In a posting last week, I discussed the tools under existing law for curbing bad tax return preparers and suggested that these tools may not adequately address the problem. Too many returns are poorly done. Many taxpayers are victims, not only of incompetence, but fraud. The other victim is the government, which likely loses substantial tax revenue from those whose returns are poorly—or dishonestly—prepared.

In a blog post earlier this week, I concluded that whether a payment to government service is classified as a tax or a user fee is sometimes arbitrary and that how the payment is labeled is of secondary importance. Mike Udell of Ernst and Young, a former staffer on the Joint Committee on Taxation, reminds me, however, that labeling could have real consequences. Mike raises another example from the health reform legislation – the proposed “fee” on sales of pharmaceutical and medical device products. If the fee were an excise tax, it would be deductible and not included in the gross revenue of manufacturers of these products. But as a fee, it is not deductible, so income tax collections from these firms are higher than if they could exclude the payments from taxable income.

What is a tax? You would think a senior economist at the Tax Policy Center would have no trouble answering that question. But it is not so simple. This question has come up in the debate over the proposal to require all Americans to have medical insurance—a provision in all of the major congressional health reform bills. If you must buy insurance, is the payment you make a tax or just a premium for insurance coverage? Is the penalty imposed on those who don’t buy insurance a tax or a fine for failing to comply with the law?