Monday, November 30, 2009
Lily Batchelder (NYU), Yair Listokin (Yale), Ruth Mason (UConn), and Christian Zimmermann (UConn, Department of Economics) are participating in a panel discussion today on Macroeconomic Stabilizing Effects of Tax Expenditures at the University of Connecticut School of Law today as part of its International Tax Lecture Series:
The discussion will bring together Prof. Batchelder's writings on the stabilizing effects of refundable credits like the EITC [Efficiency and Tax Incentives: The Case for Refundable Tax Credits, 59 Stan. L. Rev. 23 (2006) (with Fred T. Goldberg, Jr. & Peter R. Orszag)] and Prof. Listokin's recent criticisms of certain tax expenditures for their destabilizing effects [Stabilizing the Economy Through the Income Tax Code,123 Tax Notes 1575 (June 29, 2009); Tax Expenditures and Business Cycle Fluctuations].
In typical Washington, D.C. fashion, the President's Tax Reform Panel (President's Economic Recovery Advisory Board (PERAB)) announced at 4:07 p.m. on Friday of Thanksgiving week that it will miss its December 4 deadline to deliver its report:
Statement from PERAB Chairman Paul Volcker on Tax Task Force
The tax subcommittee of the PERAB was scheduled to release its report on December 4th. But we have received more than 500 submissions of serious tax reform ideas from the public both in person and on our website and we had to cut them off to meet the original deadline.
I want us to review as many suggestions as possible and to have sufficient time to fully consider the hundreds of suggestions that have come in already. I have asked the Administration to extend our deadline and to reopen the website for submissions so that we can hear the widest possible range of ideas.
We still have the same specific mandate: to discuss the pros and cons of a spectrum of reform ideas relating to tax simplification, enforcement of existing tax laws and reform the corporate tax system without considering policies that would raise taxes on families making less than $250,000.
The PERAB is not tasked with providing its own policy recommendations for the Administration and the final report will be an almanac of options from a broad range of viewpoints.
We will be reopening the web submission form and extending the deadline for any suggestions in keeping with our mandate (suggestions may also be submitted via email) and will be scheduling more public meetings over the coming weeks. We expect to report back to the Administration after the holidays.
Daniel S. Hamermesh (University of Texas, Department of Economics) & Gerard A. Pfann (Maastricht University, Faculty of Quantitative Economics) have posted Markets for Reputation: Evidence on Quality and Quantity in Academe on NBER. Here is the abstract:
We develop a theory of the market for individual reputation, an indicator of regard by one’s peers and others. The central questions are: 1) Does the quantity of exposures raise reputation independent of their quality? and 2) Assuming that overall quality matters for reputation, does the quality of an individual’s most important exposure have an extra effect on reputation? Using evidence for academic economists, we find that, conditional on its impact, the quantity of output has no or even a negative effect on each of a number of proxies for reputation, and very little evidence that a scholar’s most influential work provides any extra enhancement of reputation. Quality ranking matters more than absolute quality. Data on mobility and salaries show, on the contrary, substantial positive effects of quantity, independent of quality. We test various explanations for the differences between the determinants of reputation and salary.
Professor Hamermesh asks today on the New York Times Freakonomics Blog, Why Don’t Reputations and Salaries Rise Together?:
Our new study poses a conundrum: in a professional market (for economists), having more scholars pay attention to your research raises your reputation and your salary. Conditional on that attention, though, writing more papers lowers your reputation — but it raises your salary! The question is why writing more (essentially ignored) papers has opposite effects on reputation and salary? Are university administrators ignorant, rewarding something visible that in fact reduces the scholar’s quality, as measured by his/her colleagues? We tested lots of explanations for the anomaly, but none described it well. The results suggest that there might be room for a Billy Beane (see Moneyball) of academe.
Update: Stephen Bainbridge (UCLA), Deans Really Can't Read but Can Count:
It is an age-old academic aphorism that your dean can't read but he can count. In other words, at least insofar as internal matters like promotions and raises are concerned, quantity matters more than quality.
Now we have some empirical evidence that the old saying is true. Paul Caron passes along an NBER paper, which finds that:
Using evidence for academic economists, we find that, conditional on its impact, the quantity of output has no or even a negative effect on each of a number of proxies for reputation .... Data on mobility and salaries show, on the contrary, substantial positive effects of quantity, independent of quality.
In other words, prolific publication--even of crap--has a positive effect on an academic's salary. Which means deans really can count but can't read.
Following up on Saturday's post, Jailed UBS Banker Wants Billions for Ratting Out Rich U.S. Clients Who Used Offshore Swiss Accounts to Evade Taxes: the cover story of this week's Forbes is Tax Informants Are on the Loose, by Janey Novack & William P. Barrett:
For years the IRS grudgingly paid stingy rewards to squealers who brought it mostly small cases; during 2004 and 2005, 428 informants received a total of $12 million--only 7% of the paltry $168 million all their leads brought in. But in 2006, hoping to entice insiders to rat out big-dollar cheats and corporate tax shelters and games, Congress directed the IRS to pay tipsters at least 15% and as much as 30% of taxes, penalties and interest collected in cases where $2 million or more is at stake.
The gambit seems to be working very well. The IRS continues to get thousands of small case tips a year. But in fiscal 2009, ended Oct. 30, the IRS Whistleblower Office also logged big case leads on 1,900 taxpayers, up from 1,246 in fiscal 2008, the first full year the new law was in effect. Dozens of these tips involve purported tax losses of $100 million or more. Sure, those are just allegations. But informants "often provide extensive documentation to support their claims,'' the Whistleblower Office noted in a report. The Treasury Inspector General for Tax Administration, in a separate report, added up all the 2008 tips and found that $65 billion in unreported income was alleged. ...
Joseph R. (Joe) Francis, the Girls Gone Wild video impresario, last year was convicted of child abuse and prostitution charges in Florida. He just pleaded guilty in Los Angeles to nonfelony charges of filing false tax returns, was fined $10,000 and paid $250,000 in back taxes but got no new jail time. Light punishment? In a pending civil lawsuit filed in the name of his company, Francis claims three now-ex-executives plotted to embezzle money from his company and "began contacting" the IRS on an informant basis hoping Francis would be convicted and jailed and their own frauds would go undiscovered. Francis' pleading says one defendant e-mailed another a copy of a news story headlined, "IRS Pays Informants to Squeal on Tax Cheats." With that civil case still in its early stages, defendants have not answered in court and couldn't be contacted. ...
Are you ready for the new world of tax snitching? If you are chiseling, you can't trust anybody.
This Article considers the compliance issues raised by individual taxpayer investment in offshore bank and similar accounts. Offshore account holders have historically had a high rate of tax evasion and have contributed significantly to the tax gap. However, investors in offshore accounts are subject to an ingenious self-reporting regime – the Report of Foreign Bank and Financial Accounts, or FBAR – that the IRS has recently begun to effectively enforce.
The Article frames the FBAR requirement as a penalty default information-forcing mechanism. This mechanism currently applies directly to taxpayers and could also apply to third-party banks. Characterizing the requirement in this way yields several proposals for the continued development of the FBAR rules and the qualified intermediary and nonqualified intermediary rules applicable to non-U.S. banks.
- American Journal of Economics and Sociology, Potential Tax Revenue From a Regulated Marijuana Market: A Meaningful Revenue Source
- Business Week, Legalize Marijuana for Tax Revenue
- Christian Science Monitor, A Marijuana Tax as the Next New Revenue Stream?
- Slate: A Toke and a Tax: If Governments Legalize Marijuana, How Much Revenue Can They Raise From It?
- Sloshspot, If Marijuana Production Were Legal: Projected Tax Revenues, by State
CNN has published a 50-state ranking of the potential tax revenues that could be raised by legalizing and taxing marijuana, based on state-by-state marijuana consumption, from Jeffrey Miron (Harvard University, Department of Economics), Budgetary Implications of Marijuana Prohibition. The study projects $778.2 million from taxing marijuana; here are the Top 20 states:
- California ($105.4 million)
- New York ($65.5 million)
- Florida ($48.2 million)
- Texas ($46.6 million)
- Ohio ($34.8 million)
- Michigan ($32.4 million)
- Illinois ($31.6 million)
- Pennsylvania ($30.5 million)
- Washington ($22.0 million)
- Virginia ($20.9 million)
- North Carolina ($20.6 million)
- Georgia ($19.3 million)
- New Jersey ($19.3 million)
- Massachusetts ($18.4 million)
- Indiana ($17.8 million)
- Colorado ($17.6 million)
- Missouri ($15.6 million)
- Minnesota ($14.3 million)
- Oregon ($14.1 million)
- Maryland ($13.9 million)
New York Times op-ed, The Department of Lucrative Athletics, by Gilbert M. Gaul:
Congressional Budget Office, Tax Preferences for Collegiate Sports (blogged here):
Another key element fueling the [college sports] arms race is the increasingly indefensible tax treatment of sports revenues. Decades ago — before the lucrative television contracts, Internet marketing, Nike sponsorships and luxury boxes — Congress essentially exempted colleges from paying taxes on their sports income. The legislators’ reasoning now appears shockingly quaint: that participation in college sports builds character and is an important component of the larger college experience.
Many booster clubs are recognized as charities under the federal tax code. At Florida and Georgia, to name just two universities, the athletic departments are set up as charities. Universities also have access to tax-exempt financing when building ever-larger stadiums and arenas. Boosters and donors benefit from generous tax deductions when they buy the best seats or endow an athletic scholarship. That’s right: colleges now endow their quarterbacks and linebackers the same way they do a distinguished chair of American literature.
If college presidents really wanted to halt the college sports machine, they could try two options. They could insist that athletic departments operate within their university budgets, like the English or biology departments; or they could ask Congress to rescind the tax breaks on the commercial income earned by athletic programs.
(Hat Tip: Ann Murphy.)
Long viewed as an integral component of higher education, sports in many universities have become highly commercialized. Successful athletic programs are very rewarding financially: The NCAA men’s basketball tournament alone garnered about $143 million in revenue for athletic departments in 2008, and college football bowl games generated a similar amount.
Such large sums raise the questions of whether those sports programs have become side businesses for schools and, if they have, whether the same tax preferences should apply to them as to schools in general. This CBO paper compares athletic departments’ share of revenue from commercial sources with that of the rest of the schools’ activities to assess the degree of their commercialization. It also discusses some of the issues that might arise if the Congress decided to alter the treatment of intercollegiate sports programs in the tax code. ...
The study also examines the issues that might arise if policymakers decided that some or all of the activities of the schools’ athletic programs were primarily commercial rather than educational—a decision that would greatly reduce or eliminate the rationale for giving those activities preferential tax treatment. The Congress could change the tax treatment of revenue from those activities in several ways, for example, by limiting the deduction for contributions, limiting the use of tax-exempt bonds, or limiting the exemption from income taxation. ...
[R]emoving the major tax preferences currently available to university athletic departments would be unlikely to significantly alter the nature of those programs or garner much tax revenue even if the sports programs were classified, for tax purposes, as engaging in unrelated commercial activity. As long as athletic departments remained a part of the larger nonprofit or public university, schools would have considerable opportunity to shift revenue, costs, or both between their taxed and untaxed sectors, rendering efforts to tax that unrelated income largely ineffective. Changing the tax treatment of income from certain sources, such as corporate sponsorships or royalties from sales of branded merchandise, would be more likely to affect only the most commercial teams; it would also create less opportunity for shifting revenue or costs.
Wall Street Journal, ·US House to Vote on Permanent Estate Tax Bill Next Week, by Martin Vaughan:
The U.S. House of Representatives next week will vote on legislation to extend current estate tax rates permanently, but when and what action the Senate might take on the bill remains unclear.
The House will vote next week, Wednesday at the earliest, on estate tax legislation from Rep. Earl Pomeroy (D., N.D.), according to a schedule released by House Democratic leaders. The Pomeroy bill (H.R. 4154) would make permanent a 45% rate on inherited wealth, with the first $3.5 million exempt from the tax. Without congressional action, the tax will be repealed in 2010 and return in 2011 at a 55% rate with a $1 million exemption.
The Pomeroy legislation, backed by President Obama, would cost $233 billion over the next 10 years since it represents a tax cut when compared to current law.
- Christopher Bergin, Death Watch on the Death Tax
- Washington Times editorial, Death Tax Redux: Democrats Won't Release Their Grip on the Dead's Money
- Thanksgiving Estate Planning
- What Tax Profs Are Thankful For
- Yale: Investment Risk and the Tax Benefit of Deferred Compensation
- Lehavi: The Taking/Taxing Taxonomy
- Sarah Palin, Bruce Bartlett & Joe Thorndike on the War Tax
- ABC News: Tough Market for Law School Grads
- Michigan Coach Rodriguez and the Tax Man
- Walker & Fleischer: Book/Tax Conformity and Equity Compensation
- IRS Files $79k Tax Lien Against Gov. Schwarzenegger
- Jailed UBS Banker Wants Billions for Ratting Out Rich U.S. Clients Who Used Offshore Swiss Accounts to Evade Taxes
- Tax Court Awards $323k in Attorneys' Fees to Two Kersting Tax Shelter Investors Because of IRS Misconduct
- More on the Tobin Tax
- Taxes and Private Sector GDP Growth
- Top 5 Tax Paper Downloads
- ABA Tax Section Submits Comment Letters
- NYSBA Releases Tax Reports
Sunday, November 29, 2009
Taxes and Private Sector (Angry Bear):
[I]t’s easy to cheat on GDP. GDP includes Government Spending, so an irresponsible administration can artificially goose GDP simply by borrowing a fortune (thus making the national debt explode) and spending the money. ... We can pull the government consumption and expenditures ... out of GDP ..., giving us something we can describe as the “private sector component of GDP.” Next, we can divide the amount the government collects in taxes ... at all levels – federal, state and local – by the private sector component of GDP. ... That gives us the percentage that the private sector (at all levels, from the lowliest panhandler to the most magnificent maharajah in the business world) pays in taxes in each year. If it isn’t obvious, there’s no point in including the government portion of GDP there since the government doesn’t pay taxes.
[See data here.] [S]ince Ike took office, only three administrations (JFK, LBJ and Clinton) increased the percentage of the private sector GDP that goes to taxes; they make up three out of the four administrations with the fastest increases in the annualized real private GDP. ... The annual average increase in real private GDP is about 2.4% for administrations that cut share of private sector GDP going to taxes, and 4.2% to the administrations that increased it.Go figure. Now, I dislike paying taxes as much as a Glenn Beck does, but the story line about big bad taxes choking off the private sector doesn’t add up. The “biggest government” president in our sample was LBJ with his Great Society and War on Poverty, and he’s the guy under whom the private sector grew the fastest. JFK was second on both counts. The reason is, without the government, and the taxes that fund it, there is nobody to build roads, provide a decent legal system or combat epidemics, and without things like this, the private sector grinds to a halt, the efforts of Anthony Mozillo and Paris Hilton notwithstanding.
There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with new papers debuting on the list at #3 and #5. The #1 paper is now the #23 tax paper in all-time downloads out of 6185 tax papers:
1. [1266 Downloads] To Roth or Not to Roth: Analyzing the Conversion Opportunity for 2010 and Beyond, by Richard L. Kaplan (Illinois)
3. [192 Downloads] The Accidental Deduction: A History and Critique of the Tax Subsidy for Mortgage Interest, by Dennis J. Ventry, Jr. (UC-Davis)
5. [143 Downloads] Am I the Only Person Paying Taxes? The Largest Tax Loophole for the Rich -- Exchange Funds, by David Herzig (Valparaiso)
- Build America Bonds
- Stripping Tax Credits
- Regulations Implementing the Redesigned Form 990 for Tax-Exempt Organizations and Revising the Public Support Test Under §§ 170(b)(1)(A)(vi) & 509(a)(2)
The New York State Bar Association Tax Section has issued tax reports on:
- Temporary Suspension of AHYDO Rules Under § 163(e)(5)(F)(i) (No. 1196)
- Announcement 2008-115 on FIRPTA Treatment of Rights Granted by a Governmental Unit (No. 1195)
- Reports on Transactions with Foreign Financial Agencies (FBARs) (No. 1194)
- Nonqualified Deferred Compensation Under § 457A (No. 1193)
- Temporary Regulations on the Hot Stock Rules Under § 355(a)(3)(B) (No. 1192)
Saturday, November 28, 2009
The IRS has slapped a $79,064 tax lien against California Governor Arnold Schwarzenegger:
- TMZ, Arnold Schwarzenegger: I'll Be Back Taxes
- TMZ, Notice of Federal Tax Lien
- L.A. Times, IRS Files $79,000 Tax Lien Against Schwarzenegger
- San Francisco Chronicle, IRS Says Schwarzenegger Owes $79,000
- San Jose Mercury News, Schwarzenegger's Office Blames $79,000 Tax Lien on "Paperwork" Snafu
Jailed UBS Banker Wants Billions for Ratting Out Rich U.S. Clients Who Used Offshore Swiss Accounts to Evade Taxes
Bradley C. Birkenfeld, the UBS banker who was sentenced to 40 months in prison for helping rich Americans dodge their taxes through offshore Swiss acounts, is seeking billions from the federal government under the whistleblower statute.
- New York Times, Ex-UBS Banker Seeks Billions for Blowing Whistle, by Lynnley Browning
- Wall Street Journal, From Snitch to Rich? The Case of UBS’s Brad Birkenfeld, by Ashby Jones
Tax Court Awards $323k in Attorneys' Fees to Two Kersting Tax Shelter Investors Because of IRS Misconduct
The Tax Court on Wednesday awarded $322,693 in attorneys' fees (after a 33.3% reduction for "overlawyering") and $15,290 in expenses under § 6673(a)(2)(B) to two Kersting tax shelter investors (Kersting v. Commissioner, T.C. Memo. 1999-197 (June 17, 1999)) for expenses incurred during the remand proceedings stemming from IRS misconduct. Hongsermeier v. Commissioner, T.C. Memo. 2009-273 (Nov. 25, 2009). Prior TaxProf Blog coverage:
- IRS Attorneys Disbarred for Misconduct in Tax Shelter Case (Aug. 23, 2004)
- WSJ: Judge Orders Government to Repay $36 Million to Airline Pilots in Tax Shelter Cases Because of IRS Misconduct (May 24, 2006)
- Tax Court: IRS Attorneys Committed Fraud on the Court (May 2, 2008)
- Hartman: "137 Pages of Utter Scandal" (May 8, 2008)
- ataxingmatter, Financial Transactions Tax, by Linda Beale
- Don't Mess With Taxes, The Investment Tax Is Back!, by Kay Bell
- Future of Capitalism, House Democrats Ready a Tobin Tax, by Ira Stoll
- The Hill, Democrats Push $150B Stock Tax on Wall Street, by Silla Brush
- New York Times op-ed, Taxing the Speculators, by Paul Krugman
- Greg Mankiw's Blog, Is a Tobin Tax Feasible?, by Greg Mankiw
- Times Online, Congressmen Float Trades Tax, by Christine Seib
- Wall Street Journal, Government Deficits and Private Growth, by George Mellon
Friday, November 27, 2009
Following up on Tuesday's post, Democrats Propose Afghanistan War Tax -- "Pay As You Fight":
- Sarah Palin, Facebook:
Really? A tax on national defense? I hear liberal Congressional proposals and I, like most Americans, wonder if they’re serious. We’re going to put a price tag on security?
With Congress and President Obama spending money on everything at breakneck speed, it’s interesting that they are only now getting nervous about spending – but only when it comes to providing the necessary funds to complete our mission in Afghanistan . They don’t need a new “war tax” to fund a strategy for victory in the war zone. They simply need to prioritize our money appropriately.
I find it telling that the Pelosi-Reid Congress is only cost-conscious when it comes to our national defense. Scary. Nonsensical. Unacceptable.
- Forbes: The Cost Of War: Are Americans Willing to Pay It?, by Bruce Bartlett:
In recent years, Republicans have been characterized by two principal positions: They like starting wars and don't like paying for them. George W. Bush initiated two major wars in Iraq and Afghanistan, but adamantly refused to pay for either of them by cutting non-military spending or raising taxes. Indeed, at his behest, Congress actually cut taxes and established a massive new entitlement program, Medicare Part D.
Bush's actions were unprecedented. During every previous major war in American history, presidents demanded sacrifices from rich and poor alike. ...
The White House has given no indication of how it plans to pay for expanding the war in Afghanistan. More than likely, it will follow the Bush precedent and just put it all on the national credit card. But at least some members of Congress believe that the time has come to start paying for war. On Nov. 19, Rep. David Obey, D-Wis., introduced H.R. 4130, the "Share the Sacrifice Act of 2010." It would establish a 1% surtax on everyone's federal income tax liability plus an additional percentage on those with a liability over $22,600 (for couples filing jointly), such that revenue from the surtax would pay for the additional cost of fighting the war in Afghanistan.
It's doubtful that this legislation will be enacted. But that's not Obey's purpose. He will probably offer it as an amendment at some point just to have a vote. Republicans in particular will be forced to choose between continuing to fight a war that they started and still strongly support, or raising taxes, which every Republican in Congress would rather drink arsenic than do. If nothing else, it will be interesting to see those who rant daily about Obama's deficits explain why they oppose fiscal responsibility when it comes to supporting our troops. ...
If it takes the threat of a tax increase to get people to think seriously about whether it's worth continuing to fight wars far from home--wars that have only the most tenuous connection to the national interest--then it's a good idea. History shows that wars financed heavily by higher taxes, such as the Korean War and the first Gulf War, end quickly, while those financed largely by deficits, such as the Vietnam War and current Middle East conflicts, tend to drag on indefinitely.
If Americans aren't willing to follow John F. Kennedy and "pay any price, bear any burden, meet any hardship" to fight a war, then we shouldn't be fighting it.
- tax.com, Finally, Some War Tax Talk, by Joseph J. Thorndike:
Will wonders never cease. After ignoring moral and economic imperaives for the better part of a decade, policymakers are finally talking about a war tax. New legislation proposed by Rep. David Obey, D-Wisc., would impose a modest, graduated surtax to help fund the war in Afghanistan. Obey offered an obvious -- and obviously compelling -- argument for the proposal: “Regardless of whether one favors the war or not, if it is to be fought, it ought to be paid for.” ...
No, I'm not kidding myself: This tax has the proverbial snowball's chance in hell. But it's a fine thing to see at least a few well-placed few politicians step up to the plate. War taxes are one of the great moral issues in taxation. Historically, they have been a near constant of American politics (see my book for more on that argument). Only the post-9/11 wars have broken categorically with the American tradition of wartime sacrifice. It's time to rediscover a more noble past.
- The Daily Beast, Why We Need a War Tax
- The Hill, Will Dick heney Support a War Tax?
- Reuters, The Afghanistan War Surtax Gambit
- Web CPA, Do We Need an Afghanistan War Tax?
ABC News, Tough Market for Law School Grads: Law Students Across the Country Try to Adapt in a Struggling Economy, by Emily Watkins:
For the first time in decades, the promise of a profitable law career for top students is uncertain, as law schools report significantly reduced hiring rates. ...
Law schools across the country are seeing a reduction in the number of firms participating in the recruitment process. Harvard reported a 20% reduction in the number of employers participating in recruitment, according to assistant dean for career services Mark Weber, while NYU, Georgetown and Northwestern reported on their Web sites that on-campus interviews are down by a third to a half when compared with recent years. Texas experienced a 45% decrease in on-campus interviews....
When Richard Rodriguez moved from West Virginia University to the University of Michigan. Coach Rodriguez had a contract with his former employer that required him to pay $4 million dollars to West Virginia if he left for another coaching position. After a suit was filed, it was reported that the parties agreed that the $4 million dollars will be paid to West Virginia, of which Rodriguez will pay $1.5 million dollars in installments, and the University of Michigan (his new employer) will pay the remaining $2.5 million. How tax law applies to that buyout and whether Coach Rodriguez will incur federal income tax liability because of Michigan’s payment of $2.5 million are interesting questions. Simply put, will Michigan’s payment of 62.5 percent of the buyout obligation cause the taxman to cometh to Coach Rodriguez?
We conclude that a payment of a buyout fee to terminate an employment contract is a deductible expense, and that the employee does not incur income tax liability when the new employer pays all or part of his buyout obligation.
Should we require companies to report the same amount of income to the IRS as they report to their shareholders? The idea behind "book/tax conformity" is that managers' desire to increase reported earnings would act as a check on their desire to minimize taxable income, and vice versa. Some scholars have proposed a comprehensive approach, adopting financial income as the basis for corporate taxation. Legislators, meanwhile, have offered a targeted approach that singles out equity compensation, which has historically been a significant source of the "gap" between book income and taxable income.
This Article argues that book/tax conformity carries unexplored costs that reduce its attractiveness, at least in the context of equity compensation (and quite possibly in other areas as well). Conforming the employer's tax treatment of stock and options with the accounting rules creates a paradox for employee-level taxation. Either employee taxation is also conformed to book, which raises liquidity, fairness, and other concerns, or we must diverge from section 83(h), which limits the employer's deduction to the amount included by the employee as income. Severing this link between the employer's deduction and the employee's inclusion would eliminate an important check on tax gamesmanship that is analogous to the check that book/tax conformity proponents seek to create. Conforming tax deductions for options with book, in other words, may simply trade one form of gamesmanship for another.
More broadly, book/tax conformity must be evaluated in light of (1) the cost of other gamesmanship that may result from conformity, (2) the availability of other means of combating manipulation, (3) potential distortions in compensation design, and (4) effects on the decision to be a private or public company. We conclude that equity compensation should be excluded from comprehensive book/tax conformity regimes, and one-off proposals to conform employer taxation of stock and options with book are probably misguided. On the other hand, we suggest that if targeted conformity of equity compensation is desired, revising the accounting rules for options to match those of stock appreciation rights, which would yield conformity at the tax end of the spectrum, possibly could improve upon the status quo.
Thursday, November 26, 2009
- H. Beau Baez (Charlotte): "As the pilgrims before me, I thank God for all that he has provided. A nation where I am free to worship God, a home with a loving wife and children, and for His grace in providing me with the ability to work in a field that is personally rewarding."
- Linda Beale (Wayne State): "I am thankful for my students in advanced tax courses, because they are willing to take hard courses, do a considerable amount of work day in and day out, and risk being treated as tax nerds by their peers, in order to learn something that is vitally important to the future of the society we live in. My tax students’ commitment to learning, rather than being provided “law on a platter”, is truly inspiring. The fact that we can actually have fun in the process (well, at least some of the time) is awesome."
- Paul Caron (Cincinnati): "I am thankful for my wonderful wife and children, the best job in the world, our church community (particularly the men in my Friday morning accountability group), and the God that makes it all possible."
- Mark Cochran (St. Mary's): "Call it corny, but I'm thankful for my TaxProf colleagues and the opportunity to be part of the virtual community."
- Bridget Crawford (Pace): "Tax Notes Today and Steve Leimberg."
- David Hasen (Penn State): "I am thankful that God blessed me with the best job in the world -- a job that allows me not only to research and write, but to teach students about a great profession and to help them understand the privileges and responsibilities that come with being a lawyer, especially the privilege of helping others less fortunate."
- Francine Lipman (Chapman): "I am very thankful that I have been privileged to be a part of many wonderfully diverse communities in 2009, including Polk County Township in rural Wisconsin and the Tenderloin where we have been living during our visit at UC Hastings College of the Law. And, of course, the cyberspace community of TaxProf Blog. Many, many thanks to Paul and all... "
- Jim Maule (Villanova): [see here]
- Peter Prescott (Indiana-Indianapolis): "I’m simply thankful to be a new tax professor at IU-Indianapolis. Who could ask for more than the opportunity to spend time interacting with students while learning and teaching about tax law? It sure beats private practice!"
Ethan Yale (Virginia) has published Investment Risk and the Tax Benefit of Deferred Compensation, 62 Tax L. Rev. 377 (2009). Here is the abstract:
Deferred compensation is thought to generate significant tax savings compared to current compensation in certain circumstances. The standard model used to support this conclusion does not consider investment risk and therefore overstates the tax benefit of deferred compensation significantly. This paper describes three alternative, risk-neutral approaches to measuring the tax benefit of deferred compensation. Each of these approaches avoids misclassifying increases in expected value attributable to increases in investment risk as a tax preference.
Takings jurisprudence is engaged in a constant paradox. It is conventionally portrayed as chaotic and “muddy,” and yet attempts by the judiciary to create some sense of order in it by delineating this field into distinctive categories that apply to each a different set of rules are often criticized as analytically incoherent or normatively indefensible.
This Essay offers an innovative approach to the taxonomic enterprise in takings law, by examining what is probably its starkest and most entrenched division: that between taking and taxing. American courts have been nearly unanimous in refusing to scrutinize the power to tax, viewing this form of government action as falling outside the scope of the Takings Clause. Critics have argued that the presence of government coercion, loss of private value, and potential imbalances in burden sharing mandate that the two instances be conceptually synchronized and subject to similar doctrinal tests.
The main thesis of the Essay is that this dichotomy, and other types of legal line-drawing in property, should be assessed not on the basis of a “pointblank” analysis of allegedly-comparable specific instances, but rather on a broader view of the foundational principles of American property law and of the way in which takings taxonomies mesh with the broader social and jurisprudential understanding of what “property” is.
Identifying American property law as conforming to two fundamental principles-formalism of rights and strong market propensity-but at the same time as devoid of a constitutional undertaking to protect privately-held value against potential losses as a self-standing “strand” in the property bundle, the Essay explains why prevailing forms of taxation do seem to be disparate from other forms of governmental interventions with private property. Focusing attention on property taxation, the Essay shows why taxation is considered a “lesser evil” type of government coercion, how the taking/taxing dichotomy better addresses the public-private interplay in property law, and why taxation is often viewed as actually empowering property rights and private control of assets.
Wednesday, November 25, 2009
- Individual Income Tax Returns, 2007, by Justin Bryan (p.5)
- Partnership Returns, 2007, by Tim Wheeler & Nina Shumofsky (p.55)
- Partnerships and Sole Proprietorships, by State, for Tax Year 2007, by Linda Morey (p.145)
- Tax-Exempt Bonds, 2007, by Emily Shammas (p.158)
- Transactions Between Large Foreign-Owned Domestic Corporations and Related Foreign Persons, 2006, by Mark R. Lowe (p.186)
- Foreign Trusts, 2006, by Daniel S. Holik (p.214)
- Charities, Business Leagues, and Other Tax-Exempt Organizations, 2006, by Paul Arnsberger (p.235)
- Domestic Private Foundations and Charitable Trusts: Tax Years 2005 and 2006, by Cynthia Belmonte (p.245)
- A Look at Estate Tax Returns Filed for Wealthy Decedents Since 2001, by Brian G. Raub (p.287)
Lucas Osborn (Campbell) has posted Tax Strategy Patents: Why the Tax Community Should Not Exclude the Patent System, 18 Alb. L.J. Sci. & Tech. 325 (2008), on SSRN. Here is the abstract:
A relatively recent phenomenon of patents covering tax saving strategies has generated an overwhelmingly negative response from the tax community. This article reviews current patent laws in the context of tax strategy patents and business method patents (of which tax strategy patents are a subset), and then analyzes the major concerns voiced by opponents of tax strategy patents. The article suggests that the lack of searchable prior art and patent examiner expertise are temporary problems that can and will be adequately addressed by the Patent Office and the tax community.
In addition, while the tax community has put forth many thoughtful concerns regarding why tax strategies should be outside the realm of patentable subject matter, this article contends that many of the concerns arise from either misunderstanding of the patent laws or dislike and fear of change, rather than from fundamental reasons to exclude tax strategies from patenting. The article does, however, recommend some slight changes to the laws relevant to this area, including requiring patent applicants to base tax strategy patent applications on current tax laws and to identify and explain the primary tax laws relevant to an alleged invention, reviewing all tax strategy patents under a strict obviousness standard based on the recent KSR v. Teleflex Supreme Court case, and amending the tax laws to make the use of patented tax strategies reportable transactions.
Minimizing the issuance of “bad” tax strategy patents will result in a patent system whose value to the public correlates to the value of the tax planning profession as a whole. Thus, interested parties should focus their efforts not on eliminating tax strategy patents, but on increasing the quality of issued patents and improving the tax laws under which any such patents would operate.
William M. Funk (Law Office of William M. Funk, New York) has published On and Over the Horizon: Emerging Issues in U.S. Taxation of Investments, 10 Hous. Bus. & Tax J. 1 (2009). Here is the Conclusion:
This article does not pretend to propose an exhaustive or systematic set of reforms of taxation of the investment management industry or of incentives for investors. Rather, this article has focused on some of the leading issues and imbalances within the system with an eye toward where financial and social outcomes may be directed. To discuss all tax policies, all current financial issues, and all consequences is a much larger undertaking than can be addressed in one or a series of articles.
What can be done is to examine where taxation of the largest and most consequential pools of capital has gone off-track from what would be the rational expectations of an observer with no vested interest in the status quo. It took many years and the influence of countless players in the tax and financial system to reach this state of affairs, proving that the worst mistakes we make are the ones we make collectively.
Realigning tax and financial policy will require many inputs from many parties, including sources that are unexpected and still unknown at this time. But the process can only start by asking knowledgeable yet basic questions about what sort of governance we wish to have. As policy-makers feel their way through this period, a different tax environment may yet emerge that will require new thinking so that taxpayers can achieve the best results in their roles as private economic actors and public citizens.
The Treasury Department and IRS yesterday released the 2009-10 Priority Guidance Plan, which contains 315 projects to be completed from July 2009 through June 2010:
Schizer: Subsidizing Charitable Contributions: Incentives, Information and the Private Pursuit of Public Goals
David M. Schizer (Dean, Columbia Law School) has published Subsidizing Charitable Contributions: Incentives, Information, and the Private Pursuit of Public Goals, 62 Tax L. Rev. 221 (2009). Here is the abstract:
The charitable deduction has enjoyed relatively little support in the legal academy. Many commentators have asked what it adds to the tax system and, as critics have observed, the deduction obviously does not itself collect tax revenue. Defenders respond that the deduction helps measure income and keeps taxpayers from inefficiently substituting leisure for work, but these points are, of course, contested. Instead of revisiting debates about what the deduction adds to the tax system, this Article focuses on the broader question of what it adds to the pursuit of public goals. The deduction -- and any other government subsidy that matches charitable contributions through the tax system (here called "subsidized charity") - enlists private individuals to pursue public goals in a somewhat unique manner. While in other settings the government delegates implementation but still specifies the goal to be pursued, charitable donors are allowed to select the goal as well. Is it desirable to pursue public goals in this way?
Tax policy analysts often claim that tax distributional analysis should be based on a lifetime perspective, at least as a theoretical ideal. A prominent argument in favor of a consumption tax base over an income tax base appeals to this lifetime equity perspective, as does the argument for lifetime income averaging under an income tax with progressive marginal rates. These appeals to lifetime equity assume, in most cases without discussion, that personal identity over time is an unproblematic concept, so that the whole-life person is clearly the ideal unit for purposes of distributional analysis. However, the philosopher Derek Parfit claims that personal identity is not stable over time; to Parfit there is an important sense in which a person today is not the same person he was several decades ago. To one who is persuaded by Parfit’s view, the merits of the whole-life approach to tax equity analysis will be far from clear. This article describes Parfit’s account of the nature of personal identity over time, and considers how tax policy analysis changes if one takes the Parfitian view rather than the standard view of personal identity. The article concludes that the arguments for consumption taxation (in preference to income taxation) and for lifetime averaging are much weaker under Parfit’s account of personal identity, and that age-sensitive taxation (e.g., different tax rate schedules for taxpayers of different ages) becomes more attractive under Parfit’s account.
Tuesday, November 24, 2009
Throughout the course of their lives, same-sex couples experience many legal challenges not faced by their heterosexual peers. Federal estate tax law continues this differential treatment into death. While the estate tax laws generally allow married heterosexuals to transfer unlimited assets to their spouses at death without incurring estate tax liability, Americans in same-sex relationships are limited in their ability to transfer assets tax-free to their same-sex partner upon death. Using data from several government data sources, this report estimates the dollar value of the estate tax disadvantage faced by same-sex couples. In 2009, the differential treatment of same-sex and married couples in the estate tax code will affect an estimated 73 same-sex couples, costing them each, on average, more than $3.3 million.
- Don't Mess With Taxes, "Pay as You Fight" War Surtax Introduced
- The Hill, GOP Lawmaker Would "Consider" War Tax as Last Resort
- NPR, A War Tax on the Rich?
- Politico, War Surtax: "Pay as You Fight"
- San Francisco Chronicle, Obey Wants War Surtax
- Time, Obey's War Tax
- UPI, Two Democrats Threaten "Tax for Troops"
- Wall Street Journal editorial, Obey's Afghan War Surtax
- Wall Street Journal Wealth Report, More Afghanistan Troops: Send the Bill to the Wealthy?
Wall Street Journal op-ed, Homebuyer Tax Credits Threaten the FHA: Funding a Down Payment with the Credit Increases the Odds the Buyer will Default, by Robert C. Pozen (Harvard Business School & MFS Investment Management):
A few weeks ago, President Barack Obama signed legislation extending an $8,000 tax credit for first-time home buyers. The refundable tax credit, available even if a family has no taxable income, will enable many more buyers to close on a home. But it also could bankrupt the Federal Housing Administration (FHA) and, by doing so, damage an already weak housing market.
The tax credit was put in place as part of the stimulus package signed into law earlier this year. Initially, it was available only to first-time buyers with a combined income of $150,000 or less ($75,000 for individuals). Approximately 40% of all first-time buyers used the credit in 2009, so extending it was strongly supported by real estate brokers, home builders and their congressional allies.
The extension the president signed makes the credit available to first-time buyers, but also to people who have owned a home for at least five years. In addition, it raises the maximum income for a qualified buyer to $225,000 a year for couples and makes the credit available until mid-2010. (It had been set to expire at the end of this month.)
The problem is that the FHA insures mortgages of homes below certain price levels with such a low down payment that it can be funded solely by the refundable tax credit. And, as we've seen in the recent housing crisis, buyers with no skin in the game are more likely than others to default on their mortgages when the value of their home falls below their mortgage balance.
Here's how the credit allows buyers to avoid putting their own money at risk. Suppose a couple making $60,000 annually buys a home worth $200,000. They can get an FHA-insured loan if they put down 3.5% of the purchase price, about $7,000. The couple will also need to come up with another $1,000 in closing costs, for a total of $8,000. The couple can either dip into savings or borrow that money from relatives or somewhere else on a temporary basis. After closing, the couple can quickly obtain the $8,000 refundable tax credit to pay off their temporary loan (or replenish their savings). In effect, they will have bought a home without putting any of their own money at risk. Owners who don't sink their own money into a house are much more likely to default on the mortgage. ...
We all want to help first-time buyers acquire homes and support the depressed U.S. housing market. Without real down payments, however, new homeowners are likely to default on their mortgages, and the FHA will probably need a taxpayer bailout. The Obama administration should increase the requirements to qualify for an FHA-insured mortgage. In addition to the 3.5% down payment, the administration should also require that buyers put down at least half of the tax credit they will receive for buying the home.
- Giving Intellectual Property, 39 U.C. Davis L. Rev. 1721 (2006)
- Taxing the New Intellectual Property Right, 56 Hastings L.J. 1 (2004)
Roger M. Groves (Florida Coastal) has published More Private Equity, Less Governmental Subsidy, and More Tax Efficiency in Urban Revitalization: Modeling Profitable Philanthropy and Investment Incentives, 8 Fla. St. U. Bus. L. Rev. 93 (2009). Here is the abstract:
In hopes of revitalizing depressed urban areas, US tax policy has been to use tax credits as a major incentive to induce private equity re-investment. But those give away subsidies to private investors have failed to have transformative effects, and come at a price in the billions to the public treasury. This article seeks a shift in the tax policy paradigm to increase the private equity investment, while reducing tax subsidy dependence. For the philanthropic urban investor, the short term incentive of an annual tax benefit (credits from the annual tax returns) is singularly inadequate to cause a major shift in equity investments for the urban core. A preferred method of increasing that investor’s participation is to increase the return on investments through joint ventures with tax exempt entities. As a catalyst for increasing that investment return, Congress should transform favorable, but non-precedential private letter rulings into statutory laws that strengthen the legal authority for joint ventures between private equity investors and tax exempt entities - a process this article terms 'statutorization'. This broadened base of private equity investors accelerates the timing and volume of projects that over the long term reduce both direct subsidies to the low income residents and the indirect subsidies to the investor-creators of those projects.
Check out the 6-minute segment on NPR's All Things Considered, Is Tax Deduction for Home Mortgages a Bad Idea?:
(Hat Tip: Claudine Pease-Wingenter.)
The tax deduction for mortgage interest is a cherished benefit for millions of Americans, but most economists think it's a bad idea. One of those economists, Dennis Ventry of the University of California-Davis, talks to host Guy Raz about the history of the deduction, and why the odds of changing it are so long.
SSRN has updated its monthly rankings of 620 American and international law school faculties and 1,500 law professors by (among other things) the number of paper downloads from the SSRN data base. Here is the new list (through November 18, 2009) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):
Continuing a TaxProf Blog tradition (see prior 2005, 2006, 2007, and 2008 versions), Steven H. Sholk (Gibbons, Newark, NJ) has made available to readers his wonderful 182-page A Guide to Election Year Activities of Section 501(c)(3) Organizations, in Tax Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings (PLI 2009).
Harvard and Stanford have issed a call for papers for their 3rd Annual International Junior Faculty Forum to be held at Stanford in October 2010:
Junior scholars whose home institution is outside the United States and who have held an academic position for less than seven years, as of 2010, or whose last degree was earned less than ten years earlier than 2010 and are not U.S. citizens, are invited to apply for the 2010 session. ...
After the abstracts have been reviewed, we will in February invite a number of junior scholars to submit full papers, electronically (in English) by May 31, 2010. Papers may be on any legally relevant subject. ... Please note that already published papers are not eligible to be considered. ...The sponsoring schools will cover expenses of travel, including airfare, lodging, and food, for each participant.
The Heritage Foundation has published Estate Tax a Killer for Family-Owned Businesses and Their Workers, by Curtis S. Dubay:
The death tax is a drag on America's family-owned businesses, destroys jobs, and lowers wages while raising little revenue. As such, Congress should repeal the estate tax once and for all to remove an unfair burden from the backs of American family-owned businesses and their workers.
Monday, November 23, 2009
This paper directly confronts the question: “Why Are There Tax Havens?” – contending that the focus on neutrality in the international tax laws of countries, such as the United States, itself, creates or exacerbates the incentives for the proliferation of tax havens. Or, in other words, it is precisely the focus of modern international tax laws on capital neutrality that leads to the conditions necessary for tax havens to arise and persist within the international regime.
Ward M. Hussey, who worked for 42 years in the Office of Legislative Counsel for the U.S. House of Representatives and was the primary drafter of the Internal Revenue Codes of 1954 and 1986, died on November 16 at the age of 89. He began work in the Office of Legislative Counsel in 1946 and served from 1972 until his retirement in 1989 as Legislative Counsel.
- Congressional Resolution Honoring Ward M. Hussey (H. Res. 97)
- Co-author, Basic World Tax Code and Commentary (Tax Analysts, 1996)
- Daniel M. Shaviro (NYU), Sad News
A Critical Look at the Economic Argument for Taxing Only Labor Income: According to accepted wisdom, "the tax substitution argument" fairly establishes that it is best to tax only labor income, and not also income from savings and investment. In this Article, I show that the tax substitution argument - which is actually a disjointed collection of arguments - is variously incomplete, incorrect, and conclusory.Tax Eclecticism: A widely held view among tax scholars is that only labor earnings, and not also capital earnings, should be included in the tax base. A companion paper by the same author critiques the economic argument that is provided in support of this view. The present paper takes the additional step of providing an affirmative economic argument for including capital earnings in the base. In the process, it provides a general argument for tax base eclecticism.
The Nelson A. Rockefeller Institute of Government today released a report showing that state tax revenues dropped in the third quarter in each of the 44 states that submitted data. The average decline was 10.7%:
The biggest declines were in corporate income tax revenues (-19.4%) and personal income tax revenues (-11.4%). State sales tax revenues declined 8.2%.
Here are the ten states with the biggest tax revenue declines:
The Institute for Law Teaching and Learning has published the Fall 2009 issue of The Law Teacher. Stewart Harris (Appalachian) offers advice for those soon to hand out student evaluation forms in Sometimes, We Really Do Suck:
While I don’t try to influence my written student evaluations — other than by teaching well — I have occasionally told my classes that cryptically negative comments, such as, “You suck,” while perhaps true, are not particularly helpful. I have then clarified that it’s perfectly all right for them to write that I suck, but that if they want me to stop sucking, they had better tell me, with some degree of specificity, just how I suck.
Here are the other articles:
- Taking a Small Step Toward More Assessments, by Sophie Sparrow (Franklin Pierce), p.1
- Book Review: Contracts -- A Context and Practice Casebook, by Roy Stuckey (South Carolina), p.3
- Teaching Issue Spotting Explicitly, by David Nadvorney (CUNY) & Deborah Zalesne (CUNY), p.4
- Lawyer as Counselor — Winning Isn’t Always Everything, by Susan M. Chesler (Arizona State), p.6
- Negotiation and Drafting in a Contracts Course, by Stephen A. Gerst (Phoenix), p.7
- Teaching with Sarcasm, by Harriet N. Katz (Rutgers-Camden), p.9
- Political History of Law, by Sabah Carrim (KDU College, Malaysia), p.10
- An Experiment in Participation, by Leigh Goodmark (Baltimore), p.12
- Conference: Teaching Law for Engaged Learning (April 10, 2010), p.14
- AALS Annual Meeting Sessions Related to Teaching and Learning, p.15
- The Activity-Based Seminar, by Stacy Caplow (Brooklyn), p.16
- Book Review: Teaching Law by Design, by Robin A. Boyle (St. John’s), p.19
- Call for Presentations: Teaching Law Practice Across the Curriculum (June 16-18, 2010), p.20