Saturday, May 31, 2014
- Panel #11: Social Policy, Human Needs, and Tax Law
- Panel #12: Politics, Substance, and Taxation
- Author Meets Readers: Ajay Mehrotra (Indiana), Making the Modern American Fiscal State
Today's paper presenters, topics, and abstracts are below the fold:
Panel #11: Social Policy, Human Needs, and Tax Law (Lily Kahng (Seattle), Chair& Discussant)
- Kasey Henricks (American Bar Foundation), Bursting Whose Bubble?: The Racial Tax Consequences of Evaporated Home Value: "Does racial bias exist in the distribution of homeownership tax benefits? Some argue yes, but few have empirically measured whether this is the case. Even if they had, the 2006 housing collapse has deeply impacted homeowners, so that past claims must be verified under present-day evidence. Utilizing national-level data from the Survey of Income and Program Participation, I measure the housing crash's before-and-after impact on home equity values by examining cross-sections of 2005 and 2010. In particular, a series of ordinary least squares regression models are completed. My analytic goal is to discern not only if the eligibility of homeownership tax benefits is distributed along racial lines, but how this distribution has changed in recent years. The evidence I offer confirms that race is a central organizing principle in determining who can claim these exemptions and how much. Having implications for what has been labeled "the sedimentation of racial inequality," my findings show how structural constraints of taxation, housing wealth, and disaster build upon one another in overlapping and interacting ways to distribute racial privilege and burden."
- Francine Lipman (UNLV), Focus on the Future: Saving Our Children Under the Internal Revenue Code: "America is facing record poverty especially among its most vulnerable and youngest members -- our children. As the great recession impacts budgets and jeopardizes traditional childhood antipoverty safety nets including food stamps (now SNAP) and early education programs America's children could be at greater risk. Nevertheless, the Internal Revenue Code of 1986, as amended, contains a number of tax benefits specifically targeted at working poor families with children. These tax provisions while beneficial could be better designed to more effectively deliver antipoverty benefits to children. This essay will discuss these tax provisions while reflecting on the words and wisdom of the original warriors on the war on poverty fifty years ago."
- Stephanie McMahon (Cincinnati), Formation of Tax Policy: Why is Divorce So Taxing?: "Congress has many, sometimes conflicting and sometimes unstated, objectives when enacting tax legislation. Congress may simply want to increase or decrease government revenue. On the other hand, Congress may view tax legislation as a way to accomplish other, nonrevenue specific goals. In the latter case, Congress may believe the best way to accomplish its nontax objectives is by enacting targeted tax reduction. How (or whether) Congress's many objectives can be reconciled is the subject of this paper. This paper argues that tax reduction per se is not an unequivocally good tool if the goal is to accomplish nonrevenue objectives. Using divorce as a case study, this paper explores how the focus on tax reduction fails to accomplish nonrevenue goals of aiding lower-income divorced spouses and the children of divorced couples. In particular, three of the fundamental premises of current divorce-related taxation fail to achieve equity as between spouses or among taxpayers and are difficult to administer by both divorcing couples and the IRS. The focus on shifting income between spouses to reduce a couple's collective taxes, the implicit and explicit elections that enable this income shifting, and the classifications of who should be entitled to this tax reduction are each problematic. As shown by this study, when forming tax policy that has goals beyond raising or reducing government revenue, Congress should be wary of viewing tax reduction as an objective for fear of creating an inequitable and inadministrable regime."
- Shu-Yi Oei (Tulane), Taxing Human Equity: "This paper discusses how tax law should treat overleveraged individuals."
Panel #12: Politics, Substance, and Taxation (Kristin Hickman (Minnesota), Chair & Discussant)
- Jordan Barry (San Diego), The Foreign Tax Credit and the Limits of Substance: "In PPL v. Commissioner, the Supreme Court ruled that the United Kingdom's windfall tax was a creditable foreign income tax. The Court based its ruling on the ground that, for most of the taxpayers subject to the tax, its effects were economically identical to an income tax. The Supreme Court characterized its ruling as a triumph of the time-honored tax law principle of substance over form. However, this article shows that there are limits to relying on substance in the context of the foreign income tax credit: It is often possible to write a tax as a combination of an income tax and another tax. If economic substance is all that matters for U.S. tax purposes, the income tax component should be creditable. But, in many cases, it is possible to write the same tax in several different ways, each of which includes an income tax with a different rate. Depending on which combination of taxes one chooses, the same tax would qualify for credits of different amounts. There is no good way to determine the proper amount to be credited based on substance alone. The most natural ways to resolve these situations depend on the form of the foreign tax. Thus, the principle of substance over form can have only limited application in the context of the foreign income tax credit."
- Steven Dean (Brooklyn), Space Madness: Tax Expenditures and Economic Substance: "Renewable energy, historic preservation and affordable housing initiatives have become a little like lovable dolphins tangled in a net targeting an entirely different creature. An anti-abuse provision crafted to constrain tax shelters and other aggressive tax planning-the recently codified economic substance doctrine-has snared tax benefits designed to catalyze these socially desirable investments. Unwilling to dilute the potency of that doctrine Congress has failed to intervene and the Supreme Court recently declined to act in its stead. This Article highlights an opportunity for legislators or the courts to balance vigilance and restraint."
- Lloyd Mayer (Notre Dame), Taxing Politics: "Politics involves money, and money implicates taxes. Tax law therefore has to address the tax treatment of political contributions, political expenditures, and political organizations. That treatment can solely focus on politics as an economic activity, applying generally applicable concepts of income, permissible deductions, and so on. But that treatment can also focus on politics as an activity to be regulated, with the tax law deployed as a tool for combating corruption, promoting equality, and encouraging democratic participation in an age of special interest groups, sharply increasing political spending, and corporate political money. This Article discusses the taxation of political activity and political organizations. It considers the current tax treatment of political activity and organizations under the United States federal income tax and whether that treatment is appropriate if political activity is treated solely as an economic activity. It also considers the advantages and disadvantages of using the federal tax laws to regulate political activity and organizations in order to improve our political system. That latter consideration necessarily requires comparing tax law and the institutions that interpret and enforce that law to other bodies of law and their related institutions, such as election law and the Federal Election Commission, to determine whether tax law is the best available legal avenue for pursuing such goals. It also requires considering the ever changing constitutional limits on regulating money in politics.
- Benjamin McDaniel (Minnesota), The End of "The Minnesota Miracle"?: Revisiting Equitable Taxation from the Taxpayers' Means to Distributing the Graft: "In 1971, the Minnesota Legislature passed a hotly contested Omnibus Tax Bill. It raised total state tax revenues by $580 million through a 22 per cent increase in individual and corporate income tax rates, a 25 per cent increase in the alcohol tax rate, a 3.5 per cent increase in the sales tax, and a 5 cent tax raise for each pack of cigarettes. The legislature used the additional revenue generated by these increased tax rates to increase state support for K-12 education from 3 per cent to 65 per cent, while, simultaneously, reducing state-wide school property tax revenues by 18 per cent. The passage of this bill marked the end of the transition period during which the state became permanently responsible for funding the majority of public education expenses. It effectively dismantled the "separate but equal" doctrine of public education finance in Minnesota. In the same legislative session, the state legislature also passed the Fiscal Disparities Act. It provided a means for local governments to share in the property tax revenues generated by businesses, but without removing any existing revenues or affecting local decision-making over land use regulation. The act required the 7 counties and 189 municipalities in the Twin Cities Metropolitan Area to contribute 40 per cent of the money generated from the tax on new commercial and industrial property into a fiscal disparities pool. The state would then redistribute those pooled monies to local governments based upon a formula that calculated which governments had the fewest funds to spend on each constituent. The Minnesota legislature hoped this redistribution would discourage businesses from moving around the Metropolitan Area in search of lower property tax rates, and, more importantly, would improve the overall financial climate in the region through increased public spending. Time Magazine acclaimed the 1971 legislature as "The Minnesota Miracle" and the rhapsody was apt. Over the next 30 years, the per constituent spending between the richest and poorest school districts narrowed from $250/1 to $12/1, and the per constituent spending between the richest and poorest counties narrowed from $16/1 to $3/1. Over the past decade, however, these ratios have ceased to narrow. Administrators for a few of the more prosperous municipalities now think the fiscal disparities legislation may have run its course. They grumble that the state provides the lion's share of funding for education through income taxes, so the need to redistribute property tax revenues is less important than before. A Minnesota Department of Revenue (2012) report suggests rolling back the legislation may even be responsible economic policy. It found that the commercial tax revenues lost by local governments in the regional sharing program slows business development when businesses already share too much of the property tax burden. The report also found that a more equitable revenue sharing arrangement should include contributions from single-family realty. These findings are interesting because they imply that taxpayers and their government representatives will soon face a serious political conundrum. Preserving fiscal disparities legislation may mean that new job growth slows at a time when people most need jobs, but discarding it raises the property tax rate for homeownership and education when no forthcoming jobs are guaranteed. The Department of Revenue's report does or does not have merit depending upon one's understanding of economics. Scholars and politicians concerned about fiscal disparities legislation think the state should either keep the legislation or discard it. But is this the only choice? So far, no one has explored other tax policy alternatives in any constructive way. In this study I am seeking policy alternatives to fiscal disparities legislation that will continue to narrow the remaining gap in public expenditures. Fostering business development, of course, is not the only legitimate concern in arranging property tax revenues for local governments. Adequate public services, efficiently and economically performed and equitably financed across the tax-base, provide the background against which business development considerations should be viewed. In particular, I focus upon the state classifications of taxable realty and the land use regulations that affect their distribution. These policies directly shape the tax structure of Minnesota's local economies, and, for that reason, they receive special attention.
Author Meets Readers: Ajay Mehrotra (Indiana), Making the Modern American Fiscal State: "In Making the American Fiscal State, Ajay Mehrotra uncovers the contested roots and paradoxical consequences of a fundamental shift in American tax law and policy. Mehrotra demonstrates how, at the turn of the Twentieth Century, the US system of public finance underwent a dramatic transformation. The late Nineteenth-Century regime of indirect, hidden, partisan, and regressive taxes was eclipsed in the early Twentieth Century by a direct, transparent, professionally administered, and progressive tax system. Mehrotra argues that this move marked the emergence of a new fiscal polity--a new form of statecraft that was guided not simply by the functional need for greater revenue but by broader social concerns about economic justice, civic identity, bureaucratic capacity, and public power."