Friday, June 23, 2017
This week, David Gamage (Indiana) reviews a new article by Ari Glogower (Ohio State), Taxing Capital Appreciation, Tax Law Review, Vol. 70, No. 1, 2016.
Income and wealth inequality have been rising as issues of national concern. One would think that these concerns should motivate tax reform proposals designed to address income and wealth inequality. However, many leading tax law experts believe that the current structure of the U.S. income tax cannot support much higher tax rates at the high end. As Avi-Yonah and Zelik have persuasively explained, the reason is that we are “trapped” by our realization and capital gains rules.
The realization rule—that gains are not taxed until realized by sale or similar transaction—has long been understood as the “Achilles heel” of the income tax. The higher the tax rate on capital gains, the more that wealthy taxpayers are incentivized to delay realization of gains, and accelerate realization of losses, while borrowing to the extent that money is needed to fund consumption. Because of these sorts of realization games, economists estimate that the revenue maximizing tax rate on capital gains is probably in the range of between 28% and 32%. Hiking the capital gains tax rate above this range would thus be expected to decrease revenues.
June 23, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, June 16, 2017
This week, Ari Glogower (Ohio State) reviews a new work by Heather M. Field (UC-Hastings), A Taxonomy for Tax Loopholes, 55 Hous. L. Rev. __ (forthcoming 2018).
Heather Field’s new work introduces a taxonomy of different types of “tax loopholes,” to guide policymakers and the public, and to promote analytic rigor in the public discourse over tax policy.
Field first demonstrates that the term has no independent and consistent meaning, other than as a vague pejorative (except when used by some advisors and clients proud to “beat the system”). This nebulous terminology, Field argues, impedes meaningful tax policy analysis, and the prospects for tax reform. In order to bridge the gap between loophole rhetoric and substantive tax policy analysis, Field subsequently introduces a taxonomy of loopholes, divided along two axes. First, tax loopholes may be categorized by reference to their normative policy objections.
June 16, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Sunday, June 11, 2017
This week, Erin Scharff (Arizona State) reviews a new working paper by Jay Soled (Rutgers) and James Alm (Tulane), W(h)ither the Tax Gap?, 92 Wash. L. Rev. 521 (2017).
In their thoughtful new article, W(h)ither the Tax Gap?, Jay Soled and James Alm make a persuasive case that several economic trends are likely to narrow the tax gap in the near future. As they note, such progress on tax compliance could play a significant role in closing the deficit.
In particular, Soled and Alm highlight three trends that they suggest make it more likely that tax authorities will be able to improve compliance in the coming years. First, the increasing reliance on electronic payments makes it more difficult for would-be tax cheats to hide income. These days, even taxicabs, convenience stores, and valet attendants accept credit cards. (Not to accuse all of these occupations of cheating, but those paid in cash can more easily hide their earnings.) Second, as Soled and Alm observe, as the use of cash declines, “[t]hose who use cash, especially large denomination notes, will likely be flagged as potential tax evaders.”
June 11, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, May 26, 2017
This week, Ari Glogower (Ohio State) reviews a new work by Chris William Sanchirico (Penn), Optimal Redistributional Instruments in Tax Policy and Law & Economics: Survey and Assessment, in The Oxford Handbook of Law & Economics, Vol. 1: Methodology and Concepts 321 (Francesco Parisi, ed., 2017)
In his new work, Chris Sanchirico surveys the current literature on the optimal redistributional instruments, which seeks identify the most efficient policy tool(s) for redistribution.
Sanchirico identifies three broad strands in the literature. First, the tax substitution argument generally holds that redistribution is best accomplished through a tax on labor earnings, because redistribution through any other policy can be substituted for redistribution through the labor income tax, at a lower cost. As Sanchirico has argued in prior work, however, the assumptions about labor income taxation underlying the tax substitution argument could similarly be used to justify optimal redistribution through other policies or instruments.
May 26, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, May 19, 2017
This week, Erin Scharff (Arizona State) reviews an article by Darien Shanske (Davis), The (Now Urgent) Case for State-Level Monitoring of Local Government Finances (or, One Way to Protect Localities from Trump's 'Potemkin Villages of Nothing'), forthcoming in the NYU Journal of Legislation and Public Policy:
Darien Shanske’s forthcoming article on local government financing suggests reforms that might protect local governments from their own bad decisions. The fiscal challenges facing local governments are enormous, and Shanske persuasively argues localities are ill equipped to deal with these problems on their own. And his proposal responds to the variety of fiscal problems facing cities. There are problems both with the ways cities spend their revenue and also their revenue streams. Too often, we foucs on only one side of this problem.
At the time Shanske wrote the paper, he was particularly worried about the possibility of a federal infrastructure plan that would flood local governments with public-private partnership opportunities that would fail to deliver promised benefits. As Shanske’s title alludes to, Larry Summers denounced such infrastructure spending as a “Potemkin Village  of nothing.”
May 19, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, May 12, 2017
This week, Daniel Hemel (Chicago) reviews a new paper by Fabio Gaertner (Wisconsin), Jeffrey Hoopes (North Carolina), and Edward Maydew (North Carolina), Shareholder Wealth Effects of Border Adjustment Taxation.
Who wins and who loses from a border-adjusted cash flow tax like the one proposed by House Republicans? Fabio Gaertner, Jeffrey Hoopes, and Edward Maydew seek to shed light on that question by examining stock market reactions to news about the House Republicans’ plan. Their topline result is that on days when news events make a border-adjusted cash flow tax look more likely, share prices of firms in high-import industries perform worse than the rest of the market.
Gaertner, Hoopes, and Maydew contribute to a fast-growing literature on the trade balance effects of border-adjusted cash flow taxation. I imagine that most readers of this blog have been following that debate, but for those who haven’t, a brief primer: A pure cash flow tax would tax businesses on revenues minus expenses. A border-adjusted cash flow tax allows an exemption for revenues from exports but denies a deduction for the cost of imports.
May 12, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, May 5, 2017
This week, Ari Glogower (Ohio State) reviews a new article by Daniel Hemel (Chicago), The Federalist Safeguards of Progressive Taxation, 93 N.Y.U. L. Rev. ___ (2017):
In his new work, Daniel Hemel considers the distributional consequences of federalism doctrines protecting states from congressional overreaches. Hemel argues that the anti-commandeering doctrine (which prevents Congress from compelling states to administer federal programs), the anti-coercion doctrine (which prevents Congress from effectively compelling states to administer federal programs through coercive offers) and the sovereign immunity doctrine (which prevents Congress from abrogating state sovereign immunity) all provide the states with valuable entitlements, that can be bargained away in exchange for federal funding. In other words, states can choose to cooperate with federal government programs, instead of refusing on the basis of these doctrines, but the federal government will have to pay.
May 5, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, April 28, 2017
This week, Erin Scharff (Arizona State) reviews an article by Susanna Camic Tahk (Wisconsin), The New Welfare Rights, Brooklyn L. Rev. (forthcoming):
Susannah Camic Tahk’s previous work has explored the “tax war on poverty,” as she calls it. In her forthcoming article, Camic Tahk considers a potential upside of federal poverty policy’s shift from direct spending to refundable tax credits: the significant procedural protections afforded taxpayers. Camic Talk’s article compares these taxpayer rights to the failure of War on Poverty lawyers to instantiate a “new property right” in welfare benefits and persuasively argues that these taxpayer rights rest on much more solid legal footing. Camic Tahk’s article further suggests the ways that a taxpayer rights framework offers opportunities for improving the ways low income taxpayers interact with the IRS.
Camic Tahk’s paper begins by recounting the aspirations of the Great Society poverty law lawyers. Drawing on accounts by historians and political scientists as well as legal academics, Camic Tahk explains how the hopes of these reformers were raised when Goldberg v. Kelly expanded due process rights, and how their hopes were dashed by the Eldridge v. Matthews balancing test. Subsequent legislative changes, most prominently the passage of the Personal Responsibility and Work Opportunity Act (“PRWORA,” or, more commonly, welfare reform) further struck a blow to the idea that recipients might have due process claims when denied government benefits. As Camic Tahk explains, post-welfare reform court decisions saw the PRWORA as explicitly attempting to avoid the entitlement language that would make benefits subject to Goldberg’s expansive endorsement of due process rights.
April 28, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, April 21, 2017
This week, Daniel Hemel (Chicago) reviews a new article by Richard Schmalbeck (Duke), Jay Soled (Rutgers), and Kathleen DeLaney Thomas (North Carolina), Advocating A Carryover Tax Basis Regime, 93 Notre Dame L. Rev. (forthcoming 2017).
Candidate Donald Trump’s campaign platform contained a cryptic line regarding the tax treatment of assets transferred at death: “The Trump Plan will repeal the death tax, but capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms.” Some read that to mean Trump would treat death as a realization event; others interpreted it to mean that Trump would allow inheritors to defer capital gains tax until they sold the inherited asset, but with carryover rather than stepped-up basis. No one was quite sure how the $10 million exemption would work. Would it apply to the first $10 million in transferred assets or the first $10 million in capital gains? (Unless the decedent’s basis is zero, those two things aren’t the same.)
To help us sort through these alternatives, Richard Schmalbeck, Jay Soled, and Kathleen DeLaney Thomas have produced an excellent article arguing for a carryover basis regime and against any exemption. Soled, Thomas, and James Alm of Tulane have published two shorter pieces in Tax Notes advocating a carryover basis regime limited to marketable securities. (See Soled, Alm & Thomas, A New Carryover Tax Basis Regime for Marketable Securities, 154 Tax Notes 835 (Feb. 13, 2017); Soled, Alm & Thomas, Trump and a Populist Agenda?, 154 Tax Notes 1131 (Feb. 27, 2017).) Soled, Thomas, and Alm also have condensed their argument into an op-ed for The Hill, distilling a complicated issue of tax law into clear language comprehensible to nonlawyers.
April 21, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, April 14, 2017
This week, David Gamage (Indiana) reviews a recent article by David P. Hariton (Sullivan & Cromwell), Planning for Border Adjustments: A Practical Analysis, Tax Notes, February 20, 2017.
The House Republicans’ proposal for a destination-based cash-flow tax (DBCFT) continues to inspire fascinating discussions among tax policy experts. Important advances in our knowledge about how destination-based taxes can work, or fail to work, are occurring in real time through these discussions. This will be my third blog entry praising a recent piece of scholarship as one of the best analyses of the DBCFT to date (see here and here for my previous entries). Nevertheless, I hope I retain credibility in declaring Hariton’s new article to be essential reading for anyone hoping to understand how the DBCFT, or any other similar proposal reliant on federal-level border adjustments, might work in practice.
April 14, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, April 7, 2017
This week, Ari Glogower (Ohio State) reviews a new article by Shu-Yi Oei (Tulane), The Offshore Tax Enforcement Dragnet.
In the late 1980’s, the tuna-eating public grew concerned with the ensnarement of dolphins in tuna nets. Fisheries responding by changing harvest methods to avoid dolphin bycatch, and affixing “dolphin-safe tuna” labels to tuna cans. The reassured public returned to their tuna sandwiches with clear consciences, evidently untroubled by the incongruity of canning and consuming one majestic ocean-dweller, while safeguarding another. One wonders if an alternate society, with different preferences, would feel just as strongly about the ethics of eating tuna-safe dolphins.
Similarly, the U.S. government flings its net over the seas, and drags tax avoiders out of the murky depths of foreign financial institutions. Shu-Yi Oei’s new work argues that FATCA and other initiatives designed to prevent offshore tax evasion by wealthy tax-avoiders have ensnared unintended bycatch, including recent immigrants to the U.S. who still hold assets in their home country, Americans expats living (and saving) abroad, and “accidental Americans” unaware of their U.S. citizenship.
April 7, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 31, 2017
This week, Erin Scharff (Arizona State) reviews a new working paper by Ben Meiselman (Michigan), Ghostbusting in Detroit: Evidence on NonFilers from a Controlled Field Experiment.
As Ben Meiselman notes in the introduction to his new study of taxpayer compliance, there’s no marginal cost to making a tax authority’s written communication to a taxpayer more persuasive. In an era of likely increasing austerity in tax enforcement budgets at all levels of government, finding low-costs methods to increase compliance will become all the more important. Field experiments have produced some information about effective messages, and Meiselman’s study adds to this research, but as I discuss after reviewing the paper’s findings, Meiselman’s account also raises questions about Detroit’s capacity to operate an income tax.
In the spring and early summer of 2016, Detroit sent both a postcard and a certified letter to 7,142 suspected “ghosts,” 2014 federal taxpayers with Detroit addresses who had failed to file a Detroit income tax return for that tax year. A control postcard informed taxpayers that they would receive a letter in a few days about filing a tax return, and the subsequent letter informed the taxpayer that Detroit’s records indicated that she was a resident of Detroit and did not file a city tax return in 2014.
March 31, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 24, 2017
This week, Daniel Hemel (Chicago) reviews a new paper by Wei Cui (University of British Columbia), Taxation Without Information: The Institutional Foundations of Modern Tax Collection.
Wei Cui’s new paper, Taxation Without Information: The Institutional Foundations of Modern Tax Collection, challenges the now-conventional wisdom that effective tax collection depends upon third party reporting. Cui suggests that effective tax collection in fact depends upon the existence of business firms for whom compliance with the law—tax as well as non-tax—is the norm. Cui argues that this insight should lead us to rethink our assumptions not only about modern tax collection, but also about modern business firms: “we should stop thinking of business firms as ‘fiscal intermediaries,’” Cui writes, and instead “conceive of firms as sites of social cooperation under the rule of law” (p. 3).
Cui’s paper is ambitious, important, and—I think—largely right. He has persuaded me that third party reporting is not nearly as integral to tax collection as I previously believed. If there is a weak point in his argument, it is this: the evidence he produces in support of his “social cooperation” theory is equally consistent with the claim that business firms facilitate legal compliance precisely because they fail to engender close cooperation among their members.
March 24, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 17, 2017
This week, David Gamage (Indiana) reviews a new draft article by John R. Brooks (Georgetown), The Definitions of Income, 71 Tax L. Rev. __ (forthcoming).
The question of “what is income” is often the starting point for law school tax courses. This question has also been the subject of a number of great debates in tax legal scholarship over the past century. Assessing some of these debates, Brooks argues that “income is not a pure, external concept, but actually a constructed concept that necessarily embodies policy, and therefore political, goals.” As Brooks explains, this conclusion echoes and builds on the arguments of prior giants of tax legal scholarship—especially Boris Bittker.
Brooks’s article makes valuable contributions in summarizing and assessing the intellectual history of debates over the “what is income” question.
March 17, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 10, 2017
This week, Ari Glogower (Ohio State) reviews a new article by J. Clifton Fleming, Jr. (BYU), Robert J. Peroni (Texas) and Stephen E. Shay (Harvard), Defending Worldwide Taxation With a Shareholder-Based Definition of Corporate Residence 2016 BYU L. Rev. 1681 (2017).
Fleming, Peroni, and Shay’s new work proposes a shareholder-based test for determining corporate residence. Under this test, a foreign corporation would be treated as a U.S. tax resident for a taxable year if 50% or more of its shares were beneficially owned by U.S. residents at the end of the preceding year. The corporation will be treated as presumptively satisfying this test if its shares are traded on a U.S. market or are marketed to U.S. investors. The presumption can be rebutted by either the corporation or the IRS, with evidence that the U.S. beneficial ownership of the shares is in fact below the 50% threshold. Finally, corporations organized under U.S. law would remain domestic residents, as under current law, regardless of the shareholder composition.
March 10, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 3, 2017
This week, Erin Scharff (Arizona State) reviews a new article by Andrew Hayashi (Virginia) and Daniel Patrick Murphy (Virginia), Savings Externalities in a Second-Best World (Virginia Law and Economics Research Paper No. 2017-03):
We live in a brave new world of indefinitely low interest rates. When I teach my basic tax students classic tax shelter cases, they are often shocked by the interest rates then available to the taxpayer. For many of my students, who began college well after 2008, the idea of significant interest income from a savings account is quite foreign.
Hayashi and Murphy’s fascinating new paper explores the ways this new world of the Lower Zero Bound might affect our appraisal of savings incentives in the tax code and beyond, and along the way, they make a case for considering macroeconomic consequences of tax policy more broadly, following some recent work by Yair Listokin, among others.
Their paper begins by providing a concise overview of two traditional justifications for tax-induced savings and savings default interventions. As they write, “private savings are invested by institutions where they are deposited and investment leads to increased economic growth, which is good for everyone.” The second justification is rooted in the now familiar behavioral economic insight that many of us are grasshoppers, and not ants. (Those reading carefully might note the paper’s second footnote is a citation to Aesop, which always makes me wonder how classical economic assumptions ruled for so long.)
March 3, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, February 24, 2017
This week, Daniel Hemel (Chicago) reviews a new working paper by David M. Schizer (Columbia), Subsidies and Nonprofit Governance: Comparing the Charitable Deduction with the Exemption for Endowment Income (Columbia Univ. Sch. of Law, Ctr. for Law & Econ. Studies, Working Paper No. 558, 2017).
David Schizer’s new paper offers a fresh take on two long-running debates in tax law: should we allow a deduction for charitable contributions, and should we exempt the passive investment income of charities from tax? Schizer’s central claim is that the exemption (but not the deduction) distorts donors’ decisions as to the timing of charitable contributions—and, specifically, that the exemption inefficiently encourages donors to accelerate their giving. This post summarizes Schizer’s argument and then offers a reason why the deduction, at least in its current form, might distort donors’ decisions as to the timing of charitable contributions in the opposite direction.
The tax exemption for passive investment income earned by charities “creates an important inconsistency,” writes Schizer: “If donors keep an investment, their return (generally) is taxable. But if they donate the investment to charity, the return is no longer taxed” (p. 16). This gives the donor “a tax incentive to transfer assets to charities, and thus to give up control of these resources” (p. 20). That “can have two unfortunate effects,” according to Schizer: “it can erode the motivation and ability of charities to change with the times, and also can impede the ability of donors to monitor the performance of managers.” And while acknowledging that endowments might be desirable under some circumstances, Schizer writes that “it is hard to see why the tax law should put a thumb on the scale” (p. 24).
February 24, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, February 17, 2017
This week, David Gamage (Indiana) reviews a new piece by Michael Graetz (Columbia), The Known Unknowns of the Business Tax Reforms Proposed in the House Republican Blueprint, Columbia Law and Economics Working Paper No. 557.
How should we evaluate the House Republicans’ proposals for adopting a destination-based cash-flow tax (“DBCFT”)? This is among the most important tax policy question currently facing the United States. Yet this question is difficult to analyze, in part, because of uncertainty about what the proposed DBCFT might turn out to be if implemented.
To survey this quagmire, Graetz offers what is essentially just a list of questions, presented on PowerPoint slides printed to PDF. Nevertheless, I found Graetz’s work to be by far the most helpful document for understanding the House Republicans’ DBCFT proposal that has been made available to date.
To highlight just a couple points raised by Graetz’s list of questions:
February 17, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, February 10, 2017
This week, Ari Glogower (Ohio State) reviews a new article by Chris Sanchirico (Penn), Business Investment in the Tax Reform Blueprint.
Since its release last June, the business tax provisions of the GOP House’s tax reform plan (“the reform plan”) have garnered intense interest, and improbably trending hashtags. Much of the focus has centered on the border adjustment, which taxes imports but exempts exports, and its implications for the dollar and trade agreements. (For example, Problems with Destination-Based Corporate Taxes and the Ryan Blueprint, by Reuven Avi-Yonah (Michigan/UC-Irvine) and Kimberly Clausing (Reed)). Sanchirico’s new work, in contrast, examines two other related provisions in the reform plan: immediate expensing for business investments, and disallowance of a deduction for a business’ net interest expenses.
The conventional wisdom, as reflected in the reform plan, is that businesses would prefer the reform package of expensing plus interest non-deductibility to current law, which generally allows accelerated depreciation and interest deductions. Sanchirico’s work challenges this assumption, as well as the related arguments that the reform package will incentivize investment and encourage more efficient investment and financing decisions.
February 10, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, February 3, 2017
This week, Erin Scharff (ASU) reviews reviews a new essay by Sas Ansari (Osgoode Hall) and Lorne Sossin (Osgoode Hall), Legitimate Expectations in Canada: Soft Law and Tax Administration.
How exactly do non-experts understand tax law, and what is the role of the tax administrator in disseminating information about the law to (non-expert) taxpayers? These are two critically important questions for tax administration. While tax lawyers pride themselves on their mastery of the complex, often highly technical language of the Internal Revenue Code, lawyers are typically the last line of defense when it comes to income tax compliance. Most taxpayers won’t even consult an accountant for tax advice.
Recent work has brought renewed attention to these questions. For example, Shu-Yi Oei and Diane Ring have explored how Uber and Lyft drivers navigate tax questions, and Josh Blank and Leigh Osofsky have criticized the ways IRS taxpayer publications describe tax law.
February 3, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, January 27, 2017
This week, Daniel Hemel (Chicago) reviews a new article by Michael Doran (Virginia), Uncapping Executive Pay, 90 S. Cal. L. Rev. (forthcoming 2017).
Michael Doran’s scholarship on the taxation of executive pay is consistently insightful, and his latest article on section 162(m) is no exception. That provision, enacted in 1993, disallows a deduction for amounts paid to CEOs and other top officers of publicly traded corporations in excess of $1 million unless such compensation is “performance-based.” Doran convincingly argues that section 162(m) has done little to stem the rise of CEO compensation and that it has not caused corporations to tie pay to performance in a meaningful way. And while I am less sure than Doran that section 162(m) should be scrapped, Doran certainly makes a strong case for getting rid of the provision.
According to Doran, section 162(m) has proven to be a failure for at least three reasons. First, firms can skirt the $1 million limit by paying CEOs in stock options or by tying compensation to performance goals that are easily met. Second, the provision applies only to current employees—and so does not impose any constraints on nonqualified deferred compensation paid out to former CEOs. And third, corporations can ignore the cap, pay their CEOs more than $1 million outright, and simply forgo the deduction for amounts over $1 million paid. Indeed, more than a quarter of publicly traded corporations in 2013 blew through the cap and gave up the deduction.
January 27, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, January 20, 2017
This week, David Gamage (Indiana) reviews a new article by Linda Sugin (Fordham), Invisible Taxpayers, 69 Tax L. Rev. 617 (2016).
Linda Sugin’s new article engages with important problems related to the taxpayer standing doctrine. Sugin persuasively and powerfully critiques what she calls “the broad no-taxpayer-standing rule” that prevents most taxpayers from accessing the court system to challenge tax benefits awarded to other taxpayers. As Sugin explains, “the broad no-taxpayer-standing rule” operates even when important constitutional values are at stake and even when tax benefits are awarded through administrative discretion rather than by an act of Congress.
Sugin partially rests her analysis on arguing that tax fairness consists of more than just economic fairness. As she elaborates:
January 20, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, January 13, 2017
This week, Ari Glogower (Ohio State) reviews a new article by Omri Marian (UC-Irvine), The Other Eighty Percent: Private Investment Funds, International Tax Avoidance, and Tax-Exempt Investors, BYU L. Rev (forthcoming 2016).
Omri Marian’s new work highlights the role of private investment funds (“PIFs”) in international tax planning and avoidance by PIF-controlled multinational enterprises (“MNEs”). Marian argues that PIFs active in cross-border investments can take advantage of tax planning opportunities unavailable to purely domestic funds, and provides evidence that PIF-controlled MNEs are more likely to engage in aggressive planning. Consequently, income earned by PIFs can more readily escape taxation entirely, in both the source jurisdiction where investments are made, and in the residence jurisdiction of investors and managers.
This groundbreaking work lies at the intersection of two literatures, on cross-border tax planning by MNEs, and on the taxation of PIFs, and fills critical gaps in both. The MNE literature, Marian notes, generally focuses on tax planning by corporate MNEs, particularly in industries with mobile IP such as technology and pharmaceuticals, but not on the role of investor and PIFs in MNE tax planning. Marian’s work also calls for (and makes significant strides towards) a broader account of the full scope PIF tax planning activities, beyond traditional areas of concern such as manager compensation and carried interest.
January 13, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, January 6, 2017
This week, Erin Scharff (ASU) reviews a new paper by Jeffrey L. Hoopes (UNC), Leslie A. Robinson (Dartmouth), and Joel B. Slemrod (Michigan), Public Tax-Return Disclosure.
Calls for corporations to pay their fair share of taxes assume that corporations aren’t ponying up the way they should. But when it comes to individual companies, it can be hard to know what they are paying at all.
As a step toward reforming the system, reformers have called for increasing the public disclosure of corporate tax-return information. Jeffrey Hoopes, Leslie Robinson, and Joel Slemrod suggest reformers hope disclosure will achieve two goals. First, making this information public might limit tax evasion. Second, such disclosures might also provide information useful to investors.
As a result of reforms enacted in 2013, the Australian Tax Office (ATO) began releasing tax-return data (total income, taxable income, and tax payable) for about two thousand of Australia’s largest firms, as defined by income in 2015. The initial disclosures were all released on two specific dates. For large multinational corporations and Austrialian-owned public corporations, the ATO released tax information on December 17, 2015.
January 6, 2017 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, December 30, 2016
This week, Daniel Hemel (Chicago) reviews a new paper by Eric J. Allen (Southern California) and Susan C. Morse (Texas), The Effective Income Tax Experience of U.S. and Non-U.S. Multinationals.
As our incoming President likes to remind us, the United States has the highest corporate tax rate in the world. Well, not quite the highest—the United Arab Emirates beats us with a 55% rate. But according to data from the Organisation for Economic Co-operation and Development, the U.S. corporate income tax rate is approximately 15 percentage points above the average among other OECD member countries.
Yet as readers of this blog no doubt know, statutory rates can be misleading measures of true tax burdens. In a newly posted paper, Eric Allen and Susan Morse seek to determine whether U.S. multinational corporations actually pay more than their foreign counterparts—and if so, how much more. Allen and Morse focus on multinational firms that have a “material U.S. presence” (e.g., more than a quarter of sales in the United States). Allen and Morse ask: Controlling for the location of sales (among other factors), what is the effect of having a non-U.S. parent on the multinational firm’s effective tax rate? They separately analyze firms in profit years and firms in loss years.
December 30, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, December 23, 2016
This week, David Gamage (UC-Berkeley, moving to Indiana) reviews a new article by Reuven Avi-Yonah (UC-Irvine) and Kimberly A. Clausing (Reed), Problems with Destination-Based Corporate Taxes and the Ryan Blueprint.
The House Republicans’ plans to reform the U.S. corporate tax have been the talk of tax policy town, as of late. Based to at least some extent on the work of my soon-to-be-former colleague Alan Auerbach, the reforms being discussed would transform the corporate tax into a destination-based cash-flow form of taxation.
Avi-Yonah and Clausing’s draft article critiques these plans. As they conclude (p. 16):
“The Ryan Blueprint destination based cash-flow tax is not ready for prime-time. No other country had adopted a similar tax, and as the above analysis makes clear, there are myriad issues that would need to be worked through before any such tax were adopted. These issues are not small: the plan is incompatible with trade rules in a manner which harms our trading partners, it is incompatible with our treaty obligations, it is unlikely to put an end to income shifting, it generates political problems due to large numbers of companies that would experience adverse tax treatment changes, and it is likely to generate large revenue losses. In addition, there are important issues surrounding how exporters with losses would be handled (which could lead to inefficient mergers, etc.), how financial firms would be handled, and how U.S. state corporate tax systems would be affected.”
December 23, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, December 16, 2016
This week, Ari Glogower (Ohio State) reviews a new article by Donald Marron (Urban Institute), Goldilocks Meets Private Equity: Taxing Carried Interest Just Right, 31 Tax Policy and the Economy (Urban Institute & Brookings Institution Tax Policy Center, 2016).
Policy debates over carried interest reform generally focus on the benefits to the carry recipient: the fund manager. Marron’s article takes a fresh look at the issue by instead considering the tax consequences of the carried interest payment to the fund’s other investors.
Like other advocates of carried interest reform, Marron argues that current law, which taxes carried interest at a preferential rate to the extent paid from the fund’s capital gains and qualified dividends, undertaxes managers for their labor on behalf of the fund (in Marron’s terminology, the “Labor Services View”). The preferential treatment of carried interest also presents an arbitrage game, whereby a fund’s nontaxable investors can pass the benefits of preferential tax rates to the managers, while capturing a portion of this benefit by paying the managers less (the “Joint Tax View”).
December 16, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, December 9, 2016
This week, Daniel Hemel (Chicago) reviews a new paper by Edward D. Kleinbard (USC), The Right Tax at the Right Time.
Edward Kleinbard’s newest paper lays out the case for a “Dual Business Enterprise Income Tax,” or “Dual BEIT,” as an alternative to the existing patchwork of federal taxes on business income. Readers familiar with Kleinbard’s past work know that he is a powerful analyst and a crystal-clear writer, and this paper is no exception. For reasons I explain below, I am not sure that a Dual BEIT is the “right tax” for our time, but all can agree that Kleinbard’s proposal is an important contribution to the business tax policy debate.
In a prior paper, Kleinbard explained why he thinks the United States should tax capital income annually at a flat rate; the latest installment explains why he thinks a Dual BEIT is the best way to achieve that result. In brief, a Dual BEIT would consist of a flat-rate entity-level tax on profits and a flat-rate investor-level tax on “normal returns.”
December 9, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, December 2, 2016
This week, David Gamage (UC-Berkeley, moving to Indiana) reviews a new article by Walter Hellerstein (Georgia), Taxing Remote Sales in the Digital Age: A Global Perspective, 65 American University Law Review 1195 (2016).
Walter Hellerstein’s new article represents comparative legal scholarship at its best. Hellerstein’s article analyzes the OECD’s recently issued International VAT/GST Guidelines so as to discuss the lessons for the design and reform of U.S. state-level retail sales taxes. In doing so, the article argues that U.S. retail sales taxes (RSTs) should tax remote sales and should do so based on the destination principle. The article then analyzes how RSTs should be reformed so as to best accomplish these goals.
Hellerstein is persuasive in arguing that RSTs should tax remote sales. His article offers important guidance for how RSTs should ideally be reformed. But how can we get there in light of the politically and judicially imposed constraints that currently confront U.S. state governments? I would rank the most plausible paths to reform as follows:
December 2, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, November 25, 2016
This week, Ari Glogower (Ohio State) reviews a new article by Lily Batchelder (NYU), The “Silver Spoon” Tax: How to Strengthen Wealth Transfer Taxation, in Delivering Equitable Growth: Strategies for the Next Administration (Washington Center for Equitable Growth, Fall 2016).
Lily Batchelder’s new work examines the reform options for taxing wealth transfers.
The argues that that wealth transfer taxes are an essential tool for mitigating economic inequality – as measured by both disparities of wealth, income and other measures of economic well-being, and by disparities of economic opportunity. Wealth transfer taxes are also relatively efficient, since taxpayers save for the purposes of enjoying wealth while they are alive (and the social benefits wealth affords) and for retirement needs, in addition to merely accumulating bequests for future generations. Batchelder argues that wealth transfer taxes may also efficiently counter the decreased work incentive among heirs.
November 25, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, November 18, 2016
This week, Daniel Hemel (Chicago) reviews a new article by David Kamin (NYU), Getting Americans To Save: In Defense of (Reformed) Tax Incentives, Tax Law Review (forthcoming 2017).
Tax-preferred retirement accounts are hugely popular among participants but widely panned by academics who study saving behavior. The two principal criticisms are (1) that tax incentives such as 401(k)s and IRAs aren’t effective at encouraging individuals to save more, and (2) that these incentives amount to “upside-down” subsidies that deliver the largest benefits to wealthy Americans in the highest tax brackets. In an excellent new article, David Kamin carefully considers these criticisms and concludes that the case against tax-preferred retirement accounts is overstated. “[B]ased on the available evidence,” Kamin writes, “tax incentives probably should be used to help correct failures in people’s saving decisions—correcting the ‘internality’ that people impose on themselves because of their biases.”
Kamin begins by canvassing the empirical evidence suggesting that a substantial fraction of American workers are “under-saving” for retirement. He goes on to evaluate the evidence that tax incentives can encourage individuals to save more. On this point, research results vary widely, with some studies finding that tax incentives have little or no effect and others finding that tax incentives play an important role in boosting rates of saving.
November 18, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, November 4, 2016
This week, Ari Glogower (Ohio State) reviews a new article by Hayes Holderness (Illinois), The Unexpected Role of Tax Salience in State Competition for Businesses, 84 U. Chi. L. Rev. (forthcoming 2017).
Hayes Holderness’ article identifies and examines a new form of incentive used by states to attract business activity—the “customer-based incentive.” Unlike traditional incentives, such as tax credits or abatements, customer-based incentives yield a tax benefit to the businesses customers, not to the business itself. The article argues that customer-based incentives can be more effective than traditional incentives, by capitalizing on customers’ different behavioral responses to the forms of incentive.
The article begins with a specific example of an indirect customer-based incentive: relieving a business of the obligation to collect sales tax from customers, in exchange for the business establishing a physical presence in the state. For example, in 2012 negotiations with the State of New Jersey, Amazon.com, Inc. sought temporary relief from the obligation to collect sales tax, in exchange for building fulfillment centers in the state. While nominally a concession made to the business, this incentive in fact benefits customers, by effectively foregoing the collection of sales tax altogether (in the case of those rare customers who do not voluntarily report and pay sales and use tax not collected at the point of sale.)
November 4, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, October 28, 2016
This week, Daniel Hemel (University of Chicago) reviews a new article by Stephen Shay (Harvard), J. Clifton Fleming (BYU), and Robert Peroni (Texas), R&D Tax Incentives: Growth Panacea or Budget Trojan Horse?, 69 Tax Law Review 419 (2016).
Followers of this blog likely know already that any article by the trio of Shay, Fleming, and Peroni will be well worth reading. And, no surprise, their latest installment very much fits that bill. Here, they present a forceful critique of the various R&D incentives embedded in the Internal Revenue Code, culminating in an ambitious proposal to repeal these incentives and use the resulting revenues to increase direct federal spending on basic research.
One significant contribution that Shay, Fleming, and Peroni make in this article (though far from the only) is to expand our view of R&D tax incentives beyond the section 41 credit for increasing research activities and the section 174 deduction for research and experimental expenditures.
October 28, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, October 21, 2016
This week, David Gamage (UC-Berkeley, moving to Indiana) reviews a new article by Gregg Polsky (Georgia) and Adam Rosenzweig (Wash U), The Up-C Revolution (Oct. 13, 2016):
When I was in law school, I was taught what was then the conventional wisdom about the U.S. Corporate Income Tax (the “CIT”)—that it was in the process of being eroded through sophisticated tax planning, with the expectation that it would soon shrink to irrelevance as source of federal revenue. Yet, somewhat ironically, my law school years turned out to mark the (temporary?) end of that trend. Although the CIT shrank dramatically as a source of federal government revenues during the period from the 1950s through the early 2000s, CIT revenues have since remained more or less constant as a percent of GDP from the early 2000s through today (albeit fluctuating with economic conditions).
October 21, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, October 14, 2016
This week, Ari Glogower (Ohio State) reviews a new paper by Louis Kaplow (Harvard), A Distribution-Neutral Perspective on Tax Expenditure Limitations, 31 Tax Policy and the Economy (Robert Moffitt, ed., forthcoming 2017).
Louis Kaplow’s new article extends his distribution-neutral framework for analyzing tax reforms, as developed in prior works, to the context of reforms limiting tax expenditures. Kaplow argues that this framework allows for more rigorous analysis of tax expenditure policy, and yields substantive insights challenging common assumptions about the benefits of limiting expenditures.
In the distribution-neutral framework, a reform is evaluated alongside an offsetting adjustment to the income tax schedule that washes out distributive effects in two steps: The schedule is first adjusted to leave taxpayers at same level of disposable income (Step 1), and then adjusted further to hold their utility constant (Step 2). In other words, if a reform increases utility by eliminating a consumption distortion, Step 2 will raise the tax rate to restore utility to the pre-reform level.
October 14, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, October 7, 2016
This week, Daniel Hemel (Chicago) reviews a new article by Edward A. Zelinsky (Cardozo), The Political Process Argument for the Supreme Court to Overrule Quill, 82 Brook. L. Rev. (forthcoming 2017).
In Quill Corp. v. North Dakota, 504 U.S. 298 (1992), the Supreme Court held that states cannot collect sales tax from out-of-state vendors who lack a “physical presence” within the state. While the constitutional justification for Quill’s holding was questionable from the outset, Quill’s future is suddenly in doubt as well. In a concurring opinion last year, Justice Kennedy called on the Court to reconsider Quill, and Alabama and South Dakota have both taken steps to generate a test case since then.
The pragmatic case for overruling Quill is clear. Quill drives a hole in state budgets: by one estimate, states lost more than $23 billion in sales tax revenue on transactions with out-of-state vendors in 2012 alone. Moreover, Quill puts vendors with a brick-and-mortar presence at a disadvantage vis-à-vis remote competitors, leading (arguably) to unfairness and (almost certainly) to inefficiency. Perhaps the best that can be said in Quill’s favor is that it’s up to Congress—not the courts—to fix this mess. Because Quill was decided under the dormant Commerce Clause, Congress has the power to overturn it via legislation. In a provocative new article, Edward Zelinsky considers whether Quill’s fate should be left to the political process.
October 7, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, September 30, 2016
This week, David Gamage (UC-Berkeley) reviews a new paper on a topic of great concern to many law students: Treasury Should Exclude Income from Discharge of Student Loans, by John R. Brooks (Georgetown), 152 Tax Notes 751 (Aug. 1, 2016).
As anyone who has taken the basic law school tax course should know, the doctrines surrounding discharge of indebtedness income are troubled and often incoherent. I have found that law students are especially anxious about the possibility of having discharge of indebtedness income from the cancellation of student loans through the federal government’s Income-Based Repayment (IBR) and Pay as You Earn (PAYE) programs. (Note to tax law professor readers: these topics make great vehicles for teaching discharge of indebtedness doctrines!)
September 30, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, September 23, 2016
This week, Ari Glogower (Ohio State) reviews a new paper by Edward Kleinbard (USC), Capital Taxation in an Age of Inequality, the first installment of a two-part project proposing a new tax instrument, the Dual Business Enterprise Income Tax (BEIT). Kleinbard’s current article explores the theory behind the Dual BEIT, while a subsequent follow up article will describe its technical operation.
In brief, the Dual BEIT, which builds on Kleinbard’s prior proposals, operates as a single flat-rate tax on capital income, divided between an investor-level tax on normal returns, and a business-level tax on profits. The investor-level tax is implemented through a tax on deemed normal returns to investments. Businesses deduct a cost of capital allowance of the same normal return (regardless of whether the business is financed by debt or equity), resulting in a business-level tax on profits.
The article begins with a series of arguments justifying capital income taxation in general: First, the classic optimal tax theory result that normal returns to saving should not be taxed has “no practical lessons to teach” in a world with inherited capital and gratuitous transfers. Second, capital income taxation addresses increasing concerns with wealth and income concentration. Third, taxing capital income taxes is necessary to raise revenue for public investment and social insurance programs. Fourth, recent studies, including by the IMF and the OECD, suggest that reducing inequality may increase economic growth.
September 23, 2016 in Legal Education, Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, September 16, 2016
This week, Daniel Hemel (Chicago) discusses two articles recently posted to SSRN—one by Yair Listokin (Yale), the other by Thomas Brennan (Harvard) and Alvin Warren (Harvard)—which offer illuminating (and divergent) perspectives on the role of realization and deferral in a low interest rate environment.
Listokin’s contribution, How To Think About Income Tax When Interest Rates Are Zero, 151 Tax Notes 959 (May 16, 2016), begins with the observation that “[t]he significance of many of income tax law’s core concepts depends on the interest rate.” One example is the realization requirement: Listokin writes that “[w]ith interest rates at zero, the government is indifferent as to whether a taxpayer realizes income now or in the future—as long as the taxpayer’s tax rate is constant across years.” As a result, Listokin says, the tax curriculum and tax law scholarship should focus less on doctrines like the realization requirement that affect the timing of tax payments, and more on doctrines like stepped-up basis that affect the rate at which (and amount on which) tax is paid.
September 16, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, September 9, 2016
This week, David Gamage (UC-Berkeley) reviews a new paper by Dave Owen (UC-Hastings), Water and Taxes, 50 UC Davis L. Rev. ___ (2016):
The article begins by reviewing the basics of both water law and tax law, to explain that there are currently only modest interactions. Water rights are indeed taxed, especially by state and local property tax regimes. Yet the article explains that the ways in which water rights are currently taxed do not serve to meaningfully address concerns about inadequate water conservation. The article thus proposes more robustly taxing water rights as a means for achieving better water conservation.
September 9, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, September 2, 2016
This week, Ari Glogower (Ohio State) reviews a new paper by Daniel Hemel (Chicago) and Kyle Rozema (Northwestern), Inequality and the Mortgage Interest Deduction, forthcoming in the Tax Law Review:
Hemel and Rozema ask a question that we thought was well settled: What are the distributional consequences of repealing the mortgage interest deduction (“MID”)? Their conclusion (spoiler alert): It depends.
The article is important in two respects. First, it introduces a more sophisticated analysis of the distributional consequences from repealing (or limiting) the MID and other tax preferences. Through this exercise, the article also adds empirical perspective to the choices for measuring progressivity in tax reforms.
Building on David Kamin’s work on progressivity in tax reforms, the article begins with a result we’ll call the “Tax Burden Paradox”: Repealing a tax preference that provides a larger benefit to high-income taxpayers in dollar terms may in fact decrease those taxpayers’ share of society’s total tax burden. Consider the article’s example of a two-household society, one rich with pretax income of $100, and one poor with pretax income of $50, and progressive rates that tax the first $50 of income at 20%, and additional income at 40%. The rich and poor households pay $12 and $9, respectively, in mortgage interest. With the MID, the rich household pays $25.20 in taxes, or 75.4% of the society’s total $33.40 tax burden. If the MID is repealed, the rich household pays $30 in taxes, for a reduced 75% share of the society’s total $40 tax burden.
September 2, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, August 26, 2016
Note from Paul Caron: As I explained on August 1, due to my growing other commitments, I have taken steps to reduce the amount of time I devote to TaxProf Blog. Six weeks ago, I stopped doing the weekly tax, legal education, SSRN, and student tax note roundups. I previously announced that Scott Fruehwald of our sister Legal Skills Prof Blog has agreed to take over the weekly legal education roundup. Today, I am pleased to announce that David Gamage (UC-Berkeley), Ari Glogower (Ohio State), and Daniel Hemel (Chicago) have agreed to share responsibility for the weekly SSRN tax roundup:
In addition to a list of newly posted papers, we’ll also include a write-up about at least one of the week’s additions. A quick administrative note: The best way to make sure we see your paper is to use the JEL code K34 (Tax Law) when you upload to SSRN. (If your reaction is “what’s a JEL code?”, check out Lea-Rachel Kosnik’s overview. And for a fascinating read on the tangled history of JEL codes, see Beatrice Cherrier’s article.)
If you would like to take over the weekly tax roundup as a service to the tax community, either alone or as part of a group of co-editors, please let me know.
This week, Daniel Hemel highlights a new paper by David Hasen (Colorado), Accretion-Based Progressive Wealth Taxation, which is forthcoming in the Florida Tax Review:
David Hasen's excellent article emphasizes the distinction between an “excise tax,” which “applies to or is triggered by a transfer or other event,” and an “accretion tax,” which “appl[ies] to the ‘same’ item over time.” Examples of “excise taxes” include consumption taxes, realization-based income taxes, and estate and gift taxes. Examples of “accretion taxes” include real property taxes, mark-to-market income taxes, and periodic wealth taxes. Hasen argues that “a federal accretion-type, progressive wealth tax would appropriately supplement either an income tax or a consumption tax and would do so more effectively than our existing excise wealth tax regime, the federal estate and gift tax.” In the following post, I'll walk through (parts of) Hasen's argument and then explain why I'm not entirely persuaded that an accretion-type wealth tax is the way to go.
August 26, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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Friday, July 8, 2016
- Dan French (Missouri) & McKay Price (Lehigh), Depreciation-Related Capital Gains, Differential Tax Rates, and the Market Value of Real Estate Investment Trusts
- Fabio Gaertner, Stacie Laplante & Dan Lynch (Wisconsin), Trends in the Sources of Permanent and Temporary Book-Tax Differences During the Schedule M-3 Era
- Carlo Garbarino (Università Bocconi, Milan), The Development of the Comparability Analysis by the Court of Justice of the European Union in the Context of Capital Income Taxation, 21 Colum. J. Eur. L. 451 (2015)
- Philip Manns (Liberty) & Timothy Todd (Liberty), Issues Arising Upon the Death of the Sole Member of a Single-Member LLC, 99 Marq. L. Rev. 725 (2016)
July 8, 2016 in Scholarship, Tax, Weekly SSRN Roundup | Permalink
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