TaxProf Blog

U.S. Supreme Court Upholds Discriminatory Taxation of Municipal Bonds

The Supreme Court today, in a 7-2 decision, upheld Kentucky's exemption of interest on in-state municipal bonds while taking interest on out of state bonds.  Department of Revenue of Kentucky v. Davis, No. 06-666 (5/19/08).  Gregory Germain (Syracuse) and Bradley Joondeph (Santa Clara) offer detailed analysis of the decision below the fold:

Continue reading "U.S. Supreme Court Upholds Discriminatory Taxation of Municipal Bonds"

Tax Papers at American Law & Economics Association Annual Meeting

Here are the tax papers presented at last weekend's American Law & Economics Association 18th Annual Meeting at Columbia Law School:

• Lily L. Batchelder (NYU) & Surachai Khitatrakun (Urban Institute), Dead or Alive: An Investigation of the Incidence of Estate Taxes versus Inheritance Taxes
• Howard F. Chang (Penn), Immigration Restriction as Redistributive Taxation: Working Women and the Costs of Protectionism in the Labor Market
• Simeon Djankov (World Bank), Tim Ganser (Harvard), Caralee McLiesh (World Bank), Rita Ramalho World Bank) & Andrei Shleifer (Harvard), The Effect of Corporate Taxes on Investment and Entrepreneurship
• Brian D. Galle (Florida State), Federal Grants, State Decisions
• Michael Knoll (Penn), Business Taxes and International Competitiveness
• Alex Raskolnikov, Beyond Deterrence: Targeting Tax Enforcement with a Penalty Default
• Chris W. Sanchirico (Penn), Progressivity and Potential Income: Measuring the Effect of Changing Work Patterns on Income Tax Progressivity
• Max M. Schanzenbach (Northwestern) & Robert H. Sitkoff (Harvard), Bequest Puzzles in Economics: A Legal Perspective

A Tax Prof Dress Code?

I previously have blogged Tax Prof Eric Jensen's call for a dress code for law school faculty.  I received an email today with the university's rules for Summer Business Casual Attire:

Business casual attire is permissible during the period beginning the first Monday following spring commencement and ending the last Friday prior to the first day of classes for the autumn term. Business casual attire must be in good taste and positively reflect the image of the university. ...

Inappropriate summer business casual attire includes, but is not limited to the following:

• Halter tops, sheer tops, tube tops, tank tops, tee-shirts
• Blue Jeans, shorts, leggings, spandex, bib overalls, beachwear, work-out clothes
• Dresses or skirts shorter than four (4) inches above knee length, spaghetti-strap dresses without jacket, micro-mini skirts
• Sneakers, flip-flops, thong shoes, slippers

Conway: Money for Nothing and the Stocks for Free: Taxing Executive Compensation

Meredith R. Conway (Texas Wesleyan; moving to Suffolk) has published Money for Nothing and the Stocks for Free: Taxing Executive Compensation, 18 Cornell J. L. & Pub. Pol'y 383 (2008). Here is the abstract:

In the 1980s and 1990s, the public began to protest the large compensation packages executives were receiving. Average workers were struggling while executives got raises, even as the corporations they worked for failed. This disconnect between executive compensation and executive performance led Congress to attempt to curtail executive compensation. This article will examine the Congress's attempt to temper the amount of compensation through the tax code. These tax code provisions enacted by Congress to restrain excessive executive compensation in fact had the effect of increasing compensation for certain executives at a great cost to stockholders. In 1980, the average CEO made 42 times the average hourly worker's pay. By 1990, the average CEO made 107 times the average hourly worker's pay. In 1993, Congress enacted tax legislation intended to rein in excessive executive compensation. However, in 2000, the average CEO made 525 times the average hourly worker's pay. Compensation amounts that executives receive since the enactment of the tax provisions are increasing dramatically, not decreasing.

Continue reading "Conway: Money for Nothing and the Stocks for Free: Taxing Executive Compensation"

Massachusetts Should Tax Harvard

Earlier this month, I blogged a pending proposal in Massachusetts to impose a 2.5% excise tax on college endowments in excess of $1 billion.  Although much of the commentary opposed the proposal, an op-ed in today's Inside Higher Ed by James D. Miller (Smith College, Department of Economics), Massachusetts Should Tax Harvard, supports the proposal:

Can you believe that the State of Washington actually wants to tax Microsoft? Doesn’t Washington realize that by taxing Microsoft it risks pushing the company to move its headquarters to a lower tax state? And even if Microsoft doesn’t pay taxes it still contributes to the state in many ways by, for example, promoting knowledge creation. Washington wants Microsoft to pay huge sums in taxes just because Microsoft earns astronomic profits. But Microsoft earned these profits through diligence and intelligence. Does Washington really want to punish Microsoft for its hard-earned success?

Washington State, of course, does tax Microsoft. And if Microsoft tried to get out of paying all taxes many college professors would curse the firm for displaying such naked greed. But Harvard University, the Microsoft of the educational world, feels itself entitled to tax exemption. ...

Taxes are like poison. Taking a lot is fatal, but exposure to small quantities only moderately harms health. The best way for a government to tax, therefore, is for it to spread around its tax poison broadly so no entity must consume too much of it. If Massachusetts is determined to collect a certain amount of taxes from organizations (such as corporations), then it will do less harm if it forces all organizations to pay a little than if it mandates that a subset pay a lot.

A tax on elite colleges would reduce inequality. Students who attend top schools have vastly higher lifetime incomes than other Americans do. And even if the tax reduced financial aid and so increased student borrowing, it would still reduce inequality because those who graduate from elite schools with large debts are much better off financially than are their peers who do not attend college. ...

Although I support taxing rich colleges, I believe there are better ways of doing it than through imposing a wealth tax on endowments. As [Greg] Mankiw wrote to me, many economists believe it inefficient for governments to tax savings. I would prefer if Massachusetts imposed a sales tax on tuitions. Such a tax might appeal to politicians who don’t begrudge elite colleges their huge wealth but do feel the schools should spend more of their capital on students by, for example, charging low tuitions.

ABA Tax Section Publishes Spring 2008 Issue of News Quarterly

The ABA Tax Section has published 27 News Quarterly No. 3 (Spring 2008):

• From the Chair (Stanley L. Blend) (pp. 3, 16)
• "Interview" with Ernest J. Brown (pp. 4-5)
• Ethics for the Tax Lawyer: Test Your Knowledge of the ABA's Model Rules (pp. 6-10)
• Points to Remember:
  • Antibribery Laws and the Tax Treatment of a CFC's Payments to Foreign Government Officials and Employees, by Kathryn Morrison Sneade (Miller & Chevalier, Washington, D.C.) (pp. 1, 11)
  • Uniformity Clause Limitations on State Taxation, by Steve R. Johnson (UNLV) (pp. 12-13)
  • Proposed S Corporation Regulations Close to Final, by Michael L. Griffin (Kreig Devault, Indianapolis, IN) (pp. 14-15)
  • Swallows Holding Update, by Kathryn Morrison Sneade (Miller & Chevalier, Washington, D.C.) (p. 16)
• Opinion Point:  Apology Payments (pp. 17-19)
• Publications, by Louis A. Mezzullo (Luce, Forward, Hamilton & Scripps, Rancho Santa Fe, CA) (p. 20)
• News Briefs (p. 21)
• CLE Calendar (p. 22)
• Section Meeting Calendar (p. 22)
• Tax Bites:  Revolution #10.35 (to the Tune of the Beatles' Revolution), by William J. Wilkins (Wilmer Cutler, Pickering Hale and Dorr, Washington, D.C.) (p. 23)
• Pro Bono Award Recipient:  Joseph Barry Schimmel (p. 24)

Hierarchy, History & Happiness in Legal Education

Michael L. Rustad (Suffolk) & Thomas H. Koenig (Northeastern) have posted A Hard Day's Night: Hierarchy, History & Happiness in Legal Education, 58 Syr. L. Rev. 261 (2008), on SSRN.  Here is the abstract:

This Article presents a social history of the struggles of Boston's nontraditional students to break into the legal profession by studying in evening law schools. Suffolk Evening Law School was founded in 1906 as a counter-hegemonic institution, explicitly dedicated to the democratization of legal education by challenging the pedagogy and recruitment practices of Harvard and the other elite day schools. Twenty-first century graduates of the most prestigious day law schools continue to thrive in a relatively charmed legal environment, but the legal hierarchy has been destabilized by a growing emphasis upon achievement over ascription. Suffolk's evening law students, for example, often have a competitive advantage in fields such as intellectual property because the leading Boston law firms recruit disproportionately from the software engineers, biotechnology researchers, and other scientists who work as patent agents by day and study law at night. While the evening law school movement of the early twentieth century did much to replace ascription with meritocracy, the equal opportunity revolution remains incomplete because of the continuing influence of the legal stratification system upon the careers of the alumni of low ranking law schools.

TaxProf Blog Weekend Roundup

Saturday:

• Goodbye, Class of 2008
• NTA Spring Symposium
• Blogging as a Feminist Legal Method
• The Great Tax Cut Delusion and the Decline of Good Government in America

Sunday:

• Top 5 Tax Paper Downloads
• Tate: Marilyn Monroe's Legacy: Taxation of Postmortem Publicity Rights
• Law School Commencement Speakers (Updated)
• Mirkay: Reevaluating the 501(C)(3) Exemption of Religious Organizations that Discriminate

Top 5 Tax Paper Downloads

There is a bit of movement on this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5:

1.  [413 Downloads]  Deduction Ad Absurdum: CEOs Donating Their Own Stock to Their Own Family Foundations, by David Yermack (NYU, Stern School of Business)  [blogged here]

2.  [273 Downloads]  Backdating, by Jeffrey L. Kwall (Loyola-Chicago) & Stuart Duhl (Harrison & Held, Chicago)  [blogged here]

3.  [142 Downloads]  Perpetuities, Taxes, and Asset Protection:  An Empirical Assessment of the Jurisdictional Competition for Trust Funds, by Robert H. Sitkoff (Harvard) & Max M. Schanzenbach (Northwestern)  [blogged here]

4.  [135 Downloads]  Taxation as a Global Socio-Legal Phenomenon, by Allison Christians (Wisconsin), Steven Dean (Brooklyn), Diane M. Ring (Boston College) & Adam H. Rosenzweig (Washington University)  [blogged here]

5.  [115 Downloads]  Recent Developments in Federal Income Taxation: The Year 2007, by Martin J. McMahon, Jr. (Florida), Ira B. Shepard (Houston) & Daniel L. Simmons (UC-Davis)  [blogged here]

Tate: Marilyn Monroe's Legacy: Taxation of Postmortem Publicity Rights

Joshua C. Tate (SMU) responds to Mitchell M. Gans (Hofstra), Bridget J. Crawford (Pace) & Jonathan G. Blattmachr (Milbank, New York), Postmortem Rights of Publicity: The Federal Estate Tax Consequences of New State-Law Property Rights, 117 Yale L.J. Pocket Part 203 (2008) (blogged here), in Marilyn Monroe's Legacy: Taxation of Postmortem Publicity Rights, 117 Yale L.J. Pocket Part ___  (2008).  Here is the abstract:

Mitchell Gans, Bridget Crawford and Jonathan Blattmachr argue that recent state legislation recognizing postmortem publicity rights fails to take into account the likely estate tax consequences. This response explains that, although Gans, Crawford, and Blattmachr are correct that making publicity rights devisable could have adverse tax consequences for some estates, those consequences are not as far-reaching as might be imagined, and the legislative solution they propose will not in fact solve the problem. Estate tax will not be levied on the estates of long-deceased celebrities like Marilyn Monroe (the subject of the recent California legislation with which Gans, Crawford, and Blattmachr lead their piece), and the analogy to wrongful death benefits misconstrues the case law on that subject. Gans, Crawford, and Blattmachr are employing the specter of federal death taxes - which have applied to devisable publicity rights in California since 1985, and are irrelevant to the recent legislative reforms there - in an attempt to frighten state legislatures into unnecessarily restricting testamentary freedom.

Law School Commencement Speakers (Updated)

• Akron:  Bedford Biles
• Albany:  Jeanine Pirro (TV legal analyst; former District Attorney, Westchester County, New York)
• American:  Stephen Breyer (Justice, U.S. Supreme Court)
• Baltimore:  Ted Turner (media mogul)
• Boston College:  Michael Mukasey (Attorney General, United States)
• Boston University:  Niki Tsongas (Member, U.S. Congress)
• Brooklyn:  George Bundy Smith (Partner, Chadbourne & Parke; retired Judge, New York Court of Appeals)
• BYU:  Matthew Durant (Justice, Utah Supreme Court)
• Campbell:  William Suter (Clerk, U.S. Supreme Court)
• Capital:  Jennifer Brunner (Secretary of State, Ohio)
• Cardozo:  Dennis Jacobs (Chief Judge, U.S. Court of Appeals, 2d Circuit)
• Case Western:  Stephen Ellis (Partner, Tucker, Ellis & West) (former Ohio Attorney General Mark Dann was disinvited)
• Catholic:  Samuel Alito (Justice, U.S. Supreme Court)
• Chapman:  Erwin Chemerinsky (Dean, UC-Irvine Law School)
• Charleston:  Jan Crawford Greenburg (Legal Correspondent, ABC News)
• Chicago-Kent:  Lisa Madigan (Attorney General, Illinois)
• Cincinnati:  Billy Martin (Partner, Sutherland Asbill & Brennan)
• Columbia:  Cynthia McFadden (Co-anchor, ABC News)
• Connecticut:  Chase T. Rogers (Chief Justice, Connecticut Supreme Court)
• Cornell:  John Blume (Professor, Cornell)
• Cumberland:  Lee Rosenthal (Judge, U.S. District Court)
• CUNY:  Juan Gonzales (Journalist, New York Daily News)
• Drake:  Robert Ray (former Governor, Iowa)
• Duquesne:  Richard Thornburgh (former Governor, Pennsylvania; former Attorney General, United States)
• Duke:  William Neukom (President, ABA; Partner, Kirkpatrick & Lockhart Preston, Gates Ellis)
• Faulkner:  Harold Frend See (Justice, Alabama Supreme Court)
• Florida State:  Neil Gorsuch (Judge, U.S. Court of Appeals, 10th Circuit)
• George Washington:  Daniel K. Inouye (Member, U.S. Senate)
• Georgia:  John Barrow (Member, U.S. House of Representatives)
• Georgia State:  Robert Benham (Justice, Supreme Court of Georgia)
• Golden Gate:  Lee Baxter (former Judge, California Superior Court)
• Harvard:  Cory Booker (Mayor, Newark, NJ)
• Hofstra:  Adam Liptak (Reporter, New York Times)
• Houston:  William H. Neukom (President, ABA; Partner, Kirkpatrick & Lockhart Preston, Gates Ellis)
• Indiana-Bloomington:  Richard Lugar (Member, U.S. Senate)
• John Marshall (Chicago):  Jonathan Turley (Professor, George Washington; TV legal analyst)
• La Verne:  Thomas Girardi (Founding Partner, Girardi & Keese)
• Lewis & Clark:  John Lewis (Member, U.S. Congress)
• Loyola-L.A.:  David W. Burcham (Executive Vice President & Provost, Loyola)
• Loyola-New Orleans:  Scott Turow (legal novelist)
• LSU:  Bobby Jindal (Governor, Louisiana)
• Miami:  Carolyn Lamm (Partner, White & Case)
• Michigan State:  Marilyn Kelly (Justice, Michigan Supreme Court)
• New England:  Larry Lucchino (President & CEO, Boston Red Sox)
• New York Law School:  Dennis Archer (Chairman, Dickinson Wright; former ABA President and Detroit Mayor)
• New York University:  Anne Milgram (Attorney General, New Jersey)
• North Dakota:  Ralph Erickson (Judge, U.S. District Court)
• Northeastern:  Stephen Breyer (Justice, U.S. Supreme Court)
• Northwestern:  Jerry Springer (TV show host; former Mayor, Cincinnati)
• Notre Dame:  A.J. Bellia (Professor, Notre Dame; winner, Teacher of the Year award)
• Ohio Northern:  Mike DeWine (former Member, U.S. Senate)
• Oregon:  Elden Rosenthal (Founding Partner, Rosenthal & Greene)
• Pace:  Theodore Jones (Judge, New York Court of Appeals)
• Pacific McGeorge:  Doris Matsui (Member, U.S. Congress)
• Penn State:  Michael Apfelbaum (Partner, Apfelbaum, Apfelbaum & Apfelbaum)
• Pennsylvania:  Bill Richardson (Governor, New Mexico)
• Pepperdine:  Kurt L. Schmoke (Dean, Howard)
• Pittsburgh:  Debra Todd (Justice, Pennsylvania Supreme Court)
• Quinnipiac:  Barry R. Schaller (Justice, Connecticut Supreme Court)
• Richmond:  Henry Hudson (Judge, U.S. District Court)
• Roger Williams:  Linda Greenhouse (former Supreme Court Reporter, New York Times)
• St. Mary's:  Tom Corbett (Attorney General, Pennsylvania)
• San Diego:  Thomas O'Brien (U.S. Attorney, Central District of California)
• South Dakota:  Stephanie Herseth Sandlin (Member, U.S. Congress)
• Santa Clara:  Phyllis Hamilton (Judge, U.S. District Court)
• SMU:  Antonio Garza, Jr. (U.S. Ambassador to Mexico)
• South Texas:  Richard Anderson (CEO, Delta Airlines)
• Stanford:  Joe Bankman (Tax Prof, Stanford; winner, Hurlbut Award for Excellence in Teaching)
• Suffolk:  H. Thomas Wells, Jr. (President-elect, ABA; Founding Member, Maynard, Cooper & Gale)
• Syracuse:  Stephen Tober (Board of Governors, ABA)
• Tulsa:  Brad Henry (Governor, Oklahoma)
• UC-Berkeley:  Mary Schroeder (former Chief Judge, U.S. Court of Apeals, 9th Circuit) & Anne Joseph O'Connor (Professor, UC-Berkeley)
• UC-Davis:  Gavin Newsom (Mayor, San Francisco)
• UC-Hastings:  Willie Brown (former Mayor, San Francisco)
• UCLA:  Morgan Chu (Partner, Irell & Manella)
• USC:  Erwin Chemerinsky (Dean, UC-Irvine Law School)
• University of St. Thomas:  Edward Toussaint Jr. (Chief Judge, Minnesota Court of Appeals)
• Vanderbilt:  Nicholas Zeppos (Chancellor, Vanderbilt)
• Vermont:  Madeleine May Kunin (former Governor, Vermont)
• Virginia:  Timothy Finchem (Commissioner, PGA Tour)
• Wake Forest:  Jim Talent (Fellow, Heritage Foundation; former Member, U.S. Senate)
• Washburn:  Dennis Moore (Member, U.S. Congress)
• Washington & Lee:  William Webster (former U.S. District Judge, CIA Director, and FBI Director)
• U. of Washington:  Sherman Alexie (author)
• Western New England:  Reena Raggi (Judge, U.S. Court of Appeals, 2d Circuit)
• Whittier:  Linda Sánchez (Member, U.S. Congress)
• Widener (Delaware):  Theodore McKee (Judge, U.S. Court of Appeals, 3d Circuit)
• Widener (Harrisburg):  Roger Gregory (Judge, U.S. Court of Appeals, 4th Circuit)
• William & Mary:  Sandra Day O'Connor (retired Justice, U.S. Supreme Court)
• William Mitchell:  David B. Sentelle (Chief Judge, U.S. Court of Appeals, D.C Circuit)
• Wisconsin:  Thomas Barrett (Mayor, Milwaukee)
• Yale:  Kenji Yoshino (Professor, Yale)

Mirkay: Reevaluating the 501(C)(3) Exemption of Religious Organizations that Discriminate

Nicholas A. Mirkay (Widener) has posted Losing Our Religion: Reevaluating the 501(C)(3) Exemption of Religious Organizations that Discriminate on SSRN.  Here is the abstract:

Religious organizations occupy an enviable legal stature in American society, receiving over 200 exemptions and other regulatory breaks in federal legislation over the last 18 years alone. Religious organizations enjoy numerous federal as well as state and local tax exemptions representing hundreds of billions of dollars in foregone revenue. The propriety of these lucrative tax exemptions must be questioned when religious organizations engage in discrimination against members of society. As illustrated in real-life occurrences contained in pages 3 and 4 of the article, ostensibly widespread discrimination by such organizations exists not only with respect to employment, but more importantly in providing services or engaging in activities for which the organization was originally granted tax-exempt status (e.g., education). The primary bases for such discrimination are currently sexual orientation and marital status.

In a prior article published in the Wisconsin Law Review, I proposed a solution to the problem of discrimination by charitable organizations (a term commonly interpreted to include religious organizations) - enact a broad and well-defined nondiscrimination condition on tax exemption under Section 501(c)(3) of the Internal Revenue Code. Inherent in that proposal is the notion that discrimination by charitable organizations is intrinsically incompatible with such organizations' purpose and mission. Although my prior article briefly addressed the constitutional and other difficulties inherent in applying a nondiscrimination requirement to religious organizations, it acknowledged the necessity of additional and more thorough discussion on the issue - thus, the focus of this Article. Accordingly, this Article examines the propriety and constitutionality of subjecting religious organizations to a nondiscrimination requirement and crafting a more narrow church exception to that requirement. It proposes statutory and regulatory amendments to prevent certain church-affiliated organizations from avoiding the nondiscrimination requirement.

Goodbye, Class of 2008

The University of Cincinnati College of Law sent off the Class of 2008 into the world today at our graduation ceremony.  They are our 175th graduating class, making us the fourth-oldest conitnuously operating law school in the country.

It is always a reflective day for the faculty, as we watch with pride as each of the graduates march confidently across the stage to collect his or her diploma from the dean.  It is hard to believe that almost three years have passed since I welcomed 1/3 of them to law school in my week-long Introduction to Law course.  Highlights of the ceremony were:

• The address by William R. (Billy) Martin, head of Sutherland's White Colar Criminal Defense Practice and University of Cincinnati College of Law Class of 1976.  Billy regaled us with lessons he has learned from his many high profile cases, including his representation of Larry Craig, Allen Iverson, Monica Lewinsky's mother, Michael Vick, and Jayson Williams.  (For more on his career, see profiles in the Cleveland Examiner, Law Crossing, Wall Street Journal and Wikipedia.)
• The Class of 2008's selection of Max Huffman as the receipient of the Nicolas Longworth, III Alumni Achievement Award.  I got to know Max as a student (Class of 1998) and as a colleague while he served as our Visiting Assistant Professor of Law during 2005-2007.  He will be starting this fall as tenure-track visiting professor at Indiana University-Indianapolis School of Law.  It is great to see a former student (especially one as talented as Max) enter the legal academy (with the added bonus that Indianapolis is only 110 miles from Cincinnati).
• The recognition of two institutional pillars at the College who are retiring this year:
  • Bill Rands, a tax professor here for 30 years.  Bill was a wonderful mentor when I began my teaching career at Cincinnati, and is a dear friend.
  • Barb Watts, our Associate Dean of Academic Affairs, who is retiring after 27 years.  Barb has an incredibly broad portfolio -- she serves as both our Associate Dean for Acadenic Affairs and our de facto Dean of Students, and handles both jobs with enormous skill and good cheer.

NTA Spring Symposium

The National Tax Symposium has concluded its two-day Annual Spring Symposium and State-Local Tax Program in Washington, D.C.  Tax Prof speakers included:

• James R. Hines Jr. (Michigan), Reconsidering the Taxation of Foreign Income
• Daniel Shaviro (NYU), The Optimal Relationship Between Taxable Income and Financial Accounting Income: Analysis and a Proposal (blogged here)

For a list of all of the speakers and their topics, see the program.

Blogging as a Feminist Legal Method

From a University of Pennsylvania Law School press release:

Alison I. Stein, a student at the University of Pennsylvania Law School, ... will present her paper – Women Lawyers Blog for Workplace Equality: Blogging as a Feminist Legal Method – at the Joint Annual Meetings of Law and Society Association and Canadian Law and Society Association, May 30 in Montreal. ...

"From cattle ranchers to diamond merchants to third-wave feminists … groups of people opt out of the legal system – and instead use personalized and informal methods of rights assertion – as a means of ‘overcoming the ineffectiveness’ of state-sponsored laws,” writes Stein. ... 

[W]hile nearly one half of all law school graduates since 1992 have been women, only about 15% of law firm partners are female and women comprise only 25% of tenured law school professors, the career goal that Stein has set for herself. ...  Female lawyers turn to blogging because the law’s ability to vindicate their rights is limited, their grievances are born out of institutional biases or mindsets, and because the anonymity of blogging lets them give voice to their complaints without risking their reputations.

(Hat Tip:  Above the Law.)  The abstract of the paper is below the fold:

Continue reading "Blogging as a Feminist Legal Method"

The Great Tax Cut Delusion and the Decline of Good Government in America

Bryan D. Jones (University of Washington, Center for American Politics and Public Policy) & Walter Williams (University of Washington, Center for American Politics and Public Policy) have published The Politics of Bad Ideas: The Great Tax Cut Delusion and the Decline of Good Government in America (Longman, 2008).  From the publisher's description:

According to political scientist Bryan D. Jones and policy analyst Walter Williams, tax cuts are bad for the American people. In their new book, ... they draw on in-depth research and insightful analysis to argue that tax cuts without spending limits have harmed the government’s long-term fiscal stability, and explain why, despite evidence to the contrary, people keep believing that reducing taxes will create economic growth.

Jones and Williams zero in on two tax-cut theories: supply-side economics – which postulates that tax cuts stimulate the economy by putting more money in people’s pockets, which they in turn spend on goods and services; and starve-the-beast policies – which claim that government programs will shrink if there is less revenue from taxes to spend.

Walking readers through the numbers and factual evidence – from the post-World War II golden years through George W. Bush’s presidency – they argue that tax cuts don’t “pay for themselves” or cause “government to get smaller”, as proponents have claimed. Instead, they prove that tax cuts have consistently resulted in bigger government and increased deficits. “As government has grown, taxes have been cut, and revenue has declined,” say the authors. “The result has been massive borrowing and a basic deterioration in the fiscal balance sheet.”

The authors note that despite overwhelming evidence to the contrary, politicians and the American public continue to put faith in the power of tax cuts to stimulate economic growth. Jones and Williams believe that the usual suspects – including self-centered voters, partisan advantage, interest groups and lobbyists, and right-wing activists – are partly responsible, but they argue that institutional failure is the root cause. “These bad ideas were once kept in check by a firm commitment to factual analysis and the construction of an institutional framework that made it costly to ignore the evidence,” they say. “Today, all this has collapsed.”

Pressure Builds on Cindy McCain to Release Her Tax Returns

Last week, I blogged Cindy McCain's refusal to release her separate tax returns, even if her husband is elected President.  Media and blogosphere pressure is building on Mrs. McCain to release her returns:

• Huffington Post
• L.A. Times
• New York Observer
• Reuters
• Washington Post
• Washington Times #1
• Washington Times #2
• DNC Press Release

Ayers Applauds Chicago's Ban on Laptops in the Classroom

I previously blogged Dean Saul Levmore's decision to pull Internet access out of the University of Chicago's law school classrooms (as well as Doonesbury's great take on the issue).  Ian Ayres (Yale), who launched the anti-laptops in the classroom movement in 2001 with his New York Times op-ed, applauds Chicago's laptop ban on Freakonomics:

In praising Levmore, I should be clear that there is no good a priori argument against multitasking. The case is at best an empirically-informed hunch about what is the best way to teach. I see some power to a parentalism argument that teachers should ban surfing because it impedes students’ ability to learn.

Law students are adults who generally can decide for themselves what is in their best interest — but I still don’t think it would be a good idea to have beer or magazines available in class. As someone who has played way too much Minesweeper in my day, I think some activities are just a bit too tempting.

Still, I’m worried that my own weakness is leading me to take away the rights of others. My sainted father brought me up short when, after reading my original oped, he said, “I thought you were a liberal?”

The “negative externalities” of surfing provide a stronger basis for switching the default:

The laptop screen is a billboard that is very visible to other students sitting behind the gamer. Surfing and game playing in particular can be very distracting — both visually and in the signal they send to others that you don’t care about class. Multitasking also makes students less present as participants in class discussion. Surfing doesn’t stop students from taking notes, but it degrades the quality of their attention. ...

In recent years, I’ve tried to balance student liberty with my negative externality concern by allowing surfing, but only in the back row of class. In the back row, at least, it isn’t a visual distraction. And I view these back-benchers as virtually a step away from non-attendance.

But what’s still missing is basic information on how much surfing is going on. (Levmore claims, “Every teacher underestimates the amount of Internet surfing going on,” in his or her classroom.) The content of the laptop screen is visible to the class, but remains a mystery to the professoriate. I still hear colleagues tell me that surfing is not a problem in their class because they walk around the room.

In a world where alt -tab quickly shifts between windows, it is a fantasy to think that walking around is a sufficient deterrent. ...

But even here, students push back that the implicit contract was also that professors would not teach badly. Some students see surfing as a medication to reduce the annoyance of poor pedagogy. Indeed, some clever students have even argued that surfing has a positive externality — Ayres and Levitt and Wolfers will have better incentives to teach well if they have to compete for students’ attention.

(Hat Tip: Brian Leiter.)

Brunner & Pech: Optimum Taxation of Inheritances

Johann K. Brunner & Susanne Pech (both of University of Linz, Department of Economics) have posted Optimum Taxation of Inheritances on SSRN.  Here is the abstract:

We incorporate the fact that inheritances create a second distinguishing characteristic of individuals, in addition to earning abilities, into an optimum income taxation model with bequests motivated by joy of giving. We show that a tax on inheritances and a uniform tax on all expenditures including bequests are equivalent and that either is desirable, according to an intertemporal social objective, if on average high-able individuals have larger inherited endowments than low-able. We demonstrate that such a situation results as the outcome of a process with stochastic transition of abilities over generations, if all descendants are more probable to have their parent's ability rank than any other.

Tax Court Refuses to Reconsider § 6015(f) Ruling in Ewing

A fractured Tax Court yesterday refused to reconsider its holding in Ewing v. Commissioner, 122 T.C. 32 (2004), holding that the determination of whether a taxpayer is entitled to innocent spouse relief under § 6015(f) is made in a trial de novo that may include evidence introduced at trial that was not included in the administrative record.  Porter v. Commissioner, 130 T.C. No. 10 (5/15/08).

• The majority opinion was written by Judge Haines and joined by Judges Colvin, Cohen, Swift, Wells, Foley, Vasquez, Gale, Thornton, Marvel, Goeke, and Wherry
• Judge Vasquez concurred in an opinion joined by Judges Swift and Wells
• Judge Thornton concurred in an opinion joined by Judges Colvin, Swift, Wells, Gale, and Marvel
• Judge Goeke concurred in an opinion joined by Judges Colvin, Swift, Foley, Marvel, Wherry, and Kroupa
• Judge Wherry concurred in an opinion joined by Judges Colvin, Swift, Foley, Gale, Marvel, Goeke, and Kroupa
• Judges Halpern and Holmes dissented

For those of you scoring at home, the number of opinions joined by the Judges were:

1. Cohen, Haines, Halpern, Holmes, Thornton
2. Vasquez, Wherry
3. Foley, Gale, Wells
4. Colvin, Goeke, Marvel
5. Swift

Dexter: Shock, Awe, & Expropriation: The Act of State Doctrine and Loss Deductions Under § 165

Bobby L. Dexter (Chapman) has published Shock, Awe, & Expropriation: The Act of State Doctrine and Loss Deductions Under Section 165 of the Internal Revenue Code, 82 Tul. L. Rev. 849 (2008).  Here is the abstract:

The Act of State doctrine generally dictates that American courts not sit in judgment with respect to the acts of a foreign sovereign on its own soil. Courts commonly reason that although nothing in our Constitution requires recognition of the doctrine, adherence to its mandate effectively allows the Judicial Branch to steer clear of any actual or perceived interference with the Executive Branch's conduct of foreign policy. Wholly aside from established notions of the proper separation of powers, appeal to the doctrine is also a generous display of international comity, allowing domestic courts to defer to the sovereign authority of a foreign power. Courts hearing domestic tax disputes involving foreign expropriation losses routinely appeal to the Act of State doctrine in refusing to characterize the loss as a "theft." In this Article, I question whether a court appealing to the Act of State doctrine to reach one conclusion is obligated (even if only for the sake of analytical consistency) to defer to or recognize the executive, legislative, and judicial acts of that state (or the acts of other branches) in reaching related conclusions, consistent with established tripartite articulations of the Act of State doctrine. In arguing against a deconstructionist paradigm, I reason that a monolithic mindset enhances administrability, effectively polices judicial whim, and minimizes the potential for taxpayer whipsawing.

Gupta: Who's at Risk? Abbot and Costello Take on Section 465

Ajay Gupta has posted Who's at Risk? Abbot and Costello Take on Section 465 on SSRN.  Here is the abstract:

Hello again, everybody. It's a "bee-yooo-tiful" day for baseball. The setting is the unlikely state of Wyoming. Taking the field is a local outfit - Leasing Co. LLC (LCL). LCL's corporate sponsor, Hubert Enterprises, has not been overly generous - contributing a mere $10,000. Regardless, in a display of loyalty, the sponsor's distinctive logo - "Hu"- is emblazoned on the caps and jerseys of every member of the LCL team. The stands are filling in, the peanut vendors are doing brisk business and there is excitement in the air. But what is this? The manager of LCL in a heated exchange with a newspaper reporter. The reporter wants to find out from the manager which members of LCL are at risk for section 465 purposes. Except, he keeps looking up the section 752 liability sharing rules to frame his questions. The manager wishes to help but the reporter's questions do not give him much leeway with his answers.

Denver Post & Sen. Salazar Don't Understand AGI

Denver Post: Plowing Into the Farm Bill, by Anne C. Mulkern:

Sen. Ken Salazar, a Denver Democrat who supports the bill, disputed the idea that it pays rich farmers. The bill allows payments to farmers with adjusted gross incomes of $750,000 or less.

That number doesn't take into account deductions for the cost of running a farm, Salazar said. "A farmer with an adjusted gross income of $750,000 might be losing his shirt" after paying for fuel, a new tractor and other expenses, Salazar said.

As Wash Park Prophet notes:

The trouble is that Ken Salazar is wrong. Adjusted gross income is income after business expenses (and student loan interest and self-employed health insurance deductions), not before. Indeed, even gross income for tax purposes is after business expenses.

The amount of crop subsidies received are based upon gross cash crop sales, but the limitation on farm subsidies to prevent rich corporate farmers from unduly benefitting from them, are based upon adjusted gross income (see Section 1601 of the Farm Bill), which, for a farmer with no other form of income, is simply taxable profits from farming. The notion that our government needs to be spending $43 billion a year, more or less, subsidizing farmers making $750,000 a year net is absurd.

Update:  The Tax Foundation's Tax Policy Blog has more here.

Ways & Means Committee Approves Energy and Tax Extenders Act

The House Ways & Means Committee voted 25-12 today to approve The Energy and Tax Extenders Act of 2008 (H.R. 6049) and send the bill to the House floor.

• Press Release
• Legislative Documents
• Associated Press

Brokeback Will: Heath Ledger's 2-Year Old Daughter, Omitted From Will, Should Inherit 100% of Estate

FindLaw:  Heath Ledger's Estate: Why Daughter Matilda, Who Was Left Nothing in Her Father's Will, Might Have a Claim to Everything (Part 1, Part 2), by Joanna Grossman (Hofstra) & Mitchell Gans (Hofstra):

[Heath Ledger and Brokeback Mountain] co-star Michelle Williams hooked up and became parents of a daughter, Matilda, in 2005. (Ledger and Williams never married and had broken off their relationship before Ledger died.) Ledger thus left behind a young daughter and an estate with potential complications worthy of a law school exam question. In this two-part series, we will examine the proper disposition of Ledger's estate, focusing primarily on one ultimate question: Could Matilda, who was left nothing in Ledger's will, actually inherit everything in the end?

Ledger's entire estate could pass to his daughter even though she was omitted from his Will (probably inadvertently, as it was written prior to her birth). Her right to inherit, if any, will turn on where Ledger was domiciled at his death, which jurisdiction's laws govern his estate, and even whether tabloid reports that Ledger fathered another child many years earlier are true.

Former Senate Chief Tax Counsel Heck Joins K&L Gates

Patrick G. Heck, former Chief Tax Counsel to the Senate Finance Committee, has become a partner in the public policy and law practice of Kirkpatrick & Lockhart Preston Gates Ellis in the firm's Washington, D.C. office.  From the press release:

As the senior tax policy advisor to Chairman Max Baucus and other Democratic members of the Senate Finance Committee from 2000 through 2007, Heck was responsible for developing and promoting tax law changes related to the Internal Revenue Code, including in the areas of corporate and international tax reforms, tax law simplification, Federal excise taxes, and compliance issues. Among the major legislative accomplishments to which Heck contributed were the transportation and energy tax incentives acts, the Gulf Opportunity Zone Act, the Tax Increase Prevention and Reconciliation Act, the Pension Protection Act, the American Jobs Creation Act of 2004, and the Economic Growth and Tax Relief Act of 2001, as well as tax relief programs aimed at populations such as working families and victims of terrorism and natural disasters. He also has worked extensively on oversight of the Internal Revenue Service and on Congressional investigations.

Greenhouse Gas Auctions and Taxes

Robert W. Hahn (AEI Reg-Markets Center) has posted Greenhouse Gas Auctions and Taxes: Some Practical Considerations on SSRN.  Here is the abstract:

Many scholars assert that "cap and trade" is an appropriate strategy for addressing climate change. Some economists have argued that auctions of greenhouse gases should be an integral part of any cap-and-trade mechanism. These economists suggest that auctions can efficiently distribute emissions allowances among firms, and potentially offset some of the deadwei