Category Archives: Tax Law
May 4, 2017 Kathleen DeLaney ThomasTax Law
Andrew T. Hayashi,
The Effects of Refund Anticipation Loans On the Use of Paid Preparers and EITC Take-up,Virginia Law and Economics Research Paper No. 2016-9 (2016), available at
SSRN.
The conventional wisdom about refund anticipation loans, at least among many academics, is that they are predatory lending products that benefit big businesses at the expense of the poor. Andrew Hayashi turns this notion on its head in his insightful paper, The Effects of Refund Anticipation Loans on the Use of Paid Preparers and EITC Take-up.
Hayashi’s piece makes two important contributions to our understanding of tax-time financial products. First, he undertakes an empirical study that shows that curtailing refund anticipation loans (RALs) resulted in a decline in the use of tax return preparers, which in turn may have led to a drop in tax return filing and earned income tax credit (EITC) claims. Second, Hayashi discusses the welfare implications of RALs — an analysis that has been largely absent from the literature — and highlights the possibility that, on balance, they benefit taxpayers. Both of these insights have important implications for future policy, particularly for how we might regulate current and future tax-time products like refund anticipation checks. Continue reading "Are Tax-Time Financial Products Good for the Poor?"
Apr 11, 2017 Omri MarianTax Law
Tax transparency is all the rage these days. The brouhaha around the disclosure (or, in one instance, the non-disclosure) of presidential candidates’ tax returns during the 2016 presidential campaign brought the matter of tax transparency to the front and center of public discourse in the United States. Around the world, recent revelations that multinational corporations dramatically reduced their tax bills by securing secretive rulings from tax authorities, and that billionaires are able to use intricate offshore shell structures to evade taxation, are causing major popular uproar and a demand for increased transparency on tax matters. The demand is heard by intergovernmental as well as national bodies. For example, the Organisation for Economic Co-operation and Development (OECD) recently adopted country-by-country reporting standards, which would require multinational corporations to disclose to tax authorities their activities and tax payments in each country in which they operate. Remarkably, some countries have announced they are considering making the reports public. Another example is Luxembourg, which—responding to international criticism—recently announced it will start publishing redacted versions of advance tax agreements with taxpayers. This represents a dramatic shift in Luxembourg’s usual secretive tax stance.
Against this background, Joshua Blank’s article—The Timing of Tax Transparency—is both perfectly timed and profoundly instructive. Policy choices about whether to disclose tax return information as well as tax administrators’ enforcement actions to increase public scrutiny have generally been viewed as a balancing act between competing values. Increased transparency may improve tax authorities’ accountability and encourage taxpayers to avoid aggressive planning for fear of public backlash. On the other hand, increased transparency hurts taxpayers’ privacy and may provide aggressive taxpayers a clear picture of tax authorities’ inner workings, which in turn may impede tax authorities’ enforcement efforts. The main innovation in Blank’s paper is his abandonment this binary approach towards tax transparency (increased tax transparency: yes or no) in favor of a time-dependent approach (increased tax transparency: when?). Blank argues that the balancing act between the competing values involved plays out differently depending on when—during the administrative tax process—disclosure is made. Continue reading "Is Tax Transparency A Panacea for Popular Discontent with the Tax System?"
Mar 10, 2017 Susan MorseTax Law
Auer/Seminole Rock or “ASR” deference is a hot topic right now in administrative law. ASR gives agencies deference when agencies interpret their own regulations, such as in litigation briefs or in guidance. If you want to know how ASR deference works in the tax context, and in particular in the Tax Court, read Steve Johnson’s work. This includes his 2013 article and his entry in the Yale Journal of Regulation’s recent online symposium on ASR deference.
The Chevron doctrine often serves as the starting point for deference to agency action. Chevron offers judicial deference to agency interpretations in final regulations and other actions with the “force of law” articulated in Mead. When the Supreme Court confirmed in its 2011 Mayo decision that Chevron applies to tax regulations, it helped to usher in a growing awareness of administrative law doctrine in tax cases. Continue reading "The Tax Court: “Insubordinate” or “Prescient” on Auer/Seminole Rock Deference?"
Feb 9, 2017 Adam RosenzweigTax Law
Kyle Rozema,
Supply Side Incidence of Consumption Taxes (Oct. 5, 2016), available at
SSRN.
Empirical testing of the tax laws, and in particular testing the incidence of the tax laws, may sound boring. But virtually any modern public policy goal that could be implemented through tax policy ultimately turns precisely on this question. For example: Should the United States adopt a tax on sugary drinks? Is a high cigarette tax effective in preventing smoking deaths? Would a carbon tax help to reduce global warming? Ultimately, the answers to these questions turns on who, in fact, ends up bearing the burden of these taxes.
Such proposals often represent forms of so-called Pigouvian taxes. Proponents of Pigouvian taxes support them by contending that they can be used to reduce inefficient behavior by forcing consumers to internalize the full costs of such activities. Opponents of Pigouvian taxes often point to the regressive effect of such taxes on consumers, because they increase the cost of goods by a fixed amount of taxes, which disproportionately harms those consumers least able to afford such taxes. A fair amount of literature has arisen to resolve this question, primarily focusing on the empirical question of whether increasing the price of certain goods through higher taxes in fact reduces the amount of consumption and who bears the costs of such taxes. Virtually none of the literature in this area asks a related, but equally important, question: how do Pigouvian taxes impact different types of sellers of such goods? Continue reading "How Pigouvian Taxes Work on Sellers, and Why We Should Care"
Jan 10, 2017 Kristin HickmanTax Law
Tax specialists are no strangers to the exercise of statutory interpretation. The Internal Revenue Code is an enormously complex statute, with all of the overlapping provisions, competing goals, and specificity interspersed with ambiguity that one would expect to accompany that complexity. And mastering the tax policy aspects of the Code is hard enough that tax specialists might be forgiven for reducing the exercise of statutory interpretation to short statements about considering the Code’s text, history, and purpose, or the “spirit” of the tax laws. A recent exchange between two prominent federal judges—Chief Judge Robert Katzmann of the Second Circuit and Judge Brett Kavanaugh of the D.C. Circuit—and the lengthier books highlighted within their exchange offer a highly readable reminder of the parallel complexity of statutory interpretation theory and jurisprudence. Tax specialists interested in seeing their policy preferences succeed in the real world would do well to take note.
Although tax specialists often like to think of the tax laws as unique, judges in tax cases routinely rely upon and debate about the same tools of statutory construction that they apply and discuss in interpreting other statutes. For just one particularly expansive example, in Rand v. Comm’r, 141 T.C. 376 (2013), in deciding that refundable credits like the earned income tax credit reduce “the amount shown as the tax by the taxpayer on his return” when computing the underpayment penalty under § 6662 and 6664, Judge Ronald Buch discussed the consistent usage canon, the expressio unius canon, the surplusage canon, and the rule of lenity, in addition to the Chevron and Auer standards of review. Judge David Gustafson in dissent maintained that proper application of the rule of lenity supported the opposite conclusion. Judge Richard Morrison, dissenting separately, criticized Judge Buch’s opinion for relying too heavily on the consistent usage canon and ignoring relevant legislative history. (Congress subsequently amended § 6664 to clarify its intent.) Carpenter Family Investments, LLC v. Comm’r, 136 T.C. 373 (2011)—one of the cases leading up to the Supreme Court’s decision in United States v. Home Concrete that basis overstatements are not omissions of an amount from gross income under §§ 6229(c)(2) and 6501(e)(1)(A), includes an interesting exchange between Judge Robert Wherry for the majority and Judges James Halpern and Mark Homes in concurrence over whether unique attributes of the tax legislative process are relevant when considering legislative history in tax cases. And in Yari v. Comm’r, 143 T.C. 157 (2014), in interpreting the phrase “tax shown on the return” in connection with the § 6707A reportable transaction penalty, Judge Robert Wherry referenced several canons, discussed at some length which documents were relevant as legislative history, and observed further that “the process of divining the legislative intent underlying a statute’s language and structure, while subject to canons of construction and well-established methodologies, is hardly an exact science.” Continue reading "Thoughts On Statutory Interpretation—For Tax Specialists, Too"
Nov 28, 2016 Leigh OsofskyTax Law
Emily Satterthwaite,
Tax Elections as Screens,
Queen’s L. J. (forthcoming 2016), available at
SSRN.
The concept of “screening” taxpayers is theoretically appealing. According to optimal tax theory, our tax system should impose tax liability based on ability, which is a characteristic that reflects relative well-being. However, since ability cannot be directly observed, the tax system has to rely largely on income, a presumed surrogate of ability, as a tax base. The problem is that income is easily manipulable, making the tax system an inefficient tax on ability. Screening is a potential, partial solution to this problem. Screening involves relying on other characteristics that are more revelatory of ability. For instance, as it turns out, height is surprisingly strongly correlated with earning ability. However, as theoretically appealing as screening may be, the discussion of it is generally politically unrealistic enough, or sufficiently divorced from the realities of the actual tax system, to make it a largely academic exercise.
In Tax Elections as Screens, Emily Satterthwaite gets beyond the theoretical possibilities of screening taxpayers. She does so by examining how an existing tax election—the election to itemize deductions—can serve as a screening mechanism. By examining how screening may work in our actual tax system, Satterthwaite offers an important contribution that has few companions in what is a largely theoretical field. Continue reading "Real-World Tax Screening"
Oct 27, 2016 Charlotte CraneTax Law
Edward Kleinbard,
The Trojan Horse of Corporate Integration, 152
Tax Notes 957 (Aug. 15, 2016), available at
SSRN.
Edward Kleinbard’s The Trojan Horse of Corporate Integration critiques the U.S. Senate Finance Committee’s current proposal for corporate integration. This is an important read for those who have not yet come to grips with the forces at play in contemporary tax policy. Kleinbard refers to these forces as the “political economy agenda” behind the proposal. That agenda has as much to do with appearances relating to tax liabilities as it does with any cash actually being paid.
Most tax policy analysis has historically assumed that it is the amount of tax that is actually paid that matters most. Taxes paid are resources that are no longer available to the private sector; taxes not paid are not available to the public sector. At bottom, the tax policy challenge has usually been seen as balancing the deadweight losses that are inevitable with resources taken away from the private sector with the market failures associated with leaving deployment of all resources in private hands. This view of the impact of taxes is all well and good for economists to theorize about, but does not capture very much of the political decisions taking place in the real world about the type of taxation that should be adopted. Continue reading "Trojan Horse, or Merely a Mask for the Costume Ball?"
Sep 30, 2016 Neil H. BuchananTax Law
Lisa Philipps,
Registered Savings Plans and the Making of Middle Class Canada: Toward a Performative Theory of Tax Policy, 84
Fordham L. Rev. (forthcoming 2016), available at
SSRN.
Analyses of tax policy are typically based on a familiar cost-benefit framework. There are important debates about which costs and benefits should be included (and which are measurable), but the standard formula is simple: (1) Describe the policy goal; (2) Present the costs and benefits of a policy that is meant to achieve that goal; and (3) Conclude that the policy is good or bad, depending on whether benefits exceed costs or vice versa.
In her important new article, Professor Lisa Philipps uses a Canadian tax policy debate to show that this approach is fundamentally misleading. Standard cost-benefit analysis—even if it is focused on inequality or other social outcomes— ignores the effect that adopting policies has on, as Philipps puts it, “the range of policy options considered thinkable.” (P. 102.) Tax policies can become embedded in the social system in a way that cannot be explained by standard cost-benefit analysis, and the resulting changes in social expectations can lead to self-defeating policy inertia. Continue reading "Telling the Middle Class How to Be Middle-Class: Tax Incentives for Saving"
Aug 12, 2016 Theodore P. SetoTax Law
In his book Capital in the Twenty-First Century, Thomas Piketty did us the great service of bringing the problems of wealth and income inequality to the fore. In the process, however, he also may have performed a bit of a disservice – making those problems seem simple, a mere function of the inequality r > g, where r is the rate of return to capital and g is the rate of economic growth. The solution, he suggested, was equally simple: a tax on wealth.
Bariş Kaymak and Markus Poschke, in The Evolution of Wealth Inequality over Half a Century: The Role of Taxes, Transfers and Technology, offer a more complex picture. They construct a general equilibrium model of the U.S. economy over the past half-century, incorporating (1) reduced income taxes on top earners (from a 45% effective rate for the top 1% in 1960 to a 33% effective rate in 2004, and from a 71% effective rate for the top 0.1% in 1960 to a 34% effective rate in 2004), (2) expansion of government transfers from 4.1% to 11.9% of GDP over the same period, and (3) higher pre-tax wage inequalities, which they attribute to technological change. (For these purposes, effective rate is defined as income taxes paid as a percentage of taxable income.) The question they ask and attempt to answer is: To what extent were the observed increases in wealth and income inequality over that period attributable to each of these changes or trends? Continue reading "Thinking in More Nuanced Ways About Wealth and Income Inequality"
Jul 18, 2016 Daniel ShaviroTax Law
The age of inequality has prompted an age of writing about inequality. Now writing about inequality has started to come of age. An important example is Branko Milanovic’s new book, Global Inequality: A New Approach for the Age of Globalization.
Milanovic, an economist and Senior Scholar at CUNY’s Luxembourg Income Study Center who has been studying global data regarding economic inequality for more than twenty years, discusses three main topics in this book: inequality within a given country, that between or among countries, and what might be the path of global inequality in the future. While the book’s contributions on all three topics contain numerous points of interest, the first has especial theoretical relevance. Milanovic suggests that inequality may decrease in the coming decades in some rich countries, but probably not in the United States. Continue reading "Kuznets Waves of Rising and Falling Inequality?"
