Missing In Tax Reform: What About the Gas Tax?

By: David J. Herzig

I, and others, certainly will have plenty of articles about what is wrong and right about the current tax cuts proposals.  But, as I read the plan, I became frustrated with a proposal that was missing – fixing the Highway Trust Fund.

Infrastructure spending is a priority of this administration.  In the spring President Trump announced his $1 Trillion ($1,000,000,000,000) infrastructure plan.   According to the administration, the plan will rebuild the nation’s roads, tunnels and bridges.  By September, the administration was contemplating how to pay for this spending from private sector credits to dumping the burden on the states.

The most recent discussion of how to pay for the $1 Trillion spend happened during discussions with the House Ways and Means members.  According to the Washington Post, “At the meeting Tuesday, Higgins said Trump indicated the administration instead would seek to pay for infrastructure upgrades through direct federal spending — either by paying for projects with new tax revenue or by taking on debt.”

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I was hoping, I know naivety, that another option would be discussed – pay for the infrastructure spending like always via the Highway Trust Fund which generates revenues via the gasoline and diesel tax.  Since there would be a budgetary shortfall, maybe we should actually increase or fix the tax.

History of Gas Tax Continue reading “Missing In Tax Reform: What About the Gas Tax?”

The Johnson Amendment Under GOP Plan

By: David Herzig

Back in May, I continued to track President Trump’s promise to end the Johnson Amendment.  At that time he promised during a National Prayer Breakfast that he would “get rid of and totally destroy” the Johnson Amendment and promised to issue an executive order (which he signed May 4).

But, a significant problem with legislating via Executive Order is that executives change and with the change so goes the Executive Orders.  What works much better is legislation. Enter, the Tax Cuts and Job Act, where there is a proposal to end the Johnson Amendment.

What is the Johnson Amendment? In 1954, without explanation, Lyndon Johnson  Continue reading “The Johnson Amendment Under GOP Plan”

House Appropriations Bill

By: David Herzig

With all the diversions this week, it was easy to miss that the House Committee on Appropriations posted on June 28th the Appropriations Bill for FY 2018.  The bill seems to include a couple items that not many were expecting.  So, I thought I would highlight some of the key provisions.  Since it is Friday before a Holiday weekend, I’ll keep it short for now.  There are four main provisions I will address: (1) IRS Targeting/Johnson Amendment; (2) ACA Penalties; (3) Conservation Easements; and (4) 2704 (Estate/Gift Tax).

I. IRS Targeting/Death of Johnson Amendment

First, is a clear response to the “targeting” of groups from the Lois Lerner Administration. In three separate sections (107, 108 and 116), the bill attempts to regulate the IRS, not Continue reading “House Appropriations Bill”

Mortgage Interest Deduction

By: David J. Herzig

The Trump and Republican tax plans have circled around the idea of repealing the mortgage interest deduction.  Although I’m not convinced it will happen (see e.g., Treasury Secretary Mnuchin’s remarks).  The mere threat of the repeal has garnered a fair amount of attention.

For example, the other day this chart was making its rounds on twitter.

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I have not verified the methodology of the chart or the data.  I interpret that the chart examines (in absolute numbers) how many mortgages exist at $1,000,000. The implicit conclusion of the chart is that homeowners in states like D.C., Hawai’i, California and New York have the most at stake in retaining the deduction.

Why?

Because there seems to be evidence that the mortgage interest deduction contributes to housing inflation.  Back in 2011 the Senate held hearings on incentives for homeownership. [1]  It has been suggested that the elimination of the deduction will drop home prices between 2 and 13% with significant regional differences. [2]  So, if the mortgage interest deduction is eliminated, then the aforementioned states might have numerous problems, including a smaller property tax base.

What exactly is the Mortgage Interest Deduction?

Continue reading “Mortgage Interest Deduction”

Prognosticating Estate Tax Repeal using State Interests

By: David Herzig

Last week Tax Foundation tweeted about the states that have either a state level estate or inheritance tax.

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The map and subsequent conversations I have had reinvigorated my interest in the prospect of an estate tax.  Briefly in this post, I wanted to say a couple things about the state level estate or inheritance tax, the map, and the effect of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRAA“) on the prospects of the elimination of federal estate tax.

I’ll readily admit that it has been a while since I did an estate tax return.  So, I needed some refreshing regarding the idiosyncrasies of the interaction between the state and federal taxes.  Some recent history is not only necessary but illustrative of the prospects of permanent federal estate tax repeal.

Brief History of Switch From Credit to Deduction

Prior to the enactment of EGTRAA, the federal estate tax provided an tax credit for an amount paid because of a state level estate tax.  The mechanics of credit was essentially a revenue sharing agreement for the tax collected between the federal government and the states – essentially, up to 16% of an estate’s value.  The credit applied whether or not the state had an independent estate tax.  This tax was known as a “pick-up” or “sponge” tax.

Continue reading “Prognosticating Estate Tax Repeal using State Interests”

What is the Johnson Amendment?

By: David Herzig

As the world braces for the upcoming Executive Order from President Trump,

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I wanted to take a minute and describe the Johnson Amendment.  Later today, after the actual Executive Order is made public, Ben Leff will be writing up a more through post.

A couple of months ago President Donald Trump told the audience at the National Prayer Breakfast that he would “get rid of and totally destroy” the Johnson Amendment. Which raises the question: what is the Johnson Amendment. Because he brought it up at the National Prayer Breakfast, it also leads to the question of how does affects churches.

In 1954, without explanation, Lyndon Johnson proposed a small amendment to the tax law governing tax-exempt organizations: forbid them from endorsing or opposing candidates for office. One of the few consistent talking points during president-elect Donald Trump’s campaign was that this so-called “Johnson Amendment” should be repealed; since comprehensive tax reform is part of Trump’s plan for his first 100 days in office, the repeal may happen immediately. Continue reading “What is the Johnson Amendment?”

We Should be Taking President Trump’s Tax Plan Seriously

By: David J. Herzig

Today President Trump’s top tax advisors laid out the first details of the his tax plan. Chief economic adviser Gary Cohn and Treasury Secretary Steve Mnuchin unveiled the plan which according to Fox News, Cohn called “the most significant tax reform legislation since 1986, and one of the biggest tax cuts in American history.”

Oh, did I mention that the details of the biggest cuts were printed on a single sheet of paper?

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There has been plenty of ink (and jokes) already spilled about the plan.  For example, you can read Richard Rubin of the WSJ (here) or Alan Rappeport of the NY Times (here). The long and the short of the plan is it seems to very very costly.  The Committee for a Responsible Federal Budget guesses it could cost $3 to $7 trillion with their estimate at $5.5 trillion.  That is a lot of money!

Continue reading “We Should be Taking President Trump’s Tax Plan Seriously”

A Libertarian Tip

By: David Herzig

Yesterday on Twitter, Scott Greenberg (@ScottElliotG) posted the following tweet from Matt Bruenig.

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Well, David Gamage, Omri MarianAndy Grewal and I had fun in 120 characters debating the quality of the tax advice provided on both the receipt and the note.  Suffice to say: (A) this will be appearing on a number of basic income tax exams shortly;[1] and, (B) neither piece of advice provided by “Mr. Libertarian” seems to be correct.  Both David and I pointed out that the “tip” did not seem to meet the old Duberstein detached and disinterested test.  Clearly there was a quid-pro-quo; don’t spit on my food and I will give you extra money in addition to the bill.

Joking around about the gift/income distinction made me think that tipping is very tax inefficient.  Assuming that what I said is true: tips are not gifts and they are income to the recipient. This means that the payment is not deductible by the payor (just personal consumption) yet income to the recipient, i.e. the server. If it is ordinary income to the recipient, then there should be a corresponding wage deduction, right?

Let’s assume the following counterfactual.  The restaurant includes the tip as part of the bill.  The restaurant pays the employee salary including the entire tip.  Under this structure, the restaurant would receive an entire wage adjustment for the tip paid.  The customer is still does not receive a deduction for paying the employee’s wages and the employee still pays the same amount of income tax.  But the employer captures the unused deduction for wages by the customer.  Theoretically, this deduction could be shared by all the stakeholders to reduce costs to all parties.

Who cares?  Well, only economists and tax professors, probably.  Back to finals preparation!

[1] Here is David Gamage’s hypo: customer leaves $1K and says, I just won the lottery and want to share some of my winnings as a “gift”. 

The Strategic Case Against the Democratic Filibuster of Neil Gorsuch

Photo: Jarrad Henderson, USA TODAY

By: Daniel Hemel and David Herzig

[Note: This post is co-authored with Daniel Hemel, Assistant Professor of Law at The University of Chicago School of Law.]

The strategic case against a Democratic filibuster of Neil Gorsuch is straightforward. The argument is not that the filibuster will prevent President Trump from putting someone like Andrew Napolitano on the Court. The argument is that the filibuster may prevent President Trump from filling a future vacancy with a well-credentialed conservative who is ideologically similar to or right of Judge Gorsuch. To elaborate:

— (a) The filibuster accomplishes no work when there are fewer than 50 Senators who will support a nominee on an up-or-down vote. (Napolitano presumably falls into this category.)

— (b) The filibuster also does no work when there are 50 or more Senators who will support a nominee even if that means going nuclear. (Judge Gorsuch appears to fall into this category.)

— (c) The filibuster matters when (1) there is a nominee who would win 50 or more Senators on an up-or-down vote, but (2) fewer than 50 Senators would support the nuclear option in order to put the nominee on the Court.

Is (c) an empty set?

Continue reading “The Strategic Case Against the Democratic Filibuster of Neil Gorsuch”

Tax Professors on Twitter

By David J. Herzig

By David Herzig

I am trying to keep this updated quarterly.  So, please find the most updated list.  There are a number of new names on the updated list as tax professors continue to enter the twitterverse.  I did update the list to be in alphabetical order.  As always, if I am missing someone, please let me know.

Starting with the SurlySubgroup (@surlysubgroup)

Jennifer Bird-Pollan (@jbirdpollan)

Sam Brunson (@smbrnsn)

Phil Hackney (@EOTaxProf)

David Herzig (@professortax)

Stephanie Hoffer (@Profhoffer)

Leandra Lederman (@leandra2848)

Ben Leff (@benmosesleff)

Francine Lipman (@Narfnampil)

Diane Ring (@ringdi_dr)

Shu-Yi Oei (@shuyioei)

Other United States/Canadian Tax Professor (in alphabetical order):

Continue reading “Tax Professors on Twitter”