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.
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.
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.  It has been suggested that the elimination of the deduction will drop home prices between 2 and 13% with significant regional differences.  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”
By: David Herzig
Last week Tax Foundation tweeted about the states that have either a state level estate or inheritance tax.
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”
By Sam Brunson
Over the last couple weeks I’ve gotten at least three calls from numbers I’m not familiar with. When I pick up, a heavily-accented recorded voice tells me that I haven’t paid my taxes, the IRS has filed a lawsuit (or, in one recording, a “law-sweet”) against me, and that police are on their way to arrest me. I can get out of my problems if I call them back immediately.
I’ve called back three times. The first time, I got flustered when asked for personal information, and told the guy I knew it was a scam. The third time, the call center noises were so loud that I could barely hear the person, and eventually, she put me on hold and then the call dropped. The second, though …
The second, I told the guy on the phone that my name was Carlos Danger. (I had to spell “Danger” for him.) I gave him a fake string of 9 digits (that he read back to me, and I was lucky that I mostly remembered it. Protip: if you’re giving a fake SSN to scammers, do something memorable. David Herzig, for example, recommends 867-53-0909). He put me on hold, and checked his computer, and then told me his records showed I owed $9,700 in back taxes. Continue reading “… and police are on their way to your house to arrest you”
By: Diane Ring
The French election for president—an event worthy of note in its own right (particularly on the heels of the Brexit vote)—generated a political, international relations, security and media firestorm due to a late-breaking data leak and hack. On Friday, the campaign of French centrist candidate Emmanuel Macron announced that it had been the subject of a major computer hack. At least 9GB of emails and personal and business documents from Macron’s campaign were posted to a document sharing site called Pastebin. Initial reports contended that the hack and leak were an effort to aid Macron’s far-right opponent Marine Le Pen, and may have been undertaken with Russian assistance. While Macron won the election, the potential fallout out from these leaks may have only just begun.
There’s an important tax dimension to the story, which may have been slightly overshadowed by Friday’s massive data dump. Two days before, on Wednesday, Le Pen hinted during a debate at possibility that Macron might have an offshore account in the Bahamas. Apparently, two hours before the debate, documents were anonymously posted on an internet forum that purported to include Macron’s signature and to show that he had a Bahamas bank account. During the debate, Macron responded that the claim was false and constituted “defamation.” On Thursday, Macron and his campaign outlined the spread of this offshore-account assertion on various sites and contended some were connected to “Russian interests.” On Friday, Macron lodged a complaint with the French prosecutor’s office regarding offshore account allegations made online.
Though the Friday hack and data dump have dominated the spotlight, the alleged tax leak is in fact part of the bigger and quite troubling picture of leaks in the modern cyber environment . . .
Continue reading “Macron and the Potential Future of Tax Leaks”
By: David Herzig
As the world braces for the upcoming Executive Order from President Trump,
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?”
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?
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”
By: David Herzig
Yesterday on Twitter, Scott Greenberg (@ScottElliotG) posted the following tweet from Matt Bruenig.
Well, David Gamage, Omri Marian, Andy 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; 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!
 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”.
By: Diane Ring
This month marks the one-year anniversary of the Panama Papers leak. In April 2016, the ICIJ announced the leak and a few weeks later (May 9, 2016) released a database that included a subset of the leaked data. The leak itself comprised over 11 million records spanning 40 years from the Panamanian law firm Mossack Fonseca. At its core, the leak revealed the true ownership of over 200,000 offshore entities, thereby raising a host of tax and political questions regarding many of the entities’ owners.
So what has happened over the past year as a result of the leak? Continue reading “Panama Papers: The One-Year Anniversary”
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”
My pal Ann Lipton–corporate governance and securities law expert and blogger extraordinaire over at BLPB–is organizing a conference at Tulane Law School today on the topic of “Navigating Federalism in Corporate and Securities Law.” It looked so interesting that I had to leave Henry Ordower and Kerry Ryan’s fabulous Critical Issues in Comparative and International Taxation: Taxation and Migration Conference a day early to crash her party! I’ve been auditing Securities Regulation and very much feeling like a little duckling in the securities/corporate world all semester, so I’m really looking forward to sitting in on an unfamiliar conversation. I always find that “cross-training” in other fields gives me fresh perspectives on my own work.
Here is the schedule. Some of these papers are really interesting!
The Problem of Large Shareholders
(Discussant: Urska Velikonja)
The Problem of Small Shareholders
(Discussant: Ann Lipton)
- Jill Fisch (Penn), Advance Voting Instructions: Tapping the Voice of the Excluded Retail Investor
- J.W. Verret (George Mason), Uber-ized Corporate Law
What Can States Regulate?
(Discussant: Jill Fisch)
- Kent Greenfield (Boston College), Corporate Power and Campaign Finance
- Summer Kim (Irvine), Corporate Long Arms
The Line Between Corporate Law and Securities Law
(Discussant: James Cox)
- Ann Lipton (Tulane), Reviving Reliance
- James Park (UCLA), Delaware and Santa Fe
- Robert Thompson (Georgetown), Delaware’s Dominance: A Peculiar Illustration of American Federalism
The Operation of the SEC
(Discussant: James Park)
- James Cox (Duke), Revolving Elites: Assessing Capture in the SEC
- Urska Velikonja (Emory), Admissions in Public Enforcement