Commentary from a practical perspective
page includes posts from August 11-17, 2002 in the usual reverse order. Each week's
postings on the home page are perma-linked to these pages.
When you cant avoid it, maybe youll do something about it.
The NYT enjoyed a little self-congratulatory moment this morning relating to taxes.
In late July, the newspaper ran a long, complex article detailing a tax avoidance method allegedly used by many of the nations wealthiest individuals. It involved insurance premiums, gift tax reporting, and the hope that one would live long enough to pass along the money under the arrangement each year to avoid nearly all of the estate taxes that would otherwise be paid.
On August 16, the government dealt with the scheme:
The Times made the direct link between its prior reportage and the new regulations:
If the NYT really is responsible for the new Treasury regulations, then it is also certainly deserving of praise.
Nonetheless, I doubt that the newspaper shares the same goal that I have in urging the elimination of this particular tax dodge.
As best I can tell, the NYTs goal is to increase the total revenues from the federal estate and gift tax laws, by promoting the eradication of avoidance mechanisms that frustrate the achievement of that objective. Todays story included a PR quote from Congressman Doggett that probably matches the papers philosophy:
Hes right, but raising money by closing loopholes is not the only reason to push for their elimination.
Im not a big fan of the death tax, for two reasons. First, it doesnt seem fundamentally fair to tap into accumulated wealth at the point of death. Second, I dont like the pressure it puts on small business owners and others to engage in non-productive activities such as these tax avoidance schemes, just to escape the clutches of a 50% levy on their estates.
Some argue that without death taxes there will be an inevitable broadening of the wealth gap between those at the top and the rest of us. On the other hand, I have more faith in the prospects for eventual dissolution of such dynasties over a few generations, without using the tax system to speed that process along.
For one thing, the inevitable expansion of family trees from a single source of wealth will take its toll. In addition, as I have seen on several occasions locally and on the national level, the character traits that drove the original creator of the family wealth to be so successful dont often seem to continue into the next generations.
From my perspective, erasing death tax loopholes will help create the conditions for questioning the taxs continued existence. The many millionaires in the Senate may be more likely to listen to members of their own economic class who cant escape the death levy without generally applicable legislation.
In other words, if you cant avoid paying the tax, maybe youll do something about it.
An Emily Litella Moment
As soon as I saw the following headline, I was sure I knew the whole story:
It made perfect sense. Mark Shields, the long-time left-leaning pundit on PBS and CNN, was finally being sent to the one place that dovetailed with his political viewsOut There.
Way out there, in fact, as yet another celebrity astronaut.
I even expected to read a longish quote from a grinning David Gergen. along the lines of "Looks like a great assignment for Mark, I expect him to keep in touch, will miss him in the studio, I'm really jealous, yadda yadda yadda."
It seems I was wrong, however.
While I recover my shattered ego, take a look at this week's golf column, if you'd like.
In the early evening tonight we took my mother-in-law into town and down to the beach near the south end of the Boardwalk. She and my wife continued a long-time Philadelphia tradition of dipping one's feet in the ocean on August 15, the Feast of the Assumption.
As a child, my wife accompanied her parents on a day trip to the Jersey shore every August 15 for just this purpose. In later years, her mother joined a crowd of seniors for a bus ride to a Mass in Ocean City, New Jersey, followed by the toe dip.
The tide was out, and the wind had smoothed over a sizable segment of the beach sand above the tideline. Hundreds of bird tracks far outnumbered the human footprints.
If anyone knows how this tradition started, and its connection to the Feast of the Assumption, I'd appreciate a note.
Thank you, Mr. Chait
I appreciate the gesture. It doesnt go as far as some might like in noting the effect of the mistakes on the central premise of the piece. Nonetheless, its probably as good (and as prominently displayed) an admission of error one is likely to see.
Tax-Exempt Financing for Religious Institutions Upheld
The Sixth Circuit issued an intriguing 2-1 decision today, upholding the use of tax-exempt revenue bond financing for religious institutions.
The plaintiffs in Steele v. Ind. Dev. Bd. of Metropolitan Government Nashville sued to overturn the issuance of $15 million in bonds for the sake of David Lipscomb University, a small college affiliated with the Churches of Christ.
The money was to be used to build or renovate several facilities on the campus. The loan agreement between the University and the Industrial Development Board specifically prohibited the college
For those without a background in non-Federal, government-issued bonds, heres a short primer.
In this case, the District Court ruled that the plaintiffs in this case had standing to challenge the issuance of these private activity bonds
They argued that the citys tax base was diluted by the Lipscomb University bonds issuance, in that the city could have collected tax revenues from the issuance of taxable bonds for the same purpose.
Although there have been several state court decisions upholding this method of financing religious institutions, this was apparently the first time any Circuit Court addressed the matter.
Reversing the District Court, the 6th Circuit upheld the issuance of the bonds against the plaintiffs Establishment Clause attack.
The first issue dealt with the claim that the school was
The Circuit Court discussed the Supreme Court precedent using the term, but eventually concluded that the determination was irrelevant,
The appellate court also noted that the Boards prior pass-through financing benefited a wide variety of applicants, including the Country Music Hall of Fame, the Jewish Community Center, the YMCA, and Nashville Public Radio, as well as traditional private development projects:
The court then discussed the nature of the aid provided. The indirect mechanism certainly conferred a benefit on Libscomb University, but that fact did not answer the Establishment question.
The court concluded that the bond issuance benefits were similar to those upheld in the property tax exemption case of Walz v. Tax Commission, 397 U.S. 664 (1970), the tax deduction for school tuition and books upheld in Mueller v. Allen, 463 U.S. 388 (1983), and the tax deduction for gifts to religious institutions upheld in Hernandez v. Commr Internal Revenue, 490 U.S. 680 (1989).
As Judge Sargus wrote for the majority:
The court then reviewed the method by which these bonds are issued. It noted the long history of favorable federal tax treatment of local government finance mechanisms, including revenue bonds and private activity bonds:
Finally, the court noted the broad general purposes of the Metro Nashville industrial revenue bond program, with this telling comment:
Based on my experience with both First Amendment law and government bond work, including industrial revenue bonds, I didnt see this decision as a close case. On the other hand, the plaintiffs won below, and there is a lengthy dissent accompanying the Circuit Courts majority opinion. Maybe Im missing something.
I simply thought that the connection between the recipients of the benefits conferred by such bonds and the governmental entity "issuing" the bonds was too tenuous to implicate the Establishment Clause.
The limits of self-help, continued
I posted a comment recently about a self-help situation in Alexandria, Virginia.
As reported in the Washington Post, a frustrated businesswoman resorted to booting cars illegally parked in her companys assigned spaces in an office park garage. Her actions were highly unpopular with the folks whose cars she booted.
The police werent all that keen on the idea either. They found themselves called to the scene a few too many times to explain that she not only had the right to boot the cars, but also to charge the people for the boots removal.
The womans employees also experienced others anger. Vandals "keyed" their cars when they were parked in the assigned spots. The business owner was eventually forced to rent other spaces for her staff as a result.
I suggested that
I also wrote that she might reconsider her actions if her employees quit and became hard to replace.
John "Akatsukami" Braue commented on the post as follows:
I can understand why Mr. Braue made his assumption about the intent of my argument. I wasnt clear enough in stating it.
I recently sent Mr. Braue an e-mail version of the following attempted clarification:
Im not really arguing that the businesswoman could do nothing herself to alleviate the situation. I think she should have.
Nonetheless, I also think she went a bit overboard, and brought upon her employees the consequences of her own overreaction.
The police should have been called every time, for example. Persistent (daily, even) complaints to the police and, more importantly, to their political superiors about enforcement problems in a given area do tend to produce results. Organized protests with others similarly affected can also help, including in this case meeting with the landlord responsible for providing usable parking spaces.
There were other options. Booting remained among them. Without charging cash for the boot's removal, however, the only thing that she would be doing is cause the miscreant the rough equivalent of inconvenience that taking the parking space caused its owner. Taping a notice to the driver's side window may have also helped produce a bit more respect for her property rights.
My thoughts on this issue are tempered by my long-ago experience as an occasional criminal prosecutor for predominantly minor crimes. A continuing intermittent sore spot within my city was the risk of excessive self-enforcement when frustrated by official unresponsiveness. It tended to lead to disorderly conduct charges and other problems, and not just for the fool that started the mess.
Mr. Braue was certainly correct that the police owed the businesswoman no special duty of enhanced enforcement of her rights, compared to other demands on their services. On the other hand, while the little red hen may sometimes have trouble finding help among the others in the barnyard, she should nonetheless be wary of trying to do it all herself.
August 12, 2002
It appears that Jonathan Chait does not like Delaware.
In an issue of The New Republic sure to fly off the newsstands throughout the Diamond State, Chait takes off after our little bit of paradise with a vengeance rarely applied against other states by magazines specializing in political opinion and the arts.
The apparent triggering source of Chaits snarky commentary is the homely $2 toll charged for automobiles crossing the Delaware/Maryland border on Interstate 95 (deeply discounted for those using EZPass, BTW).
I dont know which resources Chait drew upon in writing this piece, but on this point at least hes more than a bit wrong.
Here are a few of the facts about Delawares transportation revenues.
The Delaware gasoline tax is $0.23 per gallon, very close to the sum charged by Maryland and Pennsylvania, and far more than New Jerseys gas tax. The Delaware diesel fuel tax is 22 cents per gallon. See 30 Del.C. Sections 5110 and 5132.
Delawares combined motor fuel tax revenues were over $103 million in FY01.
In contrast, the I-95 toll plaza that brought forth Chaits ire also brought in $61.6 million in the same fiscal year.
To keep matters in complete perspective, the net amount of Delawares transportation revenues in FY01 from all sources totaled just under $300 million.
Much of the remainder of these revenues is derived from vehicle license plate charges, drivers' license fees, and similar in-state sources.
Even if one assumed that Delawareans pay absolutely no tolls, therefore, they still contribute the lion's share of the state's total transportation costs.
On the other hand, Delaware also experiences a proportionately stunning amount of pass-through traffic. In addition to I-95 and other east/west routes, the states north/south routes comprise a large part of the Delmarva Peninsula. Hundreds of thousands of vehicles per day need not ever stop by a Delaware gasoline station to fill up their tanks as they traverse the state. These non-local cars and trucks nonetheless do create increased maintenance and other costs for transportation within Delaware, which is one of the primary reasons why tolls are charged on I-95 and State Route 1.
Mr. Chait also slammed the separate toll charged to cross the Delaware Memorial Bridge. He combined the revenues from that impressive facility with other funds, and made a separate, equally wrong statement about the extent to which tolls make up Delawares total budget.
Theres just one problemthe Memorial Bridge is operated by a bi-state compact entity, the Delaware River & Bay Authority. This Congressionally approved agencys revenues do not end up in the State of Delawares coffers. While there have been some interesting recent expenditures by the DRBA (with some of those payments now under federal investigation, in fact), Chait simply screwed up in making this argument.
I know Im not neutral on this issue, in that I represent DelDOT.
Nonetheless, if someone wants to knock my native state, they certainly can. We Delawareans do it ourselves frequently, and its often great sport.
Keeping to the facts would make the arguments far more convincing, however.
After all, successfully shooting particular fish requires not only the right gun, but also the right barrel.
Official small print disclaimer: This is, after all, a personal web site. Any opinions or comments I express here are my own, and don't necessarily reflect the official position of my work as a government attorney or any of my clients.
That fact may become obvious later on, but it needs to be said here anyway.
© Frederick H. Schranck 2002