Paul L. Caron

Sunday, October 6, 2019

Fleischer: How A Democratic President Can Bypass Congress And Implement A More Progressive Tax Policy

The American Prospect:  Create a More Progressive Tax Policy, by Victor Fleischer (San Diego):

Congress writes the laws, but the IRS interprets them, and they can do so in ways that make the system more fair.

The next president can and should use executive authority to make our tax system more equitable. The Tax Cuts and Jobs Act, which passed in December 2017, had been drafted in secret and then rushed to a vote, leaving the Treasury Department and the IRS with many gaps to fill. And there are still plenty of old loopholes that need fixing, some of which can be addressed, or at least mitigated, without legislation.

The scope of executive authority is wide-ranging. ... The Treasury Department’s authority derives from its role in filling gaps in statutes. When a statutory term is unclear or ambiguous, the Treasury Department can interpret the term in order to provide guidance to taxpayers. The purpose of this authority is to allow Treasury to interpret the tax code, not to let the executive branch achieve by regulatory fiat that which could not be achieved through legislation. ...

[A] determined president can reshape tax policy without any help from Congress. I tend to take an expansive view of Treasury’s authority to interpret the tax code, which is rarely crystal clear. Here are a few ways a Democratic president might do so. ...

When I was a young lawyer, a partner whom I worked for explained to me that in certain areas of partnership tax, we—the tax lawyers hired by the partnership—effectively enforced the law. The law was complex and difficult, he said, and IRS resources were limited. The chances of an IRS agent ever questioning our work were about zero. Twenty years later, with audit rates at 0.2 percent, the partner’s exaggeration has almost become literally true.

What the partner also meant was that we, as lawyers, had a duty to ensure that our clients obeyed the law, even if no one was watching. Playing the audit lottery was not a legitimate tax planning strategy. I wonder how many lawyers continue to hold that view. President Trump, after all, has bragged about not paying taxes for many years and has said that if he had paid taxes, the money would have been squandered. By cracking down on a few of these abuses, a new president could certainly change the tone at the top.

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Pendulums swing, and this approach will turn around and bite whichever party abuses it. But I guess that's why we have the current partisan equivalent of trench warfare that we have now.

Posted by: ruralcounsel | Oct 7, 2019 4:13:15 AM

Democratic administrations codified the carried-interest scheme (Rev. Proc. 93-27 and 2001-43), excepted businesses from corporate-level tax *only* if their owners are rich enough to not need more than 100 shareholders (Treas. Reg. 301.7701-1 through -3, introduced by T.D. 8697), and presided over the IRS Appeals office quietly and questionably conceding large international matters (TIGTA, "Barriers Exist...", 2016; "Better Documentation...", 2017). Why hold your breath?

Talk with Republicans who've cut - and roughly equalized - taxes on C-corps, passthroughs and sole proprietorships, trimmed carried-interest benefits, listened to the OECD and taken a YUGE bite out of international tax loopholes, and empowered a booming stock market and record low unemployment. If they're doing a reasonable job, considering, vote to keep them in office!

Posted by: Anand Desai | Oct 6, 2019 5:37:59 PM