Paul L. Caron

Wednesday, July 13, 2022

Today's Law, Society, And Taxation Panels

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

Session #1:  Critical Tax Theory  (Alice Abreu (Temple), Chair/Discussant):
The nominal application of tax rules to the taxpayers affected by them is often at odds with the affects of those rules in practice. In addition, the priorities and experiences of the actors participating in the drafting, interpreting, and enforcing of tax rules can impact the way those rules are created or operate. The papers on this panel employ a variety of approaches to think about the tax law in the real world, both in the lived experiences of those subject to the rules, and in the intentions of those who create and enforce the rules.

Nyamagaga Gondwe (Wisconsin), American Taxation and The Empty Promise of Black Capitalism:

The federal income tax system is more permissive in how it provides financial assistance to property owners than it is in its method of giving financial assistance to those who principally rely on labor income. Historically, the federal government has participated in expanding rights in property ownership to different historically excluded groups. Expanding those entitlements allows the government to tout individualist virtues of capitalism over collective social spending. But Professors Mehrsa Baradaran and Keeanga Yamatta-Taylor present the theories of “counterfeit capitalism” and “predatory inclusion” to show that systemic failures to regulate market racism against Black Americans have made historically significant tools for building wealth (e.g., stock ownership and homeownership) empty entitlements that drain Black resources instead. Baradaran and Yamatta-Taylor’s accounts are significant from the perspective of the tax distinction between capital and ordinary income because for the balance of American history Black American economic life has been confined to low-wage labor and low-value housing.

Predatory inclusion and counterfeit capitalism are ways to maintain racist power structures undergirded by unequal distribution of value in property entitlements and supported by the federal income tax system. Moreover, the policy infrastructure that permits predatory inclusion and counterfeit capitalism plays into anti-Black racist tropes that underlie the extreme surveillance of low-income recipients of tax-based financial assistance. The empty version of capitalism offered to Black Americans is held up as evidence of effort on the part of the white establishment without threatening the benefits that those in power already have. Unifying the concepts of capital and ordinary income in the tax code would help to flatten the future impact of property disparities on Black and white wealth outcomes.

Tracey Roberts (Samford; Google Scholar), Whiskey, Women, and Tax: The Unexpected and Interlocking History of the 16th, 18th, and 19th Amendments:

Before they became the most famous pair of advocates in the U.S. women’s suffrage movement, Susan B. Anthony and Elizabeth Cady Stanton were temperance activists. Advocating for the prohibition of alcohol in a world in which women lacked both political and property rights, they sought to curb other social ills: family poverty, unemployment, domestic violence, and violent crime. Through the early 20th Century, however, the U.S. relied heavily on excise taxes, particularly those on liquor, to fund federal government operations. The passage and ratification of the 16th Amendment, authorizing a federal income tax, was needed before the 18th Amendment, prohibiting alcohol, could be passed. In turn, the 19th Amendment, granting women the right to vote, was ratified, in part, on the strength of the time-honored argument that women should not face taxation without representation. Old enemies die hard, however. As suffrage activists worked to ratify the Susan B. Anthony Amendment barring discrimination on the basis of sex in access to the ballot, distillers and brewers engaged in (then illegal) liquid advocacy to oppose it. The passage of these three amendments to the U.S. Constitution involved not only idealism, progressive politics, and the insistence on the perfectibility of man, but also dubious alliances, double-dealing, and dramatic betrayals. This article recounts the complex and interlocking history of women’s suffrage, prohibition, and the federal income tax.

Blaine Saito (Northeastern; Google Scholar), Public Oriented Tax Policy Actors:

A major institutional concern when examining the tax system is agency capture and developing institutional robustness to avoid some of these problems. The wealthy and large multinational entities have a great deal of influence over the development of tax policy. This paper seeks to develop counterweights in the regulatory comment process to these interests and proposes two strategies.

The first strategy is to create offices with the primary responsibility to advocate for more public-oriented matters. There are two key parts that in the tax sphere such offices should play. First, they should advocate for the poor. That means commenting on rules in key social policy tax programs and trying to ensure that any procedures developed do not harm these individuals. Second, there also needs to be an office that can push back against the ratchet toward pro-taxpayer rules that eventually undermine revenue collection.

The second strategy is to allow for intervenor payments by public interested groups. The idea comes from another area where institutional capture is a problem, utility regulation, and rate-setting. The idea is to provide public interested NGOs with financial resources to participate in the notice and comment process to provide input and pushback against the larger and more sophisticated taxpayers. A growing number of NGOs, given growing income and wealth inequality, have grown more interested in the development of tax rules. Intervenor payments can provide them with resources to make important comments to proposed rules and potentially offers some ability for them to increase their capacity. Finally, the use of these payments may also provide a hook for these NGOs to pursue post-notice and comment litigation if standing is designed right and there are also attorneys’ fees available for those who intervene in these processes.

Christine Speidel (Villanova; Google Scholar), “Taxpayer First” Adjudication:

The U.S. Tax Code is full of harsh bright-line distinctions that lead to unfair results. One of the few legal provisions explicitly directing the IRS to consider the equities of a taxpayer’s circumstances is Code section 6015. This section authorizes relief from the joint and several liability that arises when spouses file a joint return. "Innocent spouse" cases are full of compelling stories and unique individual circumstances. Thoughtfully considering all of these individual facts and circumstances is a difficult task for any under-funded bureaucracy, and it is made more difficult by the IRS's traditionally enforcement-minded approach to tax administration. Faced with a difficult task, the IRS balanced efficiency with rough justice and created a process that lacks standard adjudicatory procedural safeguards, such as the right to speak with the employee making the decision, or the right to see (and rebut) what the opposing spouse submitted.

Until recently, the IRS’s approach to adjudicating spousal relief claims was not recognized as a compelling problem largely because the U.S. Tax Court employed a de novo scope and standard of judicial review in these cases. This is now changing. In July 2019, the Taxpayer First Act limited the Tax Court’s scope of review to the administrative record made before the agency, plus newly discovered or previously unavailable evidence. This change jeopardizes the promise of full and fair consideration for the largely self-represented individuals who seek relief from the tax consequences of a spouse's bad acts.

To maintain the promise of equitable relief from joint and several liabilities, the time may be ripe to consider other approaches to the adjudication of innocent spouse claims. This article considers the question from the perspective of general administrative law principles for agency adjudication and connects to scholarly debates over inquisitorial versus adversarial adjudication in the Collection Due Process context.

Session #2:  Optimal Taxation (Neil Buchanan (Florida; Google Scholar), Chair/Discussant):
At the heart of many discussions of tax policy is a question of whether the tax law achieves the right end, for all people affected by it, and how best to design the tax to achieve the desired ends. The papers in this session tackle these essential, and difficult, questions from a variety of angles, contemplating theories of tax and tax policy design. While each paper contemplates a different aspect of tax system design, the papers in this session are concerned with asking about both the theoretical justifications and the effects of particular tax decisions.

Manoj Viswanathan (UC-Hastings; Google Scholar), Retheorizing Progressive Taxation:

Tax progressivity is undeniably central to both the detailed analytics of tax policy and the rhetorical arguments commonly used in public discourse. Yet there are surprisingly inconsistent and inaccurate uses of this seemingly objective term. By theorizing progressivity’s constitutive elements and identifying its shortcomings, this Article offers a novel taxonomy of how progressivity is assessed and why contradictory assessments are common.

This Article argues that, as a theoretical matter, accurately characterizing tax provisions as progressive (or regressive) requires assessing their burdens beyond simply the tax payments remitted. By failing to account for effects such as economic incidence and inefficiency costs, traditional progressivity analyses are incomplete. Relatedly, since the spending side of the budget process is functionally indistinguishable from taxation, accurate progressivity analyses must also consider where tax revenues are spent. This Article suggests that earmarked tax assessments—taxes allocated to specific purposes—could overcome some of these challenges.

Anna-Maria Anderwald (Graz), Does the Consumption Orientation of our Tax Systems Mean the End of the Ability-to-pay Principle and is the Equivalence Principle Experiencing a Renaissance?:

Does the consumption orientation of our tax systems mean the end of the ability-to-pay principle and is the equivalence principle experiencing a renaissance?

Our tax systems have been shaped to a considerable extent by financial science. From financial science, we have learned that taxation, on the one hand, can be justified on the ability-to-pay principle and, on the other hand, on the principle of equivalence. These justifications of taxation developed in financial sciences also found their way into the respective tax law systems. In particular, the ability-to-pay principle has come to be regarded as a fundamental principle of different tax systems. For instance, income taxes in particular are decisively influenced by the ability-to-pay principle.

My research focuses on the consumption orientation of tax systems. Based on financial science findings, it now seems that consumption, as opposed to income, is increasingly being considered as a tax base. With this consumption orientation, however, the equivalence principle, as opposed to the ability-to-pay principle, seems to gain in importance.

Ilinza Maree (Pretoria), A Social Impact Matrix for Tax Policy in the Brewing Industry in Africa:

In an optimal tax system, the balance between securing the revenue required for financing economic and social programmes and promoting innovation, productivity and inclusive economic growth, is given. Developing countries, especially in Africa, are struggling to reach the optimal balance when developing tax systems for sustainable growth. In an attempt to understand the optimal balance required for tax systems in Africa, a social impact analysis on one feature commonly found in tax systems around the globe, known as ‘tax incentives’, were conducted. The specific tax incentive under investigation relates to the local sourcing of raw materials used in the beer production process. When locally produced produce are used, a reduction in excise duty will result and this is called the local sourcing initiative (LSI). The LSI is introduced into the tax systems based on two objectives, which includes: to impact local agricultural production; and to reduce the damaging impact of traditionally brewed beer on public health compared to commercially produced beer.

The purpose of this paper is to develop a framework for a qualitative social impact analysis that leads to a social impact analysis matrix and its application on the LSI in the brewing industry in Africa. To conduct a detailed social impact analysis, the literature was explored to decide on a suitable social impact method. However, it was found that none of the existing methods fulfil the needs of conducting a qualitative social impact analysis. Therefore, this paper contributes to the existing literature by developing a framework for a qualitative social impact analysis finally constructing a matrix. The framework is flexible in its purpose and can thus be adjusted to meet other goals and objectives. The framework is built around a two-fold measurement and considered the significance and the magnitude of the impact. The power of this two-fold measurement lies in a more accurate and complete set of findings.

Jennifer Bird-Pollan (Kentucky; Google Scholar), What Can We Learn About Taxes From Pandemic Relief Benefits?:

In response to the move online of all public schools in Fayette County, Kentucky, every child registered to attend public school was issued a " Pandemic Electronic Benefits Transfer" Card or a P-EBT Card. In other words, every single child attending public school in Lexington, Kentucky during the 2020-2021 school year, got food stamps. Suddenly the cashiers at Whole Foods and Trader Joe's learned how to process EBT cards, and parents pulled food stamps cards out of their Louis Vuitton wallets. Facebook message boards were swamped with parents asking when the cards would arrive in the mail and what they could be used for, and other parents sharing their experiences with the cards. Overall, the experiment seems to have been a massive success, resulting in the transfer of significant amounts of money to families in support of the feeding of school-age children during a pandemic, while those children learned at home. Some might argue that the transfer of money in such a need blind way, such significant amounts of the funding went to those who did not need the support means that the funds were wasted. However, the destigmatizing of the receipt of state funds is a welcome change, and shows a path towards what could be possible in a tax and transfer system that focused more on providing support to all, while recovering overpayment through tax, rather than laser-focusing benefits, which seems to lead to over-stigmatization of the receipt of those benefits. This paper will lay out the details of this particular program, and think through what we might learn from it going forward.

Session #3: Tax and Time: On Use and Misuse of Legal Imagination (Bridget Crawford (Pace; Google Scholar), Chair):
Can tax laws be deployed to create a more just an equitable society? Anthony Infanti answers with a resounding “yes" in his new book, Tax and Time: On Use and Misuse of Legal Imagination. He argues that the way a country collects and spends its revenue is a quantifiable reflection of how a country sees itself. The tax laws send messages about both what a society values now and what it aspires to be in the future. Through concrete examples, Infanti shows how tax laws have been used to imaginatively manipulate time in ways that perpetuate economic and social injustice. Writing squarely within the critical tax tradition, Infanti assets that the power of the legal imagination to manipulate time in tax law can both correct past injustices and help us to envision—and actually work toward—a better and more just society.

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