Another Wealthy Stadium Owner Grabs Taxpayer Money

Here we go again. Those who read MauledAgain are familiar with my opposition to public funding of, and tax breaks for, businesses owned by multimillionaires and billionaires. I have written about this problem, particularly with respect to public financing for the sporting dreams of billionaires, in posts such as Tax Revenues and D.C. Baseball, four years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, Tax Breaks for Broken Promises: Not A Good Exchange, Tax Breaks for Wealthy People Who Pretend to Be Poor, When One Tax Break Giveaway Isn’t Enough, It’s Not Just Sports Franchise Owners Grasping at Tax Breaks, Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park, and Tax Breaks For Starving Team Owners.

Now comes news that the Wisconsin legislature has passed, and the state’s governor intends to sign, legislation that shifts almost half a billion dollars from taxpayers to the owners of the Milwaukee Brewers so that the stadium in which they play can be repaired. I’ll leave to the engineers the question of whether one building that needs that much money for repairs should be fixed or demolished. The legislation succeeded even though the Brewers have sufficient funds to pay for the repairs.

When the legislation passed, a Brewers official stated, ““It’s a great day for the franchise but I think an even greater day for the state.” But is it a great day for taxpayers in the state who aren’t fans of the Brewers?

The governor justified his support by noting that the money will create jobs. On that theory, perhaps all jobs should be financed by taxpayers. Of course, that would make no sense. Just as many jobs would be created if the Brewers paid for their own repairs, just as other property owners pay for their own repairs. Isn’t it interesting that the same politicians who object to government programs to help poor people fix their homes are ferociously eager to use taxpayer funds to help wealthy individuals and corporations fix their properties? There’s some hypocrisy lurking behind this charade.

Of course, the team used the well-worn threat of leaving town if they didn’t get taxpayer money. Then let them leave. If Milwaukee is a great place to have a baseball team and stadium, then free market capitalism will entice another set of owners to move to Milwaukee. And if that doesn’t happen, it demonstrates that Milwaukee cannot support a baseball team in a free market capitalism world. So be it. Interestingly, after making that threat, Brewers officials backed off. Apparently that sort of threat doesn’t make for good public relations.

Supposedly the public funding is palatable because the team is kicking in about 20 percent of the cost. Using that approach, ought not taxpayer funds be used to finance 80 percent of whatever it is that someone wants to purchase? Or is that deal reserved for the wealthy?

Some Republicans in the Senate balked at the original funding plan, and scaled back the state’s contribution from $411 million to $386 million, while the city and county of Milwaukee would kick in $135 million. So where do they get the funds? Unlike the deal in Buffalo that I criticized in Tax Breaks For Starving Team Owners, they apparently aren’t chopping $800 million off the funding of the state’s equivalent of New York’s Office of Children and Family Services. No, instead, they have added a $4 “surcharge” on tickets to non-baseball events and an $10 “surcharge” on luxury suite tickets to non-baseball events. I wonder how baseball fans would react to a “surcharge” on baseball game tickets to fund opera, ballet, and symphonies.

The supporters who claim that it makes sense to fund the wealthy because doing so benefits the public and creates jobs ignore the logic that taking this approach in a fair manner requires public funding for almost everyone, because almost everyone engages in employment, activities, and enterprises that benefit the public and creates jobs. Why doesn’t the person who hires contractors to repair their home get this treatment? Because that homeowner lacks the resources to fund politicians’ campaigns, to hire lobbyists to pressure public officials, and to pay marketers to make the public think that government funding for the stadiums owned by wealthy individuals and corporations is a wonderful thing to do. Worse, they manage to impose “surcharges” on people who are not necessarily fans of baseball or the Brewers. These supporters of public funding for stadiums proclaim their worship of free market capitalism, but when free market capitalism fails to help the wealthy achieve a goal, they are quick to jump in with what gets condemned as socialism if that sort of assistance is proposed for the poor and middle class who encounter free market capitalism failures. The hypocrisy is disappointing and dangerous.

Does This Halloween Practice Foretell a Scary Future?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Does the Size of the Tax Gap Matter?

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

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

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

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

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

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

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

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

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

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

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

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

There’s a better way. Readers of MauledAgain already know, and probably knew when they started reading this commentary, what I am about to write. Yes, it’s the mileage-based road fee. I’ve written about this easy-to-apply-and-enforce concept many times, including posts such as Tax Meets Technology on the Road, Mileage-Based Road Fees, Again, Mileage-Based Road Fees, Yet Again, Change, Tax, Mileage-Based Road Fees, and Secrecy, Pennsylvania State Gasoline Tax Increase: The Last Hurrah?, Making Progress with Mileage-Based Road Fees, Mileage-Based Road Fees Gain More Traction, Looking More Closely at Mileage-Based Road Fees, The Mileage-Based Road Fee Lives On, Is the Mileage-Based Road Fee So Terrible?, Defending the Mileage-Based Road Fee, Liquid Fuels Tax Increases on the Table, Searching For What Already Has Been Found, Tax Style, Highways Are Not Free, Mileage-Based Road Fees: Privatization and Privacy, Is the Mileage-Based Road Fee a Threat to Privacy?, So Who Should Pay for Roads?, Between Theory and Reality is the (Tax) Test, Mileage-Based Road Fee Inching Ahead, Rebutting Arguments Against Mileage-Based Road Fees, On the Mileage-Based Road Fee Highway: Young at (Tax) Heart?, To Test The Mileage-Based Road Fee, There Needs to Be a Test, What Sort of Tax or Fee Will Hawaii Use to Fix Its Highways?, And Now It’s California Facing the Road Funding Tax Issues, If Users Don’t Pay, Who Should?, Taking Responsibility for Funding Highways, Should Tax Increases Reflect Populist Sentiment?, When It Comes to the Mileage-Based Road Fee, Try It, You’ll Like It, Mileage-Based Road Fees: A Positive Trend?, Understanding the Mileage-Based Road Fee, Tax Opposition: A Costly Road to Follow, Progress on the Mileage-Based Road Fee Front?, Mileage-Based Road Fee Enters Illinois Gubernatorial Campaign, Is a User-Fee-Based System Incompatible With Progressive Income Taxation?. Will Private Ownership of Public Necessities Work?, Revenue Problems With A User Fee Solution Crying for Attention, Plans for Mileage-Based Road Fees Continue to Grow, Getting Technical With the Mileage-Based Road Fee, Once Again, Rebutting Arguments Against Mileage-Based Road Fees, Getting to the Mileage-Based Road Fee in Tiny Steps, Proposal for a Tyre Tax to Replace Fuel Taxes Needs to be Deflated, A Much Bigger Forward-Moving Step for the Mileage-Based Road Fee, Another Example of a Problem That the Mileage-Based Road Fee Can Solve, Some Observations on Recent Articles Addressing the Mileage-Based Road Fee, Mileage-Based Road Fee Meets Interstate Travel, If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What?>, Try It, You Might Like It (The Mileage-Based Road Fee, That Is) , The Mileage-Based Road Fee Is Superior to This Proposed “Commercial Activity Surcharge”, The Mileage-Based Road Fee Is Also Superior to This Proposed “Package Tax” or “Package Fee”, Why Delay A Mileage-Based Road Fee Until Existing Fuel Tax Amounts Are Posted at Fuel Pumps?, Using General Funds to Finance Transportation Infrastructure Not a Viable Solution, In Praise of the Mileage-Base Road Fee, What Appears to Be Criticism of the Mileage-Based Road Fee Isn’t, Though It Is a Criticism of How Congress Functions, Ignorance and Propaganda, A New Twist to the Mileage-Based Road Fee, The Mileage-Based Road Fee: Simpler, Fairer, and More Efficient Than the Alternatives, Some Updates on the Mileage-Based Road Fee, and How to Pay for Street Reconstruction. So how about it, Senator Fischer, why not go for the simpler rather than the more complicated? Why not go for what’s fair rather than what’s imprecise? Why not follow the lead of the states that are already working with, experimentally or more conclusively, the mileage-based road fee? And by calling it what it is, a fee and not a tax, it will be easier to obtain support because there is a direct connection between what is being paid and what is being obtained for that payment.

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

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

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

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

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

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

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

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

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

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

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

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

Is a “Tax Expenditure” Necessarily Bad Policy?

David Henderson has written for the for Policy Innovation an interesting commentary addressing “The Bizarre Economics of 'Tax Expenditures'” He points out that tax policy discussions almost always include reference to the term “tax expenditure.” He classifies that term as “internally contradictory.” He bases his conclusion on the premise that something cannot be both a tax and an expenditure.

Henderson gives an example of a tax expenditure. He describes a person who deducts mortgage interest, and in doing so causes his federal income tax to be less than what it would be without the deduction. The reduction in tax liability due to the deduction is a tax expenditure. In that, he is correct.

Henderson then asks, “Why do they call it a tax expenditure?” His answer is wrong. He claims that the term “tax expenditure” rests on the “implicit assumption . . . that there shouldn’t be a deduction for home mortgages.”

Why is he wrong? Let’s step back. There are two ways that the federal government can move money into the private sector. One is a direct expenditure. A direct expenditure is the delivery of a check, an electronic fund transfer, or the delivery of some sort of prepaid card. The other way is to shift money by providing an income tax exclusion, a deduction, or a credit to a taxpayer. A technically precise term for that sort of expenditure would be “expenditure accomplished through the tax system.” Another technically precise term would be “expenditure accomplished through providing an income tax exclusion, deduction, or credit.” Both of those technically precise terms are mouthfuls and make it difficult to speak, to understand when listening, to write, or to read because they clutter sentences and paragraphs. So as shorthand for those technically precise, but verbose, terms people speaking about tax policy and government spending shortened the term to its two most important words, tax and expenditure.

Henderson, proceeding on his claim that the term “tax expenditure” is used to describe exclusions, deductions, and credits that should not exist, says that instead of using the term policymakers and those discussing policy should simply state that “the deduction is bad policy.” But this demonstrates the flaw in Henderson’s position. At present, EVERY exclusion, deduction, and credit is classified as a tax expenditure because EVERY exclusion, deduction, and credit has the same effect of reducing tax liability. According to Henderson’s method of reasoning, because anything termed a “tax expenditure” is something that policymakers and those discussing policy should simply describe as “bad policy,” logic mandates that every tax expenditure, that is, every exclusion, deduction, and credit is “bad policy.” That surely is not the case.

A tax expenditure is nothing more than an equivalent of a direct expenditure. For example, instead of providing a deduction for mortgage interest, the federal government could provide a direct cash subsidy to the homeowner. Currently, the amount of that subsidy would be measured by the homeowner’s tax status. Whether there should be subsidy, however paid or measured, is a different issue than the terminology used to describe one way of providing that subsidy. Tax has a language all its own. Tax expenditure is a term that is part of that language. Calling something a tax expenditure is not, in and of itself, an evaluation of the wisdom of the tax provision causing the tax expenditure.

How to Pay for Street Reconstruction

Apparently, streets in St. Paul, Minnesota, are crumbling. According to this report, the amount of funding available for street maintenance has been holding steady while the cost of repairs and reconstruction has nearly doubled. It’s at the point where the city is reconstructing only one-third as many miles of streets as it did 20 years ago.

So the mayor of the city wants to increase the city sales tax. It would raise $1 billion over the next 20 years, and most of it would be used to rebuild 44 miles of certain streets. The rest would be used to improve city parks, trails, athletic and recreation facilities, and similar projects. To put this in perspective, in the early 2000s, the city annually reconstructed 10 to 15 miles of streets, and now does only 5 miles. So the tax would permit rebuilding 44 miles of streets over 20 years, which comes out to 2.2 miles per year. One billion dollars is an interesting price tag for that sort of marginal improvement.

What strikes me is the disconnect between sales taxes and street use. The streets need reconstruction because streets wear out. They wear out primarily through use, though weather also plays a role. There’s not much of a correlation between retail transactions and street use. Though consumers use streets to get to stores and stores use streets when shipping or receiving merchandise, it is likely that most retail consumers in St. Paul do not use the streets slated for reconstruction. Why not a tax or funding method tied more closely to the use of the streets in question? Another problem is that the proposed sales tax revenue would be used for a handful of streets, leaving the overwhelming number of other streets bereft of funding for maintenance and repairs.

Other proposals offered by St. Paul citizens and officials are likewise disconnected. Raising property taxes presumes a direct connection between property ownership and street use. Though there is a much higher correlation, it isn’t sufficient direct. Cutting funds for libraries and schools makes no sense. Asking non-profit institutions to bear the cost suggests that somehow only non-profit institution, and their members or clients, benefit from street use.

What would work? Readers of MauledAgain will not be surprised by this question from me: why not a mileage-based road fee? I’ve discussed this fee 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, and Some Updates on the Mileage-Based Road Fee.

In all fairness, that question cannot be answered until another question is resolved. Does St. Paul have the authority to enact a mileage-based road fee? I don’t know. Perhaps someone who is expert on Minnesota legislative delegation law has an answer. The same question would need to be answered before a different but similar approach were taken. Why not revenue from a system similar to what is used in cities that impose congestion fees? Congestion fees are nothing more than tolls imposed during high volume periods, and there is no reason the systems in place to collect those fees cannot operate all the time. But I doubt St. Paul has authority to impose a congestion fee or toll on its downtown streets without state authorization. Perhaps I am wrong. Again, a Minnesota legislative delegation law expert might have an answer.

Public officials and citizens should find it helpful to consider use fees, and to think about the connection between public expenditures and revenue sources. Simply grabbing any sort of tax to fund any sort of expenditure is not a pathway to good government.

Complaining About Taxes When Not Understanding Arithmetic and the Time Value of Money

The recent excitement about a lottery prize topping one billion dollars has generated a blizzard of posts, such as this one, claiming that the "government" or "the IRS" will "take" more than half of the winnings. Whether this claim has arisen independently among many writers or is simply the repetition of a computation worked out by one person is a question I don't have the time or inclination to research. What I do know is that whoever makes this claim is wrong, and whoever repeats it has failed to do independent research.

So let's work with a $1 billion lottery prize. The winner can take an annuity, that is, payments over a period of time, or a lump-sum, which is what almost every winner chooses the lump-sum, either because of the attraction of a huge amount of money instantly in hand or because the lump-sum can be invested at rates of return that are better than what is built into the annuity payments.

In recent months, the lump-sum amount for a $1 billion prize has been roughly $516.8 million. What is the federal income tax on a $516 million lottery prize? It depends on how much other income the winner already has. Let's assume the winner is unmarried, has $70,000 in other income, and $20,000 in deductions. The winner's taxable income would be $516,850,000. The federal income tax on that amount of taxable income is $191,197,455 (which is 38.99 percent of the taxable income). The state income tax could range from zero, in states with no income tax, to as much as 13.3 percent, in California. Rather than analyzing dozens of states, let's assume a state income tax of 8 percent, or $41,348,000 in state income tax. The total income tax for the winner would be $232,545,455.

Of the $516,800,000 lottery prize and the $70,000 of other income, the winner keeps $284,324,545. That's 55 percent of the cash prize.

The problem with the "government takes more than half" claim is that people do the following erroneous computation. They consider the winner as having won $1 billion and keeping $284,324,545. That is 28.4 percent of the "prize," and thus, according to the reasoning of whoever makes this claim, the other 71.6 percent must be going to "the government" or "the IRS." The flaw in this reasoning is that the winner does not win $1 billion. The winner chose to waive the $1 billion payable over a period of years in order to get an immediate $516.8 million. Put another way, of the $1 billion, the winner goes home, after taxes, with $284,324,545. That is $715,675,455 less that $1 billion. But only $232,545,455 of the $1 billion is "lost" to taxes. The other $483,130,000 that is "lost" is lost because of the time value of money, which is what converts a $1 billion annuity into a present value lump sum of $516.8 million.

The flaw in the reasoning of the "government takes more than half" alarm bell ringers is a combination of bad arithmetic, bad logic, and bad understanding of the time value of money. In some instances, I suspect that those making the claim fully understand the arithmetic and the logic but are trying to drum up outrage among those with less understanding in order to rally support for their anti-tax, anti-government programs. Whether it is the product of ignorance, a not-so-subtle tactic, or some combination, the claim has gone viral. It shows up on social media posts, mostly by people who also post similar unfounded claims about a variety of topics, as well as popping up in more than a few mainstream media publications.

The price that this country is paying for deficiencies in K-12 education continues to grow much more quickly than the benefits that are being reaped by the "reforms" that are crippling the nation's education systems. Something needs to be fixed, and yesterday isn't soon enough.

I'm Still Here

Reader Morris asked me if my July 11 post was my final post. I assured him, no, it was not. Nor is this post intended to be a final post. My expectation is that I will not know when I have posted my final post. There hasn't been a post for the past three weeks because of several reasons. I've been away. I've been dealing with a variety of things that come with owning a home, and a bunch of them demanded attention at about the same time. The front door lock needed repairs, the trees need attention, the property needed to be powerwashed, most of the cast iron drain pipes needed to be replaced because they cracked and were leaking, the generator needed its annual check-up, the bathtub faucets needed replacement, and on and on it goes. There may be an interesting tax issue in there somewhere but I doubt it. Do any of the expenditures increase adjusted basis in the property? I'll leave that as an exam question if someone teaching the tax course needs an idea. It also is a slow time for tax developments that motivate me to write. That usually happens during the summer, particularly in July and August. Not much happens on the legislative front. The cases that have been decided aren't remarkable. The proposals that have been floated are repeats. When I have something to say, or write, I speak and my fingers dance on the keyboard. In the meantime, enjoy these brief moments of quiet.* * This expression of the moment reflects a story told to me several times by my mother. Apparently I began talking at a very young age, perhaps 6 or 7 months. A few months later, I stopped talking. Completely. Worried, my mother asked around, to friends and family and neighbors who had children, to learn if this was normal. Her father said to her, almost in these words, don't worry, soon he talks again and you will wish he was again quiet. Somehow he knew.

Is It Good Or Bad When Tax Breaks Flow Into Private Hands? Depends on Whose Hands Are Getting the Money

It is no secret that I oppose public funding of, and tax breaks for, businesses owned by multimillionaires and billionaires. Some of my commentaries on this issue include Tax Revenues and D.C. Baseball, four years ago in Putting Tax Money Where the Tax Mouth Is, Taking Tax Money Without Giving Back: Another Reality, and Public Financing of Private Sports Enterprises: Good for the Private, Bad for the Public, Taking and Giving Back, If You Want a Professional Sports Team, Pay For It Yourselves; Don’t Grab Tax Dollars, Is Tax and Spend Acceptable When It’s “Tax the Poor and Spend on the Wealthy”?, Tax Breaks for Broken Promises: Not A Good Exchange, Tax Breaks for Wealthy People Who Pretend to Be Poor, When One Tax Break Giveaway Isn’t Enough, It’s Not Just Sports Franchise Owners Grasping at Tax Breaks, Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park, and Tax Breaks For Starving Team Owners.

So it’s no surprise that a reader brought to my attention the latest developments in a story to which I had been paying a bit of attention, namely, state and local financing and tax breaks to bring the Oakland Athletics to Las Vegas. As I ask each time billionaire team owners seek public financial assistance for their private businesses, if it can’t be done with the owner’s money then is it really worth doing? Governments should not be owning or financing professional sports teams. Though the owners and politicians line up to justify these arrangements as “doing good for the public” and “creating lots of jobs.” as I explained in Grabbing Tax Breaks, Sports Franchises, Casinos, and Now, a Water Park. “this reasoning would support tax breaks for almost everyone, thus destroying government and civilization.” In many instances, truly public government functions are underfunded or eliminated because of revenue shortages caused by the tax breaks handed out to the starving team owners. It’s interesting that the same groups opposed to “big” and “intrusive” government don’t seem to have any qualms about supporting the expansion of government to be a partner in private enterprise, especially when that expansion consists of public money ending up in private hands. Of course, if public money is ending up in the hands of impoverished individuals, the same anti-tax and anti-government advocates are quick to complain.

Why do these arrangements continue to be proposed and accepted, even when the majority of taxpayers are either opposed or indifferent to the activity being financed? It’s because those who have an unending appetite for money have the money necessary to persuade public officials to funnel tax breaks and, in some instances cash outlays, in their direction. There’s something very wrong with this, and the longer it goes uncorrected, the worse it will get. Down the road the nation will end up with private ownership of all government functions, with ownership limited to those with wealth sufficient to belong to the club.

Some Updates on the Mileage-Based Road Fee

As an advocate of mileage-based road fees, I keep an eye out for legislative developments and commentaries dealing with the proposal. I’ve been writing about this idea for a long time, 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, and The Mileage-Based Road Fee: Simpler, Fairer, and More Efficient Than the Alternatives.

Though I don’t always catch every proposed legislation or commentary, I do notice some and readers sometimes alert me when there is news on this topic. Today I spotted an article in this morning’s Philadelphia Inquirer, which it has picked up from the Associated Press and reprinted in several places, including this one. The article is more of a summary than a delivery of breaking news, but it does make some points that deserve attention.

The article notes that the need to deal with the deficiencies of using fuel taxes to fund highways is moving ever more quickly to becoming a crisis. I’ve been pointing this out for years, and it’s good to see that increasing numbers of people are taking notice. Electric vehicles, which accounted for about 5 percent of new vehicle car sales in 2021 will constitute 40 percent by 2030, which is only seven years from now.

The article shares the opinion of an Oregon woman who thinks “it’s far less hassle to just pay at the pump,” though she admits, "It's probably a good thing, but on top of everybody else's stress today, it's just one more thing." If done correctly, it’s not one more thing. The system for measuring mileage and relevant factors such as weight and number of axles can be installed easily in existing vehicles and will eventually be pre-installed by vehicle manufacturers.

The article points out that many states are seeking temporary fixes. Those fixes, such as increasing registration fees for electric vehicles and taxing electricity consumption at public charging stations, require more effort and are less efficient than simply enacting mileage-based road fees. These fixes also fail to share the financial burden of maintaining highways in an equitable fashion. What an individual vehicle owner pays per mile in fuel taxes is not equivalent to what is paid through these temporary solutions. Some of the fixes are absurd, such as taxing companies that make home deliveries, where there is no correlation between road usage and the tax.

The article notes that the Washington state legislature passed a bill, which the governor vetoed, to permit collecting odometer readings on a voluntary basis. The governor justified the veto by explaining that the state should establish a program before collecting personal data. The notion that the number of miles a person uses a public highway is somehow personal data is puzzling. I don’t know how Washington state handles vehicle inspections and mandatory liability insurance, but in Pennsylvania, odometer readings are collected when vehicles undergo annual safety inspections, and when vehicle registration renewals are filed. Also factoring into the equation is the increasing connectivity between vehicles and manufacturer and other services that track all sorts of vehicle information, including mileage, in connection with safety and maintenance of the vehicle.

The article also pointed out that the annual survey undertaken by the San Jose State University Mineta Transportation Institute demonstrates growing support for mileage-based road fees. There also is increasing support for special rates for low-income drivers, and rates that reflect pollution generated by a vehicle. The latter concept makes sense, because vehicle pollution contributes to road deterioration, just as heavier vehicles cause more wear and tear. The need to lower rates for low-income drivers makes little sense when one considers that the fuel tax rate is the same for all drivers, and that a mileage-based road fee would replace, not supplement, the fuel tax that low-income drivers are already paying.

Whether I see a wholesale replacement of the fuel tax with a mileage-based road fee during my lifetime remains to be seen. The actuaries and political pundits can compute the odds. I can’t.

Finding Tax Questions in the Trash

Reader Morris directed me to a question posted on a Rockford, Illinois, Eyewitness News web site. The question, found here, is simply stated: “Can I donate my neighbor’s trash to Goodwill for a tax deduction in Illinois?”

As often is the case with tax issues, before the tax question can be analyzed there is a need to look at the underlying concerns. In Illinois, it is illegal to take something from another person’s private property, even if it appears to be trash. But if it is on public property, such as the street, then it is not illegal to take it, though as a child I was taught to knock on the neighbor’s door and ask. It’s the polite thing to do. What constitutes public property depends on state and local law. In some jurisdictions, the sidewalk and the grass strip between the sidewalk and the street are public property.

If the item is taken legally, when the person donates it to a charity and gets a receipt indicating that the property is worth, say, $100, then the taxpayer, by claiming a charitable contribution deduction for $100, also is admitting that the item was worth $100 when taken (barring some unusual instance in which the taxpayer did work on the item before donating it). When the $100 item is taken by the taxpayer from the trash, the taxpayer has $100 of gross income. How would the IRS catch this? From the paperwork that must be filed, which asks how the donated property was acquired. At least, that’s the theory. It’s a wash. Worse, if the taxpayer’s other itemized deductions do not exceed the standard deduction, the charitable contribution deduction is worthless. So the taxpayer probably doesn’t claim the deduction and probably omits the gross income. The IRS probably detect the transactions. But it’s still a wash.

But suppose the taxpayer can use the deduction because the other itemized deductions exceed the standard deduction. And suppose the item is taken illegally. In this case, there still is gross income, because gross income exists for the same reason embezzlement proceeds are included in gross income. But there would be no right to a charitable contribution deduction because that deduction is limited to gifts of money and property owned by the taxpayer. The taxpayer does not own the item of trash stolen from the neighbor’s private property.

The article to which reader Morris directed my attention advises readers to look at the IRS website or consult with a CPA or attorney. Good advice.

I see here an exam question for use in a basic federal income tax course. Better yet, it could pop up on a bar exam, because bar examiners prefer questions that require examinees to work with multiple areas of law. This question involves application of property law, criminal law, and tax law. Fun.

In Tax, Eleven Seconds Can Make a Difference

Yesterday the United States Tax Court issued an opinion in Sanders v. Comr., 160 T.C. No. 16, in which it held that it lacked jurisdiction over the taxpayer’s petition. The reason is simple. The petition was filed after the deadline. The facts deserve attention.

On September 8, 2022, the IRS sent a notice of deficiency dated September 12, 2022, to the taxpayer. The notice provided that the deadline for filing a petition with the Tax Court for redetermination was December 12, 2022.

Before December 12, 2022, the taxpayer set up an account to file an electronic petition through DAWSON, the Tax Court’s electronic filing system. During the evening of December 12, 2022, the taxpayer started the process of filing the petition. At 9:59 p.m. EDT, he downloaded the necessary PDF forms to his Android mobile phone but he was unable to fill out the forms on the phone. Shortly after 11 p.m. EDT on December 12, 2022, the taxpayer tried to file his petition from his phone. At 11:03:07.442, he logged into DAWSON.. At 11:43:53.728 he logged in again. The taxpayer stated that between 11:03 p.m. and 11:44 p.m., when he was logged out from the phone for the rest of the evening, he tried to upload documents but DAWSON “would not even allow [him] to click the button to upload the documents from [his] android device even after several times of login in and logging out.”

At that point, the taxpayer switched to his Windows computer, presumably a laptop or desktop, shortly before midnight. He need time to send the filled out forms from his phone to his email so he could download them to his computer. The Court noted that this explanation, using forms filled out on the phone, conflicts with the taxpayer’s statement that he was unable to fill out the forms on his phone, but because neither statement is material to the outcome, the Court accepted both as true. At 11:56:15.88, he tried to log into DAWSON from his computer but was unsuccessful. The Court noted that within one second of that time another user successfully logged into DAWSON. At 11:57:21. 379, the taxpayer did log into DAWSON successfully. The taxpayer explained that after he logged in and started the filing process he was slowed down by having “to do 3 other steps” before he could actually file his petition. He also explained that he had to refer to the filing instruction several times. During this entire time, DAWSON was fully operational.

The taxpayer began to upload the petition at 00:00:09.493 on December 13, 2022. At 00:00:11.693 (11 seconds after midnight) on December 13, 2022, the petition was filed. The DAWSON system automatically applied a cover sheet to the petition that states that the petition was electronically filed and received at “12/13/22 12:00 am.”

On January 25, 2023, the IRS file a motion to dismiss for lack of jurisdiction. The IRS argued the petition was filed late because the period for filing the petition ended at 11:59 p.m. on December 12, 2022. The IRS pointed out that the taxpayer did not begin to file the petition until after that time. The IRS also pointed out that because DAWSON, which is a filing location, was operational the entire time it could not be considered inaccessible or unavailable to the general public, a condition that would postpone the deadline.

The taxpayer filed an objection to the IRS motion. He stated:

I object to this motion due to the fact that I logged in and uploaded documents on time. On December 12, 2022 I attempted several times to upload documents well before midnight. Finally I was able to get it uploaded and it literally did not finish the upload until exactly 12a. I am sure it can be proven that the system had errors and that my upload was loading before cut off time.

An amicus brief was filed by the Center for Taxpayer Rights, represented by the Tax Clinic at the Legal Services Center of Harvard Law School. That brief argued that the petition should be treated as filed at the time that the taxpayer relinquished control of it. Although the brief did not ask the Court to apply equitable tolling, it urged the Court to view the timeliness of an electronically filed petition “through the lens of equitable tolling.”

The Court explained that its jurisdiction is limited, and in deficiency cases its jurisdiction is limited to petitions that are timely filed. It lacks authority to extend the deadline. A petition is filed when it is received by the court, and an electronically filed petition “will be considered timely filed if it is electronically filed at or before 11:59 p.m., eastern time, on the last day of the applicable period for filing.” Because electronic filing is not limited to the Court’s business hours, electronic filing systems may extend the number of hours available for filing, but not the number of days. Electronic filing is not accomplished merely by logging into the system or beginning the filing process. The Court concluded that the taxpayer’s petition was not timely filed.

The Court also explained that the timely mailing rule does not apply to electronically filed petitions. It thus rejected the argument made in the amicus brief. The Court also explained that even if it adopted the argument that the petition should be considered filed when the taxpayer gave up control, akin to the timely mailing rule, it would not help the taxpayer because the petition was not relinquished until 9 seconds after midnight when the taxpayer began to upload the petition.

The Court rejected the taxpayer’s claim that DAWSON system errors caused the delay. The Court pointed out that the DAWSON system was fully operational during the time in question. Though inaccessibility of the filing system extends the deadline, inaccessibility on the user’s side does not extend the deadline. The Court compared user problems, such as entering an incorrect password, a Wi-Fi outage, or problems with the user’s device, to traffic jams or car problems that occur on the way to an open courthouse. None of those situations render the electronic filing system inaccessible or otherwise unavailable to the general public.

The Court then stated a version of the principle that I have shared for decades with thousands of students. It stated that the case “exemplifies the risk in last-minute electronic filing. Filing close to the deadline leaves ‘little margin for error.’” That principle was important long before electronic filing came into existence. The issue can arise in various academic situations. If a paper is due by a certain day and time, dropping it off minutes or hours or days later is equivalent to not dropping it off. Though many faculty ignore something being turned in a few minutes late, and though some faculty simply reduce a grade a little bit, the lesson that needs to be taught is that often in practice, being 11 seconds late is equivalent to not being compliant. The Court also stated a related principle, that is, a “prudent litigant or lawyer must allow time for difficulties on the filer’s end.” I have repeatedly advised students to pretend that a deadline is actually a day or two earlier or that a scheduled event is 15 or 30 minutes sooner than the starting time. When I assigned out-of-class exercises, the instructions always contained boilerplate telling students that “I strongly recommend NOT waiting until the last minute to send the message because YOU then bear the risk of the network or email system being down.” Though I cut students some slack when responses arrived a few minutes late, I tried to instill in them a sense of the reality that they will confront in practice.

It is unfortunate that being 11 seconds late prevented the taxpayer from having the Tax Court decide his disagreement with the IRS. Instead, he will need to pay the amount of tax the IRS claims he owes and sue for a refund in federal district court. That is most likely more than an inconvenience because it requires the taxpayer to come up with the money to pay the alleged tax deficiency.

Eleven seconds made all the difference. Eleven seconds.

The Mileage-Based Road Fee: Simpler, Fairer, and More Efficient Than the Alternatives

Reader Morris has directed my attention to a recent story describing a proposed North Carolina bill that attempts to deal with that state’s transportation funding crisis. My first thought after reading the description ought not surprise anyone who knows that I continue to advocate for a mileage-based road fee, which I have described 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, and A New Twist to the Mileage-Based Road Fee.

The proposed North Carolina legislation seeks to deal with funding issues by enacting or tinkering with five different taxes and fees. It would increase the electric vehicle registration fee from $140.25 to $180. It would impose a new $90 annual registration fee on hybrid vehicles. It would amend the sales tax so that it applied to the entire purchase price of a vehicle rather than to the first $66,667. It would enact a new tax on ride-share companies, charging 50 cents for exclusive rides given to one person and 25 cents for shared rides, increasing each year in tandem with the state gasoline tax. It would permit the state to authorize six, rather than the current three, toll road projects based on private-public partnerships.

Would it not be easier, simpler, and most importantly, fairer, to charge vehicles according to the wear and tear they impose on highways rather than enacting and tinkering with five different taxes and fees? Because I’ve written extensively about the superiority of a mileage-based road fee as a solution to the transportation funding issues exacerbated by the advent of electric vehicles, I will simply point out that one criticism of the mileage-based road fee, that it is too complicated to implement, not only is unsupported by the experience of states trying it on a trial basis but also encourages setting aside that fee in favor of the truly complicated and difficult-to-implement hodgepodge of stopgaps such as those contemplated by the North Carolina legislation. Why should people using ride-share vehicles be hit with a tax when people riding in other vehicles don’t share in that burden?

Too often politicians lack the courage to solve a problem directly and efficiently because they are unwilling to help citizens understand what needs to be done and why it needs to be done. They find it easier to enact and amend existing laws in the hope that they can avoid pushback by acting in ways that make their changes seem palatable. The long-term price that is paid for this way of legislating ends up being borne by everyone but the legislators.

Perhaps legislators in North Carolina can avoid the unfairness, inefficiency, and complexity of the proposed legislation and step to the forefront of the transportation funding changes that this nation needs. Perhaps. But don’t hold your breath.

Do Tax Breaks Overcome the “I Wouldn’t Do That for a Million Dollars” Barrier?

Readers of this blog know that I am not a fan of using the tax law to encourage or discourage behavior that is better regulated through other means. The list of commentaries in which I have made this point and explained why I oppose these sorts of tax breaks is very long. I share references to some from the past several years: Is a Tax Credit or Tax Deduction the Answer to Every Problem?, Another Problem With Tax Credits and Deductions for Doing The Right Thing, Yet Another Bad Consequence of Unwise Tax Breaks, These Problems Won’t Be Solved By Tax Breaks, and Another Instance Illustrating Why Using the Tax Law to Influence Behavior is Unwise and Inefficient.

This morning, listening to news radio, I heard a report that prompted me to dig up this pending Pennsylvania legislation. The proposed bill would provide a tax credit to individuals who enter the teaching, nursing, or policing professions. The impetus for this proposal is easy to identify. Teachers, nurses, and police officers are leaving their professions, through retirement or resignation, at much higher rates than people are entering those professions. Once again, legislators think that the solution is to throw tax breaks in the direction of the problem.

Many times I have heard, and I’m confident readers have heard, a variation of the exclamation, “You couldn’t get me to do THAT even for a million bucks.” And though sometimes enough financial incentives will prompt people to do things they don’t want to do or would prefer not to do, such as cleaning septic tanks and sewers, there are some things that most people would not do no matter the money.

There is a reason people are abandoning professions such as teaching, nursing, and policing. It’s not the money. It’s the lack of respect, the lack of consideration, the lack of support, and the lack of social pressure to mitigate the problems that make life in those professions miserable. Will a few dollars cause someone to enter the teaching profession or cause a teacher to change their mind and continue teaching in a dilapidated building filled with rowdy students who don’t hesitate to disrespect teachers and even bring violence into the classroom, to say nothing of the intruder who thinks schools are a good place to work out their psychological issues with military-grade weapons? Will a few dollars cause someone to enter the nursing profession or cause a nurse to change their mind and continue nursing in a short-staffed medical facility lacking supplies and visited by a patient who assaults personnel? Will a few dollars cause someone to enter the policing profession or cause a police officer to change their mind and continue policing in a society that has more concern for the criminal than the victim, in a judicial system that puts criminals back on the street before they are rehabilitated, and who are too often in situations where they are outnumbered.

It is easy for legislators to vote for a tax break and claim that they have “taken steps to solve a problem.” It is difficult, and requires political courage, to vote for legislation that focuses on the root causes of the problems. That political courage is easier for legislators to find when people generally stand up and advocate solutions that address those root causes, resisting the influence of the monied lobbyists and those who hesitate to hold people accountable for their actions. And to the extent that money is an issue, and it is in some segments of those professions, then the answer is to raise salaries and benefits, dealing with the issue directly instead of using a more complicated round-about paperwork-filled tax break approach.