Friday, December 23, 2011
American Lawyer, ABA Regulations Don't Cause Tuition Increases, Law Schools Do, by Matt Leichter:
In his latest New York Times piece on law schools' problems, David Segal places the responsibility for needless tuition increases on the ABA's accreditation regime. ...I think Segal is trying to make three claims here:
- The consent decree caused law school tuition to increase over the inflation rate
- Tuition increases at the most well-regarded law schools are caused by U.S. News' rankings and the Federal Direct Student Loan Program.
- The ABA's standards cause tuition increases in law schools that are not well-regarded by U.S. News.
These are bold statements, particularly the third one, because if they are true, then criticism toward law schools ought to be redirected towards the ABA, and the solutions would probably not require significant modifications to the federal student loan system as it works with law schools....
... As to his claim that tuition increases are caused at the high-end by U.S. News? I'm willing to give him that, particularly because U.S. News rewards law schools for spending—and therefore charging—more money. ...
Segal does not substantiate his third claim because he does not point to what aspect of the accreditation standards causes tuition increases. Indeed, some of the standards contradict this claim, as I will show below. But first, permit me to investigate the tuition levels at U.S. News' lesser-ranked law schools, pejoratively referred to as its "Fourth Tier," though now they are a combination of "Rank Not Published" and "Unranked" ("RNP/UR"). ...
Here's a graph of the mean adjusted private law school tuition, U.S. News' T-14 schools' mean tuition (excluding Texas, which joined them last year), and last year's private RNP/UR law schools' tuition. ...
In fact, in the time period above, mean adjusted private law school tuition grew 20%, and mean T-14 schools' real average tuition grew 23.5%. As for mean private RNP/UR law schools' tuition? 22%. Contrary to what we would expect, private RNP/UR law schools' tuition have not grown at a slower rate over the last several years. Instead, they've been increasing at about the same speed as the average and that of even the biggest competitors in U.S. News' rankings.
This reduces the persuasiveness of Segal's third claim—that the ABA's accreditation standards are causing tuition increases at the low end and not the high end. ...
According to Segal, the ABA's accreditation standards require three years, large libraries, and too many full-time instructors. Full-time faculty must be paid some kind of living wage as they can't work elsewhere, and if the ABA eliminates this requirement, law schools will hire more adjuncts who will cost less to employ. These three factors (there are likely others) suggest a price floor for establishing a private ABA-accredited law school, but look at law schools' average student faculty ratios by full-time enrollment (FTE):
As a reference here's the distribution of law schools by FTE according to the Official Guide.
Thus, while the accreditation standards create an operational price floor, private ABA law schools could try running the "minor-league hustle": hiring cheaper full-time faculty, adhering to a higher student faculty ratio, hiring more local attorney-adjuncts for those clinical courses, skimping on the library as best as possible, using cheaper facilities, etc. This isn't to say that the accreditation standards and U.S. News have no effect on tuition, but law schools, especially those that are unattached to universities like NESL, can be cheaper under the current ABA system.
They just choose not to be.
But why? The only answer I have is Segal's erstwhile hedge about student loans: universities are outright rentiers. They have easy access to debt-revenue, so they take it. Sure, the ABA’s accreditation standards romanticize elite Industrial-era law schools, but until the boards of trustees of America's NESLs challenge themselves to kick their Direct Loan habits, they’ll simply charge more—and take more—because they can irrespective of what U.S. News or anyone else thinks of them. The only thing left to surprise us is on a moral level: how can university administrators sincerely believe their own justifications for economic rents?
An accountant has stepped down from administering the $400 million estate of heiress Huguette Clark and a lawyer is expected to face questions in a Manhattan Surrogate's Court hearing tomorrow, after the New York public administrator accused the two of failing to pay $90 million she owed in federal gift tax and penalties.
Representing the public administrator, attorneys David R. Gelfand and Peter Schram said in a petition (PDF) earlier this week that this alleged wrongful conduct by accountant Irving Kamsler and attorney Wallace Bock "is just the tip of the iceberg,” according to the Associated Press and the Open Channel page of msnbc.com.
The two, who were paid thousands monthly to oversee Clark's affairs prior to her death in May at age 104, also took advantage of her financially in other ways, the filing and the heiress' relatives contend. ...
The filing says the two failed to pay gift and generation-skipping transfer taxes on Clark's behalf from 1997 to 2003, even as she made over $50 million in gifts to individuals. It also contends they didn't inform Clark of the tax debt she owed the government, even though she could have afforded to pay it, and filed federal tax returns from 2004 to 2009 falsing claiming that she had previously filed gift tax returns and paid what she owed, reports Open Channel.
Aaron N. Taylor (Saint Louis) backtracks from his recent National Jurist op-ed, Why Law School Is Still Worth It, in Why Law Schools Should Report “Gainful Employment”:
Historically, a school’s percentage of employed graduates and the associated median salary have been the primary indicators of the potential payoff of legal education. The employment percentage was assumed to represent chances of employment, while the median salary was assumed to represent a reasonably expected monetary return. These two types of data are intuitive and simple; as such, they were relied upon heavily by people assessing the value of the law degree. But the downside of simple assessments is often their blunt nature. And the shortcomings of generic employment rates and median salary figures have been exposed by the realities of the lean economic times in which we are living. More nuanced indicators are needed. The ABA mandates are a step in the right direction, but a framework that borrows components of the Education Department’s “gainful employment” standards would be more useful in contextualizing the outcome data on which many people rely. ...
[A] program is in compliance with gainful employment standards if it meets at least one of the following benchmarks:
At least 35% of former students are actively repaying student loans. Annual loan payments for typical graduate do not exceed 30% of her discretionary income. Annual loan payments for typical graduate do not exceed 12% of her total income.
A gainful employment framework in legal education would contextualize employment and salary data by measuring the extent to which graduates are able to actually pay what is likely their largest debt. The fundamental question the data would seek to answer is, “Are graduates not only working but also able to pay their student loans?” Using the benchmark prompts above, this question would be answered from both macro and micro perspectives.
Two months ago, Aaron Taylor, a law professor at St. Louis University, published an irresponsible editorial in a prelaw magazine. In his article, Professor Taylor lamented the growing number of law school critics and flatly claimed that “Law school is still worth it.” His justifications were all either demonstrably false or incredibly misleading, much like the information many schools publish when recruiting new students. The editorial demonstrated one professor’s profound ability to bury his head in the sand. (In truth, there are signs that law school is not worth the price for many people.) ... But it seems that Professor Taylor has finally begun to see things more clearly.
In his latest piece ... he does an about-face and considers how we might devise a reporting standard that will indicate whether law school is worth it. The suggestion is interesting and substantively getting somewhere. While the “gainful employment” term is strategically and politically problematic, the core of his basic proposal stems from prospective students’ need to have some idea of whether their decisions will significantly impair or improve their social and economic mobility. While Professor Taylor’s proposal is short on details, it is worth exploring further.
Update: Aaron Taylor asked me to post this response:
The assertion that my “gainful employment” proposal is in conflict with my previous defense of legal education is erroneous. Legal education remains one of the best educational investments. A range of data supports that assertion. Does that mean it is the best investment for everyone? No. But better information and heightened due diligence by prospective students on the front end can minimize their chances of feeling duped as law students on the back end. Gainful employment data is one way law schools could provide better information regarding the best educational investment. There is no about-face. The two articles are complementary.
Mitt Romney announced yesterday that he would not release copies of his tax returns if he is the Republican presidential nominee, breaking with a long tradition in both parties.
- Huffington Post, Mitt Romney Declines to Release Tax Returns, Cementing Posture of Secrecy
- New York Times, Romney Says He Won’t Release Tax Returns
- Politico, Here We Go Again, Tax Return Edition
(Hat Tip: Francine Lipman, Ann Murphy.)
Update: William Jacobson (Cornell), This Will Not Stand – Romney Refuses to Release Tax Returns:
Just what we don’t need is a months long battle over whether a nominee will release tax returns, which simply will give Democrats another excuse to play class warfare.
By contrast, Newt pledged to release his tax returns if he becomes the nominee, and I presume all the other candidates would do so as well.
It’s a no win situation. If Romney doesn’t release the returns, the issue will dominate the general election media narrative. If he does release the returns under pressure, he will look weak and like a flip-flopper.
Tax Lawyer, Dude ($2.99 digital book):
Taxes for individuals are more complicated than ever. American lifestyles include changing jobs, being more mobile and selling homes more often. Companies are more complex with mergers, multinational systems, and takeovers. And to fill the need, came individuals with an assortment of training and backgrounds to help individuals and corporations with taxes.
Tax preparers who can range from having no training to extensive training, accountants and CPAs, and tax attorneys all help individuals and corporations with taxes, both national and state. Those who help with taxes range from the individual sitting at a folding table in Wal-Mart or Sears to tax attorneys who can earn up to more than a million dollars per year practicing tax law. The tax attorneys are at the top of the professionals doing tax work.
You get the impression from skits on TV that those who deal with taxes whether from the IRS side or representing individuals and business are heavy handed brutes, but in fact this occupation requires a keen and subtle mind. While tax attorneys make up only a small percentage of practicing attorneys, this specialized field is highly respected. It takes an astute person to understand the complicated and ever changing tax codes. It is a personally and professionally challenging field.
Tax attorneys whether they do actual litigation or in-court representation, work for large corporations as in house counsel, represent clients in a private practice, or work for the government all do basically the same things:
- Clarify tax laws for the interests of the client.
- Represent the government or the client in dealing with tax issues.
- Make recommendations and develop strategies optimizing tax savings.
This report will introduce you to this personally and financially rewarding field. You will be able to see if this intellectually challenging vocation is the place for you.
Now would be a good time to find out if you have the aptitude, intellect, and personality traits to become a tax attorney. Many are lured by the movie and TV images of lawyers and go into the field only to find they are not suited to the career. Before you invest a minimum of seven years in college getting a bachelor's degree and a law degree, you should participate in some exploring and self-discovery.
The law school dean at the University of Michigan makes an annual salary of $457,964. That puts Evan Caminker in 11th place among the school's highest-paid employees, after its current business school dean ($550,000), former b-school dean, who remains on the faculty ($448,155), medical school dean ($524,509) and engineering school dean ($470,195), reports AnnArbor.com.
For dean and faculty salaries at Michigan and 18 other public law schools (Arizona State, Florida, George Mason, Illinois, Missouri-Columbia, North Carolina, Ohio State, Rutgers, SUNY-Buffalo, Texas, Texas Tech, UC-Berkeley, UC-Davis, UC-Irvine, UCLA, Virginia, William & Mary, Wisconsin), see here.
In the comments, Mark Fenster asks a great question:
It would be interesting to know if any dean in a private law school or in a public which isn't required to disclose salary has chosen to do so, and what kinds of effects that had, especially if previous administrations had not disclosed.
I would also like to know the answer to that.
The briefing is now completed in United States v. Home Concrete & Supply, LLC, No. 11-139, which is scheduled for oral argument in the U.S. Supreme Court on Jan. 17, 2012.
- Opinion below (4th Cir. Feb. 7, 2011)
- Issue: (1) Whether an understatement of gross income attributable to an overstatement of basis in sold property is an omission from gross income that can trigger the extended six-year assessment period; and (2) whether a final regulation promulgated by the Department of the Treasury, which reflects the IRS's view that an understatement of gross income attributable to an overstatement of basis can trigger the extended six-year assessment period, is entitled to judicial deference.
- Brief for the United States
- Brief for Home Concrete & Supply, LLC
- Amicus brief of Bausch & Lomb, Inc.
- Amicus brief of Daniel S. Burks and Reynolds Properties
- Amicus brief of Grapevine Imports, LTD
- Amicus brief of Kristin E. Hickman (University of Minnesota Law School)
Thursday, December 22, 2011
It has been quite a week for Lincoln Memorial University, Duncan School of Law:
- Sunday: Duncan criticizes the ABA in a New York Times article on how the ABA drives up the cost of law schools.
- Tuesday: The ABA releases a letter denying Duncan's application for provisional accreditation.
- Today: Duncan sues the ABA:
For more, see:
- Above the Law, Duncan Law School Sues ABA for Antitrust Violation
- Chronicle of Higher Education, Tennessee Law School Sues ABA Over Accreditation Decision
- Knox News, LMU Suing ABA Over Law School Accreditation
- Law School Transparency, Breaking: ABA Sued by Duncan School of Law
- National Law Journal, Spurned by the ABA, Law School Strikes Back With Antitrust Suit
- Wall Street Journal, Duncan, Rejected by the ABA, Sues for Accreditation
New York Times Deal Book, The Benefits of Incorporating Abroad in an Age of Globalization, by Steven M. Davidoff (Ohio State):
Michael Kors Holdings not only sells fashion that people crave, it has also offered shares that were a hit with investors. The company’s shareholders, including the designer himself, sold about $944 million worth of stock last week in an initial public offering that valued the company at about $4 billion.
Michael Kors is not just a successful I.P.O., however. The company is also a case study on how globalization increasingly allows companies to avoid United States taxes and regulation.
Michael Kors gets about 95% of its revenue from sales in Canada and the United States. Like most clothing manufacturers, the company makes its clothes largely in Asia. And Michael Kors has gone one step further. It has outsourced its corporate governance and taxes to the British Virgin Islands.
Because the company is organized there, it sidesteps higher taxes and substantial regulation in the United States.
The tax savings are likely in the millions and could end up being much more.
If Michael Kors were organized under the laws of the United States, it would be subject to taxation on its worldwide income instead of just the revenue it earned in the United States. The company could defer these taxes on foreign income by keeping the money abroad in foreign subsidiaries. If it repatriated the money to the United States, it would then be taxed at rates of up to 35%, offset by any foreign tax paid.
Because of this tax regime, JPMorgan Chase estimates that American multinationals have $1.375 trillion in cash sitting overseas. By keeping this cash abroad, these companies are not subject to United States tax until the money is returned to America. These companies may be waiting for Congress to enact a tax holiday to allow the cash’s repatriation. ...
Perhaps it is time for the United States to adopt a tax system more in line with the rest of the world. This does not mean pandering to tax havens, but it should incentivize companies to bring their riches to the United States.
Center For American Progress, What Can We Learn from Law School? Legal Education Reflects Issues Found in All of Higher Education:
As a matter of scale, it seems silly to spend much time thinking about law school. Last year only about 155,000 students were enrolled at law schools accredited by the ABA, whereas almost 6 million students were enrolled in degree programs at community colleges that same year. But the small scale of the legal education sector is exactly why it may be worth some attention. ...
The reason to focus on law school is not, as The New York Times claims, that it is a peculiar form of education. It’s that legal education suffers from many of the same doubts and problems that plague all of higher education. But with only 198 fully ABA-approved law schools in operation, legal education is the bite-sized version of the phenomena that are forcing change in all of our colleges. And, like for-profit colleges, law schools primarily prepare students for a well-defined career area, making it easier to assess how well they serve their students. ...
This report explores the field of legal education with the hope that putting a magnifying glass to this small part of higher education will help us better understand the problems that face all colleges. It details the steady rise in law school enrollment, despite high tuition rates and a heavy reliance on student loan debt. And it describes the unpleasant surprise that awaits law students upon graduation: Though a few lucky grads will make more than $130,000 per year, most new lawyers can expect annual salaries of around $63,000. With monthly loan payments near $1,000, graduates are finding that membership in the legal profession is not the golden ticket they thought it would be.
These observations show that in legal education—as in the rest of higher education— forces such as rising tuition and limited availability of jobs are changing the value proposition of earning a degree. Schools, students, and policymakers, however, are slow to respond.
Schools assume that since students absorbed previous tuition hikes with student loans, they will continue to do so, and that today’s stagnant methods of delivering legal education will always be the best choice. Students assume that the big payoff to legal education will always be the same, encouraging them to take on debt that they can only pay if they earn top salaries. And policymakers assumed by passing off quality-control functions to accreditors, they could rest assured that the federal investment in student loans was secure.
Accrediting agencies—voluntary membership organizations comprised of colleges and universities—purport to certify the quality of postsecondary institutions. But recent scrutiny of the accreditation process shows that their focus on the inputs of a college program rather than its outputs results in a system that lets in subpar traditional institutions and often keeps out innovative nontraditional programs.
The crisis in higher education these days is not that college is no longer “worth it.” It’s that the value proposition for a college degree—in this case, a law degree—is changing, but schools, students, and policymakers have not changed with it. As the value of a college degree fluctuates, students must adjust their plans regarding attendance and financing accordingly. And colleges must strive for innovations in educational delivery that both improve education and contain costs. Finally, policymakers must make sure that accreditors not only ensure quality but also encourage their members to provide a high-value education to students.
To facilitate more flexibility on the part of students, schools, and policymakers, the following policy changes should be implemented:
- The Bureau of Labor Statistics should collect and publish average employment and salary data for recent entrants into an occupation.
- Accreditors in all sectors of higher education should create standard definitions for employment and salary statistics, and require member schools to make such information readily available to students. Accreditors should audit member schools’ adherence with these standards from time to time.
- The National Advisory Committee on Institutional Quality and Integrity should conduct a review and submit a report to Congress and the Department of Education on accrediting standards that stifle innovation or drive up tuition costs in higher education.
- Congress should provide funds to colleges through the Fund for Innovation in Postsecondary Education for projects that use technology or other innovative solutions to drive down tuition costs while maintaining or improving educational quality.
See also National Law Journal, Law Schools Reflect Wider Problems With Higher Education, Report Says.
[T]he finance team is still completely overwhelmed and could use any help the accounting community has to offer. My sense is there are some dedicated people trying to make it work, but it's challenging and they're swamped with the day-to-day logistics. ...
Requires work in evenings and on weekends with sometimes difficult and sometimes contradictory clients having substandard documentation. Internal management can be contentious and rarely reaches consensus on significant decisions, but still expects results. Pay will be nothing compared to the effort involved in completing the job. Good record keeping, organizational and presentation skills a plus, along with experience in setting up cash monitoring systems.
While this might seem like a refreshingly-honest description of a junior accountant position at the Big 4, in fact it's a call for volunteer help from Occupy Wall Street. The "Finance (Accounting)" group has been putting together cash statements and balance sheets, but needs any assistance the community can provide.
Following up on prior posts on the rule requiring Nobel Prize winners to include the prize in their income (links below): Ben Leff (American) passed along this CNN article for Tax Profs who discuss in class whether the prohibition on the sale of Oscars by the Academy of Motion Pictures Arts and Sciences' renders the award non-taxable to the recipents:
The Oscar given Orson Welles for "Citizen Kane" some 70 years ago sold for $861,542 in an online auction that ended Tuesday, a Los Angeles auction house said.
The best screenplay award for 1941 was the only Academy Award for the legendary writer, director, actor, although he was given an honorary award "for superlative artistry and versatility in the creation of motion pictures" nearly 30 years later.
Nate D. Sanders Auctions did not identify the winning bidder, but the company did reveal that illusionist David Copperfield was an unsuccessful bidder. ...
The golden statuette's controversial history includes a court fight with the Academy of Motion Picture Arts and Sciences, which tried to stop another auction in 2003. An academy official testified then that the award's value was at least $1 million.
A judge cleared the way for auction with a ruling in 2004 that Welles never signed the academy's agreement not to sell the trophy, according to Nate D. Sanders Auctions spokesman Sam Heller.
The academy, which aggressively challenges efforts to sell Oscar trophies, was successful three years ago in stopping the sale of two Oscars awarded to silent film star Mary Pickford. A Los Angeles jury ruled the descendants of a woman who was married to Pickford's third husband could only sell the statuettes back to the academy for a price of $10.
- NPR: Nobel Prize Winner Whines About Tax Burden (Oct. 11, 2010)
- President Obama's Tax Treatment of His 2009 Nobel Peace Prize (Apr. 16, 2010)
- More on the Tax Consequences of President Obama's Nobel Prize (Oct. 11, 2009)
- Tax Consequences of President Obama's Nobel Prize (Oct. 9, 2009)
- The Nobel Prize: An Annual Teachable Moment (Oct. 17, 2008)
- Al Gore and the Nobel Peace Prize: Avoiding an Inconvenient Tax (Oct. 14, 2007)
Four pages long, including one page of instructions. Impressively framed in classic mahogany with beaded edge and segmented mat of ivory. Brass plate mounted on the mat states: "1913 Inaugural Form 1040." Framed dimensions are 30" by 24". Comes with Plexiglas and all accessories for hanging.
Eric J. Gouvin (Western New England), Radical Tax Reform, Municipal Finance, and the Conservative Agenda:
Proponents of a consumption tax system to replace the federal income tax typically couch their support for radical tax reform in the language of traditional tax policy goals. They claim that their reform plans promote the goals of simplicity, economic efficiency, stability, and equity. This Article examines how well the proposed tax reforms will achieve those goals in the context of their anticipated impact on state and local finance. The effects on state and local governments of a flattened-rate income tax, flat tax, or a broad federal consumption tax could be enormous and devastating. The Article finds that all of the reform proposals fall far short of achieving the traditional goals of tax policy in the context of state and local finance.
This Article develops an alternative explanation for why the radical tax proposals are currently under serious consideration. It suggests that the adverse impact that the federal-level reforms will have on state and local finance is not an incidental side effect, but rather is part of a strategy consistent with conservative thinking to reduce the size of government and to make taxation more difficult. The alternative explanation views the tax proposals as a way to advance the conservative political agenda on at least two fronts: (1) to remove tax expenditures as a policy tool and thereby reduce the opportunities for "social engineering" by the central government; and (2) to force a realignment of federalism issues in the taxation area by making the total tax burden more transparent and making local taxation more difficult.
Wednesday, December 21, 2011
Here are the results in the 2011 Tannenwald Tax Writing Competition, sponsored by the Theodore Tannenwald, Jr. Foundation for Excellence in Tax Scholarship and the American College of Tax Counsel:
- First Prize ($5,000): Michael Behrens (UCLA), Citizens United, Tax Policy, and Corporate Governance (Faculty Sponsor: Steven Bank)
- Second Prize (tie) ($2,000): Jacob Dean (Cincinnati), “Do You Have That New Church App for Your iPhone?” Making the Case for a Clearer and Broader Definition of Church Under the Internal Revenue Code (Faculty Sponsor: Stephanie Hunter McMahon)
- Second Prize (tie) ($2,000): Stas Getmanenko (SMU), Consequences of Carried Interest Reform for the Private Investment Industry (Faculty Sponsor: Christopher Hanna)
- Honorable Mention: Tessa Davis (Florida State), Reproducing Value (Faculty Sponsor: Curtis Bridgeman)
- Honorable Mention: Jacob Goldin (Yale), Libertarian Paternalist Meets Tax Policy: Designing Commodity Taxes for Inattentive Consumers (Faculty Sponsor: Yair Listokin)
The University of Toledo Law Review has published the eleventh annual issue in its wonderful Deans' Leadership in Legal Education Series. Each issue contains essays written by Deans of various law schools on a wide array of legal education topics. The current issue contains seven essays written by these deans:
- Jeffrey A. Brauch (Regent), Faith-Based Law Schools and an Apprenticeship in Professional Identity, 42 U. Tol. L. Rev. 593 (2011)
- Nora V. Demleitner (Hofstra), Colliding or Coalescing: Leading a Faculty and an Administration in the Academic Enterprise, 42 U. Tol. L. Rev. 605 (2011)
- Anne Enquist (Seattle), Paula Lustbader (Seattle) & John B. Mitchell (Seattle), From Both Sides Now: The Job Talk's Role in Matching Candidates With Law Schools, 42 U. Tol. L. Rev. 619 (2011)
- Kevin R. Johnson (UC-Davis), The Forgotten Constituency? Law School Deans and Students, 42 U. Tol. L. Rev. 637 (2011)
- George W. Prigge (George Mason), Life Lessons for a Law School, 42 U. Tol. L. Rev. 649 (2011)
- Douglas E. Ray (St. Thomas), The Dean's Role in Building a Positive Workplace Environment, 42 U. Tol. L. Rev. 657 (2011)
- Jim Rosenblatt (Mississippi College), The Tenure of a Law School Dean: It's Not How Long You Make It--It's How You Make It Long, 42 U. Tol. L. Rev. 667 (2011)
The Texas kerfuffle has raised many questions, some of which have already been discussed at length on other law blogs. But for me, the news brings up a larger question that I’ve been thinking about for a while now: should law school compensation be transparent, at least to other faculty members?
Some schools – for example, many public schools – have very little choice in the matter of whether to reveal salary information, as state statutes require them to reveal that data in some manner. ... But there appears to be a great deal of variation, even among schools operating under some sort of transparency mandate. ... [W]hat I want to address is a different question: assuming flexibility in the matter of whether faculty compensation is transparent to other faculty members, should it be? I’m going to answer that question with a tentative “no” despite the admitted costs of secrecy in compensation information.
As many Loungers already know, there is a reasonably large body of research on salary transparency. Although I’ll draw on that for some of this discussion, I also think that academic institutions – with their limited ability to fire nonperformers and the relative lack of professor mobility, as compared to some other occupations and industries – may not be the best fit for some of that research. Moreover, law schools – which tend to have less external quality verification, such as grants and peer review – may present different challenges than other academic units. ...
Ideally, a law school’s salary system should embody all three of these characteristics: meritocracy, fairness, and transparency. In my experience, however, real-world law schools rarely embody all three traits. And having worked under both the transparent and non-transparent systems, my vote (for today anyway) is for the imperfect, but better, non-transparent model.
What happens when compensation is not transparent? Well, the fear, supported by some research, is that decision-makers will indulge biases. Some argue that pay secrecy exacerbates pay inequity and the gender wage gap. Others argue that salary secrecy can fuel inequity fears, even when wages are being set fairly.
What happens when compensation is transparent? In a recent NBER working paper, David Card and his co-authors find that pay transparency reduces aggregate employee utility – below-median workers experience lower job satisfaction while those above report no greater satisfaction. ... My experience – which, of course, is not universal – is that extremely transparent systems lend themselves to lock-step compensation based on easily identifiable criteria, such as seniority. Because then the dean always has a clear non-discriminatory metric to point to in defense of pay structure, and the rest of us don’t have to argue about difficult things, such as quality.
And this, to me, is not a good place for a law school to be. The system may be fair (nondiscriminatory), but it is not meritocratic. Nearly everyone feels cheated anyway and the highest performing young folks – i.e. those most likely to be picked off by another school – legitimately so. It just seems to me to be a recipe for a system under which almost everyone is unhappy, there are few incentives for productivity, the highest quality folks have every reason to try to leave, and those who are geographically constrained for family or other reasons (and who, as long-termers might otherwise be institutional building blocks) feel cheated by the institution and thus are less likely to give back. ... These outcomes aren’t inevitable, of course. I’m sure it’s possible to craft a compensation system that is fair, meritocratic, and transparent. But are most law schools inclined to do so?
The two-month payroll tax cut being debated in Washington reduces to the absurd the recent revival of short-term Keynesian stimulus programs. That such a temporary cut would stimulate the recovery and get employment growing defies common sense.
There is no hard evidence that the temporary payroll tax cut of this year stimulated the economy, and another one for the first two months of next year will obviously do even less. In fact, economic growth declined after this year's temporary tax cut was implemented, so proponents need to appeal to dubious "things-would-have-been-worse" arguments.
Like the one-time rebate of 2001, the temporary tax cut of 2008, the cash-for-clunkers and stimulus payments of 2009, or similar policies tried back in the 1970s, these temporary policies consistently fail to stimulate sustainable recoveries. And as this history shows, extending the temporary reduction from two months to six months or even to 12 months would be at best a marginal improvement. ...
But the policies are worse than doing nothing at all. Rather than stimulate the economy, they hold the economy back by creating policy unpredictability and by distracting Washington from crucial long-term reforms that are key to restoring economic growth and creating jobs.
Indeed, this type of temporary tax change is making the entire tax system unpredictable. According to the Joint Committee on Taxation, the payroll tax cut is only one of 84 tax provisions expiring this year, about the same as in 2009 and in 2010. This is 10 times greater than the number of provisions that expired in 1999. As shown in a paper presented this October by economists Scott Baker and Nicholas Bloom of Stanford University and Steven Davis of the University of Chicago Booth School of Business [Measuring Economic Policy Uncertainty], this increase in policy uncertainty is one of the factors slowing economic growth. ...
A more promising and lasting approach would be to take on payroll tax reform as part of Social Security reform. Though not feasible in the last two weeks of the year, taking a small step in that direction would be a big positive step for the economy.
Some of the biggest companies in the United States have been firing workers and in some cases lobbying for rules that depress wages at the very time that jobs are needed, pay is low, and the federal budget suffers from a lack of revenue.
Last month Citizens for Tax Justice and an affiliate issued Corporate Taxpayers and Corporate Tax Dodgers 2008-10. It showed that 30 brand-name companies paid a federal income tax rate of minus 6.7% on $160 billion of profit from 2008 through 2010 compared to a going corporate tax rate of 35%. All but one of those 30 companies reported lobbying expenses in Washington. Another report, by Public Campaign, shows that 29 of those companies spent nearly half a billion dollars over those three years lobbying in Washington for laws and rules that favor their interests. ... The report – “For Hire: Lobbyists or the 99 percent” – says that while shedding jobs, the 30 companies are “spending millions of dollars on Washington lobbyists to stave off higher taxes or regulations.”
These and other companies have access to lawmakers and regulators that are unavailable to ordinary Americans. ...
Company reports to shareholders show that among the 30 companies in the Public Campaign report, the 10 firms that spent the most on lobbying during the same three-year period fired more than 93,000 American workers. ...
...The United States already ranks second among modern nations, just behind South Korea, in the share of its workers in low-wage jobs while too many companies lobby for ever lower taxes, ever smaller wages and ever fewer worker rights to protect the mighty torrents of greenbacks flowing into their coffers. A better balance would make America better off.
David Gamage (UC-Berkeley) and Darien Shanske (UC-Hastings) have launched a new column in State Tax Notes, Academic Perspectives on SALT: On Tax Increase Limitations: Part I — A Costly Incoherence, 62 State Tax Notes 813 (Dec. 19, 2011):
In this essay, the first of a series, we explore the theoretical implications of one particular type of fiscal limitation on state legislatures—namely, special rules limiting tax increases. In this first essay we will explore the analytic soundness of these tax increase limitations (TILs). In future essays in this series we will analyze some of the consequences of TILs and in particular how they can be ‘‘evaded.’’ We will argue over the course of this series of essays that because there is no meaningful content to the term ‘‘tax increase’’ as it is used in TILs, legislative majorities that wish to do so can readily circumvent TILs. We will then propose alternatives to TILs to better promote fiscal management at the state and local levels.
All Tax Analysts content is available through the LexisNexis® services.
New York Times, Buyout Profits Keep Flowing to Romney:
Almost 13 years ago, Mitt Romney left Bain Capital, the successful private equity firm he had helped start, and moved to Utah to rescue the Salt Lake City Olympic Games and begin a second career in public life. Yet when it came to his considerable personal wealth, Mr. Romney never really left Bain.
In what would be the final deal of his private equity career, he negotiated a retirement agreement with his former partners that has paid him a share of Bain’s profits ever since, bringing the Romney family millions of dollars in income each year and bolstering the fortune that has helped finance Mr. Romney’s political aspirations. ...
But since Mr. Romney’s payouts from Bain have come partly from the firm’s share of profits on its customers’ investments, that income probably qualifies for the 15 percent tax rate reserved for capital gains, rather than the 35 percent that wealthy taxpayers pay on ordinary income. The Internal Revenue Service allows investment managers to pay the lower rate on the share of profits, known in the industry as “carried interest,” that they receive for running funds for investors.
“These are options that are not available to the ordinary taxpayer,” said Victor Fleischer, a law professor at the University of Colorado who studies financial firms. “You continue to take your carried interest — a return on labor, not capital invested — and you’re paying 15 percent on it instead of high marginal income rates.”
Mr. Romney is among the wealthiest candidates ever to run for president, with a family fortune that his campaign has estimated at $190 million to $250 million. In the years since he left Bain, much of his wealth has migrated into investments outside the company or into family trusts, including an additional $100 million set aside for his five sons.
But the family’s Bain holdings are still considerable: in his 2011 disclosure, Mr. Romney reported Bain assets between $12.4 million and $60.9 million, which provided between $1.5 million and $9.3 million in income. The blind trust for his wife, Ann, held at least another $10 million, generating income of at least $4.1 million. Because the campaign is required to provide only a minimum value for some Bain assets now held by Mrs. Romney, the total could be far more.
Tax treatment of hedge fund and private equity compensation has been another point of political contention. The debate in Washington boils down to whether the “sweat equity” provided by investment managers in putting deals together should entitle them to the special 15 percent tax rate on long-term capital gains, as opposed to the rates of up to 35 percent that normally apply to people providing services.
The lower rate had traditionally been reserved for investors who put their own capital at risk, but I.R.S. rulings in the early 1990s extended it to the share of profits paid to private equity and hedge fund managers. Democrats in Congress have periodically sought to rescind that privilege, and the Obama administration is considering another push to change that provision.
Mr. Romney’s retirement deal, like that of other private equity managers who keep a portion of their firms’ profits when they retire, could give him the lower rate on profits from deals he had nothing to do with.
“The rationale for having a capital gains preference is to encourage investors to put their cash into investments,” said Mr. Fleischer, the University of Colorado law professor. “Romney here isn’t even putting in any labor.”
Much remains unknown about the Romneys’ remaining holdings in Bain. Federal law does not require candidates to report underlying assets held by hedge funds or private equity firms in which they are invested, since the firms typically do not provide that information to their investors. Moreover, many of the family’s Bain assets reside in Mrs. Romney’s blind trust, which has looser disclosure requirements.
Much of that uncertainty would evaporate if Mr. Romney was elected: federal officeholders are not permitted to hold such private equity and hedge fund investments. If elected, Mr. Romney would most likely have to unwind his stakes in all Bain funds.
Tuesday, December 20, 2011
New York Times, Cutting the Corporate Tax Rate Is No Economic Panacea, by Bruce Bartlett:
First, insofar as taxes affect businesses, more than 90% of businesses are not really affected by the corporate tax. They are sole proprietorships, partnerships or S corporations that are essentially taxed only on the individual tax schedule.
The corporate tax affects only C corporations, legal entities separate and distinct from their owners, the shareholders. The income of C corporations is taxed twice -- once at the corporate level and again when the corporation’s income is paid out to its owners.
Therefore, the tax burden on C corporations is a function of both the corporate tax rate and the personal tax rate on dividends. To be valid, an international comparison of corporate taxes must take both into account.
This table uses data from the Organization for Economic Cooperation and Development:
... [W]hile it may be a good idea to reduce the corporate tax rate as part of a tax reform package, the idea that this will jump-start growth is nonsense.
Two days after being featured in the New York Times article on how the ABA drives up the cost of law schools, Lincoln Memorial University, Duncan School of Law today was informed in this letter that the ABA denied provisional accreditation for the school. In light of this news, these excerpts from the Times article are especially poignant:
The library at the Duncan School of Law may look like nothing more than 4,000 hardbacks in a medium-size room, but it is actually a high-tech experiment in cost containment. Most of its resources are online, and staples like Wright & Miller’s Federal Practice and Procedure — $3,596 for the multivolume set — are not here.
“We have a core collection,” says Sydney Beckman, the school’s dean, “and if someone needs something else, we provide it.”
Duncan, which opened two years ago, has 187 enrollees, all of whom have wagered that this library — and everything else about the school — is up to scratch. Because before these students can practice in every state, Duncan needs the seal of approval of the ABA, the government-anointed regulator of law schools.
That means complying with a long list of standards that shape the composition of the faculty, the library and dozens of other particulars. The basic blueprint was established by elite institutions more than a century ago, and according to critics, it all but prohibits the law-school equivalent of the Honda Civic — a low-cost model that delivers.
Instead, virtually every one of the country’s 200 A.B.A.-accredited schools, from the lowliest to the most prestigious, has to build a Cadillac, or at least come close. Duncan’s library costs $750,000 a year to maintain — a bargain when compared with competitors.
Is it Cadillac enough for the A.B.A.?
“We’ll see,” Mr. Beckman says. ...
OnDec. 2, Mr. Beckman and six colleagues from Duncan traveled to a hotel in San Juan, P.R., where the A.B.A. held its latest council meeting. The school had 15 minutes at a hearing to offer its arguments for provisional accreditation.
“This is just a pet peeve,” Mr. Beckman said last week, “but there is all this talk about the cost of legal education, and they make us fly to Puerto Rico and meet at the Ritz-Carlton?”
After his presentation, Mr. Beckman and others answered a number of questions, including a few about the job market for lawyers in east Tennessee. This bothered Mr. Beckman because, for antitrust reasons, employment prospects are not part of the ABA’s standards. He pointed that out to the council. “They didn’t really respond,” he says.
Nor did they hint at whether they would give Duncan a thumbs-up. In the past, law schools have learned a few days after their hearings. But since Dec. 2, there has been nothing. “The last thing we heard — and they didn’t mean this to be rude or anything — was at the end of the meeting in Puerto Rico,” Mr. Beckman says. “They said, ‘You can let yourselves out.’ “
- Above the Law, Revenge Is Best Served… Quickly: ABA DENIES Accreditation to School that Talked to the New York Times
- National Law Journal, Duncan School of Law Denied Accreditation
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Bloomberg, Puerto Rico Tax Break Shifts to Cayman Islands, by Jesse Drucker:
On either side of a two-lane road and surrounded by the lush green mountains of Villalba in central Puerto Rico, stand a pair of manufacturing plants owned by Medtronic Inc., the world’s biggest maker of heart-rhythm devices.
Medtronic does more than half of its $16 billion in annual sales of pacemakers, defibrillators and other devices in the U.S. It manufactures the equipment at this facility, legacy of a defunct U.S. tax break designed to encourage investment on the poverty-stricken island. Yet, Medtronic credits the income to a mailbox in a Cayman Islands office building.
This isn’t what the U.S. Congress had in mind when it did away with the federal tax credit for companies’ Puerto Rican profits. The break was attacked by Republicans and Democrats as too expensive, and as of 2006, it ended. So Medtronic and other companies found a solution: They are avoiding taxes by moving those profits into shell subsidiaries in havens such as the Cayman Islands, Switzerland and the Netherlands.
“By aggressively shifting income to offshore affiliates, companies appear to be getting U.S. tax benefits that are equal to or greater than the ones they did under the old Puerto Rico tax break,” said Stephen E. Shay, former deputy assistant secretary for international tax affairs at the U.S Treasury Department under President Barack Obama, now a professor at Harvard Law School. “That almost certainly was not the intent of the repeal.” ...
As the Obama administration and congressional Democrats take aim at tax breaks for everything from corporate jets to private-equity manager compensation, the aftermath of the Puerto Rico credit’s repeal shows just how difficult ending such breaks can be -- and how determined well-funded tax planners and their corporate clients are to create new ones. ...
Now the IRS wants to collect some of those lost taxes. It has identified as a top audit priority the sophisticated strategies U.S. companies used to shift income that once benefited from the old tax break in Puerto Rico. ... The agency is in a $958 million fight with Medtronic in U.S. Tax Court over how it reorganized its Puerto Rican operations, as well as a $452 million court dispute with Guidant LLC, now a part of medical device maker Boston. ...
The story of the Puerto Rico tax credit and its aftermath illustrates the cat-and mouse game companies and the U.S. government play when Congress tries to close tax breaks. In this case, even bipartisan support didn’t stop companies from quickly finding a new legal way to avoid paying taxes. ... The government underestimated how sophisticated and aggressive multinationals would be in shifting truckloads of profits out of the U.S.,” Harvard’s Shay said.
- New York Post, Professor Claims NYU Fired Him After He Gave James Franco a 'D'
- New York Post, NYU Fires Back at Franco Prof
- TMZ, NYU Professor: I Got Fired for Giving James Franco a 'D'
- USA Today, Is James Franco to Blame for NYU's Professor's Firing?
As to the policy issue, namely should false imprisonment damages be subject to income taxation, there are good arguments on both sides. In some ways, those arguments reflect the ones advanced on both sides of the debate about the exclusion generally of damages for personal physical injuries and sickness. My focus today is not on those arguments but on the issue of who makes the decision.
Section 104(a)(2) of the Internal Revenue Code makes it clear that the exclusion of damages from gross income applies only to damages received on account of personal physical injuries and sickness. ... Surely it is the language of section 104(a)(2) that constrained the Tax Court, in a case affirmed by the Sixth Circuit, from extending the exclusion to damages received for false arrest. The court opined that “[p]hysical restraint and physical detention are not ‘physical injuries’ . . . Nor is the deprivation of personal freedom a physical injury.” Robert Wood has provided a very good analysis of this case in Why the Stadnyk Case on False Imprisonment Is a Lemon, an article worth reading by anyone with a serious interest in the issue. In 2010, the IRS issued CCA 201045023, in which the IRS advised that a falsely imprisoned person who suffered physical injuries and sickness while incarcerated can exclude from gross income the damages for those injuries and sickness. Though many people tried to interpret the CCA as justifying exclusion of all damages for false imprisonment, the CCA does not go that far, as carefully explained, again by Robert Wood, in Wrongful Imprisonment Tax Ruling Stirs Controversy.
In Tax-Free Wrongful Imprisonment Recoveries, Robert Wood argues that the IRS takes too narrow a view of what “physical injuries and sickness” means and suggests that the IRS could issue administrative guidance excluding all false imprisonment damages from gross income, and in Why the Stadnyk Case on False Imprisonment Is a Lemon, he provides observations on why the IRS may be reluctant to do so but urges that the IRS or Treasury issue guidance specifying which false imprisonment damages are excludable. Similarly, in Tax On Wrongful Imprisonment Needs Reform, Wood argues that “It’s time for the IRS or Congress to fix this.” Wood is not alone in thinking that the IRS can resolve the problem by adopting definitions of “physical” that reach beyond what the word means. See Expanding Section 104(a)(2)'s Tax Exclusion. On the other hand, in Did the Sixth Circuit Get It Right in Stadnyk?: What to Do About the § 104(a)(2) Personal Injury Damages Exclusion, the author calls on the Congress to fix section 104(a)(2) to settle the question and provide certainty to plaintiffs. In fact, bills have been introduced in Congress to make false imprisonment damages excluded from gross income. On December 6, 2007, the Wrongful Convictions Tax Relief Act of 2007 was introduced, and on March 3, 2010, the Wrongful Convictions Tax Relief Act of 2010 was introduced. Neither bill was passed by the Congress.
There is no question that section 104(a)(2) has flaws and needs to be revised. There is no question that the Congress needs to determine the scope of section 104(a)(2) and whether or not it applies to damages for false imprisonment and similar situations where physical injury or sickness is absent. Congress could, if it chose, to provide a definition of the word “physical” that extends beyond physical, but the better approach would be to provide more explicit parameters for the scope of the exclusion, assuming that the exclusion is maintained. To expect the IRS or the courts to step in and apply section 104(a)(2) as though it had been drafted in some other manner, even if it should be or have been drafted in a more helpful way, is to extend to the executive or judicial branch the responsibility for doing the work of the legislative branch. Congress needs to put aside the politics and get to work, on this and a long list of other matters that need its attention.
Media Research Center, The Media Millionaires for Higher Taxes Award:
Winner: Christiane Amanpour:
Host Christiane Amanpour: “Some 75% of Americans agree with an increase in tax on millionaires as a way to pay for these jobs provisions. Do you not feel that by opposing it you’re basically out of step with the American people on this issue?...Are you concerned that these budget cuts are going to hurt the people who can least afford it?...There doesn’t seem to be the sense amongst people here that the sacrifice is being shared because they point to taxes and tax cuts and who it benefits and who it doesn’t.”
House Speaker John Boehner: “Come on! The top 1% pay 38% of the income taxes in America. How much more do you want them to pay?”— ABC’s This Week, November 6.
Bob Schieffer (CBS): “Why do these rich people need another tax cut? I mean, they’re already rich. They seem to be doing pretty well as it is now. Why cut their taxes some more?...If the country needs to borrow 40 cents of every dollar that it spends, how do you help that by reducing the amount of taxes that the richest people in the country pay? It would seem to me that’s where you get revenue.”—-Bob Schieffer to Rep. Paul Ryan (R-WI) on CBS’s Face the Nation, April 17.
Piers Morgan (CNN): "Grover, you’re the eye of the tiger in all this. People take their lead from you on the Republican side and you’ve been intransigent: ‘There will be no tax increases.’ Most impartial observers outside of America say that is crazy, and you have got to change your attitude to this and allow some tax increases.” — CNN’s Piers Morgan to Americans for Tax Reform President Grover Norquist, July 25.
Brian Williams (NBC): “Good evening. It’s a fair question to ask, and for a while now Americans have been wondering how lawmakers in Washington could possibly extend tax breaks for wealthy Americans while allowing benefits for jobless Americans to be cut off.” — Brian Williams leading off the December 6, 2010 NBC Nightly News.Juan Williams (Fox): “Tax increases should not be off the table. I don’t know why it is that he somehow suggests the rich in the country have no obligation to support the country.... Remember, that there’s been extension of the Bush tax cuts. And you’re going on as if, ‘you know what, we don’t know in America how to help our own deficit problems.’ We do. We just have to tax people.” — Juan Williams on Fox News Sunday, April 3.John King (CNN): “George H. W. Bush had the courage, knowing it might cost him re-election, knowing for sure it would cost him support with his conservative base, to violate the central domestic policy pledge of his campaign, ‘read my lips, no new taxes.’...There are some people now saying that we need a moment like that and that the Republicans should give President Obama some tax increases as long as they get from him significant spending cuts and a big deficit reduction package. Should the Republicans learn from George H.W. Bush and sit down with the President and cut a deal?”— CNN’s John King to Dick Cheney on John King USA, September 22.
I’m really enjoying the newfound interest from the New York Times about the state of legal education. Times reporter David Segal seems genuinely interested in recording the growing tragedy of American law schools. ...
The Times article profiles the Duncan School of Law, at Lincoln Memorial University. It’s a new law school in Appalachia, just two years old, that is struggling to get ABA accreditation. The Times sets up Duncan as a law school that would like to keep costs low, but can’t because it’s trying to meet the tough ABA standards of accreditation. Blah, blah, blah. ...
It takes pages before Segal gets to the most real culprit behind the hefty price tag:
Duncan’s largest single cost is its faculty, which, as with most ABA-accredited law schools, consumes about half its total budget. This is the only expense that [Sydney Beckman -- Dean of Duncan Law School] declines to detail, other than to say that he has three adjuncts and 16 full-time professors. Adjuncts are basically part-timers and far less expensive. But the ABA prohibits an adjuncts-only faculty by requiring that full-time faculty teach a major portion of the entire curriculum.
What a surprise! The “low cost” law school is flummoxed by the ridiculously high salaries of law school professors, salaries which the dean refuses to fully explain in an article designed to highlight how the school is struggling to keep costs down.
It’s a story we’ve heard at least 200 other times before. Segal does a lot to try to indirectly blame the high cost of professorial salaries on various rules, written and unwritten, about attaining ABA accreditation, but there’s no way to completely gloss over faculty greed and deans (who are themselves part of legal academia) being all too happy to keep paying into the system that keeps salaries high for all.
I’m telling you, when I’m dean of Above the Law: The Law School, the median faculty salary will match the median salary achievable by graduates of our institution. And there will be a “hard cap” on the top salary. If professors don’t like it, they’ll be free to go into private practice where they claim they’ll be able to make oh so much more.
Tax Prof Bridget J. Crawford (Pace), Third-Wave Feminism, Motherhood and the Future of Legal Theory, in Gender, Sexualities and Law (Routledge 2011):
Using motherhood as a lens, this book chapter argues that third-wave feminism needs law and law needs third-wave feminism. Twenty years ago, young women in the United States boldly proclaimed the onset of feminism’s “third wave.” Third-wave feminists embraced the “fun,” “sexy,” and “girly,” rejecting the (supposedly) strident, humorless feminism of the 1970s and 1980s, while also taking up the feminist mantle. The third-wave feminist agenda makes several claims about the law, and yet it has had little or no impact on feminist legal theory. This is because third-wave feminist writing fails to grapple with gender equality or law writ large. Far from improving on the feminism of the past, third-wave feminists retreat -- to women’s detriment -- from their predecessors’ theoretical and methodological commitments. Nowhere is this clearer than in third-wave writings about fertility and motherhood.
Much of third-wave feminist writing has taken the form of the first-person narrative. Somewhat predictably, as third-wave feminists have aged, their subject-matters have changed. For third-wave feminists now in their thirties and forties, the personal account of one’s “journey” toward motherhood seems to have become the new rite of passage. Rebecca Walker’s Baby Love, Evelyn McDonnell’s Mama Rama, and Peggy Orenstein’s Waiting for Daisy are three representative examples of this milestone narrative. Taken together, these third-wave fertility and motherhood narratives contribute (perhaps unwittingly) to a mythology of motherhood that prior feminists sought to dismantle. These works pay lip-service to the notion that motherhood should not be the measure of a woman’s worth, but they embrace motherhood as the ultimate personal fulfillment. Second-wave feminists critiqued the influence of state systems, especially law, on motherhood as a practice and status. But third-wave feminists keep most critical theory at a distance. Joining third-wave feminism and law will help develop an equality jurisprudence that acknowledges women’s reproductive capacities but neutralizes the role those capacities play in women’s legal subordination.
Form 1040 Toilet Paper ($4.49 per roll):
Does it pain you to fill out a tax form each year? Does knowing that the IRS takes a large chunk of your salary give you the runs? This product isn't deductible, but it'll sure make you feel better. A collage of the 1040 IRS Form is printed throughout the whole roll!
Monday, December 19, 2011
What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1% to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1% was a whopping 36 times greater than that of the median household.
Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others.
We believe that we have reached the Brandeis tipping point. It would be bad for our democracy if 1-percenters started making 40 or 50 times as much as the median American.
Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income.
Importantly, 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.
Here’s how the tax would work. Once a year, the IRS would calculate the Brandeis ratio of the previous year. If the average 1-percenter made more than 36 times the income of the median American household, then the IRS would create a new tax bracket for the highest 1% of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36.
This new tax, if triggered, would apply only to income in excess of the poorest 1-percenter — currently about $330,000 per year. Our Brandeis tax is conservative in that it doesn’t attempt to reverse the gains of the wealthy in the last 30 years. It is not a “claw back” tax. It merely assures that things don’t get worse.
A key aspect of our proposal is the tax’s automatic nature. Congress need only act once to protect our future. Just as our tax brackets automatically adjust with the inflation rate, Congress could specify nondiscretionary conditions under which the Brandeis tax would automatically go into effect. ...
The Occupy Wall Street movement is right to decry the increasing power of the 1 percent as a threat to democracy. President Obama is right to characterize the present as a “make-or-break moment” for the middle class. As 1-percenters ourselves, we call on Congress, for the sake of democracy, to end the continued erosion of economic equality in our nation.
Discriminations, Why Not a Marriage Tax?:
[T]he educated and rich are marrying more and getting richer; the uneducated and poor are marrying less and falling further behind. ... As marriage increasingly becomes a phenomenon of the better-off and better-educated, the incomes of two-earner married couples diverge more and more from those of struggling single adults….
It’s not only that those at higher education levels are far more likely to marry — they’re far more likely to marry each other. “Men used to marry their secretaries. ... Now they marry the woman they met in med school. These two-earner couples at the top are just making out like bandits and these single parents at the bottom have miserable lives. If the single parents were married, their life wouldn’t be so miserable. And at the top, if these high-earning professionals weren’t getting together and forming little collaboratives, they’d be worse off.”
This new marriage gap seems tailor-made for the Democrats’ tax-and-share approach to all social problems. If about half the adults are married, and are getting richer as a result, and half are not and are thus falling further behind, how long can it be before Obama calls for a marriage tax in the name of “fairness”? In fact, he could make it a progressive, graduated tax by including a Graduate Tax: couples where both spouses have college degrees pay more, those who both have graduate degrees pay even more, etc.
Why should some be allowed to make out like bandits while others are condemned to leading miserable lives when their conditions could be equalized, in the name of fairness, by some simple tweaks to the tax code?
(Hat Tip: Glenn Reynolds.)
Scott Gaylord (Elon) & Andrew J. Haile (Elon), Constitutional Threats in the E-Commerce Jungle: First Amendment and Dormant Commerce Clause Limits on Amazon Laws and Use Tax Reporting Statutes, 89 N.C. L. Rev. 2011 (2011):
This article ... explores the constitutional issues surrounding North Carolina’s efforts to increase sales and use tax compliance. In particular, we analyze (i) the First Amendment issues raised by the federal district court’s order in the Amazon case as well as (ii) the First Amendment and Commerce Clause issues that would arise if North Carolina were to enact a reporting statute requiring internet retailers to disclose to the Department of Revenue the amount of purchases that individual consumers make annually. While the Department of Revenue could use this information to better enforce the state’s use tax law, we contend that such a statute faces difficult First Amendment and dormant Commerce Clause hurdles that, although possibly avoidable, would severely limit the effectiveness of any such statute. Consequently, while we do not reject the enactment of such a tax reporting statute, we contend that the state also needs to continue pursuing alternative approaches to increase use tax compliance. Ultimately, however, the issue of use tax non-compliance may be solved only through federal legislation authorizing states to require retailers to collect sales and use tax despite their lack of an in-state physical presence.
Forbes, Federal Judge Green Lights IRS Search For California Gift Tax Cheats, by Janet Novack:
A federal district court judge has given the IRS permission to serve a “John Doe” summons on the California State Board of Equalization demanding the names of residents who transferred property to their children or grandchildren for little or no money, from 2005 to 2010. [In the Matter of the Tax Liabilities of John Does, No. 2:10-mc-00130 (E.D. CA Dec. 15, 2011)] The IRS wants those names as part of a crackdown on what it believes is the widespread failure to file required tax returns when real property is passed between family members.
The IRS has already received information about intra-family property transfers from county or state officials in Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington state and Wisconsin. But officials of California’s BOE said state law prohibited them from disclosing the information without a court approved summons.
In an affidavit filed in the California case in October, Josephine Bonaffini, the Federal/State Coordinator for the IRS’ Estate and Gift Tax Program, said the agency has so far examined 658 taxpayers identified as transferring property to relatives and concluded that 238 of them should have, but didn’t, file [gift tax returns].
Prior TaxProf Blog posts:
National Law Journal, Law School Transparency Hopes the Second Time's the Charm on Data:
In 2010, the first time Law School Transparency asked law schools to cough up detailed lists of their graduate employment data, it didn't go so well. The one school that offer to share its data — the Ave Maria School of Law — backed out months later.
The organization hopes for better success this year. It sent letters to every ABA-accredited law school on Dec. 14, asking them to release the graduate job employment report generated by the National Association for Law Placement (NALP) for the class of 2010.
The nonprofit group, which aims to improve law school consumer information, wants to plug some gaps in the information the ABA itself is compiling for the class of 2010, and to provide an apples-to-apples comparison of job and salary data to prospective law students before they decide where to apply, said Executive Director Kyle McEntee.
The ABA's Section of Legal Education and Admissions to the Bar has responded to mounting criticism of the job data law schools provide by beefing up the annual jobs questionnaire that they must submit. It also has added new categories reflecting the number of graduates in jobs funded by the schools themselves and for graduates in short-term jobs.
But the section omitted some data fields from the 2011 survey, which queries law schools about the class of 2010 nine months after graduation, pending the transition to the new, expanded questionnaire. Without that information, students in next years' incoming class won't have the full employment picture, McEntee said.
The data NALP provides to individual schools are more detailed even than those the ABA plans to publish in the future; they include school-specific salary data for a variety of job categories and for different-sized employers.
Prospective law students would also benefit from knowing whether graduates are in long-term or short-term positions, McEntee said. A school that sends a large number of graduates into short-term public interest jobs as an employment stopgap is quite different from one that sends a large number into permanent public-interest jobs, he said.
A growing number of law schools have begun offering job and salary data on their Web sites that go beyond the minimum required by the ABA. They include Yale Law School, University of Chicago Law School, University of Michigan Law School, Michigan State University College of Law, Loyola University Chicago School of Law, University of Denver Sturm College of Law and Southwestern Law School.
But even most of those schools don't include all the data generated in the NALP reports, and they don't present the data in a uniform way that allows prospective law students to compare them across the board, McEntee said. ... While the initial reaction has been positive, McEntee said, it remains to be seen whether schools will voluntarily release what have long been seen as proprietary data.
- Charles Cooper, Update from Law School Transparency
Tax Prof Bridget J. Crawford (Pace), The Currency of White Women's Hair in a Down Economy:
This short essay is a reflection on the relationship between the economy and women’s hair. I suggest that examining women’s spending on hair care products during uncertain financial conditions provides insight into the gendered aspects of the economy. As the economy has declined, sales of home hair-care products targeted toward white women have increased. Major news outlets report on salon customers trying to stretch out the time between their regular $250 hair salon treatments. Certain women turn to home hair dyes to maintain conforming appearances. In popular culture, to have white skin and gray hair is to be old (unemployable and unattractive) or menopausal (unproductive and unsexual). An attempt to retain their hair color (natural or chosen) is, for certain women, an attempt to retain a currency of employability, utility and desirability.
The hair-care spending of African-American women (of all socio-economic classes), in contrast, appears to be less susceptible to economic cycles. African-American legal scholars have given voice to the complex role that hair can play in the personal, professional, social and legal lives of black women. I argue that only in a down economy do some white women grapple with their hair’s complex signaling function, including its link to race and privilege.
- Harvard Law Review on Nancy Staudt's How Courts Fund National Defense in Times of Crisis
- Should the University of Louisville Law Review Close its Doors?
- Christmas Gifts for that Special Tax Person
- An Argument for Expanding New York City’s Taxing Authority
- NY Times: For Law Schools, a Price to Play the ABA's Way
- Top 5 Tax Paper Downloads
- Christmas Gifts for that Special Tax Person
- The IRS Moves Toward Income Tax Equality for Same-Sex Couples Despite DOMA
Sunday, December 18, 2011
New York Times, For Law Schools, a Price to Play the ABA's Way, by David Segal:
That means complying with a long list of standards that shape the composition of the faculty, the library and dozens of other particulars. The basic blueprint was established by elite institutions more than a century ago, and according to critics, it all but prohibits the law-school equivalent of the Honda Civic — a low-cost model that delivers.
Instead, virtually every one of the country’s 200 ABA-accredited schools, from the lowliest to the most prestigious, has to build a Cadillac, or at least come close. ...
The debate about legal education has focused on tuition costs in the stratospheric layers of the law-school world. But what of the ground floor? Duncan hopes to draw students from economically distressed parts of the country, including the Appalachian Mountains of Tennessee, and sincere efforts have been made to keep overhead to a minimum.
But tuition here is still $28,664 a year. With living expenses and various fees, the student handbook warns, the total price tag for a year runs $50,000.
The reason, according to Pete DeBusk, a retired businessman and the school’s main benefactor, is the ABA standards. Without them, he says, Duncan could have cut its tuition in half, maybe by two-thirds. ...
Anyone willing to invest $175,000 on a legal education, and hoping to earn a pile of money at a corporate firm, has plenty of options. But let’s say that your ambition is to make a modest living, perhaps in an area that is struggling. Or that you’d rather not enter your mid-20s lashed to a six-figure loan.
If you want a diploma blessed by the ABA — and you don’t have rich parents, a plum scholarship or an in-state public law school with lots of taxpayer support — you are pretty much out of luck. And that is not just a problem for would-be attorneys. The lack of affordable law school options, scholars say, helps explain why so many Americans don’t hire lawyers.
“People like to say there are too many lawyers,” says Prof. Andrew Morriss of the University of Alabama School of Law. “There are too many lawyers who charge $300 an hour. There aren’t too many lawyers who will handle a divorce at a reasonable rate, or handle a bankruptcy at a reasonable rate. But there is no way to be that lawyer and service $150,000 worth of debt.”
This helps explain a paradox: the United States churns out roughly 45,000 lawyers a year, but survey after survey finds enormous unmet need for legal services, particularly in low- and middle-income communities. This year, the World Justice Project put the United States dead last among 11 high-income countries in providing access to civil justice.
It’s not just that many lawyers are prohibitively expensive. It is that when it comes to legal expertise, there are not a lot of cheaper alternatives — not in the United States, anyway. Britain, on the other hand, has a long menu of options, including a tier of professionals called legal executives, who are licensed after getting the equivalent of a community college degree. Counsel is also available from nonlawyers at a variety of nonprofits. And you can buy a simple divorce over the Internet for a set fee, or pay for customized legal advice, online or by phone.
“In the U.S., people and businesses have only one place to go for all their legal help — lawyers who graduated from an ABA-approved law school and who follow mostly A.B.A. rules about how they run their practice,” says Gillian Hadfield, a professor at the Gould School of Law of the University of Southern California. “Everyone else who offers legal advice is engaged in the unauthorized practice of law.” ...
Detractors contend that these responsibilities allow the ABA to behave like a guild — limiting competition and keeping the cost of legal education excessively high. ... [T]he cost of law school tuition has soared, though at the high end, those prices are not the fault of the ABA. They are attributable to the prestige race prompted by U.S. News & World Report’s rankings of law schools, along with the wide availability of student loans.
What the ABA can be blamed for, says George B. Shepherd, a professor at the Emory University School of Law, are exorbitant prices even at those schools that aspire to affordability. That, he maintains, is all about accreditation. ...
Members of the ABA Section say the point of the standards is not to raise the cost of law school, or to limit competition. The point is to ensure that lawyers are well trained and that the public gets quality legal services. ...
The more you look at a law school’s ledgers, the more life in the legal academy seems a sweet deal. And it’s been getting sweeter. Course loads have shrunk in the last couple of decades; the pay scale is high and has been rising. Median salaries are in the $120,000-to-$150,000 range, but superstars can earn $300,000 or more and the best of the best get pretty special housing deals. Over the summer, the New York University School of Law spent $5.6 million on two apartments in the West Village. A spokesman for the school said it had yet to determine whether the units would be combined and who would live there.
“It’s a wonderful life,” says Nancy Rapoport, a professor at the Boyd School of Law at the University of Nevada, Las Vegas, and author of an article for the Indiana Law Journal, Eating Our Cake and Having It Too: Why Real Change Is So Difficult in Law Schools.
“You’ve got a lot of happy law professors, who don’t want to change anything,” Ms. Rapoport said. “They may not realize how precarious legal education is, and the legal market is, right now. That’s human nature. Everything is going well. Let’s keep it the way it is.”
New York Times Economix Blog, Ask David Segal About Law School:
On the cover of this week’s Sunday Business section, The Times’s David Segal writes about how standards set by the ABA can affect law schools. The association’s rules make it difficult for law schools to offer legal education without charging hefty tuition.
The article concludes a series of articles about legal education that Mr. Segal has written this year:
New York Times iTunes Podcast, The Cost of Law School
(Hat Tip: Andy Morriss, Bill Turnier.)
There 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 #3 and a new #1 paper:
1. [516 Downloads] Nine Bean-Rows LLC: Using the Limited Liability Company to Hold Vacation Homes and Other Personal-Use Property, by J. William Callison (Faegre & Benson, Denver)
3. [242 Downloads] Offshore Accounts: Insider’s Summary of FATCA and its Potential Future, by J. Richard (Dick) Harvey (Villanova)
4. [228 Downloads] Cartelizing Taxes: Understanding the OECD’s Campaign Against 'Harmful Tax Competition', by Andrew P. Morriss (Alabama) & Lotta Moberg (George Mason)
5. [225 Downloads] Now You See it, Now You Don’t: The Comings and Goings of Disregarded Entities, by Martin J. McMahon Jr. (Florida)
Marisa Nelson (J.D. 2011, San Francisco), Comment, The IRS Moves Toward Income Tax Equality for Same-Sex Couples Despite DOMA. 45 U.S.F. L. Rev. 1145 (2011):
My Comment discusses the recent changes to the IRS’ interpretation of California community property law and the taxation of same-sex couples under Private Letter Ruling 2010-21-048 and Chief Counsel Advice 2010-21-049 and 2010-21-050, which had a significant impact on registered domestic partners and married same-sex couples this spring. These changes are discussed in the context of the Defense of Marriage Act ("DOMA"), key Supreme Court cases, and the various challenges to DOMA since its enactment in 1996.
Saturday, December 17, 2011
The Harvard Law Review has published a review of the new book by Tax Prof Nancy Staudt (USC), The Judicial Power of the Purse: How Courts Fund National Defense in Times of Crisis (University of Chicago Press. 2011), 125 Harv. L. Rev. 378 (2011):
Congressional declarations of war, troop deployments, and revenue-raising laws are familiar legislative and executive responses to foreign policy crises. According to this innovative study of judicial decisionmaking, they also function as cues to Supreme Court Justices, who strategically adjust federal budgetary constraints in pursuit of the optimal level of national defense consumption. Investigating thousands of Supreme Court and lower federal court opinions, courtroom filings, and law clerk memoranda, Professor Nancy Staudt exposes the implicit judicial power of the purse, presenting compelling evidence that in fiscal and tax matters between the government and private parties, Justices support the government when cues from the elected branches indicate that costly military activities are necessary for national security but side with private parties when credible cues signal that military activities are excessive. Staudt’s thesis dynamically expands the scholarly understanding of the macro-level factors that influence judicial decisionmaking. This book challenges conventional perceptions of federal power dynamics and revives the debate over the extent to which considerations of national interests should sway judicial preferences.
Alex C. Davis (J.D. 2012, Louisville), The University of Louisville Law Review at Fifty: A Brief Look Back, and a Hard Look at the Future, 50 U. Louisville L. Rev. ___ (2012):
As the University of Louisville Law Review publishes its fiftieth volume of scholarly writing in 2011, it faces many of the issues that plague other legal journals at American law schools. The law review loses thousands of dollars each year, its print circulation is in a decade-long nosedive, and its articles and notes — which can take up to a year to publish — are rarely cited by judges, legislators, or anyone else outside of academia. Given these troubles, should the journal continue at all?
Some would say the answer is no, at least not in the journal’s present form. Law review critics contend that the student-edited publications are plagued by high turnover and poor editing, and should be abandoned in favor of faculty-supervised scholarship. They claim that, no matter who is steering the ship, law reviews too often publish work that is irrelevant and unnecessarily long, and that decisions about publication are made based on the prestige of the author’s law school, not the quality of the author’s writing.
But there are reasons why law reviews should continue, and these reasons ultimately outweigh the arguments in favor of extinction. As the outside world moves from typewriters to Twitter, law reviews continue to provide an invaluable experience to law students. They publish tens of thousands of pages of legal writing, providing ideas and information to attorneys, scholars, and other decision-makers. The journal offers some editors their first experience as a leader and manager of other people.
Law reviews in general, and Louisville's in particular, can be improved. Greater involvement from faculty members could address concerns about training for inexperienced student members, and arguably make the finished product more professional. Louisville's flagship journal also should expand its online distribution and seek to publish a wider variety of legal writing. This should not be difficult, especially with numerous other journals publishing innovative new types of scholarship online. But as the University of Louisville Law Review passes its semi-centennial anniversary and begins its next fifty years, it should focus first and foremost on its greatest purpose: educating the lawyers of tomorrow.
For sale on eBay: items related to IRS action figure Irwin R. Schyster (modeled after WWF wrestler Mike Rotunda):
- Action figure (here, here, here, here)
- Autographed photograph (here)
- Trading card (here, here, here)