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It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

M is for Mark-To-Market.

One of the big buzz phrases from 2019 was “mark-to-market” taxation. That implies that it’s a novel way to look at tax – but it’s actually not. At least not in theory. The concept of mark-to-market already exists in some areas of tax such as international taxation and as it applies to traders. However, the idea of mark-to-market taxation for everyday taxpayers is somewhat different.

But before we dive into mark-to-mark taxation, it’s important to understand how our current tax system treats appreciated assets. 

When you buy assets for investment – like stocks – you hope that they will continue to gain value. But the reality is that stocks go up and down. And every time the market dips, that doesn’t equal a realized loss, and when the market goes back up, that doesn’t equal a realized gain. To realize a gain or a loss for tax and accounting purposes, you have to do something with the stock. Typically, that means that you sell it or otherwise dispose of it. So, gains and losses aren’t determined moment to moment, but instead on how much your cost basis has gone up or down from the time you acquired the asset to the disposition of the asset.

Basis is, at its most simple, the cost that you pay for assets. The actual cost is sometimes referred to as “cost basis” because you can make adjustments to basis over time. When it comes to stocks, your basis is generally equal to the original cost of the shares; if you participate in a DRIP or other reinvestment plan, your basis is your cost plus the cost of each subsequent purchase/reinvestment subject, of course, to other adjustments for splits and the like. When you dispose of the asset at sale or transfer, sometimes called a taxable event, the value of the stock or asset at that moment is what matters. Nothing else matters. It doesn’t matter if the stock went up and down a hundred times in the middle. Your realized gain or loss is figured by calculating the difference from purchase (plus adjustments) to sale. All that stuff in the middle is, for tax and accounting purposes, just a bunch of squiggly lines.

At tax time, you currently report your realized gains and losses on a Schedule D, and then transfer the results to the reconciliation page on your Form 1040. You don’t file a Schedule D if you don’t have any realized gains or losses: even if the value of your shares went up and down significantly. If there’s no sale or disposition, there’s nothing to report.

But mark-to-market taxation is the idea that you should be able to capture the value of appreciation each year. In other words, you would track (and pay tax) on the value of gains in the year they accrue, and not simply when you dispose of/transfer/sell/give away the assets. In theory, you’d achieve the same basic result as you would now – but you’d eliminate the deferral.

 Here’s an example.

  • Let’s say that I bought a share of stock in 2015 worth $100. And let’s assume it was worth as follows over the next few years: $110 in 2016, $120 in 2017, $150 in 2018, $200 in 2019, and $300 in 2020.
  • Under our current system, if I sold the stock in 2020, I’d have a capital gain of $200 ($300 less $100 basis). But I wouldn’t pay tax in 2016, 2017, 2018, or 2019 on the gain.
  • But if we taxed the appreciation each year, I’d still have a total taxable gain of $200, but it would be broken down into pieces: $10 in 2016, $10 in 2017, $30 in 2018, $50 in 2019, and $100 in 2020. And $10 + $10 + $30 + $50 + $100 = $200. That’s the same as before, just paid out over time instead of at the end.

That’s pretty simple to track if assets keep going up… But what happens if they go down? That’s the tricky part. Depending on the structure of the system, you could perhaps use the losses to offset other income, or allow taxpayers to carry those losses forward or back, as we do now for certain investment income.

So what’s the appeal of mark-to-market taxation? The idea is that you wouldn’t have unrealized or deferred gains for lengthy periods, which would create a reliable stream of revenue for the tax authorities. Some policymakers also believe it could close the tax gap by eliminating potential opportunities for tax evasion or fraud. But adding to the tax burden as you go isn’t popular for all taxpayers: that’s why most proposals have tended to focus on high-income taxpayers (largely by way of creating an exemption).

Mark-to-market taxation can be controversial, and you can sort out on your own whether you’re a fan. But, at least now, you know the basics.

You can find the rest of the series here:

Today is 4/20, or National Weed Day. A few years ago, the counterculture holiday would have confounded from some and amused others. Now, 4/20, the day which celebrates marijuana, is so mainstream that it’s trending on Twitter (82k tweets already marking “#420day” so far this morning). Marijuana doesn’t have the same taboo as it once did, mostly thanks to legalization efforts.

While there are dozens of theories about how the date came to have such significance, the most widely accepted can be traced to a group of teenagers from San Rafael, California. The group, nicknamed the Waldos for their favorite hangout spot (a wall outside of school), used to meet after school to smoke pot. The timing of their meeting, 4:20 pm, became a kind of greeting in the hallway, and the rest, as they say, is stoner history.

Nearly 50 years later, the use of marijuana has spread from high school age kids taking illegal drags behind walls to a more front and center movement. While still prohibited by federal law (possession can lead to fines and jail time), today, forty-two states and the District of Columbia currently have laws legalizing marijuana for either medical or recreational use. States which allow marijuana for medical use include Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Washington, and West Virginia – as well as the District of Columbia (some states allow CBD oil use only, including Georgia, Indiana, Iowa, Kentucky, Texas, and Virginia). Eleven states have legalized marijuana for recreational use, including Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington.

If that feels like a lengthy list, it is – and growing. According to a recent Pew poll, a whopping 91% support making medical marijuana legal, and 67% of Americans think marijuana should be legal, full stop. Despite the trend, possession of marijuana remains a federal crime. Under federal law, marijuana is still classed as a Schedule I drug – on par with heroin, LSD and ecstasy – which means that it is not legal in any form. It is against federal law to grow, sell, or use marijuana for any purpose, including medical purposes. 

While the feds have remained steadfast, states that have moved to legalize marijuana for medical reasons have done so for quite logical reasons: legalizing the drug (like nicotine and alcohol) means that it can be regulated. Regulations mean control. And control is directly linked to the almighty dollar.

The drug industry is a very lucrative market. Keeping it illegal, the argument goes, means that the most benefit flows to illegitimate members of society: dealers and cartels. On the other hand, taxpayers and the government bear the burden of the costs (but not the revenue) to stop them. The federal government spends approximately $33 billion a year on drug control, while state and local governments spend nearly the same on criminal justice expenditures related to drug crimes. According to the National Drug Intelligence Service, the war on drugs costs the United States almost $200 billion a year in indirect costs (downloads as a PDF).

Current drug laws target users, peddlers, and hardcore dealers. In 2018, there were 1.65 million arrests for drug violations in the U.S. Roughly 40% of those arrested (663,000) for possession of drugs were arrested for possession of marijuana; more than nine-in-ten of those arrests were for possessing marijuana, rather than selling or manufacturing it. 

What does that mean to you? Tax dollars. In 2015, the total state expenditure – not including federal costs – on prisons among 45 reporting states was around $43 billion.

In 2012, it was estimated that the legalization of marijuana (not just for medical purposes) could take $10 billion away from the cartels and dealers. A 2018 presentation before the Joint Economic Committee in Congress reported that the marijuana economy totaled more than $8 billion in sales in 2017, with sales estimated to reach $11 billion in 2018 and $23 billion by 2022 (downloads as a PDF).

State and local governments are already seeing the financial impact of the legalization of marijuana. Colorado pulled in $302 million in marijuana taxes, licenses, and fee revenues in 2019. Since 2014, that has resulted in $1,286,670,405 in revenue in Colorado alone. 

So with all of that revenue potential, why won’t the feds budge? Why not make it legal and tax it? The answer is simple: taxing it makes it legitimate. Making one drug legitimate would, the argument goes, open the floodgates to increased drug use, eventually moving on to more potent drugs like heroin and cocaine – the “gateway drug” argument. So it remains illegal – and untaxed.

Interestingly, it was the taxation of marijuana in the 1930s, which lead to the criminalization of marijuana in the first place. In the early part of the 20th century, during Prohibition, booze was illegal, but marijuana was not. Under the 1937 Marihuana Tax Act, there was a two-part tax on the sale of marijuana, one which functioned like a sales tax and another which was more akin to an occupational tax for licensed dealers. Violations of the Act resulted in severe consequences.

In 1969, Timothy Leary challenged his arrest for possession of marijuana under the Act; the case of Leary v. United States made it to the Supreme Court. The Court invalidated part of the Act as a violation of the Fifth Amendment (against self-incrimination). The result was a new law, the Controlled Substances Act, passed in 1970, which criminalized the possession or sale of marijuana. It has remained so to this day.

In 2009, the U.S. Department of Justice (DOJ) issued a memo (downloads as a pdf) to “provide clarification and guidance to federal prosecutors in States that have enacted laws authorizing the medical use of marijuana.” That memo announced that federal law enforcement resources should not target “individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana.” In other words, the feds promised – in so many words – to keep their distance from regulated sales of medical marijuana.

The IRS was mostly silent on the issues until 2011 when the DOJ issued another memo (downloads as a pdf) apparently reversing course. That same year, the IRS played hardball, disallowing expenses for medical marijuana dispensaries. Their justification? Section 280E of the Tax Code which disallows expenses connected with the illegal sale of drugs:

§280E. Expenditures in connection with the illegal sale of drugs. No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

In 2015, however, the IRS released guidance that indicated it might be softening. IRS Memorandum 201504011 (downloads as a pdf), issued on January 23, 2015, revisited the tax deduction question. The memo didn’t reverse course on the issue of the deductions (it is, after all, a law on the books). Still, it did suggest – by looking at another Code section (§263) – that a careful consideration as to the characterization of certain activities might result in legitimate reductions in tax.

Today, only the cost of goods sold is deductible for marijuana businesses. Traditional business costs, like employee payroll and marketing, remain non-deductible. The result is that marijuana businesses can be left with an effective tax rate between 40 and 70 percent.

Of course, Congress could sort all of this out by changing any of many laws from what’s reported on Schedule I to clarifying how marijuana, which is legal for state and local purposes, might be treated for federal tax purposes. Doing so, however, might make them look soft on crime, not a risk that many are willing to take. In particular, the current opiate crisis is proving to be a complication in some states where loosening any restrictions on the accessibility of drugs is considered problematic.

Marijuana remains illegal for federal purposes. The feds seem to understand, however, that aggressively pursuing the criminalization of legal medical marijuana sales won’t make the dollars generated from those sales go away. They’ll likely just go underground – and the revenue which could be generated for states and municipalities along with it.

The Strengthening the Tenth Amendment Through Entrusting States Act, or STATES Act, was introduced in Congress last year and garnered bipartisan support. It would help resolve the differences between the federal government and the states. However, for now, it remains in committee. 

Sin taxes are excise taxes imposed on goods or behaviors – like booze and cigarettes – that lawmakers deem harmful. In addition to raising revenue, the idea is that bumping taxes high enough should trigger a slowdown in the behavior. But what happens if taxpayers simply exchange the “sinful” behavior – not for a “better” response – but for another bad behavior? That’s precisely what a new study funded by the National Institutes of Health suggests: raising taxes on e-cigarettes in an attempt to curb vaping may cause people to purchase more traditional cigarettes.

Economists talk about the response to sin taxes in terms of elasticity. If the idea is to reduce bad behavior, it’s critical to figure out how high you can raise the tax to get people to reduce consumption. For example, when studying soda taxes, economist Roland Sturm concluded that “Small taxes will not prevent obesity.” Sturm determined that taxes would need to hit about 18 cents per dollar to affect behavior.

The same general idea was used to look at e-cigarettes. A team of researchers from six universities examined the effect of e-cigarette taxes enacted in eight states and two large counties on e-cigarette prices, e-cigarette sales, and sales of other tobacco products. Using data from 35,000 national retailers from 2011 to 2017, researchers found that for every 10% increase in e-cigarette prices, e-cigarette sales dropped 26%. But the same 10% increase in e-cigarette prices caused traditional cigarette sales to jump by 11%.

And while that sounds simple, it’s not that easy. First, these aren’t exactly apple-to-apple comparisons. E-cigarette products can vary wildly: some are disposable e-cigarettes, while others are starter kits or refill cartridges. And, the study notes, the number of cartridges, liquid, and nicotine may be very different – even within products of the same type. The corresponding taxes are just as mixed with some levied in proportion to the liquid volume in each e-cigarette product, while others are ad valorem taxes (meaning based on the value). In contrast, traditional cigarette taxes are typically levied in terms of dollars per cigarette.

The math is even more complicated. It’s the stuff of data analysis flashbacks/nightmares:

But the conclusion, according to the study, may be simple: e-cigarettes are an elastic good. And since e-cigarettes and traditional cigarettes are economic substitutes, e-cigarette sales may increase as traditional cigarette taxes go up, and conventional cigarette sales may increase as e-cigarette taxes rise.

Currently, nearly half of the fifty states have an e-cigarette tax, which has significantly raised the price of e-cigarettes. Congress is considering enacting a federal tax of its own on e-cigarettes. That concerns study co-author Michael Pesko, an economist from Georgia State University. “We estimate that for every e-cigarette pod no longer purchased as a result of an e-cigarette tax, 6.2 extra packs of cigarettes are purchased instead,” he said.

“Although vaping-related illnesses are a public health concern, cigarettes continue to kill nearly 480,000 Americans each year, and several reviews support the conclusion that e-cigarettes contain fewer toxicants and are safer for non-pregnant adults,” said Erik Nesson, an economics professor in the Miller College of Business at Ball State, and a member of the research team.

According to the Centers for Disease Control and Prevention (CDC), nearly 3% of adults in the United States used e-cigarettes in 2017. Using e-cigarettes – or vaping – among adolescents has grown even more rapidly, with almost 27.5% of high school students using e-cigarettes in 2019. 

And while vaping-related illnesses are a public health concern, according to the CDC, traditional cigarettes continue to kill nearly 480,000 Americans each year. Some studies suggest that e-cigarettes contain fewer toxicants and are safer for non-pregnant adults than conventional cigarettes. 

That poses an interesting dilemma. If raising taxes on e-cigarettes – the long-term effects of which are not wholly known – simply chases smokers to traditional cigarettes – which the CDC has determined to be “the leading cause of preventable death” – is it worth it? The research team believes that the issue will continue to be important for policymakers to consider as they develop e-cigarette related tobacco control policies.

You can read the study, “The Effects of E-Cigarette Taxes on E-Cigarette Prices and Consumption: Evidence from Retail Panel Data,” from the National Bureau of Economic Research. The research team was made up of six economists: Dr. Erik Nesson at Ball State University, Dr. Nathan Tefft at Bates College, Dr. Michael Pesko at Georgia State University, Dr. Catherine Maclean at Temple University, Dr. Charles Courtemanche at the University of Kentucky, and Dr. Chad Cotti at the University of Wisconsin Oshkosh.

As concerns circulate about a potential recession, President Donald Trump insists that the economy remains healthy. Despite those assertions, there have been rumblings that White House officials are exploring the possibility of a temporary payroll tax cut to put more money in the hands of consumers. 

According to reports, economists inside the White House have drafted a white paper about the potential for a payroll tax cut. Earlier, a White House official released a statement saying that “more tax cuts for the American people are certainly on the table, but cutting payroll taxes is not something under consideration at this time.” However, President Trump confirmed to reporters that payroll tax cuts are on the table, along with those rumored potential changes to capital gains, saying, “I’ve been thinking about payroll taxes for a long time. Many people would like to see that.”

If the back-and-forth sounds familiar, it echoes themes from an earlier time. The last payroll tax cut for American workers—also controversial—was pushed through by the Obama administration in 2011, despite concerns that the cut would increase the federal deficit. The theory was that the benefit would offset any costs: The cut was intended to kick-start the economy following the 2008 recession. After the first round, Congress renewed the temporary payroll tax cuts in 2012.

Here’s how the payroll tax cuts worked. Wages and self-employment income are subject to Social Security and Medicare taxes. Together, Social Security and Medicare taxes are known as FICA (Federal Insurance Contributions Act) taxes and are taken right out of your paycheck. Taxes on self-employment income are separately referred to as SECA (Self-Employment Contributions Act) taxes since self-employed persons pay both the employee and employer contributions.

If you’re employed, you pay Social Security tax (6.2%) as the employee, and your employer also pays the same rate of tax (6.2%); again, if you’re self-employed, you pay both portions.

Unlike Medicare, Social Security taxes are subject to a wage cap. In other words, you pay Social Security taxes on your earnings until you hit a magic number. After that, your wages are no longer subject to Social Security taxes. For 2019, that magic number is $132,900. That means that whether you make $1,000 or $100,000, you will pay Social Security taxes on that income. But if you earn $132,901? You’ll pay Social Security taxes on $132,900, but not on the extra dollar. And if you earn $1,132,900? You’ll pay Social Security taxes on $132,900 but not on the extra million.

In contrast, all wages are subject to Medicare taxes. If you’re employed, you pay Medicare tax (1.45%) as the employee, and your employer kicks in tax at the same rate (1.45%). As before, if you’re self-employed, you’ll pay both portions. And, thanks to a change in the law which took effect in 2014, high-income taxpayers are also subject to a Medicare surtax (0.9%) tacked on to wages that exceed $200,000, or $250,000 for married taxpayers.

Your employer collects those Social Security and Medicare payments and remits them to the government on your behalf (or you pay them directly if you’re self-employed). These taxes are sometimes referred to as “trust fund” taxes and are credited toward your retirement benefits.

(You can find out more about trust fund taxes here.)

With that, here’s how the 2011 payroll tax cut worked. On the employer side, payroll tax contributions for federal purposes remained the same. On the employee side, payroll tax contributions for federal purposes were reduced by 2%: Instead of paying in at 6.2% for Social Security taxes (up to the cap, which was, at the time, $106,800), contributions were 4.2% for Social Security taxes (still up to the cap). Self-employed persons also got a 2% reduction. Contributions for Medicare remained the same.

A similar payroll tax cut in 2019 could save top wage earners up to $2,658. Most full-time wage and salary workers would save in the neighborhood of $908, or about a week’s wages (based on data from the Bureau of Labor and Statistics for the quarter ending July 2019, downloads as a PDF).

Whether a payroll tax cut will become a reality is yet to be seen. However, discussions about more tax cuts are likely coming. National Economic Council Director Larry Kudlow told Fox News Sunday viewers, “Tax cuts 2.0, we are looking at all that.”

There is no passage in the Bible that states, “Thou shalt not pay tax.” That was the finding in an Australian court case that garnered worldwide interest because of the nature of the defense: the family refused to pay tax, claiming that it was “against God’s will.” However, Associate Justice Stephen Holt ruled against them, ordering the family to pay more than $2 million in taxes.

The family, including siblings Fanny Alida Beerepoot and Rembertus Cornelis Beerepoot, migrated to Australia from the Netherlands in the 1980s, eventually settling in northern Tasmania where they operated a successful honey farm.

Tasmania is an island located off of the southern coast of Australia; it’s a separate state but governed by Australia, much like states in the United States. Tasmania, like other states, also has local governments, sometimes called local councils. Those councils are responsible for roads, trash disposal and the like. The money to pay for those projects, as in the U.S., typically comes from a combination of property taxes and money from the state and federal governments. Those property taxes are what the Beerepoots initially refused to pay (their council tax bill) beginning in 2010.

The Beerepoots based their claim on the idea that they didn’t own the land, saying that it belonged to God and thus, paying taxes would be the same as bowing to a “false god.” In a letter addressed to the Meander Valley Council, the Beerepoots wrote:

On the other hand, we believe that our heavenly father is sovereign and that he reigns today, thus we worship him and him alone so that his will is established on the Earth … you are asking us to bow down to a false god which is something we cannot do.

In 2017, the Guardian reported that the local council had seized a car owned by the family to pay the debt, but were considering seizing the property for sale to pay the tax due. Part of the land was eventually taken and sold by the local council in an effort to settle the debt.

The Beerepoots aversion to paying tax didn’t stop at property taxes: Fanny and Rembertus were also accused of failing to pay income taxes. The Beerepoots claimed that they had paid income tax before 2011, but later realized that paying tax was “against God’s will.” Specifically, Rembertus argued that forcing them to pay tax meant that they were being taken away from God. That’s why, he says, Australia has been cursed. According to ABC News Australia, Beerepoot alleged, “As we move outside of God’s jurisdiction, this country has received curses which we’re already seeing in the form of droughts and infertility.” He suggested, “As we reject God, the curses upon us become greater, but if we return to God’s teachings there will be healing,” concluding that ”[w]e rely on the blessings we receive from God which we give to him and not to an outside entity such as the tax office.”

Those blessings were pretty significant. In 2017, the pair were summoned to the Supreme Court of Tasmania after failing to pay income tax. The amount due eventually reached more than $2 million (AUS) in tax, interest, and costs.

It took less than three hours for the court to rule against them, ordering the brother and sister to pay $1.159 million (AUS) and $1.166 million (AUS), respectively. Judge Holt said that he believed that their beliefs were genuine, “[b]ut in my view, the Bible effectively said that civil matters and the law of God operate in two different spheres.”

The family, who have not publicly aligned with any particular religious group, disagrees. They have posted their religious beliefs on their web as “Caleb’s Journal.” Referencing the separation of government and religion, the family claims that Biblical teaching “requires that we cease rendering to Caesar that which belongs to God.” The articles on the website are attributed to Henk Beerepoot, the father of Rembertus and Fanny. Henk died in 2013.

The family has offered little in the way of comment outside of court, but a banner on the honey farm’s website notes that the honey farm is closed for a couple of days “due to personal family matters.”

Remember that earlier chatter suggesting that Congress should extend the tax filing season? There’s now a serious proposal to do just that.

Representatives Sean Casten (D-IL) and Lauren Underwood (D-IL) have introduced the Taxpayer Extension Act, which would give American taxpayers an additional five weeks to file their individual tax returns for 2018. That would push the deadline from April 15, 2019, to May 20, 2019.

Five weeks isn’t a random number. The shutdown—the longest ever in U.S. history—lasted that long: 35 days. Tax season opened on January 28, 2019, with Internal Revenue Service (IRS) Commissioner Chuck Rettig assuring taxpayers, “The IRS will be doing everything it can to have a smooth filing season.” But so far, that’s not necessarily been the case.

In her remarks about the bill, Underwood noted that “just before many families went to file their taxes, there was a senseless government shutdown that left tax filers’ calls unanswered, doors for assistance centers locked, and 90 percent of the IRS workforce home without pay. This is common-sense legislation that will help give taxpayers extra time to ask questions and file their taxes this year.”

In addition to the delays attributable to the shutdown, Casten and Underwood claim that “more time is also critical to ensure that taxpayers have the online tools they need to file their returns electronically.” Antiquated computer systems have long been a thorn in the side of the IRS, with Nina Olson, the National Taxpayer Advocate (NTA), telling Congress that it was the top issue facing taxpayers this year.

(You can read more about Olson’s report here.)

Last year, the IRS experienced computer system issues on Tax Day, April 17, 2018. As a result, the IRS was forced to extend the filing season, giving taxpayers an additional day to file and pay their taxes. Olson warned that crash last year “prompted talk of the risk of a catastrophic systems collapse.” As a result, Casten and Underwood believe that granting an extension now would help to avoid computer breakdowns by helping to “alleviate the system overburden so that tax filers are provided the services they need and deserve.”

(You can read more about the Tax Day 2018 crash here.)

A report calling for more time released by National Taxpayers Union Foundation (NTUF) used Olson’s report as a starting point for calling for more time for taxpayers this filing season. The NTUF also pointed to the shaky start to the tax filing season, which began only a few days after the shutdown ended. So far, there hasn’t been much improvement, with filing statistics indicating that taxpayers aren’t filing as quickly as they did last year.

(You can see those numbers and find out more here.)

Andrew Moylan, NTUF’s executive vice president, and Andrew Wilford, an NTUF policy analyst, suggested in their report that, “[b]y taking swift and decisive action, Congress and the IRS can help to ease the time crunch that threatens to harm taxpayers and further disrupt IRS operations.”

(You can read more about their analysis here.)

The NTUF suggested that an appropriate time frame for an extension would be at least one calendar month, pushing Tax Day for individual taxpayers to May 15, 2019. Casten and Underwood, however, are pushing for a few more days with Casten calling the level of service available to taxpayers earlier in the season “unacceptable.”

It’s not your imagination: It really is a different kind of tax season. It’s so different that the National Taxpayers Union Foundation (NTUF), a nonpartisan research and educational organization, is calling on Congress to extend the filing season.

Why the pitch? The NTUF argues that the timing of the shutdown—the longest ever in U.S. history—created a perfect storm for the Internal Revenue Service (IRS) as it was preparing for a busy filing season. Tax season opened on time on January 28, 2019, with IRS Commissioner Chuck Rettig assuring taxpayers, “The IRS will be doing everything it can to have a smooth filing season.”

The shutdown created a backlog of correspondence and appointments (more on that here) that needed to be tackled during tax season. In her annual report to Congress, Nina Olson, the National Taxpayer Advocate (NTA), advised that “[t]he five weeks could not have come at a worse time for the IRS.” The shutdown hit at the same time as taxpayers were grappling with a new tax law and a “completely restructured” tax form. As a result, the IRS kicked off the current filing season “inundated with correspondence, phone calls, and inventories of unresolved prior year audits and identity theft cases.” 

(You can read more about Olson’s report here.)

Even though the IRS turned the lights on at the start of the season, the NTUF says that taxpayers didn’t receive the same level of service expected from previous tax seasons. For example, calls went unanswered. At the beginning of filing season, the IRS only answered 48% of incoming calls, with an average wait time of 17 minutes. At the start of the filing season last year, the IRS answered 86% of calls, with an average wait time of four minutes.

The result, the NTUF says, is that “[t]he shutdown left taxpayers and tax practitioners without much of the support they need, as service centers were unstaffed and forms not yet completed.”

That might explain why, weeks after tax season kicked off, filing statistics reflect that taxpayers aren’t rushing to file their tax returns.

The NTUF thinks the solution is an easy one: extend the filing season. Andrew Moylan, NTUF’s executive vice president, and Andrew Wilford, an NTUF policy analyst, suggested in their report that, “[b]y taking swift and decisive action, Congress and the IRS can help to ease the time crunch that threatens to harm taxpayers and further disrupt IRS operations.”

(You can download the report as a PDF here.)

The NTUF believes that an appropriate extension would be at least one calendar month, considering that the shutdown lasted 35 days. That would push Tax Day for individual taxpayers to May 15, 2019. The authority to change the deadline can clearly come from Congress, but the NTUF suggests that Secretary of the Treasury could also take steps to extend the filing deadline. The language granting that power is found in the Internal Revenue Code at section 6081:

The Secretary may grant a reasonable extension of time for filing any return, declaration, statement, or other document required by this title or by regulations.

Additionally, claims the NTUF, the IRS could also waive penalties or offer other relief.

There has been no official proposal in Congress to extend the deadline. However, as a nod to the complicated tax season, earlier this year the IRS granted some penalty relief to taxpayers who might not have withheld enough in 2018. Specifically, the IRS will waive underpayment penalties (section 6654 penalties) so long as withholding and estimated tax payments total at least 85% percent of the tax shown on the return for the 2018 taxable year. Normally, if you don’t pay at least 90% of the tax that you owe or 100% of the tax that you owed in the prior year (the percentage is 110% if your adjusted gross income on that return was at least $150,000), you may owe a penalty. 

(You can read more about the penalty relief here.)

Each year, the National Taxpayer Advocate (NTA) makes an annual report to Congress. The report is required by law under Section 7803(c)(2)(B)(ii) of the Internal Revenue Code which mandates that the NTA identify at least 20 of the most serious problems encountered by taxpayers and make administrative and legislative recommendations.

The most serious problems, as identified by the NTA, together with their recommendations are:

1. The IRS’ failure to answer the right tax law questions at the right time harms taxpayers, erodes taxpayer rights, and undermines confidence in the IRS. 

In 2014, the IRS implemented a policy to only answer tax law questions during the filing season (January through mid-April). The change was budget-driven and was not a reflection of reality since taxpayers have questions throughout the year. This, the NTA, points out, doesn’t make sense. It’s important to provide timely and accurate answers when problems arise, and not just during filing season.

To resolve the issue, the NTA recommends that the IRS answer certain tax law questions year-round, as well as develop a method to respond to unusual or complex matters. The latter could be achieved through email or phones, perhaps using Artificial Intelligence and pattern recognition technology.

2. Counsel is keeping more of its analysis secret, just when taxpayers need guidance more than ever.

The IRS Office of Chief Counsel (OCC) provides advice to headquarters employees and that advice must be disclosed to the public. However, the NTA says that the OCC has been making less information available.

The NTA recommends that the OCC should develop clear written guidance for disclosing advice, and it should not withhold advice based on its form (e.g., email versus a memo).

3. Taxpayers have difficulty navigating the IRS, reaching the right personnel to resolve their tax issues, and holding IRS employees accountable. 

Taxpayers often have difficulty finding answers to questions regarding their cases. Specifically, the phone line system is difficult to understand and results in long hold times, and questions are shuffled to groups instead of individual employees. 

The NTA recommends that the IRS provide the IRS Telephone Directory for Practitioners or a similar directory to the general public, as well as institute a 311-type system where an operator can transfer a taxpayer to the specific IRS office (if you’ve ever called the IRS, you know that typically you cannot be transferred between departments). The NTA also recommends that a single employee should be assigned to the IRS with a complaint tracker to monitor and record requests to speak with supervisors, subsequent follow-up, and other results.

4. The IRS’ Free File offerings are underutilized, and the IRS has failed to set standards for improvement.

As part of its statutory duty to increase e-filing, the IRS partners with Free File, a free online software program available through IRS.gov. With Free File, taxpayers with income below $66,000 in 2018 typically have access to free tax prep software (eligibility may vary). That means that up to 100 million taxpayers, or 70% of filers, are eligible to use Free File. Taxpayers with income above $66,000 have access to fillable, electronic versions of the paper forms.

(You can read more about FreeFile here.)

However, the use of the Free File program has steadily declined. During the last fiscal year, only about 2.5 million people filed returns using Free File software, even though e-filing has increased. Age and language limitations in the software may have contributed to the decline.

The NTA recommends that the IRS develop actionable goals for Free File, including creating measures to evaluate taxpayer satisfaction and test each return preparation software’s ability to complete various forms, schedules, and deductions, and a clear advertising and outreach plan to make taxpayers, particularly in underserved communities, aware of the services. If these recommendations are not adopted, the NTA recommends that the IRS scrap the Free File Program. 

5. The IRS’ fraud detection systems are marred by high false-positive rates, long processing times, and unwieldy processes which continue to plague the IRS and harm legitimate taxpayers.

IRS fraud detection systems are meant to prevent tax refund fraud. However, they generate high false-positive rates (FPRs) and long processing times and affect the ability of taxpayers to receive their refunds.

The NTA recommends that the IRS use better metrics to more accurately reflect the number of legitimate refunds that take more than four weeks to resolve, in addition to studying why it takes some taxpayers longer to authenticate their identities so that they can ensure a timely resolution to FPR-related delays.

6. Measures the IRS takes to reduce improper earned income tax credit (EITC) payments are not sufficiently proactive and may unnecessarily burden taxpayers. 

The IRS estimates that 25% of The EITC credits it allowed in fiscal year (FY) 2018 were improper payments. The EITC is complicated and yet, the IRS doesn’t have a dedicated telephone helpline available year-round for taxpayers to call with questions about EITC. Also, for every dollar of EITC improper payments, 40 cents of EITC went unclaimed by taxpayers who appear to be eligible for the credit.

The NTA recommends that the IRS take steps to educate taxpayers about the EITC, including collaborating with TAS to determine how to best identify eligible taxpayers who do not claim EITC, easier-to-understand EITC notices, and a dedicated, year-round toll-free helpline staffed by IRS personnel trained to respond to EITC and Child Tax Credit questions.

7. The IRS lacks a coordinated approach to its oversight of return preparers and does not analyze the impact of penalties imposed on preparers.

The IRS has made efforts to regulate tax preparers but lost those battles in court. Today, the IRS cannot require that tax return preparers pass competency tests or undergo continuing education.

(You can read more about the court case and the fall-out here and here.)

The NTA recommends that the IRS invite representatives from TAS to assist in developing a coordinated strategy to provide effective oversight of return preparers and to communicate strategy to preparers. The NTA also recommends that the IRS figure out how to educate vulnerable taxpayer populations about how to select a competent return preparer and the risks of return preparer fraud. 

8. The IRS’ correspondence examination procedures burden taxpayers and are not effective in educating the taxpayer and promoting future voluntary compliance.

IRS correspondence audits can be complicated. In fiscal year (FY) 2017, the IRS audited almost 1.1 million tax returns; approximately 71% of all those audits were correspondence audits. Of those, the IRS took more than 65 days to respond to the majority of taxpayer replies in refundable credit cases, answered the Small Business/Self-Employed (SB/SE) division exam phone only about 35% of the time and closed 42% of correspondence audits (42%) with no personal contact. If the idea is to assist taxpayers so that they can learn the rules, correct their mistakes, and remain compliant, the NTA believes there is room for improvement.

The NTA recommends that the IRS take steps to improve correspondence audit communication, including requiring at least one personal contact between an IRS employee and the taxpayer before closing the exam, as well as assigning a single employee for a correspondence exam. 

9. The IRS’ field examination program burdens taxpayers and yields high no change rates, which waste IRS resources and may discourage voluntary compliance. 

The IRS has conducted fewer field exams (sometimes called in-person exams) in recent years, with approximately 272,000 field exams in fiscal year (FY) 2010 compared to 156,000 field exams in FY 2018. With limited resources, the IRS may need to be more discriminating in choosing cases.

Currently, field exams have unacceptably high no change rates (no change audits negatively affect voluntary compliance) and field exam programs do not have a formal centralized system to track taxpayer complaints and requests to speak to a manager.

The NTA recommends that the IRS periodically survey taxpayers after field exams to determine the impact taxpayers, as well as notify taxpayers during an audit of any consultations with specialists and provide an opportunity for taxpayers to discuss the results.

10. The IRS does not know whether its office examination program increases voluntary compliance or educates the audited taxpayers about how to comply in the future. 

Promoting voluntary compliance should be the goal of an IRS exam (or audit). According to the NTA, a face-to-face experience benefits both the taxpayer and the IRS since the taxpayer can ask questions and explain his or her position to the IRS, and the IRS employee can immediately see if the taxpayer understands the answers. This is different from a correspondence exam where a taxpayer may never have personal contact with the IRS.

The NTA recommends that the IRS develop measures to track audits by type of exam, as well as track results of audits that are appealed by type of exam. The NTA also recommends that the IRS make educating the taxpayers on future compliance a key part of the exam, as well as expanding opportunities for office exams. 

11. The IRS has failed to exercise self-restraint in its use of math error authority, thereby harming taxpayers.

When a return appears to contain one of 17 types of errors (called math errors), the IRS can summarily assess additional tax without first giving the taxpayer a notice of deficiency, which triggers the right to petition the Tax Court. Last year, the IRS concluded that it could use this authority to reverse and recover refundable credits for students, children, and the working poor on 17,691 returns – some nearly two years after the returns were filed. According to the Treasury Inspector General for Tax Administration (TIGTA), the IRS improperly denied credits to 289 taxpayers and sent 113 taxpayers the wrong letters to explain why their credits were disallowed. 

The NTA recommends that the IRS adopt a policy statement or similar guidance which voluntarily limits the circumstances in which it will use this authority, and require the IRS to alert taxpayers to any discrepancies as early as possible.

12. Although the IRS has made some improvements, math error notices continue to be unclear and confusing, thereby undermining taxpayer rights and increasing taxpayer burden.

Math error authority allows the IRS to summarily resolve mathematical and clerical errors with taxpayers’ tax returns that are obvious. However, the NTA says that the IRS is using this authority to resolve more complex issues. 

When the IRS adjusts a return, it sends a notice to the taxpayer. However, many notices are confusing. This makes it difficult for taxpayers to determine what the IRS might have corrected and what their options might be.

The NTA recommends that the IRS explain the errors in the notices more clearly, noting the exact line on the tax return where it made a change and the reason for the change. The notice should also explain the taxpayer’s options important deadlines for accepting or appealing a change.

13. The IRS fails to clearly convey critical information in statutory notices of deficiency, making it difficult for taxpayers to understand and exercise their rights, thereby diminishing customer service quality, eroding voluntary compliance, and impeding case resolution. 

If you owe tax, the IRS sends a statutory notice of deficiency (sometimes called a 90-day letter). The notice is supposed to identify the type of tax, the tax year (or period involved), and an explanation of the taxpayer’s right to appeal the decision in the United States Tax Court. However, many of these notices are confusing (and frightening).

(You can find out more about Tax Court here.)

The NTA recommends that the IRS redesign the notices of deficiency to make them easier to read. The NTA also recommends that the notices and any follow-up actions be tracked so that the IRS can develop strategies for assisting taxpayers before a matter proceeds to court.

14. Despite recent changes to collection due process notices, taxpayers are still at risk for not understanding important procedures and deadlines, thereby missing their right to an independent hearing and tax court review.

Collection Due Process (CDP) rights afford taxpayers an independent review by the IRS Office of Appeals of the decision to file lien or levy. 

The NTA believes that the notices do not properly explain what a hearing is, why a taxpayer would want to request one, and what an equivalent hearing is. Additionally, the notices do not clearly mention important information, such as a deadline by which to file a hearing request or offer a specific date by which to file a petition in Tax Court.

Taxpayers are more likely to read material if it is salient to them, so the NTA recommends that the IRS improve the notices to be easier to read, including making it easier to find the date by which the taxpayer must file a petition in Tax Court. Some fixes could be as simple as highlighting deadlines early in the notices and in bold font. 

15. The IRS does not proactively use internal data to identify taxpayers at risk of economic hardship throughout the collection process. 

Congress requires the IRS to halt some collection actions, like a levy, if a taxpayer is in economic hardship, but the IRS is not proactive in identifying these taxpayers throughout the collection process. 

The NTA recommends that the IRS implement processes to better evaluate a taxpayer’s financial situation, including identifying a taxpayer at risk of economic hardship. These cases may need to be removed for collections, or educated on collection alternatives and additional assistance available, including TAS and the Low Income Taxpayer Clinics (LITCs). The NTA also suggests a new helpline dedicated to responding to taxpayers at risk of economic hardship and helping them determine the most appropriate collection alternatives.

16. The IRS has not appropriately staffed and trained its field collection function to minimize taxpayer burden and ensure taxpayer rights are protected.

Field Collection cases that have not been resolved may be subject to a lien, levy, seizure or other legal action to collect. By the time a taxpayer makes contact with a Revenue Officer who might carry out those functions, the taxpayer may be unable to pay because the debt has grown so large as a result of accrued penalties and interest, or because the taxpayer’s financial condition has deteriorated. 

The NTA recommends that Revenue Officers receive more training with a focus on early intervention, as well as offer outreach events to provide information on policy and procedures.

17. ACS lacks a taxpayer-centered approach, resulting in a challenging taxpayer experience and generating less than optimal collection outcomes for the IRS.

The Automated Collection System (ACS) is used to send notices demanding payment and notify taxpayers about federal tax lien and levies. ACS employees also answer taxpayer telephone calls to resolve balance due accounts and delinquencies.

According to the NTA, ACS is actively trying to avoid person-to-person interaction with taxpayers. The NTA notes that ACS issues LT16: Request for Taxpayer to Contact ACS, and proposed ACS notices now omit the name and phone number of an individual ACS employee. 

The NTA recommends that the IRS assign an ACS employee located in the same geographic region as the taxpayer to a case and provide contact information on each notice sent to the taxpayer. The 

NTA also recommends that the IRS send monthly reminders showing the accrued penalties and interest and advise employees that when a taxpayer’s account bears an economic hardship indicator to consider all possible avenues for resolution. 

18. Policy changes made by the IRS to the Offer In Compromise program make it more difficult for taxpayers to submit acceptable offers.

The IRS is not doing enough to help taxpayers submit successful Offers in Compromise (OICs). The acceptance rate for individual OICs is at just 44% while business OICs have an acceptance rate of just 24%. 

The NTA recommends that the IRS expand its geographic presence for OIC analysis, as well as change its policy for dealing with taxpayers, including those missing returns or other information (instead of merely bouncing the OIC).

19. The IRS’ expanding private debt collection program continues to burden taxpayers who are likely experiencing economic hardship while inactive PCA inventory accumulates.

In 2017, Congress forced the IRS to hand over some collections to private debt collectors. The law was pushed through despite the failures of past privatization efforts and despite concerns about what privatization efforts might mean for taxpayers (including those recently expressed by Treasury Inspector General for Tax Administration J. Russell George and NTA Nina Olson). In some instances, private debt collectors are targeting taxpayers who are experiencing economic hardship.

(You can read more about private debt collections here.)

The NTA recommends that the IRS should not transfer debts of taxpayers with incomes are at or below certain minimum standards, as well as debts of taxpayers who are SSDI and Supplemental Security Income (SSI) recipients to private debt collectors. The NTA also suggests that IRS have a policy requiring the review of some cases and a return of others.

20. Insufficient access to available pro bono assistance resources impedes unrepresented taxpayers from reaching a pre-trial settlement and achieving a favorable outcome.

Taxpayers who cannot afford representation to defend against a potential IRS assessment or collection action may believe there are only two courses of action: do nothing, or proceed unrepresented. When it comes to civil justice problems involving money or housing, poor households are twice as likely to do nothing than moderate-income households.

Unrepresented taxpayers bring more than 80% of cases in Tax Court; the rate is almost 94% for small tax case (S Case) treatment (generally, for amounts under $50,000). When unrepresented taxpayers have better access to pro bono (free) assistance, it eases the burden on the Tax Court and IRS Counsel, can help taxpayers avoid procedural and other errors, and achieve a better outcome. 

The NTA recommends that the IRS consider different methods for communicating with unrepresented taxpayers in Tax Court and hold more events to encourage pre-trial resolution. The NTA also encourages the development of one-stop resolution options for pro se (self-represented) taxpayers.

You can find the full report here.

You can read what the NTA says about challenges facing the IRS here

“Read my lips: no new taxes.” Those few words, uttered by then-American presidential candidate George H. W. Bush at the 1988 Republican National Convention on August 18, became a hallmark of Bush’s presidency. When taxes did go up – a move made by Congress – voters were angry and blamed the President. But how much influence do most U.S. Presidents have over taxes? On Presidents Day, here’s the scoop on the President, tax policy and how the two often intersect.

The power to tax is found in the U.S. Constitution. The word tax appears at least ten times in the Constitution, but we typically focus on Article I, Section 8, Clause 1, the so-called “Tax and Spend Clause.” It begins:

The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

And the explanation for how that begins is laid out in Article 1 in Section 7, Clause 1:

All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.

Every bill which shall have passed the House of Representatives and the Senate, shall, before it become a law, be presented to the President of the United States…

In other words, the President isn’t tasked with drafting tax legislation – that’s Congress’ job. The President signs the bill into law. So why do we assume that the President drives tax policy?

One, the President is typically surrounded by a group of advisors with some expertise in economic and tax policy who advise on these issues. That leads taxpayers to believe that the President will offer a measure of tax advice to Congress. And two, the President may set the tone for tax policy with the submission of the federal budget request (we’re assuming, of course, that spending should have some relationship to revenue).

In recent years, however, Presidents have become more aggressive in taking the lead on tax policy. According to Mark Luscombe, a Principal Analyst for Wolters Kluwer Tax & Accounting, Presidents have made tax policy proposals a significant portion of their campaign platforms, and when elected, have frequently worked to obtain passage of those proposals relatively quickly. 

“Congress,” he says, “especially when controlled by the same party as the new president, seem most willing to work to enact those tax proposals early in the new presidency during the “post-election honeymoon” and before mid-term elections two years later.”

That allows presidents a great deal of leeway to shape tax policy. Of all of the presidents, Luscombe, a key member of the Wolters Tax Legislation team that tracks, reports and analyzes tax legislation before Congress, believes that President Ronald Reagan had the most significant influence, “especially given the number of significant pieces of tax legislation enacted during his presidency.”

According to Luscombe, Reagan started off his first year in 1981 with very large tax cuts – the very ones he had campaigned on. However, he subsequently worked with a Democratic House in 1982 and 1984 to increase taxes to counter the deficit. In 1986, Luscombe says, Reagan again worked with a Democratic House again to enact fundamental tax reform legislation.

(You can read more about Reagan and his tax policy here)

That tax reform legislation remains in place today. In fact, the changes under the Reagan Tax Reform Act were so dramatic that the Tax Code was renamed the Internal Revenue Code of 1986. Despite additions, deletions, and modifications to the Code, you’ll still see it written that way today: it’s the Internal Revenue Code of 1986, as amended.

The 1986 reform under Reagan is widely considered the most significant tax reform legislation in history. Since that time, most tax policy – including the most recent tax reform – has been short-term. Today, it’s not uncommon for changes to our tax laws, including the lowering of tax rates, remain in place for only a few years before they sunset (meaning they go back to the way that they were before). In other words, tax policy now feels tied to a particular presidency, which means that tax policy can change from administration to administration.

Is that a good thing? Luscombe says that it is probably good to review tax policy at least every four years to see if goals are being achieved. Tax policy, he explains, has come to mean not only raising needed revenue but also working to achieve various societal goals through tax policy as well. 

That was clear, for example, during World War II. Tax rates hit levels as high as 94% to help fund the war. Luscombe notes that those rates “stuck around at similar levels until 1963, probably due to the continuing Cold War after World War II.” In fact, he points out, the top tax rates didn’t dip below 91% until 1963 and not below 70% until 1981.

You can see some other tax policy changes, courtesy of Wolters Kluwer Tax & Accounting, a leading provider of tax law information to business professionals, in this infographic.

But while regular review is good, regular, temporary changes are not necessarily desirable. “What is probably not good tax policy,” he says, “is to have so many temporary provisions and phase-ins and phase-outs in the tax code.” Tax legislation now revolves too much around ten-year budget projections that make long-term planning difficult and actually tends to frustrate some of the goals that the legislation is seeking to promote.

Ten years isn’t just a random figure. Under the Byrd rule, named after former West Virginia Senator Robert Byrd, any legislation that would significantly increase the federal deficit beyond the ten-year budget window (or is otherwise “extraneous”) can be blocked. The result is that instead of a simple majority to push it through Congress, any such legislation would need 60 votes. When Congress can’t agree beyond a simple majority on tax policy, for example, they necessarily must frame it to only last for a few years. With respect to the last tax reform efforts, the current provisions which were effective in 2018 will expire after 2025.

(You can read more about the Byrd rule and our most recent tax reform here.)

So what does that mean for the future? Luscombe doesn’t have a crystal ball and of course, can’t predict the future, but suggests that with the current split government, “it is possible Congress may not be quick to make permanent the temporary provisions of the Tax Cuts and Jobs Act enacted in 2017.” In other words, don’t count on those tax cuts being made permanent. 

I’ve been trying to plan a quick bite with a friend for a few weeks now. The snafu? My kids, who live in Pennsylvania, started school last week while her kids, who live in New Jersey, won’t begin until the end of this week. Coordinating anything this close to back-to-school is necessarily complicated. Sports practices and back to school nights on my end are dovetailed in between back-to-school shopping and last gasps of summer on her end. It’s a dance that many parents engage in around this time of year. And while some school start dates are a little earlier in summer and some a little later, most use a single weekend as the divider: Labor Day.

In years past, school open and closing dates have varied depending on whether the school was located in a hot or cool climate, or an urban versus rural state. In urban areas, schools could run year-round, while in rural areas, schools traditionally opened after Labor Day and closed in mid-spring; the latter schedule allowed farms to operate on schedule without the need to pull kids out of school. As our country has become less agrarian, calendars across the country have shifted, but the reason likely still comes down to economics.

In many states, including Maryland, Michigan, Minnesota, Ohio, and Virginia, state and local school districts have rules in place to make summer to last a little longer. In Maryland, for example, state law requires all Maryland kindergarten through grade 12 public schools to open “no earlier than the Tuesday immediately following the nationally observed Labor Day holiday” (order opens as a PDF).

Legislatures and school boards can be cagey about the reasoning behind school schedules, often citing student engagement and family values. But in some states, like Virginia, they’re rather transparent: the 1986 law that requires schools to seek a waiver to open before Labor Day is referred to as the Kings Dominion law. Kings Dominion is a large amusement park located between Richmond and Washington, D.C., that’s been a fixture in the state since the 1970s. It’s a favorite summer spot for families (even this North Carolina girl went as a baby) so it’s not surprising that, as a symbol of tourism and the hospitality industry, it would be associated with a law intended to boost vacation spending at the end of summer.

Repeated challenges to the law in Virginia have failed. In 2014, a push to change the law faced clear opposition from then-Governor Terry McAuliffe who indicated he would not be inclined to support a change, saying, “I’m very concerned about the tourism issue.” An effort to change the law earlier this year ended by kicking the can down the road: they’ll take it up again next year.

In Maryland, legislative efforts to change school calendars have been mixed. Maryland’s Comptroller, Peter Franchot, had encouraged state residents to support a post-Labor Day start date, noting it would bring an extra $7.7 million in additional tax revenue. In 2016, Governor Larry Hogan issued an executive order delaying the start of school until after Labor Day. His spokesperson said, in response to criticisms, “The order doesn’t change the number of days students are in class.” Nonetheless, a bill which would allow schools to extend the school year by five days without a waiver passed earlier this year but the new law does not affect the start date.

Katie Hellebush, the director of government relations for the Virginia Hospitality and Travel Association (VHTA) in 2012, also justified efforts to start school after Labor Day, saying, “We have conducted studies, and we do anticipate that there would be a significant loss in terms of $369 million, which would include more than $104 million in wages and benefits lost.” That loss of revenue includes not tourist dollars, but dollars (and tax dollars) targeted to teen jobs. Hellebush noted that while tourist dollars suffer with an earlier school start date, education test scores did not decline with a later school start date.

Michigan also touts tourism as the reason for a later start date. In 2012, the Michigan Lodging and Tourism Association (MLTA) reported that tourism dollars have increased each year since a new school start date policy took effect in 2006. Nonetheless, a record number of schools requested waivers to start early in 2017.

In Minnesota, a University of Minnesota Tourism Center study found a pre-Labor Day school start date decreases the chances by 50% that families will take a trip in August or September. And at the State Fair – which runs late August through Labor Day – officials expect a drop in attendance if more schools start in August. Dan McElroy, President & CEO at Hospitality Minnesota, echoed the call in 2013 to keep start dates late, saying, “It is highly disruptive to the economy to go away from that tradition.”

In my state of Pennsylvania, a 2006 push to make school start dates later failed. In a state heavily dependent on travel and tourism (it generates more than $40 billion each year and supports nearly half a million jobs), a later school start date should equal more revenue. A 2013 study found that Pennsylvania would benefit by $378 million in direct net revenue from moving the school start date to after Labor Day.

But would the move be worth it? States that bank on tourist dollars and related tax revenues say yes. In Pennsylvania, the state’s travel and tourism industry generated an estimated $4.4 billion in state and local taxes and $4.5 billion in federal taxes in 2015 (report downloads as a pdf). Those tax dollars are used to fund education and other programs that benefit families. Cutting short the opportunity for more tourism, the argument goes, means fewer tourist dollars and therefore, fewer tax dollars.

However, educators argue that a shorter school year is bad for students and encourages the so-called “summer slide” when some students show a drop in achievement after the summer break. Not everyone is convinced that it makes a difference. A study conducted by Johns Hopkins sociology professor Karl Alexander suggests that low-income students suffer the most in summer but “simply keeping students in school longer is not the key.”

Educators argue that moving the school start date up would boost test scores and student achievement. But at least one district that made the move to a later start date didn’t find that to be the case. In 2013, Minneapolis Public Schools moved its start date to the week before Labor Day, hoping it would have a positive impact on student achievement, but the district was not able to make a direct correlation between the two. Today, Minnesota’s school calendar law assumes that most regular public schools will not begin classes until after Labor Day. Opponents of a later start date note that the overall number of instructional days for the year doesn’t change by pushing the date forward: It simply extends the date for the last day of school. That’s true for my friend in New Jersey. While my kids hope to be out on June 7 (depending on which almanac gets the snow forecast correct this year), her kids have a June 22 stop date.

Some fear that starting school earlier might be a trend towards eating up summer altogether. “Summer creep” is a concern in some families, especially those that depend on seasonal work and summer business to boost household income. And for some families, summer is the only narrow window in which to schedule a vacation (Americans already tend to leave vacations time on the table). Maryland’s Franchot hinted at such, saying, “My major concern is the quality of interaction between families and their kids, which is jeopardized by this creep of starting school earlier and earlier. If we keep going in that direction, it will be July when we start school.” Nancy Marscheider, the executive director of the Virginia Beach Hotel-Motel Association and a mother of two, agrees, saying, “Besides the very real negative economic impact that starting schools before Labor Day would have on our industry, as a parent of two children enrolled in the Virginia Beach school system, I definitely would not like to see their summer cut short.”

So which strategy is best? Are the increased tax dollars worth a delayed start to the school year? Should the end summer last a little longer? The underlying issues may be up for debate, but the question is settled for now, practically speaking: By this time tomorrow, most public school children in the U.S. will be back in school.