Sunday, September 30, 2012
Weekend Wall Street Journal Tax Report: Is Your Political Donation Deductible?, by Laura Saunders:
It is the height of election season, and campaign spending is setting new records. As in previous cycles, most of the giving has come from individuals.
For those people, tax questions abound. Which donations to political causes and campaigns are tax deductible? Which ones will be disclosed on the Internet — or reported to the IRS — and which will remain secret? Which could trigger a 35% gift tax?
A crazy quilt of federal tax and election laws makes simple answers elusive. "At best the rules are opaque, and at worst they're misleading," says Ellen Aprill, a professor at Loyola Law School in Los Angeles who studies the area. The best approach, say experts, is to know the rudiments of this tricky area in order to identify the most effective donation strategies and avoid a few traps. ...
There are many ways to give politically to candidates and causes, depending on how much you value deductibility, disclosure or avoiding potential tangles with the IRS. Here are more details about common types of political contributions.
- Donations to campaigns, parties and certain PACs
- Donations to super PACs
- Donations to social-welfare nonprofits
- Dues to a nonprofit group such as a trade association
- Donations to a nonprofit public charity
The International Tax Research Symposium, held in conjunction with the 66th Congress of the International Fiscal Association (56-page program here), will feature these papers:
- Reuven Avi-Yonah (University of Michigan, U.S.), Eppur Si Muove: Mobility, Taxation, and the Capital/Labor Dichotomy
- Chloe A. Burnett (Sydney University, Australia), Is Cross-Border Intragroup Debt Equity? The Interaction Between Debt/Equity, Transfer Pricing and Thin Capitalization Rules
- Luzi Cavelti (University of Berne, Switzerland), Globalization and Different Models of International Cooperation in Tax Law
- Michael Dirkis (The University of Sydney, Australia), Nowhere Man Sitting in His Nowhere Land: Case Studies in Cross Border Arbitrage
- Ramon Dwarkasing (Tilburg University, Netherlands), The Concept of Associated Enterprises
- Eva Eberhartinger, Andreas Göritzer & Erich Pummerer (Vienna University of Economics & Business and University of Innsbruck, Austria), Tax Advantage of Cross-Border Variable Interest Payments under Economic and Legal Uncertainty
- Craig Elliffe (The University of Auckland, New Zealand), Discriminatory Thin Capitalisation Rules: The Relationship between the Non-Discrimination Article in the OECD Model and Domestic Thin Capitalisation Rules
- Sandra Martinho Fernandes (IBFD, Netherlands), Capital Attribution: Towards an International Standard?
- Tracy Gutuza (University of Cape Town, South Africa), A South African Tax Law Perspective: The Taxation of Enterprises and the Headquarter Company Structure in the Southern African Context
- Saurabh Jain, John Prebble & Kristina Bunting (Victoria University of Wellington, New Zealand), Conduit Companies, Beneficial Ownership, and the Test of Substantive Business Activity in Claims for Relief under Double Tax Treaties
- Khrista McCarden (Pepperdine University, U.S.), The Charitable Deduction Games: Are the Laws in Your Favor?
- Angharad Miller (Bournemouth University, UK), A Comprehensive Survey of Treaty Practices Concerning Enterprise Services
- Andreas Oestreicher & Claudia Kessler (Univeristy of Göttingen, Germany), CCCTB Option
- Henry Ordower (Saint Louis University, U.S.), Utopian Visions toward a Grand Unified Global Tax Base
- María Teresa Soler Roch & Emilio Cencerrado Millán (University of Alicante, Spain), Limitations on the Deduction of Interests: Some Recent Developments
- Gloria Teixeira (University of Porto, Portugal), Tax and Accounting Principles: The Hard Path of Tax Harmonization in the EU
- Brigitte W. Muehlmann (Suffolk University) (Chair)
- Daniel M. Berman (Boston University Law School & McGladrey LLP)
- Diane M. Ring (Boston College Law School)
- Stephen E. Shay (Harvard Law School)
The two-day Annual Meeting of the Canadian Law and Economics Association concludes today at the University of Toronto Faculty of Law. Here are the tax panels and papers:
Losers, Taxation, and Irreparable Acts:
- Ben Alarie (University of Toronto) (Chair)
- Michael Trebilcock & Evan Rosevear (both of the University of Toronto), Dealing with Losers from Policy Change: Framing the Issues
- Richard Hynes (Virginia), Taxing Control
- Alex Raskolnikov (Columbia), Irreparable Acts: A Common Threat to Markets, Firms, and the Fisc
- Ben Alarie (University of Toronto) (Chair), Policy Preferences and Expertise in Canadian Tax Adjudication
- Gerrit De Geest (Washington University), Why the Legal System is Superior to the Income Tax at Reducing Income Inequality
- Brian Galle (Boston College), Carrots, Sticks and Salience
- Emily Ann Satterthwaite (University of Toronto), Electing to Reveal: The Election to Itemize Deductions as an Information- Forcing Screen
- Bradley T. Borden (Brooklyn) (Chair), Flow-Through Taxation in Canada and the United States
- Andrew C. Chang, The Price Elasticity of R & D: Evidence from State Tax Policies
- Alena Kimakova (York University), Tax Competition, Efficiency and Redistribution Under the European Commission Proposal for a Common Consolidated Corporate Tax Base
- Mirit Eyal-Cohen (Pittsburgh), Entrepreneurship, Intrapreneurship, and the Law
There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new paper debuting on the list at #5:
1. [331 Downloads] Paul Ryan's Roadmap to Inequality, by Edward D. Kleinbard (USC)
5. [121 Downloads] Taxation and Expropriation -- The Destruction of the Yukos Oil Empire, by Paul B. Stephan III (Virginia)
Paul L. Creech (Hilder & Associates, Houston), Comment, I’ll Know It When I See It: Textron, Tax Accrual Papers, The Shrinking Work Product Privilege, Black Powder, Sweat, and Blood, 53 S. Tex. L. Rev. 125 (2011):
This Comment will examine the work-product privilege and its application to tax-accrual papers. Part II will explore the history and purpose of the work-product privilege, from its origin in Hickman v. Taylor to its partial codification in the Federal Rules of Civil Procedure (Rule 26) and subsequent judicial interpretations. Part III of this Comment defines tax-accrual papers, the statutory purposes for their creation, and why lawyers are part of that process. Part IV reviews the various tests courts use for determining if the work-product privilege applies, and the applicability of the doctrine to dual-purpose work product. Finally, this Comment will examine the various policy concerns regarding the application of the work-product privilege to tax-accrual papers, focusing on the incentives created (or removed), and how they affect the lawyer's ability to serve the client-company.
Saturday, September 29, 2012
Staudt Presents The Supercharged IPO and Is Gender-Based Policymaking Necessary in the 21st Century?
Nancy Staudt (USC) presented two papers recently:
In this article, we investigate a new and widely discussed financial innovation: the supercharged initial public offering (IPO). A supercharged IPO differs from a conventional IPO because it involves a contract provision that enables the original owners of a firm to extract large amounts of money from the company in the post-IPO period. Supercharged IPOs have generated substantial debate and controversy but no scholar or team of scholars has investigated why the supercharged IPO emerged and how it has spread across industries and geographic areas. We amassed a large dataset of IPOs and empirically investigate these questions. We find the motivation for pursuing this new deal structure relates to the parties’ desire to take advantage of tax arbitrage opportunities, and not to a devious plan by owner-founders to steal from unknowing public investors as many critics have argued. Our results also suggest, contrary to the existing literature, that while innovation in the IPO context is an on-going process—it tends to spike when the economy performs poorly. With respect to the process of use and diffusion, we find that the earliest innovators are firms widely viewed to be aggressive and flexible, such as those organized in tax havens. Over time, however, the diffusion process is best explained by two factors: elite lawyers and professional networks—especially those located in the New York City region. Owner-founders who seek to go public with the help of an IPO, tend to supercharge their IPO when their hire elite New York City lawyers.
- Is Gender-Based Policymaking Necessary in the 21st Century? (with April Yanyuan Wu (Boston College) & Chao Wang (Fried, Frank, New York City)) at Washington University:
On virtually every dimension, women’s life choices and experiences have changed, and most agree, these changes are for the better. Compared to the average woman thirty years ago, women today have higher levels of education, more stable career trajectories, better salaries, a longer life expectancy . . . the list continues. Because these economic and social changes appear cemented into women’s reality, we believe it is time to pose the following question: what role, if any, should policymakers play in promoting gender equality in the twenty first century? Quite a few scholars have investigated and advocated legal reform with the hopes of advancing women’s interests in the market, in the home, upon divorce, in retirement, and so forth. But given the recent and notable demographic developments and the feeling of equality and opportunity that many women now experience, it is important to determine whether these reform proposals are outdated and obsolete, or, alternatively, whether gender-based policymaking continues to be a worthwhile endeavor.
To answer this question, we reflect upon the theoretical and empirical lessons that have emerged vis-à-vis women’s lives since the early 1970s. We expect that many readers will be familiar with the scholarship and the data that we discuss, but we are unaware of any research that merges the theoretical insights found in the law, economics and sociology literature addressing families with the most up-to-date demographic trends. Indeed, we believe the juxtaposition of this research and knowledge will challenge an emerging view of gender dynamics, namely—equality has become reality—as well as the notion that feminist theory is an old-fashioned and largely irrelevant consideration in the present-day policy realm. We confess that we embarked upon this project with the idea that the need for gender-based policymaking had begun to fade, but we conclude with a far more nuanced understanding of the modern world and women’s ability to achieve success and economic stability in both the public and private spheres.
The two-day interdisciplinary tax conference on The Carter Commission 50 Years Later: A Time for Reflection and Reform (full program here) concludes today at Dalhousie University, Schulich School of Law in Halifax, Nova Scotia:
Panel #6: International Tax:
- Jinyan Li (Osgoode Hall Law School), Would Mr. Carter be Happy with the International Tax Developments in Canada?
- Yan Xu (Chinese University of Hong Kong, Faculty of Law), Enduring Echoes in a Changing Landscape: China’s Tax History?
Panel #7: Tax Planning:
- Carl MacArthur (University of New Brunswick, Faculty of Law), From Carter to Copthorne: Judicial Inactivism and the Rise of the GAAR
- Michelle Markham (Bond University, Faculty of Law), Advance Pricing Arrangement Reform in Australia – Is this Relevant to any Future Reform in Canada?
Panel #8: Tax Expenditures:
- Kathrin Bain (University of New South Wales, School of Taxation and Business Law), Research and Development Tax Incentives: What Can Canada Learn From Australia’s Experiences?
- Steven Dean (Brooklyn Law School), Tax Apps: 50 Years of Tax Expenditures
- Lisa Philipps (Osgoode Hall Law School), The Role of R&D Tax Expenditures in Canada’s Innovation Strategy: From Carter to Jenkins
Panel #9: Tax Transplants:
- Michael Livingston (Rutgers-Camden School of Law), Convergence, Divergence, and the Limits of Globalization in Tax Matters: The Canadian Experience
- William McCarten (Royal Military College, Department of Political Science), Provincial Strategies for Corporate and Personal Income Tax Design: Positive, Zero, or Negative Sum Games?
- Kathryn James (Monash University, Faculty of Law), The Carter Commission and the Value Added Tax
Panel #10: Beyond the Tax Net:
- Lori McMillan (Washburn University, School of Law), The Non-charitable Non-profit Subsector in Canada: An Empirical Examination
- Richard Schmalbeck (Duke Law School), The Income Taxability of Gifts: Haig-Simons, the Carter Commission, and the Real World
- Shu Yi Oei (Tulane Law School), Who Wins When Uncle Sam Loses? Social Insurance and the Forgiveness of Tax Debts
Panel #11: Tax Policy and Political Change:
- Catherine Brown (University of Calgary, Faculty of Law), Revisiting the Carter Commission's International Tax Policy Analysis
- Elsbeth Heaman (McGill University, Department of History), The Personal Income Tax in Canada Before 1917
- David Tough (Carleton University, Department of History), Carter and Company: The Commission’s Critique of Inequality in the Context of Canada’s Rediscovery of Poverty in the 60s
Panel #12: Fundamentals:
- Neil Buchanan (George Washington Law School), The Trinity Without the Holy Ghost: Tax Scholarship Without the Illusory Goal of Efficiency
- David Duff (University of British Columbia, Faculty of Law,), Haig, Simons, and Carter: Rethinking the Concept of Income in Tax Law and Policy
- Richard Krever (Monash University, Department of Business Law and Taxation), What is an “Enterprise” in GST Law?
- Shirley Tillotson (Dalhousie University, Department of History), The Politics of Carter-Era Tax Reform: A Revisionist Account
In advance of tomorrow's opening of the 2012 Boston Congress of the International Fiscal Association (IFA), international tax experts from around the world are gathering today to discuss Professor Hugh Ault's work and important international tax issues:
Professor Hugh Ault, who is currently a Senior Adviser at the OECD and Professor at Boston College Law School, has made significant contributions to international tax over a 40-year career as a teacher, scholar, mentor and adviser. He has written extensively on US tax, comparative tax law and international tax issues. He has been a very active member of IFA and is currently the Chair of the Jury that awards the Mitchell B. Carroll Prize.
Panel #1: International Allocation of the Corporate Tax Base
- Chair: Frans Vanistendael (IBFD)
- Reuven Avi-Yonah (University of Michigan Law School)
- Wolfgang Schön (Director, Max Planck Institute)
- Richard Vann (University of Sydney Law School)
Panel #2: Tax Treaties: Treatment of Hybrid Entities; Nondiscrimination; Arbitration
- Chair: John Brown (Bingham, McCutheon)
- Philip Baker (Grays Inn Tax Chambers)
- Mary Bennett (Baker & McKenzie)
- Yoshihiro Masui (University of Tokyo)
- Jacques Sasseville (OECD Centre for Tax Policy and Administration)
Luncheon Speaker: Stephen Shay (Harvard Law School)
Panel #3: Comparative Taxation
- Chair: Kees van Raad (University of Leiden)
- Brian Arnold (Canadian Tax Foundation)
- Wei Cui (China University of Political Science and Law)
- Peter Melz (Stockholm University)
- David Rosenbloom (Caplin & Drysdale and New York University Law School)
Panel #4: Comparative Taxation
- Chair: Grace Perez-Navarro (OECD Centre for Tax Policy and Administration)
- Michael Lang (Vienna University of Economics and Business Administration)
- Diane Ring (Boston College Law School)
- Stef van Weeghel (University of Amsterdam)
- Guy Gest (University of Paris)
Comments by Hugh Ault
The Intellectual Property commonly termed as ‘IP’ has now acquired the status of a fortune creating tool and now individuals and the corporations as well, are confronting the challenges of valuation of such properties and the affect they cast upon assessment of taxes.It has brought about a change in the manner the corporate sector is viewing the assets and their tax planning. In the developing economies, the Intellectual Property Rights has an enormous impact as the indigenous Intellectual Property more often than no Intellectual Property signifies innovations and human creativity, its objective lies in creation of incentives that maximizes the value of the IP that is created and used in comparison to the social cost of its creation and the cost of administering the system.This article intends to focus upon the assessment of income tax incident to IP transactions.
Reed Caron (B.S. 2013, Grinnell College) presents The Jones Polynominal of Spherical Virtual Knots today at Grinnell College.
The concept of a virtual knot was first discovered by Louis Kauffman in 1999. A virtual knot is a knot whose diagram possesses virtual crossings along with the classical over/under crossings A virtual crossing is denoted by an intersection of two strands enclosed by a circle. Two virtual knots are considered to be equivalent if one can be turned into the other by performing a combination of the seven "Reidemaster Moves." A spherical virtual knot is a knot whose diagram can be represented by a string traveling around a surface of a sphere. As the string crosses itself on the sphere, virtual crossings are created. Classical crossings are represented by a line of string on the northern hemisphere mirroring a line of string on the southern hemisphere. (The string on the northern hemisphere represents the overcrossing while the string on the southern hemisphere represents the undercrossing,) To illustrate the spherical representation of a knot, we draw a circle to represent the sphere's equator and then depict the parts of the string on the northern hemisphere as solid lines and the parts on the southern hemisphere as dotted lines. The Jones Polynominal, discussed in 1984 by Vaughan Jones, is a knot invariant under the aforementioned Reidemaster Moves. However, figure 4 displays a particular move that looks similar to a Reidemaster Move, yet does in fact change a knot's Jones Polynominal. This move is referenced to by knot theorists as the Forbidden Move.
Every spherical virtual knot has a symmetric Jones Polynominal. For example, according to the conjecture, the Jones Polynominal of a spherical virtual knot could be [formula]. In this poster, we will show that the conjecture is true for a specific family of spherical virtual knots.
Friday, September 28, 2012
Preview of a Second Obama Administration? French President Proposes 75% Tax Rate on Millionaires, Eschews Tax Reform
Michael Knoll (Pennsylvania), The Connection Between Taxation and Competitiveness, 65 Tax L. Rev. 349 (2012):
The term “competitiveness” is a highly elastic concept that has been used in a myriad of different ways. However, in discussions of the connection between international taxation and competitiveness, there are two conceptions of competitiveness that are frequently used, but are not always clearly distinguished from one another. One conception emphasizes the competition between firms to be profitable and grow by acquiring productive assets. The other conception focuses on the competition between states to attract investment capital and people by varying their regulations.
Those two conceptions of competitiveness each imply a distinct definition of a domestic industry and a different mechanism whereby taxation affects competitiveness. Those two views also track popular positions in long standing policy debates. For example, each view is associated with a different tax neutrality benchmark. The first view is closely associated with capital export neutrality, whereas the second view is closely associated with capital ownership neutrality. Those two views also track opposing positions in the “Who Is Us?” debate from the 1990s.
National Law Journal: Job Offers Abound for Summer Associates as Hiring Increases:
The number of law students who spent their summers working at major law firms inched up between 2011 and 2012, and for the second straight year, nearly all those students' efforts were rewarded with offers of full-time employment.
The related findings come from two recent American Lawyer surveys: the magazine's Summer Hiring Survey, which asked firms for general information about their most recent summer associate classes, and an informal Am Law Daily poll that queried some two dozen national firms specifically about what percentage of their 2012 summer associates had received job offers.
All told, 21 firms responded to The Am Law Daily's inquiry, and 1,314 of the 1,361 of their summer associates, or 96.5 percent, received job offers. For those 21 firms, the 2012 rate is virtually identical to last year's, when 1,234 of 1,280 summer associates, or 96.4 percent, were offered jobs. (As was true last year—when the Am Law Daily's survey of 17 national law firms yielded on overall offer rate of 97 percent for the summer class of 2011 compared to the 91.4 percent rate reported by NALP—the firms surveyed by The Am Law Daily this year may prove to be slightly more generous than some of their peers.)
The Congressional Budget Office yesterday released The Taxation of Capital and Labor Through the Self-Employment Tax:
The Self-Employment Contributions Act (SECA) tax is paid mainly by certain small business owners. That tax on sole proprietors and owners of partnerships is often characterized as one that parallels the Federal Insurance Contributions Act (FICA) tax that employers and employees pay to fund Social Security and Medicare. The two taxes, CBO concludes, are not really parallel in the way that they tax capital income and labor income. (For people who are not self-employed, interest, dividends, rents, and capital gains are capital income, and wages and benefits are labor income.) The differences in the treatment of capital and labor income may prompt people to make choices that they would not otherwise make about self-employment or the organizational form of a business, thereby reducing the efficient allocation of resources.
CBO finds that:
- Approximately 40 percent of the SECA tax base derives from capital income and 60 percent from labor income. The FICA tax base, in contrast, derives entirely from labor income.
- More than half of the labor income of self-employed people is not included in the SECA tax base. In contrast, virtually all of the labor income of employees is taxable under FICA.
The two-day interdisciplinary tax conference on The Carter Commission 50 Years Later: A Time for Reflection and Reform (full program here) kicks off today at Dalhousie University, Schulich School of Law in Halifax, Nova Scotia:
Panel #1: Tax Reform:
- Neil Brooks (Osgoode Hall Law School), The Carter Report: Brilliant, Imaginative and One of a Kind
- Ajay Mehrotra (Indiana University-Bloomington, Maurer School of Law), The VAT Laggards: A Comparative History of US and Canadian Resistance to the Value- Added Tax
- Miranda Stewart (Melbourne Law School), Tax Reform and Legitimacy in the Global Era
Panel #2: Tax and Human Relationships I:
- Faye Woodman (Dalhousie University, Schulich School of Law), Should the Tax Burden on Babyboomers Be Reduced Because They Are Getting Older?: The Age Tax Credit, the Pension Income Credit, and Income Splitting of Pension Income
- Claire Young (University of British Columbia, Faculty of Law), Beyond Conjugality: Time for the Tax System to Take That Concept Seriously
Panel #3: Redistribution:
- Allison Christians (McGill University, Faculty of Law), Drawing the Boundaries of Tax Justice
- Peter Dietsch (Université de Montréal, Department of Philosophy), Fiscal Obligations to Redistribute in an International Setting
- Thaddeus Hwong (York University, School of Public Policy and Administration), A Comparison of Trends in Tax Levels and Tax Mixes in Canada and Other OECD Countries Before and After Carter
Panel #4: Tax and Human Relationships II:
- Chris Sprysak (University of Alberta, Faculty of Law), Taxing Me or We: Yet Another Look at the Carter Commission’s Recommendation for Joint Returns
- Tamara Larre (University of Saskatchewan, College of Law), Dependency Under Canada’s Income Tax System
Panel #5: Corporate Tax Reform:
- Kirk Collins (St. Francis Xavier University, Schwartz School of Business), Capital Markets, Interest Imputation, and the Carter Report’s Proposed System of Full Integration of the Corporate-Shareholder Income Taxes
- Martha O’Brien (University of Victoria, Faculty of Law), Corporate Group Taxation: Here and Now, There and Then
New York Times, Room for Debate: Colleges, by the Numbers:
Update: New York Times op-ed: The College Rankings Racket, by Joe Nocera. (Hat Tip: Mike Talbert.)
The 2013 edition of the U.S. News & World Report Best Colleges hit newsstands this month. Are these rankings given too much weight in the college application and selection process? Are they helpful or a distraction?
- Michael Bastedo (Director, Center for the Study of Higher and Postsecondary Education, University of Michigan), Insiders Care the Most About These Lists
- Sean Decatur (Dean, College of Arts and Sciences, Oberlin College), Rankings Can Be Useful, but Also Dangerous
- Beth Gilfillan (College Counselor, Deerfield High School), I Cringe When I Hear the Word ‘Rankings’
- Martha O'Connell (Executive Director, Colleges That Change Lives), The College Search Requires Greater Thought
- Lloyd Thacker (Executive Director, Education Conservancy), College Presidents Should Just Say ‘No’ to U.S. News
- Richard Vedder (Director, Center for College Affordability and Productivity, Ohio University), Filling a Void, Providing a Service
Brian Galle (Boston College), Does Federal Spending 'Coerce' States? Evidence from State Budgets:
According to a recent plurality of the U.S. Supreme Court, the danger that federal taxes will “crowd out” state revenues justifies aggressive judicial limits on the conditions attached to federal spending. Economic theory offers a number of reasons to believe the opposite: federal revenue increases may also float state boats. To test these competing claims, I examine for the first time the relationship between total federal revenues and state revenues. I find that, contra the NFIB plurality, increases in federal revenue -- controlling, of course, for economic performance and other factors -- are associated with a large and statistically significant increase in state revenues. This version of the study additionally provides extensive background explanations of underlying economic concepts for readers unfamiliar with the prior public finance literature.
Linda Galler (Hofstra), Ladder Safety: Disclosure of Corporate Client Confidences, 6 Brook. J. Corp. Fin. & Com. L. Law 553 (2012):
This Essay demonstrates that the theory underlying ABA Model Rule of Professional Conduct 1.13(c), granting lawyers the option to reveal certain client confidences on a discretionary basis, doesn’t work. Despite some compelling reasons for permitting disclosure of clients’ “bad” behavior, economics dictate that it should be a rare case in which a lawyer will actually disclose. The Essay utilizes the facts of a recent case involving in-house certified public accountants who revealed to state tax authorities that their employer had not been compliant with state tax laws, and were fired from their jobs. In thinking about whether similarly situated attorneys could be fired or would violate their professional ethical duties if they engaged in the same acts, the Essay reviews and reflects upon the existing commentary on organizational/corporate lawyers’ duties of confidentiality and the Model Rules’ up-the-ladder reporting requirements. The conclusion: Even if the Rules permit disclosure in some circumstances, the real possibilities of being fired or tagged as a lawyer who can’t be trusted with a secret are simply too great for even well-intentioned lawyers. The rule, then, is unlikely to encourage lawyers to disclose.
The argument is made through a brief Essay rather than a longer analytical piece for two reasons. First, there exists ample and excellent literature filled with good and comprehensive analyses of the rules. What is lacking is an examination of how theory plays out in the real world. Second, the Essay is meant to provoke thought both among scholars, who function primarily in the realm of theory, and practitioners, who reside in the world of practice.
I. Jay Katz (Widener), An Offer in Compromise You Can't Confuse: It Is Not the Opening Bid of a Delinquent Taxpayer to Play Let's Make a Tax Deal with the Internal Revenue Service, 81 Miss. L.J. 1673 (2012):
The purpose of this Article is to explain how the Offer process has evolved into what it is today, i.e., a collection alternative that is by no means a panacea for the delinquent taxpayer, by chronicling and analyzing every relevant major development from the infancy of federal income taxation to the present day.
Thursday, September 27, 2012
Lawrence Zelenak (Duke) presented The Return-Based Mass Income Tax in Popular Culture at Temple yesterday as part of its Faculty Colloquia Series:
Since the introduction of the return-based mass income tax during World War II, the income tax has played an important role in American popular culture. This chapter explores how two popular culture genres—radio and television situation comedies, and New Yorker cartoons—have responded to the modern income tax. I have been able to identify nearly one hundred sitcom episodes in which the federal income tax plays a significant role, and over two hundred income-tax-related New Yorker cartoons. The episodes and the cartoons offer wide-ranging commentaries on the tax system, and suggest some notable changes over time in public attitudes toward the income tax.
One would never guess from the evidence of the sitcoms and cartoons that the federal income tax played so modest a role in the overall American tax picture. In both sitcoms and cartoons, the income tax is virtually the only tax; there are almost no sitcom episodes or New Yorker cartoons concerned with other taxes. As will be apparent in the following descriptions of tax-related sitcom episodes and cartoons, the character of the federal income tax—as a return-based mass tax—explains the sitcom writers’ and cartoonists’ interest in the income tax.
Bloomberg: Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit, by Jesse Drucker:
In January 1999, a trust set up by Mitt Romney for his children and grandchildren reaped a 1,000 percent return on the sale of shares in Internet advertising firm DoubleClick Inc. If Romney had given the cash directly, he could have owed a gift tax at a rate as high as 55%. He avoided gift and estate taxes by using a type of generation-skipping trust known to tax planners by the nickname: “I Dig It.”
The sale of DoubleClick shares received before the company went public, detailed in previously unreported securities filings reviewed by Bloomberg News, sheds new light on Romney’s estate planning -- the art of leaving assets for heirs while avoiding taxes. The Republican presidential candidate used a trust considered one of the most effective techniques for the wealthy to bypass estate and gift taxes. The Obama administration proposed cracking down on the tax benefits in February.
While Romney’s tax avoidance is both legal and common among high-net-worth individuals, it has become increasingly awkward for his candidacy since the disclosure of his remarks at a May fundraiser. He said that the nearly one-half of Americans who pay no income taxes are “dependent upon government” and “believe that they are victims.”
“People like Mitt Romney make a lot of money, but they pay very little income tax,” said Victor Fleischer, a tax law professor at the University of Colorado who has written extensively about private equity and taxes. “Then by dodging the estate and gift tax, they are able to build dynastic wealth. These DoubleClick documents really show that tax planning in action.” The Obama administration estimates that closing the loophole Romney used would bring the federal government almost $1 billion in the coming decade. ...
Multimillionaires use such trusts to avoid those taxes in three ways. First, they can assign a low value to assets they donate to the trust. Second, when the trust sells assets at a profit, the donors can pay the relatively low capital gains taxes on behalf of the trust. By doing so, they leave more money in the trust, untouched by the much higher gift tax. Third, by paying those taxes, they can reduce the pile of wealth eventually subject to an estate tax when they die.
Mitt Romney and his wife, Ann, more than doubled their investment income from foreign sources in 2011 versus 2010, including some sources in tax havens around the world, according to tax returns released by the Republican presidential nominee's campaign.
The Romneys reported $3.5 million in foreign income out of $13.7 million in 2011 adjusted gross income, the benchmark figure used to figure out taxes owed. That compares with $1.5 million in foreign income on 2010 AGI exceeding $21.6 million, according to the Romneys' tax returns for 2010 and 2011.
That means the Romneys last year derived just over a quarter of their income from non-U.S. investments, such as funds and entities in Bermuda, Luxembourg, the Netherlands, Ireland, and the Cayman and British Virgin Islands, the returns showed. In 2010, the Romneys' foreign income was just 7% of their AGI, which was much higher that year.
While the Romneys' tax strategies are legal, their large share of foreign-sourced income highlights the difference between their tax returns and those of average Americans. ... Overall, the Romneys received income from 50 foreign investment corporations last year, nearly three times the number in 2010, the returns show.
Inside Higher Ed: Why Some Academics Publish More:
Motivation and the ability to network have a far greater impact on research productivity than age, gender, job satisfaction, managerial support or teaching load. That is the central conclusion of work by researchers from University College Dublin. ...
Although time spent working on research was unsurprisingly linked with research productivity, "teaching or administrative workloads were not found to be predictors across any of the 12 countries," according to a paper presented at the Higher Education and Social Change Final Conference in Berlin last month. ... [I]f the fundamental drivers for research productivity are individual motivation and what amount to networking skills, do universities need to spend so much time and effort adjusting structures and incentives? Should they stop listening to gripes about teaching loads if the born researchers are going to keep delivering the goods anyway?
The Treasury Inspector General for Tax Administration today released A Concerted Effort Should Be Taken to Improve Federal Government Agency Tax Compliance (2012-30-094):
Federal agencies are exempt from paying Federal income taxes; however, they are not exempt from meeting their employment tax deposits and related reporting requirements. As of December 31, 2011, 70 Federal agencies with 126 delinquent tax accounts owed approximately $14 million in unpaid taxes. In addition, 18 Federal agencies had not filed or were delinquent in filing 39 employment tax returns. Federal agencies should be held to the same filing and paying standards as all American taxpayers.
The Northwestern University School of Law Tax Program and the Northwestern University Law Review have issued a call for papers for a symposium on 100 Years Under the Income Tax to be held on April 5, 2013 to celebrate the 100th anniversary of the ratification of the Sixteenth Amendment:
The symposium will consider not only the history and future of income as a tax base, but also its effect and future impact on various legal, social and political institutions. Topics of particular interest would include:
- The effect of the income tax on other substantive areas of law, including property, business associations, marital property law, and contracts
- The effect of the income tax on social institutions including marriage, and other family relations
- The effect of the income tax on the ways in which capital is accumulated and transferred.
Preference will be given to unpublished works near completion; abstracts of no less than 750 words of works in progress may also be considered. Please submit drafts as PDF documents no later than October 15, 2012 to Prof. Charlotte Crane. General inquiries regarding the conference should be directed to Charlotte Crane or Michael Cooper.
In its latest Estate of Turner opinion [138 T.C. No. 14 (Mar. 29, 2012)], the Tax Court decided whether a pecuniary formula marital deduction clause could shield the inclusion of family limited partnership assets in the decedent’s estate.
All Tax Analysts content is available through the LexisNexis® services.
KPMG has released Competitive Alternatives Special Report: Focus on Tax (2012 Edition):
Our goal in preparing this supplement is to offer a wide-ranging methodology to assess the numerous and complex factors affecting a company’s tax burden, in order to provide a simple and effective approach for cross-location comparisons based on the tax results of different business scenarios.
To this end, this report compares the total tax burden faced by companies in each country and city, including:
- Corporate income taxes
- Capital taxes
- Sales taxes
- Property taxes
- Miscellaneous local business taxes
- Statutory labor costs (i.e., statutory plan costs and other wage-based taxes).
Total tax costs are compared between countries and cities using a Total Tax Index (TTI) for each location. The TTI is a measure of the total taxes paid by corporations in a particular location, expressed as a percentage of total taxes paid by corporations in the US. Thus, the United States has a TTI of 100.0, which represents the benchmark against which the other countries and cities are scored.
The United States ranks 8th in tax competitiveness, down from 6th last year:
The leading U.S. city in tax competitiveness is Cincinnati, which ranks16th:
(Hat Tip: Joshua LeFevre.)
The U.K. coalition government set out a high-level, five-year corporate tax reform road map in its 2010 budget, aiming to create the most competitive corporate tax regime in the G20. Exchequer Secretary to the Treasury David Gauke has stated that the U.K. government is prioritizing corporate tax reform to make the tax system a U.K. asset once again.
To date, the U.K. has (1) reduced its corporate tax rate from 28% to 24%, with a further reduction to 22% scheduled by 2014; (2) adopted a participation exemption ("territorial") regime for the taxation of foreign affiliate earnings; (3) increased deductions for research and development (R&D) and set out plans to allow all enterprises to convert excess R&D deductions into refundable credits; and (4) beginning in 2013, will reduce the tax rate on qualified patent income to 10%.
Separate U.S. corporate tax reform proposals have been set forth by President Obama and the House Ways and Means Committee Chairman David Camp, but no legislative action has been taken to date. This conference will assess the U.K. corporate tax reform program and consider whether it is a suitable model for the United States.
- Opening Remarks: Alan Viard (American Enterprise Institute), John Samuels (General Electric)
- U.K. Corporate Tax Road Map: Will Morris (General Electric), David Gauke (Her Majesty’s Treasury, U.K.)
- Should U.S. Tax Reform Follow the U.K. Model?: Michael Devereux (Oxford University), Dick Gephardt (Gephardt Government Affairs), James Hines (University of Michigan), Stephen Shay (Harvard Law School), Martin Sullivan (Tax Analysts)
Wednesday, September 26, 2012
Susan C. Morse (UC-Hastings) presents International Corporate Tax Reform and a Corporate Offshore Excise Tax, 91 N.C. L. Rev. ___ (2012), at San Diego today as part of its Tax Law Speaker Series:
Part I discusses the framing of the choice of U.S. worldwide consolidation as opposed to U.S. territoriality in the existing literature and uses a numerical example to demonstrate objections raised by adherents of capital ownership neutrality theory to a lower U.S. corporate tax rate. Part II describes [corporate offshore excise tax ("COET")] design constraints, including revenue, Constitutionality, tax treaty compliance, minimizing tax avoidance, and avoiding giving corporate taxpayers incentives or messages with unfortunate results. Part II contends that the financial accounting measure of permanently reinvested earnings is the right base for a COET and considers a range of tax rates, from 0% to 35%. Part III considers the relationship between rational expectations and the possibility that a COET would produce unfortunate results such as increased incentives for expatriation. It defends a COET at a modest rate of 5.25% and develops an argument for a higher-rate COET.
Mulligan: The Redistribution Recession -- How Redistributive Policies Have Destroyed Jobs (Especially for Less-Skilled Workers)
New York Times: Labor-Market Scars Left by Redistributive Public Policy, by Casey B. Mulligan (University of Chicago, Department of Economics):
The social safety net became more generous under Presidents George W. Bush and Barack Obama, and as a result massively altered employment patterns in the labor market.
I have explained in previous posts how public moneys have recently been used to help the unemployed, the poor and the financially distressed endure the recession, but at the same time have dramatically eroded incentives for people to maintain their own living standards by seeking, accepting and retaining jobs, as well as incentives for employers to create jobs that are attractive to workers.
My forthcoming book The Redistribution Recession [Oxford University Press, Oct. 2012] (see the introductory chapter online) quantifies those incentives and their changes over time in terms of marginal tax rates, which refer to the extra taxes paid, and subsidies forgone, as a result of working, expressed as a ratio to the income from working. ...
The group-specific incentive changes are measured (most recently in my paper “Recent Marginal Labor Income Tax Rate Changes by Skill and Marital Status“) on the horizontal axis in the chart below as percentage changes in the share of what people keep from what they earn, net of taxes paid and subsidies forgone. ...
The fact that marginal tax rates rose so differently for various groups means not only that redistributive public policy depressed the labor market but has also sharply, and arbitrarily, altered the composition of the work force in the direction of people who are married and more skilled.
Google, Facebook, Zynga, and other prominent technology companies in Silicon Valley are buying start-up companies at a brisk pace. In many of these transactions, the buyer has little interest in acquiring the start-up’s projects or assets. Instead, the buyer’s primary motivation is to hire some or all of the start-up’s software engineers. These so-called “acqui-hires” represent a novel -- and increasingly common -- tool by which the largest and most successful technology companies in the world satisfy their intense demand for engineering talent.
To date, the acqui-hire has attracted no attention in the academic or professional legal literature. This Article aspires to fill this gap. Drawing on interviews with Silicon Valley entrepreneurs, start-up investors, buyer representatives, and lawyers, we offer the first formal description of the acqui-hire. In so doing, we seek to enrich the understanding of those already acquainted with the acqui-hire while also providing a comprehensive account of this transaction structure to the uninitiated.
The Article also identifies -- and seeks to solve -- a significant puzzle stemming from the acqui-hire phenomenon. If a large technology company wants to hire a team of software engineers, why go to all of the trouble and expense of acquiring the company that currently employs them? Why not simply hire away the individuals that it wants? We argue that the solution to the puzzle lies primarily in the way that social norms and the threat of informal sanctions shape the behavior of Silicon Valley software engineers. Although California law strongly supports the principle of employee mobility, social norms lead many engineers to pursue acqui-hires in lieu of defecting. We buttress this norms-based account with insights from prospect theory and tax law to show that the unique structure of the acqui-hire reduces its perceived and actual costs, which in turn promotes these transactions.
The Article then considers the most significant economic issue common to all acqui-hires: how to allocate the buyer’s aggregate purchase price between the software engineers and the start-up’s outside investors. We first predict that a money-back-for-the-investors norm will eventually develop and that this norm will drive allocation determinations. We then propose several contractual innovations that could be used in an attempt to augment the investors’ allocations in acqui-hires.
The main reason Romney's effective rate is so low is that the American tax code contains a lot of preferences for investment income over labor income. That's something that strikes many people as unfair on its face, and particularly unfair since it often means very low rates for extremely rich people like Rommey. ... But this is definitely an issue where the conservative position is in line with what most experts think is the right course, and Democrats are outside the mainstream.
The reasoning is basically this. You imagine two prosperous but not outrageously so working people living somewhere—two doctors, say, living in nearby small towns. They're both pulling in incomes in the low six figures. One doctor chooses to spend basically 100 percent of his income on expensive non-durables. He goes on annual vacations to expensive cities and eats in a lot of fancy restaurants. The other doctor is much more frugal, not traveling much and eating modestly. Instead, he spends a lot of his money on hiring people to build buildings around town. Those buildings become houses, offices, retail stores, factories, etc. In other words, they're capital. And capital earns a return, so over time the second doctor comes to have a much higher income than the first doctor.
So then there are too different scenarios:— In the world where investment income isn't taxed, the second doctor says to the first doctor "all those fancy vacations may be fun, but I'm being much more prudent. By saving for the future, I'll be comfortable when it comes time to retire and will have plenty left over to give to my kids."— In the world where investment income is taxed like labor income, the first doctor says to the second "man you're a sucker—not only are you deferring enjoyment of the fruits of your labor (boring) but when the money you've saved comes back to you, it gets taxed all over again. Live in the now."That's the theory, at any rate. It's a pretty solid theory, it's in most of the textbooks I've seen, and it shapes public policy in basically every country I'm familiar with.
And the thinking is that world number one where people with valuable skills take a large share of their labor income and transform it into capital goods is ultimately a richer world than the world in which such people just go out to a lot of fancy dinners.
Ezra Klein's WonkBlog (Washington Post): Why Romney’s Tax Rate Should be Low, by Dylan Matthews:
[T]he disagreement among economists isn’t about whether people like Romney are paying too little. It’s about whether or not they’re paying too much.
For contrary views, see:
- Angry Bear, The Effect of Capital Gains Tax on Investment
- Ezra Klein's WonkBlog (Washington Post): The Case for Raising Taxes on Capital Gains, by Ezra Klein
- New York Times op-ed: Romney and the Forbes 400, by Joe Nocera
- Start Making Sense: Should Romney Pay a Lower Tax Rate Than the Rest of Us?, by Dan Shaviro (NYU)
Following up on last week's post, Brian Tamanaha: Law Schools Lose by Winning Lawsuits Brought by Former Students: Reuters: Law Schools Owe Students Truth About Job Market:
Law schools owe prospective students the truth about job prospects. Goosing graduates' employment statistics isn't illegal, several courts have ruled. But it's shameful nonetheless. With work scarce and tuition soaring, lawyer wannabes deserve better.
The dozen or so suits filed by recent law grads assert essentially the same claim: that fierce competition for students has prompted schools to exaggerate how many alums find work nine months after graduation. A whopping 59 of 143 institutions in the 2012 U.S. News and World Report rankings claimed employment rates of more than 90%.
Left unsaid is that the figures typically include non-legal, part-time and temporary work. Some schools even hire graduates themselves or pay firms to do so. That's fraud, the suits argue, because applicants reasonably assume the schools are talking about full-time jobs requiring a law degree. Otherwise, many of them might reconsider whether a three-year education costing more than $120,000 was worth it.
Courts have been unsympathetic. ... The courts may be correct that, legally, schools can't be held liable for phony job figures. But ethically, it should be a different story. Caveat emptor makes for a lousy law school motto.
(Hat Tip: Staci Zaretsky.)
Gov. Mitt Romney’s 2011 tax return highlights the use of a questionable tax planning technique that may have avoided Medicare tax liability on up to $2 million of services income derived from his past employment at Bain Capital. ...
Mr. Romney continues to receive cash payments from the companies that manage Bain Capital’s funds. A couple of weeks ago in this column, I described how private equity firms like Bain Capital convert management fees, which would normally generate ordinary income, into investments that yield capital gain.
R. Bradford Malt, the trustee who manages Mr. Romney’s Bain holdings, has stated that Mr. Romney did not participate in the fee conversion program. One might have logically inferred, then, that Mr. Romney’s share of the management fee income would be reported as wage income on Mr. Romney’s tax return.
Not so. Instead, the payments are reported on Schedule E of the return as distributions from S corporations — the largest being $1,961,325 from Bain Capital Inc. The distinction between wage income and an S corporation distribution is meaningless from a business standpoint, but it’s important for tax purposes.
Current law imposes a 2.9% Medicare tax on all wages and self-employment income. To avoid this tax, taxpayers have an incentive to characterize as much labor income as they can as investment income (like carried interest) or as a distribution from an S corporation. ...
This strategy, more or less, was made famous by the trial lawyer and former presidential candidate John Edwards, giving rise to what is sometimes known in tax policy circles as the Edwards Loophole. (It has been employed more recently by Newt Gingrich, who has provided speaking and consulting services through an S corporation.) The IRS has challenged this abuse of S corporations, finding some success in the courts. ...
The problem is that the line between return on human capital and return on investment capital is difficult to draw. By paying themselves a (modest) salary, the owners of S corporations put the IRS in the difficult position of having to estimate what a reasonable wage is.
In a recent article, the law professor Richard Winchester noted that under current law, the government can rightfully attack these distributions “as being nothing more than disguised compensation.” But because the government is ill equipped to perform the kind of audits that would help detect all potential instances of disguised compensation, Mr. Winchester notes that “the vast majority of these cases probably go unchallenged.”
The use of the S corporation as a tax shelter is widespread. A 2002 Treasury inspector general report stated that of 84 S corporation returns under audit, the average shareholder wage was only $5,300, while the average shareholder distribution was nearly $350,000. Obviously, in many of these cases the wage portion is being deliberately understated.
In the case of Mr. Romney, the issue of his Medicare tax liability is complicated because he no longer provides services to Bain Capital. Some portion of the payment represents payment for past services rendered, but perhaps some amount could be attributed to nonwage income.
Existing case law gives the IRS ample authority to challenge at least some amount of the “true up” payments as remuneration for services rendered. If the entire amount were attributed to past services, then Mr. Romney’s use of the S Corporation avoided $58,000 in Medicare taxes. Without knowing the terms of the severance agreement, however, determining Mr. Romney’s proper tax liability is difficult.
Philip F. Postlewaite (Northwestern), Raising Revenue Through Misguided Classification Reform, 136 Tax Notes 1177 (Sept. 3, 2012):
Spending cuts and tax increases are omnipresent topics in the national conversation. As the search for tax revenue intensifies, various proposals for modifying the code have surfaced. The Obama administration and others recently have suggested that large passthrough entities be taxed as C corporations. That proposal reflects a misplaced emphasis on revenue generation rather than sound tax policy principles. If adopted, it would undercut the steady movement by Congress, Treasury, and the IRS over the past 30 years toward business tax neutrality through a single tax regime for all business forms. Also, the proposal would result in planning efforts to avoid its application by maintaining business receipts below the threshold for classification as a large enterprise. Further, it is uncertain whether it would generate significant revenue, given that the trigger for the second level of tax — the distribution of earnings to the owners of the enterprise — often is discretionary. When combined with the necessary grandfathering rules, the revenue effect may not be material. The proposal should therefore be rejected because it does not promote the tax policy goals of economic efficiency, simplicity, equity, and business tax neutrality.
All Tax Analysts content is available through the LexisNexis® services.
Following up on last week's post, Camp, Hatch Call on NY AG to Back Off Investigation Into 501(c)(4) Groups: New York Attorney General Eric Schneiderman sent this letter to the top Republicans on the House Ways & Means Committee and Senate Finance Committee informing him that he will not back down in his investigation of 501(c)(4) groups:
I am certain that as Chairman and Ranking Member of the congressional committees that oversee the IRS, you share my interest in ensuring compliance with our tax laws and promoting accountability. I therefore write to correct your apparent misimpressions concerning the right of state officials to obtain and utilize information that may appear on tax returns in carrying out our law enforcement functions.
Under our federalist system, each state has a fundamental interest in ensuring compliance with its tax laws and in regulating certain activities of nonprofits. ... While you correctly identify procedures for obtaining tax returns and tax return information from the IRS, those procedures do not prohibit state authorities from requesting such documents or information directly from taxpayers. ...
I hope you share my understanding of federalist principles, which contemplate a crucial role
for state law enforcement. The recent activities of some tax-exempt organizations and businesses have been matters of great concern to New Yorkers. While my office respects applicable federal requirements and restrictions, I will continue to perform my duties and enforce the laws of the State of New York.
- The Hill, New York AG Defends Efforts on Tax-Exempt Groups
- Huffington Post, Eric Schneiderman Defends Authority to Investigate Dark Money Groups, Private Equity Firms
- New York Times, New York Attorney General Rebuffs Congressional Republicans
- Politico, New York Attorney General Eric Schneiderman Defends Probe of Tax-Exempt Groups
Following up on yesterday's post, Who Pays Law Professor Salaries?: Jason Solomon (William & Mary), How Much Taxpayer Money for Legal Education and Scholarship?:
We law professors like to think of ourselves as public intellectuals, opining on various issues, and others sometimes treat us that way. So here's a question of federal budget priorities: how much money should taxpayers be spending on legal education and scholarship?
Right now, hundreds of millions of taxpayer dollars -- more likely billions -- is funding legal education and scholarship. You can think of it as coming from today's taxpayers directly to law schools, or think of it the way our budget rules do: that the government is making money today from loans, through interest payments and fees, but tomorrow's taxpayers will be on the hook 20-25 years out when the debt is forgiven through IBR. If taxpayer money for education was devoted to future lawyers serving unmet legal needs, it might be justified. But most of it isn't. And the massive imbalance between the supply of new law graduates and the demand for them -- projected to continue until at least 2020 -- makes the expenditures difficult to justify on education grounds...
Legal education has considerable room for improvement, but legal scholarship gets a bad rap. More and deeper knowledge about our legal system is a "public good" worth supporting. (More in a future post) The question, of course, is how much is worth supporting, given competing budget priorities and a growing deficit.
The Republican-controlled House of Representatives took a break last week from doing nothing to pass a bill to facilitate voluntary taxation. Almost simultaneously, Mitt Romney released his final tax return for 2011, showing that he voluntarily overpaid his taxes by taking less of a deduction for his charitable contributions than he was permitted.
The legislation was H.R. 6410, “The Buffett Rule Act of 2012.” Those not acquainted with the misleading titles often given to Congressional bills might at first glance think this one has something to do with raising taxes on the ultrawealthy.
Of course, Republicans would never actually raise taxes on the ultrawealthy; they think, or at least assert publicly, that the deficit results from too many poor people not paying taxes. But it would be very helpful to them to have a fig leaf that looks as if they had found a way of getting the rich to pay more. That is by encouraging them to voluntarily pay more, as Mr. Romney did. ...
The political reality is that Republicans don’t really support taxation at any level. Of course, none will go on the record saying that they favor abolition of all taxation; they just support every single tax cut and oppose every single tax increase. I have not heard any Republican in recent years acknowledge that the deficit results in any way from lower revenues; rather, they say, the deficit is caused only by excessive spending on everything except the military. Implicitly, therefore, the only kind of taxation a Republican can support is voluntary taxation. ...
Realistically, voluntary taxation is not a viable alternative to broad-based taxes. Those who oppose raising taxes on the wealthy and are concerned about the number of people exempt from federal income taxes ought to consider a national sales tax, as every other major country has. As Alexander Hamilton explained in Federalist 21, one virtue of consumption taxes is that they are to some extent voluntary.
Tuesday, September 25, 2012
Update: For a contrary view, see The Heritage Foundation: More People Should Pay Taxes
It turns out that the best way to address Romney’s underlying concern – that a large and growing number of Americans have lost sight of the real cost of government – might be to remove even more households from the income tax rolls and create a very visible new tax to make up the difference. That is why Republicans, Mitt Romney included, should give serious consideration to Michael Graetz’s Competitive Tax Plan.
Conservatives hate the idea of new taxes. But imagine if every time you bought a cup of coffee, it said on the receipt that you had also just paid a 12.3% consumption tax to the federal government. Instead of paying your taxes once a year, you would pay taxes every time you made a purchase. What better way to remind people of all of the money government spends, and all of the money government spends foolishly, than to make them pay for government several times a day?
That’s not all. Imagine also that the federal income tax only applied to income over $100,000 for married couples, $50,000 for single filers, and $75,000 for head of household filers. Households that earn less than this “family allowance” would be under no obligation to file a federal income tax return. In that case, the 12.3% consumption tax would pay for liberating millions of Americans from the IRS. According to a recent analysis from the Tax Policy Center, the tax policy rules in effect today will require 147,540,000 tax units to file taxes in 2015. Under Graetz’s CTP, that number would fall to 36,625,000. ...
There are, to be sure, huge obstacles in the way of Graetz’s Competitive Tax Plan, as he freely acknowledges. If a Republican gets behind it, we can expect Democrats to demonize it as a tax hike on the poor to fund income tax cuts for the rich, leaving aside the generous rebates and the family allowance. If a Democrat gets behind it, Republicans might wage war against the VAT as a diabolical foreign plot.
All the same, the CTP is the only realistic plan that will preserve progressivity while giving 100% of Americans the sense that they are bearing the cost of our federal Leviathan.
Forbes: Judge Shoots Down Another Forbes 400 Member's Tax Shelter, by Janet Novack:
A California federal district court judge on Friday rejected, on summary judgment, a bid by billionaire Broadcom co-founder Henry Nicholas, III, to claim hundreds of millions in tax losses from a shelter marketed more than a decade ago by myCFO, Inc. the wealth advisory firm started by Forbes 400 member James Clark, co-founder of Netscape, and backed by venture capitalist John Doerr. [Broadwood Investment Fund LLC v. United States, No. 08-0295 (C.D. CA Sept. 21, 2012).] An attorney for Nicholas, BakerHostetler partner Jeffrey H. Paravano, said Monday that Friday’s ruling will be appealed.
The Nicholas case involves what the IRS has branded the distressed asset/debt or “DAD” shelter. In this ploy, a U.S. taxpayer purchases (through a partnership) junk foreign debt for pennies on the dollar and then claims big paper tax losses—losses that are real, but that were sustained by a foreign lender, not the U.S. taxpayer. DAD was marketed to the ultra-wealthy in 2001 and 2002 after the IRS began cracking down on even more brazen tax gambits, such as the notorious Son of Boss shelter. New 400 member Shahid Khan, owner of the NFL’s Jacksonville Jaguars, is currently suing BDO Seidman for, among other things, selling him DAD shelters for both 2002 and 2003. In October 2004, Congress changed the tax code to bar partnerships from being used to transfer foreign losses to U.S. taxpayers, thus clearly outlawing DAD after that point.
Tax Policy Center: Five Myths About the 47 Percent:
As Mitt Romney recently noted, about 47% of U.S. households do not pay federal income taxes. Some see this as evidence of a welfare state run amok. Others think that gimmicks and loopholes let both rich and poor Americans duck their taxes. This commentary corrects some misconceptions about this group, now colloquially called the 47%.
Heritage Foundation: Tax Policy Center’s Skewed Analysis of Governor Romney's Tax Plan:
The Tax Policy Center recently released a report that erroneously concludes that Governor Mitt Romney’s tax reform plan would necessarily cut taxes for the rich and raise them for middle-income and low-income taxpayers. However, despite the authors’ claims, their analysis is far from definitive. Instead, their conclusion is the result of a series of carefully made choices. These choices, not the underlying nature of the Romney plan, cause them to arrive at their selected result. This finding is harming the debate on tax reform.
- Sole Proprietorship Returns, 2010 (p. 5), by Adrian Dungan
- Partnership and Sole Proprietorship Data (p. 71), by Region and State for Tax Years 2007–2009, by Suet Boudhraa
- Foreign-Controlled Domestic Corporations, 2009 (p. 83), by James R. Hobbs
- Corporate Foreign Tax Credit, 2008 (p. 128), by Melissa Costa
I am honored to be included on the list of Accounting Today's 100 Most Influential People in Tax and Accounting for the seventh year in a row. I am flattered to be on the list with such high-powered people in the tax and accounting worlds, including:
- Max Baucus (Chair, Senate Finance Committee)
- Dave Camp (Chair, House Ways & Means Committee)
- Stephen Chipman (CEO, Grant Thornton)
- J. Russell George (Treasury Inspector General for Tax Administration)
- Charles Grassley (Member, Senate Finance Committee)
- Orin Hatch (Ranking Member, Senate Finance Committee)
- Karen Hawkins (IRS Office of Professional Responsibility)
- Barry Melancon (President & CEO, AICPA)
- Robert Mortiz (Chair, PriceWaterhouseCoopers)
- Barack Obama (President of the United States)
- Nina Olson (National Taxpayer Advocate, IRS)
- Mitt Romney (Republican Candidate for President of the United States)
- Mary Schapiro (Chair, SEC)
- Leslie Seidman (Chair, FASB)
- Douglas Shulman (Commissioner, IRS)
- James Turley (Chair & CEO, Ernst & Young)
- John Veihmeyer (Chair & CEO, KPMG)
The Jurisprudential Perspectives of Taxation Law conference organized by John Prebble (Victoria University of Wellington) and W. Bradley Wendel (Cornell) concludes today at Cornell with these papers (abstracts are available here):
- Chye-Ching Huang (University of Auckland), Illuminating Tax Anti-avoidance Doctrines by Analogy to Traditional Constitutional Rights
- C. John Taylor (University of New South Wales), Tax Treaties And The Attribution Of Profits To Permanent Establishments: Ectopia Unnoticed
- Alexandra Pryor (Cozen O’Connor Public Strategies), Ought There to be a Graduated Federal Income Tax?: Is Robin Hood Justice, Justice at All?
- Darien Shanske (UC-Hastings), Aristotle on Reciprocal Justice or Finally a Name for the Virtue of Tax Non-Avoidance
- Karie Davis-Nozemack (Georgia Institute of Technology), Corporate Self-Determination and Tax Planning
- Natalie P. Stoianoff (University of Technology, Sydney), The Moral Duty to Pay Tax -- Surrendering Freedom or Just Striving for Happiness?
- Joel Newman (Wake Forest), Winston-Salem, North Carolina Avoidance and Morality: Must Expenditures Be Moral To Be Deductible?
- John Prebble (Victoria University of Wellington), Explaining Anti-Avoidance Rules in Terms of Kahneman’s Model of Two Forms of Reasoning
- John Prebble (Victoria University of Wellington) & Maria Amparo Grau Ruiz (University Complutense Madrid), Jurisprudential Perspectives of Taxation Law: A Manifesto
National Law Journal: Former Profs Accuse Atlanta's John Marshall Law School of Bias, Retaliation:
Two former associate professors at Atlanta's John Marshall Law School have filed lawsuits alleging that their teaching contracts were not renewed in 2011 because of racial discrimination and retaliation.
Kamina Pinder, an African-American woman, accused the school of a history of giving minority women the least desirable teaching assignments and dissuading them from seeking tenure. Scott Sigman, a white man, claimed he was fired in retaliation for raising concerns about the administration's handling of personal matters and unfair grading. ...
Dean Richardson Lynn ... said he opted not to renew either Pinder's or Sigman's teaching contract because of their plans to launch a private business called Law School Advantage, aimed at helping to prepare incoming law students. He feared a potential conflict of interest, given that the enterprise would take time away from their teaching at John Marshall and that the school might pursue a similar program in the future, he said. The faculty handbook prohibits professors from starting outside businesses, although it does permit some types of outside consulting, he said.
Inequality has been at the forefront of the nation’s political discourse recently thanks to a number of published reports purporting to show the rich getting richer while the rest of America is stuck in neutral. Indeed, one report suggests that Americans have not been this unequal since the Great Depression in 1929.
Spurred by this news, support is growing in both Washington and among the public to raise tax rates on the “rich” to reduce inequality in America. Indeed, many believe that the tax policies enacted in 2001 and 2003—which lowered marginal tax rates for all taxpayers—are a root cause of today’s inequality. Therefore, critics conclude, raising tax rates on high-income Americans will halt the growth of inequality.
As this book shows, much of the perceived rise in inequality is really the natural result of the business cycle as well as social and demographic forces far beyond the role of tax policy. Indeed, there is no evidence of a long-term trend in inequality over the last 20 years, only wide swings up and down.
Thanks to misdirected tax policy, America is becoming divided between a shrinking group of taxpayers who are bearing the lion’s share of the cost of government today and a growing group of taxpayers who are disconnected from the basic cost of government.
The goal of this book is to put a face on the ever-changing demographics of American taxpayers. The failure to understand these changes has produced poor tax policy and threatens to undermine efforts to overhaul the tax code.
Like most people, I try not to think too hard or often about my life. It's a pretty good one, but reflection is a dangerous enterprise. Sometimes, though, I like to take stock. But I'm having trouble figuring out the answer to the most basic question about how I make my living: who pays my salary?
I'm a professor at William and Mary's law school, where most of our budget -- like almost all law schools today -- comes from student tuition. The students, though, pay very little of that tuition in "real time." It comes from the federal government in the form of loans, and has to eventually be paid back. ... [M]y best answer is that taxpayers in the 2030s and 2040s mostly pay the salaries of me and my fellow law professors.