Are Tax Professionals Sufficiently Social To Lower Their Dementia Risk?

Fourteen years ago, in Music and the Tax Brain, I shared some thoughts about the connection between learning and performing music and learning and performing tax. I use the word “performing” rather loosely when referring to tax, but I include everything from preparing tax returns to teaching tax law, from analyzing the tax consequences of a planned transaction to analyzing facts relevant to tax policy decisions. In that commentary, I wrote:

Monday’s Philadelphia Inquirer brought a small item that described the results of research exploring the connection between childhood music lessons and long-term brain health. The headline caught my eye because I could relate to it. When I saw “Those clarinet lessons helped you tune up for your later years,” I had no practical choice but to keep reading. Why? When I was a child, my father taught me to play the clarinet. Or perhaps I should say that he tried to teach me. I made progress, but certainly not to the level that would open the doors to any concert hall. Part of my failure to progress competently was my resistance to what I perceived as an irrelevant instrument in the days when playing guitar – especially electric guitar – seemed to be the gateway to success in a variety of venues. My father would have nothing of rock music. * * * I, however, long ago abandoned the clarinet, though I still own several. I did not abandon my love of music, and dabble with keyboards, though quite inadequately.

So this Philadelphia Inquirer story suggested that I might owe my father an apology. According to the report, researchers examined 70 adults with similar levels of education and fitness, and who had no symptoms of Alzheimer’s disease. The adults were give a battery of cognitive tests. Who scored the best? Those with ten or more years of musical training. Who scored the lowest? Those with no musical training. Those running the study want to do more research, to determine if the cognitive performance enhancement is caused by the music lessons or by some other factor.

The lead research tossed out an idea that I found quite plausible. “Since studying an instrument requires years of practice and learning, it may create alternate connections in the brain that could compensate for cognitive declines as we get older.” If that indeed is the case, then would not the same cognitive achievement be attained by other endeavors requiring years of practice and learning? Certainly more research is in order.

So where does tax fit in? Two questions pop into my brain. Do years of practice and learning involving tax have the same effect as years of practice and learning involving music? Do years of practice and learning involving music make a person more proficient in learning tax? When I was a student in the basic federal income tax course, the professor often referred to “music majors” as a stereotype of students he expected to struggle in the course. Yet, my years of teaching have taught me that music majors do well in tax law. Though I’ve not conducted any empirical or laboratory research, I have convinced myself that the reason rests on the number of shared characteristics between music and tax law. Both require attention to detail. Both require careful reading. Both emphasize the need to recognize and apply patterns and sequences. Both are highly structured. Both are, to some extent, mathematical. Both involve interpretation. Both require precision. Both require the learning of a new language. The only difference between music and tax law that I could find has nothing to do with the learning process. Music makes almost everyone happy. That cannot be said about tax law.

This isn’t my first foray into the connections between tax and cerebral characteristics. Not long ago, in The Tax Brain, I asked:

Is there such a thing as a tax brain? Is there something to be said for the fact that most tax practitioners are proficient in semantic language processing and arithmetic calculation? Are there areas of a tax person’s brain that are larger or smaller than the typical brain, or that show higher or lower levels of activity? Are the brains of tax professionals awash with dopamine or with noradrenaline?

Now, to that list of questions, I add, “Do musicians and tax professionals find themselves in the same part of the intellectual family tree?” Perhaps a more important question is this: “Do tax professionals face a lower risk of cognitive decline as they get older?” There are plenty of anecdotes that I could share. What I prefer to see is an appropriately conducted study.

Note that I suggested both “Certainly more research is in order,” and “What I prefer to see is an appropriately conducted study.”

Today Reader Morris referred me to that fourteen-year-old commentary and directed my attention to two studies. The first, Education, occupational complexity, and incident dementia: A COSMIC collaborative cohort study, concludes that “The meta-analytic results indicated that both education and occupational complexity were independently associated with increased dementia-free survival time, . . .” The study did not dig to the granular level of analyzing the various complex occupations to determine whether tax professional and music professionals have different outcomes with respect to dementia-free survival time, let alone the many other complex professions in which people engage. Nor did the study explore – as it was not designed to focus on – the physical and neurological impact on the brain of engaging in music or tax for long periods of time at a more than superficial level.

The second study, described in this report, looked at the connection between occupations and Alzheimer’s disease (AD). In short, “Researchers have found that the risk of death due to AD is markedly lower in taxi and ambulance drivers compared with hundreds of other occupations. And the reason could be that these drivers develop structural changes in their brains as they work.” This difference did not show up when testing for dementia other than AD. The study suggested that perhaps the reason for this outcome is that ambulance and taxi drivers need to use “real-time spatial and navigational skills” in their jobs. Yet persons in other occupations requiring these skills, such as aircraft pilots and ship captains, not only did not experience the same low incidence of AD but “had some of the highest rates of death due to AD.” Bus drivers also did not benefit but fell within the average rate of death due to AD.

The study questions, “And why aren't bus drivers, pilots, and ship captains similarly protected? The study authors suggest these other jobs involve predetermined routes with less real-time navigational demands. Thus, they may not change the hippocampus as much.” I think there is something else involved. I see a difference between ambulance and taxi drivers on the one hand and bus drivers, aircraft pilots, and ship captains on the other, and I wonder if it matters. The former interact with their passengers (consider that ambulance drivers also function as EMTs) whereas the latter don’t interact or if they do, they interact infrequently and with less depth. Other studies, such as New Studies Suggest Social Isolation Is a Risk Factor for Dementia in Older Adults, Point to Ways to Reduce Risk, and Being Social May Delay Dementia Onset by Five Years, suggest that continued social engagement tends to lower dementia risk whereas it increases in older people who are isolated and have little or no social interaction.

And that brings me back to tax and music. Musicians engage in social contact, not only with other members of a chorus, orchestra, or band, but also with audiences, fans, promoters, agents, stage hands, and the entire array of people who interact with the performers. What about tax professionals? Despite the perception that “tax geeks” sit alone immersed in reading the Internal Revenue Code as a novel (though I did do that, years ago), tax professionals interact with clients, with co-workers, with other professionals, with federal, state, and local tax collectors and auditors, with employees, and sometimes with judges. Is this social interaction of sufficient amount? Can it be measured and compared to the social interaction of musicians and persons in other occupations? Perhaps these questions will be the subject of future studies.

Who Should Teach Personal Finance?

According to a recent survey of college graduates by WalletHub, “2 in 3 students think their school is not doing enough to educate them about personal finance.” My first thought was a simple one. Why is it the responsibility of colleges to prepare students to handle personal finance? Answering that question requires an examination of the role of a college education and the responsibilities of K-12 educational systems.

There are many different descriptions of what college education should provide. These descriptions are not necessarily mutually exclusive. Yes, there are college programs and majors that prepare students for specific professions and jobs that cannot be performed competently with only a K-12 education, just as trade schools prepare students for careers and jobs that require more than what is learned in K-12 schools. Yes, college gives students opportunities to grow, to learn more about a wider world than what they saw while in K-12 systems. Yes, college gives students opportunities for self-discovery, for emotional and educational growth, and to develop independence, but those aspects of college can also be experienced in other life paths. Some claim that college teaches students how to think critically and solve problems, but college isn’t the only place that these skills can be learned.

What college should not be teaching, other than in a remedial context when dealing with students whose K-12 educations have been deficient, are skills and knowledge that everyone needs. Why? Those skills and knowledge need to be taught before students graduate from K-12 institutions because there is no guarantee that the life paths they choose will take them to a place where those skills and knowledge can be acquired.

Everyone needs to learn how to think critically and to solve problems. Everyone needs to learn personal finance. These are not life skills that are needed only by people who attend college. That is why these skills need to be addressed in the K-12 system. Of course, they’re not the only skills that need to be developed in the K-12 system. Though K-12 students are instructed in reading, writing, and arithmetic, and many are exposed to courses in science, foreign languages, and history, there are deficiencies. I have written many times about the need for K-12 students to learn basic principles of taxation, to study civics, to learn geography, to learn world history, and to learn how to learn. So it should be no surprise that my answer to the question heading this commentary is simple. Somewhere in the K-12 journey students need to learn about personal finance.

Though I advocate for a mandatory personal finance course (and perhaps an elective advanced personal finance course) in K-12 education, I also propose that parents not abandon the teaching of personal finance to the school system. Though some parents themselves are far from proficient when it comes to their own finances, many parents have learned, somehow, how to handle their personal finances and do so competently. There are ways of teaching children at home about budgeting, saving, taxes, interest rates, and investments without disclosing to the children details that the parents do not want to share with their children. And it’s not just personal finance that needs to be explained at home. It’s just one of many skills and pieces of knowledge that too often don’t get transmitted to youngsters at home for a variety of reasons. Though the K-12 system can provide this education in a professional manner, experiences at home can reinforce what the schools are teaching.

Though I may be wrong, I interpret the result of the survey as an acknowledgement by way too many college students that they are lacking necessary personal finance skills. Is it as many as 2 in 3? Probably not, because there surely are college students who learned these skills through other means but who are aware that their college is not teaching these skills. Perhaps they are thinking that their colleges should be teaching these skills, perhaps because they think that is where they should be taught. Or perhaps they are aware of the deficiencies in their K-12 education and think that colleges bear the responsibility for filling in the gaps left by the K-12 experience. Remedial education to fill in gaps in prior educational systems isn’t limited to undergraduate programs filling in what’s missing in their incoming students. Graduate and post-graduate programs also face the need, and may step up to fill it, when they assess the skills and knowledge of their students.

Trying to live life without personal finance skills is like trying to eat soup with a fork. It might be possible, but it’s going to take a long time, and it’s going to be messy. It’s easier to find a spoon, just as life is easier, much easier, when lived with the ability to handle one’s personal finances.

For Tax Law Issues (and Almost Everything Else), Do the Research and Communicate with an Expert

It’s been several years since I last wrote about the “size of Internal Revenue Code” – “size of tax law” debate. It gets to the point when I decide that the marginal benefit of providing the same explanation diminishes so much that those who understand have learned, those who cannot or do not want to understand will persist in their ignorance, and those who benefit of think they will benefit from publishing untruths aren’t going to be persuaded to take the side of integrity.

I have been addressing this issue almost as long as I’ve been writing this blog. My attempts to educate people began with Bush Pages Through the Tax Code?, and continued through Anyone Want to Count the Words in the Internal Revenue Code?, Tax Commercial’s False Facts Perpetuates Falsehood, How Tax Falsehoods Get Fertilized, How Difficult Is It to Count Tax Words, A Slight Improvement in the Code Length Articulation Problem, and Tax Ignorance Gone Viral, Weighing the Size of the Internal Revenue Code, Reader Weighs In on Weighing the Code, Code-Size Ignorance Knows No Boundaries, Tax Myths: Part XII: The Internal Revenue Code Fills 70,000 Pages, Not a Surprise: Tax Ignorance Afflicts Presidential Candidates and CNN, The Infection of Ignorance Becomes a Pandemic, Getting Tax Facts Correct: Is It Really That Difficult?, Reaching New Lows With Tax Ignorance, Incorrectly Breaking Down the Internal Revenue Code, Is Tax Ignorance Eternal?, So How Long Does It Take to Read the Internal Revenue Code?, Much More Than the Internal Revenue Code, and A Tax Expert Is Just a Phone Call or Email Away.

Yet sometimes it is valuable to revisit a topic that has been dormant for a while but has resurfaced. Why? If the resurgence continues to parrot the erroneous information, people who are new to the debate can be easily misled. This is especially so if they don’t take the time to do some research and evaluate what they are reading or hearing rather than simply taking everything they hear or read at face value. Sadly, that’s a pattern of behavior that has an impact far beyond the question of the size of the Internal Revenue Code.

Fortunately, there are people who know the realities of Internal Revenue Code size and who know it is a topic I’ve often addressed. Today a reader shared with me a link to an article on The Hill, in which Tobias Burns, writing about the current disputes and machinations about and at the IRS, claims, “The U.S. has one of the most complicated sets of tax laws in the world, spanning millions of words and tens of thousands of pages, excluding myriad pages of case law.” Had he done a bit of research he would have discovered that my last commentary on the topic also involved an article in The Hill written by Joseph Chamie. In A Tax Expert Is Just a Phone Call or Email Away, I criticized Chamie for writing, among other things, that “The tax code or Title 42 of laws that the IRS enforces involves no less than 2,600 pages or well over 1 million words.” Aside from noting his erroneous reference to “tax code or Title 42 of laws,” which was subsequently fixed, I also pointed out that the assertions about the number of pages and the number of words were wrong. At least Chamie provided the sources of his information, namely Vox and the Tax Foundation, though both sources were similarly at best exaggerated and at worst deliberately misleading. The Burns article does not provide any citations or other indications of where he obtained his information. Needless to say, what he writes in terms of pages and words is wrong.

As the title of my previous post, A Tax Expert Is Just a Phone Call or Email Away, it’s rather easy to get to the reality of Internal Revenue Code size. As I wrote in that previous post, “There are tax professionals who could have steered him to an article such as Andrew Grossman’s 2014 explanation in Slate, or goodness, to my ongoing thread addressing the issue.” Failure to do research and to check in with experts, I continued, “increases the circulation of ambiguous, inarticulate, and misleading information about tax law. I wish he had called or emailed someone who understands the scope of the Internal Revenue Code and tax law.” The same can be said about the need for research and checking in with experts in almost every other area of life.

Deciding Who Pays Taxes and If Businesses Should Pay Taxes

In You Pay ALL the Taxes, Tom Giovanetti of the Institute for Policy Innovation explains that “only people pay taxes.” He argues that in addition to taxes paid directly by individuals to taxing jurisdiction, individuals ultimately pay the taxes submitted by corporations and other entities because ultimately those taxes are passed on to the entity’s customers, shareholders, and employees. He is correct. When a business must pay a tax, it must recoup what it paid. It can select among one or more of the three options Tom mentions. It can raise prices. It can absorb reduced profits, which ultimately causes the return to shareholders or owners (in terms of dividends or stock or ownership value). It can refrain from raising employee compensation or raise it by less than it would have increased it in the absence of the tax.

Tom suggests that “If, in an ideal world, we had a zero tax rate on business income, as a consumer you would pay lower prices, as an employee you would earn more, and as an investor you would enjoy higher returns. Sounds great, doesn’t it? Except you’d also be paying higher taxes on your higher income and higher investment returns.” That’s true. He then adds, “But there would still be a net gain because of economic efficiencies gained through reduced compliance costs.” It is on this point that I want to comment about the incidence of taxes if business were not taxed.

I can best illustrate my point by posing a simple hypothetical. Suppose a taxing jurisdiction raises its revenue through a real property tax (though admittedly that’s not the ideal form of revenue generation but it works for purposes of the illustration). The jurisdiction has a 1,000 adult taxpaying citizens and two businesses. The value of Business One’s real property is $15,000,000. The value of Business Two’s real property is $10,000,000. Each of half of the citizens own real property worth $100,000. Each of the other half owns real property worth $50,000. For simplicity sake, I will assume all citizens are unmarried. Likewise, I will assume that all of the businesses’ owners, customers, and employees are citizens of the jurisdiction.

The jurisdiction provides one service, which is fire protection and fire fighting. All other services are provided by the larger jurisdiction, such as a state or county, in which the illustrative jurisdiction is situated. The cost of this fire protection and fighting service is $3,000,000.

The first alternative is based on the premise that only individuals pay taxes. Thus, the $300,000 is imposed on the real-property-owning citizens as follows. There is $75,000,000 of real property owned by the citizens (500 citizens x $100,000 plus 500 citizens x $50,000 [$50,000,000 plus $25,000,000). To raise $3,000,000, the real property tax rate needs to be 4 percent. So each property owner with a property worth $100,000 pays $4,000 real property tax, and each property owner with a property worth $50,000 pays $2,000 real property tax.

The second alternative includes the two businesses in the computation. In this instance, the taxable real property value includes both the $75,000,000 of real property owned by the individual citizens and the $25,000,000 of real property owned by the two businesses, for a total of $100,000,000. Now the real property rate drops to 3 percent. So each property owner with a property worth $100,000 pays $3,000 real property tax, each property owner with a property worth $50,000 pays $1,5000 real property tax, Business One pays $450,000, and Business Two pays $300,000. The two businesses can pass the taxes on to their owners, customers, and employees.

Is there a difference in what is called the incidence of the tax? Yes. Consider citizen A and citizen B, each owning a $100,000 property. Citizen A buys twice as much product from the two businesses as does citizen B. Under the first alternative, the two citizens bear the same burden of the tax, but under the second alternative citizen A bears a higher burden; the exact difference depends on how much of the real property tax paid by the businesses is passed on to customers rather than owners or employees. Or consider citizen C and citizen D, each owning a $100,000 property. Citizen C is employed by one of the businesses. Citizen D is retired. Under the first alternative, the two citizens bear the same burden of the tax, but under the second alternative citizen C bears a higher burden; the exact difference depends on what citizen C’s employer decides to do with respect to employee compensation.

The point is that the service for which the jurisdiction charges a tax has value to the businesses that benefits customers, owners, and employees in a proportion that is different from the proportion of real property owned by individuals. The same point can be made for other types of taxes used by the jurisdiction to fund the fire department but the computations are much more complicated.

The underlying problem is that the jurisdiction chooses to fund the fire department through taxes. Would it not be much better to fund the fire department through user fees based on the value of the protected properties. Of course, user fees are passed along to customers, owners, and employees. Does that or should that raise the same concerns about taxes that are passed along? No. Businesses pay other costs, such as utilities, insurance, security, and similar services. The costs of those services are passed along to customers, owners, and employees. They are the ones who should bear the burden of those costs.

Though not everything that taxpayers receive in exchange for paying taxes can be converted into a user fee, if user fees are adopted for everything that can be financed by a user fee, then the amount of taxes paid by businesses that are passed along to customers, owners, and shareholders is reduced because businesses would be paying fewer taxes and more user fees.

What about people who cannot afford to pay user fees? Presumably those people also face challenges paying taxes. Dealing with that problem requires examining a wider set of policies than simply taxation. It requires analysis of compensation issues, minimum wage amounts, the allocation of health care costs, and poverty reduction efforts, which in turn involves analysis of education opportunities, identification, prevention, and cure of mental health problems, elimination of domestic violence, and crime deterrence.

Incidentally, I chose fire protection and fire fighting services for a reason. Some might argue that it’s not the best example because many jurisdictions rely on volunteers and voluntary contributions to fund raising campaigns. Those days are rapidly passing into history. There is a nationwide crisis, as the number of volunteers decrease significantly, because deaths and retirements exceed new additions. The costs of equipment and training continue to rise, so many jurisdictions are facing the prospect of needing to fund their fire departments. This provides an opportunity to consider enacting user fees rather than taxes.

When Facts Change, Thinking Should Change

Reader Morris asked me an important question. It is important because it provides an opportunity to explain how a change in facts can and should change thinking.

Reader Morris pointed to a commentary I wrote back in August of 2004. In Equitable Taxation, after explaining why user fees are more appropriate in some instances than the federal income tax, I noted, parenthetically, “(Yes, I know that privatization of many government functions makes sense, and would shift charges from a "user fee" to a mere "private sector price" but I don't want to stray into that discussion at this time.)” Morris then pointed to my commentary in December of 2023, Should (Will) Implementing the Mileage-Based Road Fee Cause Privatization of Highway Infrastructure?, in which I wrote, “What I do not support is the privatization of government functions,” citing multiple posts in which I explained my reasoning. Those posts reached back to 2010.

Reader Morris phrased his question as an observation: “It appears that your position on privatization of government services has changed from 2004 to 2023.” He is correct. It did.

In Should (Will) Implementing the Mileage-Based Road Fee Cause Privatization of Highway Infrastructure?, I explained:

There are several principal reasons that I oppose putting public functions into the hands of those who control the private sector.

First, public-private partnerships don’t work out well, [citing a number of my commentaries dating back to 2010]. These posts pointed out failures in places like San Diego, Orange County, and South Carolina. The failure list grows, and now includes arrangements that did not work for the Interstate 69 project in southern Indiana, and the Pocahontas Parkway in Virginia. From the searching that I undertook, it appears that the problem is a global one and not limited to the United States.

Second, when public functions are re-routed into the hands of private sector businesses, voters lose the ability to control, vote out, or do much of anything with respect to the private entities now running government functions. It is a regression from democracy to a blend of feudalism and authoritarianism.

Third, these arrangements contribute to the corruption of government. They are the product of legislative attempts to find funding without raising taxes while generating revenue for their private sector donors, with hopes that the outcry against tolls and similar charges will be directed against the private entity involved in the project. When things go wrong, legislators don’t react because they perceive themselves at risk of losing funding from the favored private entities and thus at risk of losing the next election, something on which they focus too much.

Aside from the long-term disadvantages of privatizing public functions, the arguments offered in support of that path are flawed. To argue that privatization is “a concept supported by numerous studies showcasing the efficiency and performance improvements possible through transparent and well-structured public-private partnerships,” totally ignores the repeated failures, perhaps because from the viewpoint of the companies and individuals collecting public funds not only find these partnerships to be a success for themselves but manage to persuade everyone else that the success of these private sector participants translates to success for everyone, which is the opposite of reality. The claim that “The private sector has a proven track record of driving innovation in transportation safety” is hilarious when one considers the track record of the private sector when it comes to safety. Aside from noting the Corvairs and Pintos of the world, it has been government that has compelled the implementation of safety features and insisted on recalls due to flawed manufacturing despite the sing-song of the anti-government crowd that chants “we don’t need no regulation.” Yes, you do.

The claim that “Extending this partnership to infrastructure allows for the implementation of cost-effective technologies, ultimately making our roads safer and more efficient” ignores the reality that even if the roads are made safer and more efficient, a questionable claim in and of itself, it makes voter control more difficult rather than more efficient, it funnels public money into the hands of private individuals and companies, and in the long run it increases the cost to the public of using highways, bridges, and tunnels to levels higher than they would be if there weren’t a need to generate profits for those private individuals and companies.

It is sad and alarming that, yet again, when a good idea in the public sector begins to gain traction, the wealthy who yearn for even more wealth, and their acolytes, turn their thoughts into how they can milk more money from the proposal. Enough with the outsourcing of government to privateers.

What changed my mind? Facts changed. The theory of privatization met the practical reality of greed, corruption, and incompetence.

What led me to think, back in 2004, that privatization could and would work? The few instances of privatization that I had observed had persuaded me that moving those government functions into the private sector worked, and supported the proposition that many more could similarly work out as well. Here is an example. In high school I worked at a service station, which, among other things, provided state vehicle inspections. The state required that vehicles meet specified safety requirements but let vehicle owners choose a private enterprise (mostly dealerships and service stations) to do the inspections. These enterprises were licensed and inspected by the state’s Department of Motor Vehicles. Vehicle owners had choice. Mechanics and service station operators had business opportunities, with the job creator being the state. Unhappy customers had recourse, with various avenues of recourse if they were dissatisfied with the service. During those years, a neighboring state had similar safety requirements (for all I know, they could have been identical), but required vehicle owners to visit a state owned and operated inspection facility where, as I was told and read, vehicle owners were served first-come, first-serve, without the opportunity to make appointments and thus sitting in lines for hours (all of that has since changed in that state). In that state, there wasn't the blend between government and private sector control that was found in the Pennsylvania system. Unfortunately, that blend isn’t found in the privatization proposals and projects popping up in the twenty-first century. When I explore the many failures of privatization projects, the lack of that blended control stands out.

It's a different situation when a private-public partnership arises from public involvement in what would otherwise be a private sector project. Those private-public partnerships don’t involve private sector takeovers of public functions. Of course, those sorts of partnerships are disliked by those who prefer the ones that not only reject government involvement in private projects but also want to push government out of public functions. So, something that is a private-public partnership is not necessarily deserving of criticism. It depends on which functions are being shifted.

As I re-read what I wrote in 2023, I recognized that it built on what I had written in those commentaries starting in 2010. I saw the blended public-private control of limited private sector involvement slowly shift to increasing amounts of private control. Worse, that private control did not sit in the hands of thousands of middle-class mechanics and service station operators but in the hands of the oligarchs. The more I re-read what I have written the more I realize that the signs were there, as long as a decade and a half ago, that left unchecked, as it has been, the trend would bring us to where we are now and worse, where we appear to be heading. So yes, when the facts changed, my thinking changed.

When Tax Advice on Facebook is Dangerous

It is well settled tax law that pets cannot be claimed as dependents for federal income tax purposes. One need only read Internal Revenue Code section 152 to understand that dependents must be humans. Similarly, the costs of caring for a pet, including veterinary visits, food, training, boarding, grooming, and supplies, are deductible only under very limited circumstances. The costs associated with a service animal or emotional support animal are deductible as medical expenses. The costs associated with an animal used in a trade or business, such as a horse used in a horse riding business or a guard dog, are deductible as trade or business expenses. The costs associated with fostering an animal are, under the right circumstances, deductible as charitable contributions. The costs of moving a pet incurred by certain members of the military under a narrow set of facts also are deductible. Fitting within one of these narrow sets of facts is critical to obtaining the deduction.

So it was rather surprising to see a facebook reel that states: "If you're an animal lover you're gonna wanna hear this in 2025 the IRS is allowing certain tax deductions for your pet so for example money you spend on boarding or grooming going to the vet food or transporation for your dog make sure you take advantage of these tax benefits in 2025." This advice is simply wrong. It fails to explain that the deductions are available only in situations that fit within the aforementioned limited circumstances.

Is it possible that the reel was cut short? I don't think so, because the ending of the message fits a typical closing without any indication that any clarification will follow.

Is it possible that the reel reflects the unfortunate cultural phenomenon of sound bites, tweets, and other unnecessarily shortened and oversimplified summaries? That certainly could be the case. Too often people mention a general rule as though it has no exceptions, or offer a conclusion without sharing the predicates.

What will happen to people who watch this reel and proceed to take deductions for their pets that are not allowable? If they are caught by the IRS or a state Revenue Department, they face not only a tax deficiency but also interest and penalties and in some instances even the risk of criminal prosecution. Unfortunately, with the anti-tax crowd ripping apart the IRS, the chances of being caught are very low, though the same cannot necessarily be said about state Revenue Departments.

It's not just tax advice that should not be taken as correct simply because it shows up on the internet. The same can be said of assertions, claims, advice, and explanations found on the internet with respect to every possible topic imaginable. There is no substitute for independent research, critical thinking, and reliance on vetted professionals in every instance where the question is of paramount importance.

Washington State Mileage-Based Road Fee Proposal Changes: Is It Better?

It’s time once again to visit the mileage-based road fee. I have written about it on numerous occasions, 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?, 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, How to Pay for Street Reconstruction, Stop the "Stop EV Freeloading Act" Because The Mileage-Based Road Fee Is a Much Better Way to Go, Why Is Road Repair and Maintenance Funding So Difficult for Public Officials to Figure Out?, Should (Will) Implementing the Mileage-Based Road Fee Cause Privatization of Highway Infrastructure?, The Freedom Caucus Doesn’t Understand that the Mileage-Based Road Fee is “PRO-Freedom,” Not the Opposite, A Mileage-Based Road Fee by Any Other Name?, and Does the Mileage-Based Road Fee Work for Local Road Maintenance?

Today reader Morris alerted me to a development in Washington state with respect to a proposed mileage-based road fee. According to this report, bills have been introduced in both the Washington Senate and the Washington House to impose a vehicle miles traveled tax, a different name for a mileage-based road fee, though using the word tax is disappointing because what is being considered is in most respects a user fee. Reader Morris directed my attention to two previous commentaries, both arising from reports he noticed and shared with me, dealing with similar proposals in Washington, Getting Technical With the Mileage-Based Road Fee and A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee.

Reader Morris asked me two questions. He asked, “Does the proposed legislation solve the problems mentioned in [those two commentaries]? He also asked, “What do you think about this proposed legislation?”

I answer the first question in two steps. First, in a href = https://mauledagain.blogspot.com/2020/02/#5924033084063958184>A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee I didn’t mention problems. I explained that the Washington State Transportation Commission had released a studying “the feasibility of transitioning from the gas tax to a road user assessment system of paying for transportation.” I noted that “It’s time to acknowledge that it’s time for change.” Second, it’s in Getting Technical With the Mileage-Based Road Fee that I criticized legislation that was at that time proposed in Washington. I criticized plans to use a portion of mileage-based road fees for purposes other than those stated in the Eighteenth Amendment to the Washington Constitution, which requires that all license fees, fuel excise taxes, and other highway revenue be used “exclusively for highway purposes.” I noted that:

The overriding issue is not one restricted to the use of revenues generated by a mileage-based road fee. It is an issue that affects every tax or user fee enacted by a legislature other than, perhaps, taxes destined for a “general fund.” To make certain that the revenues from a mileage-based road fee are not diverted as has happened with gasoline tax revenues and other user fee revenues, those drafting the implementing legislation must be certain to restrict the uses of those revenues. For Washington state, and other jurisdictions with similar restrictive language, the concern is that the 18th amendment does not apply to mileage-based road fees. That means an amendment to the amendment is necessary, though perhaps the same outcome could be accomplished by inserting expenditure restrictions into the enacting statute. I don’t know Washington constitutional law well enough to conclude what specifically would need to be done. As the writer of the News Tribune article put it, “State lawmakers, therefore, shouldn’t mess around with a mileage tax unless they have a parallel discussion about preserving the original intent of the gas tax.” I totally agree.

The most recent proposal attempts to circumvent the limitation in the Washington Constitution by adding a ten percent surcharge to generate funds for other purposes. It seems to me that the surcharge is nothing more than breaking the fee into two components, re-labeling the ten percent portion as something else, and then funneling monies paid by road users to other purposes. As I have pointed out many times, it’s one thing to impose taxes to generate monies for general funds, but it’s a very different, and improper, approach to charge people a user fee for something they are not using. Imagine setting up a municipal landfill and charging 10 cents for every pound of refuse deposited and another 15 cents per pound that is used to pay for snow removal. If snow removal is going to be funded by a separate fee it ought to be imposed on everyone who benefits from snow removal, which is a group much larger than those using the landfill. So, no, the proposed legislation does not solve the diverted funds problem.

To the second question, I reply that in general I support any steps to shift from fuel taxes to mileage-based road fees. If some changes are made, the proposed legislation is a good starting point. Some people are criticizing the proposed legislation as a violation of privacy because it requires reporting mileage to the state either by odometer readings or GPS tracking. Reporting odometer readings does not violate privacy. Many, perhaps all, states require those readings each time vehicle registration is renewed. They also require reporting of insurance coverage information, including the name of the insurance company and the policy number. It appears that what concerns people is the use of GPS tracking. I suppose the reason for including it in the legislation is a lack of confidence in self-reported odometer readings, though odometer readings are also taken when vehicles undergo state safety inspections and thus there is a check on misreported readings. GPS tracking would be an almost necessity if states limited the fee to miles driven on state roads and imposed the fee on out-of-state vehicles but that fine-tuning requires a national compact that isn’t yet close to fruition. To deal with privacy concerns, some states let private companies run the mileage-based road fee programs, but that doesn’t solve the privacy issue because it puts data in the hands of non-accountable private sector operators rather than in the hands of government personnel who ultimately are subject to accountability at the ballot box. The Washington proposal would permit law enforcement to access “personally identifying information reported” through court order, but it’s unclear what information would be available that isn’t already available, as even GPS information can be obtained by court order. So the surcharge needs to be jettisoned, and the collection and sharing of information needs to be redesigned so that abuses are foreclosed.

So again we wait to see what happens.

The Joys and Sorrows of Teaching

I have been a teacher for a very long time. I shared this story 16 years ago in How and Why I Became a Law School Professor. What I did not explore in that blog post was something that I did not, until now, feel compelled to add to the story.

Throughout my life I have known and spoken with many teachers. I have had discussions with those who taught me, friends and relatives who are or have been teachers, former students who are or have been teachers, and colleagues, neighbors, and others who are or have been teacehers. The are people who taught not only law school and undergraduate classes, but also K through 12 classes. When I heard their stories, I realized I was lucky. I was spared most of the challenges they faced.

I was forutunate that in all of my teaching situations, almost all of the students I encountered wanted to learn. Few were being educated against their will. Almost all of them were capable of learning what they were studying, though some did so easily and some needed to make much more of an effort. More than a few grumbled, but many of those students, months or years later, took the time to explain that they finally understood what was required of them to learn. These are some of the joys of teaching, helping those who want to learn accomplish what they set out to do.

But there are sorrows in teaching. In my formal and informal teaching roles over the years, I rarely encountered someone who did not want to learn. But most of the teachers I have known, particularly those in the K-12 schools, have not had the comfort of trying to educate people who want to learn. They must deal with those who don't want to learn because they'd rather spend their time playing or doing things that get them into trouble. Whether they are that way because they are being wilful or because they are dealing with emotional or other issues doesn't remove the challenge, though it can affect how the challenge is met. Many of these teachers also encounter students who lack the requisite abilities, often because they are misplaced in terms of grade level or curriculum, either through school system flaws or, worse, parental denials of reality.

The impetus for this post is the culmination of what I have read and observed over the past 15 years. It seems to me that a disppointing number of people do not want to learn. Many of those people have the capability to learn but choose not to make the effort. Some lack the desire to think for themselves, and many lack the ability to think for themselves. Perhaps some never had the opportunity to learn to think for themselves, having been through a limited education process of receiving and regurgitating words and paragraphs. Others had that opportunity but chose to let it slide by, choosing instead to cut class, ignore homework, cheat, and use parental influence to obtain approvals of which they were not deserving.

Why does this matter? It matters because the inablity to think for one's self causes a person to be more susceptible to misinformation, lies, scams, the wiles of con artists, and the propaganda of domestic and foreign adversaries. Those who pay attention to what is now happening and who have and use the ability to think for themselves surely can see the consequences of failing to think for one's self, failing to distinguish between fact and opinion, and failing to analyze allegations and information.

The ability and willingness to learn is what has fueled the evolution of the species. It is what generates progress, a word that meets antipathy when expressed as its adjective. Its absence generates the opposite, the adjective formed from the verb regress. And that is what is going to happen if society fails to persuade itself that education matters, that the ability to engage in analysis is important, and that the ability to think for one's self is essential.

I don't regret having been a teacher for a long time. I do not regret having spent a good part of my life engaged in education. I do regret that what I and others have been doing will turn out to have been insufficient to prevent society from backsliding into what some of us thought had been put behind us.

Tax Rates -- Just Two Generations Ago

A fellow named Josh Rincon is getting a lot of re-posts of his facebook meme, "Just two generations ago you could buy a home, buy a car, have 3 - 4 kids, take annual vacations & retire all with a middle class salary."

Just two generations ago, federal income tax rates ranged from 14 percent to 70 percent. Now they range from 10 percent to 37 percent.

Just two generations ago, the top one percent of Americans owned 23 percent of the nation's wealth. Now the top one percent owns 37 percent of the nation's wealth.

If the trend continues or, as expected, accelerates, it won't be long before federal income tax rates range from 1 percent to 10 percent and the top one percent owns 60 pecent or more of the nation's wealth.

It's sad that the people who are the unhappiest about their own economic situation continue to encourage and support policies that make their own economic situations increasingly worse.

It's a wonder what the lack of education cand do to a person. It's also a wonder what a bad education can do to a person. What's sad is what it does to everyone else.

When Allegations Go Unproven: Did a Television Court Show Involve Tax Fraud

A few days ago, reader Morris alerted me to an interesting television court show from 2017. As readers know, I have addressed tax issues in television court shows many times, in posts such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, Fighting Over a Tax Refund, Another Tax Return Preparer Meets Judge Judy, Judge Judy Identifies Breach of a Tax Return Contract, When Tax Return Preparation Just Isn’t Enough, Fighting Over Tax Dependents When There Is No Evidence, If It’s Not Your Tax Refund, You Cannot Keep the Money, Contracts With Respect to Tax Refunds Should Be In Writing, Admitting to Tax Fraud When Litigating Something Else, When the Tax Software Goes Awry. How Not to Handle a Tax Refund, Car Purchase Case Delivers Surprise Tax Stunt, Wider Consequences of a Cash Only Tax Technique, Was Tax Avoidance the Reason for This Bizarre Transaction?, Was It Tax Fraud?, Need Money to Pay Taxes? How Not To Get It, When Needing Tax Advice, Don’t Just “Google It”, Re-examining Damages When Tax Software Goes Awry, How Is Tax Relevant in This Contract Case?, Does Failure to Pay Real Property Taxes Make the Owner a Squatter?, Beware of the Partner’s Tax Lien, Trying to Make Sense of a “Conspiracy to Commit Tax Fraud”, Tax Payment Failure Exposes Auto Registration and Identity Fraud, A Taxing WhatAboutIsm Attempt, When Establishing A Business Relationship, Be Consistent, as the Alternative Can Be Unpleasant Litigation, Sadness on Multiple Levels: Financial Literacy, Factual Understanding, Legal Comprehension, When the Lack of Facts Produces “Rough Justice” in a Tax-Related Case, Is the Tax Return Preparer or the Client Responsible For Unjustified Deductions?, Tax Might Be Boring, But the Underlying Facts Often Are Not, and When Tax Fraud Is Admitted in a Civil Arbitration Proceeding Known As a Television Court Show.

This show comes from The People’s Court and carries the title, Being One Wicked Aunt. The plaintiff sued her biological aunt who raised her, alleging that the defendant aunt committed tax fraud and stole the plaintiff’s tax refund check. The plaintiff explained that the defendant filed state and federal income tax returns on which she claimed the plaintiff’s daughter as a dependent.

The defendant alleged that the plaintiff committed tax fraud, pointing out that she, the defendant, did not know that a tax refund had been direct deposited into her, the defendant’s, bank account. She further alleged that the plaintiff stole information from the defendant and used it to claim the defendant’s two children on the plaintiff’s tax returns, using the social security numbers of the two children that the plaintiff had stolen from the defendant. She also counterclaimed for unpaid rent, the cost of damages that happened to the defendant’s car when the plaintiff was driving it, and the cost of oil changes the plaintiff failed to procure for the car.

The plaintiff explained that she did not know how to do her tax returns so she asked her aunt for help. She alleged that she gave her aunt all her information and that her aunt put her two children on the plaintiff’s tax returns that the aunt prepared for the plaintiff. The judge asked the plaintiff why the defendant did not claim her two children on her own return and the plaintiff replied that she did not know, and when the judge asked if the defendant had talked with the plaintiff about it, the plaintiff replied in the negative. The judge then asked the defendant if she filed tax returns for that year and the defendant replied that she had not, and added that she had not prepared the plaintiff’s tax returns. The plaintiff also alleged that when the defendant prepared the plaintiff’s returns, she routed the refunds into the defendant’s bank account.

The judge asked the defendant if the refunds went into her account, and the defendant explained that she found out in October of 2016 when the plaintiff told the defendant that the IRS had deposited money into the defendant’s account. The judge asked the defendant if the plaintiff prepared her own returns how would the plaintiff know the routing and account numbers for the defendant’s account, and the defendant replied that the plaintiff had stolen the information when she was living in the defendant’s home. In response to a question from the judge, the plaintiff explained that when she told the defendant about the refunds being deposited into the defendant’s account the defendant at first wanted to make things right but after being give a December deadline to pay the plaintiff stopped responding to the plaintiff.

When asked about the plaintiff living in the defendant’s home, the defendant replied that the plaintiff was supposed to pay rent but didn’t. She admitted there was nothing in writing. The plaintiff denied having agreed to pay rent. When asked about the car, the plaintiff alleged that the owner of the car, the defendant’s son, the defendant’s daughter, and the defendant’s boyfriend also drove the car, but the judge explained that both instances of damage the car occurred when the plaintiff was driving the car. The plaintiff admitted to not getting oil changes for the car.

The judge held that there was “no dispute” that the tax refund money belonged to the plaintiff. The judge held that the defendant did not prove that the plaintiff had agreed to pay rent. After confirming that title to the car is in the defendant’s name, the judge held that the defendant was entitled to recover the cost of repairs to the car and the cost of the oil changes that were not done.

It is puzzling to me that the judge concluded the plaintiff was entitled to a refund that was generated on a tax return that included as dependents two children who were not children of the plaintiff. My guess is that the judge simply decided to have the refund transaction go through as it would have gone through had whomever prepared the return used the plaintiff’s bank account information rather than the defendant’s. That would leave the situation in the hands of the IRS when and if its screening process identified two children who had been on the defendant’s previous returns showing up on the plaintiff’s returns.

Reader Morris commented, “In my opinion both parties had unclean hands. The judge should have dismissed the case,” and asked, “Does the judge have an ethical or legal requirement to report this case to the IRS?” I disagree that both parties had unclean hands. No one admitted tax fraud. The plaintiff claimed that the defendant prepared the return and put the defendant’s daughters on the plaintiff’s return. The defendant claimed that the plaintiff prepared her own return and put the defendant’s daughters on the return. The judge did not determine who was telling the truth. She simply concluded that a refund payable to the plaintiff should have gone to the plaintiff. Whether that refund was correctly computed was not an issue in front of the judge. It’s possible one or the other of the parties was telling the truth, so it’s not necessarily the case that both had unclean hands.

There is no evidence that tax fraud was committed because the returns were not entered into evidence. There were allegations, but no evidence, just as there was no evidence with respect to the rent claim. For all we know, the defendant’s daughters were not claimed on the plaintiff’s return (though they probably were). There is no evidence of who prepared the plaintiff’s returns. The judge probably suspected that the plaintiff did what the defendant alleged, and by granting the plaintiff the recovery for the tax refund made it impossible for the plaintiff to allege to the IRS, if ever asked, that she did not receive the refund. But suspicion is not something that the judge is required to report, though there is nothing stopping the judge (or someone on the staff of the court or show) from sending to the IRS the link to the show. It’s unclear whether the judge and the staff are precluded from using information obtained during the show when there is no legal obligation to share it.

But as the judge noted, this was a sad case. As the show host noted, it was a tragic case. It was sad and tragic in many ways. I suspect it is possible that the moving force behind whatever may have been done on the plaintiff’s tax returns may have been someone that was not a party to the case, but I’ll leave that for readers to decide for themselves.

Will a Revisit of Philadelphia’s Soda Tax Bring Me an Invitation?

It’s been a while since I’ve written about the Philadelphia soda tax. I wrote many commentaries about the tax from the time it was proposed until it was enacted and debates about the tax faded as other issues moved to center stage. Those commentaries included What Sort of Tax?, 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?, Another City Cuts Soda Tax Revenue Estimates, Putting Funding Burdens on Those Who Pay the Soda Tax, What Is a Successful Tax?, What’s Next? A Tax on Exiting the Store? How Unwise Taxes Undermine Tax Policy, 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?, If Sugar Is Bad And Is Going To Be Taxed, Tax Everything That Contains Sugar, Time for a Salt Tax to Replace a Soda Tax?, Soda Taxes: So It’s Not So Much the Soda, Is It?, The Soda Tax “War” and a Pathway to Tax Peace, The Primary Goal of the Philadelphia Soda Tax: Not a Reduction in Soda Consumption, and Unintended Consequences in the Soda Tax World Present Questions.

Now comes a Philadelphia Inquirer story letting us know that Philadelphia has decided to hold hearings on the soda tax. One member of Council noted that the tax “disproportionately affects the poor” and that Council should look for other sources of revenue. As I pointed out in some of my commentaries, if the soda tax was truly about improving health, the tax should and would be a tax on sugar and similar substances and not just beverages. Instead, the tax is about revenue, and the large amount of sugary beverages sold in Philadelphia was, and to some extent still is, low-hanging tax revenue fruit.

Interestingly, according to a study reported in this Philadelphia Inquirer story, the tax has had an impact on Philadelphians’ health. Whether that impact is positive is questionable, considering that the study showed Philadelphians’ body mass index increasing though at a slightly slower rate than for people outside of the city. Supporters point to substantial drops in soda sales within the city, but that doesn’t demonstrate purchases of soda have declined substantially. It only proves that purchases made within the city, rather than across the street in other municipalities, have decreased.

The Council member who noted that the tax adversely affects the poor then explained that, “I just want to look at [the tax.] I’m not saying we’re going to do anything with it. I just want to make sure that I bring everybody in that has an opinion about it.” It doesn’t hurt to review periodically all sorts of laws and taxes. Of course, I have an opinion about the tax. I’ll let you know if he brings me in.

A Foolish Tax Proposal That Surely Isn't Fair

Representative Earl Carter of Georgia has continued the practice of at least one representative from Georgia introducing the Fair Tax Act when each new Congress convenes. First introduced in 1999, the most recent version of the proposal is not what its sponsors claim it to be. In his press release, Carter claims that the “The Fair Tax would repeal the current tax code and replace it with a single national consumption tax.” Though it would enact a consumption tax, it would not repeal the current tax code. It would repeal parts of the current tax code. Carter claims that the “Fair Tax would also eliminate the need for the Internal Revenue Service.” Yet the bill leaves to “the Secretary” [of the Treasury] a long list of responsibilities and tasks that if not assigned to the Internal Revenue Service that would be assigned to existing or new departments or bureaus that would differ chiefly in name only. The proposal leaves in place some taxes, such as excise taxes, and there would still need to be some sort of federal agency to administer them.

Replacing an progressive income tax with a consumption tax, which is a fancy name for a sales tax, would eliminate the corporate income tax. It would reduce the amount of federal taxes paid by the wealthy. It is a regressive tax, which means that the percentage of income paid in taxes would decrease as income increased. Even with the absurdly complicated rebate system proposed for people living under the poverty level, the consumption tax would hit the middle class, or what’s left of it, while letting the wealthy pay a token amount of tax. The tax would not apply to investments. That, of course, is quite a relief to those who have investments but is an exception of no use to those struggling to get by on poverty wages. On a Myth v. Fact release, Carter rejects the claim that the “FairTax will hurt the poor and give the rich a huge tax cut” by pointing out the rebate system for the poor, and then argues that “the FairTax is not riddled with shelters and loopholes, meaning wealthy taxpayers cannot minimize what they pay in taxes,” but without mentioning that the wealthy spend very little of their income and wealth on consumption compared to everyone else in the country. The exception in section 102(a)(2) of the proposal is pretty much a shelter if not a loophole. It’s actually a flaw in the consumption tax, and it makes ridiculous the claim that the “FairTax is the only progressive tax reform bill currently pending before Congress” because it’s not a progressive tax.

If you are interested in how the mechanisms for people to qualify for a rebate that would be mailed to individuals qualifying for consumption tax relief, read the details in the bill. The definitions, the reporting, the hoops through which people must jump are no less complicated and in some instances more complicated than existing federal tax law.

The bill shifts to the revenue departments of states that have sales taxes the task of administering the federal consumption tax, which surely cannot delight existing overworked state revenue department employees. The federal government, through the use of some sort of IRS replacement agency, would remain the administrator of the tax in states that do not have sales taxes. Considering the difficulties states face in collecting the backup use tax, relying on a system that provides just as many compliance and enforcement challenges as does the existing federal income tax is unwise, even foolish.

Though the press release claims that the Fair Tax would eliminate the need for taxpayers to have “a team of lawyers or accountants to fill out their taxes,” the bill contains language that contemplates the need for professional advice to deal with the inevitable mistakes, overcharges, erroneous poverty rebates, and other glitches sure to arise. Worse, some taxpayers may not realize that they have been overcharged or under rebated, and so they wouldn’t know they need professional assistance, which is not a good reason to not retain professional assistance.

One of the co-sponsors claims that a national consumption tax would “make the American Dream affordable again.” He doesn’t understand, or perhaps does but does not want to admit, that the unaffordability of the American dream for almost everyone who isn’t attaining it rests on the income and wealth inequality caused by the reduction of income tax progressivity. Eliminating that progressivity with a regressive consumption tax guarantees that the American Dream will be out of reach except for the several hundred families that would eventually own 99 percent of wealth in this country. Progressivity means progress, which encompasses the American Dream. Regressivity means regression, which encompasses the flaws that this nation has been trying to remediate for the past 90 years.

Sponsors of the proposed legislation, as quoted in the press release, keep tossing around words and phrases such as prosperity, pro-growth, and fair share. These buzz words are the hallmark of the Oligarchic Dream, which is the antithesis of the American Dream. It is legislation welcomed by the ruling oligarchy and that will make the economic position of most Americans even worse than what it currently is.

Representative Carter went so far as to claim that the legislation is “the only tax proposal out there that is pro-growth, simple, and allows Americans to keep every cent of their hard-earned money.” If Americans keep every cent of their hard-earned money, then no one would be paying taxes, except perhaps for those who have easy-earned money. So who has easy-earned money? Certainly not the hard-working electricians, police officers, farmers, engineers, bookkeepers, caregivers, nurses, and other workers. The easy-earned money accrues to those who sit around living off trust funds and inherited wealth. Yet I am confident that the Fair Tax is not designed to remove tax obligations from those who work hard or have worked hard.

Carter goes even further, telling us that he is “proud to lead this Georgia-grown legislation that puts the American people, not bureaucrats, in charge of their tax rate.” If that is what he intends, put the tax rate to a popular vote. If I were to bet, I would bet that zero percent would win. Not only would it reflect the ubiquitous distaste for taxation shared by most people, it would also reflect the efforts of the oligarchy that wants to eliminate government or reduce it to a structure under the control of the oligarchy, and replace it with a nation whose economy is totally, or close to totally, a private sector under the control of oligarchs who are not subject to votes, recall, or impeachment. In that world, the services currently provided by government would either be eliminated or would be available for purchase from oligarchs who own highways, hospitals, banks, police and fire departments, grocery stores, clothing stores, and everything else, and who can refuse service to whomever they want to push aside, who can charge whatever they want to charge, who can damage the environment however they wish, who can sell defective and dangerous products if doing so enhances their net worth, who can use false advertising to procure customers, who can be the marketplace capitalist bullies that is their oligarchic dream.

A New Year, An Old Problem: Misinformation and Lies About Taxes

Almost a month ago – somehow I missed it – the IRS issued a news release warning people about “the growing threat of bad tax advice on social media that continues to dupe people into filing inaccurate tax returns.” The statement was issued as part of the ninth annual National Tax Security Awareness Week.

There is no question that all sorts of “scams and bad advice” circulate with promises of lower taxes and refundable credits for taxpayers who fall for these scams and bad advice. Though some of these misleading claims are the product of an ill-informed person thinking they are helping others, most are designed to funnel money to the perpetrator of the arrangement. According to the IRS and is Security Summit partners, these scams include the “Fuel Tax Credit” claim (misleading people who are not eligible for the credit to claim it), the “Self-Employment Tax Credit” plan (a limited credit that existed only for several years and hasn’t been available since 2022), “pig-butchering” crypto scams, and “investments in fake cryptocurrencies.” Other bad advice encourages taxpayers to invent fake household employees and claim refunds based on sick and medical leave wages never paid, to create fake W-2 forms with inflated income and withholding amounts from a fake employer and to use these for filing returns to get refunds, to claim deductions equal to the entire amount of their wages and labeling the deduction as an expense for the production of income.

There is no question why the people who deliberately market these suggestions do so. They know that a large proportion of Americans are easy prey for misinformation and lies. They know that too many Americans are unwilling to do research to verify what they hear, see, or read. They know that too many Americans let their initial emotional reaction suppress critical thinking and analysis. They know that the chances of getting caught and prosecuted are low, and that the chances of meaningful punishment if convicted are even lower.

An interesting twist to the IRS statement is its reference to “social media.” What is social media? According to Merriam-Webster, it consists of “forms of electronic communication (such as websites for social networking and microblogging) through which users create online communities to share information, ideas, personal messages, and other content (such as videos).” This definition is so broad that it includes the IRS website itself, a place where users, that is, IRS employees, create an online community through which it shares information. The IRS announcement itself explains that “a better option for taxpayers to learn how to properly use tax forms and claim credits is to go to IRS.gov and follow IRS social media channels.” So it’s not a matter of concluding that all information obtained through social media is necessarily bad. It’s a matter of learning how to separate truth from lies. More on that in a moment.

On the other hand, limiting the warning to “social media” ignores the other means by which misinformation and lies are disseminated. The misinformation and falsehood communication problem existed long before electronic communications and, for example, the internet, came into existence. People with bad intent offered bad advice and spread lies in social clubs, churches, schools, taprooms, business offices, and on public transport. What the internet had done is to provide an environment in which bad advice tossed up at a local club and that circulated among perhaps hundreds or a few thousand people to find its way to billions of people all over the planet.

What’s the answer? The IRS gave the same advice I’ve been offering for decades: “We urge people to do some research before falling for these scams. Finding a trusted tax professional or visiting IRS.gov is a better way to research a tax issue than relying on someone talking in their car or their kitchen about a non-existent tax hack.” Following advice from an online stranger, or even a well-known friend or family member that turns out to be bad advice can be costly. When taxpayers accept the misinformation or bad advice without verification, the IRS explains that “they could face audits and expensive fines [and] in some cases, they could be subject to federal criminal prosecution and imprisonment.” In other words, do deep research. Do background checks on tax return preparers. Ask the friend or relative where they are getting the information they are sharing and to direct you to its source. Their refusal or inability to do so is a red flag. If there is a source, go to it. Research it. Analyze it. Protect yourself.

Analyzing the Federal Income Tax Consequences of a Crappy Barter Proposal

Reader Morris directed my attention to a story about Hunter Biden, his alleged failure to pay rent, and his alleged offer to settle the debt. After reading the story I decided to find the X posting that was the at the heart of the story. I found the posting. In it, Shaun Maguire wrote: “Hunter was our tenant in Venice, CA. Didn't pay rent for over a year. Tried to pay w/ art made from his own feces.” There are three allegations in the posting. There is no easy way at this point to determine if they are true or not, in the absence of evidence such as a lease, rent demands from the landlord, proofs of payment from Biden, and some sort of evidence that Biden made the strange and bizarre offer. But, for purposes of the question raised by reader Morris, let’s assume they are true.

Reader Morris asked, “What are the federal tax consequences of this barter exchange to each party on gross income, capital gains or losses, and ownership of the property?” In other words, reader Morris is asking, if the landlord accepted the offer, what would be the federal income tax consequences? It surely is a hypothetical question because I would be shocked if the landlord accepted the offer that is alleged to have been made.

If the parties went through with the proposed barter, the outcome would depend on the resolution of a fact question. The question is, what is the value of the “art” that is offered in satisfaction of the debt? Though the answer could be anything between $0 and the amount of the back rent, let’s consider two possibilities, one at either end of that spectrum.

If the fact finder determined that the value of the “art” was equal to the back rent, then the landlord, if on the cash method, would have rental gross income. If the landlord were on the accrual method and had already accrued the rental income, then receipt of payment would not have any tax consequences. No matter the outcome to the landlord, the tenant would be treated as having “sold or exchanged” property, which is a realization event. The tenant would have amount realized equal to the amount of the unpaid rent. The tenant’s adjusted basis in the “art” would be zero, a conclusion consistent with case law holding that the basis of blood and other body products sold by a taxpayer is zero. The resulting income would not be a capital gain because body products are not capital assets, a conclusion consistent with that same case law.

If the fact finder determined that the value of the “art” was less than the back rent, say zero or some token several dollars, and that the landlord accepted it in satisfaction of the unpaid rent, the landlord would have rental gross income equal to the value of the “art,” say zero or the token several dollars, unless the landlord was on the accrual method in which case there would be no income. The landlord would be treated as having released the balance of the debt (either the full amount or slightly less than the full amount), and would claim a bad debt deduction if the rent had already been accrued. The consequences to the tenant would be determined by application of the rules applicable to forgiveness of indebtedness. There would be gross income in the amount of the balance of the debt (either the full amount or slightly less than the full amount) unless one of the five exceptions apply. Was the debt discharged in bankruptcy? Under the assumed facts, most likely not. Is the tenant insolvent? We don’t know. The debt is not qualified farm indebtedness or qualified real property business indebtedness. Is the debt qualified principal residence indebtedness? No, because the debt related to rent and not to the acquisition cost of purchasing a residence.

The proposed transaction is about as likely to take place as the payment of a debt in the manner proposed by Shylock in the Merchant of Venice. And if Shylock had succeeded (for those unfamiliar with the story, he ended up with money and not flesh), and if the federal tax system or one identical to it applied, the analysis would be the same as that presented for the situation in the “art” for rent story.

Critics might wonder why invest intellectual capital in analyzing a transaction that did not happen and almost certainly will not happen. The answer is simply that doing this analysis, for example, on a federal income tax exam, strengthens one’s intellectual skill set just as running prepares the runner for an actual race. But to be honest, I analyzed the question posed by reader Morris not so much to strengthen or maintain the strength of my intellectual skill set as to explore a totally bizarre situation. A situation that adds to the long list of proofs that support what I, and other tax law professors, tell students, “We don’t need to invent hypotheticals, they’re out there just waiting for us.”