Paul L. Caron

Friday, March 25, 2022

Tax Papers At Today's AALS Poverty Law Pop-Up Conference

Tax papers at today's AALS Poverty Law Pop-Up Conference (12:00 pm - 4:05 pm ET) (program):

AALS (2018)Michelle Layser (Illinois; Google Scholar), Overcoming Constitutional (and Political) Barriers to State Place-Based Tax Incentive Reform

Place-based tax incentives, which are used to promote investment in distressed geographies, have the potential to become an effective tool to fight poverty at the state and local level. However, the incentives that are currently used by state and local governments to advance their community economic development strategies often fail to benefit residents of low-income communities. Ideally, these tax incentives would be reformed by restricting their availability to activities that directly benefit low-income residents of distressed regions within the state, such as by requiring business taxpayers to hire or serve residents of the targeted areas. However, for reasons to be explained in this Article, under current constitutional law frameworks, these proposed reforms would constitute unconstitutional discrimination under the Dormant Commerce Clause—a consequence of decades of Court doctrine that has developed to constrain state tax competition. Successful state place-based tax incentive reform will require Congress to modify the existing constitutional framework to enable these types of reforms. Without such changes, there is a real and imminent risk that constitutional frameworks will continue to evolve in ways that further restrict the use of place-based tax incentives, depriving state and local governments of an important anti-poverty tool.

Richard Winchester (Seton Hall; Google Scholar): Homeownership While Black: A Pathway to Plunder, Compliments of Uncle Sam:

Historically, the federal government played no role in regulating housing finance. That changed when New Deal legislation created the Federal Housing Administration to provide insurance on home mortgages. FHA insurance was expected to eliminate the risk that banks ordinarily faced when lending money for a home purchase, thereby encouraging them to make loans to finance the construction of new homes. This federal intervention both lowered the cost of mortgage credit and stimulated housing construction. However, because the FHA did not insure mortgages on homes located in areas where blacks lived, banks stopped offering mortgage loans to blacks, and builders refused to sell homes to black buyers. Facing an undersupply of housing and mortgage credit, black families were exploited by real estate predators who got rich at their expense in a shadow market that emerged to meet their needs. These predators bought homes from whites at a discount and resold them to blacks at a premium under a rent-to-own arrangement called an installment contract. Aside from featuring much higher monthly payments than a mortgage, such a contract required the buyer to forfeit the home and their entire monetary investment if they defaulted. The FHA’s anti-black policies created the conditions for this shadow market to thrive for three decades before Congress outlawed the agency’s discriminatory policies. In the interim, homeownership proved to be a wealth eroding proposition for vast numbers of blacks.

Francine J. Lipman (UNLV; Google Scholar): Tax Audits, Economics, & Racism:

Funding and targeting IRS enforcement would not only pay for itself but would also provide enough tax revenue to finance remedies for debilitating social problems including ending homelessness, providing universally affordable quality childcare and rebuilding America’s infrastructure without any statutory tax law changes (Hanlon, 2019). Why has Congress moved in the opposite direction defunding the IRS causing reductions in enforcement over the last two decades from this economically sound and prudent move? Why is the IRS cutting back on tax enforcement of corporations and higher income taxpayers when the tax gap related to these taxpayers and the demonstrated return on these audits is much more significant than other audits? Why is the EITC which scholars have determined effectively pays for itself and contributes little to the tax gap excessively audited? Why are the only tax provisions categorized as improper payments tax provisions that disproportionately benefit households of color? Why are impoverished households of color effectively denied tax benefits with no meaningful recourse when wealthy white nonfilers owing billions of taxes aren’t even pursued? Why are poor households of color more likely to be targeted for audit than their white counterparts when more white households receive the EITC than households of color?

These questions when viewed objectively with the data and details set forth above demonstrate that consistent with many government institutions, federal tax enforcement advantages white wealthy households and disadvantages households of color. When the top 1 percent of income households are not paying hundreds of billions of tax liabilities due and payable annually it is just a matter of time before historically stable voluntary compliance rates erode. The IRS’ stated mission is not being fulfilled, but rather is being upended into a two-tier tax system. A system that is separate and unequal where the richest predominately white households do not follow the laws and suffer few consequences while the lowest income families who are predominately households of color are denied their legal benefits without the opportunity to be heard.

Centuries of racial exclusion and discrimination have been hard wired into U.S. systems and institutions enduring until now normalized, endemic, and deemed neutral even though patently improvident and unjust. Evidence of disparate racial impact of audits not only harms children of color, their families, and communities and businesses, but undermines confidence in and the integrity of U.S. tax systems and the federal government. Moreover, the annual fiscal cost to the Treasury is catastrophic. Systemic and institutional racism exacerbates, rather than mitigates racial inequities, including racialized economic injustice which has been demonstrated in incessant wealth and income inequality. Irrational, uneconomical, and racially discriminatory audits must stop. Funding IRS targeted high-income enforcement measures and building institutional resources to facilitate rather than undermine EITC participation are obvious and lucrative solutions.

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