Tax Prof presentations at today's Poverty Law Conference at Berkeley (register here):
David Gamage (Indiana-Maurer; Google Scholar), Taxpayer Mobility and the Goal of Inclusive Prosperity (with Erin Scharff (Arizona State) & Darien Shanske (UC-Davis; Google Scholar)):
Taxpayer mobility is often cited as a primary obstacle to progressive tax policies. However, this Article argues that mobility responses to taxation are often overemphasized. The empirical literature on taxpayer mobility sometimes characterizes responses as “large” merely because the responses are substantial enough to be measured with statistical significance. Yet, from a tax policy perspective, what should be considered “large” is partially a normative philosophical question. Applying a normative philosophical lens to the empirical literatures on taxpayer mobility, this Article concludes that there is no convincing evidence supporting the commonly held notion that taxpayer mobility should be considered a primary obstacle to enacting progressive tax policies—either for national-level governments or for subnational state and local governments. This does not imply that mobility responses are unimportant, however. This Article suggests policy responses to concerns related to taxpayer mobility for national governments and the international tax regime, for fiscal federalism and the interrelationship between national governments and subnational governments, and for subnational state and local governments acting on their own.
Francine J. Lipman (UNLV; Google Scholar), Not Taxing Puerto Rico? Whitewashing Impoverishment in United States v. Vaello-Madero:
For more than four generations, since 1917, Puerto Ricans have qualified for U.S. citizenship. Yet citizens residing in Puerto Rico do not enjoy the same rights and privileges of citizens residing in the states and Washington D.C., but rather must suffer what Justice Ruth Bader Ginsburg famously coined, albeit in the context of marriage, a “skim milk” version of citizenship. This disparate treatment arises from the Supreme Court’s interpretation of the Territory Clause of the Constitution in the Insular Cases. The Territory Clause provides Congress with plenary power to “dispose of and make all needful Rules and Regulations respecting the Territory.” The Supreme Court through its decisions in the Insular Cases, dated more than one-hundred years ago, and their progeny has generally held that the Constitution only applies to residents of the territories if Congress has specifically ruled that it applies and if the right is “fundamental.”
To be clear, many have criticized the Insular Cases. Most recently Justice Gorsuch, in his concurrence in Vaello-Madero, has described the Insular Cases as a “misguided framework” with a “rotten foundation” arising from the “sordid business of segregating Territories and the people who live in them on the basis of race, ethnicity, or religion” relying on “ugly racial stereotypes, and the theories of social Darwinists.” Gorsuch further describes that the Insular Cases are derived from the racist view that America could “acquire and exploit ‘an unknown island, peopled with an uncivilized race . . . for commercial and strategic reasons’—a right that ‘could not be practically exercised if the result would be to endow’ full constitutional protections ‘on those absolutely unfit to receive [them].’” Other jurists have similarly described this separate and unequal treatment as “odious and wrong” and “an impermissible second rate citizenship akin to that premised on race.” For a stark example evincing that the disparate treatment of the Territories is grounded in race, U.S. Supreme Court Justice Brown argued that constitutional protections, like uniformity of federal tax laws, should apply only to “contiguous territor[ies] inhabited only by people of the same race, or by scattered bodies of native Indians” and not in regions “inhabited by alien races, differing from us in religion, customs, laws, methods of taxation, and modes of thought.”
In April 2022, the U.S. Supreme Court in U.S. v. Vaello Madero reaffirmed this disparate treatment in an 8 to 1 decision holding that there was a “rational basis” to deny the equal protection guarantee under the Fifth Amendment and the Territory Clause of the Constitution to residents of Puerto Rico. The opinion written by Justice Kavanaugh overturned the decisions of the District Court of the District of Puerto Rico and the U.S. Circuit Court of Appeals for the First Circuit that found no rational basis to deny Supplemental Security Income (SSI) to otherwise qualifying impoverished, aged, and disabled individuals because they resided in Puerto Rico. The Court held that residents do not have equal protection because (1) some Puerto Ricans were not subject to certain income taxes and (2) providing antipoverty benefits like SSI and subjecting certain Puerto Ricans to income taxes “would inflict significant new financial burdens on residents of Puerto Rico, with serious implications for the Puerto Rican people and the Puerto Rican economy.” In sharp contrast to the lower court decisions, the Court’s opinion does not address claims that the disparate treatment is grounded in racial discrimination.
This article will explain that by not taxing residents of Puerto Rico the federal government significantly reduces the cost of additional antipoverty benefits that would be due to the majority of U.S. citizens residing in Puerto Rico who suffer rates of impoverishment in excess of 40 percent. Given the increased use of the federal income tax system as a benefits delivery system, not including Puerto Ricans in the federal income tax system does the opposite of the claims made by the majority in the rational basis test. Moreover, because residents are subject to regressive payroll, self-employment, and unemployment taxes on their earned income, but are denied the targeted offsets of earned income tax benefits, they are further harmed. Rather than reducing the federal tax burden on residents “not taxing Puerto Rico” reduces the benefits delivered to U.S. citizens merely because of their zip code. Thus, most Puerto Rico residents are effectively subject to a higher federal tax burden than their 50 state and Washington D.C. counterparts. A distinction that the lower courts and others have argued is due to the race of the residents, rather than any reasonable fiscal analysis whether scrutinized rationally or strictly.
Timothy Mulvaney (Texas A&M; Google Scholar), Underneath the Property Taxes that Finance Education:
The importance of elementary and secondary education to human flourishing, economic opportunity, and effective participation in democratic life has been acknowledged at the highest levels of American government. Nevertheless, education has traditionally been classified as a “local good.” While select states support this local good through a heavy reliance on state revenues for which sales and income taxes are the primary sources, most turn in sizable part to local revenues that are overwhelmingly derived from property taxes.
Political and academic discourse on the extent to which property taxes should serve in this role regularly centers on three overarching issues: the vices and virtues of local control, the stability of property tax revenues, and the availability of mechanisms to redistribute property tax revenues from property-wealthy school districts to property-poor ones. This discourse is critical in helping us evaluate the consequences of taxing property values to finance education vis- à-vis the consequences of the various alternative approaches to structuring taxing and spending policy in the education space. As critical as they are, though, these issues are second-order in the sense that their resolution is inextricably tied to first-order choices about property law and policy that impact the property values against which property taxes are levied. This Essay contends, therefore, that such discourse would benefit from directing greater attention to the first-order question of how land that is taxed in any property tax scheme gains its value at the outset.
The Essay proceeds in three Parts. Part I suggests that a discourse that concentrates exclusively on the consequences of the government’s choice to tax property values for the purposes of financing education runs the risk of underappreciating the extent to which government choices impact how those values came to be in the first place. Such a course, in turn, lends credence to the view that land values are simply the product of individual exchange in a self-regulating market. However, the rules and standards reflected in property laws set the terms by which individuals can engage in market exchanges by predetermining which social and economic relationships are and are not legitimate in a modern democracy that respects freedom, equality, and human dignity. In fulfilling this term-setting function, the government’s choices in actuality influence property values quite extensively.
In an effort to illuminate how these government choices influence property values in a variety of different ways, Part II classifies them into three categories: structural choices relating to infrastructure and land use (such as building highways, zoning land, and drawing district boundaries), financial choices relating to subsidies and exemptions (such as allowing mortgage-interest deductions, offering homestead exemptions, and subsidizing flood insurance), and protective choices relating to forestalling natural and human-induced adversities (such as allowing nonconforming uses to continue, constructing erosion-control devices, and providing disaster relief). In the minds of some observers, there may well be overlaps between and among these categories in select cases. The goal in offering this taxonomy, though, is not to produce an incontrovertible classification system, but, rather, to illustrate via a range of examples the sheer ubiquity of the government’s value-influencing choices.
Part III emphasizes that, if the government made different choices surrounding the content of property rights, those different choices would produce different property values and, thus, different distributions of the property tax revenues that finance public education. Against this backdrop, it sets out a series of norms for reforms to property laws that, given these laws’ inevitable connection to property taxes, will have derivative effects on educational opportunity and delivery. These norms——the first of which is process-oriented, the second of which is substantive, and the third of which offers a conceptual bridge between the first two——include (1) sensitivity to the circumstances of how property law operates in a given community rather than leaning on assumptions about “typical” communities; (2) acknowledgment of the current effects of both prior and present-day discriminatory practices surrounding property; and (3) attention to the ways that property laws do not exist in isolation but are instead intricately integrated.
Henry Ordower (St. Louis; Google Scholar), Unbundling Social Security from its Anachronistic Payroll Tax Funding Mechanism:
Estimates of the continuing adequacy of the social security trust fund to continue inflation adjusted benefits disclose that sometime in the 2030 - 2039 decade, the trust fund will cease to be solvent. At that time, benefits from the system will decline to eighty percent or less of their then current level based on estimates of social security tax receipts unless tax revenue increases or benefits otherwise decline. To preserve social security as a welfare program primarily for older individuals and to ameliorate the distributional inequity of funding social security across income and wealth levels, this article recommends unbundling the benefit side of social security from its longstanding payroll tax funding mechanism. The article recommends replacing the payroll tax revenue with a budget allocation from general revenues accompanied by both revenue raisers and benefit limitations. Income tax rate increases linked to repeal of the FICA tax and tax expenditure limitations would enhance income tax revenue. Modifying social security benefits from their current overinclusive, entitlement structure for all to moderately needs-based entitlement possibly freed from the constraint of the current contribution requirement that makes social security underinclusive would help provide the older population an income facilitating dignified aging.