Saturday, December 31, 2011
I was shocked when I went to the (normally sedate) New York State Tax Department website this morning. About 20% of the real estate on their front page was given to a rather garish promotion from Gov Cuomo's office concerning issues that had little to do with tax policy (a press release about the upcoming State of the State message and an announcement that the governor is reopening the ice skating rink near the State Capitol for public skating.)Most egregiously, there was an instruction to "Like" Gov. Cuomo on Facebook. ... I was taken aback at the notion that the NYS Tax Dept would tell me to "like" the governor.One can only imagine the outraged reaction if the IRS website frontpage encouraged taxpayers to "like" President Obama and used up 20% of the space on the irs.gov page to promote him!The equivalent at the state level seems equally inappropriate to me. I am interested in whether others agree.
Seattle Times, Illegal Immigrants Pay Social Security Tax, Won't Benefit:
While many Americans believe illegal immigrants don't pay taxes, billions of dollars deducted from paychecks issued to undocumented workers flow to the Social Security Administration every year. Those workers almost certainly will never see that money again.
Social Security officials keep a record of wages that do not match up with real names and numbers in their system. The record is called the earnings suspense file.
In 2009, the last year for which figures are available, employers reported wages of $72.8 billion for 7.7 million workers who could not be matched to legal Social Security numbers.
(Hat Tip: Francine Lipman.)
Friday, December 30, 2011
Following up on my prior posts:
- Romney Refuses to Release His Tax Returns, Even If He Wins the Nomination (Dec. 23, 2011)
- More on Romney's Refusal to Release His Tax Returns (Dec. 27, 2011)
President Obama's Twitter account asks: Why won't Mitt Romney release his tax returns?:
For more, see Joshua Blank, In Defense of Individual Tax Privacy, 61 Emory L. J. ___ (2012).
David van den Berg (Tax Analysts), Occupy Groups Would Face Burdens, Get Benefits From Tax Exempt Status, Practitioners Say, 2011 TNT 250-2 (Dec. 29, 2011):
Some of the Occupy groups that have sprouted nationwide have taken steps toward becoming nonprofit organizations -- something that would impose several requirements on the groups but would also provide some benefits, practitioners told Tax Analysts.
Through large protests and public encampments, the Occupy groups have attempted to raise awareness about what they consider corporate greed and income inequality. So far, some Occupy organizations, including those in Portland, Ore., and Atlanta, have registered as nonprofits with their appropriate state agencies. On its website, the Occupy organization in Wilmington, N.C., said it has "voted to file" for section 501(c)(3) status.
The main advantage of tax exemption for the Occupy groups would be the ability to directly receive tax-deductible contributions, said Lloyd Mayer, a professor at the University of Notre Dame. But he isn't sure that matters to the Occupy groups. "Given the grass-roots nature of the movement, I am not sure how much their supporters need that incentive in order to be enticed into giving," Mayer said. "It appears inconsistent with the general character of these groups for them to seek such status and the organizational and operational restrictions that come with it." ...
Ofer Lion, of Mitchell Silberberg & Knupp LLP, said it makes sense for the groups to form as 501(c)(3) organizations, and that the Occupy groups could be "good" 501(c)(3)s engaged in issue advocacy. But a reluctance to appoint leaders may be one reason why more Occupy groups haven't sought exempt status, he said.
"Assuming that Occupy Denver or any of the other Occupy movements forms and is housed in a corporate nonprofit. Then there are often requirements as to how many directors there are, what officers are required, and I'm pretty sure that the president or CEO cannot be a dog," Lion said. "It may be that the corporate form -- that is the traditional method for nonprofits -- is not really in line with their structure, and so the two don't mesh." ...
Occupy Wall Street, the most well-known of the Occupy movements, is taking a different approach. The Alliance for Global Justice, a 501(c)(3) organization based in Washington, is serving as the fiscal sponsor for Occupy Wall Street.
According to the Alliance's website, its duty as sponsor is to collect and process all of Occupy Wall Street's donations and pass on the money to Occupy Wall Street. The Alliance must include Occupy Wall Street's financial reporting with its own when filing a Form 990, "Return of Organization Exempt from Income Tax," and the Alliance is accountable legally and financially to prove all of Occupy Wall Street's financial expenditures are in accordance with IRS rules for exempt organizations, according to a statement on the Alliance's website. ...
This model is a good one for Occupy Wall Street, Lion said. In many cases, there's no need for a nonprofit to form as its own corporation and file an exemption application. What it really needs to do is get its program going and succeed at it, he said. "Then, to the extent they want to go out on their own and leave the umbrella of their fiscal sponsor, that makes a lot more sense than wasting a lot of time and resources on formation when they're not really ready for it."
All Tax Analysts content is available through the LexisNexis® services. Prior TaxProf Blog coverage:
- Deductibility of Donations to Occupy Wall Street (Oct. 31, 2011)
- Accountants: Occupy Wall Street Needs Your Help (Dec. 22, 2011)
New York Times, Tax Benefits From Options as Windfall for Businesses:
The stock market’s rebound from the financial crisis three years ago has created a potential windfall for hundreds of executives who were granted unusually large packages of stock options shortly after the market collapsed.
Now, the corporations that gave those generous awards are beginning to benefit, too, in the form of tax savings.
Thanks to a quirk in tax law, companies can claim a tax deduction in future years that is much bigger than the value of the stock options when they were granted to executives. This tax break will deprive the federal government of tens of billions of dollars in revenue over the next decade. And it is one of the many obscure provisions buried in the tax code that together enable most American companies to pay far less than the top corporate tax rate of 35% — in some cases, virtually nothing even in very profitable years.
In Washington, where executive pay and taxes are highly charged issues, some critics in Congress have long sought to eliminate this tax benefit, saying it is bad policy to let companies claim such large deductions for stock options without having to make any cash outlay. Moreover, they say, the policy essentially forces taxpayers to subsidize executive pay, which has soared in recent decades. Those drawbacks have been magnified, they say, now that executives — and companies — are reaping inordinate benefits by taking advantage of once depressed stock prices. ...
For example, in the dark days of June 2009, Mel Karmazin, chief executive of Sirius XM Radio, was granted options to buy the company stock at 43 cents a share. At today’s price of about $1.80 a share, the value of those options has risen to $165 million from the $35 million reported by the company as a compensation expense on its financial books when they were issued.
If he exercises and sells at that price, Mr. Karmazin would of course owe taxes on the $165 million as ordinary income. The company, meanwhile, would be entitled to deduct the full $165 million as compensation on its tax return, as if it had paid that amount in cash. That could reduce its federal tax bill by an estimated $57 million, at the top corporate tax rate. ...
Executive compensation experts say that barring another market collapse, the payouts to executives — and tax benefits for the companies — will run well into the billions of dollars in the coming years. Indeed, of the billions of shares worth of options issued after the crisis, only about 11 million have thus far been exercised, according to data compiled by InsiderScore, a consulting firm that compiles regulatory filings on insider stock sales.
“These options gave executives a highly leveraged bet that stock prices would rebound from their 2008 and 2009 lows, and are now rewarding them for rising tides rather than performance,” said Robert J. Jackson Jr., an associate professor of law at Columbia who worked as an adviser to the office that oversaw compensation of executives at companies receiving federal bailout money. “The tax code does nothing to ensure that these rewards go only to executives who have created sustainable long-term value.” ...
Some corporate watchdog groups, and a few members of Congress, call the corporate tax deduction an expensive loophole. Many tax lawyers and accountants counter that the tax deduction is justifiable because the options represent a real cost to the company. And because the executives who exercise their options are taxed at high individual rates, the companies say that a change would result in an unfair form of double taxation.
Yet even those who support the existing tax policy say it was opportunistic for executives to avail themselves of big increases in stock options — which are supposed to be a performance-based reward — when a marketwide collapse meant that most companies’ stock price seemed destined to go up. ...To be sure, some executives whose option values have skyrocketed can point to notable accomplishments. Howard Schultz, chief executive of Starbucks, was granted options valued at $12 million in November 2008 that are today worth more than $100 million. In the years since, Starbucks has laid off thousands of employees, closed hundreds of stores and retooled its business plan. The strategy reversed the company’s slide in earnings. Shares of Starbucks, which traded in the $30s during much of 2008 and fell below $8 after the near collapse, closed Thursday at $46.45.
But other companies whose executives have already cashed in some options issued during the crisis have not performed particularly well compared with their peers. The oil drilling company Halliburton is one.
Update: Dan Shaviro (NYU), New York Times Article on Corporate Stock Options.
Kyle Orton, the National Football League player, sued a Chicago law firm alleging he and other investors suffered millions of dollars of losses from partnerships that failed to provide anticipated tax benefits.
Orton, in a complaint filed yesterday in state court in Chicago, accuses Chuhak & Tecson PC of misrepresentation and negligence over advice on investments in oil and gas partnerships that were designed to grant tax credits. He and a co-plaintiff seek to represent other investors in a class-action lawsuit.
The firm didn’t warn Orton and other investors that there was a possibility they wouldn’t receive the anticipated tax credits because the partnerships, set up to sell biomass gas from landfills to generate electricity, didn’t meet the statutory requirements for the credits. ...
Orton, 29, has started the past two games for Kansas City after being claimed by the Chiefs off waivers on Nov. 23. The quarterback began the season with Denver, then was replaced by Tim Tebow as the Broncos’ starter.
(Hat Tip: Bob Kamman.)
Henderson points out that the long-term trends in the cost of legal education and the value of law degrees we have witnessed over the past generation are not mutually sustainable, citing the economist Herbert Stein's aphorism that "if something cannot go on forever, it won't." Both the logic of this position and the facts justifying it would seem unassailable, but it remains the case that a remarkable number of people in legal academia continue to treat our role in all this as if we have no actual role in all this. Consider this quote from a law school dean:
Mark Grunewald, interim dean of the law school at Washington and Lee University, thinks any blanket restrictions on federal student lending would be disastrous and unfair. “There are real differences among prospective law students’ economic circumstances, and new blanket restrictions on lending could hurt those most in need of financial support,” he says. “It’s also unclear what the legal employment market might look like after a general economic recovery. Market forces may ultimately prove to be a better corrective.”
This quote understandably exasperates Matt Leichter, author of the awe-inspiring Law School Tuition Bubble blog, who points out that in just the past seven years Washington and Lee's tuition has risen 35% faster than inflation. (On the other hand over the same time period my law school's resident tuition has risen by a tidy 133.45% over inflation, which by comparison makes W&L look like a model of fiscal restraint. The great thing about the law school racket is that it's almost always possible to find somebody who makes your own behavior look positively admirable by comparison).
Dean Grunewald's appeal to "market forces" is, under the circumstances, particularly chutzpahesque, give that his institution would have to either cut its prices drastically or go out of business if it were subjected to the dual market discipline of being forced to:
(1) Extract roughly half of its operating income from private student loans dischargeable in bankruptcy and not guaranteed by the government; and
(2) Reveal in sufficiently explicit detail exactly what happens to graduates of his law school one and two and five years (etc.) after graduation.
Grunewald, like so many legal administrators, talks about the cost of legal education as if it were a product of the laws of thermodynamics rather than the laws of what in a more enlightened era was called "political economy." As Leichter emphasizes there is absolutely no reason why Washington and Lee, like the vast majority of law schools couldn't provide a much cheaper legal education than it does now with little or no discernible loss of quality. After all, average law school tuition 25 years ago was literally a third of what it is today in constant dollars if you exclude all state subsidized tuition from the analysis. In 1985 private law school tuition and non-resident public law school tuition averaged about $13,500 a year in 2010 dollars (if you included resident tuition, then and now, this comparison would make current tuition levels look much worse, as public law school resident tuition was $3,600 in 1985, compared to about $18,500 today. Again all of this is in inflation-adjusted dollars).
In other words, providing legal education at a reasonable cost doesn't exactly require some sort of technological or cultural breakthrough. Law schools charge absurdly uneconomical -- from the perspective of their marks students -- prices because they can get away with it, period. And they can get away with it for two reasons: because they hide the ball in regard to employment and salary outcomes for their graduates, and because the federal government quite literally pays them to behave in this way. As Henderson points out this is a situation that, from the self-interested perspective of legal academics and especially legal administrators, is too good to last, so it won't.
The Congressional Research Serviice yesterday released Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy (R42131):
(Hat Tip: Ed Kleinbard.)
Social scientists and philosophers have been concerned with issues surrounding the distribution of income or income inequality for over 200 years—the economist and philosopher Adam Smith discussed these issues as early as 1776. Academic writers have been writing on income inequality measurement issues for at least a century. Policy makers have also long been interested in income inequality issues; for example, the issue came up in Senate debate in 1898. Bills have been introduced in the 112th Congress that address the issue of income inequality by affecting the income of workers and taxpayers in different parts of the income distribution. In the second session of the 112th, Congress will likely debate the scheduled expiration (at the end of 2012) of the 2001 and 2003 Bush tax cuts, which could affect income inequality. This report examines changes in income inequality among tax filers between 1996 and 2006. In particular, the role of changes in wages, capital income, and tax policy is investigated.
Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.
Income inequality, as measured by the Gini coefficient, increased between 1996 and 2006; this is true for both before-tax and after-tax income. Before-tax income inequality increased from 0.532 to 0.582 between 1996 and 2006—a 9% increase. After-tax income inequality increased by 11% between 1996 and 2006. Total taxes (the individual income tax, the payroll tax, and the corporate income tax) reduced income inequality in both 1996 and 2006. In 1996, taxes reduced income inequality by 5%. In 2006, however, taxes reduced income inequality by less than 4%. Taxes were more progressive and had a greater equalizing effect in 1996 than in 2006.
Three potential causes of the increase in after-tax income inequality between 1996 and 2006 are changes in labor income (wages and salaries), changes in capital income (capital gains, dividends, and business income), and changes in taxes. To evaluate these potential reasons for increasing income inequality, a technique to decompose income inequality by income source is used. While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006. But overall income inequality would likely have increased even in the absence of tax policy changes.
Thursday, December 29, 2011
Tax Prof presentations at today's Israeli Law and Society Association Annual Conference:
- Mirit Eyal-Cohen (Pittsburgh), The Advancement of National Minorities through Small Business Regulation
- Assaf Likhovski (Tel Aviv University), Taxation without a State: Voluntary Tax System in Israel of 1948-1948
Following up on my prior post, Akhil Amar & Ian Ayres: Law Schools Should Pay Students to Quit: The Connecticut Law Tribune, Should Law Schools Tell Students to Go Away?:
Professors propose giving partial refund -- and the boot -- to struggling first-years.
"A half-tuition rebate splits the loss of an aborted legal career between the school and the student," writes law professors Akhil Reed Amar and Ian Ayres in an essay titled "Paying Students to Quit Law School." "Each has skin in the game, so students will not go to law school lightly, and law schools will have better incentives not to admit students likely to fail."
The professors suggest that at the end of a law student's first year, law school officials sit down with the student and assess his or her grades and future prospects in comparison to past students at that stage.Brad Saxton, dean of Quinnipiac University School of Law, and Arthur Gaudio, dean of Western New England School of Law, declined interviews for this article. Jeremy Paul, dean of the University of Connecticut's School of Law, however, praised the cleverness of the proposal.
"We share a sense that law schools need to seriously confront issues facing current law school students, applicants and recent graduates," Amar told the Connecticut Law Tribune. "In particular, schools need to make sure that applicants and law students get reliable information about their financial prospects."
Paul, however, said rebates would be much more economically feasible for a school of Yale's stature than other schools. "For Yale, it's very economically feasible because almost nobody would do it."
On the flip side, schools whose graduates pass the bar exam at lower rates or who are not hired as frequently for high-paying jobs might take a bigger financial hit. "I want to counsel people very carefully," said Paul, "but I don't want to coax them into giving up."
New York Times editorial, Whose Welfare?:
When will the IRS crack down on the secret political money already flooding the 2012 campaign from partisan operatives ludicrously claiming to be “social welfare” activists under the tax law?
Offshoot groups created by partisan gurus — Karl Rove pioneered the practice — claim the 501(c)(4) status as do-gooders that allows them to keep the names of their donors secret, unlike traditional political operations. Democrats are hard at this secret megamoney race, too, with Obama campaign veterans politicking as the supposedly independent and socially minded Priorities USA.
The need for the IRS to curb this abuse is vital, especially with the Federal Election Commission paralyzed by its Republican members.
The American Action Network run by veteran Republican campaigners spent 87% of its total $30 million on campaign-related expenditures last year, according to the watchdog groups Democracy 21 and the Campaign Legal Center. Mr. Rove’s Crossroads GPS and its affiliates are reportedly aiming to spend $240 million or more on their candidates in the presidential and Congressional races. ...
(Hat Tip: Ann Murphy.)
The Treasury Inspector General for Tax Administration today released More Tax Return Preparers Are Filing Electronically, but Better Controls Are Needed to Ensure All Are Complying With the New Preparer Regulations (2012-40-010):
While more tax return preparers are filing electronically, better controls are needed to ensure that all are complying with the new preparer regulations. ... TIGTA found that more preparers submitted tax returns electronically during the 2011 Filing Season, but determining their noncompliance with the e-file mandate is difficult. The continued use of multiple Preparer Identification Numbers (PTINs) has made it difficult to match all tax returns to the preparers who filed them.
TIGTA also found that prisoners had registered and obtained PTINs. More than 300 prisoners received PTINs and 43 PTIN applicants are serving life sentences and received active/provisional PTINs. Current regulations do not prohibit prisoners from registering and obtaining PTINs. The IRS subsequently decided that prisoners will not be issued PTINs and those that were issued will be suspended. ...
For the first few years, the IRS plans to use a “soft” approach to enforcement with emphasis on educating and collaborating with preparers in implementing e-file requirements
The Blawggies, which honor the best law-related blogs as determined from my personal and highly-opinionated perspective, were first unleashed on an unsuspecting blogosphere in December 2004 and are an annual tradition here at DennisKennedy.Blog. ...
The Blawggies have always had a spot for the best law professor blawg and now that I’m a contributing editor to the Legal Skills Prof Blog on the great Law Professor Blog Network, I feel I’m much closer to this category than ever before. In part, it’s my little effort to bridge the great divide between practicing lawyers and law professors.
I have repeat winners here. To me, the test of a great blog is how it keeps me returning to it time after time because of its great posts when it’s outside my subject matter. Jim and Paul both do a great both of covering the tax beat, with welcome excursions into legal education, the economic crisis and other areas. Both show how to write a blog with an academic focus and a a real world impact.
Runner-up – Eric Goldman’s Technology & Marketing Law Blog – Eric’s blawg covers my own area of work – information technology law and related and intellectual property law issues with gusto, style and excellent insights, all done in a way that keeps touch with the real world. Very helpful.
Reuters, New US Tactic for Suspected Swiss Bank Tax Cheats, by Lynnley Browning:
U.S. authorities hunting in Swiss banks for suspected tax cheats have a new weapon in their arsenal: an arcane but aggressive legal manoeuvre more commonly used against drug smugglers, money launderers and Imelda Marcos, widow of the Philippine dictator.
Backed by court judges, federal prosecutors are issuing subpoenas -- official papers which compel the recipients to provide potentially damning evidence -- to United States taxpayers suspected of holding hidden accounts at Swiss and other offshore banks, according to criminal defence lawyers whose clients have received the papers.
The grand jury subpoenas are unusual in that they ask bank clients -- not the banks themselves -- to turn over to the authorities their bank account details since 2003, including statements with the highest annual balances. Taxpayers who refuse to comply potentially face a stark choice: be found in contempt of court and thus subject to civil or criminal fines and jail time, or disclose potentially incriminating evidence against themselves.
"This is a very hot issue right now," said Nathan Hochman, former assistant attorney general for the Tax Division of the Justice Department who is now in private practice at the law firm Bingham McCutchen. Hochman said that defence lawyers representing taxpayers were furious over the tactic, which already has been challenged in some courts.
(Hat Tip: Francine Lipman, Ann Murphy.)
8th Circuit Re-institutes Discrimination Lawsuit by Unsuccessful Republican Faculty Candidate Against Iowa Law School Dean
Following up on my prior posts (links below): the Eighth Circuit yesterday reversed the district court and reinstituted a lawsuit filed against former Iowa Law School Dean (and Tax Prof) Carolyn Jones by Teresa R. Wagner, Associate Director of the school's Writing Resource Center, claiming that she was twice rejected for a legal writing faculty position because of her conservative political views. Wagner v. Jones, No. 10-2588 (8th Cir. Dec. 28, 2011).
- On Brief (Iowa's Appellate Blog), Eighth Circuit: Political Discrimination Suit Against Iowa Law School Dean May Proceed to Trial
- The League of Ordinary Gentlemen, The Tort of Political Discrimination
- PrawfsBlawg, Potentially Important Law Faculty Hiring Decision...
- Volokh Conspiracy, Lawsuit Claiming University of Iowa College of Law Discriminated Against Republican Teaching Applicant
- WSJ Law Blog, Eighth Circuit Revives Discrimination Suit Against Law School Dean
Prior TaxProf Blog coverage
- Unsuccessful Iowa Legal Writing Faculty Candidate Sues, Claiming Discrimination Due to Her Conservative Views (Jan. 29, 2009)
- Judge Dismisses Claim by Unsuccessful Iowa Legal Writing Faculty Candidate Alleging Discrimination Due to Her Conservative Views (Apr. 2, 2010)
- Unsuccessful Iowa Legal Writing Faculty Candidate Appeals Dismissal of Suit Claiming Discrimination Due to Her Conservative Views (July 13, 2010)
Wednesday, December 28, 2011
Bloomberg, Look Past Taxes to Fix Puzzle of Inequality:
Democrats in the U.S. have decided to make inequality a central issue in next year’s elections. I’d question whether that’s good politics. Even in hard times, American voters aren’t easily persuaded by appeals to class interests.
Yet even setting electoral tactics aside, a focus on inequality seems unlikely to lead to better policy, especially if you look at how current U.S. policy choices stack up against those of other advanced industrialized economies.
The reason is that inequality isn’t one issue but a writhing bundle of issues. Unpack it and you see there’s no easy remedy. It demands more thought and humility than most politicians can muster.
For the American left, the question comes down to the incomes of “the 1 percent” and their taxes. Even if, like me, you think that a rapidly widening gap between rich and poor calls for a response and that progressive taxes are ethically correct, this obsession with the peak of the income pyramid is much too simple-minded.
Growth in the highest U.S. incomes has been stunning, to be sure. A recent study by the Congressional Budget Office found that the after-tax incomes of the top 1 percent of U.S. households almost quadrupled in real terms between 1979 and 2007. The income of the median household -- again after taxes and transfers, and adjusted for inflation -- went up just 35 percent. On the same basis, incomes of the lowest 20 percent of households managed an increase of only 18 percent.
In less than three decades, the 1 percent’s share of after- tax U.S. incomes more than doubled, from 8 percent to 17 percent. The change is not unique to the U.S. -- inequality has increased almost everywhere -- but the surge in the very highest incomes is especially startling in America.
Why is it happening? Nobody quite knows. ...
The point is, some instances of very high pay are fair and efficient, and some aren’t. Do you raise taxes on all high incomes, regardless?
If that’s all you do, you leave the underlying failures (of corporate governance, financial regulation and so on) unaddressed. Also, heavier taxes have practical limits. There’s collateral damage to incentives. The rich can afford to be clever about tax shelters, so higher rates raise less revenue than you think. Push tax rates too high and the super-rich can simply leave.
Perhaps you think the U.S. taxes the rich so lightly these issues don’t apply. Think again. By international standards, the overall tax burden in the U.S. is low -- mainly because there’s no national sales tax -- but contrary to popular opinion the top marginal rates of income tax (adding in state income taxes, where applicable) are not much out of line.
If anything, rich Americans contribute a greater share of taxes than do their peers in other industrialized nations. The top 1 percent of U.S. taxpayers paid 40 percent of federal income taxes in 2007. The top 1 percent of British taxpayers paid 24 percent of the corresponding total.
A new report by the Organization for Economic Cooperation and Development shows that in the middle of the last decade -- i.e., after the Bush tax cuts were introduced -- the U.S. income tax was about as strongly redistributive as income taxes in Canada, Denmark, Finland, the Netherlands and Sweden. You might have noticed that the CBO report on top incomes was widely quoted, but one finding got less attention: Between 1979 and 2007, “the federal individual income tax became slightly more progressive.”
The awkward truth is that the U.S. income tax system is anomalous not because it taxes the rich lightly but because it taxes everybody else lightly. ...
American liberals find high incomes more upsetting than poverty. It’s an instance of how distorting the preoccupation with inequality can be. An enlightened liberal agenda should include higher taxes on the rich -- and higher taxes on the middle class as well. That agenda needs those revenue streams not to punish the 1 percent but to pay for low-wage subsidies, other supports for the working poor and a more effective safety net. It would prioritize K-12 education, vocational training and other main avenues of opportunity for the less well-off. It would attack rent-seeking, broken corporate governance and hidden subsidies to industries that don’t add value.
These things would narrow the gap between rich and poor. Focus too narrowly on inequality, though, and you might forget the rest. If you do that, you will have forgotten why inequality matters.
Sagit Leviner (SUNY-Buffalo) presents Fact & Fiction in the Normative Underpinnings of Taxation today as part of a panel on Restorative Justice, Justice in Taxation, and Principles of Criminal Regulation moderated by Tsili Dagan (Bar-Ilan University at the Israeli Law and Society Association Annual Conference:
Questions about the appropriate rules and mechanisms of taxation are, first and foremost, questions concerning the nature of society. What can be taxed, what cannot, for what purpose, when, and how, are all matters that go to the heart of society and, in particular, concern society’s underlying beliefs and values vis-à-vis the meaning and attainment of justice. This chapter explores the role of normative values and theory in tax policymaking. It suggests that a candid elaboration of normative perspectives, and how they shed light on taxation, could lead to a better understanding of society as well as a better tax system. To this end, the chapter promotes a return to fundamentals and explores three political theories relevant to the formation of the current tax discourse: the theory of natural entitlement, utilitarianism, and Rawls's theory of justice as fairness. It fleshes out the perspectives of these theories on fiscal policy, particularly, with regard to one question: what can taxpayers expect to receive in fair return for their expended labor and capital. It opines that, under all three political theories, taxpayers can generally expect to only receive a net return on labor and capital—i.e., gross return on their investments less the sum needed for maintenance of the existing societal order. In an unjust, or suboptimal, societal order (however this measure is conceived), further taxation can be expected to correct this condition. Importantly, this additional taxation becomes a plausible scenario under each of the three theories explored, supporting some form of redistributive mechanism.
New York Yankees co-owner and managing partner Harold Steinbrenner was sued by the U.S. Justice Department over an “erroneous” $670,494 tax refund he received in 2009. The complaint, filed Dec. 27 in Tampa, Florida federal court, seeks to reclaim the funds issued to Steinbrenner on Dec. 28, 2009. The refund stemmed from disputes between Steinbrenner and the IRS over the 2001 tax year and audits of the Major League Baseball team’s parent company for 2001 and 2002, according to court papers.
According to the complaint, Hal Steinbrenner paid his taxes in 2008, and then filed an amended 2001 tax return in 2009 seeking a refund because of a $6.8 million net operating loss carried back from 2002. The IRS paid the refund -- and then said that the refund claim should have been filed by March 1, 2009, more than five months before Hal Steinbrenner sought the refund.
Christian Science Monitor, Obama's New Tax on the Poor: Internet Gambling by States:
The Obama Justice Department quietly issued a legal opinion – just before a long Christmas weekend – that allows states to set up nonsports Internet gambling. The opinion upends decades of contrary decisions, but its real effect will be on the poor (and young) who suffer the most from gambling.
(Hat Tip: Ann Murphy.)
In 2010, 85% of law graduates from ABA-accredited schools boasted an average debt load of $98,500, according to data collected from law schools by U.S. News & World Report. At 29 schools, that amount exceeded $120,000. In contrast, only 68% of those grads reported employment in positions that require a JD nine months after commencement. Less than 51% found employment in private law firms.
The influx of so many law school graduates—44,258 in 2010 alone, according to the ABA—into a declining job market creates serious repercussions that will reverberate for decades to come. ...
Heavy loans now threaten to consume the future earnings and livelihood of the nation’s young lawyers. Yet, even as the legal market contracts, more than 87,900 potential candidates vied for 60,000 seats at 200 ABA-approved law schools in 2011, according to the Law School Admission Council.
More than 78,900 have applied for 2012 spots, according to preliminary LSAC counts in November.
Youthful overoptimism, bleak job prospects for college grads and the entry of several more universities and for-profit businesses into the legal education business are some of the root causes for the supply-and-demand imbalance in entry-level lawyers.
Very few critics, however, have examined the part played by the federal government through its student loan policies in creating a law school bubble that may be on the verge of bursting—one strikingly similar to the mortgage crisis that cratered the economy in 2008.
Direct federal loans have become the lifeblood of graduate education, and they shelter law schools financially from the structural changes affecting the profession. The bills are now coming due for many young lawyers, and their inability to pay will likely bring the scrutiny of lawmakers already moaning about government spending.
As student groups continue to lobby the federal government for increased transparency, the lawmakers are bound to ask a very simple question: Why should the U.S. government, through the Department of Education direct-lending program, continue to make billions of dollars of loans to law students when structural changes in the legal market suggest that a large portion will lack the earning power to repay those loans?
The answer to this question has potentially grave implications for legal education. Law schools—many for the first time ever—will become vulnerable to significant cuts in the amount of money available to students as Congress tries to hold the line on additional deficit spending. ...
By failing to make rigorous, realistic actuarial assumptions in deciding who to lend money to and how much to lend, the federal government avoids politically uncomfortable trade-offs. Everyone can go to college. And if you can get accepted into law school, the government will finance that, too.
But as the economist Herbert Stein once said, “If something cannot go on forever, it won’t.” The federal government’s gamble that higher education will continue to result in higher personal incomes eerily echoes Wall Street’s risky assumption that historical patterns in real estate values would carry forward forever and enable many sliced-and-diced mortgage-backed securities to attain AAA ratings. ...
Given the likelihood of some form of curb in federal student lending, there are gut-wrenching times ahead for law schools—even those that continue to enjoy a surplus of applicants. Until we get to that point, how ever, the lawyer production machine will continue to churn out more lawyers.
For those trying to get through this fiscal year, a government write-down of student debt may seem far away and speculative. Within a few years, however, the government will gain more experience on the IBR program, permitting a more accurate calculation of what its loan assets are really worth.
All the while, the stakes are growing larger. The volume of direct loans to students is estimated to increase from $489 billion in 2009 to $1.8 trillion in 2020, according to the Office of Management and Budget. Between 2 and 4 percent—$36 billion to $72 billion—will be for law school graduates. ...
The U.S. legal profession is in the midst of a broad structural transformation. Meeting the challenge to compete in a global economy requires a higher-education policy that honestly addresses issues of access, cost containment and national interest.
Legal education may soon provide an object lesson of what happens when we do nothing: Bad things happen when lawyers and law professors stick their heads in the sand. The republic may be in need of some world-class lawyerly judgment. And maybe soon.
The Tenth Circuit yesterday affirmed the Tax Court's disallowance of billionaire Philip Anschutz's use of variable prepaid forward contracts with Donaldson, Lufkin & Jenrette to avoid $144 million in capital gains taxes. Anschutz Co. v. Commissioner, No 11-9001 (Dec, 27, 2011).
Prior TaxProf Blog coverage:
- WSJ: IRS Targets Billionaire's Variable Prepaid Forward Contract Tax Strategy (June 9, 2008)
- Johnston: Anschutz and a 21st Century Tax System (May 10, 2010)
- Tax Court Rejects Billionaire Anschutz's Use of Variable Prepaid Forward Contracts to Avoid $144m Capital Gain (July 23, 2010)
- More on the Crackdown on the Anschutz Tax Shelter (Aug. 2, 2010)
- Johnston: Anschutz Will Cost Taxpayers More Than the Billionaire (Aug. 2, 2010)
Tuesday, December 27, 2011
ILM 2011-51-020 (Aug. 31, 2011):
Taxpayer provides catered meals on its * * * planes for crew members to eat while they are performing their flight duties. The meals are prepared by an independent third party vendor at a facility on the ground. The facility is not owned, leased, or operated by the employer. The crew has to report for duty at least one hour prior to their flight and remain at least 30 minutes after the flight, possibly due to safety checks. During the pre-flight/in-flight/post-flight time period, the crew is not allowed to leave the plane. The amount of food provided to the crew is dependent upon the time period, which the employer refers to as "Duty Time," during which the crew must remain on the plane. ...
Although it appears that the meals are excludable from crew members' gross incomes under § 119, they are not excludable under § 132. Taxpayer may therefore deduct only 50% of the costs associated with providing the meals.
New York Times, Law to Find Tax Evaders Denounced:
Legislation meant to help the U.S. government locate overseas assets of American tax cheats created little stir when it was quietly slipped into a jobs bill last year. But the Foreign Account Tax Compliance Act, or Fatca, as it is known, is now causing alarm among businesses outside the United States that fear they will have to spend billions of dollars a year to meet the greatly increased reporting burdens, starting in 2013. American expatriates also say the new filing demands are daunting and overblown.
“Congress came in with a sledgehammer,” said H. David Rosenbloom, a lawyer at Caplin and Drysdale in Washington and a former international tax policy adviser for the Treasury Department. “The Fatca story is really kind of insane.”
Congress created the act after the Justice Department’s successful pursuit in 2009 of UBS that resulted in the Swiss bank — which had encouraged American citizens to set up secret offshore accounts — paying $780 million and turning over client details to avoid criminal prosecution.
The law is meant to ensure Americans cannot use hidden trusts overseas to evade taxes, a goal that is widely applauded. But critics say that it amounts to gross legislative overreach, and that the $8 billion the Treasury expects to reap in taxes owed over 10 years pales next to the costs it will impose on foreign institutions. Those entities are being asked, in effect, to pay for the cost of tracking down American tax evaders.
The law demands that virtually every financial firm outside the United States and any foreign company in which Americans are beneficial owners must register with the IRS, check existing accounts in search of Americans and annually declare their compliance. ...
The IRS, under pressure from angry and confused financial officials abroad, has extended the deadline for registration until June 30, 2013, and is struggling to provide more detailed guidance by the end of this year.
But beginning in 2012, many American expatriates — already the only developed-nation citizens subject to double taxation from their home government — must furnish the I.R.S. with detailed personal information on their overseas assets.
American Citizens Abroad, an advocacy group, estimates the new form will add three hours to tax preparation. Considering that the law provides harsh penalties for even unintentional errors, the organization says it is “simply not realistic for a vast swath of the normally law-abiding filer community unable to afford the expensive services of a professional tax adviser.” ... “The Fatca legislation treats all Americans with overseas bank accounts as criminals, even though most of them are honest, hard-working individuals who happen to be living and working or retired abroad,” said Jacqueline Bugnion, a director of American Citizens Abroad. ...
There are also questions about whether the IRS will be ready for millions of complicated new filings each year, with critics charging that Congress failed to provide the agency with the capacity to handle the coming avalanche of data. ...
Then there is a question of reciprocity: Would the United States accept the same demands for information from the tax authorities in other countries — say Russia or China?
(Hat Tip: Ann Murphy.)
Volume 9, Issue 3 (Dec. 2011) of the eJournal of Tax Research, published by Atax (Australian Taxation Studies Program), University of New South Wales, Sydney, Australia, and edited by Binh Tran-Nam & Michael Walpole, is available on its web site:
- Nolan Cormac Sharkey & Kathrin Bain, Editorial (p. 245)
- Jefferson Vanderwolk, Hong Kong’s New Tax Treaty Network (p. 247)
- Bin Yang & Chun Ping Song, A Comparative Study of the OECD Model, UN Model and China’s Treaties With Respect to Rights to Tax Income and Capital (p. 254)
- Nolan Cormac Sharkey & Kathrin Bain, An Australia-Hong Kong Double Tax Agreement: Assessing the Costs and Benefits (p. 268)
- C. John Taylor, Some Distinctive Features of Australian Tax Treaty Practice: An Examination of Their Origins and Interpretation (p. 294)
- Evgeny Guglyuvatyy, Recent Changes in International Taxation and Double Tax Agreements in Russia (p. 339)
Progressives don't care about her sex tape. They do care that she makes so much money.
Poor Kim Kardashian. Well, poor may not be the right word. By all accounts—especially those she televises for her reality shows—Ms. Kardashian manages quite comfortably on her income. According to the New York Post, that includes as much as $17.9 million that she raked in for her well-publicized August wedding to NBA star Kris Humphries.
Public morality can be a tricky thing, however, and apparently Ms. Kardashian has now crossed a line.
It's not her split from Mr. Humphries only 72 days after their wedding, which raised questions about whether the marriage was simply one big publicity stunt. Nor was it the earlier sex tape that earned her celebrity and riches. Only a prude would object to that.
No, Ms. Kardashian's sin is this: She pays what she owes in state taxes under California law, instead of the much larger amount that some self-appointed advocacy group thinks she ought to be paying.
The organization is called Courage Campaign and its website reveals it to be a California mélange of activist groups and labor unions. In a video that presents Ms. Kardashian in some of her more conspicuously consumptive moments, Courage Campaign claims that while Ms. Kardashian made more than $12 million in 2010, she paid only one percentage point more in taxes (10.3%) than a middle-class Californian (9.3%). ...
It's tempting to dismiss this campaign as the work of a bunch of California crazies. The problem is that its assumptions about wealth and taxes extend far beyond the Golden State. Indeed, they have calcified into an orthodoxy that defines the Democratic Party. ... They will not be swayed because they are not being driven by their economics. They are being driven by their conception of immorality: the idea that millionaires have more than they should—and that any wealth they have is not something they have earned but something the state has allowed them to keep. It says much about the progressive Puritanism of our age that what these folks really find most sleazy about Ms. Kardashian is not her sex tape or her marriage, but that she's unembarrassed about making money.Many years ago in these pages, Irving Kristol famously wrote that the liberal paradigm "has led to a society where an 18-year-old girl has the right to public fornication in a pornographic movie—but only if she is paid the minimum wage." Today, women like Ms. Kardashian make much more money exercising that right. The only question progressives ask is about the size of the government's cut.
Following up on last week's post, Romney Refuses to Release His Tax Returns, Even If He Wins the Nomination: Bloomberg, Romney Plan to Keep Tax Return Private Breaks With Past:
Mitt Romney, a multimillionaire who is by far the wealthiest of the Republican presidential candidates, said he has no plans to release his income tax returns if he wins his party’s nomination, setting himself apart from past nominees in both parties who have routinely done so. ...
If the former Massachusetts governor wins the nomination and sticks to his plan, he would be one of the only presidential nominees in the last three decades to withhold his income tax returns. While income tax information is private and there is no legal obligation to disclose it, presidents and nominees for the office have regularly done so since the 1970s. ...
Paul Caron, a tax law professor at the University of Cincinnati College of Law, said a refusal by Romney as a presidential nominee to make his income tax return public likely would “become a narrative that sets him up really badly” in the campaign and he’d have to back down eventually.
“It’s sort of unsustainable -- it flies in the face of an awful lot of history,” said Caron, who edits the TaxProf Blog. “As one of the wealthier folks to ever run, there’s probably a heck of a lot there that he’s not excited about having analysts be able to comb over, so it makes a lot of sense that he’s wary of doing it.”
Same-sex spouses are paying as much as $6,000 a year in extra taxes because the federal government doesn't recognize gay marriage, according to an analysis conducted for CNNMoney by tax specialists.
While marriage provides tax benefits for many heterosexual couples, same-sex families don't enjoy the same perks because they are not allowed to file their federal returns jointly.
The imbalance persists despite increasing acceptance of gay marriage as a legal right. More than 12 states now grant full or partial marriage rights to same-sex couples, and a recent Gallup poll showed -- for the first time -- that a majority of Americans favor gay marriage.
But not the federal government, which is constrained by the 1996 Defense of Marriage Act. Even as more same-sex couples are able to file jointly at the state level, they are still forced to file as single when submitting federal returns to the IRS.
This means they can't combine their income and deductions to take advantage of lower tax rates. It's also harder for them to qualify for certain tax breaks because the credits phase out sooner for single filers. ...
To zero in on the tax bill gap between same-sex families across the country, CNNMoney asked H&R Block to crunch number comparing same-sex and heterosexual families according to a variety of scenarios.
(Hat Tip: Ann Murphy.)
Tax Prof Linda Beale (Wayne State) offers some thoughts on Mitt Romney:
- More on Romney's Privileged Roots (Dec. 26, 2011)
- Romney's Wall St. J. Interview with Gigot--Protecting the Rich (Dec. 25, 2011)
- Romney's Stance on Government Aide to Business: Bad If its For Others, Good If its For His Firm (Dec. 24, 2011)
Monday, December 26, 2011
Washington Post, Growing Wealth Widens Distance Between Lawmakers and Constituents:
[T]he financial gap between Americans and their representatives in Congress has widened considerably since , according to an analysis of financial disclosures by The Washington Post.
Between 1984 and 2009, the median net worth of a member of the House has risen 2.5 times, according to the analysis of financial disclosures, rising from $280,000 to $725,000 in inflation-adjusted dollars. Over the same period, the wealth of an American family has declined slightly, with the median sliding from $20,600 to $20,500. ... The growing disparity between the representatives and the represented means that there is a greater distance between the economic experience of Americans and those of lawmakers.
Washington Post, Net Worth in the U.S. Senate and House:
A look at the average net worth of all the members of Congress in 2010.
Members of the House and Senate with Net Worths Over $100 Million:
Darrell Issa R CA $448,125,017 Michael McCaul R TX $380,411,527 Jane Harman D CA $326,844,751 Jared Polis D CO $143,218,562 Vern Buchanan R FL $136,152,641 Nancy Pelosi D CA $101,123,032
John F. Kerry D MA $231,722,794 Mark R. Warner D VA $192,730,605 Herb Kohl D WI $173,538,010
National Law Journal, The Year the Chickens Came Home to Roost:
Lots of news broke out about legal education during the past year. Unfortunately for law schools, much of it was bad. Here are the top 10 law school stories of 2011.
- Pants on Fire. It is a truth universally acknowledged that law schools feel pressure to admit students with good grades and high scores on the LSAT, since those metrics count heavily toward their U.S. News & World Report ranking. That pressure got the better of some administrators at [Villanova, Illinois]. ...
- Sue Your School. Instead of asking alumni for money, maybe law schools should ask graduates to pledge not to sue them. 2011 will go down as the year law students got litigious — at least against their alma maters [Thomas Cooley, Thomas Jefferson, New York Law School]. ...
- U.S. Senators Give the ABA the Stinkeye. Forget the fight over the debt ceiling or high unemployment. A number of U.S. senators this year zeroed in on the ABA's oversight of law schools — or what they apparently see as a lack thereof [Barbara Boxer, Chuck Grassley, Tom Coburn]. ...
- Anybody Want to Go to Law School? It was bound to happen. Applications to ABA-accredited law schools declined by 10% in 2011. ... The number of people taking the LSAT during the 2010-11 cycle also declined by 10%. ... NALP reported that the class of 2010 "faced the worst job market since the mid-1990s," noting that their 87.6% employment rate was the lowest since 1997. Even worse, only 68.4% of those recent graduates were in jobs that required bar passage. ...
- Show Me the Data! The movement to improve law school consumer information started when the legal job market dried up several years ago, but really hit its stride during 2011. ... The ABA ... voted in December to beef up the graduate employment section of the annual questionnaire that law schools must fill out. ...
- So Long, Thurd and Fourth Tiers. The U.S. News & World Report law school rankings looked a little different when they came out in March. Gone were the third and fourth tiers that divided the bottom half of ABA-accredited law schools into two groups, listed alphabetically but unranked. Instead, U.S. News extended its numerical rankings to the top 143 schools, effectively eliminating what had been known as the third tier. The bottom 25% of schools continue to be unranked in what is now called the second tier. ...
- Unexpected Dean Departures. Plenty of law deans quietly left their posts on schedule in 2011. Then there were a few who went out with — shall we say? — a bang [Phillip Closius (Baltimore), Larry Sager (Texas), Robert Ward (UMass)
- The Gray Lady Has Something to Say. ... [A] series of front-page articles by David Segal of The New York Times brought long-standing critiques of legal education to a wider audience. ...
- No Tenure, No LSAT. Slowly but surely, the ABA is changing its process for accrediting law schools. A review committee discussed proposals including elimination of what many see as a venerable requirement that law schools protect tenure — an idea that raised the ire of many a law professor but that would give schools more flexibility to offer low-cost education. The committee also is contemplating dropping the requirement that schools weigh LSAT in admissions decisions. ...
- Law School Goes to the Dogs. [A number of law schools (Arizona, George Mason, Minnesota, Richmond, San Francisco, Stetson, Yale) use therapy dogs to calm stressed-out law students.]
Volume 9, Issue 2 (Dec. 2011) of the eJournal of Tax Research, published by Atax (Australian Taxation Studies Program), University of New South Wales, Sydney, Australia, and edited by Binh Tran-Nam & Michael Walpole, is available on its web site:
- Michael Walpole, Editorial (p. 138)
- Vince Mangioni, Transparency in the Valuation of Land for Land Tax Purposes in New South Wales (p. 140)
- Saira Ahmed, Vaqar Ahmed & Cathal O’Donoghue, Reforming Indirect Taxation in Pakistan: A Macro-Micro Analysis (p. 153)
- Kavita Benedict, The Australian GST Regime and Financial Services: How Did We Get Here and Where Are We Going? (p. 174)
- Ross Stitt, Financial Supplies: Bundling and Unbundling (p. 194)
- Melanie Baker, Managing GST Litigation (p. 220)
Freakonomics, How Is Law School Like the NFL Draft?:
Here’s a smart take by Jonathan Tjarks on the current state of law schools — a rather depressing look at how the odds are similarly stacked against law-school grads and college football players. After opening with a reference to Sudhir Venkatesh‘s study of the economics of crack from Freakonomics, Tjarks’s piece boils down to the following analysis:
Admittance into a top-14 law school, like a scholarship from a top-10 college football program, is the culmination of a lifetime of striving. Of the over 100,000 high school seniors who play football, fewer than 3,000 sign Division I letters of intent. Similarly, the top 25% in Harvard Law’s 2009 class had an average GPA of 3.95 and a LSAT score of 175, which puts them in the 99th percentile of the over 100,000 test takers each year.
Yet, despite overcoming nearly impossible odds, each group still has the toughest test of their lives ahead of them — each other. NFL teams rarely draft players not at the top of the depth chart, even at powerhouses like Texas or Oklahoma. And even at Harvard or Columbia Law, “Big Law” firms — those with the coveted $160,000 starting salaries — don’t reach too far below the median class rank when selecting first-year associate.
As you go down the ranks, the odds only decrease. NFL players from non-BCS conferences were usually top-tier starters in college, while top-50 law schools typically send only 10-25% of each class to “Big Law”. And just as there are always a few DII and DIII players in the draft each year, students from tier 2 and tier 3 law schools occasionally beat out graduates of elite schools for jobs. But “small school” success stories are the best of the best — collegiate All-Americans, the top 1% of their class in law review. ...
Law students who miss out on “Big Law” in 2L OCI are often left with over $100,000 in non-dischargeable student loan debt that can take most of their professional lives to pay off. The high starting salaries of first-year New York City associates hide the bimodal distribution of law incomes — most lawyers earn modest middle-class salaries and have little opportunity to transfer into the “Big Law” salary structure, not when there are thousands of new students clamoring for spots coming in behind them each year.
At least the job market for NFL draftees has remained intact .... The same can’t be said for law school grads. According to a Northwestern Law study, some 15,000 jobs have been eliminated from the nation’s biggest law firms since 2008. Which was roughly the same number of newspaper jobs lost in 2009, according to another Northwestern study.
(Hat Tip: Ann Murphy.)
Following up on last week's post, Ayers & Edlin: Don’t Tax the Rich. Tax Inequality Itself: Freakonimics, An Inequality Tax Trigger: The Brandeis Ratio Explained, by Ian Ayres (Yale) & Aaron S. Edlin (UC-Berkeley):
A central idea behind our Brandeis tax proposal was to have a tax that is triggered by increases in inequality. Our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down. ...
[T]he Brandeis ratio as a measure of concentration is immediately graspable, and is more closely tied to the specific concern that a sliver of plutocrats with gargantuan wealth could distort the political process. It doesn’t take a Ph.D in economics to understand that something seismic has occurred when the average one percenter goes from earning 12.5 medians to 36 median incomes. ...Steve Silberstein has been promoting an interesting way to make the corporate income tax for specific corporations contingent on an analogous inequality ratio. As mentioned in the New Republic:
[A]nother proposal, put forward by investor Steve Silberstein, would adjust the corporate tax rate based on the ratio of CEO pay to the average worker. A company with a ratio at the 1980 level of 50:1 would pay tax at the current rate of 35%, with the rate rising for companies with a higher ratio and lower for those with a narrower pay gap.
We had briefly thought about modifying our proposal to allow one percenters to avoid a trigger Brandeis tax if they could show that their income was less than 36 times the median income of workers who produced it, but concluded that personalized Brandeis ratios would be an administrative nightmare. The Silberman corporate tax proposal is by comparison elegantly straightforward.
Our proposal starts with an out-of-the-money status quo inequality trigger as a way to promote political common ground. You can vote for a contingent Brandeis tax without voting to necessarily raise taxes. Ours is a “tax more tomorrow” idea where the relevant tomorrow may never come. Our trigger avoids the concern that we’re engaged in crude “class warfare.” It doesn’t take away any of existing inequality, it just tries to make sure that 99% share in prospective future gains of the 1%. But reasonable people could argue for either higher or lower triggers – for example, returning to a simpler time when rich people only earned 20 medians. Perhaps like with carbon emissions we could seek to lower inequality to 1990 levels by 2020.
The current issue of the Northwestern University Law Review contains a remarkable "clarification" regarding Katherine Y. Barnes (Arizona), Is Affirmative Action Responsible for the Achievement Gap Between Black and White Law Students, 101 Nw. U. L. Rev. 1759 (2007), which disputed the "mismatch" theory proposed by Richard H. Sander (UCLA) in A Systemic Analysis of Affirmative Action in American Law Schools, 57 Stan. L. Rev. 367 (2004):
- Katherine Y. Barnes (Arizona), Is Affirmative Action Responsible for the Achievement Gap Between Black and White Law Students? A Correction, a Lesson, and an Update, 105 Nw. U. L. Rev. 791 (2011) (data)
- Doug Williams (University of the South), Richard Sander (UCLA), Marc Luppino (Federal Trade Commission) & Roger Bolus (UCLA), Revisiting Law School Mismatch: A Comment on Barnes (2007, 2011), 105 Nw. U. L. Rev. 813 (2011) (data)
Sunday, December 25, 2011
A member of the Illinois law faculty since 2002, Ribstein was a prodigious and pioneering scholar across a vast range of subjects, including partnerships and limited liability companies, corporate and securities law, choice of law, financial regulation, white-collar crime, legal ethics, and the legal profession.
Remembrances from Larry's many friends and admirers in the academy:
- Jonathan Adler (Case Western)
- Stephen Bainbridge (UCLA)
- Matt Bodie (St. Louis)
- Donald Clarke (George Wshington)
- Marc DeGirolami (St. John's)
- Dan Filler (Drexel)
- Erik Gerding (Colorado)
- Todd Henderson (Chicago)
- Dave Hoffman (Temple)
- Renee Newman Knake (Michigan State)
- Kim Krawiec (Duke)
- Brian Leiter (Chicago)
- Jeff Lipshaw (Suffolk)
- Geoffrey Manne (Lewis & Clark)
- Henry Manne (Georgw Mason)
- Andy Morriss (Alabama)
- Stefan Padfield (Akron)
- Ellen Podgor (Stetson)
- Nancy Rapoport (UNLV)
- Paul Rubin (Emory)
- Keith Sharfman (St. John's)
- Bill Sjostrom (Arizona)
- Gordon Smith (BYU)
- Larry Solum (Georgetown)
- Ilya Somin (George Mason)
- J.W. Verret (George Mason)
- Josh Wright (George Mason)
- Death of Larry Ribstein (1946-2011)
- 'Twas the Night Before Christmas (Legal Version)
- WSJ: How to Dodge Last-Minute Tax Traps
- Tax Accrual Workpapers and Textron
- In Hoc Anno Domini
- World Giving Index 2011: U.S. Is #1 (Out of 153 Countries)
- Go Cincinnati Bengals! Watch the NFL Play of the Year!
- Santa Claus Arrested by the IRS
- California Releases Tax Data
- Law School Transparency: Should Faculty Compensation Be Transparent?
The Wall Street Journal has published this wonderful editorial each Christmas since 1949, In Hoc Anno Domini:
When Saul of Tarsus set out on his journey to Damascus the whole of the known world lay in bondage. There was one state, and it was Rome. There was one master for it all, and he was Tiberius Caesar.
Everywhere there was civil order, for the arm of the Roman law was long. Everywhere there was stability, in government and in society, for the centurions saw that it was so.
But everywhere there was something else, too. There was oppression -- for those who were not the friends of Tiberius Caesar. There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or to fill the hungry treasury from which divine Caesar gave largess to the people. There was the impressor to find recruits for the circuses. There were executioners to quiet those whom the Emperor proscribed. What was a man for but to serve Caesar?
There was the persecution of men who dared think differently, who heard strange voices or read strange manuscripts. There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage. And most of all, there was everywhere a contempt for human life. What, to the strong, was one man more or less in a crowded world?
Then, of a sudden, there was a light in the world, and a man from Galilee saying, Render unto Caesar the things which are Caesar's and unto God the things that are God's.
And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God. Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me. And he sent this gospel of the Kingdom of Man into the uttermost ends of the earth.
Read the rest here.
World Giving Index 2011: "This is the second edition of the 'World Giving Index', the largest study into charitable behaviour across the globe involving 153 countries in total. Using data from Gallup's Worldview World Poll, the report is based on three measures of giving behaviour - giving money, volunteering time and helping a stranger. The results show that the USA is officially the most charitable nation in the world."
U.S. Federal agents arrested Santa Claus earlier today at the North Pole. ... Douglas Shulman, Commissioner of the IRS, has released the following statement:
At long last, the notorious tax cheat, Santa Claus, has been apprehended. He has been living in a foreign country for the last 50 years and during that time he has not filed his US taxes even once. It has become clear, however, that he has run a lucrative business at the North Pole and has never reported any of the income. In addition to criminal tax evasion, we intend to charge Santa Claus with 190 counts of criminal failure to file Foreign Bank Account Reports (FBAR), as we found evidence in his papers that he is operating or has signing authority on bank accounts in 190 different countries. It is our contention that the fines alone could help us bring billions in revenue into the United States government.
According to United States law, all United States Citizens are required to pay taxes to the IRS and to report any foreign bank accounts. Failure to obey these filing requirements may result in civil and criminal penalties including imprisonment.
The Obama administration declared that they were very pleased with the news.. ”It is about time,” Obama said from his Hawaiian retreat, “that the United States returned those who have fled the country just because they don’t feel like paying their fair share anymore.”
(Hat Tip: Andy Morriss.)
Saturday, December 24, 2011
The California Franchise Tax Board has released its 2010 Annual Report, with statistical appendix tables in five categories:
- Tax Rates, Exemptions and Standard Deductions
- Personal Income Tax
- Corporation Tax
- Tax Incentive Zones
- Complete Statistical Report (PDF, 3.00 MB, 179 pages)
The FTB also has released 2011 California Income Tax Expenditures Report.
The FTB first published the California Income Tax Expenditures Report in 2003. The report describes only tax expenditures found in California corporation tax and California personal income tax laws. We begin by discussing the concept of tax expenditures and cover many definitional and policy issues. We then present analyses of current tax expenditures within the California income tax system.
We organize the tax expenditures within the report in four categories: Credits, Deductions, Elections, and Exclusions, then we list the items alphabetically within each category.
Figures 1, 2, and 3 summarize the costs and policy goals of the expenditure items discussed in this report. Figures 1 and 2 list the expenditure items. Figure 1 lists items that conform to federal income tax laws. Figure 2 lists items that do not conform to federal income tax laws. Each figure is ranked according to the expenditure’s impact on state revenue. The figures include the cost of the expenditure and the page number where additional information about the expenditure is located. Figure 3 lists tax expenditures by policy goal. Figure 4 presents the usage of carryover credits from expired tax expenditures.
Following up on Friday's post on Kimberly Krawiec (Duke), Does Anyone Disclose Salary Information If They Don't Have To?: Law School Transparency, Should [Faculty] Compensation Be Transparent?:
With any regime, whether regarding employment data or compensation, it’s critical to consider the consequences, positive and negative. I also wanted to highlight an interesting comment responding to Professor Krawiec’s Faculty Lounge post:
In an ideal world, we would trust the deans to do their job right, and we would keep compensation info private. But remember what the theory of second best tells us. So long as the world is not ideal, and we cannot trust the deans, opacity of compensation is not necessarily a good idea. As the Texas blowout shows, some deans simply cannot be trusted. Larry Sager gave himself a $500K bonus without informing his own boss! He also set up a vast system of payouts to his friends, most of whom had no outside offers from higher-ranked schools and were not at any risk of leaving. Can you make sure this massive self-dealing is not happening elsewhere? If not, periodic sunlight might well be the best disinfectant.
Whether or not this allegation proves to be true, these are the concerns law schools now face. Insofar that self-dealing occurs to the detriment of students and taxpayers, inquiries into faculty compensation will be sure to make headlines in 2012.
Friday, December 23, 2011
Lindsey Sullivan (J.D. 2011, Northwestern), Note, Tax Accrual Workpapers and Textron: Is Litigation Strategy No Longer Protected?, 105 Nw. U. L. Rev. 919 (2011).
This Note argues that Textron allowed policy considerations to affect the outcome of the case without directly analyzing the competing objectives of the privilege. The work-product doctrine, like all privileges, attempts to strike a balance between enforcement and privacy, and the Textron decision was guided by the court’s desire to balance effective tax law enforcement by the IRS against the need for privacy to conduct detailed legal analysis of tax filings by corporate entities. Regardless of which objective one finds more important, the majority properly brought the policy discussion into the opinion. The majority failed, however, to explicitly balance these two objectives and to set out a framework for lower courts to follow.
Part I takes a detailed look at tax accrual workpapers and explains the difficulty in applying the work-product doctrine to these documents. Part II discusses the history, background, and theoretical underpinning of the work-product doctrine, highlighting the circuit split related to the phrase “in anticipation of litigation.” Part III discusses the Textron holding in depth and, using the language and theories from the preceding sections, explains how the Textron court erred. Finally, Part IV argues that while the doctrine was applied incorrectly, the eventual outcome in Textron may have been correct in light of the policy considerations and practical concerns underlying the doctrine.
The Note concludes by arguing that, despite the alarm it has raised, Textron did not drastically change the work-product doctrine. Courts and litigants will be able to limit Textron’s impact by recognizing that the workproduct doctrine requires an explicit balancing between enforcement and privacy. Thus, happily, corporate counsel everywhere can relax their state of disbelief.
Payroll Tax Cut Temporarily Extended into 2012 (IR-2011-124):
Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2% of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).
This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.
The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012.
- Edward McCaffery (USC), The Oxford Introductions to U.S. Law: Income Tax Law (Dec. 2011):
In The Oxford Introductions to U.S. Law: Income Tax Law, Edward McCaffery presents an accessible introduction to the major topics in the field of federal income taxation, such as income, deductions, and recognition of gains and losses. After discussing central rules and doctrines individually, Edward McCaffery offers a very sophisticated yet clear explanation of the interplay among them, carefully describing how they work together to carry out the policy goals of the U.S. tax system.
Professor McCaffery describes, for example, how the current income tax in the United States has increasingly become a wage tax that favors those with capital rather than those whose money comes from labor. In explaining the consequences of tax policy on individuals, he also considers important possible alternatives for income taxation in the U.S.
The Oxford Introductions to U.S. Law: Income Tax Law sets forth the 'who,' 'what,' 'when,' and 'why' of income tax law and describes the essential concepts of the field in a clear and concise manner that helps students and non-experts increase their understanding of the policies behind modern tax law and the ways in which these policies affect different types of individuals.
- A leading expert in tax law provides students with a clear and concise approach to the major topics in the field of federal income taxation
- This book synthesizes the key doctrines, cases, evolution, and policies of tax law in a clear yet sophisticated manner
- An indispensable supplement to casebook and tax code for students studying federal income taxation
- Provides an overview of the major developments in tax reform and a framework in which these efforts can be better evaluated
- Provides a framework to tax law that is accessible to beginners by continually offering a view of the "big picture" so that students do not feel overwhelmed by intricate tax detail
- Covers the leading cases and concepts, and includes numerous real-world and hypothetical illustrations to ensure that students can grasp the otherwise complicated rules
- Camilla E. Watson (Georgia), Federal Income Taxation: Model Problems and Outstanding Answers (Dec. 2011):
Tax law is a daunting subject for many law students. It requires a firm grasp of the Internal Revenue Code provisions, the reasoning behind them, the way they interact, and the way courts have interpreted them. Students must also acquire a brand new vocabulary of tax terms.
For the first time, Oxford University Press equips students with an accessible guide to acing this most challenging of law school tests. In Federal Income Taxation: Model Problems and Outstanding Answers, Camilla E. Watson helps students demonstrate their knowledge of federal income tax law in the structured and sophisticated manner that professors expect on law school exams.
This book includes clear introductions to the major topics in tax law, provides hypothetical's similar to those that students can expect to see on an exam, and offers model answers to those hypothetical's. Professor Watson then gives students the opportunity to evaluate their own work with a comprehensive self-analysis section. This book prepares students by challenging them to use the law they learn in class while also explaining the best way to express an answer on law school exams.
- Each problem/test question is separated into components so students can easily identify the key concepts in Federal Income Taxation and learn how to apply those concepts in a sophisticated manner on law exams
- Helps students identify the deficiencies in their own answers, allowing them to refine their writing and provide the answers law professors expect on Federal Income Taxation exams
- A self-evaluation section identifies which issues are most often missed on exams, allowing students to master the answers to challenging test questions