#TaxNerd: Tax Day in the Supreme Court

Today may be the most perfect #TaxNerd day possible. Not only are federal tax returns due, but the Supreme Court is actually hearing a tax case today! (For lots of great Surly coverage of Wayfair, check out Adam’s posts.)

In honor of today, I decided to wear my Illinois sales tax cufflinks. And how did I get Illinois sales tax cufflinks? Well, I was looking on Etsy for tax-related cufflinks, as one does, and came across them.

Buying them made me curious, though: what exactly are sales tax tokens? Continue reading “#TaxNerd: Tax Day in the Supreme Court”

IU Tax Policy Colloquium: Burman, “The Rising Tide Wage Credit”

Colloquium pic)
Left to right: Len Burman, Tim Riffle, Leandra Lederman, Karen Ward, Frank DiPietro, Brad Heim

By: Leandra Lederman

On April 5, the Indiana University Maurer School of Law’s Tax Policy Colloquium welcomed Len Burman from Syracuse University and the Urban Institute/Tax Policy Center, who presented “The Rising Tide Wage Credit.” This intriguing new paper is not yet publicly available.

The paper proposes replacing the existing Earned Income Tax Credit (EITC) with a new credit, the Rising Tide Wage Credit (RTWC), which, unlike the EITC, would be universal for workers, rather than phased out above low income levels. The RTWC also would differ from the EITC in that the amount of the RTWC would not depend on the number of children the taxpayer has. Instead, the RTWC would be a 100% credit in the amount of a worker’s wages, up to $10,000 of wages. The credit could be claimed on the taxpayer’s tax return, or subject to advance payment via the taxpayer’s employer. Thus, the maximum credit for an unmarried taxpayer would be $10,000, and for a married couple filing jointly would be $20,000. (The credit would not have a marriage penalty.) The credit would be indexed to increase with increases in GDP.

Because the proposed new credit would not vary with the number of children the taxpayer is supporting, the paper also proposes increasing the child tax credit from $2,000 to $2,500, and proposes making the child tax credit fully refundable (rather than partly refundable, as it is under current law). The RTWC and the increase in the child tax credit would be funded by a value added tax (VAT). The paper estimates that the proposal could be fully funded with an 8% VAT, along with federal income tax on the RTWC. A VAT was chosen as the funding mechanism because it is closely correlated with GDP. The paper discusses 3 illustrative examples and includes a table that shows the overall progressivity of the proposal under certain assumptions. Continue reading “IU Tax Policy Colloquium: Burman, “The Rising Tide Wage Credit””

Call for Papers: “Reshaping Work in the Platform Economy”

By: Diane Ring

Last October, the international conference “Reshaping Work in the Platform Economy” was held in Amsterdam. I blogged about the two-day event that explored a wide range of legal, business and social issues here and here.  The call for papers for the Fall 2018 conference (October 25 & 26, 2018, Amsterdam) has just been issued:

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Diplomacy, or the Art of the Tax Deal 2.0?

The Republican-led passage of the Tax Cuts and Jobs Act may have evoked a Marx Brothers movie for some, but when it comes to international competition for the capital investment of foreign multinational enterprises (MNEs), the reform seems to fall squarely into President Trump’s 2016 campaign promise, “America First.”

After a decades-long rise of free trade agreements and the automation of manufacturing jobs, United States political sentiment seems to be shifting away from international cooperation.  (Hence the barrage of tariffs?)  The new law, rather than seeking to harmonize international taxation (which could decrease the outsized role of tax in decision-making), instead casts the United States as Rocky making a comeback in the global fight for capital investment.  In other words, from an America First perspective, efficiently allocating capital investment to create the most value for the global economy is less important than bringing that investment into the United States, even though it might be less productive here.  The reform’s tax competitive stance is likely to be politically palatable because most voters neither understand nor care that the Trump administration’s fight for a larger United States share of the worldwide economy might result in a smaller worldwide economy overall.

Indeed, foreign-based MNEs are likely to benefit from increased capital investment in the United States going forward.  At an event hosted on March 5 in Vienna by IFA Austria, one panelist noted that at least three large foreign manufacturers—Daimler, BMW, and Siemens—expect to see initial benefits in the hundreds of millions of Euros.  In fact, the United States reform has prompted the EU to request an OECD investigation of whether the new law violates international standards on harmful tax practices.

The United States’ forward-leaning stance is somewhat (or some might say almost entirely) unhinged from typically applicable diplomatic constraints, both formal and informal.  In particular, Congress seems to have disregarded potentially applicable WTO prohibitions on export subsidies. (For more on this point, read my OSU colleague Ari Glogower and others here and here.)   Given the United States’ long history of these types of violations (you may recall the DISC, the foreign sales corporation, and the extraterritorial income system), this new WTO fence-jump cannot easily be viewed as accidental.  Already several EU finance ministers have already lodged complaints about it with members of Congress  and the U. S. Treasury.

It is difficult, then, not to think that the new law was written in part to provoke a worldwide competitive response.  Particularly in light of the president’s move toward tariffs, the new tax law reads like a catch-us-if-you-can grab for capital.  Christian Kaeser, global head of tax for Siemens, described it as a “showcase of protectionism.”  German newspaper, Die Welt, ran an editorial headline that translates, “Europe Dreams of a Tax Fortress- Trump Acts.”   Ralf Kronberger, Head of the Department of Financial, Fiscal and Trade Policy at the Federal Austrian Economic Chamber, said of the EU, “We have to be in the game and create an attractive environment, and tax policy must contribute its share.”  He added that while countries like Austria may be forced to compete with the United States for capital investment, “tax and trade war are not beneficial for anyone.” (Would someone please tell that to the president?)

So how will Europe react?  Corporate tax policy in the European Union generally assumes that coordination within Europe and cooperation under BEPS will be sufficient to protect the tax base.  Coordination, though, may not be compatible with competition, which the new United States law seems deliberately designed to provoke.  Casually, tax folks here in Europe have been wondering aloud whether increased pressure to compete will further strain the effectiveness of the European Union’s effort to curb base erosion or whether it may put pressure on the alliance itself.  If nothing else, economists and political scientists should be having a moment.  The new law sets up a credible natural experiment for the observation of tax as a factor in capital mobility.  And if viewed as a tool to encourage renegotiation of trade deals and bilateral tax treaties, it is an exciting (frightening?) opportunity to see what happens when a world power brings a business approach to statecraft at a time when states cannot be as facile as businesses in their response.

Follow me on Twitter @profhoffer.

The Workability of Pike Balancing for Sales and Use Tax Collection Obligations

Hayes Holderness
Assistant Professor
University of Richmond School of Law

As covered in earlier posts (here, here, here, and here), the Supreme Court is currently considering the case of South Dakota v. Wayfair Inc., which calls into question the physical presence rule for sales and use tax collection obligations. This rule holds that a state cannot require a person to collect the state’s sales and use taxes unless that person has a physical presence in the state; the rule was justified as a way to prevent undue burdens on interstate commerce. On March 28th, Wayfair filed its brief with the Court laying out its argument for retaining the physical presence rule.

The arguments in Wayfair’s brief are mostly expected: that state and local sales and use tax systems are still too complex and varying to expand taxing authority to remote vendors, that the dollars at stake are relatively small and declining, and that the physical presence rule benefits small vendors who would otherwise be unable to meaningfully engage in interstate commerce. However, one section of Wayfair’s brief addresses the argument of many amici that the balancing test from Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), should replace the physical presence rule going forward. (Surly Blogger Adam Thimmesch has been at the forefront of these arguments.) Wayfair pulls no punches—it argues that Pike balancing would be “fundamentally unworkable for addressing the burdens of state sales tax collection,” i.e., that it would be unable to prevent undue burdens on interstate commerce in this context.

Continue reading “The Workability of Pike Balancing for Sales and Use Tax Collection Obligations”