Law Commons^™

A Proposed Replacement Of The Tax Expenditure Concept And A Different Perspective On Accelerated Depreciation, Douglas A. Kahn

Law & Economics Working Papers

The thesis of this article is that the tax expenditure concept is grounded on an erroneous vision of the structure of an income tax system. The tax expenditure concept adopts a binary view of income taxation. It posits that there is an ideal or pure income tax system whose provisions are elements of the normal structure of that system without any influence from non-tax policy considerations. Tax provisions are described either as falling within those core provisions or outside of them. There are no other categories. To the contrary, this article contends that tax provisions lie on a continuum in …

The Equal Employment Opportunity Commission And Structural Reform Of The American Workplace, Margo Schlanger, Pauline T. Kim

Law & Economics Working Papers

In 2011, the United States Supreme Court struck down a class action suit alleging that Wal-Mart stores discriminated against female employees in pay and promotion decisions, making it more difficult to obtain certification of private employment discrimination class actions. As a result, the role of the Equal Employment Opportunity Commission in seeking structural reform of the workplace, always of substantial influence, has gained in comparative importance. Yet there is remarkably little written about the EEOC’s large-scale injunctive cases. This Article addresses this major gap in scholarship.

Using both qualitative case studies and a new quantitative data-set, we test existing theories …

'Quack Corporate Governance' As Traditional Chinese Medicine – The Securities Regulation Cannibalization Of China's Corporate Law And A State Regulator's Battle Against State Political Economic Power, Nicholas C. Howson

Law & Economics Working Papers

From the start of the PRC’s “corporatization” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the CSRC. Indeed, the Chinese corporate law system has been cannibalized by allencompassing securities regulation directed at corporate governance, at least for companies with listed stock. This article traces the path of that sustained intervention, and makes a case – wholly contrary to the “quack corporate governance” critique much aired in the U.S. – that for the PRC this phenomenon is necessary and appropriate, and …

Understanding The Amt, And Its Unadopted Sibling, The Amxt, James R. Hines Jr., Kyle Logue

Law & Economics Working Papers

U.S. taxpayers are currently required to pay the greater of their liabilities under the regular income tax and their liabilities under the Alternative Minimum Tax (AMT). Despite its unpopularity, the AMT serves the function of permitting Congress to offer tax preferences for certain activities and expenditures while maintaining a progressive tax system. This paper examines this role of the AMT, and explores the possibility of adding an Alternative Maximum Tax (AMxT) that would augment the impact of the AMT. An AMxT limits a taxpayer’s liability to the minimum of the amount due under the regular income tax and the amount …

Explaining Variation In Insurance Anti-Discrimination Laws, Ronen Avraham, Kyle D. Logue, Daniel Benjamin Schwarcz

Law & Economics Working Papers

Discrimination in insurance underwriting is regulated at the state level. Surprisingly, there is a great deal of variation across jurisdictions in how and the extent to which risk classification by insurers is limited. Some states expressly permit insurers to consider certain characteristics, while other characteristics are forbidden or limited in various ways. What explains this variation across states? Drawing on a unique, hand-collected data-set consisting of the laws regulating insurer risk classification in all 51 U.S. jurisdictions, this Article argues that much of the variation in state-level regulation of risk classification can in fact be explained by focusing exclusively on …

Territoriality: For And Against, Reuven S. Avi-Yonah

Law & Economics Working Papers

This article will survey the main arguments for and against territoriality and conclude that it is the wrong way to go in the short run, but can perhaps be adopted in the medium to long run in conjunction with more fundamental international tax reform. The main reason that territoriality should not be adopted now is that the OECD may be about to recommend worldwide consolidation for all its members as part of the Base Erosion and Profit Shifting (BEPS) project, and if the OECD does that, all of the standard arguments in favor of territoriality and against abolishing deferral disappear.

The Creeping Federalization Of Wealth-Transfer Law, Lawrence W. Waggoner

Law & Economics Working Papers

This paper, titled “The Creeping Federalization of Wealth-Transfer Law,” is prepared for a symposium on the role of federal law in private wealth transfer. The symposium is to be held at Vanderbilt University Law School on February 21, 2014, and is sponsored by the American College of Trust and Estate Counsel Foundation. Symposium papers will be published in volume 66 of the Vanderbilt Law Review (Nov. 2014 issue).

This paper surveys areas of federalization of wealth-transfer law. Federal authorities have little experience in making law that governs wealth transfers, because that function is traditionally within the province of state law. …

Evidence-Based Sentencing And The Scientific Rationalization Of Discrimination, Sonja B. Starr

Law & Economics Working Papers

This paper critiques, on legal and empirical grounds, the growing trend of basing criminal sentences on actuarial recidivism risk prediction instruments that include demographic and socioeconomic variables. I argue that this practice violates the Equal Protection Clause and is bad policy: an explicit embrace of otherwise-condemned discrimination, sanitized by scientific language. To demonstrate that this practice should be subject to heightened constitutional scrutiny, I comprehensively review the relevant case law, much of which has been ignored by existing literature. To demonstrate that it cannot survive that scrutiny and is undesirable policy, I review the empirical evidence underlying the instruments. I …

And Yet It Moves: A Tax Paradigm For The 21st Century, Reuven S. Avi-Yonah

Law & Economics Working Papers

A central premise of tax scholarship of the last thirty years has been the greater mobility of capital than labor. Recently, scholars such as Edward Kleinbard have recommended that the US adopt a variant of the 'dual income tax' model used by the Scandinavian countries, under which income from capital is subject to significantly lower rates than labor income because of its supposedly greater mobility. This article argues that the premise upon which this argument is built is mistaken, because for individual US taxpayers (as opposed to corporations), there are significant limitations on their ability to avoid tax by moving …

Essential Health Benefits And The Affordable Care Act: Law And Process, Nicholas Bagley, Helen Levy

Law & Economics Working Papers

Beginning in 2014, the Affordable Care Act (ACA) will require private insurance plans sold in the individual and small-group markets to cover a roster of “essential health benefits.” Precisely which benefits should count as essential, however, was left to the discretion of the Department of Health and Human Services (HHS). The matter was both important and controversial. HHS nonetheless announced its policy on essential health benefits by posting on its website a 13-page bulletin stating that it would allow each state to define essential benefits for itself by choosing a “benchmark” plan modeled on existing plans in the state. On …

Why Y? Reflections On The Baucus Proposal, Reuven S. Avi-Yonah

Law & Economics Working Papers

The international tax reform proposal introduced by Sen. Max Baucus (D-MT) on November 19, 2013 contains several significant innovations that promise to define the terms of the debate for the foreseeable political future. It is therefore worth examining in detail even if it seems unlikely that progress toward meaningful reform can be achieved very soon. The major component of the proposal is a move toward territoriality coupled with two alternative anti-profit shifting options, option Y and option Z. This article will argue that option Y represents a significant step forward and can be the basis of adopting a territorial regime, …

A Presumptively Better Approach To Arbitrability, John A. E. Pottow, Jacob Brege, Tara J. Hawley

Law & Economics Working Papers

One of the most complex problems in the arbitration field is the question of who decides disputes over the scope of an arbitrator’s purported authority. Courts in Canada and the United States have taken different approaches to this fundamental question of “arbitrability” that necessarily arises when one party disputes the contractual validity of the underlying “container” contract carrying the arbitration clause. If arbitration is a creature of contract, and contract is a product of consensual agreement, then any dispute that impugns the underlying consent of the parties to the container contract implicates the arbitration agreement itself (i.e., no contract, no …

Offices Of Goodness: Influence Without Authority In Federal Agencies, Margo Schlanger

Law & Economics Working Papers

Inducing governmental organizations to do the right thing is the central problem of public administration. If Congress or another principal wants a federal executive agency to pay attention to a value that constrains or conflicts with the agency’s overall mission — that additional value is here labeled, generically, "Goodness" — the principal often creates a subsidiary agency office — an "Office of Goodness." Both policymakers and scholars should care about how and when Offices of Goodness work. Yet while Offices of Goodness are frequently established in federal agencies, they are nearly invisible in scholarship. And the resulting knowledge gap is …

Formalism And Employer Liability Under Title Vii, Samuel R. Bagenstos

Law & Economics Working Papers

Most lawyers, law professors, and judges are familiar with two standard critiques of formalism in legal reasoning. One is the unacknowledged-policymaking critique — that formalist reasoning purports to be above judicial policymaking but instead simply hides the policy decisions offstage. The other is the false-determinacy critique — that formalist reasoning purports to reduce decision costs in the run of cases by sorting cases into defined categories, but that instead of going away the difficult questions of application migrate to the choice of the category in which to place a particular case. Last Term’s decision in Vance v. Ball State University …

Favoritism And Corporate Law: The Confused Corporate Opportunity Doctrine In The Hyundai Motor Case, Hwa-Jin Kim, Seung Hwan Lee, Stephen M. Woodcock

Law & Economics Working Papers

Core legal principles of U.S. corporate law are often met with perplexity in foreign jurisdictions – this is especially true when a particular principle remains controversial even in the U.S. This Article takes the corporate opportunity doctrine and examines how it has been exported to the civil law regime in Korea. Korean conglomerates such as Samsung Group and Hyundai Motor Group have become major players in the global market, but corporate law and practice in Korea have had a difficult time keeping up with the developments in the business sector. The Hyundai Motor Case demonstrates an ambitious but ill-fated attempt …

Unitary Taxation And International Tax Rules, Reuven S. Avi-Yonah

Law & Economics Working Papers

Any proposal to adopt Unitary Taxation (UT) of multinationals has to contend with whether such taxation is compatible with existing international tax rules and in particular with the bilateral tax treaty network. Indeed, some researchers have argued that the separate accounting (SA) method and the arm’s length standard are so embodied in the treaties that they form part of customary international law and are binding even in the absence of a treaty. In this paper we will argue that UT can be compatible with most of the existing tax treaties, and that developing countries in particular can implement it in …

Back From The Dead: How To Revive Transfer Pricing Enforcement, Reuven S. Avi-Yonah

Law & Economics Working Papers

In the six years since the then Chief of Staff of the JCT pronounced transfer pricing enforcement to be dead, numerous case studies have demonstrated the truth of his observation, starting with the JCTs own examination of six US based multinationals (MNEs) in 2010 and followed by the Senate Permanent Subcommittee on Investigations hearings on Microsoft, HP and Apple in 2012-13. There is little doubt that the current transfer pricing rules, in conjunction with the dysfunctional Subpart F rules, allow US-based MNEs to shift most of their profits to low tax jurisdictions. It is estimated that there are currently about …

Sec Investigations And Securities Class Actions: An Empirical Comparison, Stephen Choi, Adam Pritchard

Law & Economics Working Papers

We compare investigations by the SEC with securities fraud class action filings involving public companies. Using actions with both an SEC investigation and a class action as our baseline, we compare SEC-only investigations with class action-only lawsuits. We find evidence that the stock market reacts more negatively to the class actions relative to SEC investigations. We also find that institutional ownership and stock turnover decline more for class actions compared with SEC investigations. Lastly, the incidence and magnitude of settlements, as well as the incidence of top officer resignation, are greater for class actions relative to SEC investigations. This evidence …

Double Or Nothing: A Tax Treaty For The 21st Century, Reuven S. Avi-Yonah, Oz Halabi

Law & Economics Working Papers

The current tax treaty network was developed in the 1920s and 1930s in order to prevent double residence/source taxation. This kind of double taxation rarely exists any more because most countries have adopted either an exemption system or a foreign tax credit regime in their domestic (non‐treaty) law, which effectively prevents residence/source double taxation even in the absence of a treaty. Instead, as Tsilly Dagan has pointed out, the current treaties serve mostly to transfer revenue from the source country to the residence country. This suggests that treaties may be unnecessary because exemption from withholding taxes by source countries can …

Racial Disparity In The Criminal Justice Process: Prosecutors, Judges, And The Effects Of United States V. Booker, Sonja Starr, M. Marit Rehavi

Law & Economics Working Papers

Current empirical estimates of racial and other unwarranted disparities in sentencing suffer from two pervasive flaws. The first is a focus on the sentencing stage in isolation. Studies control for the “presumptive sentence” or closely related measures that are themselves the product of discretionary charging, plea-­‐bargaining, and fact-­‐finding processes. Any disparities in these earlier processes are built into the control variable, which leads to misleading sentencing-­‐disparity estimates. The second problem is specific to studies of sentencing reforms: they use loose methods of causal inference that do not disentangle the effects of reform from surrounding events and trends.

This Article explains …

Facebook, The Jobs Act, And Abolishing Ipos, Adam C. Pritchard

Law & Economics Working Papers

The market for initial public offerings (IPOs) — the first sale of private firms’ stock to the public — is notorious for its swings from peaks to valleys. This paper argues that these swings reflect serious flaws in the IPO scheme, and that U.S. capital markets should move toward a more stable alternative. Specifically, this paper argues for a two-tier market system in which new stock issuers initially participate in a less-regulated private capital market of accredited investors and then, if they choose, they can move to a more regulated, broader public market. Likewise, firms currently participating in the public …

"Perpetual Trusts: The Walking Dead" And "Congress Should Effectively Curb Gst Exemption For Perpetual Trusts.", Calvin H. Johnson, Lawrence W. Waggoner

Law & Economics Working Papers

In separate but complementary letters to the editor of Tax Notes, Calvin Johnson (University of Texas School of Law) and Lawrence Waggoner (University of Michigan Law School) respond to an article by Dennis Belcher and seven other practicing attorneys that defend the GST exemption for perpetual trusts. In Federal Tax Rules Should Not Be Used to Limit Trust Duration, 126 Tax Notes 832 (Aug 13, 2012), the attorneys argue that the duration of a trust is a state law issue. Their article is actually a response to a Shelf Project article: Lawrence W. Waggoner, Effectively Curbing the GST Exemption for …

Sales Between A Partnership And Non-Partners, Douglas A. Kahn

Law & Economics Working Papers

Kahn argues that a 1986 amendment to section 707 invalidated several regulatory provisions promulgated under section 267.

Estimating Gender Disparities In Federal Criminal Cases, Sonja Starr

Law & Economics Working Papers

This paper assesses gender disparities in federal criminal cases. It finds large gender gaps favoring women throughout the sentence length distribution (averaging over 60%), conditional on arrest offense, criminal history, and other pre-charge observables. Female arrestees are also significantly likelier to avoid charges and convictions entirely, and twice as likely to avoid incarceration if convicted. Prior studies have reported much smaller sentence gaps because they have ignored the role of charging, plea-bargaining, and sentencing fact-finding in producing sentences. Most studies control for endogenous severity measures that result from these earlier discretionary processes and use samples that have been winnowed by …

University Of Michigan Bar Passage 2004-2006: A Failure To Replicate Professor Sander's Results, With Implications For Affirmative Action, Richard O. Lempert

Law & Economics Working Papers

In a recent issue of the Denver Law Review, Professor Richard Sander presents data on race-based affirmative action that purportedly support his theory that any benefits African Americans enjoy from affirmative action are more than offset by detrimental effects of academic mismatch. Specifically, he references a yet unpublished study in which he claims to have found that for the years 2004-2006 the bar passage rate of African-American graduates of the University of Michigan Law School is 62 percent for first time takers rising to only 76 percent after multiple takes. This paper shows that these results are quite implausible given …

Revisiting 'Truth In Securities Revisited': Abolishing Ipos And Harnessing Private Markets In The Public Good, Adam C. Pritchard

Law & Economics Working Papers

This essay explores the line between private and public markets. I propose a two-tier market system to replace initial public offerings. The lower tier would be a private market restricted to accredited investors; the top tier would be a public market with unlimited access. The transition between the two markets would be based on issuer choice and market capitalization, followed by a seasoning period of disclosure and trading in the public market before the issuer would be allowed to make a public offering. I argue that such system would promote not only efficient capital formation, but also investor protection.

Has Insider Trading Become More Rampant In The United States? Evidence From Takeovers, Laura N. Beny, Nejat Seyhun

Law & Economics Working Papers

No abstract provided.

Contribution Of A Built-In Loss To A Partnership, Douglas A. Kahn

Law & Economics Working Papers

In 2004 Congress amended the code to prevent the use of a partnership contribution as a means of transferring a deduction for a built-in loss from one person to another. That amendment has undermined the application of the remedial method (and the traditional method with curative allocations) that the regulations provide for the allocation of a contributed built-in gain or loss, Kahn argues. He also asserts that the 2004 amendment distorts income reporting.

Effectively Curbing The Gst Exemption For Perpetual Trusts, Lawrence W. Waggoner

Law & Economics Working Papers

Current law allows a married couple to transfer up to $10.24 million into a trust that is exempt from the federal generation-skipping transfer tax. The proposal would deny the GST exemption prospectively, unless the trust must terminate within one of three perpetuity periods: (1) 21 years after the death of a life in being; (2) 90 years after creation; or (3) after the death of the last living beneficiary who is no more than two generations younger than the settlor. Atrust now in existence would be allowed a grace period during which it could be modified to terminate within the …

International Taxation And Competitiveness: Introduction And Overview, Reuven S. Avi-Yonah, Nicola Sartori

Law & Economics Working Papers

The debate about whether to abolish deferral or to adopt territoriality has been going on ever since the Kennedy Administration first proposed ending deferral in 1961. The problem is that neither side has factual support for their argument about whether the U.S. tax system, including Subpart F, as currently enacted or with any of the proposed reforms, in fact negatively impacts the tax burden of US-based MNEs. Even the concept of competitiveness itself is unclear. Despite numerous claims, there has been no rigorous attempt that we are aware of to determine whether MNEs based in our major trading partners in …