications of what it enacts. That’s probably because few members of Congress actually read, let alone think deeply about and think through the consequences of, the legislation on which they vote.

I reached the same conclusion in Tax and Perfection, in which I discussed a flaw in the statutory language dealing with interest deduction limitations: “Had the Congress and its various staffs invested a little more time by having brains attached to other eyeballs think through the ramifications and issues implicated in the bonus taxation legislation, far fewer resources would have been wasted in the ensuing flap over the matter.”

Recently, news has been spreading about another glitch in the 2017 legislation. For example, this article explains in more detail how an attempt to change the tax rate schedule applicable to trusts has caused tax increases on the order of $5,000 for surviving spouses and children receiving benefits on account of the death of the other spouse and parent who died while on active military service. Though people are calling it the military widow’s tax but I am certain there are widowers who also are experiencing this outcome. It is estimated that thousands of people have been hit with this tax increase.

The change in the tax law was designed to prevent wealthy individuals from putting assets into trusts benefitting their children in order to gain the advantage of lower tax rates. Though that sounds like a provision unfavorable to the wealthy, the change was accompanied by a doubling of the amount of assets exempt from the estate tax, which more than offsets the income tax change. In the case of non-wealthy families getting by on military survivor benefits, no offsetting provision was enacted.

According to the report, “congressional aides and others involved” in the drafting of the legislation, “nobody at the time realized the impact the change would have on military families.” Why not? Isn’t it the job of congressional aides to analyze proposed legislation? Has it not been, at least until the recent autocratic approach to government permeating D.C. in 2017, a matter of course to hold public hearings so that educated and intelligent people out “beyond the Beltway” can share their insights on proposed legislation. I am confident at least one person, and probably more, would have said, “Hey, look what this would do to families receiving military survivor benefits.” But in the rush to railroad the legislation through the Congress, the people dead set on having it their way and no other didn’t bother to pay attention to the people they supposedly represent, and instead let those “others involved,” who lack the sort of broad overarching understanding of tax law that once was a staple of Congressional tax legislative process, toss about their ideas without regard to those insufficiently privileged to sit in the smoke-free back room.

Congress is now “scrambling” to fix the mess. Would it not be easier to make certain the legislation is well done before enacting it? There’s no reason not to get input from multiple sets of eyes and brains from segments of society that are diverse geographically, politically, socially, economically, financially, and experientially. That, however, is something oligarchs and their acolytes don’t like to do.

Using Taxes to Bail Out Wrongdoers

The story is sad and infuriating, has happened too often, and continues to happen. Because of wrongdoing by an accuser, a police officer, a prosecutor, a judge, an expert witness, or multiples or combinations of them, an innocent person is convicted and imprisoned. Years later, exculpatory evidence is found, and the innocent person is released. And then the innocent person sues the jurisdiction where the wrongful conviction occurred. This happened, for example, to a group known as the Beatrice Six. Six individuals were falsely convicted of raping and murdering a woman in Beatrice, Nebraska, in 1985. Twenty-four years later, in 2009, the truth came out and they were released.

The six were convicted in part because of forensics presented by Joyce Gilchrist, who later was determined to have assisted in other false convictions. The six also were forced into giving false confessions. The forensic scientist who did the original analysis was not called to testify, even though she had determined there was no forensic match between the defendants and the crime scene. After being released the six falsely convicted individuals sued Gage County, where the crime and convictions had occurred, but by the time the case went to trial in 2014, the lead plaintiff had died. Two years later, a jury awarded the plaintiffs or their successors in interest $28 million. The county appealed, but lost. On March 4, 2019, the United States Supreme Court denied the final appeal. Attorney fees and interest have raised the cost to $31 million.

So Gage County needs to come up with $28 million. It raised property taxes to the maximum permitted under state law. Because that was not enough, the county sought state legislative approval to impose a sales tax. As reported a few days ago in this story, the Nebraska legislature approved the request, the governor vetoed the legislation, and the legislature overrode the veto. The governor vetoed the legislation because he wanted the tax to be approved by voters. Usually, voters must approve sales tax increases. It was predicted that voters would not approve the sales tax because many of them did not live in the county in 1985, and some still believe that the six are guilty despite the exonerating DNA evidence. Compounding the problem is the county’s failure to have adequate insurance at the time of the false conviction to cover these sorts of claims.

Interestingly, some legislators who are members of the anti-tax movement voted for the tax increase. One of them has provided an explanation that ought to be printed in bold lettering and placed in the front of every legislature in the country: “This is a time when campaign promises become meaningless and situations must be solved.” I’m thinking, for example, of the funding required to fix infrastructure, to protect Americans from catastrophic health costs, and to build up adequate cyber-security against attacks by enemies.

The justification for approving the sales tax is to prevent the cost from falling entirely on property owners who pay property taxes. What is unclear to me is how much of the sales tax will be paid by people who are not property owners in the county. Aside from renters who make purchases, the only other source would be visitors and tourists, who probably aren’t numerous. Using a sales tax will shift some of the burden from farmers with large land holdings, but reduced income, to town residents, whose property taxes typically are lower than those imposed on farmers.

I don’t know if anyone other than the county was sued. Perhaps Joyce Gilchrist, the police, the prosecutors, and the others who were involved in the false conviction were sued. Perhaps they are long gone from this planet. Perhaps they are bankrupt. The problem that I see is the shifting onto taxpayers the price that must be paid when officials, some elected, some not, and third parties recruited by those officials, act wrongly. It is said that holding officials responsible for the costs of their bad decisions would discourage people from running for office. Yet it’s not a question of holding people responsible for the outcomes of decisions made in good faith. When there are intentional failures to comply with the rules, to follow the proper procedures, or to everything that must be done, asking innocent taxpayers to bear the burden of those failures is difficult to justify. Perhaps taxpayers who voted for those officials knowing that those officials are prone to acting wrongfully should be taxed, but there is no way to identify those taxpayers, some wrongdoing officials aren’t elected, and proving that taxpayers knew that officials were prone to act wrongfully and would do so once elected is near impossible.

The answer, I think, is for taxpayers to prevent these sorts of taxes by paying attention to what is happening in government and politics. Too many people “aren’t interested” in “those things.” Too many people fail to take everything into account when evaluating government officials and candidates, often getting caught up in one issue to the detriment of all else. Worse, taxpayer oversight of government officials is lacking, as often the only recourse is the ballot box which turns up every other year or even longer. Oversight of government officials by other government officials, though fine in theory, has failed when it comes to practical application. We are seeing that now, on a scale much larger than Gage County, Nebraska. When the time comes to pay the price for the misdirected tax cuts, for the environmental damage, for the death and destruction due to infrastructure failure, and for other deliberate and wrongful decisions, perhaps American taxpayers will understand, “you were warned, you did not listen, you are now paying the price.” So sad.

Tax Breaks for Broken Promises: Not A Good Exchange

Two years ago, in Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, I criticized the use of public funds and tax revenues to finance an arena in which two professional Detroit teams will play. Now comes news in a Detroit Free Press story that just about every promise that was made to justify the grabbing of public funds and tax revenues by a wealthy family has gone unfulfilled. More than $300 million in tax revenues intended to fund the city’s schools were diverted to the construction of a playground for teams awash in their own revenues.

To justify grabbing public funds, the billionaires who own the project promised that they would create jobs for Detroit residents, build housing for low-income Detroit residents, and clean up blight that the billionaires themselves had created. According to the report, though the arena has been built, the number of housing units built by the billionaires totaled “zero as in none.” The number of Detroit residents hired to work on the construction came nowhere near the promised 50 percent of the workforce. The removal of the blight in the area between the arena and downtown Detroit did not happen, though the blight is attributable at least in part to the billionaires buying the properties in that area and letting them deteriorate in order to drive down prices in the area. There also are allegations that corners were cut in order to increase profits on the arena deal.

Some community leaders, activists, and politicians point out that the vast majority of those coming to the arena live in areas outside Detroit and thus do not bear the burden of their tax dollars paying for the arena. One politician noted, "They promised it would be something that trickled down to the neighborhood. It hasn’t trickled down. We said yes to a billion-dollar corporation for nothing in return." That’s how the game has been played for the past four decades, a con on the American people that too many Americans fail to recognize because they fail to let themselves be educated on the realities of these arrangements.

Politicians who supported the deal claim that it was successful because the arena was built and is drawing attendees. Nothing was said of the broken promises. When asked if giving half of the revenue from the arena to the billionaires, one politicians said he was “fine with that.” When asked if he understood the that funding private projects owned by the wealthy with public revenues doesn’t work out as promised, that same politician said that people need “to have a level of faith in a project,” though he claimed to be a “data-driven person.” What data is he examining? That same politician is now president of the entity set up to siphon public revenue into the hands of apparently starving billionaires.

The billionaires who profited from this heist tried to defend what happened. After claiming that they have “six decades of dedication, commitment and positive impact throughout the broader Detroit community," and noting that they “are exceptionally proud of [their] accomplishments,” they claimed to have created “thousands of jobs,” to have restored “various historic buildings,” and to have developed “a downtown sports and entertainment district which has surged since the opening” of the arena. Nothing was said of the broken promises. People who break promises don’t like to talk about those promises nor do they like people asking them about those promises. Instead, as these billionaires did, when called out on the broken promises, they accuse the questioners of being “self-interested, sensationalized and inaccurate.”

When will America wake up? Considering the extent to which 40 percent of Americans seem fine with revering those who break promises, the answer might not be “Soon enough.”

Bad Tax Law: The Price for Railroading, Special Interests, and Deficient Thinking

Readers of MauledAgain know that I am not a fan of how Congress does business. Though my focus on Congressional behavior usually highlights tax law, the deficiencies in how Congress operates touches every area within its purview.

For example, in Apologizing for the Tax Law Efforts of the Congress, I had this to say about its efforts:

I confess that my reaction when students groan in reaction to the bewilderment and frustration sweeping over them as the course works its way through just a small bit of the tax law surely is not an expression of remorse on behalf of the Congress. No, I yield to the temptation to criticize the consequences of the inattention, the ignorance, the vote-grabbing, the currying of favor with special interests, the sloppiness, and the last-minute rushing on the part of Congress that causes the nation to have such an abysmal tax law.

The legislative process is flawed. Why? In Birthdays in the Tax Law (and Obituaries?), focusing on the definition of “attaining” an age, I explained why a simple concept had become muddled:

So that means the phrases “attains the age” ends up with two different interpretations. Does it make sense to give a phrase two different meanings when the statute using the phrases does not do so? Of course, this is once again a matter of Congress not thinking through the implications of what it enacts. That’s probably because few members of Congress actually read, let alone think deeply about and think through the consequences of, the legislation on which they vote.

I reached the same conclusion in Tax and Perfection, in which I discussed a flaw in the statutory language dealing with interest deduction limitations: “Had the Congress and its various staffs invested a little more time by having brains attached to other eyeballs think through the ramifications and issues implicated in the bonus taxation legislation, far fewer resources would have been wasted in the ensuing flap over the matter.”

Of course, members of Congress don’t stand up and confess that the legislative process they follow is a mess, or that the product of their flawed procedures are of high quality. Nor would anyone expect members of Congress to do so, because the nature of politics seems to require, or at least encourage, every politician or candidate to present himself or herself as a paragon of perfection.

So wasn’t it surprising, refreshing, and uplifting when, as reported in this Bloomberg story, a former tax counsel for the House Ways and Means Committee admitted that the 2017 tax law change causing church employees to be taxed on parking provided by a church did not get the “months and months of planning and consideration” that was invested in areas of the tax law best described as being of the most importance to large corporations and the wealthy. This is not a case of a staffer attached to opponents of the 2017 tax legislation lamenting a loss. The former Ways and Means tax counsel who made the admission is a Republican working with advocates of the legislation. Now that the Republicans no longer control that committee, he has moved across the Capitol and serves as an investigative counsel with the Senate Finance Committee. I do hope that he can share with his new colleagues the lesson he seems to have learned. And I do hope those colleagues will listen, learn, and act accordingly.

As I wrote in When Congress Can't Do Things On Time:

Members of Congress need to learn that they were elected to serve, not to devote substantial amounts of energy to preparing for, and seeking, another term. If they want another term, then they can earn it by doing their job in a timely and competent way, for which a reward can be re-election. Voters, though, need to stop re-electing members of Congress because of yet more promises likely to go unfulfilled or because of favors granted. Perhaps a practice used in many other organizations would make sense, namely, after serving a term (or perhaps two in the House), a member must stand down for one or two terms before being again eligible to return. That sort of rule might encourage members of Congress to focus on their legislative work.

Of course, getting the Congress to enact legislation or initiate the amendment of the Constitution to put such a provision in place is close to impossible. The spirit of Cincinnatus, much admired by George Washington and others of the Founding Period, has long departed from these shores.

Funding Infrastructure Repairs and Maintenance Other Than Through Taxes

The debate over the best way to fix the nation’s crumbling architecture is heating up. Though some engineers and some public policy and tax policy commentators have been warning people for years and offering suggestions, only now is the general public beginning to pay more attention. People are noticing that the public-private partnership model used in some instances with little fanfare isn’t generating the benefits advertised.

Readers of this blog know that I am no fan of privatization, because privatization does not work, and these private enterprises have a goal, maximization of the bottom line at all costs, that is inconsistent with the goal of maintaining and improving the public welfare. Why privatization does not work is something I discussed in Are Private Tolls More Efficient Than Public Tolls?, When Privatization Fails: Yet Another Example, How Privatization Works: It Fails the Taxpayers and Benefits the Private Sector, Privatization is Not the Answer to Toll Bridge Problems, When Potholes Meet Privatization, and Will Private Ownership of Public Necessities Work? As I noted in So Guess Who Pays for the Senate’s Tax Cuts for Corporations and Wealthy Americans?, the anti-tax/privatization movement is part of a “plan to eliminate or privatize Medicare, Social Security, national defense, and everything else so that eventually the oligarchy owns everything.”

As for the highway, bridge, and tunnel funding challenge, there is a twenty-first century solution. I have explained, defended, and advocated for the mileage-based road fees for many years, in 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?, and Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign. When a reader asked how my support for the mileage-based road fee fit with my preference for a progressive income tax, I answered that question in Is a User-Fee-Based System Incompatible With Progressive Income Taxation?.

Recently, a reader directed me to a proposal for a different way to fund infrastructure repair and maintenance. The suggestion is to fund an “infrastructure bank” by requiring “every American public company” to issue “1 percent of its equity in the form of new stock” to an infrastructure bank, and to put this requirement in place for a three-year period. The proposal would rise roughly $1 trillion. The justification rests on a reaction to the newly opened Mario Cuomo Bridge and the benefits it brings to “high-growth regional companies” because it “supports the efficient movement of supplies and finished products, makes for a happier commute for our employees and can make a difference in recruiting key talent.” The money put into the bank would be dished out as grants or loans “to support worthy infrastructure projects.”

The proposal is worth discussing, because careful analysis raises a variety of questions. I doubt that I have identified all of the questions.

First, as the proposal suggests, funding infrastructure needs through increases in personal or corporate income taxes or through wealth taxes is unlikely to happen. Yet the proposal recognizes that “some companies and their shareholders will surely grumble.” I daresay the question is whether the “some” would actually be “many” or “nearly all.” The proposal admits that it “would put the burden onto wealthy Americans and foreigners.” Is it realistic to think that most of them would not grumble?

Second, the proposal notes that the required equity contributions “would hardly be a burden.” Is that actually the case? Do we know that every public company can afford to make the contributions without hurting its business? The proposal notes that the one-percent-of-equity-contribution requirement is less than the “typical daily fluctuation in many companies’ stock prices,” but is this true for all companies? Aren’t variations in stock prices more of an issue for shareholders? The proposal notes that last year, companies paid $800 billion to buy back their own stock. But is this something that will happen every year, or is it a one-time event reflecting the surge of tax break dollars flowing into corporate treasuries? Is it possible that this realization is yet another example of why it would have been better to invest in infrastructure rather than plowing money into tax breaks, considering that “[t]he White House Council of Economic Advisers estimates that gross domestic product would increase up to $13 billion a year for every $100 billion in infrastructure investment”?

Third, considering that the “infrastructure investment gap over the next two decades” is roughly $5 trillion, the proposal makes too small of a dent in the funding requirement. Meeting a $5 trillion need through the equity contribution proposal would require not three years, but 15 years, of contributions. Whatever grumbling a three-year requirement would generate, a 15-year requirement would be orders of magnitude more vociferous.

Fourth, if money from the infrastructure bank were paid out as loans, who would be responsible for repayment? Would state and local governments be the borrowers? If so, would they not need to increase or impose tolls on transportation infrastructure or raise taxes with respect to all infrastructure in order to repay? Or is the plan to make loans to private sector enterprises, thus bringing privatization of public resources back into the picture through a different pathway? If money is distributed as loans, what happens when the loans are repaid? If recycled into more infrastructure projects, what happens when, as the proposal puts it, “its infrastructure mission is accomplished” and it “might even liquidate itself.” Does the money go back to the corporations? What if they are no longer in existence?

Fifth, who decides if an infrastructure project is “worthy” and how is that determination made? To what extent will politics be a factor? The proposal wants the infrastructure bank to be “apolitical.” Is that realistic? If not, to what extent will campaign contributions by construction companies and related enterprises looking for infrastructure repair work be a factor? Will rural or urban projects get a disproportionate amount of the grants or loans? Though the proposal claims that “Although detailed mechanisms for issuing the stock and managing the portfolio would need to be defined, this plan should be more straightforward than an income tax,” isn’t it quite possible that it would be just as complicated as income taxes?

Sixth, why limit the proposal to American companies? Do not foreign corporations doing business in this country benefit from the nation’s infrastructure? Though the proposal notes that “84 percent of all stock held by Americans belongs to the wealthiest 10 percent of households, and foreign investors account for 35 percent of investment in American stocks,” does that suggest domestic shareholders of foreign corporations doing business in this country would also share in the burden? Conversely, if there are companies and shareholders who do not benefit from infrastructure repairs and maintenance, why put the burden on them?

Seventh, why just corporations? Isn’t there a significant amount of equity in limited liability companies, partnerships, hedge funds, and private equity funds? Why should they be excluded from the funding party?

The more I thought about the idea, the more I began to consider what the proposal would be, in substance, if it took the form of mandatory contributions, loans repaid, probably with interest as the proposal notes, additional loans made and repaid, and the infrastructure bank liquidated by returning the contributions, with or without interest, to the corporations (and other entities). Is this not the equivalent of floating bonds to fund infrastructure repair and maintenance, but buttressed by what amounts to compelled purchase of those bonds by corporations (and other entities)? Why compel the purchase? What would happen if infrastructure bonds were floated, with the security not being tax revenues, but pledges from corporations (and other entities) in the event that the bonds were not repaid through fees imposed for the use of the new or repaired infrastructure? If different alternatives are going to be put on the table, perhaps the pledged bond idea also should be added to the list.

Getting Out of Paying Taxes in Retirement: Not So Easy

The headline of the article, 3 Ways to Legally Get Out of Paying Taxes in Retirement caught my eye, as I’m confident it caught the eye of others. Wouldn’t it be wonderful, at least from the taxpayer’s perspective, to live a tax-free retirement?

Actually, the article focuses on federal income taxes, so it doesn’t even claim to give a roadmap for getting out of paying, for example, sales taxes or local real property taxes, while retired. Its recommendations probably do little to affect state and local income taxes.

So are there ways to avoid paying federal income taxes in retirement? Of course there are. One way is to keep one’s income below the standard deduction amount. Another is one of the three techniques suggested by the article, that is, restrict one’s income to municipal bond interest. Of course, doing that is rather difficult. It means having enough wealth so that the interest generated by the bonds is sufficient to live the lifestyle one desires. It means not taking a job that pays more than the standard deduction, and it means not claiming Social Security benefits unless the municipal bond interest is sufficiently low so that combined with half of the Social Security income it does not exceed the $25,000 taxation benchmark for Social Security benefits.

The article suggests saving in a Roth IRA or Roth 401(k). That advice certainly comes too late for those who are retired or within a decade of retirement. Of course, there is a steep price to pay for choosing a Roth plan rather than a typical plan. There is no exclusion for the contributions to the Roth plan. That means the taxpayer is paying the tax now, rather than later, thus not taking advantage of the fact that the present value of the tax paid in retirement is less than the tax being paid in the year of contribution. It also means that the taxpayer probably is paying tax at a higher rate when working than when retired.

The article also suggests holding investments for at least a year and a day to qualify for lower long-term capital gains rates. But unless somehow the long-term capital gains rate is zero, this strategy does not let the taxpayer get out of paying taxes. That zero rate only applies to unmarried taxpayers (and married taxpayers filing separately) whose income is less than roughly $40,000, to heads of households whose income is less than roughly $53,000, and to married taxpayers whose joint income is less than roughly $79,000. But it is likely that taxpayers with sufficient wealth to generate capital gains will have other types of income that exceed the standard deduction and generate tax liability.

The headline of the article would make much more sense if it were “Three Ways to Legally Reduce Federal Income Taxes in Retirement.” Even that is a bit misleading because the Roth plan suggestion comes at a cost of paying more taxes while working. The article itself, near the end, confesses that it isn’t quite what it’s headline claims. It recommends that people “think about the ways you might reduce your tax burden as a senior” rather than “think about the ways you might eliminate your tax burden as a senior.”

In all fairness, not all writers get to pen the headlines for their articles. I learned that many years ago from a Philadelphia Inquirer reporter who wrote an article about my basic federal income tax class. When I saw the headline and commented, he explained that headline writers did just that, applying their ability to sum up an article in a few words, often trying to work in some word play. So perhaps the headline was not written by the article’s author. By the way, I write my own “headlines.” Surely that is obvious!

Is It Finally Time to Fix the Tax Law Flaws That Encourage Asset Stripping?

Last October, in What to Do When Drowning in Money and Hauling in Tax Cuts, I explained why pumping tax breaks into the hands of people already basking in the benefits of low capital gains rates, almost non-existent federal estate taxes, and the unjustifiably favorable treatment of carried interests is foolish and dangerous:

What do hedge funds and private equity do? One path of investment is to acquire public companies and turn them private, or to invest in public companies that are in trouble and hope they turn it around. But increasingly, private equity and hedge funds are grabbing distressed businesses simply to extract the last bits of value and to abandon what’s left. As explained in this article, too often, when given the opportunity to turn a distressed business in the direction of modernization, hedge fund and private equity managers prefer to take out money than to invest enough to turn the business around. This is what has happened with Sears, in which a controlling interest was purchased by hedge fund ESL Investments. It failed. Toys ‘R’ Us was acquired by KRR, Bain Capital, and Vornado Realty Trust. It failed. It happened to Gymboree, another Bain Capital investment. It failed. It happened to Payless ShoeSource, owned by Blum Capital and Golden Gate Capital. It failed. It happened to Radio Shack, in which Standard General had a substantial interest. It failed. Twice. It happened to Fairway, owned by Blackstone. It failed. The same outcome fell upon The Limited, Wet Seal, Claire’s, Aeropostale, Nine West, Brookstone, David’s Bridal, and Sports Authority.

From the perspective of the hedge funds and private equity, these aren’t tragedies. These have been good investments. From the perspective of employees, customers, and the malls in which these businesses rented space, these transactions have been disaster. Granted, retail stores have faced competition from their on-line counterparts, but would not saving one of these retailers included plans to go online? That didn’t happen. It didn’t happen because the new owners preferred not to put in even more money but to take out what was left. Worse, according to investment officer Jack Ablin, “many private equity investors lack the expertise to make the shift from traditional retail to online commerce.” Yet, surely they had the money to hire people who had the expertise. They didn’t, because, according to that investment officer, those investors “were also reluctant to commit more capital for the long-term to transform these struggling retailers.”

At the end of my commentary, I shared these thoughts:

I wonder how things would have turned out if tax cuts had not been handed out to these folks during the past two decades. I wonder if they would have had the resources to do what they have done, are doing, and intend to continue doing. Retail stores probably still would have failed – they have, for many decades – but the resources that remained would not have been channeled into the hands of those already drowning in wealth. Perhaps not as many stores would have closed. Perhaps not as many people would have lost jobs. Perhaps some businesses would have hired people willing and able to take them online.

There are many lessons to learn from these events. Sometimes learning a lesson is helpful for the future. Sometimes learning a lesson comes too late, and the future is altered forever, often in a bad way. Perhaps we have run out of time.

Now comes news, in a Philadelphia Inquirer report, that Sears is suing its former chairman, Eddie Lampert, and board members, alleging that they engaged in a scheme to transfer Sears assets to themselves and their hedge funds. In other words, they are being accused of what I described, namely, setting out to “extract the last bits of value and to abandon what’s left.” The amounts in question total in the billions of dollars. The cost, according to the complaint, includes creditors getting paid pennies on the dollars, job losses, and store closures. The hedge fund disagrees, calling the complaint “baseless” and “fanciful.”

The allegations, if proven true, are astounding. Allegedly, Lampert directed employees to create misleading documents showing Sears on the brink of reaping “huge profits” when in fact it was losing billions of dollars a year. What is not disputed is that Lampert and the board paid $40 million to settle another lawsuit claiming that they sold Sears’ best real estate to another of Lampert’s businesses. Describing the transaction as “highly conflicted,” the Sears shareholders who sued predicted that it would ““plunge the company into insolvency.” Indeed.

Members of the board include the founder of an investment management firm, the president of a hedge fund, and the managing partner of another investment firm. Also on the board was Lampert’s college roommate, who is now Secretary of the Treasury. The reaction of Mark Cohen, director of retail studies at Columbia Business School and the former chief executive of Sears Canada, provides an insight into the sort of attitude being brought into government. He explained that “Lampert ran the company like it was a private company owned by him. But it wasn't private. It was very much a public company." Jordan Thomas, a partner at Labaton Sucharow and former Justice Department trial lawyer, put it this way: “For all of the directors, there will be an assessment of independence and whether they exercised appropriate fiduciary duty in making their decisions.” There’s the key phrase: fiduciary duty. Acting responsibly as a fiduciary is what too easily disappears when money accumulation for one’s self becomes the paramount goal.

The ability to engage in the sort of disruptive behavior by hedge funds and private equity firms that has afflicted the economy for the past decade and a half is significantly enhanced by the influx of money into that world caused by unwise tax breaks. Considering the damage done in the latter part of the last decade by these sorts of entities, the last thing that the Congress needs to be doing is to enact more and more tax breaks for their activities. The world is awash in capital, and owners of capital do not need more capital, other than to satisfy money addiction. It is time not only to repeal the unwise tax breaks but also to enact provisions to take back, and give to the 99 percent who don’t play these risky games, the tax breaks that ought not to have been granted. Considering how many members of Congress vote for these tax breaks because of “contributions” from the individuals who get the tax breaks, the return of the tax breaks are justified on the grounds that they were obtained not through the exercise of fiduciary duty by members of Congress but through the treatment of the federal government as a “private company” owned by members of Congress and other government officials.

Back in March, in Will Private Ownership of Public Necessities Work?, I issued a warning that at least some dismiss as over the top:

As companies merge, as hedge funds and private equity funds purchase companies, strip them of assets, and toss them aside, as local businesses are overwhelmed by national and global chains that give little regard to local concerns, as consumer choices are reduced because the number of providers from which to select decreases every year, and as private industry that cannot be held responsible at the voting booth becomes the replacement for government, the foundations of democracy will erode and the republic eventually will collapse.

I stand by that prediction. Unfortunately, I fear that too many Americans will heed the warning signs about as eagerly as do the ones who, as described in this article, are “oblivious or disdainful” when they receive as tornado warning, at least until they’re being blown out of Kansas.

Keeping Track of Charitable Contributions for Tax Purposes

So a bit of a brouhaha has popped up with respect to Beto O’Rourke’s charitable contributions. Rather than focusing on the question of whether a person’s charitable inclinations should include time spent running for office, I want to focus on the issue of unclaimed potential charitable contribution deductions.

As reported in various stories, including this Philadelphia Inquirer report, O’Rourke is being criticized because the charitable contribution deduction on his released tax returns amount to 0.7 percent of adjusted gross income. O’Rourke explained that "We've made donations to so many organizations in small amounts, in the hundreds of dollars, in larger amounts, in the thousands of dollars. This is beyond what's itemized and reflected in our taxes. . . . [we] "just didn't report it because it wasn't important for us to take the deduction. Never thought it would be an issue because I didn't expect to release my taxes 'cause I never thought that I'd be running for president." O’Rourke disclosed, "We're trying to go back to some of these organizations to see if they can share with us, over the last 10 years, how much we have donated."

Taking this apart, there are two types of potentially deductible charitable contributions to consider. The first type is the small cash donation, often a dollar or two or five or ten or twenty, dropped into a collection plate, or a charity’s giving bowl, or otherwise made on the spur of the moment. There is no record, there is no letter of acknowledgement, and the deduction disappears for that reason. It’s why I encourage people to make donations other than in cash, or when making a donation in cash, to use envelopes, if provided, to supply the charity with donor information so that the charity can issue a tax-satisfying confirmation letter. As to these unsubstantiated cash donations, it is highly unlikely that O’Rourke will be getting any sort of confirmation from the charities. The second type is the substantiated deduction that a taxpayer simply fails to deduct on the return. In these instances, the taxpayer should have the confirmation letters, unless they were lost, which is why the taxpayer would need to request the charity to issue another one. It’s unclear if this is the situation in O’Rourke’s case.

So why forgo the deduction? There are many reasons. I have written about this issue, a controversial one, by the way, in No Thanks, Uncle Sam, You Can Keep Your Tax Break, 31 Seton Hall Leg. J 81 (2006), There are times when a deduction would be wasted because it does not generate a tax benefit and yet claiming it would generate some other disadvantageous consequence. The including this Philadelphia Inquirer report explains that “O'Rourke implied that the family didn't need the tax reductions, though, and his personal finances suggest that's the case.” It hen reveals that, “According to the nonpartisan Center for Responsive Politics, O'Rourke, who left Congress in January, had a net worth of nearly $9 million in 2015.” Of course, high net worth does not necessarily mean that a tax deduction has value, if the taxpayer’s income in a particular year is low or if there are sufficient other tax breaks to reduce tax liability to zero. It’s unclear why O’Rourke’s “personal finances suggest” that his “family didn’t need the tax reductions.” According to this Washington Post story, in 2017 he and his wife reported “more than $370,000” and “paid about $81,000 in taxes.” It seems to me that deducting the charitable contributions made in 2017 would have reduced tax liability and thus would not mesh with the idea that he “didn’t need the tax reductions.”

So is it a matter of unrecorded and unsubstantiated cash contributions? Is it a matter of charities failing to send the required confirmation letters? Is it a matter of having lost those letters before preparing the return? Is there some other reason to have decided not to deduct all of the charitable contributions that were made?

The Institutionalization of Ignorance

Detest is a strong word, but it works for me when I explain that I detest ignorance. There is nothing beneficial about ignorance, there are ways to eliminate ignorance and its consequences, and there is every legal, social, moral, and sensible justification to stand up against ignorance. Ignorance is the ally of evil.

I have written many times about ignorance, usually focusing on tax ignorance but also expressing my concern about ignorance generally and how it is ripping apart the threads that hold civilized society together. A probably incomplete list of my commentaries about ignorance and its dangers includes Tax Ignorance, Is Tax Ignorance Contagious?, Fighting Tax Ignorance, Why the Nation Needs Tax Education, Tax Ignorance: Legislators and Lobbyists, Tax Education is Not Just For Tax Professionals, The Consequences of Tax Education Deficiency, The Value of Tax Education, More Tax Ignorance, With a Gift, Tax Ignorance of the Historical Kind, A Peek at the Production of Tax Ignorance, When Tax Ignorance Meets Political Ignorance, Tax Ignorance and Its Siblings, Looking Again at Tax and Political Ignorance, Tax Ignorance As Persistent as Death and Taxes, Is All Tax Ignorance Avoidable?, Tax Ignorance in the Comics, Tax Meets Constitutional Law Ignorance, Ignorance in the Face of Facts, Ignorance of Any Kind, Aside from Tax, Reaching New Lows With Tax Ignorance, Rampant Ignorance About Taxes, and Everything Else, Becoming An Even Bigger Threat, The Dangers of Ignorance, Present and Eternal, Defeating Ignorance, and Not Just in the Tax World, and Tax Ignorance or Tax Deception?.

As reported a few days ago by numerous sources, including this report, White House press secretary Sarah Sanders had this to say about the prospect of Congress reviewing the President’s tax returns:

I don't think Congress, particularly not this group of congressmen and women, are smart enough to look through the thousands of pages that I would assume that President Trump's taxes will be. My guess is most of them don't do their own taxes, and I certainly don't trust them to look through the decades of success that the President has and determine anything,

My reaction was not one of surprise, because this isn’t the first time that nonsense has emerged from the mouth of Sarah Sanders. I almost laughed. How could someone in a position of serious responsibility be so ignorant? Is it that difficult to learn the facts, to brush up on a topic before opening one’s mouth? Apparently, judging from what I read and hear, too many people indeed find it difficult to engage their brain before opening their mouth.

Here are some pieces of information that Sarah Sanders apparently does not know, but should have known. Of course, it is possible that she knows these things but chose to engage in deception, hiding the truth from the millions of listeners who give cult-like attention to what she represents.

1. As noted in his biography, Representative Brad Sherman “is a Tax Law Specialist and a CPA.”

2. As noted in his biography, Representative Tom Rice is a tax attorney and a CPA, has practiced tax law, and is certified as a specialist in tax law, estate planning, and probate law.

3. As noted in his biography, Representative Tom Suozzi is both a lawyer and a CPA.

4. As noted in his biography, Representative Brian Fitzpatrick is both a lawyer and a CPA.

5. As noted in his biography, Representative Collin Peterson is a CPA.

6. As noted in his biography, Senator Mike Enzi has an accounting degree and has worked with tax issues both in the private sector and in government.

7. As noted in his biography, Senator Ron Johnson has an accounting degree, has worked as an accountant, and has been enrolled in an MBA program.

8. As noted in his biography, Representative K. Michael Conaway is a CPA.

9. As noted in his biography, Representative Bill Flores is a CPA.

10. Members of Congress have at their disposal the staff of the Joint Committee on Taxation, who are tax experts and charged with helping members of Congress understand tax issues, including the review of tax returns.

There is no question that at least some members of Congress can work through a tax return and understand what has and has not been reported correctly. For example, Representative Brad Sherman has “audited large businesses and governmental entities, provided tax law counsel on multi-million dollar transactions, advised entrepreneurs and small businesses on tax and investment issues, and helped represent the Government of the Philippines under President Aquino in a successful effort to seize assets of deposed President Marcos. Sherman was also an instructor at Harvard Law School’s International Tax Program.” Surely he would not be stumped by Trump’s tax returns.

What is troubling isn’t just the absurdity of what Sanders said, but the millions of Americans who are so bereft of knowledge and so unwilling to do independent research that they believe the nonsense that is tossed about by those who apparently dread the thought of the President’s tax returns from being seen by the Congress. As I have written more than once, ignorance, coupled with reluctance to seek education and to undertake research, has become an epidemic that poses a threat to the survival of democracy, and perhaps even the survival of the species, considering what ignorance has already destroyed. It has infected the highest level of government in the United States. Though the widespread existence of ignorance disturbs some people, it unfortunately doesn’t disturb enough people. The institutionalization of ignorance nurtures ignorance of ignorance and ignorance of the dangers of ignorance. Would that an anti-ignorance campaign could sweep this nation with the energy and intensity of campaigns such as the anti-tax movement and the anti-vaccination movement.

Paying the Price for Anti-Tax Damage

My reaction to the anti-tax pledge signed, willingly or under “pressure” by so many politicians, has always been one of disappointment. Not only is opposition to taxes as a general proposition unwise and exceedingly imprecise, it also imposes a more costly outcome on Americans. Worse, amounts called “taxes” but that are user fees are caught up in the anti-tax hysteria gripping those suffering from money addiction and fear of starving on seven and eight digit incomes.

Consider user fees imposed to keep the nation’s infrastructure in safe, efficient, and sensible shape. For decades, the anti-tax crowd has stood in the way of increases in the federal gasoline tax and in fuel taxes in many states. Even increases designed to keep pace with inflation were blocked. The outcome was predictable, unsurprising, and dangerous. Highways, bridges, and tunnels began to fall apart. People died. People were injured. Vehicles were destroyed. Vehicles were damaged. The economic cost alone surpassed the dollars saved by the obstructionist policies of the anti-tax crowd.

In recent months, efforts to undo the damage caused by the anti-tax crowd are taking hold or at least are being seriously considered. I’ve reported on some of these attempts in When Partisan Nonsense Muddles the Tax Debate (Michigan), Revenue Problems With A User Fee Solution Crying for Attention (federal and Pennsylvania), and Plans for Mileage-Based Road Fees Continue to Grow. (Virginia) Of course, the anti-tax crew has risen up in opposition, as I described in Will Private Ownership of Public Necessities Work?, though they seem less interested in capping what people will end up paying than in making certain that what people pay will end up in the pockets of their privatization sponsors.

In a recent story, David Eggert took note of an interesting phenomenon. Republican-controlled state legislatures are not only considering but also enacting increases in highway and fuel taxes. In Ohio, Alabama, and Arkansas, Republican governors have signed legislation increasing fuel taxes. He also mentions the legislation working its way through the Michigan legislature, as I described in = When Partisan Nonsense Muddles the Tax Debate.

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.

Some might ask what is the complaint of those who were willing to pay and are now paying the price. The answer is that the price being paid now, in the form of fuel tax increases along with hundreds of millions paid for vehicle repairs and personal injuries, is much more than would have been paid had the necessary tax increases been imposed and paid over the years.

Once again, another tax policy theory of the oligarchy has failed. Another of their theories has been exposed for what it is, a part of a larger plan to pull wealth from the 99 percent to the one percent. The goal of teasing Americans with the illogical promise of no tax increases coupled with no decreases in services has been to find excuses to impose privatization schemes that end up costing drivers even more, in an environment free from voter control and private sector accountability.

Perhaps some Republicans, at least, are beginning to realize they were sold a pig in a poke and are waking up to the practical reality of what has been happening. Perhaps they simply understand that unhappy motorists vote, and they risk losing those votes if they continue to stick with policies that harm motorists and everyone else who depends on the national economy.

I wonder when the rest of the anti-tax crowd will wake up. Perhaps they are aware that more and more Americans are emerging from the dream of cost-free lower taxes because it has turned into a national nightmare.

Escaping Taxes By Paying Even Higher Private Sector Charges

It’s a good day to talk about taxes. No one likes taxes. But like colonoscopies, which also are disliked by everyone, taxes are a necessity. Unpleasant, yet essential. So it’s disappointing when anti-tax groups propose anti-tax proposals that are far worse than tax increases. Yes, colonoscopies also can be avoided. The price for doing so can be quite high.

This time, it’s Americans for Prosperity (AFP) that offers a nice-sounding A Road Forward: Enhancing America’s Infrastructure Without Raising Taxes. How does AFP think this can be done?

First, AFP wants to end the “spending of gas tax revenues on non-highway projects.” Generally, I agree, though that statement is too broad. As I wrote in Will Private Ownership of Public Necessities Work?, “If the funds are being used, for example, to fund public transportation in order to reduce stress on roads and bridges and reduce the cost of maintenance and repairs, there isn’t anything wrong with that use of the funds. On the other hand, if the gasoline tax revenues are being used to finance sports arenas, libraries, or ski resorts, the diversion is very wrong.”

Second, AFP advocates “unleashing private investment in infrastructure assets.” This, of course, reveals what AFP and its allies want to do. They want to take infrastructure out of public and voter control and put it in the hands of corporations, hedge funds, and private equity firms that are beyond the reach of the voting booth and free to handle highways the way pharmaceutical firms handle medications. In other words, more dollars for the oligarchs, coming out of the pockets of the peasants. It’s mind boggling that those who oppose taxes because taxes shift money from people’s pockets to government have no qualms about money shifting into the coffers of the wealthy. As I also wrote in Will Private Ownership of Public Necessities Work?:

[P]rivatization does not work, and these private enterprises have a goal, maximization of the bottom line at all costs, that is inconsistent with the goal of maintaining and improving the public welfare. Why privatization does not work is something I discussed in Are Private Tolls More Efficient Than Public Tolls?, When Privatization Fails: Yet Another Example, How Privatization Works: It Fails the Taxpayers and Benefits the Private Sector, Privatization is Not the Answer to Toll Bridge Problems, and When Potholes Meet Privatization. As I noted in So Guess Who Pays for the Senate’s Tax Cuts for Corporations and Wealthy Americans?, the anti-tax/privatization movement is part of a “plan to eliminate or privatize Medicare, Social Security, national defense, and everything else so that eventually the oligarchy owns everything.”

Third, AFP advocates “returning power and responsibility to the states wherever possible.” Though states should have priority in determining transportation infrastructure issues that are truly local in nature, the national nature of present-day society and the economy requires overarching federal oversight and regulation of many transportation infrastructure issues. Bridges must meet national standards and not the “oh, let’s do the cheap thing and increase profits” practices of some shady local outfits backed by local politicos. Safety features, such as lane widths, entrance and exit ramps on interstate highways, signage, and similar matters cannot be left to the vagaries of state legislative decisions that cause driver confusion and endanger lives.

Fourth, AFP suggests “overhauling the regulatory and permitting system to improve outcomes and efficiency.” This is nothing more than a plea for letting profits override safety, environmental, labor, and other protections that history tells us would not exist in many states had federal legislation and regulation not put an end to the rampant disregard too many states have shown for issues of vital importance to all Americans. There is more to life than maximizing profits.

Fifth, AFP advocates “eliminating costly and unfair labor restrictions.” This is easy to translate. It’s the post-modern business practice of cutting wages in order to maximize profits. To have well-built infrastructure, one needs highly skilled workers. Highly skilled workers don’t come, and ought not to come, cheap.

Perhaps it’s time to remind the people who want to avoid taxes that the price of avoiding taxes is even higher than the taxes that are escaped. For example, in When Potholes Meet Privatization, I explained:

My use of potholes as the poster child for what is wrong with the public fiscal policy perspectives advanced by the anti-government, anti-tax crowd caught the attention of a long-time reader, who shared with me three reports. * * *

The first report explained that potholes cause far more damage than things I had previously mentioned. I had focused on damaged front-end alignments, wrecked tires, and pothole-triggered accidents causing death, injuries, and property damage. The first report adds to the list things such as back injuries caused by hitting potholes, swerving to get around potholes, and slamming on the brakes to avoid potholes. The list of complications reads like a medical school text, but it is unimaginable that anyone would be pleased if they suffered prolapsed inter-vertebral disc, whiplash, or vertebral compression fractures after encountering a pothole. Although some people are more at risk, no one is safe. * * * As I explained in Liquid Fuels Tax Increases on the Table, You Get What You Vote For, Zap the Tax Zappers, Potholes: Poster Children for Why Tax Increases Save Money, When Tax and User Fee Increases are Cheaper, and Yet Another Reason Taxes and User Fee Increases Are Cheaper, it is far better to pay taxes and user fees than to be saddled with the much higher cost of lost lives, crippling injuries, and property damage.

The third report corroborated the foolishness of putting pothole repair or any other public service into the hands of those who seek nothing but profits, particularly at others’ expense. In Are Private Tolls More Efficient Than Public Tolls?, When Privatization Fails: Yet Another Example, How Privatization Works: It Fails the Taxpayers and Benefits the Private Sector, and Privatization is Not the Answer to Toll Bridge Problems, I have explained why privatization benefits a select few at the expense of the many.

According to the third report, the town of North Bergen, New Jersey, using municipal employees and equipment, repaired 700 potholes at a cost $50,000 less than what it would have cost using private contractors. The cost to taxpayers of keeping the work in-house was approximately $1,000 per day. Private contractors would have charged the town $3,000 per day. That $2,000 daily difference represents the profits sought by the private sector, a factor that does not exist when public tasks are done publicly. As for the claims by privatization advocates that the private sector is more efficient, there is nothing to indicate that the private contractors would have generated at least a three-fold increase in the number of potholes repaired each day.

From every angle, potholes teach us why taxation is not evil and why privatization of public responsibilities isn’t the panacea its advocates claim that it is. Fortunately, there seems to be a slowly growing understanding among Americans that the smooth ride promised for several decades by the anti-tax, anti-government lobby is, in fact, quite a bumpy and dangerous journey. It’s time to hit the brakes on that failed philosophy before even more damage is done.

Thought the AFP proposal contains a few helpful suggestions, such as eliminating the use of fuel tax revenues for unrelated projects, all in all it is yet another plea for shifting control of society into the hands of the wealthy and the oligarchs. That not only is unnecessary, it is wrong.

So what is the answer? I provided it in Will Private Ownership of Public Necessities Work?:

As for the highway, bridge, and tunnel funding challenge, there is a twenty-first century solution. I have explained, defended, and advocated for the mileage-based road fees for many years, in 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?, and Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign. When a reader asked how my support for the mileage-based road fee fit with my preference for a progressive income tax, I answered that question in Is a User-Fee-Based System Incompatible With Progressive Income Taxation?

C’mon, Americans, figure out that it is better to pay an additional $150 to $250 more per year than to run the 50 to 80 percent risk of paying $800, $1,500, or even $3,000 in vehicle repairs or thousands of dollars in uncompensated medical bills because of inferior transportation infrastructure. Think of the increased user fee, which is what a fuel tax is, not as a tax but as insurance, insurance provided by an organization within the control of voters and not behind a wall of corporate, private equity, and hedge funds obstruction.

Plans for Mileage-Based Road Fees Continue to Grow

For almost 15 years, I have explained, defended, and advocated for the mileage-based road fees for many years, in 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?, Does the “No New Taxes” Crowd Think Tax-Financed Public Goods Are Free?, 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?, and Revenue Problems With A User Fee Solution Crying for Attention.

Now comes news that Virginia is ready to implement a pilot program to test the mileage-based road fee. It’s not the first state to do so. When Oregon operated a test program, I wrote about it in Progress on the Mileage-Based Road Fee Front?. Virginia’s entry into the testing process is part of a wider effort by the I-95 Corridor Coalition. I wrote about the Coalition’s efforts in Does the “No New Taxes” Crowd Think Tax-Financed Public Goods Are Free?.

In some ways, the testing can be fun for the drivers. Described as “theoretical,” the testing tells drivers what they would have been charged under a mileage-based road fee system, but it doesn’t charge them. The system sends what is described as a “faux invoice.” It permits the testing authorities to make better revenue estimates, to evaluate how to construct the system to deal with drivers who cross lines between participating and non-participating states, to examine the impact on urban and rural drivers, and to design interfaces between existing toll systems and a mileage-based road fee system. The testing will also let drivers who care to get into the arithmetic weeds to compare the theoretical charges with what they are currently paying in gasoline taxes.

The Coalition intends to recruit more drivers, particularly in Delaware and Pennsylvania. I volunteer! I’ll let you know if they let me participate.

Time for a Salt Tax to Replace a Soda Tax?

One of my several criticisms of the soda tax is that it singles out certain liquids that contain sugar, and ignores other sugary substances. I have been writing about the flaws of the soda tax for more than a decade, beginning with What Sort of Tax?, and continuing with 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, Was the Philadelphia Soda Tax the Product of Revenge?, Did a Revenge Mistake Alter Tax History?, What’s More Effective? Taxing and Restricting Soda or Educating People About Healthy Lifestyles?, and If Sugar Is Bad And Is Going To Be Taxed, Tax Everything That Contains Sugar.

Another, related, concern that I have about the soda tax is that it is premised on the claim that it is designed to improve people’s health, yet it is not applied to any food or beverage that is unhealthy other than sugar. So is sugar the prime cause of bad health? According to a recent study, reported in this article, the answer is no.

According to the study, the risk factor responsible for more deaths than any other risk factor is poor diet, and not smoking or high blood pressure. Yet poor diet isn’t so much the intake of sugar, red meat, and other unhealthy foods, but the combination of too much salt intake and insufficient amounts of whole grain, fruits, nuts, and seeds in diets. Examining 15 dietary risk factors, the study determined that in the five most populous countries, high salt intake was the most culpable in two of the countries, and insufficient intake of whole grains was insufficient in the other three countries. Where did high intake of sweetened beverages come in? Eighth in Brazil, eleventh in the United States, and thirteenth in China, India, and Indonesia. The only two factors in those three countries that contributed less to poor health, and premature death and disability, were high intakes of red meat and processed meat. In the United States, the only four factors contributing less to poor health, and premature death and disability, were insufficient intakes of calcium, milk, and polyunsaturated fatty acids, and too high of an intake of red meat.

So, as bad as sugar is for one’s health, there are other substances that play a bigger role in contributing to poor health. If the goal of the soda tax advocates truly is promoting health, and not just revenue raising, then the logical approach would be to tax the substances that contribute to poor health. What would make much more sense is a tax that applied not only to all items containing sugar, and not just liquids containing sugar, but also to red meat, processed meat, and items containing salt, trans fat, or both. And one of the places that at least most of the revenue should be directed would be credits for purchasing, or grants to reduce the prices of, whole grains, fruit, nuts, seeds, vegetables, legumes, milk, and items containing omega-3, fiber, polyunsaturated fatty acids, and calcium. This approach would permit a much lower tax rate, to the point where its application to sugary beverages would not raise such an outcry from some of those who oppose the soda tax.

Whether such a tax makes sense is a different question, and one that ought to be addressed before the issue of a tax’s scope is considered. Should a government use its taxing power to affect what people eat? Some would say, no, there’s no need for a nanny state. Others would point out that when people eat unhealthily, they put at risk not only themselves, but those who depend on them for support that ends when the unhealthy person dies or becomes unable to work, on the emergency services facilities and personnel who must respond to their crises, on the governments that must pay for the costs imposed on society by increases in unhealthy living habits, and on the health care system. If government takes no role in dealing with what people eat and drink, even aside from regulation of food growers, processors, and manufacturers and restrictions on driving under the influence, then perhaps it ought take no role in any other aspect of the consequences of eating and drinking. Of course, that outcome would eventually destroy society. When historians and others compare the decline of the Roman Empire with what is perceived as the decline of the United States, does societal health, aside from the lead poisoning theory, get much attention? It’s not as glamorous as the other factors, but perhaps it can be instructive.

And before discarding the notion of a tax on salt, consider this lead from the United Kingdom Salt Association: “Salt was frequently a source of taxation in ancient times and historically has probably been the most taxed commodity.” Salt taxes have also sparked protests, violence, and war. But so, too, has every other sort of tax. If compelled to choose between a soda tax and a salt tax, which would you choose?

Tax Ignorance Can Create Scam Victims

In Reaching New Lows With Tax Ignorance. I wrote “Ignorance has become an epidemic.” I think it poses a threat to the survival of democracy, and perhaps even the survival of the species, considering what ignorance has already destroyed. I have written about the horrible consequences of ignorance in numerous posts, so many that the following list is probably incomplete. I have focused not only on tax ignorance but ignorance generally in posts such as Tax Ignorance, Is Tax Ignorance Contagious?, Fighting Tax Ignorance, Why the Nation Needs Tax Education, Tax Ignorance: Legislators and Lobbyists, Tax Education is Not Just For Tax Professionals, The Consequences of Tax Education Deficiency, The Value of Tax Education, More Tax Ignorance, With a Gift, Tax Ignorance of the Historical Kind, A Peek at the Production of Tax Ignorance, When Tax Ignorance Meets Political Ignorance, Tax Ignorance and Its Siblings, Looking Again at Tax and Political Ignorance, Tax Ignorance As Persistent as Death and Taxes, Is All Tax Ignorance Avoidable?, Tax Ignorance in the Comics, Tax Meets Constitutional Law Ignorance, Ignorance in the Face of Facts, Ignorance of Any Kind, Aside from Tax, Reaching New Lows With Tax Ignorance, Rampant Ignorance About Taxes, and Everything Else, Becoming An Even Bigger Threat, The Dangers of Ignorance, Present and Eternal, and Defeating Ignorance, and Not Just in the Tax World.

Recently, reader Morris directed my attention to the results of an H&R Block survey on tax withholding. I have addressed withholding in posts such as It’s Time to Adjust Withholding, But Can You Do the Calculations?, Getting More Specific with That Withholding Question, and The Realities of Income Tax Withholding. Recently, tax withholding has received coverage in mainstream media, beyond the narrow reach of tax publications, because the impact of changes in the IRS-published withholding tables has caused anguish for taxpayers who discovered that their expected refunds disappeared or were diminished or that they owed additional tax.

According to the survey, 46 percent of those surveyed felt ready to update their withholding Form W-4 without help. So it’s no surprise that only 19 percent updated their withholding after the December 2017 tax legislation was enacted. According to the survey, and 45 percent were not confident when it came to determining W-4 withholding allowances. Though completed W-4 forms must be filed with the employer, only 42 percent knew that, whereas 27 percent thought it goes to the IRS, 7 percent thought it goes to their financial advisor, and 6 percent thought it went to the Social Security Administration. Only 47 percent realized that a Form W-4 can be updated whenever they want to do so.

Of those surveyed, 40 percent claimed that they had updated their W-2 forms, which is impossible for employees to do. For unknown reasons, 17 percent “updated their insurance documents.” Shockingly, only 48 percent knew that “increasing withholding would result in a larger refund,” and only 47 percent “knew decreasing withholding would result in larger paychecks.”

Is it any wonder that with so many people ignorant of how withholding works, or how to make adjustments to it, that the Congress and Administration played the situation by changing withholding tables without ensuring that taxpayers would understand the consequences? Granted, the IRS several times reminded taxpayers to check withholding, but when at least half of taxpayers don’t know how to do so the field is ripe for the manipulation that caused people to think that tax breaks for the non-wealthy were more generous than they actually were. It is important to remember that most scams rely on people’s ignorance, such as not knowing that the IRS does not call people on the phone asking them to purchase debit cards.

Why aren’t these things taught in high school? Isn’t high school a good place for people to learn the things everyone needs to know no matter what career path they choose? Would it not make sense for employers to provide a short online tutorial for employees that explain how the Form W-4 should be completed, just as they provide online training for information security? The most important question, though, is why do so many Americans fall for the con games, and why do almost all Americans tolerate the scamming and even make excuses for some of those who scam and con on a grand scale.