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Pepperdine University School of Law

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Thursday, June 25, 2009

The Washington Metro Subway Crash: "Tax Law Should Raise Revenue, Not Kill People"

Metro Tuesday's post on Sarah Lawsky's observations on How Tax Law Caused the Washington Metro Train Wreck has attracted a lot of attention.  Senate Finance Committee Ranking Member Charles Grassley today issued this press release:

Senator Chuck Grassley is urging House Majority Leader Steny Hoyer to include language in any proposal to give the Washington Metropolitan Area Transit Authority necessary additional funds for maintenance and upgrade of subway equipment to make sure the money would be used for safety improvements and not to pay off transit agencies’ obligations to corporations, including foreign corporations, who use the agreements as tax shelters.

Grassley also has written to the American Public Transportation Association to ask how many other public transit systems may be constrained from making equipment upgrades by tax-advantaged leases. ...

In 2006, the Washington Metropolitan Transit Authority rejected recommendations made by the National Transportation Safety Board to retire or do a heavy overhaul on the 1000 Series, Rohr railcars because “WMATA is constrained by tax advantage leases, which require that WMATA keep the 1000 Series cars in service at least until the end of 2014.”

Sarah has more:

See also:

Chris Bergin, President and Publisher of Tax Analysts, yesterday posted A Train Wreck of a Tax Code:

By now, just about everybody knows of the horrible and deadly crash of two subway trains in Washington, D.C., on what is known as the Metro system. Prof. Paul Caron, on his TaxProf Blog, noted that Sarah Lawsky, has written about The Washington Metro Crash and Tax, speculating that sale-leaseback arrangements may have locked the Washington Metropolitan Transit Authority “into using outdated and unsafe equipment and thus made this crash even more deadly than it might otherwise have been.”

I live in the Washington metro area. I travel on the transit system regularly; my family travels on the Metro. I work for Tax Analysts, which sponsors this site; we lost a family member in this accident.

Tax pinheads –- and you can call me one if you like –- like to sit around and talk about what is the stupidest tax law we have. Now maybe we should start talking about which one is the deadliest.

A tax system is supposed to collect revenue. That’s it. No social engineering or favoring one group over another. But if it starts to contribute to killing people, I think we can all agree that it is time to change our tax system.

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Comments


[apologies if this double posts. tried to edit mid-way and computer crashed. please delete post prior to this one if it went through as well.]

The debate regarding whether tax law killed 9 people seems remarkably inconsistent. On the one hand, the SILO was a transaction without any substance at all, a tax shelter of the worst kind. On the other hand, post after post impliedly argues that the transaction had a lot of economic substance-- because of the terms of the deal, WMATA was either legally prevented from or economically compelled to keep dangerous cars in use.

So what is it? Are these paper-shifting abusive tax shelters that have no economic effects, in which case it is simply wrong to argue that the deals altered WMATA's economic choices/position? Or is this a substantive, economic transaction that prevented WMATA from replacing cars?

Perhaps calling it an abusive tax shelter that also had substantial, economic (murderous?) effects makes things more "interesting." But it's still bad analysis. If the SILO transaction had significant economic effects, it's not an abusive tax shelter. If it did not have any effects, then commentators should stop saying that it somehow killed people. Meaningless transactions are, well, meaningless, and don't affect economics, much less innocent lives.

Posted by: andy | Jun 26, 2009 1:54:26 PM