Begging The Question

I’m no tax law expert, but I’ve been fascinated with the reaction to last week’s big DC Circuit tax case, Murphy v. IRS. The Tax Prof Blog has naturally been all over this. You can get the basics here. The opinion is here (24-page pdf). Prof. Caron sums it up more concisely than I ever could: The court held “that § 104(a)(2) is unconstitutional under the 16th Amendment as applied to a recovery for a non-physical personal injury (emotional distress and loss of reputation) unrelated to lost wages or earnings.” Section 104(a)(2) excludes from gross income “damages…received…on account of personal physical injuries or physical sickness.”

First, a few more links. The Tax Prof Blog has good posts here and here, with more here and here and here and here. Prof. Lederman has a very good post at Balkinization, but there are tons of links to other good posts at Tax Prof Blog.

I had two thoughts about Murphy. First, I’m very intrigued by the court’s adoption of a theory that these damage awards are just a restoration of the taxpayers’ basis in “human capital.” As Professor Bryan Camp said in this Tax Prof Blog post:

For the opinion to make any sense, then, it must assume that Murphy’s basis in her reputation and emotional well-being was equal to or greater than her recovery. The court must assume that some dollars Murphy spent at some point in time gave her a basis in her “human capital.” That unstated assumption has huge consequences. For example, if Murphy has a basis in her “human capital” then some portion of wages would also represent a recovery of the capital. Or if Murphy donates her services to a section 501(c)(3) organization, then she should get to take a charitable deduction. Of course, the case law has long held that people cannot take a charitable deduction for the donation of services. That is because it has, until this opinion, been widely accepted that taxpayers have no basis in their labor, their human capital. Karl Marx would undoubtedly give basis to labor, but this county generally has not adopted his economic theories. This opinion moves us in that direction.

I’m sure the DC Circuit panel loves being compared to Karl Marx. People more learned in tax than I am will have lots more to say about the basis basis of Murphy, but I think that aspect of the opinion is even more interesting than the constitutional arguments. And, under the avoidance doctrine, wouldn’t it be a lot easier and smarter for a court (assuming it was inclined to reverse the panel) to declare the recovery to be income, and therefore taxable because of this basis argument, and not get to the constitutional issue at all?

Also, like a lot of the commentators, I am curious to see what tax protesters do with this opinion, especially the restoration-of-human-capital idea. (See these links for lots of fun stuff about tax protester arguments — constitutional, statutory, and conspiratorial.) I think they’re likely to be buoyed by a couple of lines in the opinion. I expect to see these quotes taken out of context in scores of protester filings in the near future: (1) “[W]e reject the Government’s breathtakingly expansive claim of congressional power under the Sixteenth Amendment….The Sixteenth Amendment simply does not authorize the Congress to tax as ‘incomes’ every sort of revenue a taxpayer may receive.” (page 15 of the pdf) (alterations mine) (2) “Broad though the power granted in the Sixteenth Amendment is, the Supreme Court, as Murphy points out, has long recognized ‘the principle that a restoration of capital [i]s not income; hence it [falls] outside the definition of “income” upon which the law impose[s] a tax.’” (page 10 of the pdf) (alterations in the opinion) I expect these quotes, and other similar lines from the panel opinion, to join the pantheon of misapplied legal statements, such as the famous line in Flora v. United States that “[o]ur system of taxation is based upon voluntary assessment and payment, not upon distraint.” 362 U.S. 145, 176 (1960) (Warren, C.J.).

So, with tax protesters on the brain, I turned to Judge Easterbrook’s opinion in a Seventh Circuit tax protester case, Szopa v. United States (5-page pdf) (link via Howard Bashman). The Murphy case wasn’t a classic tax protester case, even if it will be misused in that context. Szopa was a tax protester. In fact, the Seventh Circuit had previously decided to impose sanctions on her for frivolous filings. The panel hesitated over the Justice Department Tax Division’s arguments for a specific dollar amount presumptive sanction based on their hours logged in the average protester case. This opinion, issued a day before Murphy, is the follow-up, where Judge Easterbrook essentially says the government attorneys have been overdoing it in the time they spend responding to tax protester arguments. The panel set the presumptive sanctions at a level higher than they were before, but lower than the government asked for.

I have mixed feelings about this one. On the one hand, a lot of the government briefs in these cases are certainly boilerplate, and usually short to boot. After all, there’s no need to reinvent the wheel here. But on the other hand, as the government attorneys argued, a lot of these filings are gibberish, and the government attorneys have to sift through the junk to present the court with something resembling coherence. I’ve had to do that kind of thing a lot, especially with prisoner litigation, and I can attest that sometimes the “easy” cases take longer, and require more work, than the “hard” cases. That’s because (a) hard cases tend to be briefed well (not coincidentally, usually by counsel as opposed to the frivolous pro se cases) or at least present the issues in a way the reader can grasp. Even if the answer isn’t obvious, the question usually is, whereas in frivolous cases the questions are often unclear. And, (b), sometimes a case you know is frivolous is hard to get rid of because it’s so out-there that there isn’t a lot of precedent on the question — you know it’s ridiculous, but you can’t point to a case saying so.

Now, I grant Judge Easterbrook’s point that Szopa’s case didn’t require a lot of original thought. So maybe it wasn’t the case for the government to fight this battle over. But, in a half-hearted defense of the government attorneys here, I don’t think it’s crazy that they might be putting in a lot more work than you might think is necessary in some of these “frivolous” cases. Judge Easterbrook says that the government can seek higher sanctions “when the case is especially complex or the tax protester’s argument is especially long and opaque.” I wonder if, after Murphy, the government will be seeing those kind of filings more and more.

It’s not often that the morning show of the local sports talk radio station spawns deeper political thought, but that’s what happened a few weeks back.

They were discussing the Showtime documentary Reversal of Fortune, where a homeless man is given $100,000. I don’t think it’s too much of a spoiler to tell you that the man did nothing but play video games and drink, and was broke and homeless again in 6 months. The host who provides the comedy relief on the radio show talked about an event they had done where he had the chance to talk to a few homeless guys. He asked them what they would need to get back on their feet, and if they would take a job if it was offered. Both homeless guys said no, they wouldn’t take a job. All they wanted to do was drink. The host, who is liberal and grew up in liberal household, was understandably disillusioned. His parents and friends had drilled into him the often repeated mantra that homeless people were regular folks who had just fallen on really hard times, and that given some help, they could jump back up into society.

His disillusionment that many homeless people can’t/won’t be helped out of their situation got me to thinking that I haven’t heard a big name politician mention homelessness as an issue in a long time. Lots of Democrats like John Edwards talk about poverty, but not homelessness in particular. A quick search of “homeless” on the Democratic Party’s website returned exactly 5 results. Three were about Katrina, 1 was about immigration, and 1 was about a local mayoral race. Not a single thing about the party’s stance on the issue, or plans to combat the problem. Have the Democrats given up on this issue? Is it an issue that has been removed from the national agenda to become the sole property of local government and charities? Or have they, like the radio host, become disillusioned that the majority of homeless can be helped?

I didn’t bother searching on the RNC’s website.

What I am doing at work: I’ve been kicking ass and taking names. I’ve been more productive in the last week than I have been in quite a while. It’s come somewhat at the expense of blogging, I guess. But for some reason, I’ve just found a groove lately. I never really know how to catch that lightning and keep it going; I just end up riding the wave till it crests. I suppose it helps that I don’t have a life and have been working late. Maybe I’m just doing it to get a good recommendation from the boss. I’ve been thinking about applying for another job. It’s one of those jobs that would be perfect for me — the kind of work I want to be doing in a city I want to live in. It’s almost too perfect, like there’s got to be a catch or something. Actually, the catch is that it would probably be more work than I’ve ever done. (Hint, then: It’s a real job.) So, it’s not exactly that I’m afraid to get the job, but it’s…daunting to think about. Great. Now I’m picturing my boss involved in a conversation like Mr. Waturi’s: “I know he can get the job. But can he do the job? I’m not arguing that with you!”

What I am doing at home: As noted above, I feel like I’ve been spending more time at work than at home. So things here have been kind of quiet. I did some back-to-school shopping recently. That’s a hard habit to break, I guess. Oh, I’ve been trying to figure out a mystery at home. There’s a fence at the back of the building, with a gate leading to the alley. It has a big lock and a motion-sensitive light. The past few nights, I’ve heard a noise that sounded like someone coming through the gate. But I haven’t seen anyone. I can’t exactly see it except from one window kind of far away, but I would be able to see someone. So I thought it might have been someone walking through the alley and rattling the gate or something. But the strange thing is that the light doesn’t always come on. So now I’m thinking it may be a stray cat or a raccoon looking for the trash — something just big enough to sometimes set off the light and just small enough to slip under the gate. I’ll let you know if I get rabies.

What I am reading: I’ve been working off and on with Sunday Money. It’s like Rammer Jammer Yellow Hammer, except about NASCAR instead of Alabama football. It’s good. Also, Deep Survival, which The Ruins got me thinking about. It’s fascinating; I’ll try to have a review sometime.

What I am watching: I watched Jarhead, The Matador, and Kiss Kiss Bang Bang last week. Jarhead was pretty good, but I liked the book better. I really enjoyed The Matador (an intriguing ending that was ambiguous in a good way), and thought Kiss Kiss Bang Bang was very, very enjoyable. Lots of fun.

What I am listening to: Still trying to figure out all the channels on the satellite radio. I spend a lot of time on the comedy channels. They have a censored one and an uncensored one; the uncensored one can get kind of raunchy. So, those and a lot of sports talk, and some classic country and alt-country, and music from bands I never hear on the radio. So I’m very pleased with it.

What I am thinking about: I’m super-excited about college football season — less than a month away. Let’s go Devils! Also, trying to get some work done getting my other blog off the ground.

What I am not thinking about: Pretty much everything else of consequence.

(This post’s title from the Bob Dylan song “When I Paint My Masterpiece.”)

So Barbaro’s chances of pulling through are slim, even though Seabuiscuit proved that a horse can come back and win after a bad injury. What I am wondering is what this has done to the price of Barbaro’s, um, seed. We all know that every sperm is sacred, but part of the big money with race horses is the stud fees a winner collects after they retire. Does an injury like Barbaro’s cause prospective buyers to think his genetics are deficient, or would it just be considered a fluke?

Given the advanced in artificial insemination, even if a live mounting is preferred, means a horse not able to perform his stud duties manually could still sire an extensive line. If the injury did not effectively alter the demand for the sperm, you have to figure his owners have been milking him like a rented cow.

Ken at CrimLaw notes the convictions of several members of the Aryan Brotherhood prison gang. News reports here and here. A few dozen gang members, including very high-ranking Brotherhood leaders, were charged with murder, conspiracy, and racketeering; several of the prosecutions could lead to the death penalty. Ken also points to this item wherein some experts on prison gang culture express pessimism that these prosecutions will have any major impact on the Aryans as a whole. As one says, the gang is “like a hydra — you cut off a limb and it’s going to grow back.”

The news also prompted a couple of comments at TNR’s Plank here and here. One of those leads to this wonderful New Yorker article from a couple of years ago. The article discusses the history and scope of the Aryan Brotherhood, and discusses the early days of the prosecution that just scored its first convictions this week. I highly recommend it.

On the bigger picture, I’m not so pessimistic. I agree that the current prosecutions, even if they result in death penalties, won’t kill off the Aryan Brotherhood right away. But Joe Valachi and the French Connection and other early successes combating the Mafia didn’t shut down that entity either. It took laws like RICO and dedicated cops and prosecutors years and years to have a significant impact. Prison is such a different culture, with completely different incentives, that we’ll probably never be able to wipe out gangs like the Aryan Brotherhood. But the pessimists make it sound like it’s useless to even try. I’m not saying it should be Team USA’s Number 1 goal, but these convictions show that some gains are possible.

Over time, if they keep up the heat with these prosecutions, more and more members will flip, in an effort to see the sunshine some day. One major victory in the current prosecutions was to ensure that the Brotherhood leaders will face at least life sentences — some of them were going to be eligible for parole at some point. Reasonable minds can differ on the efficacy of the death penalty as a general deterrent, but it may be the only meaningful punishment for lifers who kill other inmates. I assume most of these now-federal inmates will end up in super-duper-max prisons, to limit their contact with other gang members.

Ultimately, I wonder if the best tactic for the government is to expand its aim beyond the prison walls. Drugs and money don’t occur naturally in prison: someone has to bring them in. These hardass gang members may not care about tacking another life term on their rap sheets; in fact, they may well be proud of it. But my guess is they’ll feel differently about their wives and girlfriends and mothers getting convicted for helping them. Obviously, some of the smuggling and message-passing happens through lawyers or gang associates, and they should be prosecuted too. And I believe that the “girlfriend problem” is a real and troubling side-effect of the modern drug war. But that term refers to (mostly) innocent girlfriends who get caught in the net because they don’t have valuable information to hand the government. It’s a different story if the wives are knowingly transporting the means and currency for murders and other gang activity into prisons (or on the outside to pay for inside activity, as the New Yorker piece relates). Prosecutors should of course also go after guards who turn a blind eye, or actively help. But if gang members don’t care about their own fate, maybe they’ll care more about what happens to the Aryan Ladies’ Auxiliary.