Learning to Love Form 1040: Two Cheers for the Return-Based Mass Income Tax 9780226019086

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Learning to Love Form 1040

Learning to Love Form 1040 Two Cheers for the Return-Based Mass Income Tax

Lawrence Zelenak

The University of Chicago Press Chicago and London

Lawrence Zelenak is the Pamela B. Gann Professor of Law at Duke Law School. The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London © 2013 by The University of Chicago All rights reserved. Published 2013. Printed in the United States of America 22  21  20  19  18  17  16  15  14  13   1  2  3  4  5 ISBN-13: 978-0-226-01892-8 (cloth) ISBN-13: 978-0-226-01908-6 (e-book) Library of Congress Cataloging-in-Publication Data Zelenak, Lawrence.   Learning to love Form 1040 : two cheers for the return-based mass income tax / Lawrence Zelenak.     pages ; cm   Includes bibliographical references and index.   ISBN 978-0-226-01892-8 (hardcover: alkaline paper) — ISBN 978-0226-01908-6 (e-book)  1. Income tax–United States.  2. Tax returns–United States.  I. Title.  KF6369.85.Z454 2013   336.24'150973–dc23 2012027807 a This paper meets the requirements of ANSI/NISO Z39.48-1992 (Permanence of Paper).

C o n t e n ts

O NE

TWO

/ What’s So Special about a Return-Based Mass Tax? / 11

T H R EE

/ Tax Protests, Tax Resistance, and Tax Cheating / 39

FOUR

FIVE

SIX

/ Tax Returns and Fiscal Citizenship / 1

/ Tax Expenditures and Fiscal Citizenship / 55

/ The World War II Origins of the Return-Based Mass Income Tax / 71

/ The Return-Based Mass Income Tax in Popular Culture / 83 S E V EN

/ Simplify, Simplify / 111 Notes / 125 Bibliography / 143 Index / 155

one

Tax Returns and Fiscal Citizenship

Nobody likes Form 1040. Would-be reformers of the federal tax system accept the inevitability of taxes, but not the inevitability of tax returns. In The FairTax Book, their bestseller advocating the replacement of the income tax with a federal retail sales tax, Neal Boortz and John Linder trumpet the elimination of tax returns under their proposal: “No complicated decisions, no tedious bookkeeping, no saved receipts and tax reporting forms. Oh, and no audits. . . . And April 15? It becomes just another lovely spring day.”1 Michael J. Graetz proposes a different reform—replacing the mass income tax with the combination of a value-added tax (VAT; a more sophisticated variation on a retail sales tax) and a residual income tax imposed only on persons with six-figure incomes.2 This would return the income tax to its pre–World War II status as a tax imposed on only an affluent minority of the population. Graetz considers the elimination of tax returns for most Americans to be a major selling point of his proposal—so much so that he features it in his book’s title, 100 Million Unnecessary Returns. Doing away with returns for most taxpayers would be possible even without repealing the income tax or sharply limiting its scope. About thirty countries have return-free income tax systems for most taxpayers, operating on the basis of exact withholding.3 Under an exact-withholding system, employers and other payers of taxable income items (such as interest and dividends) withhold and remit to the government the precise amount of the recipient’s tax on that income, thereby eliminating the need for tax returns to reconcile differences between amounts withheld and taxes actually owed. Congress has twice—in 1986, and again in 1998—ordered studies of the feasibility of a return-free income tax for at least some taxpayers.4 The Trea­ sury Department and the Internal Revenue Service (IRS) dutifully produced the required studies,5 but no legislation has resulted.

 / Chapter One

It is no mystery why there is so much interest in eliminating the income tax return. Americans file in the neighborhood of 140 million individual income tax returns each year (because of joint returns for married couples, the 140 million returns are for close to 200 million taxpayers). Studies have estimated that taxpayers spend 3.5 billion hours each year working on their federal and state income tax returns (with most of that time spent on recordkeeping, rather than on actual return preparation).6 If that time is valued (conservatively) at $20 per hour, that is $70 billion worth of taxpayers’ time each year. Most taxpayers also have significant out-of-pocket return preparation costs. Roughly three in five taxpayers hire paid preparers to deal with the returns themselves (in contrast to the throughout-the-year recordkeeping, delegation of which is generally not practical), at an average cost of more than $200.7 Many of the two-in-five do-it-yourself taxpayers pay substantial amounts for the assistance of TurboTax or other returnpreparation software. Total out-of-pocket return preparation costs, for both customers of paid preparers and do-it-yourself software users, are about $15 billion annually.8 There is no way to quantify the psychic costs—in worry and aggravation—of wrestling with income tax recordkeeping and number crunching, but those costs are undeniably significant as well. With no shortage of proposals to eliminate the individual income tax return, and with the return requirement imposing major costs, why does the Form 1040 remain so very much with us? It is true that H&R Block, Jackson Hewitt, and Intuit (the owner of TurboTax) have a vested interest in the Form 1040 and would fight to protect that interest if necessary (as Intuit has done when faced with a threat of reduced demand for its California state income tax software9), but at the federal level that interest has never been seriously threatened. The federal income tax features an immense number of bells and whistles, all designed to fine-tune tax liabilities according to numerous aspects of taxpayers’ circumstances. Six different marginal tax rates, from 10 percent to 35 percent, apply in six different income ranges. Deductions are allowed not only for home mortgage interest, state and local taxes, and contributions to charity, but also for alimony, casualty losses, medical expenses, individual retirement account (IRA) contributions, moving expenses, and on and on and on. Credits are allowed for (among many other things) childcare expenses, college tuition and fees, adoption expenses, having dependent children, being a low-wage worker with dependent children, and purchasing an electric car. And then there is the alternative minimum tax (AMT), which applies to millions of taxpayers, and which has its own set of tax rates and its own rules for allowable deductions and credits.

Tax Returns and Fiscal Citizenship / 

Fine-tuning of this sort is obviously impossible under a tax system—such as a retail sales tax or a VAT—that imposes tax on transactions rather than on individuals. Such a system can achieve modest adjustments for family size by sending each household an annual rebate check equal to the tax imposed on the household’s subsistence-level consumption, but the byzantine adjustments of the current income tax are far beyond the capacity of a retail sales tax or VAT. A return-free income tax could accommodate somewhat more complexity than a retail sales tax or VAT. Under a return-free income tax with exact withholding, employers (and other payers of taxable income items) must have enough information about their employees to determine the precise amount of required withholding. The United Kingdom’s Pay as You Earn (PAYE) exact withholding system has proven itself compatible with a small number of different tax rates, and with limited tax benefits for home mortgage interest and charitable contributions.10 These modest complications fall far short, however, of the elaborate filigree adorning the current US income tax. As burdensome as tax returns surely are—in terms of taxpayers’ time, dollars, and aggravation—that burden is unavoidable if we are to have a tax system that is finely attuned to the detailed circumstances of each taxpayer. Proposals to eliminate tax returns are necessarily proposals for major substantive simplification of the tax laws. Reform proponents typically argue that the bells and whistles of the current system—the progressive rates and the proliferating deductions and credits—are bad tax policy quite apart from the compliance burdens that tax returns impose on taxpayers. They argue that adoption of their proposals would have a double benefit—a fairer distribution of tax burdens under simpler rules and the elimination of tax returns for many or all Americans. But, if one believes (as Congress must, judging by its legislative choices) that the complexities of current law constitute good policy, then one accepts the tax return requirement as regrettably necessary for achieving the desired distribution of tax burdens. In this book I defend tax returns from a very different perspective. I argue that tax returns serve important purposes apart from accommodating high degrees of complexity. One of those purposes is raising the tax consciousness of the average citizen, compared with the low level of tax consciousness that would prevail under a federal retail sales tax, VAT, or return-free income tax. The tax return filing process calls the taxpayer’s attention to the total amount of income tax that he has paid over the past year—a fact that would otherwise be obscured by the near invisibility of tax paid by withholding at the source and that would be even more thoroughly obscured under a retail sales tax or VAT. Prompted by that information, taxpayers may reflect—as

 / Chapter One

they should—on whether they are receiving good value from the federal government for their income tax dollars. Even more importantly, tax returns have a crucial role to play in the promotion of what might be termed fiscal citizenship. For most of the people most of the time, the most prominent and meaningful connection with the federal government is through the income tax. The near-universal tax return filing requirement defines and mediates the relationship between citizens and the federal government. The return-preparation process serves—or at least has the potential to serve—the important civic purpose of recognizing and formalizing the financial responsibilities of citizenship. Justice Oliver Wendell Holmes, Jr., famously remarked, “Taxes are what we pay for civilized society.”11 The filing of a tax return, with its high visibility and ceremonial aspect, calls the taxpayer’s attention to his status as a taxpayer and a purchaser of civilization in a way that would be impossible under a return-free tax system. In contrast with the claim of Boortz and Linder that the ideal fate for April 15 would be to become “just another lovely spring day,” April 15 should be recognized as a national holiday, “Taxpayer’s Day.” The act of paying taxes is important enough to merit that recognition. The holiday would reward taxpayers for fulfilling the financial responsibilities of citizenship, and taxpayers could use the holiday to reflect on the civic importance of their taxpayer status. Even if a national holiday is never introduced, more communities might follow the model of Lawrence, Kansas, which since 1987 has had a tax return filing party at its post office every April 15, complete with live music, dancing, and food.12 April 15 can and should be as important a civic occasion as the first Tuesday after the first Monday in November. Together, Tax Day and Voting Day symbolize the fulfillment of the two great responsibilities of citizenship. Former IRS Commissioner Mark Everson has noted the connection between tax filing and voting: “[L]ast year [2004] 183 million people filed individual income tax returns. To put that number in perspective, it is fully half again the number of people who voted in the presidential election. In that sense, paying taxes is a unifying experience fundamental to our democracy and respect for the rule of law.”13 This enthusiasm for the Form 1040 as a civic ceremony—as an exercise in fiscal citizenship—may seem hopelessly out of touch with the reality of the tax return preparation experience for most people today. If taxpayers experience the income tax as a complex mess—a fair description of the current tax—then their reflections on the income tax, and on the federal government more generally, may take a far-from-Holmesian turn. If confronting

Tax Returns and Fiscal Citizenship / 

her Form 1040 fills a taxpayer with fear and loathing, the return preparation process is more likely to alienate her from the federal government than to strengthen her sense of fiscal citizenship. Former Commissioner Everson made this point as well: “[T]hose who seek to comply but cannot understand their tax obligations may . . . ultimately throw up their hands and say ‘why bother.’”14 After spending many miserable hours satisfying their filing obligations, taxpayers are not likely to be basking in the warm glow of Holmesian contemplation of their fiscal citizenship. Although today the tax return filing requirement falls far short of its potential for strengthening fiscal citizenship, there is considerable evidence that it served that purpose effectively in the first few decades of the mass income tax, during and after World War II, when the income tax was simpler and the return preparation process was correspondingly less aggravating. There is reason to hope that tax returns could again effectively serve that purpose, if Congress were to restore the rules applicable to most taxpayers to the relative simplicity of earlier decades. This book makes the case for retaining a return-based mass income tax not because such a system can accommodate highly complex rules for determining tax liabilities, but because of the potential of a return-based system to promote fiscal citizenship. Ironically, the very complexity made possible by a return-based mass tax threatens the civic benefits of return-based taxation. Because the civic benefits of tax returns are likely to be realized only under an income tax considerably simpler for the vast majority of taxpayers than today’s version, this book is—like those of Boortz and Linder, and Graetz, and many others—a proposal for tax reform. But it is a considerably more modest proposal than most—a proposal not to scrap the return-based mass income tax in favor of a return-free system, but to repair the returnbased tax so its civic potential can be realized. The book offers two cheers for the Form 1040. It withholds the third cheer partly because the Form 1040’s civic benefits are more potential than they are currently realized, but also because even with simplified tax rules those benefits would come at a real cost—less than the cost of tax returns today, but still substantial—in taxpayer time, out-of-pocket expenses, and headaches. A clarification is necessary at this point, concerning the definition of a return-free tax system. A handful of countries use a system called tax agency reconciliation, under which a country’s IRS-equivalent agency prepares a tentative tax return on a taxpayer’s behalf, using information provided to the agency by the taxpayer and by parties making taxable payments to the taxpayer. A taxpayer receiving a tentative return may sign and file the return as is, modify the return before signing and filing, or ignore the tentative

 / Chapter One

return and prepare a return from scratch. The California Franchise Tax Board also offers tax agency reconciliation, under the appellation ReadyReturn, for some taxpayers.15 Although tax agency reconciliation is often described as a return-free system, that is obviously an inaccurate description. Under tax agency reconciliation, a taxpayer must still review, sign, and file a return. The required taxpayer involvement should be sufficient to generate the sense of tax filing as an important aspect of civic participation. In fact, the fiscal-citizenship–promoting character of the return-filing process might well be more pronounced for a taxpayer using tax agency reconciliation than for either a taxpayer preparing a return without assistance or a taxpayer hiring a paid preparer, because most of the negative feelings engendered by grappling with complexity (or by paying a surrogate to do so) would be eliminated.

The Road Ahead Chapter 2 describes three major consequences of the federal government’s reliance on a highly visible return-based mass tax. First, the filing requirement is a crucial component of a compromise on the question of how visible and painful federal taxation should be. Coupled with inexact withholding, the return-based income tax has proven to be an enduring compromise between big-government proponents (who generally favor low-visibility, lowpain taxes, and for whom the ideal system might feature return-free exact withholding) and small-government proponents (who would prefer taxes to be as visible and as painful as possible, and for whom the ideal tax might be an income tax without withholding). The second—but perhaps most important—of the consequences is the one emphasized above. A return-based tax confers taxpayer status and a sense of fiscal citizenship in a way no retail sales tax, VAT, or return-free tax (including the current payroll tax used to finance Social Security) ever could. Third, the near-universal return-filing requirement, coupled with a tax return due date applicable to all individual taxpayers, has had the effect of focusing media attention on big-picture tax policy issues on and around every April 15. Chapter 3 considers the return-based mass tax as a vehicle for not paying tax, in the case of tax protesters and tax cheaters. The income tax has been used extensively as a vehicle for protests by those at both ends of the political spectrum. A tax protest requires a tax that gives the taxpayer a choice as to whether to comply. The return-based mass tax gives that choice to almost everyone. Retail sales taxes, VATs, payroll taxes, and final-withholding return-free income taxes do not. Although there are obvious arguments

Tax Returns and Fiscal Citizenship / 

against a tax system highly vulnerable to protests—it certainly makes life more difficult for the IRS—the openness to protests may serve an important safety-valve function. Perhaps the opportunity for income tax protests has forestalled more violent protests. In addition to its openness to protests, the return-based tax is also susceptible to widespread small-scale cheating, by failing to report income (of types not subject to information reporting by payers) and by overstating deductions (such as the deduction for charitable contributions). Again, although there are obvious arguments that this vulnerability to cheating is bad thing, there is also something to be said in its favor. From one perspective, it may create a sense that one is trusted by the government (within limits), which may foster a corresponding sense of trust in government. From another perspective, it gives the average person a sense of (again, limited) empowerment to resist Leviathan. Chapter 4 describes how the existence of return-based mass taxation in the postwar era facilitated the explosive growth of tax expenditures—subsidies designed to further nontax policy goals, embedded in the income tax—including the home mortgage interest deduction, the charitable contributions deduction, the earned income tax credit (EITC), and an array of provisions serving various education- and environment-related purposes.16 This is not entirely to the credit of return-based taxation, because many of the tax expenditures are of doubtful merit. In fiscal-citizenship terms, however, one tax expenditure—the deduction for donations to charity—has been remarkably successful. The deduction enables taxpayers to decide whether to satisfy their financial obligations to society by paying a certain amount of tax, or by contributing a larger amount to charity. Saul Levmore has described this as “taxes as ballots,”17 thus analogizing citizenship exercised through the tax system to citizenship exercised through voting. The EITC, which functions as an antipoverty program for working parents and their children, can also be viewed as promoting a sense of economic citizenship, to the extent it achieves its purpose of ensuring that anyone who works full-time will be able to support his or her family at a level of basic decency. Although the federal income tax has existed continuously since 1913, it did not achieve its current mass tax status until World War II. Chapter 5 describes the wartime conversion of the income tax to a mass tax. The need to finance the war made some form of federal mass tax inevitable, but it was far from inevitable that the income tax would be chosen as the vehicle of mass taxation. If not for the strenuous (and less-than-wholly-rational) opposition of the Roosevelt administration to a federal retail sales tax, the United States might have emerged from the war with a retail sales tax as the instrument of mass taxation and with an income tax applicable only

 / Chapter One

to the economic elite. Even given the wartime decision to adopt a mass income tax, it was not inevitable that the tax would be return based. As Chapter 5 recounts, Congress came very close during the war to eliminat­ ing the return-filing requirement for most taxpayers by enacting an exactwithholding system. Chapter 6 turns from political history to popular culture. It examines the treatment of the income tax in nearly one hundred radio and television situation comedy episodes from the 1940s to the present, as well as in more than two hundred New Yorker cartoons from the late 1920s to the present. The mass income tax and sitcoms emerged at nearly the same moment. Nothing has been more central to American popular culture in the last sixty years than television, and the sitcom has been “the most enduring and popular of all prime-time television genres.”18 From World War II to the present, the income tax has inspired sitcom writers, and sitcoms have reflected public attitudes toward the income tax. In older sitcoms (roughly from the 1940s to the mid-1960s), the theme of the return-filing process as promoting fiscal citizenship features prominently. In more recent sitcom episodes, attitudes toward return-based taxation are considerably less positive. Although the payroll tax rivals the income tax in economic significance, it has provided no grist for the sitcom writers’ mills—not surprisingly, given the low visibility of the return-free administration of the payroll tax. The New Yorker tax cartoons resemble the sitcom tax episodes in their focus on the federal income tax, to the virtual exclusion of all other taxes. There is a crucial difference between the sitcoms and the cartoons, however, in the demographics of their audiences. Whereas the sitcoms provide insights into the tax attitudes of a very broad television audience, the cartoons reflect the attitudes of the predominantly upper-middle-class readership of the New Yorker. Interestingly, the deterioration in attitudes toward the income tax since the 1960s, so strongly evident in the sitcom episodes, is much harder to detect in the cartoons. The final chapter concludes with a plea to Congress for tax simplification. Too much return-preparation complexity, applied to too many taxpayers, imperils the return-based system. In the short run, struggling with unreasonable levels of return-preparation complexity may leave taxpayers with a sense of rage rather than a sense of fiscal citizenship. In the long run, that rage may lead to widespread support for the replacement of the return-based mass tax—perhaps by a federal retail sales tax or VAT, perhaps by a return-free income tax, or perhaps by the combination of a VAT and an income tax applicable only to six-figure incomes. If that were to happen, all the current and potential benefits of return-based mass taxation would

Tax Returns and Fiscal Citizenship / 

be lost. Accordingly, chapter 7 concludes by urging Congress to simplify the substance of the tax law and the return-preparation process in order to enhance and preserve the benefits of return-based mass taxation. In particular, it endorses proposals to provide a tax agency reconciliation option (i.e., tentative returns prepared for taxpayers by the IRS) for taxpayers with relatively simple tax situations, and for the IRS to establish a secure online database from which all taxpayers could retrieve and download into their returns all their tax information reported to the IRS by third parties.

two

What’s So Special about a Return-Based Mass Tax?

This chapter examines three major effects of return-based taxation. First, return-based mass taxation, in combination with inexact withholding, has proven to be an enduring compromise between advocates of small government and advocates of big government on the important question of how visible and painful taxes should be. Second, return-based mass taxation fosters widespread fiscal citizenship to an extent that would be impossible under any other form of taxation. Third, the April 15 due date for tax returns serves as an annual spur to media consideration of tax-policy issues (and, to a lesser extent, to media consideration of how the federal government spends tax dollars). Before examining these three effects of return-based taxation, a brief comment is in order on the significance of the fact that roughly six in ten individual income tax returns are completed by paid preparers, rather than by taxpayers themselves.1 In the 1950s, in sharp contrast, only about one taxpayer in five employed a paid preparer.2 All three of the effects discussed in this chapter are attributable to the high visibility of return-based taxation. If the income tax is highly visible only for taxpayers preparing their own returns, then the dramatic growth in the use of paid preparers would have caused a dramatic decrease in the significance of the three effects. In fact, however, the income tax remains highly salient to those taxpayers relying on paid preparers. A taxpayer employing a paid preparer still retains and assembles tax records, hires and consults with her paid preparer, signs her return, and pays the tax due with her return or receives a refund of her overpayment. A recent study found that taxpayers using paid preparers spent, on average, 27.5 hours of their own time on return-preparation activities (including recordkeeping, tax planning, and interacting with paid preparers).3 This level of involvement in the return-preparation process is more

12 / Chapter Two

than sufficient to make the federal income tax conspicuous to the six-in-ten taxpayers relying on paid preparers.

A Compromise on the Visibility and Painfulness of Taxes Some small-government conservatives argue that taxes should be as visible and as painful as possible, on the theory that the public will resist high levels of visible and painful taxes. For them the ideal income tax system would retain filing obligations (to ensure visibility) but would repeal withholding (to maximize the pain of payment). Former House Majority Leader Richard Armey, for example, cosponsored a bill to replace withholding with the requirement that individuals make monthly payments of estimated tax.4 Testifying before President Bush’s Advisory Panel on Federal Tax Reform in 2005, the great conservative economist Milton Friedman regretted his participation in the development of income tax withholding during World War II: [Withholding] has been a mistake in the post-war period, and we would have been better off in the post-war period if we did not have [it]. The reason for that is the withholding tax makes it easy to collect taxes. It’s taken from your check before you know that you’ve got it. And so you could not today have a government of the size it is . . . if you did not have the withholding tax as a way of raising the money.5

Also testifying before President Bush’s panel, Grover Norquist, the president of Americans for Tax Reform, expressed his opposition to proposals for return-free income taxation: The present system . . . is at least citizen-based and focuses taxpayers on what they’re paying. . . . [M]oving to a so-called return-free system will reduce people’s understanding of what exactly they’re paying and their [reduced] focus on it will make it easier to raise taxes. . . . We want people to be aware of what they’re paying and how much it costs. The idea that one of the benefits [of a return-free system] is to reduce the psychic costs of tax filing reminds me of the argument for the guillotine, which was that it was more humane. . . . This seems to me the next step after Milton Friedman’s mistake of allowing us to go to withholding during World War II; the next step in making it easier for the government to get their hands on your income and making you detached from the actual cost of government.6

What’s So Special about a Return-Based Mass Tax? / 13

At the other end of the political spectrum, a big-government proponent might favor making taxes as nearly invisible and as nearly painless as possible. As Jean Baptiste Colbert is said to have remarked, “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing.”7 A principled argument can be made in favor of low-visibility taxes, based on the premise that the benefits of government spending are generally of low visibility to taxpayers (except in the case of cash transfer programs, such as Social Security). If taxes are highly visible while the benefits of tax-funded programs are of low visibility, the result will be undesirably low levels of taxation and government spending; voters and politicians will resist the imposition of taxes to pay for government spending programs if the burden of the taxes is plainly visible while the benefits of the spending are largely hidden from view. A plausible solution is to lower the visibility of taxes to counteract the un­ avoidably low visibility of the benefits of government spending. From this point of view, an attractive tax would either dispense with direct taxation of individuals (as with a value-added tax [VAT] or retail sales tax), or would feature exact withholding and no tax returns. Without an obligation to pay over taxes, or to calculate one’s tax liability on a return, a taxpayer would be only minimally aware of the fact that he was paying tax and thus only minimally resistant to higher taxes. If the elimination of withholding would cripple the revenue-raising potential of an income tax, and if the elimination of tax returns under exact withholding would dangerously expand Leviathan’s revenue-raising capacity, the current system of inexact withholding and return-based reconciliation may be an attractive middle ground. The return preparation requirement leads taxpayers to pay attention to the total amount of their income tax liability, thus constraining the ability of Congress to impose tax increases; yet the reduced resistance to taxation attributable to withholding enables Congress to raise substantial revenue through the income tax. The current system also scores well with respect to political legitimacy. Although hidden or semihidden taxes (such as the federal payroll tax) raise questions of political legitimacy, using withholding to reduce the painfulness of the highly visible return-based income tax does not. The result is an attractive— and enduring—compromise on the visibility and painfulness of the federal government’s major revenue tool. As described in chapter 5, the development of return-based mass taxation and inexact withholding during World War II consisted of a series of ad hoc responses to emergency conditions. There is no clear indication in

14 / Chapter Two

the historical record that the wartime Congress understood the system it was creating as a compromise between small- and big-government proponents on the visibility and painfulness of mass taxation. Indeed, there was little need for such a compromise at that time, as even small-government proponents agreed that it should be easy for the government to impose and collect taxes in wartime—as evidenced by Milton Friedman’s central role in the development of wartime wage withholding. Even today, this understanding of the return-based mass income tax with inexact withholding—as a bargain between supporters of big and small government—may not have penetrated the consciousness of many legislators. The compromise is no less real, however, for its somewhat under-the-radar quality. When the compromise has been challenged, from either the Right or the Left, it has proven impressively resilient. Proposals to repeal withholding have gone nowhere, because big-government advocates (and even medium-size–government advocates, for that matter) understand that withholding is crucial to tax collection. Proposals for elimination of return-based mass taxation have also never come close to enactment—partly because of objections from the Left to the regressive distribution of tax burdens under most such proposals, but also partly because of objections from the Right (as exemplified by Grover Norquist’s statement to the President’s Advisory Panel on Federal Tax Reform) to the decreased public resistance to tax increases under a less-visible form of taxation.8 A caveat is in order here, concerning the paucity of empirical support for the assumptions on which the size-of-government tax compromise is based. In the academic literature, questions of the extent to which various forms of taxation are visible to or hidden from taxpayers fall under the heading of tax salience. Tax salience is of two types. Market salience involves taxpayers’ awareness—or lack of awareness—of how taxes impact the costs and benefits of engaging in market transactions. (For example, whether taxpayers take sales tax into account in determining the true cost of a consumer purchase is a question of market salience.) Political salience is concerned with the extent to which taxpayers are aware of their tax burdens when they vote and otherwise take part in the political process.9 As is apparent from the remarks of Friedman and Norquist, the combination of return-based income taxation and inexact withholding is a compromise with respect to the political salience of taxation. At present, empirical studies of political tax salience do little to either support or undermine the conventional wisdom on which the great tax compromise is based. As Brian Galle has recently noted, “Many commentators believe that income tax withholding makes the income tax

What’s So Special about a Return-Based Mass Tax? / 15

less visible, [but] there are no data to support that intuition as yet.”10 And although a few studies have investigated whether the size of government is, in fact, inversely correlated with the political salience of the tax system, the results have been inconclusive.11 If future studies were to undermine the conventional wisdom—for example, by establishing that withholding has no effect on the political salience of taxation, or that the political salience of taxation has no effect on the size of government—the great tax compromise could come undone. As of now, however, there is no compelling reason to anticipate such developments. Although the great tax compromise has served the nation well for seven decades, it is possible that it could be improved by a little tweaking. The immediate concern of most taxpayers at the time of return preparation is the amount of their overpayment or underpayment—the refund to which they are entitled, or the check they must send along with their return—rather than the total amount of their tax liability. Since the 1970s, roughly threequarters of individual income tax returns have produced refund claims.12 This is because the withholding tables are designed to produce moderate levels of overwithholding for most taxpayers. (Taxpayers can adjust their withholding to counteract the overwithholding effect of the tables, but the substantial majority of taxpayers accept the default rules.) Lee Anne Fennell has suggested that overwithholding may have an analgesic effect: Significant refunds effectively bundle the costs of completing tax paperwork with a larger reward (the refund), and hence could significantly reduce the pain associated with the [tax return preparation] task. People probably do not have this notion consciously in mind when they overwithhold, but the positive reinforcement associated with having a large, attractive reward paired with an unavoidable and distasteful task could play a role in perpetuating overwithholding behaviors.13

Small-government proponents would presumably favor tweaking the withholding tables to eliminate the bias toward overwithholding. Biggovernment proponents might counter along a line suggested by Fennell— that it is legitimate for the government to use the pleasure of an anticipated refund to cancel out the pain of return preparation, leaving the taxpayer’s attention focused (as it should be) on his actual income tax liability. The problem with that response, however, is that the system does not do a very good job of directing the taxpayer’s attention to the total amount of his income tax liability. One’s tax liability is just a line somewhere near the middle

16 / Chapter Two

of the back side of Form 1040; it is not the figure to which the entire return preparation process seems to be directed. A person examining a Form 1040 for the first time would conclude from its structure that its ultimate purpose is not to determine “your total tax” (line 61 on the 2011 Form 1040), but to determine the “amount you overpaid” (line 73) or the “amount you owe” (line 76), as the case may be. Thus, the design of the Form 1040 reinforces the natural tendency of taxpayers to focus on the immediate cash flow effect of return filing—receiving a refund or writing a check—rather than on the big picture question of one’s total income tax liability. From the standpoint of the taxpayer-consciousness–raising function of the return preparation process, it would be better if taxpayers paid more attention to their total income tax liabilities and less attention to the amounts of their refunds or underpayments. Unfortunately, there is no completely satisfactory solution to the problem of the tax return process focusing taxpayers’ attention on the wrong dollar amount, short of abandoning the basic compromise represented by return-based taxation with inexact withholding. Still, it is worth considering what might be done within the confines of the basic compromise to encourage taxpayers to pay more attention to the “your total tax” line on Form 1040. A simple step in the right direction would be to make the total tax liability line on the Form 1040 bigger and bolder, and perhaps of a different color, than the surrounding lines. Intuit (the proprietor of TurboTax) and other providers of tax return preparation software could devise even more creative methods—animation? sound effects?—of stressing the significance of “your total tax.” Congress might also adopt Marjorie Kornhauser’s intriguing suggestion that it require the IRS to send each income taxpayer an “annual tax statement,” loosely modeled on “Your Social Security Statement,” which the Social Security Administration sends annually to wage earners.14 Kornhauser envisions the statement as including, among other things, “the highlights of a taxpayer’s last two income tax returns” (including gross income, tax liability, and marginal and effective tax rates) and “statistical comparisons between the individual taxpayer’s own tax situation and the average and median of other taxpayers, broken out into income brackets.” The taxpayer’s total federal income tax liability could and should be the most prominent figure in the annual tax statement. In sharp contrast, there would be no reason for the statement even to mention the amount by which the taxpayer had been overor underwithheld. The annual statement would thus serve as a corrective to the tendency of tax return preparation to focus too much attention on underand overpayments, and too little attention on total tax liability.

What’s So Special about a Return-Based Mass Tax? / 17

Tax Returns and Fiscal Citizenship Filing a tax return is a ceremony of fiscal citizenship, analogous to voting as a ceremony of political citizenship. Fiscal citizenship is not a term in wide circulation.15 As used here, it has two aspects. In its first aspect, fiscal citizenship is performed by contributing one’s appropriate share—however modest—toward the financing of the political community of which one is a member. In its second aspect, fiscal citizenship is exercised by becoming informed about government taxing and spending policies, and by becoming involved (at least as a voter, and perhaps more deeply) in the determination of those policies. Return-based mass taxation promotes fiscal citizenship in both its aspects. Doing One’s Part Citizenship through Taxpaying

Franklin Delano Roosevelt’s belief in the importance of the first aspect of fiscal citizenship helps explain his preference for a mass income tax, rather than a federal retail sales tax, as the wartime instrument of mass taxation. In an August 1941 letter to Robert Doughton, chairman of the Ways and Means Committee, Roosevelt wrote: The overwhelming majority of our citizens want to contribute something directly to our defense and . . . most of them would rather do it with their eyes open than do it through a general sales tax. . . . In other words, most Americans who are in the lowest income brackets are willing and proud to chip in directly even if their individual contributions are very small in terms of dollars.16

The concept of fiscal citizenship underlying Roosevelt’s letter had appeared in American thought decades earlier. As Ajay Mehrotra has noted, Since the late nineteenth century, tax reformers and political economists had been claiming that the “inconvenience” of direct levies on income . . . made citizens more attuned to the workings of the state, that paying taxes directly to the federal government gave citizens a greater stake in how public funds were raised and used, and that direct taxation ultimately helped forge a renewed sense of civic identity.17

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As the income tax was transformed into a mass tax during World War II, Irving Berlin responded by writing the song, “I Paid My Income Tax Today,” on the theme of fiscal citizenship: Lower brackets that’s my speed Mister Small Fry yes indeed But gee—I’m proud as can be.18

In a radio broadcast just before the March 1943 tax return due date, celebrity gossip columnist Walter Winchell also drew the connection between mass tax return filing and citizenship: “Attention Mr. and Mrs. United States. . . . Your income tax blank [form] is not a bill from your government. It is your share in America. Our nation is composed of one hundred and thirty million shareholders—shareholders in civilization.”19 In October 1945, shortly after the end of the war, the New York Times published an editorial, “Taxes in a Democracy,” asserting that the wartime argument for a mass income tax as an instrument of fiscal citizenship also applied in peacetime: It is . . . important to have as wide an income tax as possible. It makes no difference whether the amount collected from those in the lower income tax brackets is a nominal sum. What is important is that the great majority of voters be kept aware at all times that they are making a contribution toward every dollar that the federal government spends.20

As the editorial had advocated, the income tax remained a mass tax in the postwar era. The urgency of satisfying the obligations of fiscal citizenship diminished with the end of the war, but the understanding of the income tax as an exercise in fiscal citizenship endured. James T. Sparrow has persuasively suggested that after the war the shared national purpose—to which one contributed by paying income tax—changed from winning the war to the realization of the American dream of widespread affluence: [W]hen patriotism fused with a sense of entitlement to an American standard of living (underwritten by government-managed economic growth), the obligations of fiscal citizenship proved quite durable, lasting decades beyond the war emergency, and funding the explosive growth of the postwar state.21

As described in more detail in chapter 6, tax-related radio and television situation comedy episodes from World War II through the mid-1960s sug-

What’s So Special about a Return-Based Mass Tax? / 19

gest that the understanding of paying one’s income tax as the satisfaction of an obligation of citizenship took root in the public consciousness. One of the most striking examples comes from a 1948 radio episode of The Adventures of Ozzie and Harriet. Emmy Lou, a neighborhood girl, sees Ozzie mailing his tax return and is moved to exclaim: Oh, what a wonderful bit of Americana! There you stand by the mailbox, a patriotic smile on your face. Your heart cries out, “Take it Uncle Sam! There’s a lot more where that came from!” No complaining, no grumbling, you’re eager and willing to pay your country its due. You’re 130 million Americans, Mr. Nelson!22

Although the show plays Emmy Lou’s over-the-top enthusiasm for a laugh, the show appears to endorse her basic attitude toward the tax-filing ceremony. In three sitcom episodes—a 1950 radio episode of Life with Luigi, a 1957 episode of Hey, Jeannie, and a 1963 episode of The Bill Dana Show—recent immigrants to the United States comment on how proud they are of their status as federal income taxpayers.23 Luigi, for example, writes a letter to his mother in Italy telling her of his contribution to the multibillion dollar federal budget: “I’m proud to tell you that $1.56 is what I paid in.” This view of tax return filing as a ceremony—in fact, the ceremony—of fiscal citizenship should be attractive to subscribers to a fairly wide range of republican and liberal political theories. As described by Cass Sunstein, republican and liberal political theories, despite their considerable variety, share an emphasis “on political equality, [and] on citizenship.”24 The widespread filing requirement promotes the goal of political equality (under which “all individuals . . . have access to the political process” and “large disparities in political influence are disfavored”25), by recognizing and formalizing the status of each tax return filer as a taxpayer—whether her tax liability happens to be $1 or $1 million. Placing a “high premium on citizenship and participation,”26 republican and liberal political theorists “attempt to provide outlets for the exercise of citizenship.”27 The return-filing ceremony serves admirably as the primary outlet for the exercise of fiscal citizenship. Although the citizenship-promoting case for the return-based mass income tax does not depend on there being anything uniquely American about the concept of fiscal citizenship, it is intriguing that the US income tax features a unique formal relationship between citizenship and the obligation to pay taxes. Among the major economic powers of the world, only the United States imposes income tax on the basis of citizenship alone; if a

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person has only foreign source income and does not set foot in the United States during the entire year, but is a citizen of the United States, that person is subject to the federal income tax on his worldwide income.28 In the 1924 case of Cook v. Tait, the Supreme Court acknowledged the power of Congress to tax solely on the basis of citizenship.29 The Court remarked that “the government, by its very nature, benefits the citizen and his property wherever found,” and that the power to tax a citizen is based “upon his relation as citizen to the United States and the relation of the latter to him as a citizen.” In a formal sense, then, the connection between income taxation and citizenship is uniquely strong in the United States. As President Roosevelt suggested in his 1941 letter to Chairman Doughton, return-based mass taxation is better suited to the promotion of fiscal citizenship than any other form of taxation. Although consumers bear the burden of a retail sales tax or a VAT, under those forms of taxation the tax is not remitted to the government by the consumer, there is no tax-related interaction between the government and the consumer, the amount of tax is not fine-tuned according to the details of each consumer’s personal circumstances, and there is no mechanism for keeping track of a consumer’s tax burden for the entire year. Such impersonal taxes fall far short of returnbased income taxation in their potential for conferring on citizens a sense of official taxpayer status and of fiscal citizenship. Return-free income taxation (based on exact withholding) lies somewhere between a sales tax (or VAT) and return-based income taxation in its potential to promote fiscal citizenship. A return-free but individually based tax (such as the United Kingdom’s Pay as You Earn [PAYE] system) can confer some sense of taxpayer status, but it cannot do so with the forcefulness of return-based taxation because of its much lower visibility. The reader may be able to confirm this point by introspection. In thinking of your own status as a federal taxpayer, do you focus on the return-based income tax or on the return-free federal payroll tax?30 Real property taxes satisfy the visibility and individuation criteria for the promotion of fiscal citizenship, but they are impractical at the federal level because of the constitutional requirement that federal “direct” taxes be apportioned among the states according to their relative populations.31 Even apart from the constitutional impediment, a tax imposed only on owners of real property could not promote universal fiscal citizenship. The astute reader will have noticed that all the evidence offered here of the popular understanding of the income tax as promoting fiscal citizenship is at least fifty years old. As will be discussed in chapter 7, the income tax does not foster fiscal citizenship as effectively today as it did in earlier de­­­ cades. In chapter 7, I consider several possible explanations for this decreased

What’s So Special about a Return-Based Mass Tax? / 21

effectiveness. I conclude that, although the decreased effectiveness may be partly explained by a general decline in Americans’ trust in government over the last fifty years, a large part of the blame lies with the increasingly frustrating encounters with Form 1040 caused by the increasing complexity of the income tax rules applicable to the average taxpayer. If that conclusion is correct, full realization of the fiscal-citizenship–promoting potential of return-based mass taxation depends on tax simplification. Citizenship through Taxpaying and Citizenship through Voting: The Relationship

A search in the LexisNexis or Westlaw databases of major American newspapers will find literally thousands of articles containing the statements “I am a taxpayer” and “I’m a taxpayer.” Taxpayer status is usually asserted as a reason why the speaker’s opinion on some question of government policy deserves to be taken seriously. When the government policy in question is a federal policy, the tax invoked is invariably the federal income tax. A similar phenomenon exists in the jurisprudence of the Supreme Court. In the 1968 case of Flast v. Cohen, the Court ruled that federal income taxpayers had standing to challenge federal expenditures as benefiting religion in violation of the Establishment Clause of the First Amendment.32 The plaintiffs in Flast may have paid other federal taxes besides the income tax (especially the payroll tax), and conceivably the Supreme Court would have acknowledged taxpayer standing based on payment of other federal taxes. But the plaintiffs chose to assert, and the Supreme Court recognized, taxpayer standing based on the income tax. In the decades following Flast, the Supreme Court has never had occasion to decide whether Flast standing can be based on the payment of federal taxes other than the income tax. Are these speakers and litigants right to see a connection between paying taxes and having a meaningful voice on questions of public policy? Of course, it is through voting that the ordinary citizen has an official voice in the political process. What is—what should be—the nature of the relationship between paying taxes and voting? That there is a connection between taxpaying as fiscal citizenship and voting as political citizenship will come as no surprise to any student of American history. At the time of the adoption of the Constitution, six states conditioned—in one way or another— the right to vote on the payment of taxes.33 In the later part of the nineteenth century, leaders of the women’s suffrage movement frequently argued that if women were required to pay tax, justice demanded that they also be allowed to vote.34 The 1873 National Women’s Rights Convention made the point succinctly: “Woman now holds a vast amount of the property in the

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country, and pays her full proportion of taxes, revenue included. On what principle, then, do you deny her representation?”35 The taxes relied on in the suffragists’ argument were primarily local real property taxes. As Linda Kerber has noted, the federal taxes of the late nineteenth century were unsuitable for the suffragists’ purpose: Taxes have long been central to public argument about the relationship between the individual citizen and the state. . . . When women set out to measure that relationship with precision, however, they found it hard to do. Throughout the nineteenth century federal taxes came in the form of customs duties or excise taxes, the latter largely on liquor and tobacco. They were felt by individuals only indirectly, in higher prices for imported goods and for two items of consumption.36

This is the same problem, of course, that makes a federal retail sales tax or VAT unsuitable as a vehicle of fiscal citizenship. Local real property taxes were more suitable to the suffragists’ purpose, but they presented a different problem. Since real property taxes were paid only by an affluent minority of women, those taxes did not help make the case for universal women’s suffrage. Kerber again: “Women’s taxpayer suffrage pitted class against gender, offering the power of propertied women to buttress privileged classes in the political system.”37 The worst chapter in the history of the connection between taxpaying and voting in America is, of course, the use of poll taxes by the southern states—beginning in the 1890s—to disenfranchise many African Americans.38 In 1937 the Supreme Court upheld Georgia’s poll tax (of one dollar) against constitutional challenge in Breedlove v. Suttles,39 but the plaintiff in the case was white and he did not claim that the poll tax violated the Fifteenth Amendment (prohibiting denial of the right to vote on the basis of “race, color, or previous condition of servitude”). The Twenty-Fourth Amendment—introduced in 1962 at the urging of President Kennedy and ratified in 1964—prohibited requiring the payment of a poll tax as a condition of eligibility to vote in elections for federal offices, but it did not apply to state and local elections. Finally, in its 1966 opinion in Harper v. Virginia Board of Elections,40 the Supreme Court ruled that Virginia’s $1.50 poll tax, imposed as a condition of voting in state and local elections, violated the equal protection clause of the Fourteenth Amendment by irrationally discriminating against those too poor to comfortably pay the tax. Like Breedlove, the Harper litigation has a Hamlet-without-the-Dane quality, as the Court considered the case with-

What’s So Special about a Return-Based Mass Tax? / 23

out regard to “whether on this record the Virginia tax in its modern setting [still] serves” its original purpose of disenfranchising African Americans.41 The three dissenting justices argued that there was clearly a rational basis for conditioning the franchise on the payment of a nominal poll tax (with only a rational basis being required to uphold the tax in the absence of a claim of race-based discrimination). According to Justice Harlan (in a dissent joined by Justice Stewart), “[I]t is certainly a rational argument that payment of some minimal poll tax promotes civic responsibility, weeding out those who do not care enough about public affairs to pay $1.50 or thereabouts a year for the exercise of the franchise.”42 Does the troubled—even ugly—history of the connection between taxes and voting in the United States undermine the claim that return-based mass taxation fosters fiscal citizenship? It does not, because the nature of the connection between taxpaying and voting argued for here is fundamentally different from the nature of the connection claimed by the suffragists and embodied in the disenfranchising poll taxes. In both those instances, paying tax and voting were in a relationship of reciprocal duty and right; by satisfying the fiscal-citizenship duty to pay tax, one earned the political citizenship right to vote. Such a duty-and-right linkage between taxes and voting is discredited by the history of poll taxes in the South and is now forbidden by the Twenty-fourth Amendment. Such a linkage would be mistaken, however, even apart from those considerations. The Supreme Court majority in Harper was right when it asserted that there could be no justification for conditioning a poor person’s right to vote on his payment of a tax he could not afford. As described in the examination of the earned income tax credit in chapter 4, there must be a nontaxpaying route to fiscal citizenship for those too poor to pay any tax without falling deeper into poverty. The alternative route to fiscal citizenship for the poor and near poor is through doing what one can to support oneself and one’s family through gainful employment. This suggests a framework under which taxpaying and voting are still linked in a reciprocal duty-and-right relationship; the only difference is that there is a parallel duty-and-right reciprocal relationship between working and voting for those too poor to pay tax. (Poor persons physically unable to work or unable to find work would qualify to vote without either paying tax or working.) But even this modified version of a reciprocal relationship between the duty to pay tax and the right to vote is unpersuasive. The better view is that the relationship between taxpaying and voting is simply not reciprocal. Paying tax and voting do not belong in a reciprocal duty-and-right relationship, under which satisfying the taxpaying obligation entitles one to vote.

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Instead, both paying taxes and voting should be understood as obligations of citizenship—albeit an obligation imposed only on those with abovesubsistence resources in the case of taxes and a legally unenforceable moral obligation in the case of voting. There is a right reciprocal to the taxpaying duty of fiscal citizenship, but it is not the right to vote. Rather, it is simply the right to membership in the nation of which one is a fiscal citizen (recall Walter Winchell’s metaphor of income taxpayers as shareholders in the nation). The great late-nineteenthcentury economist Edwin Seligman was eloquent on this topic: It is now generally agreed that we pay taxes not because the state protects us, or because we get any benefits from the state, but simply because the state is a part of us. . . . In civilized society the state is as necessary to the individual as the air he breathes; unless he reverts to stateless savagery and anarchy he cannot live beyond its confines. . . . To say that he supports the state only because it benefits him, is a narrow and selfish doctrine. We pay taxes not because we get benefits from the state, but because it is as much our duty to support the state as to support ourselves or our family; because, in short, the state is an integral part of us.43

Under benefits theories of taxation, taxes are analogized to charges for government services; taxation of an individual is justified only to the extent that the benefits he receives from government spending equal or exceed his taxes. In the quoted passage Seligman argued strenuously against benefits theories of taxation, because he (and the benefits taxation proponents of his time) had a narrow view of what benefits “counted” for purposes of  jus­ t­­ifying taxation. At the same time, however, Seligman anticipated Justice Holmes’s view of taxes as the price of civilization: “In a civilized society the state is as necessary to the individual as the air he breathes.” Seligman could have asserted the reciprocal relationship between taxpaying and membership in a “civilized society” without rejecting the limitation imposed on taxation by the benefits principle. Because of the tremendous “taxpayer surplus” created by the existence of a well-functioning government (compared with the alternative of “stateless savagery and anarchy”), every citizen receives citizenship benefits that far exceed taxes paid.44 Fiscal Citizenship and Tax (and Spending) Consciousness The role of the return-based mass income tax in producing a rather high level of tax consciousness—higher than under a retail sales tax, value-added

What’s So Special about a Return-Based Mass Tax? / 25

tax (VAT), or return-free income tax, although lower than under a returnbased income tax without withholding—was described in the earlier discussion of the current system as a successful compromise between proponents of big and small government. In addition to playing a crucial role in that compromise, the tax consciousness produced by return-based taxation has a fiscal-citizenship dimension. To be an informed and thoughtfully involved citizen, one must understand something about both how the federal government raises revenue and how it spends tax dollars.45 Although the tax consciousness associated with return-based taxation plays central roles both in the previously described political compromise and in promoting fiscal citizenship, the two roles are different. In the political compromise, the benefit of return-based taxation relates to substantive outcomes; the returnbased tax (combined with inexact withholding) is a compromise between persons desiring different substantive outcomes with respect to the size of government. In the fiscal-citizenship analysis, by contrast, the benefits of tax consciousness relate to process; whatever substantive tax-and-spending policies the nation may adopt, it is desirable that the policies be adopted in the presence of an informed and involved citizenry. Return for a moment to Cass Sunstein’s description of republican and liberal political theories. In addition to emphasizing political equality and citizenship, those theories share an emphasis on “forming public opinion through deliberation.”46 The commitment to deliberation requires “political institutions that promote discussion and debate among the citizenry.”47 By focusing taxpayers’ attention on their income tax liabilities each April, and by spurring them to learn about and evaluate the government’s stewardship of tax dollars, the filing requirement furthers that deliberative goal. A citizen is most likely to be motivated to engage in critical evaluation of federal spending if that citizen has paid at least a small amount of tax to the federal government and is fully conscious of having done so. Since the early days of the mass federal income tax, many commentators have urged the broadest possible scope for the tax, on the grounds that the broader coverage means more widespread tax consciousness and that more widespread tax consciousness means more critical scrutiny of government spending. Writing in 1945, New York Times columnist Arthur Krock was an early advocate of this view. He claimed that “everyone who earns something should pay something [in federal income tax] if only because that brings the behavior of the government to his attention.”48 This argument is commonly associated with small-government proponents, who hope that even a nominal income tax liability will lead lower-income taxpayers to agitate for reduced federal expenditures. One does not have to be a fan of small government, however,

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to agree that it is desirable that citizens be well informed about federal tax and spending policies, and that citizens are more likely to take the trouble to become informed if they pay federal taxes (and are made fully aware of that fact by a highly visible return-based income tax) than if they do not. A likely objection is that, although the return-based mass income tax piques taxpayers’ interest in the federal government’s tax and spending policies, it does nothing to satisfy that interest (beyond whatever a taxpayer can glean about tax policies from examining the tax rules applicable to her own situation). One response, which is the subject of a later part of this chapter, is that the April 15 tax return due date focuses media attention every spring on big-picture tax-policy issues and, to a lesser extent, on analyses of how the federal government spends tax dollars. A second response is that the government can and should do more to provide information of this sort to taxpayers. As part of her proposal for the government’s production of an individualized “annual tax statement” for each taxpayer (described earlier in this chapter), Marjorie Kornhauser suggests accompanying each individualized statement with a “Know Your Taxes” booklet, explaining the basic operation of the income tax system.49 Kornhauser does not suggest including information about the federal budget, but inclusion of such information—such as a pie chart showing categories of federal spending—could be very helpful in fostering the fiscalcitizenship benefits of the tax return process. The Third Way (a self-described “moderate think-tank of the progressive movement”) has proposed that the federal government provide each taxpayer with individualized information on how his or her tax dollars are spent: We suggest providing each taxpayer with a receipt that shows them exactly how their money is spent to the penny. Taxpayers could either receive a receipt online (if they file electronically) or through the mail that breaks down their tax bill and provides them the exact contribution they made towards twenty to thirty budget items of interest.50

The Third Way’s proposal is motivated by concerns about widespread misinformation about federal spending, including the wildly mistaken belief (held by most Americans, according to a 2005 poll) that the federal government spends more on foreign aid than on either Social Security or Medicare. Ethan Porter has made a similar proposal, for similar reasons: “If done right, a [detailed federal income tax receipt] could have powerful and lasting consequences. It would make clear the enormous amount of goods and services provided by the government.”51

What’s So Special about a Return-Based Mass Tax? / 27

In Holmesian terms, such information would help taxpayers better understand just what sort of civilization they are purchasing with their tax dollars. It would be a challenge to present this information in a manner that would be accepted as objective and nonpartisan by observers across the political spectrum, but the task does not seem impossible. President Obama endorsed the concept of a taxpayer receipt in his 2011 State of the Union address,52 and the White House website now includes an interactive “Taxpayer Receipt” page; a taxpayer entering the amount of her income and payroll taxes is then informed how the government is spending her tax dollars.53 Of course, a website visited only by those with the motivation to do so has considerably less impact than the automatic sending of taxpayer receipts proposed by the Third Way. The 47 Percent Problem In June 2009, Roberton Williams of the Tax Policy Center (a think tank cosponsored by the Urban Institute and the Brookings Institution) published a short article in Tax Notes (a weekly journal considered required reading by many tax professionals), reporting that 47 percent of American households would owe no federal income tax for 2009.54 (The Tax Policy Center later issued an upwards revision of its 2009 figure; it now estimates a slim majority of all tax units—50.8 percent—had zero or negative individual income tax liability in 2009.55) Some nonincome-taxpaying households had incomes so low that no one in the household was required to file a return. Most of the nonincome-taxpaying households, however, included income tax return filers—but filers who were not also income taxpayers. These nonpaying filers generally achieved their nonpaying status because of tax credits, especially the refundable earned income tax credit (EITC) and the partly refundable child tax credit of $1,000 per child. Unlike nonrefundable credits, which can be used only to offset a taxpayer’s precredit tax liability, refundable credits can result in a negative income tax. If refundable credits exceed precredit tax liability, the government sends the return filer a check in the amount of the excess. For millions of the nonpaying filers, their income tax liability was not merely zero; it was negative. Williams explained that the high percentage of nonincome-taxpaying households was largely attributable to temporary credit provisions introduced by the American Recovery and Reinvestment Act of 200956—including an increase in the EITC for parents with three or more children (for 2009– 12), an increase in the partial refundability of the child tax credit (also for 2009–12), and the one-time “Making Work Pay” credit (available for 2009

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only). Without the temporary credits of the 2009 legislation, only 38 percent of all households would have had income tax bills of zero or less than zero. Although Williams did not mention the fact in his article, the first year of the recession—2008 rather than 2009—had been the year of the dramatic increase in households without federal income tax obligations. The nonpaying percentage rose from 39.9 percent in 2007 to 50.8 percent in 2008,57 partly as a result of recessionary declines in household income and partly as a result of the one-time “recovery rebates” provided for by the Economic Stimulus Act of 2008 (passed by Congress and signed by President Bush in February 2008).58 The one-year increase from 2007 to 2008 was remarkable, but it was nevertheless part of a long-term trend. The Internal Revenue Ser­ vice (IRS) Statistics of Income Division does not attempt to count nonfiling households, but it does track the relative numbers of taxable and nontaxable returns. The percentage of individual income tax returns with positive tax liabilities has fallen significantly over the past few decades—from 81.5 per­ cent in 1986 to 63.7 percent in 2008.59 Democrats and Republicans share the credit or blame for the long-term trend. Major legislative milestones contributing to the trend included the Clinton-era introduction of the child tax credit and increase in the generosity of the EITC, as well as the Bush-era increase in the child tax credit from $500 to $1,000 per child. The Williams article attracted little attention when it first appeared. That changed, however, as Tax Day 2010 approached, and the mainstream media turned their attention to the income tax. An April 7, 2010, Associated Press story based its lead on the Williams article: “Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it’s simply someone else’s problem.”60 The story went viral immediately. On the Fox News Network that same evening, former Republican Senator Rick Santorum told host Greta Van Susteren, “Look, what we have is a situation that Thomas Jefferson warned us about from the very beginning. When you have—when you reach the point where people don’t feel like they have to pay anything and they’re getting money out of the Treasury for nothing, then there’s no end to the amount of government that people want.”61 Similar observations followed from many commentators on the right. Scott A. Hodge of the Tax Foundation had been decrying the decreasing coverage of the income tax for years. He used the Tax Policy Center’s findings as the occasion for decrying it yet again: The real issue is that millions of Americans no longer have any skin in the game and are becoming inoculated from the basic cost of government. To

What’s So Special about a Return-Based Mass Tax? / 29 them, government seems free and politicians can easily convince them to support more and more government spending because someone else is going to pay the tab.62

Even the couldn’t-be-more-middle-of-the-road editors of USA Today were concerned: “It’s not healthy for society if somewhere between a third and a half of all potential tax filers don’t help share the cost of most of government, from defense to highways to national parks. Everyone above the poverty level should have at least a minimal stake in financing the nation.”63 The 47 percent issue reappeared in the news in September 2012, when a video surfaced of Republican presidential nominee Mitt Romney telling a gathering of wealthy donors: Well, there are 47 percent of the people who will vote for the president no matter what. There are 47 percent who are with him, who are dependent upon government, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing to you-name-it. . . . These are people who pay no income tax; 47 percent of Americans pay no income tax.64

Romney’s remarks were widely criticized, with the critics including a number of prominent Republicans.65 However, many of Romney’s critics shared his concern about the 47 percent statistic; they disagreed only with his view of the 47 percenters as consisting entirely of self-styled victims clamoring for their supposed entitlements. Nonpaying percentages around 50 percent will probably be a shortlived phenomenon—a product of decreased incomes from the recession and temporary tax credits enacted as stimulus measures. From a high of 50.8 percent in both 2008 and 2009, the nonpaying figure (as estimated by the Tax Policy Center) declined to 49.5 percent in 2010 and to 46.4 percent in 2011.66 But, even assuming the long-term nonpaying figure will hover around 40 percent rather than 50 percent, the commentators on the 47 per­ cent figure raise an important question. Are the civic benefits of a mass return-based income tax realized when almost everyone is an income tax filer, or do the benefits depend on almost everyone being a taxpayer as well as a tax filer? When tens of millions of tax returns show zero or negative tax liabilities, the question is undeniably an important one. There is no shortage of arguments as to why the commentators are wrong to be troubled by the 47 percent figure. Start with Hodge’s “skin in

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the game” concern. If having “skin in the game” means a person will be motivated to oppose tax rate increases because the increases will hit him in the pocketbook, then many nonpayers have skin in the game despite their zero or negative income tax liabilities. Consider a person with a precredit tax bill of $1,000—produced by the application of a 10 percent tax rate to $10,000 of income—and a refundable credit of $1,600. His net federal income tax is negative $600; in other words, the government sends him a $600 check. Suppose Congress is pondering whether to increase the applicable tax rate to 15 percent. The effect would be to increase his precredit tax from $1,000 to $1,500, and to decrease his government check from $600 to $100. His “skin in the game” is $500, which is exactly the amount of skin he would have in the game if the $1,500 refundable credit did not exist. Because of this phenomenon, millions of tax filers with zero or negative tax liabilities nevertheless have plenty of “skin in the game.”67 A second response to the commentators is that they are wrong to focus exclusively on the income tax. Many households that do not pay federal income tax are nevertheless net federal taxpayers, because their federal payroll tax (financing Social Security and Medicare) exceeds the net transfers they receive under the income tax. The Tax Policy Center estimated that for 2009—the year for which it estimated that 47 percent of households paid no federal income tax—only 24 percent of households paid no net federal tax, taking into account both the income tax and the payroll tax.68 The commentators’ exclusive focus on the income tax, rather than on the combination of the income tax and payroll taxes, is an example of the “disaggregation bias” described by Edward J. McCaffery and Jonathan Baron. In a series of experiments in which they asked subjects for their views on the fair distribution of tax burdens under a two-part federal tax structure—consisting of a mass income tax and a mass payroll tax—McCaffery and Baron found that people tend to judge the fairness of each tax in isolation, rather than judging the fairness of the overall effects of the tax system.69 The disaggregation bias exists whenever a taxing jurisdiction uses more than one type of tax; it does not depend on the existence of a return-based mass income tax. However, when the disaggregation bias is combined with the extremely high visibility of the return-based income tax, the result is that the distribution of the burdens of the income tax receives virtually all the attention—as illustrated by the exclusive focus on the income tax on the part of the critics of the 47 percent statistic. Some interesting packaging issues lurk here. One packaging issue relates to the appearance—or not—of the payroll tax on the Form 1040. The payroll tax is not quite absent from the current Form 1040. If a taxpayer works for

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more than one employer during the year, and the combined Social Security tax paid by the several employers on the taxpayer’s behalf exceeds the Social Security tax ceiling, the taxpayer can claim a credit for the excess on her income tax return. Also, in two narrow situations—one involving tip income not reported by a taxpayer to the taxpayer’s employer and the other involving a household employee whose employer does not withhold payroll tax from her wages—payroll tax must be reported on the Form 1040. And the self-employment tax, which serves as a substitute for the payroll tax in the case of self-employed persons, is administered through Form 1040, Schedule SE. As a matter of presentation, it would be possible to go much further in the direction of making the payroll tax visible on income tax returns. The Form 1040 could be revised to include lines for (1) wages subject to payroll tax, (2) the payroll tax due on those wages, and (3) the amount of payroll tax already paid by the employer on the taxpayer’s behalf.70 Except in the narrow circumstances in which the payroll tax makes an appearance on the current Form 1040, items (2) and (3) should always cancel out. Thus, requiring inclusion of this additional information on every Form 1040 would complicate (slightly) tax return preparation, despite the absence of any administrative need to do so. The reform is nevertheless worth considering, on the grounds that it would give both taxpayers and commentators—including the critics of the 47 percent statistic—a better understanding of the overall distribution of federal tax burdens. Another packaging issue involves the relationship between the EITC and the payroll tax. From the introduction of the EITC in 1975, Congress has always understood the offsetting of the payroll tax burden on low-wage families as one of the major purposes of the EITC.71 There is a certain Duke of York (up the hill and down again) quality to imposing payroll taxes on low-wage earners only to offset the payroll taxes with the EITC, compared with the alternative of simply not imposing the payroll taxes in the first place. Apparently Congress believes the two-step process is necessary to avoid complicating the otherwise very straightforward administration of the payroll taxes. Were it not for this administrative concern, many fewer lowwage workers would be subject to payroll taxes, EITC payments would be correspondingly reduced, and there would be many more households with positive income tax liabilities; nothing of substance would have changed. A third response to those decrying the 47 percent statistic would claim that a multiyear view of taxpayer status is more appropriate than a singleyear snapshot. It may be necessary for administrative purposes to have a tax system based on annual accounting, but there is a strong argument that, for purposes of analyzing the fairness of the distribution of tax burdens, a

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single year is too short. Using 2003 tax laws and data from the Panel Survey of Income Dynamics covering 1968–92, Lily Batchelder, Fred Goldberg, Jr., and Peter Orszag estimated that, of all the households with a negative federal income tax liability for at least one year in a twenty-year period, 75 per­cent would have a positive federal income tax liability over the entire twenty-year span.72 If both income tax and payroll tax are considered, the percentage of households with a negative federal income tax liability for at least one year, but a positive federal tax liability over twenty years, increases to 99 percent. A final response would suggest that the critics take too narrow a view of citizens’ responsibility to society when they assume that that responsibility is simply a matter of paying to support the costs of government. For lowwage workers with children, the primary civic responsibility should be understood not as an obligation to pay taxes, but as an obligation to work to support themselves and their families.73 The government would then have a corresponding obligation to make up any difference between the wages the workers are able to earn and the amount necessary to support their families at a decent standard of living. Under this view, the filing of a tax return—reporting one’s family responsibilities and the wages one earned in satisfaction of those responsibilities, as well as claiming the refundable credits representing the government’s side of the bargain—represents the satisfaction of a low-wage parent’s duty to the government. It is thus an exercise in fiscal citizenship, despite the absence of any cash transfer from the parent to the Treasury. (For more on this understanding of the fiscalcitizenship rights and obligations of low-wage workers, see the discussion of the EITC in chapter 4.) I find this argument quite powerful, although I suspect few of the critics of the 47 percent statistic would be persuaded. On balance, then, who has the better of this argument—the critics of the 47 percent figure or those (hypothetical persons) offering the responses set forth above? The first step in trying to answer that question is to recognize that the critics’ claims are about packaging, not substance. They are not claiming that, under a comprehensive analysis of all federal tax, transfer, and spending programs, the substantial majority of the population should pay more in federal taxes than they receive in federal benefits (counting both cash transfers and in-kind benefits, including the benefits derived from public goods). They are making only the much narrower claim that there is something special about the federal income tax system, so that within the confines of that system a substantial majority of households should have positive tax liabilities—even if many households receive more from the federal government outside of the income tax system than they pay to the fed-

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eral government within that system. (No one is complaining, for example, about the retiree who pays $15,000 of income tax and receives $25,000 of Social Security checks.) Of course, some of the critics may believe that the EITC, the child tax credit, and other refundable credits, are too generous and would be too generous whether they were located within or outside of the federal income tax—but undue substantive generosity of the credits is not the complaint leveled by the 47 percent critics. With the criticism understood as entirely about packaging, the question comes down to whether it is better to keep the refundable credits within the income tax system in order to gain the practical advantages of tax-based administration, or whether it is better to move them out of the income tax system in order to protect the symbolic status of the income tax as the tax that almost everyone pays. The practical advantages of tax-based administration are considerable. Direct administrative costs tend to be much lower for tax-based administration than for nontax transfer programs (although this benefit must be weighed against the tendency for tax-based programs to have higher overpayment rates). For example, the IRS administers the EITC at a much lower cost (per dollar of benefit delivered) than state welfare bureaucracies administer the Food Stamp program.74 Tax-based benefits also tend to have much higher take-up rates—that is, are claimed by a much higher percentage of eligible persons—than benefits distributed outside the tax system.75 After the 47 percent statistic went viral, the Tax Policy Center’s blog, Tax Vox, featured a debate on this issue between Eric Toder and Elaine Maag (both of the Urban Institute). Maag favored tax-based administration of transfer programs: “Sometimes the IRS is the best, most efficient agency to administer a subsidy. . . . It might be controversial that a fair number of people don’t owe income taxes after credits. But a big driver to this for working-age people, the existence of refundable tax credits for low-income individuals, makes good policy sense.”76 Toder disagreed: Perception matters. Tax wonks can argue until they are blue in the face that these programs are spending and that recipients of these subsidies are really paying positive taxes before getting their benefits. I totally agree with this logic, but it’s a tough sell. . . . So we may have to reconsider how we provide benefits to low-income and other households.77

My own view is that we are not yet ready to decide this issue; there are some important empirical questions yet to be answered. One question is whether persons who have “skin in the [tax rate] game” realize that an

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increase in tax rates would decrease the size of their refundable credits. If they do realize that fact—or if they could be made to realize it, even if they do not now—then the percentage of households without “skin in the game” is considerably lower than the percentage of households not paying income tax, and the case for taking the refundable credits out of the income tax is weakened. A second question is the extent to which persons receiving net transfers through the federal income tax realize that they are recipients of net transfers. Form 1040 labels refundable credits as “payments” of tax and locates them in the same part of the form as real payments of withholding and estimated tax. If total “payments” (i.e., the sum of real payments and refundable credits) exceed “total tax,” then Form 1040 labels that excess “the amount you overpaid” and states that the filer is entitled to have that amount “refunded to you.” Nothing in the Form 1040 alerts the filer to any fundamental difference between refundable credits and genuine payments. Nor is it obvious that most filers would appreciate this difference on their own—especially since payments made through withholding may not feel any more psychologically real than “payments” in the form of refundable credits. In short, the context in which return filers are presented with refundable credits obscures the fact that a “refund” check for a refundable credit is a transfer payment. It may be that millions of recipients of refundable credits mistakenly believe that their checks are refunds of overwithholding and that they are income taxpayers. If they genuinely believe they are income taxpayers, they will behave politically as income taxpayers—rather than as the freeloaders feared by the right-leaning commentators. To the considerable extent that the criticisms of the 47 percent statistic are based on concerns about voting choices, what the critics want is not necessarily voters who truly are income taxpayers; it should be enough for the critics’ purposes if voters believe they are income taxpayers. And the percentage of voters who so believe may be considerably higher than the percentage of voters who actually are income taxpayers. There is one more reason not to abandon in haste the considerable benefits of tax-based administration of transfer programs. In the minds of the critics, there is clearly something special about more than half of all households not paying federal income tax. Mark Steyn of the National Review was explicit on that point when he invoked the specter of a 2012 election in which a nontaxpaying majority would vote for candidates proposing more government benefits financed by higher taxes on a taxpaying minority.78 It is no accident that the issue of households not paying the income tax went viral when the nonpaying percentage approached 50 percent, rather

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than a few years earlier when the figure was hovering around 40 percent. A nonpaying fraction around 40 per­cent does not create the same perceived political threat as a nonpay­ing fraction close to 50 percent. There is an excellent chance that the nonpaying fraction will drop to the 40 percent neighborhood in the next few years—as the economy improves, incomes increase, and temporary recession-fighting tax breaks expire and are not renewed. If so, we will once again have a federal income tax that is clearly a mass tax in paying terms as well as in filing terms, and there will be no need to choose between the administrative advantages of refundable credits and the symbolic benefits of having an income tax paid by a clear majority of households. At least until the next recession.

April 15, Tax Policy, and the Media Each year, the April 15 tax return due date inspires a flurry of tax-related stories in newspapers and magazines, as well as on television and the Internet. Many of these stories offer practical advice on claiming deductions and credits, but many others step back from the immediate practicalities of return filing and use the deadline as a hook on which to hang examinations of a wide range of tax-policy issues. (Because a six-month “automatic extension” of the deadline is available for the asking, among the cognoscenti October 15 is considered the true tax return due date; nevertheless, April 15 remains unchallenged as the tax filing deadline in the view of the media.) Without conducting the experiment of eliminating return-based mass taxation, it is impossible to be sure whether the existence of a filing deadline increases total media attention on tax-policy issues or merely concentrates in April attention that would otherwise be spread more evenly throughout the year. It is no great stretch, however, to suppose that the editor who tells a reporter, “April 15 is coming up; we need a tax policy thumb-sucker,” would never request a tax-policy piece without the spur of the tax return deadline. Consider, as a fairly typical example from a recent year, the media coverage of tax-policy issues on and around the April 15, 2010, due date. It often happens that one or two issues catch fire and become the tax-policy stories for a particular filing season. As described in detail earlier in this chapter, in 2010 the hot story was that 47 percent of American households owed no federal income tax for 2009. In addition to coverage in straight news stories, the statistic inspired the expression of opinions as to whether it was a calamity of the first order, no problem at all, or something in between. The second most-covered story was the Tax Day Tea Party protests held in cities across the country, in which Tea Party supporters “call[ed] attention to what they

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say are sky high taxes and a bloated government.”79 (There was a bit of tension between the two top stories; polling data indicated 45 percent of Tea Party supporters had annual incomes of less than $50,000,80 suggesting that many of the Tea Party tax protesters actually paid no federal income tax.) Beyond the two leading stories, the media addressed numerous other tax policy issues. The Los Angeles Times ran a feature story on the proposal by Senators Ron Wyden and Judd Gregg to “simplify the tax law [and] shrink your 1040 form to a single page,”81 and the Iowa City Press-Citizen editorialized on the need for tax simplification.82 On Fox News, host Sean Hannity interviewed former Senator Fred Thompson on the danger that Congress might someday enact a “European” VAT “on top of the income tax,”83 and the Wall Street Journal editorialized against the same threat.84 Newsday, on the other hand, published an op-ed arguing that Congress should seriously consider enacting a VAT to combat the federal deficit.85 April 15 inspired coverage of federal spending, as well as of taxes. NBC Nightly News offered a piece on “where all that tax money we pay out gets spent at the other end,”86 including the information that “out of each dollar spent by the federal government this year, only 61 cents is actually paid for with taxes. Thirty-nine cents is borrowed.”87 Opinion pieces in Newsweek .com and the Washington Times warned that major tax increases in the near future were inevitable, given the size of the deficit.88 An op-ed in the Deseret Morning News (Salt Lake City) asked the ultimate questions concerning the relationship between taxes and government spending: “What do we get in exchange [for taxes]? . . . When they look at their pay stubs to see how much has been withheld, do American workers consider it money well spent? . . . Why not cut out the middleman by abolishing the federal income tax?”89 Perhaps the most ambitious tax-policy coverage came from the online Christian Science Monitor, which ran a series of stories on various topics, including millionaires paying no income tax,90 a comparison of tax burdens in the United States with tax burdens in other countries,91 a review of tax legislation enacted during the Obama presidency,92 and a survey of proposals for fundamental tax reform.93 Miscellaneous tax-policy issues examined elsewhere in the media included the pros ands cons of the home mortgage interest deduction,94 low effective tax rates on corporations and super-rich individuals,95 and polling results on whether Americans considered their federal income tax bills too high.96 In what was partly a backlash against the Tea Party protests, several commentators expressed very Holmesian views of the income tax. An op-ed contributor to USA Today wrote, “[D]eep in my bones, that place that speaks my mind, I am proud and glad to pay my income taxes.”97 An op-ed titled,

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“Taxes? We Need Stinking Taxes,” appeared in the Philadelphia (where else?) Daily News.98 An opinion piece in the Providence Journal announced, “You got it right. I don’t mind paying taxes.”99 A writer in the Jackson Citizen Patriot (Michigan) opined that “we need average people who accept the general premise that paying taxes is a fair and important sacrifice.”100 National Public Radio featured a story on rich people—including Warren Buffet and Bill Gates, Sr.—asking Congress to raise their taxes.101 Think tanks and politicians of various persuasions also got into the act. The left-leaning Citizens for Tax Justice issued an April 15 press release with the explains-it-all title, “All Americans Pay Taxes; Those Who Pay No Federal Income Taxes Pay Other Types of Taxes, Most of Which Take More from the Poor and Middle Class than from the Rich.”102 The National Taxpayers Union (self-described as “America’s independent, nonpartisan advocate for overburdened taxpayers) issued a policy paper decrying “the rise in complexity, forms and paperwork burdens” of the income tax.103 Republican and Democratic members of Congress held dueling press conferences. According to the Republicans, “[J]ust about every day, the Democrats talk about how—not if—when [sic] they want to raise taxes, ignoring the real problems of their unprecedented spending spree.”104 According to the Democrats, however, “What [Republicans] don’t tell us is that, overwhelmingly, they support tax cuts for the wealthiest Americans and only pennies on the dollar for middle class Americans.”105 Is the cacophony of tax policy commentary produced by the filing deadline to be celebrated or lamented? Certainly no one will be happy with every aspect of the due-date-inspired media attention focused on tax policy issues. For example, someone who thought that there was nothing wrong with the fact that 47 percent of households owed no income tax for 2009 might regret the extensive—and mostly disapproving—media coverage of that statistic. Nevertheless, the scope of federal taxation—of both the income tax and the overall federal tax structure—is a vitally important question, richly deserving of public attention and debate. By attracting the media’s attention to tax policy issues, the tax return due date greatly increases public awareness of this question. It does the same, of course, for a number of other important questions of federal tax and spending policy. For anyone who values deliberative democracy, that can only be a good thing. From time to time, someone proposes that, instead of a universal April 15 tax deadline, one’s birthday should be the tax due date for any taxpayer with a post-April birthday.106 The idea is to save professional tax return preparers and the IRS from the crunch of a universal April 15 deadline. A little noticed but significant drawback of such a plan is the diminished media

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attention to—and thus diminished public awareness of—tax policy issues that would inevitably follow from its adoption. Finally, it is worth noting the prominent position the tax return deadline occupies in the public consciousness and in popular culture, quite apart from its function in focusing media attention on tax policy issues. It is part of the rolling of the seasons. Just as January is associated with New Year’s Day, February with Valentine’s Day, and March with St. Patrick’s Day, April is—for better and worse—tied up with tax day. Looking beyond news and opinion to entertainment, it is easy to find evidence of the prominence of the filing deadline in popular culture. Since 1932 the New Yorker has featured sixteen tax-related cover illustrations; all sixteen of those covers appeared in the same month as the tax return due date.107 (Six of the sixteen tax-related covers predated the conversion of the income tax to a mass tax during World War II, but no doubt New Yorker readership demographics were such that the magazine’s audience was attuned to the tax deadline well before the war.) The effect of the deadline on the timing of tax-related situation comedy episodes has not been as dramatic, but it is nevertheless impressive. Of eighty-five tax-related radio and television sitcom episodes from 1940 to 2006, thirty—more than one-third—were first broadcast in the month of the tax deadline.108

three

Tax Protests, Tax Resistance, and Tax Cheating

For some, the most notable feature of a return-based mass income tax is the opportunity it affords not to pay some or all of the tax one owes. For members of the radical Right who reject the legitimacy of the federal government, not paying income tax—usually on the basis of various frivolous legal arguments—has been the most widespread avenue of resistance. At the other end of the political spectrum, some peace activists have adopted nonpayment of federal income tax as their preferred form of civil disobedience. And millions of taxpayers with no political axes to grind take advantage of the return-based tax by cheating a little around the edges—failing to report income and overstating deductions whenever they perceive that the IRS is unlikely to detect their cheating. These forms of protest, resis­ tance, and cheating are made possible by the return-based nature of the tax. Equivalent opportunities would not exist if the current system were replaced by a return-free income tax (based on exact withholding), a retail sales tax, or a value-added tax (VAT). Although one’s initial reaction may be that this is a strong argument for abandoning the current system, this chapter argues that the vulnerability of return-based taxation to protests, resistance, and cheating may actually be a point in its favor.

The Tax Protest Movement In 2008 the Tax Division of the Department of Justice launched the “National Tax Defier Initiative” (TAXDEF, for those in the know) to “reaffirm and reinvigorate the Tax Division’s commitment to investigate, pursue and, where appropriate, prosecute those who take concrete action to defy and deny the fundamental validity of the tax laws.”1 Those the Tax Division labeled as tax defiers are referred to by everyone else as tax protesters, but the

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Tax Division opted for the new label out of concern that the standard terminology was not sufficiently pejorative. Nathan J. Hochman, the assistant attorney general of the Tax Division, explained that the Justice Department “is calling them defiers because . . . ‘protesters’ implies constitutionally protected rights.”2 “[T]he tax defier,” the Tax Division explained, “is someone who rejects the legal foundation of the tax system, despite decades of legal precedent upholding the system’s constitutional and statutory validity, and who takes specific and concrete action to violate the law.” On its website, the Internal Revenue Service (IRS) features a sixty-one– page document, “The Truth about Frivolous Tax Arguments,”3 describing and refuting dozens of claims popular with tax protesters. The vast majority of the arguments—and the vast majority of tax protesters—are associated with the Far Right of the political spectrum. Perennially popular arguments include the following: filing an income tax return is voluntary, paying income tax is voluntary, wages and other compensation for personal services are not taxable, only foreign-source income is taxable, the definition of “taxpayer” for purposes of the income tax does not include human beings, the income tax applies only to employees of the federal government, and the Sixteenth Amendment (the Income Tax Amendment) was never properly ratified. There are also tax protesters on the Far Left, although they and their arguments are considerably less numerous. The usual claim of tax protesters on the Left is that the First Amendment entitles them to refuse to pay income taxes on religious or moral grounds, typically based on objections to the use of tax revenues for military purposes. In the view of the Tax Division, tax protest (or, as the Tax Division would have it, tax defiance) “threatens the foundation of our tax system” by “fundamentally undermin[ing] the public’s confidence in the fairness of our tax system.” The tax protest movement is a creature of the return-based mass income tax. Our tax system gives large numbers of taxpayers the opportunity to resist—either by refusing to file a return or by filing a return based on one or more protester arguments—in a way that a return-free income tax, or an indirect consumption tax (i.e., a retail sales tax or a VAT), does not. Of course, protester-type resistance is possible in the absence of a return-based mass tax. 4 In an income tax based on exact withholding, for example, employees could not protest effectively, but employers could do so by refusing to withhold. (In fact, refusal to withhold by a small number of tax-protester employers created some serious headaches for the IRS early in the last de­ cade.5) But because wage earners greatly outnumber wage payers, a mass tax protest movement is possible only under a tax system that imposes compliance obligations on the masses. It is no coincidence, then, that the modern

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income tax protest movement originated in the 1950s,6 after the income tax had become a mass tax and after the widespread fiscal patriotism inspired by World War II had had time to diminish. If the tax protest movement is as grave a threat as claimed by the Tax Division, and if the movement is dependent on the existence of a returnbased mass tax, those facts would seem to provide a powerful reason for abandoning return-based mass taxation in favor of either a return-free income tax or an indirect consumption tax. It is possible, however, that the widespread availability of the tax protest option under the current system serves an important safety-valve function. Perhaps significant numbers of tax protesters on the Right would turn to armed insurrection in the absence of the tax protest option, while a significant number of tax protesters on the Left would turn to more confrontational forms of physical protest (e.g., trespasses on nuclear weapons facilities). It is not clear whether the safety-valve benefits of the current system outweigh the harms of tax protests identified by the Tax Division, but a plausible case can be made that the Tax Division has overstated the harms and that the safety-valve benefits are substantial. How big is the tax protester problem? It is harder than it ought to be to answer that question, because in 1998 Congress—in a misguided exercise in anti-IRS grandstanding—prohibited the IRS from “designat[ing] taxpayers as illegal tax protesters (or any similar designation),” thus also prohibiting the IRS from compiling statistics on tax protesters.7 Despite its solicitude for tax protesters, Congress has also authorized the imposition of a penalty—originally $500, but increased to $5,000 in 2006—on any person who files “what purports to be a return of tax” if “any portion of such submission is based on a position which the [IRS] has identified as frivolous.”8 Confronted with the obvious tension between the directive not to keep track of tax protesters and the directive to administer the frivolous return penalty, the IRS decided that the 1998 legislation did not prohibit it from maintaining an “inventory database” of frivolous returns.9 The IRS does not generally release data on returns it has identified as frivolous, but a 2003 report by the General Accounting Office indicated that the IRS’s Frivolous Return Program had identified about twenty-one thousand frivolous returns in 2002.10 This count did not, of course, include those who protested by not filing even a frivolous return. More recently, the Tax Division has estimated the total number of “tax defiers”—presumably including both frivolous filers and nonfilers—to be anywhere from ten thousand to one hundred thousand.11 An estimate covering a full order of magnitude does not inspire a great deal of confidence. But even using the high-end estimate, with approximately one hundred forty million individual income tax

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returns being filed annually the incidence of tax protests is only about one in fourteen hundred. This hardly seems to constitute an imminent threat to the viability of return-based mass taxation. The Tax Division rightly points out that the threat could grow for technological reasons: “The explosion of the internet in the last decade has greatly facilitated tax-defier activity and turned what was once a paper-based local or regional enterprise into a click-and-load national operation.”12 And there is always the possibility that at some point taxpayers who did not themselves subscribe to the protesters’ arguments could become so demoralized by the belief that protesters were not paying their fair share that they would also start evading taxes—a sort of protesting of the protesters. It is perfectly reasonable for the Tax Division to treat tax protesters as an enforcement priority, to ensure that the protest movement never grows to the point at which it becomes an existential threat to the tax system. The crucial point for present purposes, however, is that so far the system has been able to absorb the tax protests without sustaining major damage. At least as of now, there is no compelling need to abandon return-based mass taxation to thwart tax protesters. But that merely means that tax protesters are not a reason to reject return-based mass taxation. What about the more ambitious claim, that the current system’s openness to protests is actually a point in its favor? The strength of the safety-valve argument for the current system depends on the motives of the protesters. What is the evidence on that question? To begin, consider a striking feature of most of the protester arguments, including the arguments that filing a tax return is voluntary, that paying income tax is voluntary, that wages are not taxable, that only foreign source income is taxable, that human beings are not subject to the income tax, and that the tax applies only to federal employees. These arguments are all based on statutory interpretation; they are all claims about what Congress has decided to tax by enacting the Internal Revenue Code, rather than arguments about what Congress is permitted to tax under the Constitution. Despite the appearance that the Internal Revenue Code imposes a broad-based tax on income, according to these arguments it really does not. All arguments of this sort implicitly ascribe bizarre purposes to Congress. Either (1) Congress intentionally enacted a grossly misleading tax law, creating the illusion of widespread tax liabilities without the actuality, or (2) Congress initially enacted such a law by mistake, but chose not to correct the mistake once it was pointed out (by tax protesters). Under either variation, Congress apparently intends for the bulk of the population to carry on as deluded fools, paying “tax” they do not owe, with only the tax-protesting illuminati being enlight-

Tax Protests, Resistance, and Cheating / 43

ened enough to assert their tax-free status. (Tax-protester arguments based on the Constitution—such as the claim that the Sixteenth Amendment was never properly ratified—do not, of course, depend on ascribing outlandish purposes to Congress.) Anyone making statutory interpretation arguments of this sort is either (1) making the arguments in bad faith, as a fig leaf for simple greed, or (2) engaging in magical thinking, paranoid or otherwise out of touch with reality. The Tax Division thinks it is all a matter of mere greed: “As long as there has been a Tax Division, there have been tax defiers willing to subvert our nation’s tax system for their greedy self-interest.”13 This is undoubtedly an accurate description of a significant number of tax protesters. For protesters of this sort, the only purpose of asserting the protester arguments is to lessen the likelihood that they will be prosecuted for tax evasion and convicted. According to the Supreme Court, an honest belief in the legal correctness of an antitax statutory interpretation argument—if the protester can convince a jury that he had such a belief—is incompatible with the willfulness required for a criminal conviction.14 The opportunity afforded to the simply greedy to play this game under a return-based mass tax serves no social purpose. If all protesters were in the greedy category, there would be no reason to retain return-based mass taxation merely to accommodate their greed. But many tax protesters seem not to be merely greedy. They appear to believe their tax-protest arguments, often as one element of an overarching political philosophy. Consider, for example, the case of Robert L. Schulz—the creator of the We the People Congress and the We the People Foundation— and his followers. Through his organizations, Schulz had considerable success marketing a “Tax Termination Package” that instructed its purchasers how to use various tax-protest arguments—including that the income tax is voluntary, that it does not apply to wages, and that Sixteenth Amendment was never ratified—to stop paying income tax. (The party ended in 2007, when a federal district court enjoined Schulz and his organizations from marketing the package.15) Like many tax protesters, Schulz situates his taxprotest arguments within a broader philosophical framework. The Schulzinspired “Continental Congress 2009” issued a proclamation of fourteen “Articles of Freedom.” The articles covered topics ranging from privacy, to juries, to public debt, to foreign policy, to illegal immigration, and to the citizenship (or lack thereof ) of Barack Obama; only one of the fourteen articles addresses the income tax.16 Of course, it is possible that Schulz and his followers do not believe in any of the articles and endorse them merely to disguise the fact that their tax protests are motivated by sheer greed. It is impossible to get to the bottom of this question, but undoubtedly different

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people have different states of mind, ranging from utter sincerity, to sincerity adulterated—consciously or subconsciously—by financial self-interest, to utter greed. The leaders of the “Continental Congress” indicated that they planned to present their fourteen articles to Congress as demands and that if (when) Congress failed to comply they would respond by “withdraw[ing] our support from the federal government”—that is, by ceasing to pay federal income tax.17 What would have been their threatened response to congressional inaction if the return-based mass income tax had not afforded them the tax protest option? Maybe nothing at all, but perhaps some form of violent protest. If they would have reacted with violent protest, then the availability of the tax protest served an important safety-valve function. This is unavoidably guesswork. Speculation about violent alternative forms of protest is plausible, however, because there have been substantial connections between tax protests and movements that preach—and sometimes practice—violent resistance to government, beginning with the Posse Comitatus movement founded by William Potter Gale in the 1970s. As described by Daniel Levitas in his The Terrorist Next Door: The Militia Movement and the Radical Right, the Posse Comitatus was “a right wing group that cloaked itself in patriotism while instructing its followers to take up weapons, enforce white supremacy, sort out communist subversion, and resist the evils of central government.”18 Gale’s calls to violence could not have been more explicit. In a 1982 radio broadcast, for example, he told his listeners: The law is that your citizens—a posse—will hang an official who violated the law and the Constitution. Take him to the most populated intersection of the township and at noon hang him by the neck [then] take the body down at dark and that will be an example to those other officials who are supposed to be your servants that they are going to abide by the Constitution.19

Gale embellished his message “with elaborate legalistic rhetoric that invoked, among other things, the Constitution, the Magna Carta, and medieval principles of British law to legitimize his violent call to arms.”20 Tax protesting was a readily available means of “resist[ing] the evils of central government,” but the movement was about much more than just undermining the federal income tax. Did the ability of Posse members to engage in nonviolent income tax protests cause them to resort less often to violence than they would have under some alternative federal tax system? Although one can only specu-

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late, the tax protest safety valve may help explain why the movement was somewhat less violent in practice than its rhetoric suggested it should have been. Of course, the existence of a tax safety valve cannot be expected to forestall all violence. In the most prominent instance of Posse violence, Gordon Kahl, one of Gale’s followers, started by using the tax-protest safety valve but nevertheless ended by resorting to violence. In 1983 former Posse member Kahl murdered two federal marshals as the marshals were attempting to serve a parole violation warrant arising out of Kahl’s 1977 conviction for failing to file income tax returns.21 Although the Posse Comitatus movement has withered away, it has been succeeded by the Sovereign Citizen movement, which shares the earlier movement’s belief in the illegitimacy of the federal government. Belief in the illegitimacy of government leads naturally to tax protests (when the tax system is of a sort that makes protests possible), but again the movement’s antitax views are just one part of its broader antigovernment philosophy. The movement’s rhetoric endorses antigovernment violence, and it has occasionally turned violent in practice.22 There was nearly a violent outcome in the case of tax protesters Ed and Elaine Brown. A New Hampshire couple with beliefs typical of the Sovereign Citizen movement,23 the Browns were convicted in January 2007 of tax evasion (despite their claim that the Sixteenth Amendment had never been ratified). They responded to their conviction by turning their home into a fortress and vowing to resist arrest and imprisonment to the death. Only after laying siege to their house for nine months did federal marshals manage to arrest them without gunfire, by posing as supporters delivering supplies.24 What to make of all this? It is clear that some people who are interested in tax protesting are also interested—at least as a theoretical matter—in violent resistance to the government. For some, like Oklahoma City bomber Timothy McVeigh—who told Time magazine, in an interview while in custody, that the income tax violated “one of the intents of the Founding Fathers in keeping to indirect taxation . . . to keep government limited”25—the violent impulse is too strong for the existence of nonviolent alternatives to matter. For others, like Gordon Kahl and the Browns, the tax protest option may only delay the eventual resort to violence.26 But are there also a significant number of people who would have resorted to violent resistance, but for the availability of a satisfactory nonviolent tax protest alternative? It is hard to imagine how we could ever know for sure, or indeed how we could ever generate any answer much better than a hunch. And yet—it is striking that the rhetorical violence of the radical Right far exceeds its actual

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violence, and it is plausible that the existence of the tax-protest safety valve is part of the explanation for the difference. In light of the very limited damage done to the tax system by protesters, as well as the plausibility of a significant safety-valve effect, on balance the susceptibility of a return-based mass tax to tax protests seems more a point in favor of such a system than a point against it.

War Tax Resistance At the opposite end of the political spectrum from most tax protesters are war tax resisters. Although some war tax resisters assert a legal right (often based on the First Amendment) not to pay taxes to finance wars they consider immoral, most do not claim any legally cognizable justification for their refusal to pay—in sharp contrast with tax protesters on the Right. Framing their nonpayment as straightforward civil disobedience, they may refuse to pay either (1) some small symbolic portion of their total income tax liability, (2) a percentage of their tax liability equal to the military’s share of the federal budget, or (3) their entire tax liability (on the grounds that some portion of any tax they pay will be spent on the military). Many war tax resisters are at pains not to benefit financially from their resistance. Some contribute the amount of their unpaid taxes to charity, whereas others deposit that amount in an escrow account (to be withdrawn by them if the IRS collects the unpaid tax from taxpayer assets outside of the escrow account). For a person who feels conscience bound to engage in meaningful war resistance, what means of resistance would be available in the absence of a return-based mass tax? The average citizen would have no means of effectively resisting a return-free income tax (based on exact withholding), let alone a federal retail sales tax or VAT. War tax resistance would be possible without a return-based mass tax, if there were some other tax imposed directly on individuals and administered in a manner affording individuals a choice whether to comply. Henry David Thoreau’s famous act of war tax resistance was a refusal to pay a poll tax.27 In the absence of a poll tax, the only nonincome federal tax satisfying these criteria is the telephone excise tax. Although some war tax resisters do refuse to pay the telephone tax, many others consider the amount of the tax too trivial for nonpayment to have even symbolic significance. How would current war tax resisters respond if they were deprived of the opportunity to engage in meaningful war tax resistance through the

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return-based income tax? Some, frustrated by the disappearance of their only viable avenue of resistance, might do nothing (other than perhaps seething in impotent rage). Others might resort to confrontational physical civil disobedience, along the lines of the Plowshares Movement’s numerous trespasses on nuclear weapons facilities.28 Criminal trespass involves some risk of escalation into a violent confrontation, as well as the likelihood of a substantial prison sentence. In contrast, war tax resistance will almost certainly not end in violence and involves only a slight risk of criminal prosecution. (A very few war tax resisters have spent time behind bars,29 but the government ordinarily does not seek criminal sanctions against resisters.) Many persons willing to bear the costs of war tax resistance—civil penalties and anxiety about the impact of IRS collection efforts—would be unwilling to bear the considerably greater costs of criminal trespass. For those for whom doing nothing is too little and criminal trespass is too much, the income tax protest option is essential. The benefit of the return-based mass income tax as a vehicle for war tax resistance must be weighed against the costs imposed on the tax system by war tax resisters. The costs are likely to be modest, however, because war tax resisters are few—just how few no one knows,30 but too few for their civil disobedience to interfere seriously with the administration of the income tax. Some proponents of war tax resistance through the return-based income tax think the path of resistance needs smoothing. Since 1972 members of Congress have regularly introduced “Peace Tax Fund” legislation, under which taxpayers with conscientious objections to paying taxes for military purposes could allocate their taxes to a peace tax fund of the federal government, which the government could draw on only for nonmilitary purposes.31 Although many antiwar organizations and individuals have supported these bills, for two reasons it is far from clear that they would improve the income tax as a vehicle for war tax resistance. First, enactment of the legislation would have no effect on levels of military spending. Allocations to the peace tax fund would be transparently meaningless, because any loss to the military from allocations to the fund would be made whole by an increase in the percentage of unallocated tax revenues spent on the military. As Marjorie Kornhauser has aptly noted, “For all practical purposes, then, all that occurs is a shell game.”32 Second, compared with war tax resistance under current law—with its risks of civil penalties and IRS collections actions—the making of a no-consequence peace fund election may be too easy and too painless to qualify as meaningful resistance.

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Small-Scale Tax Cheating The return-based mass income tax affords tens of millions of taxpayers the opportunity to engage in small-scale cheating. Cheating is a bad bet, however, in the case of any income item subject to information reporting by the payer. Wages, interest, and dividends (among other things) must be reported to the IRS by payers thereof, so taxpayers with only those sources of income have little opportunity to cheat by omission. Nonemployee compensation for services, on the other hand, is often not subject to information reporting. (In general, payments for services performed by independent contractors are subject to information reporting only if the payments are made by a business, and then only if payments to a particular payee are at least $600.) How many taxpayers receive taxable payments not subject to information reporting? Of 142.9 million individual income tax returns filed for 2010, 22.4 million reported income or loss from a business or profession.33 Of course, it is impossible to tell from the tax return data how many taxpayers with business-source income simply failed to mention the existence of their businesses on their returns. In addition to not reporting some or all of their income not subject to information reporting, taxpayers can also cheat by overstating deductions. The deduction for charitable contributions is a good candidate for overstatement, because for smaller deductions (under $250) no donor acknowledgement is required, and the IRS has no way of ascertaining the veracity of claimed deductions short of a full-scale audit. Like cheating by income omission, effective cheating by overstating charitable deductions (and other itemized deductions) is not universally available. The opportunity is open only to taxpayers who itemize deductions rather than claiming the standard deduction, and for 2010 itemized deductions were claimed on only 46.5 million of 142.9 million returns.34 It is true that anyone can become an itemizer by overstating itemized deductions on a sufficiently grand scale; therefore, in theory all 142.9 million filers had a chance to overstate itemized deductions. It seems likely, however, that most taxpayers whose legitimate itemized deductions fall well short of the standard deduction believe—reasonably enough—that the odds of the IRS detecting the massive overstatement necessary to become an itemizer are unacceptably high. It would not be accurate simply to add 22.4 million tax returns reporting business profit or loss and 46.5 million returns claiming itemized deductions and then conclude that 68.9 million out of 142.9 million 2010 individual tax returns provided attractive cheating opportunities. A downward adjustment would be required for the unknown number of taxpayers who

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had opportunities of both sorts, and upward adjustments would be required for a number of reasons (including the following: taxpayers with business income who neglected to mention the existence of their businesses; taxpayers who claimed the standard deduction, but whose legitimate itemized deductions were almost as large as the standard deduction; taxpayers with opportunities to claim credits to which they were not entitled; and taxpayers with opportunities to overstate the cost basis of assets they sold). Still, in a back-of-the-envelope sort of way, it appears that roughly half of all tax return filers have chances to engage in unlikely-to-be-detected small-scale cheating. Opportunities of this sort would disappear across the board if the income tax were replaced by a retail sales tax or a VAT and would disappear for most taxpayers if the income tax were retained only for the economic elite (with the income tax replaced by a retail sales tax or VAT for everyone else). Is the special vulnerability of a return-based mass tax to widespread cheating a reason to jettison the current system? One might certainly think so, because of both the revenue loss from the cheating and the damage to the social fabric if it is widely understood that the appropriate attitude toward the federal government is to cheat the government whenever you can be reasonably sure you won’t get caught. People who would never otherwise think of cheating the federal government may find the ease of tax chiseling makes it impossible to resist, or may assume that everyone else is cheating and so feel impelled to cheat to avoid paying more than their fair share. And a casual attitude toward financial honesty fostered by the tax system may not remain confined to one’s dealings with the IRS. In short, perhaps it would be better if the tax system did not lead us into temptation. And yet. There is also a plausible argument that the widespread opportunity to engage in limited amounts of tax cheating might be a good thing, on balance. Start by seeing the glass as half-full rather than half-empty; instead of thinking of the tax system as providing opportunities to cheat, think of it as indicating a significant degree of trust bestowed on taxpayers by Congress and the IRS. The empirical literature on regulatory compliance suggests that the propensity of regulated parties to comply with regulatory requirements increases when they perceive that they are trusted by the regulators.35 If one feels trusted, it is a natural human reaction to want to live up to that trust. If taxpayers perceive the tax system in this way—as an expression of the government’s trust in them—they may respond by acting in a manner worthy of that trust. Obviously, there are limits to the effectiveness of any trustbased compliance regime. Inevitably some significant number of taxpayers would prefer the cold cash from cheating to the warm glow from being in a

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reciprocal trust relationship with the government. And no matter how gratifying it may be to feel trusted by one’s government, one may be reluctant to comply if one suspects that same trust is being abused by many other taxpayers. Thus, trust-based compliance must be backstopped by enforcement. In the words of Valerie Braithwaite and John Braithwaite, “One way of framing the responsive regulatory aspiration is to have most taxpayers believe that tax officers trust them at a personal level, but to want tax officers to keep distrustful enforcement strategies at the ready because others cannot always be trusted.”36 So taxpayers respond to being trusted by the government with a higher level of compliance than one would expect under a model that assumes taxpayers base their compliance decisions on simple financial self-interest. By itself, however, this is not a reason to prefer a return-based tax system vulnerable to cheating by tens of millions of taxpayers to a return-free system without that vulnerability. Perhaps trusted income tax filers cheat less than one would anticipate, because they feel trusted, but those same people would cheat even less—in fact, not at all—under a VAT, for the simple reason that the VAT would afford them no opportunity to cheat. If systems are evaluated solely according to how much cheating occurs under them, then a system that relies on trust will always be inferior to a system designed to take trust out of the picture. If the return-based tax is to be retained because of its trust-building feature, it must be for some reason other than a simple comparison of the extent of cheating with and without return-based taxation. The requisite other reason may exist. Perhaps the trust-enhancing aspects of return-based taxation have benefits beyond tax compliance. If trust is naturally reciprocal—if trust breeds trust—then a taxpayer who feels trusted by the government may respond with increased trust in the government, not only in its capacity as tax collector but also in all its other roles. A return-based tax system may be preferable to an alternative system, despite its greater susceptibility to cheating, if (1) the cheating is kept within tolerable limits by a combination of trust-induced compliance and distrustful enforcement strategies employed against those who do not respond to trust by being trustworthy, and (2) the increased trust in the federal government produced by the government’s trust in taxpayers has significant social benefits. This defense of return-based mass taxation must overcome two objections. The first objection is that, judging by opinion survey results, the system does not seem to be a very effective generator of trust in government. Since 1958 the University of Michigan’s American National Election Studies

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in its polling has periodically included the question, “How much of the time do you think you can trust the government in Washington to do what is right? Just about always, most of the time, or only some of the time?” In 1958, 73 percent of respondents indicated they trusted the federal government always or most of the time. That figure fell dramatically in the following years. It fell below 50 percent for the first time in 1974 (36 percent, compared with 53 percent just two years earlier), rebounded modestly in the 1980s (but never above 44 percent), hit new lows in the 1990s (21 percent in 1994), rose dramatically in the wake of the 9/11 attacks (56 percent in 2002), but declined again later in the decade (30 percent in 2008).37 It is clear that any tendency of return-based taxation to cause taxpayers to respond to trust with trust is too weak to offset the causes—whatever they may be—of the dramatic decline in trust in government since the 1950s. Nevertheless, it is plausible that trust in government would be even lower today but for the trust-enhancing character of return-based taxation. Even if one grants return-based taxation the benefit of the doubt on the question of its trust-building effectiveness, there remains the second objection—that high levels of trust in government are not necessarily a good thing. If the government is not, in fact, very trustworthy, then it is better that people do not trust it very much. The argument that increased trust in government would be a good thing depends on the assumption that people currently trust the government less than it deserves. If that assumption is granted (for the sake of argument), it becomes possible to build a case for the importance of trust in government. Trust in the federal government— and in Congress in particular—is a prerequisite for a well-functioning representative democracy. As Marc Hetherington has noted, “If people lose trust in representative institutions, it would likely lead to direct democracy, exactly what the Framers [of the Constitution] hoped to avoid.”38 California’s experience in recent decades with the irresponsible results produced by direct democracy attests to the wisdom of the Founders.39 Although literal direct democracy at the federal level is foreclosed by the Constitution, the functional equivalent—legislative and executive actions driven by opinion polling—is certainly possible. Hetherington also argues that the decades-long decline in trust in the federal government has made it nearly impossible for Congress to enact new programs for the benefit of the poor and minorities. Of course, people at different points in the political spectrum will disagree as to whether that is a good or bad result. Perhaps the strongest argument for the social benefits of increased trust in government is the argument that looks beyond government to the effect

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of increased trust in government on social capital. As explained by Robert D. Putnam in his influential Bowling Alone, “social capital refers to connections among individuals—social networks and the norms of reciprocity and trustworthiness that arise from them.”40 Just as physical capital and human capital contribute to a nation’s productivity and standard of living, so does social capital. Is there a causal relationship between trust in government and social capital? Putnam believes there is. He claims that high social capital leads to high trust in government, as demonstrated by high levels of tax compliance: “If we consider state differences in social capital, per capita income, income inequality, racial composition, urbanism, and education levels, social capital is the only factor that successfully predicts tax compliance. . . . In this way social capital reinforces government legitimacy.”41 Margaret Levi and Laura Stoker suggest, however, that the causation may run in the opposite direction: “A trustworthy government may actually generate the interpersonal trust that promotes a more peaceful and cooperative society, and a democratic government, the reverse of the causal ordering suggested by Putnam.”42 States with high trust in government (as indicated by high levels of tax compliance) may have high social capital because of that trust, rather than having high trust in government because of high social capital. There is no need to choose between the two causal hypotheses; it is entirely plausible that both are correct, with trust in government and social capital strengthening each other in a virtuous circle. This, then, is the case for providing taxpayers with (limited) opportunities to cheat on their taxes, even though it would be feasible to eliminate those opportunities with a return-free system: feeling trusted by the government leads taxpayers to reciprocate by increasing their trust in government, which is both a good thing in its own right (to the extent the government is worthy of trust) and a cause of increased social capital. Are these benefits—any attempt at quantification of which seems hopeless—sufficient to outweigh the obvious costs of a system open to cheating? The answer may well be different for different nations, and even for the same nation at different times. One nation might be caught in a vicious circle, in which cheating by a significant number of taxpayers (those who are immune to the compliance-inducing effect of being trusted) causes others to cheat, which leads to a reduction in trust in government (both with respect to its ability to collect taxes fairly, and more generally), which leads to a reduction in social capital, which leads to even more tax cheating, and so on. Another nation might find itself in a virtuous circle, in which taxpayers overwhelmingly respond to being trusted by being trustworthy, which leads to increased trust

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in government and increased social capital, which leads to even better tax compliance, and so on. Whether the United States should keep or scrap return-based mass taxation may depend on which sort of circle—if either—it is in. If there are any nations that are in virtuous tax compliance circles, the United States is likely to be among them. Scholars of tax compliance have identified the concept of “tax morale,” which they define as “the intrinsic motivation to pay taxes arising from the moral obligation to pay taxes as a contribution to society.”43 Tax-morale levels vary among countries based on each country’s political and social history. At any given level of tax enforcement, tax compliance will be higher in a country with high tax morale than in one with low tax morale. James Alm and Benno Torgler have compared tax morale in the United States with tax morale in fourteen European countries, by examining survey responses in the various countries to the question of whether tax cheating (“Cheating on tax if you have the chance”) “can always be justified, never be justified, or something in between.”44 They found that the United States had the highest tax morale, by this measure, of the fifteen countries studied. Of course, this says nothing about the absolute level of tax morale in the United States; it might be the case that tax morale in the United States is merely the best of a bad lot. A more promising approach to determining whether the United States is in a vicious or virtuous tax compliance circle, or neither, would be to examine trends in tax cheating in the United States over time. Unfortunately, good time-series data on federal income tax cheating do not exist—partly because of the inherent difficulty of detecting and measuring tax cheating, and partly because the IRS attempted no comprehensive studies of tax compliance for tax years after 1988 and before 2001 (because of congressional concerns about the intrusiveness of the audits used in such studies) and has completed studies for only two relatively recent years (2001 and 2006). The 2001 and 2006 studies found no significant difference in compliance roles between the two years.45 In the absence of time-series data on actual cheating, the next best evidence comes from trends in opinion surveys. Each year since 2002, the IRS Oversight Board has sponsored a “Taxpayer Attitude Survey,” asking (among other things) “How much, if any do you think is an acceptable amount to cheat on your income taxes?” The options are “a little here and there,” “as much as possible,” and “not at all.” In the surveys from 2003 through 2011, “not at all” has bounced around above 80 percent (with a low of 81 percent in 2003, a high of 89 percent in 2008, and 84 percent in 2011), displaying no particular trend. “As much as possible” has similarly

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bounced around (from 3 percent to 8 percent) in a trendless manner (although the increase from 4 percent in 2010 to 8 percent in 2011 is striking), as has “a little here and there” (between 6 percent and 12 percent).46 If being in a tax-compliance circle—either virtuous or vicious—requires a clear trend in taxpayer morale, then the United States does not seem to be in a circle of either sort, although the high level of taxpayer morale indicated in all survey years is encouraging for fans of the current system. The case sketched above for return-based taxation open to a limited amount of cheating is not based on the premise that a little cheating is a good thing; on the contrary, the ideal outcome under the trust-building rationale for a return-based system would be that every taxpayer responds to being trusted by proving herself fully worthy of that trust. It is also arguable, however, that a system open to small-scale cheating is desirable precisely because taxpayers in nontrivial numbers will take advantage of the opportunity. This argument is suggested by the responses to a 2000 IRS survey of taxpayer attitudes to the possibility of a return-free income tax. Almost three-quarters of respondents (72 percent) agreed with the statement that a return-free system “gives the government too much control of your life.”47 One interpretation of these responses is that a government that tells you exactly how much you have to pay, giving you no opportunity to participate in the determination of your own tax bill, is unacceptably Leviathan-like. If so, the opportunity under the current system to engage in a little low-level tax chiseling—thereby symbolically resisting Leviathan— may be empowering. In a sense, this is the safety-valve argument for a tax system open to protesters, writ small. People who basically accept the legitimacy of the federal government, but who feel a need to take symbolic action against its perceived totalitarian tendencies, can do so by omitting a few hundred dollars of income or claiming a few hundred dollars of phantom deductions. Under neither the trust-generating view nor the Leviathan-resisting view is it clear whether the benefits of a tax system that makes it possible for tens of millions of Americans to cheat on their taxes outweigh the harms. Two things, however, are clear: (1) that there is a tremendous symbolic difference between a return-based mass tax open to widespread small-scale cheating by ordinary citizens and a return-free system without that vulnerability, and (2) that a strong case can be made for the superiority of the system open to cheating.

four

Tax Expenditures and Fiscal Citizenship

Congress loves tax breaks. The income tax features deductions for (among many other things) home mortgage interest, casualty losses, alimony, contributions to individual retirement accounts (IRAs), state and local taxes, charitable contributions, medical expenses, and having dependent children. All these deductions have been in the tax laws for decades. In recent years, the credit has replaced the deduction as Congress’s preferred vehicle for the delivery of new tax breaks. The difference is that a deduction reduces taxable income, thus reducing tax liability only indirectly, whereas a credit directly reduces tax liability. The tax benefit of a deduction equals the amount of the deduction multiplied by the taxpayer’s marginal tax rate (i.e., the tax rate applicable to the taxpayer’s last dollars of income); the tax benefit of a credit is simply the amount of the credit (which is usually some statutorily specified percentage of credit-eligible expenditures). Although the immensely important earned income tax credit (EITC) has existed since 1975, the real explosion of credits has been in the last two decades. Highlights include the $1,000-per-child tax credit (first enacted, at a lower amount, in 1997), the credit for adoption expenses (1996), the Hope scholarship and lifetime learning credits for college tuition (1997), the now-expired homebuyer credit (2008), the credit for retirement savings of lower-income taxpayers (2002), credits for various expenditures to improve the energy efficiency of one’s home (2005), the credit for the purchase of a plug-in electric car (2008), and the health insurance premium credit (enacted in 2010 and scheduled to become effective in 2014). In theory, Congress could have enacted economic equivalents of any of these tax breaks as direct expenditure subsidy programs—that is, as cash payments from the government to persons submitting proof that they had engaged in the subsidized activities. Instead of letting the purchaser of an

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electric car reduce her tax bill by, say, $2,500, the government could simply send the purchaser a check for $2,500. Instead of running a de facto matching grant program for charities through the income tax, the government could operate an explicit matching grant program, under which it would (for example) send a qualifying charity one dollar for every three dollars donated to it by an individual.

Return-Based Mass Taxation as Fertile Soil for Tax Expenditures The economic equivalence of tax breaks and direct expenditures was first noted in 1967—a little more than two decades into the era of the mass income tax—by Treasury Assistant Secretary for Tax Policy Stanley Surrey. According to Surrey, the federal income tax featured “a system of tax expenditures under which Governmental financial assistance programs are carried out through special tax provisions rather than through direct Government expenditures. This second system is grafted onto the structure of the income tax proper; it has no basic relation to that structure and is not necessary to its operation.”1 After returning to his teaching position at Harvard Law School, Surrey elaborated on the tax expenditure concept in a book published in 1973.2 In 1974, largely in response to Surrey’s advocacy, Congress enacted legislation requiring both the Congressional Budget Office and the Executive Branch to prepare annual tax-expenditure budget analyses.3 Tax-expenditure budgets have appeared regularly ever since, with the Congressional Budget Office relying on the Joint Committee on Taxation for production of its analyses, and with the Treasury Department taking responsibility for the Executive Branch’s analyses. In Surrey’s view, to identify a provision as a tax expenditure was to stigmatize it. His hope was that focusing congressional attention on tax expenditures, by means of mandated annual reports, would lead Congress to conclude that many tax expenditures were indefensible and should be either repealed outright or replaced with better-designed direct-spending programs.4 Surrey was spectacularly successful in institutionalizing the tax-expenditure budget and spectacularly unsuccessful in shaming Congress into abandoning its fondness for tax expenditures. The tax-expenditure estimates produced by the Joint Committee on Taxation in 2012 identified nearly two hundred varieties of tax expenditures in the individual income tax.5 The bigticket items include the home mortgage interest deduction ($83.7 billion in 2012), the child tax credit ($56.9 billion), the EITC ($59.7 billion), the state and local tax deduction ($55.7 billion), and the charitable contribution deduction ($38.6 billion). There is nothing mysterious about the congres-

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sional enthusiasm for tax expenditures. As Michael Graetz has noted, the appeal of tax expenditures is one topic on which Republicans and Democrats can agree: “Republicans in Congress have never seen a tax cut they will not embrace, and Democrats now view income tax benefits as the best way to achieve domestic policy goals blocked by political barriers or legal limitations on additional spending.”6 Would Congress have displayed a similar enthusiasm for direct-spending substitutes for tax expenditures in the absence of a return-based mass tax, or is the proliferation of these subsidy programs a consequence of returnbased mass taxation? The question is not whether Congress could have enacted direct-spending alternatives to tax expenditures as a technical matter (clearly it could have), but whether it would have done so as a political matter. In all likelihood, in the absence of the return-based mass tax—if federal mass taxation had taken the form of a retail sales tax, a value-added tax (VAT), or a return-free income tax—Congress would have enacted few direct-spending alternatives to tax expenditures. There are two reasons for this conclusion. The first is suggested by Graetz’s comment that “Republicans . . . have never seen a tax cut they will not embrace.” In the absence of a mass income tax, tax-expenditure equivalents would have had to take the form of spending increases, rather than tax reductions. Although drawing a policy distinction between an income tax credit and an economically identical cash transfer program flies in the face of the notion that a dollar is a dollar is a dollar, a great many legislators draw precisely that distinction. During the high-wire, debt-ceiling negotiations of 2011, congressional Republicans insisted on massive decreases in government spending, even as they refused to consider the elimination or reduction of any tax expenditures. Their treatment of existing tax expenditures as sacrosanct followed from the Taxpayer Protection Pledge—signed, as of 2011, by a majority of the members of the House of Representatives. As interpreted by the immensely influential Grover Norquist of Americans for Tax Reform, the pledge prohibits not only tax-rate increases but also the elimination or reduction of any existing credit, exclusion, or deduction.7 The view that there is a fundamental moral distinction between a dollar of tax reduction (good) and a dollar of transfer payment (bad) follows from the widely held belief in “everyday libertarianism” identified (disapprovingly) by Liam Murphy and Thomas Nagel.8 Everyday libertarianism is the belief that the pretax distribution of income is presumptively fair, so that the government bears a heavy burden of justification when it uses either taxes or transfer payments to alter that pretax distribution. Assuming a hypothetical Congress in a different postwar tax environment—without a

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return-based mass tax—would have been as much in thrall to everyday libertarianism as the actual Congress appears to be, the hypothetical Congress would not have enacted nontax equivalents to the credits and deductions of which Congress has been so fond in recent decades. The second reason to suppose there would not have been widespread direct-spending alternatives to tax expenditures in the absence of returnbased mass taxation is less philosophical and more practical. A return-based mass tax provides a convenient low-cost delivery mechanism for a subsidy for, say, electric cars. In the absence of such a tax, Congress would have had to find or create some other subsidy-delivering mechanism, and the expense and trouble of doing so might have dissuaded Congress from enacting the subsidy—in the unlikely event that it had not already been dissuaded by everyday libertarianism. Compared with the cost of creating a new agency to send checks to buyers of electric cars, or providing some existing nontax agency with the resources to carry out that assignment, administration of the electric car tax expenditure by the Internal Revenue Service (IRS) is cheap. Administration of the credit by the IRS requires little more than the creation of a one-page form (Form 8936, as it happens) for the claiming of the credit—and even that cost is hidden from Congress, because the IRS does not separately calculate its costs of administering the various items in the tax-expenditure budget. A clarification may be in order at this point: return-based mass taxation is crucial to the flourishing of tax expenditures, but it is not necessary that the return-based mass tax be imposed on income. For many decades, tax policy experts have debated (with no clear winner having emerged) whether it would be better—fairer, more economically efficient, or both—for the main source of federal revenue to be a tax imposed on consumption rather than on income. Current income spent on current consumption would be taxed by both an income tax and a consumption tax, but the taxes differ in their treatment of saved income (taxed by an income tax but not by a consumption tax) and spending financed by savings or by borrowing (taxed by a consumption tax but not by an income tax). Were the income tax to be replaced by a consumption tax, the consumption tax could take any one of several forms. Some of those forms—most notably, a retail sales tax or a VAT—would not involve return-based taxation and thus would not be as welcoming of tax expenditures as the current income tax. But a return-based consumption tax is also possible. If the current income tax were amended to allow an unlimited deduction for savings (imagine the current deduction for contributions to IRAs, but without any limitations on the purpose or amount of deductible savings) and to tax spending financed by savings

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or by borrowing, the result would be a return-based mass consumption tax. Because it would be a form of return-based mass taxation, that tax would be as fertile ground for tax expenditures as the current income tax.9 If one agrees with Surrey’s critique of tax expenditures—that more often than not the subsidies they provide are unwarranted and that Congress would rightly refuse to enact equivalent direct-spending programs in the absence of return-based mass taxation—then the proliferation of tax expenditures under the return-based mass income tax is a major point against the current system. Reasonable minds can and do differ on the overall economic merits of the current collection of tax expenditures and thus on whether the spur provided to federal subsidy programs by return-based mass taxation is a good or bad thing. This book does not take a position on whether existing tax expenditures—considered either in the aggregate or one-by-one—constitute good public policy. Instead, the focus here, as in the rest of the book, is on tax returns and fiscal citizenship—on the effect of tax expenditures on the civic aspects of the return-filing requirement. In one respect, that effect is negative. As will be discussed in some detail later (in chapter 7), the citizenship-promoting potential of the return-filing requirement will be fully realized only if (1) the return-preparation pro­ cess (including throughout-the-year recordkeeping) is not so onerous that feelings of aggravation overwhelm any thoughts of fiscal citizenship, and (2) the rules by which tax liabilities are determined are at least somewhat comprehensible to taxpayers, so that dealing with their returns gives them confidence that their tax bills are produced by a fair set of rules. Although taxpayers undoubtedly have a higher tolerance for recordkeeping burdens and complex rules when those burdens and rules are in service of tax reductions rather than tax increases, even in the tax-expenditure context too much complexity undermines the civic virtues of tax returns. This is especially true if—as is very often the case—the rules translating the dollar amounts of tax-favored expenditures into dollar amounts of tax reduction are complicated by income-based floors or phaseouts, or differ for purposes of the regular tax and the alternative minimum tax. A typical taxpayer subject to such rules will be unable to understand—even in a rough way—how his tax liability is determined. In a democracy, taxation without comprehension should be as unacceptable as taxation without representation. And there is another problem. Taxpayers may be aware that the tax laws include many special tax breaks, but have only the vaguest notion of what expenditures or activities qualify for those breaks. If the return-filing pro­ cess leaves taxpayers with the nagging suspicion that they are missing out on some unknown tax benefits to which they are entitled, and which other

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similarly situated (but better-informed) taxpayers are claiming, that suspicion may crowd out any constructive reflections on fiscal citizenship. Even if a taxpayer is aware of the tax break and the rules for determining the amount of the benefit are straightforward, there is still the concern that tax expenditures impede efforts to determine whether the tax burden is fairly distributed. Imagine two taxpayers identical in all tax-relevant aspects—same income, same family size and composition, and same expenditures—except that Anne buys a new electric car and Brenda buys a new conventional car (with each taxpayer having had the option to buy either sort of vehicle). Because of the electric-car credit, Anne will have a significantly lower tax liability than Brenda. If there were a direct subsidy program for electric-car buyers instead of a tax credit, Brenda would not feel the government had treated her unfairly vis-à-vis Anne. Brenda’s tax liability would be identical to Anne’s, and Brenda would realize that she had no unfairness complaint against Anne’s subsidy (because the subsidy was offered to Brenda on the same terms that it was offered to Anne, and Brenda declined it). By the same token, Brenda has no valid complaint of unfairness when, under the actual income tax, her tax bill is higher than Anne’s. But if Brenda feels (reasonably enough) that tax burdens should be distributed on the basis of ability to pay, and if she believes (again, quite reasonably) that her ability to pay tax is indistinguishable from Anne’s, then she may conclude that the tax system has treated her unfairly—a feeling that is not conducive to the strengthening of her sense of fiscal citizenship. Despite these concerns about the effects of tax expenditures in general on the potential of return-based mass taxation to promote fiscal citizenship, two particular tax expenditures—the charitable contribution deduction and the EITC—are very attractive in terms of fiscal citizenship. Those two provisions are the subjects of the remainder of this chapter.

The Charitable Contribution Deduction The Supreme Court has described the deduction for donations to charity as “a form of subsidy [for charities] that is administered through the tax system” and has explained that “deductible contributions are similar to cash grants of a portion of the individual’s contribution.”10 Suppose a taxpayer in the 25 percent bracket gives $1,000 to charity. The deduction reduces the taxpayer’s taxable income by $1,000 and reduces the taxpayer’s tax liability by $250. The taxpayer’s after-tax cost of the donation is, therefore, only $750. Of the $1,000 received by the charity, in the end only $750 comes out of the taxpayer’s own pockets, with the other $250 coming from the federal

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government (in the form of a $250 reduction in the taxpayer’s tax bill). The effect is a sort of matching grant system, the generosity of which depends on the taxpayer’s marginal tax rate. For the 25 percent bracket taxpayer, the match is one-to-three; the government kicks in one dollar for every three dollars of after-tax cost to the taxpayer. Of course, as a technical matter the government could operate a matching grant program for individuals’ donations to charity without reliance on return-based income taxation. In fact, the United Kingdom’s return-free tax system for most taxpayers (pay-as-you-earn [PAYE]) uses an explicit matching grant system to subsidize charitable donations by individuals not required to file tax returns.11 A nonfiling taxpayer subject to a tax rate of 22 percent and wanting to direct £100 to a charity would give the charity only £78. Upon receiving notification of the contribution, the government would then send the charity an additional £22. The bottom lines for all three parties—taxpayer, charity, and government—are exactly the same as if the taxpayer had given the charity £100 and filed a tax return claiming a £100 deduction. Whether a program of matching government grants for individuals’ contributions to charity is administered through return-based mass taxation (as in the United States) or is administered in a more direct manner not involving return-based taxation (as in the United Kingdom’s PAYE system), such a program has great potential to promote fiscal citizenship. In his article, “Taxes as Ballots,” Saul Levmore has suggested that the charitable deduction can be understood as a quasi-voting mechanism, under which “dispersed donors . . . determine which agents, projects, or causes the government will finance.”12 Levmore elaborates: The charitable deduction makes the government a partner in every gift-giving venture; a taxpayer in the (hypothetical but arithmetically convenient) 50 per­ cent bracket, for instance, can be seen as joining forces with the government to give equal amounts to the cause chosen by the taxpayer (with characteristics or minimum qualifications set by the government). Hence each individual’s choice, deduction, or “ballot,” not only reflects a private contribution but also triggers a matching government contribution in the form of a reimbursement of part of the taxpayer-donor’s gift.13

The donor “votes” with her charitable contributions as to which charities the government should subsidize. It is a costly vote. Levmore again: “[T]hese agents must pay for their choices, or votes, in order to take their decisions more seriously.”14 For

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example, an affluent taxpayer in the (hypothetical) 40 percent bracket, trying to decide what to do with $10,000 of her income, has a choice. She may (1) donate none of that $10,000 to charity, pay tax of $4,000 on that income, and be left with $6,000 to spend on personal consumption, or (2) donate the $10,000 to her favorite charity, thereby effectively transferring to the charity both the $4,000 tax she otherwise would have paid and the $6,000 she otherwise would have spent on herself. Looking at her options from a slightly different perspective, the tax system offers her a choice as to how she discharges the fiscal-citizenship obligation associated with that $10,000 of income. She can either pay $4,000 tax to the federal government or she can give the entire $10,000 to the charity of her choice. The price of being able to satisfy one’s economic obligation to society with a directed contribution is that the directed contribution must be considerably larger (in the hypothetical, two-and-one-half times larger) than the tax-payment alternative. The income tax rules generally permit taxpayers to offset no more than half of their adjusted gross income with charitable deductions. This reflects a legislative decision that, although taxpayers may choose between support of the government and (more expensive) support of charities in satisfying their fiscal-citizenship obligation with respect to half of their income, they must satisfy their obligation with respect to the other half of their income by paying tax. This taxes-as-ballots account of the charitable deduction connects the two foundational activities of citizenship. A taxpayer making a deductible contribution can be understood as both voting (as to how federal funds should be directed) and as fulfilling her obligation to make a financial contribution in promotion of the general welfare. Although this view of the charitable deduction is very attractive, there are some potential objections. Most importantly, this view fits awkwardly with the actual operation of the deduction, which is available only to those taxpayers—about a third of income taxpayers in recent years—who itemize their deductions rather than claiming the standard deduction. For those taxpayers claiming the standard deduction (because its amount exceeds the sum of all their itemized deductions), charitable contributions are de facto nondeductible; contributions of those taxpayers are not eligible for matching grants. (In theory, any nonitemizer could become an itemizer by making a sufficiently large charitable donation, but donations of the necessary size are usually not practical.) The obvious solution is to convert the charitable deduction to “above-the-line” status (a status currently enjoyed by the alimony deduction and the deduction for IRA contributions, among others), so that it could be claimed by taxpayers taking the standard

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deduction. It is true that overstating one’s deductible charitable contributions is a particularly attractive avenue of tax cheating (because the chances of being caught are low) and that above-the-line status for the deduction would extend that cheating opportunity from one-third of the taxpaying population to the entirety of that population. Still, the fiscal-citizenship benefits of above-the-line status for the deduction seem sufficient to justify the attendant compliance problems. Moreover, as discussed in chapter 3, a strong case can be made in favor of a tax system that expresses government trust in taxpayers, by giving taxpayers—all taxpayers—some (limited) opportunities to cheat. There is a precedent for an above-the-line charitable deduction. The Economic Recovery Tax Act of 1981 permitted nonitemizers to claim the deduction.15 The proponents of the provision advocated it primarily on the basis that it would lead to increased charitable contributions by taxpayers of modest means, but Senator Daniel Patrick Moynihan also made the fiscal-citizenship case for the provision: “It will add a bit to the ability of the ordinary working men and women to determine how, and on what, some of his or her [sic] money is spent.”16 However, the above-the-line deduction was short-lived. It was enacted as a temporary measure; when it expired in 1986 Congress did not renew it. In addition to supporting an above-the-line deduction for charitable contributions, the taxes-as-ballots view of the deduction also calls into question the enhanced quasi-voting power of higher-income taxpayers— enhanced because “voting” power is a function of how much one donates, and higher-income taxpayers can afford larger donations. Under the voting analogy, this seems to violate the principle of one person, one vote. This aspect of current law may nevertheless be defensible, if giving more “votes” to higher-income taxpayers redounds sufficiently to the benefit of lowerincome taxpayers. This could be the case if (1) higher-income taxpayers respond to the availability of the deduction by significantly increasing the amount of their contributions, and (2) lower-income taxpayers are major beneficiaries of the charities receiving the enhanced contributions. To the extent that these two conditions are not satisfied, the obvious solution is to limit the “voting” power of higher-income taxpayers by imposing restrictions on their charitable deductions. The existing rule allowing taxpayers to offset only half of their income with charitable deductions is such a restriction, but perhaps a lower ceiling on the deduction would be appropriate. A different approach—which could be implemented along with a deduction ceiling—would be a deduction floor defined as a percentage of adjusted gross income. For example, taxpayers might be allowed to deduct

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contributions only to the extent that they exceed two percent of their adjusted gross income. (Under current law, similar floors apply for purposes of several provisions, including the casualty loss and medical expense deductions.) In fiscal-citizenship terms, the idea would be that the privilege of charitable “voting” should be available only to taxpayers exhibiting significant generosity, with generosity defined in relation to income. Because the floor would be higher for higher-income taxpayers, this would reduce the extent to which their “voting” power exceeds that of other taxpayers. A related issue is whether the deduction should be converted to a credit set at some flat percentage of the amount of the donation. Under the deduction approach, the matching grant ratio is more generous for upper-income taxpayers than for middle-income taxpayers, because the ratio is a function of a taxpayer’s marginal tax rate and higher-income taxpayers have higher marginal tax rates. When a taxpayer in the (again, hypothetical) 40 percent bracket gives $100 to charity, in economic reality the charity receives $60 from the taxpayer and $40 from the government. When a taxpayer in the 15 per­ cent bracket does the same (and itemizes his deductions), the charity’s $100 comes $85 from the taxpayer and only $15 from the government. This also seems inconsistent with the principle of one person, one vote, although it may be defensible on the same basis suggested earlier—that is, if a more generous matching grant for donations by upper-income taxpayers ultimately helps persons of modest means by increasing upper-income taxpayers’ contributions to charities benefitting persons of lower income. If this defense is rejected, the solution to the problem of income-dependent–matching grant ratios is straightforward—replace the deduction with a credit, available to all taxpayers, equal to some stated fraction (probably in the neighborhood of 20 or 25 percent) of the amount given to charity. Thinking of the charitable deduction in terms of fiscal citizenship suggests one more legislative reform. Under current law, there is a substantial time lag—almost always at least a few months and sometimes more than a year—between the making of a charitable contribution and the realization of the tax savings by claiming the deduction on one’s return. The taxes-asballots aspect of the deduction would be much more perspicuous to the average taxpayer if one could claim a deduction on one’s return for (say) 2013 for a contribution made in 2014, as long as the contribution is made before the earlier of the April 15 due date or the date the return is filed. Current law permits this sort of exception to the usual income tax annual accounting rules in the case of contributions to IRAs, but not in the case of contributions to charities.

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Imagine a taxpayer in the 25 percent bracket, preparing her 2013 return in March 2014 and discovering that her tax liability exceeds her withholding by $1,000. Under current law all she can do is send the government a check for $1,000 along with her return. If the timing rules for charitable contributions were the same as those for IRAs, however, she could choose between sending $1,000 to the IRS or sending $4,000 to her favorite charity (thereby generating a $4,000 deduction and a $1,000 reduction in her tax liability and bringing her underwithholding to zero). This would be considerably more effective than current law in highlighting the taxpayer’s choice between satisfying her financial obligation to society by paying tax to the government or by paying a larger amount to the charity of her choice. Gene Steuerle of the Urban Institute has been advocating this approach for years,17 but so far Congress has not responded—perhaps out of concern that enactment of Steuerle’s proposal would be a little too effective in encouraging underwithheld taxpayers to write checks to charities rather than to the government. There is an additional civic advantage to Steuerle’s proposal, beyond the reinforcement of the taxes-as-ballots aspect of the charitable deduction. Enactment of the proposal should lead to taxpayers having more positive feelings about the return preparation process by giving them more control at the time of return preparation over how much tax they pay. Even at the last minute, a taxpayer would be able to avoid paying some amount of tax by choosing to pay some larger amount to charity. The increased sense of control should generate better feelings about return preparation, which should foster an increased sense of fiscal citizenship. A variation on the theme of Steuerle’s proposal—which could be introduced either instead of Steuerle’s proposal or in addition to it—would be a major expansion of tax return “checkoff ” programs. Under current law, a taxpayer can check a box on her return to direct $3 of her tax to the Presidential Election Campaign Fund (PECF). Because checking the box has no effect on the taxpayer’s federal income tax liability, the program is the equivalent—except in a cash-flow sense—of allowing a taxpayer who contributes $3 to the PECF to claim a 100 percent credit for that contribution on her return. A major expansion of this approach would involve making tax return checkoffs available for a number of other government purposes and in amounts considerably larger than $3. Although the current checkoff is not particularly popular—only about 13 million taxpayers made the PECF election in fiscal year 201118—that may be largely explained by a lack of taxpayer enthusiasm for presidential campaigns. With a range of purposes to

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choose among, and more significant dollar amounts, an expanded checkoff program might be quite popular and could significantly promote feelings of fiscal citizenship. The major difficulty with such an expansion would be finding appropriate government programs to be funded with checkoffs. For the checkoffs to be meaningful, program funding must actually depend on the number and dollar amounts of tax return checkoffs. If checkoff amounts for a particular program are fully offset by reductions in other government funding for that program, the checkoff is a sham—and taxpayers are likely, sooner or later, to recognize it as such. The problem, then, is finding government programs that are simultaneously (1) important enough to merit being included as a checkoff option on every Form 1040, and (2) unimportant enough to have their funding at the mercy of taxpayers’ checkoff decisions. It may be that very few programs can successfully walk that tightrope. In theory, all the civic benefits of the charitable deduction extolled above could have been realized without a return-based mass income tax, through the adoption of an explicit matching grant program for charitable contributions, administered outside the tax system. Does it follow that the returnbased mass income tax deserves no credit for those civic benefits? No, it does not follow. Although as a technical matter Congress could have enacted a charitable matching grant program without a return-based mass tax, as a political matter it almost certainly would not have done so. The income tax charitable deduction dates back to 1917; it is only four years younger than the income tax itself. Predating the transformation of the income tax from a class tax to a mass tax by more than a quarter century, the deduction does not depend for its existence on return-based mass taxation. A charitable deduction under a tax applicable only to the economic elite, however, would do nothing to promote the fiscal citizenship of the bulk of the population not subject to the tax. The crucial question is whether Congress, in the absence of return-based mass taxation, would have enacted a widely available charitable matching grant program. Perhaps the strongest evidence in support of the conclusion that Congress would not have done so is the fact that no matching grant program emerged in the quarter century between the introduction of the income tax charitable deduction and the transformation of the income tax to a mass tax. With only an affluent minority subject to the income tax—and thus able to take advantage of the quasi-matching grant provided by the charitable deduction—a government subsidy for the charitable donations of the bulk of the population would have required an explicit matching grant program. Such a program was never seriously considered, let alone enacted.

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It is not hard to imagine why an explicit matching grant program has never been on Congress’s legislative agenda. The charities eligible to receive deductible contributions are a diverse group, covering a broad swath of the political spectrum (despite the statutory prohibition on political activities by organizations eligible to receive deductible contributions). In a wellknown footnote in his concurring opinion in Bob Jones University v. United States19 (in which the Supreme Court upheld the IRS’s denial of charitable tax status to Bob Jones University on the basis that its prohibition of interracial dating by students violated the public policy against racial discrimination in education), Justice Lewis Powell emphasized this diversity: The 1,100-page list of exempt organizations [recognized by the IRS as eligible to receive deductible contributions] includes—among countless examples— such organizations as American Friends Service Committee, Inc., Committee on the Present Danger, Jehovahs Witnesses in the United States, Moral Majority Foundation, Inc., Friends of the Earth Foundation, Inc., Mountain States Legal Foundation, National Right to Life Educational Foundation, Planned Parenthood Federation of America, Scientists and Engineers for Secure Energy, Inc., and Union of Concerned Scientists Fund, Inc.

The point of Justice Powell’s list is that the various organizations are associated with particular viewpoints on controversial policy issues; the list includes several pairs of organizations on opposite sides of the same issue. In the absence of return-based mass taxation, would Congress have been willing to authorize direct subsidies to, for example, the National Right to Life Educational Foundation and the Planned Parenthood Federation of America? Explicit matching grants to either, or both, would almost certainly have been politically too hot to handle. The functional equivalent of matching grants, administered through the tax system, is politically viable only because of the indirect nature of its operation; it does not have the same “optics” as the direct issuance of government checks to Right to Life and Planned Parenthood. There is also the question of churches and other religious charities. It is difficult to imagine Congress approving direct government payments to churches to subsidize their worship services, and if Congress did approve such subsidies it is difficult to imagine the courts upholding their constitutionality. In short, the functional equivalent of a matching grant subsidy for charitable contributions is politically feasible only because of the indirectness of the subsidy under the return-based mass income tax.

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Earned Income Tax Credit The earned income tax credit (EITC) functions as a wage subsidy for lowincome workers and their families. The amount of the credit—which depends on the amount of the credit recipient’s earned income and the number of the credit recipient’s dependent children—can exceed $5,000. Unlike most personal income tax credits, the EITC is refundable. If the amount of the credit exceeds the claimant’s precredit income tax liability, the claimant receives a check from the Treasury in the amount of the excess. In recent years, only about 10 percent of the aggregate amount of EITC dollars has served to offset precredit income tax liabilities; the remainder has taken the form of transfer payments. With total benefits (counting both income tax reductions and transfer payments) in excess of $50 billion annually, the EITC is the largest federal antipoverty program. Even more than the charitable deduction, the EITC is a creature of the return-based mass income tax. As originally enacted in 1975, the EITC was available to low-wage workers with dependent children; for those workers the credit equaled 10 percent of the first $4,000 of earned income, reduced by 10 percent of the amount by which income exceeded $4,000.20 The EITC legislation grew out of Milton Friedman’s 1962 proposal for a negative income tax (NIT).21 Under Friedman’s proposal a person would have negative income equal to the excess of the sum of his standard deduction and personal exemptions over his gross income, and would receive a transfer payment from the government equal to 50 percent of that negative income. The EITC borrowed from the NIT the idea of using the return-based mass income tax as the vehicle for an antipoverty transfer program. But the NIT penalized work (by reducing the amount of the negative tax as earnings rose above zero), whereas the EITC rewarded work (by increasing the amount of the credit as earnings rose above zero). The EITC succeeded politically because it targeted its subsidies at those Congress considered the deserving poor—the working poor—by providing subsidies that increased as earnings increased (up to a point). A subsidy so structured had to be administered through the tax system. Although it is barely possible to imagine a wage subsidy administered by a welfare bureaucracy, with the dollar amount of benefits being positively associated with the dollar amount of the recipient’s earnings, such a system would involve horrendous difficulties for the welfare bureaucracy charged with tracking recipients’ earned income. By contrast, a return-based mass income tax—with the mechanisms for the IRS to track earned income already in place—could be readily adapted for the delivery of a wage subsidy. In short,

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the only politically feasible substantive design for a subsidy—a subsidy that would “make work pay”—virtually mandated tax-based administration rather than welfare-based administration. Although tax-based administration was a necessity for an EITC-type program, perhaps a program substantively similar to the EITC could have been administered without a return-based mass tax. In his proposal to retain the income tax only for taxpayers with six-figure incomes (and to replace the lost income tax revenue with the revenue from a newly-enacted VAT), Michael Graetz describes in some detail how a replacement for the EITC might be administered through the existing return-free federal payroll tax system.22 Not surprisingly, the details are fairly complicated. Although something along the lines suggested by Graetz could work as a technical matter, it is hard to imagine—as a matter of politics—that it ever would have occurred to Congress to use the payroll tax system as a delivery mechanism for large transfer payments to the working poor and near poor. The bottom line is simple: without the return-based mass income tax, it is highly unlikely that any federal wage subsidy program substantively similar to the EITC would ever have been enacted. But how does the EITC promote fiscal citizenship? Chapter 2 explained how the refundable character of the EITC may actually weaken the fiscalcitizenship–promoting aspects of the income tax, by creating a large number of tax return filers who are not income taxpayers. The concern is that return filing may not function well as a ceremonial recognition of taxpayer status, to the extent that the EITC (and other refundable credits) are viewed as severing the connection between filing a return and being a taxpayer. There are also, however, two powerful arguments that the EITC enhances the fiscal-citizenship benefits of return-based taxation. The first of those arguments is premised on the idea that fiscal citizenship involves rights as well as obligations. For a citizen with a financial surplus—that is, with pretax economic resources at least modestly above the subsistence level—fiscal citizenship imposes an obligation to help defray the costs of government. But for a working citizen with a financial deficiency—that is, with pretax resources below the subsistence level—fiscal citizenship confers a right to earn a wage sufficient to support oneself and one’s family at a level of basic decency. In proposing a major expansion of the EITC (which Congress subsequently enacted), President Clinton expressed precisely this understanding of the EITC: For those who care for our sick and tend our children who do our most difficult and tiring jobs, the new direction I propose will make this solemn simple

70 / Chapter Four commitment. By expanding the refundable earned income tax credit we will make history, we will reward the work of millions of working poor Americans by realizing the principle that if you work 40 hours a week and you’ve got a child in the house, you will no longer be in poverty.23

Under this conception of fiscal citizenship—as a reciprocal relationship involving rights as well as duties—the EITC is not merely consistent with the fiscal-citizenship–promoting virtues of return-based taxation; it is crucial to the full realization of the fiscal-citizenship potential of the federal tax-andtransfer system. The second argument that the EITC promotes fiscal citizenship is closely related to the first. While the first argument focuses on the low-wage worker’s right to a respectable standard of living in exchange for his full-time labor, the second argument focuses on the full-time labor that triggers that right. Low-wage workers, with pretax incomes at or below the poverty level, have no ability to pay tax (without plunging themselves and their families deeper into poverty), and so have no fiscal-citizenship obligation to pay tax. But it does not follow that they have no economic obligations to society. As Nancy Staudt has suggested, the fiscal-citizenship obligation of low-wage workers should be understood as an obligation to do what they can to support themselves and their families through gainful employment.24 Theirs is an obligation to earn a wage—to work for a living—rather than an obligation to pay tax. Under this view, filing an income tax return in order to claim the EITC serves as a ceremony documenting a low-wage worker’s satisfaction of his social duty to work for a living. Taxpayer status, or its moral equivalent, would be thereby conferred on the EITC claimant even if he received a net transfer from the government. In sum, although the EITC means that many tax return filers are not payers of the income tax, the EITC nevertheless promotes fiscal citizenship in two important ways. It serves as the vehicle for low-wage workers to claim their fiscal-citizenship right to a decent living for themselves and their families, and it provides for the formal attestation by low-wage workers that they have satisfied their obligation to work to support themselves and their families. Without the return-based income tax, neither the EITC nor anything resembling the EITC would exist to perform these functions.

five

The World War II Origins of the Return-Based Mass Income Tax

Although the modern federal income tax has existed since 1913, the tax did not become a return-based mass tax until World War II. In 1939, on the eve of the war, only one American in twenty was an income taxpayer or the dependent of an income taxpayer.1 By the end of the war nearly threequarters of the population was covered by the income tax.2 Some form of mass federal taxation was imperative for the financing of the war, but it was not inevitable that the mass tax would be an income tax, nor was it inevitable that a mass income tax would impose a return-filing requirement on tens of millions of taxpayers. This chapter recounts the two wartime legislative decisions that resulted in the return-based mass income tax—(1) to finance the war with a mass income tax rather than a federal retail sales tax and (2) to require all income taxpayers to file returns (rather than using a return-free system of exact withholding for most taxpayers).3

Retail Sales Tax or Mass Income Tax? The United States did not officially enter World War II until December 1941, but Congress lowered income tax exemption levels in both 1940 and 1941 in order to finance the defense buildup.4 As a result of the 1940 and 1941 legislation, the percentage of the population covered by the income tax increased from 5.0 percent in 1939 to 9.4 percent in 1940, and to 24.7 percent in 1941.5 As the 1942 legislative season approached, with the United States now formally at war, it was clear that even more tax revenue was needed and that some form of mass taxation was inevitable. In late December 1941 the Associated Press reported growing sentiment among members of the House Ways and Means Committee in favor of a sales tax, as “less burdensome to

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the public generally” than the alternative of wage withholding under the income tax.6 In early January 1942, the New York Times suggested a sales tax was coming soon: “The general belief is that the bulk of new revenue will be raised through increases in the excise tax, and through the imposition of a Federal sales tax.”7 President Roosevelt’s opposition to a federal sales tax was well established. In his 1938 State of the Union speech, for example, he had denounced proponents of “the type of flat sales tax which places the burden of government more on those least able to pay and less on those most able to pay.”8 Nevertheless, it now appeared that the president would reluctantly accept a sales tax. In his Budget Message of January 7, 1942, Roosevelt adhered to his long-standing position that a sales tax should not be a permanent part of the federal revenue structure, but he added that “in the face of the present financial and economic situation, however, we may later be compelled to reconsider the temporary necessity of such measures.”9 The Treasury Department, however, was not ready to accept the inevitability of either a sales tax or a mass income tax. Appearing before the Ways and Means Committee on March 4, 1942, Treasury Secretary Henry Morgenthau, Jr., requested $7 billion in new revenue to be raised through higher income tax rates and higher excise tax rates, without either a sales tax or lowered income tax exemptions.10 Despite—or perhaps because of—the president’s recent indications that he might accept a wartime sales tax, Morgenthau’s denunciation of a sales tax was especially forceful: No general sales tax is recommended, and indeed I strongly urge that no such tax be made a part of this revenue bill. The general sales tax falls on scarce and plentiful commodities alike. It strikes at necessaries and luxuries alike. As compared with the taxes proposed in this program, it bears disproportionately on the low-income groups whose incomes are almost wholly spent on consumer goods. It is, therefore, regressive and encroaches harmfully upon the standard of living.11

Morgenthau’s testimony did not receive a particularly friendly reception from the members of the committee. Representative Harold Knutson, for example, sarcastically commented, “I do not suppose that the fact that the administration is against the sales tax is influenced at all by the fact that it would affect 30 or 40 million voters.”12 Knutson claimed, “Everybody I talk with is in favor of a sales tax, except the administration.”13 In early April, Representative Wesley Disney, claiming to have surveyed the entire House, announced that “an overwhelming majority” of the House would prefer a sales tax to the administration’s proposed tax increases.14

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President Roosevelt, however, soon held a press conference at which he emphatically denounced a federal sales tax; if his opposition had softened as of his January Budget Message, it seemed to have rehardened by his April press conference.15 About a week after the press conference, the New York Times reported rumors that Ways and Means Chairman Robert L. Doughton had told President Roosevelt that the president’s revenue goal could be met only by the enactment of a sales tax.16 The next move came from Morgenthau, and it was probably the single most important anti–sales-tax initiative taken by the Roosevelt administration during the entire war; without it, there would probably have been a federal sales tax for at least the duration of the war and perhaps for much longer. On May 7, Morgenthau presented Ways and Means with a request for an additional $1.1 billion of revenue and a recommendation that the revenue be raised by reducing the single-person exemption from $750 to $600, the exemption for a married couple from $1,500 to $1,200, and the exemption for a dependent from $400 to $300. The proposed reductions would create almost seven million new income taxpayers.17 What explains Morgenthau’s dramatic reversal of his March opposition to lowered income tax exemptions? Most likely he had concluded by early May that the administration could not resist the widespread support in Congress for some form of mass taxation, and that the only way to defeat the greater evil (in the administration’s view) of a sales tax was to recommend the lesser evil of a mass income tax. The Wall Street Journal voiced exactly that suspicion in an editorial: “This newspaper cannot easily suspect Mr. Morgenthau of playing with red herrings. But it cannot help wondering whether the Administration may not wish to divert Congressional attention from the general sales tax . . . by proposing this short and faltering step in the direction of taxing war-made income all down the line.”18 The Ways and Means Committee was amenable to lower income tax exemption levels, but it was not willing to recommend all the tax-rate increases requested by Treasury. On June 6, a “defiant” committee reportedly gave the administration an “ultimatum”: it must either accept a sales tax (in addition to, rather than in lieu of, the decreased income tax exemptions) or accept legislation falling $2 billion short of the administration’s revenue goal.19 Secretary Morgenthau replied that he was “certainly not negotiating” any compromise involving a sales tax.20 The committee was unwilling to recommend a sales tax in the face of the administration’s continued opposition. On June 20 Chairman Doughton announced that the committee would not even vote on the sales-tax question.21 On June 24 the committee made its final decisions: it would

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send to the House a proposal that would raise about $6 billion of revenue (almost $2.7 billion short of the Treasury’s request), including the income tax exemption reductions that the committee had tentatively agreed to on May 13, but not including a sales tax.22 During the House debate on the committee’s bill in mid-July, Doughton told the members that the Trea­ sury had indicated to him that it would “rather have the bill remain short [on revenue than] have a sales tax.”23 The bill—with lowered income tax exemptions, without a sales tax, and more than $2.4 billion short of the administration’s revenue goal—passed the House on July 20 by a vote of 392 to 2.24 The action on the bill then moved to the Senate. Testifying before the Senate Finance Committee, Morgenthau noted that the reduced income tax exemptions would “affect almost seven million individuals who have never paid direct taxes to the Federal Government before,” and proclaimed—apparently as a matter worth celebrating—“For the first time in our history the income tax is becoming a people’s tax.”25 Despite his newfound enthusiasm for mass taxation by way of the income tax, Morgenthau continued to oppose a sales tax. He told the committee that the Treasury’s proposals “are based upon the principle of ability to pay, and they avoid such devices as a general sales tax, which would fall with the greatest impact upon those least able to bear the burden.”26 The New York Times, which had long opposed sales taxes in peacetime, responded with an editorial strongly urging the committee to add “a moderate sales tax” to the bill.27 The editorial rejected the administration’s regressivity objection: If we consider a sales tax, indeed, not in isolation but as a part of the whole tax system . . . then the whole argument against the incidence of the sales tax as such disappears. This is obviously to look at the situation as it really is. To insist on considering the sales tax in isolation . . . and to rule it out because of its own individual incidence, is to take a rigidly doctrinaire attitude instead of facing reality.28

As the Finance Committee held hearings, committee members made sales-tax proposals. Commenting on a proposal by Senator John Danaher for a 10 percent retail sales tax, economists Meyer Jacobstein and Charles O. Hardy told the committee that the distributional impact of the tax could be modified by giving each person a book of coupons entitling the bearer to make $200 of tax-free purchases each year.29 As the Finance Committee continued its deliberations, the New York Times confidently editorialized that a sales tax could not and should not

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be avoided: “As one alternative after another has been considered[,] the choice narrows down inevitably to a sales tax.”30 At the last possible moment, however, Senator Walter George, chairman of the Finance Committee, proposed a “Victory Tax” as an alternative to a sales tax. As proposed, the Victory Tax would be imposed on the gross (not net) income of individuals, at the flat rate of 5 percent, above a per-person annual exemption of $624 ($12 per week), and would be collected through withholding at the source.31 It would apply in addition to the regular income tax. The Victory Tax was a considerably more aggressive move toward mass taxation than the Treasury’s proposed reductions in income tax–exemption levels, because the Victory Tax did not allow exemptions for dependents.32 With the Victory Tax on the table, the committee voted against a sales tax, thirteen to six.33 As finally reported out of the committee in early October, the bill included George’s Victory Tax, as well as reduced exemption levels for purposes of the regular tax. After five days of debate, the bill passed the Senate by a unanimous vote, with the committee’s Victory Tax and income tax–exemption levels intact.34 The House and Senate conferees quickly agreed upon the Victory Tax and upon reduced exemption levels under the regular income tax, and President Roosevelt signed the bill into law.35 The administration, with the crucial assistance of Senator George, had successfully resisted a sales tax, but only by accepting both a significant reduction in the regular income tax exemptions and true mass taxation through the Victory Tax. As a result of the reduced exemption levels under the regular tax (which, unlike the Victory Tax, were effective for 1942), the percentage of the population subject to the income tax rose from 24.7 percent in 1941 to 41.7 percent in 1942.36 Primarily as a result of the Victory Tax, the covered percentage increased to 68.9 percent in 1943.37 Although withholding under the regular income tax was not enacted until mid-1943,38 the massive increase in covered population caused by the Revenue Act of 1942 (once the Victory Tax became effective in 1943) makes that legislation the most important milestone in the transformation of the income tax from a class tax to a mass tax. Even as the ink was drying on the president’s signature, it was widely recognized that additional revenue-raising legislation would be needed in 1943. Although the Victory Tax had made the income tax a mass tax, this did not mean it would remain the only federal mass tax. A week after the signing, Senator George declared that the administration needed to understand that any new tax legislation would have to include a sales tax.39 Given the administration’s long-standing and emphatic opposition to a sales tax, the New York Times characterized George’s comments as “virtually an

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ultimatum, serving notice that if additional taxes were to be requested, there would be a sales tax.”40 Appearing before the Ways and Means Committee on October 5, 1943, Morgenthau asked for legislation producing additional revenue of $10.5 billion.41 The New York Times reported growing sentiment among committee members for a sales tax, although there was still doubt whether a sales tax could be enacted over the Treasury’s opposition.42 Two days after Morgenthau’s testimony, a lengthy pro–sales-tax editorial appeared in the New York Times.43 Responding to the administration’s regressivity-based objection to a sales tax, the editorial claimed that the objection “disappears” if “we think of a general sales tax, as we must, as merely one part of the overall tax structure that would result after its enactment.” The editorial went on to point out that the regressivity objection “could be to a large extent met even within the sales tax itself ” through the use of differing rates on necessities, semi-luxuries, and luxuries,” or through the issuance “to each person [of ] stamps to be paid out in lieu of sales taxes, which would be sufficient to cover that person’s minimum subsistence needs.” The Wall Street Journal reported that “there is little doubt that the sales tax today could command a majority vote of the Ways and Means Committee,” if the veto threat were removed.44 In the end, however, the Ways and Means Committee was unwilling to oppose the administration on the issue. On October 28 the committee rejected—by a vote of sixteen to eight—a proposal for a 10 percent retail sales tax with a $400 coupon-based exemption for a typical family, causing Chairman Doughton to declare that the sales-tax issue was dead.45 The House proceeded to pass the committee’s bill by an overwhelming vote, disregarding the objections of a few members and of the administration on grounds of revenue inadequacy.46 The Senate hearings began with Morgenthau’s testimony. As soon as Morgenthau finished his prepared remarks, in which he renewed his request for $10.5 billion in new revenue, Senator Arthur Vandenberg asked him whether he would prefer “a bill approximately similar to the House bill in total revenue, or the House bill plus a general sales tax.”47 Morgenthau responded with the administration’s usual list of sales-tax objections and concluded, “For the above reasons, my answer to Senator Vandenberg’s question is ‘No.’ We would prefer not having a sales tax.”48 This prompted Senator Harry F. Byrd to quote the last sentence of Morgenthau’s prepared statement: “I have endeavored to show you as objectively and as clearly as I can that a tax program of not less than 10.5 billion dollars is needed to safeguard the financial and economic future of this country during the war and after the war.”49 Senator Byrd then observed,

The World War II Origins of the Return-Based Mass Income Tax / 77 That is pretty strong language. As I understand the Secretary, he thinks the objections to the sales tax are greater than the necessity of safeguarding the financial and economic future of the country, if the sales tax is determined by the committee and Congress as being the only means of raising this additional revenue.50

Despite this stinging—and justified—rebuke, Morgenthau held firm in his opposition to a sales tax. Morgenthau’s position was not popular on the nation’s editorial pages. The Los Angeles Times, for example, reacted with an editorial criticizing “the remarkably poor showing made against [a sales tax] by Mr. Morgenthau” and urging the Senate to pass a sales-tax bill.51 The Finance Committee, however, proved unwilling to recommend a sales tax over the administration’s objection. Instead, it reported a bill without a sales tax and with almost the same revenue yield as the House bill— more than $8 billion short of the Treasury’s request.52 The Senate passed the committee’s bill without major changes,53 and the bill as it emerged from the Conference Committee easily passed both the House and the Senate on February 7.54 President Roosevelt waited for almost two weeks and then vetoed the bill.55 In his veto message, he described the bill as “wholly ineffective” as a revenue measure.56 Angry members of Congress voted overwhelmingly to override the veto.57 With the passage of the Revenue Act of 1943 (in early 1944), revenue raising disappeared from the national political agenda for the remainder of the war; thus, the debates of 1943 proved to be the last hurrah for proponents of a federal retail sales tax. Congress never again came close to enacting a retail sales tax, either during or after the war. Faced with the massive national debt resulting from the war, Congress also never returned the income tax to its prewar status as a class tax. It is clear that Congress would have enacted a retail sales tax during World War II, but for the intense and unwavering opposition of President Roosevelt and his Treasury Department. The primary ground of that opposition—the claim that a retail sales tax would be uniquely oppressive to lower-income groups—was, to be charitable, less than wholly rational. As was pointed out repeatedly during the war by members of Congress, tax experts, and leading national newspapers, it would have been entirely feasible to adopt a sales tax with coupon-based exemptions, which would have been no more burdensome to lower-income groups than subjecting them to the income tax by lowering exemption levels. There is, of course, no way of knowing how the federal tax structure would have developed in the nearly seven decades since the end of World

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War II, if the Roosevelt administration had not been so unalterably (and unreasonably) opposed to a wartime sales tax. There is a significant chance, however, that a retail sales tax would have been the only federal mass tax enacted during the war and that it would have remained the federal instrument of mass taxation in the decades following the war. The postwar federal tax structure might well have been a mass consumption tax (initially a retail sales tax, perhaps later changing to a VAT because of a VAT’s administrative advantages), combined with a class-based income tax imposed on only the wealthiest 10 or 20 percent of the population. As it happens, a federal tax structure of exactly this sort—a broad-based VAT plus an income tax imposed on only an affluent minority—has been championed in recent years by one leading tax policy expert.58

Return-Based Income Taxation Versus Exact Withholding During World War II After Congress rejected a retail sales tax in favor of a mass income tax, it remained uncertain whether the new mass income tax would require most taxpayers to file returns. In a February 1943 hearing, a Philadelphia attorney, Clement J. Clarke, Jr., told the Ways and Means Committee that the mass income tax could be designed so that returns would not be required of most taxpayers.59 Under an approach developed by Clarke and John K. Hulse, a Philadelphia accountant, the exact amount of tax due could be collected by employer withholding, thus eliminating the need for a return to reconcile any difference between tax withheld and actual tax liability, if four criteria were satisfied: (1) the taxpayer had only wage income; (2) the taxpayer’s total income for the year did not exceed the amount taxable at the lowest rate in the income tax rate schedule; (3) the taxpayer claimed a standard deduction—an innovation proposed by Clarke—in lieu of claiming deductions for charitable contributions, state and local taxes, and interest expense; and (4) the taxpayer informed his employer of the number of the taxpayer’s dependents. According to the Associated Press, “No witness got a more cordial reception before the committee than [Clarke]. . . . The committee liked Clarke’s suggestions so well it asked him to submit a written elaboration as quickly as he could prepare it.”60 Hulse elaborated on the proposal in an article in the June 1943 issue of Taxes—The Tax Magazine.61 According to Hulse, the proposal would eliminate tax returns for thirty million taxpayers, leaving only fourteen million taxpayers with a filing requirement. Despite the initial enthusiasm expressed by members of the Ways and Means Committee, Congress did not act on the proposal in 1943. In August

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1943, however, the Associated Press reported that the proposal was on the legislative agenda for 1944: “The Capitol Hill staff of tax experts is working on a plan which, if made law, would erase the necessity for about 30,000,000 per­ sons to file individual income tax returns.”62 That same month, Finance Committee Chairman George expressed his support for eliminating the return-filing requirement for most taxpayers.63 Several months later, Ways and Means Chairman Doughton echoed George’s sentiment.64 In March 1944 the Wall Street Journal reported that the Ways and Means Committee was working on a plan “to relieve over 30 million individuals of the necessity of filing income tax returns in the future.”65 A few days later, however, the Ways and Means Committee announced it had settled on a different approach: “Instead of eliminating returns entirely for some 30 million taxpayers, as previously proposed, the plan requires the filing of a report which consists of the receipt furnished to employees by employers which, in turn, is forwarded to the Government after the taxpayer answers four simple questions.”66 The taxpayer would not have to calculate his tax liability. Based on the information supplied by the taxpayer, the government would calculate the tax and either refund any overpayment or bill the taxpayer for any underpayment. Although this plan had attractions for taxpayers uncomfortable with arithmetic, it was not return free and did not feature exact withholding. This modified plan was included in the tax bills passed by both the House and the Senate and became law in May 1944.67 No one seemed to think there was a significant difference between the original proposal for a truly return-free system of exact withholding and the enacted let-the-government-do-the-arithmetic approach. The Washington Post editorialized that the Ways and Means Committee’s plan “would bring joy to the hearts of millions of taxpayers” by “reliev[ing] about 30 million individuals of the necessity of filling out involved income tax forms.”68 Nothing in the editorial explained that the plan did not relieve anyone of the necessity of filling out tax forms, but merely eliminated the need for “involved” forms for most taxpayers. Reporting on the signing of the legisla­ tion by President Roosevelt, the New York Times inaccurately claimed that “an estimated 30,000,000 Federal income taxpayers will be relieved in future years of filing tax returns supplementing the withholding of payments from their salaries or wages.”69 Writing in Taxes—The Tax Magazine in June 1945, Hulse himself mischaracterized the 1944 legislation as “making the filing of returns unnecessary.”70 No one complained that the simplification actually enacted fell short of the original goal. Apparently contemporary observers considered the elimination of the need to keep records to support itemized deductions

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(for taxpayers for whom the standard deduction amount exceeded the sum of itemized deductions) and the elimination of any need to add, subtract, multiply, or divide, to be the practical equivalent of a return-free system with exact withholding. A provision requiring the IRS to do the tax-liability calculations for electing taxpayers still exists in the Internal Revenue Code, although its significance has been greatly eroded by the lack of an inflation adjustment; the provision applies only to taxpayers with gross incomes of less than $10,000.71 The IRS is more helpful than the Code requires. In Publication 967 it volunteers to “figure your tax” for most taxpayers who have taxable income of less than $100,000 and who do not itemize deductions.72 Hardly anyone takes the IRS up on its offer. On individual income tax returns for 2006, only one taxpayer in one thousand asked the IRS to compute the tax.73 This is not surprising. When about 90 percent of returns are prepared (by taxpayers themselves or by paid preparers) with the aid of software, there is no reason to ask the IRS to do the math. Even for the obstinate Luddite preparing his own return with paper and pencil (and perhaps a calculator), the major challenges are recordkeeping and data entry, not number crunching. And so what was viewed as the near equivalent of a return-free income tax in 1944 has become a trivial curiosity today.

Congressional Interest in Return-Free Income Taxation in Recent Decades A return-free income tax with exact withholding, for many or most taxpayers, is not just a theoretical possibility. As of 2003, such systems were in place in over thirty countries.74 Congress twice has ordered reports on return-free income tax systems. The Tax Reform Act of 1986 required the IRS to study the feasibility of return-free income taxation for at least some taxpayers.75 The IRS reported a year later that a return-free system did not seem practical, and that was the end of that.76 In 1998 Congress requested another study, and added that a return-free system (for some taxpayers) should be up and working by 2007.77 The Treasury Department produced the required report in 2003.78 It discussed both true return-free systems based on exact withholding, and “tax agency reconciliation” systems, under which the tax agency prepares a tentative return for a taxpayer based on information it receives from third parties, which return the taxpayer can then sign as-is or modify before signing. (As is apparent even from this brief description, the tax agency reconciliation approach is not actually return free.) The Treasury expressed no great enthusiasm for either approach, at least in the absence of

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major substantive tax reform: “While it is clear that a return-free tax system would shift compliance costs among affected parties, it is not clear whether such a system would reduce overall compliance burdens and administrative costs if it were unaccompanied by tax simplification.”79 The year 2007 came and went without the IRS having implemented any sort of return-free system—not even a pilot program—and Congress seems to have acquiesced in the inaction. The 2003 Treasury Report included the results of a survey of taxpayer attitudes toward both a true return-free tax with exact withholding and tax agency reconciliation. The lack of enthusiasm for return-free taxation was remarkable. When asked how much they would be willing to pay to be exempted from a return-filing requirement, 54 percent of taxpayers surveyed said they would be unwilling to pay anything, and another 27 percent would pay no more than $25.80 Nearly three-quarters of the respondents agreed with the statement that a return-free tax “gives the government too much control of your life.”81 Genuine return-free taxation was especially unpopular. When asked to express a preference between exact withholding and tax agency reconciliation, 65 percent of respondents favored tax agency reconciliation, whereas only 19 percent preferred exact withholding.82 These results may help explain why the Treasury failed to comply with the congressional directive to introduce return-free taxation by 2007 and why Congress has let the matter slide.

An Accident of History What is striking, in the end, is the historical contingency of the return-based mass income tax. If President Roosevelt had not been so implacably (and irrationally) opposed to a wartime sales tax, the income tax might never have become a mass tax. And if Congress had understood in 1944 that there was a world of difference between a return-free tax with exact withholding, and the mere calculation of tax liabilities by the IRS, it might have insisted on exact withholding. Things might easily have played out differently during World War II, with respect to both retail sales taxation and exact withholding. If they had played out differently, there would probably be—for better or worse—no return-based mass income tax today.

six

The Return-Based Mass Income Tax in Popular Culture

Since the introduction of the return-based mass income tax during World War II, the income tax has played an important role in American popular culture. This chapter explores how two popular culture genres—radio and television situation comedies and New Yorker cartoons—have responded to the modern income tax. I have identified nearly one hundred sitcom episodes in which the federal income tax plays a significant role and over two hundred income tax–related New Yorker cartoons.1 The episodes and the cartoons offer wide-ranging commentaries on the tax system and suggest some notable changes over time in public attitudes toward the income tax. (The attitudinal changes are more apparent in the sitcoms than in the cartoons.) The very existence of these income tax–inspired episodes and cartoons, in substantial numbers, is perhaps more significant than the details of their contents. In the years since World War II, the individual income tax has generally provided somewhere between 40 percent and 50 percent of total federal revenue.2 The federal income tax raises more money than federal payroll taxes, but not overwhelmingly so. In the past three decades, the payroll taxes have, fairly consistently, accounted for about one-third of all federal tax revenues.3 Despite the fact that the income tax produces more revenue than the payroll taxes, for most people the payroll tax burden (counting both the portion of the payroll tax nominally imposed on the employee and the portion nominally imposed on the employer) is greater than the income tax burden.4 Total federal tax revenues are typically approximately equal to total state and local tax revenues (from all types of state and local taxes combined).5 In a typical year, then, the federal income tax raises in the neighborhood of one-fourth or one-fifth of all federal, state, and local tax revenue.

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One would never guess from the evidence of the sitcoms and cartoons that the federal income tax played so modest a role in the overall American tax picture. In both sitcoms and cartoons, the income tax is virtually the only tax; there are almost no sitcom episodes or New Yorker cartoons concerned with other taxes.6 As will be apparent in the following descriptions of taxrelated sitcom episodes and cartoons, the character of the federal income tax—as a return-based mass tax—explains the sitcom writers’ and cartoonists’ interest in the income tax. It is not a coincidence that more than a third of the tax-related sitcom episodes originally aired in either March (the month in which the tax return due date formerly fell) or April. The point is not that sitcom writers and cartoonists have been preoccupied with the federal income tax relative to all the other grist for their mills provided by life in twentieth- and twenty-first-century America. Considering the universe of tens of thousands of sitcom episodes and New Yorker cartoons, the few hundred income tax–related episodes and cartoons are far from excessive. Rather, the point is that the writers’ and cartoonists’ interest in the federal income tax, relative to other taxes, is hugely disproportionate to the relative economic significance of the federal income tax. Why are nearly all the tax episodes and cartoons concerned with the federal income tax, when the federal income tax raises only 20 percent or 25 percent of all American tax revenue? Why are federal payroll taxes nearly absent from the episodes and cartoons, when most people are more heavily burdened by the payroll tax than by the income tax? The answer to both questions is the same. The special status of the federal income tax in the American consciousness—and thus in the reflections of the American consciousness in sitcoms and cartoons—is due to the fact that it is a return-based mass tax. There is, of course, much more that could be done—beyond the following survey of sitcoms and New Yorker cartoons—in examining treatments of the federal income tax in popular culture since World War II. Television dramas and movies (of all genres) are perhaps the most promising areas of exploration, but fiction, cartoons (non–New Yorker), and advertising also seem promising. Although I have made no systematic effort to examine cultural commentaries on the income tax beyond sitcom episodes and New Yorker cartoons, one recent commentary is so remarkable that it should be noted here. The income tax is at the center of David Foster Wallace’s recently published novel (posthumous and unfinished), The Pale King.7 Set in the (fictional) Peoria Regional Examination Center of the Internal Revenue Service, the novel explores (among other things) philosophies of tax administration, the concept of taxpaying as a civic responsibility, and boredom in the

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workplace. The Pale King is not merely set in a tax administration facility; it is also, in very significant part, about taxation. It is, in fact, a sort of Moby Dick of taxes, aiming to educate its readers about a highly specialized field of endeavor, which is used to explore some very deep themes. Although the publication of a major novel by a critically acclaimed writer focused on the income tax may be surprising, the publication of a novel focused on any other tax would be virtually inconceivable. It is no accident that The Pale King is about the federal income tax rather than, say, the federal payroll tax. As in the case of the sitcom writers and the cartoonists, Wallace was drawn to the income tax by its character as a return-based mass tax.8

The Income Tax in Radio and Television Situation Comedies In the past few decades, scholars have turned to situation comedies as an important source of information about developments in American culture and attitudes from the 1940s to the present. As David Marc has noted, “The sitcom is a representational form, and its subject is American culture. It dramatizes national types, styles, customs, issues and language.”9 Gerard Jones elaborates: “Often the very manner in which the sitcoms have sought mass acceptance reveals more about our culture than a bolder, more idiosyncratic, more aesthetically defensible vision might. Through sitcoms we can trace the hopes and concerns of the majority of Americans over the past forty-five years.”10 Darrell Hamamoto makes the case for sitcoms as an essential part of modern American cultural history: The television situation comedy—the most popular American art form—is a virtual textbook that can be “read” to help lay bare the mores, images, ideals, prejudices, and ideologies shared—whether by fiat or default—by the majority of the American public. . . . There is much history that can and must be rescued from the sitcom.11

The federal income tax and situation comedies entered American popular culture at almost the same moment. Although the income tax had existed since 1913, it was not until World War II that it became a mass tax, applicable to most Americans and enforced by wage withholding. The first situation comedy, The Aldrich Family, was initially broadcast (by radio) in 1939.12 Sitcoms grew quickly in number and popularity, first on radio and later on television.13 The sitcom has proven to be “the most enduring and popular of all prime-time television genres.”14 From the very beginning of the withholding era, the income tax has served as a reliable source of sitcom

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plots, and sitcoms have provided a running commentary on the income tax. For one hoping to understand popular attitudes to the income tax, and how they may have changed over time, sitcoms are indispensable source material. Sitcoms, Taxes, and Fiscal Citizenship From the 1940s through the mid-1960s, the filing of a tax return as an act of fiscal citizenship was a frequent theme in tax-related radio and television sitcom episodes. In a 1943 episode of The Great Gildersleeve—the first taxrelated sitcom episode of the mass tax era—Gildersleeve initially decides not to include $2.16 of interest income on his tax return.15 He changes his mind, however, after hearing his nephew’s school essay on “The Privileges of Being a Taxpayer.” According to the essay (plagiarized by the nephew from a letter from a bank), “’Til this war is won, we at home should consider it not only our duty, but our privilege, to go without things and pay our taxes.” Gildersleeve approvingly quotes that statement as he revises his return to include the interest income. Positive attitudes toward taxpaying persisted after the end of the war. In a 1949 radio episode of The Adventures of Ozzie and Harriet, Ozzie replies to a neighbor who asks him if it “hurts a little” to pay his income tax: “I don’t mind paying my income tax. It’s for a good cause.”16 As Ralph Kramden struggles with his tax return in a 1953 episode of The Honeymooners, he is unhappy with both the complexity of the return and the fact that his tax liability exceeds his withholding by $15.17 By the end of the episode, however, his attitude has changed dramatically. Ralph tells Alice, I didn’t mean that before what I said about income taxes. Boy, we should give everything to the government. We’re living in a great country. This is the greatest country in the world. We’ve got parks for the kids. Everybody’s free to say what they think and do and please. It’s a great place. You know something? We’re pretty lucky, even though we didn’t have a hurricane, a fire or an explosion.

(The last sentence refers to Ralph’s disappointment, expressed earlier in the episode, that he did not qualify for a casualty loss deduction.) In a 1966 episode of Occasional Wife, Mr. Brahms, the owner of Brahms Baby Food, offers the return preparation services of his accountant to all his executives and asks the executives to sign their returns (using “party pens”) at an office

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ceremony.18 At the signing ceremony, the accountant announces “the proud moment when you sign your return.” Three sitcom episodes involving immigrants emphasize the connection between paying taxes and citizenship. A 1950 radio episode of Life With Luigi dramatizes the difficulties encountered by Luigi—a recent immigrant from Italy—as he attempts to prepare his tax return.19 The episode closes, however, with Luigi writing a letter to his mother in Italy, telling her that the total tax collections of the United States for the year were more than $46 billion and that “I’m proud to tell you that $1.56 is what I paid in.” In a 1957 episode of Hey, Jeannie, Jeannie (who has recently moved to New York City from Scotland) mails a letter along with her tax return: “Dear Mr. Tax Collector of America: Enclosed is my income tax, which comes to a total of $62. However, this country has been very good to me, so to show my gratitude I’m enclosing a check for $100. Please consider the extra $38 as a tip.”20 Later, an employee of the Bureau of Internal Revenue begs Jeannie to take back the “tip,” because it is “throwing our books all out of kilter.” A 1963 episode of The Bill Dana Show features a very similar plot. Jose Jimenez, an immigrant from Mexico working in New York City as a bellhop, determines that he owes income tax of $42.15.21 In gratitude for “the privilege of living in this wonderful country and having my coastline protected,” Jose decides to send the Internal Revenue Service (IRS) a check for $50, along with a letter explaining that the extra $7.85 is “a tip, from me to you.” IRS employees later beg Jose to take back the “tip,” but he refuses. Once Jose’s story makes the national news, the IRS decides to keep Jose’s $7.85. As the episode ends, an IRS employee tells Jose that “up to now we haven’t exactly won the title of the most popular government bureau,” but as a result of his story “people may start liking us.” The Hey, Jeannie episode and the Bill Dana episode explicitly contrast the recent immigrants’ attitudes toward taxpaying with the considerably less positive attitudes of other American taxpayers, so the episodes are not evidence that the citizenship-promoting virtues of return-based mass taxation were universally appreciated during the 1950s and the early 1960s. On the other hand, the shows clearly endorse the tax attitudes of Jeannie and Jose, and the shows’ writers and producers must have thought those attitudes would have some resonance with the viewing public. Compared with the episodes from the 1950s and early 1960s involving recent immigrants who view their first encounters with the income tax as ceremonies of fiscal citizenship, more recent episodes involving first encounters with the income tax have been considerably less uplifting. In a

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1970 episode of Green Acres,22 the persons encountering the income tax for the first time are not recent immigrants, but residents of the Sleepy Hollow– like town of Hooterville, who had somehow remained blissfully ignorant of the federal income tax for more than a quarter century after it had become a mass tax. Oliver Wendell Douglas—a Manhattan lawyer who has moved to Hooterville in search of the simple life—receives a tax refund check at the Post Office in Drucker’s general store. The farmers socializing at the store are unfamiliar with the concept of a tax refund (indeed, they are unaware of the existence of the income tax), but they are intrigued by Oliver’s explanation. Later the farmers hold a meeting, at which one of them explains, “According to Mr. Douglas, if you lose money during the year, you write to the government and ask them to refund you.” Two weeks later the farmers receive refund checks totaling more than $572,000. Eventually an IRS agent arrives in Hooterville to recover the money. In support of the agent, Oliver tells the farmers they need to repay the money—which the farmers have already invested in Mr. Haney’s monkey racing track—because “the government made a mistake.” Mr. Haney replies, “Mr. Douglas, we ain’t gonna listen to none of that anti-American talk. Our Constitution is mistakeless.” Eventually, the IRS agrees to become a silent partner in the monkey-racing enterprise. The first encounter with the tax system in a 1999 episode of Third Rock from the Sun23 occurs for an even more unlikely reason than the first encounter in Green Acres. The premise of the series is that Dick and his friends are aliens from a distant galaxy, masquerading as humans. Unable to prepare his return without assistance, Dick obtains help from Mary (not an alien), who calculates that he owes $9,500. Unhappy with the prospect of Dick paying so much tax, the aliens come up with the idea of claiming phony business expenses. With an air of discovery, Dick excitedly announces, “Yes, we can lie on our taxes!” “I can’t believe that no human has ever thought of this before,” Tommy responds. Dick files a return claiming a $375,000 refund. He soon receives an audit notice from the IRS. When the auditor informs Dick that he owes $16,143 in back taxes, Dick is overcome with relief and hugs the auditor. Later, Dick remarks to his fellow aliens, “Could you imagine a real human being afraid of a tax audit? Although I do feel a little more human now that we’ve been reamed by the IRS.” The Green Acres and Third Rock episodes are perhaps too slapstick to serve as serious social commentary. Nevertheless, the responses to the tax system of those encountering it for the first time are strikingly different from the responses of the immigrants in the earlier episodes. Far from understanding the income tax as a vehicle for satisfying their obligation of fiscal citizenship, the farmers of Hooterville view it as a mechanism for getting

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something for nothing from the federal government. At least the farmers are not trying to cheat the government; apparently they honestly (albeit conveniently) misunderstand the basic purpose of the income tax. The aliens of Third Rock, by contrast, understand the purpose of the tax system perfectly well. However, unlike earlier new arrivals to the United States, they do not welcome the opportunity to contribute to the functioning of their new country; rather, they are thrilled when it occurs to them that it is possible to cheat on their taxes. The fiscal-citizenship theme is not completely absent in tax-related sitcom episodes of recent decades. The theme makes a brief appearance in a 1995 Ellen episode, in which Ellen announces that she intends to return a refund check erroneously sent to her by the IRS.24 A friend exclaims, “Give it back to the government? What did they ever do for you?” Ellen replies, “Oh, you know. Roads, national parks, PBS. I mean I don’t watch, but I’ve heard good things about Nova.” At best, this is a weak echo of the spirit of Ralph Kramden, Jeannie, and Jose Jimenez; at worst, the nominal endorsement of the federal government is completely undercut by the silliness of the Nova comment. In a 1998 Simpsons episode, Ned Flanders prepares his return shortly after midnight on January 1.25 When his son asks him what taxes pay for, Flanders explains, “Why, everything. Policemen, trees, sunshine. And let’s not forget the folks who just don’t feel like working, God bless ’em.” Again, the absurdity of the claimed benefits of government thoroughly undermines the putative endorsement. Surprisingly, however, the theme of taxpaying as an act fiscal citizenship appears nonironically in a 2006 episode of My Name is Earl.26 Most of the episode is concerned with Earl’s unsuccessful efforts to persuade the government to accept his $500 check for tax on income he earned but failed to report several years before. (The episode does not specify whether the income tax in question is federal or state.) At the end of the episode, Earl and a friend are rescued from the inside of an empty water tower by the fire department. The department does not charge him for the cost of the rescue. Earl comments, in a voiceover, “Turns out being saved by the government is free to taxpayers. Taxpayers like me.” Sitcoms and Tax Cheating Many tax-related sitcom episodes (including several of the episodes described above) involve income tax cheating, or at least contemplation of the possibility of cheating. Using these episodes to explore changes in attitudes toward tax cheating over the postwar decades is tricky, because sitcom

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writers are more interested in exploring the personalities of their characters than in making general statements about societal attitudes toward the tax system. When contemporaneous characters in different sitcoms display radically different attitudes toward tax compliance, the difference must be attributed to the characters rather than to the zeitgeist. For example, Sergeant Bilko spends most of a 1956 episode of The Phil Silvers Show generating fraudulent receipts to support claimed tax deductions.27 In an episode of The Honeymooners from the same year, however, Ralph Kramden is scrupulously honest with the government. 28 When he belatedly learns that noncash benefits are taxable, Ralph informs the government that his original return did not include the $15 value of a horse with a clock in its stomach that he won by playing pinball. Ralph proclaims, “Ralph Kramden will never be accused of not putting a horse down with a clock in its stomach!” Even within a single sitcom episode, different characters may express very different tax-compliance attitudes. In a 1950 radio episode of The Marriage, for example, the husband favors claiming highly dubious deductions on the grounds that return preparation is “a form of self-expression, a creative act,” whereas the wife views claiming such deductions as “like cheating on an examination on the honor system.”29 In a 1972 episode of All in the Family, Archie defends his failure to report income from moonlighting as a taxi driver as merely “exercising my loophole.”30 Edith, Gloria, and Mike, however, are appalled by his attitude. Lou Grant lectures Ted Baxter about Ted’s illegitimate business expense deductions in a 1975 episode of The Mary Tyler Moore Show: “ ’Til your dying day you’ll know that you cheated the government of the United States of America. How’s that going to make you feel?”31 In a 1998 episode of The Simpsons, Ned Flanders is so scrupulous that he decides not to deduct the cost of cash register ink as a business expense because he enjoys the smell.32 Homer’s attitude, however, is very different: “How many kids do we have? No time to count. I’ll just estimate. Nine.” He tells Marge, “If anyone asks, you require twenty-four hour nursing care, Lisa’s a clergyman, Maggie is seven people, and Bart was wounded in Vietnam.” Although different attitudes toward tax cheating displayed by different sitcom characters in different eras may be due to the personalities of the particular characters rather than to changes in the zeitgeist, a review of the tax episodes over the decades suggests that cheating has become more commonplace and more socially acceptable over time. Despite the occasional Sergeant Bilko, honest taxpayers predominated in sitcoms from the 1940s to the 1960s—Gildersleeve, the wife in The Marriage, Ralph Kramden, Jeannie, and Jose Jimenez are examples.

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In recent decades, however, less-than-scrupulously-honest taxpayers have predominated in sitcoms. Honest taxpayers can still be found—including Ned Flanders and Earl, and Ruth-Anne in a 1993 episode of Northern Exposure33 (who tells an IRS auditor that the auditor transposed two numbers, resulting in a $2,700 understatement of Ruth-Anne’s gross receipts). The more common attitude among sitcom characters of recent decades, however, has been that tax cheating is in order whenever the likelihood of detection is low. In a 1974 episode of Maude, Walter (Maude’s husband) is awaiting a scheduled visit to his home by an IRS auditor.34 Walter tells Maude, “I haven’t done anything that every other taxpayer doesn’t do.” Maude replies, “That bad, huh?” When Walter says he was “not breaking the law, just bending it a little,” Maude asks how far he bent it. Walter answers, “Over backwards.” In a 1976 episode of Alice, coworker Flo helps Alice prepare her return.35 “When I get through,” Flo comments, “you won’t owe them a thing.” Alice asks, “What if I still do?” “We’ll cheat,” Flo responds. Charles Emerson Winchester explains to Father Mulcahy, in a 1981 M*A*S*H episode, why it is important that one person (Charles) prepare all the returns for the wealthy Winchester family: “[W]e are trying to avoid many unhappy returns. . . . Naturally, my family and I have decided to make full disclosure of exactly what happened. So we must compare notes as to exactly what happened.”36 In a 1990 episode of Roseanne, Roseanne and Dan go to great lengths to determine whether the $400 Roseanne earned by selling magazine subscriptions would have been reported to the IRS by the payer on a Form 1099.37 Once they determine that the $400 was not subject to information reporting, they complete their return without including the $400. A 1992 episode of The Cosby Show is particularly noteworthy, because the taxpayer with the casual attitude toward the truth is the otherwise estimable Cliff Huxtable.38 Cliff tries, fervently but outlandishly, to convince Claire that they qualify for various tax breaks described in his recently purchased copy of The Patriot’s Guide to Taxpaying, including an exemption for government workers disabled by terrorist attacks and a deduction for owners of trees destroyed by southern pine beetles. The deterioration in tax-compliance attitudes in sitcoms is nicely captured by previously mentioned episodes from perhaps the three greatest working-class sitcoms—The Honeymooners, All in the Family, and Roseanne— that appeared at roughly two-decade intervals (1956, 1972, and 1990, respectively). Ralph insists on paying tax on his horse-with-a-clock-in-itsstomach, although he realizes the government will never know about the horse unless he voluntarily reports it. In sharp contrast with Ralph, for whom cheating is not an option, Archie is happy to “exercise[e] [his] loophole” by

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failing to report his moonlighting income. On the other hand, Archie’s cheating is condemned by all the members of his family, including Edith— who, naive though she may be, is clearly the show’s moral compass. And the episode ends with Archie receiving his just deserts—in the form of an audit of his returns for the past three years. If the All in the Family episode suggests that standards of taxpayer honesty had eroded between 1956 and 1972, the Roseanne episode suggests the standards had collapsed by 1990. When one of their children asks whether Roseanne and Dan cheat on their income tax, Roseanne replies, “Absolutely not”—at the same time winking and nodding to indicate that they do, in fact, cheat. And once Dan and Roseanne have assured themselves that the IRS has no knowledge of the $400 Roseanne earned by selling magazine subscriptions, it is understood between them that the $400 is not to be reported on their return. Sitcoms and Tax Return Complexity Even as sitcoms ceased to celebrate the citizenship-promoting virtues of return filing and sitcom taxpayers became less honest, sitcom characters’ complaints about tax return complexity greatly diminished over the postwar decades. Complexity is a major theme of the early tax-related sitcom episodes. A 1944 episode of Fibber McGee and Molly is opened by the announcer: “The Spanish used to burn people they didn’t like. In England they once cut off your ears for stealing a penny. Russia had the whip. But for sheer ingenuity in instruments of torture, America wins again. We refer to income tax form 1040.”39 In a 1948 radio episode of Burns and Allen, George remarks as he prepares his return, “I don’t [hate taxes]. It’s just making out the return I hate.”40 Even children’s television picked up the theme. Fran is preparing her return in a 1949 episode of Kukla, Fran and Ollie.41 Fran tells Kukla and Ollie, “This is an awful day—income tax.” She complains that she has already worn out seven pencils and that the tax form “just doesn’t make any sense.” The 1949 Ozzie and Harriet episode mentioned earlier opens with the announcer setting the scene as Ozzie prepares his return: “Ozzie Nelson, American, is completely enmeshed in what is rapidly becoming one of America’s most exasperating traditions. It calls for a complete mastery of arithmetic, trigonometry, surveying, semantics, foreign languages (including doubletalk and jabberwocky), not to mention mind reading, and–above all–the control of temper.” Another announcer refers to “that cute little hangover from the Spanish Inquisition—the income tax blank” in a 1951 radio episode of Father Knows Best.42 The Kingfish comments, as he prepares his return in a 1952 episode of Amos and Andy, “If I’d known figur-

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ing out income tax was going to be this hard, I never would have allowed myself to make any money last year.”43 In the 1953 Honeymooners episode described above, Ralph complains, “I’m dropping dead from the question,” as he struggles with his return. These are just a sampling of the many criticisms of tax return complexity featured in sitcoms from the early years of the mass income tax. In the last few decades of tax-related sitcoms, however, complaints about return complexity have been few. In the 1990 Roseanne episode Dan complains as he works on the return, “This stuff ’s so complicated nobody can understand it.” Roseanne offers to help, but after a short review of the instructions she says, “OK, I give up. What language is this?” And in the 1999 episode of Third Rock from the Sun, Dick cries out as he works on his return, “I don’t understand this. I’m a superior being. I can calculate the decaying orbit of a dying moon to within a tenth of an inch. Why can’t I calculate the subtotal of line 59a?”44 With those two exceptions, complaints about return complexity have been absent from sitcom episodes of recent decades. The probable explanation is not that the income tax is no longer perceived as complex, but that returns have become so complex that almost everyone— except those in the most dire financial circumstances (Dan and Roseanne) and those from distant galaxies (Dick)—has abandoned the struggle by hiring paid return preparers. IRS Employees in Sitcoms IRS employees are featured in a majority of the tax-related sitcom episodes. Most of the portrayals of tax agency officials are positive or neutral. Government employees in three episodes of The Jack Benny Program thoughtfully express concern that Jack may not be claiming all the business expense deductions to which he is entitled.45 The IRS employee who audits Mary Richards, in a 1970 episode of The Mary Tyler Moore Show, is so charming that Mary tells him after the audit has been concluded that she would “like to go out with” him.46 An African American IRS official in the 1972 All in the Family episode remains calmly professional as Archie displays his unconscious racism. When an IRS employee has to tell Ellen that her $5,000 refund check was issued in error, in the 1995 Ellen episode, he offers a heartfelt apology: “Sometimes IRS stands for ‘I’m really sorry’.” It would probably be a mistake, however, to take the favorable representations of IRS officials as endorsements of the tax system. In fact, some episodes suggest that IRS employees deserve sympathy precisely because they must work with a deficient tax system not of their own making. In the

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1990 Roseanne episode, one employee at the local IRS office responds to Roseanne’s claim that “no human being can really understand” the tax laws: “We don’t write the stinking laws. You got a complaint, talk to the idiots in Congress.” Some of the sympathetic portrayals are based on the recognition that, whatever the merits or demerits of the tax system, even IRS employees are human beings with lives and problems of their own. A classic example is Ruth-Anne’s auditor in the 1993 episode of Northern Exposure, who breaks down when she discovers her husband has been “sleep[ing] with his own marriage counselor.” Strongly negative portrayals of government tax officials, although uncommon, do exist. Alice’s auditor, in the 1976 Alice episode, puts his hand on Alice’s leg and says, “I think I can get your tax down to absolutely nothing, if you know what I mean.” In a 1982 episode of The Greatest American Hero, Ralph (the Hero) gives his IRS auditor a well-deserved tongue-lashing: “You enjoy the power that that little plastic laminated card with ‘IRS’ stamped on it gives you—that false sense of masculinity.”47 The supervisor at the IRS office in the Roseanne episode is insufferably arrogant and condescending. He answers Roseanne’s question by pointing to the relevant passage in the Form 1040 instructions and saying, “The answer is there in writing. Sorry there are no pictures.” Under one interpretation, these portrayals of a few “bad apples” imply no criticism of the overall design and administration of the federal income tax. After all, the occasional bad employee can be found in any large organization. It is no great stretch, however, to understand the depictions of these “bad apples” as the foundation of an argument against return-based mass taxation. If a return-based mass tax gives IRS agents great power over the average American, and if it is inevitable that at least a few agents will abuse that power, perhaps return-based mass taxation should be replaced with a system in which the average American is not required to interact with the taxing authorities.

The Income Tax in New Yorker Cartoons Since the first New Yorker cartoons appeared in 1925, the magazine has published more than two hundred cartoons focused on the federal income tax.48 The New Yorker has published over seventy thousand cartoons in its more than eight decades of existence, so the magazine’s interest in the income tax falls far short of an obsession; only about one cartoon in four hundred is concerned with the tax.49 The income tax has always been very much the tax in the minds of New Yorker cartoonists. Over the same period that the magazine published more than two hundred income tax cartoons,

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it published six sales tax–related cartoons, two cartoons involving the payroll (Social Security) tax and one property tax cartoon.50 The rather upscale audience for New Yorker cartoons is demographically distinct from the broader audience for situation comedies. Iain Topliss has described the magazine’s core readership as “affluent professionals or business people with higher education, socially well established, living in one of the great metropolitan centers.”51 As Topliss notes, “The cartoons provide special opportunities to anyone interested in the interpretation of [upper] middle-class experience.”52 Unlike tax-related sitcom episodes, the cartoons tell us little about the attitudes of lower-middle-class and middle-middleclass taxpayers. (In sitcom terms, the cartoons may tell us much about the tax views of Rob and Laura Petrie of The Dick Van Dyke Show, but they will not shed much light on the views of the Kramdens, Bunkers, and Conners.) Despite this limitation, the cartoons are an invaluable resource for exploring popular attitudes toward the federal income tax over the past eightyplus years. Cartoons before and during World War II A significant difference between the tax-related sitcom episodes and cartoons is that the first cartoons appeared well before the income tax became a mass tax during World War II. The earliest are a series of five cartoons by Helen E. Hokinson from 1929, collectively titled “The Merry Ides of March.” One cartoon features a well-dressed woman asking her tax advisor, “Wouldn’t my cook be a dependent?” In another cartoon a different (but equally well-dressed) woman tells her tax advisor, “And I always give to beggars on the street.” In a 1934 cartoon by Barbara Shermund, one ladywho-lunches remarks to another, “Of course, I’m perfectly willing to pay my income tax, but I stayed home all day on the fifteenth, and nobody came.” Proud and prosperous-looking parents in a 1936 cartoon (by Howard Bean) show off their baby to visitors and remark, “We had him just in time for the income-tax returns.” And in a classic James Thurber cartoon from 1937, a husband struggles to complete his tax return (with crumpled sheets of paper littering the floor) while his wife tells a visitor, “He says he’s just about got the government where he wants it.” In almost all the pre–mass tax cartoons, the characters are obviously people of means. (The Thurber cartoon is the only exception; depicting class distinctions was beyond Thurber’s drawing skills.) Given the affluence of the magazine’s readership, it is not surprising that the income tax was a subject of considerable interest to its readers even

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before World War II; many—possibly most—of the magazine’s readers would have been subject to the class-based income tax of the 1920s and 1930s. Although the wartime conversion of the income tax to a mass tax was not as momentous an event for the New Yorker’s readers as it was for the general population, the conversion did not go unnoticed by the magazine’s cartoonists. In a 1943 cartoon by Chon Day reflecting the introduction of wage withholding, a husband explains to his wife why his take-home pay is so modest: “But darling, there were pay-as-you-go taxes, the deduction for War Bonds, Social Security, group insurance—and I had a small beer.” A young boy in his playroom in a 1945 cartoon (Alan Dunn) is engrossed in his reading of “The Simplified Income Tax 1945.” In another 1945 cartoon (Whitney Darrow, Jr.) one stripper complains to another, “The trouble with this income-tax thing, they don’t allow us anything for depreciation.” Two wartime cartoons reflect the concerns of the rich, who were subject to the tax before the war, but at considerably lower rates. In a 1944 Alan Dunn cartoon a matron in a chauffeur-driven convertible hurls a brick at the window of the offices of the “Collector of Internal Revenue.” In another 1944 cartoon (Peter Arno) a plutocrat—apparently subject to a marginal tax rate of 92 percent (the top marginal rate in 1944 was 94 percent)—is accompanied by a beautiful young woman. The plutocrat explains to a fellow plutocrat, “She’s sort of a secretary. With the new tax setup, I figure she’s only costing me eight cents on the dollar.” After the end of World War II, the New Yorker tax cartoons take on a certain timeless quality; only a few postwar cartoons depend on the historical moment of their publication. Many cartoons published in the 1950s could just as easily have appeared in the 1990s or 2000s, and vice versa. (Consider, for example, a 2002 Mike Twohy cartoon in which a taxpayer remarks to an IRS auditor, “It’s funny how two intelligent people can have such opposite interpretations of the tax code!”) Because of the out-of-time quality of most of the postwar tax cartoons, the remainder of this summary of the cartoons is organized by topic, rather than chronologically. The Tax Audit as a Cartoon Cliché Perhaps the most notable feature of the New Yorker tax cartoons, taken as a group, is the emphasis on audits. Nearly half the cartoons are concerned with audits in one way or another, and about sixty of the cartoons—close to a third of the total—feature the same basic situation of a taxpayer confronting an auditor at his (the auditor is invariably a man) desk. Charles Addams

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defined the New Yorker cartoon genre as “violence done to the cliché,”53 and the income tax audit became a popular cliché with cartoonists. The fact that cartoonists found the audit encounter to be a useful cliché does not necessarily indicate any great audit anxiety on the part of either the cartoonists or their audience. New Yorker cartoonists and readers were probably not as concerned about being marooned on a desert island as the number of shipwreck cartoons might suggest, and the popularity of audit cartoons should be interpreted with that in mind. Moreover, once a cartoon cliché becomes established, the cliché feeds on itself. If the goal of the cartoonist is to do violence to clichés, a situation’s status as a cliché is a reason to embrace it, rather than a reason to avoid it. With these caveats in mind, it is interesting to note the relationship over time between the popularity of the audit cliché and income tax audit rates. In the 1960s, when the IRS audited about 4 percent of all individual income tax returns,54 cartoons based on the audit cliché were at their most popular. Twenty-three audit cliché cartoons appeared in that decade. In the 2000s (2000–2009), with audit rates hovering around one percent,55 the New Yorker published only one cartoon based on the audit cliché. In all decades, the audit cartoons exhibit strikingly little hostility to the IRS on the part of the cartoonists. (Not surprisingly, some of the taxpayers exhibit considerable hostility.) A few of the auditors do seem to be enjoying their jobs a little too much and for the wrong reasons. The auditor in a 1973 cartoon (by Eldon Dedini) rises from his chair, grins widely, points at the taxpayer, and shouts, “Gotcha!” In a 1972 cartoon (Joseph Mirachi) the auditor asks the taxpayer, “Mind if I show your deductions to the other fellows in the office? We like to share a laugh.” As a taxpayer walks away with a satisfied look on his face in a 1965 Robert Walker cartoon, one auditor comments to another, “These honest guys give me a pain.” In a cartoon from 1963 (Whitney Darrow, Jr.) an auditor—alone at his desk—rubs his hands while he says to himself, “Know what I’m in the mood for today? A whopping combination convention-and-vacation trip, accompanied by wife, with business expenses only partly documented.” A self-righteous auditor in a 1962 Chon Day cartoon admonishes the taxpayer, “Oh, what a tangled web we weave, when first we practice to deceive.” In none of these cartoons, however, is there any suggestion that the auditor is treating the taxpayer unfairly. Moreover, a few audit cartoons suggest the cartoonists’ sympathies are with the auditor. The auditor in a 1955 Dana Fradon cartoon tells the taxpayer, “Now, before I start, Mrs. Nesbit, I want to make it clear that I only work here.” In a 1969 cartoon by James Stevenson, the

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taxpayer consoles a distraught auditor: “I’m sorry I said what I did. Why, if it weren’t for dedicated public servants like you, our government would be in real trouble.” Audit cartoons in which the taxpayer is the butt of the joke far outnumber audit cartoons focused on the auditor. Some taxpayers display overly casual attitudes toward the facts, the law, or both. The taxpayer in a 1961 cartoon by Dana Fradon responds to the auditor, “What do you mean, ‘clarify miscellaneous’? What do you think that word is for?” The taxpayer in a 1949 Helen Hokinson cartoon tells the auditor, “Well, I get a little income from a summer cottage in Quogue, but I never thought the government would be interested in that.” In a 1951 cartoon by Whitney Darrow, Jr., the taxpayer explains, “But the doctor ordered me to take those three weeks at Hot Springs.” And the taxpayer in a 1976 cartoon (Donald Reilly) casually remarks, “Oh, maybe a dollar rounded here and there, but nothing like what you fellows are used to.” Taxpayers in other audit cartoons are bent on improperly influencing auditors, either through bribery (“Just for the hell of it, let me take you and the wife to Le Pavilion some evening, and I’ll prove to you that I can’t get out for less than sixty bucks,” proposes the taxpayer in a 1961 Dana Fradon cartoon) or abuse (“O.K., Madam, I’m a stiff-necked, niggling, stupid little bureaucrat, but that doesn’t alter the fact that you still owe the government seventy-nine dollars and thirty-two cents,” remarks the auditor in a 1957 cartoon by Whitney Darrow, Jr.). Other taxpayers rely on histrionics (“Other folks have to pay taxes, too, Mr. Herndon, so would you please spare us the dramatics!,” exclaims the auditor to the taxpayer sprawled on the floor in George Booth’s 1972 cartoon [figure 1]) or on out-of-place appeals to patriotism (“This is merely a routine audit, Mr. Gillis. No one is questioning your loyalty,” an auditor tells a taxpayer holding a large American flag in a 1962 cartoon by Robert Weber). Still other taxpayers seem to think their dissatisfaction with government-spending policies is relevant to the determination of their tax liabilities. The taxpayer in a 1973 cartoon by Mischa Richter tells the auditor, “So cut foreign aid forty bucks!” In a 1973 cartoon by Whitney Darrow, Jr., the auditor responds to the irate taxpayer, “Maybe we do bungle the spending of your tax dollar, but you’ll have to admit we do a bang-up job of collecting it.” Only two of the many audit cartoons appear to have been inspired by recent developments in tax law or tax administration. In 1998 Congress held heavily publicized hearings on alleged IRS abuses, and following the hearings enacted reform legislation intended to produce a kinder, gentler IRS.56 These developments caught the attention of New Yorker cartoonist

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1.  Cartoon by George Booth. © George Booth/The New Yorker Collection/ www.cartoonbank.com. Originally published March 18, 1972.

Mike Twohy. In one 1998 Twohy cartoon an auditor telephones a taxpayer: “Hi. This is Ed, over at the I.R.S., just checking to see how you’re feeling after your audit.” In the other 1998 Twohy cartoon, a man—it is unclear whether he is a taxpayer satisfied with his audit or an IRS employee—walks outside an IRS office holding a balloon with the message, “New Improved I.R.S.” One other aspect of the audit cartoons has no clear connection with the broader themes of this book, but is so striking that it should not go unmentioned. In thirteen of the sixteen audit cliché cartoons (featuring taxpayer, auditor, and desk) from before 1960, the taxpayer is a woman. In remarkable contrast, there is a woman taxpayer in only four of the forty-one audit cliché cartoons published from the 1960s to the present.57 If pressed for an explanation, I would suggest the following. In many of the audit cartoons the taxpayer is made to look more-or-less foolish, and in the earlier cartoons the foolishness was often of a sort associated with women by sexist tradition. (The most striking example is from a 1962 Chon Day cartoon, published in what might be viewed as the transition period between male and female taxpayers in audit cartoons. The auditor tells the matronly taxpayer, “No, Madam, I’m afraid neatness does not count.”) Before the early 1960s, New Yorker cartoonists and readers apparently found humor in cartoons exploiting (albeit fairly mildly) sexist stereotypes—in particular,

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the stereotype that women are ill equipped to deal with financial matters. The turning point for the zeitgeist may have been the 1963 publication of Betty Friedan’s best seller, The Feminine Mystique. Friedan’s 2006 New York Times obituary described her book as “ignit[ing] the contemporary women’s movement in 1963 and . . . permanently transform[ing] the social fabric of the United States.”58 After that transformation, cartoons based on sexist stereotypes may have lost their appeal to the magazine’s audience. Perhaps women nearly disappeared from post–Feminine Mystique audit cartoons because cartoonists did not want their cartoons to be interpreted as being based on sexist stereotypes. Cartoons about Tax Return Preparation and Filing The second largest category of New Yorker tax cartoons (after audit cartoons) involves tax return preparation and filing; there are about forty cartoons in this group. Beginning with the 1937 Thurber cartoon described earlier, the burden of complexity has been a major theme of the cartoons related to return preparation. A 1939 Helen Hokinson cartoon features a husband struggling to complete his return; his wife, standing near a phonograph, asks, “Would it help, dear, if I played a little Beethoven?” Both sex roles and attitudes are reversed in a 1944 Hokinson cartoon in which the wife looks up from preparing her return and remarks to her husband, “I love it! It’s like a game.” The joke, of course, is that enjoyment is a highly idiosyncratic reaction to doing one’s taxes. A 1946 cartoon by Rea Gardner makes the point that return preparation can be a miserable experience even if one’s tax liability does not feel oppressive; a wife comments to her husband as he frowns over his return, “But darling, I thought with all the new reductions, you’d enjoy it this year.” In a charming 1965 cartoon by Alan Dunn (figure 2), a school-age girl confidently explains to her uncomprehending father, “You see, Daddy, this set equals all the dollars you earned; your expenses are a sub-set within it. A sub-set of that is your deduction.” The cartoon may be more a comment on developments in mathematics pedagogy than on the complexity of the tax rules, but it does take that complexity as a given. An exasperated husband in a 1970 cartoon by Whitney Darrow, Jr., exclaims to his wife, “Ethan Allen! Patrick Henry! Nathan Hale! Davy Crockett! Can you imagine one of those guys patient enough to sit here half the night trying to make sense out of Section 1245(b) to complete Schedule D, Form 1040?” Remarkably, that 1970 cartoon—now more than forty years old—is the most recent New Yorker return preparation cartoon on the topic of tax return

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2.  Cartoon by Alan Dunn. © Alan Dunn/The New Yorker Collection/ www.cartoonbank.com. Originally published March 20, 1965.

complexity (unless one counts Roz Chast’s 1998 cartoon featuring “extrastrength Tylenol” as the Pill-of-the-Month Club’s selection for April). The disappearance of such cartoons is nicely explained by a 1977 cartoon by Al Ross, in which a husband watching television exclaims to his wife, “Oh, my God! Is it H&R Block time already?” Returns certainly have not become simpler since 1970, but apparently most New Yorker readers—like most taxpayers generally—have decided to delegate the struggle with Form 1040 to paid preparers. Several other cartoons have focused on paid tax return preparers, including a 1980 cartoon (Sam Gross) in which an organ grinder’s monkey sits behind a tiny desk next to a sign reading, “Income Tax Prepared Here.” Only one cartoon acknowledges the impact of the computer revolution on tax return preparation and filing. In a 2007 cartoon by William Haefeli, a husband looking at Internet porn explains to his wife, “I filed our tax return and now I’m celebrating.”

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Other cartoons have focused on anxieties evoked by tax return preparation and filing. Two cartoons from World War II address the risk of imprisonment for failing to satisfy one’s federal income tax obligations. In Chon Day’s 1943 cartoon, a woman filing her return in person asks a government employee, “If I made any mistakes, will I be sent to the big house?” A husband in a 1944 cartoon by Mary Petty explains to his wife, “The alternative? I understand it’s a ten-thousand-dollar fine and five years in prison. We’d get out around 1949.” Return-induced anxieties persisted in the postwar era. In a 1956 cartoon by Perry Barlow, a wife stands near her husband as he drops their completed return in a mailbox: “Now promise me—‘out of sight, out of mind.’” In Claude Smith’s 1963 cartoon, six men rush out of six neighboring houses with tax returns in their hands and worried looks on their faces, all bound for a waiting mail truck. Although the cartoon is surely a comment on procrastination (perhaps partly attributable to returnproduced anxiety), it also hints at the potential of tax return filing as a ceremony of fiscal citizenship. A 1970 cartoon by Stan Hunt suggests tax return preparation provokes anxiety not only in the preparer, but also in those around him. As a husband prepares his tax return on a public beach, his wife admonishes him, “It may be perfectly legal to do your income tax on the beach, Joslin, but I think it’s very inconsiderate of others, who are trying to relax.” Perhaps the ultimate comment on tax return–induced anxiety is Mick Stevens’s 1986 effort (figure 3), consisting simply of an April calendar on which every day is the fifteenth. In only two cartoons does the tax return–filing obligation lead taxpayers to reflections on the severity of their tax burdens. As a couple watches a movie of a cow being milked in Robert J. Day’s cartoon from 1949, the wife remarks to her husband, “By the way, our income-tax blanks arrived today.” In a 1964 cartoon by Sam Hunt, a wife advises her husband as he scowls over their tax return, “You must try not to make so much money, Ingram. You know how upset you get at income-tax time.” Four cartoons by the great Roz Chast depict imagined IRS efforts to improve the experience of preparing and filing one’s tax return. A 1985 cartoon (figure 4) features “Schedule X—Feelings.” The questions on Schedule X include: “Did you feel this was fair?”; “What was your least favorite section of this tax return?”; and “Are you still hot under the collar?” A 1988 cartoon shows three “personalized tax return mailers” (actually, greeting cards designed to accompany completed returns), including one with the message from the taxpayer to the IRS, “Happy April 15th! Don’t spend it all in one place!” “Rewards for timely filing” are illustrated in a 1993 cartoon in which the IRS appears to have been taking lessons from public radio. Rewards in-

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3.  Cartoon by Mick Stevens. © Mick Stevens/The New Yorker Collection/ www.cartoonbank.com. Originally published April 7, /1986.

clude an IRS key chain (for taxpayers in the $35,000–$45,000 tax-liability bracket), an IRS tote bag ($100,000–$199,000 bracket), and “dinner and dancing with Robert Reich” ($200,000-and-up bracket). Finally, a 1997 cartoon depicts “The 1040—F. I. Form, the Tax Return for the Financially Incompetent.” Line two of the form asks, “Did you save any receipts?” The taxpayer is to check one of three boxes: “I tried, but I just couldn’t,” “I think there’re some in a shoebox. I’ll go look,” or “No. What am I, an accountant?” For anyone interested in the fiscal-citizenship–promoting potential of the return-based income tax, the Chast cartoons (especially the first three) are fascinating. Under one interpretation, the cartoons recognize the citizenship potential of filing, and with humor and exaggeration offer constructive suggestions as to how Congress and the IRS might act to realize that potential. Under a less sunny reading, the cartoons are amusing precisely because the idea of promoting good feelings about the government through the medium of the Form 1040 seems so farfetched. One cartoon on the Form 1040—a 1999 drawing by Harry Bliss (figure 5)—is in a category of its own. It shows Moses, illuminated by a heavenly ray of light, holding a Form 1040 chiseled on two stone tablets. The

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4.  Cartoon by Roz Chast. © Roz Chast/The New Yorker Collection/ www.cartoonbank.com. Originally published February 4, 1985.

cartoon can be read as a caution to anyone who would like to believe in the possibility of a return-free federal income tax or a return-free replacement for the federal income tax. Substantive Tax Rules in the Cartoons The New Yorker tax cartoons have explored many of the substantive rules of the federal income tax. Business expense deductions have featured in a

5.  Cartoon by Harry Bliss. © Harry Bliss/The New Yorker Collection/ www.cartoonbank.com. Originally published April 19, 1999.

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number of cartoons. In Dana Fradon’s 1961 cartoon, one businessman tells another (over martinis), “The tax people have got to realize that the expense account is as American as apple pie.” An avant-garde painter preparing his tax return in his loft apartment in a 1963 Barney Tobey cartoon asks his wife (or significant other), “What proportion of the pad, would you say, do I use for business?” In a 2002 cartoon by Roz Chast, a weary taxpayer preparing his return is visited by “Itemicia, the Muse of Itemized Deductions,” who intones, “ . . . Entertainment: $38,762.53 . . . Travel: $18,255.49 . . . Media: $21,608.30 . . . Gifts. . . .” Various nonbusiness tax breaks have also been popular with the cartoonists. A 1957 cartoon by Dana Fradon is based on the dependency exemption; a man looking through the window of a hospital nursery asks another man, “Do you realize that the income-tax deductions in that room add up to a cool eighteen thousand bucks?” Roz Chast explored a variation on the same theme in a 1986 cartoon featuring several “New I.R.S. Guidelines,” including “Three cats count as one dependent.” Other cartoons have touched on the casualty loss deduction (“Good news, sweetheart! Termites are deductible,” announces a husband in Charles Saxon’s 1961 cartoon), the deduction for charitable contributions (“Masterpieces from the Golden Age of Tax-Deductible Contributions,” proclaims a banner hanging from an art museum’s façade in a 1989 Lee Lorenz cartoon), and even the credit for purchasers of hybrid automobiles (in Jack Ziegler’s 2001 cartoon, a centaur tells a human, “Being a hybrid, I get to have my way with a variety of species, and at the same time I enjoy a healthy tax credit”). Several cartoons have explored the income tax treatment of married taxpayers. In a 1955 cartoon (Garrett Price), one IRS employee tells another, “Flash! The V. Elton Craigs are making out separate returns this year!” Equally sad is a 1964 cartoon (Whitney Darrow, Jr.) in which a wife remarks to her husband, “All we ever seem to do together any more is prepare a joint return.” New Yorker cartoons have commented on both income tax bonuses for one-earner married couples (a wealthy man proposes to a woman in J. B. Handelsman’s 1972 cartoon: “On the debit side, there is a loss of personal freedom. On the credit side, there are certain legal and tax advantages. So, to make a long story short, will you marry me?”) and income tax penalties for two-earner couples (a minister asks the bride and groom in a 1993 cartoon by Arnie Levin, “And do you promise to love, honor, and cherish each other, and to pay the United States government more in taxes as a married couple than you would have paid if you had just continued living together?”). Several cartoonists have found inspiration in the fact that many noncash benefits are subject to the federal income tax. In a 1944 cartoon (Alain),

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a prospector finds a gold nugget and exclaims, “Damn it! Now I’ve got to revise my estimated income for 1944.” As they lift a treasure chest they have just discovered, two men in a 1950 George Price cartoon are greeted by a man carrying a briefcase: “Hold it, fellows! I’m from the United States Bureau of Internal Revenue!” In Danny Shanahan’s 2005 cartoon, one caveman reads a tax publication to another caveman: “Found meat is income.” One cartoon even finds humor in the fact that the income tax is imposed on a tax-inclusive basis (i.e., amounts one pays as federal income tax are included in one’s taxable income); a woman in a 1945 cartoon by Perry Barlow pleads with a tax official, “But I saved up that money little by little all year just to pay my taxes with. I don’t have to pay taxes on that too, do I?” Taxpayer Status and the Right to Express an Opinion Two cartoons play off the notion that taxpayer status gives one standing to express opinions on matters of public policy. In a 1955 cartoon by Whitney Darrow, Jr., a woman reading a newspaper over breakfast tells her husband, “Hey, Irate Taxpayer, they published your letter!” A man composing a letter to the editor in a 1975 Lee Lorenz cartoon asks his wife, “Which do you prefer—Fed-Up Taxpayer, Outraged Citizen, or just plain Disgusted?” Neither cartoon mentions what tax serves as the basis for the claimed taxpayer status, but the federal income tax is the most likely candidate. Taxes and the Rich Several cartoons—about two dozen in all—focus on the taxation of the rich. (Two from World War II have been described previously.) Rather remarkably, these cartoons express considerably more hostility (on the part of the cartoonists) to tax avoidance by the rich than the audit-related cartoons express toward the IRS. Treating personal consumption as business expenses is the theme of several cartoons. As a husband and wife drive away from a party in their Rolls Royce in a 1969 cartoon by Charles Saxon, the husband remarks, “You bet your sweet life we’re deductible. They’re deductible when they’re at our place.” Three years later, in another Saxon cartoon, a man at lavish black-tie affair proclaims, “I declare, sometimes I think our whole life is arranged for tax purposes.” In a 1963 cartoon by Robert Weber one well-dressed matron tells another, “Philip has a marvelous tax man. He’s just the teeniest bit crooked.” In Frank Modell’s 1984 cartoon a psychiatrist offers reassurance to a well-dressed older man on his couch: “Just because

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the I.R.S. might be cracking down on some tax shelters doesn’t necessarily mean they’re going to be cracking down on your tax shelter.” Several cartoons from the early 2000s, in striking contrast with the usual avoidance of sharp political commentary in New Yorker tax cartoons, are scathingly critical of proposed and actual tax cuts skewed in favor of the wealthy. A politician in a 2000 cartoon by J. B. Handelsman explains that his bill “isn’t terribly controversial,” because it merely “provide[s] modest tax breaks for people who don’t really need them.” In a 2001 Frank Cotham cartoon a peasant tells his wife, “I want to use our tax savings to buy a pair of boot-cut trousers.” A janitor in the halls of Congress, in Mort Gerberg’s 2003 cartoon, wears a shirt reading, “I sided with the President on his tax cuts, but all I got was this lousy t-shirt.” Most caustically of all, a 2004 cartoon by Edward Koren depicts an affluent woman asking a beggar, “Why don’t you just use your tax cut?” Another recurring theme is the use of one’s tax bracket as a status marker. In a 1956 Frank Modell cartoon, a wealthy older man asks a beautiful younger woman, “What do you mean, men are all alike? Do you realize, young lady, that less than one-tenth of one per cent of all the men in this country are in my income bracket?” A physician in a 1961 cartoon by William O’Brien tells his patient, “You’re in very good shape for a man in the eighty-per-cent bracket.” In a 1967 William Hamilton cartoon, an affluent older couple peruses a photo album; the husband observes, “And here we are again, way back when I was in a twenty-per-cent bracket.” And a judge tells a well-dressed defendant in Robert Mankoff’s 1985 cartoon, “You’re a disgrace to your tax bracket.” Lessons from the Cartoons So what lessons can be distilled from more than three-quarters of a century’s worth of New Yorker tax cartoons? The first—and most important—lesson is the same as the most important lesson of the tax-related sitcom episodes: that being a return-based mass tax has given the federal income tax a prominence in the public consciousness that is unrivaled by any other tax and that is out of proportion to its economic significance relative to other taxes. The return-based character of the tax is crucial to almost all the tax cartoons. This is obviously true of the cartoons concerned with tax return preparation and filing, and it is also obviously true of the tax-audit cartoons (because the average citizen is subject to the risk of audit only under return-based mass taxation). It also true—although perhaps less obviously so—of the cartoons exploring various substantive aspects of the tax laws (such as busi-

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ness and nonbusiness deductions, income inclusions, and the treatment of marriage); if the return-based character of the tax did not call the public’s attention to these substantive aspects of the tax law, there would be no New Yorker cartoons on those topics. One searches the New Yorker archives in vain, for example, for cartoons commenting on the technical rules of payroll taxes or sales taxes. It is more difficult to draw lessons about changing attitudes toward taxation from the cartoons. The types of tax cartoons do change over the decades in some ways (the decrease in the number of cartoons based on the audit cliché, perhaps in response to declining audit rates, is an example), and a few cartoons are clearly inspired by changes in the tax laws (including the cartoons responding to the increasing scope of the tax during World War II, the cartoons from the 1990s commenting on the kinder, gentler IRS, and the cartoons from the early 2000s criticizing tax cuts for the wealthy). Overall, however, the cartoons have a rather timeless character, at least compared to the tax-related sitcom episodes. In particular, the clear trend in the sitcom episodes, of increasing dissatisfaction with the federal income tax since the 1960s, is not reflected in the cartoons. There are several plausible (and mutually compatible) explanations as to why this trend is apparent in the sitcoms, but difficult or impossible to discern in the cartoons. The first explanation relates to a basic difference between the sitcom and New Yorker cartoon art forms. The typical sitcom is set in a highly particularized time and place (usually somewhere in the United States in the present), and the television medium permits the establishment of a sitcom’s setting with a wealth of realistic detail. The penand-ink single-frame New Yorker cartoon, by contrast, is necessarily much more stylized; the art form simply does not permit the same sort of anchoring to a particular time and place that is typical of sitcoms. In short, taxrelated sitcom episodes are more reflective of their eras than tax-related New Yorker cartoons because sitcoms in general are more reflective of their eras than New Yorker cartoons. A second plausible explanation relates to demographic differences between the producers and consumers of the cartoons, on the one hand, and the producers and consumers of the sitcoms, on the other. Perhaps the affluent upper-middle-class New Yorker readership has retained a more Holmesian attitude toward taxation than has the population as a whole. Finally, it may be that New Yorker cartoons—unlike sitcoms—are simply the wrong place to look for pointed critiques of anything, including the tax system. As Iain Topliss has observed, New Yorker cartoon humor is largely “benign”; “benign laughter is directed back into the group that is the subject

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of that humor.”59 Most New Yorker cartoons are intended to provoke chuckles at affectionately exposed foibles of the upper-middle class, not to express outrage about how the government (or anyone else) treats the members of the magazine’s target demographic. So which should we believe—the evidence in the sitcoms of increasing dissatisfaction with the income tax in recent decades, or the absence of such evidence in the cartoons? All three of the explanations offered above—that New Yorker cartoons are less reflective of their eras than sitcoms, that the cartoons represent the attitudes of a narrower demographic slice than do the sitcoms, and that the cartoons are less suited than sitcoms to pointed critiques of anything—suggest that the evidence in the sitcoms of increasing dissatisfaction is more probative than the absence of such evidence in the cartoons.

seven

Simplify, Simplify

As the federal income tax reaches its centennial, the return-based mass income tax (itself only seventy years old) seems to have settled into the role of a fabulous invalid. Although most taxpayers find tax return preparation unpleasant (or worse), and although there is no shortage of reform proposals that would eliminate the filing requirement for most or all Americans, since the end of World War II Congress has never come close to abandoning return-based mass taxation. Congress has become addicted to tax expenditures—to using the tax system to deliver a wide range of subsidies to the masses—and understands that the survival of mass tax expenditures depends on the survival of return-based mass taxation. Perhaps Congress would reluctantly abandon mass tax expenditures if faced with a genuine popular uprising against return-based taxation, but the discontent with Form 1040 appears to be nowhere near the level needed to produce such an uprising. In short, return-based mass taxation is likely to be with us for many more decades. Return-based mass taxation has great potential for promoting fiscal citizenship, but at present that potential is far from fully realized. This concluding chapter considers how Congress could revise the federal income tax so that it would promote fiscal citizenship more effectively.

Increasing Tax Complexity and Decreasing Fiscal-Citizenship Benefits Anecdotal evidence suggests that the fiscal-citizenship benefits of return filing were substantial for roughly the first twenty years of the mass income tax, but have sharply declined since the 1960s. Michael Graetz has described how, decades ago, his father prepared his tax return: “My father struggled

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on, viewing his duty to determine how much tax he owed the way Justice Holmes did: as the price we pay for a civilized society.”1 Lamenting that “[t]axpayers at every economic level [now] confront extraordinary complexity,” Graetz concluded that “[i]n America today, very few people share my dad’s attitude toward taxes.”2 Former Internal Revenue Service (IRS) Commissioner Mark W. Everson sounded a similar theme: “Those who seek to comply but cannot understand their tax obligations may . . . ultimately throw up their hands and say ‘why bother.’”3 The trend in tax-related situation comedy episodes over the decades is in the same direction. In 1953 Ralph Kramden’s (The Honeymooners) encounter with his tax return led him to reflect, “We’re living in a great country. This is the greatest country in the world.”4 Ten years later, Jose Jimenez (The Bill Dana Show) told a coworker, “I get a wonderful feeling out of making my income tax.”5 In 1990, however, the Conners’s (Roseanne) efforts to complete their tax return brought them to the local IRS office, where Roseanne exclaimed, “No human being can really understand these things, you know that. That’s why you’ve got to go get some $200 an hour lawyer to explain the crap to you, you know. And I can’t afford $200 an hour.”6 Opinion polling would be extremely helpful in confirming suspicions that attitudes toward return filing have deteriorated since the 1960s and that the increasing complexity of the tax laws is at least partly to blame—if only the right survey questions had been asked throughout the postwar era. Unfortunately, Gallup did not ask something close to the right question—“All in all, which of the following best describes how you feel about doing your income taxes—you love it, you like it, you dislike it, or you hate it?”—until 1990. Even this is not the ideal question, because even a moderately unpleasant encounter with Form 1040 could produce fiscal-citizenship benefits, as in the cases of Michael Graetz’s father and Ralph Kramden. The bigger problem, however, is that the question was not asked until returnbased mass taxation had existed for nearly fifty years. In any event, polling results since 1990 indicate that “doing your income taxes” is an unpleasant experience for a growing majority of taxpayers. Sixty-three percent of respondents “disliked” or “hated” doing their taxes in 1990; by 2005 that figure had risen to 75 percent.7 Certainly Justice Holmes’s view of the income tax as the price of civilization has not vanished. As described in chapter 2, the occasional op-ed contributor continues to connect income tax preparation with citizenship. In a 2010 essay in USA Today, for example, a commentator declared that he was “proud and glad to pay my income taxes.”8 On the other hand, when the 2008 John McCain presidential campaign ran a series of television ad-

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vertisements focusing on the gaffes of opposing vice-presidential candidate Joseph Biden, Biden’s claim that it would be “patriotic” for wealthier Americans to pay higher taxes was a featured gaffe.9 When a politician’s endorsement of the Holmesian view of taxpaying is widely perceived as a gaffe, the Holmesian view is in deep trouble. It is unclear how large a role the increasing complexity of the income tax has played in the declining popularity of the Holmesian view. There is good reason, however, to suspect that the potential civic benefits of the returnfiling requirement have been seriously eroded by the increasing complexity of the income tax rules applicable to most taxpayers. After spending many miserable hours satisfying their filing obligations—either by themselves or with the assistance of paid preparers—taxpayers are not likely to be basking in the warm glow of Holmesian contemplation of their fiscal citizenship. But has the income tax really become that much more complex for the typical taxpayer? Sadly, it has. The most striking evidence that taxpayers perceive the income tax to have grown more complex over the past few decades has been the near disappearance of the iconic taxpayer preparing his own return with pencil and paper. In the 1950s fewer than 20 percent of taxpayers used paid preparers.10 By 1993 paid preparers were responsible for 51 per­cent of all individual returns, while 8 percent of taxpayers did their own returns with the help of recently introduced tax return–preparation software and 41 percent continued to do their own returns the old-fashioned way.11 By 2006 the market share of paid preparers had grown to 63 percent, taxpayers using software had increased to 26 percent, and the pencil-and-paper crowd had dwindled to 11 percent.12 Although the growth in taxpayers’ use of software might be explained entirely by technological innovation rather than by increasing tax-law complexity, the impressive long-term growth in the use of paid preparers (even in the face of competition from do-ityourself software and despite increases in the inflation-adjusted cost of return-preparation services) almost certainly represents a response to increasing complexity. Increasing complexity comes in two varieties. One aspect of the new complexity is computational. In the past twenty years or so, Congress has imposed unprecedented levels of computational complexity on large numbers of taxpayers—primarily through the expanded reach of the alternative minimum tax (AMT) and the proliferation of phaseouts of credits and deductions (under which various tax benefits are reduced or eliminated for taxpayers with adjusted gross incomes above specified levels). The increase in computationally complex provisions applicable to millions of taxpayers is almost certainly explained by the development and widespread

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availability—to both taxpayers themselves and paid preparers—of returnpreparation software. The adoption of return-preparation software has reduced taxpayer (and paid preparer) resistance to computationally complex provisions, and Congress has responded to this new tax legislative environment with a flood of complexity.13 Except for the one taxpayer in ten still clinging to his pencil, the problem with computational complexity is not the number crunching itself; the taxpayer’s TurboTax software or the paid preparer’s software can effortlessly do all the required crunching in milliseconds. Rather, the problem is one of civics. To a taxpayer subject to these complex provisions, the tax system becomes a black box, producing a tax liability through some incomprehensible algorithm. As Charles McLure has remarked, a black-box tax system is “hardly a recipe for good governance in a democracy.”14 If taxpayers do not have at least a rough idea of the process through which their tax liabilities are determined, they can have no way of evaluating the fairness of the tax system, as applied either to themselves or to others. Taxation without comprehension is as inimical to democracy as taxation without representation. The solution, of course, is to repeal the provisions responsible for the black-box status of the current system—the AMT and most (perhaps all) of the phaseouts of deductions and credits. Doing this on a revenueneutral basis would require an increase in marginal tax rates. The benefit to taxpayers would not be a reduction in their aggregate tax liabilities, but an increase in the comprehensibility of the system by which their tax liabilities are determined. The other aspect of increased complexity is the growing number of widely applicable tax expenditure provisions (as described in chapter 4). These provisions burden taxpayers with the need to familiarize themselves with the array of tax breaks for which they may be eligible, and with the throughout-the-year need to keep the records required to claim the breaks. There is also the psychological burden of worrying that one may have missed some available tax breaks, as well as the accompanying concern that the tax system is unfair if it is so complex that taxpayers cannot—with a reasonable amount of effort—be confident that they have identified all the tax breaks to which they are entitled. Worry about missing tax breaks to which one is entitled is so widespread that it inspired H&R Block’s 2011 “Never Settle for Less” advertising campaign. Television commercials showed real taxpayers bringing their completed returns to H&R Block for a free second look; according to the commercials, in many cases H&R Block found legitimate tax benefits that the original return preparers had missed.15 Discussing the advertising campaign, an H&R Block executive remarked, “With tax law

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complexity, last-minute changes and tax filing delays, it’s easier than ever for taxpayers to miss valuable tax breaks . . . if they choose anything less than the best service.”16 Unlike the burdens of computational complexity, the burdens of the profusion of tax expenditures are not greatly reduced by the existence of return-preparation software and paid preparers—despite H&R Block’s claim to the contrary. Taxpayers cannot easily delegate the year-round burden of keeping the records necessary to claim special tax benefits, nor can they be fully confident that any paid preparer—even the redoubtable H&R Block—has identified every benefit they can legitimately claim. (It seems likely, therefore, that the increased use of paid preparers is explained more by the increase in computational complexity than by the proliferation of tax expenditures.) IRS research for tax year 2000 found that taxpayers who used paid preparers spent an average of 27.5 hours of their own time on return-preparation activities—such as recordkeeping, tax planning, gathering materials, and consulting with paid preparers.17 (The 27.5 hours average for users of paid preparers was actually more than the average of 18.1 hours spent by taxpayers who prepared their own returns using pencil and paper; the pencil-and-paper taxpayers generally had simpler tax situations than the taxpayers who hired paid preparers.) The typical user of a paid preparer spends the equivalent of more than three working days on the return-preparation process (broadly defined to include recordkeeping and tax planning, which may have been done many months before the actual preparation of the return). Much of the time burden of dealing with tax expenditure complexity cannot be shifted to paid preparers. The time burden is so large that it is likely to generate taxpayer hostility to the returnpreparation process and, by extension, to the income tax and to the federal government in general. A taxpayer can, of course, avoid this time burden by failing to claim the tax breaks to which he is entitled, but for obvious reasons that is not a satisfactory solution. Alleviation of this second type of complexity could be achieved by the repeal of most of the recently enacted tax expenditure provisions, and the simplification of those that remain. Drafting the necessary legislative changes would present no great technical challenges, although generating the necessary political will might be difficult indeed—especially since many new deductions and credits quickly generate their own constituencies. These constituencies are frequently more on the supply side than on the demand side; for example, significant political support for the credit for electric cars is more likely to come from manufacturers of electric cars than from potential purchasers.

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Waning Fiscal Citizenship: A Nontax Hypothesis Even if one is persuaded that tax return preparation does not produce the same fiscal-citizenship benefits today that it produced in the 1950s and 1960s—an intuitively appealing proposition with considerable anecdotal support, but probably incapable of proof—one might reject the taxcomplexity explanation in favor of an explanation based on broader social trends. As noted in chapter 3, polling indicates that “trust [in] the government in Washington to do what is right” has declined dramatically since the 1950s. Another polling question periodically asked by the University of Michigan’s American National Election Studies (ANES) tracks public attitudes toward the government’s stewardship of tax revenue: “Do you think that people in the government waste a lot of money we pay in taxes, waste some of it, or don’t waste very much of it?”18 Only 43 percent of respondents answered “a lot” in 1958, but by 1974 that answer was given by 74 per­cent of those surveyed. After reaching an all-time high of 78 percent in 1980, the “a lot” response kept in a fairly narrow range over the next two decades (with a high of 70 percent in 1994 and a low of 59 percent in both 1996 and 2000). In 2002 the 9/11 effect reduced the “a lot” response to 48 percent, but the figure bounced back to 61 percent in 2004 and 72 percent in 2008. When the identical question was asked in April 2010 in a CNN/Opinion Research poll, 74 percent of those surveyed thought the government wasted “a lot” of money.19 The polling results indicate that during the 1950s and 1960s the government enjoyed a level of public trust (both in general and with respect to its stewardship of tax dollars) that it has not enjoyed since and may never enjoy again. If a high level of trust in government is necessary for the realization of the fiscal-citizenship benefits of tax returns, and if that trust no longer exists—perhaps for reasons having little or nothing to do with the tax system itself—then the tax return filing requirement can no longer serve its civic purpose, with or without tax simplification. What are the causes of the decline in trust in government since the 1960s? Political scientists agree on many of the factors that increase and decrease trust levels, and most of their conclusions are consistent with what one might expect. Trust in government tends to be higher when the public is generally satisfied with federal policies, when the economy is strong, when the country is faced with a serious external threat, when media negativity is low, when the president is personally popular, and when there are no major political scandals.20 These factors explain and predict short-term ups and

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downs in trust in government, but they are less helpful with respect to the dramatic long-term downward trend. Marc J. Hetherington argues that the major culprit in the long-term decline is the redistributive Great Society legislation enacted in the 1960s.21 According to Hetherington, the prominence in the minds of taxpayers of redistributive federal programs has transformed taxpayers’ perceptions of the federal government. Instead of understanding the federal government as being run for the benefit of the taxpayer and persons resembling the taxpayer, the average taxpayer now understands the federal government to be run primarily for the benefit of others less well off. Hetherington claims that “Americans express much less trust in the federal government today than decades ago because they are now evaluating the government based on their feelings about redistribution and foreign-aid programs rather than the more universal programs like Social Security, defense, and Medicare.”22 A different dynamic is suggested by Robert D. Putnam in Bowling Alone, his comprehensive study of the tremendous decline in “social capital”—“social networks and the networks of reciprocity and trustworthiness that arise from them”23—in the United States in the last third of the twentieth century. As Putnam documents, this decline is traceable in everything from voting in presidential elections, to involvement in community organizations, to church attendance, to social visiting, to social trust (i.e., trust in strangers). Although Putnam is careful to explain that social capital and social trust are theoretically distinct from trust in government,24 he acknowledges that, as a practical matter, there is likely to be a close connection between declining social capital and declining trust in government. He writes: “It is commonly assumed that cynicism toward government has caused our disengagement from politics, but the converse is just as likely: that we are disaffected because as we and our neighbors have dropped out, the real performance of government has suffered. As Pogo said, ‘We have met the enemy and he is us.’”25 Attributing declining trust in government to declining social capital fits the data quite well. Putnam identifies the mid-1960s as the high-water mark of American social capital, and trust in government in the ANES surveys reached its all time high (77 percent) in 1964. Putnam sketches the consequences for the tax system of declining social capital: My willingness to pay my share [of taxes] depends crucially on my perception that others are doing the same. In effect, in a community rich in social capital, government is “we,” not “they.” In this way social capital reinforces

118 / Chapter Seven government legitimacy. I pay my taxes because I believe that most other people do, and I see the tax system as basically working as it should. Conversely, in a community that lacks bonds of reciprocity among its inhabitants, I won’t feel bound to pay taxes voluntarily, because I believe that most people cheat, and I will see the tax system as yet another broken government program, instituted by “them,” not “us.”26

Beyond the impact on voluntary compliance identified by Putnam, declining social capital also undermines the potential fiscal-citizenship benefits of return-based mass taxation. As social capital declines, preparing a tax return becomes less likely to lead to Holmesian reflections on taxes as the price of civilization and more likely to lead to resentment over the tax burdens (in terms of both tax dollars and costs of compliance) imposed by “them.” Putnam describes several causes of the massive decline in social capital. He suggests that a small portion of the decline—no more than 10 percent— is due to the emergence of families with two full-time earners, and that another small portion—again, 10 percent or less—is attributable to increased commuting time caused by suburban sprawl.27 To the extent that these two causes are significant, there is a bit of irony here, because the substance of the income tax rules has had something to do with both the growth in the number of two full-time wage earners and increasing sprawl. Part-time work is much more conducive to the development of social capital than full-time work, but the income tax nondeductibility of most employment-related expenses has contributed significantly to the unattractiveness of most parttime employment options.28 Similarly, the tax subsidy for home ownership provided through the home mortgage interest deduction has encouraged sprawl, thereby leading to longer commuting times and reducing time available for the development of social capital.29 Thus the income tax rules governing employment-related expenses and home ownership contributed to declining social capital, which led to reduced trust in government, which then led to a reduction in the fiscal-citizenship benefits of tax returns. But there are other causes of the decline in social capital, more important than either two-earner families or land-use patterns. Putnam estimates that a quarter of the drop in civic engagement is explained by increased time spent watching television.30 Finally, Putnam identifies generational change as the single most important cause of declining social capital: “It is as if the postwar generations were exposed to some anti-civic X-ray that permanently and increasingly rendered them less likely to connect with the community.”31 The generation that came of age during or shortly before

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World War II was more civically engaged than its successors partly because its civic habits were formed in the context of the heightened sense of civic obligation produced by wartime conditions and partly because it was the last generation not to be exposed to the anticivic influence of television during its formative years.32 Although Hetherington’s explanation of declining trust in government (based on distrust of redistributive federal programs) and the Putnaminspired explanation (based on declining social capital) are quite different, for present purposes they share an important feature—they both suggest that, if the Holmesian (and Kramdenian) response to doing one’s taxes is more-or-less a thing of the past, it is because of forces outside the tax system. If that is right, then no amount of tax return simplification could reproduce the warm civic glow Ralph Kramden experienced as he completed his return. There are several points to consider, however, before giving in to this counsel of despair. First, trust in government is likely to recover, at least to some extent, from its current low level. Despite the long-term decline in trust in government since the 1960s, there have been several significant upturns in trust in recent decades. Trust increased for a time during the 1980s (President Reagan’s “Morning in America”), again for a time during the 1990s (President Clinton’s strong economy), and briefly but very impressively in the early 2000s (in response to the perceived post-9/11 terrorist threat). Although the post-9/11 increase in trust dissipated within a few years, it might have lasted longer in the absence of the perceived mishandlings of the Iraq War and the response to Hurricane Katrina. But the realization of the fiscal-citizenship potential of tax returns need not wait upon a renaissance of trust in government. Tax return preparation can produce fiscal-citizenship benefits even if the process does not leave taxpayers thinking warm and fuzzy thoughts about the federal government. It would be wonderful if the tax return–inspired thoughts of citizenship were all similar to those of Ralph Kramden—that we are living in a great country, with a great government, which we are proud to support with our tax dollars—but returns can promote fiscal citizenship without inspiring such rapture. Consider the analogy to voting as the other great ceremony of citizenship. Many an enthusiastic vote has been cast in a negative frame of mind—in opposition to the candidate not chosen, rather than in support of the chosen candidate—yet no one would deny that “throw the bums out” voting can be an important exercise of political citizenship. (Nonvoting, rather than negative voting, is the great threat to voting as an exercise of political citizenship.) Similarly, when a taxpayer who is unhappy with the

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federal government’s spending priorities prepares his tax return and finds his attention thereby focused on the tax system and on government spending, that focusing of attention is a fiscal-citizenship benefit even if the result is focused disgruntlement. If the experience inspires him to join in political efforts to change federal-spending priorities, the return-filing process has achieved its citizenship-promoting objective. Just as a negative voter remains very much a political citizen, an unhappy taxpayer remains very much a fiscal citizen. Just as negative voters (usually) view themselves as full political citizens even when election results do not go their way, a return-filing taxpayer can understand himself as a full fiscal citizen despite his dissatisfaction with how Congress spends tax dollars. Voting is an act of political citizenship and an important civic ceremony, without regard to whether one is pleased by the outcome of the election; paying one’s income tax is an act of fiscal citizenship and an important civic ceremony, without regard to whether one is satisfied with federal spending policies. Every year since 2002, the IRS Oversight Board has commissioned a survey of taxpayer attitudes. One survey question is directly concerned with fiscal citizenship. The question asks respondents whether they agree with the statement, “It is every American’s civic duty to pay their [sic] fair share of taxes.” 33 The percentage “completely” or “mostly” agreeing has held almost steady over the years, never falling below 94 percent or rising above 97 percent. (It is clear in context that most respondents did not interpret “their fair share of taxes” to mean “what they feel is a fair amount.” Another question in the survey asked whether respondents agreed that “[t]axpayers should just have to pay what they feel is a fair amount”; in the 2011 survey only 28 per­cent of respondents “completely” or “mostly” agreed.) The steadiness of the overwhelming acknowledgment of the civic duty to pay taxes is in striking contrast with the sharp decline in trust in government over the same period. In the 2002 ANES survey 56 percent of respondents expressed trust in government, while in the 2002 IRS Oversight Board survey 95 percent of respondents agreed (“completely” or “mostly”) on the civic duty to pay taxes. By 2009 trust in government had collapsed to around 25 percent,34 but agreement on the civic duty to pay taxes was still at 95 percent. The obvious explanation for the failure of the responses to the two questions to move in tandem is that opinions about fiscal citizenship are bedrock beliefs and do not depend to any significant extent on attitudes to the current Congress and president. In short, a return to the civic attitudes of the 1950s—a miraculous resurgence of trust in government, perhaps accompanied by a craze for “I

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like Ike” buttons—is not a prerequisite for the realization of the fiscalcitizenship potential of tax returns. What is necessary, however, is a reasonably simple, comprehensible, and transparent tax system. Constructive reflections on fiscal citizenship—of either the government-is-wonderful or the I-must-become-politically-active-to-influence-federal-spending variety—are unlikely to flow from the return-preparation process if the experience with Form 1040 leaves the taxpayer enraged and bewildered by complexity. Again, there is a voting analogy. One does not feel politically disenfranchised merely because one’s candidate loses. But one does feel disenfranchised if one is unable to obtain the information about candidates necessary to cast a thoughtful vote, or if one is so confused by the ballot that one is unsure how to vote for one’s favored candidate. Overwhelming complexity in return preparation undermines fiscal citizenship in much the same way that inadequate information and mystifying ballots undermine political citizenship. What is needed, then, is not an end to return-based taxation, but a simpler and more transparent return-based system. This defense of return-based mass taxation may seem congenial to those large corporations—especially H&R Block and Intuit (proprietor of TurboTax)—whose profits depend on return-based mass taxation. Michael Graetz has reported that when he first suggested (in print) replacing the income tax with a value-added tax (VAT) for 150 million taxpayers, he almost immediately “received a call from Robert A. Weinberger, vice president and Washington representative for H&R Block. . . . He wanted to buy me lunch and explain to me how bad it would be for the country if all those people did not have to file tax returns.”35 Will the publication of this book inspire, instead, a congratulatory phone call from Mr. Weinberger or his successor? It seems unlikely, at least if he or she reads the next few pages. In its congressionally mandated 2003 report, Return-Free Tax Systems: Tax Simplification is a Prerequisite, the Treasury Department identified and discussed two types of “return-free” income tax systems: a genuinely returnfree system based on exact withholding, and a so-called “return-free” system based on “tax agency reconciliation.”36 Under the second type of system the IRS would prepare a tentative return for the taxpayer based on data it receives from third parties (such as employers and payers of interest). The taxpayer reviews the tentative return, and can either file it as drafted by the IRS, or revise it as the taxpayer sees fit. Filing the tentative return without revision is possible only if the taxpayer claims the standard deduction (rather than itemizing deductions) and is legitimate only if all of the taxpayer’s income comes from sources subject to information reporting. Because of

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these limitations, only about 40 percent of taxpayers could file unrevised tentative returns (assuming no changes in substantive law, such as a major increase in the standard deduction).37 It is clear even from this brief description that “return-free” is a misdescription of tax agency reconciliation, but the use of the inaccurate “return-free” label for this sort of system is common. An otherwise excellent 2006 proposal for such a system features the self-contradicting title, The “Simple Return”: Reducing America’s Tax Burden Through Return-Free Filing.38 There is currently no tax agency reconciliation option for taxpayers under the federal income tax, but a system of this sort was introduced in California in 2004 under the name “ReadyReturn.” The program has had only limited success. Although ReadyReturn has received very favorable reviews from the taxpayers who use it,39 for tax year 2008 (for example) of more than 1.9 million eligible taxpayers only about 60,000 took advantage of the program.40 Although ReadyReturn is not really return free, its users have no need to purchase tax return–preparation services or software. Because of this, it was not popular with the tax return–preparation industry. After California’s Franchise Tax Board (F TB) introduced ReadyReturn as a pilot program, without explicit legislative authorization, legislation was introduced to provide the program with statutory authorization and to make it permanent. Intuit vehemently opposed the bill, and the bill died without a vote in the 2006 session of the California legislature.41 Eventually the FTB obtained legal opinions that ReadyReturn did not require explicit statutory authorization. Armed with those opinions, the FTB continued the program while legislative leaders indicated they would not interfere.42 What would be the merits or demerits, in fiscal-citizenship terms, of a widely available tax agency reconciliation option for federal income taxpayers? Tax lawyer William J. Kambas takes a dim view of the citizenship implications of tax agency reconciliation. He claims that it “tilts the scales from guidance toward relief from responsibilities[,] . . . risks the reduction of taxpayer awareness of the fiscal process and thereby risks the dilution of responsible fiscal citizenship.”43 This would be an apt criticism of a truly return-free system, but it is not a fair critique of tax agency reconciliation. A taxpayer presented with a tentative agency-prepared return would examine the return, make any changes the taxpayer deemed appropriate, sign the return, and send it in. Withholding would continue to be inexact, so a taxpayer would continue to compare her tax liability with her withholding and either request a refund or pay tax with the return. All this should be more than sufficient to retain the sense of tax filing and taxpaying as important aspects of civic participation. It should also be more than sufficient to produce

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the level of tax consciousness necessary for return-based mass income taxation, coupled with inexact withholding, to serve as a compromise between proponents of big and small government. The level of taxpayer participation in the return-filing process under tax agency reconciliation is not radically different from the level of participation of those taxpayers—more than six out of ten—who use paid preparers under the current system. If the level of participation in the filing process required of taxpayers who use paid preparers is sufficient to produce the civic benefits of a return-filing mandate, then the level of participation required of taxpayers using a tax agency reconciliation system should also be sufficient. It is true that a tax agency reconciliation system demands less of a taxpayer than the use of a paid preparer, in terms of information gathering and out-of-pocket expenditures, but the core aspects of a filing requirement—reviewing and signing the return, as well as reconciling one’s withholding with one’s actual tax liability—all remain. But tax agency reconciliation is not merely compatible with the fiscalcitizenship benefits of return-based taxation; it is actually fiscal citizenship enhancing. The fiscal-citizenship benefits of the filing process would increase under agency reconciliation, compared with either using a paid preparer or preparing the return oneself, because most of the negative feelings engendered by grappling with complexity (or paying a surrogate to do so) would be eliminated. In short, the introduction of tax agency reconciliation (for taxpayers with simple income tax situations), accompanied by a general simplification of the income tax (including the rules applicable to taxpayers with situations too complicated for tax agency reconciliation), might restore the virtues of a return-based income tax as an exercise in participatory democracy. There is another promising route—in addition to a general simplification of the income tax—to improving the return-filing experience for those taxpayers with returns too complex for tax agency reconciliation. As most income taxpayers know from personal experience—whether they prepare their own returns or hire paid preparers—a significant amount of the hassle of return preparation arises simply from the need to assemble a large quantity of data from different sources. Most of this information—concerning, among other things, wages, investment income of various sorts, income from sales of securities, state income taxes paid and state income tax refunds received, and home mortgage interest paid—is currently furnished by third parties to both taxpayers and the IRS. It is not easy, however, for the typical taxpayer to pull together the necessary pieces of paper (or to cull the information from the websites of the various third parties) at return-preparation time.

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This hassle would be eliminated if the IRS were to provide a secure online database where individuals could retrieve and download into their returns all their tax information reported to the IRS by third parties.44 As noted in 2010 by the President’s Economic Recovery Advisory Board, by “[e]liminating much of the paperwork needed to prepare taxes [such a data retrieval system] would save time, decrease taxpayer frustration, and reduce errors in transcription and other mistakes.”45 This is a modest proposal. In contrast with tax agency reconciliation, the data-retrieval proposal is only about data; it does not contemplate a government-prepared tentative return. Moreover, a data-retrieval system would do nothing to simplify the substance of the income tax rules. The system would not even resolve all data retrieval problems; charitable contributions, for example, would not be part of the data-retrieval system, because charities are not required to report contributions received from particular taxpayers to the IRS. Despite these limitations, the proposal is attractive for its broad applicability and for its probable political feasibility. It would simplify the return-preparation process for all taxpayers (not just those eligible for tax agency reconciliation) and would do so without requiring any substantive (and therefore controversial) changes in the income tax. Taken together, the three reforms suggested here—substantive tax simplification, tax agency reconciliation for taxpayers with simpler tax situations, and online tax data retrieval for everyone—have real potential to improve Americans’ attitudes toward tax return preparation and thus restore the fiscal-citizenship benefits of return-based mass taxation. Even if the United States has become too pervasively cynical for hope to survive that any taxpayer will ever again give a speech like Ralph Kramden’s as he signs his tax return, it is not too late for the United States to realize the fiscal-citizenship potential of Form 1040.

Notes

C h a p t e r On e

1.

Neal Boortz and John Linder, The FairTax Book: Saying Goodbye to the Income Tax and the IRS (New York: Regan Books, 2005), 50. 2. Michael J. Graetz, 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States (New Haven: Yale University Press, 2008). 3. Department of the Treasury, Report to the Congress on Return-Free Tax Systems: Tax Simplification is a Prerequisite (Washington, DC: Department of the Treasury, 2003), 2. 4. Tax Reform Act of 1986, Pub. L. No. 99–514, § 1582, 100 Stat. 2085, 2766 (1986); and Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105– 206, § 2004, 112 Stat. 685, 726 (1998). 5. Internal Revenue Service, Current Feasibility of a Return-Free Tax System (Washington, DC: Internal Revenue Service, 1987); Treasury, Return-Free Tax Systems. 6. Joel Slemrod and Jon Bakija, Taxing Ourselves: A Citizen’s Guide to the Debate over Taxes, 4th ed. (Cambridge: MIT Press, 2008), 161. 7. Ibid. 8. Ibid. 9. Dennis J. Ventry, Jr., “Intuit Uses Clout to Stymie State Tax Innovation,” Sacramento Bee, October 6, 2009, 11A. 10. Treasury, Return-Free Tax Systems, 8. 11. Compania General de Tabacos de Filipinas v. Collector of Internal Revenue, 275 U.S. 87,100 (1927) (Holmes, J., dissenting). 12. Eileen Kinsella, “Lace Up Those Dancing Shoes, Grab Your 1040—It’s Tax Time!,” Wall Street Journal, April 15, 1997, B1. 13. Testimony of Mark W. Everson, Commissioner of Internal Revenue, Before the President’s Advisory Panel on Federal Tax Reform (March 3, 2005), 2. 14. Ibid., 4. 15. A description of the ReadyReturn program can be found at https://www.ftb.ca.gov /readyReturn/index.asp. 16. For purposes of providing an environment conducive to the growth of tax expenditures, return-based mass taxation is needed. It is not crucial that the base of the tax be income; a return-based mass tax imposed on consumption would also have promoted the proliferation of tax expenditures. 17. Saul Levmore, “ Taxes as Ballots,” University of Chicago Law Review 65 (1998): 387–431.

126 / Notes to Pages 8–17 18. David Marc, Comic Visions: Television Comedy and American Culture (Boston: Unwin Hyman, 1989), 19. C h a p t e r Tw o

1. Eric Toder, “Changes in Tax Preparation Methods, 1993–2003,” Tax Notes 107 (2005): 759. 2. Michael J. Graetz, The Decline (and Fall?) of the Income Tax (New York: W. W. Norton, 1997), 81. 3. John L. Guyton et al., “ The Effects of Tax Software and Paid Preparers on Compliance Costs,” National Tax Journal 58 (2005): 441, table 1. 4. Cliff Stearns, “Stearns Bill Would Repeal Wage Withholding Rules,” Tax Notes 71 (1996): 915. 5. Testimony of Milton Friedman Before the President’s Advisory Panel on Federal Tax Reform (March 31, 2005), 113–14. 6. Testimony of Grover Norquist Before the President’s Advisory Panel on Federal Tax Reform (May 17, 2005), 119–21. 7. Statement attributed to Jean Baptiste Colbert, quoted in Jeffery L. Yablon, “Certain as Death—Quotations about Taxes,” Tax Notes 110 (2006): 123. 8. The grand Left-Right compromise of the return-based income tax with inexact withholding resembles, in some respects, the long-standing bipartisan rejection of a federal VAT. Those on the Left have tended to oppose a VAT on the grounds that it would be regressive, whereas those on the Right have opposed a VAT because of its tremendous revenue-raising potential. Reuven S. Avi-Yonah, “Symposium on Designing a Federal VAT: Part I: Summary and Recommendations,” Tax Law Review 63 (2010): 288. 9. Credit for clearly distinguishing between the two types of tax salience belongs to David Gamage and Darien Shanske; see David S. Gamage and Darien Shanske, “ Three Essays on Tax Salience: Market Salience and Political Salience,” Tax Law Review 65 (2011): 19–98. 10. Brian Galle, “Hidden Taxes,” Washington University Law Review 87 (2009): 112. 11. Ibid., 98–100 (reviewing the empirical literature on the relation between tax saliency and size of government). 12. Internal Revenue Service, “Selected Historical and Other Data,” Statistics of Income Bulletin 27 (2007): 254, table 9 (“Number of Individual Income Tax Returns, by Type of Tax Settlement, Tax Years 1950–2005”). 13. Lee Anne Fennell, “Hyperopia in Public Finance,” in Behavioral Public Finance, ed. Edward J. McCaffery and Joel Slemrod (New York: Russell Sage Foundation, 2006), 151. 14. Marjorie E. Kornhauser, “Doing the Full Monty: Will Publicizing Tax Information Increase Compliance?,” Canadian Journal of Law and Jurisprudence 18 (2005): 95–118. 15. But see James T. Sparrow, “‘Buying Our Boys Back’: The Mass Foundations of Fiscal Citizenship in World War II,” Journal of Policy History 20:2 (2008): 263–86 (describing the mass marketing of war bonds and the introduction of the mass income tax as the starting point of widespread fiscal citizenship); Ajay K. Mehrotra, “ The Price of Conflict: War, Taxes, and the Politics of Fiscal Citizenship,” Michigan Law Review 108 (2010): 1053–78 (reviewing Steven A. Bank, Kirk J. Stark, and Joseph J. Thorndike, War and Taxes [Washington, DC: Urban Institute Press, 2008]); and Richard A. Musgrave, “Clarifying Tax Reform,” Tax Notes 70 (1996): 732 (“Moving to a wholly depersonalized [tax] system [such as a VAT] would reduce taxpayer awareness of the fiscal process and thereby dilute responsible fiscal citizenship.”).

Notes to Pages 17–20 / 127 16. “Roosevelt and Doughton Letters and Morgenthau’s Note,” New York Times, August 3, 1941, 33. 17. Ajay K. Mehrotra, “Lawyers, Guns, and Public Moneys: The U.S. Treasury, World War I, and the Administration of the Modern Fiscal State,” Law and History Review 28 (2010): 223 (citing Richard T. Ely, Taxation in American States and Cities [New York: T. Y. Crowell, 1888] and Edwin R. A. Seligman, The Income Tax [Norwood: Norwood Press, 1911]). 18. Irving Berlin, “I Paid My income Tax Today” (1942), quoted in Carolyn C. Jones, “Mass-Based Income Taxation: Creating a Taxpaying Culture, 1940–1952,” in Funding the American State, 1941–1995, ed. W. Elliot Brownlee (Cambridge: Woodrow Wilson Center Press, 1996), 122. 19. Transcript of radio address in letter of Randolph Paul to Henry Morgenthau, Jr., March 17, 1943, in Henry Morgenthau, Jr., Diaries, 617: 83, quoted in Sparrow, “Buying Our Boys Back,” 276. 20. “ Taxes in a Democracy,” New York Times, October 17, 1945, 16. 21. Sparrow, “Buying Our Boys Back,” 266. 22. The Adventures of Ozzie and Harriet, “Income Tax” (first broadcast, March 7, 1949). 23. Life with Luigi, “Income Tax Season” (first broadcast, March 7, 1950); Hey, Jeannie, “Jeannie’s Income Tax” (first broadcast, March 7, 1957); The Bill Dana Show, “A Tip for Uncle Sam” (first broadcast, January 8, 1963). 24. Cass R. Sunstein, “Beyond the Republican Revival,” Yale Law Journal 97 (1988): 1567. 25. Ibid., 1552. 26. Ibid., 1555. 27. Ibid., 1556. 28. Hugh J. Ault and Brian J. Arnold, Comparative Income Taxation: A Structural Analysis, 3d. ed. (New York: Aspen, 2010), 432. 29. Cook v. Tait, 265 U.S. 47, 56 (1924). 30. In fiscal-citizenship terms, its return-free character is not the only strike against the payroll tax. The payroll tax is dedicated to the financing of Social Security retirement benefits and Medicare, rather than to the financing of the federal government generally. The government encourages payers of the payroll tax to think of it as a form of retirement savings, rather than as a true tax. For example, the Social Security Administration’s website formerly had a section for “kids and families,” which explained that “[s]ince each worker pays Social Security taxes, each worker earns the right to receive Social Security benefits without regard to need.” Social Security Administration, “Frequently Asked Questions: How Does It Work?”; http://www.ssa.gov/kids .workfacts.htm (accessed March 17, 2005). To the extent that one understands the payroll tax as mandatory retirement savings—creating an entitlement to the eventual receipt of retirement benefits—one will not think of it as a true tax. A tax that is not viewed as a true tax by millions of taxpayers on whom it is imposed is obviously not the ideal vehicle for promoting the fiscal-citizenship benefits of taxation. 31. U.S. Const. art. I, § 2, cl. 3; and U.S. Const. art. I, § 9, cl. 4. Although there is considerable debate about the constitutional meaning of “direct” taxes, real property taxes are at the uncontroversial core of the concept. Under the apportionment requirement, if Congress were to impose a federal real property tax, and if New Hampshire had exactly twice the population of Vermont, then the federal tax imposed on New Hampshire property would have to be exactly twice the tax imposed on Vermont property. Unless New Hampshire property happened to be worth exactly twice as

128 / Notes to Pages 21–27 much as Vermont property (a virtual impossibility), this would require a different tax rate for New Hampshire property than for Vermont property. Multiply the problem by fifty, and a federal real property tax is obviously unworkable. 32. 392 U.S. 83 (1968). The court significantly narrowed the scope of taxpayer standing in Hein v. Freedom from Religion Foundation, Inc., 551 U.S. 587 (2007) (limiting Flast standing to challenges to federal spending authorized by specific congressional enactment, thus denying standing for challenges to discretionary spending decisions of the Executive Branch), and again in Arizona Christian School Tuition Org. v. Winn, 131 S. Ct. 1436 (2011) (holding that tax credits for religious school tuition did not constitute government spending for purposes of Flast). 33. Minor v. Happersett, 88 U.S. 162, 172–73 (1875) (summarizing voting qualifications under the laws of the several states at the time the Constitution was adopted). 34. Linda K. Kerber, No Constitutional Right to be Ladies: Women and the Obligations of Citizenship (New York: Hill and Wang, 1998), 81–123. 35. Elizabeth Cady Stanton, Susan B. Anthony, and Matilda Joslyn Gage, eds., History of Woman Suffrage (Rochester: Susan B. Anthony, 1886), 2:168–69, quoted in Kerber, No Constitutional Right to be Ladies, 98. 36. Kerber, No Constitutional Right to be Ladies, 100–01. 37. Ibid., 117. 38. Frederic D. Ogden, The Poll Tax in the South (Tuscaloosa: University of Alabama Press, 1958). 39. 302 U.S. 277 (1937). 40. 383 U.S. 663 (1966). 41. 383 U.S. 666. 42. 383 U.S. 684–85. 43. Edwin R. A. Seligman, Essays in Taxation (New York: Columbia University Press, 1895), 72. 44. For a recent philosophically sophisticated discussion of taxes as the price of civilization, see Liam Murphy and Thomas Nagel, The Myth of Ownership: Taxes and Justice (New York: Oxford University Press, 2002). 45. This point is central to—and is emphasized in the title of—Bruce Bartlett’s widely read recent book on tax reform. Bruce Bartlett, The Benefit and the Burden: Tax Reform—Why We Need It and What It Will Take (New York: Simon and Schuster, 2012). 46. Sunstein, “Beyond the Republican Revival,” 1567. 47. Ibid., 1549. 48. Arthur Krock, “The Political Aspect of Tax Reduction,” New York Times, October 5, 1945, 22. 49. Kornhauser, “Doing the Full Monty,” 109–10. 50. David Kendall and Jim Kessler, “A Taxpayer Receipt,” Third Way Idea Brief, September 2010, 2–3. 51. Ethan Porter, “Can’t Wait ’Til Tax Day!,” Democracy: A Journal of Ideas 16 (Spring 2010): 118. 52. Barack Obama, “Obama’s Second State of the Union (Text),” New York Times on the Web, January 26, 2011, www.nytimes.com/2011/01/26/us/politics/260bama-text .html?_r=1&scp=7&sq=state+of+the+union+&st=nyt (accessed April 12, 2012). 53. White House, “Your Federal Taxpayer Receipt,” www.whitehouse.gov/2011-tax ­receipt (accessed April 12, 2012).

Notes to Pages 27–33 / 129 54. Roberton Williams, “Who Pays No Income Tax?,” Tax Notes 123 (2009): 1583. 55. Tax Policy Center, “Table T11–0173, Tax Units with Zero or Negative Tax Liability, 2004–2011” (June 14, 2011), http:www.taxpolicycenter.org/numbers/Content /PDF/T11–0173.pdf (accessed March 7, 2012). The center’s estimates for 2010 and 2011 are modestly lower—49.5 percent in 2010 and 46.4 percent in 2011. 56. American Recovery and Reinvestment Act of 2009, Pub. L. No. 111–5, 123 Stat. 115 (2009). 57. Tax Policy Center, “Tax Units with Zero or Negative Tax Liability, 2004–2011.” 58. Economic Stimulus Act of 2008, Pub. L. No. 110–185, 122 Stat. 613 (2008). 59. Michael Parisi, “Individual Income Tax Returns, Preliminary Data, 2008,” Statistics of Income Bulletin 29 (2010): 6–7, figure A (with data for tax year 2008); and Adrian Dungan and Kyle Mudry, “Individual Income Tax Returns and Shares, 2007,” Statistics of Income Bulletin 29 (2010): 19, figure A (with data for tax years 1986–2007). 60. Stephen Ohlemacher, “Nearly Half of U.S. Households Escape Fed Income Tax,” Associated Press Financial Wire, April 7, 2010, accessed March 7, 2012, LexisNexis “News” file. 61. Fox News Network Transcript 040703cb.260, April 7, 2010, accessed March 7, 2012, LexisNexis “News” file. 62. Scott A. Hodge, “Why More Americans Pay No Income Tax,” CNN.com, April 15, 2010, http://ac360.blogs.cnn.com/2010/04/15/why-more-americans-pay-no-incometax (accessed March 7, 2012). 63. Editorial, “When 47% Don’t Pay Income Tax, It’s Not Healthy for USA,” USA Today, April 16, 2010, 10A. 64. “Romney’s Speech from Mother Jones Video,” New York Times on the Web, Septem­ ber 19, 2012 65. Jim Rutenberg and Ashley Parker, “Romney Stands behind Message Caught on Video,” New York Times, September 19, 2012, A1. 66. Tax Policy Center, “Tax Units with Zero or Negative Tax Liability, 2004–2011.” 67. Eric Toder and Rachel Johnson, “Held Harmless by Higher Income Tax Rates?” Tax Notes 126 (2010): 1115 (estimating that, although 45 percent of households would have zero or negative federal income tax liabilities for 2010, only 34 percent of tax units would be unaffected by a one-percentage–point increase in income tax rates). 68. Tax Policy Center, Table “T09–0333, Tax Units with Zero or Negative Tax Liability, 2009–2019” (July 1, 2009), http://www.taxpolicycenter.org/numbers/Content/PDF /T09–0333.pdf (accessed March 7, 2011). 69. Edward J. McCaffery and Jonathan Baron, “The Humpty Dumpty Blues: Disaggregation Bias in the Evaluation of Tax Systems,” Organizational Behavior and Human Decision Processes 91 (2003): 230–42. 70. I thank Eric Zolt for this suggestion. 71. S. Rep. No. 94–36, at 11 (1975), reprinted in 1975 U.S.C.C.A.N. 54, 63–64. 72. Lily L. Batchelder, Fred. T. Goldberg, Jr., and Peter R. Orszag, “Efficiency and Tax Incentives: The Case for Refundable Tax Credits,” Stanford Law Review 59 (2006): 68. 73. Nancy Staudt has suggested this; Nancy C. Staudt, “Taxation Without Representation,” Tax Law Review 55 (2002): 585–86. 74. Janet Holtzblatt, “Choosing Between Refundable Tax Credits and Spending Programs,” Proceedings of the Annual Conference on Taxation 93 (2001): 116–24. 75. Lawrence Zelenak, “ Taxes or Welfare? The Administration of the Earned Income Tax Credit,” UCLA Law Review 52 (2005): 1915.

130 / Notes to Pages 33–36 76. Elaine Maag, “Why We Run Subsidies through the Tax System,” Tax Vox Blog, April 19, 2010, http://taxvox.taxpolicycenter.org/2010/04/19/why-we-runsubsidies-through-the-tax-system (accessed June 11, 2012). 77. Eric Toder, “Was Don Alexander Right: Should We Stop Using the IRS to Run Social Programs?” Tax Vox Blog, April 19, 2010, http://taxvox.taxpolicycenter .org/2010/04/19/was-don-alexander-right-should-we-stop-using-the-irs-to-run­social-programs (accessed June 11, 2012). 78. Mark Steyn, “ Tax Season,” National Review Online, April 10, 2010, http://nationalreview .com/articles/229517/tax-season/mark-steyn (accessed March 7, 2012). 79. George Stephanopoulos, World News with Diane Sawyer, April 15, 2010, transcript accessed March 7, 2012, LexisNexis “News” file. 80. Lydia Saad, “Tea Partiers Are Fairly Mainstream in Their Demographics,” Gallup Poll News Service, April 5, 2010. 81. Doyle McManus, “Two Mavericks Take on the Tax Code,” Los Angeles Times, April 15, 2010, A17. 82. “Our View—It’s Time for the U.S. to Simplify Its Tax Code,” Iowa City Press-Citizen, April 15, 2010, A7. 83. Fred Thompson, Hannity, April 15, 2010, transcript accessed March 7, 2012, Lexis­ Nexis “News” file. 84. “Europe’s VAT Lessons,” Wall Street Journal (online), April 15, 2010, http://online .wsj.com/. 85. Jane Coco Cowles, “ Tax Day: Time to Consider the VAT; A Consumption Tax Would be a Relatively Simple Way to Get a Handle on the Deficit,” Newsday, April 15, 2010, A35. 86. Brian Williams, NBC Nightly News, April 15, 2010, transcript accessed March 7, 2012, LexisNexis “News” file. 87. Lisa Myers, NBC Nightly News, April 15, 2010, transcript accessed March 7, 2012, LexisNexis “News” file. 88. Robert J. Samuelson, “Today is the Best Tax Day of Your Life,” Newsweek.com, April 15, 2010; and Doug Bandow, “Tax Freedom Day Mirage; We’re Only Pretending We Don’t Have to Pay for These Deficits,” Washington Times, April 12, 2010, B1. 89. Robert P. Murphy, “Why Not End Federal Income Tax?,” Deseret Morning News, April 11, 2010, G03. 90. Mark Trumbull, “Tax Day 101: How Some Millionaires Can Owe No Taxes,” Christian Science Monitor (online), April 15, 2010, http://www.csmonitor.com/. 91. Ibid., “US Tax Bite Smaller than Other Nations,’” Christian Science Monitor (online), April 11, 2010. 92. Ibid., “ Tax Day 101: How is the Tax Code Changing Under Obama?” Christian Science Monitor (online), April 14, 2010. 93. Ibid., “ Tax Day 101: The Tax Code Needs a Fix—But Exactly How?” Christian Science Monitor (online), April 15, 2010. 94. Jeanne Sahadi, “Mortgage Deduction: America’s Costliest Tax Break,” CNNMoney .com, April 14, 2010. 95. Greg Griffin, “Average Americans Pay an Income-Tax Rate of 32 Percent, But Corporations Have Become Adept at Tax Law and . . . Keeping It,” Denver Post, April 13, 2010, B-07; and Francine Knowles, “Tax on Super Rich: 16.6%,” Chicago Sun Times, April 12, 2010, 28. 96. Frank Newport, “Americans Split on Whether Their Income Taxes are Too High,” Gallup Poll News Service, April 14, 2010.

Notes to Pages 36–40 / 131 97. Rich Benjamin, “Yes, I Love Taxes; Call Me Old-Fashioned, But I Think It’s Unpatriotic to Demonize the Funding of Our Government,” USA Today, April 15, 2010, 10A. 98. Stu Bykofsky, “ Taxes? We Need Stinking Taxes,” Philadelphia Daily News, April 15, 2010, 06 (local). 99. David Holohan, “Americans Should Stop Whining and Pay Their Taxes,” Providence Journal, April 11, 2010, 13. 100. Brad Flory, “ Taxes are a Fair, Important Sacrifice,” Jackson Citizen Patriot, April 15, 2010, A3. 101. Yuki Noguchi, “Some of the Rich Ask for Higher Taxes,” Morning Edition, National Public Radio, April 14, 2010, transcript accessed March 7, 2012, in LexisNexis “News” file. 102. Citizens for Tax Justice, “All Americans Pay Taxes; Those Who Pay No Federal Income Taxes Pay Other Types of Taxes, Most of Which Take More from the Poor and Middle Class than from the Rich,” April 15, 2010, accessed March 7, 2012, http://www.ctj .org/pdf/taxday2010.pdf. 103. David Keating, “A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens,” National Taxpayers Union Policy Paper, April 15, 2010, accessed March 7, 2012, http://www.ntu.org/ntu-pp-127-tax-complexity-2010.pdf. 104. House Republicans Hold a News Conference on Taxes, Final FD (Fair Disclosure) Wire, April 15, 2010 (remarks of Representative John Boehner), accessed March 7, 2012, in LexisNexis “News” file. 105. Press Conference with Senator Sherrod Brown [and eight Democratic House members], Federal News Service, April 15, 2010 (remarks of Senator Sherrod Brown), accessed March 7, 2012, in LexisNexis “News” file. 106. See, e.g., Richard E. Harris, “Make a Wish and File Your Income Tax Return,” Tax Notes 29 (1985): 1100. 107. The covers can be found at http://www.cartoonbank.com. The tax return due date has been April 15 since 1955; before that it was March 15. 108. Lawrence Zelenak, “From the Great Gildersleeve to Homer Simpson: Six Decades of the Federal Income Tax in Sitcoms,” Tax Notes 117 (2007): 1265–88. Chapter Three

1. Department of Justice, Press Release 08–275 (April 8, 2008). 2. Lynnley Browning, “U.S. Says It will Increase Efforts Against ‘Tax Defiers,’” New York Times, April 9, 2008, C3. 3. Internal Revenue Service, “The Truth about Frivolous Tax Arguments,” February 16, 2012, accessed March 8, 2012, http://www.irs.gov/pub/irs-utl/friv_tax.pdf. 4. States with retail sales taxes generally impose use taxes (in lieu of sales taxes) on Internet and mail order consumer purchases by state residents. The Supreme Court has ruled that, in the absence of authorizing federal legislation, states cannot require out-of-state sellers to collect and remit use taxes imposed by states in which purchasers reside. Quill Corp. v. North Dakota, 504 U.S. 292 (1992). The responsibility to pay the use tax thus falls on the purchaser. Noncompliance—that is, cheating—with respect to this obligation is widespread. In this context, the retail sales tax plus use tax affords the average consumer significant cheating opportunities. The opportunities would disappear, however, if Congress were to enact legislation overturning Quill.

132 / Notes to Pages 40–45 5. David Cay Johnston, “Defying the IRS, Anti-Tax Businesses Refuse to Withhold,” New York Times, November 19, 2000, 1; and David Lupi-Sher, “IRS Cracks Down on Tax Protesters,” Tax Notes 93 (2001): 1803. 6. Nathan J. Hochman, “ Tax Defiers and the Tax Gap: Stopping “Frivolous Squared” Before It Spreads,” Stanford Law and Policy Review 20 (2009): 71. The earliest judicial opinion involving a modern tax protester is Porth v. Brodrick, 214 F.2d 925 (10th Cir. 1954) (rejecting Arthur J. Porth’s claim that he did not owe income tax for 1951 because the income tax violated the Thirteenth Amendment’s prohibition of involuntary servitude). 7. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105– 206, sec. 3707, 112 Stat. 685, 778. 8. 26 U.S.C. § 6702. 9. Service Center Advice (SCA) 200107034 (November 15, 2000), reprinted at 2001 Tax Notes Today, 34–61. 10. General Accounting Office, Internal Revenue Service: Challenges Remain in Combating Abusive Tax Schemes (Washington, DC: General Accounting Office, 2003, GAO04–50), 9. 11. Oliver Lukacs, “Justice Launches National Tax Fraud Crackdown,” Tax Notes 119 (2008): 141. 12. Tom Herman, “ Tax Report: The New Crackdown on Tax ‘Defiers,’” Wall Street Journal, April 9, 2008, D4 (quoting Assistant Attorney General Nathan J. Hochman). 13. Department of Justice, Press Release 08–275. 14. Cheek v. United States, 498 U.S. 192 (1991). 15. United States v. Schulz, 529 F. Supp.2d 341 (N.D. N.Y. 2007), aff’d, 517 F.3d 606 (2d Cir. 2008). 16. Continental Congress 2009, “Articles of Freedom,” accessed March 8, 2012, http:// www.articlesoffreedom.us. 17. Harry Hitzeman, “Continental Congress Hopes to be Heard by Government,” Chicago Daily Herald, November 22, 2009, 3. 18. Daniel Levitas, The Terrorist Next Door: The Militia Movement and the Radical Right (New York: St. Martin’s Press, 2002), 3. 19. Ibid., 1 (quoting William Potter Gale). 20. Ibid., 4. 21. Wendell Rawls, Jr., “Man Dead in Gunfight Identified as Dakota Fugitive,” New York Times, June 5, 1983, 18. 22. Shaila Dewan and John Hubbell, “Angry Faith, Devoted Son, and Gunfire,” New York Times, May 24, 2010, 12 (describing how Sovereign Citizen father and son opened gunfire on two police officers in response to a traffic stop; father, son and both offi­ cers died in the resulting gun battle). 23. Kathryn Marchocki, “Brown Erupts Once Again,” Manchester Union Leader, Jan­ uary 12, 2010, 1. 24. Anna Badhkin, “Marshal’s Ploy Ended Standoff Peacefully; Acted Like Supporters to Lure Out Tax Evaders,” Boston Globe, October 6, 2007, B1. 25. “A Look Back in Time: Interview with Timothy McVeigh,” accessed September 15, 2010 (no longer available), http://www.time.com/time/nation/printout/0,8816, 109478,00.html. 26. In February 2010, Joseph Andrew Stack flew his small plane into an IRS building in Austin, Texas, killing himself and IRS employee Vernon Hunter. Stack left a suicide note indicating his primary grievance concerned a provision of the Tax Reform Act

Notes to Pages 46–51 / 133 of 1986 mandating the tax treatment of software engineers as employees, rather than as independent contractors. Michael Joe, “Plane Crash Pilot Fought IRS Over Worker Classification,” Tax Notes 126 (2010): 929. Stack was not a tax protester in the sense used here; his objection was to a specific provision of the tax laws, rather than to the fundamental legitimacy of the federal government and the federal tax system. 27. Henry David Thoreau, The Variorum Civil Disobedience, ed. Walter Harding (New York: Twayne Publishers, 1967 [1849]), 11–27. 28. Dan Frosch, “As Battlefields Shift, Old Warrior for Peace Pursues the Same Enemy,” New York Times, September 7, 2009, at 10 (describing the many antiwar trespasses of seventy-five-year-old Reverend Carl Kabat, who has “spent half of the last three decades in state and federal prisons”). 29. Marjorie E. Kornhauser, “For God and Country: Taxing Conscience,” Wisconsin Law Review 1999 (1999): 941 (describing two cases of incarceration of war tax resisters; Randy Kehler spent six months in prison for civil contempt for refusing to leave his home after it was auctioned off because of his refusal to pay income tax; Richard Ralston Catlett was convicted of willful failure to file returns for three years and spent two months in a correctional facility). 30. There are no official IRS estimates of the number of war tax resisters. In 1990 a survey conducted by the National War Tax Resistance Coordinating Committee produced an estimate of as many as 10,000 war tax resisters in the United States. National War Tax Resistance Coordinating Committee, War Tax Resistance at a Glance (Brooklyn: National War Tax Resistance Coordinating Committee, 2004), 12, accessed March 8, 2012, www.nwtrcc.org/glance_updated04.pdf. 31. Kornhauser, “For God and Country,” 986–89. 32. Kornhauser, “For God and Country,” 988. 33. Adrian Dungan and Michael Parisi, “Individual Income Tax Returns, Preliminary Data, 2010,” Statistics of Income Bulletin 31 (2012): 6, table 1. 34. Ibid., 7, table 1. 35. See, e.g., John Braithwaite and Toni Makkai, “Trust and Compliance,” Policing and Society 4 (1994): 1–12 (a study of 410 Australian nursing homes found that compliance of operators with regulatory requirements improved when operators felt trusted by inspectors); and Mark Peel, Good Times, Hard Times: The Past and the Future in Elizabeth (Carlton: Melbourne University Press, 1995) (study of working-class Australian suburb; bureaucratic distrust of residents caused residents to distrust bureaucrats, resulting in decreased regulatory compliance). See also Philip Pettit, “ The Cunning of Trust,” Philosophy and Public Affairs 24 (1995): 202–25 (a philosophical exploration of how the belief that one is trusted by regulators can lead to more compliant behavior). 36. Valerie Braithwaite and John Braithwaite, “An Evolving Compliance Model for Tax Enforcement,” in Crimes of Privilege: Readings in White Collar Crime, ed. Neal Shover and John Paul Wright (New York: Oxford University Press, 2001). 37. Pew Research Center, The People and Their Government: Distrust, Discontent, Anger, and Partisan Rancor (Washington, DC: Pew Research Center, 2010), 105–6, accessed March 8, 2012, http://www.people-press.org/files/legacy-pdf/606.pdf. 38. Marc J. Hetherington, Why Trust Matters: Declining Political Trust and the Demise of American Liberalism (Princeton: Princeton University Press, 2005), 12. 39. For a thorough analysis of California’s disastrous experience with direct democracy, see Joe Mathews and Mark Paul, California Crackup: How Reform Broke the Golden State and How We Can Fix It (Berkeley: University of California Press, 2010).

134 / Notes to Pages 52–61 40. Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon and Schuster, 2000), 19. 41. Putnam, Bowling Alone, 347 (emphasis in original). 42. Margaret Levi and Laura Stoker, “Political Trust and Trustworthiness,” Annual Review of Political Science 3 (2000): 493. 43. Ronald G. Cummings et al, “Tax Morale Affects Tax Compliance: Evidence from Surveys and an Artefactual Field Experiment,” Journal of Economic Behavior and Organization 70 (2009): 448. 44. James Alm and Benno Torgler, “Culture Differences and Tax Morale in the United States and in Europe,” Journal of Economic Psychology 27 (2006): 224–46. 45. Internal Revenue Service, “Tax Gap for Tax Year 2006: Overview,” January 6, 2012, http://www.irs.gov/pub/newsroom/overview_tax_gap_2006.pdf, accessed June 11, 2012. 46. IRS Oversight Board, 2011 Taxpayer Attitude Survey (Washington, DC: IRS Oversight Board, 2012), 2. 47. Department of the Treasury, Report to Congress on Return-Free Tax Systems: Tax Simplification is a Prerequisite (Washington, DC: Department of the Treasury, 2003), 28. Chapter Four

1. Stanley S. Surrey, excerpts from remarks before the Money Marketeers on “The U.S. Income Tax System—the Need for a Full Accounting,” November 15, 1967, in United States Department of the Treasury, Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1968 (Washington, DC: Department of the Treasury, 1969), 322. 2. Stanley S. Surrey, Pathways to Tax Reform: The Concept of Tax Expenditures (Cambridge: Harvard University Press, 1973). 3. Congressional Budget Act of 1974, Pub. L. No. 93–344, 88 Stat 297 (1974). 4. Stanley S. Surrey and Paul R. McDaniel, Tax Expenditures (Cambridge: Harvard University Press, 1985), 32–37. 5. Staff of the Joint Committee on Taxation, Estimate of Federal Tax Expenditures for Fiscal Years 2011–2015 (Washington, DC: Joint Committee on Taxation, 2012). 6. Michael J. Graetz, “100 Million Unnecessary Returns: A Fresh Start for the U.S. Tax System,” Yale Law Journal 112 (2002): 275. 7. Grover G. Norquist, “Read My Lips: No New Taxes,” New York Times, July 21, 2011, A21. 8. Liam Murphy and Thomas Nagel, The Myth of Ownership: Taxes and Justice (New York: Oxford University Press, 2002), 31–37. 9. As a technical matter, however, the classification of certain provisions as tax expenditures would be different under a consumption tax of the sort described in the text than under an income tax. Tax expenditures are defined as provisions departing from the “ideal” or theoretically pure version of the tax base. A deduction for retirement savings, e.g., is a departure from the base of a pure income tax and is thus a tax expenditure under an income tax. Under a consumption tax, by contrast, the same deduction would be consistent with the base of a pure consumption tax and thus would not constitute a tax expenditure. 10. Regan v. Taxation with Representation of Washington, 461 U.S. 540, 543 (1983). 11. Department of the Treasury, Report to Congress on a Return-Free Tax System: Simplification is a Prerequisite (Washington, DC: Department of the Treasury, 2003), 8. 12. Saul Levmore, “Taxes as Ballots,” University of Chicago Law Review 65 (1998): 388.

Notes to Pages 61–72 / 135 13. Ibid., 405. 14. Ibid., 416. 15. Economic Recovery Tax Act of 1981, Pub. L. No. 97–34, sec. 121, 95 Stat. 172, 196. 16. 127 Cong. Rec. 16466 (July 20, 1981) (remarks of Senator Daniel Patrick Moynihan). 17. Gene Steuerle, “Increasing Charitable Giving: The April 15 Solution,” Tax Notes 48 (1990): 221. 18. Internal Revenue Service, Internal Revenue Service Data Book, 2011 (Washington, DC: Internal Revenue Service, 2011), 3, table 1, n. 4. 19. Bob Jones University v. United States, 461 U.S. 574, 609, n. 3 (1983). 20. Tax Reform Act of 1975, Pub. L. No. 94–12, § 204, 89 Stat. 26, 30. 21. Milton Friedman, Capitalism and Freedom, 2d printing (Chicago: University of Chicago Press, 1982), 191–92. 22. Graetz, “100 Million Unnecessary Returns,” 290–93. 23. William J. Clinton, “Clinton’s Economic Plan: The Speech; Text of President’s Address to a Joint Session of Congress,” New York Times, February 18, 1993, A20. 24. Nancy C. Staudt, “Taxation Without Representation,” Tax Law Review 55 (2002): 585–86. C h a p t e r F iv e

1. Lawrence H. Seltzer, The Personal Exemptions in the Income Tax (New York: Columbia University Press, 1968), 62, table 9. 2. Ibid. 3. This chapter’s description of the wartime debates between proponents of a mass income tax and proponents of a federal retail sales tax is based on Lawrence Zelenak, “The Federal Retail Sales Tax that Wasn’t: An Actual History and an Alternate History,” Law and Contemporary Problems 73 (2010): 149–205. There is a significant body of scholarship on the development of the mass income tax during World War II: see, e.g., Steven A. Bank, Kirk J. Stark, and Joseph J. Thorndike, War and Taxes (Washington, DC: Urban Institute Press, 2008), 83–108; Carolyn C. Jones, “MassBased Income Taxation: Creating a Taxpaying Culture, 1940–1952,” in Funding the Modern American State, 1941–1995, ed. W. Elliot Brownlee (Cambridge: Cambridge University Press, 1996); and W. Elliot Brownlee, Federal Taxation in America: A Short History, 2d ed. (Washington, DC: Woodrow Wilson Center Press, 2004), 108–19. None of these other accounts, however, examine in detail how close Congress came to choosing a retail sales tax, rather than the income tax, as the instrument of federal mass taxation. See, e.g., Bank, Stark, and Thorndike, War and Taxes, 93–95 (briefly describing wartime sales tax proposals); and Brownlee, Federal Taxation in America, 112 (same). 4. Revenue Act of 1940, Pub. L. No. 76–656, 54 Stat. 516 (1940); and Revenue Act of 1941, Pub. L. No. 77–250, 55 Stat. 689 (1941). 5. Seltzer, Personal Exemptions, 62, table 9. 6. “Sales Tax Sentiment in Congress Gaining,” Los Angeles Times, December 22, 1941, 16. 7. Henry N. Dorris, “Big Tax Boosts Due When Congress Meets,” New York Times, January 4, 1942, E8. 8. Franklin D. Roosevelt, “Roosevelt’s Message Opening the Second Regular Session of the 75th Congress,” New York Times, January 3, 1938, 16. But see Mark H. Leff, The Limits of Symbolic Reform: The New Deal and Taxation, 1933–1939 (Cambridge:

136 / Notes to Pages 72–75 Cambridge University Press, 1984), 56 (indicating that in 1933 Roosevelt “reportedly confided” to “an emissary of William Randolph Hearst” that Roosevelt “was not opposed to a sales tax”—even as Roosevelt was very publicly and successfully opposing a proposal for a federal sales tax). 9. John MacCormac, “Profit Tax of 50% Predicted and Big Security, Excise Levy,” New York Times, January 8, 1942, 1. 10. Hearings Before the Committee on Ways and Means on Revenue Revision of 1942, 77th Cong., 1–10 (1942) (statement of Henry Morgenthau, Jr., Secretary of the Treasury). 11. Ibid., 7. 12. Ibid., 32. 13. Ibid. 14. Associated Press, “Shift Toward Sales Tax Indicated by House Survey,” Los Angeles Times, April 3, 1942, 1. 15. Henry N. Dorris, “President Says Tax on Sales Is Wrong; Murray Opposes It,” New York Times, April 8, 1942, 1. 16. “Takes Tax Problem to the White House,” New York Times, April 16, 1942, 34. 17. Henry N. Dorris, “Morgenthau Asks Broader Tax Base,” New York Times, May 8, 1942, 1. 18. Editorial, “Still Not Real War Taxing,” Wall Street Journal, May 9, 1942, 4. 19. “House Insists on Sales Tax,” Los Angeles Times, June 7, 1942, 9. 20. Henry N. Dorris, “Treasury Submits Income Ceiling Tax,” New York Times, June 16, 1942, 25. 21. “Sales Levy Killed; Hold-Out Tax Wins,” New York Times, June 21, 1942, 25. 22. Henry N. Dorris, “Tax Bill Finished; Totals 6 Billions; Joint Returns Out,” New York Times, June 25, 1942, 1. 23. “Treasury Fights Levy on Sales,” Los Angeles Times, July 17, 1942, 11. 24. Henry N. Dorris, “90% Profits Tax Is Voted by House; Surtax Rate Kept,” New York Times, July 21, 1942, 1. 25. Henry Morgenthau, Jr., “Secretary Morgenthau’s Tax Statement to Senate Finance Committee,” New York Times, July 24, 1942, 10. 26. Morgenthau, Tax Statement, 10. 27. “The Case for a Sales Tax,” New York Times, July 25, 1942, 12. 28. Ibid., 12. 29. “Senators Consider Higher Taxes to Pay for War, Curb Inflation,” New York Times, August 22, 1942, 26. Commenting in 1943 on this suggestion, a note writer in the Yale Law Journal expressed concern that persons whose annual expenditures were less than $200 might sell their unused coupons at a discount. Note, “Aspects of Personal Income Taxation and the 1942 Revenue Revisions,” Yale Law Journal 52 (1943): 359. 30. Editorial, “Back to the Sales Tax,” New York Times, September 9, 1942, 22. 31. C. P. Trussell, “5 P.C. ‘Victory Tax’ on All Over $624 Brought to Fore,” New York Times, September 9, 1942, 1. 32. Ibid. 33. Ibid. 34. Henry N. Dorris, “Senate Votes Tax Bill, 77–0,” New York Times, October 11, 1942, 1. 35. Revenue Act of 1942, Pub. L. No. 77–753, 56 Stat. 798 (1942); and “Roosevelt Signs Record Tax Bill,” New York Times, October 22, 1942, 22.

Notes to Pages 75–79 / 137 36. Seltzer, Personal Exemptions, 62, table 9. 37. Ibid. 38. Current Tax Payment Act of 1943, Pub. L. No. 78–68, 57 Stat. 126 (1943). 39. “New Tax Bill Off Until Next March,” New York Times, October 28, 1942, 17. 40. Ibid. 41. Hearings Before the Committee on Ways and Means on Revenue Revision of 1943, 78th Cong., 5 (1943) (statement of Henry Morgenthau, Jr., Secretary of the Treasury). 42. Samuel B. Bledsoe, “Sales Tax is Urged as Treasury Plan Faces Rejection,” New York Times, October 6, 1943, 1. 43. Editorial, “For a Sales Tax,” New York Times, October 7, 1943, 22. 44. “Sales Tax Sentiment Grows in House Group With Former Opponents Beginning to Waver,” Wall Street Journal, October 8, 1943, 3. 45. Samuel B. Bledsoe, “Sales Tax Beaten in Committee, 16–8,” New York Times, October 29, 1943, 3. 46. Samuel B. Bledsoe, “House Adopts Bill to Increase Taxes by $2,139,300,000,” New York Times, November 25, 1943, 1. 47. Hearings Before the Committee on Finance on the Revenue Act of 1943, 78th Cong., 4 (1943). 48. 1943 Finance Hearings, 7 49. Ibid., 14. 50. Ibid. 51. Editorial, “The Muddled Mr. Morgenthau,” Los Angeles Times, December 9, 1943, A4. 52. Samuel B. Bledsoe, “George Replies to Morgenthau,” New York Times, December 22, 1943, 19. 53. “Revised Tax Bill Passed by Senate, Up to Conference,” New York Times, January 21, 1944, 1. 54. Samuel B. Bledsoe, “Tax Bill Adopted, Congress Puts It up to Roosevelt,” New York Times, February 8, 1944, 1. 55. Franklin D. Roosevelt, “Tax Bill Veto Message,” New York Times, February 23, 1944, 14. 56. Ibid. 57. C. P. Trussel, “Taxes Voted Law by 72–14 in the Senate,” New York Times, February 26, 1944, 1; and Revenue Act of 1943, Pub. L. No. 78–235, 58 Stat. 21 (1944). 58. Michael J. Graetz, 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States (New Haven: Yale University Press, 2008). 59. Hearings Before the Committee on Ways and Means on a Proposal to Place Income Tax of Individuals on a Pay-as-You-Go Basis, 78th Cong., 148–54 (1943) (statement of Clement C. Clarke, Jr.). 60. Associated Press, “Deductions May Abolish Tax Returns,” Washington Post, February 8, 1943, 1. 61. John K. Hulse, “The Proposed Elimination of Income Tax Returns by the Majority of Individuals,” Taxes 21 (1943): 320. Hulse later wrote a second article further elaborating on the proposal: John K. Hulse, “Minimum Lump-Sum Deduction for Individuals,” Taxes 22 (1944): 20. 62. Associated Press, “Tax Plan to Avoid 30,000,000 Returns,” New York Times, August 9, 1943, 1. 63. “George Predicts Simpler Tax Move,” New York Times, August 25, 1943, 37. 64. Associated Press, “Tax Law Revision Called No. 1 Job,” New York Times, January 9, 1944, 3.

138 / Notes to Pages 79–84 65. George B. Bryant, Jr., “House Group Studies Proposal to Eliminate Income Tax Returns for 30 Million People,” Wall Street Journal, March 15, 1944, 2. 66. “House Group Adopts Simplified Tax Plan; Ends Computations for 30 Million Persons,” Wall Street Journal, March 18, 1944, 2. The technical details of the plan are described in H.R. Rep. No. 78-1865 (April 24, 1944), reprinted in 1944 C.B. 821, 843 67. Individual Income Tax Act of 1944, § 11(b), Pub. L. No. 78–315, 58 Stat. 231, 240–41 (1944). 68. Editorial, “Good Tax News,” Washington Post, March 19, 1944, B4. 69. “Simplified Tax Bill Signed by President,” New York Times, May 31, 1944, 1. 70. John K. Hulse, “A Plan for Post-VE Day Taxation,” Taxes 23 (1945): 519. 71. 26 U.S.C. § 6014. 72. Internal Revenue Service, Publication 967, The IRS Will Figure Your Tax (Washington, DC: Internal Revenue Service, 2010). 73. Internal Revenue Service, “Tax Year 2006 Taxpayer Usage Study, Report 16,” accessed February 14, 2010, http://www.irs.gov/taxstats/article0,,id=184856,00html. 74. Department of the Treasury, Report to the Congress on Return-Free Tax Systems: Tax Simplification Is a Prerequisite (Washington, DC: Department of the Treasury, 2003), 2. 75. Tax Reform Act of 1986, Pub. L. No. 99–514, § 1582, 100 Stat. 2085, 2766 (1986). 76. Internal Revenue Service, Current Feasibility of a Return-Free Tax System (Washington, DC: Internal Revenue Service, 1987). 77. The Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105–206, § 2004, 112 Stat. 685, 726 (1998). 78. Treasury, Return-Free Tax Systems. 79. Ibid., 6. 80. Ibid., 29, table 9. 81. Ibid., 28, table 8. 82. Ibid., 30, table 10. C h a p t e r Si x

1. Most of the sitcom episodes are listed and summarized in Lawrence Zelenak, “Six Decades of the Federal Income Tax in Sitcoms,” Tax Notes 117 (2007). A few episodes are not included in that list because I became aware of them only after publication of the Tax Notes article. Those episodes are: The Dick Van Dyke Show, “The Impractical Joker” (first broadcast January 14, 1965); The Flintstones, “Circus Business” (first broadcast October 15, 1965); Green Acres, “The Case of the Hooterville Refund Fraud” (first broadcast February 28, 1970); and The Nanny, “The Taxman Cometh” (first broadcast November 6, 1996). 2. Tax Policy Center, Tax Policy Briefing Book: A Citizen’s Guide for the 2008 Election and Beyond (Washington, DC: Tax Policy Center, 2008), I-1–2, figure 2. 3. Ibid. 4. Congressional Budget Office, Effective Federal Tax Rates, 1997 to 2000 (Washington, DC: Congressional Budget Office, 2003), 72, table C-1 (covering 1979–2000). 5. Tax Policy Center, Tax Policy Briefing Book, I-1–6 (providing detailed information for 2005). 6. An episode of The Real McCoys in which Grandpa Amos hides household furniture from the county tax assessor is a rare exception to the general invisibility of nonincome taxes in sitcoms and New Yorker cartoons: The Real McCoys, “The Tax Man Cometh” (first broadcast April 30, 1959). There is also a Burns and Allen radio epi-

Notes to Pages 84–93 / 139

7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.

sode that involves California state income tax, rather than the federal income tax. Burns and Allen, “Tax Refund” (first broadcast January 29, 1953). David Foster Wallace, The Pale King (New York: Little, Brown, 2011). For a review essay concerning The Pale King, see Lawrence Zelenak, “The Great American Tax Novel,” Michigan Law Review 111 (2012): 969–84. David Marc, Demographic Vistas: Television in American Culture, rev. ed. (Philadelphia: University of Pennsylvania Press, 1996), 13. Gerard Jones, Honey, I’m Home!: Sitcoms, Selling the American Dream (New York: Grove Press, 1992), 6. Darrell Y. Hamamoto, Nervous Laughter: Television Situation Comedy and Liberal Democratic Ideology (New York: Praeger Publishers, 1989), 10. Jones, Honey, I’m Home!, 25. For a thorough and engaging history of the development of the genre (through 1992), see Jones, Honey, I’m Home! Marc, Demographic Vistas, 19. The Great Gildersleeve, “Income Tax Time” (first broadcast March 14, 1943). The Adventures of Ozzie and Harriet, “Income Tax” (first broadcast March 13, 1949). The Honeymooners, “Income Tax” (first broadcast March 7, 1953). Occasional Wife, “That’s How They Got Capone” (first broadcast December 6, 1966). Life with Luigi, “Income Tax Season” (first broadcast March 7, 1950). Hey, Jeannie, “Jeannie’s Income Tax” (first broadcast February 9, 1957). The Bill Dana Show, “A Tip for Uncle Sam” (first broadcast January 8, 1963). Green Acres, “The Case of the Hooterville Refund Fraud” (first broadcast February 28, 1970). Third Rock from the Sun, “Dick and Taxes” (first broadcast February 2, 1999). Ellen, “$5,000” (first broadcast March 22, 1995). The Simpsons, “The Trouble with Trillions” (first broadcast April 5, 1998). My Name is Earl, “Didn’t Pay Taxes” (first broadcast March 2, 2006). The Phil Silvers Show, “Bilko’s Tax Trouble” (first broadcast December 4, 1956). The Honeymooners, “The Worry Wart” (first broadcast April 7, 1956). The Marriage, “Filling Out Income Tax Forms” (first broadcast March 3, 1954). All in the Family, “Archie’s Fraud” (first broadcast September 23, 1972). The Mary Tyler Moore Show, “Ted’s Tax Refund” (first broadcast November 29, 1975). The Simpsons, “The Trouble with Trillions.” Northern Exposure, “A River Doesn’t Run Through It” (first broadcast October 25, 1993). Maude, “The Tax Audit” (first broadcast February 12, 1974). Alice, “The Pain of No Return” (first broadcast February 12, 1976). M*A*S*H, “No Sweat” (first broadcast February 2, 1981). Roseanne, “April Fool’s Day” (first broadcast April 10, 1990). The Cosby Show, “Some Gifts Aren’t Deductible” (first broadcast April 23, 1992). Fibber McGee and Molly, “Fibber Does His Income Tax” (first broadcast January 11, 1944). Burns and Allen, “Income Tax Time” (first broadcast January 15, 1948). Kukla, Fran and Ollie, “Income Tax” (first broadcast March 7, 1949). Father Knows Best, “Income Tax Procrastination” (first broadcast March 15, 1951). Amos and Andy, “Income Tax Show” (first broadcast 1952, exact date unknown). Third Rock from the Sun, “Dick and Taxes.”

140 / Notes to Pages 93–112 45. The Jack Benny Program, “A Visit from the IRS” (first broadcast [radio] April 15, 1951), “Income Tax Men Come to Help Jack” (first broadcast April 21, 1957), and “Income Tax Show” (first broadcast October 16, 1964). 46. The Mary Tyler Moore Show, “1040 or Fight” (first broadcast November 28, 1970). 47. The Greatest American Hero, “There’s Just No Accounting” (first broadcast March 24, 1982). 48. Most of the New Yorker tax cartoons were identified with the use of the search function of the DVD-ROM included with Robert Mankoff, ed., The Complete Cartoons of the New Yorker (New York: Black Dog and Leventhal Publishers, 2006). The DVDROM includes every cartoon published in the magazine from 1925 to February 13, 2006. Cartoons published too recently to be included in the DVD-ROM were identified with the use of the search function of The Cartoon Bank, http://www .condenaststore.com/-se/cartoonbank.htm. 49. This is probably not too different from the frequency of tax-related sitcom episodes, but there is no practical way of determining the total number of radio and television sitcom episodes ever broadcast. 50. As with the income tax cartoons, these other tax-related cartoons were identified using the search function of the DVD-ROM containing all New Yorker cartoons published from 1925 to February 13, 2006. 51. Iain Topliss, The Comic Worlds of Peter Arno, William Steig, Charles Addams and Saul Steinberg (Baltimore: Johns Hopkins University Press, 2005), 4. 52. Ibid., 5–6. 53. Ibid., 13. 54. Joel Slemrod and Jon Bakija, Taxing Ourselves A Citizen’s Guide to the Debate over Taxes, 4th ed. (Cambridge: MIT Press, 2008), 180. 55. Ibid. 56. See, e.g., David S. Broder, “New Cat at the IRS,” Washington Post, May 17, 1998, C09. The legislation was the Internal Revenue Service Restructuring and Reform Act of 1998, P. L. 105–206, 105th Cong., 2d Sess., 112 Stat. 685. 57. In thirty-six of the forty-one post-1950s cartoons the taxpayer is a man, in three cartoons the taxpayer is a woman, in one cartoon the taxpayers are a married couple, and in one cartoon the taxpayer is a child (of indeterminate sex). 58. Margalit Fox, “Betty Friedan, Who Ignited a Movement With The Feminine Mystique, Dies at 85,” New York Times, February 6, 2006, A20. 59. Topliss, Comic Worlds, 12. Chapter Seven

1. Michael J. Graetz, “A Fair and Balanced Tax System for the Twenty-First Century,” in Toward Fundamental Tax Reform, ed. Alan J. Auerbach and Kevin Hassett (Washington, DC: American Enterprise Institute Press, 2005), 49. 2. Ibid., 49–50. 3. Testimony of Mark W. Everson, Commissioner of Internal Revenue, Before the President’s Advisory Panel on Federal Tax Reform 4 (March 3, 2005), 4. 4. The Honeymooners, “Income Tax” (first broadcast March 7, 1953). 5. The Bill Dana Show, “A Tip for Uncle Sam” (first broadcast January 8, 1963). 6. Roseanne, “April Fool’s Day,” (first broadcast April 10, 1990). 7. Karlyn Bowman and Andrew Rugg, AEI Studies in Public Opinion: Public Opinion on Taxes (Washington, DC: American Enterprise Institute, 2011), 100 (reporting results of 1990 Gallup poll and 2005 Harris/Tax Foundation poll).

Notes to Pages 112–118 / 141 8. Rich Benjamin, “Yes, I Love Taxes; Call Me Old-Fashioned, But I Think It’s Unpa­ triotic to Demonize the Funding of Our Government,” USA Today, April 15, 2010, 10A. 9. Michael Kranish, “McCain Banking on Biden Gaffe; Ad Highlights ‘Crisis’ Remark,” Boston Globe, October 28, 2009, A7. 10. Michael J. Graetz, The Decline (and Fall?) of the Income Tax (New York: W. W. Norton, 1997), 81. 11. Eric Toder, “Changes in Tax Preparation Methods, 1993–2003,” Tax Notes 107 (2005): 759. 12. Author’s calculations, based on Internal Revenue Service, “Tax Year 2006 Taxpayer Usage Study, Report 16,” accessed February 14, 2010, http://www.irs.gov/taxstats /article0,,id=184856,00html. 13. For more on this topic, see Lawrence Zelenak, “Complex Tax Legislation in the TurboTax Era,” Columbia Journal of Tax Law 1 (2010), accessed March 8, 2012, http:// www.columbiataxjournal.org/vol-1-no-1/. 14. Charles E. McLure, “Economics and Tax Reform: 1986 and Now,” Tax Notes 113 (2006): 364. 15. Beth Snyder Bulik, “Prep Firms Take the Groan Out of Tax Season,” Advertising Age, March 14, 2011, 9. 16. “H&R Block Proves Taxpayers Should ‘Never Settle for Less,’” Marketwire, January 14, 2011, accessed March 8, 2012, LexisNexis “News” file. 17. John L. Guyton et al., “The Effects of Tax Software and Paid Preparers on Compliance Costs,” National Tax Journal 58 (2005): 441, table 1. 18. American National Election Studies, The ANES Guide to Public Opinion and Electoral Behavior (Ann Arbor: University of Michigan Center for Political Studies, 2010), table 5.A.3, accessed March 8, 2012, http://electionstudies.org/nesguide/toptable/tab5a _3.htm. 19. CNN Wire Staff, “Poll: Most Americans Say Tax Dollars are Wasted” CNN.com, April 15, 2010, accessed March 8, 2012, www.cnn.com/2010/POLITICS/04/15/poll .wasted.taxes/index.html?eref=rss_politics. 20. Marc J. Hetherington, Why Trust Matters: Declining Political Trust and the Demise of American Liberalism (Princeton: Princeton University Press, 2004), 9. On the particular importance of the perceived level of external threats to the nation, see John R. Alford, “We’re All in This Together: The Decline of Trust in Government, 1958– 1996,” in What Is it About Government that Americans Dislike?, ed. John R. Hibbing and Elizabeth Theiss-Morse (New York: Cambridge University Press, 2001), 45–46. 21. Hetherington, Why Trust Matters. 22. Ibid., 29. 23. Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon and Schuster, 2000), 19. 24. Ibid., 137. 25. Ibid., 347. 26. Ibid., 347–48. 27 Ibid., 202 (two-earner families), 213 (sprawl). 28. Edward J. McCaffery, “Taxation and the Family: A Fresh Look at Behavioral Gender Biases in the Code,” UCLA Law Review 40 (1992): 1020–25. 29. Richard Voith, “Does the Federal Tax Treatment of Housing Affect the Pattern of Metropolitan Development?,” Business Review, March/April 1999, 3. 30. Putnam, Bowling Alone, 228–29.

142 / Notes to Pages 118–124 31. Ibid., 255. 32. Ibid., 272. 33. IRS Oversight Board, 2011 Taxpayer Attitude Survey (Washington, DC: IRS Oversight Board, 2012), 3. 34. Pew Research Center, “Public Trust in Government: 1958–2010, April 18, 2010, accessed March 8, 2012, http://people-press.org/trust/. 35. Michael J. Graetz, 100 Million Unnecessary Returns: A Simple, Fair and Competitive Tax Plan for the United States (New Haven: Yale University Press, 2008), 48. 36. Department of the Treasury, Report to Congress on Return-Free Tax Systems: Tax Simplification is a Prerequisite (Washington, DC: Department of the Treasury, 2003). 37. Austan Goolsbee, “The ‘Simple Return’: Reducing America’s Tax Burden through Return-Free Filing” (a Hamilton Project discussion paper, 2006), 5, accessed March 8, 2012, http:www.brookings.edu/papers/2006/07/useconomics_goolsbee. 38. Ibid. 39. Joseph Bankman, “Simple Filing for Average Citizens: The California ReadyReturn,” Tax Notes 107 (2005): 1431–34. 40. California Franchise Tax Board, “Report to the Legislature: ReadyReturn,” April 23, 2009, 4, accessed March 8, 2012, https://www.ftb.ca.gov/readyReturnReport2009 .pdf. 41. Jim Sanders, “Tax Return Bill Dies in Assembly,” Sacramento Bee, June 2, 2006, A4. 42. Evan Halper, “Second Life for State Tax Program,” Los Angeles Times, December 5, 2006, B1. 43. William J. Kambas, “Reform and Modernization of the Tax Compliance Process,” Tax Notes 108 (2005): 1450. 44. For a thorough and persuasive argument in favor of such a tax data retrieval system, see Dennis J. Ventry, Jr., “Americans Don’t Hate Taxes, They Hate Paying Taxes,” UBC Law Review 44 (2011): 835–89. 45. The President’s Economic Recovery Advisory Board, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation (Washington, DC: White House, 2010), 44.

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index

Page numbers in italics refer to figures. Addams, Charles, 96–97 adoption expenses, 2, 55 Adrich Family, The, 85 Adventures of Ozzie and Harriet, The, 19, 86, 92 Advisory Panel on Federal Tax Reform, 12, 14 African Americans, 22–23 Alain (Daniel Brustlein), 106–7 Alice, 91, 94 alimony, 2, 55, 62 All in the Family, 90, 91–92, 93 Alm, James, 53 alternative minimum tax (AMT), 2, 113, 114 American Recovery and Reinvestment Act, 27 Americans for Tax Reform, 12, 57 Amos and Andy, 92–93 AMT. See alternative minimum tax (AMT) ANES. See under University of Michigan annual tax statements, 16, 26 anxiety over tax returns, 2, 102 April 15: and media interest, 6, 11, 26, 35–38; as a national holiday, 4 Armey, Richard, 12 Arno, Peter, 96 Associated Press, 28, 71, 78, 79 audits, 96–100, 108 Barlow, Perry, 102, 107 Baron, Jonathan, 30 Batchelder, Lily, 32

Bean, Howard, 95 benefits theories of taxation, 24 Berlin, Irving, 18 Biden, Joseph, 113 big government advocates, 6, 12, 14, 15, 25, 123 Bill Dana Show, The, 19, 87, 112 Bliss, Harry, 103–4, 105 Bob Jones University v. United States, 67 Boortz, Neal, 4, 5; The FairTax Book, 1 Booth, George, 98, 99 Bowling Alone (Putnam), 52, 117–19 Braithwaite, John, 50 Braithwaite, Valerie, 50 Breedlove v. Suttles, 22 Brookings Institution, 27 Brown, Ed, 45 Brown, Elaine, 45 Buffett, Warren, 37 Burns and Allen, 92 Bush, George W., 12 Byrd, Harry F., 76–77 California: ReadyReturn, 6, 122 cars, electric. See electric cars cartoons. See New Yorker cartoons casualty losses, 2, 55, 64, 86, 106 Catlett, Richard Ralston, 133n29 charitable contributions, 2, 7, 55, 56; and cheating, 48, 63; and fiscal citizenship, 7, 60–67; matching grant programs, 61, 66–67; portrayal in cartoons, 106; with return-free taxation, 3, 61, 66; and tax

156 / Index charitable contributions (cont.) agency reconciliation, 124; as voting, 61–62, 63–64 Chast, Roz, 101, 102–3, 104, 106 cheating. See tax cheating checkoff programs, 65–66 childcare expenses, 2 children, dependent, 55 child tax credit, 27–28, 33, 56 Christian Science Monitor, 36 Citizens for Tax Justice, 37 citizenship, fiscal. See fiscal citizenship citizenship, political. See political citizenship civilization, taxation as price of, 4, 24, 112, 118 Clarke, Clement J., Jr., 78 Clinton, Bill, 69–70, 119 CNN, 116 Cohen, Flast v., 21 Colbert, Jean Baptiste, 12 college tuition, 2, 55 complexity of return-based taxation, 3, 4–5, 8, 21, 59, 92–93, 100, 112, 113–16, 121 compliance. See tax compliance consumption tax, 58–59, 134n9. See also retail sales tax; value-added tax (VAT) Continental Congress, 43–44 Cook v. Tait, 20 Cosby Show, The, 91 Cotham, Frank, 108 credits: adoption expenses, 2, 55; childcare expenses, 2; child tax credit, 27–28, 33, 56; college tuition, 2, 55; complexity of, 113, 114; dependent children, 2; earned income tax credit (EITC), 7, 23, 27–35, 56, 68–70; electric cars, 2, 55, 58, 60, 106, 115; on Form 1040, 34; health insurance premiums, 55; home energy efficiency, 55; Making Work Pay credit, 27–28; retirement savings of lower-income taxpayers, 55; visibility of, 33–34; vs. deductions, 55. See also deductions Danaher, John, 74 Darrow, Whitney, Jr., 96, 97, 98, 100–101, 106, 107 Day, Chon, 96, 97, 99, 102 Day, Robert J., 102 Dedini, Eldon, 97

deductions: above-the-line, 62–63; alimony, 2, 55, 62; casualty losses, 2, 55, 64, 86, 106; charitable contribu­ tions, 2, 3, 7, 48, 55, 56, 60–67, 106, 124; cheating on, 48–49; complexity of, 113, 114; dependent children, 55; home mortgage interest, 2, 3, 7, 55, 56, 118; individual retirement accounts (IRAs), 2, 55, 64; itemized, 48, 62–63, 79–80, 106, 121; medical expenses, 2, 55, 64; moving expenses, 2; standard, 48, 62– 63, 78, 80, 121; state and local taxes, 2, 55, 56; vs. credits, 55. See also credits deficit. See federal deficit democracy, direct. See direct democracy dependent children, 55. See also child tax credit Deseret Morning News, 36 Dick Van Dyke Show, The, 95 direct democracy, 51 direct-spending programs, 56, 57–58, 59 Disney, Wesley, 72 Doughton, Robert L., 17, 20, 73–74, 76, 79 due date. See April 15 Dunn, Alan, 96, 100, 101 earned income tax credit (EITC), 7, 23, 27–35, 56, 68–70 Economic Recovery Tax Act, 63 Economic Stimulus Act, 28 electric cars, 2, 55, 58, 60, 106, 115 Ellen, 89, 93 Everson, Mark, 4, 5 everyday libertarianism, 57–58 FairTax Book, The (Boortz and Linder), 1 Father Knows Best, 92 federal deficit, 36 federal retail sales tax. See retail sales tax Feminine Mystique, The (Friedan), 100 Fennell, Lee Anne, 15 Fibber McGee and Molly, 92 fiscal citizenship: and charitable contribu­ tions, 7, 60–67; and earned income tax credit (EITC), 69–70; in New Yorker cartoons, 102, 103; and real property taxes, 20; and return-based taxation, 4–6, 8–9, 11, 17–35, 86–89, 102, 103, 111–13, 119–24; and return-free taxa­ tion, 20; in situation comedies, 86–89, 112; and tax agency reconciliation, 6, 9,

Index / 157 122–24; and tax consciousness, 24–27; and tax expenditures, 59–60 Flast v. Cohen, 21 Food Stamps, 33 Form 1040: payroll taxes on, 30–31; refundable credits on, 34; tax liability on, 15–16. See also return-based taxation 47 percent problem. See nonincometaxpayers Fox News, 28, 36 Fradon, Dana, 97, 98, 106 Friedan, Betty: The Feminine Mystique, 100 Friedman, Milton, 12, 14, 68 Gale, William Potter, 44–45 Galle, Brian, 14–15 Gardner, Rea, 100 Gates, Bill, Sr., 37 George, Walter, 75, 79 Gerberg, Mort, 108 Goldberg, Fred, Jr., 32 Graetz, Michael, 5, 57, 69, 111–12, 121; 100 Million Unnecessary Returns, 1 Greatest American Hero, The, 94 Great Gildersleeve, The, 86 Green Acres, 88–89 Gregg, Judd, 36 Gross, Sam, 101 Haefeli, William, 101 Hamamoto, Darrell, 85 Hamilton, William, 108 Handelsman, J. B., 106, 108 Hannity, Sean, 36 Hardy, Charles O., 74 Harlan, John Marshall, II, 23 Harper v. Virginia Board of Elections, 22–23 health insurance premiums, 55 Hetherington, Marc, 51, 117, 119 Hey, Jeannie, 19, 87 Hochman, Nathan J., 40 Hodge, Scott A., 28–30 Hokinson, Helen E., 95, 98, 100 Holmes, Oliver Wendell, Jr., 4, 24, 112–13, 118, 119 home energy efficiency, 55 home mortgage interest, 2, 3, 6, 55, 56, 118 Honeymooners, The, 86, 90, 91–92, 93, 112 Hope scholarships, 55 H&R Block, 2, 114–15, 121

Hulse, John K., 78, 79 Hunt, Stan, 102 Hurricane Katrina, 119 income tax, return-based. See return-based taxation income tax, return-free. See return-free taxation individual retirement accounts (IRAs), 2, 55, 62, 64 Inland Revenue Service (IRS): on frivolous returns, 41–42; portrayal of employees in sitcoms, 93–94; Taxpayer Attitude Sur­ vey, 53–54, 120; on tax protesters, 40 Internal Revenue Code, 80 internet sales tax, 131n4 Intuit, 2, 16, 121, 122 Iowa City Press-Citizen, 36 Iraq War, 119 IRAs. See individual retirement accounts (IRAs) IRS. See Inland Revenue Service (IRS) Jack Benny Program, The, 93 Jackson Citizen Patriot, 37 Jackson Hewitt, 2 Jacobstein, Meyer, 74 Jefferson, Thomas, 28 Joint Committee on Taxation, 56 Jones, Gerard, 85 Kabat, Carl, 133n28 Kahl, Gordon, 45 Kambas, William J., 122 Kehler, Randy, 133n29 Kennedy, John F., 22 Kerber, Linda, 22 Knutson, Harold, 72 Koren, Edward, 108 Kornhauser, Marjorie, 16, 26, 47 Krock, Arthur, 25 Kukla, Fran and Ollie, 92 Lawrence, Kansas, 4 Levi, Margaret, 52 Levin, Arnie, 106 Levitas, Daniel: The Terrorist Next Door, 44 Levmore, Saul, 7; “Taxes as Ballots,” 61–62 lifetime learning credits, 55 Life with Luigi, 19, 87 Linder, John, 4, 5; The FairTax Book, 1

158 / Index Lorenz, Lee, 107 Los Angeles Times, 36, 77 low-wage earners. See earned income tax credit (EITC) Maag, Elaine, 33 Making Work Pay credit, 27–28 Mankoff, Robert, 108 Marc, David, 85 marginal tax rates, 2 market salience, 14 Marriage, The, 90 married taxpayers, 106 Mary Tyler Moore Show, The, 90, 93 M*A*S*H, 91 matching grant programs, 61, 66–67 Maude, 91 McCaffery, Edward J., 30 McCain, John, 112–13 McLure, Charles, 114 McVeigh, Timothy, 45 media interest: and April 15, 6, 11, 26, 35–38; in nonincome-taxpayers, 28. See also visibility medical expenses, 2, 55, 64 Medicare, 30, 127n30. See also payroll taxes Mehrotra, Ajay, 17 Mirachi, Joseph, 97 Modell, Frank, 107–8 Morgenthau, Henry, Jr., 72, 73, 74, 76–77 moving expenses, 2 Moynihan, Daniel Patrick, 63 Murphy, Liam, 57 My Name is Earl, 89 Nagel, Thomas, 57 National Public Radio, 37 National Tax Defier Initiative, 39 National Taxpayers Union, 37 NBC Nightly News, 36 negative income tax (NIT), 68 Newsday, 36 Newsweek, 36 New Yorker, 38 New Yorker cartoons, 8, 83, 84, 94–110; fiscal citizenship in, 102, 103; taxa­ tion of the rich in, 95–96, 107–8; tax audits in, 96–100, 108; taxpayers’ right to express an opinion in, 107; tax preparation process in, 100–104, 108; tax rules in, 104–7, 108–9; before and

during World War II, 95–96 New York Times, 18, 25, 72, 73, 74–76, 79 9/11, 119 NIT. See negative income tax (NIT) nonincome-taxpayers, 27–35 nonresident US citizens, 19–20 Norquist, Grover, 12, 14, 57 Northern Exposure, 91, 94 Obama, Barack, 27, 36, 43 Occasional Wife, 86–87 100 Million Unnecessary Returns (Graetz), 1 Opinion Research Corporation, 116 Orszag, Peter, 32 overpayments, 15, 16, 122 paid preparers, 2, 11–12, 93, 101, 113, 114–15, 123 painfulness of taxation, 6, 11, 12–16 Pale King, The (Wallace), 84–85 Pay as You Earn (PAYE) system, 3, 20 payroll taxes: and earned income tax credit (EITC), 31, 69; and fiscal citizenship, 6, 127n30; on Form 1040, 30–31; percent­ age of federal revenue, 83, 84; visibility of, 20, 30–31. See also Medicare; Social Security peace tax fund, 47 Petty, Mary, 102 Philadelphia Daily News, 37 Phil Silvers Show, The, 90 Plowshares Movement, 47 political citizenship, 17, 21, 119–20 political salience, 14–15 poll taxes, 22–23, 46 popular culture. See New Yorker cartoons; situation comedies Porter, Ethan, 26 Posse Comitatus, 44–45 poverty. See earned income tax credit (EITC) Powell, Lewis, 67 preparation, tax return. See return preparation process preparers, paid. See paid preparers Presidential Election Campaign Fund (PECF), 65 President’s Economic Recovery Advisory Board, 124 Price, Garrett, 106 Price, George, 107

Index / 159 property taxes. See real property taxes protests. See tax protests Providence Journal, 37 public opinion: on return-free taxation, 54, 81; on return preparation process, 112; Taxpayer Attitude Survey, 53–54, 120. See also New Yorker cartoons; situation comedies; trust Putnam, Robert D.: Bowling Alone, 52, 117–19 radio situation comedies. See situation comedies ReadyReturn, 6, 122 Reagan, Ronald, 119 real property taxes, 20, 22, 127n31 refundable credits, 27, 34, 68. See also child tax credit; earned income tax credit (EITC) refunds. See overpayments Reilly, Donald, 98 retail sales tax: and cheating, 49; and fiscal citizenship, 6, 8, 20, 22; lack of individualization, 3, 20; proposals for, 1; rejection of, 7, 71–78; and tax consciousness, 24; and tax expenditure, 57; use taxes, 131n4; visibility of, 13. See also value-added tax (VAT) return-based taxation: checkoff programs, 65–66; complexity of, 3, 4–5, 8, 21, 59, 92–93, 100, 112, 113–16, 121; and consumption tax, 58–59; and fiscal citizenship, 4–6, 8–9, 11, 17–35, 86–89, 102, 103, 111–13, 119–24; frivolous returns, 41–42; origins of, 7–8, 13–14, 17–18, 71–81; percentage of federal revenue, 83, 84; as politi­ cal compromise, 6, 11, 12–16, 25; prominence of, 83, 84, 108–9; simpli­ fication of, 8–9, 21, 36; tax cheating, 6–7, 48–54; tax consciousness, 3–4, 24–27, 123; tax expenditures, 7, 56–60, 111, 114–15; tax protests, 6–7, 39–46; war tax resistance, 46–47; without withholding, 12, 25. See also April 15; credits; deductions; Form 1040; return preparation process; withholding return-free taxation: and cheating, 49, 50; and fiscal citizenship, 20; and individualization, 3; Pay as You Earn (PAYE) system, 3, 20; proposals for, 1,

78–81, 121–22; and tax consciousness, 25; and tax expenditure, 57; taxpayers’ attitudes to, 54, 81; visibility of, 20; vs. tax agency reconciliation, 5–6. See also retail sales tax; value-added tax (VAT) Return-Free Tax Systems: Tax Simplification is a Prerequisite, 121 return preparation process: anxiety about, 2, 102; costs of, 2, 11, 115; data col­ lection for, 123–24; in New Yorker car­ toons, 100–104, 108; paid preparers, 2, 11–12, 93, 101, 113, 114–15, 123; public attitudes to, 112; selfpre­paration, 2, 11–12, 113; software for, 2, 16, 113–14, 115. See also complexity of return-based taxation; simplification of return-based taxation Revenue Act of 1943, 77 Richter, Mischa, 98 Romney, Mitt, 29 Roosevelt, Franklin Delano, 7, 17, 20, 72, 73, 75, 77–78, 79, 81 Roseanne, 91–92, 93, 94, 112 Ross, Al, 101 sales tax. See retail sales tax Santorum, Rick, 28 Saxon, Charles, 106, 107 Schulz, Robert L., 43–44 self-employment tax, 31 Seligman, Edwin, 24 Shanahan, Danny, 107 Shermund, Barbara, 95 “Simple Return,” The, 122 simplification of return-based taxation, 8–9, 21, 36, 121–24 Simpsons, The, 89, 90 situation comedies, 8, 18–19, 38, 83, 84, 85–94; and April 15, 38; fiscal citizenship in, 86–89, 112; IRS em­ ployees in, 93–94; tax cheating in, 89– 92; tax return complexity in, 92–93. See also individual program names small government advocates, 6, 11, 12, 13, 14, 15, 25, 123 Smith, Claude, 102 social capital, 52–53, 117–19 Social Security, 6, 30, 127n30; Your Social Security Statement, 16. See also payroll taxes Sovereign Citizen movement, 45

160 / Index Sparrow, James T., 18 spending consciousness, 25–27 Stack, Joseph Andrew, 132n26 state and local taxes, 2, 55, 56 Staudt, Nancy, 70 Steuerle, Gene, 65 Stevens, Mick, 102, 103 Stevenson, James, 97–98 Stewart, Potter, 23 Steyn, Mark, 34 Stoker, Laura, 52 suffrage movement, 21–22, 23 Sunstein, Cass, 19, 25 Surrey, Stanley, 56, 59 Suttles, Breedlove v., 22 Tait, Cook v., 20 tax agency reconciliation, 5–6, 9, 80, 81, 121–24 taxation: benefits theories of, 24; pain­ fulness of, 6, 11, 12–16; as price of civilization, 4, 24, 112, 118; violent re­ sistance to, 44–45; visibility of, 6, 11, 12–16, 20; and voting, 4, 7, 21–24, 34. See also real property taxes; retail sales tax; return-based taxation; return-free taxation; value-added tax (VAT) tax audits. See audits tax breaks. See credits; deductions tax cheating, 6–7, 48–54, 63, 89–92, 131n4 tax compliance, 52–54 tax consciousness, 3–4, 24–27, 123. See also visibility TAXDEF. See National Tax Defier Initiative tax defiers. See tax protests “Taxes as Ballots” (Levmore), 61–62 Taxes-The Tax Magazine, 78, 79 tax expenditures, 7, 56–60, 111, 114–15, 125n16, 134n9. See also credits; deductions Tax Foundation, 29 tax liabilities, 15–16, 59 tax morale, 53–54 Tax Notes, 27 Taxpayer Attitude Survey, 53–54, 120 Taxpayer Protection Pledge, 57 Tax Policy Center, 27, 29, 30, 33 tax protests, 6–7, 39–46, 132n6 Tax Reform Act, 80 tax salience, 14–15 Tea Party supporters, 35–36, 36

telephone tax, 46 television situation comedies. See situation comedies Terrorist Next Door, The (Levitas), 44 Third Rock from the Sun, 88–89, 93 Third Way, 26, 27 Thompson, Fred, 36 Thoreau, Henry David, 46 Thurber, James, 95, 100 Time, 45 Tobey, Barney, 106 Toder, Eric, 33 Topliss, Iain, 95 Torgler, Benno, 53 trust, 49–54, 63, 116–21, 133n35 TurboTax, 2, 16, 114, 121 Twohy, Mike, 96, 99 underpayments, 15, 16, 122 United Kingdom: matching grant program, 61; Pay as You Earn (PAYE) system, 3, 20 United States, Bob Jones University v., 67 University of Michigan: American National Election Studies (ANES), 50–51, 116, 120 Urban Institute, 27, 33, 65 US citizens, 19–20 US Department of Justice: Tax Division, 39–43 USA Today, 29, 36, 112 use tax, 131n4 value-added tax (VAT): and cheating, 49, 50; and fiscal citizenship, 6, 8, 20, 22; lack of individualization, 3, 20; proposals for, 1, 36, 121; rejection of, 126n8; and tax consciousness, 24–25; and tax expenditure, 57; visibility of, 13. See also retail sales tax Vandenberg, Arthur, 76 Van Susteren, Greta, 28 VAT. See value-added tax (VAT) Victory Tax, 75 violent resistance to taxation, 44–45 Virginia Board of Elections, Harper v., 22–23 visibility: of payroll taxes, 20, 30–31; of refundable credits, 33–34; of returnfree taxation, 20; of taxation, 6, 11, 12–16, 20. See also media interest; tax consciousness; tax salience

Index / 161 voting: charitable contributions as, 61–62, 63–64; and political citizenship, 17, 21, 119–20, 121; and taxation, 4, 7, 21–24, 34 Walker, Robert, 97 Wallace, David Foster: The Pale King, 84–85 Wall Street Journal, 36, 73, 76, 79 war tax resistance, 46–47, 133n29–30 Washington Post, 79 Washington Times, 36 Weber, Robert, 98, 107 Weinberger, Robert A., 121 We the People Congress, 43 We the People Foundation, 43

Williams, Roberton, 27–28 Winchell, Walter, 18, 24 withholding: exact, 1, 3, 8, 20, 78–81, 121; inexact, 14, 25, 122, 123; over­ payments, 15, 16, 122; return-based taxation without, 12, 13, 25; and small government advocates, 12; under­ payments, 15, 16, 122 women: portrayal in New Yorker cartoons, 99–100; women’s suffrage movement, 21–22, 23 World War II: New Yorker cartoons during, 96; origins of mass income tax, 7–8, 13–14, 17–18, 71–81 Wyden, Ron, 36