IU Tax Policy Colloquium: Brooks, “The Case for Incrementalism in Tax Reform”

By: Leandra Lederman

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Left to right: Jake Brooks, Leandra Lederman, Bill Popkin, David Gamage, Tim Riffle

On February 1, the Indiana University Maurer School of Law welcomed Prof. Jake Brooks from Georgetown Law School as the second speaker of the year in our Tax Policy Colloquium. Jake presented an early draft of a paper titled “The Case for Incrementalism in Tax Reform,” which led to a lively and interesting discussion about what incrementalism is, what constitutes fundamental reform, how politics may affect the making of tax policy, and whether and how tax law differs from other fields of law.

The paper, which is not yet publicly available, argues that “fundamental tax reform,” while sometimes necessary, should not generally be the goal of tax policy, and that instead, policymakers should take an incremental approach to changing tax laws. “Incrementalism” has a long history in political science, and was first described by Charles Lindblom in an influential 1959 article, “The Science of Muddling Through.” In general, Lindblom’s approach in that article was to reject the urge to use a formal method that involves clarifying the principal goals up front, identifying the means to achieve them, and then analyzing every relevant factor in the decision. Lindblom instead advocated the use of a more casual method that he termed “successive limited comparisons,” which ignored important possible outcomes or alternatives and did not involve distinguishing means and ends. (Page 81 of Lindblom.) Lindblom argued that this “muddling through” approach was not only what was actually practiced by administrators, but also a method for which they need not apologize because administrators are less likely to make serious and lasting mistakes if they proceed through small, incremental changes (pp.86-87). As Jake acknowledges, Lindblom wrote at a time with much more limited ability to model and process large quantities of empirical data. He notes that incrementalism has continued to be an important theory in the literature. Despite technological advances, we cannot see the future, and there remain limits to what empirical data can help us predict.

Jake’s argument is driven in part by arguments in favor of tearing the Internal Revenue Code out by its roots and starting over. I agree with Jake that such an approach seems extremely risky. Policy driven by rhetoric and “horror stories” risks being ill-conceived, hasty, driven by political rent-seeking, and even destructive, as I have written about in the context of IRS reform. But does that necessarily mean that legislative tax changes should take a Lindblom-style incremental approach? Continue reading “IU Tax Policy Colloquium: Brooks, “The Case for Incrementalism in Tax Reform””

IU Tax Policy Colloquium: Brennan & McDonald, “Debt and Equity Taxation: A Combined Economic and Legal Perspective”

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Left to right: Tim Riffle, Tom Brennan, Leandra Lederman, David Gamage, Karen Ward

By: Leandra Lederman

 

On January 18, the Indiana University Maurer School of Law welcomed Prof. Tom Brennan from Harvard Law School as the first speaker of the year in our Tax Policy Colloquium. Tom presented an early draft of a paper co-authored with Robert L. McDonald, Debt and Equity Taxation: A Combined Economic and Legal Perspective. We had a lively and interesting discussion about it in the workshop, as well as over dinner.

The paper, which I do not believe is publicly available yet, deals with the taxation of hybrid securities. It describes current law on how those securities are categorized as debt or equity, as well as the history of how the law developed. The paper criticizes the binary categorization of hybrid instruments as either debt or equity. It thus argues for a bifurcated approach.

The core of the current draft is a proposed new approach to debt and equity that considers the capitalization of a corporation as a whole and taxes the components in line with the underlying economics. The paper disaggregates the risk-free return, the risky return, and abnormal returns (rents). The paper proposes two possible systems of taxation: the “unlevered equity system” and the “levered equity system.” In the unlevered equity system, debt consists of risk-free obligations (like short-term Treasury bills) and equity is unlevered ownership of assets. In the levered equity system, the definition of debt is the same but equity is fully leveraged ownership of assets (fully financed by risk-free obligations). Under the unlevered approach, although particular investors may own a mix of debt and equity, the corporation itself effectively issues no net debt because it issues no risk-free obligations.

A key insight of the paper applies the Domar-Musgrave economic result that, under certain assumptions, risky returns on assets do not bear tax. Brennan and McDonald point out that the Domar-Musgrave insight also applies to corporations, although the securities are liabilities for them instead of assets. (Many years ago, I applied Domar-Musgave analysis in an article of mine on the tax favoritism for entrepreneurship, but I had not thought about its possible application to corporate income, which is a fascinating idea.) The implication of that insight, as Brennan & McDonald note, is that the risk-premium portion of return on investment effectively does not bear tax. As a result, under the unlevered system, all corporate income would bear corporate tax because the unlevered system does not have any net debt obligations. By contrast, adopting the levered system would make the corporate tax burden only rents, given a tax deduction for debt. The paper explains that this reaches the same result as the Mirrlees Review’s exemption for “normal returns” on corporate capital, as well as the allowance for corporate equity (ACE), if the ACE deduction is defined in a particular way. Continue reading “IU Tax Policy Colloquium: Brennan & McDonald, “Debt and Equity Taxation: A Combined Economic and Legal Perspective””

More on Section 199A and Worker Classification (**Threaded Tweet Alert!)

Shu-Yi Oei

Last Friday, Diane and I posted a new paper called “Is New Code Section 199A Really Going to Turn Us All into Independent Contractors?” on SSRN. This was something that started as a blog post but then grew too long and so became a short paper. We plan to develop the ideas in it more robustly in future work.

On Saturday, I made one of those goofy academic tweet threads summarizing the paper, and then it occurred to me that I really liked my goofy tweet thread! Therefore, I’ve taken the liberty of posting the tweets here for the marginal reader who is just interested enough in the topic to read the tweets but possibly not interested enough to read the actual paper.

Diane and I look forward to continuing conversation on this.

Is New Code Section 199A Really Going to Turn Us All Into Independent Contractors? (New Paper on SSRN)

By: Diane Ring

Shu-Yi and I started a blog post on new Section 199A that morphed into a seven-page essay that ultimately found its proper home on SSRN. Here is the abstract:

Is New Code Section 199A Really Going to Turn Us All Into Independent Contractors?

Abstract

There has been a lot of interest lately in new IRC Section 199A, the new qualified business income (QBI) deduction that grants passthroughs, including qualifying workers who are independent contractors (and not employees), a deduction equal to 20% of a specially calculated base amount of income. One of the important themes that has arisen is its effect on work and labor markets, and the notion that the new deduction creates an incentive for businesses to shift to independent contractor classification. A question that has been percolating in the press, blogs, and on social media is whether new Section 199A is going to create a big shift in the workplace and cause many workers to be reclassified as independent contractors.

Is this really going to happen? How large an effect will tax have on labor markets and arrangements? We think that predicting and assessing the impact of this new provision is a rather nuanced and complicated question. There is an intersection of incentives, disincentives and risks in play among various actors and across different legal fields, not just tax. Here, we provide an initial roadmap for approaching this analysis. We do so drawing on academic work we have done over the past few years on worker classification in tax and other legal fields.

What’s Up with the Sharing Economy? (Report from the 13th International Human Rights Researchers Workshop)

By: Diane Ring

Sometimes we do get what we are seeking. In some of my recent work on the sharing economy I have advocated for more discussion and analysis across legal boundaries, so that the rules we develop have outcomes that more closely match our goals and don’t bring unexpected—and undesired—surprises. The two-day conference on “Sharing Economy: Markets & Human Rights” that I have been attending at the College of Law and Business in Ramat Gan, Israel has provided just such an opportunity. The papers presented cover a wide range of legal fields and issues from taxation to discrimination, and will ultimately be published together in the Law & Ethics of Human Rights Journal. Although we are all benefiting from the discussion of our drafts and will continue to revise our work, some interesting themes have emerged already . . .


Continue reading “What’s Up with the Sharing Economy? (Report from the 13th International Human Rights Researchers Workshop)”

Feminist Judgments: Rewritten Tax Opinions

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Tax-gift giving this holiday season just got so much easier!! Look what arrived just in time to celebrate the end of 2017! The FIRST in a series of subject-matter volumes of US Feminist Judgments is the Feminist Judgements: Rewritten Tax Opinions.

Featuring fantastic contributions by Surly Subgroup colleague Professor of Law Jennifer Bird-Pollan and dream team editors: James D. Hopkins Professor of Law Bridget J. Crawford and Buchanan, Ingersoll & Rooney Faculty Scholar, Gender, Sexuality & Women’s Studies Faculty (affiliate) and Professor of Law Anthony C. Infanti,

Commentary and rewritten tax opinions by Tax Professors and Scholars Extraordinaire Appleberry, Beale, Bird-PollanBrennen, Cain, Christensen, Cords, Cruz, Drumbl, Fellows, Gerzog, Heen, Knauer, Lahey, Lipman, Maynard, Murphy, Pratt, RobinsonRobson, Tait, Thompson, and Waterhouse Wilson.

Continue reading “Feminist Judgments: Rewritten Tax Opinions”

Repeal of Child Tax Credit For Taxpayers Without a Voice, Is A Great Way to Defund the Success of America’s Kids

By: Francine J. Lipman

Senate & House dueling Tax Bills are now (more or less) out. Experts have determined the regressive nature of both tax bills, that is, overall tax increases on middle, low, lower, and the lowest income working families as compared to generous tax cuts for high, higher, and the highest income taxpayers. (Pet peeve here, please media et al. stop using “middle class” in lieu of “middle income” because if there is one lesson from 2017 that is that income level and class are not correlated).

Below is one of many compelling graphs from the Center on Budget & Policy Priorities evidencing that every group with income levels below $75,000 suffers a tax increase as compared to their higher income counterparts tax decrease in 2027. Many of these lower income taxpayers, including those with incomes below $30,000, suffer tax increases much earlier and most lower and middle income groups suffer tax increases by 2025, when the individual tax cuts phase out.jct-landing_infocus Continue reading “Repeal of Child Tax Credit For Taxpayers Without a Voice, Is A Great Way to Defund the Success of America’s Kids”

Some Initial Thoughts on the Paradise Papers Leak

Shu-Yi Oei

Another data leak broke on Sunday, November 5, while I was on a plane home from Bergen, Norway. Coincidentally, Diane Ring and I were in Bergen presenting our Leak-Driven Law paper at a tax conference organized by Max Planck Institute for Tax Law and Public Finance, Norwegian Centre for Taxation, and Notre Dame University.

This new “Paradise Papers” leak involves a set of 13.4 million records from 1950 to 2016.

From the ICIJ’s website:

“The new files come from two offshore services firms as well as from 19 corporate registries maintained by governments in jurisdictions that serve as waystations in the global shadow economy. The leaks were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and a network of more than 380 journalists in 67 countries.”

The two offshore services firms in question are the offshore law firm Appleby and Asiaciti Trust, an offshore specialist headquartered in Singapore. Over 7 million of the records came from Appleby and affiliates.

Diane and I argued in Leak-Driven Law that (1) the high-salience and shocking nature of tax and other leaks and (2) the interventions of the press and other actors in processing, framing, and generating publicity about these leaks are important features that can affect how legal responses and reactions occur in the aftermath of a leak. We’ll be keeping track of how events unfold in the aftermath of this latest leak and how it fits or doesn’t fit with the observations in our paper:

Some initial notes and reactions:

This was at Least in Part a Cyber Hack.

Most of the news coverage I’m seeing is focused on the content on the leak, but it’s worth noting that at least with respect to Appleby, this new leak was in part a result of a cyberattack on Appleby that happened last year. I haven’t seen anything to suggest that this was a data theft by an insider (e.g., employee) turned whistleblower. In its response to the leak, Appleby defended itself and noted the challenges of cyber-crime for individuals and businesses.

The Appleby Hack Occurred in 2016.

Continue reading “Some Initial Thoughts on the Paradise Papers Leak”

International Sharing Economy Conference: Day 2 Takeaways

By: Diane Ring

Yesterday I blogged about Day 1 of the international sharing economy conference, titled “Reshaping: Work in the Platform Economy.” Today the Conference resumed in Amsterdam and included a fascinating roundtable with representatives from some of the platform firms alongside some sharing economy workers. Each offered their experience/perspective on the sector, posed questions to each other, and took questions from the audience.

Not surprisingly, just as there are a range of business models and niches in the sector, there are also a variety of reasons why workers participate in and do platform work. What workers seek from the platforms (beyond good pay) may differ from worker to worker. For example, a sharing economy worker may desire contact with other workers, a sense of community, predictability, or worker dignity. Building on the Day 1 discussions, several themes emerged by the close of the Conference:

Continue reading “International Sharing Economy Conference: Day 2 Takeaways”

International Sharing Economy Conference: Day 1 Takeaways

By: Diane Ring

Today the “Reshaping: Work in the Platform Economy” Conference got underway in Amsterdam. In contrast to many academic conferences, the explicit goal here is to bring together a truly wide array of actors in the sharing economy (policy makers, academics, actual gig workers, platform businesses, research institutes, and media) in a mixed format setting that includes academic presentations, panel presentations by gig workers, small group active round tables, and research-poster sessions. The international dimension, with participants and presenters from a variety of jurisdictions, contributes to the breadth of discussion.

I thought I would offer a few of my takeaways from day one: Continue reading “International Sharing Economy Conference: Day 1 Takeaways”

Something Old, Something New: Two Workshop Series @ Boston College Law School this Fall

Shu Yi Oei

I’m happy to announce that we have a couple of workshop series happening at BC Law School this academic year. I’m really quite excited about these. Because what’s life without a workshop?

Tax Policy Workshops & Roundtable…

Boston College Law School has run a Tax Policy Workshop Series since 2007. This fall, we continue in that tradition, with speakers Daniel Hemel (Chicago), Ruth Mason (UVA), Zachary Liscow (Yale), and Lily Batchelder (NYU) presenting papers.

BC Law and Tulane Law are also hosting a joint BC-Tulane Tax Roundtable on March 23, 2018. More info about that coming soon.

…and a New Regulation and Markets Workshop Series!

In addition, here’s something a bit fun: Some BC Law colleagues and I have started a new workshop series, focusing on Regulation, Markets, and Business. This multidisciplinary workshop series focuses on the study of regulatory approaches to markets and business. It investigates how such economic regulation should be designed in order to balance the interests of various constituencies. It also explores how traditional approaches to regulation compare, contrast, and intersect with emerging methodologies.

We’ll feature presentations by invited legal scholars of their works-in-progress. The hope is to create opportunities for scholars working on issues of economic regulation to discuss and present their research in a forum of academics working in related intellectual spaces. The workshop is offered to Boston College JD and LLM students as a 1-credit seminar.

Here’s the 2017-18 slate:

FALL 2017

September 12, 2017 – Saule Omarova (Cornell): “Private Wealth and Public Goods: A Case for a National Investment Authority”

September 26, 2017 – Rory Van Loo (Boston University): “Consumer Law as Tax Alternative”

Tuesday, October 17, 2017 – William Birdthistle (Chicago-Kent):  “Free Funds: Retirement Saving as Public Infrastructure”

Tuesday, November 14, 2017 – Cary Martin Shelby (DePaul): “The Role of Competition in the Regulation of Investment Funds”

Tuesday, November 28, 2017, 12:15 pm – Lily Batchelder (NYU), co-sponsored with Tax Policy Workshop: “The Shaky Case for a Business Cash-Flow Tax”

Continue reading “Something Old, Something New: Two Workshop Series @ Boston College Law School this Fall”

So about that Robot Tax…

Shu-Yi Oei

I came across a couple of news stories recently about how South Korea is introducing the world’s first robot tax. But based on the press reports, it sounds like the so-called robot tax is actually just a reduction of the tax deductions available to businesses that invest in productivity-boosting automation. The news sources themselves concede that this “robot tax” not exactly a tax on robots but rather a tax benefit reduction for automation investment.

Talk of a “robot tax” has landed at the forefront of tax news since Bill Gates mentioned it in a Quartz interview back in February of 2017. But of course, scholarship about robots (not to mention robots themselves) has been around for quite a bit longer. There’s even a “We-Robot” robotics law and policy conference that’s been going on since 2012, which I keep meaning to crash, but then there’s always something else going on.

A lot of what seems to be driving the tax conversation is the fear that robots are taking over jobs, though there’s some uncertainty about the extent to which robots are to blame.

Personally, I’ve been having a hard time squaring the newly ascendant tax conversation about the robot tax with the broader legal scholarship on robots. In some of the news and other commentary discussing Robotaxation, my reaction has been something to the effect of “I’m not sure that word means what you think it means.” Turns out, there is something of an existing conversation about what constitutes a robot in the first place—see, for example, Richards and Smart (2013) for a nice discussion of some of the definitional issues. See also this “What is a Robot?” piece in The Atlantic. In defining “robot,” it might matter how a robot moves in the physical world, what kind of quasi-independent agency it seems to exercise (autonomous vs. semi-autonomous), how humans interact with it, and even what sorts of emotions it triggers in us mere humans. We might understand some automated machines to be robots but others to just be automated equipment. And these distinctions make sense, from the viewpoint of areas like tort law, privacy law, the law of principals and agents, and the more general regulation of robots (and of artificial intelligence as a subcategory of robots).

But in some of the tax discussions about robots that I’ve seen on the interwebs, it’s quite clear that the authors don’t necessarily mean Robot when they say Robot. Continue reading “So about that Robot Tax…”

Villanova Seeks to Hire Assistant/Associate/Full Professor of Law and Federal Tax Clinic Director

And here’s another hiring announcement:

Villanova University Charles Widger School of Law seeks an outstanding lawyer-educator to direct and teach its nationally regarded Federal Tax Clinic. The Clinic represents low-income taxpayers in controversies with the IRS. The Director oversees students working in teams on examinations, administrative appeals, collection matters, and cases before the United States Tax Court, Federal District Courts and Appeals, as well as on comments projects relating to guidance issued by the IRS or Treasury.

The Director will be either a full-time continuing non-tenure track (governed by ABA Standard 405 ( c ) ), tenure-track, or tenured member of the faculty, depending on the qualifications and aspirations of the successful candidate.

Minimum Qualifications:

• A Juris Doctor degree is required.
• Pennsylvania bar membership (or an ability to waive into the Pennsylvania bar) is required.
• Outstanding clinical teaching ability is required.
• Expertise in federal tax law is required.
• Outstanding scholarly potential is required for candidates seeking a tenure-track position. A demonstrated record of outstanding scholarship is required for candidates seeking a tenured position.

Preferred Qualifications:

• Five years of legal experience is strongly preferred, as is experience working on behalf of low-income taxpayers.
• Prior clinical teaching experience is advantageous, but not essential.

Looking Back at Maurer’s SALT-Filled 2017 Tax Policy Colloquium

By: Leandra Lederman

With classes starting again, I have been planning for the new academic year, which also entails looking back at the 2016-2017 year. I’m teaching Introduction to Income Tax this Fall, and will be teaching Corporate Tax and Tax Policy Colloquium this Spring.

I am fortunate to run our Tax Policy Colloquium. I blogged on TaxProf Blog about launching the Colloquium and reflected back on it there after its first year. From my perspective, it has consistently been a terrific experience. Spring 2017 was special, though, because many of the paper topics seemed to connect, although that was largely unplanned. Here is the list of presenters we hosted, and their paper titles:

Daniel Hemel, University of Chicago Law SchoolFederalism as a Safeguard of Progressivity

Rebecca Kysar, Brooklyn Law School, Automatic Legislation

Les Book, Villanova University School of Law & David Walker, Intuit (via Skype), Thinking About Taxpayer Rights and Social Psychology to Improve Administration of the EITC

Allison Christians, McGill University Faculty of LawHuman Rights At the Borders of Tax Sovereignty

Mildred Robinson, University of Virginia School of Law, Irreconcilable Differences?: State Income Tax Law in the Shadow of the Internal Revenue Code

Jason Oh, UCLA School of LawAre Progressive Tax Rates Progressive Policy?

David Gamage, Indiana University Maurer School of LawTax Cannibalization and State Government Tax Incentive Programs

Justin Ross, Indiana University School of Public and Environmental AffairsThe Impact of State Taxes on Pass-Through Businesses: Evidence from the 2012 Kansas Income Tax Reform

These papers got us to think both about state tax systems and about how the U.S. federal and state tax systems interact or differ. One recurring theme was how regressive U.S. state tax systems generally are (aggregating all the taxes within a state). That discussion started with Daniel Hemel’s paper; he cited 2015 ITEP data that came up repeatedly throughout the course.

The ITEP site lists Washington, Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas, and Indiana as the 10 states with the most regressive tax systems. I notice that several of those don’t have state income taxes. But many, including Indiana, do. As an example, here are the stats on Indiana’s tax system in 2015, coming in at 10th most regressive in the ITEP study.

In case you’re wondering, ITEP says that the 7 states with the least regressive tax systems in 2015 were (in alphabetical order) California, Delaware, the District of Columbia, Minnesota, Montana, Oregon, and Vermont. Least regressive doesn’t mean “progressive,” though: “In each of these states, at least some low- or middle-income groups pay more of their income in state and local taxes than wealthy families. In other words, every single state and local tax system is regressive and even these states that do better than others have much room for improvement.”

I’m now looking ahead to another terrific group of Colloquium speakers in Spring 2018. Paper topics are as yet undetermined, so I don’t know if themes will emerge, but I will plan to follow up with more on the Colloquium content in the future.

What My Noisy New Hobby is Teaching Me about Tax

Shu Yi Oei

While Sam was out there visiting the National Parks, I went and acquired a noisy new hobby.

drums

So far, I’ve only had two drum lessons but am completely hooked. What took me so long to pick up the drums? If you love music, get a kick out of repetitive motion, and enjoy making a big noise, I highly recommend it.

Learning the drum set is a matter of first impression for me. [FN1] So the actual noise making aside, it’s given me an unexpected midsummer opportunity to revisit what it feels like to learn a new skill for the first time, which of course makes me think about the fundamentals of teaching and writing in tax.

Here are some newbie observations:

  1. Assembling the Drum Set

I went out and bought a cheap drum set so I could practice at home. What really surprised me was the amount I learnt about the drums simply by virtue of assembling the drum set. Things I know now that I didn’t know before:

  • That restaurant in New Orleans called the High Hat? Turns out it probably isn’t named after an actual hat.
  • Who knew you had to tune the drums? It’s almost as if it’s a musical instrument or something.
  • The crash cymbal and high hat sit much lower to the ground than I had ever imagined.
  • You can actually turn the snares on a snare drum on and off. Did I know that? Nope.

The experience of assembling my own drum set was so useful that it got me thinking about how one might get one’s tax students to do the equivalent of assembling a drum set. Continue reading “What My Noisy New Hobby is Teaching Me about Tax”