Friday, November 30, 2007
Caron Presents Taking Back the Law School Classroom: Using Technology to Foster Active Student Learning Today at Illinois
I am making a presentation on eInstruction's Classroom Performance System today at Illinois, based in part on my article, Taking Back the Law School Classroom: Using Technology to Foster Active Student Learning, 54 J. Legal Educ. 311 (2004) (with Rafael Gely). Here is the abstract:
Law schools (and indeed all of higher education) have witnessed an explosive growth in the use of technology in the classroom. Many law professors now deploy a wide array of technological bells and whistles, including PowerPoint slides, web-based course platforms, in-class Internet access, and the like. Students, in turn, increasingly come to class armed with laptop computers to harvest the fruits of the classroom experience. Yet in recent years there has been somewhat of a backlash, with various law professors arguing that this technology is interfering with, rather than improving, pedagogy in the classroom. According to the critics, this technology increases student passivity and thus interferes with the active learning that should be the hallmark of a law school classroom. In addition, the critics complain that laptops provide too much competition for the students' attention, enticing them to play computer games or DVDs and, with in-class Internet access, to read and send email (or instant messages), shop on-line, or check out the latest political, financial, or sports news. This Article opens a new chapter in this debate, explaining how law professors can use both old and new technologies to increase student engagement in the classroom.
We first lay out the pedagogical case for creating an active learning environment in the law school classroom and then examine the critics' charge that technology impedes these goals. The Article offers a competing vision of how technology can be harnessed to increase active student learning and, in the process, empower students to resist their laptop's siren song. In particular, we describe how in our tax and labor law courses we combine both old (substituting word processing text for PowerPoint slides) and new (using handheld wireless transmitters) technologies to inject more active learning into the classroom.
David Love (Williams College, Department of Economics), Paul A. Smith (Senior Economicst, Division of Research and Statistics, Federal Reserve Board) & David W. Wilcox (Deputy Director, Division of Research and Statistics, Federal Reserve Board) have published Why Do Firms Offer Risky Defined–Benefit Pension Plans?, 60 Nat'l Tax J. 507 (2007). Here is the abstract:
Even risky pension sponsors could offer essentially riskless pension promises by contributing a sufficient level of resources to their pension trust funds and by investing those resources in fixed–income securities designed to deliver their payoffs just as pension obligations are coming due. However, almost no firm has chosen to fund its plan in this manner. We study the optimal funding choice for plan sponsors by developing a simple model of pension financing in which the total compensation offered to workers must clear the labor market. We find that if workers understand the implications of pension risk, they will demand greater compensation for riskier pension promises than for safer ones, all else equal. Indeed, in our model, pension sponsors maximize their value by making their pension promises free of risk. We close by positing some explanations for why no real–world firm follows the prescription of our model.
Vorris J. Blankenship (Attorney, Placerville, CA) has published Controlling and Minimizing the Taxation of Disability Benefits, 60 Tax Law. 725 (2007). Here is part of the Summary:
Some disability benefits are entirely tax exempt. Other disability benefits are wholly or partially includable in gross income depending on the source of their funding.
(Editor's note: Mr. Blankenship apparently has some first-hand experience with these issues. See Blankenship v. Liberty Life Assurance Co., 486 F.3d 620 (9th Cir. 2007)).
7th Circuit Denies Estate Tax Deduction for Nonqualified Charitable Remainder Unitrust, Rejects Application of Substantial Compliance with Tax Code Doctrine
The Seventh Circuit, in an opinion by Judge Posner, yesterday affirmed the Tax Court and denied an estate's claimed charitable deduction for a nonqualified charitable remainder trust and rejected the estate's argument that the deduction should be allowed based on substantial compliance with the tax code. Estate of Tamulis v. Commissioner, No. 06-4141 (7/29/07), aff'g T.C. Memo. 2006-183:
Father Tamulis, a Catholic priest, died in 2000, leaving an estate of $3.4 million. His will left the bulk of his estate to a living trust that he had created. The trust was to continue for the longer of 10 years or the joint lives of Tamulis's brother and the brother's wife. During that period they would have a life estate in a house owned by the trust and the trust would pay the real estate taxes on the house. The net income of the trust, as "determined in accordance with normal accounting principles," would go to two of the brother's and sister-in-law's grandchildren (that is, Tamulis's grandnieces), minus $10,000 a year, which would go to their third child until she graduated from medical school. Upon the termination of the trust the assets would pass to a Catholic diocese.
- Harvard (#1 in total number of graduates, #4 in percentage of graduates)
- Yale (#2, #1)
- Stanford (#3, #2)
- Chicago (#4, #3)
- Columbia (#5, #7)
- Michigan (#6, #8)
- Texas (#7, #12)
- Georgetown (#8, #17)
- NYU (#8. #13)
- UCLA (#8, #8)
- Northwestern (#11, #5)
- Duke (#13, #6)
- Penn (#13, #10)
(Hat Tip: Brian Leiter.)
John Sabelhaus (University of Maryland, Department of Economics) has published What Is the Effective Social Security Tax on Additional Years of Work?, 60 Nat'l Tax J. 491 (2007). Here is the abstract:
The U.S. Social Security retired worker benefit calculation is based on the average of the highest 35 years of each individual's earnings; thus, payroll taxes for people with flat or declining earnings can effectively become a pure tax near the end of their working careers. Individuals who still have zero or low–earning years being factored into their high–35 calculation face much lower (even negative) effective tax rates if they work additional years. In this paper, administrative earnings data are used to measure the distribution of effective payroll tax rates across and within age, sex, and lifetime earnings groups. The estimates are somewhat sensitive to assumptions about discounting, controlling for differential mortality, and whether to focus on all earners or just earners at the end of their primary careers. A budget–neutral change in tax and benefit formulas is shown to significantly flatten the pattern of effective tax rates.
From the Massachusetts Daily Collegian: Recent Survey Finds Declining Number of New Law Students, by Andy Smith:
The number of people applying for law schools around the country is on the decline while admission requirements have not changed, according to a survey recently conducted by Kaplan Test Prep and Admissions. According to the report, of the 190 law schools surveyed, half said their school has seen a decline in applicants over the last two years. Initially, this would seem to give prospective applicants greater odds of admission. However, 79% of the schools surveyed said the decline has not made their admissions process any less competitive. ...
According to Steve Marietti, the Kaplan Test Prep and Admissions Pre-Law Programs Director, 2006 saw a 4.8% decrease in law school applicants around the country. This year applications are down 17.4%.
Marietti said while the number of law school applicants are down, post-graduate degrees themselves are not. The application numbers of other postgraduate degrees, such as engineering and biology, have risen. "The strength of the economy, including the availability of jobs, has a significant effect in what students choose to pursue in their post-undergrad years," said Marietti. "Others may be discouraged to apply (to law schools) because of the competitive nature of the application process, therefore raising the averages of enrolling classes."
(Hat Tip: ABA Journal.)
Bill Parks, Professor Emeritus Business Strategy, University of Idaho, passed along Why Small Business C Corporation Rates Matter. Here is the abstract:
Thanks to Congressman Rangel’s corporate tax proposal we can examine the economic consequences of corporate tax brackets and how they could be improved to encourage small business growth instead of discouraging it.
Thursday, November 29, 2007
Schenk Presents The Political Economy of Tax Reform: The Case for Retaining the AMT Today at Columbia
Deborah H. Schenk (NYU) presents The Political Economy of Tax Reform: The Case for Retaining the AMT at Columbia today as part of its Tax Policy Colloquium Series. Here is the Introduction:
Three significant issues in tax and fiscal policy have been running on parallel tracks for the last decade, engendering their own debate, largely in isolation. Talk of fundamental tax reform rarely leaves the national rhetorical agenda, particularly during election years. Concerns about the burgeoning costs of entitlement programs, especially Medicare, Medicaid and Social Security, are voiced frequently often accompanying the release of gloomy long-term fiscal projections. The alternative minimum tax is everyone’s favorite punching bag, widely reviled as a major tax policy mistake. Yet, seldom are connections drawn between the three issues. This paper fills that gap.
This recent Wall Street Journal article hit close to home: Email's Friendly Fire: Re: Brownies in the Kitchen! Too Much "Colleague Spam" Inspires New Sorting Tools, by Rebecca Buckman:
Email overload is now considered a much bigger workplace problem than traditional email spam. Inboxes are bulging today partly because of what some are calling "colleague spam" -- that is, too many people are indiscriminately hitting the "reply to all" button or copying too many people on trivial messages, like inviting 100 colleagues to partake of brownies in the kitchen. A good chunk of today's emails are also coming from brand new sources, like social- and business-networking sites like Facebook Inc. and LinkedIn Corp., or text messages forwarded from cellphones.
Unlike previous email-technology companies that only addressed problems like external email spam or offered narrow products that screened messages for certain content, new companies are now springing up to deal with the email-overload problem and help sort the deluge. Silicon Valley start-ups including ClearContext of San Francisco and Seriosity Inc. of Palo Alto, Calif., are specifically tackling the problem of internal email overload. Meanwhile, other start-ups like San Francisco's Xobni Corp., are trying to help people better organize and search the email and personal-contact load they already have.
Olivia S. Mitchell (University of Pennsylvania, Wharton School), Stephen P. Utkus (Vanguard Center for Retirement Research) & Tongxuan (Stella) Yang (University of Pennsylvania, Wharton School) have published Turning Workers into Savers? Incentives, Liquidity, and Choice in 401(k) Plan Design, 60 Nat'l Tax J. 469 (2007). Here is the abstract:
We use data on five hundred 401(k) pension plans to evaluate how employer matching incentives influence retirement saving. Company matches prove to have a small effect on participation and saving rates; only one in ten non–highly compensated workers joins the plan because of employer match incentives, while one–quarter fails to join even though the match offers real return premiums of up to five percent. We find that liquidity and investment constraints in 401(k) plans have negligible effects on plan saving patterns. Our research underscores the importance of default strategies to bolster pension saving including the automatic enrollment approach outlined in the 2006 Pension Protection Act and non–elective employer contributions.
David H. Schnabel (Debevoise & Plimpton, New York) has published Revisionist History: Retroactive Federal Tax Planning, 60 Tax Law. 685 (2007). Here is the Conclusion:
The fact that there is any room at all in our tax system for retroactive tax planning is somewhat of a gift, and suggesting that the law be liberalized is somewhat like looking a gift horse in the mouth. However, having a clear set of rules of general application upon which taxpayers may rely would seem to benefit both taxpayers and the Service alike. Accordingly, it would be appropriate and helpful for the Service to issue a published ruling upon which taxpayers could rely that reflects the issues addressed in the recent private rulings dealing with rescission. In contrast, the Service seems well justified in limiting the ability of taxpayers to modify their prior agreements and in resisting taxpayer efforts to use state court proceedings as a back door way of altering the federal tax effects of their transactions.
It seems appropriate that the greatest opportunity for retroactive tax planning exists under the check-the-box regulations since the area is governed almost entirely by federal tax regulations and the Service is therefore in a strong position to police exactly what works and what does not work. Although this Article has identified a variety of questions that arise when engaging in retroactive check-the-box planning, this aspect of the regulations (that is, the ability to change classifications retroactively) seems to have functioned fairly well since the regulations were first adopted. Moreover, because the entire area is governed by federal tax law, tax advisors are generally well equipped to discern answers to the questions on their own. That said, definitive answers to the questions raised above would be welcome.
Liz Mair weighs in on the carried interest debate in Here's Why Not to Hike Taxes on Carried Interest:
[Al] Gore is joining a venture capital firm that invests in companies pursuing environmentally-friendly technologies-- a good thing, in my opinion. And, it turns out that Gore is going to take away from his position with the firm -- and keep -- his share of the carried interest that gets paid to partners, and which relates directly to the amount of capital growth experienced in the firm's portfolio (Gore is apparently donating his actual salary to a non-profit group he founded). ...[This is] just this kind of payment -- in respect of carried interest-- that congressional Democrats are trying to hike taxes on, and by quite a large amount, too. ...
We need more private investment into green companies, not less, and I fear that these tax hikes, if enacted, will have the latter effect.
(Hat Tip: Soren Dayton.)
Interesting article in the New York Sun: Universities' Growing Liberal Bias Is Documented, by Annie Karni:
Conservative professors must publish more than their liberal peers to be competitive for the same university jobs and promotions, according to new reports. At a conference sponsored by the American Enterprise Institute today in Washington, D.C. [Reforming the Politically Correct University] researchers from across the country will present 18 papers that they say document the growing liberal bias in academia.
"Universities are tilting to the left, and it starts at the student level and goes all the way through to the hiring level and even to the promotion level," the vice president and director of the National Research Initiative at AEI, Henry Olsen, said. "This is a real problem, not anecdote masquerading as fact.
In departments such as sociology and anthropology, "progressive" and "liberal" professors outnumber "conservative" and "libertarian" faculty members by a margin of at least 20 to 1, according to a new study by a husband and wife research team from George Mason University and the Swedish Institute for Social Research. The findings are based on dozens of national surveys about faculty voter behavior, policy views, and voter registration.
Some professors said a liberal bias is damaging the intellectual vitality of campus life, and they discourage conservative students from pursuing doctorate degrees in the humanities. "If my students show conservative bias, I steer them away from the academy," a professor of English at the University of Virginia, Paul Cantor, said. "They have no future — they will not get jobs. If they want to teach traditional works in a traditional matter, they have no future in an English department today."
(Hat Tip: Adjunct Law Prof Blog.) For additional coverage, see Inside Higher Ed: Professors and Politics (Again). For material from the conference, including summaries of the papers, the papers, the program, and speaker biographies, see here.
L.A. civil rights lawyer Stephen Yagman was sentenced to three years in federal prison for tax evasion:
Prior TaxProf Blog coverage:
- Yagman Tries to Avoid Jail Time for Tax Evasion Conviction So He Can Teach Course in Morality at UCLA (11/23/07)
- Yagman Indicted for Tax Evasion (6/24/06)
- Jury Deliberates in Yagman's Tax Evasion Trial (6/21/07)
- Yagman Convicted of Tax Evasion (6/24/07)
The IRS's Office of Chief Counsel is seeking to hire the Chief of Branch 5, Office of the Associate Chief Counsel (Financial Institutions & Products) (FIP):
The branch develops and drafts Internal Revenue regulations, considers recommendations for the enactment of legislation and the promulgation of regulations, the preparation of private letter rulings, revenue rulings, technical advice memoranda, consents to change methods of accounting, General Counsel Memoranda, and other advice dealing with tax problems submitted by taxpayers and their representatives, state and federal agencies, and other Chief Counsel and IRS offices. The branch also provides all necessary legal services in connection with the defense, settlement and processing of cases pending in the U.S. Tax Court, and refund cases filed in District Courts and the Court of Federal Claims. The FIP organization handles issues involving banks, thrift institutions, insurance companies and products, regulated investment companies, real estate investment trusts, annuities, original issue discount obligations, tax-exempt bonds and numerous other types of financial instruments and entities.
Major Duties: Acts as legal consultant to the IRS on some of the most difficult, important and complex professional and legal matters arising in the administration of the Internal Revenue laws. Directs exhaustive and detailed research on some of the most complicated legal problems within the assigned program areas and directs preparation of recommendations as to the position to be taken by the Office of Chief Counsel and the Internal Revenue Service in connection with these matters. Directs the participation by the branch in conferences with representatives of other interested offices concerning projects. Represent the Commissioner before the Tax Court, signs court pleadings, and performs other professional legal activities. Prepares or reviews proposed memoranda on various legal matters for submission to the Deputy Associate Chief Counsel (Financial Institutions and Products), Associate Chief Counsel (FIP), the Deputies Chief Counsel, the Chief Counsel, of the General Counsel for final approval. Prepares or reviews material for publication by the branch. Represents the Office in negotiations with taxpayers and in presentations to the public. Examines all matters assigned t the branch and assigns to each branch employee work appropriate to his/her grade level. The level of assignment difficulty is determined by a number of factors, the most significant of which are: Complexity of issues; Importance as a precedent; Impact of problem; Availability of precedent decisions; Public interest; and Amount of money involved. Additional supervisory responsibilities exercised over the branch are: Plans the work of the branch that must be accomplished by the staff, including establishing priorities. Insures timely performance of a satisfactory amount of high quality work. Reviews work product of professionals and specialists in the branch for completeness, accuracy and consistency. Evaluates performance of subordinates.
Salary Range: $110,363 to $143,471.
Application Deadline: December 5, 2007.
For more information or to apply, see here.
David P. Richardson (TIAA-CREF Institute) & Jason S. Seligman (University of Georgia, Carl Vinson Institute of Government) have published Health Savings Accounts: Will They Impact Markets?, 60 Nat'l Tax J. 455 (2007). Here is the abstract:
Recently, the federal government began redirecting health care tax subsidies towards tax–exempt Health Savings Accounts (HSA). This tax program requires selection of high–deductible policies—shifting government tax subsidies away from the premium (pure insurance) component and towards the out–of–pocket (self–insurance) component of health insurance contracts. We analyze price sensitivity and relative risk burden effects from this policy change. Regarding risk burden allocations, we show HSA–eligible contracts can redistribute substantial health risk onto households. HSAs may reduce the moral hazard associated with traditional health insurance contracts but may increase adverse selection problems. Overall we find that HSAs are limited in their ability to effect heath care spending.
- Legal Profession Blog, by Alan Childress (Tulane), Michael Frisch (Georgetown), and Jeffrey Lipshaw (Suffolk), in the Lawyers Behaving Badly Category
- Brian Leiter's Law School Reports, by Brian Leiter (Texas), in the Ivory Tower Category
- Sentencing Law & Policy, by Doug Berman (Ohio State), in the Crime Time Category
Vote for your favorites in the twelve categories here.
Wednesday, November 28, 2007
The Treasury Department today sent to Congress a Congressionally mandated report on three international tax issues. From the press release:
The Report to the Congress on Earnings Stripping, Transfer Pricing and U.S. Income Tax Treaties (108 pages) describes current issues regarding U.S. earnings stripping rules, transfer pricing rules, and the misuse of income tax treaties to which the United States is a party. The report provides conclusions and recommendations in each of the three areas studied.
Study on Earnings Stripping. The focus of the earnings-stripping study is on excessive payments of deductible interest by foreign-controlled U.S. corporations to related persons in whose hands that interest is partially or fully exempt from U.S. tax . While the study notes that it is not possible to quantify accurately the extent of earnings stripping generally, strong evidence exists of earnings stripping by foreign-controlled domestic corporations that have undergone so-called "inversion" transactions, in which the U.S. parent company of a multinational corporate group is replaced with a foreign parent in a low-tax or no-tax country....
Study on Transfer Pricing. The transfer pricing study focuses on issues relating to the shifting of income from the United States through transactions between related parties. The study reviews Treasury regulatory guidance under § 482 and the effectiveness of current transfer-pricing rules and compliance efforts to ensure that related-party transactions cannot be used to shift income out of the United States improperly. ...
Study on U.S. Income Tax Treaties. The study on U.S. income tax treaties focuses on the need to prevent third-country residents from inappropriately obtaining the benefits of U.S. income tax treaties, in particular by achieving inappropriate reductions in U.S. withholding taxes. The study notes that in recent years interest payments have surged from foreign-controlled U.S. corporations to related parties in countries that are a party to a U.S. tax treaty with no "limitation on benefits" (LOB) provisions and that provides significant reductions in withholding rates. Such exploitation of those treaties without anti-treaty shopping protections confirms (1) the LOB provisions in other U.S. agreements appear to provide significant deterrence against abuse, and (2) the Treasury Department must continue its ongoing efforts to revise treaties with no or inadequate LOB provisions. ...
Press and blogosphere coverage:
Cockfield Presents A Law and Technology Perspective on Enhanced Cross-Border Information Exchange Today at Toronto
Arthur Cockfield (Queen's University Faculty of Law) presents A Law and Technology Perspective on Enhanced Cross-Border Tax Information Exchange at the University of Toronto today as part of the James Hausman Tax Law and Policy Workshop Series. Here is the abstract:
For a number of important policy reasons, tax authorities exchange information they collect about taxpayers with tax authorities from other countries. In recent years, cross-border tax information exchange (CBTIE) has gained more prominence as a policy tool to fight aggressive tax avoidance, illegal tax evasion and terrorist financing schemes. This process has been accompanied by information technology developments, including the digitization of tax records and the use of networked tax databases, that make it more feasible to engage in ongoing CBTIE. The paper assesses certain economic, social and political challenges posed by enhanced CBTIE and sets out initial thoughts on ways to address these challenges.
Rifat Azam (Adjunct Lecturer, Interdisciplinary Center (Hirzliya), Hebrew University School of Law; Senior Associate, Gornitzky & Co.) presents e-Commerce Taxation and Cyberspace Law: The Integrative Adaptation Model, 12 Va. J. L. & Tech. ___ (2007)) at the University of Ottawa as part of its Torys Law and Technology Speakers Series:
This article argues that the current debate on international taxation of e-commerce is totally tax oriented and ignores cyberspace law, and that this separation is unjustified and harmful to the development of e-commerce taxation law. The article calls for mutual intellectual feeding and integrative debate that is open and interesting to the general legal scholarly community in order to improve e-commerce law.
Leonard E. Burman (Senior Fellow, Urban Institute; Co-director, Tax Policy Center), Jason Furman (Senior Fellow and Director of the Hamilton Project, Brookings Institution), Gregory Leiserson (Research Assistant, Urban Institute & Tax Policy Center) & Roberton C. Williams Jr. (Research Assistant, Urban Institute & Tax Policy Center) have published The President's Proposed Standard Deduction for Health Insurance: Evaluation and Recommendations, 60 Nat'l Tax J. 433 (2007). Here is the abstract:
The President's proposal to replace the current exclusion of employer–paid health insurance premiums with a standard deduction for qualifying health insurance would level the playing field for employment–based coverage and private plans but would risk the loss of insurance for many workers, threaten existing risk–sharing pools, and unfairly favor the wealthy. This paper evaluates the President's plan, suggests changes that would improve it, and assesses alternatives that would address the plan's shortcomings and improve its likelihood of expanding coverage to many families who now lack insurance.
Fred Thompson's Presidential campaign has been struggling, in part because of a sense that he lacks passion and an agenda. But late last week he unveiled a tax reform that is more ambitious than anything we've seen so far from the rest of the GOP field.
Mr. Thompson wants to abolish the death tax and the Alternative Minimum Tax and cut the corporate income tax rate to 27% from 35%. But his really big idea is a voluntary flat tax that would give every American the option of ditching the current code in favor of filing a simple tax return with two tax rates of 10% and 25%.
Mr. Thompson is getting aboard what has become a global bandwagon, with more than 20 nations having adopted some form of flat tax. Most--especially in Eastern Europe--have seen their economies grow and revenues increase as they've adopted low tax rates of between 13% and 25% with few exemptions.
The main political obstacle to such a reform in the U.S. has come from liberals, who favor punitive taxes for "class" reasons, and K Street corporate lobbyists who want to retain their tax-loophole empires. The housing and insurance industries, states and localities, charities, bond traders and tax preparers are all foes of low tax rates.
That's why the idea of a voluntary flat tax--introduced on these pages a dozen years ago--makes political sense. The Thompson plan would allow taxpayers to keep their mortgage and charitable deductions if they prefer, by adhering to the current tax code and rates. But it would also allow the option to abandon those credits and deductions except for a single allowance based on family size ($39,000 for a family of four). Most taxpayers would pay a 10% rate on income above that allowance, with a 25% rate kicking in at $100,000 for a couple. There would only be five lines on the tax form and most taxpayers could fill it out in minutes. ...
Mr. Thompson's voluntary proposal is one way to deflect some of the inevitable political opposition. Anyone who prefers the current tax code can stick with it. The rest of us can have a better choice.
Michael S. Farber (Davis Polk & Wardwell, New York) has published Equity, Debt, NOT –- The Tax Treatment of Non-Debt Open Transactions, 60 Tax Law. 635 (2007). Here is part of the Introduction:
Part I of this Article describes various instruments being issued in the capital markets today, including prepaid forwards, reverse and mandatory exchangeables, and credit linked notes. Part II briefly surveys the law relating to the traditional debt-equity dichotomy and also reviews some of the authorities touching, to varying degrees, on the characterization and taxation of NOTs. Part III discusses the appropriate treatment of our putative NOTs, both under current law and as a normative matter. Part IV offers several conclusions.
The purpose of the new form is to provide a simple means for parties to inform the Court about a last-minute settlement of a case or a change in the estimate of the likelihood and/or length of trial not previously reported to the Court.
Parties may access an electronic version of the Final Status Report form and submit it to the Court by clicking on Final Status Report ...
Alternatively, parties may submit a paper copy of the form to the Court by mail or fax. Information about the Final Status Report form will be served on the parties when the Court issues a Notice Setting Case for Trial.
A Final Status Report, whether submitted electronically or by fax or mail, should be received by the Court no later than 3 p.m. eastern time on the last business day (typically Friday) before a trial session begins.
A Final Status Report submitted to the Court must also be submitted to the opposing party by mail, e-mail, or fax. In addition, a copy of the report must be given to the opposing party at the calendar call if the opposing party is present.
A Tax Professor Goes to the Supreme Court, by Sarah B. Lawsky (George Washington):
Yesterday morning, the Supreme Court heard arguments in Knight v. Commissioner, No. 06-1286. At stake: whether a trust’s investment fees are subject to the 2% floor under Section 67. In general, trusts, like individuals, may deduct only those miscellaneous itemized deductions in excess of 2% of their adjusted gross income. However, the petitioner argued, investment fees incurred by a trustee on behalf of a trust are expenses that “would not have been incurred if the property were not held in such trust or estate” and thus, under Section 67(e)(1), are not subject to Section 67’s 2% floor.
Unfortunately, no tax lawyers were gathered with signs in front of the Supreme Court, and nobody had pitched tents overnight in order to ensure a seat at the argument, but at 7 a.m., in front of the Supreme Court, a CPA assured the six people gathered that the line would be around the corner by 8 a.m. At 8 a.m., the line barely reached the stairs leading from the Court’s plaza to the sidewalk, but it was a raucous and dedicated gathering nonetheless.
How will the case turn out? This much seems clear: the Court will not adopt the Second Circuit’s reasoning that to ask whether trust costs would have been incurred had the property not been held in trust is to ask whether the trust costs could have been incurred outside a trust. Indeed, the government’s lawyer led with this position, but just a few minutes into his argument Justice Roberts asked, to general laughter, “You didn’t think much of this argument before the Second Circuit adopted it, did you? You didn’t argue this before the Court of Appeals?” The government's lawyer acknowledged that Justice Roberts was correct.
“So you have a fallback argument,” Justice Roberts said.
“Well, that—that’s right.”
“Well, now might be a good time to fall back,” Justice Roberts suggested. The balance of the government’s argument was devoted to explaining what trust expenses should be considered customarily or ordinarily not incurred by individuals, the test applied by the Fourth Circuit and Federal Circuit.
Interestingly, Justice Scalia asked about the legislative history of the section. He claimed, “I don’t care about legislative history, but some of my colleagues do,” and proceeded to ask several questions on just that subject. He also stated that the legislative history showed that “the dog didn’t bark”—as if the absence of discussion in the legislative history gave some assistance in interpreting the statute. One wonders how using legislative history to persuade others, even if one remains unpersuaded, fits with believing that legislative history should not be a factor in Court decisions.
A few statements raised eyebrows for tax professors and students in attendance (for example, that Section 162 expenses are not subject to the Section 67 floor, because they are “not miscellaneous itemized deductions”). Nonetheless, we can all look forward to the resolution of a much-contested circuit split and hope for a narrow ruling that does not upset existing tax law.
The transcript of the oral argument is available here. For more coverage, see Law.com: Supreme Court Argument Report: Can Trusts Deduct Fees for Investment Advice?, by Laurel Newby.
- Balkinization: Skepticism About Leiter's Citation Rankings, by Brian Tamanaha (St. John's)
- Legal History Blog: The Limits of Leiter's New Citation Study, by Mary L. Dudziak (USC)
Brian responds to each of these criticisms in:
- Once More Into the Citation Rankings Fray...
- Mary Dudziak Isn't Happy with the New Citation Rankings
Mary responds to Brian in Leiter on Leiter (and the Rankings). See also:
- BlackProf: Most Cited Minority Law Professors, 2000-2007, by Paul Butler (George Washington)
- Concurring Opinions: Leiter Study Data: Concentration by School, by Jack Chin (Arizona)
- Conglomerate: The Brouhaha Over Faculty Citation Analysis, by Gordon Smith (BYU)
- Essentially Contested America: What's Wrong with Ranking Legal Scholars?, by Robert Justin Lipkin (Widener)
- PrawfsBlawg: The Potential Pathologies of "Leiter-scores," by Ethan Leib (UC-Hastings)
Bernie Black and I discuss the pros and cons of citation rankings in Ranking Law Schools: Using SSRN to Measure Scholarly Performance, 81 Ind. L.J. 83, 92-95 (2006). We note:
[T]he literature suggests that citation counts are a respectable proxy for article quality, and correlate reasonably well with other measures. As with the other measures, however, citation counts have limitations. Some of these will average out at the school level, but not all or not fully. These include:
- Limited range of schools. Eisenberg and Wells rank only the top thirty-two law schools; Leiter ranks forty-eight schools, but based on a fraction of the faculty at each school.
- Timing. The Eisenberg and Wells results are based on citations measured almost ten years ago and have not been replicated since.
- Dynamism. Cumulative citation counts favor more senior faculty and emphasize older work that accumulates citations over time.
- Survey article and treatise bias. Citation counts favor survey articles and treatises, which may be "convenient as opposed to important."
- Field bias. Citation studies are field-sensitive. As Leiter notes: "Law reviews publish lots on constitutional law, and very little on tax. Scholars in the public law fields or who work in critical theory get lots of cites; scholars who work on trusts, comparative law, and legal philosophy do not."
- Interdisciplinary and international work. Interdisciplinary and international work is often cited in journals not included in the Westlaw JLR database, and thus is underrepresented in a Westlaw based citation count.
- The "industrious drudge" bias. Leiter has argued that citation studies favor the “industrious drudge”—the "competent but uninspired scholar who churns out huge amounts of writing in his or her field."
- "Academic surfers." Leiter has noted that citation studies can favor the scholar "who surfs the wave of the latest fad to sweep the legal academy."
- The "classic mistake." Work that is negatively cited as a "classic mistake" would fare well under this measure.
- Gender patterns. There do not appear to be strong gender patterns in which authors are cited.
- Odd results. Citation studies, like other approaches, can produce anomalous results. For example, using their preferred per-faculty measure, Eisenberg and Wells rank several schools higher (e.g., Cornell 6th, Illinois 14th, Colorado 20th, and Emory 21st) than might be expected. Yet, under the whole-school approach, which we emphasize here, these anomalies diminish (the principal outlier is Colorado with a whole-school rank of 21st).
Our modest conclusion is that citation counts, like reputation surveys, productivity counts, and SSRN download counts, are imperfect measures that, taken together, can provide useful information in faculty rankings.
The IRS yesterday announced (Rev, Proc. 2007-70, 2007-50 I.R.B. ___ (12/10/07)) the 2008 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes:
- 50.5 cents per mile for business miles driven (compared to 48.5 cents per mile in 2007)
- 19 cents per mile driven for medical or moving purposes (20 cents in 2007)
- 14 cents per mile driven in service of charitable organizations (unchanged from 2007)
Interesting op-ed in the Chronicle of Higher Education: Boycotting Rankings Is Not the Answer, by Anthony G. Collins (President, Clarkson University):
I received a call not long ago from another college president asking if Clarkson University was willing to join the bandwagon to boycott U.S. News and World Report's annual rankings of "America's best colleges." He was contemplating an invitation to be part of a group of colleges that had decided not to participate. After all, my colleague asked, wasn't I upset that U.S. News had dubbed my top-tier national university an "A+ School for B Students"?
Actually, no, I responded, not if I wanted to be consistent with the mission of Clarkson.
[C]olleges must help ensure America's future as a competitive nation. ... Therefore, it makes no sense for us not to let our institutions also be measured and compared. If we accept and teach such premises at Clarkson, then we must be willing to be competitive ourselves and respond to our marketplace. Like the corporations that hire our students, we must be willing to be evaluated against others.
Rankings and productivity measures can actually help administrators and trustees benchmark certain common components of a university education. The 15 indicators of excellence used by U.S. News are, in fact, among the metrics that Clarkson and many other institutions use to measure and compare their own progress....
Clarkson University is willing to be measured in a ranking system that does not necessarily show the strongest attributes of our education yet provides one interpretation for consumers to consider.
Robert Morse, Director of Data Research at U.S. News & World Report, has more.
Carroll on The Economic Effects of the President's Proposal for a Standard Deduction for Health Insurance
Robert Carroll (Deputy Assistant Secretary, U.S. Department of the Treasury) has published The Economic Effects of the President's Proposal for a Standard Deduction for Health Insurance, 60 Nat'l Tax J. 419 (2007). Here is the abstract:
Health care costs continue to rise rapidly in the United States, claiming an increasing share of economic resources. One factor contributing to this rise is the favorable tax treatment for employer–sponsored health insurance, whereby employees pay neither income nor payroll taxes on health care that is provided through their employers. This tax treatment, which amounts to a $300–$400 billion per year subsidy for health insurance, has led to greater reliance on employer–sponsored insurance and lower deductible plans. Moreover, individuals who purchase insurance on their own often receive no tax subsidy. This paper discusses a health tax proposal included in President Bush's FY 2009 Budget that would reduce or eliminate these tax biases through a new standard deduction for health insurance (SDHI). The SDHI would be available to all individuals purchasing qualifying insurance and improve incentives by breaking the link between how much an individual pays for insurance and the value of the tax subsidy. The SDHI would increase the number of individuals with health insurance by roughly six to nine million and reorient the tax subsidy more towards lower–income individuals. The paper also considers alternatives to the SDHI proposal, principally a flat refundable health insurance tax credit.
Tuesday, November 27, 2007
The American Red Cross announced today that it asked for and received the resignation of President and CEO Mark W. Everson, former IRS Commissioner, effective immediately:
The Board acted quickly after learning that Mr. Everson engaged in a personal relationship with a subordinate employee. It concluded that the situation reflected poor judgment on Mr. Everson's part and diminished his ability to lead the organization in the future. He joined the American Red Cross as President and CEO on May 29, 2007.
In Burke v. Commissioner, T.C. Summ. Op. 2007-200 (11/26/07), the IRS sent a notice of deficiency to the taxpayer on March 22, 2007. The notice included a statement that the last day to file a petition with the Tax Court was June 20, 2007 (90 days later). Because the taxpayer mailed his petition to the Tax Court on June 21, the IRS moved to dismiss the case for lack of jurisdiction due to the untimely petition. But the taxpayer succeeded in convincing the Tax Court that the date of the notice of deficiency was March 24, not March 22:
At the hearing on respondent’s motion, petitioner produced the original notice of deficiency, and the Court examined it. The date of the notice is reasonably legible and it certainly looks like March 24, 2007. However, in using a magnifying glass and a high-powered halogen light to examine the date, it appears that respondent originally stamped the notice March 21, 2007, and then restamped it March 22, 2007. This interpretation is consistent with the Declaration of respondent’s employee who was responsible for the mailing of the notice.
The stamp-over of the date on the notice of deficiency had no effect on the legibility of either the month or the year or the first digit of the day. However, the stamp-over of the “1” and the “2” of the second digit of the day ended up producing what clearly looks like a “4” to the unaided eye. ...
In the instant case, we do not agree with respondent that the date stamped on the notice of deficiency presents a “patent ambiguity” such that petitioner was not entitled to rely on his reading of that date. Rather, we think that petitioner’s reading was eminently reasonable. Indeed, as previously stated, the date stamped on the notice appears to the unaided eye to be March 24, 2007, and it is only upon close examination, using a magnifying glass and a powerful beam of light, that ambiguity arises.
All the rich countries are successful in raising sizable amounts of revenue from taxes with only a rather little tax evasion. Tax avoidance is the use of legal means to reduce taxes, whereas tax evasion uses illegal means. The federal government of the US raises almost 20% of American GDP through taxes on personal and business income, capital gains, estates, and the sale of gasoline and some other goods. The estimates from the 2001 IRS National Research Program indicate that the percent of income not reported is quite low for wages and salaries, but rises to over 50% for farm income, and about 40% for business income. Income tax payments overall are under reported by about 13 percent. What determines the degree of tax evasion?
If taxpayers responded only to the expected cost of evading taxes, evasion would be far more widespread. The reason is that only about 7% of all tax returns are audited (over a 7 year period), and typically the penalty on under reported income is only about 20% of the taxes owed. Virtually no one is sent to jail simply for evading taxes unless that evasion is on a very large scale, or involves massive fraud. If a person were to evade $1,000 in taxes, his expected gain would be 0.93x$1000 -0.07x$200 (=$1000/5) = $916. On these considerations alone, he should not hesitate to evade paying the $1,000, and presumably much more.
To be sure, the expected gain is not the right criterion since most taxpayers would be risk averse regarding audits and punishments, especially if there is some chance of much greater than the average punishment or likelihood of an audit. However, if the expected gain from evading $1,000 were $916, the degree of risk aversion would have to be huge, far higher than the risk aversion that is embodied in pricing of assets, for risk to explain why there is so little tax evasion.
This is not to say that possible punishments have no affect on the amount of tax evasion. Compliance rates are much higher when governments have independent evidence on a person's income since then the probability of audit when he under reports his income is much higher than when they do not have this information. For example, income from independent consulting to companies is better reported than tips on earnings, or than the incomes of farmers and other small business owners because employers report how much they paid to independent consultants, whereas no one reports how much they paid in tips, or how much they bought from a local store. A PhD study in progress at the University of Chicago by Oscar Vela also shows that persons in occupations where integrity is a more important determinant of success, such as law or medicine, are less likely to evade taxes. Presumably, any publicity that an individual in these occupations was convicted of tax evasion would damage his reputation and earnings.
Vela finds that considerations of reputation, along with more traditional variables in the tax evasion literature do help explain how much evasion occurs for different types of income. These variables include the likelihood of audits that varies for different classes of taxpayers, punishments for those audited, marital status (not surprisingly, married persons are less likely to evade taxes), the marginal tax rate, and the ease with which governments can match reported incomes with independent evidence on incomes, such as from 1040 and 1099 tax forms.
Note that tax avoidance as well as tax evasion tends to rise as the marginal tax rate increases. ...
However, audits, punishments, and the other deterrence variables mentioned in the previous paragraphs do not fully explain why there is not much more tax evasion. I believe it is necessary to recognize that most people believe they have a duty, moral or otherwise, to report their taxable income more or less honestly. ...
Becker presents persuasive evidence that the amount of tax evasion varies, as one would expect in a rational-choice model of taxpaying, with variance in the private costs and private benefits of evasion. I am inclined to believe that the private costs are higher than he suggests, which if true would mean that more tax compliance can be attributed to rational fear of punishment than he suggests and less to taxpayers' feeling a moral duty to pay taxes. For example, the civil penalties for tax evasion are quite severe (the fraud penalty is 100 percent of the amount of taxes evaded), and anyone charged with civil or criminal tax evasion will incur heavy legal and accounting expenses in defending against the charge. Although the audit rate is low, it is not random, but rather is higher for those taxpayers who are in the best position to evade taxes without being caught or whose tax returns raise a red flag because of unusually high deductions or other suspicious circumstances. And once one has been caught evading taxes, one can expect the rate of future audits of one's returns to be high. While it is true that underpayment of taxes is rarely prosecuted criminally, even when deliberate, criminal prosecution is likely if the tax evader takes steps to conceal the evasion, as by never filing a tax return, keeping phony books, or forging evidence of deductions. Moreover, the government does occasionally prosecute even small fry.
Thus far I have focused only on punishment costs. But a neglected point in the economics of crime is the information costs of committing a crime. Evading taxes requires more knowledge than stealing a bike. Most taxpayers probably don't have a clue as to how to evade taxes without being caught. It might seem awfully simple--just list your cat as one of your dependents. But to know whether this would work, you would have to know whether the government has any independent source of information about the number of a person's dependents. You can't just go to a lawyer and ask him what the best way of evading taxes is.
Most people comply with most laws most of the time. I believe that in most cases they do this not because they feel any moral duty to comply with law, but because the potential payoff does not seem to exceed the costs, including the information costs that I have emphasized. The reason I doubt that there is much of a felt moral duty to comply with tax law is that there is a vast amount of illegal behavior by normally law-abiding citizens. The flouting of the traffic laws, the theft of employer property, the nonpayment of social security taxes on household help, illegal gambling, and the employment (both personal and commercial) of illegal immigrants are only the most obvious examples. These are cases in which law enforcement is so lax that the expected punishment costs for most violations hover close to zero, and there are distinct benefits from violation.
Still, Becker is unquestionably correct that there is a good deal of tax evasion apart from the social security example. It could be greatly reduced by stiffer penalties and a greater investment of resources in law enforcement. Every dollar spent by the Internal Revenue Service on enforcement brings in several dollars in additional tax revenue, suggesting that an expansion in the IRS’s budget would be necessary to equate the marginal benefits of tax enforcement to its marginal costs. But this suggestion ignores the fact that the benefits are, as a first approximation, merely income transfers, whereas the marginal costs of tax enforcement are social costs. If taxes are evaded, the resulting shortfall in tax revenues is made up by increasing the tax rate, and there is no social loss unless the increase has worse misallocative effects than the evaded taxes would have had, had they not been evaded. One reason, therefore, that tax evasion is widespread is that it may be cheaper from an overall social standpoint to have slightly higher tax rates than to devote additional resources to law enforcement, though the first-best solution might be stiffer penalties, especially monetary penalties. Deliberately lax enforcement would then explain the amount of evasion.
The general question that Becker raises of the moral costs of committing crime is a fascinating one.
Long–term federal outlays for Medicare and Medicaid are projected to increase in the future because of the interaction between demographics and program eligibility. However, the magnitude of the projected increase depends almost entirely on the assumption about "excess cost growth." This growth factor is an unexplained residual—the gap between growth in per–beneficiary program outlays and growth in GDP per capita not explained by demographics alone. In the last several decades, excess cost has been positive and significant on average, though the annual pattern is volatile. This paper considers the implications of alternative assumptions about excess cost growth for federal budget and tax policy.
This Article argues that in order to make private investment work across borders, countries should adopt two sets of rules. First, countries should distinguish between three types of foreign funds: those organized as tax-transparent partnerships, those organized as opaque entities that are required to distribute their income currently to investors, and those opaque funds that are not required to distribute income currently. Once these distinctions are made, countries should adopt tax rules to treat them appropriately such that, to the maximum extent reasonably practicable, only one level of tax is imposed on investment returns. The goal should be to tax investors in funds as nearly as possible in the same way they would be taxed if they invested their money directly, without intermediation. The stakes involved in getting this wrong are significant, both for investors and, as this Article argues, for local tax authorities.
The Supreme Court hears oral argument today in Knight v. Commissioner, No. 06-1286:
- Question Presented: There is a deep, irreconcilable and widely noted conflict among the Second, Fourth, Sixth and Federal Circuits about the meaning of § 67(e) — which permits trusts and estates to deduct on their income tax returns certain administrative expenses — and whether the statute permits fees for investment management and advisory services to be fully deducted on trust’s and estate’s income tax returns. This is an important and recurring question of federal tax law that involves deductions by trusts and estates that total in the billions of dollars annually. The Question Presented is: Whether § 67(e) permits a full deduction for costs and fees for investment management and advisory services provided to trusts and estates.
- Opinion Below
- On the Docket
- TaxProf Blog
- SCOTUS Wiki
- James F. Loebl, The Section 67 Question: Are Fees For Investment Advice Fully or Partially Deductible By Trusts?, 56 Drake L. Rev. ___ (2008),
There is a tax angle to the tawdry litigation surrounding former golf star Greg Norman's divorce from Laura Andrassy, his wife of 25 years, and his romantic involvement with former tennis star Chris Evert:
Still unresolved in the bitter divorce between the Great White Shark and Andrassy are any taxes that would have to be paid to the IRS if a personal jet is sold for more than the golfer claims it has depreciated in value since he bought it
Norman is keeping the jet and should be responsible for any taxes due whenever he sells it, Andrassy's West Palm Beach attorney Jack Scarola has said. But Haines calls the jet a marital liability where joint tax returns filed before Dec. 31, 2006, show that Norman and Andrassy took depreciation on the aircraft. "Apparently. . . Andrassy wants to try and go back and challenge the amount of the depreciation 'taken' in her sworn tax returns," the motion on Evert's behalf said.
Andrassy's attorneys also contend the golfer took business tax deductions on the aircraft without detailing his personal use of it — and they want Evert, who has been romantically linked with Norman, to address the personal use issue. The IRS doesn't prohibit personal use but limits it, Scarola said. "It needs to be accounted for," he said. Evert's deposition has no bearing on the amount of depreciation taken on the parties' tax returns, according to this latest document filed by Norman's attorneys. In addition to deciding who is responsible for the tax liability if the jet is sold, the court has to determine whether Norman owes Andrassy any interest for a delay in transferring half their assets to her.
- After Golfer Greg Norman's $720m Divorce, He Sues His Ex-Wife for Blabbing (11/25/07)
- Greg Norman's Ex-Wife May Lose Millions (11/23/07)
- Norman Files New Lawsuit in Bitter Divorce Battle (11/22/07)
- Greg Norman Protects Evert From Showdown with Ex's Lawyers (11/17/07)
- Evert Can Skip Court for Norman (11/17/07)
- Evert Can't Be Asked About Jet (11/17/07)
- Evert Can Skip Court for Norman (11/16/07)
- Lawyers for Greg Norman: Calling on Tennis Star Is a Distraction (11/1/07)
- Greg Norman's Ex-Wife Serves Chris Evert with Notice (10/27/07)
(Hat Tip: Robert G. Nassau.)
Leonard E. Burman (Senior Fellow, Urban Institute; Co-director, Tax Policy Center), William G. Gale (Arjay and Frances Fearing Miller Chair, Brookings Institution; Co-director, Tax Policy Center), Gregory Leiserson (Research Assistant, Urban Institute & Tax Policy Center) & Jeffrey Rohaly (Senior Research Methodologist, Urban Institute; Director of Tax Modeling, Tax Policy Center) have published The AMT: What's Wrong and How to Fix It, 60 Nat'l Tax J. 385 (2007). Here is the abstract:
The alternative minimum tax (AMT) is a complex, unfair, and inefficient shadow tax system that threatens to affect 32 million taxpayers by 2010, many of them solidly middle class. Under current law, repealing the AMT without offsets would cost more than $850 billion through 2017. This paper summarizes the current and projected effects of the AMT and considers options to finance repeal. One attractive option we consider would be to combine AMT repeal with a four percent tax on AGI in excess of $200,000 for married couples and $100,000 for others.
Anne-Marie Rhodes (Loyola-Chicago) has published On Art Theft, Tax, and Time: Triangulating Ownership Disputes Through the Tax Code, 43 San Diego L. Rev. 495 (2006). Here is the Conclusion:
Six decades after the end of World War II, controversies over the ownership of Nazi-looted art continue to emerge. Time has worked a shift in perceptions and expectations for those controversies; time is no longer an ally for the repose of title. This unsettling of bona fide expectations of title for an innocent buyer raises claims in law and in equity that are equally meritorious to those of the original owners. For a legal system that adjudicates on a case-by-case basis, a claim over ownership of a unique work of art is a zero sum game--one winner, one loser. This harsh reality of uniqueness, set against the competing interests of legitimate market concerns and demands of restorative justice, requires fresh and open inquiry into workable solutions.
Tax is an eminently practical system that affords two possible strategies for those ownership disputes. Using the charitable deduction would generally resolve the dispute by creating an outright public ownership, and hence public benefit and oversight. Using the theft loss deduction, ownership would generally remain private, but the public would nevertheless bear some of the direct financial costs in the ownership shift from one party to the other. The public benefit is admittedly less direct: assistance in dispute resolution, support for private ownership of property, and protection of legitimate market expectations. Perhaps because of this imbalance in public costs and benefits, the availability of the theft loss deduction may not be as straightforward as the charitable deduction. Time, manifested by the IRS's apparent requirement of direct nexus between the thief and the taxpayer, should not act as a stumbling block for the theft loss deduction strategy in the limited context of Nazi-looted art. The language of the Code does not require the nexus and perhaps even recognizes a different timeframe for theft. Case law support for tracing the theft back in time through multiple purchases does exist. Finally, general tax policy concerns do not and should not outweigh the stated United States policy to assist in the restoration of Nazi-looted art. The impossible eternal triangle of thief, owner, and innocent buyer should not find support in tax and time.
Interesting article in the Washington Post: That's Rich -- But Maybe Not for Someone Else; Issue of Who's Really Wealthy Can Also Affect Political Debate, by Joel Achenbach:
Who's rich? Who's middle class? How can you tell the difference? ... The two front-running Democratic presidential contenders, Sen. Barack Obama (Ill.) and Sen. Hillary Rodham Clinton (N.Y.), sparred over tax policy and quickly got entangled in the question of whether someone making more than $97,000 a year is middle class or upper class. That's upper class, Obama said. Not necessarily, suggested Clinton. ...
The exchange between Obama and Clinton began when the senator from Illinois said he was open to adjusting the cap on wages subject to the payroll tax. That's the tax that the government prefers to call a "contribution" to Social Security. Under current law, a worker pays a flat percentage (and employers match it) of wages up to $97,500. Wages beyond that aren't taxed.
Clinton responded by saying that lifting the payroll tax would mean a trillion-dollar tax increase, adding that she did not want to "fix the problems of Social Security on the backs of middle-class families and seniors."
Obama replied: "Understand that only 6 percent of Americans make more than $97,000 a year. So 6 percent is not the middle class. It is the upper class."
Clinton: "It is absolutely the case that there are people who would find that burdensome. I represent firefighters. I represent school supervisors."
Obama doesn't want to lift the payroll cap entirely, according to one of his campaign's senior advisers. Rather, Obama has said he would consider a "doughnut hole" arrangement, in which people would not have to pay any additional payroll tax until they had made at least $250,000 or $300,000. The adviser said of Obama: "He has always said that the people he expects to pay their fair share are households with income above 250,000."
Clinton has cited that same figure, saying households with income above $250,000 can pay the marginal rates set in the 1990s when her husband was president. She would also give married couples with estates worth less than $7 million an exemption from the estate tax, known in conservative Republican circles as the "death tax." ...
Edward Wolff, a professor of economics at NYUy, thinks that the middle class in a major city includes people in households with incomes from $40,000 to $100,000. From there, up to $200,000, people are "upper middle class." ... People making $200,000 to $350,000, he says, could be considered rich, but they still have to slog to work every day. To be really rich, in Wolff's scholarly judgment, you need not only an income upwards of $350,000 a year -- which happens to be right about the point where today's top marginal income tax rate of 35% kicks in -- you also need at least $10 million in accumulated wealth.
See also The Motley Fool: Tax-and-Spar Democrats, by Rich Smith.
Monday, November 26, 2007
Nearly 25 years ago Professor Gilson wrote a seminal article in the Yale Law Journal explaining what business lawyers do. In Gilson’s model, deal lawyers are value-creating “transaction cost engineers,” identifying barriers to contracting such as asymmetric information and strategic behavior, and designing contractual solutions to help clients overcome those barriers.
This Article claims that Gilson understates the importance and value of an activity I call regulatory engineering or “regulatory craftsmanship”—the lawyer’s skillful practice of massaging the structure of a deal to improve its regulatory treatment without unduly altering the underlying economics of the business deal. Drawing on recent interviews with practitioners, observations of changes in the legal profession, and a series of case studies of actual transactions, I argue that regulatory craftsmanship has become the signature activity of today’s deal lawyers. The increased importance of regulatory expertise better explains various institutional details about the legal profession, such as what gives large law firms a comparative advantage over in-house counsel or cheaper law firms and why legal work at the regulatory frontier commands a price premium. It also helps explain why certain law firms—specifically, the elite law firms who compensate their partners in lockstep fashion—appear to be less likely to shirk their professional duty to serve as “gatekeepers” in favor of aggressive regulatory gamesmanship.
Benjamin M. Leff (Vinson & Elkins, Austin, TX) presents “Sit Down and Count the Cost”: Valuing the Speech of Charities in Order to Constitutionally Enforce the 501(c)(3) Campaign Intervention Ban at Loyola-L.A. today as part of its Tax Policy Colloquium Series. The commentator is Kurt T. Lash (Loyola-LA). Here is the abstract:
Section 501(c)(3) of the Internal Revenue Code prohibits charities from intervening in a political campaign for or against a candidate for public office. The IRS currently interprets the campaign-intervention ban to absolutely prevent charities from communicating their views on candidates, even if such communications are completely financed by non-501(c)(3) affiliates.
This article argues that the current IRS enforcement paradigm is unconstitutional because it exceeds the government interest in preventing tax-deductible donations to be used for campaign-intervention. A constitutional interpretation exists under the current statutory framework, but it would require the IRS to shift its focus exclusively to campaign-intervention-related expenditures. The IRS could compel 501(c)(3) organizations to make all expenditures through a non-501(c)(3) affiliate using funds that were raised on a non-deductible basis, or receive reimbursement from a non-501(c)(3) for all such expenditures.
Enforcement of the ban under the proposed “expenditure” paradigm requires an ability to “value” campaign-intervention speech to provide a means for a non-501(c)(3) affiliate to pay for or reimburse the cost of such speech. This article evaluates competing valuation theories, and finds that campaign-intervention speech that communicates a charity’s endorsement of a candidate (whether official or unofficial) may “cost” more than commentators have previously considered. Because an endorsement implicates the “goodwill” that an organization has built up using tax-deductible contributions, it may well be appropriate to take the cost of developing that goodwill into account in determining the cost of the campaign-intervention communication. The article proposes some “safe harbor” guidelines for valuing the speech of charities, taking the cost of goodwill into account. It concludes that an “expenditure” paradigm that adequately valued the speech of charities may be more enforceable, and therefore more effective at limiting excessive or abusive campaign-intervention speech by charities, while staying within constitutional parameters.
This paper describes the estate, gift and generation–skipping transfer (GST) tax reductions made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)1 and howestate planners are dealing with the challenges presented by the changes made by EGTRRA. EGTRRA affects decisions concerning the timing of taxable transfers, complicates the drafting ofestate planning documents, creates the potential for controversy concerning the proper construction of wills and trusts, promotes harmful tax competition among the various states, and influencesliquidity planning and charitable giving. Carryover basis presents special problems, especially for real estate developers, who rely on the adjustment to basis allowed at death to bail out of negativebasis assets. In light of the uncertainty about what law will be in effect when a person dies, there is a premium on giving independent fiduciaries broad amendment and gifting powers.
Pamela F. Olson (Skadden, Washington, D.C.) has published her 2006 Erwin N. Griswold Lecture Before the American College of Tax Counsel: Now That You’ve Caught the Bus, What Are You Going to Do with It? Observations From the Frontlines, the Sidelines, and Between the Lines, so to Speak, 60 Tax Law. 567 (2007). Here is the Summary:
- The tax shelter war is over. The government won.
- There is no one-size-fits-all solution to abusive tax shelters of the future or tax avoidance concerns.
- Tax avoidance is not inherently evil.
- The weapons used to win the abusive tax shelter war will be of limited use in addressing tax compliance concerns of today and tomorrow.
- The tax system is in serious need of repair.
Law Students Sue School Administrators for $120m for "Enrich[ing] Themselves at the Expense of the Students"
From the Associated Press: Class Action Lawsuit Against Western Ky. Law School:
The students of a private western Kentucky law school have filed a $120 million class action lawsuit against the school's administration, claiming the school is being mismanaged and that accreditation is unlikely. Students at the American Justice School of law filed the lawsuit in U.S. District Court on Nov. 17. The suit claims the school's top two administrators have engaged in criminal activity that includes racketeering, conspiracy and abuse of their offices "to enrich themselves at the expense of the students."
For more, see the Chronicle of Higher Education.
Gregg D. Polsky (Florida State) has published Controlling Executive Compensation Through the Tax Code, 64 Washington & Lee L. Rev. 877 (2007). Here is the abstract:
This article analyzes Internal Revenue Code § 162(m), which in general denies public companies a deduction for annual non-performance-based compensation in excess of $1,000,000 paid to senior executive officers. Congress enacted § 162(m) with the intent to reduce the overall level of executive compensation and to influence the composition of executive compensation in favor of components that are more sensitive to firm performance. Notably, § 162(m) represents the most direct Congressional effort to influence executive compensation design. In light of recent events, Congress is being called upon to once again address the perceived problem of overgenerous executive pay packages. Accordingly, it is an opportune time to study the impact of § 162(m).
This article predicts the likely effects of § 162(m) under the two currently prevailing (but opposing) views of how executive compensation arrangements are negotiated in the public company context, ultimately concluding that the provision is likely ineffective under either view. In addition to predicting the likely effect of § 162(m), the article discusses the empirical studies of its impact since its enactment almost fifteen years ago. Finally, the article describes some of the unintended incidental effects of the provision, such as its discouragement of certain compensation components that are arguably more efficient than the components typically used by public companies.
The IRS's Office of Chief of Staff is seeking to hire an attorney-advisor:
Major Duties: The Commissioner, Chief of Staff and Deputy Commissioners rely heavily on the employee's extensive knowledge of the inner workings of the office of a head of agency or equivalent office, including maintaining relationships with Members of Congress and high level government officials. The incumbent serves as the point of contact for the Commissioner with the Deputy Commissioners, White House, high level senior officials of other Federal agencies, Members and Staff of Congress, representatives of employees and other private organizations, and the general public. In addition, the work requires a detailed knowledge of the Commissioner’s policies, views, approaches, and special interests, including social and ceremonial obligations..
Salary Range: $79,397 to $121,967.
Application Deadline: November 27, 2007.
For more information or to apply, see here.
Interesting article in the Houston Chronicle: A&M Cutting Late-Summer Tuition by 50 Percent; University Aims to Help Students Graduate on Time to Free Up Space, by Matthew Tresaugue:
Texas A&M University is offering students an extra incentive to take classes during the summer: half-price tuition. The experimental program is the latest attempt by the university and state lawmakers to reduce the time it takes students to earn a bachelor's degree, thus allowing A&M to get more use out of its facilities.
About 35% of A&M students graduate in four years, the highest rate among Texas' state universities, according to the Education Trust's most recent data. Under the new program, tuition will be reduced from $156 to $75 per credit hour for the second session of summer school in 2008. A&M undergraduates who are Texas residents will be eligible for that rate.
Do any law schools offer similar programs? (Hat Tip: Chronicle of Higher Education.)