edited 072909 to correct link for giving online, by Linda Beale
One of my big gripes (in case you haven’t noticed) is the ease with which ordinary Americans can be fooled about tax issues by organizations, often ones with greedy purposes of furthering their own interests in lower taxes for themselves, that publish misleading or downright untruthful information and just keep repeating it. This has been a special problem with estate taxes, which hit only the very wealthiest amongst us and for a relatively small amount even for the large estates. It is also true of income taxes in general, the way flat taxes would work, the rationales for the corporate tax and many other key tax policies. Lobbyists frame the issues with inflammatory language, and most are too unknowing about the way tax really works to recognize the ruse for what it is.
Here are two of my pet peeves. (Many tax practitioners–and lots of tax academics–disagree with me on these.) Some of the worst phrases that have furthered the cause of cutting taxes for the wealthy so that the majority of Americans can either pay higher taxes themselves or do without the kinds of things that governments, not private enterprises, do best are “death taxes” and “double taxation” .
Much of the estate that is taxed when a decendent passes it along to his heirs as an unearned windfall has never been taxed at all during the decedent’s lifetime, in the case of wealthy people with mostly financial assets. If there is not a good-sized bite out of the estate upon the transfer to beneficiaries, there’ll be very little contribution to taxes from an agglomeration of wealth that has benefited enormously from the US legal system. And the heirs won’t have any taxes to pay either–they’ll just keep holding or will have a stepped up basis when they sell. All that is is a system for perpetuating or creating oligarchy–letting the wealthy become a ruling class with all the money and all the power without contributing anything much to help pay for the system that made all the wealth possible in the first place.
Similarly, the phrase “double taxation” is used to make people think that taxing corporations is unfair. But the decision about whether we tax entities or not is a reasonable one for societies to make. We made it a long time ago–deciding that we should treat corporations as taxpayers and thst we should tax capitalist owners of corporations on the income they are paid out of their corporate ownership as well. It is one of the most progressive parts of the federal income tax when it works, and it makes a lot of sense from a democratic egalitarianism perspective. Corporations can horde money and have enormous power because of their ability to lobby for their own benefit. Look at the way Big Pharm and Big Insurance has gotten Max Baucus in their pocket–putting money in his, and getting out of that a watered down health bill that doesn’t do half of what we should be doing to move towards a single payer, single provider system like the most advanced countries already have. The presupposition behind the term “double tax” is that you are overtaxing and that you are taxing somebody that shouldn’t be taxed. Yet corporations get to deduct salaries and purchases paid for with their own stock, which doesn’t cost them a thing to issue. Corporations get basis in property transferred to them by shareholders in exchange for issues of corporate stock, even though that stock does not represent an after-tax investment by the corporation. So the taxable income of a typical corporation is generally much less than the corporation’s actual economic income, and in addition to these provisions that are basic to the way the corporate tax is set up there are lots of provisions for reducing corporate tax–too fast depreciation, deferral of income through matching rules coming from court opinions where judges have been unduly influenced by financial accounting (the seventh circuit, in particular), depletion allowances and myriad other tax expenditure items favoring corporations, etc. Since Reagan, there has been a huge push by the same economic thinkers that brought us our current Great Recession to undo the US classical corporate tax system. It’s really a push for giving more money back to the wealthy and cutting the size of government. (Of course, the push for lower corporate taxes, more uneconomic credits like the R&D credit, etc., and the push for zero taxation of corporate dividends have been coordinated and have the same effect of huge reductions in taxes on the wealthy.) But it’s all argued in the name of economic efficiency–a theory without basis in reality that is probably more to blame for the greed that dominates today’s society and the consolidation of huge megafirms–Big Pharm, Big Oil, Big Banks, Big multinationals in general–than anything else. And strangely, no one makes the same “horrid double tax” arguments about the maid being taxed on her salary paid out of already-taxed compensation income of her lawyer-employer…
Of course, even for those who don’t pay much attention to the various organizations that are peddling particular views of tax issues and haven’t been particularly swayed by the push for repeal of the”death tax” or repeal of “double taxation”, there is a huge gap in information that isn’t filled in by the media. Most schools, for example, don’t teach much of anything about the tax system in the basic civics course. Most students don’t take a finance course in college, much less a course that teaches the basics of tax law. In fact, most law schools don’t even require that their graduates have a basic course in federal income tax law before graduating. (That is a major problem, I think, since almost every legal issue has tax consequences, one way or another, that a competent attorney should be aware of.) As a result, we are frighteningly ignorant, as a society, about how tax works, why it works that way, and what other possibilities there are. And as a consequence of that ignorance, it is all too easy for citizens to be in the dark about the consequences of tax legislation under discussions, for lobbyists to influence members of Congress to vote in their favor on bills (the public won’t know the difference), and for members of Congress to fail to fully inform their constituents about the tax issues they are voting on (or even, in far too many cases, for the members of Congress to understand, as when a certain person from Colorado supported windfalls in the agricultural bill based on his apparent failure to understand the difference between gross income (revenues without business or other deductions) and adjusted gross income (revenues with business deductions taken into account)).
So I’m glad to see Marjorie Kornhauser’s project take off. Maybe others won’t agree with me on these pet peeves, but if we have better educated citizens who have more basic knowledge about taxes and how they work, it won’t be so easy to bamboozle them into voting against their interest to support tax cuts for the wealthy and service cuts for everybody else while the boondoggles for the big corporations just keep pouring out (like an agreement that the government can’t use its bargaining power to get cheaper drugs, or that Big Pharm can prevent generics being sold for 12 years and other crap that is getting put into the “health reform” bill that is becoming, like so much else these days, a corporate giveaway).
What’s her project? It’s called The Tax Literacy Project–“a non-partisan effort to informally educate the public about taxes through popular methods such as web-based games and other internet activities.
Want to help? Donations are being accepted. What follows is the appeal, direct from Kornhauser and the ASU Foundation.
Money from Taxes Helps Every Person Every Day!
But polls show most of us do not understand anything about our taxes.
Why should we bother learning about taxes? Because:
Tax ignorance costs each of us money. Many of us pay more tax than we actually owe.
Because tax ignorance makes it hard to discuss and enact sound tax policies, we are not able to raise money in the fairest and most efficient manner possible.
Why do we need taxes?
Taxes support democracy. They fund government services and goods such as court systems and national defense that protect your life, your property, and your constitutional rights.
Taxes support economic growth. Governments use taxes to encourage economic growth in numerous ways such as maintaining a stable currency, enacting and enforcing laws that protect both workers and employers (their lives and proeprty), and helping to build and maintain large and dependable energy, transportation and communication systems.
Taxes support your daily quality of life. They help you and your family buy a house, breathe clean air, have safe food and drugs, travel safely and efficiently on highways, trains and planes. Taxes help pay for your health care (in the form of tax benefits or direct care) and they pay to educate you and your family. Taxes help you at work (e.g., enforce contracts, provide a safe workplace) and help you at play (e.g., national parks).
Become a part of a solution to the problem of tax ignorance by contributing to the Tax Literacy Project.
What is the Tax Literacy Project?
It is a non-partisan effort to informally educate the public about taxes through popular methods such as web-based games and other internet activities.
Can you support the Tax Literacy Project regardless of your political outlook?
Yes, the Project’s only pupose is to help provide information about tax, not to support any particular type or amount of taxes. No matter what kind of government people want, that government will cost money. Americans must understand how that money can be fairly and efficiently raised.
How can you make a charitable contribution?
Make your donation payable to the Tax Literacy Fund at https://secure.asufoundation.org/giving/online-gift.asp?fid=418 (no appeal code necessary) or Make your check payable to the ASU Foundation and mail to the Sandra Day O’Connor College of Law, Arizona State University, PO Box 877906, Tempe, AZ 85287-7906. Please write Tax Literacy Fund (3000 4788) in the memo line of your check. Thank you in advance for your support.
For more information or to become involved–
Please contact the project director: Marjorie E. Kornhauser, Professor of Law, Sandra Day O’Connor College of Law, Arizona State University, Marjorie.email@example.com, 480.965.0396.
All funds will be deposited with the ASU Foundation, a separate non-profit organization that exists to support ASU. YOur payment may be considered a charitable contribution. Please consult your tax advisor regarding the deductibility of charitable contributions.