TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, March 9, 2018

Why Are Your State Tax Dollars Subsidizing Corporations?

New York Times op-ed:  Why Are Your State Tax Dollars Subsidizing Corporations?, by Nathan M. Jensen (Texas):

Last year, the state of Georgia entered the competition for Amazon’s second headquarters. The state put billions on the table to woo the company and its potential 50,000-job, $5 billion investment.

This year, not long after Atlanta was named one of the 20 finalists for Amazon HQ2, Lt. Gov. Casey Cagle of Georgia lashed out at Delta Air Lines after it suspended discounts for members of the National Rifle Association. Mr. Cagle declared he would kill state tax breaks for the airline, and the Republican State Legislature followed through by removing about $40 million in tax incentives from Delta.

The Amazon offer was an effort to attract business, while the Delta punishment will probably have the opposite effect. But they are both really about the same thing: political theater.

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March 9, 2018 in Tax | Permalink | Comments (0)

Accused Hit Man In Dan Markel's Murder Pleads Not Guilty To New Charges

Garcia 2Tallahassee Democrat, Accused Markel Shooter Pleads Not Guilty to New Charges:

Accused murder suspect Sigfredo Garcia pleaded not guilty to charges of conspiracy to commit murder and solicitation of murder in connection with the killing of Dan Markel.

Garcia is one of three people charged in the July 2014 murder of the Florida State University law professor.

Garcia, 35, and his girlfriend Katherine Magbanua, 33, both await trial on murder charges in the Leon County jail. Last month, prosecutors leveled additional charges against them.

Garcia appeared in court for his arraignment Tuesday.

Assistant State Attorney Georgia Cappleman said the new charges, filed a year or more after the duo’s arrest, were meant to reflect their entire role in what investigators say was a murder-for-hire.

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March 9, 2018 in Legal Education | Permalink | Comments (2)

Thursday, March 8, 2018

Schmalbeck Presents Ending The Sweetheart Deal Between Big-Time College Sports And The Tax System Today At Duke

Schmalbeck (2018)Richard Schmalbeck (Duke) presents Ending the Sweetheart Deal between Big-Time College Sports and the Tax System at Duke today as part of its Tax Policy Workshop Series hosted by Lawrence Zelenak:

This paper was prepared for a conference of the National Center for Philanthropy and Law, of the NYU Law School in October, 2014. The overall topic was “Tax Issues Affecting Colleges and Universities,” and I was asked to address specifically those issues relating to athletics. This paper considers two specific issues that have in common that they involve college ”revenue” sports, and are plagued by egregiously bad tax rules. In particular, they are: the failure of the IRS to regard any part of the revenue from college sports as unrelated business income, and the choice by Congress to allow taxpayers to deduct 80% of contributions that they make to colleges or their “booster clubs,” even when those contributions entitle the donors to special privileges in purchasing tickets to college athletic events. Together, these defects amount to an implicit tax subsidy of college sports that is neither healthy nor in any way justified.

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March 8, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Polsky: Explaining Choice-of-Entity Decisions By Silicon Valley Start-Ups

Gregg D. Polsky (Georgia), Explaining Choice-of-Entity Decisions by Silicon Valley Start-Ups:

Perhaps the most fundamental role of a business tax advisor is to recommend the optimal entity choice for nascent business enterprises. Nevertheless, even in 2018, the choice-of-entity analysis remains highly muddled. Most tax practitioners across the United States consistently recommend flow-through entities, such as LLCs and S corporations, to their clients. In contrast, a discrete group of highly sophisticated tax professionals, those who advise start-ups in Silicon Valley and other hotbeds of start-up activity, prefer C corporations.

Prior commentary has described and tried to explain this paradox without finding an adequate explanation. These commentators have noted a host of superficially plausible explanations, all of which they ultimately conclude are not wholly persuasive. The puzzle therefore remains.

This article attempts to finally solve the puzzle by examining two factors that have been either vastly underappreciated or completely ignored in the existing literature.

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March 8, 2018 in Scholarship, Tax | Permalink | Comments (1)

Can A University Fire Tenured Faculty For Revealing Confidential Tenure Deliberations?

Inside Higher Ed, Is Gossip Grounds for Termination?:

Discussions about tenure votes are considered private on most campuses, but some say Dixie State is trumping up breach of confidentiality claims against two professors to get rid of them for political reasons.

While institutions are beginning to take more action on faculty misconduct, tenured faculty terminations remain rare and typically follow reports of serious misconduct. So the mysterious firings of two longtime, tenured professors of music at Dixie State University in Utah last week are attracting attention — including a petition to bring them back.

“Both are widely loved and known in their community and were fired for minor policy violations,” reads the petition, organized by a group called Full Disclosure DSU. “We believe that termination should be saved for the most severe actions, and their punishment does not fit their ‘crimes.’”

Even in scare quotes, “crimes” is probably too strong a word for the main claims against Glenn Webb, chair of music, and Ken Peterson, director of vocal activities: not liking a colleague and then discussing the vote on that colleague's tenure bid.

Peterson, who did not respond to a request for comment, posted on Facebook his notice of dismissal, dated Friday. It accuses him of “professional incompetence, serious misconduct or unethical behavior" and "serious violation” of university rules and regulations.

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March 8, 2018 in Legal Education | Permalink | Comments (2)

Harvard Economists: New Tax Law Will Cost Treasury $1.2 Trillion Over A Decade

Wall Street Journal, Tax Law Doesn’t Pay for Itself, Harvard Economists Find:

The recent changes to the U.S. tax law will increase economic growth modestly but not fast enough to pay for themselves, according to a new estimate from a pair of economists from different sides of the political spectrum. In other words, the additional government tax revenue generated by higher growth won’t be enough to offset the drop in revenue due to tax cuts.

The net cost to the Treasury, after accounting for economic growth, would be $1.2 trillion over a decade, according to the paper by the Harvard University economists, conservative Robert Barro and Jason Furman, who was an adviser to President Barack Obama.

Robert J. Barro (Harvard) & Jason Furman (Harvard), The Macroeconomic Effects of the 2017 Tax Reform:

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March 8, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

A New Approach To Decanal Leadership: Faculty Dunk Tanks

Muller McDonald

As part of yesterday's wonderful Give2Pepp celebration, I (perhaps too) gleefully participated in the faculty dunk tank part of the program.

Muller 1

My faculty colleagues soon embraced this leadership initiative:

Mike

I drew the line, however, at sumo wrestling:

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March 8, 2018 in Legal Education | Permalink | Comments (2)

Repetti: The Impact Of The 2017 Act's Tax Rate Changes On Choice Of Entity

Florida Tax Review  (2015)James R. Repetti (Boston College), The Impact of the 2017 Act's Tax Rate Changes on Choice of Entity, 21 Fla. Tax Rev. ___ (2018):

In an ideal world, the effective tax rates for C corporations and partnerships would be identical and tax rates would not play a role in selecting an entity for conducting a business. Unfortunately, the new statutory rates in the 2017 Tax Act and the 20% § 199A deduction have not leveled the playing field.

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March 8, 2018 in Scholarship, Tax | Permalink | Comments (1)

Protestors Disrupt Speech By Christina Hoff Sommers At Lewis & Clark Law School

New York Times op-ed:  We’re All Fascists Now, by Bari Weiss:

Christina Hoff Sommers is a self-identified feminist and registered Democrat with a Ph.D. in philosophy and a wicked sense of humor. She is also a woman who says bad things. Things like: Men and women are equal, but there are differences between them. Or: The gender gap in STEM fields isn’t simply the result of sexism. Or: Contrary to received wisdom, the American school system actually favors girls, not boys.

When such a person steps foot on a college campus these days, you know what’s coming. So it was on Monday at Lewis & Clark Law School in Portland, Ore., where Ms. Sommers had been invited by the Federalist Society to give a talk about feminism.

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March 8, 2018 in Legal Education | Permalink | Comments (5)

Treasury To Close Carried Interest Loophole

Wall Street Journal, Treasury Issues Tax Guidance Limiting Carried-Interest Provision:

The Treasury Department moved Thursday [Notice 2018-18] to limit a gap that could have let some investment-fund managers avoid higher taxes on their carried-interest income.

The formal move, previously announced by Treasury Secretary Steven Mnuchin, will be followed by regulations that will be retroactive to Jan. 1, the government said. ...

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March 8, 2018 in IRS News, Tax | Permalink | Comments (1)

Wednesday, March 7, 2018

Race, Cognitive Biases, And The Power Of Law Student Teaching Evaluations

Gregory S. Parks (Wake Forest), Race, Cognitive Biases, and the Power of Law Student Teaching Evaluations, 51  U.C. Davis L. Rev. 1039 (2018):

Decades of research shows that students' professor evaluations are influenced by factors well-beyond how knowledgeable the professor was or how effectively they taught. Among those factors is race. While some students' evaluative judgments of professors of color may be motivated by express racial animus, it is doubtful that such is the dominant narrative. Rather, what likely takes place are systematic deviations from rational judgment, whereby inferences about other people and situations are illogically drawn. In short, students' cognitive biases skew how they evaluate professors of color. In this Article, I explore how cognitive biases among law students influence how they perceive and evaluate law faculty of color.

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March 7, 2018 in Legal Education, Scholarship | Permalink | Comments (1)

Cooper: Soldiers With Fortunes? Rethinking The Tax Treatment Of Fallen Combatants

Jeffrey A. Cooper (Quinnipiac), Soldiers with Fortunes?: Rethinking the Tax Treatment of Fallen Combatants, 9 Colum. J. Tax L. 113 (2017):

Section 2201 of the Internal Revenue Code provides a partial estate tax exemption for members of the armed forces who die in, or as a result of, combat operations. In this Article, I explore the origins of this exemption and assess the extent to which it serves three important policy goals: (1) reducing financial and administrative burdens on military families, (2) incentivizing military service, and (3) avoiding the moral hazard of the government being able to “profit” (through increased tax revenues) as a result of combat deaths.

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March 7, 2018 in Scholarship, Tax | Permalink | Comments (0)

The Uneasy History Of Experiential Education in U.S. Law Schools

Peter A. Joy (Washington University), The Uneasy History of Experiential Education in U.S. Law Schools, 122 Dickinson L. Rev. ___ (2018):

This article explores the history of legal education, particularly the rise of experiential learning and its importance. In the early years of legal education in the United States, law schools devalued the development of practical skills in students, and many legal educators viewed practical experience in prospective faculty as a “taint.” This article begins with a brief history of these early years and how legal education subsequently evolved with greater involvement of the American Bar Association (ABA). With involvement of the ABA came a call for greater uniformity in legal education and guidelines to help law schools establish criteria for admissions and curricula. This article also discusses the influence of the ABA Standards, particularly Standard 302, in legal education. In the latter half of the 20th century, it became clear that a legal education without any professional development or practical training was deficient. A new ABA task force dedicated to “narrowing the gap” between practitioners and professors published the MacCrate Report, detailing the skills and values law students should develop before entering the profession. Lastly, although the ABA Standards have done a great deal in fixing these deficiencies, there is a great deal that law schools must do on their own.

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March 7, 2018 in Legal Education | Permalink | Comments (1)

The New Tax Law Shifts The Focus Of Estate Planning To The Income Tax

Daily Business Review, 2017 Tax Act Changes the Focus of Estate Planning to Saving Income Tax:

Traditionally, estate planning to maximize what passes to the next generation after taxes meant planning to reduce the federal estate tax. This was accomplished by reducing the size of a person’s estate at death through a variety of planning techniques. However, an estate is subject to estate tax only to the extent the estate exceeds the estate tax exemption. Over the years Congress has been increasing the estate tax exemption. For the years 2011 through 2017, the exemption was increased to $5 million adjusted for inflation, which equated to an exemption of approximately $5.5 million in 2017 after the inflation adjustment. The 2017 Tax Cuts and Jobs Act temporarily doubles the exemption for individuals dying in 2018 through 2025. In 2026 the exemption will revert to $5 million adjusted for inflation. As a result, in 2018 the exemption will be approximately $11 million after the inflation adjustment. In 2026, when the law reverts to the prior rules, the exemption will be $5 million adjusted for inflation, which will probably result in an exemption in excess of $6 million. ...

The reason income tax planning is a factor in estate planning is because Congress has retained the stepped-up basis at death rule.

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March 7, 2018 | Permalink | Comments (0)

Give2Pepp 2018

GivetoPepp

Today is Pepperdine University's second annual giving day in which the global Pepperdine community—students, alumni, faculty, staff, parents, and friends—unite to support our University. Give2Pepp’s primary goal is to strengthen the student experience through donations to academic programs and student life opportunities. 

Gifts of any size are welcome.  They can be directed to Pepperdine universityundergraduate college, four graduate schools (Business, Education and Pyschology, Law, and Public Policy), or athletics.  If you have enjoyed this blog through the years, I would very much appreciate it if you would make a gift (however small) to the law school.

Give2Law

I am proud that my associate deans and director of development have joined me in a challenge to our students:  for each student who gives $5 or more, we will contribute an additional $20.  I personally have given $2,500.  Gifts can be directed to five areas at the law school:

I and the deans of several of Pepperdine's other schools are engaged in a friendly competition over which school will receive the highest participation of alumni and student donors based on each school's alumni population and current enrollment. We have agreed to contribute to the winning school's Dean's Excellence Fund, and the winning dean will enjoy not only bragging rights but also a trophy to proudly display at his or her school until next year's challenge.  The deans have been talking smack to each other about the challenge, and with your help I will not have to eat my words to the other deans:

To paraphrase Larry Bird's comment before he won the NBA's three-point shooting contest: which one of you deans is going to finish second?

March 7, 2018 in Legal Education | Permalink | Comments (0)

What The New York Times' TurboTax Defense And A 'Liberal Law Professor' Say About The Trump Tax Cuts

Turbo TaxWall Street Journal op-ed:  The TurboTax Defense, by James Freeman:

A New York Times correction blames the popular software, but a liberal academic still isn’t satisfied.

The search continues for Americans who will not benefit from the Trump tax cuts on individual and corporate income. The New York Times has corrected a story this column described last week that originally forecast a much larger tax bill for a hypothetical New York couple. Now the paper acknowledges that the tax bill for such a couple would actually be lower and is blaming a popular software product for the error. But a liberal law professor says the Times still doesn’t have the story quite right.

That also goes for much of the media, which has devoted enormous coverage to the possibility of higher taxes on some Americans, even though the overwhelming majority are receiving tax cuts. And of course all Americans will benefit if the new tax law works as intended and encourages increased investment, faster growth and rising wages.

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March 7, 2018 in Legal Education, Tax | Permalink | Comments (7)

ABA Defends Denial Of Cooley Law School's Request To Open New Location

Thomas Cooley Logo (2017)ABA Journal, Denial of Cooley Law's Request to Open New Location Is Reasonable, ABA Motion Argues:

Given that Western Michigan University Thomas M. Cooley Law School already admits students who don’t appear capable of finishing law school and being admitted to practice law, it was reasonable to deny the school’s request to open a new location that would likely bring in even more students, the American Bar Association argued in a March 2 federal court filing.

“Because Cooley is already improperly admitting students who do not ‘appear capable’ of completing law school and being admitted to the bar, nothing required defendants to approve Cooley expanding to admit yet more students,” the March 2 filing states.

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March 7, 2018 in Legal Education | Permalink | Comments (0)

Tax Policy Center Hosts Conference Today On Wealth Taxation, Entrepreneurship, And Philanthropy

Tax Polcy Center Logo (2017)The Tax Policy Center hosts a conference today on Wealth Taxation, Entrepreneurship, and Philanthropy (live webcast from 9:00-10:30am EST):

Entrepreneurs strengthen the economy directly by innovating and taking risks, and indirectly through their contributions to philanthropic organizations. The tax code affects entrepreneurial activity and can encourage or stifle an entrepreneur’s philanthropic giving. At this forum, scholars will discuss new research that examines how estate and inheritance taxes affect entrepreneurship and how income and estate taxes affect the very wealthy. A discussion will follow about giving patterns among wealthy entrepreneurs and ways entrepreneurs are engaging in philanthropy in the 21st century.

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March 7, 2018 in Conferences, Scholarship, Tax, Think Tank Reports | Permalink | Comments (0)

Tuesday, March 6, 2018

Philipps Presents Gendering The Analysis Of Tax Expenditures Today At NYU

PhilipsLisa Philipps (Osgoode Hall) presents Gendering the Analysis of Tax Expenditures: Bridging Two Solitudes in Canadian Fiscal Policy at NYU today as part of its Tax Policy Colloquium Series hosted by Lily Batchelder and Daniel Shaviro:

This paper seeks to connect two fiscal policy files that have attracted significant scholarly and public interest in Canada since the 2015 election of a new federal government led by Prime Minister Justin Trudeau. Within a few months the government acted on an election promise by launching a Federal Review of Tax Expenditures. This was followed by a second, less anticipated announcement that it would undertake a gender-based analysis of budget measures. The federal budget of March 2017 included an inaugural Gender Statement, with a commitment to further develop this tool in future. Each of these projects carries important potential for fiscal reform but they have so far unfolded in parallel, conceptually isolated from one another. Our research considers what additional insights could be gained by bringing the two together. How might a gender analysis further illuminate the distributive impacts, behavioural effects and cost efficiency of tax expenditures? And what are the limitations of a gender budgeting exercise that focuses on direct spending measures, without equal attention to the revenue side of the budget and specifically tax expenditures? ...

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March 6, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Solomon Presents Drivers And Effects Of The 2017 Tax Act Today At Georgetown

SolomonEric Solomon (Ernst & Young) presents Drivers and Effects of the 2017 Tax Act at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by Lilian Faulhaber and Itai Grinberg:

Introduction
On December 22, 2017, the President signed “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (P.L. 115-97), hereinafter called the 2017 Tax Act (or the Act). The 2017 Tax Act made substantial changes to the Internal Revenue Code, particularly lowering the corporate tax rate and revising the international tax provisions. In the words of Mark Prater, Deputy Staff Director and Chief Tax Counsel for the Senate Finance Committee, three important factors in the development of this Act were policy, process and politics.

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March 6, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

Terry Smith, Distinguished Research Professor Facing Termination For Bullying Other Faculty Of Color, Sues DePaul For Discrimination

SmithABA Journal, DePaul Law Prof Who Defended Colleague in N-Word Controversy Sues School For Alleged Bias:

An African-American professor at DePaul University's College of Law is back in the news after coming to the defense of a white colleague over his controversial use of the N-word in class.

Terry Smith had backed Donald Hermannthe subject of student complaints for using the racial slur in a criminal law hypothetical about a white supremacist.

Smith told the Chicago Sun-Times that Hermann’s use of the N-word “was not gratuitous,” and that Hermann was perhaps the most progressive of his white colleagues.

Smith’s regard for Hermann does not extend to the law school and its dean. In a civil rights lawsuit filed last Wednesday in Chicago federal court, Smith claims the school retaliated against him because of his advocacy for racial diversity at the school. Among the defendants is law dean Jennifer Rosato Perea, Law360 reports in an article noted by Above the Law.

“For the better part of a decade,” the suit said, “Professor Smith has complained about an environment at the law school that is hostile to him. This has caused faculty to retaliate by freezing him out of the law school’s power structure.”

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March 6, 2018 in Legal Education | Permalink | Comments (0)

More Tax Profs Weigh In On South Dakota v. Wayfair

Following up on this morning's post, 60 Tax Profs File Amicus Brief Urging Supreme Court To Overrule Quill v. North Dakota:

Edward Zelinsky (Cardozo), The Political Process Case to Overturn Quill v. South Dakota:

By deciding to review Wayfair v. South Dakota, the US Supreme Court has thrust itself into the long and contentious debate about the proper tax treatment of internet sales. As I argue [The Political Process Argument for Overruling Quill, 82 Brook. L. Rev. 1177 (2017)], the Court should use this opportunity to overturn Quill v. North Dakota. In light of the relevant political process concerns, the Supreme Court should overrule Quill in the Court’s role as guardian of the states against federal commandeering. ...

Adam B. Thimmesch (Nebraska), A Unifying Approach to Nexus Under the Dormant Commerce Clause, 116 Mich. L. Rev. Online ___ (2018):

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March 6, 2018 in New Cases, Scholarship, Tax | Permalink | Comments (0)

60 Tax Profs File Amicus Brief Urging Supreme Court To Overrule Quill v. North Dakota

Sixty tax law professors and economists filed an amicus brief at the Supreme Court Monday urging the Justices to overrule the Dormant Commerce Clause holding of Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which bars states from enforcing sales taxes against retailers who lack a "physical presence" in the state. From the brief:

In Quill Corp. v. North Dakota, the Court emphasized that its dormant Commerce Clause analysis was based on “structural concerns about the effect of state regulation on the national economy.” 504 U.S. 298, 312 (1992). The Court was especially concerned about the effect of taxation on the mail-order industry, and it believed that maintaining the physical presence rule would “foster[] investment by businesses and individuals.” Id. at 315-18. It also believed that its rule would reduce compliance costs for businesses and individuals engaged in commerce across state lines. See id. at 313 n.6. For those reasons, the Court reaffirmed the physical presence rule first announced in National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967).

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March 6, 2018 in Ari Glogower, Daniel Hemel, David Gamage, David Herzig, Erin Scharff, New Cases, Orly Mazur, Sloan Speck, Tax Profs | Permalink | Comments (3)

Law Professors Are Paid Less, Work As Hard As Lawyers Do

Inside Higher Ed, ‘Poorly Paid’ Professors:

Professors earn about 15 percent less than others with advanced degrees, finds a study circulated Tuesday by the National Bureau of Economic Research.

The study, Why Are Professors 'Poorly Paid'?, uses data from the Current Population Survey to compare the salaries and other characteristics of those with Ph.D., Ed.D., J.D. or M.D. degrees. Those who reported their profession as "postsecondary teacher" were compared to everyone else. The study was conducted by Daniel S. Hamermesh, an economist at Barnard College.

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March 6, 2018 in Legal Education | Permalink | Comments (6)

Lucas: Voter Psychology And The Carbon Tax

Gary Lucas, Jr. (Texas A&M), Voter Psychology and the Carbon Tax, 90 Temple L. Rev. 1 (2017):

Economists across the political spectrum argue that a carbon tax is the most effective and economically efficient policy for addressing climate change. Voters, however, strongly oppose the carbon tax and instead favor “green” subsidies and command-and-control regulations. If carefully designed, these policies might complement a carbon tax, but by themselves, they will make global warming mitigation incredibly expensive and perhaps even infeasible. Moreover, if poorly designed, subsidies and regulations can be counterproductive.

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March 6, 2018 in Scholarship, Tax | Permalink | Comments (0)

Hollywood At Pepperdine: ABC's 'For The People' Goes To Law School

We

I had a blast attending a screening at Pepperdine of the pilot episode of the new ABC show, For the People. The show's creator (Paul William Davies) and three of the stars came to Pepperdine for the event (Susannah Flood, Wesam Keesh, and Regé-Jean Page).  Victoria Schwartz moderated the discussion, which included Chris Goodman and me.

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March 6, 2018 in Legal Education | Permalink | Comments (0)

Monday, March 5, 2018

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Wallace & Glogower's Shades Of Income

This week, Mirit Eyal-Cohen (Alabama) reviews Shades of Basic Income by Clint Wallace (South Carolina) & Ari D. Glogower (Ohio State).

Mirit-Cohen (2018)Clint Wallace and Ari Glogower wrote this timely article as we witness expanding enthusiasm for the idea of Universal Basic Income among researchers, policymakers, and representatives across the political range. The Article begins by providing the definition and fundamental pillars of the basic income concept. The concept, which was proposed more than two hundred years ago by Thomas Paine, encompasses direct and unconditional cash transfers that are “not of the nature of a charity but of a right “from a government to its adult citizens. The Article goes on to outline the shared traits and contrasts between basic income and features of the current progressive tax system such as the personal exemption and standard deduction. It differentiates basic income from other government transfer programs by emphasizing that basic income transfers money to beneficiaries (even those without taxable income), it is generally awarded to all designated adult citizens with minimal conditions for eligibility, and usually places no restrictions on the use of the grant. The Article uses four hypothetical taxpayers to exemplify these effects of basic income: low-income (income up to $1,000), lower-middle-income (income up to $30,000), upper-middle-income (income up to $80,000), and high-income (income above $180,000). Meant to illustrate a point, these examples could work similarly when using present day amounts to reflect these classes. The authors conclude there are many familiar analogues between the way the progressive tax and basic income designs work, which makes the concept of basic income, in their opinion, not so much the exotic policy tool that is claimed to be by some of its critics.

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March 5, 2018 in Scholarship, Tax, Weekly SSRN Roundup | Permalink | Comments (0)

Oei & Ring Present Tax And Labor Law: New § 199A Today At BYU

Oei Ring (2018)Shu-Yi Oei (Boston College) & Diane Ring (Boston College) present The Other Labor Law? New IRC § 199A and the Impact of Tax on Workplace Arrangements at BYU today as part of its Tax Policy Colloquium Series hosted by Cliff Fleming and Gladriel Shobe:

As part of the 2017 tax reform, Congress enacted new IRC § 199A of the Internal Revenue Code. This new “qualified business income” (QBI) provision grants passthrough taxpayers, including qualifying workers who are independent contractors, a deduction equal to 20% of a specifically calculated base income amount. An important question is new Section 199A’s effects on work and labor markets, and specifically whether the new provision will give rise to a large-scale shift in the workplace, causing many workers to be reclassified as independent contractors.

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March 5, 2018 in Colloquia, Scholarship, Tax | Permalink | Comments (0)

McMahon: Tax Policy Elegy

ABA Tax LawyerMartin J. McMahon, Jr. (Florida), 2018 Erwin N. Griswold Lecture Before the American College of Tax Counsel: Tax Policy Elegy, 71 Tax Law. ___ (2018):

For over four decades there have been unrelenting calls to make the tax code “fair, simple, and efficient.” But despite nine major tax acts between 1969 and 2003, along with many less extensive tax acts, the refrain for a “fair, simple, and efficient” tax code has continued to be heard. This continuing plea is not surprising, because over the decades the tax system has evolved to ask the highest income earners to pay less in taxes, become ever more complex, and eschewed “efficiency” in favor of the allowance of an ever-increasing number of tax preferences. Tax act after tax act failed to produce a fair, simple, and efficient tax code. The recently enacted Tax Cuts and Jobs Act is simply another failure to enact tax reform that provides a fair, simple, and efficient tax code. The call for a “fair, simple, and efficient” tax code has become a mere trope. True “tax reform” entails revising the tax code better to meet normative tax policy criteria.

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March 5, 2018 in ABA Tax Section, Scholarship, Tax | Permalink | Comments (1)

Rob Anderson And Rick Cupp Receive Pepperdine Faculty Scholarship Award

ACCongratulations to the recipients of the Dean’s Award for Excellence in Scholarship, announced at our 45th Annual Pepperdine Law School Dinner on  Saturday night:

The Dean makes the selection after considering the recommendation made by the Award Selection Committee, which consists of (1) the Associate Dean for Research and Faculty Development, and (2) two to four faculty members, selected by the Dean, who have strong national scholarly reputations. The Committee’s recommendation is based primarily upon the originality of the scholarly work and the importance of its contribution to the academic literature. This year's co-winners are:

Prior winners:

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March 5, 2018 in Legal Education | Permalink | Comments (0)

Lesson From The Tax Court: The Tax Lawyer's Wedding Toast

During the first week of teaching federal income tax I give a homework assignment where I ask students to compare the 2011 tax returns of Mitt Romney and Hillary Clinton. Students must decide who had the heavier tax burden. You can find these returns (and many more) on the Tax Analyst Tax History website. Here’s what we usually come up with in class:

  Total Income Taxable Income Tax     % of Total Inc. % of Taxable Inc.
Romney $13,709,608  $9,007,709  $1,912,529 14%    21%
Clinton $14,899,139  $11,628,845  $4,336,068 29%    37%

My students are surprised by this result. Although they had similar total incomes, Romney and Clinton paid hugely different amounts and percentages of taxes no matter how you measure tax burden. But there is nothing nefarious about it. It simply reflects Congressional choice to tax capital gains at a lower rate than ordinary income.

To get the lower tax rate the gain must come from a sale or exchange of something called a “capital asset” that has been held for more than one year. Romney’s income came mostly from sales or exchanges of capital assets while Clinton’s came mostly from her labor. That difference in source made the difference in tax. Whatever one thinks about Clinton’s speaking fees, they still resulted from her labor and so were taxed at significantly higher rates than Romney’s capital gain income, even though dollars derived from labor have the same purchasing power as dollars derived from capital.

This preferential tax treatment for capital gains over labor income is a subsidy whereby Congress shifts dollars from one set of taxpayers (those like Clinton) to another set of taxpayers (those like Romney). It’s a subsidy just like the Earned Income Tax Credit (EITC) except that the EITC shifts dollars from higher earning taxpayers to lower earning taxpayers. So who does Uncle Sugar love more? Why, folks like Romney!! In 2016 the federal government spent about $106 billion to subsidize taxpayers who, like Romney, received income from capital sales or exchanges. In comparison, it spent $63 billion on the EITC subsidy. You can see these figures in the JCT’s latest Estimates of Federal Tax Expenditures.

Congress does put some restrictions on this rate subsidy. For example, §1211 generally prevents taxpayers from deducting capital losses against ordinary income.  After all, if a gain from the sale or exchange of a capital asset gets a lower rate, then a resulting loss should not be able to shelter otherwise higher taxed gain but only similarly taxed gains.

So when taxpayers have gain from the sale of some kind of property held for more than one year, they really want that lower tax rate. They want their gains to be from the sale of a capital asset. Contrariwise, when taxpayers have losses from the sale of some kind of property, taxpayers would really like to deduct those losses from their ordinary income, the kind that gets taxed at a higher rate. They want those losses to be from the same of property that is not a capital asset.

So what the heck is a “capital asset”? That is the lesson in Sugar Land Ranch Development, LLC, Sugar Land Advisors, LLC, Tax Matters Partner v. Commissioner, T.C. Memo 2018-21 (February 22, 2018). There, the taxpayers were able to transform properties that did not qualify as capital assets before 2008 into properties that did qualify as capital assets when they sold the properties for a net gain in 2012. So they got the rate subsidy. How’d they do that? Details below the fold, along with the Tax Lawyer’s Wedding Toast.

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March 5, 2018 in Bryan Camp, New Cases, Tax | Permalink | Comments (2)

Law Professors As Plaintiffs

Robert M. Jarvis (Nova), Law Professors as Plaintiffs, 81 Alb. L. Rev. 145 (2018):

To date, it appears no one has systematically examined lawsuits brought by law professors.[Fn.10] Yet doing so provides a different way to look at the academy and obtain a sense of what it means to work and have a career as a law professor. What is particularly striking is how often the same three issues are at the root of these lawsuits: dissatisfaction with, and professional jealousy of, faculty colleagues; disagreements with, and distrust of, administrators; and a feeling that others are receiving better, and undeserved, treatment.
[Fn.10: Individual reporting of such lawsuits, on the other hand, occurs regularly on such web sites as Above the Law, Jonathan Turley, TaxProf Blog, The Faculty Lounge, and The Volokh Conspiracy.]

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March 5, 2018 in Legal Education, Scholarship | Permalink | Comments (2)

Schmalbeck, Soled & Thomas:  The Case For A Carryover Tax Basis Regime

Richard Schmalbeck (Duke), Jay A. Soled (Rutgers) & Kathleen DeLaney Thomas (North Carolina), Advocating A Carryover Tax Basis Regime (At Least for Now), 92 Notre Dame L. Rev. ___ (2017):

For close to a century, an important (but unfortunate) feature of the Internal Revenue Code has been a rule that the tax basis of any asset is made equal to its fair market value at death. Notwithstanding the substantial revenue losses associated with this rule, Congress has retained it for reasons of administrative convenience.

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March 5, 2018 in Scholarship, Tax | Permalink | Comments (1)

TaxProf Blog Weekend Roundup

Sunday, March 4, 2018

A Taxing Oscars: $100,000 Swag Bags Come With $50,000 Tax Bill

OscarsMoney, This Year's Oscar Swag Bags Could Come With a $50,000 Tax Bill:

Swag bags are a big perk of going to the Oscars. But movie stars who accept the goodies could owe a hefty tax bill. ...

For top-earning movie stars, the result could be a tax bill that eats up roughly half the value of the bag. While the recent Tax Cuts and Jobs Act lowered the top federal income tax rate, it still amounts to a hefty 37%. There’s also state income tax, which in California tops out 13.3%. In other words, movie stars who collect a gift bag worth $100,000 could end up owing $50,300 in state and federal taxes. ...

To be sure, stars have some options to avoid paying out of pocket for stuff they don’t really want, says San Francisco tax lawyer Robert Wood [Oscars $100K Swag Bag's Taxing Price Tag].

IRS, Gift Bag Questions and Answers:

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March 4, 2018 in Celebrity Tax Lore, Tax | Permalink | Comments (0)

45th Annual Pepperdine Law School Dinner: Our Place In The World

Dinner

I was honored to speak last night at the 45th Annual Pepperdine School of Law Dinner at the Beverly Wilshire Hotel in Beverly Hills.  The theme of the dinner was Our Place in the World, which is particularly appropriate this year in light of the $8 million gift we received in September to support our global justice program (the largest single endowment gift in the law school's history).

In my remarks, I of course wove Hamilton clips into the tapestry of Pepperdine Law School's story:

  • Non-stop, to highlight Alexander Hamilton's scholarly work writing 51 of the 85 Federalist Papers to showcase our upcoming symposium on Federalism: Past Present, and Future as an example of the extraordinary scholarly work produced by our faculty.
  • My Shot, to show that Pepperdine is a "young, scrappy, and hungry" law school that has made enormous strides since our founding in 1970.
  • The Room Where It Happens, to describe the core of the Pepperdine student experience as what happens in the classroom, especially in the 1L year, as attested by our #6 ranking in best law professor-teachers by the Princeton Review from a nationwide survey of 20,000 law students (behind Virginia, Duke, Boston University, Stanford, and Chicago, and above Washington & Lee, Notre Dame, and Boston College).
  • I could not find an appropriate lyric in Hamilton, so I used photos and maps to illustrate how our 2Ls and 3Ls take what they are learning in the classroom and apply that knowledge in the real world helping real clients, as attested by our #5 ranking in practical training by the National Jurist (behind Northeastern, St. Thomas, Yale, and Arizona, and above UC-Irvine) and our #1 ranking (for 12 of the past 13 years) in alternative dispute resolution by U.S. News & World Report (above Ohio State, Harvard, and Missouri).
  • Right Hand Man, to share some very personal feelings about becoming dean ("Can I be real a second? Let my guard down and tell the people how I feel a second?").

I concluded by using Alexander Hamilton's words in The World Was Wide Enough and George Washington's words in Who Lives, Who Dies, Who Tells Your Story to reflect on U.S. District Court Judge Beverly Reid O’Connell ('90), who died on October 8 at the age of 52:

What is a legacy?
It’s planting seeds in a garden you never get to see

Let me tell you what I wish I’d known
When I was young and dreamed of glory
You have no control:
Who lives
Who dies
Who tells your story?

Here were my closing reflections on those verses:

Part of Judge O’Connell’s legacy, and the legacies of students, alumni, staff, faculty, and friends here tonight, are intertwined with the story of Pepperdine Law School.

The country and the world have never needed Pepperdine-trained lawyers, counselors, and peacemakers more.

We need your help to bring the very best students to our law school, provide them with a transformative legal education, and send them out into a hurting country and world to do their part to bring about peace, justice, and reconciliation.

So what is our place in the world?

My answer is everywhere.

The world will be a better place when we have more Pepperdine-trained lawyers in every corner of the globe.

Map

There was great karma last night, as Lin-Manuel Miranda was staying at the same hotel before his appearance at tonight's Oscars.  A member of the law school staff saw Lin in the lobby and invited him to stop by the dinner and meet Pepperdine's Hamilton-obsessed dean.  I took up the cause on social media:

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March 4, 2018 in Legal Education | Permalink | Comments (0)

Urged By Law School Deans, Federal Judges Revamp Clerk Hiring

National Law Journal, Urged by Law School Deans, Federal Judges Revamp Clerk Hiring:

Supported by a plea from more than 100 law school deans, an ad hoc group of federal appeals judges has reinstated a plan for recruiting future law clerks after their second year in law school, rather than basing the hires on first-year performance.

The new hiring plan, promulgated on Feb. 28, mirrors a policy that dated back to 2003 but collapsed in 2013 when fiercely competitive individual judges ignored the rules and pursued top first-year students for clerkships, some of whom went on to Supreme Court clerk positions. Former Ninth Circuit Judge Alex Kozinski famously flouted the earlier rules, once joking that he started recruiting clerks “at birth.”

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March 4, 2018 in Legal Education | Permalink | Comments (0)

The Top Five New Tax Papers

SSRN LogoThis week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list.

  1. [32,550 Downloads]  The Games They Will Play: An Update on the Conference Committee Tax Bill, by Ari Glogower (Ohio State), David Kamin (NYU), Rebecca Kysar (Brooklyn) & Darien Shanske (UC-Davis) et al.
  2. [1953 Downloads]  Understanding the Tax Cuts and Jobs Act, by Sam Donaldson (Georgia State)
  3. [1030 Downloads]  Federal Income Tax Treatment of Charitable Contributions Entitling Donor to a State Tax Credit, by Joseph Bankman (Stanford), David Gamage (Indiana), Jacob Goldin (Stanford) & Daniel Hemel (Chicago) et al.
  4. [703 Downloads]  Is New Code Section 199A Really Going to Turn Us All into Independent Contractors?, by Shu-Yi Oei (Boston College) & Diane M. Ring (Boston College)
  5. [464 Downloads]  The Tax Lifecycle Of A Single Member LLC, by F. Philip Manns Jr. (Liberty) & Timothy M. Todd (Liberty)

March 4, 2018 in Scholarship, Tax, Top 5 Downloads | Permalink | Comments (0)

Saturday, March 3, 2018

This Week's Ten Most Popular TaxProf Blog Posts

Tax Articles In The Louisiana Law Review

LSU Logo (2018)Jonathan D. Grossberg (American), Attacking Tax Shelters: Galloping Toward a Better Step Transaction Doctrine, 78 La. L. Rev. 369 (2017):

Since the beginning of the Internal Revenue Code, taxpayers have sought to lower their tax bills through creative tax planning. The step transaction doctrine is one of several tools used by the Internal Revenue Service and courts to challenge tax shelters and tax evasion. The step transaction doctrine provides that the courts may combine two or more allegedly separate steps in a multi-step transaction into a single step to better reflect the economic reality of the taxpayer’s actions. Derived from Supreme Court decisions in the 1930s, the doctrine deserves renewed scrutiny today because serious conceptual issues exist regarding the three current tests that courts use to determine when to combine various steps in a tax-motivated multiple-step transaction. This Article addresses two perennial themes in tax law: the role of judicial doctrines in a statutory system and the difficulty of taxing related-party transactions. This Article argues that courts should reformulate the binding commitment, interdependence, and end result tests as two objective tests: an objective test based on the law of offer and acceptance for arms-length transactions and an economic reality test for transactions between related parties. These new tests provide conceptual clarity and promote predictability while protecting the public treasury. The new tests borrow underlying concepts from contract and commercial law. The new tests demonstrate the fruitful possibilities of borrowing across areas of law. They also demonstrate that tax law shares similar concerns with other areas of law—a proposition that is sometimes doubted. This Article further contends that the step transaction doctrine, as reformulated, should be available for assertion by taxpayers in transactions between unrelated parties. Acknowledging the availability of the test for assertion by taxpayers will have the salutary effect of aligning the letter of the doctrine with its application.

Christine D. Allie (Delaware), Negating the Cost of “I Do”: Ending the United States Tax Code’s Family Penalty Through Permissive Joint Filing, 78 La. L. Rev. 499 (2017):

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March 3, 2018 in Scholarship, Tax | Permalink | Comments (0)

Give Students Who Complete Their 1L Year And Then Leave A Master’s Degree In Legal Principles

Joni Hersch (Vanderbilt), Increasing Diversity by a New Master’s Degree in Legal Principles, 67 J. Legal Educ. 86 (2017):

Students who leave their J.D. program before graduation leave emptyhanded, without an additional degree or other credential indicating that their law school studies had any professional, educational, or marketable value. The absence of such a credential combines with the substantial risks and costs associated with law school education to discourage risk-averse students from applying. The adverse impacts of these risks may be especially great for lower-income students who have fewer financial resources to draw on and less information about their fit with legal education and the legal profession. I propose that law schools award a master’s degree to students who successfully complete the 1L curriculum but leave before completing the full J.D. curriculum. My suggested name for this degree is master of legal principles (M.L.P.).

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March 3, 2018 in Legal Education, Scholarship | Permalink | Comments (4)

Epstein: The Constitutional Protection Of States Against Federal Taxation And Regulation

Richard A. Epstein (NYU), Dual Sovereignty Under the Constitution: How Best to Protect States Against Federal Taxation and Regulation, 49 Ariz. St. L.J. 935 (2017):

There is little doubt that the Framers of the United States Constitution had little awareness of the immense complexities that would creep into the constitutional system that they created in 1787 in Philadelphia. Their challenges were enormous given the necessity to determine the appropriate relationship of the states, both with each other and with the federal government. It is that last question that is the focus of this article, which asks the simple question of what level of protection states have from taxation and regulation by the federal government. ...

[T]he Supremacy Clause is said to fuel federal dominance of states on both matters of regulation and taxation, which leads to federal activities that are highly intrusive on the way in which states can conduct their own government affairs. The unfortunate efforts of the Obama-era Department of Labor to extend the reach of the FLSA over state agencies shows the limitless nature of the power, subject only to political restraints that often prove highly ineffective. The correct response is a return to the earlier constitutional principles, which worked well when in place. A constitution is intended to be an enduring document based on first principles of government. The older rules on intergovernmental immunity were honest efforts to reach the proper legal equilibrium. The recent rejection of these rules represents a major decline in the wisdom and effectiveness of modern American constitutionalism under its flawed progressive model.

March 3, 2018 in Scholarship, Tax | Permalink | Comments (1)

Friday, March 2, 2018

President Trump To Name Michael Desmond IRS Chief Counsel

DesmondBNA is reporting that President Trump plans to appoint Michael J. Desmond IRS Chief Counsel and Treasury Department Assistant General Counsel:

After serving as a law clerk for a Federal judge in Los Angeles, Mike began his career in tax controversy as a Trial Attorney with the Attorney General’s Honors Program at the Tax Division of the U.S. Department of Justice. After the Justice Department, Mike worked at a boutique tax firm in Washington, D.C., where he was elected partner in 2004. In this capacity he represented clients ranging from Fortune 100 companies to partnerships and individuals. Mike returned to government in 2005, serving as Tax Legislative Counsel in the U.S. Department of Treasury through 2008. As Tax Legislative Counsel, Mike was the Department’s senior legal advisor on domestic tax issues, testifying before Congress and working with senior IRS officials including the IRS Commissioner and Chief Counsel on a broad range of tax policy, legislative and regulatory matters. Following his tenure at the Treasury Department, Mike spent several more years as a partner in a global law firm [Bingham McCutchen] before starting his own practice in January 2012.

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March 2, 2018 in IRS News, Tax | Permalink | Comments (0)

Olson Presents The State Of The IRS Today At Minnesota

Olson (2018)Nina Olson (National Taxpayer Advocate) presents The State of the IRS at Minnesota today as part of its Perspectives on Taxation Lecture Series hosted by Kristin Hickman:

Drawing from her 2017 Annual Report to Congress, Ms. Olson will talk about problems facing the IRS and the implications for tax compliance and enforcement, including:

  • IRS funding and personnel cuts
  • Declining audit rates
  • Flawed implementation of congressional mandates requiring the use of private debt collectors and the denial of passports to certain U.S. citizens with substantial tax debts

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March 2, 2018 in Colloquia, IRS News, Tax | Permalink | Comments (0)

Weekly Legal Education Roundup

Tax Policy In The Trump Administration

NY Times: Spreadsheets at Dawn — The New Tax Battle Is All About Data

New York Times, Spreadsheets at Dawn: The New Tax Battle Is All About Data:

The new Republican tax cut is providing a powerful weapon for the law’s supporters and detractors, as well as investors and analysts, who are mining data on how companies are spending their windfalls in a battle to sway the behavior of voters and executives alike.

In the two months since President Trump signed the $1.5 trillion tax bill into law, a vast arsenal of spreadsheets has begun to capture, in real time, the effect of the tax cut as it works its way through corporate balance sheets. Traders are compiling data to find value in a volatile stock market. Advocates of corporate responsibility are hoping to shame companies into passing more of their savings on to employees or charities. Partisans are using it to sway public opinion.

None of the data, as of yet, yield anywhere close to a full picture of how the tax cuts are flowing through corporate boardrooms and into the American economy. But that has not stopped politicians and organizations from using it to advance their goals.

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March 2, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

University Of Minnesota Study: Enhanced Individualized Feedback In One Core 1L Class Improves Student Performance In Other Classes

Minnesota LogoDaniel Schwarcz (Minnesota) & Dion Farganis (J.D. 2017, Minnesota), The Impact of Individualized Feedback on Law Student Performance, 67 J. Legal Educ. 139 (2017):

For well over a century, first-year law students have typically not received any individualized feedback in their core "doctrinal" classes other than their final exam grades. Although this pedagogical model has long been assailed by critics, remarkably limited empirical evidence exists regarding the extent to which enhanced feedback improves law students' outcomes. This Article helps fill this gap by focusing on a natural experiment at the University of Minnesota Law School.

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March 2, 2018 in Legal Education, Scholarship, Teaching | Permalink | Comments (2)

NY Times, WSJ: Who Wins From The Corporate Tax Cuts?

WSJWall Street Journal, Boom in Share Buybacks Renews Question of Who Wins From Tax Cuts:

U.S. companies are buying back their shares at an aggressive pace, stirring debates in Washington and on Wall Street about how savings from corporate tax cuts are being used and who benefits most.

Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year, according to a Wall Street Journal analysis of data for S&P 500 companies. Among the biggest: Cisco at $25 billion, Wells Fargo at about $21 billion, PepsiCo at $15 billion, AbbVie and Amgen at $10 billion apiece, and Alphabet Inc. at $8.6 billion.

Announced buybacks surged in December as lawmakers in Washington finished writing a bill to cut U.S. taxes by $1.5 trillion over a decade, and continued at a robust pace in January and February. ...

The early moves are spurring a political debate about whether the tax cut is working; the full answer won’t be fully understood for months or years as the new money moves through the economy. ...

House Minority Leader Nancy Pelosi (D., Calif.) has labeled bonuses “crumbs” compared with the size of the corporate tax cuts.

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March 2, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Hamilton At Pepperdine

Hamilton Lecture Photo

It was my pleasure to speak with Pepperdine alum ('90) Charles Eskridge (Quinn Emanuel, Houston) to students, staff, and faculty about each of the 46 songs in Hamilton.  We divided the workload as follows:  Charles covered 45 songs, I covered one song — can you guess which one?

For more on my obsession with interest in Hamilton, see here and:

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March 2, 2018 in Legal Education | Permalink | Comments (1)