Tax jurisdiction is a legal concept, but is fundamentally dependent on state capacity, technology and politics. The jurisdictional boundaries of the tax state are in turn crucial in delimiting its taxing power. Governments can enhance tax capability by cooperating with each other and with global intermediaries and by adopting new technologies, but also take contradictory steps to abrogate tax jurisdiction. This article considers how tax jurisdictional concepts, in particular residence, source and the location of consumption, are changing as the capability of states to tax labour, capital and consumption changes in a global digital economy. The article illustrates the discussion with some examples of tax jurisdiction for individuals as residents, workers, investors or consumers; and for corporations, including recent global developments aimed at taxation of multinational enterprises. These changes are occurring through contestation in the borderlands of the tax state, between multiple states and non-state actors. The process could enhance states’ jurisdiction to tax in diverse ways, while denationalizing international tax law making in an evolving multilateral reality.
Kirk J. Stark (UCLA) presents Retrofitting Prop 13 Through the Personal Income Tax at San Diego today as part of its Tax Speaker Series hosted by Miranda Fleischer:
Under constitutional limitations on California’s local property tax introduced via Proposition 13 in June 1978, homeowners are generally taxed not on the fair market value of their homes but rather the property’s historic cost. As home prices rise over time, this “acquisition value” feature has two predictable effects: (1) it results in significant property tax disparities, favoring longtime homeowners relative to more recent purchasers, and (2) it discourages homeowners from moving because of the increased property tax burdens associated with purchasing a new home. Less widely recognized is the offsetting effect of a longstanding feature of California’s income tax: the deduction for local property taxes. By directing a larger subsidy to those with higher property taxes, this provision favors recent homebuyers facing market-value property taxes relative to longtime owners with constitutionally limited assessed valuations. It also mitigates to some degree Prop 13’s lock-in effect by reducing the effective property tax rate for those who purchase new homes.
The lawsuit against the LDS church and Ensign Peak, filed on Oct. 31, 2023, is based on the premise that the church has violated its members’ trust by amassing massive investments in stocks, bonds, real estate, and agriculture that don’t support charitable activities. ...
If the new speaker of the House goes after the Johnson Amendment (no relation!), it will be bad for elections and religion.
With the unexpected rise of Mike Johnson to the House speakership, reporters have been delving into his past, focusing in particular on positions he’s taken on topics like abortion, guns, and the 2020 election, as well as his proximity to Donald Trump. Most reporting has commented on Johnson’s conservative Christian beliefs, which at times veer close to Christian nationalism. However, there is an important tax angle. There always is. In this case, it seems almost certain that Johnson will attempt to repeal or weaken the Johnson Amendment (no relation!), which bans tax-exempt organizations, including churches, from participating in political campaigns. ...
This Note describes how the tax system treats inmates,1 an intersection that has been relatively understudied by both tax and criminal justice scholars. The Note provides a detailed account of how inmates earn income through prison labor (what goes in) and the benefits denied to inmates (what comes out, or rather what often does not come out). The Note then asks why the tax system denies inmates Earned Income Tax Credit (EITC) and Social Security benefits. Traditional tax principles of equity, efficiency, and administrability do not justify the denials. This Note argues that the underlying culprit is that the tax system is being used to levy additional punishment on inmates. This has particularly insidious effects on communities of color given the connections between mass incarceration, poverty, and race.
On June 26, 2023, the Supreme Court granted certiorari in Moore v. United States. With the exception of National Federation of Independent Business v. Sebelius (2012) (which upheld the Affordable Care Act and in the which the question of whether it was indeed a tax case was the key to the decision), it would be difficult to cite a tax case in the last century that can compete with the potential impact of Moore. Petitioners argue that Congress does not have the constitutional authority to tax unrealized gain. A broadly worded decision accepting that argument could invalidate large portions of the Internal Revenue Code, in addition to stymying efforts to impose a wealth tax or a tax on unrealized appreciation.
The familiar story is that the Constitution distinguishes between direct taxes and indirect taxes (although as Profs. Brooks and Gamage point out, the Constitution does not use the term “indirect tax,” instead referring to taxes that are not direct as “duties, imposts, and excises”).
A law school professor hit Northwestern University with an age discrimination suit in Illinois federal court, claiming the institution began giving him smaller raises than his less-experienced colleagues after he declined to retire early.
Philip F. Postlewaite said Tuesday that Northwestern ran afoul of the Age Discrimination in Employment Act and the Illinois Human Rights Act when it handed him smaller salary increases year after year compared to his junior colleagues at Northwestern's Pritzker School of Law. The diminished pay hikes were handed down after he refused to take an early retirement package, according to Postlewaite.
"This has resulted in him earning less in base salary than several substantially younger, far less experienced counterparts," the complaint said.
According to the median base salary information that Defendant published for the 2022-23 academic year, Plaintiff’s base salary was $7,000 below the 50th percentile listed as $289,224 and $55,000 below the 75th percentile listed as $337,256. However, in terms of years of teaching in legal academia for the same group, the 50th percentile is twenty years and the 75th percentile is thirty-two years. Plaintiff has forty-nine years of legal academic teaching experience, forty-two of which have been with Defendant.
Since its introduction in 1913, the federal income tax has viewed income expansively, subjecting virtually all types of enrichment as gross income unless Congress explicitly exempted the income from taxation. But in the income tax’s second decade, the Bureau of Internal Revenue created an exception to the broad reach, an exception not grounded in any type of congressional enactment. The Bureau’s practice of excluding certain benefits began innocuously in the late 1930s by excluding certain social security benefits from gross income. Over the decades, the IRS has used what it now refers to as the “general welfare exclusion” to exclude from gross income everything from subsistence benefits to payments made to preserve historic buildings. Confronted with difficult questions surrounding poverty and ability to pay, the general welfare exclusion has provided a way for the IRS to resolve complex and unanticipated questions about whether certain government welfare benefits constitute gross income.
As interest rates soar and the budget deficit doubles to $2 trillion, the Manhattan Institute’s Brian Riedl has released the 2023 edition of his book of charts examining the federal budget, spending, taxes, and deficits.
The 133-page chart book begins by broadly examining the rising budget deficits and national debt and then dives deeper to show the policies driving the $119 trillion in new deficits projected over the next three decades (and how drastically the picture worsens if interest rates remain elevated). Next, the chart book tallies the costs of common spending and tax proposals and determines whether those costs can be offset by proposed tax increases and defense cuts. The report also provides a full accounting of President Biden’s fiscal record thus far. Finally, it examines trends in tax revenues and tax progressivity, common budget myths, and offers a full accounting of the fiscal records of Presidents Bush, Obama, and Trump.
These charts—most of which rely on publicly available data from the Congressional Budget Office, Office of Management and Budget, Census Bureau, and U.S. Treasury—nevertheless defy conventional wisdom about spending, taxes, and deficits.
Redistribution generates equity benefits and deadweight loss. A canonical result in economic theory holds that policymakers cannot escape the problem of deadweight loss by redistributing through non-tax rules. Nonetheless, the Office of Management and Budget proposed a new draft framework for regulatory analysis in April 2023 that urged federal agencies to consider the equity benefits of redistribution—but not the deadweight loss of redistribution—when choosing which rules to promulgate. By omitting any consideration of deadweight loss, the proposed framework leaves agencies vulnerable to legal attack on the ground that they have ignored an important aspect of regulatory redistribution in their decisionmaking.
The buzz surrounding the Metaverse has been growing steadily for the past couple of years, but the tax implications of this novel ecosystem remain fuzzy to most tax scholars. Such uncertainty is concerning, given the potential and momentum of this emerging technology. Although the Metaverse evolved from online video games focused only on user consumption, it now allows users to produce income and accumulate wealth entirely within the Metaverse. Current law seems to defer taxation of such until a realization or cash-out event. This paper challenges this approach.
This paper offers novel arguments justifying Metaverse taxation. Because economic activity within the Metaverse satisfies the Haig-Simons and Glenshaw Glass definitions of income, its exclusion will create a tax haven. Tax policy can also play an essential role in regulating the virtual economy. Furthermore, this emerging technology allows policymakers to modernize the tax system.
The Center for Taxpayer Rights is pleased to convene this conference on Transforming Tax Administration: Toward an Effective, Trusted & Inclusive IRS. In August 2022, Congress enacted the Inflation Reduction Act (IRA), Public Law 117-169, which provides for $80 billion in funding over a ten year period to enhance Internal Revenue Service (IRS) resources and improve taxpayer compliance. While some of this funding may be reduced in future appropriations bills, there is no doubt that the IRS needs a major investment in cash and expertise to transform itself from a mid-20th century tax administration to one that reflects and meets the needs of today’s taxpayers and the economy they operate in.
Panel 1: The IRS Budget: Exploring IRS Service & Enforcement Categories, and Re-Thinking Measuring Performance
Jon-Yin Chong (Center for Taxpayer Rights)
Michael J. Desmond (Gibson, Dunn & Crutcher; Los Angeles) (moderator)
Two tax regulations that permit U.S. multinational enterprises (MNEs) to use foreign contract manufacturers and to disregard their wholly owned foreign subsidiaries have created significant tax incentives for MNEs to move manufacturing outside the U.S. These tax incentives have contributed to the loss of 5 million manufacturing jobs and the closure of more than 91,000 plants since 1997.
The job losses increased racial and economic inequality and stressed our political system. But the losses arising from offshore manufacturing also extend to other areas. Offshore manufacturing increases U.S. exposure to supply chain disruptions, threatens U.S. national security, and decreases research and development efforts to improve production techniques. Also, as automated manufacturing increases, the use of offshore manufacturing hinders the ability of the U.S. to compete in that sector.
A tradition of excellence. For more than 30 years, The Florida Bar Tax Section has hosted an annual National Tax Moot Court Competition to invite law students from across the country to demonstrate their written brief and oral argument skills. Participation in the competition provides law students with excellent opportunities to sharpen their skills and to network with attorneys from across Florida.
Tax law is scheduled to change significantly at the end of 2025, setting the stage for rigorous policy debates. If policymakers use the opportunity effectively, Congress can both improve tax policy and help to stabilize the fiscal trajectory. That will require maintaining focus on the priorities of raising additional revenue, making the tax system more progressive, and ensuring that tax policy is efficiently aligned with high-level fiscal policy goals.
On Wednesday, September 27, 2023, The Hamilton Project at the Brookings Institution convened leaders and experts to discuss the past and the future of tax policy in the United States. The event featured fireside chat between former Speaker Paul Ryan, Peter Orszag of Lazard, and moderator Catherine Rampell of The Washington Post. The forum also included two discussions featuring Kimberly Clausing (University of California, Los Angeles), Wendy Edelberg (The Hamilton Project), Ben Harris (Brookings), Kyle Pomerleau (American Enterprise Institute), Nirupama Rao (University of Michigan), and Natasha Sarin (Yale University).
The uniquely American approach to providing health insurance through employers is a little-recognized but important driver of increasing labor market inequality, suggests a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 31.
The authors—Amy Finkelstein of the Massachusetts Institute of Technology, Casey McQuillan and Owen Zidar of Princeton University, and Eric Zwick of the University of Chicago—use a stylized model of the labor market to compare the current system, in which about half of Americans are covered by employer-provided health insurance, to a hypothetical system in which health insurance is financed by a payroll tax, similar in spirit to the universal health insurance in countries such as Germany and Canada.
Surviving spouses in community property states enjoy a significant, but unintended, income tax advantage over surviving spouses in other states. The advantage, known as “the double basis step-up,” generally eliminates capital gains for surviving spouses in community property states. This geographic inequality incentivizes inefficient behaviors for legislatures and taxpayers in common law property states seeking to obtain the benefits of the double basis step-up. Furthermore, taxpayer strategies to obtain a double basis step-up exacerbate wealth inequality, as they are most likely to be implemented by individuals with not only the motive but also the wherewithal to obtain sophisticated tax advice.
Beyond the utility of actual “credit,” the most important perk cardholders seek to capitalize on are the rewards that each cardholder’s particular credit card offers. Cardholders look for the most bang for their buck in terms of rewards and points. Ranging from frequent flyer miles to cash back to everything in between, rewards programs have expanded and diversified rapidly over the past several decades, and consumers cannot get enough.
Half of the BEPS 2.0 project stands on the precipice. As Reuven Avi-Yonah argues in a forthcoming article in Tax Notes, the multilateral convention to implement Pillar One is likely to fail. The United States must ratify the convention for it to take effect, and this outcome seems remote, given the United States’ historical behavior and current politics. Moreover, Canada threatens to end the OECD moratorium on digital services taxes (DSTs) in January 2024, and the United States may retaliate. The problem, however, isn’t clearly about DSTs, or trade wars, or Pillar One’s redistributive aims. Instead, as Avi-Yonah and Eran Lempert elaborate in a longer article in the World Tax Journal, the multilateral vehicle itself hinders the adoption of Pillar One.
The IRS is outgunned when trying to ensure compliance by large corporations and other sophisticated taxpayers. The private sector can help. Private sector actors, such as financial institutions, employers, and whistleblowers, have been valuable allies in the IRS’s efforts to improve compliance and enforcement. This Article argues for using another, largely overlooked, private sector party—tax insurers—to expand the IRS’s enforcement abilities. Tax insurers insure sophisticated taxpayers’ uncertain tax positions (e.g., the tax-free treatment of a corporate spinoff or tax credits critical to a renewable energy project). For a premium, a tax insurer agrees to pay any additional taxes owed with interest and penalties (up to the policy limit) if an insured tax position is successfully challenged by a tax authority. The tax insurance industry has grown dramatically since the mid-2010s, but scholars and policymakers pay little attention to its enforcement-enhancing potential.
For practitioners and others contemplating joining the law professor ranks, many law schools offer wonderful opportunities to transition into the legal academy with one- or two-year fellowships which allow you to enter the AALS Faculty Recruitment Conference (the "meat market") with published scholarship (and in most cases teaching experience) under your belt. Below is an updated list of the law schools with fellowship and VAP programs. Please contact me with any corrections or additions.
The Tax Foundation’s State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how well states structure their tax systems and provides a road map for improvement.
All 10 states with the worst business tax climates voted for Joe Biden in 2020, and 8 of the 10 states with the best business tax climates voted for Donald Trump.
Significant controversy has emerged about the scope of the international tax planning of U.S. multinational firms, with estimates of income shifted out of the U.S., profits recognized in tax havens, and revenue loss ballooning over time. Most studies that derive these empirical estimates use macroeconomic data which support inferences drawn at an aggregate level but are not conducive to analyses at more granular levels. In this study, we use microeconomic data from firms’ publicly available financial statements to derive firm-year estimates that we use to evaluate existing aggregate estimates. We find that many estimates based on macroeconomic data are significantly overstated. We also use our firm-year estimates to analyze the distributions of these amounts within the economy. We show that all dimensions of international tax planning are concentrated in three industries and dominated by a small number of very large firms.
In Moore v. United States, the Supreme Court will decide this year whether the Ninth Circuit was right in upholding as constitutional taxes on unrealized capital gains and wealth taxes. Ed Meese, Gary Lawson, and I have written an amicus brief filed by Philip Williamson urging the Supreme Court to overrule the Ninth Circuit on both points. Our brief presents the original public meaning of the Sixteenth Amendment and of the requirement that direct taxes be apportioned among the States. We urge the Supreme Court to ignore bad caselaw and to stick to the original public meaning of the constitutional text.
In this article, Shaheen floats the proposition that from a U.S. tax perspective, the UTPR is the mathematical, conceptual, and legal equivalent of a 100 percent withholding tax on a deemed distribution by the UTPR entity, and he addresses questions that would follow regarding the desirability of such a confiscatory tax and its interaction with tax treaties. ...
Bradford DeLong’s career opus, Slouching Towards Utopia, is a very long — although, in my view, consistently illuminating and entertaining — work of economic history that only very briefly, for a few pages here and there, touches on the history of taxation. Why, then, do I regard it as offering a highly suitable subject for a Jotwell Tax column?
The broader answer to this question is that historical context is vital to understanding tax (like other) institutions and ideas and yet often is ignored, other than by tax historians. The narrower answer, illustrating this broad proposition, pertains to the particular context of the great intellectual shifts that have occurred over the last thirty-plus years, not just in legal academic thinking, including in tax, but in American intellectual and political life more generally.
Slouching Towards Utopia concerns what DeLong calls the “long twentieth century,” which he views as having run from roughly 1870 to 2010. He argues that these 140 years were “the most consequential of all humanity’s centuries” (P. 1), above all because — despite disasters along the way, such as two world wars and the Great Depression — they featured startlingly high rates of annual per capita economic growth. During this period, he estimates that annual growth averaged 2.1 percent per year, as opposed to 0.45 percent over previous centuries (P. 3), and perhaps 0.6 percent in the years since 2010 (P. 516). This rapid growth rate triggered a more than an eightfold increase in world income per capita from the beginning to the end of the “long century” — despite an immense concomitant rate of population increase — transforming everyday life around the world for the (at least materially) better, by reducing dire poverty and allowing luxury goods to be widely available, rather than being limited to people at the top of the income distribution.
In this article, Borden examines several court decisions that have extended section 7503 deadlines to the next business day, and he argues that the same extension applies to the deadlines under section 1031 for like-kind exchanges of property.
The Predicament Every so often, exchangers find themselves in a predicament that raises the question whether the section 1031 45-day identification and 180-day exchange periods can be extended if they fall on a weekend or holiday.
An influential line of thinking in behavioral science, to which the two authors have long subscribed, is that many of society’s most pressing problems can be addressed cheaply and effectively at the level of the individual, without modifying the system in which individuals operate. Along with, we suspect, many colleagues in both academic and policy communities, we now believe this was a mistake. Results from such interventions have been disappointingly modest. But more importantly, they have guided many (though by no means all) behavioral scientists to frame policy problems in individual, not systemic, terms: to adopt what we call the “i-frame,” rather than the “s-frame.” The difference may be more consequential than those who have operated within the i-frame have understood, in deflecting attention and support away from s-frame policies. Indeed, highlighting the i-frame is a long-established objective of corporate opponents of concerted systemic action such as regulation and taxation.
Did Justice Thomas fail to pay a hefty tax bill? Or has he simply failed (again) to comply with his ethical obligations to disclose gifts?
One of the trials of teaching tax law is the need to write a new exam every semester. But sometimes the real world sends you an exam question. In this case, that question comes courtesy of Supreme Court Justice Clarence Thomas and his fancy RV. Or, more precisely, from the loan he received from his friend Anthony Welters to purchase the luxury vehicle. According to the New York Times, Thomas borrowed around $267,000 in 1999. At some point, after Thomas had made some interest payments and perhaps paid down some principal, Welters canceled the debt, according to a new Senate Finance Committee report. (A lawyer for Thomas denied the report, saying that the justice and his wife “made all payments to Mr. Welters on a regular basis until the terms of the agreement were satisfied in full.”) Relying on the report, a number of folks, including members of the committee, have pointed out that the alleged debt forgiveness creates something called cancellation of debt income, and they are wondering whether Thomas reported this income and paid tax on it. If he did, he’s in the clear. But if he didn’t, the question arises: Is Thomas, whose ethical standards and disclosures have come into question following a series of reports on gifts and travel from his various well-heeled friends, also a tax dodger? In this case, the tax and ethical questions are intricately intertwined. ...
Like many of our readers, I am following the Supreme Court case of Moore v. United States. In their piece “From Whatever Source Derived”: The Sixteenth Amendment and Congress’s Income Tax Power, John R. Brooks and David Gamage makes a series of compelling arguments. First, the piece shows that the original understanding of the Sixteenth Amendment allowed for an income tax that included potential taxes on unrealized gains. They unearth new evidence in support of this view. Second, the piece argues that in light of Eisner v. Macomber, the Sixteenth Amendment has three potential views on “taxes on income”: “(1) the realization-based conception, (2) the presumptive-measurement conception, and (3) the economic-gains conception.” They show that under almost any conception, except for the economic-gains conception, a wealth tax could arise. Instead, the main result of the realization-based conception that the Moore petitioners advocate is to introduce chaos.
Over the past twenty-five years, Congress has enacted several major reforms for employer-sponsored retirement plans and individual retirement accounts (“IRAs”), always with large bipartisan, bicameral majorities. In each case, legislators have claimed that the reforms would improve retirement security for millions of Americans, especially rank-and-file workers. But the supposed interest in helping lower-income and middle-income earners has been a stalking horse for the real objective of expanding the tax subsidies available to higher-income earners.
In response to the Joint Committee on Taxation’s July 2023 request for comments on application of various Internal Revenue Code sections on digital assets, we propose a consistent set of rules to apply current law to digital assets. We highlight that the underlying economics and characteristics of transactions should be the primary concern for the application of rules and the valuation of digital assets. We believe any digital asset rules should (1) treat classes of digital assets with unique characteristics differently based on their economics, (2) minimize incentives for users to engage in tax-motivated structuring of transactions, and (3) allow the Internal Revenue Service authority to react to and regulate new classes of digital assets as they are created.
This week, an “unusual alliance” filed briefs in support of the government in Moore v. United States. [The NYU Tax Law Center and professors Ari Glogower (Northwestern), David Kamin (NYU), Rebecca Kysar (Fordham), and Darien Shanske (UC-Davis)]. ...
To help interested readers to navigate the case, the Tax Law Center has committed to compile and summarize all amicus briefs filed in Moore (regardless of which party they support), accessible here.
In recent decades, market power has increased substantially, according to multiple measures that describe industry concentration, mark-ups, and business profitability. While market power can generate benefits, it also raises vexing policy concerns, including the potential for adverse effects on labor markets, income inequality, and the dynamism of market competition. The concept of market power also has implications for how we conceptualize capital income, making it important to distinguish between normal and above-normal returns to capital. The tax system taxes both types of returns to capital, but often imperfectly and incompletely. Full consideration of the relationship between market power and capital income suggests important implications for optimal capital taxation design, including the role of entity taxation, the use of graduated business tax rates, and international tax reform.
In Republican and Democratic administrations, regulatory and funding decisions have both been made with close reference to benefit-cost analysis (BCA). With respect to regulation, there has been a great deal of scholarly discussion of BCA and its limits, but almost no attention has been paid to the role of BCA in government funding. That is a serious gap, not least in connection with climate-related risks, such as wildfire, drought, extreme heat, and flooding. In OMB Circular A-94, the Office of Management and Budget has long required applicants for federal funding to demonstrate that the benefits of their projects would exceed the costs. Under Circular A-94, efficiency-based BCA can produce results that fail to maximize welfare and that are also highly inequitable.
The upcoming Supreme Court case of Moore v. United States raises questions that the Court has rarely had to address in the last 100 years—what is the meaning of the Sixteenth Amendment and Congress’s income tax power? Does that power only extend to realized income? And what does "realization" mean? The taxpayers in Moore (and the Ninth Circuit judges who dissented from the denial of rehearing en banc) argue that realization is necessarily a part of the meaning of “income” in the Sixteenth Amendment—i.e., that there must be some act of separation or conversion of property into cash or other property in order for there to be “income.” They are, in essence, aiming to revive a disputed reading of the discredited 1920 case of Eisner v. Macomber.