Friday, July 31, 2020
This week, Sloan Speck (Colorado) reviews new works by Steven Hodaszy (Robert Morris), Why the Antipathy Toward Business Loss Deductions Is Misguided, 167 Tax Notes Fed. 1863 (Jun. 15, 2020), and Clint Wallace (South Carolina), The Troubling Case of the Unlimited Pass-Through Deduction, 87 U. Chi. L. Rev. Online (2020).
On July 27, Senate Republicans released their proposal for the next pre-election round of pandemic stimulus legislation. The HEALS Act, which comprises eight smaller bills, represents the Republican response to the House Democrats’ HEROES Act, which passed the lower chamber in mid-May. The differences between these two legislative projects are legion. One such difference involves the “excess business loss” rules in § 461(l)—a matter of particular concern to certain taxpayers, lobbyists, affinity groups, and their elected representatives, as well as recent scholarly work by Steven Hodaszy and Clint Wallace.
The next two paragraphs offer a brief synopsis of § 461(l), omitting most of the social and political context but including many of the eye-glazing technical bits. In December 2017, the legislation known as the Tax Cuts and Jobs Act added § 461(l) to the Internal Revenue Code, presumably as a revenue offset for a miniscule portion of the law’s mammoth tax cuts. As enacted, § 461(l) disallowed certain single-year business losses that exceeded $250,000 or $500,000 for single individuals and joint filers, respectively. This limitation applied after the passive activity loss rules in § 469 and the at-risk rules in § 465, and any excess loss was rolled into subsequent years’ net operating loss carryforwards under § 172, as modified by the TCJA. Two items of note: this version of § 461(l) applied to a relatively small number of relatively well-off taxpayers, and a number of commentators interpreted § 461(l) as targeting the real estate sector.
July 31, 2020 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, June 5, 2020
This week, Sloan Speck (Colorado) reviews a new work by Rory Gillis (Toronto), Carbon Tax Shifts and the Revenue-Neutrality Dilemma, 23 Fla. Tax Rev. 293 (2019).
In Carbon Tax Shifts and the Revenue-Neutrality Dilemma, Rory Gillis deconstructs the concept of revenue neutrality as applied to Pigouvian carbon taxes. These carbon taxes are, of course, price instruments, and their behavioral effects—the raison d’être of the taxing scheme—generally don’t depend on the specific use of any funds generated. But, as Gillis notes, the political viability of these carbon taxes often hinges on (typically vague) promises of “revenue neutrality,” which means (somewhat naïvely) that every dollar raised by a carbon tax will be offset by one dollar of tax cuts elsewhere. Gillis challenges this “standard definition” as “conceptually unclear,” then distinguishes two competing understandings of revenue neutrality.
In Gillis’s terms, “backwards-looking” revenue neutrality adheres to an enactment-year revenue baseline and effectively straightjackets future revenue increases. By contrast, “sideways-looking” revenue neutrality looks to a hypothetical—and frequently unknowable—current-year baseline calculated as if the carbon tax had never been promulgated.
June 5, 2020 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, April 10, 2020
This week, Sloan Speck (Colorado) reviews a new work by Andrew T. Hayashi (Virginia), Countercyclical Property Taxes, Va. L. & Econ. Res. Paper No. 2020-04.
In Countercyclical Property Taxes, Andrew Hayashi argues that residential real property taxes have important—and counterintuitive—macroeconomic implications during recessions and subsequent recoveries. Although policymakers often tout property taxes as stable revenue sources when the economy stalls, Hayashi lucidly outlines how these tax instruments amplify both household risk and community risk by pressuring homeowners’ discretionary spending. As Hayashi highlights, the design features of property taxes that generate revenue stability are the very same elements that shift risk from government units to households and communities. For this reason, Hayashi suggests taking a fresh and more nuanced look at property tax relief during downturns, with an eye towards fairness and equity in addition to revenue.
April 10, 2020 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, February 14, 2020
This week, Sloan Speck (Colorado) reviews a new work by Adi Libson (Bar-Ilan) & Gideon Parchomovsky (Pennsylvania), Reversing the Fortunes of Active Funds (2020).
In Reversing the Fortunes of Active Funds, Adi Libson and Gideon Parchomovsky propose a novel, tax-oriented solution to a well-established and important problem in the literature on corporate governance: the rise of “passive” investment funds as substantial shareholders in publicly traded companies. Libson and Parchomovsky argue that these passive funds engage in limited oversight with respect to their massive stock holdings. Downward cost pressure discourages informed or engaged voting with one’s hands, and slavish fidelity to benchmark indices precludes voting with one’s feet. The result is that passive funds (and many retail investors, and perhaps society as a whole) free-ride on active funds’ efforts to monitor management. For Libson and Parchomovsky, the answer is a Pigouvian subsidy, administered through the income tax system, to these active funds—the reversal of fortune referenced in their article’s title.
February 14, 2020 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, December 20, 2019
This week, Sloan Speck (Colorado) reviews a new work by Ajay K. Mehrotra (American Bar Foundation; Northwestern) & Dominic Bayer (J.D. 2020, Northwestern), The Promise and Limits of Fundamental Tax Reform: Contrasting the 1986 Tax Reform Act with the 2017 Tax Cuts and Jobs Act, 53 U.C. Davis L. Rev. Online 93 (2019).
In The Promise and Limits of Fundamental Tax Reform, Ajay Mehrotra and Dominic Bayer illuminate the possible future of the 2017 legislation known as the Tax Cuts and Jobs Act by comparing the law with the Tax Reform Act of 1986. Mehrotra and Bayer establish the political and policy roots of the 1986 Act, then trace the law’s piecemeal erosion over the next decade. Using this template, Mehrotra and Bayer conclude that the 2017 Act seems likely to unravel along similar lines.
Mehrotra and Bayer’s rigorous and informed discussion of the 1986 and 2017 Acts is a significant achievement. As the authors note, the press and politicians have connected these very different legislative initiatives in the popular imagination. Indeed, this juxtaposition might be the most bipartisan aspect of the more recent law: conservatives have trumpeted the 2017 Act as the spiritual successor to the 1986 Act, while liberals have condemned the 2017 Act as a betrayal of the fundamental principles embodied in the earlier legislation. Mehrotra and Bayer provide much-needed context and content to evaluate this category of claims.
December 20, 2019 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, November 1, 2019
This week, Sloan Speck (Colorado) reviews a new work by Ari D. Glogower (Ohio State) & David Kamin (NYU), The Progressivity Ratchet, 104 Minn. L. Rev. ___ (2020):
In The Progressivity Ratchet, Ari Glogower and David Kamin provide further reasons to dislike the headline business tax changes in the 2017 legislation commonly known as the Tax Cuts and Jobs Act, namely the “pass-through” deduction under § 199A and the general reduction in corporate tax rates to 21%. Glogower and Kamin argue that these poorly targeted tax preferences, coupled with private-sector tax gaming and political economy constraints, create the potential for what they term the “progressivity ratchet,” in which lawmakers cannot readily reverse revenue-losing tax preferences by raising nominal rates on high-earning taxpayers. To escape this predicament, Glogower and Kamin suggest restoring the relative penalty for operating in corporate solution, eliminating existing tax preferences, or better targeting those tax preferences that policymakers choose to keep.
November 1, 2019 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, September 13, 2019
This week, Sloan Speck (Colorado) reviews a new work by Leigh Osofsky (North Carolina), Agency Legislative Fixes, 105 Iowa L. Rev. __ (2020).
In Agency Legislative Fixes, Leigh Osofsky develops a framework for understanding and analyzing agency actions to correct technical and drafting errors in legislation. Osofsky motivates this framework primary through various examples from the December 2017 tax legislation known as the Tax Cuts and Jobs Act. In addition, Osofsky alludes to a number of other high-profile legislative mistakes in the Affordable Care Act, the Dodd-Frank Act, and elsewhere. Osofsky adeptly interweaves her tax-oriented story with academic work on legislation and administrative law, yielding a rich critique of Treasury’s current practices in handling gaps between Congress’s presumptive or purported intent and prevailing interpretations of statutory text, as enacted. Osofsky concludes by addressing several possible reforms, including an interesting proposal to adjust the revenue baseline in budget reconciliation to account for erroneous scores attributable to congressional mistakes.
September 13, 2019 in Scholarship, Sloan Speck, Tax, Tax Scholarship, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, June 7, 2019
This week, Sloan Speck (Colorado) reviews a new work by Heather Field (UC-Hastings), Tax Lawyers as Tax Insurance, 60 Wm. & Mary L. Rev. __ (2019).
In Tax Lawyers as Tax Insurance, Heather Field explores the issuance of tax legal opinions as a form of de facto insurance against the risks of an adverse tax determination by governmental authorities. Field moves beyond the conventional framing of tax opinions as “insurance” against penalties, instead casting opinion practice as providing “a limited and conditional indemnity” to clients by way of the opinion writer’s malpractice insurance. Field contrasts this informal insurance with the burgeoning market in formal tax insurance policies, giving particular attention to intersections and entanglements that complicate the broader question of how individuals and firms address tax-related risk. Field argues that thinking about tax opinions through the lens of insurance yields insights into the value and limitations of transactional lawyering, among other things.
June 7, 2019 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup, Weekly Tax Roundup | Permalink
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Friday, April 19, 2019
This week, Sloan Speck (Colorado) reviews a new work by Michael Abramowicz (George Washington) & Andrew Blair-Stanek (Maryland), Contractual Tax Reform, 61 Wm. & Mary L. Rev. ___ (2019).
In Contractual Tax Reform, Michael Abramowicz and Andrew Blair-Stanek develop an innovative proposal that would allow private intermediaries to offer alternative tax regimes to subsets of taxpayers. These intermediaries would target specific taxpayers with algorithms developed using artificial intelligence, and these taxpayers then would be able to opt into the particular alternative tax regime offered by the intermediary. The catch is that the overall tax revenue from the intermediary’s customers can’t be less than they would pay, in the aggregate, under the regular tax system. Assuming that internalities aren’t material, this arrangement is Pareto efficient: only taxpayers who prefer the alternative tax regime would choose the intermediary, and total tax revenue would not fall. Everyone’s better off, and no one’s worse off.
April 19, 2019 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 1, 2019
This week, Sloan Speck (Colorado) reviews a new work by Katherine Pratt (Loyola—LA), The Curious State of Tax Deductions for Fertility Treatment Costs, 28 S. Cal. Rev. L. & Soc. Just. ___ (2019).
In The Curious Case of Tax Deductions for Fertility Treatment Costs, Katie Pratt elaborates the patchwork and unsatisfying treatment of assisted reproductive technologies (ARTs) under the current law governing deductions for medical expenses under § 213. Specifically, Pratt details recent court decisions in Magdalin, Longino, and Morrissey that severely circumscribe the scope of “medical care”—and thus the deductibility of related expenses—in the ART context. To some extent, Pratt’s argument illustrates the complications that flow from enacting a C- statute, then subjecting it to a variety of D+ interpretations. Hard facts may make bad law, but, at least in Magdalin and Morrissey, the facts aren’t the primary problem. Pratt appropriately concludes by proposing reasonable amendments to the statutory definition of “medical care” that would recognize the current landscape with regard to ARTs.
March 1, 2019 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, January 4, 2019
This week, Sloan Speck (Colorado) reviews a new work by Stephen Shay (Harvard), The US International Tax Reforms: Competition and Convergence, Pay-Offs and Policy Failures, 46 Intertax 905 (2018).
In The US International Tax Reforms: Competition and Convergence, Pay-Offs and Policy Failures, Steve Shay explains and analyzes, for an international audience, the December 2017 changes in U.S. international tax law. Shay casts these changes not as “fundamental” reform, but rather as a headline domestic corporate tax rate cut coupled with an agglomeration of international revenue raisers and incentives. Overall, these changes largely represent a reshuffling of the deck (perhaps after scribbling furiously on several cards with Magic Marker), as well as a missed opportunity. Nowhere does the new law squarely address the taxation of foreign sellers into domestic markets—“the most important defect” in current international tax law, according to Shay.
Shay begins by deftly summarizing the political context of the December 2017 changes, with particular attention to the relative unimportance of international tax policy, writ large, compared to the budgetary machinations necessary to usher the bill through the reconciliation process.
January 4, 2019 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, November 16, 2018
This week, Sloan Speck (Colorado) reviews a new work by Fadi Shaheen (Rutgers), Income Tax Treaty Aspects of Nonincome Taxes: The Importance of Residence, 71 Tax L. Rev. 583 (2018).
In Income Tax Treaty Aspects of Nonincome Taxes: The Importance of Residence, Fadi Shaheen argues that, in any transition from an income tax to a nonincome tax, a critical gating consideration is how that nonincome tax interplays with the concept of residence in bilateral tax treaties based on the U.S. and OECD models. In defining the scope of nonincome taxes, Shaheen lists the usual suspects—consumption and cash flow taxes such as VATs, the flat tax, and the DBCFT—as well as newer varieties, such as equalization and turnover taxes on digital transactions. One of Shaheen’s important insights is that a person’s tax residence, a primary criterion to claim treaty benefits, depends on the taxes to which that person is subject. For a newly introduced nonincome tax, the problem is larger than just whether the treaty applies to the tax instrument. Instead, the issue is that the nonincome tax may preclude persons in the relevant contracting state from claiming any treaty benefits at all. In this sense, nonincome taxes may trigger tax treaty Armageddon, rather than some milder form of dislocation that is cabined to the nonincome tax’s direct reach.
November 16, 2018 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, October 5, 2018
This week, Sloan Speck (Colorado) reviews a new work by Emily Cauble (DePaul), Taxing Selling Partners, 94 Wash. L. Rev. ___ (2019).
In Taxing Selling Partners, Emily Cauble ably details various shortcomings and inconsistencies in the taxation of sales of partnership interests, then proposes a concrete and clear remedy to these myriad problems. Specifically, Cauble examines four scenarios in which the sale of a partnership interest yields a tax result different from the sale of that partnership’s assets. Two of these scenarios draw on longstanding issues involving partner-partnership divergences in holding period and use, while the other two scenarios engage changes in law from December 2017. The first of these changes closes a loophole involving sales of partnership interests by non-U.S. persons—a fix that Cauble argues is incomplete. The other change limits the availability of excess business losses, though, as Cauble notes, not necessarily on transfers of partnership interests. To solve these problems, Cauble advocates aligning the tax consequences of sales of interests and assets by, more or less, looking through to assets when an interest is sold.
October 5, 2018 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, August 17, 2018
This week, Sloan Speck (Colorado) reviews a new work by Victoria J. Haneman (Creighton), Retrenchment, Temporary-Effect Legislation, and the Home Mortgage Interest Deduction (2018).
In Retrenchment, Temporary-Effect Legislation, and the Home Mortgage Interest Deduction, Victoria Haneman assesses the tax legislation enacted in December 2017 as it relates to a favorite target of tax policy opprobrium, the home mortgage interest deduction (MID). Haneman argues that the 2017 changes that affected the MID are, at their core, regressive. For this purpose, the relevant provisions are the doubling of the standard deduction and the limitation of deductible mortgage interest on new loans to principal amounts of $750,000 instead of $1 million. (Presumably, one also could include the effective limitation of deductible mortgage interest on old loans to principal amounts of $1 million instead of $1.1 million.) Notwithstanding Haneman’s dim view of the 2017 changes, she sees brightness at the end of the tunnel: As enacted, these changes sunset after 2025, forcing legislators to reconsider the MID and perhaps repeal it wholesale. Although Haneman wisely doesn’t guarantee that dawn will bring an enlightened legislature, she sees value in opening a “window of opportunity” through which the rays of genuine tax reform could shine. Finally, Haneman proposes replacing the MID with a limited tax credit for homeownership based on the purchase price of a taxpayer’s home.
August 17, 2018 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, June 8, 2018
This week, Sloan Speck (Colorado) reviews a new work by Kai A. Konrad (Max Planck Institute for Tax Law and Public Finance), Dynamics of the Market for Corporate Tax-Avoidance Advice (2018).
Kai Konrad’s outstanding paper, Dynamics of the Market for Corporate Tax-Avoidance Advice, advances a formal economic model that explores the interactions between private-sector experts and public administrators in the struggle over tax compliance. In broad brush, these interactions are familiar: first, expert tax advisors develop a new tax-avoidance technique, which they sell to clients. Then, other advisors learn of and copy the technique, and avoidance runs rampant. Finally, outraged legislators or regulators shut down the technique. Tax shelters are born in obscurity, enter a promiscuous adolescence, and die young—the James Deans of the Internal Revenue Code. One of Konrad’s principal innovations is to explicitly model the delay between the promulgation of a particular tax avoidance technique and its denouement through government intervention. For virtually all reasonable delays, Konrad’s model yields “a permanent innovation/regulation loop”—stable equilibria with cycles of private-sector tax avoidance (ranging from moderate to obscene) and public-sector crackdowns (which may absorb significant resources). Both periods impose potentially significant social costs, which reinforces how pernicious tax avoidance likely is.
June 8, 2018 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, March 23, 2018
This week, Sloan Speck (Colorado) reviews a new work by David Hasen (Florida), Rules, Standards and Detection (2018).
David Hasen’s paper, Rules, Standards and Detection, develops a formal economic model to explore and quantify the interrelationship of detection with the choice between rules and standards. Hasen deploys his highly tractable model toward two principal ends. First, Hasen’s model reveals that compliance costs have severe effects on parties’ responsiveness to regulators’ increased efforts at detection. Hasen finds that, when compliance costs are high, enforcement plays second fiddle to adjustments to legal rules in terms of fostering good behavior. By contrast, when compliance costs are low, audit becomes a more potent factor in encouraging compliance. Second, Hasen elaborates an important qualification of his first point. Under a view of regulation as ameliorating negative externalities, low compliance costs imply that the social costs of noncompliance also are small. Although the magnitude of these costs depends on the specific facts at issue (and, in particular, on the relevant elasticities of supply and demand), these considerations temper the broader point that compliance dollars are best spent in low-cost situations.
March 23, 2018 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Tuesday, March 6, 2018
Sixty tax law professors and economists filed an amicus brief at the Supreme Court Monday urging the Justices to overrule the Dormant Commerce Clause holding of Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which bars states from enforcing sales taxes against retailers who lack a "physical presence" in the state. From the brief:
In Quill Corp. v. North Dakota, the Court emphasized that its dormant Commerce Clause analysis was based on “structural concerns about the effect of state regulation on the national economy.” 504 U.S. 298, 312 (1992). The Court was especially concerned about the effect of taxation on the mail-order industry, and it believed that maintaining the physical presence rule would “foster investment by businesses and individuals.” Id. at 315-18. It also believed that its rule would reduce compliance costs for businesses and individuals engaged in commerce across state lines. See id. at 313 n.6. For those reasons, the Court reaffirmed the physical presence rule first announced in National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753 (1967).
March 6, 2018 in Ari Glogower, Daniel Hemel, David Gamage, David Herzig, Erin Scharff, New Cases, Orly Mazur, Sloan Speck, Tax Profs | Permalink
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Friday, January 12, 2018
This week, Sloan Speck (Colorado) reviews a new work by Ajay Mehrotra (American Bar Foundation; Northwestern), Fiscal Forearms: Taxation as the Lifeblood of the Modern Liberal State, in The Many Hands of the State: Theorizing the Complexities of Political Authority and Social Control (Kimberly Morgan & Ann Orloff eds., Cambridge University Press 2017).
Ajay Mehrotra’s forthcoming book chapter, Fiscal Forearms, serves as a meditation on, and an expansion of, the important ideas advanced in his 2013 monograph, Making the Modern American State. Mehrotra, like the larger edited volume in which his chapter falls, starts from Bourdieu’s metaphor of the state divided into spending and fiscal spheres: a “left hand” comprised of (in Bourdieu’s words) the “social workers . . . which are the trace, within the state, of the social struggles of the past,” and a “right hand” made up of the ministers and technocrats at the treasury, as well as the public and private banks that underwrite the state. Mehrotra develops this metaphor, describing fiscal administration as “the forearms of the body politic” and taxation itself as “the lifeblood of the modern state.” More critically, Mehrotra challenges the claim that social struggle leaves an imprint only on the spending side of the ledger, showing through historical examples that taxation—and especially income taxation—is a contested concept deployed to construct relationships between state and citizen and in service of societal change.
January 12, 2018 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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Friday, November 17, 2017
This week, Sloan Speck (Colorado) reviews a new work by Kitty Richards, An Expressive Theory of Tax, 27 Cornell J.L. & Pub. Pol’y ___ (2018).
In the early twentieth century, Joseph Schumpeter wrote that “[t]he spirit of a people, its cultural level, its social structure, the deeds its policy may prepare—all this and more is written in its fiscal history.” Following the money tells us more than just who has what; it yields insights into who we are, and what we want to be. Kitty Richard’s interesting and provocative article, An Expressive Theory of Tax, gives a framework for understanding these types of connections between tax law and society, as well as a number of examples “where what the tax code says is explicitly preferenced over what the code does.”
A significant accomplishment of Richards’s project is positive: thick description of “the values and desires that animate policy debates and legal opinions” in taxation. Richards analyzes the expressive aspects of public debates over the taxation of legal brothels in Nevada, the marriage penalties and bonuses doled out by the federal income tax, and the public policy exception for the deductibility of certain expenses. Furthermore, Richards claims that “cheap” talk of (frequently ineffective) incentives obscures the expressive inflection of debates over tax benefits for retirement savings, among other areas.
November 17, 2017 in Scholarship, Sloan Speck, Tax, Weekly SSRN Roundup | Permalink
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