Law Commons^™

Unbundling Social Security From The Payroll Tax, Henry Ordower

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To preserve social security as a welfare program primarily for older individuals and to ameliorate the distributional inequity of funding social security across income and wealth levels, this article recommends unbundling the benefit side of social security from its longstanding payroll tax funding mechanism. The article recommends replacing the payroll tax revenue with a budget allocation from general revenues accompanied by both revenue raisers and benefit limitations. Income tax rate increases linked to repeal of the FICA tax and tax expenditure limitations would enhance income tax revenue. Modifying social security benefits from their current overinclusive, entitlement structure for all to …

Decoupling State Income Tax From Federal: Current Taxation Of Unrealized Gain, The New York Proposal, Henry Ordower

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A proposal decouples NY from federal tax computations to tax billionaires on unrealized appreciation. If enacted, the proposal generates basis discontinuities across borders but enhances state revenue and may prove attractive to many states. The article reviews how states seek to enhance revenues and considers issues of cross-border taxation and the fundamental right to travel.

New York’S Proposed Mark-To-Market Tax Decouples From Federal Tax, Henry Ordower

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A proposal decouples NY from federal tax computations to tax billionaires on unrealized appreciation. If enacted, the proposal generates basis discontinuities across borders but enhances state revenue and may prove attractive to many states. The article reviews how states seek to enhance revenues and considers issues of cross-border taxation and the fundamental right to travel.

Steiner V. Utah: Designing A Constitutional Remedy, Michael S. Knoll, Ruth Mason

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In an earlier article, we argued that the Utah Supreme Court failed to follow and correctly apply clear U.S. Supreme Court precedent in Steiner v. Utah when the Utah high court held that an internally inconsistent and discriminatory state tax regime did not violate the dormant commerce clause. Unfortunately, the Supreme Court recently declined certiorari in Steiner, but the issue is unlikely to go away. Not every state high court will defy the U.S. Supreme Court by refusing to apply the dormant commerce clause, and so the Court will sooner or later likely find itself facing conflicting interpretations of …

The Dormant Foreign Commerce Clause After Wynne, Michael S. Knoll, Ruth Mason

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This Essay surveys dormant foreign Commerce Clause doctrine to determine what limits it places on state taxation of international income, including both income earned by foreigners in a U.S. state and income earned by U.S. residents abroad. The dormant Commerce Clause similarly limits states’ powers to tax interstate and foreign commerce; in particular, it forbids states from discriminating against interstate or international commerce. But there are differences between the interstate and foreign commerce contexts, including differences in the nationality of affected taxpayers and differences in the impact of state taxes on federal tax and foreign-relations goals. Given current Supreme Court …

Dual Residents: A Sur-Reply To Zelinsky, Michael S. Knoll, Ruth Mason

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In this article, we respond to Professor Zelinsky’s criticism of our arguments regarding the constitutionality of New York’s tax residence rule. We argue that the Supreme Court’s decision in Wynne requires reconsideration of the New York Court of Appeal’s decision in Tamagni.

On The Disparate Treatment Of Business And Personal Salt Payments, Michael S. Knoll

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The Tax Cuts and Jobs Act, H.R. 1, would eliminate the federal income tax deduction for nonbusiness state and local taxes while maintaining the deduction for business state and local taxes. That disparate treatment has generated a storm of negative commentary. In this short essay, I consider whether the federal tax law should allow a deduction for business state and local taxes assuming that there is no deduction for nonbusiness state and local taxes. I argue that investors and businesses, including pass-through businesses, should be allowed to deduct state and local property and sales taxes, but not general income taxes.

The Economic Foundation Of The Dormant Commerce Clause, Michael S. Knoll, Ruth Mason

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Last Term, a sharply divided Supreme Court decided a landmark dormant Commerce Clause case, Comptroller of the Treasury of Maryland v. Wynne. Wynne represents the Court’s first clear acknowledgement of the economic underpinnings of one of its main doctrinal tools for resolving tax discrimination cases, the internal consistency test. In deciding Wynne, the Court relied on economic analysis we provided. This Essay explains that analysis, why the majority accepted it, why the dissenters’ objections to the majority’s reasoning miss their mark, and what Wynne means for state taxation. Essential to our analysis and the Court’s decision in Wynne …

How The Massachusetts Supreme Judicial Court Should Interpret Wynne, Michael S. Knoll, Ruth Mason

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In this special report, Knoll and Mason discuss how the Massachusetts Supreme Judicial Court should apply Wynne when it hears on remand First Marblehead v. Commissioner of Revenue. The authors conclude that when it originally heard the case, the Massachusetts court mistakenly considered, as part of its internal consistency analysis, whether Gate Holdings Inc. experienced double state taxation. As developed by the U.S. Supreme Court and most recently applied in Wynne, the internal consistency test is not concerned with actual double taxation that may arise from the interaction of different states’ laws. Rather, the test is designed to determine …

Wynne: It's Not About Double Taxation, Michael S. Knoll, Ruth Mason

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This Article discusses Wynne v. Comptroller, a dormant Commerce Clause case against Maryland pending before the Supreme Court. We use economic analysis to rebut Maryland’s claim that its tax regime does not discriminate against interstate commerce. We also argue that the parties’ framing of the central issue in the case as whether the Constitution requires states to relieve double taxation draws focus away from the discrimination question, and therefore could undermine the Wynnes’ case and lead to unjustified narrowing of the dormant Commerce Clause. We also show how our approach to tax discrimination resolves many of the issues that …

Amicus Brief In Maryland Comptroller V. Wynne, Michael S. Knoll, Ruth Mason

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The internal consistency test reveals that Maryland applies systematically higher “county” taxes to interstate commerce than to in-state commerce.

Economic analysis of Maryland’s tax regime — including its taxes on inbound, outbound, and domestic activities — confirms what the internal consistency test suggests, namely, that the Maryland “county” tax discourages interstate commerce. Specifically, the Maryland tax regime discourages Maryland residents from earning income outside of Maryland, and it simultaneously discourages nonresidents from earning income in Maryland. Maryland alone causes this distortion; the distortion does not depend on the taxes imposed by any other state.

Petitioner’s argument that Maryland’s outbound tax …

Retreat From Progressive Taxation In The Swedish Welfare State: Does Immigration Matter?, Henry Ordower

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This paper questions whether late twentieth century immigration patterns may have contributed to retreat from progressive taxation in Sweden (and elsewhere). The paper applies critical methodology to ask whether the societal generosity reflected in development of Sweden’s welfare state yielded to greater parsimony as Sweden opened its borders to ethnically and racially diverse groups of immigrants. The paper explores whether Sweden’s loss of societal homogeneity facilitated the development of a political climate in which protecting traditional Scandinavian-owned capital from taxation became acceptable. Social science literature already has detected various unintentional ethnic and gender biases in delivery of welfare services and …

Income Imputation: Toward Equal Treatment Of Renters And Owners, Henry Ordower

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This chapter argues that fundamental fairness principles demand changes in U.S. tax law to place those who rent on an equal tax footing with those who own their residences. The disparity in tax treatment of owners and renters results primarily from the failure of the tax law to include the use value from investment of capital in a personal residence in the incomes of owners. While the yield from investment in a personal residence is not cash, the yield is valuable as it replaces an outlay for dwelling use the owner otherwise would have to make. That occupancy right as …

The Taxation Of Cloud Computing And Digital Content, David Shakow

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“Cloud computing” raises important and difficult questions in state tax law, and for Federal taxes, particularly in the foreign tax area. As cloud computing solutions are adopted by businesses, items we view as tangible are transformed into digital products. In this article, I will describe the problems cloud computing poses for tax systems. I will show how current law is applied to cloud computing and will identify the difficulties current approaches face as they are applied to this developing technology.

My primary interest is how Federal tax law applies to cloud computing, particularly as the new technology affects international transactions. …

Does It Hurt A State To Introduce An Income Tax?, David J. Shakow

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In an article in the Wall Street Journal, Arthur Laffer argued that, since 1960, the introduction of state income taxes reduced the relative size of a state’s gross state product and its relative per capita personal income. This paper criticizes Laffer’s conclusions on a number of grounds. 1. He uses incorrect figures for per capita income. In fact, relative per capita income rose in a majority of states that introduced an income tax since 1960. 2. The results are not clear when a state’s data is compared to other states in its region, rather than to the United States as …

State Finance In Times Of Crisis, Brian Galle, Jonathan Klick

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As recent events illustrate, state finances are pro-cyclical: during recessions, state revenues crash, worsening the effects of economic downturns. This problem is well-known, yet persistent. We argue here that, in light of predictable federalism and political economy dynamics, states will be unable to change this situation on their own. Additionally, we note that many possible federal remedies may result in worse problems, such as creating moral hazard that would induce states to take on excessively risky policy, both fiscal and otherwise. Thus, we argue that policy makers should consider so-called “automatic” stabilizers, such as are found in the federal tax …

Taking Compensation Private, Abraham Bell, Gideon Parchomovsky

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In light of the expansive interpretation of the ""public use"" requirement, the payment of ""just compensation"" remains the only meaningful limit on the government's eminent domain power and, correspondingly, the only safeguard of private property owners' rights against abusive takings. Yet, the current compensation regime is suboptimal. While both efficiency and fairness require paying full compensation for seizures by eminent domain, current law limits the compensation to market value. Despite the virtual consensus about the inadequacy of market compensation, courts adhere to it for a purely practical reason: there is no way to measure the true subjective value of property …

Bargaining For Takings Compensation, Abraham Bell, Gideon Parchomovsky

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Efficiency and fairness require paying full compensation to property owners when their property is taken by eminent domain. Yet, to date, the evidentiary challenge of proving subjective value has proved insurmountable, and current law requires condemnees to settle for fair market value. This Article proposes a self-assessment mechanism that can make full compensation at subjective value practical. Under our proposal, property owners must be given the opportunity to state the value of the property designated for condemnation. Once property owners name their price, the government can take the property only at that price. However, if the government chooses not to …

The Integration Game, Abraham Bell, Gideon Parchomovsky

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No abstract provided.

'Complete' Accrual Taxation, Fred B. Brown

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Under the realization rule, accrued gains and losses generally are not taken into account for income tax purposes until a disposition occurs. Thus, the realization rule is responsible for tax deferral, which in turn likely leads to economic inefficiencies and inequities. The realization rule also contributes greatly to the complexity of the federal income tax system by necessitating numerous Internal Revenue Code provisions that address the many consequences arising from the decision to postpone taxation until a disposition occurs.

An alternative to the realization rule is accrual taxation - the inclusion in the tax base of annual increases and decreases …