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Health Care Act before the Supreme Court Continues Tuesday

Tuesday's arguments regarding the health care reform act dealt with the key question of the mandate for coverage--whether Congress exceeded its constitutional authority to regulate commerce by enacting the insurance mandate.  Download Heath Care Act. SCt transcript032712. 

The arguments suggest that the Roberts Court may continue down its path mimicking the Supreme Court of one hundred years ago--sticking to an outdated and distorted view of the Constitution framed by a radical right majority on the Court (comprised of Roberts, Alito, Thomas, Scalia and often Kennedy) and unsuited to the real challenges that our society faces today.  As the New York Times noted, the administration lawyer arguing in support of the mandate "faced a barrage of skeptical questions on Tuesday from four of the Supreme Court's more conservative justices, suggesting that a 5 to 4 decision to strike down the law was a live possibility." Adam Liptak, Justices Split in Questions on Insurance Requirement , New York Times (Mar. 27, 2012).

Like the Court that FDR threatened to pack, this Court's majority is an activist Court with a right-wing ideology, with many of its cases strenthening the corporatist agenda and others leaning towards the radical right in other matters.

The Times reporter read Scalia and Alito as "consistently hostile" to the law, Roberts as "a little less so" and Kenney as asking hard, skeptical questions. Id. Thomas of course hardly ever asks a question from the bench but hardly ever deviates from a rigidly right-wing position on cases, and doesn't show much regard for the Court's precedent.

 A key statement by the government lawyer demonstrating that the Commerce Clause power should extend to the mandate provision is the following:

[T]he health care market is characterized by the fact that (aside from the few groups that Congress chose to exempt from the minimum coverage requirement--those who for religious reasons don't participate, those who are incarcerated, Indian tribes--) virtually everybody else is either in that market or will be in that market, and the distinguishing feature of that is that they cannot--people cannot generally control when they enter that market or what they need when they enter that market.

He should have added that being able to participate in that market when you need to is a matter of life and death.

The justices asked a lot of questions that essentially treated health care as just another commodity that one could buy so they had trouble seeing what limitations on the Commerce Power existed if the mandate is legal.  (Roberts made a poor analogy to cellphones, asking whether the government could force a citizen to purchase a cellphone since it would be handy for emergencies.)

 Of course their precedent makes it clear that matters that of high urgency to the wellbeing of the nation are of a different status in this regard than ordinary commodities (the Fillburn case of the wheat farmer being restricted in what he was allowed to grow on his own farm for his own use).  But the issue here is even more important--the point is that the Commerce Power surely allows the Congress to regulate a market to protect the public's human right to decent health care, when the following is true:

1) you don't "choose" when, how, or whether to participate in the health care market--you are forced to by your own particular body's timing and fortuitous encounter with deadly or near-deadly substances and other matters beyond your control

2) it is a matter of life and death that you be treated, or for nondeadly diseases/injuries, a matter of quality of life

3) Everyone will need medical treatment at various points in their lives and in particular near end of life.

4) Our society and moral values demand that people who haven't wisely insured themselves nonetheless be entitled to life-saving treatment when necessary, at other people's cost.

 

 

Health Care Reform Arguments Begin at the Supreme Court--Flavored by Tax

[edited to correct date of arguments]

The Court began hearing arguments Monday on the Affordable Health Care Act, passed by the Democratic majorities in House and Senate under the Obama Administration.  In an unusual staging of arguments, the discussion will extend over three days. 

Monday''s arguments dealt with the question of whether the Anti-Injunction Act (AIA), which prohibits suits to restrain assessment or collection of any tax, should be read as a procedural block to the Court's deciding this case on the merits before any penalties have been collected.  The Court appointed a "friend of the court" to argue that the Act does apply to the health care legislation.

 "The Anti-Injunction Act imposes a pay first, litigate later rule that is central to Federal tax assessment and collection."  Transcript of Proceedings, Robert A. Long, court-appointed amicus curiae arguing on behlaf of applicability of the act.

Long went on to delineate three reasons for applying the act here:

1) Section 5000A indicates that the penalty should be assessed and collected in the same manner as taxes, and since the AIA is an integral part of the collection process for taxes, it should also apply here even if the penalty is not a tax. 

2) Penalties are included in taxes for assessment purposes.

3) The Section 5000A penalty "bears the key indicia of a tax."

In his elaboration of this argument, Long noted that the failure to apply the AIA would result in a quite different process for collection of the penalty. Because of the AIA, a taxpayer must pay a tax to litigate; must exhaust exhaustive remedies before going to court; and must receive a notice of deficiency from the Secretary, which serves as the trigger starting the dispute process.  None of those would apply to the collection of the health care act's "penalty" if the AIA doesn't apply here, so that there would be no way for the penalty to be collected "in the same manner" as a tax is collected.

However, C.J. Roberts responded that there is also a common law doctrine of exhaustion of administrative remedies that could apply, so the inability to apply the particular Code provisions that apply to taxes (with their specific time limitations, etc.) wouldn't undo remedies entirely.  And he brought up Helvering v. Davis, an older case in which the government "waived" its right to insist upon application of the AIA before the Court considered the constitutionality of the Social Security Act's taxes.  To which Long answered that Williams Packing and subsequent cases like Bob Jones Univeresity really undid the early interpretation of the AIA as merely codifying pre-statutory equitable principles and hence not being uniformly applicsble.

J. Breyer asked Long to explain why this comes under the AIA, which applies to taxes, when the Health legislation doesn't use the word "tax."  Long replied that the AIA uses "tax", but doesn't define it, and even the Internal Revenue Code doesn't define "tax.  But by the time the AIA was passed, tax was understood very broadly and should be read to include something that is part of a taxpayer's annual return (liability based on income) that is assessed and collected by the IRS.  J.Scalia intervened, but Long asserted that the AIA applies to any "tax" or any "tax penalty".  But Ginsburg objected, noting that the Tax Injunction Act (modeled after the AIA) applied only to assessments for the purpose of raising revenue.  Hence, one could conclude that the AIA should not apply here, since the penalty isn't intended to raise revenue but to discourage people from not buying insurance coverage.  Long countered with the Bob Jones case--the court isn't in the business of deciding "whether an exaction is primarily revenue raising or primarily regulatory."  Id. at 19.

Senate Dems unveil their tax cut proposal

Senate Democrats, led by majority leader Harry Reid, unveiled a $26 billion tax-cut bill on March 26, 2012.  See, e.g., Richard Rubin, Senate Democrats Said to Prepare $26 Billion Tax Cut Measure, San Francisco Chronicle (Mar. 26, 2012).

The proposal revives the lapsed 100% expensing provision for capital investments, extending it through the end of 2012 and would provide a tax credit for businesses that expand their payrolls this year.

The expensing provision is foolish, but it looks like Senate Democrats are more interested in playing the bipartisanship game than they are in good legislation.  Why is it foolish? For several reasons.

1) there is already a (temporary) bonus depreciation deduction of 50%.

2) an expensing provision that applies retroactively to already-purchased capital equipment cannot, by definition, have incentivised the purchase of that equipment.

3) providing this kind of additional break to large corporations is a corporate subsidy that has little to do with creating jobs and nothing to do with good tax policy.  It has little to do with creating jobs because corporations will simply accelerate purchases to garner the benefit but may not increase production correspondingly.  It has nothing to do with good tax policy because accelerated depreciation already allows deductions faster than economic lossm amounting to yet another pure tax subsidy for businesses.

4) Companies that need to purchase equipment in order to compete will make the appropriate decision to purchase based on company revenues and expenses, without needing a subsidy from the tax code.  For businesses where some investment in capital equipment is expected eventually, it is likely that the provision will subsidize an acceleration of an investment that would have been done anyway, amounting to a mis-allocation of resources to garner the extra tax break, while temporarily available.

The subsidy for payroll expansion is at least more directly connected to a desired social goal of creating more jobs to reduce the unemployment problem and something that both small and large businesses can benefit from.  The proposal calls for a 10% tax credit for the first $5 million of payroll expansion in 2012, capped at half a million.  Payroll expansion can be either new hires or wage increases.

Meanwhile, the GOP-led House is planning about double that amount as an outright giveaway to business.  Cantor sponsored a 20% tax cut for all businesses with fewer than 500 workers.  Those businesses are not necessarily "small" and the provision is not linked to payroll expansion, as Schumer noted.  Id.

Is Congress drinking Grover Norquist koolaid? (or will it fund IRS appropriately)

IRS Commissioner Doug Shulman testified before the House Appropriations Financial Services and General Government Subcommittee on President Obama’s proposed 2013 budget for the IRS.  Shulman wants Congress to provide adequate funding to the IRS to support its enforcement function.  The IRS has 5000 fewer employees this filing season than in 2011, and Shulman is worried about the impact of that decline in enforcement capability on compliance and collections.  See Rubin, IRS Eliminated 5,000 Jobs in past year amid budget cuts, Bloomberg (Mar.21, 2012).

Now, those "starve-the-beast" types that drink the Grover Norquist koolaid are generally just eager to kill all government, and particularly government programs that help ordinary people, are concerned with the general public good, or help ensure the vitality of important government programs. 

•  So it seems that the right has no trouble talking about a need to return the US's dismal health care system back to what it was before the little bit of progress accomplished in the Obama health reform legislation--they talk about eliminating government interference, but what they mean is letting health care profit centers, doctors, and insurers continue to rip off the American public that can least afford it with rentier profits.
• And the right has no trouble with unfunding the EPA or enacting foolish laws restricting the agency's ability to protect ordinary Americans' health, livelihood, and simple quality of life through much needed environmental regulations that protect, air, water, land, and natural resources for the future.  Two examples--the right's push to "drill, baby, drill" with the claim that a trickle more of US oil will dent world prices (nope); and the right's push for the Keystone Pipeline no matter what the cost in aquifers or natural environments, even though the benefits are likely to be miniscule (VERY few jobs; no real impact on world energy prices). 
• The right wants to privatize Medicare--that means that it would take a program that has proven it can deliver health care more affordably to all its participants than privately financed "competitive" health care, and make it into its poorly functioning cousin.  One suspects that the goal here is to bury a government program that is working as intended, so that it will be even harder to move to the obvious solution for health care that the rest of the developed world recognized decades ago--Medicare for all, or a "single payer" system that has clout, provides portability and fairness.

And a component of the "starve-the-best; no-tax-increases-ever" koolaid package seems to be a desire to let the rich (the natural constituents of the right) get richer by continuing to be let off the hook on paying their fair share of taxes, while the overwhelming majority of Americans slip back into a much less hospitable context of just barely getting by.  Taxes, of course, are one of the ways that is done, because it is so easy to hide the real purpose under a facade of caring about deficits (cut "entitlement" programs to save money) or growth (expand subdidies for the rich, to "grow" the economy).

So the IRS suffered from budget cuts that reduced its enforcement personnel.  The result, of course, means fewer trained government officers to audit taxpayers and to investigate scandals like the wealthy millionaires and billionaires hiding their wealth overseas to avoid paying their fair share of taxes.  And the danger is that criminal and civil tax evasion will be missed, because there are so few audits (only 1% audited annually) or that even compliant taxpayers will start to take their chances with the audit lottery once they realized that the IRS is part of the beast that the right is starving to death.

So Shulman is worried, he says, that budget cuts will erode voluntary compliance.  He wants $12.8 billion for the IRS for the new fiscal year, an 8% increase.  Rubin, IRS Eliminated 5,000 Jobs in past year amid budget cuts, Bloomberg (Mar.21, 2012).

He should get it.  Every dollar spent on enforcement brings in multiples of revenues, so the cost-benefit analysis clearly favors adequately funding the IRS enforcement budget so that it can do its job.  That helps in two ways--it produces revenues that reduce the deficit, and it reminds people that our voluntary compliance system is backed up by enforcement of the laws--they can't just cheat and play the audit lottery with high hopes of getting by.

And cutting the IRS does "long-term damage".  Jose Serrano, Id.

So will Congress keep swallowing the Norquist Koolaid, or will it buckle down and make decisions that support the wellbeing of our nation and of our people?  We will see.

Still haven't filed your FBAR? Don't wait til you get hit with forfeiture like this Alaska Plastic Surgeon

  It looks like the leads from the various voluntary disclosures are beginning to pay off, as the U.S. is beginning to develop high stakes cases related to Americans who have tried to maintain secret caches of cash offshore--to hide from the taxman and from their ex-spouses!    The forfeiture complaint in the case, filed Feb. 9, 2012 in California's Central District, is available here.

The government seized $4.656 million belonging to Michael and Sheila Brandner (he's the plastic surgeon) from an account at Bank of America in the name of Evergreen Capital LLC, an entity set up by Brandner and under his (hidden) control.  The government's tale is a sordid one--In the middle of Brandner's divorce proceedings in May 2008, he drove to Panama where he deposited checks worth about $3.5 million in a non-US bank, with the purpose of concelaing the assets from his soon-to-be ex-wife.  A  person who became a "cooperating witness" helped him open the account and told him about the FBAR requirement, but Brandner didn't file the required report. A few months later, Brandner transferred an additional $1.4 million, mostly from his pension fund, to that account (also to conceal it from his wife.   The pension fund was awarded to his wife in the divorce proceedings, and when Brandner learned that the Panama account might be susceptible to discovery, Brandner moved the money through wire deposits in 2011 into the Bank of America account of Evergreen Capital, allegedly to conceal it from the IRS and from his ex-wife.

 As the Atkinson story notes, this mess was doubly stupid.  It was stupid of the surgeon to try to cheat his wife of assets and it was really stupid to do it in a way that could well ultimately subject him to criminal charges.  See  Jay Atkinson, Brandner: Alaska Plastic Surgeon Faces Forfeiture Of $4.656 Million For Undisclosed Offshore Account Used To Attempt To Cheat Ex-Wife, Forbes (Mar. 17, 2012).  Anybody else that is still waiting out there with millions in an undeclared offshore account, watch out.  The time to file and pay up has arrived.

More on Greg Mankiw's weak arguments for the Bain capital gains preference

A few days ago, I commented on the weak arguments Greg Mankiw had put forth in his op-ed to support the preferential treatment of compensation for private equity and real estate partnership "profits" partners.   He points out the categorization problem--that it is not always easy to be sure what is a "capital gain" and what is "ordinary income".   I concluded along the lines of arguments I have repeatedly made on this blog:  the main thing the categorization problem teaches us is that we should eliminate categorization problems that create inevitable inequitable differentiations by eliminating the category difference. 

Get rid of the preferential rate for capital gains (and with it the need to distinguish capital gains from ordinary income), and you will in one stroke simplify corporate and partnership and individual taxation tremendously.  Much of the Code is invested in trying to prevent smart tax lawyers from using tax alchemy to convert one type of income into another.  See, e.g., section 1059 (extraordinary dividends to corporate shareholders), section 304 (sales between affliated corporations treated as redemptions), section 302 (providing tests that, if not satisfied, treat redemptions as dividends if there is e&p), etc.

Uwe Reinhardt makes a similar argument in the Economix blog carried by the New York Times.  See Capital Gains vs. Ordinary Income, New York Times Economix Blog (Mar. 16, 2012).   Reinhardt uses Mankiw's own introductory textbook in microeconomics to make the tax equity argument that many have been making about carried interest--it is unfair to tax a money manager at a preferential rate compared to firemen, postal inspectors, college professors, school teachers and neurosurgeons.

In his popular textbook “Principles of Microeconomics,” Professor Mankiw teaches students that “horizontal equity states that taxpayers with similar ability to pay should contribute the same amount.” Well put.

Consider now a person who bought a vacation home for $500,000 and two years later, during one of our recurrent real-estate bubbles, sells it for $1.5 million. That $1 million profit is now taxed at a rate of only 15 percent. If the home had been the principal residence of this person and his or her spouse, half of the $1 million profit would not be taxed at all.

Suppose next that this tax-favored person’s neighbor were a busy neurosurgeon whose many hours of hard, physical and intellectual work earned him or her a net practice income of $1 million during those same two years. That neurosurgeon would pay the ordinary income-tax rate on that income (on average a bit less than 35 percent, because only income over $388,350 a year is taxed at 35 percent).

By what definition of the term would can one call the glaringly differential tax treatment of the real estate investor and of the neurosurgeon horizontally equitable?

Reinhardt goes on to make another of the arguments that I have been pressing for months in this blog--that the assertion that preferential rates are necessary for stock market transactions because they are rewarding investment in the corporations is baloney--most reported gains on securities are from secondary market trades, not from direct investments in corporations. 

[T]he proponents of lower capital-gains taxation conjure up an image of, say, Jones purchasing shares of stock directly from the issuing corporation, which then invests the proceeds in new structures and equipment.

More typically, however, sales and purchases of corporate common stock take place among parties quite outside of the issuing corporation. For example, Jones may buy the stock from Chen, who may have reaped a capital gain from once buying and now selling the stock. Chen may have bought the stock from another person not related to the issuing company.

When Jones pays Chen, it is anybody’s guess what Chen does with the money. For all we know, Chen will spend it on a luxury car. Why, then, should any gain Chen enjoys on his or her investment in that stock be granted a tax preference? No new capital formation was supported by this trade in a stock sold by the company years ago.

The ugly truth about the  insistence on the capital gains preference is that it rewards people at the top of the income and wealth distribution and serves to maintain the status quo of the allocation of resources.  This is what is really meant by "fiscal conservatism" these days--ensuring that resources remain inequitably distributed to the very wealthy who are the "shakers and movers" of society through the influence their money can buy.  The right-leaning Supreme Court has made that even more inevitable than it was before, through the Citizens United decision upholding the right of corporations to contribute any amount to influence political campaigns, based on the laughable assertion that such "super-PAC" rights undergird free speech.

Graphs Show It Clearly--the richest are much richer and most of us are poorer

David Cay Johnston has employed a couple of key graphic images that tell a significant story about the way that US laws have favored the rich--including tax administrative procedures that have reduced real audits of the rich and tax laws that have cut the top rates significantly and cut the rates on the "favorite" form of income of the rich to extraordinarily low rates.  See David Cay Johnston, The rich get richer, reuters (Mar. 15, 2012) (noting that the figures he uses here, in 2010 dollars, are from an analysis of IRS data by Emmanuel Saez and Thomas Piketty). [hat tip Francine Lipmann and Tax Prof]

The 1934 economic rebound was widely shared, with strong income gains for the vast majority, the bottom 90 percent.

In 2010, we saw the opposite as the vast majority lost ground. National income gained overall in 2010, but all of the gains were among the top 10 percent. Even within those 15.6 million households, the gains were extraordinarily concentrated among the super-rich, the top one percent of the top one percent.

So while the Great Depression acted as a leveler, the cascading impact of tax and other fiscal policies that are extraordinarily favorable to the rich was little influenced by the Great Recession.  Here're the two telling graphs from the article.

Johnston notes that the story in numbers for adjusted gross income is discouraging: 

Saez and Piketty show that the vast majority’s average adjusted gross income, of which wages are just a part, was $29,840 in 2010. That was down $127 from 2009 and down $4,842 from 2000.

Most shocking? The average income of the vast majority of taxpayers in 2010 was just a smidgen more than the $29,448 average way back in 1966.

At the top, the super-rich saw their 2010 average income grow by $4.2 million over 2009 to $23.8 million. Compared to 1966 their income was up on average by $18.7 million per taxpayer.

The graphic illustration shows just how much the inequality we see today is from the richest of the rich getting an indecent proportion of income growth. 

Is this a problem that needs fixing?  Yes, it clearly is.  We have long recognized the importance of a society where everyone takes part and everyone has at least the minimum essentials for a decent life and a chance for improvement. 

A society where a very few "elite" at the top garner all the benefits of the system and more and more of the income for themselves is not a sustainable society--the top becomes predatory, willing to take gains no matter what the cost to everyone else.  It is the kind of attitude that many who are familiar with Wall Street banks have criticized as endemic to Wall Street culture--and one that was revealed even more starkly by the resignation from Goldman of a star banker who publicly criticized the current culture at Goldman that believes in profits for the firm at the sacrifice of the good of the customer.  See Greg Smith, Why I am Leaving Goldman Sachs, New York Times Op-Ed (Mar. 14, 2012).  Shareholders obviously agree with Smith that the "profit for the firm above care of the client" mentality is wrong.  See Christine Harper, Goldman Roiled by OpEd Loses 2.2 Billion for Shareholders, Bloomberg (Mar. 15, 2012). 

[Goldman is worried--I got a release from a PR firm suggesting that Goldman's profit-making is a boon to the economy and gives its clients great trust in the firm.  I read it and thought--hmm, misses the point.  Smith isn't condemning profit-making per se.  He is condemning profit-making at all costs, and in particular the "greed is good" type of profit-making that creates conflicts of interest with the client that is purportedly being served but would as soon eat a client as eat a steak, if money could be made for the firm (and the trader's bonus) that way.]

If we want the kind of society that gives everyone a chance to have a decent education, we have to quit running down public schools and diverting public monies to support private religious schools.   Hold schools accountable, but quit the wasteful focus on testing and assessment.  Do a little assessment and a lot more teaching.

If we want a more equal society, then we have to change our tax laws so that they don't favor the rich over everybody else.  Reduce the interest deduction, so that leveraged buyouts aren't a way to take a stable working company, make a huge profit by borrowing, and then dump it (either in bankruptcy or out of it, but nonetheless yoked with the debt that got the private equity firm rich).  Get rid of provisions that are primarily beneficial to the wealthy--reinstate a hefty estate tax, eliminate the preferential rate on capital gains, reinstate the phase out of deductions at high income levels, increase the top income tax rate (let the Bush tax cuts lapse in toto or at least for the top earners), phase out the accelerated depreciation schedules, bonus depreciation and expensing provisions, and otherwise return our tax system to a saner progressive model that can support the important basic research at universities and basic public infrastructure development that are the real keys to economic growth.

The right has bamboozled the public with its tiresome but endless class warfare rhetoric pushing corporatist policies that claim that tax cuts for wealthy corporations and wealthy individuals are the way to boost growth and help the majority of Americans have good jobs and decent wages.  It's a lie.  The way to do that is by moving to a more progressive tax system and providing more government funding for basic research (NIH, NSF, etc.) and for public infrastructure (mass transportation, rails throughout America and its inner cities, urban development).  
 

Public Transit Benefit was down, is now up again (in Senate)

One of the tax provisions that lapsed last year was a very popular tax expenditure supporting public transportation--a tax credit for commuters using mass transit was allowed to lapse back to a $125 monthly benefit from the stimulus level of $230 a month.  Ironically, in a time of clear importance environmentally of cutting back on cars and increasing use of public transit, Congress had given preferential treatment to support for parking (likely supporting most those commuters at the higher end of the income scale who like to drive their BMWs from Connecticut to New York City, or commuters who don't have decent access to public transit):  the parking subsidy actually increased to $240 a month.

Today, the Senate passed the Surface Transporation Reauthorization Bill (see summary, here; for text and other actions, see S.1813 on Thomas).  The bill as passed included a provision, retroactive to Jan first of this year when credit lapsed to the lower level, that would restore the public transit credit at the same level as the current parking subsidy.  See PR Newswire, Senate Approves Increase to Pre-Tax Benefits for Public Transportation Commuters, Commuter Benefits Work for US.org (Mar. 14, 2012).  The House may delay action on the bill though Boehner has said he would call the Senate version for a vote if the GOP majority doesn't agree on an alternative.  See Linda Scott,  Senate Passes Transportation Bill, PBS NewsHour (Mar. 14, 2012).

It's good to see Congress moving to correct this.  As Sen. Lautenberg noted

“Mass transit boosts the economy, reduces dirty auto emissions and takes cars off our congested roads. We fought hard to include this provision in the bill so that transit riders can enjoy the same benefits as drivers. I'm pleased that this bill finally appears poised for Senate passage, and I urge the House to follow suit and approve this bill immediately." Lautenberg: Increased transit rider tax benefit would help thousands of New Jersey commuters (Mar. 13, 2012).  

 Favoring cars over public transit didn't make sense except as just another example of the way tax expenditures favor high income taxpayers generally--the real face of class warfare in the U.S.A. today.  

(Though of course, it goes to show that it is much easier to get some kind of tax break through Congress these days--in spite of the right's whining about needing to cut spending--than it is to enact a reasonable program with expenditures specifically targeted at the purpose  intended.  This is why Obama's corporate tax proposal provides a scattershot corporatist oriented reduction in corproate tax rates for "manufacturers", instead of doing what we should do, which is leaving the corporate tax statutory rate where it is, and providing an incentive program for corporations that bring significant numbers of new jobs back to the US.)

If you don't believe my point about class warfare, just look at the way the balance works out between beneficiaries of the various programs that the right likes to refer to as "entitlements" and wants to cut, versus the beneficiaries of numerous tax expenditures in the Code that the right seems endlessly willing to extend, increase, and rationalize. 

The result is a general pattern of reallocation of resources in ways that amount to redistribution upwards to those already at the top of the income distribution.  Looks a lot like rewarding rich Congressional cronies while punishing the poor, the elderly and the vulnerable.  See, e.g.,  Eduardo Porter, A Nation With Too Many Tax Breaks, New York Times (Mar. 14, 2012), at B1 (and, off topic but relevant given  Rush Limbaugh's despicable slurring of the Georgetown student advocating for full coverage of contraception under the Health Care law, notice that Reagan's signing of the 1986 tax reform act was in the middle of a slew of older white males--not a female in the picture!).  The article compares the distribution of federal benefits (programs like unemployment, Social Security, Medicare, Medicaid, housing assistance, and food stamps, but not Pell grants or Veterans Benefits) to the distribution of tax expenditures (exemptions, deductions and credits like the preferential rate on capital gains, the home mortgage interest deduction, and the deduction for charitable contributions). 

The federal benefits are much more evenly distributed, though the primary benefit does go to those in the lowest two quintiles (as intended by the nature of the programs).  The bottom 40% of taxpayer families by income group get about 60% of the program benefits.  But the tax expenditures--all those goodies built into the Code through crony capitalism--go much more disproportionately to those at the very top of the income distribution:  the top 20% get a whopping 67% of the benefit of tax expenditures, with the second highest quintile getting an additional 14%, adding up to 81% of the benefit going to the top 40% of the income distribution (and this spread may undercount, since it compensates for generally larger taxpaying units in the top income layers).  The lowest 40% get only 11% of the tax expenditures. 

There is a good graphic for this, that you can access through this link.

What professions show up most in the top 1%--an infographic

This infographic was made available by the College Online.org blog (link here to original site).

 

 

Tax Protester Idiocy

I recently found myself directed to a blog post from late last year by an attorney and noted a tirade by a tax protester.  The absymal lack of understanding of the tax system and the role of taxes in a democratic society is disconcerting.  I'll quote the comment here.

  It makes me incredibly sick to realize how far from freedom we have came. Where it’s “ok” to lock folks away in jails in an inhumane fashion, like criminals, just because they lacked the fund’s to keep up with the thievery of the IRS and it’s inherently wicked attitude against the people. I would like to remind everyone that there infact is no law requiring one to pay income tax on private “wages”. Yes, there is an amendment, and I’m sure a pamphlet full of reasons why you must pay and pay and pay some more. I would like to see the “federal law” and it’s coded I.d. or statute #, that states the why and wherefore, that we are “required” to pay income tax on “private wages”. I thought the IRS clearly stated that income tax is “voluntary compliance”?? Yet they harangue and terrorize innocent people. A business man laying money off shore is none of my concern. I say good luck to him. I agree some taxes need collected, but income tax doesn’t support a single function within the social aspect of the united states. Other taxes fill that gap. I say the IRS and those people inside government, who allow the irs to exist as anything more than a nonprofit fund raiser for charity, are the criminals! If it’s mandatory that I pay income tax, and file, then take my money to begin with and leave me alone. I hope the irs collapses internally and ceases to exist someday. They say, “be a good american. Pay taxes.” Now they say, “you pay or you’ll pay!” I disagree whole heartedly. If the irs says you owe them money, fine, but no one should EVER be imprisoned for owing money to the irs. I believe it is the GREAT AMERICAN, who shuns administrations like the irs, which is no more federal than the federal reserve! Which is not federal at all. It is only my hope to convey a message which describes the brutality of our society in the courts of the u.s.a.. It is they who should be profoundly ashamed of themselves for conjuring such a system into existence! Apportioned taxes are the taxes I can agree to. We are taxed more now than we were as a british colony before the revolutionary war. I applaud any who evade and rebel against such a heinous organization as the irs. Not those who merely work for the irs, but those who keep it feeding fear into the hearts of working American people, I do wish you the most unsuccessful future!

How to begin?  Clearly this writer (he used the moniker "Josh" so we'll call him that) has no conception of how the tax laws work. 

1.  Is there a provision that imposes the income tax on "private wages"?  Of course there is a provision in the Code that imposes the income tax on wages and other compensation, whether private or public--it is IRC section 1 (imposing tax at graduated rates on various bracketed amounts of "income" earned by taxpayers, with the brackets set by what type of taxpayer is involved) and IRC section 61 (defining gross income to include income from all sources, including compensation). 

2. Does the IRS commit "thievery"?  No. It is merely the agency established by law to enforce the tax laws (and a bunch of other more or less related laws).  Taxation is not thievery, in spite of the anarcho-libertarian ranting to the contrary.  It is an essential function of civil society that requires everyone to pay their dues as the price to maintain the institutions of a civil society.  The IRS is no more a thief than the ticket-taker at the neighborhood movie theater is.

3. Does the fact that we term our system one that depends on "voluntary compliance" mean that there is no need for enforcement and civil and criminal penalties for failure to follow the tax laws?  Of course not.  Our system is called one of voluntary compliance because taxpayers are expected to file a tax return that appropriately calculates the amount of tax they owe and pay the tax with the return.   They do this voluntarily, rather than having government agents initiate the process:  we do not have government agents going door to door to demand that people pay up on taxes.  The vast majority of taxpayers do voluntarily comply.  It is the scofflaws and anarchists who don't, as well as those criminals who intend to steal from the rest of society by not paying their appropriate taxes just like everybody else.

4. Are people who fail to comply with the tax laws, including evading the tax laws by putting their money in secret offshore bank accounts, "innocent people" who are being "harangued and terrorized" when the IRS pursues them for penalty payments upon discovery?  Of course not.  Their failure to comply with the law means that they should pay a penalty, else they are like the drivers who speed up and pull into the middle lane to pass and then get in front of (in ways that can cause serious accidents) a long line of cars patiently taking turns at a crowded freeway exit--they are being selfish in trying to get something (all the functions of government) for nothing (failure to pay the taxes due on their incomes) and letting everybody else bear the increased burden of their selfishness.

5.  Do "other taxes" "fill that gap" for taking care of the "social aspects" of the United States?  Of course not.  Income taxes are the way that we all share in supporting the public infrastructure development that is essential to a decent society and that shared sacrifice fulfills in itself an important expressive function.  When tax revenues are lower than expenditures, it fuels radical rightists who want to return our society to the 1800s when those in the upper class ran government for their own benefit and left most everybody else to take care of themselves.  The status quo that the radical right wants to "conserve" is one in which those with the "right" connections get government largesse galore (such as leasing rights for pittances on public lands; mineral exploration rights for pittances on public lands and waters; government support for infrastructure necessary to make profits without corresponding payment, etc.).

6.  Is the IRS not a federal government agency?  Of course it is.  The IRS is created and governed by federal statute and its employees are employees of the federal government.  It is as federal as they come, directed by a Treasury Secretary who is appointed by the President and a member of the President's Cabinet.  The IRS ran an experiment for a few years where it outsourced some of the minor collection activity to private collection agencies, but that was ended when commenters noted that this was a quintessential government function that should not be outsourced and it was found to be much more expensive than the IRS doing the work itself.

7.  The whole end of this tirade (applauding tax evaders) shows the abject ignorance of this commenter and the way radical anarcho-libertarian propaganda from outlets like the Cato Institute (founded by the Koch Brothers) breeds ignorance about the very concept of freedom.