Paul L. Caron

Sunday, October 31, 2004

Top 5 Tax Paper Downloads

SSRN LogoThere again is a lot of movement in this week's list of the Top 5 Tax Paper Downloads on SSRN, with 4 pieces not on last week's list:

1. Thinking about Tax, by Edward J. McCaffery (USC) & Jonathan Baron (Pennsylvania, Wharton School)

2. Does the "New Benefit Principle" (or the "Partnership Theory") of Income Taxation Mandate an Income Tax at Both the Individual and Corporate Levels?, by Joseph M. Dodge (Florida State)

3. The Coming Accounting Revolution: Offshore Outsourcing of Tax Return Preparation, by Jesse Robertson (Alabama, School of Accountancy), Dan Stone (Kentucky, School of Accountancy), Liza Niederwanger (Deloitte & Touche LLP), Matthew Grocki (Kentucky, School of Accountancy), Erica Martin (Crowe Chizek & Co.) & Ed Smith (Kentucky, School of Accountancy)

4. The Deemed Dividend Problem, by Reuven Avi-Yonah (Michigan)

5. Book versus Taxable Income, by Frank Heflin (Northwestern, Kellogg School of Management) & William Kross (Purdue, Krannert School of Management)

October 31, 2004 in Top 5 Downloads | Permalink | Comments (0) | TrackBack (1)

CBO Releases Cost Estimate of Tax Act

The Congressional Budget Office has released an 11-page Cost Estimate of H.R. 4520, the American Jobs Creation Act of 2004. Here is the Summary:

H.R. 4520 repeals the exclusion for a portion of income earned by exporters (so-called extraterritorial income), allows a deduction for income attributable to production in the United States, alters numerous other tax laws for both domestic and foreign corporations, and provides individuals with an optional deduction for state and local sales taxes (in place of state and local income taxes.) In addition to making many other changes to tax law, the act also makes several changes to the federal tobacco production quota program and extends both Internal Revenue Service (IRS) and customs user fees through September 30, 2014. The provisions of the act have various effective and sunset dates.

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that this legislation will decrease federal revenues by about $4.9 billion in 2005, $10.1 billion over the 2005-2009 period, and $6.8 billion over the 2005-2014 period. CBO estimates that H.R. 4520 will increase outlays resulting from direct spending by $764 million in 2005, but will decrease direct spending by about $1.4 billion over the 2005-2009 period and $6.8 billion over the 2005-2014 period. On balance, H.R. 4520 will increase deficits by an estimated $5.7 billion in 2005 and $8.7 billion over the 2005-2009 period, and have a very small effect on deficits over the 2005-2014 period—excluding effects on discretionary spending and debt service (i.e., interest effects).

October 31, 2004 in Gov't Reports | Permalink | Comments (0) | TrackBack (0)

USDA on Taxing Snack Food

The Economics Research Service of the U.S. Department of Agriculture has published Taxing Snack Foods: What to Expect for Diet and Tax Revenues. Here is the abstract:

Health researchers and health policy advocates have proposed levying excise taxes on snack foods as a possible way to address the growing prevalence of obesity and overweight in the United States. Some proposals suggest higher prices alone will change consumers' diets. Others claim that change will be possible if earmarked taxes are used to fund an information program. This research examines the potential impact of excise taxes on snack foods, using baseline data from a household survey of food purchases. To illustrate likely impacts, we examine how much salty snack purchases might be reduced under varying excise tax rates and possible consumer price responses. We find that relatively low tax rates of 1 cent per pound and 1 percent of value would not appreciably alter consumption—and, thus, would have little effect on diet quality or health outcomes—but would generate $40-$100 million in tax revenues.

October 31, 2004 in Scholarship | Permalink | Comments (2) | TrackBack (2)

Saturday, October 30, 2004

Tax Prof Spotlight: Alex Raskolnikov

This week's Tax Prof Spotlight of Alex Raskolnikov (Columbia) continues our series of profiles of folks starting their careers this fall as tenure-track tax professors at American law schools. We hope the profiles will help introduce our newest tax colleagues to the academic tax community.


My road to becoming a tax academic has been indirect, to put it mildly. I started my professional career by getting a job at the Soviet Academy of Sciences Institute of Physical Chemistry in Moscow—the city where I was born and raised. My college major was inorganic chemistry and my research focused on corrosion. I ran experiments, started working on a dissertation, and even managed to publish a few articles reporting my results. I was looking forward to many years of a productive career as a scientist. Things didn’t quite go the way I planned.

In the fall of 1991, my wife, my four-year-old son and I came to the United States and, after some hiatus, I got a job as a metallurgical engineer in Lansing, Michigan. It took me some time to improve my English to a point where I could not only formulate questions, but understand answers as well, to figure out the difference between a lineman and a linebacker, and to realize that I didn’t want to remain a metallurgical engineer for the rest of my life. So I applied to several law schools and got into Yale, miraculously.

Leaving gainful employment for three years is not an easy thing to do when you have a family to support. So I had no doubt about what my next step was going to be—a well-paid job at a large law firm. There was only one problem—neither corporate work nor litigation of a type done in these firms looked particularly enticing. By the time the 2L interviews rolled around, I desperately needed to come up with an answer to the painfully familiar “corporate or litigation” question. Tax was one of the few remaining options, and I decided to give it a try.

I liked my basic tax class with Anne Alstott (teaching her first course at Yale), and other tax classes were also fun. I did a lot of tax work as a summer associate at Davis Polk, and I knew I had found a match. Once again, I was on a predictable path. I went to Davis Polk upon graduation and started learning how to be a tax lawyer. Davis Polk’s tax department was a great place to do this—work was as interesting as it could be, people were super smart and very nice to boot. I was pretty happy, and looked forward to more years there, or, perhaps, at another similar place.

Again, that was not to happen. I wrote a paper (which practicing tax lawyers frequently do), and asked a few people to read it. David Schizer (now Dean Schizer)—also a former Davis Polk associate—was one of these people. Columbia became interested, and I became intrigued by a possibility that I had never contemplated. Upon graduation, teaching was not in the cards for financial reasons. As I kept practicing, teaching looked more and more like the road not taken. But an opportunity to join the Columbia faculty was too fascinating to miss. I pursued it and my career path took yet another twist.

I’m now teaching the basic tax course at Columbia, and I’ll teach taxation of financial instruments in the spring. The paper I wrote is coming out in the April issue of Boston University Law Review. Things seem to be falling in place, and I am tempted to start looking forward to many more happy years as a tax professor. But I know better than that. Maybe I’ll be the Yankees center fielder in a few years!

Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America's law schools. We hope to help bring the many individual stories of scholarly achievements, teaching innovations, public service, and career moves within the tax professorate to the attention of the broader tax community. Please email me suggestions for future Tax Prof Profiles, particularly for our series on new tax professors. For prior Tax Prof Profiles, see here.

October 30, 2004 in Tax Prof Spotlight | Permalink | Comments (0) | TrackBack (0)

Tax Profs Present Papers at American Society for Legal Historians Annual Meeting

One of the panels at the 4-day American Society for Legal Historians Annual Meeting in Austin, Texas is Federal Tax Policy in the Great Depression:

The Great Depression marked a turning point in the history of American taxation – one often overshadowed by the watershed tax changes of World War II. This panel examines some of the most important tax developments of the Great Depression. It begins with a general overview of the Roosevelt Administration and its approach to tax policy. It then explores several key aspects of the era, including tax return publicity, corporate taxation, and the tax treatment of the family.
Chair: Joseph Thorndike (Tax Analysts)


Marjorie Kornhauser (Tulane): The Rise and Fall of Publicity of Income Tax Information in the 1930s
Steven Bank (UCLA): Tax, Corporate Governance, and Norms: Lessons from the New Deal
Dennis Ventry (O'Melveny & Myers LLP): Tax Justice New Deal Style: FDR, the Treasury Department, and Family Taxation in the 1930s
Discussant: Reuven Avi-Yonah (Michigan)

October 30, 2004 in Tax Conferences | Permalink | Comments (0) | TrackBack (0)

The KMT: Kerry Minimum Tax

A Wall Street Journal editorial proposes (tongue-in-cheek, I think) that we replace the AMT with the KMT -- the Kerry Minimum Tax:

We've all heard about the Alternative Minimum Tax, or at least most of us will sooner or later. That convoluted scheme to ensure we can't use deductions to avoid paying our "fair" share is predicted to ensnare a record 12.3 million taxpayers next year, and between one-quarter and one-third of all filers by 2010.

But the disclosure that Teresa Heinz Kerry paid a federal tax rate of only 12.4% on her income in 2003 has given us a different idea. How about a Kerry Maximum Tax? That is, no taxpayer should have to pay a larger share of his income in taxes than John Kerry and his mega-millionaire spouse, who are after all bidding to become role models as America's First Couple.

October 30, 2004 in Political News | Permalink | Comments (0) | TrackBack (0)

Friday, October 29, 2004


The Washington Post's Style Invitational asks readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition. One of the the 2001 winners:

Intaxication: Euphoria at getting a tax refund, which lasts until you realize it was your money to start with.
My non-tax favorite:
Ignoranus: A person who's both stupid and an asshole.
Update: This post sparked a Friday afternoon discussion on the TaxProf Discussion Group, and the irrepressible Jim Maule (Villanova) offered these additional tax examples (reprinted here with Jim's permission):
Biddie Tax: imposts imposed on older ladies

Cadify: what Congress does when it puts stuff into the tax law for the benefits of jerks

Excrude: the refinery product on which certain liquid fuels taxes are imposed

Gros Income: the starting point for French income taxation

Grass Income: the source of increased wealth for marijuana dealers

Like-Kin Exchange: transaction in which dependents are swapped

Nunrecognition: what happens when a female member of a religious order realizes gain

Reelization: tax policy reflected in the recent tax break for fishing tackle boxes

Repeel: trying for a second time to get to the banana

Wrecognition: what's used to start the tow truck

October 29, 2004 in News | Permalink | Comments (0) | TrackBack (0)

Intersection of Tax, Politics, and Religion

Following up on Tuesday's post on the intersection of tax, politics and religion:

• Today's New York Times, Wall Street Journal, and Washington Post report on an October 8 letter from the IRS threatening to revoke the NAACP's tax-exempt status in light of NAACP Chairman, Julian Bond's speech this summer condemning the policies of President Bush. Tax Prof Frances Hill (Miami) is critical of the IRS's action in a Newsday article on the subject:
Frances Hill, a University of Miami law professor and an expert on the political rights of tax-exempt organizations, read Bond's speech and said it was indeed critical of President George W. Bush. But she added that Bond was probably on safe legal ground because his speech was broadly conceived, didn't focus solely on Bush and touched on a range of issues that have long been trademarks of the NAACP, such as equality and justice. "You can be passionate and still have a tax-exempt status," Hill said. "If the IRS thinks that this speech is sufficient to trigger an audit, then I think we have quite a new standard and they must be planning to audit hundreds of other groups."

Votelaw reports that Catholics for a Free Choice sent two letters this week to the IRS seeking the revocation of the tax-exempt status of the Archdiocese of Denver and the Archdiocese of St. Louis for giving "clear directions to Catholics to oppose candidates that support positions opposed by the archdiocese."

(Thanks to Jeffrey Kahn, Steven Sholk, and Linda Sugin for the tips.)

October 29, 2004 in Political News | Permalink | Comments (0) | TrackBack (1)

Gale & Orszag on The Budget Outlook: Projections and Implications

William Gale (Brookings Institution) & Peter Orszag (Brookings Institution) have published The Budget Outlook: Projections and Implications in The Economists' Voice on bepress. Here is the abstract:

Under reasonable projections, the unified budget deficits over the next decade will average 3.5% of GDP. Compared to a balanced budget, the unified budget deficits will reduce annual national income a decade hence by 1-2% (or roughly $1,500 to $3,000 per household per year, on average), and raise average long-term interest rates over the next decade by 80 to 120 basis points. Looking out beyond the next decade, the budget outlook grows steadily worse. Over the next 75 years, if the tax cuts are made permanent, this nation’s fiscal gap amounts to about 7% of GDP. The main drivers of this long-term fiscal gap are, in order, the spending growth associated with Medicare and Medicaid, the revenue losses from the 2001 and 2003 tax cuts, and increases in Social Security costs. The nation has never before experienced such large long-term fiscal imbalances. They will gradually impair economic performance and living standards, and carry with them the risk of a severe fiscal crisis.

October 29, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Controversy Brewing over Starbucks, the Iraq War, and the Tax Code

Starbucks_1Controversy is brewing in the blogosphere over Starbucks' use of the tax code to justify its refusal to donate coffee to U.S. troops in Iraq. After a U.S. Marine sergeant organized a chain email campaign criticising the company, Starbucks blamed the tax code:

I would like to take this opportunity to clarify Starbucks policy regarding charitable contributions. We are able to donate to nonprofit organizations that are designated as public charities under § 501(c) (3) of the IRS Code, including public libraries and schools. The U.S. military or individual military personnel do not qualify as a public charity.

However, on an individual level, many Starbucks partners have collected and shipped numerous pounds of Starbucks coffee overseas. Starbucks partners receive one pound of free coffee each week as an employee benefit (known as "partner mark-out"). Many of our partners have elected to send their weekly mark-out of coffee to members of the military or military families, and related organizations.

This explanation is a bunch of hooey. Nothing prevents Starbucks from donating coffee to non-§ 501(c)(3) groups; they merely would be denied a charitable deduction for such contributions. In any case, § 170(c)(1) expressly authorizes a charitable deduction for a contribution or gift to "the United States . . . if the contribution or gift is made for exclusively public purposes." Providing the U.S. military with coffee for the troops undoubtedly is "for exclusively public purposes." And of course there are many charitable groups who can receive contributions on behalf of U.S. military personnel. (Starbucks itself is a corporate sponsor of the U.S. Marine Corps' Toys for Tots program.) See IRS Publication 526. For more information, see here, here, and here. (Thanks to reader David Radulski for the tip.)

Nov. 11, 2004 Update: See here.

October 29, 2004 in News | Permalink | Comments (5) | TrackBack (3)

Snyder on Tax Law Discrimination Against Children

Lester Snyder (San Diego) has posted Does the Tax Law Discriminate Against the Majority of American Children: The Downside of Our Progressive Rate Structure and Unbalanced Incentives for Higher Education? on bepress. Here is the abstract:

Our graduated income tax structure provides an incentive to shift income to lower-bracket family members. However, some parents have much more latitude to shift income to their children than do others. Income derived from services and private business-by far the majority of American income-is less favored than income derived from publicly traded securities. The rationale given for this discrimination is that parents in services or private business, as opposed to those in securities, do not actually part with control of their property. This article explores these tax broader (yet subtle) tax benefits and their impact on the majority of children seeking a higher education. Proposed solutions to this lack of uniformity are discussed.

October 29, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Geske, Ramey & Shapiro on Why Computers Depreciate

Michael Geske, Valerie Ramey (University of California-San Diego, Economics Dep't) & Matthew Shapiro (Michigan, Economics Dep't) have posted Why Do Computeres Depreciate? on the NBER web site. Here is the abstract:

The value of installed computers falls rapidly and therefore computers have a very high user cost. The paper provides a complete account of the non-financial user cost of personal computers -- decomposing it into replacement cost change, obsolescence, instantaneous depreciation, and age-related depreciation. The paper uses data on the resale price of computers and a hedonic price index for new computers to achieve this decomposition. Once obsolescence is taken into account, age-related depreciation -- which is often identified as deterioration -- is estimated to be negligible. While the majority of the loss in value of used computers comes from declines in replacement cost, this paper shows the second most important source of decline in value is obsolescence. Obsolescence is accelerated by the decline in replacement cost of computers. Cheaper computing power drives developments in software and networks that make older computers less productive even though their original functionality remains intact.

October 29, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, October 28, 2004

Zelenak Presents Papers Today at University of Washington

ZelenakLarry Zelenak (Duke) presents two papers today at the University of Washington as part of its Distinguished Scholars Series: Framing the Distributional Effects of the Bush Tax Cuts and Tax or Welfare? The Administration of the Earned Income Tax Credit. Here is the abstract of the Bush Tax Cuts paper:

In this article he explains how the distributional analysis of the income tax cuts enacted during the Bush administration depends on one's choice of analytical framework. Under the framework preferred by the administration - which compares percentage reductions in income tax liabilities of taxpayers at different income levels - the tax cuts have been mildly progressive. If the focus is shifted, however, to the percentage increases in after-tax incomes attributable to the cuts, the cuts appear regressive. Even greater regressivity appears if the focus is on the distribution of raw dollars of tax cuts. Under the most comprehensive analysis of all - which considers the net effect of tax reductions and spending cuts necessitated by the tax reductions - recent legislation again appears to favor the rich at the expense of other taxpayers. After the discussion of analytical frameworks, the article considers some particular distributional aspects of recent tax legislation, relating to the alternative minimum tax, Social Security taxes, and the increasing inequality in the distribution of pretax income. It concludes with some speculation as to why the public has been so accepting of tax cuts skewed in favor of the rich.

October 28, 2004 in Colloquia | Permalink | Comments (0) | TrackBack (0)

World Series Wrap Up: Taxing Nomar

RedsoxlogoAs a diehard Red Sox fan (see here), I looked forward to discussing the Red Sox' glorious win last night with my friends and colleagues. But what was the topic du jour this morning on the Tax Prof Discussion Group? Terry Francona's decision to allow Trot Nixon to swing away on a 3-0 pitch that produced the key 2-run double? Derek Lowe's masterful performance? Curt Schilling's courage? No -- the debate was over the tax consequences of the players' decision to vote Nomar Garciaparra a full share (> $300,000) of the playoff and world series money!

Jim Maule (Villanova) got the discussion started by quoting press reports on Nomar getting a full share of the money and asked: gift or compensation for services? An extended discussion ensued. Mike McIntyre (Wayne State) provided some helpful background and concluded that Nomar has compensation income rather than a gift:

The "share" that the players get is by vote of the players. The pot is from playoff TV contract, etc. The players get to decide who gets what, but no player has any interest in the pot prior to the dividing of it. There are some traditional ways for the pot to be divided, with the guys on the team for the season getting a full share. Various coaches are often given some share, often a fractional share. And players who were added late sometimes get a fractional share --- 1/2 or 1/4 typically.

I see no good basis for constructive receipt by the players voting the shares. It seems more akin to a partnership, where the partners divide up the spoils at the end of the season. Still, there is some disinterested generosity when the players go outside baseball tradition to reward someone. I just don't think that the generosity results in a gift

.Joseph Dodge (Florida State) agreed:
There's no constructive receipt until you enter into the contract specifying who is paid and when. Of course, constructive receipt is mainly a timing rule, not an inclusion/exclusion rule. In any event, since the practice and culture is to cut others in, it is hard to say that anybody has any "right" to any particular share, especially since the shares are determined (I assume) by some voting mechanism. The voting mechanism alone precludes constructive receipt (eg, 100% shareholder of corporation).

Turning to assignment of income doctrine, it just doesn't "fit." Nomar is not a relative, and he's probably in a higher bracket than almost all of them. There's no hint of sham or retained control or fruit and tree or reversionary interest or (as in Eubank) a vested right. All the assignment-of-income cases that I know of involve family members, loved ones, or related parties (Bayse). So, it shouldn't fall within the domain of assignment-of-income doctrine, but rather the rule that you can disclaim income, even if it goes to somebody you know. You can disclaim even compensation income under these circumstances.

If the Bosox players are deemed to have some "right" to a given percentage of the pot (which I doubt), you get to the same result under a gift analysis. The gift is of a zero-basis right to compensation. So, Nomar obtains a zero basis and collecting the $$$ is income to Nomar. I don't think it really is a gift: Nomar is seen as having provided services to this "side" venture; moreover, what Nomar gets is determined by vote, not a series of individual gifts. The partnership notion fits better than the gift notion.

As an aside, I'm always somewhat surprised when tax professors invoke "gift" analysis in non-family situations. Outside of families and loved ones, hardly anything is a gift. I have to constantly remind students of this. Students need to devote more energy to finding disguised gifts within families than looking for gifts in commercial settings.

Others raised questions about Nomar's state tax liability on his world series share. How do you apportion the state tax among Massachusetts (Red Sox' home), Illinois (Cubs' home), Missouri (Cardinals' home), New York (Yankees' home), and California (Angels' and Nomar's home)?

October 28, 2004 in Tax Profs | Permalink | Comments (0) | TrackBack (0)

Tax Court: Prisoner Not Eligible for EITC

PrisonerIn Rogers v. Commissioner, T.C. Memo. 2004-245 (10/27/04), a prisoner earned $1,700 in wages and claimed an earned income tax credit of $128. Although § 32(c)(2)(B)(iv) provides that "no amount received for services provided by an individual while the individual is an inmate at a penal institution shall be taken into account" in determining a taxpayer’s earned income, the prisoner contended that she was not subject to this rule because her work was voluntary and was not performed within the prison. The Tax Court rejected this argument:

Under the plain and literal language of § 32(c)(2)(B)(iv), it makes no difference whether petitioner performed services at a location outside the penal institution or whether her performance of services was voluntary or compulsory. Petitioner was an inmate at a penal institution throughout taxable year 1998, and all her wages received during that year are excluded from the computation of the earned income credit as a matter of law under § 32(c)(2)(B)(iv).

October 28, 2004 in New Cases | Permalink | Comments (0) | TrackBack (0)

Weisbach Presents The Optimal Accounting Period Today at Penn

WeisbachDavid Weisbach (Chicago) presents The Optimal Accounting Period for Taxes today at 4:30 pm EST at Pennsylvania as as part of their Tax Policy Workshop Series. Here is the opening:

This paper considers the appropriate accounting period for collection of taxes. The focus is on Haig Simons taxation of capital income, although it will also discuss taxation of labor income taxation, consumption taxation, and issues related to realization. The central observation is that discrete taxable periods allow taxpayers to pay taxes after the relevant accretion in value. This deferral of taxes reduces the present value cost of taxation, reducing the effective tax rate. As the end of the taxable period gets closer, the benefit of the deferral goes down and the effective tax rate goes up. The longer the period, the greater the deviations in effective tax rates during the period. Only continuous taxation, determining values and paying taxes at each instant, produces uniform effective tax rates.

October 28, 2004 in Colloquia | Permalink | Comments (0) | TrackBack (0)

Lavoie Presents Activist or Automaton Today at Albany

PriceWaterhouseCoopers Offers Web Cast Today on International Provisions of Tax Act

PriceWaterhouseCoopers offers the first installment if its The American Jobs Creation Act of 2004 Webcast Series on Repatriation Incentives and Other International Provisions today at 2:00 - 4:00 pm EST. Speakers include:

• Bill Archer – Former Chairman of the House Ways and Means Committee
• Bob Shapiro – Former Chief of Staff of the Joint Committee on Taxation of the U.S. Congress
• Alan Fischl – Chief Technical Advisor to the Homeland Coalition
• John Ranke – National Practice Leader, International Tax Services
• Mike Urse – U.S. Outbound Planning Leader
For more information, email Amanda DeMilt.

October 28, 2004 in Tax Conferences | Permalink | Comments (0) | TrackBack (0)

BNA Advisory Board Meets Today on U.S. Income

The BNA Tax Management Advisory Board meets today at 5:30 pm EST (followed by a reception at 7:00 pm) at the Waldorf-Astoria Hotel in New York City to discuss three income tax papers:

Partnership Mergers and Built-In Gain: Did Rev. Rul. 2004-43 Get It Right?, by Michael Grace (Buchanan Ingersoll PC, including the law firm of Silverstein & Mullens, Washington, D.C.) & Robert Crnkovich (Ernst & Young LLP, Washington, D.C.)
Long Term Capital Holdings -- Penalty Considerations, by Miriam L. Fisher (Morgan Lewis & Bockius LLP, Washington, D.C. )
Long Term Capital Holdings -- Economic Substance Considerations, by Gary B. Wilcox (Morgan Lewis & Bockius LLP, Washington, D.C. )

October 28, 2004 in Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 27, 2004



October 27, 2004 in News | Permalink | Comments (0) | TrackBack (0)

WSJ Compares Bush & Kerry Estate Tax Plans

Tom Herman reports on What the Presidential Election Means for Fate of the Estate Tax in today's Wall Street Journal. Here is the opening:

President Bush and Sen. Kerry differ sharply over a politically charged pocketbook issue: death and taxes. As things stand, the federal estate-tax exemption is set to disappear in stages through 2009. Then, in 2010, the estate tax is supposed to vanish entirely -- only to spring back to life again in 2011. Clearly, this bizarre system will change -- maybe several times -- before 2010.

President Bush vows to kill "death" taxes permanently. Sen. Kerry wants to raise the basic exemption (now $1.5 million) to $2 million for most estates, and leave the top estate-tax rate unchanged at 48%, says Jason Furman, economic-policy director for the Massachusetts senator. What happens next week could heavily influence the outlook. For the wealthy, the differences between the Bush and Kerry plans can be huge.

October 27, 2004 in Political News | Permalink | Comments (0) | TrackBack (0)

McDaniel Delivers Tillinghast Lecture on Trade Agreements and Income Taxation at NYU

McdanielPaul McDaniel (Florida) delivered the Davd R. Tillinghast Lecture on International Taxation at NYU, Trade Agreements and Income Taxation: Interactions, Conflicts, and Resolutions, 57 Tax L. Rev. 275 (2004). Here is the Conclusion:

This Article analyzes the WTO decisions in the FSC/ETI cases from three perspectives. From the legal/structural perspective, it argues that the decisions against the United States under the terms of the SCM agreements were legally correct and were structurally necessary to prevent countries from avoiding the strictures of SCM simply by drafting their export subsidies as tax measures rather than as direct spending provisions. From an economic perspective, the decisions also were sound. They increased both U.S. and global welfare. Finally, the Article argues that U.S. sovereignty concerns are adequately protected by existing U.S. rules governing treaties and concludes that the political argument justifying the FSC/ETI regimes on an argument that the U.S. international tax system puts U.S. multinationals at a competitive disadvantage vis-à-vis multinationals from exemption countries has no rational basis.

October 27, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Moore & Kerpen on Dividend Payouts After the Bush Tax Cuts

Stephen Moore (Cato Institute) & Phil Kerpen (Club for Growth) have posted Show Me the Money! Dividend Payouts after the Bush Tax Cut on the Cato Institute web site. Here is the abstract:

The centerpiece of President Bush's tax cut in 2003 was a sharp reduction in the individual dividend tax rate. The dividend tax cut was designed to spur investment and boost the stock market by increasing the after-tax return on corporate earnings, thus raising stock valuations. The tax cut also reduced the tax bias against dividends to spur larger payouts to shareholders. That reduces the amount of discretionary cash available to executives and will likely reduce the number of Enron-style corporate financial scandals.

This study examines the impact of the dividend tax cut after one year. We gathered data on dividend payouts before and after the 2003 tax cut for all Standard & Poor's 500 companies. We found a highly positive response to the tax cut:

• Annual dividends paid by S&P 500 companies rose from $146 billion to $172 billion, an increase of $26 billion.
• In addition, special dividends of $7 billion have been paid, raising the total first-year dividend increase to $33 billion.
• Thus, dividends increased 18% without special dividends and 23% with special dividends.
• Twenty-two companies that did not previously pay dividends have initiated regular dividends.
• Equity values rose more than $2 trillion after the tax cut.
The large and positive response to the dividend tax cut, which is scheduled to expire at the end of 2008, suggests that Congress should make it permanent.

October 27, 2004 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Tax Foundation Publishes Tax Watch Newsletter

The Tax Foundation has published the Fall 2004 edition of its Tax Watch newsletter, with articles on:

• Which U.S. States Have the Best Business Tax Climates?
• Why Lotteries are Bad Tax Policy
• Making Taxes Simple: Are Deficits Bad for the Economy?

October 27, 2004 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

ABA Teleconference and Webcast Today on State Taxation of Pass-Through Entities

Aba_taxThe ABA Tax Section's "Last Wednesday of the Month" Teleconference and Webcast will be held today from 1:00 - 2:30 pm EST on State Taxation of Pass-Through Entities and their Owners: An Overview of the Issues and the Opportunities:

The program will address various state and local tax issues, and potential opportunities, raised by the use of pass-through entities such as partnerships, limited liability companies and S corporations. It will first provide a discussion of the relative merits of the different types of entities for state tax purposes and some background on the history and formation of these type of entities. The presentation will also focus on the effect that state conformity, or non-conformity, to the federal check-the-box rules has on the use of a pass-through entity. In addition, the presenters will discuss issues related to determining whether the nonresident owner of a pass-through entity will have nexus in a state in which the entity does business and the treatment of an ownership interest in a pass-through entity for state apportionment purposes. Finally, the presentation will address recent state tax developments across the United States affecting pass-through entities.

Th panelists are:

Michael McLoughlin (Moderator) (Jones, Walker, Waechter, Poitevent, Carrère & Denègre LLP, New Orleans)
Bruce P. Ely (Bradley, Arant, Rose & White LLP, Birmingham, AL)
Walter Hellerstein (Georgia)

October 27, 2004 in ABA Tax Section, Tax Conferences | Permalink | Comments (0) | TrackBack (0)

Schmalbeck Criticizes Wall Street Journal's Reporting on Teresa Heinz Kerry's Tax Return

Heinz_kerryForm_1040_2On Monday, we blogged Michael Kinsley's defense of Teresa Heinz Kerry's 2003 federal tax return in the Washington Post. Richard Schmalbeck (Duke) shared with the TaxProf Discussion Group his criticism of the Wall Street Journal's coverage of this issue. Here is an excerpt of the full post (reprinted here with Prof. Schmalbeck's permission):

[Y]our paper is making some mistakes in the way they're handling the story about Teresa Heinz Kerry's tax rates:...First, they seem to be using a percentage in her case that has explicit federal taxes in the numerator, and total income in the denominator. But the way these calculations are usually done is to put only adjusted gross income in the denominator. AGI does not include income from tax-exempt bonds. The SOI (the IRS Statistics of Income series) in particular uses AGI numbers that do not include tax-exempt interest. So your editors simply aren't using comparable methods to do their comparisons.. If you look at the tax paid by Mrs. Kerry--$627,150--as a percentage of her actual adjusted gross income--$2.29 million--you get about 27%, roughly the same as other taxpayers in the top 1% of earners.

And there's a problem with that numerator, too....Without a thorough study of the rates of return on taxable and tax-exempt securities in 2003, I would be loathe to estimate the "implicit" tax rate Mrs. Kerry faced on her municipal bond investments. But I do know that 0%, which essentially presumes that underwriters of municipal bonds are stupid, and manage to capture no part of the tax advantages available to investors in the instruments they offer, is flatly wrong. But 0% is indeed what your editors have assumed as the tax burden on her municipal bonds investments.

October 27, 2004 in Political News | Permalink | Comments (0) | TrackBack (1)

Bank Presents Lessons from the New Deal at UCLA

Steve_bankSteven Bank (UCLA) presented Tax, Corporate Governance, and Norms: Lessons from the New Deal, 61 Wash. & Lee L. Rev. ____ (forthcoming 2004), last week at the UCLA Legal History Workshop. Here is the abstract:

This paper examines the use of federal tax policy to effect changes in state law corporate governance during the New Deal. It focuses on two particular measures enacted in this period – the undistributed profits tax in 1936 and the overhaul of the tax-free reorganization provisions in 1934 – and considers why the former was so much more controversial and less sustainable than the latter. While some of the difference can be explained by the different political and economic circumstances surrounding each proposal, this paper argues that the divergence in the degree of opposition can be explained in part by an examination of the extent to which each provision threatened an underlying norm, or longstanding standard, of corporate behavior. In the case of dividends, managers were accustomed to virtually unfettered discretion and it was considered good practice to maintain healthy retained earnings. By contrast, mergers had never been within the exclusive purview of the board of directors. In order to pursue such transactions, managers had to seek the approval of shareholders and were subject to the restrictions of state corporate and federal antitrust law. As a consequence of this difference in underlying standards, it is not surprising that managers reacted so much more strongly to oppose the undistributed profits tax than they did the proposal to abolish or radically reform the tax-free treatment for mergers and acquisitions.

October 27, 2004 in Colloquia | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 26, 2004

Shaviro on Rethinking Tax Expenditures

Daniel Shaviro (NYU) has published Rethinking Tax Expenditures and Fiscal Language, 57 Tax L. Rev. 187 (2004). Here is the abstract:

Tax expenditure analysis is like a hardy plant with shallow roots that spreads widely, resisting the occasional effort to extirpate it, and yet has little if any effect on the soils in which it sprouts. At least sixteen countries release tax expenditure data pertaining to various taxes. However, public acceptance of tax expenditure analysis has been compromised by concern that it requires undue consensus as to the proper "reference tax base," or else that it implies regarding all money as the government's. A more valid concern is that its treatment of certain tax rules as "really" spending mistakenly presupposes that the distinction between "taxes" and "spending" is economically meaningful to begin with.

The prevalence of objections, including mistaken ones, to tax expenditure analysis is in part attributable to Stanley Surrey's over-reaching when he initially proposed it with respect to the United States income tax. A measure that he presented as merely a neutral budgetary tool was widely and accurately recognized as also a tool for promoting his particular policy aims with regard to tax reform and progressivity. Fiscal language inevitably has a dual character, as a weapon of political combat in addition to a tool of purportedly objective description, and proponents on both sides of fiscal language debates rarely sort out the two functions very scrupulously.

While also exploring fiscal language issues more generally, the article attempts to put tax expenditure analysis on a more fundamental basis, by relating it to Richard Musgrave's famous distinction between the allocation and distribution branches of government. Tax expenditures are most usefully defined as provisions in the tax rules that seem to reflect the operations of the allocation branch rather than the distribution branch. It is important to distinguish, however (as tax expenditure analysis heretofore has not) between (1) tax rules that seem clearly allocative rather than distributional, such as weapons appropriations that are accomplished through tax credits, (2) tax rules whose distributional merits are reasonably debatable, such as medical deductions, and (3) tax rules that seem to reflect the administrative needs of the distribution branch rather than the direct aims of distribution policy. In addition, it is reasonable, as the Treasury Department proposed in 2003, to estimate negative as well as positive tax expenditures (i.e., penalties as well as subsidies), and to prepare estimates from a consumption tax as well as an income tax perspective.

October 26, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

SOI Releases 2 New Data Sets

Irs_logo_3The IRS Statistics of Income Division has released two new data sets:

Individual Income Tax Return Statistics by State (2002)
Individual Income Tax Return Statistics by Size of AGI (2002). Among the many fascinating tables are:
Average Tax Rate

.................Top 1%......Top 5%......Top 10%......Top 25%.....Top 50%
Average Income Tax Share

.................Top 1%......Top 5%......Top 10%......Top 25%.....Top 50%

October 26, 2004 in Gov't Reports | Permalink | Comments (1) | TrackBack (0)

New Book: Taxing Democracy

Taxing_democracyValerie Braithwaite (Australian National University) has published Taxing Democracy: Understanding Tax Avoidance and Evasion. Here is the publisher's description:

The integrity of tax systems as we know them are being challenged throughout the world. Tax avoidance schemes of various kinds are proving increasingly attractive and lucrative to wealthy individuals and large corporations. As governments fear the erosion of their tax base among those who are most able to contribute, the public is looking on, as one of its most public institutions attempts to re-invent itself through changing laws and administrative procedures.

In this book, a number of experts develop the idea of responsive regulation in relation to taxation. They demonstrate how law in this area is undermining social norms and social norms are undermining law. A key factor in their analysis is the perception of justice. Explanations as to why the integrity of tax systems is under siege, and possible solutions, are examined.

October 26, 2004 in Book Club | Permalink | Comments (0) | TrackBack (0)

The 24/7 Law School

Open_24_hoursI recently blogged about our upcoming symposium on The Next Generation of Law School Rankings to be held on April 15, 2005 at Indiana-Bloomington. In the meantime, the latest rankings of law school libraries in the National Jurist caught my eye. The magazine ranks the nation's 183 law libraries by number of volumes, titles, and serial subscriptions; ratio of library study capacity and professional librarians to student enrollment; and number of hours open per week. In the final category, five law schools claim that their law libraries are open 168 hours per week, which translates into 24 hours, 7 days per week:

• Penn State
• South Dakota
• Villanova
• Washington & Lee
• William & Mary
One wonders whether this self-reported data is accurate (what does "open" mean?) and, if it is, whether the five schools will start publicizing that they are the only ones offering students the ability to study law 24/7. Or perhaps the City University of New York will start publicizing itself as "The Slacker Law School" -- its library is open the least number of hours (61 hours per week) of any law library in the country!

October 26, 2004 in News | Permalink | Comments (2) | TrackBack (0)

Boskin on Sense and Nonsense About Federal Deficits and Debt

Michael Boskin (Stanford, Hoover Institution) has published Sense and Nonsense About Federal Deficits and Debt in The Economists' Voice on bepress. Here is the abstract:

In the short run, the Bush tax cuts were one of the largest and best-timed uses of fiscal policy in history, helping to prevent a much worse downturn (but it would have been better still if the tax rate cuts had been immediate and real spending controls enacted simultaneously to take effect well into the economic expansion). In the medium run of five-to-ten years, the CBO projects gradually declining deficits and a debt-GDP ratio that rises slightly to peak at about 40% in two or three years, and then stabilizes for the rest of the decade through 2014 even as the tax cuts are made permanent, so long as the post-1998 splurge in non-defense discretionary spending is slowed substantially. This is hardly a debt spiraling out of control. The deficits will reduce domestic investment, but less than dollar-for-dollar. The effect is important, but hardly a cause for hysteria. Of course, President Bush’s tax cuts and Senator Kerry’s spending increases have ramifications well beyond the next decade, when fiscal pressures will become even more pronounced. In the long run of decades, the deficits in Social Security and Medicare are projected to be much larger than the unified deficit in the next ten years. Standard projections exceed fifty trillion dollars in present value, but may overstate the problem by assuming quite modest long-run annual growth, increases in health care outlays far in excess of GDP growth for the better part of a century (the only way that will happen is if the health benefits are sufficient for citizens to want to spend that much), large real benefit increases in Social Security, and continuous tax cuts to offset real bracket creep and the AMT. But even with less stark projections, there would still be large deficits and large tax increases looming. To avoid them, continuously rigorous spending control and major program reform is essential.

October 26, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Intersection of Tax, Religion & Politics

With a week to go before the Presidential election, we return to the intersection of tax, religion, and politics with two items:

• A follow up on the IRS's warning that it "will take whatever actions are necessary to stem abusive behavior" by churches that directly or indirectly participate in the campaigns on behalf of any candidate (blogged here and here). The Beckett Fund for Religious Liberty has sent a 2-page letter to every church and house of worship in the U.S. offering to defend it, free of charge, if it becomes ensnared by these rules. Here is the opening of the letter:
Have you been threatened with loss of your institution’s tax-exempt status if you engage in anything remotely resembling "political activity"? If you haven't yet, you no doubt will. Every election year, well-funded groups that oppose true freedom of speech and religious exercise attempt to gag leaders like you, usually by sending letters that contain tendentious statements about federal tax law and your constitutional rights.

The Becket Fund for Religious Liberty is a non-profit, non-partisan public interest law firm dedicated to protecting the free expression of all religious traditions. We are writing for three reasons: (1) to debunk these exaggerated threats, especially as they relate to preaching from the pulpit and preaching on moral and political issues; (2) to invite you to visit our website,, for more information; and (3) to urge you to contact us immediately if the IRS threatens you for either type of preaching, so that we can give you legal assistance, free of charge.

A Guide to Election Year Activities of Section 501(c)(3) Organizations, by Steven Sholk (Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C., Newark) published by Practising Law Institute as part of the course handbook for the seminar, Tax Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings 2004.

October 26, 2004 in Political News | Permalink | Comments (0) | TrackBack (0)

Monday, October 25, 2004

IRS Wins Award for Best Government Web Site

Irs_logo_4The IRS issued a press release (IR-2004-131) today announcing that it has won a Keynote Performance Award, a new awards program designed to recognize excellence in web site performance. Keynote honored the fastest and most reliable web sites in three categories: e-commerce, e-government, and online travel and hospitality. In e-government, the IRS won the performance award for Best Transaction Reliability with an average score of 99.8%. It is a bit ironic, however, that the press release announcing the award is available on Keynote's web site, but not on the IRS's web site, as of 3:15 pm EST.

Update: The press release is now (5:00 pm EST) available on the IRS web site.

October 25, 2004 in IRS News | Permalink | Comments (1) | TrackBack (0)

Washington Post Defends Teresa Heinz Kerry's Tax Return

Heinz_kerryForm_1040_2Last Wednesday, we blogged the Wall Street Journal op-ed critical of Teresa Heinz Kerry's release of 2 pages of her 2003 federal tax return. Michael Kinsley rose to her defense in Sunday's Washington Post. Here are some excerpts:

• Teresa Heinz Kerry released her 2003 income tax Form 1040 the other day, and the right-wing commentariat claims to find her tax situation deeply ironic. On income of over $5 million, she paid federal income taxes of just $627,150, or 12.4%. As a Wall Street Journal editorial last Monday put it, this "means she is paying a lower average rate than nearly all middle-class taxpayers." This was declared to be a devastating comment on John Kerry's tax plans. It shows that they "are much more about a revenue grab than they are about tax justice," the Journal put it. The point is echoing in talk-radioland. It is another example of what I wrote about last week: the fantastic ability of Bush supporters to turn anything into dirt.

• More than half of Teresa Kerry's 2003 income was interest from tax-exempt bonds. The Journal hilariously described these on Monday as "the kind of investments that rich people can afford to hire lawyers and accountants to steer their money into." And the paper predicted that "mega-millionaires such as Mrs. Kerry" will avoid her husband's higher taxes through "tax shelters" like this one, leaving ordinary $200,000 taxpayers to shoulder the burden. In fact, tax-exempt bonds are hardly an exotic tax-avoidance technique requiring lawyers and accountants. Anyone with a hundred bucks can buy into a mutual fund of tax-exempt bonds with a simple call to Fidelity or Charles Schwab. The Wall Street Journal got it precisely wrong: The remarkable thing about Teresa Kerry's tax return is that this fabulously rich woman apparently has most of her income-producing wealth stashed in an utterly mundane and non-exclusive form of investment.

• The right-wing commentariat, and the Wall Street Journal in particular, are not against the rich or the super-rich. They are not against people avoiding taxes. They are just against Teresa Kerry. For a person that rich to be a Democrat seems somehow like cheating.

For prior TaxProf Blog coverage, see here, here, and here.

October 25, 2004 in Political News | Permalink | Comments (0) | TrackBack (1)

Gale & Orszag on Bush Administration Tax Policy

William Gale & Peter Orszag of the Brookings Institution's Tax Policy Center have published a four-part article on Bush Administration Tax Policy:

Effects on Long Term Growth
Revenue and Budget Effects
Distributional Effects
Introduction and Background

October 25, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

More Tax Insults

• An otherwise excellent Sunday Boston Globe editorial page essay on re-thinking judicial review, A Really Restrained Judiciary: Attacking Judicial Activism Isn't Just for Conservatives Anymore, which quotes con law luminaries such as Bruce Ackerman (Yale), Akhil Amar (Yale), Robert Bork (Richmond), Michael Klarman (Virginia), Larry Kramer (Stanford), Cass Sunstein (Chicago), Mark Tushnet (Georgetown), and Jeremy Waldron (Columbia), concludes as follows:

"With judicial review," says Waldron, "there's a whole bunch of people whose views get locked out as unconstitutional. But in this country people fought long and hard for the vote because they wanted to participate on equal terms in important matters of principle, not just tax laws."
• An article in the National Jurist, The Courses You Love — and Love to Hate:
There are certain course titles, the mere mention of which will make most law students groan and appear to shrivel in their clothes — kind of like showing a bucket of water to the Wicked Witch of the West.

Try it with your best friends! Whisper "Civ Pro," "commercial transactions" or "federal income tax" in their ears and watch them cry. Admittedly not everyone hates those courses, but they are the ones most people love to hate.

October 25, 2004 in News | Permalink | Comments (0) | TrackBack (0)

Taxpayers in Banaitis & Banks Ask Supreme Court to Dismiss Cases

Us_supreme_courtThe Supreme Court is scheduled to hear oral argument next Monday (Nov. 1) in Commissioner v. Banks (No. 03-892) and Commissioner v. Banaitis (03-907). The taxpayers have filed a joint supplemental brief requesting that the Court dismiss the writ of certiorari in light of the President's signing on Friday of the Jobs Creation Act of 2004:

On October 22, 2004, the president signed the American Jobs Creation Act of 2004. Section 703 of the Act, entitled Civil Rights Tax Relief, amends section 62(a) of the Internal Revenue Code by expressly permitting a taxpayer to subtract from his or her gross income, in arriving at adjusted gross income, the "attorneys fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of unlawful discrimination" as defined by the Act. Section 62(e) of the Internal Revenue Code, as amended by the Act, defines the term "unlawful discrimination" as an act that is unlawful under various enumerated federal, state, and local statutory provisions, as well as common law claims....

Significantly, Internal Revenue Code section 62(a), as amended by the Act, includes as "unlawful discrimination" acts which gave rise to the tax disputes in both Respondents Banks’s and Banaitis’s respective cases....

The new legislation applies to attorneys fees paid after the date of enactment with respect to any settlement or judgment occurring after its enactment. The new legislation thus does not apply to Respondent Banks’s or Banaitis’s respective tax disputes with Petitioner. However, any decision of this Court will have little or no impact on future tax disputes involving substantially the same facts. Moreover, prudential considerations, including deference to the coordinate branches, may warrant a determination that a decision as to the merits should not be reached in either of these cases. A decision on the merits in favor of Petitioner in either or both cases would lead to disparate tax consequences for federal and state discrimination claimants, depending on the date when judgment was rendered or settlement was reached with respect to their claims.

A final consideration which may warrant dismissal in each case on the ground that the writ of certiorari was improvidently granted is that Sen. Charles Grassley, the Chairman of the Senate Finance Committee, stated on the Floor of the Senate, shortly following passage of the Act by Congress, that the portion of the Act relevant to each of these cases was designed to clarify and not change existing law, and that judgments rendered or settlements reached prior to the effective date of the Act should be treated identically as judgments and settlements subject to the Act.

See the ABA Journal e-report, Singling Out Double Taxation: Measure Would Eliminate Taxes That Plaintiffs Pay on Awarded Attorney Fees:

The measure’s passage may, however, affect two cases before the U.S. Supreme Court dealing with the same issue. In IRS v. Banks, No. 03-892, and IRS v. Banaitas, No. 03-907, scheduled for argument Nov. 1, the IRS contends that the prevailing plaintiffs must pay taxes on attorney fees.

Chicago lawyer Russell R. Young, who will argue for plaintiff Joseph W. Banks II, wonders whether the court will dismiss the case. "Because the issue in Banks does not have ongoing significance for future successful plaintiffs in Mr. Banks’ position due to CRTRA, the Supreme Court may decide to dismiss the case," Young says. "If it does not do so prior to oral argument, I anticipate that the legislation, though not directly applicable to Mr. Banks, will likely be discussed at length."

Adds Young: "Congress’ passage of the CRTRA is confirmation that the outcome advocated by Mr. Banks—that taxpayers not be taxed on the portion of their recoveries paid directly to their attorneys—is the result supported by common sense and fairness."

For prior TaxProf Blog coverage, see here, here, here, and here. (Thanks to Jack Bogdanski (Lewis & Clark) for the tip.)

October 25, 2004 in New Cases | Permalink | Comments (0) | TrackBack (0)

Thompson Presents Tax Policies of Bush & Kerry Today at UCLA

Weekend Roundup

Sunday, October 24, 2004

Top 5 Tax Paper Downloads

SSRN LogoThere again is a lot of movement in this week's list of the Top 5 Tax Paper Downloads on SSRN, with 2 new pieces debuting at #'s 4 & 5, along with movement among the other 3 papers:

1. The Coming Accounting Revolution: Offshore Outsourcing of Tax Return Preparation, by Jesse Robertson (Alabama - School of Accountancy), Dan Stone (Kentucky - School of Accountancy), Liza Niederwanger (Deloitte & Touche LLP), Matthew Grocki (Kentucky - School of Accountancy), Erica Martin (Crowe Chizek & Co.) & Ed Smith (Kentucky - School of Accountancy)

2. Tax Protest, A Homosexual, and Frivolity: A Deconstructionist Meditation, by Anthony Infanti (Pittsburgh)

3. The Entrepreneurship Effect: An Accidental Externality in the Federal Income Tax, by Leandra Lederman (George Mason)

4. Personal Taxes and Circularity Problems in Corporate Valuation - A Note (not only) on Valuation with or without Personal Income Taxes? by Frank Richter, by Bernhard Schwetzler (Handelshochschule Leipzig (HHL), Dep't of Finance) & Marc Steffen Rapp (Handelshochschule Leipzig (HHL), Dep't of Finance)

5. A Tax Crit Identity Crisis? Or Tax Expenditure Analysis, Deconstruction, and the Rethinking of a Collective Identity, by Anthony Infanti (Pittsburgh)

October 24, 2004 in Top 5 Downloads | Permalink | Comments (0) | TrackBack (0)

Cowan on Federal Tax Policy Toward Indian Tribes

Mark Cowan (Boise State, Dep't of Accountancy) has published Leaving Money on the Table(s): An Examination of Federal Income Tax Policy Towards Indian Tribes, 6 Fla. Tax Rev. 345 (2004). Here is the Conclusion:

A lot has changed in Indian country. Not much has changed in tax country. Despite the economic growth of many Indian tribes brought about by Indian gaming, there has been no major overhaul to the federal tax treatment of Indian tribes. The tax story remains the same -- Indian tribes, with one minor exception, are not subject to the federal income tax. States have a similar status, although they escaped the grip of the IRC by a much more heavily documented, but extremely confusing path. This Article has attempted to expose and highlight the complexities underlying these statuses and to revisit them in light of the realities of the new millennium.

Despite the changes in Indian country, it appears that federal tax policy towards Indian tribes is best kept at the status quo. Tribes, while increasingly commercial in nature, are governments and should be treated as such under the tax system. Therefore, tribes should continue to be exempt from the federal income tax -- just like states. While Congress has the power to tax the tribes, to do so would frustrate long-standing federal Indian policy favoring the economic independence and sovereignty of the tribes and end Congress's recent movement towards treating Indian tribes as states for many purposes of the tax code. Unless and until there are major changes in tax policy towards states or federal policy towards Indian tribes, imposing the federal income tax on tribes would not be justifiable.

We have not heard the last of this issue. As Indian gaming expands and the government searches for new sources of tax revenue, there will no doubt be pressure to impose some sort of an income tax on the tribes. When this issue reemerges, any new proposals must be evaluated, as done here, in light of prevailing Indian policy and tax policy. In addition, empirical studies of the complex revenue impact on tribes, states, and the federal government would need to be done to properly measure the true amount of potential tax revenue at stake. Only then can we, like the weekend gambler, know how much money we are leaving on the table, and whether we are better off for having done so.

October 24, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

PriceWaterhouseCoopers Publishes Summary of New Tax Act

PriceWaterhouseCoppers has posted on its web site a 14-page summary of the just-signed American Jobs Creation Act of 2004.

October 24, 2004 in News | Permalink | Comments (0) | TrackBack (2)

Saturday, October 23, 2004

Tax Prof Spotlight: Michael Yu

This week's Tax Prof Spotlight of Michael Yu (Cal-Western) continues our series of profiles of folks starting their careers this fall as tenure-track tax professors at American law schools. We hope the profiles will help introduce our newest tax colleagues to the academic tax community.


Michael Yu credits his federal income tax professor at Columbia, Anne Alstott (now Deputy Dean and Jacquin D. Bierman Professor of Taxation at Yale), with sparking his interest in tax law. "Her course really inspired me. Tax was interesting and exciting, and I remember knowing immediately that I wanted to become a tax lawyer."

Before law school, where he was an articles editor for the Journal of Chinese Law, Yu received an A.B., in Government, from Harvard College. During law school, he served as an extern law clerk to Magistrate Judge Theodore Katz, U.S. District Court, Southern District of New York. After law school, Yu earned a tax LL.M. from NYU and then worked as an attorney advisor for Tax Court Judge Thomas Wells.

He next entered private practice in San Francisco, working first at a tax litigation and estate planning boutique and then in the estate planning group of Pillsbury, Madison & Sutro. Seeking a little less fog, he left San Francisco to join an estate planning firm in Los Angeles.

Yu then earned a fellowship to teach at Cal-Western in San Diego for the 2003-04 academic year, during which he taught International Tax and Trusts & Estates. "During my fellowship, I received tremendous mentoring from the faculty, especially from Philip Manns, who teaches trusts and estates and all of the tax classes. I then applied for a full-time teaching position and was very lucky to be appointed as an assistant professor at Cal-Western beginning in Fall 2004.”

Outside of school, Yu has joined the Board of San Diego's Affordable Housing Advocates. The organization focuses on monitoring the affordable housing obligations set forth in California's Community Redevelopment Law. "By seeking to have existing law enforced, the organization helps to ensure that lost units are replaced and that housing funds set aside by law are properly spent on affordable housing development."

Yu very much enjoys teaching and is currently researching an article on the intersection between income in respect of a decedent and distributable net income. "I am so honored to be entering this profession. It has been incredibly challenging but also extremely rewarding and fun."

Each Saturday, TaxProf Blog shines the spotlight on one of the 700+ tax professors in America's law schools. We hope to help bring the many individual stories of scholarly achievements, teaching innovations, public service, and career moves within the tax professorate to the attention of the broader tax community. Please email me suggestions for future Tax Prof Profiles, particularly for our series on new tax professors. For prior Tax Prof Profiles, see here.

October 23, 2004 in Tax Prof Spotlight | Permalink | Comments (0) | TrackBack (0)

Infanti on The Defense of Marriage Act and Tax Treaties

Prying Open the Closet Door: The Defense of Marriage Act and Tax Treaties, by Anthony Infanti (Pittsburgh), will be published in Monday's Tax Notes. Here is the abstract:

In response to a letter from a clearly alarmed conservative organization, the IRS recently reaffirmed that same-sex couples who are married under state law are ineligible to file a joint federal income tax return. The IRS relied on the Defense of Marriage Act (DOMA), which defines marriage for purposes of federal law as a union of a man and a woman. In this article, Prof. Infanti considers whether the IRS's statement to that organization will hold true when viewed from a wider, international perspective.

The U.S. is not the only country where same-sex couples are seeking (and have been granted) the right to marry. Indeed, same-sex couples have already been granted the right to marry in Canada, the Netherlands, and Belgium, and it appears that they will soon be granted the right to marry in Spain. Each of these four countries has an income tax treaty with the U.S. And each of these income tax treaties contains a nondiscrimination article that prohibits the U.S. from taxing citizens of the other country in an other or more burdensome fashion than it taxes its own citizens in the same circumstances. The heart of this article consists of a discussion of the relationship between the nondiscrimination provisions in these treaties and DOMA. A tenable argument can be made that DOMA should not be given priority over the treaty provisions and that, as a result, the IRS (and, in many cases, state and local tax authorities) should be required to recognize the marriages of resident alien same-sex couples who are citizens of Belgium, Canada, or the Netherlands (or, soon, Spain).

October 23, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Eastman on Constitutional Claims in Supermajority Tax Litigation

John Eastman (Chapman) has published Anatomy of the Federal Litigation: Challenging the Legislature's Actions in the Wake of Guinn v. Legislature, 4 Nev. L.J. 543 (2004). Here is the Conclusion:

Well-established federal claims of vote dilution, and violations of the due process and/or equal protection clauses, were implicated by Nevada Assembly actions, which deemed as "passed" tax increases without the two-thirds vote mandated by the Nevada Constitution. Less-established -- indeed, long dormant -- are claims that the Nevada Assembly's actions, and those of the Nevada Supreme Court upon which it relied, violated the Article IV guarantee of a republican form of government. In many ways, this claim is the most interesting; it directly challenges the circular defense that no claim had been stated because all actions had been authorized by the Nevada Supreme Court. At its root, the guarantee of a republican form of government means that the people are the ultimate masters of their fate. They are the ultimate decision-makers as to the form of government under which they will live, through the constitutions they choose to adopt. A state court can no more "authorize" the state legislature to ignore the clear commands of a valid constitutional provision than the legislature can choose to do so on its own. Either action displaces the rule of the people with the rule of their agents, and replaces a republican form of government with a tyrannical one.

October 23, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, October 22, 2004 Debunks Bush Claims About Kerry's Tax Record

Factcheck_logoThe nonpartisan has debunked two of the Bush campaign's new ads about Senator Kerry's tax record:

Ad #1: A Bush ad called "Thinking Mom" ran at saturation levels last week in 42 cities at an estimated cost of $2.5 million:

• Announcer: And we'll be checking traffic on . . .
• Woman: 5:30, gotta get groceries, we're gonna be late.
• Announcer: John Kerry and the liberals in Congress have voted to raise gas taxes ten times.
• Woman: Ten times? Gas prices are high enough already.
• Announcer: They've also raised taxes on senior's Social Security benefits. And raised taxes on middle class parents 18 times. No relief there from the Marriage Penalty.
• Woman: More taxes because I'm married? What were they thinking?
• Announcer: . . . 350 times. Higher taxes from the liberals in Congress and John Kerry.
Ad #2: A parallel ad called "Clockwork" ran even more heavily last week, in 44 cities at an estimated cost of $5.4 million:
Announcer: They voted to raise our gas taxes ten times. And raised taxes on Social Security benefits. Higher taxes on middle class parents 18 times. John Kerry and the liberals in Congress's record on the economy: higher taxes 350 times. An average of once every three weeks for 20 years. Like clockwork. John Kerry and the liberals in Congress on the economy. Troubling. Both ads make statements about Kerry that are misleading or downright false on several counts:

Gasoline taxes: It's false to say Kerry voted "to raise gas taxes ten times" as stated in the "Thinking Mom" ad. Even the Bush campaign's own list of votes doesn't back that up. There has been only one increase -- more than a decade ago -- when the federal gasoline tax went up just over four cents per gallon as part of Clinton's 1993 package of tax increases and spending cuts....

Social Security benefits: Kerry did vote to increase the amount of Social Security benefits subject to taxation, as stated in both ads, but not for all seniors. That was also as a part of the 1993 Clinton economic package. The increase was only for those with over $44,000 a year for a married couple. That increase currently affects just over 8 million taxpayers, a fraction of the 47 million who get Social Security benefits. And all the proceeds from the increase go to shore up the Medicare Trust Fund, something the ad fails to mention.

Middle Class Parents: Another falsehood in the "Mom" ad is the claim that Kerry has "raised taxes on middle-class parents 18 times. No relief there from the marriage penalty." It's true Kerry often opposed Republican proposals in the past, usually on grounds that they granted more relief to upper-income taxpayers than he would like. And some of those proposals included giving married couples a break, as well as granting or increasing tax credits for dependent children. But those votes wouldn't have resulted in raising taxes above what they were at the time. Furthermore, during the Democratic primary contests Kerry fiercely defended keeping the so-called "marriage penalty" relief and increased child tax credits when other Democratic candidates would have repealed them along with the rest of Bush's cuts. Kerry also would retain Bush's lower rates for low- and middle-income taxpayers. Kerry said consistently he wouldn't raise taxes on anyone making less than $200,000 a year....

The "Clockwork" ad falls short of an outright falsehood on this point. It says Kerry supported "higher taxes on middle class parents 18 times." Bush officials argue that voting against a tax cut is voting for "higher" taxes -- meaning higher than the alternative, not higher than people are actually paying. Still, we find the "Clockwork" ad to be misleading.

October 22, 2004 in Political News | Permalink | Comments (0) | TrackBack (0)

De Figueiredo & Garrett on Paying for Politics

John De Figueiredo (Princeton, MIT) & Elizabeth Garrett (USC) have posted Paying for Politics on SSRN. Here is the abstract:

Even in the wake of the most sweeping campaign finance reform law to be enacted in three decades, further significant reform is inevitable. Special interest money continues to flow through loopholes in the Act, and the Presidential Election Campaign Fund is near collapse. The next reform should encourage broader participation in the political process by individual citizens, both to dilute the power of special interests and to serve independent democratic values that recent Supreme Court jurisprudence has identified as vital to meaningful reform. We propose adopting a refundable tax credit of $100/taxpayer for political contributions to federal candidates and national parties; the credit would be targeted to lower- and middle-income Americans. A refundable tax credit is equivalent to giving each eligible citizen up to $100 annually to use for political contributions. We also present data about the relative importance of political contributions by special interests (corporate, labor and other PACs) and individuals that undermine many of the assumptions on which past reform has been based and that have not been discussed in the legal literature. The data clearly show that small contributions by individuals are the dominant source of money in campaigns, and that the influence of special interest money is subtle, appearing to "purchase" benefits like access, a place on the agenda, and minor policy details. Working from an accurate picture of who really pays for politics, and drawing from the experience at the federal and state levels with similar tax refund programs, we present the tax credit as a reform that is simple, easy to administer, and likely to improve political participation by average Americans. Thus, our proposal, unlike the complicated voucher plan with anonymity put forward by Ackerman and Ayres, is likely to be adopted by Congress; moreover, it will appeal to a bipartisan consensus because it mixes public funding with a decentralized allocation mechanism using a tax subsidy.

October 22, 2004 in Scholarship | Permalink | Comments (0) | TrackBack (0)

President Signs Tax Bill "With No Fanfare"

President Bush this morning signed the American Jobs Creation Act of 2004 (H.R. 4520) aboard Air Force One. The Associated Press story, filed at 12:30 pm EST, reports that he did so "with no fanfare"; indeed, here is the entire White House Press Release:


The President today signed into law:

H.R. 4520, the "American Jobs Creation Act of 2004," which repeals the extraterritorial income exclusion in current tax law; provides domestic manufacturing and other business tax relief, including energy-related tax credits; allows for itemized deduction of State and local sales taxes; provides for reform of tobacco subsidies; includes international tax reform and simplification provisions; and includes various revenue-raising provisions.

October 22, 2004 in News | Permalink | Comments (1) | TrackBack (0)

50-State "Business Tax Friendliness" Ranking: Red States Chummy, Blue States Chilly

The Tax Foundation has released a study ranking the 50 states on their "business tax friendliness." The results:

Tax Climate Map of the US
Click on Image to View Larger Map

Continuing the Red State/Blue State analysis previously blogged here and here: 8 of the 10 most business tax friendly states voted for George Bush in 2000 while 7 of the 10 least business tax friendly states voted for Al Gore:

US 50 States Map

The 10 most business tax friendly states:
1. South Dakota
2. Florida
3. Alaska
4. Texas
5. New Hampshire
6. Nevada
7. Wyoming
8. Colorado
9. Washington
10. Oregon

The 10 least business tax friendly states:
41. Wisconsin
42. Maine
43. Arkansas
44. Kentucky
45. Vermont
46. Rhode Island
47. West Virginia
48. Minnesota
49. New York
50. Hawaii

October 22, 2004 in Think Tank Reports | Permalink | Comments (0) | TrackBack (1)