When, If Ever, Is a Toll a Tax?

Reader Morris directed my attention to a commentary criticizing the proposal in Connecticut to use a portion of proposed highway tolls to fund improvements and additions to trains. A similar issue has arisen in California, according to this report, where the governor wants to use some of the state’s gas tax revenues to improve and add train service. In Pennsylvania, portions of turnpike tolls have been diverted to other uses.

The writer of the Connecticut commentary argues that if a toll is used for something other than the highway for which it is charged, it no longer is a user fee but a tax. People can agree or disagree with that position, but to me, it makes no difference what the charge is called. Though it might appear that the anti-tax crowd would object to the charge if it were a tax or called a tax but not if it were a user fee, the reality is that the anti-tax crowd objects to any charges made by a government or government agency no matter its name or what it is called.

Readers of MauledAgain know that I oppose shifting user fee revenue, such as tolls, from the maintenance, repair, expansion, or other benefit to that for which the user fee is being paid. I have written about this issue in posts such as Soccer Franchise Socks It to Bridge Users, Bridge Motorists Easy Mark for Inflated User Fees, Restricting Bridge Tolls to Bridge Care, Don't They Ever Learn? They're At It Again, A Failed Case for Bridge Toll Diversions, DRPA Reform Bandwagon: Finally Gathering Momentum, When User Fee Diversion Smacks of Private Inurement, Toll Increases Ought Not Finance Free Rides, Infrastructure, Tolls, Barns, Jackasses, and Carpenters, and Using Tolls to Fund Other Projects.

The question, in the case of the Connecticut and California situations, is whether use of highway tolls or gas tax revenues to fund train service is a use unrelated to the purpose for which the toll or tax is collected. Infrastructure, Tolls, Barns, Jackasses, and Carpenters, I wrote, “
One question was very telling. Someone asked, ‘Why should I pay for someone else to ride the train?’ The article doesn’t disclose the answer, or if there was an answer. But the answer is simple. The toll not only purchases an improved road, it purchases space on the improved road by making train use economically efficient and attractive to someone who would otherwise be using the road, but who would give up road use if train use was economically more desirable. That’s a far different matter than paying a toll to fund unrelated projects.”

In Revenue Problems With A User Fee Solution Crying for Attention, I described the problems arising from using turnpike tolls for other purposes:

[A] Philadelphia Inquirer report behind a paywall except for a limited number of free accesses, explores the diversion of Pennsylvania Turnpike toll revenue to other uses. This is a serious issue because the Turnpike Authority is on the verge of “financial collapse.” A significant amount of Turnpike tolls are channeled to repair and maintenance of toll-free roads throughout the state. How did this happen? More than a decade ago, in an effort to deal with the bad condition of I-80, which gets heavy east-west truck use as an alternative to the Turnpike, the legislature proposed using Turnpike funds to repair I-80 and to reimburse the Turnpike with funds raised by making I-80 a toll road. However, federal authorities blocked the imposition of tolls on I-80. That is one reason Turnpike tolls have been increased each year for the past 10 years, after a long period of occasional toll increases. Turnpike tolls also are channeled to public transit, raising the same sort of debate, objections, and responses as have been ongoing with respect to federal fuel tax revenue use. Litigation is underway, filed by an interstate trucking group who object to paying tolls for anything other than Turnpike maintenance. To the extent that public transit in Pennsylvania urban, suburban, and even rural areas removes traffic from the Turnpike, the plaintiffs in the litigation benefit from less congestion. The question is how to measure that benefit in dollar terms. But why should Turnpike users pay for the maintenance of toll-free highways that they are not using?

The answer to that question is that using turnpike tolls to shift traffic to nearby roads by improving those roads in order to alleviate congestion on the turnpike or to make access to and from the turnpike easier falls within the scope of giving turnpike users something in exchange for the tolls they pay. That is far different from using bridge tolls to fund a soccer stadium, a mis-use of user fees I criticized in posts such as Soccer Franchise Socks It to Bridge Users, Bridge Motorists Easy Mark for Inflated User Fees, Restricting Bridge Tolls to Bridge Care, Don't They Ever Learn? They're At It Again, A Failed Case for Bridge Toll Diversions, DRPA Reform Bandwagon: Finally Gathering Momentum, When User Fee Diversion Smacks of Private Inurement, and Toll Increases Ought Not Finance Free Rides.

So what should highway user fees, whether tolls or gasoline “tax” revenues, be used to fund? In User Fees and Costs, I explained:

The toll should be based on the cost of building, expanding, improving, repairing, maintaining, policing, and monitoring the road. It isn't difficult for a cost accountant to determine how much it costs to operate the New Jersey Turnpike, the Garden State Parkway, or any other toll road. Tolls should be increased as costs increase, and though it is preferable to recalculate the cost each year, it might be easier to use some sort of inflation index and do the cost recalculation every four or five years. . . .

. . . The analysis I support is one that looks at the impact of the toll road and its use on surrounding residents, neighborhoods, and infrastructure. Traffic volume surrounding a toll road interchange is higher than it otherwise would be, and that generates additional costs for the local government. It makes sense to include in the toll an amount that offsets the cost of widening adjacent highways, installing traffic signals, increasing the size of the local police force, adding resources to local emergency service units, and similar expenses of having a toll road in one's backyard. I understand the argument that because the locality benefits economically from the existence of the toll road and its interchange that it ought not be subsidized by the toll road. It is unclear, though, whether the toll road is a net benefit or disadvantage. If it were such a wonderful thing, why are new roads so vehemently opposed by so many towns and civic organizations?

Using toll revenue to maintain and repair roads and infrastructure far from the toll road is more difficult to justify. Other than relying on arguments such as the maintenance of a high quality state-wide road network that would attract more tourists and business ventures, proponents of siphoning toll revenue to distant areas have a, sorry, tough road to hoe. A better approach would be to impose tolls on heavily used roads in those distant areas.

I reiterated this analysis, more succinctly, in Timing, Quantifying, and Allocating User Fees, by explaining, “Tolls should be used to pay for the costs of building, repairing, maintaining, and operating the toll road, and to defray the economic burden that the road imposes on the surrounding neighborhoods. Tolls should not be used for programs unrelated to the road.”

So, ultimately, the issue isn’t whether the toll is a user fee or tax, or whether the gasoline tax is a tax or user fee. Though I think both are properly classified as user fees, the issue, to me, is the expenditure side of the equation. To what purposes are the revenues from the user fee being put? When it comes to trains that alleviate congestion and wear and tear on the tolled highway, I consider that to be acceptable. Using revenues for train service distant from the tolled highway are just as indefensible as using revenues to fund a soccer stadium.

Contracts With Respect to Tax Refunds Should Be In Writing

Sometimes months go by from when I see a television court show involving taxes. Sometimes it’s a day or two. Just two days after the last television court show that inspired a MauledAgain post, along comes another. It joins the list of episodes that have been the subject of previous commentaries, including 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, and If It’s Not Your Tax Refund, You Cannot Keep the Money.

This latest drama was aired on episode 56 of season 5 of Hot Bench. The plaintiff and defendant had been engaged, but they broke off the engagement. While they were engaged, the defendant was the primary, and usually only, income earner. The plaintiff took care of the children, including one of her own that was not the defendant’s child. The plaintiff claimed that there was an agreement between her and the defendant, under which the defendant promised to give her half of his tax refund for the year in issue, which was the year before they broke up. The reason, according to the plaintiff, was that the defendant claimed the plaintiff’s daughter on his tax return as a dependent. The agreement was not in writing, and the plaintiff attempted to prove its existence by asserting that there was a past pattern of the defendant giving her some amount of his tax refund.

The defendant denied that he had agreed to give the plaintiff one-half of his tax refund for the year in question, which amounted to $10,000. The defendant admitted that he had given some of his tax refund to the plaintiff from time to time when they were a couple. He explained that his refunds usually were about three or four thousand dollars, and that he gave the plaintiff an arbitrary portion of each refund. The plaintiff countered with a claim that she received $1,300 each year from the defendant out of his tax refund, though she stated that on one occasion she received $1,500.

When asked by one of the judges if there was a family court decision dealing with child support, both parties answered that there was not. Further inquiry determined that the defendant’s tax refund had been garnished for other reasons, and that he had told the plaintiff he could not pay her anything. He also claimed he did not owe her anything. He admitted that if the refund had not been garnished he might have given her $1,300.

The court held that the defendant had no legal obligation under any agreement to pay any portion of his tax refund to the plaintiff. However, the court also determined that based on the parties’ prior course of dealing, and the defendant’s statement that but for the garnishment he might have given the plaintiff $1,300, the plaintiff should receive $1,300 from the defendant, because the refund arose from a tax return for a year during which the plaintiff and defendant were engaged.

The court then admonished the parties to get their situation resolved in one or both of two ways. First, they should work out an agreement drafted with professional assistance. Second, they could go to family court to get matters settled.

The court’s advice is excellent. Unfortunately, the court’s opportunity to give this advice arose after the dispute arose. The two parties would have benefitted from this advice at the outset, but at that stage of their relationship courts would not be involved. So advice to couples who are in relationships deep enough to involve financial matters is necessary, though most such couples don’t get that advice. Here it is. They need to enter into a formal agreement, preferably with professional assistance, before things deteriorate, even if at that stage of the relationship they are convinced things never will deteriorate. Anyone who enters into an arrangement with another person concerning that other person’s receipt of a tax refund and promise to pay some or all of it, whether or not in any sort of serious relationship, would be acting most prudently if insisting on getting that agreement in writing.

If It’s Not Your Tax Refund, You Cannot Keep the Money

Readers of MauledAgain know that I enjoy watching television court shows, not only because they often are amusing and instructive, but also because tax issues pop up from time to time. Some of my commentaries on episodes involving tax include 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, and Fighting Over Tax Dependents When There Is No Evidence.

Now a new television court show is being aired. Jerry Springer has opened up a television courtroom. It didn’t take long for a tax issue to arise. In this episode, brought to my attention by Reader Morris, a tax refund was front and center. For some reason, the first part of the show is missing, but it appears that the plaintiff sued the defendant because the plaintiff’s tax refund ended up in the defendant’s bank account and apparently the defendant did not want to turn the money over to the plaintiff. I am guessing that the plaintiff and defendant were not related to each other, or friends or acquaintances.

The evidence showed that the accountant made the mistake, by using the wrong bank information on the plaintiff’s return. This caused the refund to be direct deposited into the defendant’s bank account. The plaintiff had a statement from the defendant’s bank showing that the refund indeed was direct deposited into the defendant’s bank account.

Judge Jerry noted that the mix-up was not the defendant’s fault. However, he explained that no matter who made the mistake, whether the defendant, the accountant, or the IRS, the money was not the defendant’s to keep. Thus, he ruled that the defendant was obligated to transfer the money to the plaintiff.

I don’t know enough to know why the accountant did not contact the IRS, ask it to reverse the transaction and deposit the refund into the correct account. Because the first part of the episode is missing, I don’t know if there was an explanation. Perhaps there was a reason that the accountant could not do that, perhaps because the accountant was no longer around. Perhaps the IRS will reverse a deposit if it made the mistake but not if the taxpayer or the tax return preparer made the mistake. One can imagine the mess that would arise if at this point the IRS tries to reverse the deposit and put the money in the plaintiff’s bank account. At that point the defendant might end up suing the plaintiff.

The lesson is simple. Be careful. Be very careful. Double check, even triple check, bank routing numbers and bank account numbers, along with everything else on the return. Have someone else review the return. A second pair of eyes often is helpful, and sometimes can prevent disasters.

Paying the Tax Revenue Price for Underfunding the IRS

For as long as I have been involved in studying, teaching, paying, writing about, and preparing returns for, federal income taxes, I have criticized the Congress for underfunding the IRS. Those criticisms have found their way into posts such as Another Way to Cut Taxes: Hamstring the IRS, So Cutting IRS Funding Won’t Decrease Revenues? Yeah, OK , The Continued Assault on the Tax Foundations of American Civilization, and Voting for Tax Refund Delays.

For me, the prospect of paying $1 to get $7, in a situation where that outcome has been proven time and again, is an investment far more attractive than pretty much anything else available. So who would oppose such a step? The answer is simple. The opposition comes from those who don’t want the $7 to be collected, because their once-hidden-but-now-obvious goal is to destroy government by cutting off its revenue oxygen. Who would want that to happen? The answer again is simple. Those who want this result are those who would profit by shifting government functions into the hands of oligarchs who are beyond the reach of the ballot box, and who find fulfillment only in the oppression of others. Money-addicted and vying for supremacy as the chosen one, the elimination of government through the destruction of tax revenues is but one step in the process of creating a world owned and operated by a handful of oligarchs, though each envisions a way to become the “top dog” in such an arrangement.

A few days ago, the Center on Budget and Policy Priorities published an article demonstrating the impact of IRS underfunding on the collection of tax revenues. For those who already understand the larger forces at work, the report is a sad verification of what has been happening. For those who think that the warnings about tax revenue reduction and the replacement of government by private enterprises unresponsive to the people is nothing more than alarmist demagoguery, the report is yet additional proof of the risks posed by IRS underfunding, though unfortunately too many of those who don’t see the problem are unlikely to be swayed by facts.

What the article provides is an explanation of a more detailed report by the Treasury Inspector General for Tax Administration. That report reveals that “deep IRS funding cuts over the last decade have weakened the agency’s ability to perform its core functions.” As the article summarizes it, “Staff time [invested in enforcing the payment of income and payroll taxes by employers] plummeted by 84 percent between 2013 and 2017” because of underfunding by Congress. Had adequate funding been provided, at least $3.3 billion in unpaid payroll and withheld taxes would have been collected. Though that amount might pale in comparison to the annual $1 trillion deficit caused principally by dishing out tax breaks to starving billionaires and multi-millionaires, it is but one tiny facet of a significant revenue shortfall attributable to insufficient IRS funding. Between 2010 and 2019, IRS funding for enforcement has been cut by 25 percent, adjusted for inflation.

As I noted in So Cutting IRS Funding Won’t Decrease Revenues? Yeah, OK , at least one member of Congress, a few years ago, made the absurd claim that increasing IRS funding would not increase tax revenue, tossing out numbers that reflected several of those ill-advised tax cuts pushed through by the starving oligarchs. This genius legislator made that claim in order to support the additional claim that cutting IRS funding would not decrease tax revenue. The TIGTA report demonstrates why this sort of thinking is deeply flawed and certainly warped by ulterior motives.

In Voting for Tax Refund Delays, I wrote:

It is mind boggling that people will vote for what they don’t want. Though in some instances people are tricked into voting for what they don’t want when politicians use deception to hide their true intentions, the politicians who are working to destroy the tax foundations of civilization have been very clear that they are on a tax-elimination campaign that includes the destruction of the IRS. Folks, if you think it’s bad now, imagine what it will be like when the system falls apart. And it will, if people continue to vote for what they don’t want.

Nothing that has happened since I wrote those words four years ago has caused me to think that cutting IRS funding is a good thing. What has happened in the last four years strengthens my concern that too many people vote for what they don’t want, chiefly because they don’t understand how what they want fits in with everything else. I wonder how many people who think they want taxes abolished or reduced to negligible amounts, and who desire the abolition of the IRS, will be joyous when the face the consequences. It’s not just a revenue price that will be paid for eliminating government.

When Taxpayers Claim Credits To Which They’re Not Entitled, Who Loses?

The headline in this report caught my eye. It states, “Bogus Electric Vehicle Tax Credits May Be Costing IRS Millions.” I do understand, from my newspaper friends, that headlines often are written by someone other than the person who writes the article. But no matter who wrote the headline, I beg to differ.

It’s not the IRS that bears the burden of the reduced revenue. The burden falls on the other taxpayers. To think that the IRS is “something over there” and that it lost money is misleading. Perhaps an example will help. A customer purchases an item from a store on credit. The customer doesn’t pay. The store turns the account over to a collection agency. The collection agency finds the customer and persuades the customer to write a check for the amount owed. The check bounces. Who loses? Yes, the collection agency might get a reputational bad mark, and perhaps doesn’t collect its fee, depending on the terms of the contract. But it’s the store that loses. When the IRS fails to collect tax, or lets an unjustified credit reduce tax payments, the taxpayers lose. It’s that simple.

So I would have written this headline: “Bogus Electric Vehicle Tax Credits Harm Honest Taxpayers.” It’s that simple.

The Twisted “Logic” of Tax Break Giveaway Justification

A few days ago, I read a Philadelphia Inquirer article that not only strengthened my opposition to the New Jersey tax break giveaway, but that should make it even more obvious that my proposal, to provide deductions, credits, and exemptions only when promised benefits are generated, is becoming a necessity in the design of tax policy. Readers of MauledAgain know that one of the promises, substantial numbers of jobs for unemployed Camden residents, did not pan out. I have written about this failure in a series of posts, including The Tax Break Parade Continues and We’re Not Invited, and previously in When the Poor Need Help, Give Tax Dollars to the Rich, Fighting Over Pie or Baking Pie?, Why Do Those Who Dislike Government Spending Continue to Support Government Spenders?, When Those Who Hate Takers Take Tax Revenue, Where Do the Poor and Middle Class Line Up for This Tax Break Parade?, Another Flaw in the New Jersey Tax Break Giveaway, No Tax Break Until Taxpayer Promises Are Fulfilled, The Cost of Creating 27 Jobs? $8,000,000,000 in Tax Break Giveaways, and When Tax Break Giveaways, Praised as “Investments,” Deliver Low Returns.

So it’s time to add another promise to the list of disappointments. The flaw is in the New Jersey law, so it’s not a matter of the tax break giveaway recipients failing to deliver. The law permits the tax break giveaway recipients to include, in their list of why the tax break will generate more benefits than it will cost New Jersey taxpayers, the property taxes that would be paid on the facilities that the recipients promise to build. The bizarre twist to this logic is that the recipients are permitted to include those property taxes in the computation of benefits the recipients will provide to the taxpayers even though in some instances the recipients would not be paying any property taxes because they would be building on exempt property.

In other words, when benefits to New Jersey residents is calculated in an effort to demonstrate they exceed the tax break, the tax break giveaway recipients are credited with paying property taxes that they won’t be paying. So now these tax breaks turn out to have been “justified” by claiming that the recipients would create jobs and pay property taxes, even though very little of the former and in some instances none of the latter materialized.

The importance to the recipients of this fake credit cannot be disregarded. One company was credited with almost $5 million of property taxes, taxes that it would not pay but that it was permitted to count as a benefit to New Jersey taxpayers, and even with that credit the total of those benefits exceeded its $260 million tax break by only $155,000. Take away the unpaid fake property tax credit, and that tax break, unsurprisingly, becomes a tax burden for the rest of New Jersey’s taxpayers. Allegedly, this company will negotiate some “payments in lieu of taxes” in favor of Camden. The New Jersey agency administering the program determined that another company, recipient of almost $140 million in tax breaks, would generate a net benefit to New Jersey of $2,500, by including $2.5 million in property taxes that the company expected it would not be paying. In all fairness, the companies did not make the computation, and some did not see the results of the computations made by state agency employees. Yet they, through representatives, lobbied for the law in question.

So how did this nonsense end up in the New Jersey statutes providing these tax break giveaways? It appears that some “politically connected” law firms “helped write the legislation,” and then represented the recipients when they applied for the giveaways. The law’s supporters continue to claim all of this was necessary in order to bring development to Camden, and that it will create thousands of jobs. I wonder how many of these supporters also claim to be advocates of “free markets” that are unhampered by government regulation and interference.

The former head of the state agency involved in approving the tax breaks, when asked if including property taxes in the computation that weren’t going to be paid, “essentially allowed projects to get through even though they weren’t paying for themselves,” testified that he “would say that’s a pretty accurate statement.” Is there any better commentary on the foolishness of the tax break giveaway program than this admission?

So I again propose that all tax breaks ought to work the way many already do. First do something. Then claim a credit or deduction. If the taxpayer needs seed money to engage in the activity that the taxpayer claims will generate the promised benefits, the taxpayer can borrow the money, perhaps even from the state or locality, at a market rate of interest, with strict protection of taxpayers against the risk of failure.

Financial and Tax Literacy Education in High Schools: There Ought To Be a Law?

For almost as long as I have been writing commentaries on MauledAgain, I have time and again addressed the need for financial and tax literacy education in high schools. The problems that arise for people deficient in that literacy are numerous, serious, and sometimes irremediable. A select list of my postings on this topic include Economically Depressing?, Does It Matter Who or What is to Blame?, Promising Progress on the K-12 Tax Education Front, A School Tax Question: So Whose Job Is It to Teach Financial Literacy? , Additional Thoughts on Financial Literacy . . . and Taxes, Financial Literacy and Economic Inequality, and Making Headway on Financial Literacy Education?.

Now comes news in this Philadelphia Inquirer article that Dan Laughlin, a legislator in the Pennsylvania Senate has introduced a bill requiring high schools to teach a course on personal finance and to award academic credit to those who successfully complete the course. My reaction to the proposal is three-fold. First, of course this makes sense and causes me to wonder why it took so long. Second, of course there ought to have been this sort of course created and offered years ago and ought not have reached the point where the legislature must compel high schools to do this. Third, I think the list of topics that the bill requires to be taught – “understanding financial institutions, using money, learning to manage personal assets and liabilities, creating budgets, and any other factors that may assist an individual in this commonwealth to be financially responsible“ – isn’t long enough, or at least needs more specificity beyond the catch-all “other factors” language. The bill passed the state Senate unanimously, and is now in the state House of Representatives.

One question that has popped up is how the course would be funded. Laughlin claims that enactment of the proposal would be revenue neutral. Is that possible? Yes, if this course replaces another course taught by someone already on the high school faculty, or if someone already on the faculty opts to add the course to his or her workload. The likelihood of those things happening is far from certain.

Pennsylvania is not the first state to pass this sort of legislation. A handful of states do so, including New Jersey, which enacted a requirement that financial literacy be incorporated into the middle school curriculum. But schools need not wait for legislatures to command them to teach these sorts of courses. For example, according to the Philadelphia Inquirer article, two teachers at Aspira Olney High School in Philadelphia have been co-teaching a personal finance course for a few years, though they had to obtain a grant and seek donors to fund the course. One of the two had to write his own textbook for the course, which suggests that there is a shortage of appropriate materials for the course.

Teachers who need to learn how teach, or what to teach in, this sort of course can use resources provided by the Philadelphia Federal Reserve Bank, and in the process earn professional development credit. Perhaps those with business school degrees and those who took one or a few business courses could jump in more easily and more quickly.

There are those who might argue that this sort of education should be undertaken at home. Yes, that would be ideal. Even getting children started on some basic concepts while they are at home would be helpful. Unfortunately, there are many, perhaps too many, parents who themselves lack the understanding of these matters, let alone the ability to teach financial literacy to their children. I addressed this concern in A School Tax Question: So Whose Job Is It to Teach Financial Literacy? , in which I wrote:

The role of K-12 education is two-fold. It is to prepare students to live life, and to prepare students who wish to continue their education to do so. To prepare students to live life, the K-12 system needs to teach the things that ought to be known or understood by all citizens regardless of chosen profession. Financial literacy is one subject that comes to mind, along with civics, first aid, reading, writing, and arithmetic.

My advice to K-12 educators throughout the nation is simple. Start teaching financial and tax literarcy before being compelled to do so by the legislature, because when and if the legislature decides to mandate these courses, it might inject itself into the process to a degree much more intense than you would prefer.

The Planetary Scope of Ignorance

I deplore ignorance. If there is any one theme that has sustained itself through all of the activities in which I have engaged, it is my effort to curtail ignorance. Though I doubt ignorance can be exterminated, I have no intention of stopping my efforts. Every little dent in ignorance is a step forward for the entire species. It is no surprise that I write about ignorance fairly often. Consider this sampling of my commentaries: 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, Tax Ignorance or Tax Deception?, The Institutionalization of Ignorance, Is Tax Ignorance Eternal?, and Who Should Be Fixing the Ignorance Problem?.

Many of my discussions of ignorance have focused on tax ignorance, and almost all of my discussions have involved stories originating within the United States. But ignorance knows no national boundaries. A recent Deloitte survey in the United Kingdom reveals how serious the ignorance problem has become. The survey was in the form of a quiz about taxation in the United Kingdom. The highest possible score was 30. The average person surveyed scored 10.6, with almost half scoring 10 or less. What is even more frightening is that those aged 18 to 24 scored the lowest. Only 19 percent of those surveyed could identify the top income tax rate.

Matt Ellis, Deloitte’s managing partner for tax and legal matters explained why it is important for people to understand basic tax concepts even if they are not tax professionals. "It’s important that people – especially younger generations entering the workplace for the first time – understand what is deducted from their pay slip and why." Daniel Lyon, Deloitte’s head of tax policy, noted, Educating people on tax affairs could help to inform both people and policy. In order to ensure a UK tax system in which people are satisfied with how much they pay and why, education is key.” Interestingly, 76 percent of those surveyed agreed that basic tax concepts and information should be taught more in schools.

Education about tax matters. So does education about pretty much anything. Unfortunately, when access to education is denied, or education is underfunded, or those who should be seeking education instead seek something else, the long-term consequences are dire. There is a connection between lack of education or insufficient education and the willingness to accept foolish ideas, believe false information, or to go along with a scam artist.

Ignorance isn’t a problem threatening just one nation. It threatens every nation. It is a planetary scourge, at the root of many of the problems people identify and want to solve. Without addressing the ignorance issue, attempts to solve the world’s problems are far less likely to succeed.

Clamoring for Tax Basis Indexing AND Special Low Rates: Inspired by Greed

Grover Norquist is at it again. Not that he has ever stopped his crusade against taxes and his efforts, to use his words, to “drown [government] in the bathtub.” I have written about his dangerous anti-tax campaigns in posts such as Debunking Tax Myths?, If the Government Collects It, Is It Necessarily a Tax?, Tax Policy, Elections, and Money, and Tax Ignorance or Tax Deception. Aside from criticizing his bullying tactics in trying to force his anti-tax ideology onto the nation, I have roundly dissected his arguments and demonstrated the deep flaws in his premises and his reasoning. I have also discussed the atrocious outcomes in places where his tax and government philosophy has prevailed, though for a short time given the need to reverse the bad decisions based on his advice. In all fairness, he and I do agree on at least one thing, the futility of putting tax return preparation in the hands of the Internal Revenue Service, so he’s not totally beyond redemption.

Two weeks ago, Norquist, as president of Americans for Tax Reform, sent a letter to Senator Mitt Romney. He told Romney that he, Romney, was wrong to argue that the President lacks authority to index capital gains. Norquist’s argument is that the word “cost” – which is one of many benchmarks for computing basis, which in turn is used to compute gain – can be interpreted to mean “cost plus inflation.” He relies on Verizon v. FCC, a 2002 decision by the Supreme Court, in which the court determined that the word “cost” in the context of rate setting under section 252(d) of the Telecommunications Act of 1996. The case, though, has no bearing on the issue of indexing tax basis because it involved a different statute, did not address inflation or indexing, was focused on the inclusion or exclusion of future costs in contrast to historical costs, and involved a statute giving an administrative agency a interpretative delegation authority for which there is no comparable provision dealing with tax basis. It is no surprise that the Department of Justice has concluded that the executive branch, specifically the Treasury, has no legal authority to index tax basis for inflation.

Norquist also argues, quoting the Tax Foundation, that “the lower rate on capital gains does not mitigate the inflation issue, as taxpayers still face tax liability whether they made a real gain or real loss.” That is such nonsense. How, for example, is a taxpayer whose capital gains tax rate is zero percent end up facing tax liability on capital gains? Or consider these comparisons between capital gains taxed at the maximum capital gains rate and capital gains computed with indexed basis but taxed at regular rates. For purposes of simplicity, I will use a 20 percent capital gains rate and a 40 percent regular rate. A person purchases an asset for $10, and later sells it for $100. The $90 capital gains, taxed at 20 percent, generates tax liability of $18. Assume instead, that inflation has doubled, and the $10 basis is indexed to $20. The gain of $80, taxed at 40 percent, generates tax liability of $32. That’s not an improvement for the taxpayer. Assume instead, that inflation has quadrupled, and the $10 basis is indexed to $40. The gain of $60, taxed at 40 percent, generates tax liability of $24. That’s still not better for the taxpayer. It’s only when inflation would cause a roughly six-fold increase in of basis, to $60, that the $40 gain, taxed at 40 percent, would generate a tax lower than $18.

Norquist also quotes the Tax Foundation with this tidbit of a jewel: “Indexing provides important protection for all citizens, even those who have no capital gains, by reducing government’s ability and incentive to raise effective tax rates by inflating the currency.” Those without capital gains are subject to tax rates that already are indexed for inflation. Those with capital gains are subject to tax rates that are substantially lower than regular tax rates. Why the push for indexing when special low rates already exist? The answer is easy.

What Norquist and his money-addicted acolytes want, of course, is BOTH indexing AND special low rates. Oink, oink. Norquist claims it is wrong to tax inflation. Fine. As I explained last month in The Menace of Impetuous or Maniplative Tax Policy Announcements and When Lower Tax Rates Aren’t Enough, I am opposed to indexing capital gains unless there is a concomitant repeal of the special low tax rates for capital gains, as I described in. One or the other. Not both. Greed is bad. Very bad.

As I pointed out in If the Government Collects It, Is It Necessarily a Tax?, “Grover Norquist is not a tax guru. He does not practice tax law, nor tax accounting. He is not a commercial tax return preparer. He would struggle to earn points on any well-designed tax law exam.” So why should legislators charged with setting tax policy take tax policy advice from him?

When Tax Break Giveaways, Praised as “Investments,” Deliver Low Returns

As I wrote not long ago, I am not a fan of the New Jersey tax break giveaway that promised substantial numbers of jobs for unemployed residents of Camden. I reject the idea of jobs being created by giving tax breaks to wealthy individuals and corporations that do not need more employees. I have written about the flaws of this approach, particularly the New Jersey tax break giveaway, in posts such as The Tax Break Parade Continues and We’re Not Invited, and previously in When the Poor Need Help, Give Tax Dollars to the Rich, Fighting Over Pie or Baking Pie?, Why Do Those Who Dislike Government Spending Continue to Support Government Spenders?, When Those Who Hate Takers Take Tax Revenue, Where Do the Poor and Middle Class Line Up for This Tax Break Parade?, Another Flaw in the New Jersey Tax Break Giveaway, No Tax Break Until Taxpayer Promises Are Fulfilled, and The Cost of Creating 27 Jobs? $8,000,000,000 in Tax Break Giveaways.

There are people in New Jersey who agree with me, including the governor. He appointed a task force to explore the extent to which these tax break giveaways have generated the promised benefits. A New Jersey Senate panel also is hearing testimony on the issue. According to this Philadelphia Inquirer article, the CEOs of two of the companies receiving these tax breaks have testified that but for the tax breaks they would have placed their offices in a state other than New Jersey.

Susan Story, CEO of American Water, one of the recipients of the tax break giveaways, stated, “Incentives are and should be smart investments for the future of underserved or economically distressed cities throughout our state. They should be carefully designed, implemented, and tracked to ensure they are delivering as promised.” The investigation by the task force has turned up evidence that these tax break giveaways are not “delivering as promised,” along with other evidence of improper procedures in the granting of the tax break giveaways. When eight billion dollars in tax breaks generate 27 jobs among the group identified as the intended beneficiaries of the tax break, the tax break surely deserves being tagged as a giveaway, and not to the intended beneficiaries.

What boggled my mind were the attempts by two CEOs to justify the giveaways. Tom Doll, CEO of Subaru of America, another tax break giveaway recipient, revealed that “Doll said the company had contributed more than $5 million to Camden-based charitable organizations since 2016.” That sounds wonderful, until one remembers that the company received $118 million in tax breaks. Story, of American Water, noted that her company had “donated $900,000 to a local nonprofit that teaches Camden students how to use technology, with a goal of later hiring some of those people,” and “had contributed $200,000 to the Camden School District for science and technology studies, and donated computers and other equipment.” Again, that sounds wonderful, until one remembers that American Water received $164 million in tax breaks.

The dynamic of threatening to locate or relocate in another state needs further analysis. The short-term reaction by legislators is the temptation, often followed, to dish out tax breaks for fear of losing a business to another state. Yet that other state, as it continues to issue its own tax breaks to attract companies, will find itself facing revenue shortfalls, requiring it either to raise taxes on other companies and individuals, or curtailing services. That, in turn, will encourage those other companies and individuals to relocate, perhaps to the state that originally refused to be blackmailed into creating a no-tax or low-tax paradise for the companies issuing the original relocation threats. Economics, including tax policy, and like nature, continually seeks to rebalance things, though it doesn’t happen overnight and sometimes takes years.

As I’ve argued for years, the deal with these companies should be along the lines of the following: “OK, if you relocate here, or stay here, and prove that you generated the economic benefits you are promising, then, and only then, will you receive a tax break.” It’s that simple. If every federal, state, and local government adopted that approach, the economy would improve. Don’t believe me? Try it. Prove me wrong.

Rescuing a Legislature Not Prepared to Define “Prepared Foods”

The other day, in A Sales Tax Question: What Is “Prepared Food” And Who Should Define It?, I described the clamor that arose in Connecticut when the Department of Revenue Services defined “prepared foods,” on which an additional one-percent sales tax is imposed, in line with definitions used in other states following the general principles set down in the Streamlined Sales and Use Tax Agreement. As I wrote, “Essentially, legislators claim that the executive branch has included more items in the definition that the legislature intended.” I concluded

It seems to me that if the legislature wanted the additional one percent sales tax to apply to specific items but not other items, it could have, and should have, incorporated into the statute a definition of “prepared foods.” The concern isn’t so much which items are included, but the lack of guidance provided by a legislature some of whose members are complaining about failure to follow legislative intent but who could have provided specific legislative intent by drafting a precise statute. Some of the items included in the list prepared by the Department of Revenue Services would be treated as prepared foods in other states and some would not. It is the legislature that needs to make the determination. If there are items that legislators are “shocked” to see included in the list of “prepared foods” they could have avoided the situation by inserting into the statute the items that they do not consider deserving of being subjected to the additional one percent sales tax. Alternatively, they could have taken the definition used in another state and adopted it or adapted it. Legislators need to understand that imprecise and ambiguous legislation invites executive branches of government to finish the legislative tasks the legislature did not complete.

Reader Morris has alerted me that now comes a revised policy statement from the Department of Revenue Services explaining that the one-percent additional sales tax on “prepared foods” would apply only to items subject to the basic sales tax, and not to additional items. The Department pointed out that there were two possible interpretations of the statutory amendment, and chose to shift its position from one to the other in response to the outcry from the legislature. I continue to wonder why the legislature could not have made itself clear from the outset, rather than needing rescue from an executive agency.

Are Taxes the Deterrent Some Claim Them to Be?

Politicians, lobbyists, oligarchs, and some others often use the “taxes deter investment” and “taxes chase people out of states and cities” arguments to defend reducing taxes for people whose after-tax income is plentiful. Legislators too often buy into these claims, sometimes offering anecdotes and often relying on a theoretical construct that relies on assuming people dislike taxes so much that they are willing to uproot themselves to avoid them.

Recently, as reported in this Philadelphia Inquirer story, Pew Charitable Trusts conducted a “first-of-its-kind” survey to determine why approximately 60,000 people move out of Philadelphia every year.

The top reasons people leave are jobs and safety. For people with school-age children, the top reason was “better schools.” Interestingly, no one reason was dominant. Many survey respondents provided more than one reason. Most people who left the city weren’t so much escaping Philadelphia but were heading for “new opportunities elsewhere.” Roughly 70 percent of those who departed agreed that Philadelphia is a “good or excellent place to live.”

Interestingly, to quote the story, “What didn’t get mentioned much, particularly in the open-ended responses: local taxes.” Only six percent of the respondents mentioned taxes in writing their responses to an open-ended question asking why they moved away. When answering a specific question about ““high taxes in Philadelphia,” only 22 percent classified it as a major reason for leaving.

So much for the canard that taxes are the primary, or even a major, reason people move from one place to another. What tax policy needs are more empirical surveys of practical reality and fewer theories that make for tempting sound bites but offer little in the way of solid foundation.

A Sales Tax Question: What Is “Prepared Food” And Who Should Define It?

Some states that impose sales taxes require those taxes to be collected on the sale of “prepared foods.” Effective administration of a sales tax requires a definition of “prepared food.” Many states follow the model definition offered by the Streamlined Sales Tax Governing Board, with and without variations. See, for example, the definition in the Streamlined Sales and Use Tax Agreement. Some states make tweaks to the suggested definition. Thus, for example, New Jersey provides this definition:

Sales of prepared food are subject to Sales Tax. Prepared food, which includes beverages,
means:
• Food sold in a heated state or heated by the seller; or
• Two or more food ingredients combined by the seller and sold as a single item; or
• Food sold with eating utensils provided by the seller.
Food that is only cut, repackaged, or pasteurized by the seller, as well as eggs, fish, meat, poultry, and foods that contain these raw animal foods that require cooking by the consumer are not treated as prepared food. The following are not treated as prepared food, unless the seller provides eating utensils with the items:
• Food sold by a seller that is a manufacturer;
• Food sold in an unheated state by weight or volume as a single item; and
• Bakery items sold as such, including bread, rolls, buns, bagels, donuts, cookies, muffins, etc.

West Virginia provides this definition:

Prepared food is defined in any one of the following ways:
A. Food sold in a heated state or heated by the seller.
B. Food items that are combined by the seller for sale as a single item except:
1. Food that is only cut, repackaged or pasteurized by the seller.
2. Eggs, fish, meat, poultry and foods containing these raw animal foods requiring cooking by the consumer as recommended by the Food and Drug Administration.
3. Foods sold in an unheated state by weight or volume as a single item unless sold by the seller with utensils.
4. Bakery items, including bread, rolls, buns, biscuits, bagels, croissants, pastries, donuts, Danish, cakes, tortes, pies, tarts, bars, cookies and tortillas unless sold by the seller with utensils.
5. Food sold by a seller that is primarily a manufacturer (NAICS section 311), except Bakeries (section 3118) unless sold by the seller with utensils.

Maine provides this definition:

The definition of “prepared food” contains three categories:
(1) All meals served on or off the premises of the retailer. This category includes sandwiches (whether prepared by the retailer or by someone else) and heated food. However, fully-cooked frozen sandwiches are not considered “prepared food” and are therefore subject to the general sales tax rate. See Instructional Bulletin No. 12 (“Retailers of Food Products”) for more information.
(2) All food and drink prepared by the retailer and ready for consumption without further preparation. This category includes:
a. Food products that are not individually prepackaged for resale and that are served from self-serve areas (such as salad bars and “coffee nooks”) designed to offer customers food for immediate consumption;
b. Food prepared for sale in a heated state regardless of cooling that may have occurred, such as pizza, pieces of chicken, convenience meals, or rotisserie chicken;
c. Bakery items such as cookies, donuts, bagels, etc., that are prepared by the retailer;
d. Deli and bakery platters, such as cold cuts, cheeses, appetizers, finger rolls, bakery products, crackers, and fruits or vegetables.
“Without further preparation” means that the product does not require boiling, frying, grilling, baking or cooking. “Further preparation” does not include toasting, microwaving, or otherwise heating a product for palatability (rather than for the purpose of cooking the product).
(3) All food and drink sold by a retailer at a particular retail location when the sales of food and drinks at that location that are prepared by the retailer account for more than 75% of the gross receipts reported with respect to that location by the retailer. See Paragraph C(2) below for details on how to calculate the “75% rule.”
The definition of “prepared food” excludes “bulk sales of grocery staples.” See Section 4 below. Other than deli and bakery platters, “prepared food” does not include cutting and repackaging a grocery staple. For example, a pound of ham sliced from the deli case as requested by the customer, or fruits/vegetables that are cut and repackaged in cups or bowls, are exempt “grocery staples.”

Similar definitions are provided by many other states.

It is against this background that a dispute has arisen in Connecticut over the meaning of “prepared food,” as reported in this Hartford Courant story. Essentially, legislators claim that the executive branch has included more items in the definition that the legislature intended. The statute in question imposes an additional one percent sales tax on restaurant food and “prepared meals.” The Department of Revenue Services included within the scope of the additional sales tax items such as “popsicles and other frozen treats, doughnuts and bagels, pizza slices, hot dogs, smoothies, power bars, a hot bag of popcorn, and even pre-packaged bags of lettuce and spinach,” as well as “beer, fruit juices, milkshakes, hot chocolate, wine and distilled alcohol like brandy or rum, . . . coffee and tea if purchased prepared to drink, rather than as coffee grounds or in tea bags.”

It seems to me that if the legislature wanted the additional one percent sales tax to apply to specific items but not other items, it could have, and should have, incorporated into the statute a definition of “prepared foods.” The concern isn’t so much which items are included, but the lack of guidance provided by a legislature some of whose members are complaining about failure to follow legislative intent but who could have provided specific legislative intent by drafting a precise statute. Some of the items included in the list prepared by the Department of Revenue Services would be treated as prepared foods in other states and some would not. It is the legislature that needs to make the determination. If there are items that legislators are “shocked” to see included in the list of “prepared foods” they could have avoided the situation by inserting into the statute the items that they do not consider deserving of being subjected to the additional one percent sales tax. Alternatively, they could have taken the definition used in another state and adopted it or adapted it. Legislators need to understand that imprecise and ambiguous legislation invites executive branches of government to finish the legislative tasks the legislature did not complete.

The Cost of Creating 27 Jobs? $8,000,000,000 in Tax Break Giveaways

I am not a fan of the New Jersey tax break giveaway that promised substantial numbers of jobs for unemployed residents of Camden. Readers of MauledAgain know that I reject the idea of jobs being created by giving tax breaks to wealthy individuals and corporations that do not need more employees. I have written about the flaws of this approach, particularly the New Jersey tax break giveaway, in posts such as The Tax Break Parade Continues and We’re Not Invited, and previously in When the Poor Need Help, Give Tax Dollars to the Rich, Fighting Over Pie or Baking Pie?, Why Do Those Who Dislike Government Spending Continue to Support Government Spenders?, When Those Who Hate Takers Take Tax Revenue, Where Do the Poor and Middle Class Line Up for This Tax Break Parade?, Another Flaw in the New Jersey Tax Break Giveaway, and No Tax Break Until Taxpayer Promises Are Fulfilled.

In that last post I commented on the news that the New Jersey tax break giveaway lacked oversight, and that New Jersey had “failed to hold companies accountable for the jobs and investments they promised.” The news followed an audit by the state’s comptroller, whose office was unable to verify the 3,000 jobs that the tax break recipients claimed to have created or kept.

Now comes more news, and it isn’t good for the folks who engineer tax breaks for their friends by making claims that those giveaways are for the benefit of the unemployed in Camden who seek jobs. This time, the state’s Economic Development Authority examined 25 construction projects undertaken in Camden by companies receiving the tax breaks. Aside from the fact those jobs are temporary, it is unclear whether those 1,098 jobs involved hiring 1,098 individuals or included jobs held in succession by one individual. In any event, the report refers to individuals, and reveals that of the 1,098 construction jobs, only 27, or 2 percent, went to residents of Camden. Almost one-fourth went to individuals not resident in New Jersey, and three-fourths went to individuals living beyond the boundaries of Camden County, in which Camden is located. So much for bringing jobs to Camden. It would have been cheaper for the state to have sent checks to those 27 Camden residents.

Supporters of the giveaway called the report “meaningless.” Why? They claim that jobs other than construction jobs were unreported. The report was limited to construction jobs because the only information available to the Economic Development Authority was construction payroll reports. The authority’s failure to obtain information demonstrating the promised job creation was one of the reasons for the audit of its operations, and the political turmoil that ended with the non-renewal of the tax break giveaway program, an outcome for which I advocated. Supporters also claimed there were construction projects not included in the authority’s report. Even if several hundred additional jobs were created in Camden, as the tax break supporters argue, it still would have been cheaper for the state to write a check than to shell out the $8 billion in tax breaks it handed to the politically privileged enterprises that grabbed those tax cuts.

I continue also to advocate for a different approach to the “tax cuts and promised jobs” snake oil sales pitch offered by the wealthy who are starving. The process should be reversed, and companies that want to claim a job creation tax break should be required first to produce iron-clad evidence that jobs have been created and maintained for a specified period of time. This approach would spare tax breaks from becoming victims of broken promises. Broken promises have no place in a tax system.

Who Should Be Fixing the Ignorance Problem?

Too often, I have observed the menace that ignorance presents to civilization. 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, Tax Ignorance or Tax Deception?, and The Institutionalization of Ignorance.

Now comes a survey from the American Council of Trustees and Alumni (ACTA) that explored the state of “civics education at the postsecondary level.” The results are frightening:

26% of respondents believe Brett Kavanaugh is the chief justice of the U.S. Supreme Court, and 14% of respondents selected Antonin Scalia, who died in 2016. 15% of the college graduates surveyed selected Brett Kavanaugh. Fewer than half correctly identified John Roberts.

18% of respondents identified Congresswoman Alexandria Ocasio-Cortez (D-NY), a freshman member of the current Congress, as the author of The New Deal, a suite of public programs enacted by President Franklin D. Roosevelt in the 1930s. 12% of the college graduates surveyed selected Alexandria Ocasio-Cortez.

63% did not know the term lengths of U.S. Senators and Representatives. Fewer than half of the college graduates surveyed knew the correct answer.

12% of respondents understand the relationship between the Emancipation Proclamation and the 13th Amendment, and correctly answered that the 13th Amendment freed all the slaves in the United States. 19% of the college graduates surveyed selected the correct answer.

It’s one thing to be ignorant of the nuances of quantum physics, or the computation of stress loads on bridges, but it’s a totally different matter when people are ignorant of the core principles that hold together civilized society.

In its description of the survey, ACTA says this about the civic knowledge crisis:

Colleges and universities contribute significantly to the problem by chipping away at their core requirements in essential areas of knowledge: students graduate unprepared for informed citizenship and the workforce. U.S. history is often first on the chopping block: Only 18% of colleges require students to take foundational courses in U.S. government or history.

Its president explained:

Colleges have the responsibility to prepare students for a lifetime of informed citizenship. Our annual What Will They Learn? report illustrates the steady deterioration of the core curriculum. When American history and government courses are removed, you begin to see disheartening survey responses like these, and America’s experiment in self-government begins to slip from our grasp/

Though there certainly is a role for institutions of higher learning to assist students in learning civics, too often colleges and universities are tasked with remedial education to offset the damage caused by the failure of K-12 educators to teach these core principles to their students. Parents also must share in responsibility for this failure, because the opportunity to explain basic principles to their children pop up daily. Of course, part of the problem is that so many of the parents are themselves ignorant about too many things.

If every high school graduate heading for college was properly educated and prepared, there would be no need for institutions of higher learning to offer courses that cover material and issues that ought to be in the K-12 curriculum. That’s not a proposal to eliminate advanced courses that offer opportunities to do deeper analyses of the core principles. For example, at the K-12 level, students need to learn that there are three branches of the federal government, that there are two chambers in Congress, that Senators are elected to a six-year term, and similar basic information. When students reach college, those who are interested can enroll in courses that explore whether there should be term limits, or what the consequences of eliminating the electoral college might be. Every remedial course that a college student needs to take makes it almost certain that the student will lose the opportunity to take a course that pushes analytical skills and knowledge to a higher level. That’s why it is essential for K-12 education systems to deal with this problem.

If I were to run for President – and fear not, I have no plans to do so – my slogan would be “Make America Well Informed Again.” That pretty much would solve many existing and future problems.

Is Tax Ignorance Eternal?

It’s been a while since I have written about the absurd claims tossed about concerning the size of the Internal Revenue Code. If I were to write every time someone published misinformation about that issue, I would be spending most of my time writing blog posts. As it is, I have dealt with these ignorant claims in many posts, beginning with Bush Pages Through the Tax Code?, and continuing with 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, and Incorrectly Breaking Down the Internal Revenue Code.

Reader Morris recently directed my attention to an online discussion initiated by someone asking, “Is the US tax code only 2,600 pages long?” This person was reacting to a report questioning the erroneous claim that the Code contains 70,000 pages, pointing out that numerous web sites and other sources repeat this error, concluding that the Code is not 70,000 pages long, and suggesting that it is “about 2,600 pages long.” The person starting the discussion reacted to this report by asking “Is 2,600 really a more accurate number when it comes to speaking about the size of the US tax code?”

Responses ranged from sensible to frightening. One person suggested that “you have to read 70,000 pages to understand the tax code.” Perhaps that is true, perhaps it isn’t, but reading pages that are not part of the Code does not make those pages part of the Code.

After another person pointed to a web site making the 2,600 page claim, yet another person pointed out how that number was computed by quoting that site: "In the 2013 edition, the last page is numbered 4,037. Now, that’s not exactly right either, for two reasons: The book starts at page 100, and then skips 500 pages in its numbering...," and then pointed out that the author of that site subtracted another 800 pages to get to the estimate of 2600. That person then explained that the quote “claims an actual book, apparently available to tax preparers (the author seems to claim to be one).” The actual “book” would be title 26 of the United States Code, available to anyone. That title also has been published by commercial companies, and those books also are available to anyone. There is no “secret Code” floating about available only to tax preparers. To this, another respondent argued, “I wouldn't consider the tax code a book either.” Sorry, it’s a book. Yes, it also has been published in digital format, but it is a book.

One person commented that the Code contains 3,700,000 words, requiring 10,000 pages because there are 250 to 300 words per page. Another respondent disputed the words-per-page number, arguing that it should be 500, whereas someone else claimed it should be between 700 and 1500. The actual number depends on font and margin, but using the font and margin used in most publications of the Code, the number is roughly 700.

One person pointed out that word counts make more sense than page counts, and I agree. Without an agreed-upon font and margin parameter, changes in the number of words per page change the number of pages.

One person, replying to another, stated, “There are three levels that could reasonably be referred to as tax code: the U.S.C., the CFR, and official IRS guidance that does not arise to level of rule-making. Unless people use specific terms like "United States Code" and "Code of Federal Regulations", they are not being precise. Saying the tax code is only 2,600 pages, by ignoring the CFR and only considering the USC is misleading.” What nonsense. The term “Internal Revenue Code,” or “Code” when used in that context, refers to the CODE, which is title 26 of the United States Code. Regulations in the Code of Federal Regulations (CFR) are NOT part of the Internal Revenue Code and are not part of title 26, or any other title for that matter, of the United States Code. The same is true of IRS guidance.

Another commenter pointed to the Government Printing Office web site, claiming that the Code is 3,998 pages. But the books being sold to which the commenter refers contain annotations, which are not part of the Internal Revenue Code. Those annotations contain references to amendments, and show what the Code looked like before each amendment. In many instances the annotations to a Code section are multiple times the size (in words and pages) of the Code section in its current form.

Still another person suggested that the 70,000 page total reflects a total of federal and state tax codes. That’s possible, but it answers a different question.

Even though the number of pages in the Internal Revenue Code can be debated because of font and margin issues, it hasn’t yet reached 2.600. The number of words has not yet reached 3,700,000. To those who want to write about this issue, go ahead and count the words in the Internal Revenue Code. As of a particular date, there is one answer.

Unfortunately, the 70,000-page claim, the ten-million-words claim, and the conflating of statute with regulations and guidance won’t go away. The degree to which people attach themselves to these positions and refuse to let go both bewilders me and frightens me. The inability to learn and grow is dangerous.

In Incorrectly Breaking Down the Internal Revenue Code, I wrote, “Ignorance of this sort is appalling. It is dangerous. It is unjustified. It needs to be identified, and discredited. Unfortunately, we live in a world with this sort of misinformation flourishes and spreads. How sad.” Someone needs to convince me that ignorance can be discredited. I now doubt that ignorance can be eliminated.

Fighting Over Tax Dependents When There Is No Evidence

The list of television court show episodes that have inspired MauledAgain commentary is getting longer. That’s not a surprise, because the list of television court show episodes is getting longer. The portion that involve tax issues is very small, but a very small percentage of a very large number is a large number. Yet, I suppose I haven’t seen every television court show that involves a tax issue, so my long list could be even longer. Those who are curious or otherwise interested can check out my previous commentaries arising from television court shows by looking at 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, and When Tax Return Preparation Just Isn’t Enough.

This time, I actually observed a first-time airing of a Judge Judy episode (episode 260 of season 23), in contrast to my usual pattern of watching reruns. I never know what will pop up when I turn on the television to a channel with a court show. This time, I was surprised, because the description of the episode did not give a hint that a tax issue was involved. That happens from time to time.

The plaintiff sued her daughter, claiming that her daughter went to the plaintiff’s storage unit while the plaintiff was in jail, and stole items. The defendant daughter claimed that she went to the storage unit at her mother’s request, found items that the plaintiff had stolen from other people, and gave the items back to those people.

The defendant counterclaimed that the plaintiff claimed the defendant’s children as dependents on the plaintiff’s income tax return. When Judge Judy asked the defendant how much she earned that year, The defendant replied that she had earned about $3,000.

The plaintiff tossed aside the defendant’s counterclaim by explaining that she got “nothing back” from the IRS. But when asked by Judge Judy to prove she did not get “anything back,” the plaintiff offered a document that turned out simply to be a letter from the IRS telling the plaintiff that it was auditing her return and not paying a refund at that time.

Judge Judy asked the defendant to prove that the plaintiff claimed the defendant’s children as dependents. The defendant replied that she had no proof. So Judge Judy dismissed the defendant’s counterclaim. She then dismissed the plaintiff’s claims because the plaintiff had no proof that she owned the items that she claimed had been taken from her storage unit.

What interested me was the plaintiff’s position that not getting a refund somehow could justify dismissal of the defendant’s counterclaim. Suppose that the defendant somehow could prove that the plaintiff did claim the defendant’s children as dependents.

First, if the impact on the plaintiff’s tax situation was relevant, and I doubt that it would be other than to show motive, the issue would not be whether she received a refund. The issue would be whether claiming the children as dependents reduced her tax liability. For example, it could reduce the amount due, which is just as much a benefit as a refund.

Second, if the defendant did prove that the plaintiff claimed the defendant’s children as dependents, and did so improperly, and caused the defendant to not claim the children as dependents, the issue would be whether and if so, how much, of an adverse impact the plaintiff’s action had on the defendant. With such a low income, the value of the dependency exemption deductions to the defendant probably would have been zero, but it is possible the defendant would have qualified for a refundable earned income credit or a more favorable filing status, or both. There were insufficient facts to make this determination, because the defendant’s lack of evidence that the plaintiff claimed the defendant’s children as dependents removed the need to discover those facts. On top of this, iIt is also possible that the defendant would have been told to file an amended return, the statute of limitations not having yet passed, claiming the children, in light of the fact that the plaintiff’s returns were being audited and any possible refund being delayed. In other words, the defendant’s counterclaim might not have been ripe for review.