Doing 501(3) The Right Way

My blogging has been rather light (i.e., non-existent) lately. I should be back more regularly by the weekend. One of the topics that I will post on is the information contained in the limited disclosure of some of the tax returns of the two main Grover Norquist connected entities, Americans for Tax Reform and the Americans for Tax Reform Foundation, contained as exhibits to the complaint filed with the IRS by the Citizens for Responsibility and Ethics in Washington.

I don't know how CREW obtained the returns. However, I doubt whether they were put on to public display by the Norquist crowd.

There are, of course, non-profit organizations that are have ideological viewpoints that run counter to those of Norquist. One of them is OMB Watch. A quick trip to their website offers a strong contrast to the Norquist sites with respect to transparency.

On the OMB Watch site, one can:

• Examine the organization's Form 990 tax returns for the last 8 years


• Find out where OMB Watch obtains its funding


• Obtain a list of groups affiliated with OMB Watch, something that Norquist's groups attempt to hide.

Furthermore, when OMB Watch runs an essay such as White House Continues False Rhetoric on Impact of Tax Cuts, it supports its position by linking to source material and analysis by such groups as the Congressional Budget Office, the Economic Report of the President and the Center on Budget and Policy Priorities. Compare this to the diet of tendentious baloney offered up by ATR.

To the extent that groups such as ATR and the ATR Foundation obtain indirect public subsidy via the tax code, they should be required to disclose their sources of funding and the ways in which they spend their money. Of course, don't hold your breath waiting for Norquist to make voluntary disclosure.

Chawla Update

Today, the Fourth Circuit handed down the opinion in Chawla v. Tranasamerica Occidental Life Insurance Co. (I commented previously on Chawla here, here, and here.)

The Court affirmed the district court's decision on the basis that material misrepresentations made by the decedent on the life insurance applications entitled Transamerica to rescind the policy. However, the Court vacated that portion of the lower court's ruling that held that because a trustee under an insurance trust lacks an insurable interest in the life of the trust's settlor, the trust cannot hold a life insurance on the life of the settlor. The Court reasoned:

Because the district court correctly awarded summary judgment to Transamerica on the misrepresentation issue, its alternative ruling appears to have unnecessarily addressed an important and novel question of Maryland law. And, as a general proposition, courts should avoid deciding more than is necessary to resolve a specific case. This important aspect of the doctrine of judicial restraint has particular application when a federal court is seemingly faced with a state-law issue of first impression. Cf. Kaiser Steel Corp. v. W.S. Ranch Co., 391 U.S. 593, 594 (1968) (observing that, in certain circumstances, federal courts should abstain from ruling on "novel" state-law issue of "vital concern"). In these circumstances, we vacate as unnecessary the district court’s alternative ruling that the Trust lacked any insurable interest in [the settlor's] life.

The opinion in no way obviates the need for a legislative fix in this area. So long as the statute is unclear, there will continue to exist an open invitation for insurance companies to challenge a claim for life insurance benefits where a trust holds the policy.

Hat Tip to Daryl Sidle.

Happy Birthday Testudo

Today is the 150th birthday of my alma mater, the University of Maryland at College Park.

Some things are timeless. For instance, the University Chapel today:


Is not much different than it was when I was an undergraduate:

CBO Saves Bush From His Own Folly

Generally, you will hear the following about the CBO's analysis of President Bush's budget submissions:

Federal revenues would plummet $1.7 trillion over 10 years compared to baseline projections, and deficits would top $2 trillion through 2016 if President Bush's fiscal 2007 budget proposals are implemented, according to new estimates by the Congressional Budget Office.

(From Tax Analysts.)

Yes, the numbers are bad. So bad, in fact, that they won't happen. The tax cuts, as proposed, will not be passed. Of course, the budget cuts, as proposed, will not pass either.

However, tucked away in the CBO report is the following:

The mandatory spending proposal that would have the largest effect on the budget is the creation of individual Social Security accounts. That policy would increase outlays by an estimated $312 billion between 2007 and 2016, CBO estimates. (The Administration projects much higher outlays—$712 billion over the 10-year period—chiefly because it assumes that two-thirds of eligible people would sign up for individual accounts, whereas CBO estimates that about one-thirdwould participate.)

In other words, the CBO report assumes that the number of people who would elect to participate in the proposed Bush Social Security reform would only be half of the number the Administration estimated.

The really good news for the President is that his Social Security reform will not pass, so the additional $1.7 trillion in budget deficit predicted by the CBO will only be $1.4 trillion.

WSJ Mumbo Jumbo

I previously commented on a CBO letter to Senator Charles E. Grassley that explained why the increase in capital gain revenue could not be attributed to the cuts in the tax rates on capital gains. At the conclusion of the posting, I said, "I'm waiting for the WSJ to spin [the CBO letter]." On March 2, the spin began with an editorial entitled "Non-Dynamic Duo." (Subscription required.)

Not surprisingly, the WSJ had to resort to name-calling, dubbing the detailed analysis offered by the CBO as "economic mumbo jumbo." Apparently, "economic mumbo jumbo" is a WSJ term for "technically difficult analyses that contradict the WSJ's ideological biases." At the core of the dispute is whether the CBO's and the JCT's methods of estimation are reasonably accurate. They are.

Late last week, the CBO issued another study, The Uncertainty of Budget Projections: A Discussion of Data and Methods. That study showed that, over the long haul, CBO estimates have generally been on the mark. Thus we have this graph which shows that, generally, the CBO estimates of budgetary surpluses or deficits have been within their 90% confidence range:

(Click for larger image.)

I could respond in kind to the WSJ's editorial by claiming that it's written by a bunch of knaves appealing to the baser instincts of a bunch of fools. But that would be name calling and I shouldn't stoop that low. Oh, what the hell.

Opinions of Precedential Caliber

On Monday, Judge Ellen Segal Huvelle of the U.S. District Court for the District of Columbia issued a decision in the case of Tax Analysts v. Internal Revenue Service. The Court ordered the IRS to release written advice rendered to regional employees by attorneys in the IRS Office of Chief Counsel's national office in less than two hours. The case has been well covered in the tax regions of the blawgosphere, but somewhat ignored elsewhere. It should not be.

There was a time where limitations that were placed on the access to interpretive material, whether administrative or judicial, were justified on the basis of their cost. Thus, opinions of the Court of Appeals of Maryland, Maryland's highest court, have always been published. Opinions of the intermediate appellate court, the Court of Special Appeals, are only published when the Court find's them significant enough to be precedential.

Although somewhat different, the U.S. Tax Court used to draw a distinction between decisions that were reviewed by the entire court and memoranda decisions. The latter were not "officially" published, although they were available through commercial services. Now there is a third, lower tier, category, that of summary opinions. However, all of the opinions of the Tax Court are "published" on the Court's website. That is not the case, for instance, with the non-published opinions of the Maryland Court of Special Appeals, for instance, which are only available, for a fee, either from the Court or from a commercial service. I suspect that this is true with respect to a large number of other intermediate appellate courts in the country.

At the federal level, I suppose that it could be argued that all opinions are published since one can obtain an opinion, for a fee, via the Administrative Office of the Courts' PACER service. However, that is not the same as open web access to all issued opinions. At the appellate level, some circuits offer reasonably decent access. The Fourth Circuit, for intance, "publishes" all opinions, even those that will not be accorded precedential value. Not all of the courts of appeals are so open. The Tenth Circuit's website currently has this wonderful statement: "Opinions of general interest to the public are posted here. There are currently no opinions of general interest." To obtain copies of opinions of the Tenth Circuit that may not be of "general interest" one has to go either to PACER or to websites maintained by Washburn University School of Law or Emory Law School.

At the district court level, things are even more hit or miss. Thus, the U.S. District Court for the District of Maryland maintains a website for its opinions, but only certain judges (Motz, Chasanow, Bennett, Blake, Davis) seem to regularly post their opinions. Most of the judges rarely or sporadically post their opinions. My limited experience with searching for opinions in other district courts or bankruptcy courts suggests that judges in other districts have even a lower rate of publication.

Today, there is no reason not to allow wide publication of judicial decisions. As a matter of philosophy, it has always seemed to me that the "default" rule with respect to judicial proceedings is that they are open to the public. By way of example, the files of all cases are open for review by all and sundry. Cases are sealed only in specific and limited circumstances.

This principle should be extended to the written opinions of all courts. The excuse that the expense of making them available simply will not fly because the cost of widely disseminating and searching them is almost trivial. The public has an interest not only in having judicial proceedings being "narrowly" transparent (i.e., having to go to the court to pull a file to look at an opinion), but "widely" transparent as well.

Things Are Worse Than Previously Reported

The 2005 Financial Report of the U.S. Government has just been released. The picture it paints is not pretty. According to Kleinrock (subscription required):

According to the report, under GAAP [Generally Accepted Accounting Principles] the federal deficit for last year would have been $760 billion. The Treasury reported a deficit of $319 billion for that year. Differences were due to accruals (such as pensions and health care owed to veterans and government employees) not being accounted for under the Treasury method. Because of full disclosure rules placed on companies, especially those that are publicly traded, accruals must be accounted for to help ensure investor trust.

In other words, if we apply the accounting rules that businesses use, the deficit is far worse than previously reported. As noted in This Is My Blog Test, the report contains significant disclaimers concerning its reliability:

* Material deficiencies in financial reporting (which also represent material weaknesses and other limitations on the scope of our work resulted in conditions that, for the ninth consecutive year, prevented us from expressing an opinion on the federal government’s consolidated financial statements.

* The federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2005.

Three major impediments to our ability to render an opinion on the consolidated financial statements continued to be

(1) serious financial management problems at the Department of Defense,

(2) the federal government's inability to adequately account for and reconcile intragovernmental activity and balances between federal agencies, and

(3) the federal government's ineffective process for preparing the consolidated financial statements.

Moreover, as a result of the material deficiencies we found, readers are cautioned that amounts reported in the consolidated financial statements and related notes, certain information contained in the accompanying Management's Discussion and Analysis, and other financial management information that is taken from the same data sources as the consolidated financial statements, may not be reliable. Until the problems discussed in our audit report are adequately addressed, they will continue to have adverse implications for the federal government and the taxpayers, which are outlined in our report.

(My emphasis.)

That is, things are worse than previously reported, but things may even be worse than that.

Kleinrock reports that:

Earlier today members a part of the Blue Dog Coalition spoke out against Treasury's actions. Blue Dogs are comprised of fiscally conservative Democrats who in the past have broken ranks with fellow liberals and supported tax cuts. They, like many on Capitol Hill, are growing extremely tired of catching the administration hiding vital information that could help Congress better determine what bills should be passed and which ones shouldn't.

"Once again we find the administration grossly misrepresenting the truth and intentionally misleading the American public," said Congressman Mike Ross (D-AR), the Blue Dog Whip. "The Treasury's annual but little known report, complete with the signature of Secretary Snow, uses real accounting practices that all American companies follow, and states that the deficit in 2005 was $760 billion, more than double the claim of the administration. The time to restore honesty, accountability, and transparency in our nation's fiscal house is long past due."

I await with bated breath the WSJ's spin.

And Your Point Is?

Both The Tax Foundation and Linda Beale offer comments on a CBS/NYT poll reported on in the NYT on February 28. The headline of the NYT article was "Americans Are Cautiously Open to Gas Tax Rise, Poll Shows." The conclusion drawn by the NYT was:

Americans are overwhelmingly opposed to a higher federal gasoline tax, but a significant number would go along with an increase if it reduced global warming or made the United States less dependent on foreign oil. . . .

The Tax Foundation responded to the comments with a bit of pedantic nit-picking. I can't figure out whether Gerald Prante, the author of the post, truly does not grasp either the essential point revealed by the poll or the policy goal that the proposal to dramatically increase the tax on gasoline hopes to achieve, or whether he is just being disingenuous:

Given that the original question of favorability toward a general gas tax hike was asked, the second question is based on a false premise, making it misleading to the respondent. Here’s why:

Regardless of the definition of "dependence on foreign oil," there is nothing substantive in asking a second question about whether respondents would support a gas tax if it reduced our "dependence on foreign oil." If you define “dependence on foreign oil” as the percentage of oil that comes from other countries (compared to domestic production), then a higher gas tax at the pump is not going to reduce that number at all. That tax would apply to all oil, whether it comes from Texas or Iran, meaning the percentage “dependency” will not change.

On the other hand, if you measure “dependency on foreign oil” by the actual amount of oil coming in from other countries, then of course you will be reducing your dependence on foreign oil. But that would also be reducing our “dependence” on Alaskan oil or Texas oil. You would merely get lower oil consumption period, regardless of the location from which it comes. And you would get that same result from the general gas tax posed in the original question, where respondents overwhelmingly (85 percent) said no.

It is true that articulating the goal as "reducing dependence on foreign oil" is somewhat misleading. But I think that most Americans understand that what is meant is not really an effort to reduce the relative percentage that foreign oil bears to our total oil consumption, but rather a reduction in the total amount of cash we send abroad to buy the stuff. The relevant operative theory is that by dramatically raising the tax on gasoline we will (i) put a good portion of the cash we spend on gasoline in our (collective) pockets, rather than the pockets of foreign nations, (ii) not be in thrall to feudal despots, and (iii) reduce the total consumption of oil. Beale gets it right:

[E]nergy researchers think there is a real correlation between gas taxes and gas consumption: Severin Borenswtien at the University of California, Berkeley's energy institute suggests a 10% increase in cost could reduce consumption by 6-8% over the long term. . . So Americans are willing, after all, to think long term and to pay taxes to protect the things they value.

Robert Frank, an economist at the Johnson School of Management at Cornell, suggests that a $2-a-gallon gas tax, rebated against payroll taxes, could "produce hundreds of billions of dollars in savings for American consumers, significant reductions in traffic congestion, major improvements in urban air quality, large reductions in greenhouse gas emissions, and substantially reduced dependence on Middle East oil."

I assume that there are good arguments against a dramatically increased gasoline tax, but the silly word-play offered by The Tax Foundation and Prante is not among them.