More About the Licensing of Tax Preparers

Posted on by David Stokes

Jim Gallagher over at the Post-Dispatch had a nice column about the question of whether to license tax preparers, as was proposed recently by the IRS and mentioned on this blog. The best thing about this article is that it at least poses the question of how the licensing costs will affect the industry. Other recent stories about licensing that I have seen fail to even consider the idea that licensing can cause costs to rise at all. The only bad part of the column is the insulting title:

“No skills needed to be a tax preparer”

But it may be that the editors chose the title, so we can’t necessarily blame Gallagher for that.

Not surprisingly, current owners of tax preparations companies support the proposed nationwide licensing:

“It’s a great thing. It will hold accountability to tax preparers,” says Salah. “They’ll know what they’re doing. There are lots of tax preparers who are not qualified.”

Of course, it is always those who currently hold an occupation who support licensing that occupation, because it helps prevent future competition. The vast majority of licensing laws are enacted as a result of lobbying pressure from current practitioners of the occupation in question. Recent successful efforts to license interior designers and massage therapists in Missouri are examples of that phenomenon.

But at least Gallagher understands that these types of plans entail costs and harms that might not be obvious at first:

The story may be different for the bookkeeper-turned-homemaker who does tax returns on her (or his) dining room table. Some may find another way to earn money.

People who find themselves in a similar situation to this example should be allowed to do this type of work for as long as people voluntarily choose to hire them. If they do a poor job and their customers keep getting penalized as a result, people will stop hiring them. What’s more, just because you hire a tax preparer does not mean you don’t bear the responsibility of your return being accurate. I like the comment by the CPA at the end of the article:

“I am a retired CPA. It is amazing the number of people who could prepare their rather easy return choose not to. Usually their answer is I may make a mistake. The mistake that we have all made is electing people who have given us a tax law that is impossible to comply with. This is not a political statement but a fact.”

Well said.

Raw Milk Regulations Protect Commercial Milk Producers’ Business

Posted on by Sarah Brodsky

Regarding raw milk regulations, the Springfield News-Leader reports:

Most commercial dairy producers are against the unregulated sale of raw milk because they fear if anyone got sick from it, the pasteurized milk industry would suffer from the bad publicity and confusion.

Fear of bad publicity can’t fully explain why Missouri law allows farmers to sell raw milk from their farms but not from makeshift stands in parking lots. Nor does it justify other states’ stricter controls, such as Oregon’s ban on advertising raw milk. If avoiding negative publicity were the only object, it would be sufficient to keep raw milk out of grocery store aisles. There would be no need for fine distinctions between customers ordering milk ahead of time or paying for it on the spot.

In fact, commercial producers who truly hoped to prevent a public relations disaster would want raw milk to be more visible, not less. Confusion might arise if people heard that someone got sick from raw milk, but they didn’t know what raw milk was or where people got it. They might erroneously assume they were buying raw milk themselves. If raw milk were widely advertised and many people saw it available at independent stands and distribution centers, they’d understand that raw milk is not the same product as the milk they find at the store.

The plethora of raw milk regulations are more effective from the point of view of avoiding competition. When consumers can’t hear about raw milk sales because advertising is forbidden, or when there’s no convenient way to pick up raw milk because it’s sold on a distant farm, most will buy pasteurized milk at the store. Producers stand to lose from easy access to raw milk.

Follow-Up on Work Opportunities for Felons

Posted on by David Stokes

In a recent post, I commented on how I supported preventing felons from working as bail bondsman, but stated that I did think, on the whole, that we were being too restrictive about which positions that felons can work in once they serve their sentences. So, I was delighted to read that in Kansas City Councilman John Sharpe has introduced legislation changing the city’s liquor code to allow felons to work in bars. I think that this is a very positive change, and I commend Councilman Sharpe. There is no reason that felons who have done their time should not be able to serve drinks, or work in any of the other assorted jobs that are available in bars. (I, myself, used to be a barback and a bouncer — although no, I am not a felon.) I hope this change goes through, so it can give former convicts a few more opportunities to build back their lives after they serve their punishments.

I was also delighted to read the story first at Tony’s Kansas City, which is always informative and fun to read for a number of reasons — which you will discover as soon as you visit.

Political Correctness

Posted on by Sarah Brodsky

A legislator in Washington state wants to rewrite laws that characterize poor children as “disadvantaged” or “at-risk,” so that they instead read “at hope.” She thinks there’s a significant difference between those phrases:

Positive labeling is more than a gimmick or political correctness, Franklin says. She believes her idea could lead to a paradigm shift in state government and to changes in classrooms across the state.

The paradigm shift won’t happen, although political correctness is not to blame. There’s a place for political correctness; in some cases, updating legal language to be more sensitive is the right thing to do. For example, laws that were written many years ago may refer to medical conditions or physical disabilities in terms we would now consider offensive. That’s the reason behind this proposal to change the name of a Missouri agency. Racial designations are also susceptible to obsolescence, although switching to the politically correct language is not always easy, as the Census Bureau has found with the word “Negro.” (While many people take umbrage at the name, a diminishing number of people still identify with it, so removing it from forms could impair the accuracy of the Census.)

Politically correct language is useful when you want to avoid antagonizing people. However, you can’t solve a problem just by describing it with different words. Proponents of the “at hope” label argue that children respond to expectations, but the phrase wouldn’t change anyone’s expectations. People form expectations based on their experiences and on available information, not on the legal lexicon. The phrase could actually lower people’s expectations if they suppose that the state wouldn’t establish a euphemism to describe children who really had potential.

Expecting a phrase to transform education is like asking children to learn music with the “think system.” It’s an attractive idea, but it lacks a basis in reality.

IRS Commissioners Should Have to Do Their Own Taxes

Posted on by David Stokes

The Drudge Report linked to a story from The Hill about the not-surprising admission that the new IRS commissioner does not do his own taxes. I think the law should require whoever holds that job to do their own taxes. It would be like how the Federal Reserve has restrictions on stock ownership for certain board members — just a side rule that people have to abide by if they choose to accept serving in that position position. Maybe whoever heads the IRS would fight harder for tax simplification if they had to deal with their own rules.

I have always done my own taxes, even when I had a small business in the ’90s, but that will end in 2010 because my wife and I decided to go with an accountant for the first time. Our taxes are not particularly complicated, but they are not particularly easy, either, and that is as much detail as I’ll bore you with. I always liked fighting through the details as a matter of pride, but now the benefits of that hard work are losing out to the time costs as the returns get more complicated.

More disturbing in the article is this ugly nugget:

The IRS this month announced it will be scrutinizing the tax preparer industry. Shulman said the IRS is looking to set “a minimal level of competence in the preparer community.”

Terrific. Now we get federal licensing rules for one more profession. That will raise the costs of using H & R Block, etc. I’ll admit that this is one field where more people doing their own work (as in their own tax preparation) might bring the great side benefit of leading more people to be upset about the tax code, but I still don’t want that benefit caused by higher costs imposed by the IRS.

The simple fact is that a lot of people can and should be doing their own taxes. If you have one job where taxes are withheld, you can work through it without too many headaches. The head of the IRS should be one of those people.

A Rebuttal to Ray McCarty’s Rebuttal

Posted on by Christine Harbin

Ray McCarty of the Associated Industries of Missouri recently wrote an op-ed, “Film tax credit needs a real shot,” in the Springfield Business Journal as a rebuttal to my op-ed on the same subject. I realize that I have already written extensively about this, but I’d like to take this opportunity to respond to the points that McCarty made.

First, it is more than likely that the money spent by filmmakers via tax credits would have been spent anyway in the market, by private individuals. If a hotel hadn’t rented a room to a member of the film production crew, they could have rented it to somebody else. If the restaurant hadn’t seated the producers at a table, they could have given the table to another party. I think that it is fallacious to assume that, had it not been for the tax credits, these Missouri resources would have been unemployed.

McCarty writes:

Harbin also misses the fact that the movie industry is nontraditional.

Saying that something is a fact does not make it a fact. The only thing that makes an industry like filmmaking “nontraditional” is the fact that the government has intervened to such an extent that it has distorted the market. Health care is another industry that is often described as nontraditional, but as I have described previously on this blog, health care is subject to the same market mechanisms as any other industry.

McCarty also writes:

Lastly, Harbin mentions that it may be better for Missouri to leave the filmmaking to other film states “like California.” She may not know this, but California found itself weakened between 1998 and 2000. Between those years, the U.S. lost $10 billion worth of film productions to Canada, which passed film tax incentives. Southern California alone lost about 35,000 jobs due to the shift to Canada.

It makes economic sense that California would produce fewer films because it had to compete with states and other countries. Filmmakers like Jason Reitman are smart businesspeople, and they will go wherever they can get the best deal. I disagree that this refutes my statement that Missouri shouldn’t feel that it has to compete with other states for filmmaking, however.

Michigan has pursued the filmmaking industry particularly aggressively, and its state legislature is already discussing repealing the program. Missouri would be smart to specialize in producing according to its comparative advantage (i.e., in products that aren’t filmmaking), and then realize gains from trade with those states. Missourians will still be able to enjoy the benefits of the product (i.e., film), and at a much lower cost (i.e., the price an admission ticket at a movie theater vs. the price of subsidizing the production).

As another advantage of producing according to its competitive advantage, Missouri would have an opportunity to differentiate itself. Instead of producing the same products and services as other states do, Missouri could produce the goods and services that are uniquely Missourian.

Furthermore, McCarty did not dispute my argument that targeted tax credits hurt businesses in non-favored industries. By providing special advantages to a select industry, targeted tax credits force everyone else in the market to compete at a disadvantage. In a previous blog post on Show-Me Daily, Dave Roland explains this better than I do:

True economic development happens best when governments allow businesses to compete on a field that offers no special advantages to any of the players. The government does a grave disservice to its citizens when it assumes the responsibility for picking winners and losers in the market, rather than letting businesses succeed or fail on their own merit.

Another argument of mine that McCarty does not address is the one relating to the supreme opportunity cost associated with film tax credits. What else can Missouri do with this money? What is so special about the film industry, in contrast to other industries? Why doesn’t Missouri target hog farmers or economic research analysts or education or infrastructure?

Maybe in a couple of years, each state in the union will offer tax credits that are targeted to filmmakers, thereby negating the artificial comparative advantage that currently exists in states like Missouri. I can only hope.

Local Food Policy Branches Out

Posted on by Sarah Brodsky

When locavores enter the policy arena, they usually focus on education: On school districts’ purchasing decisions, or on initiatives like the University of Missouri Extension Program. Now a public health agency in New Mexico is pushing local food to a wider audience:

With the grant, the Health Council will work toward increasing the availability of fresh, locally grown produce and to help transform the eating habits of the community.

There are two things wrong with the Health Council’s plan. First, there’s the assumption that the government ought to transform an entire community’s eating habits. It’s one thing to say that if a public institution like a school district happens to serve lunch to kids, the food might as well be nutritious. It’s altogether different to set out to engineer a lifestyle change for all of a city’s residents.

The Health Council points to the obesity “epidemic” to justify its plan, but obesity isn’t some kind of contagious disease that the state needs to protect us from. You won’t gain weight from coming into contact with an obese person. While the government might have to take action to prevent the spread of a virus or bacteria, it should leave the choices that can result in obesity up to individuals. They won’t put anyone else in danger if they gain weight.

Second, this is another instance of the government endorsing the idea that locally grown produce is superior to food from other sources. Anyone is free to hold this conviction; however, their belief has no place in policy until they come up with evidence for it. Supporters haven’t demonstrated a connection between local food and health. In fact, some dietitians even recommend frozen produce over fresh:

“[F]rozen produce actually can be healthier than the fresh variety. It is on the plant or tree longer than the fresh variety, so it’s packed with a higher nutrient value.”

If a public school near you is giving preference to food grown nearby, watch out. Your government might begin advocating local food as the correct choice for you, too.

Don’t Write Too Many Details Into Urban Chicken Laws

Posted on by Sarah Brodsky

Urban chickens are up for debate in Columbia. I hope the city decides to allow people to keep at least a few chickens. Ideally, the law should allow a certain number of chickens for anyone who wants them, without a lot of fine print.

When laws include too many qualifications, they lead to absurd predicaments like this one in Sacramento. Chickens are legal there, but only on large plots of land. So, a family that’s renting a smaller property will have to get rid of its chickens — despite the fact that the landlord is happy for the birds to be there, and that bevies of quail, wild turkeys, and wood ducks move through the neighborhood on a regular basis.

There are wild turkeys running down the street but residents can’t raise a few chickens in an enclosed yard? All because the property isn’t spacious enough by an arbitrary standard? If someone were trying to cram hundreds of chickens into a tiny parcel, I would be the first to say the government should step in. But the family in Sacramento keeps just four hens. That’s the kind of case local governments should let alone.

A Land Tax Is Preferable to the Earnings Tax

Posted on by Christine Harbin

Thomas McClanahan of the Kansas City Star explains in an editorial that Kansas City would benefit if it repealed the earnings tax and instituted a land tax.

So many of the taxes we pay are levies on productive effort, which tend to discourage activities and endeavors we should welcome. We want an economy that rewards wealth creation, development, hiring and trade, but we tax incomes, structural improvements, payrolls and sales. […]

The key point: A land tax would encourage investment. Property owners would be penalized for hoarding acreage and doing nothing. For example, speculators who own parking lots downtown — where land taxes would be highest — would have to develop their parcels or sell them to entrepreneurs capable of putting up profitable buildings and realizing the full economic potential of the location.

He cites a 2006 study by Prof. Joseph Haslag, executive vice president of the Show-Me Institute, How an Earnings Tax Harms Cities Like Saint Louis and Kansas City. This study demonstrated that the earnings tax reduces personal income.

The Show-Me Institute has produced several other pieces of scholarly work demonstrating that the earnings tax is too burdensome for Missouri cities.

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