Tuesday, November 30, 2010
Center on Budget and Policy Priorities, New CBO Report Finds up to 3.6 Million People Owe Their Jobs to the Recovery Act:
Among ARRA’s most effective provisions for saving and creating jobs, according to CBO’s estimates, are direct purchases of goods and services by the federal government, transfer payments to states (such as extra Medicaid funding), and transfer payments to individuals (such as increased food stamp benefits and additional weeks of unemployment benefits). CBO’s estimates indicate that tax cuts are less effective job producers, and tax cuts for higher-income people and corporations have very low bang for the buck.
The economic recession has forced almost all states to make difficult budget decisions, including cuts to education funding and other essential government services. North Carolina is no exception. Faced with a projected $4.6 billion budget shortfall, the General Assembly last year cut services, increased taxes, and yet still had to rely on federal recovery funds to balance the budget. While the depth of the recession may have made last year’s budget shortfall to some extent unavoidable, the state’s outdated and volatile tax system exacerbated its magnitude. This Article examines the shortcomings of North Carolina’s existing tax structure. It then suggests alternatives to modernize the state’s tax system and stabilize tax revenues. These suggestions include broadening the sales tax base to include more services and closing existing corporate income tax loopholes. Reforms to the North Carolina tax system are long overdue. This Article provides a pathway to improving that system and calls for legislators to enact long-term solutions to the problems hampering North Carolina’s existing tax code. Ultimately, failure to do so will risk the state’s ability to continue providing much-needed services and educational opportunities to its citizens.
This Article analyzes the long-term impact on firm behavior of the repatriation tax holiday of the American Jobs Creation Act of 2004 (AJCA). The approach taken is empirical and based on data collected from the public filings of large U.S.-based multinational corporations. Statistical analysis of the data shows that there has been a dramatic increase in the rate at which firms add to their stockpile of foreign earnings kept overseas. Further analysis shows that this change has been driven both by an increase in the fraction of foreign earnings that remain permanently invested abroad and also, in the case of some categories of firms, by an increase in foreign earnings relative to domestic earnings. These findings are consistent with the hypothesis that the temporary holiday conditioned firms to anticipate future such holidays and to change their behavior by placing more earnings overseas than ever before. Thus, although the AJCA was a short-term success in getting foreign earnings repatriated, it may have been a long-term failure by creating a long-term net increase in total earnings kept overseas. The findings of this Article are useful not only for evaluating the AJCA specifically but also for demonstrating more generally the speed and degree to which behavioral effects based on conditioning can occur in the wake of a holiday or other amnesty, particularly in situations involving substantial economic stakes.
Irvine, Calif., attorney Kim Olenicoff’s estate planning practice has slowed in the past couple of years due to the economy, but that’s OK with her because the need to guard against flatulence and sweat stains appears to be recession-proof.
“People say, ‘Aren’t you the girl that makes fart pads?’ ” Olenicoff laughs. “I have a law degree, and I spend most of my day dealing with sweat, farts and boobs. You never know where life is going to take you.”
Garment Guard, a disposable shield that sticks to the armpits of a shirt and absorbs the yellow, started it all in 1999 around the time Olenicoff was finishing law school at the University of Southern California. ...
Garment Guard was recently passed in sales by Subtle Butt, a disposable body-gas neutralizer that’s sold more than 10,000 units. She figures at least half of the sales are gag gifts. ...
Though Olenicoff’s products are a far cry from the kinds of things most lawyers deal with on a daily basis, she credits the research skills she learned in law school with giving her the confidence and know-how.
Individuals who fail to file required returns or underreport their income can create unfair burdens on honest taxpayers and diminish the public’s respect for the tax system. While currency reports may be commonly associated with money laundering, TIGTA identified a number of individuals who have enough cash to engage in currency transactions totaling at least $20,000, but did not file tax returns even though they appeared to have a filing requirement.
A number of other individuals engaged in similar currency transactions filed tax returns, but reported income that does not appear sufficient to cover their basic living expenses.
We agree with professor Ann Murphy from Gonzaga that this blog is fantastic. Paul Caron makes tax law (and law prof news) entertaining, even for a general audience. Murphy notes, “One might think you’d have to be a tax nerd to like it, but many of my co-workers like it too.”
Three other members of our Law Professor Blogs Network also were named to the Blawg 100:
- Legal Profession Blog (one of 12 blogs nominated in the Law Prof Plus category)
- Sentencing Law and Policy (one of 8 blogs nominated in the Criminal Justice category)
- Wills, Trusts & Estates Prof Blog (one of 12 blogs nominated in the Law Prof Plus category)
In this article, the authors review the current law for transfers of the use of property under § 721 and discuss a proposal to treat a transfer of all substantial rights in intangible property as a trasfer of property for this purpose.
All Tax Analysts content is available through the LexisNexis® services.
Ending the uncertainty over extending Bush-era tax cuts may rest on resolving a decade-long debate over death and taxes. ...
With Obama planning to meet with bipartisan congressional leaders at the White House tomorrow, three main factions have formed in the Senate, none of which has the 60 votes needed to advance an estate-tax proposal. One includes Republicans such as South Carolina’s Jim DeMint who favor permanent repeal. Another is led by Democrats including Majority Leader Harry Reid who support a top rate of 45% that would apply after a $3.5 million tax-free allowance. A third faction, led by Arizona Republican Jon Kyl and Arkansas Democrat Blanche Lincoln and embraced by Republican leader Mitch McConnell of Kentucky, backs setting the top rate at 35% after a $5 million exemption. Forging an agreement has proven more complicated than splitting the difference on the numbers because this has been cast as a moral issue.
Continuing a TaxProf Blog tradition (see prior 2005, 2006, 2007, 2008, and 2009 versions), Steven H. Sholk (Gibbons, Newark, NJ) has made available to readers his wonderful 200-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 2010).
Legal scholars have long debated the choice between textualist and intentionalist methods for interpreting statutes. At the center of this debate is Holy Trinity Church v. United States, where the Supreme Court deliberately departed from statutory language. Remarkably, scholars neglect a statute that squarely addressed the issue in the case. This article argues that the neglected statute provides a powerful argument for the Court's result.
The article then considers the implications of this argument for the current debate. The neglected statute reveals that statutory interpretation often turns not on the choice between text and intent but on the choice between competing texts. Making this choice requires an enriched description of the legislative process. The article offers such an account, one recognizes the relative roles of policy specialists, politicians and public opinion.
Monday, November 29, 2010
This update explains several developments in the substantive federal income, estate and gift tax laws affecting individual taxpayers and small businesses. It contains summaries of significant cases, rulings, regulations, legislation and other matters from August, 2009, through September, 2010. This update generally does not discuss developments in the areas of qualified plans or the taxation of business entities (except to a very limited extent).
Andy was a nationally recognized scholar of federal and state tax law and policy. He received his A.B. degree from Princeton University. He received his LL.B. degree with high honors and his M.A. and Ph.D. degrees in economics from Harvard University. During law school, he was an Editor of the Harvard Law Review. After graduating from law school, Andy clerked for Judge Learned Hand of the United States Court of Appeals for the Second Circuit. He then worked for the United States Treasury Department in the Office of Tax Legislation Counsel and for Senator Joseph Clark. From 1963 to 1966, he practiced law at Morgan, Lewis & Bockius in Philadelphia. He joined the University of Minnesota Law School faculty in 1967. ... He formally retired from teaching in 2008.
Andy's passion in his life was sailing. Over his sailing career, Andy owned and raced a variety of boats including J boats, Scows, Lasers and Finns. He began sailing in Mantoloking, New Jersey on Barnegat Bay, and he raced on the East Coast, in the Mid West, and in Europe, winning or placing in top positions in many regattas. He skippered a 5.5M in the 1956 Olympics in Melbourne, Australia finishing fourth and was on the United States Olympic team in the 1960 Olympics in Naples, Italy. ...
There will be a Memorial Service in remembrance of Andy's life this June in Mantoloking, New Jersey. Donations are being accepted in his name to the Dana Farber Cancer Institute, Boston, MA.
(Hat Tip: Deborah Schenk.)
Why aren't sports stars beating the tax man by demanding ownership stakes as part of their compensation, as executives do?
It's often said the key to getting rich in our society is to figure out how to convert ordinary income, taxed heavily, into capital gains income, taxed at a much lower rate.
So I was surprised when the three basketball superstars LeBron James, Chris Bosh and Dwyane Wade joined together earlier this year to negotiate as a unit and then make their unique deal to play for the Miami Heat without getting any ownership—or capital—in the franchise. Clearly their agreement to play for the Heat made the team much more valuable. In my view, they missed a golden opportunity. ...
My question is why sports figures are not taking steps to generate tax-favored income by bargaining to get ownership interests in their teams. ... IIf modern stars are smart they will soon begin to emulate highly paid business executives and improve greatly their compensation by adopting more sophisticated tax planning. In the business and entertainment worlds, top executives and talent do not work exclusively for salaries. They want and get a piece of the action. They want to create and own assets, defer income and control their tax exposure. ...
Mr. Pujols will in all likelihood negotiate a salary of around $35 million annually in a four- or five-year agreement. He and his agent will surely notice the enormous bite the tax collectors will take of that income. Why not take some of the pay in the form of a piece of the Cardinals franchise? Who would argue the Cardinals are not more valuable if they can keep him?
As the need for new revenue deepens, cash-strapped cities may be increasingly likely to turn to colleges, as well as other nonprofit groups, to make payments in lieu of the taxes on the property they use for educational purposes. However, municipalities and local nonprofits should work to hammer out payment plans that are transparent and predictable, according to a new report by a research organization based in Cambridge, Mass.
The report, by the Lincoln Institute of Land Policy, acknowledges that such plans may not make sense for all communities, such as those in which nonprofit groups do not own large amounts of tax-exempt property. And the think tank suggests that state and local governments should consider alternatives to such compensation agreements, which are known as PILOTs, for payments in lieu of taxes. ...
Private colleges and other nonprofit organizations, such as hospitals, churches, and soup kitchens, are exempt from paying property tax in all 50 states. The forgone revenue from the property-tax exemption could total as much as $32-billion nationwide.
But as municipal budgets have been stretched thin, mayors and local politicians have called on colleges and other such groups to compensate cities and counties more for the services they use.
A survey by the Lincoln Institute found that PILOT programs have been used in 117 municipalities and 18 states since 2000.
Many of those agreements, however, appear to be haphazard, secretive, and calculated in an ad hoc manner, the authors found. Even within the same city, payments can vary significantly. Harvard University, for example, pays Boston nearly $2-million annually, while Boston College contributes less than $300,000 through the program.
What's more, payments in lieu of taxes typically generate relatively little revenue, as a share of overall municipal budgets, and often are not a reliable long-term source of funds. In the 2009 fiscal year, PILOT payments from tax-exempt nonprofits accounted for just 0.66 percent of Boston's total municipal budget. ...
There are alternatives to payments in lieu of taxes, the authors note, such as charging municipal-service fees to tax-exempt groups or levying special tariffs, such as tuition taxes, on groups that use nonprofit services. Such taxes and fees, however, are open to court challenges. Most recently, public officials in Pittsburgh backed away from creating what would have been the nation's first tuition tax after the city's largest nonprofit organizations, including Carnegie Mellon University and the University of Pittsburgh, agreed to make voluntary payments.
Professors routinely complain about students who spend class time on Facebook or texting their friends or otherwise making it clear that their attention is elsewhere. But is it acceptable for a faculty member to deal with these disruptions by walking out of class?
Two years ago, a Syracuse University professor set off a debate with his simple policy: If he spots a student texting, he will walk out of class for the day.
Now two faculty members at Ryerson University, in Toronto, sparked discussion at their institution with a similar (if somewhat more lenient) policy -- and their university's administrators and faculty union have both urged them to back down, which they apparently have.
The Ryerson professors' policy was first reported last week in The Eyeopener (the student newspaper) .... Two professors who teach an introductory engineering course in chemistry jointly adopted a policy by posting it on the courses' Blackboard sites. ... [T]he professors said that after three warnings about disruptions such as cell phone discussions and movies playing on laptops, the professors would walk out of class -- and students would have to learn the rest of that day's material themselves. ...
The student newspaper described a chaotic environment in the class where the faculty members made the threat to walk out, with loud chatting among students and even paper airplanes being shot around the room. ...
Janet Mowat, a spokeswoman for Ryerson, issued a statement on behalf of the university that rejected the approach used by the professors. "Ryerson University does not endorse faculty members threatening to abandon their class if the class is unruly nor does the university endorse arbitrarily raising the bar for tests in the middle of the semester."
While Ryerson appears committed to dealing with these issues without professorial walkouts, Laurence Thomas, a professor of philosophy at Syracuse University, said that he's sticking with his ultimatum about students who text, although he sometimes gives a warning for the first offense he spots. He said that since Inside Higher Ed covered his policy, he shows students that article on the first day of class.
Update: ProfessorBainbridge.com, How to Handle Classroom Chaos?
Oprah was back at it last week, giving away to her studio audience a 2012 VW Beetle, a $1,000 Nordstrom gift card, an iPad, and a limited edition Oprah 25th anniversary watch from Phillip Stein encrusted with 58 hand-set diamonds, among other things:
Oprah apparently learned her lesson from the 2004 tax fiasco, with Volkwagon and Oprah agreeing to pick up her audience members' tax bills:
VW donated the 275 Beetles to the show and the German automaker even included all taxes and fees, thus negating the biggest audience gripe the last time Oprah gave away cars back in 2004. Back then, Oprah handed out Pontiac G6s to her audience members, but the winners had to pick up the tax bill.
- Chicagoist, "And Then The IRS Asked For Their Cut, And The Screaming Stopped..."
- New York Post, No Thanks, Oprah, You Can Keep the New Car (Nov. 26, 2010)
Prior TaxProf Blog coverage:
- Tax Consequences of Oprah's Car Giveaway (Sept. 14, 2004)
- More on the Tax Consequences of Oprah's Car Giveaway (Sept. 21, 2004)
- Jon Stewart Daily Show Video of Tax Consequences of Oprah's Car Giveaway (Nov. 3, 2004)
- Journal of Taxation Revisits Tax Consequences of Oprah's Car Giveaway (Dec. 20, 2004)
- Oprah Again Sticks Audience with Big Tax Bill (Jan. 12, 2005)
- Oprah's Tax Problems Redux: Can 5k Checks to 100 Employees Be Treated as Gifts Rather Than as Income? (Apr. 22, 2005)
- Another Oprah Giveaway (Oct. 31, 2006)
- Oprah: I'll Pay the Taxes for My Aussie Giveaway (Sept. 20, 2010)
Cisco’s limited ability to make shareholders happy with dividends may stem from its efforts to make shareholders happy with higher earnings per share. It has become routine for America’s largest corporations to improve their bottom line by cutting their effective tax rates. A reduction in the effective tax rate from 35% to 25%, for example, increases reported profits by 15%. Figure 1 shows that Cisco has cut its effective tax rate in half since the late 1990s. In fiscal 2010 (ending in July), it reached a new low of 17.5%.
By far the most important driver of this reduction in the tax rate is the increasing share of Cisco profits in foreign jurisdictions with low tax rates. In the 1990s, low rates on foreign profits had little impact on Cisco’s effective tax rate. By 2010 they accounted for an almost 20 percentage point decline in the effective tax rate. This is shown in Figure 2.
All Tax Analysts content is available through the LexisNexis® services.
- Eric A. Lustig (New England), Tax-Exempt Organizations and the State: New Conditions on Exempt Status, 44 New Eng. L. Rev. xi (2010)
- Johnny Rex Buckles (Houston), Should the Private Foundation Excise Tax on Failure to Distribute Income Generally Apply to "Private Foundation Substitutes"? Evaluating the Taxation of Various Models of Charitable Entities, 44 New Eng. L. Rev. 493 (2010)
- Linda Sugin (Fordham), Lifting the Museum's Burden from the Backs of the University: Should the Art Collection be Treated as Part of the Endowment?, 44 New Eng. L. Rev. 541 (2010)
- Frances R. Hill (Miami), University Endowments: A (Surprisingly) Elusive Concept, 44 New Eng. L. Rev. 581 (2010)
- Eric A. Lustig (New England), The Boston City Pilot Task Force: An Emerging Best Practice?, 44 New Eng. L. Rev. 601 (2010)
- Evelyn Brody (Chicago-Kent), All Charities Are Property-Tax Exempt, But Some Charities Are More Exempt Than Others, 44 New Eng. L. Rev. 621-817 (2010)
- Gerrit V. Betz, Megachurches and Private Inurement: Are Some Faiths Taxable?, 44 New Eng. L. Rev. 733 (2010)
- Heather M. Marshall, Instead of Asking "When," Ask "How": Why the Rule Against Perpetuities Should Not Apply to Rights of First Refusal, 44 New Eng. L. Rev. 763 (2010)
- Patrick M. Wilson, Protecting Investors from Their Investments: Encouraging States to Make Assets in Domestic Asset Protection Trusts Available to Creditors Who Have Successfully Pierced the Corporate Veil, 44 New Eng. L. Rev. 791 (2010)
Most programs don't say where graduates get jobs, and future Ph.D.'s don't demand the data.
James Mulvey, who has a master's degree in English, abandoned his lifelong dream of getting a Ph.D. and becoming an English professor after taking a hard look at the job market. He now works as a landscaper and a technical writer in British Columbia.
When a group of prospective graduate students visited the physics department at the University of Washington during a recruiting weekend last spring, they asked lots of questions about their lives as doctoral students. But none of them seemed very interested, the department's chairman says, in how recent Ph.D.'s fared after graduate school—on the job market. ...
Even if students did want to know, job-placement information would be hard to get. Most academic departments in the arts and sciences at universities nationwide don't share those data with students, because they don't keep close track of their Ph.D. graduates. Since prospective students don't demand it, departments don't collect it. And in this vacuum, some departments say they are reluctant to be the first to put their records out there, because they don't know how they would compare. The National Research Council wanted to use job-placement data in its latest rankings of doctoral programs but abandoned the idea when it realized universities didn't have the numbers. ...
Even though the market for tenure-track professors may be the bleakest in decades, students are more likely to evaluate the quality of a doctoral program based on the reputation of its faculty members and on how much financial support a department can offer. Even factors like whether prospective students feel comfortable in a department and where a university is located can trump data about future careers, say faculty members and students.
"Ph.D. students are extremely bright people who have been successful their whole lives," says David D. Perlmutter. He is director of the School of Journalism and Mass Communication at the University of Iowa and author of a new book called Promotion and Tenure Confidential (Harvard University Press). "They are like the hundreds of thousands of inner-city kids who believe they are going to be playing in the NBA," says Mr. Perlmutter, who also writes a column for The Chronicle's Careers section. Despite gloomy job news and the hundreds of applicants for any opening, "they still think they'll be the exception."
The Web sites of the country's top business and law schools devote entire sections to the job market. Professional schools have to be upfront about the experiences of their graduates because students demand it. Unlike most Ph.D. students at top research universities, law- and business-school students pay full freight, and they want proof that jobs are waiting when they're done. In Ph.D. programs, though, forces can work against making job-placement information available.
Update: U.S. colleges and universities awarded 49,562 Ph.Ds in 2009, up 1.6% from 2008 and 17.7% from 2004.
- Inside Higher Ed, Ph.D. Pipeline Expands Slightly
- National Science Foundation, Press Release
- National Science Foundation, Report
Sunday, November 28, 2010
- A Cincinnati (and India and South Africa) Thanksgiving
- Slate: Guide to Your Thanksgiving Tax Argument
- Father of UBS Tax Whistleblower Makes Thanksgiving Day Plea for Son’s Clemency
- Changes at the Florida Tax Review
- Lawmakers Ask IRS to Treat Breastfeeding as a Medical Expense
- Cooper: Applying the Benefit-the-Beneficiaries Rule to Trust Investment Directives
- Johnson: State Tax Exemption of Food Used by Casinos for Comped Meals
- Brunson: Taxing Investors on a Mark-to-Market Basis
- Bartlett: Junk Food Economics -- Starving (and Feeding) the Beast
- ABA Tax Section Submits Comment Letters
- ABA Business Law Section Submits Comments on Form 990
- Holzer: Home Equity and the Consumption Tax
- WSJ: Tax Revenues = 19% of GDP, Regardless of Tax Rates
- Top 5 Tax Paper Downloads
- WSJ: Year-End Tax Moves for Investors
- Johnson: Small Business Inventory Expensing
Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.
Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration's budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues.
Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law."
Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.
Why? Higher taxes discourage the "animal spirits" of entrepreneurship. When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income. Taxpayers divert their effort from pro-growth productive investments to seeking tax shelters, tax havens and tax exempt investments. This behavior tends to dampen economic growth and job creation. Lower taxes increase the incentives to work, produce, save and invest, thereby encouraging capital formation and jobs. Taxpayers have less incentive to shelter and shift income.
Here are the data from American Thinker:
1. [385 Downloads] Unintended Consequences: How U.S. Tax Law Encourages Investment in Offshore Tax Havens, by David S. Miller (Cadwalader, New York)
2. [189 Downloads] Oy Yes, the Healthcare Penalty is Unconstitutional, by Steven J. Willis (Florida) & Nakku Chung (J.D. 2010, Florida)
3. [177 Downloads] Did Codification of Economic Substance Repeal the Partnership Anti-Abuse Rule?, by Howard Abrams (Emory)
Given all the uncertainty, is your annual year-end tax-planning session worth the effort this year? Yes—in fact it is crucial, because it could be your last chance to take advantage of today's low rates.
- Capital Gains and Losses
- Stock Options and Restricted Shares
- Roth IRA Conversions
Saturday, November 27, 2010
The President’s Economic Recovery Advisory Board (PERAB) recently recommended allowing small businesses to expense their inventory and exclude their customer receivables from tax. The PERAB proposals are a tax shelter or subsidy that are better than no tax. Investing with deducted or excluded funds is economically equivalent to an exemption of profit from tax, and when the interest deduction is taken into account, the result is a negative tax.
Records to reflect inventory and receivables are easy to maintain and are getting cheaper with the availability of computerized accounting. Every business knows how much its customers owe it, and no business has lost money reflected in valuable inventory it still has on hand. The PERAB proposal is prone to abuse as dentists and lawyers seek shelter. Indeed it would always be open to abuse.
A prime reason why we have a budget deficit problem in this country is because Republicans almost universally believe in a nonsensical idea called starve the beast (STB). By this theory, the one and only thing they need to do to be fiscally responsible is to cut taxes. They need not lift a finger to cut spending because it will magically come down. ...
Because of its obvious ridiculousness, one seldom hears conservatives say openly that tax cuts automatically reduce spending. But it still underpins the entire Republican budget strategy — tax cuts never have to be paid for, no meaningful spending cuts are ever put forward, earmarks and foreign aid are said to be the primary sources of budget deficits, and similar absurdities.
But there is a flip side to STB at work as well. If tax cuts starve the beast, then it logically follows that tax increases must feed the beast. This variation of STB was on full display in a Nov. 21 Wall Street Journal op-ed article by Wall Street Journal editorial writer and Republican operative Steve Moore, who founded the Club for Growth, which gives vast sums to Republican candidates, and Ohio University economist Richard Vedder.
The Moore-Vedder article argues strenuously that tax increases must never be considered no matter how big the deficit is. The reason, based on research Vedder has been updating since the 1980s, is that tax increases always feed the beast, leading to spending increases larger than the tax increase. Originally, he said that spending would rise $1.58 for every dollar of tax increase, leading to an increase in the deficit rather than a reduction. Vedder now says that spending only rises $1.17 for every dollar of tax increase.
By this logic, the tax increase enacted in 1993, which raised the top federal income tax rate to 39.6% from 31%, should have caused a massive increase in the federal budget deficit. In fact, it did not. Spending was 22.1% of GDP in 1992 and it fell every year of the Clinton administration, to 21.4% of GDP in 1993, 21% in 1994, 20.6% in 1995, 20.2% in 1996, 19.5% in 1997, 19.1% in 1998, 18.5% in 1999, and 18.2% in 2000. ...
Starve the beast is a crackpot theory, and its flip side that higher taxes invariably feed the beast is no better. They are just self-serving rationalizations for Republican budgetary irresponsibility.Note: A few years ago, I went into great detail explaining the origin and development of STB in an academic journal. My article is available online for those with an interest in the gory details. In July, I posted a bibliography of more recent academic research in The Fiscal Times √ë all of which shows no evidence whatsoever that tax cuts reduce spending. More recently, the International Monetary Fund has confirmed this conclusion in a September working paper.
- The Effective Date of § 909 (Nov. 15, 2010)
- Treaty Override Provisions of the Health Bill (Nov. 12, 2010)
- Issue Price Under Reg. § 1.148-1(b) (Nov. 11, 2010)
- Carried Interest Proposals in Senate Amendment 4386 to H.R. 4213 (Nov. 5, 2010)
- The Taxation of Dividend Equivalent Under § 871(l) (Oct. 22, 2010)
- Form 990-PF and Related Instructions (Sept. 28, 2010)
- The Patient Protection and Affordable Care Act (Sept. 15, 2010)
- Capitalization of Tangible Property Expenditures Under § 263(a) (Aug. 23, 2010)
- Foreign Account Tax Compliance Offset Provisions of the HIRE Act (Aug. 16, 2010)
- Stripping Tax Credits and Notice 2010-28 (Aug. 5, 2010)
- Department of Labor Proposed Regs on Participant Fee Disclosure (Aug. 2, 2010)
- The Heroes Earnings Assistance and Relief Tax Act and Notice 2010-15 (July 30, 2010)
(Hat Tip: Patrick Sternal.)
[A]s attorneys who work regularly with nonprofit organizations, especially in the areas of entity formation, organization and governance, we are concerned about a number of the provisions dealing with these areas.
Home ownership was once the quintessential sign of financial success in America. This is no longer the story. The current strain on the United States economy began with imprudent lending practices. Financial innovation in the mortgage industry allowed lenders to develop lending options to uncreditworthy borrowers. The subprime loan industry lent to borrowers who lacked the financial wherewithal to afford a home mortgage. Creative loans, coupled with low interest rates, sparked demand in home purchasing. Real estate values soared and homeowners began to amass significant amounts of home equity. Instead of amassing this wealth for retirement, Americans discovered ways to extract this equity through cash-out refinancing and home equity lines of credit. Imprudent borrowing caused the financial demise of many Americans.
In this article, I address the current tax-free treatment of home equity withdrawals and address how our tax law fails to promote homeownership as a long-run personal savings mechanism. Finally, I propose a modification to the Internal Revenue Code that would use consumption tax attributes to curb wasteful home equity withdrawals. This system would use the Internal Revenue Code to restrict homeowner’s withdrawal of home equity to socially favored usages. Modification to the tax treatment of home equity would create a disincentive for individuals to casually extract equity and reinstate homeownership as a long-run personal savings mechanism.
Friday, November 26, 2010
The Florida Tax Review has revised its submission procedures. In a significant change of procedure, the Florida Tax Review has dropped its prior “blind review” process, as well its requirement of exclusive submission of manuscripts. Authors may identify themselves and may submit manuscripts to the Florida Tax Review simultaneously with submission to other journals. However, for submissions made directly to the Florida Tax Review, the Board of Editors will endeavor to decide within three weeks whether to publish a manuscript. After the decision has been made to publish, the Review is committed to expediting publication. Manuscripts selected for publication as generally are expected to be published within three to four months after acceptance.
- Happy Mothers Day: Congress Considers Tax Incentives for Breast Feeding (May 6, 2005) (Hat Tip: Ann Murphy.)
- IRS: Infant Formula Not Deductible by Mother With Double Mastectomy (Oct. 13, 2009)
- NY Times: Medical Expense Deductions for Acne Cream, Not Breast Pumps (Oct. 28, 2010)
This Essay considers the trust investment management implications of Section 105(b)(3) of the Uniform Trust Code (UTC), which codifies an unwaivable requirement that a "trust and its terms must be for the benefit of its beneficiaries" (hereinafter the "benefit-the-beneficiaries rule"). The Restatement (Third) of Trusts contains similar language.
This is the third in a series of Articles on this topic published by the Boston Univerisiy Law Review. The series began with my 2008 Article on the subject and continued with Professor John Langbein's 2010 Essay. In this third work, I emphasize two major themes that distinguish my viewpoints from Professor Langbein's. First, while the benefit-the-beneficiaries rule does have deep historical roots, it is more than simply a clarification of a single traditional rule against capricious purposes. Instead, it is a composite of multiple rules and interacts in complex ways with other principles and provisions of modern trust law. Second, when applied to a variety of potential trust provisions in the manner Professor Langbein's writings appear to advocate, the rule proves to be overly rigid in its practical effect. Whereas trust law historically has endeavored to balance the competing demands of settlors’ intent and beneficiaries’ rights, the new formulation of the benefit-the-beneficiaries rule is too absolutist in application. By categorizing settlor-imposed trust investment directives as either completely prudent or so capricious as to offend public policy, this rule seemingly offers no middle ground. It lacks the flexibility to differentiate wantonly destructive investment directives from more well-intentioned provisions that deviate from widespread, but not universal, theories of portfolio construction.
While scholarly discourse on this subject has served and will continue to serve a vital function, the ultimate impact of the benefit-the-beneficiaries rule will not be decided in the pages of law reviews. Rather, judges interpreting the UTC and the Restatement, state legislators considering adoption – or modification – of state trust law, and trust settlors and trust lawyers wrestling with the ensuing implications will be the ones to resolve this issue. Accordingly, this Essay is intended to clarify the nature of the issues confronting those various parties and inform their future decisions.
In their search for new sources of revenue, states have legalized and sought to tax many kinds of gaming. Forty-eight of the fifty states of the United States permit one or more types of legal gaming. An important technique in casino and some other types of gaming is giving “comps” – complimentary goods or services – to player-customers. A frequent type of comp is free meals on the casino premises or elsewhere. Gaming establishments also often give free meals to their employees.
Comps have been controversial for federal income tax purposes. A recent Nevada case, Sparks Nugget [179 P.2d 570 (Nev. 2008)] and related cases illustrate that comps also can present important questions as to sales and use taxes in many states.
This Comment describes the Sparks Nugget case and its impact. Thereafter, the Comment describes the approaches to statutory interpretation on which the case turned, and it explores possible additional arguments – one for casinos and one for revenue authorities – that were not fully developed in the decision. In my view, on the grounds argued, the case was correctly decided.
Although the U.S. tax system generally only taxes income on a realization basis (that is, when payment changes hands), mark-to-market accounting better reflects economic income. Although there are practical difficulties that compel the continued use realization accounting, the tax code in certain limited situations allows or requires taxpayers to recognize income or loss on a mark-to-market basis. For example, a trader in securities or commodities can make an election to mark gains or losses to the market. This election is not available, however, to investors who are not “traders” for tax purposes.
The Article demonstrates that there is no compelling tax policy reason to limit the availability of the mark-to-market election; rather, based on the superiority of mark-to-market accounting over the current realization regime, the policy justifications for allowing (and encouraging) taxpayers to determine their tax liability on a mark-to-market basis outweigh any objections to liberalizing the election’s availability.
Alternatively, the Article proposes a safe harbor that approximates the criteria courts look to in order to determine if a taxpayer is a trader, but that, unlike the current trade or business test, can be applied in advance of the taxable year. Although providing a safe harbor solely to traders is a worse solution than making the mark-to-market election available to all taxpayers, it is nonetheless better than the current unworkable criteria because it provides certainty to taxpayers at the time they must make the election.
Thursday, November 25, 2010
We also celebrated the church's annual Thanksgiving food drive, which this year amassed food for 250,000 meals for those in need in Cincinnati, New Orleans, and South Africa:
First a prayer: May your Thanksgiving be peaceful and loving—free of pat-downs, fowl-ups, and political debate. ... Nevertheless, I recognize that some families can't resist an argument. So at least you can plan for it. ... [A] better prayer for you may be Loudon Wainwright's Thanksgiving one: "If I argue with a loved one, Lord, please make me the winner." In that spirit, here's Slate's guide to this year's political arguments. ...
Extending the Bush tax cuts
Extend all of them forever: If Democrats allow taxes to increase, we're going to have our next Thanksgiving at Burger King. The fluttering recovery would plummet into a freefall. You can't just extend the tax rates for "middle income" families as President Obama would like, because that's unfair. Plus, raising the upper rate would unfairly hit small-business owners, and small business accounts for 70 percent of the net new jobs in an economy. Having lower marginal rates means people have more money they can invest, which boosts growth, which shrinks deficits. It's win-win-win!
Don't extend any of them at all: Let's remember why we are in this fix: Republicans couldn't win the tax-cut debate on the merits of the magical no-deficits argument 10 years ago, so they had to use a gimmick to pass the cuts temporarily, assuming that no one would have the guts to let them expire. Let's have the guts and stop these kinds of gimmicks. A balanced budget is important, because deficits lead to higher interest rates, which will kill growth as borrowing becomes more expensive. Ending the Bush tax cuts would bring in $3.3 trillion. As for job creation and economic stimulus, CBO says extending the tax cuts would not give you much bang for the buck. We could spend some of the money saved from letting the tax cuts expire on true job-creating stimulus (which voters say they want more than tax cuts, anyway). Money could better be used on aid for the states, extending unemployment insurance benefits, or creating tax credits that favor job creation.
Meanwhile, I wish that we could stop having this debate and start a real one over tax simplification, with lower rates and fewer loopholes.
Extend them temporarily: Higher taxes would kill consumer spending and probably the recovery. Raising the top rates might not kill the recovery, but that's not a certainty—and it certainly wouldn't help improve things. Plus, it is politically impossible with moderate Democrats voting against only a partial extension. So, let the tax cuts stay, permanently, for everyone making under $250,000 and extend them temporarily for those in the highest bracket. Let's remember that lowering the rates for those making less than $250,000 benefits everyone, including the wealthy. And let's not buy into the small-business myth: Fewer than 2 percent of small businesses pay the higher rate for those making more than $250,000 (or $170,000 for individuals).Meanwhile, I wish that we could stop having this debate and start a real one over tax simplification, with lower rates and fewer loopholes. To make this happen we should follow Kent Conrad's proposal for tying any extension of the tax cuts to fundamental reform. If reform isn't passed in 18 months, rates start to inch up or revert to the Clinton-era levels. When politicians can't find courage to act, they should write it into law.
(Hat Tip: Ann Murphy.)
Wednesday, November 24, 2010
Ronald Birkenfeld, father of UBS whistleblower Bradley Birkenfeld (right), made a personal Thanksgiving Day appeal to President Barack Obama for his son to be released from prison.
In his letter to the President Mr. Birkenfeld stated, "His separation from his loved ones is extremely painful to our family, especially when we know that his sentence is harsher than that of any of the thousands of wrongdoers" Ronald Birkenfeld sadly noted that "the thousands of US citizens with offshore accounts who were granted amnesty will be sitting at home with their families" while his son "who was solely responsible for recovering billions of dollars for American taxpayers" is "sitting alone in a cold cell away from those who love and appreciate him"
The National Whistleblower Center is supporting Bradley Birkenfeld’s clemency petition and encourages every American to take a minute out of their day on Thanksgiving to send a letter to President Obama asking him to return Mr. Birkenfeld to his family in time for Christmas.
Is Failure to Support Obama Administration's Foreign Policy Grounds to Deny Charity's Tax-Exempt Status?
- NY Times: Charitable Deduction Subsidizes Israeli Settlements, Contrary to U.S. Policy (July 7, 2010)
- Lawsuit: IRS Using Bob Jones University to Deny Tax-Exempt Status to Pro-Israel Charity (Aug. 26, 2010)
Z STREET, an organization devoted to pro-Israel public education, today filed in federal court its Opposition to the government’s effort to continue violating the US Constitution by discriminating against the organization because its views on Israel and the Middle East differ from those of this government. On August 25, 2010 Z STREET filed a Complaint in federal court charging the IRS with constitutional violations by subjecting Z STREET’s application for tax exemption to a discriminatory process.
- Jewish Policy Center Israel Advocacy and the IRS
- Weekly Standard, Z Street's Legal Battle Continues Against the IRS
- Z Street's Complaint (Oct. 24, 2010)
- Government's Motion to Dismiss (Nov. 1, 2010)
- Z Street's Memorandum in Opposition to Government's Motion to Dismiss (Nov. 22, 2010)
Update: Politico, IRS to Jewish Group: 'Does Your Organization Support the Existence of the Land of Israel?', by Ben Smith:
A conservative Pennsylvania Jewish group that has claimed the IRS is targeting pro-Israel groups introduced in federal court today a letter from an IRS agent to another, unnamed organization that tax experts said was likely outside the usual or appropriate scope of an IRS inquiry.
"Does your organization support the existence of the land of Israel?" IRS agent Tracy Dornette wrote the organization, according to this week's court filing, as part of its consideration of the organizations application for tax exempt status. "Describe your organization's religious belief sytem toward the land of Israel." ...
Several experts on non-profit tax law said the questions to the organization were unusual, at best, though they were also skeptical of the claim that the IRS is specifically targeting pro-Israel groups.
"The claims go far beyond what should be the IRS's role," said Paul Caron a University of Cincinnati law professor and the author of TaxProf Blog.
Ellen Aprill, a law professor at Loyola University in Los Angeles said the second question was "appropriate" in the context of an application seeking a tax exemption on religious grounds. "The first one is not the way I would want any of my agents to do it," she said.
Former I.R.S. Commissioner Sheldon Cohen said he was skeptical of Z Street's motives in its high-profile lawsuit, rather than pursuing its concerns in tax court. "They were hardly into the process when they screamed rape – nobody lifted the dress yet," he said, noting that 501(c)3 groups can't advocate for political positions. But he called the specific questions "unusual." "I've never seen that kind of inquiry," he said.
Willis and Chung authored a report (Constitutional Decapitation and Healthcare) concluding that the penalty imposed under new section 5000A for failure to maintain minimum essential healthcare coverage (the healthcare penalty) is an unconstitutional direct or capitation tax. They respond to a letter from Prof. Calvin H. Johnson as well as to more pointed and critical commentary from Prof. Edward D. Kleinbard.
If the healthcare penalty is a tax, it is unconstitutional. It is not an excise, let alone a uniform one. It is not an income tax consistent with the 16th Amendment. It is, however, a direct tax, albeit un-apportioned. Because the apportionment requirement remains in the Constitution, Congress must follow it. Significantly, apportionment is a serious constitutional limitation, which a tax can potentially fail, as does the healthcare penalty. The requirement is neither illusory nor archaic.
[T]he number of FBAR-related examinations increased 96 percent (from 334 to 656) from Fiscal Year (FY) 2004 to FY 2009. In addition, the number of FBAR penalty assessments grew from $4.2 million to $20.5 million, an increase of 388 % over the same period, while FBAR penalty collections grew from $1.8 million to $9.8 million, an increase of 444%. The IRS, in collaboration with the Department of the Treasury’s Financial Crimes Enforcement Network, has also revised the FBAR form and instructions and conducted education and outreach efforts on the filing of FBARs.
Stunning approx 6,300 sq ft 6 bedroom, 6.5 bath home on a double lot on a premiere East Lincoln Park block. 30 ft x 20 ft living room & formal dining room w/12 ft ceilings. Eat-in kitchen w/bamboo floors, walk-in pantry. Appx 31 ft x 22 ft great room w/3 sets of double doors accessing a 25 ft terrace overlooking a side yard of mature trees, shrubs & lawn. Master suite: his & her baths & spacious sitting room w/fplc.
(Hat Tip: Above the Law.)
The National Commission on Fiscal Responsibility and Reform is tasked with reducing the deficit to avoid an impending budget catastrophe. Instead it is proposing lower corporate tax rates and a wasteful research and development program at a time when we need more revenue. We also need some new ideas to make the tax system fairer, more efficient, and more comprehensive. The commission’s final report would also benefit from the discipline of a distributional table, because its proposals appear to shift the tax burden downward. In the coming crisis, it is the wealthy who will need to make sacrifices.
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This paper seeks to re-examine the formulary alternative to transfer pricing by inquiring whether partial integration of formulary concepts into current practices would offer a reasonable alternative to transfer pricing rules. We believe that the key to achieving an equitable and efficient allocation of MNE income is to solve the problem of the residual, i.e., how to allocate income generated from mobile assets and activities whose risks are born collectively by the entire MNE group. These assets and activities generate most of the current transfer pricing compliance and administrative costs, as well as tax avoidance opportunities. A limited formulary tax regime that allocates only the residual portion of MNE income may therefore offer significant advantages. Furthermore, such a regime would not require significant deviations from current practices, or substantial modifications of the international tax regime.
9th Cir.: Minor Child (Secondary Beneficiary of Father's Retirement Account) Liable for Tax on Distribution After Mother (Primary Beneficiary) Kills Father
(Hat Tip: Elliott Manning.)
Should the government cut spending or raise taxes to deal with its long-term fiscal imbalance? As President Obama’s deficit commission rolls out its final report in the coming weeks, this issue will most likely divide the political right and left. But, in many ways, the question is the wrong one. The distinction between spending and taxation is often murky and sometimes meaningless.
Tuesday, November 23, 2010
- Annette Clark (Seattle) (presentation)
- Jane Korn (Vice Dean and John D. Lyons Professor of Law, Arizona) (presentation)
- Paul E. McGreal (Professor of Law and Director of Faculty Development, Southern Illinois) (presentation)
(Hat Tip: Faculty Lounge.)
The Internal Revenue Code provides numerous special provisions for spouses. At the current time none of these provisions applies to same-sex couples. Even legally married same-sex couples, residing in states where their marriages are recognized, cannot claim spousal status under the federal tax laws. The Defense of Marriage Act (DOMA) prohibits the federal government from recognizing same-sex couples as spouses. Until DOMA is either repealed or found unconstitutional, the tax treatment of many same-sex couples is a subject of much confusion and contention.
I have been thinking about these issues for a long time and am creating this blog to enable me to share those thoughts more broadly with tax practitioners who are interested in this topic. As issues arise or as questions occur to me, I will write individual blog posts on each issue or question. Short "white papers" dealing with specific topics in more detail will be linked to the blog. And important IRS rulings and cases that affect tax questions for same-sex couples will also be linked.
The questions readers put to my previous column on the supposed college cost crisis are best answered by economists. Accordingly, the editors and I have asked the economists whose book formed the basis of my remarks, Robert B. Archibald and David H. Feldman, to reply. — Stanley Fish
We would like to thank Stanley Fish for allowing us to respond to reader comments regarding his column about our new book. Reading them felt like working through the worst set of course evaluations a professor ever received.
The power of the dysfunction narrative was on full display in the responses. Stories of waste and inefficiency in higher education have a strong appeal, and they are deeply embedded in our public understanding of rising college cost.
Many who wrote took issue with us based on their personal experience. Although this is perfectly natural, generalizing from experience is not always sound. We need to stand back and take a broad look at the economic landscape of higher education.
At the core of the dysfunction narrative you will find a college-centric view of the world. If something unpleasant is happening, like rising cost, then the reasons must lie within the institutions themselves. We take a different approach, and the diagram below helps explain why we argue for a broader aerial view of the higher education industry.
Between the late 1940s and today, the inflation-adjusted prices of dental services and of higher education have behaved in a strikingly similar way. A wide variety of other personal services (ranging from the services of lawyers and physicians to bank service charges and life insurance) also display this same basic pattern of price change. These similarities could be coincidences. Perhaps each industry requires its own separate explanation. We don’t think so. We think one explanation fits them all.
College cost, and cost in the other similar industries, is rising for three broad reasons.
First, over time we have found ways to reduce the number of labor hours and kilowatts of power needed to produce most manufactured goods and agricultural products. By contrast, many services remain artisan-like. The time of the service provider is the service itself, and labor-saving productivity gains are very hard to achieve. As a result, the cost of a year of college or an hour of a lawyer’s time must rise compared to the price of a ton of steel or a bushel of wheat....
Second, the upward trend of college cost has been accelerated by changes in income distribution over the last 30 years. People with high levels of education have seen big income gains. Universities rely on highly educated people, as do hospitals, law offices and dental practices, to name a few. Rising income inequality is a force for rising cost in any industry like higher education. And rising income inequality also drives affordability problems. ...
Third, technology is a double-edged sword in many industries. For the most part, technological changes in how we teach, how we do research and how we equip our facilities have come at a cost. Some new technologies do make us more efficient. We no longer employ typing pools. But other new techniques, like computer-aided design in architecture classes or pulsed lasers in physics labs, have increased cost.
Scope: The scope of permissible topics for the writing competition is broad -- any aspect of Tax Law is acceptable: ... a paper on a public policy issue, a critique of a leading case or doctrine, a comment on a statute, or the need for statutory modification, or a comment on a common law doctrine.
Eligibility: Any currently enrolled law school student attending an ABA-accredited law school.
Prizes: A grand prize of $3,000 plus two honorable mentions of $1,000 will be awarded. The winner's paper will also be posted on the program's website.
Rules: See here.
Deadline for Submissions: April 15, 2011.
For prior years' winners, see:
- 2008: Brian A. Benko (LL.M. 2009, John Marshall), Not All Plan Failures are Created Equal: Inventing the Code § 409A Correction Program
- 2009: Sonja R. Pollack (Hofstra), The 5% University Endowment Spending Requirement: Analysis and Alternative Proposals
- 2010: Jit Han Dennis Tan (LL.M. 2010, NYU), Unitary Formulary Apportionment as a Solution to the Conundrum of Source
SSRN has updated its monthly rankings of 646 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, 2010) 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):