TaxProf Blog

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

Friday, August 3, 2018

Weekly SSRN Tax Review And Roundup: Mazur Reviews Ordower's Taxing Others In The Age Of Trump

This week, Orly Mazur (SMU) reviews a new article by Henry Ordower (Saint Louis), Taxing Others in the Age of Trump: Foreigners (and the Politically Weak) as Tax Subjects, 62 St. Louis U. L.J. 157 (2018).

Mazur (2017-2)Throughout the Trump administration, we have witnessed significant tax cuts with additional potential tax cuts currently being considered. Given this anti-tax political climate, how can the government collect additional revenues to fund spending programs? Henry Ordower’s timely new work considers one way that this may be done by this administration: by imposing U.S. taxes either directly or incidentally on foreigners and other politically weak groups.

To demonstrate potential taxes imposed on foreign interests, the article first explores methods that this administration may use to tax foreigners, including the use of direct taxes and tributes, imposing tariffs or using border adjustments, and restricting investment incentives. However, as Ordower correctly notes, many of these methods of taxing foreigners would be difficult to enforce and are impractical. Even measures such as tariffs and renegotiating treaties to increase withholding taxes and modify other, existing investment incentives, are unadvisable given that they potentially also adversely affect U.S. interests. Ordower’s view is supported by many economists, who have criticized the tariffs recently announced by President Trump as hurting domestic interests by raising prices on consumers, destroying American jobs, and undermining global trade.

Second, the article considers how immigrants represent another potential source of government revenues in this anti-tax political climate. Immigrants may present an appealing target for taxation, because they generally cannot vote and therefore constitute a politically weak tax subject. However, immigrants already face a disproportionate tax burden. They are currently subject to many types of regressive taxes, such as the payroll tax, state and local sales taxes, excise taxes and property taxes, but have limited participation in the full range of societal benefits. Moreover, many immigrants (generally, unauthorized workers) cannot recover excess payroll taxes that have been withheld and cannot qualify for tax benefits, such as the earned income tax credit, thereby increasing their already high tax burden.

Finally, the article looks at a third group of foreigners who have already become the subject of tax measures – those individuals who are expatriating, businesses that are inverting and tax evaders. In other words, “those who wish to escape the reach of worldwide taxation.” Our tax system has measures in place to subject these groups to additional taxes, such as through an expatriation tax and the penalties for secret accounts associated with the Foreign Account Tax Compliance Act (FATCA). Although FATCA’s design may be flawed in that it overly burdens non-tax evaders, overall, this group of foreign interests is probably the least politically problematic to tax.

In conclusion, this informative and engaging article contributes to existing critical tax scholarship by demonstrating the impact that tax law has on another disempowered group – foreigners. Ordower’s work highlights that although taxing various foreign interests may be appealing, it may also result in unintended, adverse political and economic effects to both the tax subject and U.S. interests. Thus, it serves as yet another important reminder to think through the impact of a potential tax, especially when it is imposed on a politically weak subject. 

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

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