Weekly SSRN Tax Article Review And Roundup: Saito Reviews Competing Narratives On OIRA Review Of Tax Regulations By Hickman & Dooling

This week, Blaine Saito (Ohio State; Google Scholar) reviews a new work by Kristin E. Hickman (Minnesota; Google Scholar) & Bridget C.E. Dooling (Ohio State; Google Scholar), Competing Narratives in OIRA Review of Tax Regulations, 19 J.L. Econ. & Pol’y __ (2024):

In 2023, the Biden Administration issued a Memorandum of Agreement (MOA) that exempted all tax regulations from OIRA review. Many, including readers of this blog, hailed this undoing. But in Competing Narratives on OIRA Review of Tax Regulations, Kristine E. Hickman and Bridget C.E. Dooling show that what is at play are two competing narratives. One sees OIRA review as salutary and creating greater transparency, accountability, and rigorous analysis. The other views it as meddlesome to tax regulations. They show that the second narrative stems from some key misconceptions about OIRA review of tax regulations.

One error that the Hickman and Dooling highlight is that the 2023 MOA goes further than returning to the pre-2018 exemption of tax regulations. Prior to 2018, the 1983 MOA that was the basis for the original exemption contemplated that “legislative regulations that are ‘major’ as defined in” would potentially have OIRA review, or at least that Treasury and the IRS would notify OIRA of these regulations. Treasury and the IRS indeed did subject some regulations to OIRA review. But the 2023 MOA goes further, exempting all tax regulations, even major legislative regulations, from OIRA’s ambit.

The authors then turn to the justifications for such a complete and unusual exemption, which the second narrative pushes. Supporters of the 2023 MOA cite delay as a major reason to end OIRA review. Hickman and Dooling show though that tax regulations generally moved faster through OIRA. Additionally, tax is not exceptional in the need to release administrative guidance quickly to meet certain annual schedules. Other areas, like student aid and Medicare have similar requirements. On the other hand, OIRA review allows for greater interagency coordination, which is often important in tax regulations that form part of our social safety net.

A second complaint on OIRA review is politicization. While tax administration and audits are something to avoid politicizing, rulemaking often has a political dimension to it. Indeed, even without OIRA review, Treasury and the IRS have responded to political pressure from outsiders, Congress, and the White House. OIRA itself, while part of the White House, also has a large cadre of nonpolitical civil servants. And most of what OIRA review seemingly did was to improve preamble disclosure in regulations. Such preamble disclosure helps regulations survive judicial review and reveals the underlying values and purposes of these regulatory choices more clearly.

Third, critics of OIRA review of tax regulations note that cost-benefit analysis (CBA) is stacked against tax regulations. But CBA exists as a tool to help Treasury and the IRS to exercise their policy discretion in making regulations. Furthermore, CBA always included non-quantifiable benefits like health, safety, the environment, and the elimination of biases or discrimination. The Biden Administration has now pushed to consider and emphasize these non-economically quantifiable benefits and distributional analysis in CBA within OIRA review. But tax is exempt, even though it is perhaps the most distributionally important set of regulations.

Finally, the rejection of OIRA review stems from a deeply held view that tax is different. This part of the narrative has two streams. The first is that tax is unique because the Code is self-executing unlike other areas of the law. But that is not entirely true. The Code itself has numerous provisions that are not self-executing and require the promulgation of regulations. Additionally, a lot of other regulatory regimes would have force even without regulations, like the Federal Food, Drug, and Cosmetic Act, which would prohibit the sale of adulterated or mislabeled items in its ambit regardless of whether regulations existed.

The other source of this exceptionalist view is that tax regulations seemingly only benefit the powerful like business interests, whereas businesses reject regulations in other contexts. That view though does not always hold. While many tax regulations do give businesses certainty, so do other regulations as well. Furthermore, many tax regulations affect programs that are not directly related to providing clarity for businesses. They exist, for example, to help administer the social welfare programs created in the Code, like pieces of the Affordable Care Act or low-income housing tax credits. In this way too, then, tax regulations does not look so different from other regulatory spheres.

Hickman and Dooling provide important support for OIRA review of tax regulations. They produce a thoughtful analysis that not only strengthens the view that OIRA review is salutary to tax regulations, but also shows how resistance to it is based on a narrative of exceptionalism. Yet, this narrative, is problematic, because the tax system is not merely a revenue collection system. It regulates much of our lives and outlines social policies. OIRA review here is vital to ensure that such regulations are coordinated across agencies and draw on areas of expertise that the IRS and Treasury lack.

Additionally, the piece shows that even in the revenue raising functions, the Treasury and the IRS have significant discretion and choices to make. Those choices are not reducible to some technical question, but often involve values and tradeoffs. OIRA review, like the rest of administrative Law, aims to have agencies elucidate these values and tradeoffs to the public, so that we can assess them. The tax system, even in its pure revenue raising function, also requires such public airing of these values.

It is often easy to criticize OIRA review as stopping useful regulations that some people want. But the other view, how many regulations are improved or even better implemented and avoid getting struck down through judicial review is difficult, if not impossible, to measure. OIRA review and the general push of administrative law, while sometimes frustrating, are perhaps some of the best tools that we have to ensure that Treasury and the IRS remain accountable to the public.

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

• Dick Molenaar (Erasmus School of Law), Artist Taxation, Social Security and VAT (date posted: May 30, 2024).
• Emer Hunt (Univ. College Dublin), Transition without Change: Taxation by the Irish Free State, in 11 Studies in the History of Tax Law, United Kingdom 361 (2024) (date posted: May 30, 2024).
• Meredith Kolsky Lewis (Univ. at Buffalo and Victoria Univ. of Wellington), Tracey D. Epps (Chapman Tripp), and Daniel Kalderimis (Independent), National Implementation of International Economic Law: New Zealand, Elgar Encyclopedia of International Economic Law (Thomas Cottier and Krista Nadakavukaren Schefer eds., forthcoming 2024) (date posted: May 29, 2024).
• Keigo Fuchi (Kobe Univ.), A Case for Residence-Based Personal Income Taxation (date posted: May 29, 2024).
• Reuven S. Avi-Yonah (Michigan), Bridging the North/South Divide: Tax Competition and Global Justice (date posted: May 28, 2024).
• Laura Snyder (Assoc. of Am. Residents Overseas), Does the Federal Budget Trump Constitutional Rights?, 52 Hofstra L. Rev. 389 (2024) (date posted: May 28, 2024).
• Laura Snyder (Assoc. of Am. Residents Overseas), The Invisibility of the American Emigrant, 17 DePaul J. Soc. Just., Spring 2024 (date posted: May 28, 2024)
• Sumarie Swanepoel and Teresa Pidduck (Univ. Pretoria), Same Difference (Discussion of Clicks Retailers (Pty) Ltd V Commissioner for the South African Revenue Service 2021 (4) Sa 390(CC), 34 Stellenbosch Law Review 232 (date posted: May 28, 2024).
• Keigo Fuchi (Kobe Univ.), A Note on Doctrinal Basis of Transfer Pricing Rules: From a Contract Model to a Fiduciary Model (date posted: May 24, 2024).