On February 1, the Indiana University Maurer School of Law welcomed Prof. Jake Brooksfrom 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””→
The conference tax bill follows both the House and the Senate bills in drastically increasing the standard deduction (from current law’s $13,000 in 2018 to $24,000). At the same time, it gets rid of personal exemptions. As Stephanie Hoffer pointed out eight months ago, eliminating personal exemptions would essentially increase taxes on families of four or more people; the more children a family had, the bigger its tax increase.
To fix that problem, the bill doubles the child tax credit from $1,000 to $2,000 per child. In addition, to get Marco Rubio’s vote, the bill provides that up to $1,400 of each child tax credit is refundable.
Diane Ring and I were invited to write a guest post for the On Labor blog, to explain the potential effects of tax reform on work arrangements for a labor law audience. There was some interest in tax reform among labor law experts in light of the New York Times article that ran on December 9, titled “Tax Plans May Give Your Co-Worker a Better Deal Than You.”
We wrote a pair of posts, describing the potential effects of tax reform on work arrangements (including decisions to form a passthrough or to classify oneself as an independent contractor).
Something that struck us in our attempt to translate the policy issues for a non-tax legal audience was the sheer complexity of some of the new provisions in the new proposed provisions and the difficulty of discussing them with integrity–maintaining nuance, not oversimplifying or being hyperbolic, but still being understandable. As others have noted, the creation of the proposed tax legislation and the subsequent commentary on it have both happened very quickly. Our attempt to explain clearly the proposed legislative provisions to a non-tax legal audience and to discuss the policy issues at stake really highlighted for us the complexity of these proposed laws, the policy pitfalls, and the perils of operating at high speed.
…The goal of this two-part blog post is to summarize for a labor law audience how the proposed tax legislation creates these outcomes and to highlight the important policy issues that observers and commentators might be concerned about. This Part 1 focuses on the statutory provisions, and Part 2 will discuss the key policy conversations that are taking place….
This post follows up on our prior post, which focused on the complex provisions of the proposed Senate tax bill. This post discusses some of the key concerns that have been expressed about the new tax bill. (Again, we focus here on the Senate version of the proposed legislation. The specifics of the analysis may change once we get the Conference version, though the broader policy and design questions are likely to persist.)
“Before any great things are accomplished, a memorable change must be made in the system of education and knowledge must become so general as to raise the lower ranks of society nearer to the higher. The education of a nation instead of being confined to a few schools and universities for the instruction of the few, must become the national care and expense for the formation of the many.”—John Adams
There has been much ado recently (including on Surly) about the fact that the current version of tax reform before the House of Representatives repeals Section 117(d) of the Internal Revenue Code. As a general rule, you have to pay taxes on anything of value your employer gives you. Section 117(d) is an exception to this rule; among other things, it exempts graduate students from paying taxes on tuition waivers. With that subsection excised from the Code, graduate students would be taxed on tuition waivers that they receive (usually in addition to a very modest stipend) when they worked as teaching and research assistants as part of their program.
If this repeal were to become law, students without personal or family resources would have a very difficult time pursuing graduate education. But while the plight of graduate students has gotten huge amounts of attention, it is not the worst thing about the repeal of Section 117(d). Continue reading “Tax Reform, Tuition Waivers, and Economic Mobility”→
Many of the links Ann has assembled look at the industry and deal-specific impacts of the tax bill…For example, potential effects on LBOs, sports stadium financing, future of stock options, higher education, and homebuilders. A nice complement to the more ubiquitous analyses of revenue effects, scoring, and distributional estimates we’re seeing on the tax prof/economists side. This information about who is likely to feel what effects gives us some insights into how the politics/political economy of this tax reform is likely to unfold going forward. Well worth a click.
Well, it has finally arrived. This morning, the House GOP gave us a 426-page bill (and an 82-page section-by-section summary).
There’s a lot going on here, and it’s hard to say how much attention we should pay. After all, now lobbyists, Democrats, and interest groups can read the bill and start arguing against (or for) it. Moreover, this is just the House; the Senate still has to release its bill,[fn1] which may differ substantially. And the fact that we have a bill doesn’t in any way indicate that (a) it will be enacted, or (b) the enacted law will look anything like the bill.
The President’s one-page tax plan, released on Wednesday, claims that it will “[p]rovide relief to American families – especially middle income families.” Whether tax reform eventually lives up to the President’s claim, though, will depend on how he and the Congress choose to address not only tax rates and the standard deduction, but also the personal exemption and credits related to children and dependents.
Like the Republican blueprint for tax reform, the President’s plan would double the standard deduction while trimming itemized deductions. It also would expand the credit for child and dependent care, although the plan doesn’t specify how.
Notably, the Republican proposal would eliminate personal exemptions provided by § 151, which allow a deduction of $4,050 per dependent in 2017. Dependents include a taxpayer’s spouse, children, and other members of the household who rely family support. Although the repeal of § 151 was not specifically mentioned in the President’s proposal, the President and Congress must reach consensus on how to reduce the cost of tax reform. Eliminating personal exemptions in favor of an expanded standard deduction may be an approach on which both could agree, but it may not be good policy. Continue reading “How Will Trump’s Tax Plan Affect Middle-Income Families?”→
Aren’t we all wondering what President Trump’s big tax reform announcement will be tomorrow? Loyola Los Angeles Tax LL.M. student Anosh Ali ventured a tongue-in-cheek guess in a short memo he wrote in Katie Pratt’s Tax Policy class. We’ll see tomorrow how good a prognosticator Anosh is.
Until then, at least we know that his Presidential ‘voice’ is spot on
TO: President Trump
FROM: Anosh Ali, White House Communications Specialist