TaxProf Blog

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Hemel's The State-Charity Disparity Under The 2017 Tax Law

This week, Mirit Eyal-Cohen (Alabama) reviews Daniel Hemel (Chicago), The State-Charity Disparity Under the 2017 Tax Law, 58 Wash. U. J.L. & Pol'y ___ (2019).

This Article is especially timely in light of continuous efforts by states (recently by Connecticut, New Jersey, New York, and Oregon) to create state tax credits for charitable contributions to public education or public health. These tax credits reduce the state tax liability for Federal purposes and might be helpful in alleviating the effect of the new cap on individual state and local tax (“SALT”) deductions imposed by the Tax Cuts and Jobs Act of 2017 (and was also part of the 2016 Clinton tax proposal). While the IRS has allowed in the past such charitable contributions as deductible for Federal purposes, Treasury recently proposed regulation to reverse this trend requiring taxpayers to decrease their charitable contribution deduction by the value of SALT benefits received for their contribution, with a “de minimis” rule ignoring state tax benefits worth less than 15% of the donation.

Hemel makes a case against the disparity in the limitations on charitable contributions (up to 60% of AGI) compared to those placed on SALT payments ($10,000 cap a year).  He provides several justifications for removing such differential tax treatment. First, he points out to the fact that both public charities and state and local governments are primarily in the business of providing education, health, and social services. But more so, in Hemel’s eyes, the fundamental reasons for supporting charities such as promoting pluralism, creating positive externalities, and delivering specified knowledge, are equally if not more present in the case of state and local government organizations. SALT can be seen as simply the price of goods and services that state and local governments provide. Accordingly, from a measurement-of-income perspective, Hemel suggests that SALT should represent costs of services only up to a point, after which they constitute a reduction in consumption plus savings. Indeed, today this is encompassed somewhat in the Standard Deduction and will continue to do so with its exponential recent increase in 2018. Taking Hemel’s implicit analogy a step forward could be providing a differentiated Standard Deduction at the Federal level, adjusted for each state for its value worth of services. Ignoring issues of valuation and political brawl, this could be an efficient way to coordinate more equitably the services (measured via local taxes) of each state to their Federal deductibility. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Expanded Worldwide Versus Territorial Taxation After The TCJA

This week, David Elkins (Netanya) reviews a new work by J. Clifton Fleming (BYU), Robert J. Peroni (Texas) & Stephen E. Shay (Harvard), Expanded Worldwide Versus Territorial Taxation after the TCJA, 161 Tax Notes 1173 (Dec. 3, 2018).

Like individuals who are citizens or residents of the United States, domestic corporations must report and pay U.S. tax on their worldwide income. However, exposure to U.S. worldwide taxation has always been more theoretical than real. Because under the Code corporate residence is determined almost exclusively by place of incorporation, avoiding U.S. tax on foreign-source earnings usually requires nothing more than operating abroad via a subsidiary registered in a foreign jurisdiction. As a foreign corporation, the subsidiary is liable for U.S. tax only on its U.S.-source income. This arrangement does not allow domestic corporations to completely escape tax on their foreign-source earnings. When the foreign subsidiary distributes its earnings to its domestic parent or when the domestic parent sells shares in the foreign subsidiary, the gain is in principle subject to U.S. tax. Thus, prior to the enactment of the 2017 Tax Cuts and Jobs Act (TCJA), the U.S. international corporate tax regime was in practice one of deferral.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Shay's U.S. International Tax Reform

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. 

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Azam & Mazur's Cloudy With A Chance Of Taxation

This week, Hayes Holderness (Richmond) reviews Rifat Azam (Radzyner) & Orly Mazur (SMU), Cloudy with a Chance of Taxation, 21 Fla. Tax Rev. ___ (2018):

The growth of cloud computing is one of the most significant commercial developments facing modern consumption tax regimes. The growth is significant in part for the problem it presents: tax regimes designed for the consumption of goods and services transferred in a physical world struggle to adapt to virtual transactions. Often the analysis of this problem has focused on the what and the where of cloud computing. Tax authorities often have difficulty characterizing cloud computing offerings as either goods or services, and that characterization can drive tax consequences. Additionally, given the virtual nature of cloud computing, it can be difficult to figure out where the consumption takes place (or even where the offering originates from) and thus who has the right to impose tax; how many places have you accessed Spotify from?

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Erbsen's The Constitutional Connection Between State Tax Authority And Personal Jurisdiction

This week, Michelle Layser (Illinois) reviews Allan Erbsen (Minnesota), Wayfair Undermines Nicastro: The Constitutional Connection Between State Tax Authority and Personal Jurisdiction, 128 Yale L.J.F. __ (2019).

With the holiday season in full swing, most people tax professors have spent at least some time shopping on the internet and contemplating the impact of South Dakota v. Wayfair. By now, we’re all well versed in the basics. Wayfair is a milestone tax law case that sets forth a new interpretation of the Commerce Clause that permits states to enforce sales and use tax collection obligations against out-of-state online merchants. Right? Well, sort of.

According to Professor Allan Erbsen, labels like “tax law case” aren’t particularly helpful, and the doctrinal impact of Wayfair may extend well beyond the territorial borders of tax law—or even Commerce Clause jurisprudence. Erbsen argues that Wayfair’s Commerce Clause holding justifies reconsideration of the Court’s 2011 decision in J. McIntyre Machinery v. Nicastro, a Due Process case that had nothing to do with tax.

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Weekly SSRN Tax Article Review And Roundup: Kim Reviews Morse's International Cooperation And The 2017 Tax Act

This week, Young Ran (Christine) Kim (Utah) reviews a new work by Susan Morse (Texas), International Cooperation and the 2017 Tax Act, 128 Yale L.J. F. 362 (2018).

Among all the topics addressed in the 2017 Tax Cuts and Jobs Act (the “TCJA”), provisions regarding international tax law might be the most challenging provisions for non-experts. For those who simply expected that the worldwide tax system would be converted to the territorial tax system, the provisions introduced by the TCJA must have been somewhat puzzling, especially because the discussion after the reform has been focused more on a few more new acronyms that might not even be relevant to the territorial tax system. Susan Morse's new article, International Cooperation and the 2017 Tax Act, is an excellent guide that assists readers in understanding the important international tax provisions in the TCJA and the rationale behind the provisions. One of the great things about the article is that it explains the new rules against the backdrop of the ongoing dynamics in international tax policy — that is, the interplay between competitiveness and cooperation among the players. 

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Oei & Ring's Tax Law’s Workplace Shift

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Shu-Yi Oei (Boston College) and Diane M. Ring (Boston College), Tax Law’s Workplace Shift.

Practically speaking, the new § 199A goes live this coming filing season, when taxpayers witness the effect of the supersized pass-through business deduction.  Tax experts predict all manner of distortion and gaming.  In particular, many worry that the provision creates strong incentives for workers to shift from employee to independent contractor status.  For some, this means abandoning crucial worker protections and increasing employment instability; for others, it may simply be tax gaming. 

In response to this concern, Shu-Yi Oei and Diane Ring offer a measured analysis of § 199A’s likely impact on worker classification. The authors avoid brash forecasting and instead consider various factors that affect the likelihood of such a shift, including incentives and guardrails built into § 199A, protections existing under the labor law, and current employment trends. In addition to quelling the direst doomsday predictions, the article provides a useful normative framework for those assessing outcomes under the new law.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Estreicher & Wallace's Equitable Health Savings Accounts

This week, Mirit Eyal-Cohen (Alabama) reviews Samuel Estreicher (NYU) & Clint Wallace (South Caroline), Equitable Health Savings Accounts, 55 Harv. J. on Leg. ___ (2019):

In light of recent reform debates, this Article timely provides a detailed analysis of Health Savings Accounts (HSAs). HSAs are designed to help control health costs while promoting the “patient-as-consumer model” and allowing taxpayers to select their desired healthcare provider.  Today, taxpayers enrolled in high-deductible health insurance plans receive “an above-the-line” tax deduction for contributions made to HSAs. These contributions are also deductible from the Federal Insurance Contributions Act (“FICA”) tax base and are not subject to Social Security and Medicare taxes (such deduction for FICA purposes is not available for 401(k) or IRA contributions). Generally speaking, high-deductible plans put patients’ personal funds at stake for ordinary healthcare costs, thus, increase the price sensitivity for healthcare services much more than in non-high-deductible plans with flat co-payments. The HSA funds can be utilized for any “qualifying medical expenses” including prescription drugs, doctors’ visits, and various procedures but excluding payments for medical insurance and over-the-counter medications. Any gains derived from investments made to HSAs are exempt from income tax if those funds are used to cover medical expenses. Funds in HSAs can be carried over from year to year, even if the taxpayer decides to switch to a plan that is not a high-deductible health plan. HSA withdrawals for non-healthcare spending are subject to income tax and an additional excise tax of 20%. The HSA model rests on the notion that by making patients price-aware and giving them greater control over their health spending, HSAs allow market forces to improve pricing and the healthcare delivery system as a whole.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews The Global Battle to Capture MNE Profits By Bankman, Kane & Sykes

This week, David Elkins (Netanya) reviews a new paper by Joseph Bankman (Stanford), Mitchell Kane (NYU) & Alan Sykes (Stanford), Collecting the Rent: The Global Battle to Capture MNE Profits, 72 Tax L. Rev. __ (2019): 

This article focuses on the concept of economic rent within the context of the taxation and regulation of multinational enterprises (MNEs). Rent is the income above and beyond what is necessary in order to induce an individual or firm to engage in any particular economic activity. For marginal producers, the rent will be zero. Infra-marginal producers will recognize varying degrees of rent. One consequence of the concept of economic rent is that a tax or regulatory scheme that extracts some or even all of that rent will not likely affect a firm’s behavior. In contrast, a tax or regulatory scheme that extracts more than rent will likely induce a change in behavior.

In describing rent, the authors distinguish between true economic rent and quasi-rent. Assume that there is a firm that has already incurred a large economic outlay in order to establish a production line, develop intellectual property and so forth. The difference between its income and its current costs is quasi-rent. However, to determine its true economic rent, we would also need to factor in its initial economic outlay. The difference is significant because a tax or regulatory scheme that extracts quasi-rents may not change the firm’s immediate behavior, but will affect future investment. Therefore, taxing quasi-rents is not sustainable on a long-time basis.

 

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Shaheen's Income Tax Treaty Aspects Of Nonincome Taxes

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.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Kahn's GoTaxMe — Crowdfunding And Gifts

This week, Hayes Holderness (Richmond) reviews Jeffrey H. Kahn (Florida State), GoTaxMe: Crowdfunding and Gifts, 22 Fla. Tax Rev. ___ (2019).

What is a “gift”? Webster’s Dictionary defines “gift” as “something voluntarily transferred by one person to another without compensation” (I kid, I kid). In GoTaxMe: Crowdfunding and Gifts, Professor Jeffrey Kahn challenges the reader to define “gift” for federal income tax purposes in a more robust fashion than simply as transfers made with detached and disinterested generosity. Anyone who has taken a basic federal income tax class knows that § 102 excludes gifts from gross income but fails to define what gifts are. The Supreme Court filled this gap with the Duberstein “detached and disinterested generosity” standard, noting that in determining whether any particular transfer is a gift, “the most critical consideration . . . is the transferor’s ‘intention.’” Professor Kahn uses the example of the (currently) $448,162 donated by 11,709 people to former FBI agent Peter Strzok through the crowdfunding site GoFundMe.com to argue that the Duberstein standard’s focus on the transferor’s intention fails at the edges.

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Weekly SSRN Tax Article Review And Roundup: Layser Reviews Medical Necessity — A Higher Hurdle for Marginalized Taxpayers?

This week, Michelle Layser (Illinois) reviews Julie Furr Youngman (Washington & Lee) & Courtney D. Hauck (J.D. 2021, Columbia), Medical Necessity: A Higher Hurdle for Marginalized Taxpayers?, 51 Loy. L.A. L. Rev. ___ (2018).

Many recent advancements in transgender rights have been followed by setbacks. Obama era rules that protected transgender patients from discrimination have been rolled back, and just last week the Trump administration announced plans to define gender for federal civil rights laws as biological, immutable and determined at birth. Now a new article by Julie Furr Youngman and Courtney Hauck warns that a 2010 U.S. Tax Court case that upheld the medical expense deduction for gender affirmation surgery may come back to haunt the transgender community if its dicta is interpreted as requiring proof of medical necessity. (Note: For definitions and terms preferred by the transgender community, please see the National Center for Transgender Equality.)

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Schön's Taxation And Democracy

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by Wolfgang Schön (Max Planck), Taxation and Democracy, 72 Tax L. Rev. ___ (2019).

Wolfgang Schön’s latest article raises a question both timely and eternal—what principles justify taxation of a minority group under majority rule?  Schön starts from the premise that taxation is rendered legitimate by the democratic process.  However, although democracy may transform taxes into voluntary transfers at the aggregate level, it cannot do so at the individual level.  Thus, nations need constitutional protections in order to safeguard the rights of the individual or the minority against the collective majority.  For modern nation states, the question of appropriate protection is particularly germane to the taxation of resident aliens, a problem that Schön adeptly tackles.    

Schön distills taxpayer protections into a dyadic framework, with safeguards being based on either “consent” or “content.” 

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Schmalbeck & Zelenak's The NCAA And The IRS

This week, Mirit Eyal-Cohen (Alabama) reviews Richard Schmalbeck (Duke) & Lawrence Zelenak (Duke), The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax, 91 S. Cal. L. Rev. ___ (2018).

This Article is right down my alley. Athletics pretty much dominates my household of four boys (five, if you count my husband) that eat, sleep, and breathe all types of sports. Also, living in Tuscaloosa, AL, home of the Crimson Tide NCAA Champion leaves a mark. Bama’s beloved coach Nick Saban is often the subject of many discussions in my tax classes. So when I find something that interconnects both business (tax) and pleasure (sports), such as this Article, I grab the opportunity with both hands.

This Article offers a detailed account of the history and current status of the intersection between federal tax laws and college sports. The authors begin by stating that for many decades, college athletics enjoyed preferential tax treatment due to either the IRS’s lack of enforcement or direct tax benefits provided by Congress to college sports. This status quo was maintained until last year with the enactment of the Tax Cuts and Jobs Act of 2017 (“The 2017 Act”) that increased the tax burden on college athletics in several aspects. The authors seem optimistic about this change, yet recognize, that no similar signs of transformation have yet been observed from the IRS that has continued its lax enforcement policy regarding college sports.

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Brunson's Paying for Gun Violence

This week, David Elkins (Netanya) reviews a new paper by Samuel D. Brunson (Loyola-Chicago), Paying for Gun Violence.

In Paying for Gun Violence, Professor Samuel Brunson notes that that although gun violence costs the United States many billions dollars annually, political and Constitutional restraints continue to prevent effective gun regulation. Against this background, he proposes a Pigouvian tax on guns, with the goal of forcing gun owners to internalize those costs. Under his proposal, the purchase of a firearm would be subject to an excise tax and the possession of a firearm would be subject to a property tax. He argues that while such a tax would not be barred by the second amendment, a federal property tax on guns would run afoul of the requirement that direct taxes be apportioned among the states in proportion to their populations. Therefore, he suggests that the tax be imposed not on the federal level but on the state level. He writes that while the tax is unlikely to result in any significant reduction of gun ownership, it will at least make society whole by compensating it for the damage cause by gun violence.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Cauble's Taxing Selling Partners

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.

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Weekly SSRN Tax Article Review And Roundup: Holderness Reviews Zelinsky's Dormant Commerce Clause Lessons From Wayfair And Wynne

This week, Hayes Holderness (Richmond) reviews Edward A. Zelinsky (Cardozo), Comparing Wayfair to Wynne: Lessons for the Future of the Dormant Commerce Clause,  22 Chap. L. Rev. ___ (2019).

South Dakota v. Wayfair captivated the state and local tax (“SALT”) world this past summer, as the Supreme Court abandoned the dormant Commerce Clause’s (“DCC”) decades-old physical presence rule for sales and use tax collection obligations. The 5-4 decision contained seemingly odd bedfellows: Justice Ginsburg joined Justices Alito, Gorsuch, Thomas, and Kennedy in the majority, and Chief Justice Roberts corralled Justices Sotomayor, Kagan, and Breyer into his dissent. But DCC jurisprudence is an odd area of SALT doctrine, and Professor Edward Zelinsky tactfully sorts the views of the various Justices in his essay, exposing the major fault lines between their various views. With this sorting, Zelinsky is able to answer whether Wayfair’s abandonment of the physical presence rule is unique or whether it foreshadows danger for other parts of the SALT DCC jurisprudence. Spoiler alert: the DCC is not going anywhere fast.

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Shakow's Taxing Entities That Live On A Blockchain

This week, Ariel Jurow Kleiman (San Diego) reviews a new work by David J. Shakow (Penn), The Tao of The DAO: Taxing an Entity that Lives on a Blockchain, 160 Tax Notes 929 (Aug. 13, 2018).

Much as governments have struggled for centuries to harness income flows transcending national borders, today governments face the novel challenge of taxing income flows that transcend the boundaries of the tangible world.  Specifically, blockchain technology has enabled cyberspace-based financial arrangements that trigger seemingly endless tax and regulatory quandaries. (See, e.g., here and here.)  David Shakow tackles one such quandary in his recent Tax Notes article, considering the tax treatment of income earned through a blockchain entity known as a decentralized autonomous organization (DAO).

Shakow’s article begins with a mercifully clear explanation of the formation, structure, and eventual demise of a specific DAO, called “The DAO.”  Formed in 2016 on the Ethereum blockchain platform, The DAO collected $150 million to invest in startup enterprises.  Under The DAO’s terms, anonymous investors would vote on which enterprises to invest in and would share in the profits.  All transactions occurred without the need for human involvement via the operation of “smart contracts” recorded in the Ethereum blockchain.  Human interveners were only necessary to confirm the identities of startup companies that submitted proposals for investment by The DAO.

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Weekly SSRN Tax Review And Roundup: Mazur Reviews Lederman's Does Enforcement Reduce Voluntary Tax Compliance?

This week, Orly Mazur (SMU) reviews a new work by Leandra Lederman (Indiana), Does Enforcement Reduce Voluntary Tax Compliance?, 2018 BYU L. Rev. ___ (2018).

Does tax enforcement reduce voluntary tax compliance by taxpayers? The answer to this question can have significant implications for tax compliance efforts by the IRS and other tax administrations. Recently, a number of scholars have argued that the answer to this question is yes – that tax enforcement and deterrence negatively affect tax compliance by “crowding out” preexisting intrinsic motivations to comply with the tax laws. However, Leandra Lederman’s new work provides compelling evidence to the contrary. Relying on empirical literature, Lederman’s article challenges this assertion and concludes that tax enforcement does not reduce voluntary tax compliance. In fact, enforcement generally fosters tax compliance.

The work begins by explaining the crowding-out theory and its potential application in several non-tax contexts. Although some existing literature predicts that rewards or punishment can, in some cases, reduce intrinsic motivation to engage in a desired behavior, Lederman determines that it is hard to draw firm conclusions from existing studies and, ultimately, these results are not directly helpful in answering the question of whether enforcement reduces voluntary compliance in the tax context.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Black's Section 511, Innovation, And Jobs

This week, Mirit Eyal-Cohen (Alabama) reviews Steve Black (Texas Tech), Do You Want Innovation and Jobs? Repeal § 511, 57 Washburn L.J. 431 (2018).

This essay begins with a provocative title. In the name of innovation and job growth, the author advocates for the elimination of tax on unrelated business income (UBIT) imposed under § 511. UBIT is essentially tax on income of an exempt organization that if the organization is involved in the trade or business that is not substantially related to its exempt purpose.

The author provides helpful history on the passage of UBIT noting that in the past many universities were engaged in commercial activities while still pursuing their charitable purposes. In the late 1940s, educational institutions were involved in fields like banking, real estate, and mainstream commerce. They invested in enterprises such as department stores, factories, and real estate holdings. They owned citrus groves, movies theatres, and cattle ranches. For example, Mueller Macaroni Company, a pasta business that was donated to NYU, created “macaroni profits” that went untaxed by the University. Yet, soon after competitors and pasta rivals (the “macaroni monopoly”) uproared against unfair competition portraying nonprofits as having an unfair advantage with those entities that paid their full share of tax. 

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Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Shaviro's The New Non-Territorial U.S. International Tax System

This week, David Elkins (Netanya) reviews two new papers by Daniel N. Shaviro (NYU), The New Non-Territorial U.S. International Tax System, Part 1, 160 Tax Notes 57 (July 2, 2018); and The New Non-Territorial U.S. International Tax System, Part 2, 160 Tax Notes 171 (July 9, 2018).

Commentators discuss two different models of international tax regimes. Under a worldwide system, residents are taxed on their foreign-source income and receive a credit for any foreign income taxes paid. Under a territorial system, foreign-source income is exempted and foreign taxes are ignored. Regimes that contain elements of a worldwide regime along with elements of a territorial regime are often described as hybrid systems. It has been claimed that the Tax Cuts and Jobs Act (TCJA) moved the United States from a worldwide system to a territorial system and thereby aligned the U.S. tax regime with that of its major trading partners. 

In a two-part report on the international tax aspects of TCJA, Professor Daniel Shaviro argues that not only is this before-and-after description of U.S. tax regime inaccurate but also that the categories themselves are analytically useless.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Haneman's The Home Mortgage Interest Deduction

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.

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Weekly SSRN Tax Article Review And Roundup: Kleiman Reviews Weisbord's Postmortem Austerity And Entitlement Reform

This week, Ariel Jurow Kleiman (San Diego) reviews a new essay by Reid K. Weisbord (Rutgers), Postmortem Austerity and Entitlement Reform, 71 Stan. L. Rev. Online 132 (2018).

As readers know well, Social Security and Medicare are on a path to eventual insolvency, and entitlement reform is inevitable. For the most part, reform proposals tend to exist within the familiar bounds of tax hikes or benefit cuts. In his new essay on the topic, Reid K. Weisbord offers a bold reform proposal that includes elements of both, but is somehow not exactly either.  

Weisbord starts by dismissing the possibility of a broad-based tax increase to fund entitlements. A tax increase is unlikely in the near future, he argues, because history has witnessed a long-term trend of steadily declining tax rates in the United States. In addition, he notes, U.S. citizens are tax averse, often failing to recognize the connection between tax payments and valued public services. Under such conditions, cutting benefits may be politically more palatable than raising taxes. However, cutting benefits harms individuals who relied on Social Security and Medicare in planning for old age. To solve this dilemma, Weisbord proposes a novel policy of “postmortem austerity.” 

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Weekly SSRN Tax Review And Roundup: Mazur Reviews Ordower's Taxing Others In The Age Of Trump

This week, Orly Mazur (SMU) reviews a new article by Henry Ordower (Saint Louis), Taxing Others in the Age of Trump: Foreigners (and the Politically Weak) as Tax Subjects, 62 St. Louis U. L.J. 157 (2018).

Throughout the Trump administration, we have witnessed significant tax cuts with additional potential tax cuts currently being considered. Given this anti-tax political climate, how can the government collect additional revenues to fund spending programs? Henry Ordower’s timely new work considers one way that this may be done by this administration: by imposing U.S. taxes either directly or incidentally on foreigners and other politically weak groups.

To demonstrate potential taxes imposed on foreign interests, the article first explores methods that this administration may use to tax foreigners, including the use of direct taxes and tributes, imposing tariffs or using border adjustments, and restricting investment incentives. However, as Ordower correctly notes, many of these methods of taxing foreigners would be difficult to enforce and are impractical. Even measures such as tariffs and renegotiating treaties to increase withholding taxes and modify other, existing investment incentives, are unadvisable given that they potentially also adversely affect U.S. interests. Ordower’s view is supported by many economists, who have criticized the tariffs recently announced by President Trump as hurting domestic interests by raising prices on consumers, destroying American jobs, and undermining global trade.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Borden's Effective Tax Rates And Choice-Of-Entity Considerations Under The 2017 Tax Act

This week, Mirit Eyal-Cohen (Alabama) reviews Bradley T. Borden (Brooklyn), Income-Based Effective Tax Rates and Choice-of-Entity Considerations Under the 2017 Tax Act (July 2018).

How does the Tax Cuts and Jobs Act of 2017 (TCJA) affect small business owners? According to Borden, the new corporate tax rate and new deduction for qualified business income in the TCJA greatly complicates the choice-of-entity landscape. Prior to the TCJA, businessmen could choose between corporations and hybrid passthrough entities that combined the benefits of limited liability and one level tax. Marginal corporate income tax rates were close to those of individuals, but the taxation of dividends increased the effective corporate tax rates higher than the individual rate across all income levels. Thus, for the majority of small businesses the ideal choice-of-entity was the passthrough structure. Yet, Borden claims that the TCJA nullifies this general rule by muddling choice-of entity considerations for small businesses and entails more tax planning in order to get the most favorable effective tax rates. Post-TCJA, choice-of-entity decisions will be more nuanced, on a case-by-case basis, and preferences will likely be highly situational. 

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Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Oei & Osofsky's Constituencies And Control In Statutory Drafting

This week, Ari Glogower (Ohio State) reviews a new work by by Shu-Yi Oei (Boston College) and Leigh Osofsky (North Carolina), Constituencies and Control in Statutory Drafting: Interviews with Government Tax Counsels, 104 Iowa L. Rev. __ (2019).

How do stylistic drafting choices affect the administration and substance of the tax law? One might suppose that mere questions of style do not matter at all, as long as the provisions operate as intended. Shu-Yi Oei and Leigh Osofsky’s new work challenges this assumption, and sheds new light on the implications of these stylistic choices for the tax system. When it comes to drafting of tax statutes, it turns out, form may in fact matter.

The work begins by reviewing the process for the production of tax statutes, and the role of various cooks in the tax law kitchen, including House and Senate members, their legislative counsel, the House Committee on Ways and Means, the Senate Committee on Finance, the IRS and Treasury, the JCT, and outside interest groups and lobbyists. The work then provides a topography of the basic drafting choices these different actors face. 

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Christians's Introduction to Tax Policy Theory

This week, Sloan Speck (Colorado) reviews a new work by Allison Christians (McGill), Introduction to Tax Policy Theory (2018).

In Introduction to Tax Policy Theory, Allison Christians fulfils the Herculean task set forth in her title with deft grace and critical perspective. Christians’s short paper first elucidates three general goals of taxation from the taxing authority’s perspective, which she describes as state-building, internal management, and negotiated expansion. Then, Christians juxtaposes these goals with three metrics well-known among tax policy aficionados: equity, efficiency, and administrative capacity (which easily could be “simplicity”). Out of this analysis, Christians calls for the tax policy community to think and reflect on fundamental questions of approach and methodology—and to acknowledge the “discrepancies and weaknesses” in conventional approaches to tax policy.

Christians’s taxonomy of the goals of taxation is a major contribution, although certain to engender disagreement. Some dissention is inevitable when parsing all of human experience into three bins, each labeled with two words, and Christians presents her “imperfect” but “adequate” categories as poles, or touchstones, rather than as discrete silos.

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Weekly SSRN Tax Article Review And Roundup: Stevenson Reviews Satterthwaite's Entrepreneurs’ Legal Status Choices And The C Corporation Survival Penalty

This week, Ariel Jurow Stevenson (NYU; moving to San Diego) reviews a new work by Emily Satterthwaite (Toronto), Entrepreneurs’ Legal Status Choices and the C Corporation Survival Penalty (2018).

The persistent popularity of the C corporation among closely-held firms is a puzzle. C corporations combine an inflexible governance structure with unnecessary tax cost, imposing a double tax on owners and trapping losses within the entity. Despite these costs and the availability of flexible pass-through forms, the C corporation remains inexplicably common among new firms.

In her recent article, Emily Satterthwaite explores this puzzle by parsing panel data from the Kauffman Firm Survey, which administered in-depth questionnaires to several thousand new businesses from 2004-2011. Her article asks two primary questions. First, given potentially higher entity costs, what is the relationship between the C corporate form and firm survival rate? Second, what types of entrepreneurs choose to form C corporations in spite of their potentially higher costs? The Kauffman survey’s breadth allows Satterthwaite to control for owner demographics, industry, financing source, state fixed effects and other exogenous and endogenous variables that might bias the models’ conclusions. The result is a well-defined, rigorous, and cautious argument.

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Weekly SSRN Tax Article Review And Roundup: Mazur Reviews Aprill's Section 501(c)(4) Social Welfare Organizations

This week, Orly Mazur (SMU) reviews a new work by Ellen P. Aprill (Loyola-L.A.), Examining the Landscape of Section 501(c)(4) Social Welfare Organizations, 21 N.Y.U. J. Legis. & Pub. Pol'y ___ (2018).

In recent years, there has been a lot of controversy regarding the use of organizations exempt from taxation under section 501(c)(4) of the Internal Revenue Code for political campaigning activities. In her new work, Ellen Aprill takes a broader look at the role and impact of section 501(c)(4) organizations on our tax system and suggests some necessary reforms to strengthen the benefits of that role and minimize any negative impacts.

Aprill begins the article by explaining the requirements to qualify as a tax-exempt section 501(c)(4) “social welfare” organization and the ambiguities that exist in making this determination. She goes on to thoroughly explain the legislative history of the provision, the various additional requirements that have developed over time, and the types of entities that choose to operate in this form. This part of the paper is especially helpful for those of us familiar with 501(c)(3) charitable organizations, but less familiar with 501(c)(4) organizations. It also plays an important part in demonstrating that, contrary to the public media’s portrayal of 501(c)(4) organizations, these organizations engage in many activities beyond political activities, such as community service clubs, volunteer fire departments, and hospital chains. Any reform proposal should also take these other activities into account.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Mason's The Tax Subsidy War

This week, Mirit Eyal-Cohen (Alabama) reviews a new article by Ruth Mason (Virgina), The Tax Subsidy War (June 2018). 

In her article, Mason discusses European anti-subsidy rules in an era of large-scale tax avoidance by multinationals. This Article is especially timely in light of the recent announcements of the European Commission (EC), the European Union’s (EU) executive body, requiring EU Members States to recover amounts of tax subsidies they provided multinational conglomerates such as Apple, Amazon, Chrislaer-Fiat, Starbucks, and others. In the case of Apple, the EC ordered Ireland to collect from Apple the largest tax deficiency in world history — $14.5 billion (plus interest). Under Europe’s state-aid rules, Member States are prevented from distorting private competition by granting exclusive subsidies to particular firms. The EC concluded that Ireland colluded with, and illegally subsidized, Apple by issuing confidential administrative rulings that significantly relieved Apple from Irish tax. These EC decisions involving U.S. multinationals created much turmoil. U.S. Treasury Department issued a white paper stating that such recoveries would violate tax treaties between the United States and EU Member States. Members of Congress proposed waging a “tax war” urging Treasury to consider imposing retaliatory taxes on the EU. In an unprecedented move, the United States sought to intervene in the upcoming Apple appeal, but the EU courts held that it lacked standing. 

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Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Kysar's Tax Law And The Eroding Budget Process

This week, Ari Glogower (Ohio State) reviews a new work by Rebecca Kysar (Brooklyn, moving to Fordham), Tax Law and the Eroding Budget Process, 81 Law & Contemp. Probs. 61 (2018).

Rebecca Kysar’s new work describes the evolution of the budget process and its effect upon tax policy, through a detailed study of the process leading to the 2017 tax legislation. At the same time, the work also describes how political pressures are changing the budget process and eroding longstanding norms.

The work begins with a brief history of the reconciliation process since its inception in the Congressional Budget Act of 1974. In this account reconciliation—which allows the Senate to pass legislation conforming to budget instructions with a simple majority—was originally intended as a way to assist Congress in reducing deficits and balancing the budget. The process was soon expanded, however, as a way to sidestep the filibuster for a broader range of legislation and social policy. To curb this trend, the Byrd Rule was adopted in the 1980s, which limited the ability of Congress to use reconciliation for legislation that is extraneous to the budget or that increased deficits beyond the specified budget window.

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Konrad's The Market For Corporate Tax Avoidance Advice

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.

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Weekly SSRN Tax Article Review And Roundup: Stevenson Reviews Brooks' The Case For Increasing Student Loan Debt

This week, Ariel Jurow Stevenson (NYU; moving to San Diego) reviews a new work by John R. Brooks (Georgetown), The Case for More Debt: Expanding College Affordability by Expanding Income-Driven Repayment, 2018 Utah L. Rev. ___:

Commentators routinely excoriate student debt for a litany of social ills, such as worsening financial instability and inequality and causing debtors to delay important activities such as marriage, having children, and saving for retirement.  Given such damning accusations, constructing a humane, pro-student argument for expanding student debt may seem a daunting task.  However, John Brooks artfully manages to do just that in his recent essay, The Case for More Debt.  In it he provides a winning argument that more debt, not less, would improve education outcomes and offer needed support to low- and middle-income students.

Brooks focuses on federally-financed student loans that are eligible for income-driven repayment (IDR) programs.  To lay the foundation for his argument, he deftly summarizes the various IDR program structures—each with its own acronym and set of complex lending terms.  Although each program is slightly different, they share several essential features, including that 1) the borrower need only repay a fixed percentage of discretionary income, and 2) after a certain number of years the unpaid portion is fully forgiven.  Taken together, Brooks reasons, these attributes of IDR transform such borrowing from true debt into something more akin to a tax. 

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Weekly SSRN Tax Article Review And Roundup: Mazur Reviews Ring's Silos And First Movers In The Sharing Economy

This week, Orly Mazur (SMU) reviews a new work by Diane M. Ring (Boston College), Silos and First Movers in the Sharing Economy Debates.

Should the workers who make up the sharing economy be classified as employees or independent contractors? This question, which has significant legal ramifications for gig economy workers, has been extensively debated by policymakers, academics, litigators, legislators, business operators, and regulators, among many others. In her new work, Diane Ring brings a new perspective to the debate. She convincingly argues that the worker classification debates are often incomplete due to silos among legal experts. In the sharing economy, the detrimental effects of these legal silos are compounded by first-mover actions, which together create the risk that the outcomes of the worker classification debates have unintended and undesirable collateral effects. 

As Ring explains, when answering the question of how sharing economy workers should be classified, legal experts often focus on the implications of each classification arising from their area of the law or “legal silo,” without a full understanding of the effects of that outcome in other legal contexts. But resolution of this worker classification issue in one legal context is likely to affect a worker’s legal implications in another context. 

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Cauble's Superficial Proxies For Simplicity In Tax Law

This week, Mirit Eyal-Cohen (Alabama) reviews a new article by Emily Cauble (DePaul), Superficial Proxies for Simplicity in Tax Law:

In her article, Cauble reminds us that tax laws are always a popular target for political rhetoric. She aims in this Article to derail the public discourse about the concept of tax simplification by highlighting the dangers of focusing solely on numeric metrics relating to volume in order to describe complexity. We often hear unsophisticated, superficial proxies of tax complexity such as word counts, page counts, number of regulations, and other metrics. For example, there is much commentary that points to the length of IRS publications or tax forms instructions as evidence of the intricate nature of tax law. According to Cauble, these often leave the public susceptible to policies under the appearance of simplification while their real purpose is much more than that. They enable politicians to advance provisions under the guise of achieving simplicity – a prospect with broad appeal - when the true effect of the proposal is something that would be much less popular. She exemplifies with the latest tax legislation that while the rhetoric around the proposal to remove some tax brackets may have portrayed it as a simplification move, in her opinion its real goal was to reduce progressivity. 

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Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Wallace's Centralized Review of Tax Regulations

This week, Ari Glogower (Ohio State) reviews a new work by Clint Wallace (South Carolina), Centralized Review of Tax Regulations, 70 Ala. L. Rev. __ (2018).

When and how should tax regulations be subject to centralized review by the White House Office of Management and Budget (OMB)? Clint Wallace’s new work considers these timely questions. 

The work begins by describing the somewhat unique role of tax regulations among agency actions. Executive Order 12,866 generally requires that “significant” regulatory actions by agencies must be reviewed by the OMB’s Office of Information and Regulatory Affairs (OIRA). This process generally includes, among other considerations, a cost-benefit analysis by OIRA, interagency review, and in some cases analysis of a rule’s distributional effects.

Tax regulations, however, which are developed by the IRS Chief Counsel’s Office and the Treasury Office of Tax Policy, have generally not been subject to substantive OIRA review. Until recently, tax regulations have historically been characterized as “interpretative” rules that merely effectuate congressional policy, but do not independently have the force and effect of law, and are consequently not subject to EO 12866.  

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Luke's Captivating Deductions

This week, Sloan Speck (Colorado) reviews a new work by Charlene D. Luke (Florida), Captivating Deductions, 46 Hofstra L. Rev. __ (forthcoming 2018).

Charlene Luke’s excellent article, Captivating Deductions, analyzes the tax treatment of captive insurance arrangements under current law and proposes reforms that would better align the treatment of such insurance arrangements with a normative Haig-Simons income tax base. Luke focuses on the treatment of insurance premiums from the insured’s perspective, rather than the special treatment afforded to insurance companies under the Code. For these insureds, captive insurance arrangements can convert non-deductible savings into deductible business expenses, with an added tax benefit if the insurance company can avoid current taxation on returns to any investments made with premiums received. Luke casts such (abusive) arrangements as “in substance, designer investment contracts,” and Luke’s reading of judicial and administrative guidance in this area as fundamentally misguided is undeniably correct.

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Weekly SSRN Tax Article Review And Roundup: Scharff Reviews Cauble's Accessible Reliable Tax Advice

This week, Erin Scharff (Arizona State) reviews a new article by Emily Cauble (DePaul), Accessible Reliable Tax Advice, 51 U. Mich. J. L. Ref. 589 (2018):

The U.S. legal system requires all parties, both sophisticated and unsophisticated, to navigate its shoals.  Sometimes the results are tragic, as preschoolers must represent themselves in immigration court. (John Oliver was quick to find some humor in this absurdity.)  But even in less extreme examples, non-experts can find themselves thwarted, confused, and frustrated in their attempts to comply with the law or assert their legal rights.  For example, victims of sexual harassment and discrimination in the workforce report difficulties navigating complex reporting processes.    Lawyers and other specialists provide guidance to a small subset of this population, but those without access to experts are quite obviously disadvantaged.

Tax law, of course, is a quintessential example of a complicated system of legal rules enforced against both sophisticated and unsophisticated parties.  Emily Cauble’s latest article, Accessible Reliable Tax Advice, explores the challenges confronting unsophisticated taxpayers as they prepare their returns and seek tax advice and offers some suggestions to improve the situation.

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Weekly SSRN Tax Article Review And Roundup: Stevenson Reviews Sugin's Competitive Philanthropy

This week, Ariel Jurow Stevenson (NYU; moving to San Diego) reviews a new work by Linda Sugin (Fordham), Competitive Philanthropy: Charitable Naming Rights, Inequality, and Social Norms, 79 Ohio St. L. J. __ (2018).

Despite decades of research, experts have not reached a firm conclusion regarding whether and how much the charitable deduction increases giving. As Linda Sugin convincingly argues in her recent article, this uncertainty should not counsel towards abandoning the deduction, but rather embracing it for the key social functions it performs. Shifting the focus away from economic factors, Sugin explains that the charitable deduction is important for signaling the value of communal support and deconcentrating wealth at the top of the income distribution. Sugin’s article offers a timely and vital critique of the charitable deduction literature’s overly narrow focus on economic analysis, and suggests a novel policy solution directed at today’s pressing social problems.

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Weekly SSRN Tax Article Review And Roundup: Mazur Reviews Morse's Government-To-Robot Enforcement

This week, Orly Mazur (SMU) reviews a new work by Susan C. Morse (Texas), Government-To-Robot Enforcement, 2018 U. Ill. L. Rev. ___.

As Tax Day approaches, millions of people are using tax software, such as TurboTax, to prepare their tax returns. But what if you make a legal error on your tax return as a result of the tax preparation software? Under current law, the legal liability for the error is directly on you - the taxpayer.

In her new work, Susan Morse proposes to fundamentally change the way regulatory law is enforced. She proposes government-to-robot enforcement. Specifically, Morse argues that an automated law system, which is any machine that produces a legal determination, should be held directly liable for compliance errors made by its users. Therefore, if you use TurboTax to prepare your taxes and you correctly input your facts, but the system produces a return that understates your tax liability, you would not be directly liable for this error. Instead, if the error is discovered, the IRS would pursue enforcement against and impose liabilities directly on TurboTax.

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Satterthwaite's Smallness And The Value-Added Tax

This week, Mirit Eyal-Cohen (Alabama) reviews a new article by Emily Ann Satterthwaite (Toronto), On the Threshold: Smallness and the Value-Added Tax, 9 Colum. J. Tax L. ___ (2018) (also reviewed by Erin Scharff (Arizona State) here):

In her article, Satterthwaite puts a powerful spotlight on the role of fairness in value-added taxation (“VAT”), which has gained much global traction and become one of the most dominant revenue instruments across the world. The VAT has been adopted by over 150 countries that comprise about 75% of the world’s population, and accounts for more than 20% of worldwide tax revenue raised. Satterthwaite utilizes this increasing global interest in the VAT as well as the growing appreciation of entrepreneurship and small businesses to address optimal VAT base and design issues. 

This Article examines one of the most important features of the VAT to small business and entrepreneurs—the exemption for businesses that meet the definition of a “small supplier.” Such exemptions relieve firms under a certain size (usually annual revenues) from the need to to register for and charge VAT at the point of sale. But what is the optimal VAT registration threshold? Satterthwaite begins to answer this question by exploring the economic literature that supports placing a higher floor and exempting a larger number of firms for efficiency reasons.

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Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Marian's Is Corporate Tax Planning Good For Shareholders?

This week, Ari Glogower (Ohio State) reviews a new work by Omri Marian (UC-Irvine), Is All Corporate Tax Planning Good for Shareholders?, 52 U.C. Davis L. Rev. __ (2018). 

A common assumption is that tax planning by corporate managers benefits shareholders. Since corporate income is subject to “double taxation” at both the corporate and shareholder levels, tax-reduction strategies by corporate managers can reduce the entity-level tax, thereby increasing the after-tax corporate earnings available to the shareholders. 

Omri Marian’s new article challenges this conventional assumption by presenting a more nuanced understanding of the dynamic between corporate and shareholder-level tax effects. The work demonstrates how corporate tax planning may in fact disadvantage shareholders in many cases, and why certain shareholders may be unable to prevent it. 

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Hasen's Rules, Standards And Detection

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.

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Weekly SSRN Tax Article Review And Roundup: Scharff Reviews Satterthwaite's Smallness And The VAT

This week, Erin Scharff (Arizona State) reviews a new article by Emily Ann Satterthwaite (Toronto), On the Threshold: Smallness and the Value-Added Tax, 9 Colum. J. Tax L. ___ (2018):

Emily Satterthwaite’s latest article explores the ways tax law should reflect the needs (and especially the relatively high-compliance costs) of small businesses. Her focus is on Value-Added Taxes (VATs) and, in particular, on the VAT exemption threshold.  

Though there is widespread expert agreement that VATs should exempt small firms, there is significant variation in the VAT thresholds, particularly among developing countries. Further, exemption thresholds are often set much lower than what VAT experts have recommended for optimal efficiency. Satterthwaite’s article argues that this expert recommendation not only advances efficiency goals, but would also improve distributional equity.

Satterthwaite does yeomen’s work in making her argument accessible, particularly to U.S. readers who might be less familiar with the way VATs operate, and the first part of her article is an excellent and highly accessible introduction to VATs and its relative advantages over cascading turnover taxes and retail sales taxes. 

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Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Wallace & Glogower's Shades Of Income

This week, Mirit Eyal-Cohen (Alabama) reviews Shades of Basic Income by Clint Wallace (South Carolina) & Ari D. Glogower (Ohio State).

Clint Wallace and Ari Glogower wrote this timely article as we witness expanding enthusiasm for the idea of Universal Basic Income among researchers, policymakers, and representatives across the political range. The Article begins by providing the definition and fundamental pillars of the basic income concept. The concept, which was proposed more than two hundred years ago by Thomas Paine, encompasses direct and unconditional cash transfers that are “not of the nature of a charity but of a right “from a government to its adult citizens. The Article goes on to outline the shared traits and contrasts between basic income and features of the current progressive tax system such as the personal exemption and standard deduction. It differentiates basic income from other government transfer programs by emphasizing that basic income transfers money to beneficiaries (even those without taxable income), it is generally awarded to all designated adult citizens with minimal conditions for eligibility, and usually places no restrictions on the use of the grant. The Article uses four hypothetical taxpayers to exemplify these effects of basic income: low-income (income up to $1,000), lower-middle-income (income up to $30,000), upper-middle-income (income up to $80,000), and high-income (income above $180,000). Meant to illustrate a point, these examples could work similarly when using present day amounts to reflect these classes. The authors conclude there are many familiar analogues between the way the progressive tax and basic income designs work, which makes the concept of basic income, in their opinion, not so much the exotic policy tool that is claimed to be by some of its critics.

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Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Aprill & Hemel's A Byrd's Eye View Of The Tax Legislative Process

This week, Ari Glogower (Ohio State) reviews a new work by Ellen P. Aprill (Loyola-LA) and Daniel Hemel (Chicago), The Tax Legislative Process: A Byrd's Eye View, 81 Law & Contemp. Probs. ___ (2018).

Ellen Aprill and Daniel Hemel’s timely and enlightening new essay described the effect of the Byrd Rule on tax legislation and policy since its adoption in 1985. Named for former Senator Robert Byrd (D-WV), the rule limits the scope of legislation that can be passed in the Senate by a simple majority through the budget reconciliation process.

The 1974 Congressional Budget Act allowed for the reconciliation process as a way for Congress to pass revenue-related legislation and avoid the threat of a “filibuster”—and specifically to avoid the supermajority requirement (now 60 votes) for cloture ending debate on a measure in the Senate. The Byrd Rule, in turn, limits the ability to pass additional measures through this process that are not revenue-related. In particular, the rule precludes provisions that are “extraneous” to the reconciliation instructions as specified in a budget resolution that must be passed first authorizing an increase in outlays or revenues up to a specified amount over a specified budget window.

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Weekly SSRN Tax Article Review And Roundup: Scharff Reviews Shaviro's A Requiem For The Destination-Based Cash Flow Tax

This week, Erin Scharff (Arizona State) reviews a new working paper by Daniel Shaviro (NYU), Goodbye To All That:  A Requiem for the Destination-Based Cash Flow Tax.  

In teaching tax policy, I tend to focus on the core tax policy ideas of efficiency, fairness, and administrability, and I explicitly side step questions of government spending.  In thinking about the 2017 tax legislation, and, especially after reading Shaviro’s latest working paper, I question whether such debates can be so neatly self-contained.  The story Shaviro tells of the demise of the Destination-Based Cash Flow Tax (DBCFT) proposal is, in part, a story about what happens when tax policy gets debated in that vacuum.  Policy debates overly-focused on the right choice of tax instrument inherently obscure the debate about revenue sufficiency and the potential need for multiple tax instruments. 

I was privileged to hear Shaviro present an earlier draft of this paper at this fall’s National Tax Association conference, before we all were quite certain where the 2017 tax legislation was heading (or whether it would head anywhere at all.)  In the paper (as in the presentation), Shaviro is quite critical of the DBCFT proposal.  For Shaviro, the chief advantage of the DBCFT was the packaging of the idea as corporate tax reform, and its failure to be adopted in 2017 suggests “wholly discarding the DBCFT as a discussion vehicle for its underlying policy ideas.” 

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Weekly SSRN Tax Article Review And Roundup: Speck Reviews Herzig's The Income Equality Case For Eliminating The Estate Tax

This week, Sloan Speck (Colorado) reviews a new work by David Herzig (Valparaiso), The Income Equality Case for Eliminating the Estate Tax, 90 S. Cal. L. Rev. 1143 (2017).

David Herzig’s forthcoming article, The Income Equality Case for Eliminating the Estate Tax, has a bombshell for a title, juxtaposing two ideas—income equality and estate tax elimination—that at first blush may seem in tension. Herzig, however, spends much of his excellent article carefully explicating and emphasizing the interaction between the estate tax and the income tax, both in historical terms and as a current area of policy concern. Essentially, Herzig argues that estate tax planning enables income tax avoidance among high-income and high-wealth households. Giving these households a choice between tax instruments guarantees lower revenues from a group that should pay more under a progressive tax system. From this deep and nuanced framework, Herzig draws a series of policy prescriptions. Only after teasing out the political impediments to an ideal solution does Herzig turn to estate tax repeal as a possible second-best outcome—and a potential improvement on today’s patchwork agglomeration of estate, gift, and income tax rules.

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Weekly SSRN Tax Article Review And Roundup: Mazur Reviews Cockfield's How Countries Should Share Tax Information

This week, Orly Mazur (SMU) reviews a new work by Arthur J. Cockfield (Queen’s University), How Countries Should Share Tax Information.

Arthur Cockfield’s new work examines how tax authorities can better share tax information. In recent years, exchange of information (EOI) between countries has dramatically increased as governments worldwide have sought to protect their tax base from offshore tax evasion, international money laundering and aggressive international tax avoidance. Recent initiatives have ranged from the United States’ unilateral enactment of the Foreign Account Tax Compliance Act to the promotion of bilateral tax information agreements to multilateral efforts to share tax information, such as the common reporting standard and country-by-country reporting. Despite significant progress in this area, it remains questionable how effective these EOI reforms have been in practice.

In his new work, Cockfield persuasively argues that the current international tax regime will likely limit the effectiveness and fairness of these EOI initiatives. 

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Weekly SSRN Tax Article Review And Roundup: Glogower Reviews Goldin's Tax Benefit Complexity And The EITC

This week, Ari Glogower (Ohio State) reviews a new work by Jacob Goldin (Stanford), Tax Benefit Complexity and Take-Up: Lessons from the Earned Income Tax Credit.

Jacob Goldin’s new work examines methods to increase taxpayer take-up of tax benefit programs such as the Earned Income Tax Credit (EITC). Although it is hard to determine the precise number of households that potentially qualify for the EITC, the IRS estimates that only around 80% of qualifying taxpayers claim the benefit, leaving a take-up gap of around 5 million households. The EITC significantly reduces poverty in the U.S., and therefore increasing take-up could direct more financial support to the taxpayers who can benefit from it the most.

The work considers the barriers that taxpayers face in claiming benefits such as the EITC, and the most effective ways to overcome these barriers. In short, Goldin argues that the government should focus on incentivizing taxpayers to file tax returns—and reducing filing costs—rather than increasing general awareness of the existence of specific tax benefit programs.

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