John Kasich’s Tax Plan: 2008 Was Great!

Last week I wrote about Donald Trump’s dumbfounding decision, as the Republican frontrunner, to advocate for increasing taxes on the wealthy. I left for today commentary on the amazing interview Ohio Governor John Kasich did with the Washington Post Editorial Board. Essentially Gov. Kasich believes that we can obtain economic growth through spending cuts. (Just to be clear why this is on a tax blog: spending and taxes go together like peanut butter and jelly).

It seems most pundits are speculating that there will be a contested Republic convention in Cleveland. It has also been speculated that in that environment, a wildcard like, Gov. Kasich or Rep. Ryan, might end up the nomination. Both Gov. Kasich and Rep. Ryan appear to hold the same position that spending cuts are good. They believe that spending cuts plus tax cuts (I will address the tax cuts issue in a later post) will actually increase overall tax revenues through overall economic growth. It is not surprising that the two Republican establishment figures would hold such a belief. This principle is alignment with popular thinking: polls show many Americans think spending cuts will have an economic benefit by a 55 to 18 percent margin.

I think, therefore, it is worth exploring why spending cuts as related to growth (economic and job) is not at all mainstream economic thinking. But like all issues, here we have a complicated discussion. It may be true that spending cuts help balance the budget which may grow the economy in other dimensions. But spending in a recession, as most economic data seems to show, is the main way forward for job growth and to exit the recession. Most mainstream economists believe: (1) that spending increases job growth on a temporary basis; (2) a reduction in spending will unwind the growth back to the baseline without spending; and (3) job growth will grow the economy. However, in no way is there permanency attached to spending as related to job growth. (This is the reason that Bernie Sander’s forecasts are of job growth in his plan are incorrect. See this study.)

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Hello from Francine Lipman

“Dearly Beloved we are gathered here today to get through this thing we call ‘Life.'” Prince 1958 – 2016. I am delighted to join this exceptional tribe of talented law professors presently known as The Surly Subgroup. My day job is at the William S. Boyd School of Law at the University of Nevada, Las Vegas as a William S. Boyd Professor of Law teaching tax law, accounting and finance courses. I also get to research, write and publish about and advocate for “access to tax justice.”

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Prince and the Estate Tax

As radio stations play Prince songs all day long and Purple Rain makes a return to the theatre, I was struck by the vast amount of content Prince not only produced but owned. Sadly, immediately, I thought of the potential estate tax value of Prince’s estate. This unique situation is playing out right now with the Michael Jackson estate but here Prince owned more of his own work.

Currently, conservative estimates have his estate at $300 million. But these estimates may be way off as Prince actually owned his recording and publishing copyrights. According to the LA Times, music industry insiders say they “can’t imagine a catalog that would have a higher value.”

There is much speculation on who will receive his estate. Because, probate has not been opened, we do not know if Prince had a will yet or not. There has been speculation that he had no will since he was unmarried and had no children. But this seems rather silly (and kind of offensive) to me given his concern for protecting the value of his catalog during life. I would expect to see a pour-over will to a trust.

What will be interesting is what type of estate planning he engaged in during life. Normally, estate tax returns are private and only the estate, the beneficiaries and the IRS know what is on them. However, in the case with a hard to value asset (e.g., a massive music library), there is often a difference of opinion between the estate and the IRS as to the value of the asset. Since the resolution of the difference is in court, we will get a glimpse into the planning done by Prince. One point to make here is that if the beneficiary of the estate is Jehovah’s Witnesses as has been reported (speculated), then this might not end up in court because there would be no tax due because of the estate charitable deduction.

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Charitable Organizations and Marijuana?

In Denial 201615018 (released April 8, 2016 and for which I can only find a Tax Notes link) the IRS denied the charitable organization application of a nonprofit organization organized “to provide a way for your members to collectively and cooperatively cultivate and distribute medical marijuana for medical purposes to qualified patients and primary caregivers who come together to collectively and cooperatively cultivate physician-recommended marijuana.” The IRS denied the organization’s applications on two bases: (1) a charitable organization cannot engage in illegal activities and the distribution of marijuana is illegal under federal law; and (2) it provided too much private benefit. I will focus only on the first basis.

Ben Leff and I have previously debated the issue of marijuana distribution and tax exemption. Ben contended that under certain circumstances a social welfare organization under 501(c)(4) could form to distribute marijuana and operate in a tax-exempt vehicle. The reason to try to do this instead of operating in a taxable vehicle is that under section 280E federal tax law prohibits marijuana distributors from deducting trade or business expenses. While I disagreed with Ben, neither of us argued that a charitable organization could engage in the distribution of marijuana. Both of us, and Ben should absolutely chime in, believed that the public policy/illegality limitation on charitable organizations is absolutely clear on this front: engaging in an illegal activity as a substantial purpose just does not cut it under charitable tax rules. Continue reading “Charitable Organizations and Marijuana?” →

A New Republican Idea: Raising Taxes on the Rich

What a crazy day for Republican Presidential candidates as related to their tax positions!! Donald Trump wants to raise taxes on the wealthy and Kasich (the supposed mainstream candidate) still thinks that you can grow the economy through spending cuts!

For now, I will just discuss Donald Trump truly anti-establishment position. He appeared in a town hall meeting on the Today show this morning. During the segment Savannah Guthrie asked Mr. Trump if he believes that taxes should be raised on the wealthy (see about 16:52 of the clip). He said he does, including on himself. That must have been a shock to the Republican base!

Mr. Trump’s bombshell is a window into the main idea I discussed in my introductory post. There is a “huuuuge” difference between the absolute rates and effective rates. This problem is very evident in the corporate tax world. However, Mr. Trump’s statement shows it is just as prevalent with individual taxes.

Almost everyone (other than tax professors), especially the candidates (including Trump here), discuss taxes as related to absolute rates and not effective rates. For example, we can make the stated tax rate 75% or 90%. This stated rate means very little because that rate is applied to an adjusted gross income number. What really matters is how adjusted gross income is determined. Rates do matter, but only if gross income and adjusted gross income are fairly similar (I’m look at you middle America).

To explain this let’s use an example. Assume Mr. Trump’s gross income is $100, we do not take a rate (let’s use 40%) and multiply that by the $100 for $40 in tax due. We first allow a series of above-the-line (non-phased out) deductions to that gross income. In Mr. Trump’s case, this allows him to reduce his income to zero. Richard Rubin of the Wall Street Journal has done a great job writing about how Mr. Trump has reduced his taxes (to what number we don’t know since he will not release his returns). From Rubin’s research, Mr. Trump uses from the usual, depreciation deductions, to the unusual, goat herds. Even if Mr. Trump wanted to raising his stated rate to 100%, it would not matter; his effective tax rate might still be zero. 100% of zero is zero (for those math geeks, the formula is: 100% * 0 =0)

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Introducing myself

I’m so happy to be a part of this group! My name is Ben Leff and I’m a professor at American University’s Washington College of Law. I teach the introductory Federal Income Tax class, as well as a class called the Law of Nonprofit Organizations. I have also taught Tax Policy and Estate and Gift Tax.

In my writing, I focus on nonprofit organizations. I think my interest initially came from my involvement in the student cooperative movement while a student at Oberlin College in the late 1980s. I got interested in religious organizations and church-state relations as a Ph.D student of American Religious History at the University of Chicago in the mid-1990s. Finally, while in practice in Texas in the early 2000s, I represented a broad range of tax-exempt organizations while they grappled with a number of interesting issues.

Most recently, I’ve been thinking about ways in which non-profit laws interact with “entrepreneurial” activities, both for social enterprises generally, and specifically in the marijuana industry. I’m also really interested in the student loan industry, and am especially following the emergence of so-called “income share agreements,” and so may comment on that occasionally.

I’m also interested in tax policy generally, especially the ideological and philosophical underpinnings of tax fairness. I haven’t written much about this topic to date, but hope to do so in the future.

I’ll be on sabbatical for the 2016-17 academic year, and will be an academic visitor at the Oxford University Law Faculty, researching British and EU law, and so will likely write posts about differences from across the pond as well.

Introductions

How exciting – my first ever blog post! My name is Jennifer Bird-Pollan, and I am a tenured Associate Professor at the University of Kentucky College of Law, teaching a variety of tax classes. My research over the past few years has focused primarily on wealth transfer taxation, in particular on the interaction between current policies taxing transfers at death and various philosophical views of distributive justice. I am also in the final stages of drafting a dissertation on the subject of philosophy and wealth transfer taxation in completion of a PhD in Philosophy at Vanderbilt University.

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Introductory Post: Diane Ring

I am delighted to have joined my fellow tax bloggers in this consolidated blogging endeavor. I am Diane Ring, and I teach tax law in its many forms at Boston College Law School. Not surprisingly, my research has also focused on tax, with a primary emphasis on international tax, ethics, and corporate tax.

In the past few years, my international tax work has been examining the impact of contemporary trends in tax transparency and disclosure. On a separate track, my co-author (and fellow blogger) Shu-Yi Oei and I have been exploring a range of issues in the sharing economy, human capital contracts and other evolving commercial arrangements.

Although posts will likely reflect some of my formal research interests, I see tax everywhere and hope to share this view of the world through the blog. Although my students have pointed out that dogs have featured disproportionately (some might say excessively) in my exams over the years, I imagine canines will play a less prominent role in my posts — although I hold out hope.

My colleague at Boston College Law School, Jim Repetti, and I host a tax policy workshop bringing in outside speakers to present on a variety of interesting and diverse tax topics. These workshops will prove a great source of ideas, debates, and conversations, which I look forward to sharing in my posts.

Hello from David

First, I am very excited to be part of this ambitious tax blog platform. Thanks Sam and Shu-Yi for organizing this!

Since we do not know each other, I will put up my blog version of a tinder profile. Hopefully, according to tinder protocol, I get some “right-swipes.”

As a way of introduction, I am a tenured law professor at Valparaiso School of Law with a visiting position for the next two summers a Loyola Law School in Los Angeles. You can find my opinions in 120 characters on twitter @professortax.

I am an employed as a full time law professor. Therefore, it goes without saying that I write law review scholarship. But, based on citations, I assume only 5 or 6 of you read it. Rather than talk to this select few, last year, I made a conscious decision to be more involved with the public. I hoped to impart to the general public better understanding of taxes and how taxes relate to one’s everyday life. I accomplished this through writing articles and serving as background for reporters (with an occasional quote).

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Introduction Post: Philip Hackney

My name is Philip Hackney. I am a professor of law @LSULawCenter and a member of the Surly Subgroup who is particularly interested in Subchapter F. Today was not Tax Day for me – that is on May 15 instead. For the Surly Subgroup, I will focus primarily on issues surrounding nonprofit organizations. I worked for the Office of the Chief Counsel of the IRS in its Tax Exempt Government Entities division for 5 years with a focus on exempt nonprofit organizations. This experience deeply influences my work.

Many people think of only charitable organizations when they hear the term nonprofit organization, but it is a much more diverse sector than just charitable. The NFL and the NCAA are both nonprofit organizations. I often view nonprofits through an interest group lens. Trade associations, labor unions, and social welfare organizations (think Tea Party) all play a big part in our democracy and are subject to some of our most divisive issues such as campaign finance and fights over inequality. Although many might think of the nonprofit sector as a sleepy powerless backwater in our economy and in our political system, it is anything but. I hope to share my fascination with the nonprofit sector and its relationship to our taxation system with you on this blog. I will also blog about public policy, tax administration, nonprofit governance, and maybe occasionally my deep frustration with some significant tax and public policy problems with my home state of Louisiana.

Thanks for reading and I look forward to interacting with this surly subgroup and with you the readers.

Happy Tax Day. Also, Here We Are

Today is Tax Day. (Yes, we’re completely aware that the Code says returns are due on April 15, and that April 15 was last Friday. But, it turns out, Friday was also the day Emancipation Day—a holiday in D.C.—was observed. Which pushed Tax Day to the following Monday. Unless you live in Massachusetts or Maine, which celebrate Patriots’ Day today. So, for our readers in Massachusetts and Maine, we’re wishing you a happy Tax Day a day early.)

Wait, where was I? Right. Tax Day. We thought Tax Day would be an auspicious day to launch a new group tax blog. So here we are. We have a great stable of bloggers. Over the next couple weeks, we’ll start introducing ourselves and launching conversations about tax law, tax policy, and the intersection of tax and all sorts of other things. Also, we hope that someone will explain our name. We hope you’ll read, and we hope you’ll participate in the conversations with us.

Until then, this is the first of what we hope will be many Tax Day greetings.