Weekly SSRN Tax Article Review And Roundup: Mazur Reviews Barry's Taxation, Innovation, And The Sharing Economy

This week, Orly Mazur (SMU) reviews a new work by Jordan Barry (San Diego), Taxation and Innovation: The Sharing Economy as a Case Study.

Innovation drives economic growth. Thus, encouraging innovation is a worthwhile and necessary endeavor. However, the tools we currently use to promote innovation are not always effective at reaching this desired result. So what can we do to improve the growth of innovation in the United States? Jordan Barry’s new work contributes to the existing literature on this important topic by considering the relationship between the U.S. federal income tax system and innovation.

Barry uses the sharing economy as the focal point of his paper to demonstrate that tax policy is a questionable tool for encouraging innovation. As Barry explains, the growth of our current economy relies significantly on the research and development activities of relatively small and new companies. But the majority of these companies do not take advantage of tax policies that are designed to achieve the goal of encouraging innovation. (For another recent work that uses empirical evidence to demonstrate this phenomenon, see Susan Morse and Eric Allen’s, Innovation and Taxation at Start-Up Firms, 69 Tax L. Rev. 357 (2016)). Moreover, these tax incentives often can lead to unexpected results that may not align with sound policy.

Despite the shortcomings of using the tax system to encourage innovation, Barry argues that “[s]urprisingly, innovation may be able to do more to advance our tax system than the tax system can to advance innovation.” In other words, studying the effect of the tax law on transactional and technological innovations can help identify problems in existing tax provisions, as well as ascertain the effectiveness of a particular tax provision in accomplishing its intended goals. With this information, policymakers can address more effectively some of the existing problems in the tax code, which will hopefully also address some issues created by future innovations.

The work concludes by recognizing that Congress and the IRS have made commendable efforts to remedy some of the issues with the tax system that the sharing economy has shed light upon, but considerable room for improvement remains. Unfortunately, Congress lost an important opportunity to realign the tax code and better support innovation with the recent tax reform. Congress failed to address many issues related to the sharing economy in the recently enacted tax bill, including issues related to simplified reporting of net income and issues related classifying service providers as employees versus independent contractors. The tax bill also did not significantly reform the Research and Experimentation tax credit despite evidence casting doubt on its effectiveness at encouraging small businesses to innovate. Instead, the tax bill adds many provisions that will likely create unintended results. For instance, the tax bill includes a provision that allows some sole proprietors and owners of other pass-through entities to deduct 20 percent of their revenue from taxable income. This provision will likely incentivize more service providers to seek independent contractor status, both within and outside the sharing economy, which has significant tax and other legal ramifications.

In sum, this work provides a fascinating and important contribution to the ongoing efforts to promote innovation and minimize regulatory arbitrage. As we continue to rethink our current tax system with the enactment of the new tax act, Barry’s work, together with the work of others on the sharing economy and innovation, in general, should be seriously considered by policymakers.

Here’s the rest of this week’s SSRN Tax Roundup:

• Edward Afield (Georgia State University College of Law), Compromising Student Loans, 69 South Carolina Law Review 81 (2017)
• Leyla Ates (Altinbas University), Transparency as a Key Prerequisite for the Success of Energy Subsidy Reform: A Case Study of Tax Subsidies in TurkeyReuven S. Avi-Yonah (Michigan), Lily L. Batchelder (NYU), J. Clifton Fleming Jr. (BYU), David Gamage (Indiana), Ari D. Glogower (Ohio State), Daniel Jacob Hemel (Chicago), David Kamin (NYU), Mitchell Kane (NYU), Rebecca M. Kysar (Brooklyn), David S. Miller (Proskauer), Darien Shanske (UC-Davis), Daniel Shaviro (NYU) and Manoj Viswanathan (UC-Hastings), The Games They Will Play: An Update on the Conference Committee Tax Bill
• David Blankfein-Tabachnick (Michigan State) and Kevin A. Kordana (Virginia), Kaplow and Shavell and the Priority of Income Taxation and Transfer, 69 Hastings Law Journal 1 (2017)
• Brett Freudenberg (Griffith University), Toni Chardon (University of Southern Queensland), Mark Brimble (Griffith University) & Melissa Belle Isle (Griffith University), Tax Literacy of Australian Small Businesses, 18(2) Journal of Australian Taxation 21-61
• Hans Gribnau (Tilburg Law School), Voluntary Compliance Beyond the Letter of the Law: Reciprocity and Fair Play, in B. Peeters, H, Gribnau, and J. Badisco (eds.), Building Trust in Taxation, Cambridge, Antwerp, Portland: Intersentia (2017)
• Tarun Jain (Supreme Court of India), Redrawing the Canvass of Tax-Avoidance Jurisprudence in India: A Case of Antithetical Dichotomy, Income Tax Reports, (2017) 399 ITR (Journal) 41-68
• Francine J. Lipman (Nevada), (Anti)Poverty Measures Exposed, 21 Florida Tax Review 256 (2017)
• Rory Van Loo (Boston University), Consumer Law As Tax Alternative
• Roberta F. Mann (Oregon), Oregon's Constitutional Barriers to Carbon Pricing, El marco constitucional de la Tributación Ambiental (The constitutional framework of the Environmental Taxation), Dr. Rodolfo Salassa-Boix, ed. (Ciencia, Derecho y Sociedad 2018, Forthcoming)
• Philip Manns Jr. (Liberty University) & Timothy M. Todd (Liberty University), The Tax Lifecycle of a Single-Member LLC, 36 Va. Tax Rev. 323 (2017)
  
• Orly Mazur (SMU), Social Impact Bonds: A Tax-Favored Investment?, 9 Columbia Journal of Tax Law 141 (2017)
• Ajay K. Mehrotra (American Bar Foundation), Fiscal Forearms: Taxation as the Lifeblood of the Modern Liberal State, In The Many Hands of the State: Theorizing the Complexities of Political Authority and Social Control, eds. Kimberly Morgan and Ann Orloff (New York: Cambridge University Press, 2017)
• Doron Narotzki (Akron - School of Accountancy) and Melanie McCoskey (Akron - School of Accountancy), United Framework for Fixing Our Broken Tax Code: An Analysis, 157 Tax Notes 1263 (2017)
• Katerina Pantazatou (Universite du Luxembourg), Taxation of the Sharing Economy in the European Union, Forthcoming, Cambridge Handbook of Law and Regulation of the Sharing Economy, Davidson, Infranca and Finck (eds.), CUP 2018
• Margaret Ryznar (Indiana University), Addressing the Marriage Penalty in Tax Reform, 157 Tax Notes 555 (2017)
• Stephen E. Shay (Harvard), Treasury Can Close a Potential Loophole in the Treatment of Deferred Foreign Income in the Tax Cuts and Jobs Act – Will It Act?
• Andrew M. C. Smith (Victoria University of Wellington), Will BEPS Allow New Zealand to Finally Tax Google?Barbara Trad (Griffith University) & Brett Freudenberg (Griffith University), All Things Being Equal: Small Business Structure Choice, 12(1) Journal of Australasian Tax Teachers Association 136-165 (2017)