Wednesday, October 30, 2019
Recently, I noticed new phrases. Perhaps they have been in use for several or more years and I haven’t noticed. It’s the “parent tax,” or the “dad tax,” terms used to describe the candy that a parent extracts from a child for having accompanied the child on the neighborhood candy collection tour, though the “dad tax” has a broader scope. According to this commentary asking how much the tax should be, “74% of parents admit to taking at least a few pieces of their kid's Halloween candy. That's a lot but that still seems low to me. I think every single parent is swiping at least one piece of candy,” and “4% of parents surveyed said they typically eat all of their child’s Halloween candy.” Wow.
Another commentator explained, “The way I see it, if the government is going to tax an adult's income 20-30%, than the child should have to pony up that amount of their Halloween candy. Think of it as preparing them for the REAL WORLD, which very much involves paying taxes.”
When I was a child, my parents did consume a small portion of what my siblings and I brought home. But it wasn’t a matter of an involuntary “tax” teaching us that in the “real world” we would be paying taxes. It was a lesson in sharing. We were given insights into why it would be appropriate and generous to offer candy to our parents in appreciation of their help, not only in accompanying us around the neighborhood but also in assisting the design and construction of costumes. That is why, even after we reached ages at which we created and built our own costumes and went about multiple neighborhoods on our own, we continued to share our “candy loot” with our parents. It was only when we undertook paid employment that we discussed budgeting and learning to share household expenses, albeit at a minimal level. The “there are taxes” lesson was being learned “on the job.”
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.
And, no, I did not take or accept Halloween candy from my children. Despite my sweet tooth, by the time they were of Halloween-adventuring age, I had reached the point where I tried more diligently to reduce sugar intake. I had enough candy coming in from other sources. But, yes, my children did offer. That is what mattered.
Monday, October 28, 2019
But the more important question is whether a robot (or artificial “intelligence” software) can write a sensible, comprehensible, accurate, well-reasoned tax blog?
Artificial “intelligence” software has been used to write stories, news, novels, music, movies, musicals, poetry, and probably other things I’ve not noticed. Some of it is very good, some of it is hilarious, some of it is atrocious.
If you want a good laugh at the sorts of things artificial “intelligence” can do, check out These Hilarious Scripts Written By A "Bot" Will Make You Laugh Out Loud.
If you want to be terrified at the prospect of artificial “intelligence” taking over activities reflecting human creativity, read this article about computers generating fake news.
And when artificial “intelligence” goes wrong, sometimes it can make a person cry with laughter, but too often it will make people cry in horror.
I suppose at some point an enterprising software engineer, or a robot, will write code that creates a virtual James Edward Maule, that will pick up writing MauledAgain when I decide, or life decides for me, that it is time for me to stop writing a tax blog. Of course, there are those who think that even now the MauledAgain blog is being written by a robot. Or perhaps, more accurately, an android.
Friday, October 25, 2019
This time, it’s an analysis presented by Glostone Trucking Solutions. In all fairness, the analysis lists both pros and cons, and is a reaction to the floating of trial balloons suggesting that commercial trucks be subjected to a mileage-based road fee. Though commercial trucks, on average, create more wear and tear on highways and require the building of stronger bridges and taller tunnels, they are not the sole cause of highway expense. Any mileage-based road fee ought not be limited to commercial trucks.
Glostone notes, “Privacy concerns remain the biggest fear, that a mileage-based system could allow the government to track the whereabouts and movements of motorists.” I responded to this concern in Is the Mileage-Based Road Fee a Threat to Privacy?, addressing an Adam Brandon editorial:
The Glostone analysis concedes that advocates of the mileage-based road fee “say privacy concerns are addressable,” and cites the limits Oregon places on the data recorded by the tracking device. Indeed, those who raise privacy concerns either haven’t yet thought through the analysis, or oppose the mileage-based road fee for other reasons and use privacy concerns to tap into the fears of the ignorant.
Brandon * * * seems nervous about the prospect of the possibility that “the government will know where you are at all times.” But the mileage-based road fee device will not provide that capability. Why? Because it can track only the location of the vehicle. Thus, even if a government wanted to know, and figured out, that a person’s vehicle was in a shopping mall parking lot, there would be no way of knowing from that information which stores the person visited, what the person purchased, or how much the person paid for those purchases. Nor would it provide any information about the identities of individuals with whom the person met or the content of their conversation. As I explained in my last post on the topic, Mileage-Based Road Fees: Privatization and Privacy:And, yes, there is a risk that a mileage-based road fee system can be used to determine where a vehicle has been. Vehicles, of course, do not have privacy rights. But because people assume that an owner of a vehicle is wherever the vehicle happens to be, it is understandable that knowing where a vehicle has been might reveal where the owner has been. Of course, a mileage-based road system need not track location, though those being considered and those in place do so, provided that the fee did not change based on the road being used. Connecting to the odometer would suffice. It also is important to remember that for many decades, the location of vehicles has not been a private matter hidden behind the sacrosanct walls of a person’s home. For a long time, law enforcement officials, investigative journalists, and even nosy neighbors have been able to determine where a vehicle has been, aided by the existence of license plates, bumper stickers, and other identifying characteristics. There’s nothing private about being in public.Thus, Brandon’s concern that “tax collectors can access our physical location at the touch of a button” is overstated, because at best, the only location that could be accessed is the location of the vehicle. And considering that the system could be outfitted with a delay such as that used with EZPass and similar systems, because information about the use of the road need not be real-time for a fee to be imposed, by the time the button is pushed the vehicle very well could be at another location, its driver could be out of the vehicle, or another person could be driving the vehicle.
Existing technology, such as roadside cameras, credit card receipts for fuel purchases, electronic toll systems such as EZPass, and observations by law enforcement authorities, already provide substantial information concerning the location of a vehicle. Similarly, the location of an individual when in public areas is not a secret. The mileage-based road fee does not generate a significant increase in the revelation of vehicle location information, and does nothing to increase the disclosure of individual location information.
The Glostone analysis describe cost as the “largest problem.” It notes that the devices would need to be installed in all vehicles. The device don’t cost very much and are very easy to install. I have one in my car. It took all of 5 seconds to install. The Gladstone analysis claims that the mileage-based road fee “would require every vehicle owner to periodically report distance tax and create a costly new bureaucracy that would have to audit these reports,” and that the “added bureaucracy alone could eat up any gains in tax revenue.” The tracking device reports without any need for owner intervention. Digital technology eliminates the need for the roomfuls of eyeshade-wearing human auditors.
The Glostone analysis notes that existing laws that address gas tax revenues would need revision. That’s correct, and I discussed this a few days ago in Getting Technical With the Mileage-Based Road Fee. It’s very easy to do. Model legislation would provide a template for legislatures.
The Glostone analysis claims that a mileage-based road fee “could reward users or increase purchases of less efficient vehicles while monetarily punishing drivers of energy-efficient cars by leveling similar charges for all drivers, weakening incentives to buy energy-efficient electric and hybrid cars.” If the mileage-based road fee was designed in that fashion, that would be the outcome, and it would be foolish. One of the advantages of the mileage-based road fee is that the tracking device can be calibrated to the weight, energy efficiency, pollution output, and similar characteristics of the vehicle. It obtains this information because it is plugged into the vehicle’s OBD port.
The Glostone analysis points out that “Some drivers in rural areas worry may have to pay more because they drive farther between destinations than do urban drivers. They argue that while they do drive greater distances on the roads, they drive at faster speeds that are more fuel-efficient.” The response is simple. The longer the road, the more expensive it is to build and maintain. The tracking device, as I pointed out, can and should be calibrated to adjust for the higher fuel efficiency. Even under the existing fuel tax, drivers who drive more miles pay more tax because they use more fuel. Thus, the mileage-based road fee isn’t disadvantaging them in that manner.
Finally, the Glostone analysis reminds us that “these on-board distance tracking devices may be vulnerable to tampering.” I also addressed this concern in Is the Mileage-Based Road Fee a Threat to Privacy?, again addressing the Adam Brandon editorial:
Brandon also poses an interesting concern. He predicts that some people, in an attempt to avoid paying the fee, would tamper with the device. Or at least would try. He’s correct, because it is unquestionable that people exist who want something for nothing and want road use for free. The answer is not to ditch the proposal, for the same reason people don’t stop buying houses because burglars exist. The response is to create a device that is as tamper-proof as possible, and to provide for serious penalties for those caught trying to tamper with the device. But when Brandon tries to explain why the possibility of tampering demonstrates what he sees as the inadvisability of the proposal, he makes an awkward assertion. Brandon claims, “Do we really own our own cars if we are not allowed to modify them?” The answer is yes. Under current law, it is illegal to tamper with odometers, certain safety features, catalytic converters, and some other items. Adding the mileage-based road fee device to the list does not make the owner of the vehicle any less an owner.The Glostone analysis closes by arguing that “the debate needs to continue,” that “technology needs to advance,” that “an increase in funding for infrastructure cannot wait,” that “something will change,” and that “we all need to educate ourselves.” It also claims that there “is no simple, cost efficient answer that is available with today’s technology and social climate.” I disagree in part. The technology exists, and it is cost efficient. As for the social climate, perhaps a few more bridge and tunnel collapses and a surge in damage, injuries, and deaths from potholes, badly marked highway lanes, and other existing problems will bring about social climate change. As the Glostone analysis puts it, “In all likelihood, the answer will be a long term conversion process that starts with what can be done today (tax increase) and move towards a VMT as technology improves and social attitudes change.” I happen to think the time frame will be much shorter than long term. I give it three to five years.
Wednesday, October 23, 2019
For the past 38 years, average federal income tax rates on capital have been dropping, and those on wages and self-employment income have been rising. Though the former have been higher than the latter throughout the past century-plus, they changed places in 2018. The reason is simple to identify. It was that ill-advised tax cut legislation of 2017. Proponents of that legislation claimed that it would fuel tremendous increases in business investment. That hasn’t happened. They claimed that wages would increase to levels necessary for workers to pay for the necessities of life. With the average bonus increasing between 2017 and 2018 by a penny, and with more workers needing to take on a second or third job to succeed, the promises of those who have continued to preach supply-side trickle-down nonsense were, as usual, quite false.
In their book, Saez and Zucman challenge the theory that tax rates on capital should be low, even zero. Advocates of special low and zero tax rates on capital claim that by lowering or eliminating taxes on capital, owners of capital have more resources to hire more workers and increase worker pay. Of course, that hasn’t happened. Instead, the tax cuts handed out to the owners of capital, particularly large corporations and wealthy individuals, were stashed or used to pay dividends or buy back stock. And of course, this process compounds the growth of capital, enlarging the income and wealth inequality gaps.
So why don’t tax cuts for the owners of capital create jobs? I answered that question many times, most recently in in Tax Cuts for Employers Do Not Create Jobs:
Whether it’s an existing business paying less tax or a new business writing off capital expenditures, those folks are not going to hire people unless they have something for those people to do. To have something for those people to do, those businesses, whether existing or start-up, need to sell goods and services. To sell goods and services, these businesses need customers. To have customers, these businesses need a vast consumer class that can afford to make those purchases. The proposed legislation [the 2017 tax cut deal] gives some of the consumer class a few dollars and actually raises taxes on another portion of the consumer class, thus reducing their purchasing power. Aside from that deep flaw, why would companies spend $1,000,000 on a piece of equipment in order to reduce taxes by $200,000? Why deplete those huge cash reserves by $800,000 if the equipment isn’t needed because there’s no one to purchase the goods it makes or the services it provides? Talk about voodoo economics.So it’s no surprise that wealth inequality is growing at an alarmingly dangerous rate.
Aside from the question of whether taxes should have been cut when there is a budget deficit, if taxes were to be cut, the question of how those cuts should have been directed was answered incorrectly. Putting into the hands of the bottom 90 percent the unneeded tax breaks that were handed to the large corporations and top one percent of individuals would have caused an upsurge in true economic demand, required owners of capital to hire more workers, and increased tax revenues to offset the budget impact of the cuts. That’s called demand-side economics, and it works. It’s time to put supply-side economics in the rubbish bin of history.
Monday, October 21, 2019
The state of Washington has completed a year-long trial project in which 2,000 volunteers tracked their mileage to determine what impact a mileage-based road fee would have on their finances. I have been participating in a similar study involving motorists in the I-95 corridor. I’ll write about that in the future when the study is completed.
Washington State’s Constitution contains an interesting provision, one that might exist in other states though I haven’t tried to research 50 state constitutions to find out. The 18th amendment to the Washington Constitution provides:
All fees collected by the State of Washington as license fees for motor vehicles and all excise taxes collected by the State of Washington on the sale, distribution or use of motor vehicle fuel and all other state revenue intended to be used for highway purposes, shall be paid into the state treasury and placed in a special fund to be used exclusively for highway purposes. Such highway purposes shall be construed to include the following:Washington courts have held expenditures for the following purposes to be within the scope of the amendment: construction of park-and-ride facilities, repayment of bonds issued to finance the building of a highway bridge, valuation of highway property in advance of transfer or lease of highway land, refunds of the gasoline tax for fuel used for off-highway purposes. The courts have held expenditures for the following purposes to violate the amendment: financing a public transportation system, relocating utilities if the relocation does not directly or indirectly benefit the highway system, paying tort judgments. Interestingly, in State Ex Rel. O'Connell v. Slavin, 75 Wash.2d 554, 452 P.2d 943 (1969), the Washington Supreme Court rejected the argument that financing public transportation was a permissible use of the funds because it would reduce congestion and wear-and-tear on highways, explaining that this reasoning would entitle private bus companies to claim monies from the highway fund.
(a) The necessary operating, engineering and legal expenses connected with the administration of public highways, county roads and city streets;
(b) The construction, reconstruction, maintenance, repair, and betterment of public highways, county roads, bridges and city streets; including the cost and expense of (1) acquisition of rights-of-way, (2) installing, maintaining and operating traffic signs and signal lights, (3) policing by the state of public highways, (4) operation of movable span bridges, (5) operation of ferries which are a part of any public highway, county road, or city street;
(c) The payment or refunding of any obligation of the State of Washington, or any political subdivision thereof, for which any of the revenues described in section 1 may have been legally pledged prior to the effective date of this act;
(d) Refunds authorized by law for taxes paid on motor vehicle fuels;
(e) The cost of collection of any revenues described in this section:
Provided, That this section shall not be construed to include revenue from general or special taxes or excises not levied primarily for highway purposes, or apply to vehicle operator's license fees or any excise tax imposed on motor vehicles or the use thereof in lieu of a property tax thereon, or fees for certificates of ownership of motor vehicles.
The overriding issue is not one restricted to the use of revenues generated by a mileage-based road fee. It is an issue that affects every tax or user fee enacted by a legislature other than, perhaps, taxes destined for a “general fund.” To make certain that the revenues from a mileage-based road fee are not diverted as has happened with gasoline tax revenues and other user fee revenues, those drafting the implementing legislation must be certain to restrict the uses of those revenues. For Washington state, and other jurisdictions with similar restrictive language, the concern is that the 18th amendment does not apply to mileage-based road fees. That means an amendment to the amendment is necessary, though perhaps the same outcome could be accomplished by inserting expenditure restrictions into the enacting statute. I don’t know Washington constitutional law well enough to conclude what specifically would need to be done. As the writer of the News Tribune article put it, “State lawmakers, therefore, shouldn’t mess around with a mileage tax unless they have a parallel discussion about preserving the original intent of the gas tax.” I totally agree.
Friday, October 18, 2019
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. . . .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.”
. . . 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.
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.
Wednesday, October 16, 2019
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.
Monday, October 14, 2019
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.
Friday, October 11, 2019
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.
Wednesday, October 09, 2019
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.
Monday, October 07, 2019
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.
Friday, October 04, 2019
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.
Wednesday, October 02, 2019
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.
Monday, September 30, 2019
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?
Friday, September 27, 2019
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.