Workforce and Workplace Trends: The Empirical Challenges and Policy Significance

By Diane Ring

On Thursday, my co-author (Shu-Yi Oei) and I had the opportunity to present on “Tax Related Challenges for Platform Workers” at the United States Government Accountability Office in downtown Boston. We enjoyed discussing our past and current research regarding taxation, platform workers, labor and emerging workforce trends with GAO researchers.

Our talk at GAO was particularly timely because we’re in the process of writing a book chapter for a new empirical volume, tentatively entitled “The Law and Policy of the Gig Economy: Qualitative Analysis,” which is forthcoming at Cambridge University Press (ed. Deepa Das Acevedo). This volume will address the promise of qualitative empirical approaches to studying the gig economy. Our contribution will build on our previous work in which we looked at the public online conversations among Uber and Lyft drivers regarding challenges they face in tax compliance.

Even without considering the impacts of the 2017 Tax Reform on both the gig economy and the broader workforce (which we have examined here, here and here), significant empirical questions remain regarding the tax and economic pressures faced by gig and contingent workers. Some, but not all, of those questions can be addressed by examining tax return and survey data. Add in tax reform to the mix (think the new section 199A deduction, the suspension of employee business deductions and the offshoring international provisions (section 250 and 956A)) and it’s clear we have a lot of work to do to better understand the interplay between tax and labor policies across many fields and how this will impact the future of the workplace. Our view is that it will take a combination of empirical approaches to get a well-textured picture of how tax impacts work.

The Kiddie Tax Needs a Better Fix Pt. 2

By Sam Brunson

Image by annca. Pixabay licence

As I explained in my previous post, the new kiddie tax is an absolute mess, with unintended and (I assume) unforeseen consequences that significantly harm, among others, poor college students and the children of service members killed in action. How is Congress going to fix this?

Poorly, I assume. And insufficiently.

I saw on Twitter yesterday that Rep. Cindy Axne is cosponsoring the Gold Star Family Tax Relief Act. Under the proposed legislation, the definition of “unearned income” will exclude survivor benefits received by the children of deceased service members. If this legislation were to pass, children of military members killed in action would no longer pay taxes at the top marginal rate on their survivor’s benefits. Continue reading “The Kiddie Tax Needs a Better Fix Pt. 2”

The New Kiddie Tax Needs a Better Fix Pt. 1

By Sam Brunson

Picture by Carissa Rogers. CC BY 2.0

One of the first articles I published as an academic was on the kiddie tax. It was a sleepy corner of the tax world; most of the academic literature on the kiddie tax came from the 1980s.[fn1] And, for its first three decades, the kiddie tax stayed almost exactly the same.[fn2] Then, in a little-noticed provision of the TCJA, Congress fundamentally changed the kiddie tax. In response, I addressed the kiddie tax a second time in a piece for Tax Notes entitled Meet the New “Kiddie Tax”: Simpler and Less Effective. [Paywall] It turns out that I underestimated the ways in which is was not only less effective, but actually dangerously counterproductive.

But first, a quick primer into what the kiddie tax was and what it has become. In 1986, Congress had become worried that wealthy taxpayers were shifting income-producing assets to their children so that they could lower their tax bills. The tax game would go something like this: wealthy dentist father gives (or, I suppose, sells for a nominal amount) his x-ray machines to his 7-year-old daughter. He then leases back the x-ray machines for, let’s say, $10,000 a year. In 1985, the top marginal tax rate was 50%. Assuming our dentist was in that tax bracket, he could deduct the $10,000 he paid to lease the x-ray machines. Meanwhile, assuming that his 7-year-old daughter didn’t have any additional income, she would have been in the 16% tax bracket. According to Rev. Proc. 84-79 (and ignoring any exemptions or deductions she might have), the daughter would pay taxes of $1,054 on the $10,000 of income. Meanwhile, Dad’s $10,000 deduction saved him $5,000 in taxes. By shifting passive income to his daughter, then, Dad saved almost $4,000.[fn3] (Note that it didn’t have to be dental equipment: it could be any income-producing property). Continue reading “The New Kiddie Tax Needs a Better Fix Pt. 1”

U.S. Business Community Calls for Ratification of Tax Treaties in U.S. — Again

By Diane Ring

I have been wondering for the past few years why the business community has not put more pressure on the Senate to resolve the tax treaty roadblock created by Senator Rand Paul (R-KY). In 2011, newly-elected Senator Paul announced objections to the ratification of tax treaties and protocols and sought to block Senate consideration of those tax agreements in the pipeline. Senator Paul contended that the exchange of information provisions in the treaties violated taxpayers’ 4th amendment rights to privacy in their banking and financial data and that U.S. disclosure of such data to treaty partners would violate the due process rights of taxpayers. He succeeded in blocking the agreements (none have been ratified since 2010) and the result is a backlog of negotiated but unratified U.S. tax treaties and protocols.

A single senator can delay vote on a treaty and keep debate open. Negotiation with Senator Paul has not proven fruitful because he fundamentally objects to the information exchange provisions. However, other senators do have procedural recourse to end debate on a treaty and bring it to a vote. Under a process known as “cloture” (see Senate Rule XXII), a vote of 60 senators can force the end of debate. But this procedural path also requires an additional 30 hours of debate and the Senate can conduct no other business during this time. Thus, the cloture option puts a significant price tag on efforts to end the ratification impasse.

In a 2016 article (When International Tax Agreements Fail at Home: A U.S. Example), I mapped the historical and Senate procedural factors leading to the standstill on tax treaty ratification in the U.S. and the business community’s failed efforts to lobby  ratification of tax treaties. For example, in 2013 several major U.S. business trade groups (including the Technology Industry Council, the National Association of Manufacturers, the National Foreign Trade Council, the U.S. Chamber of Commerce, and the United States Council for International Business) sent a letter to Senator Bob Corker stressing the importance of approving pending tax treaties and protocols. Senator Paul remained unmoved by business community pleas and apparently, the problem had not been considered serious enough to warrant commencement of cloture.

But it now appears that the business community has been reviving its public efforts to pressure the Senate to act: Continue reading “U.S. Business Community Calls for Ratification of Tax Treaties in U.S. — Again”

Tax and Changing Labor Markets: The OECD Weighs In

By: Diane Ring

Across the globe, policy makers are wrestling with the possibility that the nature of work is changing and that those changes might be positive or negative. One of the most prominent changes identified is the rise of “non-standard” work, essentially work that is not part of a traditional employer-employee relationship. The rise of the gig economy, and perhaps its even greater growth in the public imagination, have fueled concerns about the prospect of disappearing employment and its replacement with less stable and less desirable non-employee work options.

The degree to which this shift is taking place is an empirical question which has been difficult to pin down. As my co-author Shu-Yi Oei and I have explored in our paper, Tax Law’s Workplace Shift (forthcoming in the Boston University Law Review), data on the changing nature of work comes from empirical studies, which suffer from limitations due to the questions asked, the terminology employed, and comparability of studies over time and across databases. But regardless of any precise conclusions on the rate at which work is changing, there are valid reasons to be concerned and inquire about the impact of tax law on any such shifts. The OECD has begun to weigh in on these questions, releasing a new working paper entitled Taxation and the Future of Work: How Tax Systems Influence Choice of Employment Form, by Anna Milanez and Barbara Bratta (March 21, 2019).

The OECD Project

In this paper, the OECD tackles the question of whether tax considerations may be driving any increases in non-standard work. Using three labor scenarios—traditional employee, self-employed worker, and incorporated worker (e.g., a personal services corporation)—the paper asks how the tax burdens change across the three labor scenarios in eight test countries (including the United States).

In particular, the paper measures the “tax payment wedge” in each labor scenario in each country.

Payment wedge = total employment costs minus worker take home pay                                                                                  total employment costs

where total employment costs equal take home pay, income tax, employee social security contributions, employer social contributions, and payroll taxes minus any cash transfers (i.e. cash payments from the government to the worker, such as those made with respect to dependent children).

What did the OECD find across these eight test countries? Continue reading “Tax and Changing Labor Markets: The OECD Weighs In”

Zelenak: IU Tax Policy Colloquium, “The NCAA and the IRS” & Tax Sitcom Night

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Left to right: Tim Riffle, David Gamage, Leandra Lederman, Larry Zelenak, Kevin Brown

By: Leandra Lederman

On February 14, the Indiana University Maurer School of Law’s Tax Policy Colloquium hosted Larry Zelenak from Duke University School of Law. Larry presented his fun new paper, co-authored with his colleague Rich Schmalbeck, “The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax.” Larry really hit this one out of the park, with a crowd that was nearly standing-room-only! Larry also hosted a terrific Valentine’s evening event, “Tax Sitcom Night,” featuring three classic sitcom episodes in which couples encounter the federal income tax together. I’ll discuss each of these briefly in this blog post.

Larry and Rich’s paper argues that the IRS has not done as much as Congress to cut back on “unreasonably generous tax treatment” of college athletics. The paper covers four principal topics, which Larry explained was a combination of Rich’s work on two issues and Larry’s on the other two. The four topics are:

  • The possible application of the unrelated business income tax to college sports;
  • the federal income tax treatment of athletic scholarships;
  • the recently changed tax treatment of charitable deductions for most of the cost of season tickets to college ball games; and
  • the new 21% excise tax of IRC § 4960 on compensation in excess of $1 million on certain employees of tax-exempt organizations.

Each of these topics is interesting in its own right, and together they make a strong case that the IRS, and Congress at times, have tilted the playing field in favor of college athletics at the expense of protection of the federal fisc. I won’t give a play-by-play of these four issues here, as the paper does a great job of it and is available on SSRN, but I will mention a couple of highlights. Continue reading “Zelenak: IU Tax Policy Colloquium, “The NCAA and the IRS” & Tax Sitcom Night”

Section 199A’s Workplace Shift

By Diane Ring

As we mark the one year anniversary of tax reform, the aftermath continues to dominate tax policy analysis. New § 199A, which my co-author, Shu-Yi Oei, and I initially explored here and here and here, continues to attract significant attention, both in terms of the provision’s likely substantive effects, and the legislative, regulatory, and political issues it raises.

One of the most compelling, yet underanalyzed, questions is how § 199A could impact labor and dramatically reshape work, the workforce, and the workplace. In a new paper posted on SSRN on December 3, titled “Tax Law’s Workplace Shift,“ Shu-Yi and I tackle these issues in detail. In brief, the paper explores the factors that will determine whether § 199A is likely to cause a workplace shift from employee to independent contractor arrangements, and, if it does, how such a shift should be normatively evaluated. Ultimately, we show how our evaluation of these § 199A workplace effects must depend on the types of workers and work at issue. Continue reading “Section 199A’s Workplace Shift”

The § 199A Regulations: Looking Toward Finalization

By: Leigh Osofsky
Professor of Law, UNC School of Law

As the holiday season approaches, tax practitioners and commentators are waiting for the arrival of a much-anticipated event: the finalization of the § 199A regulations. The Treasury Department has indicated that it is trying to finalize the regulations before the end of the year or shortly thereafter. Treasury has moved expeditiously with this monumental regulatory project for good reason: with the New Year comes the first tax filing season that will require application of § 199A (though those filing estimated returns may have already tried to apply the section). While the proposed regulations indicate that taxpayers may rely on the proposed regulations until the date that the final regulations are published in the Federal Register, it is nonetheless beneficial to have a bit more certainty regarding the operation of the provision as soon as possible going into filing season.

So, what can we expect of the final regulations? Much of what we saw in the proposed regulations – the basic regulatory approach – will likely stay the same. As Shuyi Oei and I catalogued in a recent article, Beyond Notice-and-Comment: The Making of the § 199A Regulations, Treasury put significant work into formulating the proposed regulations. Treasury engaged in extensive dialogue with interested constituencies prior to the release of the proposed regulations in addition to going through OIRA review. The proposed regulations offer a lengthy and detailed presentation of why Treasury chose particular approaches such as, for instance, a narrow reading of the critical “reputation or skill” clause from the statute. These types of fundamental decisions from the proposed regulations are thus unlikely to radically change.

This is not to say there will be no changes at all in the final regulations. Treasury has signaled it may make some changes to parts of the aggregation rules. And S Corp banks lobbied extensively both as part of the notice-and-comment period and outside of it to increase the de minimis threshold for the specified service trade or business (“SSTB”) characterization. If their lobbying effort is successful, the threshold will go up in the final regulations and allow more S Corp banks and similarly situated businesses to avoid classification in the undesirable SSTB category. This would be a real win for such banks, especially given that the statute itself does not explicitly provide for a de minimis exclusion from the SSTB category. Many other taxpayers pleaded for greater clarity, and, in particular, clearer exclusion from SSTB categorization, including in a slew of requests made as part of the notice-and-comment process. Shuyi Oei and I documented much of this dynamic in our recent work. However, Treasury is unlikely to grant the certainty requested by all, as the taxpayers making the requests are surely aware.

So, who will get a present in finalization and who will get a lump of coal? We will all find out soon enough. But my money is on few major changes and a lot of little ones around the edges.

Tax Panels at the 2019 AALS Annual Meeting

By: Shu-Yi Oei

The Association of American Law Schools will be holding the 2019 AALS Annual Meeting in New Orleans, LA from January 2-6, 2019. This year, I’m the chair of the AALS Tax Section. Your section officers (Heather Field, Erin Scharff, Kathleen Thomas, Larry Zelenak, Shu-Yi Oei)  are pleased to bring you four tax-related panels at the Annual Meeting. Two are Tax Section main programs, and two are programs we are cosponsoring with other sections. Details below.

We’re also organizing a dinner for Taxprofs (and friends) on Saturday, January 5. If you’re on the distribution list, you should have received an email about that and how to RSVP. If you’d like more details, please email me.

We hope to see many of you at the Annual Meeting!

Tax Section Main Program:  The 2017 Tax Changes, One Year Later (co-sponsored with Legislation & Law of the Political Process, and Trusts and Estates)
Saturday, January 5, 2019, 10:30 am – 12:15 pm

Moderator:
Shu-Yi Oei, Boston College Law School
Speakers:
Karen C. Burke, University of Florida Fredric G. Levin College of Law
Ajay K. Mehrotra, Northwestern University Pritzker School of Law
Leigh Osofsky, University of North Carolina School of Law
Daniel N. Shaviro, New York University School of Law
Program Description: Congress passed H.R. 1, a major piece of tax legislation, at the end of 2017. The new law made important changes to the individual, business, and cross-border business taxation. This panel will discuss the changes and the issues and questions that have arisen with respect to the new legislation over the past year. Panelists will address several topics, including international tax reform, choice-of-entity, the new qualified business income deduction (§ 199A), federal-state dynamics, budgetary and distributional impacts, the state of regulatory guidance, technical corrections and interpretive issues, and the possibility of follow-on legislation.

Business meeting at program conclusion.

New Voices in Tax Policy and Public Finance (cosponsored with Nonprofit and Philanthropy Law and Employee Benefits and Executive Compensation)
Saturday, January 5, 2019, 3:30-5:15 pm

Paper Presenters:
Ariel Jurow Kleiman (University of San Diego School of Law), Tax Limits and Public Control
Natalya Shnitser (Boston College Law School), Are Two Employers Better Than One? An Empirical Assessment of Multiple Employer Retirement Plans
Gladriel Shobe (BYU J. Reuben Clark Law School), Economic Segregation, Tax Reform, and the Local Tax Deduction
Commenters:
Heather Field (UC Hastings College of the Law)
David Gamage (Maurer School of Law, Indiana University at Bloomington)
Andy Grewal (University of Iowa College of Law)
Leo Martinez (UC Hastings College of the Law)
Peter Wiedenbeck (Washington University in St. Louis School of Law)
Program Description:
This program showcases works-in-progress by scholars with seven or fewer years of teaching experience doing research in tax policy, public finance, and related fields. These works-in-progress were selected from a call for papers. Commentators working in related areas will provide feedback on these papers. Abstracts of the papers to be presented will be available at the session. For the full papers, please email the panel moderator.

Continue reading “Tax Panels at the 2019 AALS Annual Meeting”

The Stages of International Tax Reform (Insights from this Weekend’s ABA Tax Section Meeting)

By: Diane Ring

Since December 2017, tax conferences in the United States have focused substantially on the H.R. 1 tax reform legislation. No surprise there — the 2017 changes are among the most significant in the past thirty years. But over the past five months, through attending numerous tax conferences featuring international tax practitioners, I’ve observed some interesting developments in the nature of the discussions and debates at these conferences. These changes are pretty revealing about the process of absorbing the true impact of the new tax law, particularly in international tax. This weekend’s ABA May Tax Section Meeting in Washington, D.C. highlighted some of these trends.

Continue reading “The Stages of International Tax Reform (Insights from this Weekend’s ABA Tax Section Meeting)”