Paul L. Caron

Saturday, May 14, 2016

Hemel & Galle:  The President's Authority To Unilaterally Raise Taxes

Following up on Monday's post, Taxing Carried Interest As Ordinary Income Through Executive Action:

Daniel Hemel (Chicago), The President’s Power To Tax Doesn’t Stop at Carried Interest:

No one can predict with complete confidence whether a court would uphold as-yet-unwritten Treasury regulations addressing carried interest, but I agree with Morgenson (and with the tax experts she cites) that such regulations — if written carefully and finalized after notice and comment — quite likely would pass judicial muster. What Morgenson doesn’t mention, though, is that when it comes to tax reform measures that the Obama administration could implement on its own, carried interest is just the tip of the iceberg. President Obama might not be able to make much of a dent in income inequality without legislative action, but he could raise billions of dollars in revenue while addressing some of the most objectionable tax avoidance strategies employed by U.S. corporations and high-net-worth individuals.

In a forthcoming Cornell Law Review article, The President’s Power To Tax, I set out a list of tax reform measures that the Obama administration could accomplish without an act of Congress.

 All the items on the list are measures that the Obama administration has included in past “Greenbooks.” (The Greenbook is a compilation of legislative proposals on tax-related matters that the President sends to Congress each year.) These are, in other words, reforms that the President has asked Congress to pass, even though his administration already has all the authority it needs. ...

So why is the Obama administration waiting around for a do-nothing Congress to act? The Cornell article runs through several potential explanations. One such explanation focuses on the political cost/benefit structure of revenue-raising. ... Another factor at play is PAYGO, the rule that tax cuts and entitlement expansions must be “revenue neutral.” ...

Perhaps in President Obama’s final few months in the White House, he and his top tax officials will be willing to implement some of these revenue-raising measures via regulation, even though that likely means they’ll take a lot of flak from wealthy individuals and corporations that have to pay higher taxes as a result.

Brian Galle (Georgetown), Maybe Treasury Should Have to Keep Score:

Following up on Daniel’s post, let me add one point to his account of the effect of the “PAYGO” rule. (I’m not yelling, it’s supposed to be in all caps…) In Daniel’s longer treatment of the issues, he explains how political incentives tend to favor administrative tax giveaways over revenue-raisers. Revenue is a common pool shared with the legislature, so executives are happy to waste it and reluctant to raise it (see here for some evidence of the effects of Congress’ common pool problem). ...

[T]here can be important transparency, and perhaps disciplinary, effects of requiring Treasury to issue budget estimates for major regulation. Budget estimates can also have important “checklist manifesto”-type benefits, in the sense that sometimes regulators don’t realize just how much money they’re giving away (as was surely the case with both check-the-box and the obscure partnership revenue rulings that underlie the carried interest loophole). Forcing them to think about that in a systematic way could help, especially if it includes public comment.

Scholarship, Tax | Permalink


The academic clarion call for more money for government spending.

Posted by: ruralcounsel | May 16, 2016 8:21:36 AM

I don't suppose that these scholars would approve of a President *reducing* taxes without Congressional action. One prime candidate is basis relief for inflation when computing taxable gain. If a President ever tried that, I'll bet these scholars would be among the chorus calling for upholding the rule of law.

Posted by: AMTbuff | May 14, 2016 9:57:51 PM