Here one thing you can say that's true about U.S. corporate taxes: the statutory rate (35% at the federal level; 39.2% when you average in state rates) is the highest on earth.
Here's another thing you can say that's true about U.S. corporate taxes: The average effective tax rate is more like 25%, and the biggest corporations generally pay much less than that. Corporate tax revenue has also been on a decades-long decline as a share of overall government revenue. ...
[W]hen you examine how big U.S. corporations keep their taxes low, you have to wonder whether lowering rates by a few percentage points will make any difference. What's depressing corporate tax revenue is not companies choosing to locate operations in, say, Germany (30.2%) or Canada (27.6%), to avoid higher U.S. rates. A far bigger issue is the increasingly sophisticated operations that multinationals use to shuffle income from country to country and avoid paying almost any tax at all. USC law professor Edward Kleinbard refers to these operations as "tax distilleries," where the company's tax director sets about mixing together foreign income and foreign tax credits to create a blend with the lowest possible overall tax bill. ...Kleinbard, who before going into academia in 2009 was a partner at the law firm Cleary Gottlieb Steen & Hamilton in New York and then chief of staff of Congress's Joint Committee on Taxation, got in touch with me after I quoted him in my post last week on the tax implications of Apple's vast overseas tax hoard. Apple argues that because the IRS would tax its overseas income at high rates if it brought that income back to the U.S., it has to keep the money (about $64 billion at the moment) overseas instead of handing it to shareholders. Kleinbard says there's definitely truth to this assertion, but that the most-discussed solution — switching the U.S. to a "territorial" corporate tax system that doesn't even try to tax overseas income — would make the problem of stateless income even worse.
Kleinbard has written two long-but-readable journal articles on the stateless income phenomenon ("Stateless Income" and "The Lessons of Stateless Income"). The only solutions he sees are either a territorial system with vastly stepped-up efforts to counter abuses like Google's ... a system in which the U.S. would tax the worldwide earnings of U.S.-based corporations (with deductions for foreign taxes paid, of course). He thinks the latter would be much simpler to administrate, and that with a lower tax rate and deductions for overseas losses, it wouldn't disadvantage U.S.-based multinationals. ...
As the Fiscal Times reported today, there's a group of big U.S. corporations that for various reasons (mostly the lack of huge overseas operations or easy-to-move-around intellectual property) are unable to partake of Double Irish Dutch Sandwiches and wouldn't mind seeing a Kleinbard-style reform at all. Then there are the Googles, Ciscos, GEs, Microsofts, and Apples of the world, which do quite well under the current system and would pay more under any corporate tax reform that took the problem of stateless income seriously. Don't take their squeals too seriously. They should pay more.
Saturday, March 31, 2012
According to press reports, last night's $656 million Mega Millions jackpot works out to a $473 million lump sum payout, or $157.7 million for each of the three winners (from Illinois, Kansas, and Maryland), leaving them with $92.3 million - $94.6 million after-tax (more here):
Federal Tax Rate
State Tax Rate
Luncheon Speaker: David Cay Johnston (Reuters)
- Tracy Kaye (Seton Hall) (moderator)
- Henry M. Ordower (Saint Louis), Schedularity in U.S. Taxation, its Effect on Tax Distribution, and Comparison with Sweden
- Rifat Azam (Interdisciplinary Center Herzliya), The Israeli Taxation of Couples
- Lynn Lu (NYU), Beyond Watchdogs, Whistleblowers, and Scapegoats: Pushing the Limits of Social Justice Reform through Federal Tax Exemption for Public Charities
Panel #6: Incubator Session
- Iris Goodwin (Tennessee) (moderator)
- Wendy Gerzog (Baltimore), The Problem with a Federal Inheritance Tax
- Phyllis Smith (Florida A & M), Exploding Economic Inequality and the Failure of the Wealth Tax
- Joshua D. Blank (NYU), Collateral Compliance
- Danshera Cords (Albany), Collaborative Rulemaking: Lessons for Tax Regulation and Administration
- Kerry Ryan (Saint Louis), Collateral Estoppel in Tax Cases
- Bridget Crawford (Pace) (moderator)
- Alice G. Abreu (Temple) & Richard K. Greenstein (Temple), Developing a Jurisprudence of Values; Embracing Critical Tax
- Bobby L. Dexter (Chapman), Interest Indenture of the Talented Tenth: Student Loans, Home Equity Debt, and the Desperate Race to Win
- Nancy Staudt (USC), Grey Divorces the Future
Panel #8: Incubator Session
- Michael Simkovic (Seton Hall) (moderator)
- Diane Ring (Boston College), Understanding the OECD as a Global Tax Policy Power
- David Gamage (UC-Berkeley), Toward a Theory for the Optimal Tax Mix
- Leandra Lederman (Indiana), Helter Shelter: Should the Law Be Different in Tax Shelter Cases?
- Stephanie Hunter McMahon (Cincinnati), Credits Versus Deductions: Is There a Reason for One Versus the Other
- Joy Sabino Mullane (Villanova), Using the Tax Code to Regulate Executive Compensation: Would Tax Incentives Work Any Better Than Tax Penalties?
Following up on my prior post, Law School Rankings by Debt Load Per Graduating Student: ABA Journal, Law Schools Asked to Double Check: Did They Give ABA Low Numbers on Student Debt?:
Law schools are being asked to double check figures on average student debt submitted to the ABA after some school officials raised concerns that they may have underreported the figure.
The problem came to light after U.S. News & World Report published lists of schools this week with the highest and lowest average student debt. U.S. News asks law schools to provide the same debt numbers given to the ABA Section of Legal Education and Admissions to the Bar, which accredits law schools.
Scott Norberg, deputy consultant on legal education for the ABA, says he heard from three or four law schools that suspected they were incorrectly listed among schools with the least amount of student debt. ... According to Norberg’s memo, emailed to law schools this morning, law schools were supposed to provide the ABA figures on total law school debt for 2010-2011 graduates. Some schools, however, apparently provided instead debt incurred by graduating students for the single 2010-11 school year. ...
ABAJournal.com published information on average student debt based on ABA figures and U.S. News in a story earlier this week. In that story, average student debt was listed at $125,000 for graduates of private law schools last year. The average would be higher if schools have underreported average debt.
The ABA has reversed its prior decision and granted provisional accreditation to the University of La Verne College of Law, which will have five years to obtain full ABA accreditation. As our sister Legal Skills Prof Blog notes, there are now 62 law schools in California (19 ABA-accredited or provisionally accredited).
Friday, March 30, 2012
Kathryn Keneally is a partner of the law firm Fulbright & Jaworski LLP in New York. For over twenty-five years, Ms. Keneally has represented clients in tax controversies and defended against allegations of tax fraud and other financial crimes. She is currently the Vice Chair for Committee Operations for the ABA Section of Taxation, a Co-Chair of the ABA National Institutes on Criminal Tax Fraud and Tax Controversy, and a fellow of the American College of Tax Counsel. Ms. Keneally previously served as Chair of the Tax Section's Standards of Tax Practice Committee and as Chair of the Civil and Criminal Tax Penalties Committee. Ms. Keneally co-authors a column on IRS Practice in the Journal of Tax Practice and Procedure. She has also served on the Practitioners’ Advisory Group to the U.S. Sentencing Commission. Ms. Keneally began her legal career in 1982 as the law clerk for the Honorable Edward R. Neaher, U.S. District Judge for the Eastern District of New York. She received a B.S. in 1979 from Cornell University, a J.D., magna cum laude, in 1982 from Fordham Law School and an LL.M in Taxation in 1993 from New York University School of Law.
Fox Business, Lessons from my IRS Audit:
Who panics when being audited by the IRS? Apparently, even the professionals.
Just ask Brad F., a former CPA and current tax attorney whose 30 years experience means he's no stranger to the tax man. Still, when the IRS notified him of an audit of his 2009 personal income taxes, he admits to feeling more than a little nervous. "It is a nerve-wracking experience," says Brad, who asked that his last name be omitted to protect his privacy. "I was overcome with anxiety and fear that I had made a mistake." ...
If you find yourself on the receiving end of an audit, here are five tips that can make the process go more smoothly.
- Be prepared and be honest
- Know that audits can happen to anyone
- Get representation
- Don't be difficult
- Exercise your right to appeal
Specifying the content of a requirement or a prohibition up front — e.g. replacing a “reasonable speed” requirement with a fifty-five miles per hour speed limit — can make life easier for enforcers and citizens alike. Recent efforts to substitute international tax rules for decades-old standards may do just the opposite, jeopardizing the “miracle” that is today’s international tax regime. Enhanced information exchange and formulary apportionment will undermine the legitimacy that is essential to the success of any international legal regime. A better solution would overhaul the century-old benefits principle to weave enforcement deep into the fabric of the international tax regime. Only then will it meet today’s tests as successfully as it once rose to the challenge of double taxation.
Wall Street Journal, Billions Lost in Tax-Refund Scam:
Federal authorities are struggling to crack down on what they describe as a widespread scheme that has already likely defrauded the IRS of billions of dollars using the stolen identities of Puerto Rican citizens.
The perpetrators of the scheme, authorities say, swipe the Social Security numbers of Puerto Rican citizens, who don't have to pay federal income tax—and are less likely to be on the IRS radar—and use their information to file fake returns. In some cases, they enlist U.S. mail carriers to intercept the refund checks that are disbursed.
The plot, which includes participants from around the U.S. and Latin America, has been around for at least five years. Prosecutors have obtained multiple convictions but none involving those believed to be among the top players in the operation, according to several people briefed on investigations into the fraud.
"What we have uncovered may very well be the tip of the iceberg," said Manhattan U.S. Attorney Preet Bharara, whose office was among the first to investigate the group. "It's a massive fraud."
Between October 2010 and June 2011, the IRS received phony tax returns based on stolen Puerto Rican identities that would have led to the disbursement of $5.6 billion to alleged fraudsters, two of these people said. It is unclear how much money the IRS ultimately sent but one person familiar with the matter said an estimated $2 billion in checks was distributed.
- Huffington Post, Tax Refund Scam Costing IRS Billions of Dollars
The Shelton Group, a green marketing firm based in Knoxville, Tenn. had 1,105 Americans complete on-line surveys in an effort to find out what kind of messages will make them adopt more environmentally friendly and energy efficient products and behaviors. Towards the end of the survey, the respondents were asked directly: “How embarrassed would you be if someone you knew found out that you……” and then read a list of presumably undesirable behaviors, in randomized order. The highest percentage of respondents—73%–said they’d be “very embarrassed” if someone they admired found out they were shoplifting, followed by 65% for driving under the influence, 59% for throwing trash out the window of a moving car, and 57% for cheating on their taxes. Another 14% said they’d be “somewhat” embarrassed by shoplifting (for a total of 87% at all embarrassed); another 17% said they’d be somewhat embarrassed by DUI (for a total of 82%) and another 21% said they’d be somewhat embarrassed by littering or cheating on their taxes (for a total of 80% and 78%, respectively.)
Yesterday afternoon, TaxProf Blog crossed the 15,000,000 visitor mark. To put that number in perspective, it is the most visitors to any law-focused blog edited by a single law professor (and 14,981,066 more than the number of downloads of my articles and 14,999,578 more than the number of citations of my articles in law reviews).
I was surprised to learn this morning that the manager of the McDonald's on Pacific Coast Highway in Malibu is apparently a fan of TaxProf Blog:
Visitor number 15,000,000 came to the blog at 2:39 p.m. yesterday from Google headquarters in Mountain View, California as the result of (what else) a Google search:
In [Hendrix v. Commissioner, T.C. Memo. 2011-133], the Tax Court considered the issues of whether defined value clauses were the result of arm’s-length transactions and whether they were void as against public policy. The underlying dispute was whether the taxpayers’ transfers of the John H. Hendrix Co. stock were valued at fair market value. With a decision favoring the taxpayers, the defined value clauses in both [Succession of McCord v. Commissioner, 461 F.3d 614 (5th Cir. 2006)] and Hendrix impede the accurate valuation of taxable gifts to family members and of deductible charitable gifts.
All Tax Analysts content is available through the LexisNexis® services.
In Wandry v. Commissioner, T.C. Memo. 2012-88 (Mar. 26, 2012), Judge Haines upheld a defined value clause.
Keynote: Dorothy Brown (Emory), Tales from a Tax Crit
- Tracy Kaye (Seton Hall) (moderator)
- Mirit Eyal-Cohen (Pittsburgh), Size Doesn’t Matter: A Critical Analysis of Small Business Definitions
- Emily Satterthwaite (Toronto), The Sub-S Shelter and Choice-of-Entity for Entry-Level Entrepreneurs: A Modest Proposal
- Jay Soled (Rutgers Business School), The Internal Revenue Code and Automobiles: A Case Study of Taxable Fringe Benefits and Taxpayer Noncompliance
- John Coverdale (Seton Hall) (moderator)
- Emily Cauble (Michigan State), Rethinking the Timing of Tax Decisions: Does a Taxpayer Ever Deserve a Second Chance?
- Leigh Osofsky (Miami), Getting Realistic About Responsive Tax Administration
- Shu-Yi Oei (Tulane), Who Wins When Uncle Sam Loses? Social Insurance and the Forgiveness of Tax Debts
- Sagit Leviner (SUNY-Buffalo), The Role Tax Preparers Play in Taxpayer Compliance —An Empirical Investigation with Policy Implications
- Leslie M. Book (Villanova) (moderator)
- Anthony C. Infanti (Pittsburgh), Tax Reform Discourse
- Omri Marian (Sullivan & Cromwell, New York), Meaningless Comparisons: Corporate Tax Reform Discourse in the United States
- Ajay K. Mehrotra (Indiana), Sharing the Burden: Law, Politics, and the Making of the Modern American Fiscal State, 1880-1930
- Mary Lou Fellows (Minnesota) (moderator)
- Mildred W. Robinson (Virginia), Skin in the Game: Invisible Taxpayers, Invisible Citizens
- David Herzig (Valparaiso), Disregarding DOMA: A Call for Action by the IRS
- Nancy Shurtz (Oregon), Relationship LLCs: Can Partnership Taxation Solve Same Sex Discrimination?
- Abiola Sanni (University of Lagos), VAT and Administration in a Federal System--Recent Developments in Nigeria
The Senate yesterday confirmed Kathleen Kerrigan for a fifteen year term as judge on the U.S. Tax Court:
Kathleen Kerrigan serves as tax and Social Security counsel for the majority staff of the Senate Committee on Small Business and Entrepreneurship. She is also the staff director for the Finance Subcommittee on Social Security, Pensions, and Family Policy. Previously, Ms. Kerrigan was a Partner at Baker and Hostetler LLP, working in the government affairs practice group. Before arriving at Baker and Hostetler, Ms. Kerrigan served as legislative director for Congressman Richard E. Neal. Ms. Kerrigan earned a B.S. from Boston College and a J.D. from Notre Dame.
Two well-placed legal experts have independently told Palmetto Public Record they expect the U.S. Department of Justice to issue an indictment against South Carolina Gov. Nikki Haley on charges of tax fraud as early as this week.
A highly ranked federal official has also privately confirmed rumblings of an investigation and possible indictment of the governor, though the official was not aware of the specific timeframe.
Yesterday, Palmetto Public Record exclusively reported that the Internal Revenue Service has been investigating since March of 2011 the Sikh worship center run by Gov. Haley’s father. At least five lawsuits have been filed against the Sikh Society of South Carolina since 2010, alleging that the group bilked contractors out of nearly $130,000 for the construction of a new temple.
Gov. Haley is reported to have managed the temple’s finances as late as 2003, and our sources believe any indictment would center on what happened to the missing money.
- The Hill, Nikki Haley Strongly Denies Rumors of Looming Tax Indictment
- Politico, Nikki Haley Denies IRS Investigation
Thursday, March 29, 2012
Many observers believe that that the public company executive labor market is deficient and results in systematically excessive compensation. This Article accepts that premise and considers potential regulatory responses. Specifically, this Article proposes and analyzes a two-pronged tax response to the problem of excessive executive pay – the imposition of a surtax on executive pay in excess of a threshold combined with investor tax relief. These two prongs respond to the chief concerns raised by excessive executive pay. The imposition of a surtax would reduce the after-tax income of executives, which would directly address the unfairness of excessive pay and the effect of excessive pay on inequality of resources. Investor tax relief would tend to reverse the inefficient distortion in capital allocation that results from excessive pay and would ensure that these distortions were not exacerbated by companies increasing executive pay to offset the surtax.
Tax policy is formed in an inherently political environment where everyday notions of fairness and justice contribute heavily to actual choices and outcomes. While philosophers and other theorists may have their own conceptions of justice, there are also everyday notions of justice that reign at the level of the ordinary citizen. This talk first outlines the foundations of folk justice for taxation, drawing on notions of procedural justice, equity and social exchange theory, qualified perceptions of fairness, moral mandates, and system justification theory. After illustrating these concepts with examples from the property tax and tax compliance, we focus on the implications for progressive income taxation and estate and gift taxation. Using a variety of evidence including econometric analysis of surveys, historical narratives, and online experiments, we illustrate how concepts of folk justice can explain puzzles in the implementation of income and estate and gift taxation.
The NYU Graduate Tax Program hosts its 3rd Annual Tax Movie Night tonight, First Encounters with the Income Tax:
[W]e will screen three classic television episodes, spanning four decades, involving individuals’ first encounters with the U.S. income tax system. The episodes featured are from The Bill Dana Show (1963), Green Acres (1970) and 3rd Rock from the Sun (2000). Professor Lawrence Zelenak from Duke Law School will join us as a special guest speaker. After we screen the episodes (about 75 minutes), Professor Zelenak will lead a Q&A discussion. Refreshments, including popcorn, will be served.
Wall Street Journal, Bain Gave Staff Way to Swell IRAs by Investing in Deals, by Mark Maremont:
Bain, like many other private-equity firms, allowed employees to co-invest in its takeover deals. This posed a risk they could lose their whole investment, as they sometimes did. But because of the firm's success during the Romney era, employees ended up able to share in returns for Bain investors that averaged 50% to 80% annually.
Bain added a couple of unusual twists that made co-investing even more rewarding. It allowed employees to co-invest via tax-deferred retirement accounts, and to do so by buying a special share class that cost little but yielded much larger gains than other shares when deals proved successful. ...
Bain's co-investment arrangements, not previously reported in detail, offer a possible explanation of the large size of Mr. Romney's IRA. ... Documents analyzed by the Journal show that Mr. Romney co-invested in Bain deals via his IRA. ...
[S]welling the IRA to the size Mr. Romney's reached has "created a tax problem" for the former Massachusetts governor, said a Romney campaign official. Tax-law changes since Mr. Romney's Bain tenure mean that long-term capital gains in regular accounts now are taxed at 15%. But IRA gains are taxed at ordinary-income rates upon withdrawal, which for Mr. Romney, under current law, would be 35%. "Who wants to have $100 million in an IRA?" said the campaign official. ...
[T]he firm Mr. Romney ran until 1999 provided its employees with tax-planning options not widely available, even within its own industry. Several tax lawyers who work with private-equity firms said it was rare for such firms to let employees co-invest in deals via tax-deferred accounts, and even rarer to let them do so using a special share class.
Victor Fleischer—a tax-law professor at the University of Colorado who has advocated stiffer taxation of private-equity executives' compensation—said the arrangement at Bain allowed for "the sort of aggressive tax planning" not available "to ordinary taxpayers." ...
The tax-deferral opportunity stemmed from the way Bain often chose to structure the shares of companies after taking them over. Even if the companies had only one share class, Bain frequently gave them two classes, usually called Class L and Class A. ... Because Bain controlled the companies, it had flexibility in assigning values to the classes.
Class L shares, akin to preferred stock, were safer and had a higher initial value. They had priority if the company paid dividends, and holders of these shares were the first to receive proceeds from a sale or liquidation. The shares also accrued interest, often at 10% to 12%. Bain assigned a much lower value to Class A shares, which were riskier but potentially more profitable. If Bain sold or liquidated a company it had taken over for less than was owed to Class L shareholders, the Class A shares lost all of their value. But once Class L shareholders got their money, Class A shareholders received the bulk of additional gains, often as much as 90% of them. ...
The dual-share structures used by Bain aren't common at private-equity firms, but some others do use them. Often the main purpose, lawyers say, is to create a class of shares with a low initial value but high potential that can be given or sold to executives of an acquired company as an incentive to enhance its value.
For Bain employees, the structure also provided tax-planning opportunities. Some senior executives put the high-upside shares into family trusts for estate-planning purposes, where the potential appreciation would occur outside their estates, ex-employees say. Others donated greatly appreciated Class A shares to charity. ...
Several former employees said a common strategy in the 1990s was to invest in the inexpensive, risky but potentially lucrative shares in a tax-deferred IRA, and the safer but lower-upside shares through a taxable account. ...
A deal for Sealy Corp. shows how this could work if all went well. Bain led a group that took over the mattress maker in 1997. ... In 2004, after Sealy's value had been sharply raised by Bain and its partners, they sold most of Sealy for a large gain. ... Three-quarters of the gain was in the inexpensive A shares stashed in the employee's IRA account. Their value rose 34-fold. The L shares, in the taxable account, merely doubled.
Tax experts say the strategy of placing the high-upside A shares into an IRA made more sense during the 1990s, when maximum tax rates on long-term capital gains were higher than today—28%, for much of the period, versus today's 15%. The higher tax rate increased the attractiveness of deferring taxes and thus permitting gains to compound, unimpeded, year after year. ...
Bain often ascribed 90% of the equity value of a company it had taken over to the safer shares and just 10% of the value to the risky shares—in other words, a 9:1 ratio of all of the L shares to all of the A shares.
Some tax lawyers and private-equity experts said that was a low valuation for the A shares, particularly by today's standards. ... Jason R. Factor, an attorney at Cleary Gottlieb Steen & Hamilton who advises private-equity firms, said, "I personally would be careful about using a ratio as high as nine to one," because an aggressive valuation can "create issues" in any kind of IRS audit. ...
David S. Miller, a tax attorney at Cadwalader, Wickersham & Taft in New York, said that while setting the value of private shares entails inherent uncertainty, if the IRS did challenge such valuations it could use hindsight, such as how large a gain ultimately flowed to the shares, as a weapon. "The IRS would try to show the tax court judge that a 30-times return for the common shares means that the common should have been valued a lot higher and the preferred shares a lot lower," he said.
David Gamage (UC-Berkeley) & Darien Shanske (UC-Hastings), Three Essays on Tax Salience: Market Salience and Political Salience, 65 Tax L. Rev. 19 (2011):
This Article analyzes the literatures on how individuals understand taxation (i.e., “tax salience). We evaluate how taxpayers respond to different presentations of tax prices both in their roles as market participants and as voters. We aim to combat naïve notions about tax salience that currently exert a pernicious influence on tax lawmaking. In particular, we argue that it is normatively desirable for governments to reduce tax salience with respect to market decision making, and that there is nothing objectionable about governments reducing tax salience with respect to political decision making.
Indiana-Indianapolis is seeking to hire a tax visitor for the 2012-13 academic year. For more information or to apply for the position, contact Vice Dean and Centennial Professor of Law Paul N. Cox. (Since it is past the March 15 AALS deadline for making visiting offers, this opportunity is appropriate for retired professors or others who are not a "full-time law teacher who is in active service at or on leave from a law school and is not on terminal appointment.")
Critical tax scholars ask why the tax laws are the way they are and what impact tax laws have on historically disempowered groups, such as people of color; women; lesbian, gay, bisexual, and transgendered individuals; low-income and poor individuals; the disabled; and nontraditional families. Critical tax scholarship shares the following goals:
- To uncover bias in the tax laws
- To explore and expose how the tax laws both reflect and construct social meaning
- To educate nontax scholars and lawyers about the interconnectedness of taxation, social justice, and progressive political movements
Critical tax scholars employ a variety of methods to achieve these goals such as bringing “outsider” perspectives to the study of tax law; using historical material, contemporary case studies, and personal or fictional narratives to illustrate the practical impact of the tax laws on individuals and groups; interpreting social science and economic data to show how the tax laws impact groups differently; and exploring the interconnectedness of tax laws with economic forces such as the labor market and international financial and political development. (With permission from Critical Tax Theory: An Introduction (Cambridge University Press, 2009), by Anthony Infanti (Pittsburgh) & Bridget Crawford (Pace).)
On Thursday, March 29 at 5 p.m., Anthony Infanti and Bridget Crawford will be presenting Taxing Civil Rights Gains, cosponsored by Lambda Law Alliance, Tax Law Society and Dean’s Diversity Council. This panel will first address why tax should be at the forefront of progressives' agenda. Tax law touches all of our lives, cutting across lines of class, gender, race, ethnicity, sexual orientation, and physical ability. But the ways that tax law touches our lives can differ radically based on these characteristics. As a particular example, the panelists will explore the ways in which the federal tax laws impact same-sex couples and both overtly and covertly serve as a tool of discrimination and oppression.
Andrew Pike (American), U.S. Taxes Corporate Income at Comparatively Low Rate, 134 Tax Notes 1533 (Mar. 19, 2012):
This article asserts that the United States does not subject corporate profits to a relatively high nominal rate of taxation. In support of this assertion, the article analyzes the VAT, and concludes that the VAT incorporates a tax on corporate profits. The portion of the VAT that taxes corporate profit is comparable to, and at least as burdensome as, the current U.S. corporate income tax. The article concludes that the accepted wisdom that the United States imposes an exceptionally high nominal rate of tax (compared to the nominal rates of taxation imposed in other OECD countries) on corporate profits is wrong – at least with respect to a very broad range of domestic businesses. Consequently, the need to lower those tax rates is not justified – at least based on the need to meet the lower rates in other OECD countries.
All Tax Analysts content is available through the LexisNexis® services.
Washington University hosts a conference today on Employee Benefits in an Era of Retrenchment:
Panel #1 – Health Care
- Amy Monahan (Minnesota), Rethinking Small Employer Health Insurance
- Susan Cancelosi (Wayne State), The Quandary of Federal Intervention in Retiree Health Benefits
- Donald Bogan (Oklahoma) (moderator/commentator)
Panel #2 – The Future of Employer Plans
- Colleen Medill (Nebraska), The New Revocable Property
- Norman Stein (Drexel) & Hanns Kuttner (Hudson Institute), Evidence-Based Retirement Policy
- Russell Osgood (Washington U.) (moderator/commentator)
Panel #3 – Social Insecurity
- Kathryn Moore (Kentucky), Social Security Reform in an Era of Retrenchment: The Shifting Focus of the Debate
- Patricia Dilley (Florida), Are [Payroll] Taxes Just for “Little People”?: Sharing the Burden of Financing Old Age Income Security
- Barry Kozak (John Marshall) (moderator/commentator)
Panel #4 – ERISA in Action
- Brendan Maher (Oklahoma City), Private Agreements and Discretionary Clause Federalism
- Sean Anderson (Illinois), ERISA Benefits Litigation Before and After Glenn
- Peter Wiedenbeck (Washington U.), Invisible Pension Investments
- Elizabeth Pendo (St. Louis) (moderator/commentator)
Panel #5 – Comparative Perspectives
- Paul Secunda (Marquette), Lessons from the Ontario Expert Pension Commission for U.S. Policymakers
- Dana Muir (Michigan), Defaults—A Comparative Approach to Fiduciary Obligation and the Role of Markets
- Jonathan Forman (Oklahoma), Optimal Distribution Rules for Defined Contribution Plans: What Can We Learn from the U.S., Australia, and Other Countries?
- John Turner (Pension Policy Center) (moderator/commentator)
Daniel P. Fischer (J.D. 2012, Iowa), Note, Old MacDonald Files Chapter 12 Bankruptcy: How Should the IRS Tax the Reorganization?, 97 Iowa L. Rev. 589 (2012):
Before the BAPCPA amendments, many farm debtors struggled to have bankruptcy plans confirmed due to significant tax claims arising from proposed Chapter 12 reorganizations. Therefore, in 2005, Congress amended the Bankruptcy Code, purporting to make “claims owed to government units” unsecured. However, as debtors attempted to use this provision to reduce tax liabilities in bankruptcy plans, the ambiguities and shortcomings of the amendment came to light. The IRS objected to debtors’ classification of taxes arising from ordinary operations and postpetition sales as unsecured, as well as the debtors’ method of allocation between secured and unsecured claims. The legal battles over these objections have created a split of authority between the Eighth Circuit on one side, and the Ninth and Tenth Circuits on the other side. The debate of the proper interpretation is based on how the Internal Revenue Code should influence this bankruptcy provision, and how courts should use the Bankruptcy Code’s plain language and Congress’s legislative history. The Supreme Court has granted certiorari to address one of the three main issues. However, Congress should go the extra step by clarifying the Bankruptcy Code and effectuating the original legislative intent. Congress should do this by classifying taxes arising from dispositions associated with reorganization from both prepetition and postpetition sales as unsecured, while officially adopting the “proration method” in allocating secured and unsecured claims.
Wednesday, March 28, 2012
Most states with a retail sales tax exempt from the tax base food purchased for home consumption. The rationale for these exemptions is that taxing food would make an already regressive tax even more regressive, a concern validated by data on food consumption by income level. Nevertheless, public finance scholars have long criticized food tax exemptions as a costly and inefficient means of accomplishing this objective. In addition to the administrative complexity involved in determining which food is taxable and which is exempt, food tax exemptions distort consumer choice and exacerbate state revenue volatility. This paper considers the taxation of food within state retail sales taxes and evaluates a new proposal for a federal subsidy designed to compensate households for the estimated state sales tax cost of food purchased for home consumption. Properly designed and implemented, such a subsidy could have the dual benefit of (1) mitigating the regressivity and food security concerns associated with taxing food, while (2) eliminating (or at least reducing) the volatility, efficiency and administrative costs of state laws that exempt food from the sales tax base. An intergovernmental “bribe” of sorts, this new subsidy would be available only to full-time residents of states that include food for home consumption in the base of a general retail sales tax—a group that presently includes 7 states: Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma, and South Dakota. In the presence of a new federal subsidy, it is expected that states with food tax exemptions would amend their retail sales taxes to include food in the tax base since doing so would increase state revenues at little or no cost to state taxpayers. This proposed policy—i.e., a progressive federal subsidy designed to encourage the adoption of regressive state tax changes—is in stark contrast with current federal law, which provides regressive federal subsidies (such as the deduction for state and local taxes) that encourage progressive state taxes. This paper uses the food tax example to highlight the potential benefits associated with a fundamental reorientation of federal law to encourage the adoption of state tax structures consistent with principles of normative fiscal federalism.
Harvard Business Review, Why Some Multinationals Pay Such Low Taxes, by Justin Fox:
The U.S. Justice Department has lost almost 30% of its tax prosecutors in the past month, slowing a U.S. crackdown on offshore banks that enabled tax evasion, according to four people familiar with the matter.
Twenty-five of the 95 prosecutors in the tax division left headquarters in Washington for six-month “details” with U.S. attorneys around the country, and another three took permanent assignments, according to the four people, who declined to be identified because they aren’t authorized to speak publicly.
Many of the lawyers handled cases involving foreign banks or financial advisers suspected of helping U.S. clients cheat on taxes, the people said. The transfers came amid criminal probes of at least 11 Swiss financial institutions, including Credit Suisse (CSGN) Group AG, with the tax division leading or assisting each prosecution. “To move one-third of these people from that effort will significantly compromise such enforcement at the very time it is needed to deal with the huge amounts of offshore cases coming to the tax division,” said Nathan Hochman, a former assistant attorney general who oversaw the tax division under President George W. Bush.
A products liability blog has a post on Warning: Your J.D. May Not Be Worth What You Paid For It:
[I]f we were to design a warning for a legal education, what would it say? One option:
WARNING: You may not be able to pay these loans back during your lifetime.
We would argue, however, that this warning might not be adequate. Instead, consider this stronger, more accurate warning:
WARNING: Go to law school, and you may wind up bankrupt and still liable for the student loan debt.
The data supports the warning, unfortunately.
Legal Blog Watch, Brainstorming Warning Labels for Purchasers of a Legal Education:
I think we need to add some non-financial warnings, too:
WARNING: Go to law school, and a disproportionate number of your friends may be lawyers.
WARNING: Go to law school, and you may someday introduce yourself at parties as a "recovering lawyer."
WARNING: Go to law school, and you may end up as a legal blogger.
Steven Dean (Brooklyn), Zombie Autopsy: Dissecting a Not-Quite-Dead Commitment Device, 46 UC Davis L. Rev. ___ (2012):
Like a student cutting the electrical cord on his television to help him study, governments across the globe rely on commitment devices to generate fiscal discipline. From the collapse of the Congressional Supercommittee in the United States to the near-cataclysmic failure of a mechanism designed to prevent the European Union debt crisis, the evidence suggests that faith in such commitment devices is misplaced. This article explains why by conducting a long-overdue autopsy on one such device that stubbornly refuses to stay dead: the tax expenditure budget. For almost half a century Congress has published a shadow budget to publicize the costs of tax subsidies to prevent abuse. Cataloguing the reasons for its demise has the further benefit of putting to rest the popular misconception that a failed commitment device like the tax expenditure budget can be resurrected as a reliable source of information.
U.S. News & World Report, 10 Most Popular Law Schools:
188 ranked law schools reported to U.S. News their acceptances and subsequent enrollments for the current school year—a data set that encompassed 175,085 offers of acceptance and 44,366 students who ultimately decided to attend. (The data include unduplicated applicants to both full-time and part-time law programs.) Among the 188 law schools, the average yield for 2011-2012 was 28%. ...
These are the 10 ranked law schools with the highest yield rates for the 2011-2012 school year. Due to a tie, there are 11 schools on this list.
Law School Accepted Enrolled Yield US News Rank Yale 252 205 81.3% 1 BYU 207 145 70.0% 39 Harvard 842 559 66.4% 3 Southern 403 258 64.0% RNP North Carolina 462 248 53.7% 38 Georgia State 423 223 52.7% 58 Virginia 688 357 51.9% 7 Liberty 200 99 49.5% RNP Stanford 372 180 48.4% 2 Memphis 302 144 47.7% RNP New Mexico 237 113 47.7% 69
U.S. News & World Report, 10 Law Schools That Enrolled More Students in 2011:
These were the 10 ranked law schools that saw the highest year-over-year increase in yield for full- and part-time students:
Law School Yield % Change US News Rank Virginia 51.9% 12.0% 7 Georgia State 52.7% 9.1% 58 North Carolina 53.7% 7.2% 38 Santa Clara 21.4% 6.4% 96 Phoenix 26.8% 5.9% RNP SMU 40.2% 5.4% 51 Alabama 33.8% 4.2% 29 Louisville 30.7% 4.1% 89 South Dakota 38.1% 4.0% RNP Baltimore 38.5% 3.7% 113
Lewis J. Greenwald & Christopher M. Flanagan (both of Sullivan & Worcester, Boston), New U.S. Regs Confirm That Basis Is Lost in Some Cash D Reorgs, 65 Tax Notes Int'l 1091 (Mar. 26, 2012):
On November 18, 2011, the IRS and Treasury released temporary and proposed regulations for determining the basis of stock or securities deemed to be received in certain D reorganizations. The 2011 regulations confirm what many taxpayers had feared — that some cash D reorganizations do indeed result in the loss of basis in the transferor corporation’s stock.
To best explain the full import of the 2011 regulations, this article first contains a discussion of D reorganizations generally. It then examines the regulations relating to D reorganizations issued by the IRS and Treasury on December 19, 2006 and those issued on December 18, 2009. Together, those regulations formed the basis for applying some of the technical requirements for D reorganizations to cash D reorganizations, and they serve as precursors to the 2011 regulations. Finally, this article reviews the 2011 regulations and the resulting potential for the loss of basis thereunder.
All Tax Analysts content is available through the LexisNexis® services.
Mark Glover (LSU), A Therapeutic Jurisprudential Framework of Estate Planning, 35 Seattle Univ. L. Rev. 427 (2012):
The psychological consequences of the law of succession largely have been overlooked, which is confounding given the emotionally charged context of estate planning. Filling this analytical void, this article examines the estate planning process from a therapeutic jurisprudential perspective and makes two primary contributions to the study of the law of succession. First, the article identifies the positive and negative psychological consequences of the estate planning process and argues that the process has an overall therapeutic nature. Second, the article develops these therapeutic and antitherapeutic qualities into a framework through which to analyze reforms of the estate planning process, so that the law’s therapeutic potential is maximized. By demonstrating the field’s analytic worth, this article encourages the continued use of the therapeutic jurisprudential framework to analyze a broad range of reforms of the estate planning process and seeks to inspire further therapeutic jurisprudential analysis throughout the law of succession.
Brad A. Greenberg (J.D. 2012, UCLA), A Public Press? Evaluating the Viability of Government Subsidies for the Newspaper Industry, 19 UCLA Ent. L. Rev. 189 (2012):
Despite the availability of information from online news organizations and new media outlets, newspapers remain the primary contributor of new content to the marketplace of information and ideas — integral in setting the agenda for public discourse, connecting readers with their communities, reducing the costs of citizen oversight on elected officials, and producing investigative and local news reports. But newspaper economics have sparked massive reductions in editorial operations and threaten the press’s role in American democratic society. The strong public interest in preserving the newspaper industry should compel Congress to stabilize the press. Journalists, politicians, and legal scholars have discussed many possible solutions. This Comment evaluates the practical and constitutional questions raised by two potential public subsidy programs — direct government funding and indirect support by facilitating newspaper conversion to nonprofit status — and whether such programs could be administered without jeopardizing the Fourth Estate’s independence. This Comment argues that direct subsidies, though they could be tailored to survive constitutional challenge and to protect editorial independence, cannot deliver a feasible long-term solution. Indirect subsidies likely would only be available to newspapers following an amendment to the U.S. tax code and even then would provide limited benefit to qualifying newspapers until they have developed a fundraising base. Yet, this Comment concludes that subsidies could stabilize the press practically if Congress combined direct funding and tax-based incentives into a hybrid similar to that utilized by public radio.
Joshua Plager (J.D. 2013, Miami), Trim, Plan, Law School: We Have a Situation (Now Let's Fix it), 67 U. Miami L. Rev. ___ (2012):
This paper analyzes the current class action lawsuits against law schools on grounds of misrepresented statistics (schools' self-reported job employment rates, salary data, etc.). It argues that these suits are merely the incidental tip of an oncoming iceberg related to our legal economy, and that drastic action must be taken to prevent our legal education system from facing massive, possibly unintended, market corrections. It addresses why students choose to attend law school in the first place. It analyzes labor market economics and the state of the current legal economy, and urges that both the ABA and American Law Schools must adapt to a new, still-unfolding reality that is our new legal economy.
It provides suggestions for changes to law schools and how they are marketed to potential students. It analyzes a quasi "pre-admission program" at one Florida law school [Nova] that may, in fact, violate the ABA Standards for Accreditation of Law Schools. The paper suggests that, while certainly we face a desperate struggle, the system is not broken; but that we must act proactively to maintain both the quality of our legal education system and the value of the juris doctor. Indeed, we have a situation: Now let's fix it.
Here is the Conclusion:
So here we are. Given the uncertain future lurking ahead of our legal economy and our legal education system, do I wish I could retract my decision to enter law school? Chronically fatigued and saddled with massive debt, my answer remains a resounding “No.” Though currently I may possess few practical skills, and my net worth may rival my three-digit LSAT score, law school was, and is, the right decision for me: I want only to become an attorney. Like Holden Caulfield, “I know it’s crazy, but that’s the only thing I’d really like to be. I know it’s crazy.” That said, there exists an enormous and still-unfolding problem in American law schools with—in Mr. Caulfield’s words— phoniness. Holden yearned to “stand on the edge of some crazy cliff” and “catch everybody if they start[ed] to go over— . . . if they’re running and they don’t look where they’re going [he] [had] to come out from somewhere and catch them.” It appears now that it is we—the country’s current and future law students—who need to be caught.
Tuesday, March 27, 2012
Stephen E. Shay (Harvard) presents Unpacking Territorial (with J. Clifton Fleming (BYU) & Robert J. Peroni (Texas)) at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU) & Alan Aurbach (UC-Berkeley; visiting at NYU):
The paper ... evaluates the House Ways and Means Majority discussion draft proposal to shift the United States from its current system of deferring taxation of active foreign income to a territorial system that would exempt active foreign income from United States tax. The paper evaluates the proposal’s approach to important structural issues that arise in the design of and transition to a territorial system including the scope of exemption, the treatment of foreign branches; the allowance of domestic expenses to earn exempt foreign income, the scope of foreign source income and allowable tax credits, and treatment of pre-effective date earnings. The paper considers the expected effects of the proposal in relation to current law on U.S. multinational investment abroad, repatriation of foreign subsidiary earnings, administration and compliance burden and Federal revenues.
New statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else — and the desperate need to address this wrenching problem. Even in a country that sometimes seems inured to income inequality, these takeaways are truly stunning.
In 2010, as the nation continued to recover from the recession, a dizzying 93% of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1% of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6% to each of these households. Still more astonishing was the extent to which the super rich got rich faster than the merely rich. In 2010, 37% of these additional earnings went to just the top 0.01%, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5%. The bottom 99% received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1%, whose average income is $1,019,089, had an 11.6% increase in income.
The only way to redress the income imbalance is by implementing policies that are oriented toward reversing the forces that caused it. That means letting the Bush tax cuts expire for the wealthy and adding money to some of the programs that House Republicans seek to cut. Allowing this disparity to continue is both bad economic policy and bad social policy. We owe those at the bottom a fairer shot at moving up.
Forbes, Why--And How--Congress Should Curb Roth IRAs, by Deborah L. Jacobs:
Roth individual retirement accounts are the simplest, best tax planning tool around. ... But lately I’ve started thinking that Congress should seriously limit their use.
These are the main reasons why Roths are so great:
- Although you pay income tax on the money as it goes into the account, doing that eliminates the requirement for you or your heirs to pay tax on future distributions. In other words, all future growth takes place inside a permanently tax-free wrapper.
- With a Roth you avoid the requirement to take yearly minimum distributions starting at age 70 1/2, and that can leave more for beneficiaries if you don’t use the money yourself. ...
"Roths are really there for the big hitters — not for the common schlep who is going to have a hard time funding the IRA,” says John Buckley, former chief Democratic counsel to the House Ways and Means Committee, who is now a visiting professor at Georgetown University. ...
For people who’ve already set up Roths–and those who inherit those accounts–Congress shouldn’t change the rules. People have done their tax planning with these rules in mind. ...
Going forward, here are two changes that would make sense from both an economic and a tax policy perspective:
1. For new Roth IRAs, cap the amount that can accumulate in the account. Once the balance in the account reaches more than $10 million, IRA owners should be required to withdraw the excess on an annual basis and pay tax on the earnings at ordinary income rates.
2. Limit tax-free inherited Roth IRAs to $1 million per beneficiary, adjusted for inflation. Inheritors should be required to withdraw the excess on an annual basis and pay tax on the earnings at ordinary income rates.
Many people—perhaps most—want to make money and lower their taxes, but few want to unabashedly break the law. These twin desires have led to a range of strategies, such as the use of “paper corporations” and off-shore tax havens, that produce sizable profits with minimal costs. The most successful and ingenious plans do not involve shady deals with corrupt third-parties, but strictly adhere to the letter of the law. Yet the technically legal nature of the schemes has not deterred government lawyers from challenging them in court as “nothing more than good old-fashioned fraud.”
In this Article, we focus on the government challenges to corporate financial plans—often labeled corporate shams—in an effort to understand how and why courts draw the line between legal and fraudulent behavior. Quite a few scholars and commentators have investigated this question and nearly all agree: judicial decision making in this area of the law is erratic and unpredictable. We build on the extant literature with the help of a large dataset—the first of its kind—and uncover important and heretofore unobserved trends. Indeed, courts have not produced a confusing morass of outcomes as some have argued, but have generated more than a century of opinions that collectively highlight the point at which ostensibly legal planning shades into abuse and fraud. After discussing our empirical results, we show how they can be exploited by both government and corporate attorneys and explore how they bolster many of normative views set forth by the scholarly and policymaking communities.ly and policymaking communities.
Steve Johnson (Florida State), ObamaCare Oral Argument, Day 1:
I just finished reading the transcript of the Supreme Court oral argument today in HHS v. Florida on whether the Anti-Injunction Act currently bars on-the-merits review of challenges to the individual mandate portion of the Affordable Care Act. The two big questions are: will the Court resolve the issue correctly and will it do so on the right ground(s). I have complete confidence in “yes” as the answer to the first question and guarded optimism in “yes” as the answer to the second question
My view has been and is that the AIA should not prevent on-the-merits review now. Today’s oral argument makes it clear that the Court will hold to that effect. Eight of the Justices (all save Justice Thomas, as is his practice) asked questions today. None of the eight indicated a disposition to hold the AIA an obstacle. Based on today’s argument, it would be a massive surprise for the Court (or even one justice) to accept the “AIA precludes current review” contention.
While the result may well be unanimous, it is less clear that the justices will all agree on the rationale. Many grounds have been debated in the briefs, and most of them were probed today.
I am concerned about unintended consequences in an area as technical as the AIA. Thus, my preference is for as narrow a rationale as possible, one that would dispose of the AIA in this case without saying much or anything about the AIA in other contexts. For me, the best argument in that vein is a textual/purposive reading of the AIA. The AIA prohibits suit “for the purpose of” restraining tax assessment or collection. Since the shared responsibility payment (which is the enforcement device for the individual mandate) could not be assessed before 2014/2015 in any event, decision in HHS v. Florida will long precede any possible assessment and collection. Thus, decision now would not compromise the purpose of the AIA. This is similar to the argument advanced by Professors Michael Dorf and Neil Siegel.
Acceptance of this argument would not undermine the useful purposes of the AIA in true tax cases. Justice Breyer was thinking along these lines in his questioning. Most other justices did not comment on it.
Early in the questioning today, many justices signaled support for the idea that the AIA is not jurisdictional. This would end the argument because the AIA could then be waived by the Government and it has been so waived. This argument scares me, though. If the AIA isn’t jurisdictional, federal courts could invent additional exceptions to it. This would be dangerous for tax administration. The Government opposes this rationale, and it seemed to me that there was some diminution of support for it among the justices as the argument proceeded. It is quite possible that some justices will accept this rationale, but my guess is that a majority will not. The Court will probably defer to the Government’s perception of where the fiscal interests of the United States lie.
The Government opposes application of the AIA on statutory grounds. It offers something close to a bright line: that Congress must have provided textual instruction that the mesure in question is a tax for AIA purposes and that such instruction is lacking in the Affordable Care Act and the Code. My guess is that the Court will adopt this rationale.
The State and private plaintiffs offer several other contentions, including that States are not “persons” for AIA purposes thus are not barred from suing, that their suit is directed against the individual mandate not the shared responsibility payment, and that the South Carolina v. Regan exception applies. These contentions appeared to have limited traction today. They are unlikely to be adopted as the Court’s rationale.
- Double Taxation, Scoring Day 1 of the Obamacare Hearings
- Forbes, Tax Or Penalty? SCOTUS Unlikely to Let Arcane Jurisdictional Issue Stand in the Way of Deciding Constitutionality of Obamacare
- NPR, Tax Fight a Prelude to Supreme Court Fireworks, by Nina Totenberg
- Slate, You Say Tax, I Say Penalty, by Dahlia Lithwick
- Volokh Conspiracy, Justices Skeptical of Claims that the Individual Mandate is a Tax, by Ilya Somin
Steve Johnson (Florida State), Obamacare and the 'What Is a Tax?' Question -- Part II, 63 State Tax Notes 1037 (Mar. 26, 2012):
The current installment of our column details how the PPACA litigation sheds light on what constitutes a tax.
All Tax Analysts content is available through the LexisNexis® services.
The Subcommittee on Energy, Natural Resources, and Infrastructure of the Senate Finance Committee holds a hearing today on Renewable Energy Tax Incentives:
- John Purcell (Wind Energy, Leeco Steel, Lisle, IL)
- John P. Ragan (TPI Composites, Scottsdale, AZ)
- Ethan Zindler (Bloomberg New Energy Finance)
- Benjamin Zycher (American Enterprise Institute)
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Analysis of Energy-Related Tax Expenditures (JCX-28-12)
Since 2004, the Congress has been active in promulgating legislation related to energy production (including oil and gas and renewables) and conservation. Part I of this document ... provides tables that summarize current and recently expired energy-related Federal tax incentives. Part II of this document provides a brief discussion of the economic rationale for certain government intervention in energy markets through the tax code and issues related to the proper design of such tax preferences. These tax expenditures create incentives that have the potential to affect economic decisions and allocate economic resources from other uses to the tax-favored uses. Such tax preferences may produce an allocation of resources that is more efficient for society at large if they are properly designed to overcome negative effects (such as atmospheric pollution, for example) that would otherwise result from a purely market based outcome without any government intervention. Tax expenditures for energy production and conservation have been criticized for lacking well defined objectives, and for lacking coordination among provisions having similar objectives. Some argue that the simultaneous existence of tax preferences for the fossil fuel industry and for renewable energy production represents conflicting government policy. Others have noted that the incentives for renewable energy and conservation are not themselves designed in a coordinated way to produce the most efficient or equitable subsidies for renewable energy and conservation.
Forbes, 24 States Moving Towards Decision on Taxing Groupon, LivingSocial Deals, by Janet Novack:
When you use a daily deal coupon from Groupon, LivingSocial or Amazon.com’s AmazonLocal at a neighborhood store or restaurant, what amount should you pay sales tax on? The face value of the coupon? Or the far smaller amount (typically 50% of face value) you paid for your deal when you bought it on the Internet? The answer matters to consumers, local merchants and the daily deal industry. Say you pay $50 for $100 worth of goods. With local sales tax rates now averaging 9.6% nationwide according to Vertex, Inc., imposing the tax on the full $100 would add $9.60—or 19.2%—to the cost of a deal, reducing its appeal.
More than a year ago, I reported that the states, by and large, had yet to consider how to tax the burgeoning deal-of-the-day business. Now the 24 states that are part of the Streamlined Sales Tax Use Agreement are devising a uniform policy—one that the group’s Governing Board could adopt as early as its next meeting in late May.
Monday, March 26, 2012
Balkinization, New York Law School's "Victory" Was a Defeat for Law Schools--And Why the ABA Transparency Rules Will Fail, by Brian Tamanaha (Washington U.):
When the fraud lawsuit against New York Law School was dismissed last week, the school proclaimed vindication. It was anything but that. What Judge Schweitzer ruled is that no reasonable consumer would have relied upon the obviously inflated employment percentages and salary numbers posted by the school. ...
While I have doubts about the soundness of the judge’s decision in this case, he is absolutely correct that prospective law students must not take at face value employment numbers advertised by law schools. The recent US News ranking confirms that, despite new ABA reporting rules, law schools nationwide continue to advertise unbelievably high employment numbers for graduates.
By all accounts, 2010 was the worst year so far in the most dismal market for legal employment in several decades (though 2011 might yet turn out to be worse). Only 64% of 2010 graduates obtained full time jobs as lawyers. Given the poor job market, and given the new reporting rules imposed by the ABA, one would have expected that the employment figures law schools reported for their 2010 graduates would be substantially lower than for 2009. That did not happen, however—numerous law schools continue to claim that over 90% of their 2010 graduates obtained employment. ... Had the new ABA rules been effective in producing greater transparency, law schools across the board should have shown large drops.
A few striking anomalies will expose the depth and pervasiveness of the problem (additional anomalies are identified here and here).
Yale Law School, to its credit, reported a significant drop in employment, falling from 96.5% in 2009 to 91.8% in 2010. That sounds about right for a top school like Yale in a historically tough employment environment. What’s puzzling is that every other top 15 school reports a higher employment rate, despite Yale’s two major advantages: It is ranked #1, with the most outstanding student credentials, and the size of its graduating class is relatively small, making it easier to place most everyone.
Incredibly, a number of law schools ranked far beneath Yale reported a notably higher employment rate, including George Mason (96.4%), Loyola Marymount (94.1%), Kentucky (94.2%), and UNLV (93.2%). Even a few bottom schools reported employment on a par with Yale: Florida International (90.1%), Baltimore (91.2%), Akron (91.8%), Toledo (90.1%), and Atlanta’s John Marshall (91.6%). It is absurd to think that any of these schools exceeded or matched Yale’s employment rate.
Washington University (my own institution), even more so than Yale, reported a drastically reduced employment rate, falling from 95.5% in 2009 to 80.7% in 2010. (Ouch!) Our 80% employment rate is unusually low among top 25 law schools—not until the 76th ranked law school is a lower employment number reported. Indeed, a significant number of bottom 100 law schools (including New York Law School) report a higher employment percentage. Wash. U. paid a severe price in the ranking for reporting such a poor employment number, falling from 18th to 23rd, despite improving in other measures. Dean Syverud, the incoming Chair of the ABA Section on Legal Education, was determined to scrupulously comply with the new ABA reporting standards, knowing that the school would likely suffer as a result. Understandably, a number of students vocally questioned the wisdom of his decision, given the resulting fall in ranking.
A few ranking winners exhibited anomalies in the opposite direction. The two biggest climbers in the first tier were the University of Washington (up from 30 to 20) and Arizona State University (up from 40 to 27). Both schools somehow defied the legal recession and reported significant leaps in their employment rate. UW went from 89.5% in 2009 to 96% in 2010; ASU went from 89.8% in 2009 to 98.2% in 2010. (Both schools put Yale to shame--or perhaps the opposite.)
ASU’s feat is especially curious because its (usually) closely ranked peer school, Arizona (ranked 42 last year and 43 this), has similar scores on most measures except for employment. In a year when ASU reported a large jump in employment, claiming the highest rate in the entire country, Arizona’s employment rate dropped from 89.4% to 87.4% (a couple of percentage points down like most schools). This is an odd disparity given that they are even-handed competitors in the same legal market. These results are even more peculiar when one considers that Arizona’s bar pass rate (93.7%) was much higher than ASU’s (85.9%).
Looking at bar pass rates exposes another set of strange findings. At most law schools the bar pass rate is about the same as or higher than the employment rate—that makes sense because a graduate cannot hold a job as a lawyer without passing the bar. However, eighteen law schools in the top 100 report employment rates at least 10% above their bar pass rate. At the high-rising University of Washington, for example, 96% were reported as employed, but only 85% of the class passed the bar. ASU likewise had a much higher employment rate than bar pass rate (in contrast to Arizona). ...
Inexplicably, several schools list students in “JD required” jobs at a percentage higher than the school’s bar pass rate. ... It’s not clear how the number of students in “JD required” jobs can exceed the number of students who passed the bar, since the latter is necessary for the former. (The employment figures are taken 9 months after graduation, subsequent to the bar results.) ...
It bears emphasizing that the ABA has already implemented a stricter set of reporting requirements—and the above results occurred under the new ABA regime.
The fundamental problem here is that law schools can technically tell the “truth” even when they report absurdly high employment percentages. The categories themselves—“academic,” “business,” “JD preferred,” “employed job unknown”—beg for abuse. They guarantee the situation will not improve. ...
To regain its traditional parity with ASU, Arizona will be sorely tempted next year to more liberally categorize future graduates as employed in “academic” or “business” positions, or will use some other expedient to raise its employment rate to approximate ASU’s. ASU’s aggressive gaming thus puts pressure on Arizona to aggressively game. ...
The “weakest link” problem in game theory is a situation in which the worst actor(s) produce negative consequences that affect everyone. The law school ranking competition is a “weakest link” situation in the sense that, as long as aggressive massagers exist among law schools, there will be immense pressure on every law school to engage in aggressive massaging just to keep up. Good behavior under these circumstances will be punished in the ranking (and honorable deans will be fired)—and dubious behavior will be rewarded (and strategic deans will get raises). That is why the ABA reforms will inevitably fail.
There is only one possible solution: Only full-time “JD required” jobs should be counted and advertised by law schools. Any other category is susceptible to manipulation and will be exploited by law schools to conceal poor employment results. Current claims that the ABA reporting rules will improve transparency because they provide more “granular data” are wrong—they will produce more obfuscation by law schools.
If only full-time “JD required” jobs can be reported, law schools will be stripped bare and prospective students will finally get a clear look at their real job prospects. Law schools undoubtedly will vehemently oppose this proposal, calling it unfair, failing to credit them for all the great non-lawyer jobs their graduates are getting. If you find that argument persuasive, I have a used car I would like to sell you—it has terrific resale value and gets great gas mileage.
Eric Solomon (Director of National Tax Practice, Ernst & Young, Washington, D.C.; former Assistant Treasury Secretary for Tax Policy) presents Global Trends in Taxation and Tax Reform at Temple today as the 2012 Frank and Rose Fogel Lecture:
Mr. Solomon's long and distinguished career in public service was capped by his serving under Treasury Secretary Henry Paulsen from December 2006 to January 2009, one of the most turbulent periods in the country's economic history. As Assistant Treasury Secretary, Mr. Solomon headed the Office of Tax Policy, which serves as the primary advisor to the Treasury Secretary on legal and economic matters relating to domestic and international taxation. Before becoming the Assistant Secretary, Mr. Solomon held policymaking positions at both the Treasury Department and the IRS, serving at Treasury as the Senior Advisor for Policy, as Deputy Assistant Secretary (Tax Policy) and as Deputy Assistant Secretary (Regulatory Affairs). He was the Assistant Chief Counsel (Corporate) at the IRS, heading the IRS legal division responsible for all corporate tax issues. He began his career with law firms in New York City and was a partner at Drinker Biddle & Reath in Philadelphia.
Deregulation has played both the hero and the villain in recent years. This article evaluates the impact of deregulation on what may be the single most economically important regulatory regime: the income tax. In order to accomplish this goal, it applies the concepts of fiscal arbitrage and compliance spirals to three deregulatory tax reforms. Compliance spirals describe an enforcement dynamic in which the regulator encourages compliance through a system of rewards for cooperation andpunishment for noncooperation. Fiscal arbitrage describes policy measures that exploit cognitive biases and other anomalies to deliver political benefits by using minimal political capital. The combination of these two concepts creates a tool for tax authorities to evaluate deregulatory tax provisions for likely costs and benefits. On balance, this article finds that tax deregulation is likely to be harmful.
Following up on my prior post, University of St. Thomas Reported Inflated Placement Data to U.S. News: outgoing Dean Tom Mengler has submitted this open letter to Robert Morse, Director of Data Research at U.S. News, questioning the decision to move St. Thomas from its original #119 overall ranking to the list of unranked schools:
I should now be a strong believer in the adage no good deed goes unpunished. We learned last friday through your blog post that your publication placed unIversity of St. Thomas School of Law in the "unranked" category after it immediately self-reported that two submitted data points related to "at graduation employment" were conflicting -- one accurate, one inaccurate. We have some questions about your decision to automatically "unrank" a school. I write to you today to do two things: first, to make two inquiries about your decision, and second, to express my concerns about the impact of your decision on schools' incentives to correct errors promptly.
After three years of flat to negative growth, 2011 was the year that the nation's 250 largest law firms started getting bigger again. Headcount among NLJ 250 firms was up a collective 2,132 lawyers, about the size of a Latham & Watkins. That represented growth of 1.7% — in line with the average increase during the past 10 years, but well below the 4-5% growth rate of the 2005-08 go-go year.
- Baker & McKenzie (largest office: Chicago) -- 3805 lawyers
- DLA Piper (New York) -- 3746
- Jones Day (New York) -- 2407
- Hogan Lovells (Washington, D.C.) -- 2253
- Latham & Watkins (New York) -- 2014
- White & Case (New York) -- 1906
- Skadden (New York) -- 1832
- K&L Gates (Pittsburgh) -- 1762
- Greenberg Trauig (New York) -- 1699
- Sidley Austin (Chicago) -- 1592