The problem in a nutshell.

The deficit is soaring and states are struggling to fill holes in their budgets. Why is it suddenly so difficult?

Here’s why:

Click to embiggen!

John Sherffius
Feb 16, 2011

That says it all. We’ve gotten to the point that we expect to maintain all the important social programs without paying for any of it. Ask any business owner and he’ll tell you that you don’t survive long that way. As much as I hate taxes, I’m willing to pay to keep needed services on the table. Whenever I say that out loud it seems like most of the folks in the area look at me like I’m crazy.

What’s crazy is thinking we can have it all for nothing.

Oh to have the problems of Law Professor Todd Henderson!

Pic of Professor Todd Henderson

The not-super-rich Todd Henderson.

Who, you might be wondering, is Law Professor Todd Henderson and just what kind of problems does he have? Well he teaches at the University of Chicago Law School and his problem is that he and his lovely wife, who works at the University of Chicago Hospitals, combined make more than $250,000 a year and are struggling to make ends meet. On top of all of that, Obama is going to raise their taxes by letting the Bush Tax Cuts expire at the end of the year! Oh noes!

Here’s why the good professor is struggling:

The biggest expense for us is financing government. Last year, my wife and I paid nearly $100,000 in federal and state taxes, not even including sales and other taxes. This amount is so high because we can’t afford fancy accountants and lawyers to help us evade taxes and we are penalized by the tax code because we choose to be married and we both work outside the home. (If my wife and I divorced or were never married, the government would write us a check for tens of thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our work in Chicago aren’t cheap and we do not have friends who were willing to help us finance the deal. We chose to invest in the University community and renovate and old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn’t worth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.

Now the good professor doesn’t reveal exactly how much they do earn, just that it’s more than the $250,000 a year that Obama is targeting, but he does dispute the suggestion that it’s on the order of $400,000 a year as one person has claimed it to be. The best we can manage is that it’s somewhere between $250,000 and $400,000 a year which may not be a whole lot of money for your typical university law professor and his doctor wife, I wouldn’t know, but it does seem like an amount one should be able to live on without going beyond their means.

By comparison I made at the top of my career $72,000 one year, but that was a long time ago and if you’ve been reading this blog for any amount of time then you know I’ve been struggling as well. The last couple of years saw me earning $40,000 a year with my wife, who busts her ass at a group home for people with Traumatic Brain Injuries, earning an additional $20,000 a year for a grand total of $60,000 a year or so. With my contract running out at end of April and only being able to find a three-month (so far) job at $13.00 an hour, we’re well on our way to earning quite a bit less than $60,000 this year.

Unlike Mr. Henderson, our biggest expense is not paying taxes to the government as we have our jobs taking out enough that we will almost assuredly get a refund at the end of the year, but we do share the problem of not earning enough to have fancy accountants to find tax loopholes. Unlike Mr. Henderson, I do not own a home as I have not been able to afford to buy one as of yet. Instead I pay $775 a month in rent for a three floor townhouse in Ann Arbor that gives us the luxury of having an unfinished basement. Like Mr. Henderson, we are still paying off my wife’s college loans which is part of why I haven’t taken any out for myself to continue working on the networking degree I started on in 2008. Unlike Mr. Henderson I don’t send my children to private school. In part because my one child is an adult now, but when she was a child we couldn’t afford private schools and if I had a kid today I still wouldn’t be able to afford it. Neither my wife nor I have any retirement savings at the moment let alone anything invested in the stock market.

We share a similar list of bills including insurance, doctor’s bills, utilities, but only one car at the moment, groceries, gasoline, cell phones, and cable TV with no movie channels. We technically have someone to cut our grass, but only because we live in an apartment. We clean our own house. We don’t have a need (currently) for a baby sitter. At the end of the month we don’t even have a hundred dollars in discretionary income.

Speaking of insurance and doctor’s bills, I just this week developed a tooth ache and had to go the dentist. Something we’ve been meaning to do for some time, but haven’t had the extra cash to do because our insurance only covers so much of any given procedure and has a $1,000 maximum yearly benefit. I bet Professor Henderson’s dental insurance is just a whee bit better than that. Turns out I needed three root canals, three crowns and to finally extract the one remaining wisdom tooth I have. I won’t go into detail on why my mouth was in such bad shape other than to say that we’ve only had insurance intermittently over the past five years and when we did have it it was pretty crappy so a lot of stuff that should’ve been done ages ago kept getting put off until finally my mouth decided we had put things off long enough. The insurance covered all but $165 of the first root canal. The remaining two, plus the three crowns and the wisdom extraction, will set me back another $3,700 which I had to take out a loan to afford (and am still about $700 short on). Still got one more root canal, the extraction, and the crowns left to go.

So you’ll have to excuse me, Professor Henderson, but I find it difficult to be sympathetic to your problems. If I were a betting man I’d say it’s likely you don’t have to take out a loan to get your teeth fixed. Nor do you have to put off dental work because the co-pays are too high to get it done when it should be, but I could be wrong. It’s entirely possible your mouth is in as bad a shape as mine because your gardener is so expensive.

All I can say is, if I were earning more than $250,000 a year I’d have no problems living within my means. The year I made $72K was quite comfortable as I recall and I’d be happy with just getting back to that level. At the moment I’d be tickled pink if I could just manage to find another $40K a year job like I’ve had the past couple of years. But again, perhaps I’m being unfair. Perhaps it’s just not possible for some people to live within their means on only $250K a year.

My suggestion would be that he swallow his pride and do what I did: Ask his readers for donations to help out. He’s a blogger with a fairly decent audience it seems and there are a lot of folks who appreciate us taking the time to share our views on the net. Considering the number of people who have helped me out when all I do is shoot my mouth off I’m sure that someone who blogs about teaching law at a major university would be considered an even more valuable resource worth supporting with a few bucks here and there. After his post about how he’s struggling to make ends meet on such a meager income I’m sure there’d be plenty of folks willing to help out.

Alas, my suggestion comes too late as it appears that Professor Henderson’s self-pity party has resulted in something of a backlash that has caused him to quit blogging altogether:

The reason for this note is because I’ve decided to hang up my blogging hat. I was a fool, and I didn’t anticipate how this kind of thing could happen. As many of our readers and my students know, I’m opinionated and willing to push boundaries. This is what I think is the role of a professor, and blogging allowed me to do it in an informal and diverse manner. But I misunderstood the technology, and the consequences are devastating for me personally. I wish I had just stuck to blogging about corporate law and such, but I couldn’t help myself. Self restraint would have been the better course. Perhaps someday I will return and limit my commentary to my academic areas of interest. For now though, I have to say good bye. I’ve enjoyed the experience and the interactions I’ve had with readers and, of course, my co-bloggers. I am sad to leave, but my family has to come first, and my blogging has caused them incalculable damage.

Your family has been caused incalculable damage? Really? Is it incalculable because you’re not a math professor or because some folks said some mean things to you and you’re not sure what kind of price tag to put on that? Granted your whine attracted national media attention and I’m sure you got more than a few people telling you to fuck off and die in a fire, but I’m not sure I see how it caused you and your family incalculable damage unless you or someone in your family was fired from their jobs and then hit with a being-a-whiny-bitch fine or something.

But be sure to let me know if you end up in the gutter as a drunken wino anytime soon and I’ll see if I can’t eek out a few bucks to send your way. I’m with you brother, I feel your pain.

ADF recruiting Fundies to challenge IRS ban on churches endorsing politicians.

The Fundies are getting worried that they’re losing the Culture War it seems. The Alliance Defense Fund is looking for pastors to challenge the IRS rules against churches endorsing political candidates:

CHICAGO—Declaring that clergy have a constitutional right to endorse political candidates from their pulpits, the socially conservative Alliance Defense Fund is recruiting several dozen pastors to do just that on Sept. 28, in defiance of Internal Revenue Service rules.

The effort by the Arizona-based legal consortium is designed to trigger an IRS investigation that ADF lawyers would then challenge in federal court. The ultimate goal is to persuade the U.S. Supreme Court to throw out a 54-year-old ban on political endorsements by tax-exempt houses of worship.

“For so long, there has been this cloud of intimidation over the church,” ADF attorney Erik Stanley said. “It is the job of the pastors of America to debate the proper role of church in society. It’s not for the government to mandate the role of church in society.”

[…] The battle over the clergy’s privileges, rights and responsibilities in the political world is not new. Politicians of all stripes court the support—explicit or otherwise—of religious leaders. Allegations surface every political season of a preacher crossing the line.

What is different is the Alliance Defense Fund’s direct challenge to the rules that govern tax-exempt organizations. Rather than wait for the IRS to investigate an alleged violation, the organization intends to create dozens of violations and take the U.S. government to court on First Amendment grounds.

“We’re looking for churches that are serious-minded about this, churches that understand both the risks and the benefits,” Stanley said, referring to the chance that they could lose their coveted tax-exempt status or could set a precedent.

Fortunately this challenge isn’t going.. uh… unchallenged:

Yet an opposing collection of Christian and Jewish clergy will petition the IRS today to stop the protest before it starts, calling the ADF’s “Pulpit Initiative” an assault on the rule of law and the separation of church and state.

Backed by three former top IRS officials, the group also wants the IRS to determine whether the nonprofit ADF is risking its own tax-exempt status by organizing an “inappropriate, unethical and illegal” series of political endorsements.

“As religious leaders, we have grave concerns about the ethical implications of soliciting and organizing churches to violate core principles of our society,” the clergy wrote in an advance copy of their claim obtained by The Washington Post.

[…] Former IRS lawyer Marcus S. Owens, however, opposes the ADF’s strategy and its legal reasoning. Working with the Ohio-based clergy, he contends that the Supreme Court would be unlikely to overturn appellate court rulings on the issue or a related precedent of its own.

Owens also criticizes ADF and its lawyers for “actively advising churches and pastors that they should violate the tax law and offering to explain how to do that. The tax system would be shut down if you allowed attorneys to counsel people on how to violate the tax law.”

Owens, a former director of the IRS office that regulates tax-exempt organizations, will ask the tax agency to investigate ADF lawyers for “this flagrant disregard of the ethical rules.” He is joined by former IRS commissioner Mortimer M. Caplin and Cono R. Namorato, who headed the office of professional responsibility at the IRS until 2006.

The two Ohio pastors, the Rev. Eric Williams and the Rev. Robert F. Molsberry, have called for hundreds of clergy to preach on Sept. 21 about the value of the separation of church and state.

Even given the Conservative bent of the current Supreme Court I’d still be very surprised if they overturned the IRS rules considering the rather large number of court challenges that have failed as well as a precedent setting SCOTUS case in the past. That said perhaps it wouldn’t be a bad thing to have them challenge it as they risk their tax-free status in doing so. Personally I think Churches should be stripped of their tax-free status and then they can endorse politicians all they want. Make the tax scale progressive so the biggest churches pay more taxes than the smaller churches and things would be just dandy.

Almost two-thirds of companies in the U.S. don’t pay income taxes.

This is annoying to say the least:

Most companies in US avoid federal income taxes – News from The Associated Press

More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million U.S. companies, or 66.7 percent of them, paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of large U.S. corporations – those with at least $250 million in assets or $50 million in receipts – did not pay corporate taxes.

The GAO said it analyzed data from the Internal Revenue Service, examining samples of corporate returns for the years 1998 through 2005. For 2005, for example, it reviewed 110,003 tax returns from among more than 1.2 million corporations doing business in the U.S.

Of course this has been the case for awhile and being reminded of it now probably won’t change anything, but there’s always the hope that it’ll annoy enough people to maybe get a few laws changed. Imagine how well the economy would be doing if the tax burden wasn’t solely carried by citizens.

Obama’s middle class tax cut plan three times the amount of McCain’s.

Another entry in the continuing saga of Why I’m Voting for Obama:

Nashuatelegraph.com: Analysts say Obama offers three times the tax break for middle class

CONCORD – The tax cut plan of Democratic nominee to be Barack Obama offers three times the break for middle class families than proposals of likely Republican nominee John McCain, according to analysts working for a left-leaning think tank.

Families making between $37,595 and $66,354 of annual income with Obama would get an average tax cut of $1,042 per family while McCain’s tax cut for this group would be $319, the report states.

“The choice in November for tax policy may be the largest voters have ever had in this country,” said Jason Furman, director of economic policy for Barack Obama’s campaign.

“John McCain’s tax cut is far larger, more regressive and far more radical than anything President George W. Bush has ever proposed. Barack Obama is proposing one of the largest income tax cuts for the middle class in American history.”

I think the rich folks got enough tax breaks under Bush. Time for the middle class to get a few breaks. Of course the McCain campaign is trying their best to rain on Obama’s parade:

“Barack Obama voted 94 times to raise taxes in just three years in the Senate. Any suggestion that he’ll lower taxes for hard-working New Hampshire families is an insult to their intelligence,” said Jeff Grappone, McCain’s New England communications director.

“Facts are facts. Barack Obama has promised higher income taxes, Social Security taxes, capital gains taxes, dividend taxes and tax hikes on small businesses. These tax hikes will hit middle class Americans and seniors hardest, and it’s change we can’t afford.”

I have no doubts that some taxes will go up, most likely as a result of letting the Bush tax cuts expire, but the fact remains that McCain’s plan is aimed squarely at the folks who need the help the least. It’s just the same failed economic policies of the current administration all over again. What’s amazing to me is the fact that back in 2001 McCain decried the Bush tax cuts saying: ”“I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans who most need tax relief.” So why is he proposing a plan that’s even worse than the one he complained about back in 2001?

Here’s some more on the differences between the two plans:

Once fully implemented, the report finds 23 percent of McCain’s tax cut goes to the wealthiest Americans making more than $2.8 million a year.

McCain’s plan give this group an average tax cut of $270,000, the report said. By contrast, Obama would raise taxes for these wealthy families by an average $700,000 a year according to the report.

Obama pays for his plan in part by raising the top tax rate on capital gains and dividends to 25 percent. McCain eventually sets those rates to be no higher than 15 percent.

The individual authors of this 36-page report work for the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.

[…] The report contends that the total cost of McCain’s plan is under-estimated by phasing it in and having some breaks already schedule to expire in future years. “Like President Bush’s tax cuts, the true cost of McCain’s policies may be masked by phase-ins and sunsets (scheduled expiration dates) that reduce the estimate costs,” the report states.

It also contends both candidates overestimate revenue they would get from closing corporate tax loopholes.

“As noted, both candidates may be over-optimistic in their revenue targets for tax loopholes closers – Obama probably more than McCain,” it states. McCain also fails to identify enough cuts in federal spending to help pay for his plan, the report concludes.

I’ll update this entry later if I can track down a link to the full report.

SEB Mailbag: The Kent Hovind Tax Law Challenge.

I received the following email just as, and this seems to be an increasing trend, I was about to shut down for the night:

From: Lindsey Walsh
Subject: Whatever you do, Mr Jenkins. Be smart. Do NOT watch this movie! It’s scary…

Movie – America: Freedom to Fascism
by Aaron Russo

Mr. Jenkins,
    I am pleased to meet your acquaintance. Please allow me to introduce myself. My name is Mr. Lindsey Walsh. I have a wife and two boys. I am a tax-paying, law-abiding American and a born-again believer in the Lord Jesus Christ. I was browsing through all the Kent Hovind websites and read one of your comments about Mr. Kent Hovind. While I admire your freedom of speech and respect the fact that every man is free to express their opinions, I would simply like to most humbly provoke you to a friendly challange. I noticed you said “tax law” referring to the allegations against Mr. Hovind. I have, perhaps, a defense that may require more time than you have or would like to spend on this issue. However, I will just throw it out there for you to chew or spit out, and you will do what you want with it. My response is in the form of a question: What is the “tax law?” Moreover, what is the “tax law” which Mr. Hovind specifically and allegedly did not comply with? In addition, Is there a law stated in the constitution or amended to it which makes us liable to pay income tax? If so, would you be so kind as to notify me of its location? Thank you for allowing me to participate in this comment and I thank you in advance for your reply.

    Equally earthbound,
    Mr. Lindsey Walsh

P. S. I agree with your comments concerning the “bog brother” interaction. Although I cannot agree with all the words used, overall I thought you gave an intellegent response. Once again, thank you for your time in reading this email and I trust your response will be well thought out and thoroughly researched. Thank you.

I sent back the following reply:

    Mr. Walsh,

    I don’t have enough time to do this email justice at the moment, but I have posted it to my blog for others to assist with if they’re so inclined. I’ll need some time to look up the specific laws listed in the court complaint that Hovind violated, but in answer to your question on the Constitution allowing for income tax I’d point to the 16th Amendment (http://www.usconstitution.net/const.html#Am16) which reads as follows: The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

    That seems pretty straightforward to me, but then I assume you’ve asked the question with that very amendment in mind and likely have some form of counter-argument prepared. Once I have more time I’ll address the other questions you posed.

    Sincerely,

    Les Jenkins

I’m no expert on tax law, but I do have a passing familiarity with most of the anti-tax arguments that various groups have been making over the years. I can recall in my youth a friend of the family who married a guy that was a member of one of these anti-tax groups that ended up doing some prison time for not paying his taxes. So I’ve seen firsthand just what happens when you try to buck the IRS.

Once I get a little more time I’ll sit down and see if I can’t collect together exactly what the charges against Hovind were just to see where Mr. Walsh is going to go with his argument. Will it be a novel approach or will it be one that’s already been smacked down repeatedly by the courts? Time will tell.

My brother proposes the “Salvation Tax” to solve Michigan’s budget woes.

Here in Michigan there’s been quite a bit of talk about new taxes after the governor and legislators signed off on a plan to close this year’s budget deficit by shoving a good portion of it into next year’s budget just so they can claim they didn’t violate Michigan’s constitution which requires a balanced budget. The very next day the governor put out a call for the legislators to get busy coming up with new tax ideas that can be used to balance next year’s looming shortfall. One of the ideas proposed so far is being called the Ticket Tax:

One option—a possible 6% sales tax on sports, music, movie and other entertainment tickets—has galvanized opposition by a group of power hitters that includes the owners of Detroit’s major sports teams and concert venues.

Fans Against Ticket Taxes launched its campaign Thursday, led by Mike Ilitch, who owns the Detroit Tigers and Red Wings and the Fox Theatre, and Bill Davidson, who owns the Pistons and operates three of the biggest concert venues: DTE Energy Music Theatre, the Palace of Auburn Hills and Meadow Brook Music Festival.

At the Tigers’ Thursday afternoon game, Comerica Park staffers handed out flyers urging fans to visit a Web site—http://www.NoTicketTax.com—and contact their state representatives.

The campaign illustrates the political peril of a steep tax increase, which many lawmakers say is unavoidable given a $1.8-billion deficit the state faces in the 2008 fiscal year, which starts Oct. 1.

In response my brother sent off the following email to his state representatives in Lansing and he invites all fellow Michigan readers to do likewise:

    Mr. Marleau,

    I’m writing you regarding the “luxury tax”, going to the movies is hardly a luxury. I pay income taxes already and I fully expect to be paying more. I pay “Sin Taxes” since I smoke and have an occasional beer. Therefore I would like to offer up a new “solution” to the states money problems.

    I feel it’s time for the state of Michigan to be a leader in what I’m calling the “Salvation Tax”,  let’s face it religion is a big business, it’s time for God to put his two cents in where it counts (the state’s coffer).

    This program has only a limited effect upon the state. Think about it clearly, if another church leaves the state, so what? It’s not like they’re pulling their weight around here anyway.

    I thank you for taking the time to consider the salvation tax issue (those bastards squirrel away a lot of money), if you feel you would like help getting this to the floor, please feel free to e-mail me and I will do what I can to assist you.

    Wes Jenkins

At this point I think most people in Michigan are fully expecting some form of tax increase someplace as there’s really no other way to deal with next year’s budget without making cuts that most folks agree are just a bad idea. There’s already plenty of folks upset over guidelines put in place for State troopers that asks them to limit their daily mileage to around 40 miles a day as a result of the budget mess. So perhaps it’s time that the churches in this state started paying their fair share of the tax burden and help keep Michigan in the black.

Needless to say I think it’s a wonderful idea and I am dashing off a similar note to my representatives as well. If you’re also a Michigan resident you can look up your Representative here and your Senator here.