Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Saito's Tax Coordination

This week, Hayes Holderness (Richmond) reviews Blaine G. Saito (Northeastern), Tax Coordination, 38 Ga. St. U. L. Rev. ___ (2022):

The idea of tax expenditures—those provisions of the tax law not in line with the normative base—has intuitive appeal. Of course the tax law is imperfect, but if we pinpoint the offending provisions, we can approach a more perfect code. Now where did we put that normative baseline? Harsh and compelling critiques of the tax expenditure concept essentially accuse it of masking personal preferences regarding the desirability of tax provisions, yet the concept apparently cannot be so easily killed off.

Though I may be stretching the article too far in this claim, Blaine Saito’s forthcoming article, Tax Coordination, offers an alternative way to think about tax expenditures. They are those provisions of the tax law with effects on social policy. Further, they are those provisions of the tax law that could benefit from interagency coordination. The thrust of Saito’s argument is that the Internal Revenue Service and Treasury should be encouraged to play nicer with others, but in this argument lies a lesson about tax expenditures: they are those provisions of the tax law that the tax authorities are not well-suited to administer alone.

Those familiar with the tax expenditure scholarship know that any spending measure could be alternatively drafted as a tax provision, and vice versa. Building off of this insight in an influential article, David Weisbach and Jacob Nussim formalized the idea that the real question for lawmakers in this arena is not whether a tax provision is normatively proper tax-wise, but whether the provision is most effectively administered through the tax law or some other substantive area of law. The question boils down to a cost-benefit analysis: given existing expertise, resources, infrastructure, etc., who could achieve the legislative goal at the lowest cost to society?

Saito highlights that this is unlikely to be a binary question because interagency coordination simply brings with it too many benefits to ignore. Unfortunately, lawmakers appear to have done just that—ignore the benefits of coordination—in the area of tax law for far too long. Saito aims to correct for this error by clearly laying out the costs and benefits of interagency coordination for the implementation of tax provisions, driving home his analysis with case studies and recommended practices.

By introducing the complication of interagency coordination to the world of tax administration, Saito augments our understanding of the institutional capacities of the tax authorities and other authorities, which in turns informs how legislative goals should be achieved. Though social policies realistically will always be run through the tax law, as Saito recognizes, they should not always be administered by tax authorities alone. To return to my earlier claim, where there is a benefit to coordination between tax and other authorities in the administration of a tax provision, the tax provision can be labeled a tax expenditure.

Admittedly, this use of the tax expenditure label is merely descriptive; it does not tell us anything we do not already know about the provision. But as Saito notes, there is value in norms and language. As it stands, a nefarious form of tax exceptionalism pervades federal administrators—tax is obscure, dense, and frightening to non-tax people. By attaching tax expenditures to the notion that non-tax expertise has value in the tax arena, perhaps this form of tax exceptionalism could be mitigated. On the flip side, tax administrators are likely to recognize that tax expenditures—however defined—have social policy aspects; thus, tying the term to the need for coordination between tax and non-tax experts might lead tax authorities to less jealously guard their traditional turf.

Saito meticulously lays out his case studies of the Low-Income Housing Tax Credit, ERISA, and the Premium Tax Credit of the Affordable Care Act, but the more subtle threads tying the case studies together are not always clear. They are wonderful examples of the varying degrees of success that interagency coordination could have for tax administration, but are they apples and oranges? One thread that might tie the case studies together is the amount of tax aversion that the non-tax authorities express (or that Congress permits them to express). Do Housing and Urban Development administrators shake at the idea of getting involved in the administration of a tax credit? Are Labor administrators comfortable with assisting on the tax consequences of pension plans? Do the Centers for Medicare and Medicaid Services embrace the need to properly craft the tax law to ensure healthcare coverage? Alternatively, how protective of the tax provision is the Internal Revenue Service or Treasury? Perhaps successful administration of these laws is related to how willing the parties are to overcome their tax biases.

In fairness, Saito hits on these concerns—particularly noting that the ERISA administration plan came together over lunch between agency heads, but I wonder if they are more central to the larger project. Responses to the concerns might provide more direction as to when tax authorities should place nicer and with what tools. That said, Tax Coordination is an engaging read that challenges the reader to think about the intersection of tax administration and social policy. Effective tax administration simply cannot ignore the benefits of interagency coordination.

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

• David R. Agrawal (Kentucky), The Internet as a Tax Haven?
• Divya Anantharaman (Rutgers), Saipriya Kamath (LSE), & Shengnan Li (Rutgers), The Tax Cut and Jobs Act (2017) as a Driver of Pension Derisking: A Comprehensive Examination
• Gordon Arlen & Carlo Burelli (Genova), Getting Real about Taxes: Offshore Tax Sheltering and Realism’s Ethic of Responsibility
• Jeremy Bearer-Friend (George Washington), Tax Without Cash, 106 Minn. L. Rev. __ (forthcoming)
• Jie Cai (Shanghai) & Andrey Stoyanov (York), Progressive Income Tax and Comparative Advantage in Trade
• Lisa R. Goldberg (Berkeley), Taotao Cai (Aperio Group), & Pete Hand (Aperio Group), Tax-Rate Arbitrage: Realization of Long-Term Gains to Enable Short-Term Loss Harvesting
• Shambhavee H.M (SASTRA) & Thajaswini C.B., Taxing the Digital Economy through Significant Economic Presence
• Thomas R. Kubick (Nebraska), Thomas C. Omer (Nebraska), & Courtney Yazzie (Kansas), Economic Consequences of Expanding Sales Tax Nexus: Evidence from Stock Price Reactions to the Wayfair Decision
• Phil Lord (McGill), Religious Legitimacy, 90 UMKC L. Rev. __ (forthcoming)
• Thiago de Mattos Marques, The Saving Clause and Hybrid Entities
• Daniel McKeever (SUNY Binghamton) & Kristian Rydqvist (SUNY Binghamton), Tax-Loss Harvesting Under Uncertainty
• Aitor Navarro (Universidad Carlos III de Madrid), The Relevance of the Beneficial Ownership Concept in Tax Treaty Clauses That Do Not Include It in Their Wording: A Note on the Colgate-Palmolive Case
• Leopoldo Parada (Leeds), Tax Treaty Entitlement and Fiscally Transparent Entities: Improvements or Unnecessary Complications?