Today's Law, Society, And Taxation Panels

Today's Law, Society, and Taxation panels at the 2022 Law & Society Association Annual Meeting:

Session #9:  Tax History (Manoj Viswanathan (UC-Hastings; Google Scholar), Chair/Discussant):
While there is no imposition of tax at the supranational level, the imposition of tax at the national level within a country's own borders introduces complexity at the international level that affects issues of tax policy and tax design. The papers on this panel consider many of these complex concerns, with special attention paid, in some of the papers to the way the United States has addressed matters of international taxation.

Dominic de Cogan (Cambridge), Aeneas Coffey and the Role of Tax in the Emergence of Modern Whiskey:

The apparatus used for the distillation of most grain whiskey is called the ‘Coffey still’. It is named after Aeneas Coffey, an Excise official in the northwest of Ireland in the early nineteenth century. A good deal is known about his life, his experiences as an Exciseman and his technological innovations, though there is an unfortunate gap in the evidence between his departure from the Excise in 1824 and the granting of a patent for his famous still in 1832. Less widely appreciated is the extent to which Coffey’s work took place at the vanguard of a period of overlap between tax and technology that was to have profound consequences for both. The key to this is a shift in emphasis in the late 1810s from heavy-handed enforcement of Excise duties against illicit distillers to a greater use of technology to prevent evasion by otherwise legal distillers. This shift in direction was not entirely to Coffey’s liking but set him on his personal journey towards anti-evasion technology and ultimately out of the tax field altogether.

The paper is presented in three main parts, tracking stages of Coffey’s career and reflecting his uncanny ability to stay at the centre of events during a very dynamic period of history. The first part relates Coffey’s career as an Excise specialist prior to 1821. The second part looks at his emerging role as a technological innovator within the Excise service, and the third part at his career after 1824 as a technologist. This career trajectory offers an unusually clear window into a messy, complicated yet very noticeable shift in Excise policy towards the use of technology to combat evasion. It also provides a detailed and strangely overlooked illustration of the symbioses that can develop between tax and technological development at key moments in history.

Ajay Mehrotra (Northwestern; Google Scholar), Stanley S. Surrey: A Life in Taxes (with Lawrence Zelenak (Duke)):

Stanley S. Surrey was the most prominent mid-twentieth-century American tax law academic, and the federal government official with arguably the greatest influence on tax policy over that same period (aside from politicians). His professional life with the U.S. and international tax system spanned half a century, ending only with his death at the age of 73 in 1984. He divided the five decades of his professional life between academia (three early years at the University of California, Berkeley, followed by many years at Harvard Law School), and two lengthy tours of duty in the service of the U.S. Treasury Department, including as the Assistant Secretary of the Treasury for Tax Policy, the highest executive branch position exclusively focused on taxation.

At his death in 1984, Surrey had written polished drafts of the majority of his planned professional memoirs. Until now, the memoirs have remained unpublished in the archives of the Harvard Law School Library. This original paper written by Lawrence Zelenak and Ajay K. Mehrotra is the introductory essay to a forthcoming annotated version of Surrey’s memoirs. In this essay, we place Surrey into a broader historical context and assess his many contributions to U.S. and international tax law and policy.

Joseph Thorndike (Tax Analysts), Taxpayers in Chief: U.S. Presidents, Their Personal Taxes, and the Meaning of Fiscal Citizenship:

U.S. presidents have a dual relationship with the nation's tax system. On the one hand, they function as the country’s chief tax collector, supervising the only federal agency empowered to enforce the tax law. Simultaneously, presidents are themselves taxpayers, subject to all the same legal responsibilities as anyone else.

This dual role creates complex tensions. In practical terms, it means that presidents must police their own tax behavior. Although Congress has statutory authority to examine individual tax returns, including those of the president, the scope of that authority has been contested.

Until 1973, presidents largely ignored the tensions inherent in their dual role as both Tax Collector and Taxpayer in Chief. But after President Richard Nixon was caught up in a tax scandal, they embraced a tradition of voluntary disclosure. By releasing their personal returns for public scrutiny, they allowed for an annual, crowd-sourced audit of the president’s behavior as a taxpayer.

Since the income tax is self-assessed, it depends on political and social norms of compliance. These norms are part of what scholars have termed fiscal citizenship: the rights and responsibilities that bind individuals to the state through the process of revenue extraction. How presidents have approached this relationship has been important as a matter of fairness. But as the nation’s First Taxpayers, presidents have also sustained and reshaped that relationship. Which is why their tax behavior matters.

This paper explores the history of presidential taxpaying through the lens of fiscal citizenship. It surveys presidential tax compliance as far back as Abraham Lincoln, explores the Nixon scandal in detail, and describes the voluntary disclosure tradition that emerged after 1973. The paper ends with a discussion of Donald Trump's refusal to observe that disclosure tradition and congressional efforts to enforce disclosure through its oversight process, as well as through the courts.

Amanda Parsons (Colorado), The Shifting Economic Allegiance of Capital Gains:

How to ensure that companies are paying their fair share of taxes in the countries in which they operate has been the subject of lively debate. These debates have focused on how to fairly tax income at the company level. But business activities also create value by increasing the value of a company’s shares, and these gains are translated into income at the investor level upon disposition. How taxing authority over this capital gains income should be allocated amongst countries is an important and overlooked question.
In this project, I will answer that question by revisiting the “1920s Compromise,” an agreement made amongst League of Nations countries regarding which country is able to tax an item of crossborder income. More specifically, I will apply the conceptual framework of “economic allegiance,” which guided the 1920s policymakers, to the modern, digital economy.

In applying this framework, I will first establish that a key assumption of the original policymakers—that an increase in the value of a company would be accompanied by increased profits in the country in which the company operated—no longer holds in the digital economy due to economic trends including freemium business models, multi-sided markets, and remote activities. I will then argue that several dominant features of the digital economy, including the centrality of data, the importance of network effects, and the reliance on the free labor of users and customers, have shifted the economic allegiance of capital gains income away from the investor’s residence country. As a result, fairness in the international tax system requires reallocating taxing authority over some portion of income stemming from company growth to the source and market countries.

I will conclude with a proposal to implement this reallocation—an annual mark-to-market tax at the company level on the change in market capitalization, allocated amongst the source and market countries based on a set formula.

Session #10:  Tax Legislation/Administration (Hilary Escajeda (Mississippi College; Google Scholar), Chair/Discussant):
The collection of tax and the administration of the tax laws is a complicated and challenging set of tasks. The papers in this session identify some of the challenges in administration and compliance, and consider how tax authorities and taxpayers might improve, in particular in light of technological advancements and challenges. In addition, some of the papers consider particular issues that arise in particular areas of the tax law and its administration.

Stephanie Hoffer (Indiana-McKinney; Google Scholar), Distributional Effects of Recurring Provisions in Crisis-Motivated Legislation:

The United States Congress often uses tax law as a mitigation tool in times of crisis. Passing tax legislation during a crisis imposes political, informational, and time constraints that preclude lengthy consideration of distributional and other policy concerns embedded in often complex legislation. Crisis-driven tax legislation from the pandemic, for instance, has incorporated ideas from two decades ago without re-examining those approaches in light of twenty years’ worth of data, changes in the economy, science, and legal thought, to name a few relevant considerations.

This study reviews tax legislation passed in response to crises from 2000 – 2020 to assess the validity of three hypotheses. First, crisis tax legislation is formulaic, generally including a number of provisions drawn from prior tax crisis bills. Second, subsequent crisis tax legislation tends to expand the scope of provisions repeated from earlier crisis tax legislation. Third, among recurring provisions, privately-directed outlays via tax expenditure will outweigh Congressionally-directed outlays. The result is a positive account of prior legislation, highlighting recurring statutory provisions and patterns of distribution, coupled with ideas about how Congress might improve its tax legislative process in response to crises.

A better understanding of recurring crisis-motivated tax provisions is important in light of deepened concern about historical inequities, the wealth gap, and new scholarship about the effect of tax law in society. In short, there is little evidence to suggest that Congress closely considers distributive concerns raised by such provisions, leaving room for creative thought about how to address them in the future.

Richard Winchester (Seton Hall; Google Scholar), The S Corporation: A License to Steal:

When taxpayers operate a business through an S corporation, they are required to receive reasonable compensation for any work they perform for the business. However, there is substantial evidence that this is frequently not the case. Instead, the employee-owners of S corporations commonly access their share of the firm’s earnings by structuring the payout as a dividend, not as a salary. A dividend payment triggers no tax liability, while a salary would bring into play three separate taxes that otherwise would not apply: the 12.9 percent social security tax, the 2.9 percent Medicare tax, and the 0.9 percent Obamacare surtax.

Despite strong evidence that taxpayers are disguising compensation as a dividend, the IRS is not pursuing these cases with the intensity that they deserve. Less than 1 percent of S corporation returns are audited. When they are, the amount that the officers receive as compensation is not even questioned half the time. The Treasury Inspector General for Tax Administration recently determined that the agency is underenforcing the reasonable compensation requirement. However, agency management rejected any suggestion that it needs to modify its approach. One can understand the agency's position. It is notoriously difficult to determine how much compensation is “reasonable” in any given situation. So, if the agency questions what an S corporation pays to its officers, it could be inviting a costly fight whose payoff may not justify the expense.

If the IRS has now consciously decided that it is rarely worth the effort to enforce the reasonable compensation requirement, it has essentially given taxpayers permission to cheat and underpay their taxes. That effectively makes the S corporation a license to steal money that belongs to the federal treasury. The best way to address the situation would be for Congress to enact an objective, easily enforceable rule. This project will consider some options.

Jeremy Bearer-Friend (George Washington; Google Scholar), Poll Taxes, Revisited:

I propose to present preliminary findings from my UK-US Fulbright Scholar Research Award on the anti-poll tax movement in Scotland. My poll tax research, supported by the unique collections of the National Library of Scotland, will focus on four key themes: (1) The anti-poll tax movement as an opportunity to understand how the public interprets technical tax designs and expresses principles of distributional justice in lay terms; (2) the unique features of Leftist anti-tax movements, as distinct from more commonly understood conservative anti-tax movements; (3) the broader relationship between tax filing and fiscal citizenship, including how tax filing shapes civic identity and the role of tax filing as a forum for political expression; and, (4) generalizable lessons about poll tax administration and the viability of capitation as a tax base. Each of these themes should command the attention of a transnational tax scholar audience generally unacquainted with late 20th Century Scottish history.

Session #11:  Tax, Raw Materials, & The Environment (Tracey Roberts (Samford; Google Scholar), Chair/Discussant):
Tax law is often used by legislators to create incentives or disincentives for taxpayer action related to the environment. Further, changes to the tax law can have unintended consequences when considered in light of unpredictable environmental changes. The papers in this session address the ways that the tax law interact with environmental issues, including consideration of a variety of specific tax proposals and rules.

Goldburn Maynard (Indiana-Kelley; Google Scholar), The Apocalyptic American Consumer:

This article critiques American consumerism as a present and increasing threat to the environment and focuses in on one solution: consumption corridors. This policymaking innovation would seek to consider not only the minimum amount of consumption that one needs to live a good life but also the maximum amount that a human would should consume in order not to deplete resources and ensure that future generations can also live a good life. By analyzing historical efforts to curb consumption, including consumption taxes, it shows that Americans are on a trajectory to continued modest cuts in consumption. It argues story and norm of consumerism puts consumption corridors off the table for Americans, regardless of changes to the law. They will die instead of giving up their consumption practices.

Rodolfo Salassa Boix (Pompeu Fabra; Google Scholar), Plastic Free but No Free Trade in the Framework of European Union's Countries?:

In order to transpose the content of Directive (EU) 2019/904 into the Italian and Spanish legal system and achieve the goals of the European Green Deal of 2019 and its “Circular Economy Action Plan” (2020-2024), those two governments are trying to implement taxes on non-recyclable plastic products (Plastic Taxes) that levy their manufacture, import, and intra-community acquisition, although it exempts their exportation. Those taxes also pretend to be in line with Decision 2020/2053/EU, on the EU's own resources system, which establishes a uniform rate of €0.80 per kilogram to the weight of plastic packaging waste generated in each Member State that is not recycled.

If we intend to promote a circular economy and reduce non-reusable plastics it is not enough to discourage their manufacture or internal consumption, but also those that enter from another country. However, this must be done within the framework of certain and specific international legal limits, since Italy and Spain are members of different multinational organizations and contracting parties to international commercial treaties that could be affected by this tax, especially the General Agreement on Tariffs and Trade (GATT).

Considering that the Plastic Taxes are internal environmental levies that seek to reduce the use of non-recyclable plastic products within the Italian and Spanish territories and that their taxable events have a direct impact on the international trade, our purpose is to verify whether these two taxes and any others similar levies violate free trade according to GATT parameters. The research’s results demonstrate that it is possible to harmonize free trade with the internal specific European taxes that seek to discourage the production and use of certain plastic and, in the end, the circular economy.

Nancy Shurtz (Oregon), Effusion Fees & Cow Chip Charges: Band-Aid Policies Minimize Methane Menace:

The recent Glasgow COP26 Conference produced numerous ambitious international group pledges to dramatically reduce emissions that contribute to global climate change. Amongst these was a pledge joined by the U.S., E.U. and 103 other nations to reduce global methane discharges by 30% from current levels by target year 2030. Methane receives less attention than carbon dioxide as a headline-grabbing greenhouse gas.

The Biden Administration has revamped methane containment policies that had been abandoned by the preceding Trump White House. The current Administration has authorized the Environmental Protection Agency to enforce restrictions on methane emissions attendant to oil and natural gas extraction under the Clean Air Act. Mr. Biden seeks to go further by eliminating existing tax subsidies for oil and gas production and consumption. As part of his proposed "Build Back Better Act," President Biden has also proposed a "methane fee" as an additional curb on future emissions. However, this proposed levy would be imposed only on oil and gas production and would not apply to agricultural processes, which comprise the leading sources of methane release into the environment.

David Gamage (Indiana-Maurer; Google Scholar), Fixing the Critical Flaw of the Income Tax: "Buy, Borrow, Die":

The income tax is broken at the top and fails to reach most of the true income of very wealthy taxpayers. As has been well documented by the prior literature, this failure is pervasive and causes a host of economic, political, and social ills. This article evaluates options for reform, considering both the policy and political aspects of different reform options. Through this comparative evaluation, this article makes several key novel contributions to the prior literature on tax law reform.

Session #12:  Comparative Tax Law (Young Ran (Christine) Kim (Cardozo; Google Scholar), Chair/Discussant):
While countries throughout the world are often confronted with similar or even the same questions in the arena of tax law, their approaches are often quite distinct. The papers on this panel explore a variety of approaches to questions of tax in several different jurisdictions. By investigating and comparing various approaches to similar problems, we may discover new insights into some widely shared questions in tax law.

Brett Freudenberg (Griffith; Google Scholar), Worker Status: How Can We Get It Working for Australia’s Tax System?:

A critical issue for tax and regulatory compliance is the significance of determining a workers’ status as an employee, independent contractor, or something else (Freudenberg et al., 2012). This issue has been the subject of recent litigation and given the rise of the gig economy is likely to become more acute as more people are given the ability to undertake entrepreneurial activities (Adams, Freedman and Prassl, 2018). Some of this complexity may not be due to only the tax rules but also the underlying employment law operating. The impact of this complexity brings uncertainty for those that are implicated as well as for government bodies administrating various systems, such as the Australian Taxation Office (ATO). Also, ‘employment’ status of people is used as a mechanism for revenue collection.

Also, this status of a worker can have fundamental long-term implications for the person involved, such as their retirement saving and labor protection laws. The ambiguity and implications can have adverse implications for the economy if employment (and employing someone) is too uncertain; too complex; and too administratively costly. This is especially the case for small businesses, which are a critical part of the Australian economy. The idea of worker status is a multi-faceted issue for small businesses, as there are many small businesses that do not employ but could be seen as pseudo employees themselves.

This paper will explore the current issues that concern ‘worker status’, some of the recent case law, as well as the potential influences this distinction can have on the worker, the engaging entity, government agencies, and society as a whole. A number of recommendations will be formulated as a possible way to provide greater certainty, knowledge, and equity in this area. This is an important issue to be addressed, as uncertainty and artificial manipulation about worker status can have adverse consequences for those involved, as well as society as a whole.

James Puckett (Penn State-University Park), Goodbye to You: Interrogating the Taxation of Consumption Through Cancellation of Indebtedness:

This article questions whether it is necessary to account for consumption that ultimately appears to be free of charge when a taxpayer’s debt is forgiven. Windfalls are generally taxable in the U.S. federal income tax. Moreover, it is often theoretically tidy as a matter of symmetry to tax cancellation of indebtedness income. Notwithstanding these concerns, it may be appropriate to further limit the taxation of CODI, even outside of insolvency scenarios, provided that the discharge is attributable to the taxpayer’s financial condition. In line with this, it may be appropriate to make permanent the temporary exclusion for the discharge of qualified principal residence indebtedness. To be sure, debt cancellation as a means of payment (e.g., of compensation or a gift) should not be ignored.

Wei Cui (British Columbia; Google Scholar), Flexible Work within Employment Relationships: A Conceptual Scheme for Fiscal Policies:

Across the world, public finance instruments have been deployed at unprecedented scales to support labour markets during the COVID-19 pandemic. Yet tax scholars have contributed little to the analysis of these vital policies. This paper argues that it is unwise to treat governments’ labour market interventions during the pandemic as lying outside the purview of tax law and policy, and analyzes two commonly-adopted types of interventions: (1) income support delivered directly to workers, and (2) support delivered indirectly through employers via various forms of wage subsidies.

Two observations guide the paper’s analyses. First, despite the gig economy’s increasing prominence, in many industrialised countries, the proportion of self-employed individuals in the total working population has not been rising. In contrast, the growth of ‘flexible work’ is more notable within the formal employment sector. Second, the workplace itself has long been a vital site of substantial economic redistribution, independent of redistributive policies carried out by the state. The increasing prevalence of ‘flexible employees’ will make the workplace’s redistributive role even more prominent.

The paper advances these arguments by reference to the Canadian federal government’s fiscal response to COVID in 2020-2021, although the relevant Canadian policies bear much resemblance to policies adopted in other major economies. Building on an assessment of Canada’s initial pandemic fiscal response, the paper argues for the long-term policy relevance of targeted work subsidies.

Jinyan Li (Osgoode; Google Scholar) & Scott Wilkie (Blakes), Fiscal Antibodies: Lessons from the COVID-19 Pandemic for Developing More Responsive, Resilient, Coherent and Sustainable Fiscal and Tax Policy:

What are the lessons that can be learned from the governments’ COVID-19 economic responses for redesigning fiscal and tax policies for the future? We present some preliminary findings of a three-year study through a “COVID Lab” – collecting and analyzing contemporaneous reporting on emergency responses in terms of their nature, type, use and abuse, public reaction, and economic and social impact. Our hypothesis is that the Lab will be a “great revealer” of the utility, vulnerability, and opportunity arising from using the tax system to activate fiscal policy to enable social and economic policies in several ways. First, Canada has used the tax system to provide support through tax subsidies and direct payments. Seen as immediate subsidies and “investments”, insights on the social and economic return of such investments may shed light on the design of long-term spending programs, such as a universal basic income. The underlying social and economic conditions of vulnerable Canadians, which were exposed by the pandemic, might be worsened or not improved sufficiently by merely exigent or reactive government responses, causing serious distributive justice concerns. Given that the primary focus has been on getting money out the door as quickly as possible, it may have been difficult to heed concerns about how to pay for the massive spending and how to discipline excessive or unwarranted claims. Most importantly, the COVID Lab would make us think harder about what our government acting via the tax system can or should try to accomplish, not only in relation to a pandemic but also “normal” circumstances or for that matter any exigent situations. In this paper, we will tease out some preliminary lessons learned. We offer ideas on how to reimagine the tax system as the country’s “banker” of emergency resort and a durable and resilient mechanism for promoting economic wellbeing so that shocks are less debilitating, especially for members of the vulnerable groups.

Session #13:  Tax in Theory and in Practice (David Elkins (Netanya, visiting NYU; Google Scholar), Chair/Discussant):
Tax law straddles the borders between theory and practice. Often drafted in particular ways in an attempt to achieve particular outcomes, or in furtherance of particular theoretical goals, in practice the tax rules might stray far from their original intended outcomes. Nonetheless, both scholars and practictioners of tax law often aim to create a coherent and defensible tax system that withstands scrutiny. The papers on this panel consider a variety of perspectives on the issues raised in both the theory and practice of tax law.

Alex Raskolnikov (Columbia), Should Only the Richest Pay More?:

This paper challenges the leading academic, political, and cultural narrative supporting greater redistribution. That narrative holds that redistribution should come at the expense of a very restricted group of the highest earners: the one percent, the super-rich, the billionaire class. I argue that many reasons offered in support of this view also call for redistribution from a much broader group that includes the affluent—those with incomes in the ninetieth to ninety ninth percentiles of the distribution. Whether one looks at the recent trends in income concentration, wealth concentration, social mobility, economic growth, political polarization, or the rise of populism, the affluent are as great—and sometimes greater—contributors to these problems as those in the top one percent. Remarkably, the contemporary legal and economic scholarship has ignored the affluent almost completely, greatly limiting the magnitude of possible economic transfers as well the forms that these transfers may take. This paper reveals the analytical weakness of the prevailing narrow view. If the richest should pay more in taxes, the affluent should as well.

Daniel Shaviro (NYU; Google Scholar), Scientist Versus Moralist in the Work of Stanley Surrey:

Tax scholars have long felt the dual call between functioning primarily as “scientists” who seek to advance expert understanding, or as “moralists” who seek to improve the world. From the 1950s through the early 1980s, for example, Stanley Surrey was tax law’s prevailing moralist, “single-minded[ly]” pursuing his “crusade” for what he deemed a “fair, progressive tax system.” This could put him into sharp conflict with Boris Bittker, “the tax law’s great ‘fox’ who saw many things, and scourge of all the ‘hedgehogs’ who saw one big thing.”

To this day, the scientist versus moralist dichotomy continues to influence the tax policy field. We all can think of tax scholars whom we view as primarily engaged in either the one enterprise or the other. Moreover, those of us with a foot in each camp are often quite self-aware about the distinction between projects that aim at neutral analysis, and those that engage in deliberate advocacy with the hope of improving the world.

The recent publication of Stanley Surrey’s memoirs provides a convenient occasion for examining how Surrey saw and rationalized his choices along this continuum.

Mirit Eyal-Cohen (Alabama; Google Scholar), Rehabilitation by Taxation:

IRS audit have recently been reported as targeting certain geographical areas with higher concentration of low-income taxpayers and minorities. These audits are usually followed by automated tax assessment processes recalculate tax liability and send tax notices and bills. Delinquent tax bills begin collection processes instigate penalties, interest, and a downhill spiral that includes levy, liens, seizures. The IRS liens are publicly available information to creditors that—a rather devastating signal that inhibits obtaining future credit. As a result, low-income and minority taxpayers are most likely to be the targets of predatory lending. Minorities are usually uninformed and disconnected from the credit economy and therefore unlikely or unable to engage in comparison shopping. They do not have much experience with legitimate credit rationing internalizing the effect it has on pricing. Thus, this results in a disparate impact on minority taxpayers.

A possible alternative could be for the government to provide voluntary credit reporting and rehabilitation services to low-income taxpayers. Following tax settlement of delinquent debts the government can play an active role in offering beneficial credit reporting and rehabilitation opportunities to minority and low-income taxpayers. This can improve credit prospects and balance credit history tarnished following tax procedures.

The government should allow a restart. This paper aims to join advocates of economic rights, critical race, poverty rights, and economic equality by closely examining the idea of safe or low-interest credit rehabilitation as social, but also tax policy. While current government efforts concentrate on minority lending and extending credit to minority taxpayers, this paper suggests the opposite—the government should focus ex ante on restoring post tax collection credit and leave it to let lending agencies and market players to play a more central role in lending.

Roberta Mann (Oregon), Targeting Plastic Pollution with Taxes:

Plastic pollution is a matter of increasing global concern. In 2015, a report by McKinsey & Company stated that “the amount of unmanaged plastic waste entering the ocean has reached crisis levels.” Assuming a constant level of fish stocks, the weight of plastic pollution in the ocean in 2050 is projected to exceed the weight of the fish. The concern reaches all levels of government from the local to the national. Solutions include plastic bag bans, taxes or fees on single-use plastics, incentives for reusable bags, and incentives for recycling. Recycling has become a particular issue since early 2018, when China announced it would stop accepting imported plastic waste. Plastics pollution creates significant environmental externalities, such as harm to natural systems, greenhouse gas emissions from production and after-use incineration, and human health impacts from endocrine disrupters released when plastics degrade. Environmental taxation should be an efficient solution to the plastics pollution problem, if properly designed. Research shows that taxation could be more effective than other measures such as incentives. This paper will assess the various solutions proposed and used worldwide.

Reuven Avi-Yonah (Michigan; Google Scholar) & Yoseph Edrey (Haifa), Constitutional Review of Federal Tax Legislation:

The definition of “tax” for constitutional purposes has become important in light of the Supreme Court’s 2012 decision in NFIB v. Sebelius, in which Chief Justice Roberts for the Court upheld the constitutionality of the individual mandate of the Affordable Care Act under the taxing power. This has led to commentators questioning the utility of Roberts’ distinction between a “tax” and a “regulation”.

We would propose a different distinction. A “tax” for purposes of the Taxing Clause is a pure tax, namely a tax implemented “to pay the Debts and provide for the common Defence and general Welfare of the United States”, i.e., a tax intended primarily to raise revenues in order to finance the elected government’s policy and its implementation. In addition, a progressive “income tax” for purposes of the Sixteenth Amendment is a tax intended for the redistribution of wealth from the rich to the poor. We do not address redistributive tax provisions (like the progressive feature of the personal income tax (PIT) or a wealth tax) further, beyond noting that they are inherently political and therefore their distributive function (reducing inequality) should not be subject to judicial review.

Even a pure tax has constitutional limits, but they are relatively few. The traditional bases for constitutional judicial review - such as discrimination on the basis of gender, race, or sexual orientation, are applied to tax legislation in a very limited way. The Supreme Court has shown significant reluctance to review tax legislation in the US on constitutional grounds, although one could also argue that a tax provision that has a disparate impact on racial or gender grounds (or other protected categories) should be evaluated using struct scrutiny (as some provisions involving gender have in fact been evaluated by lower courts). Other provisions should be reviewed on a rational basis ground, although we believe some of them should be struck down even on that basis.