April 26, 2004
Bankman to Deliver Woodworth Lecture
Monday, April 26, 2004
Joe Bankman (Stanford) will deliver the prestigious Laurence Neal Woodworth Lecture on Federal Tax Law and Policy, sponsored by Ohio Northern, on Thursday, May 6 in connection with the ABA Tax Section Meeting in Washington, D.C. The lecture will take place at 5:00 pm in the Grand Hyatt Hotel. The title of the lecture is Norms and Enforcement Strategy: Tax Shelters and the Cash Economy. Here is the abstract:
A lack of effective enforcement policy made tax shelters seem an economically attractive investment in the 1990's. Changing norms also helped fuel tax shelter boom. Corporate tax departments became profit centers; the literal interpretivism that supports tax shelters gained respectability. The interaction of economic self-interest and these prescriptive norms created new behavioral norms: taxpayers, financial intermediaries and lawyers became more aggressive. Tax shelters became (more) mainstream.
A lack of effective enforcement has also made underreporting in cash business an economically attractive strategy. The result is a long-standing behavioral norm characterized by low reporting rates. Underreporting by small business, which is favored, does not carry with it the disapprobation of underreporting by public corporations, which are viewed with distrust. However, the revenue cost to the fisc (and net social cost to society) almost certainly exceeds the loss from tax shelters.
The role of tax administration is to use the lever of enforcement and penalties to change the cost benefit-calculus and behavioral norms that support underreporting in both sectors. Obviously, any successful policy initiative must take account of the political constraints that limit enforcement options. I will consider the range of administratively feasible policy options, and the political constraints on their adoption.
For a list of prior Laurence Neal Woodworth Lectures, see here.
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Even with my tax background (LLM Taxation '70, 7 years on adjunct faculty of a graduate tax program in New England - 1975-82 - , and just short of 50 years of corporate practice), I was astounded and dismayed with the U.S. tax system as portrayed in David Cay Johnston's "PERFECTLY LEGAL" published recently. For those who do not have the time to read the whole book, Chapter 21 provides an excellent summary of the issues addressed by Johnston, who has made a great contribution. In addition to IRS lack of funding for auditing, the influence of campaign contributions, the revolving door of IRS personnel preparing for their retirements by perhaps applying pressure on its auditors so as to enhance their job opportunities in the private sector, the problem for tax professionals is that they no longer seem to function as gatekeepers to assure compliance with tax laws as they provided in years past. We have seen the enemy and he is us. Johnston attributes this laxity to the establishment of LLPs that have superseded traditional partnership laws that made each partner fully responsible personally for acts of other partners, as a result of which partners do not monitor the activities of partners as well as they once did when personal liability existed.
Posted by: Shag from Brookline | May 6, 2004 10:32:32 AM