July 31, 2011
NALP Objects to ABA Reform of Law School Placement Data ReportingFollowing up on last week's post, NALP has sent this biting four-page letter objecting to the ABA's reform of law school placement data reporting:
(Hat Tip: Bryan Camp.)
The purpose of this letter is to convey NALP’s strong objection to the actions taken by the Council with regard to the collection of law school employment data. ... This will, in effect, duplicate the research effort that NALP has successfully undertaken for the last 37 years. We object to this action on several grounds, including the fact it will actually lead to LESS transparency and information about the entry-level legal employment market and not more, and the fact that it is an action that is contrary to all of the public conversations about this issue that have taken place among the ABA, NALP, the law schools, and the public over the last year and a half. ...
[W]e object in the strongest terms possible to the Section’s unlicensed use of NALP’s research terms and definitions in its plan to collect student record level data directly from the schools. The ABA may well decide that it should survey schools directly about what happens to their students when they complete their legal education, but in order to do so the ABA must develop its own survey instrument and research terms. The actions of the Council’s Executive Committee this week have effectively taken the intellectual property that NALP has developed over the last 37 years, used it as if it were its own property, and at the same time have effectively disabled NALP from using its own intellectual property by implementing a second and necessarily preemptive reporting duty on its accredited law schools.
NALP will be working with its member law schools, other stakeholders, and the press in the coming weeks to argue that the actions undertaken by the Council this week are detrimental and harmful to legal education, and will in the long term diminish the amount of information available about the legal employment market, and will in fact decrease transparency rather than increasing it at a time when the public pressure on legal education to increase transparency is intense.
Top 5 Tax Paper DownloadsThere is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5:
3. [162 Downloads] Supreme Court CIGNA Ruling Allows Workers to Reverse Harmful Pension Changes, by Richard L. Kaplan (Illinois)
4. [138 Downloads] 501(c)(3) Charitable Organizations After Citizens United, by Paul D. Weitzel (Davis Polk & Wardwell, Menlo Park, CA)
An International Perspective on the Role of Taxes in Deficit and Debt ReductionThe Tax Foundation has released The Proper Role of Taxes in Deficit and Debt Reduction, by David S. Logan:
The White House and Congress are currently embroiled in debate concerning how to best reduce the nation’s deficit and debt. Similar international experiences provide evidence of what the most effective methods have historically been. These methods have been analyzed in studies by Goldman Sachs [Limiting the Fall-Out from Fiscal Adjustment] and the European Central Bank [Expenditure Reform In Industrialised Countries: A Case Study Approach], comparing the experiences of countries which have attempted to regain control of similar deficit and debt problems. Though the two papers take slightly different methodological approaches to their analyses, the results and conclusions are remarkably similar:
- Spending cuts are more effective than tax hikes.
- Deficit and debt reduction can occur while taxes are being cut.
ABA Tax Section Submits Comments on 2011-12 Guidance Priority ListThe ABA Tax Section has submitted this 18-page comment letter to the IRS with recommendations for the IRS's 2011-2012 Guidance Priority List:
As requested in Notice 2011-39, the ABA Section of Taxation has identified the following tax issues that we recommend be addressed through Regulations, rulings or other published guidance in 2011-2012. In each case, the name and contact information for a representative of the committee making the suggestion are provided.
July 30, 2011
NY Times: Should You Pay Sales Tax on Amazon Purchases?New York Times, Room for Debate: Should You Pay Sales Tax on Amazon Purchases?:
Facing a persistent budget gap, California recently passed a law that requires Internet retailers to collect sales tax if they have affiliates or subsidiaries in the state. Amazon, the world's largest online merchant, is fighting back, trying to get a referendum on the ballot to exempt virtual sellers with only a modest physical presence in California. The stakes are huge: the state is likely to forgo $1.9 billion next year in taxes on online sales, according to a University of Tennessee study.
Other states are watching the case closely. On Tuesday, Amazon said that it would collect sales tax only if there were a federal solution, rather than a patchwork of state-by-state laws.
Should states require online retailers like Amazon to collect sales taxes?
- Danny Diaz (Alliance for Main Street Fairness), Play by the Same Rules
- Kelly Phillips Erb (TaxGirl Blog), Define "Fair"
- Nancy F. Koehn (Harvard Business School), The Main Highway of Commerce
- Daniel J. Mitchell (Cato Institute), Opening the Door to Higher Taxes
Former AG Sues Michigan State, Files EEOC Complaints Against 100 Law Schools, for Age Discrimination in HiringNicholas J. Spaeth (age 61), the former North Dakota Attorney General and a visiting professor at the University of Missouri School of Law, filed a federal age discrimination lawsuit on Thursday accusing Michigan State University College of Law of denying him a teaching job because of his age. The complaint alleges that Michigan State declined to offer him one of its 24 interview slots at the 2010 AALS meat market despite his superior academic and practice credentials compared to the three individuals the school eventually hired:
- 1968-1972: A.B. (magna cum laude), Stanford
- 1972-1974: 1974 (summa cum laude), Rhodes Scholar, Oxford
- 1974-1977: J.D. Stanford (managing editor, Stanford Law Review)
- 1977-1979: Law Clerk, 8th Circuit and U.S. Supreme Court
- 1979-1985: Commercial litigator at two law firms
- 1985-1993: North Dakota Attorney General
- 1993-2000: Corporate partner at two law firms
- 2000-2007: Senior in house positions at GE, Intuit, and H&R Block
- 2007-2009: Executive VP & Chief Legal Officer, Federal Home Loan Bank of Des Moines
- 2010-2011: Visiting Professor of Law, Missouri-Columbia
Blog of the Legal Times, Former N.D. Attorney General Sues Law School for Age Discrimination in Hiring:
Spaeth had previously filed complaints with the U.S. Equal Employment Opportunity Commission against more than 100 law schools that also did not offer him an interview. Of those complaints, between 30 and 40 had been dismissed and the rest were still pending. This is the first lawsuit Spaeth has filed against one of the schools, but [his lawyer] said they expect to add more defendants to the suit or file related cases.
(Hat Tip: Donald Dobkin.)
Taxation of Human Capital: Tax Discrimination on Educational ExpendituresJonathan Landon (LL.M. (Tax) 2011, Florida) has posted Taxation of Human Capital: Analyzing Tax Discrimination on Educational Expenditures on SSRN. Here is the abstract:
Scholars have long thought that the tax code's disallowance of cost recovery for human capital expenditures results in discrimination of human capital as compared to physical capital. This paper examines this long held assertion and concludes that it is not correct. In fact, this paper concludes that the tax code actually subsidizes many human capital expenditures. Using as a baseline, a simple theoretical tax system that allows human capital and physical capital the same basic cost recovery mechanism, the empirical portion of this paper compares the tax benefits in present value terms of human capital under the current Code and under the “fair” baseline tax system. The results show that the extent that the Code discriminates against the acquisition of human capital, if at all, depends on how much taxpayers spend on education, how the education if financed, and the taxpayer’s income level. Importantly, this paper identifies that there are many situations where the current Code’s treatment of education is more favorable to taxpayers than under a system would treats human capital and physical capital the same.
Remittances, the Charitable Deduction, and Development in MexicoMartin Chavez (J.D. 2011, NYU) has published Note. Remittances and the Charitable Deduction: A New Approach to Encouraging Development in Mexico, 14 N.Y.U. J. Legis. & Pub. Pol'y 565 (2011). Here is part of the Introduction:
I argue that we should use the charitable deduction to encourage increased sending of collective remittances to further development in Mexico, but that this subsidy should not apply to personal remittances. In Part I, I introduce the reader to personal remittances and collective remittances, highlighting both their economic magnitude and third parties that have an effect on each remittance process. I then discuss the charitable deduction. In Part II, I set forth my argument and the criteria used to evaluate it. I assess my proposal in light of socioeconomic studies that have been conducted on personal and collective remittances and whether each type of remittance is in accordance with tax law, theories underlying the charitable deduction, and tax policy. Finally, in Part III, I provide concluding remarks and emphasize that any proposed change to the immigration system must consider the effect on remittances.
July 29, 2011
More on The Two-Income Tax TrapI previously blogged (here and here) the charge by Todd J. Zywicki (George Mason) that Elizabeth Warren (Harvard) misrepresented tax data in her 2003 book, The Two Income Trap: Why Middle Class Mothers and Fathers are Going Broke (with Amelia Warren Tyagi). Todd revisited the issue yesterday in connection with Christopher Caldwell's article in the Weekly Standard, Elizabeth Warren, Closet Conservative: The Most Misunderstood Woman in Washington:
[N]ote his list of increased expenses for household “big necessities: mortgages (up 76%), cars (up 52%), taxes (up 25%), and health insurance (up 74%).” The problem is that while it is an accurate representation for mortgages, cars, and health insurance, that the expenses increase by that percentage, it is not for taxes. For the other expenses it is the percentage increase in dollars spent on those expenses. For taxes, however, the 25% increase is actually the percentage increase in the percentage of income spent on taxes. So the 25% is not how many more dollars go to paying taxes, it represents the household’s change from paying 24% of its income in taxes to 33% of its income in taxes–a change of 25% in the percentage of income dedicated to taxes, not a change of 25% in spending on taxes. I swear I am not making this up: I have attached to the bottom of this post the full excerpt from this book where this is done. And, again, I have laid this out in considerable detail previously here.
What this means is that once taxes are converted to an apples-to-apples comparison–percentage change in dollars instead of percentage change in percentage–household spending on taxes actually increased 140%, not 25%. The entire two-income trap, therefore, is actually a two-income tax trap, as I noted in my Wall Street Journal commentary on this awhile back. ...
In fact, based on their data once the math is done the real conclusions of Warren and Tyagi are inescapable and in fact (as Caldwell will be pleased to know) extremely conservative: the financial problems of the middle class are caused by an astonishing rise in the tax burden on middle class families over the past three decades. Nowhere, however, will one read Professor Warren advocating income and property tax cuts as the obvious policy implication of their book–although that is unambiguously the logical inference.
Baltimore Dean Resigns Over University Keeping 45% of Law School RevenueUniversity of Baltimore School of Law Dean Phillip J. Closius resigned today as a result of conflict over the university raking off 45% of law school revenues. Here are excerpts from the dean's resignation letter:
At a meeting at 4 o’clock on July 28, University President Robert Bogomolny asked for my resignation as Dean of the School of Law. As of today’s date, I have resigned my position as Dean. ...
In the last two years, tensions have been increasing between the University administration and me regarding the financial relationship between the University and the School of Law. When I was a candidate for the Deanship, I was aware that, historically, the University retained a high percentage of the revenue generated by the law school. I was assured by the President at that time that he was aware of the problem and would work with me to remedy it over time. As I began my deanship, I realized that the law school did not possess accurate data in many areas, including its financial situation. Obtaining accurate financial data regarding the School of Law has not been an easy task. ... My insistence on having accurate data has exacerbated the difficulties between the University and me.
Every seven years, the ABA inspects law schools for renewal of their accreditation. The law faculty drafted a self study in the spring of 2010 as part of our ABA reinspection process. The percentage of law revenue retained by the University was emphasized as a significant concern of the faculty in that document. I believe a law school dean has a continuing responsibility to share accurate data regarding the law school and its operations. In the past year, I distributed the financial data I had to the faculty and the Dean’s Advisory Board in order to inform them about the increasing scope of the problem. Both bodies were concerned about the continued ability of the law school to reach its potential without sufficient funding and the inequity of charging law students increasingly high tuition and fees if a significant percentage of those funds were not directly benefitting the law school. Both the faculty and the alumni insisted that I continue in my efforts to obtain more financial data and a University agreement to decrease its retention percentage over time. I was criticized by the central administration for sharing the financial data with the faculty and my advisory board. University officials also stated that providing funding for the continued improvement of the School of Law was not a high priority for the University.
The financial data demonstrates that the amount and percentage of the law school revenue retained by the University has increased, particularly over the last two years. For the most recent academic year (AY 10-11), our tuition increase generated $1,455,650 in additional revenue. Of that amount, the School of Law budget increased by only $80,774. I do not know of any law school in the country receiving such a small percentage of its generated tuition revenue. A recent article in The New York Times noted that a 25-30% revenue retention by a university was considered high by national standards. As of academic year 2010-11, the University retained approximately 45% of the revenue generated by law tuition, fees and state subsidy. Using any reasonable calculation of the direct and indirect University costs, the University was still diverting millions of dollars in law school revenue to non-law University functions.
The unwillingness of the University to discuss in a meaningful way the growing imbalance in the financial relationship was also becoming a matter of principle to me. We have increased our in-state tuition over 70% and our out-of-state tuition over 48% in the last seven years. Our in-state day students last year paid $1,450 more in tuition and fees than University of Maryland law day students and our in-state part-time students paid $2,080 more than the University of Maryland law part-time students. Of our students in the 2010 graduating class who borrowed money, the average law school debt was over $95,000. Media reports continually criticized the rising costs of legal education. I was becoming increasingly uncomfortable justifying tuition and fee increases to law students when the money was actually being used to fund non-law University initiatives. I was also concerned about my continuing effectiveness as Dean given statements by University officials that there were no plans to remedy the situation and that significant funding for School of Law programs was not a University priority.
We were inspected this last academic year and the University and I received the final report of the ABA Accreditation Committee on July 27. The report generally praised the condition of the law school but indicated a concern, among others, about the substantial amount of money the law school contributes to the University and the lack of a University explanation of a rationale by which the money retained by the University is determined. The ABA Committee requested that the University President and Dean submit a report by March 12, 2012 which provides in part a rationale for the School of Law’s share of costs for non-law school activities and central administration services and information about any agreement between the Law School and the University regarding a fair process by which the Law School’s contribution to the University for direct and indirect costs will be determined. The day after receipt of the ABA report, I was asked to resign. ...
I am grateful for my four years as Dean of the School of Law. I am pleased to say that I am leaving the school in excellent shape. Our US News ranking has jumped from 170 to 117, with another jump projected in March 2012. Our new building is on schedule to open in January of 2013. In my four years, we have hired an amazing new group of faculty members. We are teaching better, writing more, and increasing our national reputation for academic quality. We have opened a number of new Centers, highlighted by our collaboration with the Johns Hopkins School of Medicine in the Center for Medicine and Law. Our bar passage rates are up and our student organizations are thriving. Our entering class in 2011 is our most highly qualified ever and is incredibly diverse. We offer hundreds of internships and our presence in Washington, DC is expanding. In sum, we are improving significantly in every manner by which a law school is measured. The ABA site visit team noted that they had never observed so many excellent classroom teachers, both full-time and adjunct, in one school. They also noted that they had never visited a law school in which everyone seemed so happy. I can’t think of two better compliments for a law dean.
- Dean Closius's Resignation Letter
- ABA Journal
- Above the Law
- Baltimore Business Journal
- Baltimore Sun
- Law Librarian Blog
- Leiter's Law School Reports
- Maryland Daily Record
- National Law Journal
- Wall Street Journal
Corporate America Untaxed: Tax Avoidance on the RiseThe Greenlining Institute yesterday released Corporate America Untaxed: Tax Avoidance on the Rise. Here is the Executive Summary:
- In 2010, U.S. corporations avoided approximately $60 billion in U.S. corporate income taxes by using a variety of devices and gimmicks to shift profits to foreign subsidiaries, while the Fortune 100 companies received some $89.6 billion in federal contracts.
- Since the GAO reviewed this issue in 2008, top companies have added 44 new subsidiaries in countries identified by the GAO as tax havens.
- The lost revenue would be more than enough to fund the entire budgets of the Environmental Protection Agency and the Departments of Energy and Labor combined.
- One recent study found that eight of the top 12 companies effectively paid no federal income taxes from 2008 through 2010. In 2010, General Electric paid no federal income tax.
- The official U.S. corporate tax rate of 35% largely exists in name only. The U.S. collects less in corporate taxes as a share of GDP than 24 out of 26 industrialized countries.
- The share of the federal budget funded by corporate income taxes has dropped dramatically since the 1940s, from 28.8% of the budget to 10.3%.
- Of the 77 Fortune 100 companies with subsidiaries in tax haven countries, 69 had federal contracts. The largest in terms of dollar amounts was General Dynamics, with nearly $15 billion in federal contracts and 14 subsidiaries in tax haven or financial privacy jurisdictions.
- The pharmaceutical and tech sectors loom particularly large, including Merck, Pfizer, General Electric, Dell and Google. G.E., paying essentially no federal tax, had over $3 billion in federal contracts.
- Google’s “Double Irish Dutch Sandwich” illustrates the convoluted mechanisms used to hide profits overseas. Many other strategies are also used.
(Hat Tip: Corporate Counsel.)
TIGTA: IRS Fails to Adequately Protect Taxpayer Information in BankruptcyThe Treasury Inspector General for Tax Administration yesterday released Access Controls for the Automated Insolvency System Need Improvement (2011-20-046), charging that many IRS employees have "excessive privileges" to access confidential information about taxpayers involved in bankruptcy proceedings.
- Accounting Today, IRS Faulted on Taxpayer Bankruptcy Info Protection
Retirement Savings and Tax Expenditure EstimatesJudy Xanthopoulos (Quantria Strategies, LLC) & Mary M. Schmitt (Optimal Benefit Strategies, LLC) have posted Retirement Savings and Tax Expenditure Estimates on SSRN. Here is the abstract:
The paper examines the manner in which federal tax expenditure estimates are prepared by the Congressional Joint Committee on Taxation and the Treasury Department’s Office of Tax Analysis. The paper finds that the current cash flow method does not measure the actual benefits of retirement savings contributions. As a result, the paper recommends that estimates for retirement savings be prepared on a present-value basis, which would help policymakers understand the lifetime tax benefits of retirement savings and allow an “apples to apples” comparison with tax expenditures such as current deductions and credits.
Vault Law Firm Tax RankingsVault has released its annual ranking of the Top 100 Law Firms, based on prestige as voted on by associates. The Top Ten Tax Practices, based on this methodology, are:
Sullivan & Cromwell
McDermott, Will & Emery
Baker & McKenzie
Weil, Gotshal & Manges
Simpson, Thacher & Bartlett
Conference on Empirical Tax Law Concludes Today at ColoradoThe two-day conference on Empirical Tax Law concludes today at Colorado with these papers:
- Brian Galle (Boston College), Is Inside Debt Efficient? (Discussant: David Walker (Boston University))
- Eric Rasmusen (Indiana University, Kelley School of Business), Intermountain and Chevron (Discussant: Nancy Staudt (Northwestern University))
97.5% of Americans Pass Up Easy Opportunity to Cheat on Their TaxesThe Daily Caller, Economists: Most Americans Don’t Cheat the Tax Man:
While Americans may complain about paying taxes, a new working paper from the National Bureau of Economic Research found that the vast majority are honest on their tax returns.
Economists Sara LaLumia of Williams College and James M. Sallee of the University of Chicago investigated whether people decide whether or not to commit tax evasion if broad benefits outweighs a tiny risk of being caught and punished.
LaLumia and Sallee compared data from before and after a 1987 change in the way tax laws required Americans to report their dependent children. The new law required more verification that the children existed — resulted in millions of previously claimed children going “missing.”
Prior to 1987, all a filer needed to do was list each dependent’s first name. In 1987 they were required to list a Social Security number as well.
“[M]any filers had been cheating before the reform,” the report stated. “Yet, the number of filers who availed themselves of this evasion opportunity is dwarfed by the number of filers who passed up substantial tax savings by not claiming extra dependents. By declining the opportunity to cheat, these taxpayers reveal information about their willingness to pay to be honest.”
According to the data published by the NBER, while it was relatively easy and low-risk to cheat, 97.5% of taxpayers resisted the temptation to lie about how many dependents live in their households.
How much are people willing to forego to be honest, to follow the rules? When people do break the rules, what can standard data sources tell us about their behavior? Standard economic models of crime typically assume that individuals are indifferent to dishonesty, so that they will cheat or lie as long as the expected pecuniary benefits exceed the expected costs of being caught and punished. We investigate this presumption by studying the response to a change in tax reporting rules that made it much more difficult for taxpayers to evade taxes by inappropriately claiming additional dependents. The policy reform induced a substantial reduction in the number of dependents claimed, which indicates that many filers had been cheating before the reform. Yet, the number of filers who availed themselves of this evasion opportunity is dwarfed by the number of filers who passed up substantial tax savings by not claiming extra dependents. By declining the opportunity to cheat, these taxpayers reveal information about their willingness to pay to be honest. We present a novel method for inferring the characteristics of taxpayers in the absence of audit data. Our analysis suggests both that this willingness to pay to be honest is large on average and that it varies significantly across the population of taxpayers.
(Hat Tip: Sam Young.)
Pew: Wealth Gaps Rise to Record Highs Between Whites, Blacks, HispanicsThe Pew Research Center has released Wealth Gaps Rise to Record Highs Between Whites, Blacks and Hispanics:
The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009. These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009.
The Pew Research Center analysis finds that, in percentage terms, the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households. As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149. Moreover, about a third of black (35%) and Hispanic (31%) households had zero or negative net worth in 2009, compared with 15% of white households.
(Hat Tip: Bridget Crawford.)
Forbes: The Dirty Little Secret of Tax ReformForbes, The Dirty Little Secret of Tax Reform, by Janet Novack:
It’s now clear that Congress won’t be raising taxes when it raises the debt ceiling this time. But in Washington, the magical thinking about tax reform continues. The fantasy is that by eliminating special loopholes, credits, deductions and exclusions (tax expenditures policy geeks call them), Washington will be able to lower income tax rates and raise big dollars at the same time. ...That’s because most of the new credits and tax breaks (such as those to promote green energy and conservation) account for only a small portion of the $1.1 trillion in annual tax expenditures on the JCT list, points out John L. Buckley, who spent 37 years as a Congressional staffer and retired last December as Chief Tax Counsel of the House Ways & Means Committee. In a new paper, Buckley, now a visiting professor at Georgetown University Law Center, calculates that 95% of the total annual individual tax expenditures (by dollar) go to 10 basic areas that hardly sound like narrow, special interest loopholes.
July 28, 2011
Tax Panels at Today's SEALS Annual Meeting
New Scholars Workshop Panel #11:
- Jennifer Sheppard (Mercer) (moderator)
- Kristin Balding Gutting (Charleston), Should the Fire Be Relit? Quid Pro Quo Should Not Extinguish the Charitable Deduction for Donations of Structures for Live Burn Training (Mentor: Vaughn James (Texas Tech))
- Jennifer Bird-Pollan (Kentucky), Taxing Sovereign Wealth Funds: A Proposal For Change (Mentor: Richard Gershon (Dean, Mississippi)
- Elizabeth Carter (LSU), From Grave to Cradle: A Proposal for Amending the Tax Code to Incentivize Post-Mortem Child Support (Mentor: Gail Richmond (Nova))
- Shu-Yi Oei (Tulane), Getting More By Asking Less: The Role of Stakeholder Dynamics in Reforming Tax Law’s Offer-in-Compromise Procedure (Mentor: Don Castleman (Wake Forest))
Congressional Tax Reform: In the 2010 elections, some Republican candidates called for an overhaul of the tax code. President Obama, in his State of the Union address, seemed to support the concept (although he did not necessarily support the Republican ideas). This panel will focus on pending and recently enacted proposals for tax reform in the areas of estate and gift tax, income taxes (individual and corporate), and other issues that have arisen in the current Congress.
- Ronald Blasi (Georgia State) (moderator)
- Don Castleman (Wake Forest)
- Richard Gershon (Mississippi)
- Vaughn James (Texas Tech)
- William Turnier (UNC)
Weisbach: Is Knowledge of the Tax Law Socially Desirable?David Weisbach (Chicago) has posted Is Knowledge of the Tax Law Socially Desirable? on SSRN. Here is the abstract:
This paper considers whether knowledge of the tax law is socially desirable. Unlike other laws, which most often attempt to channel behavior, revenue raising taxes attempt to avoid changing behavior, so it is not obvious whether or when knowledge of the tax law is desirable. I argue that whether knowledge of the tax law is desirable depends on three factors: expectations about the tax in the absence of knowledge, the type of tax, and the quality of the tax. I then apply this to various policy decisions where knowledge of the tax law is a key variable, including the regulation of tax advisors, hidden taxes (such phase-outs of exemptions), and whether individual have the socially optimal incentive to seek knowledge of the tax law.
Warren Buffett Is Wrong on TaxesWall Street Journal op-ed, Warren Buffett Is Wrong On Taxes, by Stephen Moore:
The Oracle of Omaha is at it again. On July 7, Warren Buffett told Bloomberg: "I think the rich have a responsibility to pay higher tax rates." Then he groused that his wealthy friends are "paying lower tax rates than the people who are serving us the food." Mr. Buffett has been voicing this complaint for years, once observing that his personal tax rate of 17.7% is lower than that of his receptionist (30%).
During Monday night's national address, President Obama recited the Buffet line that millionaires and billionaires pay lower tax rates than their secretaries. Democrats in Congress routinely cite Mr. Buffett's tax confessions as irrefutable evidence that tax rates on the very rich are too low and the system is unfair. And the system would be unfair, if Mr. Buffett's tax facts were the whole truth. But they aren't. ...
Mr. Buffett owns about one-quarter of his investment company Berkshire Hathaway, and his shares are worth about $38 billion. This wealth is mostly stored in what are technically called "unrealized capital gains." Eventually when those gains are converted into income, he will pay a capital gains tax. ...
Warren Buffett is wrong on taxes. The tax system is already far too reliant on the wealthy to pay the government's bills. Taxes on millionaires and billionaires are already near a record high in terms of the share of all income taxes paid. And the effective tax rate on this group is much higher, not lower, than any other income category. The best way to balance the budget is for the economy to produce a lot more American success stories like Warren Buffett.
Future of Capitalism, Buffett and Taxes, by Ira Stoll:
Mr. Moore doesn't mention anywhere in the piece that Mr. Buffett has pledged a huge portion of that $38 billion to the Bill and Melinda Gates Foundation. When you donate appreciated stock to a charity, you avoid the capital gains tax. I believe one can also avoid the capital gains tax at death under the estate tax by getting a step-up in basis, but then your estate (in essence, your heirs) has to pay the estate tax. In other words, Mr. Buffett may well manage not to pay a capital gains tax on that "income." This point doesn't necessarily undermine Mr. Moore's argument that Mr. Buffett has a higher tax rate than his secretary. ... What it does tend to undermine is Mr. Buffett's argument that he should pay more taxes. If he wanted to, he could. But he has chosen to organize his affairs so as to minimize his taxes, figuring that he (and Bill and Melinda Gates) are better at allocating capital than the politicians in Washington are.
Scaring Seniors With Social SecuritySocial Security historian Nancy Altman and my Pepperdine colleague Mark Scarberry have updated their original op-ed in light of President Obama’s Monday night speech to the nation, in which the President once again warned that Social Security checks might not go out on time if the debt ceiling is not raised. (Michael McConnell (Stanford) agrees that the President's "attempt to scare Social Security recipients is without legal foundation.")
Scaring Seniors With Social Security, by Nancy Altman & Mark Scarberry
In his Monday night speech to the nation, the President once again needlessly frightened seniors and others who depend on Social Security benefits. If the debt ceiling is not raised, he said, “we would not have enough money to pay all of our bills – bills that include monthly Social Security checks” among others.
In fact, as we have suggested elsewhere, the government bonds held by the Social Security trust funds, $2.7 trillion worth, provide the guarantee that benefit checks can go out in full and on time, whether or not the debt ceiling is raised.
Social Security’s trustees, in particular its Managing Trustee, Treasury Secretary Geithner, are entitled to demand that those bonds be redeemed – cashed in – by the Treasury to whatever extent is necessary to provide the money to pay benefits. Because the principal amount of those bonds is part of the debt that is subject to the $14.3 trillion debt ceiling, every dollar of principal paid to redeem the bonds creates room under the ceiling for the Treasury to borrow more money from the public. Enough could be borrowed back to replace all but a tiny fraction of a percent of the money used to redeem the bonds (all but the very small amount of interest that would have accrued since the semiannual interest was paid on June 30). In effect, the Social Security trust funds’ bonds would be replaced with bonds owed to the public. Nothing would be added to the total debt, and the trust funds’ bonds would be used for their intended purpose: to guarantee that benefits are paid.
There has been talk that Social Security is in trouble now, because Social Security employer and employee contributions are less than the cost of all benefits plus all administrative costs. But those contributions are just one source of Social Security revenue. Although, as a result of the weak economy in 2010, contributions to Social Security were less than benefit payments, that shortfall was more than made up for by investment earnings. In fact, according to the most recent Trustees Report to Congress, Social Security ran a $68.6 billion surplus during 2010. The trust funds’ holdings went up accordingly. Thus the Social Security trust funds held more assets at the end of 2010 than at the beginning.
The trustee of a private pension trust who refused to make pension payments, despite having ample trust assets, would rightly be held to account. Do the President and the Secretary believe that the $2.7 trillion in bonds held by the Social Security trust funds do not in fact stand behind the benefits that seniors and others are entitled by statute to receive? If the President and the Secretary refuse to use the bonds to let Social Security benefits be paid, they must explain why not. Are the bonds worthless? No; in fact they are obligations backed by the full faith and credit of the United States. Are there technical reasons? Any technical reasons can be overcome, if there is a will to do so.
It is not surprising that large numbers of Americans believe the Social Security trust funds have been raided. Too many politicians refer to the bonds held in trust for American workers and their families as "just IOUs." Too many politicians ominously caution that the trust fund assets have already been spent. They fail to point out that whenever a corporation or government issues bonds, the understanding of both the lender and borrower is that the funds so raised will be spent, and then later repaid.
Whether the funds were spent wisely is another question. Purchasers of bonds hope and assume that the funds will be invested to increase future revenue or used to pay down other debt; either course would make repayment of the bonds more certain. The authors are of different views about how the funds borrowed from Social Security should have been spent. Both think that the federal government could have pursued different policies to foster a more robust economy and a financially stronger nation. Nevertheless, the federal government has backed all of its obligations with the full faith and credit of the United States. All should be repaid according to their legal terms, whether the owner of the government bonds is a pension trust, the Social Security trust funds, or anyone else.
In any event, this kind of irresponsible talk about “IOUs” – and about the possibility that Social Security benefits will not be paid – simply increases the cynicism of Americans toward their elected officials. The President's failure to state clearly that Social Security has sufficient reserves to pay all benefits just feeds that cynicism. Worse, it scares millions of Americans who depend on Social Security. We find this deplorable, and so we say:
Mr. President, please stop needlessly scaring the millions who rely on Social Security benefits.
Nancy J. Altman co-chairs the Strengthen Social Security campaign, which consists of over 300 national and state organizations. She is the author of The Battle for Social Security: From FDR's Vision to Bush's Gamble.
Mark S. Scarberry is a professor of law at Pepperdine University School of Law. He teaches and writes in the areas of bankruptcy law and constitutional law. Some of his recent publications are available on his Social Science Research Network author page.
CCH Special Report: Tax Provisions of Debt-Ceiling ProposalsCCH has published a five-page special report on the tax provisions of the competing debt-ceiling proposals.
ABA Approves Reforms to Law School Placement Data ReportingThe ABA Section of Legal Education and Admissions to the Bar yesterday announced that it had approved changes to its annual law school questionnaire to require disclosure of more placement data (details here):
[T]he 2011 Annual Questionnaire will request from law schools information on their graduates’ employment status, employment types and employment locations. It will also request additional and new information on whether a graduate’s employment is long-term or short-term. Finally, it will ask how many, if any, positions held by their graduates are funded by the law school or university.
New data will also be collected in the spring of 2012 (soon after February 15, 2012, the traditional nine-month-after-graduation date), for the graduating class of 2011, including whether the graduate’s job is part-time or full-time; whether the job requires bar passage; whether a J.D. is preferred for the job; whether the job is in another profession; and whether the job is a nonprofessional one. Definitions for these categories will be developed this coming fall. However, rather than wait until August 2012 to collect these new data, our plan is to collect those data from the schools soon after February 15, 2012 and display the data on our website in the late spring/early summer.
Conference on Empirical Tax Law Kicks Off Today at ColoradoThe two-day conference on Empirical Tax Law kicks off today at Colorado with these papers:
- Joshua Blank (NYU) & Nancy Staudt (Northwestern), Corporate Tax Abuse in Court (Discussant: Leandra Lederman)
- Victor Fleischer (Colorado) & Nancy Staudt (Northwestern), Do Elite Tax Lawyers Add Value? An Empirical Study of Tax Receivable Agreements (Discussant: Joshua Blank)
- David Gamage (UC-Berkeley), Experimental Evidence of Tax Framing Effects on the Work/Leisure Decision (Discussant: Brian Galle)
- Leandra Lederman (Indiana-Bloomington) & Dan Katz (Michigan), Which Cases Settle? A Large-Scale Empirical Study of Tax Court Cases (Discussant: Victor Fleischer)
- Chris Sanchirico (Penn), Optimal Tax Policy and the Symmetries of Ignorance (Discussant: David Gamage)
- Mike Simkovic (Seton Hall), Is the U.S. Tax System Justifiable? (Discussant: Victor Fleischer)
NLJ: Rick Matasar, Law School Reform, and $300,000 Faculty SalariesFollowing up on my prior posts (links below), National Law Journal, 'Poster Child' Shares Frustration About Pace of Law School Reform:
That law school tuition is skyrocketing at a time when law jobs are scarce is hardly news to anyone paying attention to legal education. But a lengthy story on the front of the July 17 business section of The New York Times examining that disconnect got people talking. The story raced up the most-read list on the paper's Web site and loads of Internet commentators weighed in. It used New York Law School and its longtime dean, Rick Matasar, to illustrate the larger problems facing law students and legal education.
Matasar, who is leaving the law school next year after nearly 12 years at the helm, made a fairly easy target. He has written numerous articles and delivered many lectures on the need for reform and lower-cost legal education. Yet New York Law School ranks No. 135 out of 196 law schools, according to U.S. News & World Report, and charges a hefty $46,460 in tuition. ...
NLJ: You wrote a response to The New York Times article that said, essentially, that law schools can't cut costs because of the accreditation requirements set by the ABA. It seems a little too easy to place all the blame on the ABA. The ABA didn't require New York Law School to build a new building, and it doesn't dictate what you pay your faculty. A recent IRS filing indicates that a few faculty members earn more than $300,000. Don't you have a responsibility to keep costs low for your students outside the ABA requirements?
R.M.: Yes, we do have that responsibility. ... [W]e've also managed to put together a first-rate facility for our students and substantially increase the quality of our faculty with people who are doing almost all skills training, as opposed to doctrinal teaching. ... Hiring a full-time faculty in a city like New York, you're going to have to be competitive with the salaries and benefits of other New York law schools. We don't have housing, as some of the other law schools in the city have. We don't have a university with hospitals where faculty can get their medical services. We're a stand-alone law school and we compete with law schools at very large universities that offer quite substantial packages for their employees. ...
NLJ: Do you think the typical New York Law School student would prefer a higher-profile faculty over lower tuition?
R.M.: All people want lower cost and higher quality. In the long run, we're talking about the preparation for a 50-year career. We can only reduce tuition by so much because we have a fixed set of costs in the people we've hired, and we have a fixed set of costs in the physical plant we maintain.
Prior TaxProf Blog coverage:
- NY Times: Law School Economics -- Ka-Ching! (July 17, 2011)
- Matasar Responds to NY Times Article (July 19, 2011)
TPC Hosts Program Today on Rethinking the Mortgage Interest DeductionThe Tax Policy Center hosts a lunchtime program today on Rethinking the Mortgage Interest Deduction at noon EST (webcast):
The mortgage interest deduction has long been one of the sacred cows of tax policy. In the aftermath of the Great Recession, however, many observers have begun to wonder whether the time has finally come for reform. Ideas range from getting rid of America's favorite tax break to provide more revenue for solving the debt ceiling debate to overhauling it as a part of broad tax policy reform. And since neither debt nor homeownership look as special as they did just a few years ago, there is ample room for discussion. Jumping into the fray, the Urban-Brookings Tax Policy Center and the Reason Foundation are bringing together a panel of experts to debate the future of the mortgage interest deduction.
Here are the panelists (with links to their presentations):
July 27, 2011
Senate Holds Hearing Today on CEO Perspectives on the Tax CodeThe Senate Finance Committee held a hearing today on CEO Perspectives on How the Tax Code Affects Hiring, Businesses and Economic Growth. Here are the witnesses (with links to their testimony):
- Michael T. Duke (President & CEO, Wal-Mart)
- Thomas J. Falk (Chairman & CEO, Kimberly-Clark)
- Gregory S. Lang (President & CEO, PMC-Sierra)
- Larry J. Merlo (President & CEO, CVS Caremart)
Boehner, Reid Debt Ceiling Plans Would Eliminate Subsidized Law Student LoansForbes, Debt Ceiling Plans Take Aim at Graduate Student Loans, by Janet Novack:
The competing deficit reduction/debt ceiling increase plans proposed by House Speaker John Boehner (R-Ohio) and Senate Majority Leader Harry Reid (D-NV) would both cut off subsidized Stafford student loans for graduate and professional students.
Currently, graduate and professional students can take out up to $20,500 a year in federal loans, and up to $8,500 of this amount can be in subsidized loans if they’re found to have financial need. (Details here, at the government’s student aid web site.) With the subsidized variety of loans, Uncle Sam pays the interest due while students are in school and during a six month “grace period” after they’ve left school and before repayment begins. With the unsubsidized variety, interest accrues while students study and during the grace period, adding to the amount they must pay back when they graduate.
Under both the Boehner and Reid plans, no new subsidized loans would be issued to graduate students after July 1, 2012.
TPC: Why Do 46% of Americans Pay No Federal Income Tax?The Tax Policy Center today released Why Some Tax Units Pay No Income Tax, as explained in Why Do People Pay No Federal Income Tax?:
Much has been made of TPC’s estimate that fully 46% of Americans will pay no federal individual income tax this year. Commentators have often misinterpreted that percentage as indicating that nearly half of Americans pay no taxes. In fact, however, many of those who don’t pay income tax do pay other taxes—federal payroll and excise taxes as well as state and local income, sales, and property taxes.
The large percentage of people not paying income tax is often blamed on tax breaks that zero out many households’ income tax bills and can even result in net payments from the government. While that’s the case for many households, a new TPC paper shows that about half of people who don’t owe income tax are off the rolls not because they take advantage of tax breaks but rather because they have low incomes. For example, a couple with two children earning less than $26,400 will pay no federal income tax this year because their $11,600 standard deduction and four exemptions of $3,700 each reduce their taxable income to zero. The basic structure of the income tax simply exempts subsistence levels of income from tax.
What about the rest of the untaxed households, the 23% of households who don’t pay income tax because of particular tax breaks? We divided tax expenditures (special provisions in the tax code that benefit particular taxpayers or activities) into eight categories and asked which ones made the most people nontaxable. The conclusion:
Three-fourths of those households pay no income tax because of provisions that benefit senior citizens and low-income working families with children. Those provisions include the exclusion of some Social Security benefits from taxable income, the tax credit and extra standard deduction for the elderly, and the child, earned income, and childcare tax credits that primarily help low-income workers with children (see graph). Extending the example offered above, the couple could earn an additional $19,375 without paying income tax because their pre-credit tax liability of $2,056 would be wiped out by a $2,000 child tax credit and $57 of EITC.
Fall 2011 Law Review Article Submission GuideNancy Levit (UMKC) & Allen Rostron (UMKC) have updated their incredibly useful document, which contains two charts for the Fall 2011 submission season covering 202 law reviews.
The first chart (pp. 1-64) contains information gathered from the journals’ websites on:
- Methods for submitting an article (such as by e-mail, ExpressO, or regular mail)
- Any special formatting requirements
- How to request an expedited review
- How to withdraw an article after it has been accepted for publication elsewhere
The second chart (pp. 65-71) contains the ranking of the law reviews and their schools under six measures:
- U.S. News: Overall Rank
- U.S. News: Peer Reputation Rating
- U.S. News: Judge/Lawyer Reputation Rating
- Washington & Lee Citation Ranking
- Washington & Lee Impact Factor
- Washington & Lee Combined Rating
They also have posted a list of links to the submissions information on each law journal’s website.
Bartlett: Are the Bush Tax Cuts the Root of Our Fiscal Problem?New York Times, Are the Bush Tax Cuts the Root of Our Fiscal Problem?, by Bruce Bartlett:
Whether revenue should play any role in deficit reduction is at the root of the fiscal impasse between Congressional Republicans and President Obama. One factor underlying the hard-line Republican position that taxes must not be increased by even $1 is their assertion that the Bush tax cuts played no role in creating our deficit problem.
In a previous post, I noted that federal taxes as a share of GDP were at their lowest level in generations. The CBO expects revenue to be just 14.8% of GDP this year; the last year it was lower was 1950. ... [R]evenue has been below 15% of GDP since 2009, and the last time we had three years in a row when revenue as a share of GDP was that low was 1941 to 1943.
The reason, of course, is that taxes were cut in 2001, 2002, 2003, 2004 and 2006.
It would have been one thing if the Bush tax cuts had at least bought the country a higher rate of economic growth, even temporarily. They did not. Real GDP growth peaked at just 3.6% in 2004 before fading rapidly. Even before the crisis hit, real GDP was growing less than 2% a year.
[This] is how a $6 trillion projected surplus turned into a cumulative deficit of $6 trillion:
[I]t has become a Republican talking point that the Bush tax cuts did not, in fact, reduce revenue at all. ... It is hard to know where these totally erroneous ideas come from. Federal revenue fell in 2001 from 2000, again in 2002 from 2001 and again in 2003 from 2002. Revenue did not get back to its 2000 level until 2005. More important, revenue as a share of GDP was lower every year of the Bush presidency than it was in 2000.
Back Home in CincinnatiMy wife, dog, and I are back home in Cincinnati. The 2230-mile drive from SoCal flew by, as we listened to five absolutely wonderful books:
- A Big Little Life: A Memoir of a Joyful Dog Named Trixie, by Dean Koonz
- An Empire of Ice: Scott, Shakleton, and the Heroic Age of Antarctic Science, by Edward J. Larson
- The Art of Racing in the Rain, by Garth Stein
- Wild at Heart: Discovering the Secret of a Man's Soul, by John Eldredge
- Love Wins: A Book About Heaven, Hell, and the Fate of Every Person Who Ever Lived, by Rob Bell:
Diamond & Saez: The Case for a Progressive TaxPeter Diamond (MIT, Department of Economics) & Emmanuel Saez (UC-Berkeley, Department of Economics) have posted The Case for a Progressive Tax: From Basic Research to Policy Recommendations on NBER. Here is the abstract:
This paper presents the case for tax progressivity based on recent results in optimal tax theory. We consider the optimal progressivity of earnings taxation and whether capital income should be taxed. We critically discuss the academic research on these topics and when and how the results can be used for policy recommendations. We argue that a result from basic research is relevant for policy only if (a) it is based on economic mechanisms that are empirically relevant and first order to the problem, (b) it is reasonably robust to changes in the modeling assumptions, (c) the policy prescription is implementable (i.e., is socially acceptable and is not too complex). We obtain three policy recommendations from basic research that satisfy these criteria reasonably well. First, very high earners should be subject to high and rising marginal tax rates on earnings. Second, low income families should be encouraged to work with earnings subsidies, which should then be phased-out with high implicit marginal tax rates. Third, capital income should be taxed. We explain why the famous zero marginal tax rate result for the top earner in the Mirrlees model and the zero capital income tax rate results of Chamley-Judd and Atkinson-Stiglitz are not policy relevant in our view.
(Hat Tip: Marty McMahon.)
Dan Rodriguez Named Dean at NorthwesternDaniel B. Rodriguez, Minerva House Drysdale Regents Chair in Law at Texas and the former Dean at San Diego, has been named Dean at Northwestern, effective January 1, 2012. Last week, Brian Leiter called Dan one of the nine tranformative law school deans of the last decade:
During his seven years as Dean, he broke the deadlock on faculty appointments that had for a long time prevented USD from fully capitalizing on its attractive location and institutional resources. USD went head-to-head with top law schools, like Northwestern, and won battles for faculty talent during his tenure, and USD solidified its status as one of the regional law schools from which top law schools regularly look for faculty hires.
Update #1: From Northwestern's Provost:
It is with great pleasure that President Schapiro and I announce that Daniel Rodriguez, currently the Minerva House Drysdale Regents Chair in Law at the University of Texas School of Law, has accepted our invitation to serve as Dean of Northwestern University School of Law and Harold Washington Professor, effective January 1, 2012. He succeeds David Van Zandt, who had served as the Dean of the school from 1995 to 2010, and Kim Yuracko, who has been serving as interim dean of the School and will continue to do so until the end of the calendar year.
Professor Rodriguez, a graduate of the Harvard Law School, is a nationally prominent scholar in administrative law, local government law, and state constitutional law. He is a leader in the application of political economy to the study of public law, and he has authored and co-authored a series of influential articles and book chapters in this vein.
Before joining the University of Texas law faculty in 2007, Rodriguez served for seven years as Dean and the Warren Distinguished Professor of Law at the University of San Diego School of Law. While serving as Dean, he expanded the size and stature of the faculty, created interdisciplinary programs and new academic centers, and undertook the first major capital campaign for the law school.
Before becoming Dean at the USD School of Law, he was a tenured professor of law at the University of California, Berkeley (Boalt Hall School of Law). He has been a visiting professor at the University of Southern California, Illinois, and Virginia law schools, as well as at the University of California, San Diego and the Free University of Amsterdam. During the Spring 2011 semester, he was the Stephen & Barbara Friedman Visiting Professor of Law at Columbia Law School.
In addition to his scholarly work, Professor Rodriguez has consulted with federal, state and local agencies, has served as an expert witness, has testified before Congressional committees and legislative working groups, and has served in various professional leadership roles, including as a member of the Executive Committee of the Association of American Law Schools and the Council for the ABA Section on Administrative Law and Regulatory Practice. He is an elected member of both the American Law Institute and the American Bar Foundation.
We are very excited about the appointment of Professor Rodriguez as Dean of the Law School. Please join me in congratulating him and welcoming him to Northwestern University. Please also join me in thanking Interim Dean Kim Yuracko for her outstanding service, and the search committee, and particularly chair Shari Seidman Diamond, for the committee’s excellent work.
Corporate Tax Reform, Deferred Taxes, and the Effect on Book ProfitsJana Smith Raedy (University of North Carolina), Jeri K. Seidman (University of Texas) & Douglas A. Shackelford (University of North Carolina) have posted Corporate Tax Reform, Deferred Taxes, and the Immediate Effect on Book Profits on SSRN. Here is the abstract:
This paper analyzes the impact of GAAP-mandated adjustments to deferred tax accounts when corporate income tax rates change. Using hand-collected data from the tax footnotes of the Fortune 50, we estimate that a reduction in the corporate tax rate from 35% to 30% would substantially affect the accounting earnings, capital, and effective tax rate of many companies. For the 18 publicly-traded Fortune 50 companies with a net deferred tax asset position, the total drop in accounting earnings would be $12 billion, with the banking industry experiencing some of the largest earnings decreases. For the 31 publicly-traded Fortune 50 companies with a net deferred tax liability position, the total jump in accounting earnings would be $28 billion, with the energy industry enjoying many of the largest increases. Although these large, one-time adjustments to the deferred tax accounts do not affect cash taxes paid, users of the financial statements should be aware that the deferred tax accounts may be significantly altered if and when tax rates change and that these effects will be reflected in net income.
July 26, 2011
Employees Can't Use IRS Computers for Craigslist, eHarmony, Facebook, Foursquare, Gmail, TaxProf, Twitter, YelpThe IRS's Office of Chief Counsel has issued CC-2011-016 (July 22, 2011):
Under the terms and conditions defined in this Notice, Counsel employees will be allowed limited personal use of government computers and systems. Employees should note that the privilege of using Government office equipment (including information technology) for non-governmental purposes comes with restrictions as specified in this policy....
It is the policy of the IRS Chief Counsel to:
A. Allow employees the privilege to use government information technology equipment /
resources for other than official Government business, when such use involves minimal
additional expense to the government ...
B. Permit such limited personal use during non-work time for reasonable duration and
frequency of use.
III. WHAT USES ARE PROHIBITED?
A. Employees are expected to conduct themselves professionally in the workplace and to refrain from using government information technology equipment / resources for activities that are inappropriate based on established standards of conduct. ...
B. Prohibited uses of government technology, equipment and resources by employees (even non-work time) include, but are not limited to:
1. Downloading, copying, or installing of unauthorized application (e.g., executable code) or any program not explicitly approved or permitted by the organization(s) with
responsibility for managing data programs, such as:
a) Screen savers,
b) Software products,
c) “Push” technology applications (subscriber services) from the Internet (e.g.,
weather or news alert feeds, stock quote updates) that gather information and send it
out automatically to a subscriber,
d) Test or demo software, and
e) Computer games.
2. Personal communication on blogs and social networking sites such as Facebook,
MySpace, Yahoo! 360°, Twitter, etc.;
3. Viewing or accessing the following types of web sites:
a) Pornographic, sexually explicit, or sexually oriented materials (including creation,
download, viewing, storage, copying of such materials); or
b) Personal services web sites, such as Personals & Dating and Craigslist. ...
6. On-line games;
12. Any use that could generate more than minimal additional expense to the government
(e.g., subscribing to unofficial LISTSERV or other services which create a high-volume
of e-mail traffic);
14. Any use that reduces productivity or interferes with the performance of official duties;
15. Any access to personal e-mail accounts through the Internet (e.g. accessing personal
AOL accounts, hotmail accounts or company accounts through Office of Chief Counsel
18. Inappropriate use of IRS e-mail account(s), such as:
a) Transmitting files larger than 5 megabytes,
b) Any correspondence for personal gain (Avon, private commercial business, selling
of personal goods or services, etc),
c) Solicitation of employees, such as Girl Scout or Boy Scout fund raisers, and
d) Chain letters or other unauthorized mass mailings regardless of the subject matter;
Wells & Lowell: Tax Base Erosion and Homeless IncomeBret Wells (Houston) & Cym Lowell (Gardere Wynne & Sewell, Dallas) have posted Tax Base Erosion and Homeless Income: Collection at Source is the Linchpin, 65 Tax L. Rev. ___ (2011). Here is the abstract:
A growing consensus exists that the US desperately needs to reform its US international tax laws. Furthermore, international tax reform will need to raise revenue for the US fisc while preserving the ability of US multinationals to compete without a tax handicap. We have been curious about the origins of our current system. How did we get in such a dire need for reform?
In our paper, we examine the international tax policy debate undertaken in the post-World War I world in conjunction with the League of Nations in the 1920s and 1930s.
In this period, the global economy was dominated by the war victors. The tax policy debate questioned whether the international tax system should be premised on a residence or a source basis of taxation. An outcome of this debate was that the avoidance of double taxation became the foundation of the modern treaty network. The model treaties of the League of Nations, the Organization for Economic Cooperation and Development, the United Nations, and the United States emerged from these debates and enshrined residency country entitlement to tax residual income as the foundational principle (the “Foundational Premise”). Unfortunately, the Foundational Premise, coupled with One-Sided Transfer Pricing Methodologies, has created Homeless Income (i.e., income not subject to tax in any country).
After engaging in this historical review of how Homeless Income has arisen, we set forth a policy response that seeks to address the Homeless Income problem. Our solution is to require that all cross-border related party payments from a US payor to a foreign entity should be subject to a base protecting surtax equal to a percent of the amount of the payment designed to reflect a normative effective tax rate for the payee (the “Base Protecting Surtax”), unless the US payor reaches agreement with the Internal Revenue Service (the “Service”) that a lower or no Base Protecting Surtax is required after evaluating the global income of the foreign entity and the US payor in light of the overall business and the functions and risks performed in the United States by the US payor (a “Base Clearance Certificate,” which would be similar to an advance pricing or comprehensive assurance program agreement). The purpose of this Base Clearance Certificate process is to assure that income earned by the US payor, and its resultant domestic tax liability, represents an appropriate application of US transfer pricing principles (applying Two-Step TP Methodologies of residual profit split or formulary apportionment as appropriate to the facts and circumstances). The US payor would include the Base Protecting Surtax in its own tax payments and annual tax returns. Thus, this proposal prevents Homeless Income before it is created because it collects an upfront surtax on the gross amount of the base erosion payment. After setting forth this proposal, we then evaluate how this proposal attacks the Homeless Income problem and could be incorporated into other international tax reform proposals that are currently being debated.
Court: Accountant Can't Deduct Value of His Services in Developing Web SiteMondello v. Commissioner, T.C. Summ. Op. 2011-97 (July 25, 2011):
Petitioner operated his Web site business using the accrual method of accounting. In 2007 petitioner worked 1,000 hours developing the Web site. Petitioner charges unrelated parties between $45 and $55 an hour for performing work similar to that which he performed on his Web site development. Petitioner's proprietorship, the Web site, did not pay him for any services he performed for himself. Petitioner's proprietorship accrued $50,000 as a liability for payment to petitioner for his work to set up his Web site, and the accrued expense was deducted on Schedule C of the return. ...
On the issue of his accrual, petitioner testified that he is an accountant. As an accountant petitioner should be familiar with the concept of imputed or implicit expenses or costs (imputed expenses). Imputed expenses are the opportunity costs of time and capital that the manager of a business has invested in producing "the given quantity of production and the opportunity cost of making a particular choice" among alternatives. Siegel & Shim, Dictionary of Accounting Terms (Barron's Business Guides) 234 (5th ed. 2010). An imputed expense is one that is not actually incurred but is used to compare with an actual cost. Oxford Dictionary of Accounting 227 (Gary Owen & Jonathan Law eds., 4th ed. 2010); Tracy, Accounting for Dummies 237 (3d ed. 2005). An imputed cost is not recorded in the books of account and is not accurately measurable but is a hypothetical cost used in making comparisons; an example is "salaries of owner-directors of sole proprietorship firms." Rajasekaran & Lalitha, Cost Accounting 12 (2011).
From an accounting standpoint, the time petitioner spent on his own Web site instead of earning $45 to $55 an hour from unrelated parties is an opportunity cost, an imputed expense to petitioner and his business. It is not an incurred expense, is not reflected in the financial statements, and is not an actual cost. ....
Respondent cited several cases for petitioners' and the Court's consideration on this issue. In Maniscalco v. Commissioner, T.C. Memo. 1978-274, the Court observed that "Whatever may be said in behalf of taking into account the value of one's own services in lieu of paid labor, such services are not considered an element of the deduction under sec.162(a). ... Petitioner argues that all these cases involve cash basis taxpayers, and he agrees that a cash basis taxpayer cannot deduct a payment to himself in the same year. However, he argues inexplicably that because his business was on the accrual method the cases respondent cites not only are inapposite but also support his position. [Fn.2]
[Fn.2: Petitioner cited Remy v. Commissioner, T.C. Memo. 1997-72, as supporting his position. The Court in that case held that a cash basis taxpayer could not deduct the value of his labor under sec. 162 because it was not paid or incurred. Petitioner interprets the case to mean that an accrual basis taxpayer can deduct the value of his labor, a logical fallacy.]
Perhaps petitioner did not read Rink or he failed to read it carefully. The Court pointed out in that case that the taxpayer took the position, as petitioner does, that "he should be permitted to accrue currently, as a liability, amounts owed by him to himself on account of his labors, but include the value of such labor in income only when and if such labor gives rise" to income in the future. The Court found the argument to be without any merit; "For one thing, we have found that the petitioner incurred no liability, in favor of himself or anyone else, to pay for the value of his services." Id. at 753-754 (emphasis added). ...Neither accounting principles, tax law, nor common sense supports a deduction by petitioners for contract labor as a result of an accrual of an amount "owed" by petitioner to himself for his own labor.
- Jim Maule (Villanova), The Value of Tax Education
- Tax Lawyer's Blog, Accountant Tries to Deduct Value of His Own Services
- Tax Update Blog, If Time Is Money, Why Can't I Deduct It?
Gerzog: Mortgages and Conservation Easements -- Not a Good MixWendy C. Gerzog (Baltimore) has posted Mortgages and Conservation Easements: Not a Good Mix, 132 Tax Notes 437 (July 25, 2011), on SSRN. Here is the abstract:
This article reviews Kaufman [v. Commissioner, 136 T.C. No. 13 (2011)], and the Tax Court’s reconsideration of its summary judgment decision that rejected the taxpayers’ deduction for a facade easement charitable deduction. The issues newly considered are the deductibility of the taxpayers’ required cash payments to the charity in connection with obtaining a facade easement charitable deduction and the application of various penalties.
Isenbergh: Last Chance, America (To Raise Taxes -- Substantially, and Soon)Joseph Isenbergh (Chicago) has posted Last Chance, America on SSRN. Here is the abstract:
This essay addresses the current fiscal situation of the U.S. economy – in particular the federal budget deficit and mounting public debt. The essay argues that the most urgent step to be taken is to raise federal taxes, despite the possible dampening effect on short-term growth (which can be palliated in other ways). Failure to raise taxes substantially, and soon, will greatly compound the harm to the U.S. economy from the profligate fiscal policies of the past decade.
Nebraska Seeks to Hire a Tax ProfThe University of Nebraska College of Law seeks to hire three tenure-track faculty in a variety of curricular areas, including federal estate & gift tax and trusts & estates. For more information or to apply for the position, email Richard Moberly, Chair, Faculty Appointments Committee.
Crawford: Reform the Gift Tax Annual Exclusion to Raise RevenueBridget J. Crawford (Pace) has posted Reform the Gift Tax Annual Exclusion to Raise Revenue, 132 Tax Notes 443 (July 25, 2011), on SSRN. Here is the abstract:
In this article, Professor Crawford proposes limiting the gift tax annual exclusion to outright transfers and transfers in trust that will be included in the beneficiary’s gross estate.
House Holds Hearing Today on Tax Reform and Consumption-Based Tax SystemsThe House Ways & Means Committee holds a hearing today on Tax Reform and Consumption-Based Tax Systems:
The hearing will consider separately two different consumption tax models. One panel will examine the advantages and disadvantages of a VAT, whether as a supplement to or full replacement for existing taxes. Another panel will discuss the policy arguments for and against adopting the FairTax as a replacement for existing federal taxes. The hearing will explore the economic impact of consumption tax systems, as well as issues surrounding administration and compliance.
Fair Tax Panel:
- Bruce Bartlett (Columnist, Tax Notes, The Fiscal Times, The New York Times)
- Mike Huckabee (former Governor of Arkansas)
- Laurence J. Kotlikoff (Professor, Boston University), accompanied by David Tuerck (Professor, Suffolk University))
Value Added Tax Panel:
- Rosanne Altshuler (Professor, Rutgers University)
- Robert J. Carroll (Ernst & Young)
- Michael J. Graetz (Professor, Columbia University)
- Simon Johnson (Professor, Massachusetts Institute of Technology)
- Daniel J. Mitchell (Senior Fellow, Cato Institute)
- Jim White (Director Tax Issues, Government Accountability Office)
International Tax Law as Seen Through the Parable of the Good SamaritanDaniel Deak (Corvinus University of Budapest) has posted International Tax Law, Seen from the Perspective of the Pattern of 'Foedus Pacificum' and the Parable of the Good Samaritan on SSRN. Here is the abstract:
International relations must not be influenced longer by the approach to a world of “homo homini lupus est,” as Hobbes proposed. International security cannot be achieved in the long run by terror, but by starting cooperation. An important step that can be taken this way is the idea of “Weltrepublic” as introduced by Kant. The hiatus left by nation states can be filled by a network of agreements. This suggests a world of the surrogate of “civitas gentium.” Final solutions can be found from time to time, provided that parties can rely on the Kantian platform of “foedus pacificum,” already created (e.g., in terms of human rights charters). In a more open world, the right should be given to the enterprises engaged in international business to bargain both with each other and the public authorities of the state where they are active at a particular moment. They may conduct themselves like “peregrini” in the ancient world. That is, even if they are not fully-fledged citizens of a particular state for several reasons, they can benefit from the equal (economic) treatment before the law in a host state that would be generous enough to extend to them a number of rights. As a kind of compensation, multinationals and the professionals who support them are also expected to behave themselves on the basis of corporate social responsibility. Managers should act like the Good Samaritan who is free from the ties of obsolete laws, and who makes use of this freedom in order to contribute to a world of sympathy and solidarity.
July 25, 2011
IRS Abandons Two-Year Statute of Limitations for Innocent Spouse ClaimsThe IRS today released (IR-2011-80) Notice 2011-70:
The IRS today announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests. ...
- The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
- A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.
- The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.
Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.
Press and blogosphere coverage:
$5 Million Exemption, Low Interest Rates Fuel Surge in Charitable Lead TrustsNew York Times, A Trust Surges, Heirs and Taxes in Mind, but Mind the Detail, by Paul Sullivan:
Jacqueline Kennedy Onassis is remembered for many things — as a first lady, a preservationist, a fashion icon. But her legend stands tall in a far more esoteric realm: her will is revered in the world of trusts and estates, too
A feature of it that is coming back into vogue is the charitable lead trust. After parceling out specific gifts, Mrs. Onassis put the rest of her estate into one of these trusts. It was set up to last 24 years, distributing money to charity annually. Whatever is left in 2018 goes to her heirs, in this case her grandchildren.
But the resurgent interest in charitable lead trusts is as much for financial advantage as for altruism.
Since the Republicans and President Obama allowed the gift- and estate-tax exemptions to rise to $5 million per person for this year and next, there has been a rush to pass far more money than that on to heirs, free of tax. In the case of charitable lead trusts, record low interest rates are driving the trend further.
The IRS sets what is called a hurdle or discount rate for these trusts, which is tied to United States Treasury rates. A lower rate means the payment to charity each year can be lower, and if the assets are invested to beat that rate, the amount left over for heirs should be higher.
The confluence of these factors comes as advisers are already bombarding their wealthiest clients with ways to pass money onto heirs, with good reason: the super-rich may be living through the greatest time for avoiding estate and gift taxes in recent memory.
(Hat Tip: Ann Murphy.)
NLJ: Law Profs Face Tough Sledding in Federal Appointments
National Law Journal, Law Professors Find a Hard Road to Federal Appointments, by Karen Sloan:
With one of their own sitting in the Oval Office, it's reasonable to think that legal academics might enjoy an edge in snagging nominations for plum judicial and executive branch posts. But law professors have received a relatively chilly reception in Washington of late, at least when it comes to high-profile positions that require the blessing of the Senate.
"This was a real question when Obama was elected," said University of Richmond School of Law professor Carl Tobias, who studies judicial nominations. "I think some of the liberal interest groups thought he would be able to counter the more conservative people Republicans had appointed by appointing more academics. I don't think that's really come to pass."
Academic position: Associate professor at Loyola University New Orleans School of Law
Nominated for: U.S. Court of Appeals for the 5th Circuit
Outcome: Approved by the Senate Judiciary Committee on July 14. Awaiting a full Senate vote
Academic position: Professor at Indiana University Maurer School of Law–Bloomington
Nominated for: Head of the Office of Legal Counsel
Outcome: She withdrew her nomination after more than a year of opposition from Republicans
Academic position: Former Harvard Law School dean
Nominated for: U.S. Supreme Court
Outcome: Confirmed by the Senate
Academic position: Former Yale Law School dean
Nominated for: Legal adviser to the Department of State
Outcome: Confirmed by the Senate
Academic position: Associate dean and professor at the University of California, Berkeley School of Law
Nominated for: U.S. Court of Appeals for the 9th Circuit
Outcome: Twice rejected by the Senate. He withdrew his nomination in May 2011
|SCOTT MATHESON JR.
Academic position: Professor at University of Utah S.J. Quinney College of Law
Nominated for: U.S. Court of Appeals for the 10th Circuit
Outcome: Confirmed in December 2010
Academic position: Professor at the University of Wisconsin Law School
Nominated for: U.S. Court of Appeals for the 7th Circuit
Outcome: Nomination stalled since July 2010
Academic position: Professor at Harvard Law School
Nominated for: Failed to be nominated to head the new Consumer Financial Protection Bureau
Outcome: Obama instead nominated former Ohio Attorney General Richard Cordray
NY Times: Tax Junk Food, Subsidize Fruits and VegetablesNew York Times op-ed, Bad Food? Tax It, and Subsidize Vegetables, by Mark Bitman:
Rather than subsidizing the production of unhealthful foods, we should turn the tables and tax things like soda, French fries, doughnuts and hyperprocessed snacks. The resulting income should be earmarked for a program that encourages a sound diet for Americans by making healthy food more affordable and widely available. ...
Simply put: taxes would reduce consumption of unhealthful foods and generate billions of dollars annually. That money could be used to subsidize the purchase of staple foods like seasonal greens, vegetables, whole grains, dried legumes and fruit.
We could sell those staples cheap — let’s say for 50 cents a pound — and almost everywhere: drugstores, street corners, convenience stores, bodegas, supermarkets, liquor stores, even schools, libraries and other community centers.
This program would, of course, upset the processed food industry. Oh well. It would also bug those who might resent paying more for soda and chips and argue that their right to eat whatever they wanted was being breached. But public health is the role of the government, and our diet is right up there with any other public responsibility you can name, from water treatment to mass transit.
Some advocates for the poor say taxes like these are unfair because low-income people pay a higher percentage of their income for food and would find it more difficult to buy soda or junk. But since poor people suffer disproportionately from the cost of high-quality, fresh foods, subsidizing those foods would be particularly beneficial to them. ...
Currently, instead of taxing sodas and other unhealthful food, we subsidize them (with, I might note, tax dollars!). Direct subsidies to farmers for crops like corn (used, for example, to make now-ubiquitous high-fructose corn syrup) and soybeans (vegetable oil) keep the prices of many unhealthful foods and beverages artificially low. There are indirect subsidies as well, because prices of junk foods don’t reflect the costs of repairing our health and the environment.
Forcing sales of junk food down through taxes isn’t ideal. First off, we’ll have to listen to nanny-state arguments, which can be countered by the acceptance of the anti-tobacco movement as well as a dozen other successful public health measures. Then there are the predictions of job loss at soda distributorships, but the same predictions were made about the tobacco industry, and those were wrong. (For that matter, the same predictions were made around the nickel deposit on bottles, which most shoppers don’t even notice.) Ultimately, however, both consumers and government will be more than reimbursed in the form of cheaper healthy staples, lowered health care costs and better health. And that’s a big deal. ...
It’s fun — inspiring, even — to think about implementing a program like this.
(Hat Tip: Ann Murphy.)
Sullivan: Foreign Tax Profits of the Top 50 U.S. CompaniesMartin A. Sullivan (Tax Analysts) has published Foreign Tax Profits of the Top 50 U.S. Companies, 132 Tax Notes 330 (July 25, 2011):
In 2010 America’s 50 most profitable companies generated nearly $600 billion of profits before taxes —38% of all U.S. profits. The average effective corporate tax rate reported to shareholders was 26%. Foreign profits comprised 50% of worldwide profits, and the average foreign effective tax rate was 25%. These 50 firms accumulated a total of $681 billion in undistributed foreign profits for which they have not booked any U.S. tax liability. The WIN America coalition is seeking a repatriation holiday to bring that $681 billion back to the United States.
Of those 50 companies, seven are listed as supporters on the WINAmerica coalition website: Apple, Cisco Systems, Devon Energy, Google, Microsoft, Oracle, and Pfizer. These seven companies had a total of $164 billion in accumulated undistributed foreign profits. On average, their foreign effective tax rate was 12%.
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