One of the key components of the CARES Act was the Paycheck Protection Program, a $500 billion lifeline to American businesses dealing with the effects of the COVID-19 pandemic and the resulting public health measures that slowed commerce across the country. Like any significant financial program, the PPP came with tax questions. The program provided participants with loans rather than grants, but those loans would be forgiven if taxpayers complied with the conditions of that program. Normally, loan forgiveness results in income to the beneficiary, but Congress provided an exemption for those amounts under the PPP. Taxpayers would therefore get to keep their entire grants if they complied with the conditions of the program. Or so many thought.Continue reading “PPP Deductibility: Will anyone think of the States?”
By Diane Ring
As is apparent to the entire nation, the United States is currently trying to manage a fast-moving public health crisis due to the coronavirus outbreak (COVID-19). The economic and financial ramifications of the outbreak are serious. Yet the policy responses being developed have limited time for assessment and evaluation—despite their likely dramatic impacts. Three of my colleagues (Hiba Hafiz, Shu-Yi Oei, and Natalya Shnister) and I are currently working on a project that analyzes and tracks these emerging responses. Having spent the past several years working together as part of Boston College Law School’s Regulation and Markets Workshop, it made sense to combine our efforts and expertise to try and contribute to effective policy guidance at this critical time.
Our new Working Paper (“Regulating in Pandemic: Evaluating Economic and Financial Policy Responses to the Coronavirus Crisis”) discusses the ramifications of proposed and legislated policy and other actions and identifies three interrelated but potentially conflicting policy priorities at stake in managing the economic and financial fallout of the COVID-19 crisis: (1) providing social insurance to individuals and families in need; (2) managing systemic economic and financial risk; and (3) encouraging critical spatial behaviors to help contain COVID-19 transmission. The confluence of these three policy considerations and the potential conflicts among them make the outbreak a significant and unique regulatory challenge for policymakers, and one for which the consequences of getting it wrong are dire.
This Working Paper—which will be continually updated to reflect current developments—will analyze the major legislative and other policy initiatives that are being proposed and enacted to manage the economic and financial aspects of the COVID-19 crisis by examining these initiatives through the lens of these three policy priorities. It starts by analyzing the provisions of H.R. 6201 (the “Families First Coronavirus Responses Act”) passed by the house on March 14, 2020. By doing so, this Working Paper provides an analytical framework for evaluating these initiatives.
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.
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”
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”
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”
By Sam Brunson
I grew up in the north suburbs of San Diego and, while I haven’t lived in Southern California in a couple decades now, I try to keep a vestigial self-identification as a Southern Californian.[fn1] Part of that self-identification is listening to the Voice of San Diego podcast; it keeps me vaguely up-to-date on current politics in San Diego.
Today, as I was walking to the pet store, I turned on the most recent episode. On that episode, the regular hosts were joined by Liam Dillon, now a reporter for the LA Times. And they mentioned a story he’d recently written, about the inheritance of property tax rates in California. Continue reading “Inheriting Property Tax Assessments in California”
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.
By: Diane Ring
Today the 9th Circuit weighed in on the validity of a Seattle ordinance that requires businesses contracting with taxi-drivers, for-hire transportation companies, and “transportation network companies” to bargain with drivers if a majority of drivers seek such representation. The legislation, which effectively enables Uber and Lyft drivers to unionize, drew objections from Uber, Lyft and the Chamber of Commerce— which sued the City of Seattle. In an August 2017 post, I reviewed the ruling of the U.S. District Court for the Western District of Washington, which concluded that the Seattle ordinance was an appropriate exercise of the city’s authority and did not violate the Sherman Act (because of state action immunity) and was not preempted by the National Labor Relations Act (NLRA). So what did the 9th Circuit say?
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:
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.
New technology has the potential to completely change the face of tax law and accounting: that was the take-away from a recent installment of a tax and tech series organized by Professor Jeffrey Owens and Julia de Jong of Vienna University’s Digital Economy Taxation Network. The roundtable on Governance Implications of Disruptive Technology assembled experts from Microsoft, PWC, think tanks, and the academy.
The session began with a staggering prediction that large companies will sack up to 40% of their tax compliance employees in coming years. Why? Experts anticipate that technological progress in data collection and algorithmic reporting will allow audit functions to be built directly into data collection and management. This integration will allow governments to coordinate seamlessly with taxpayers by assuming the role of tax preparers whose reliance on algorithms largely eliminates the need for auditors. Similarly, data technology will eventually obsolete VAT returns, an administrative headache for most of the globe and a major source of work for the accounting industry. Eelco van der Enden, a partner with PWC Netherlands, went so far as to predict the breakup of Big Four accounting within ten years as technology grabs the tax prep reins and renders auditing obsolete.
Disruptive technologies that leverage data also have the potential to revolutionize how we address the tax gap. As van der Enden noted, “[d]ays are gone when you could create a bunch of bullshit” in a tax return to force regulators into a negotiation. The ready availability of data from sources as disparate as taxpayer reporting, social media accounts, and even satellite pictures of the planet are poised to revolutionize business and tax transparency. In addition, advances like quantum computing, when combined with what has been called a tsunami of data, will allow tax systems to handle an exponentially increasing amount of complexity. Transfer pricing, for instance, will be a whole new ballgame with the advent of close-to-omniscient tech. When (not if, but when) complexity no longer results in a loss of efficiency on the human side, tax administrations could see large gains from re-regulation in some cases.
As Harald Leitenmuller of Microsoft concluded about tax experts going forward, “[t]he future of your profession is to be a good data scientist who can leverage the knowledge hidden in the existing data.” Congress and IRS, take note.
(Written with thanks to Fulbright Austria for supporting my work.)
With a major new tax act to implement, it would be nice if the IRS had a positive image, a steadily increasing budget, and clarity on how to best promulgate guidance. Sadly none of that is true. The IRS public image after the Tea Party crisis in 2013 is poor; its budget has lagged behind its needs over the past 5 years; and, the legal landscape in which it enacts guidance has begun to seriously shift particularly over the past 10 years with cases like Mayo, Altera and Chamber of Commerce making it difficult to know the best strategy for publishing useful guidance on the new 2017 Tax Act.
The Teaching Taxation committee, held a panel this past Friday at the ABA Tax Section’s Midyear Meeting called Evolving Constraints on Tax Administration to consider this landscape the IRS finds itself in at the start of 2018. Our panel included Caroline Ciraolo, a partner at Kostelanetz & Fink, LLP and former Acting Assistant Attorney General in the DOJ Tax Division, James R. Gadwood, Counsel, Miller & Chevalier, Kristin E. Hickman, law professor at Minnesota Law School, and fellow Surly blogger Leandra Lederman, professor at Indiana University Maurer School of Law. Continue reading “ABA TaxSection Midyear Meeting Panel: Evolving Constraints on Tax Administration”
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:
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.
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 . . .