Law Commons^™

Redesigning Education Finance: How Student Loans Outgrew The “Debt” Paradigm, John R. Brooks, Adam J. Levitin

Georgetown Law Faculty Publications and Other Works

This Article argues that the student loan crisis is due not to the scale of student loan debt, but to the federal education finance system’s failure to utilize its existing mechanisms for progressive, income-based payments and debt cancellation. These mechanisms can make investment in higher education affordable to both individuals and the government, but they have not been fully utilized because of the mismatch between the current system’s economic reality and its legal, financial, and institutional apparatus.

The current economic structure of federal student loans does not resemble a true credit product, but a government grant program coupled with a …

The Definitions Of Income, John R. Brooks

Georgetown Law Faculty Publications and Other Works

What is income? It’s a seemingly simple question that’s surprisingly hard to answer. Income is the basis for assigning tax burdens, for distributing transfers, and for broader normative issues of inequality and justice. Yet we lack a shared conception of income, and a pure, rigorous definition of income is impossible. In this Article I review the intellectual history of the income concept among tax and fiscal theorists to show the difficulty of the problem, and also to show that some important debates about what’s proper under an income tax can be explained instead as arguments over competing income definitions that …

Fiscal Federalism As Risk-Sharing: The Insurance Role Of Redistributive Taxation, John R. Brooks

Georgetown Law Faculty Publications and Other Works

In addition to funding government and redistributing income, a redistributive tax-and-transfer system, and a progressive income tax in particular, provides insurance against the risk of uncertain future income. By providing for high taxes for high incomes, and low taxes, exemptions, and transfers for low incomes, a progressive income tax lowers the volatility of potential after-tax income relative to a lump-sum tax. This insurance function is distinct from the redistributive function of the system, since it provides a direct risk-mitigation benefit to the taxpayer himself, rather than simply redistributing income from one taxpayer to another.

This article analyzes the question of …

Taxation, Risk, And Portfolio Choice: The Treatment Of Returns To Risk Under A Normative Income Tax, John R. Brooks

Georgetown Law Faculty Publications and Other Works

Many articles in the legal and economic literature claim that a pure Haig-Simons income tax cannot effectively tax investment income. This is because an investor can use leverage to gross up her investments in risky assets such that the increased gain (or loss) exactly offsets any income tax (or deduction) on the returns to risk-taking. This article argues, however, that while it is possible for an investor to make such portfolio shifts, she almost certainly will not because of the increased risk of doing so.

Central to any discussion of the effects of taxation on investment risk-taking is the meaning …

Doing Too Much: The Standard Deduction And The Conflict Between Progressivity And Simplification, John R. Brooks

Georgetown Law Faculty Publications and Other Works

In U.S. federal income tax, the standard deduction, along with the personal exemptions, provides taxpayers with a minimum amount of untaxed income, effectively creating a "zero bracket amount." For historical and political reasons, however, the standard deduction also operates as a simplified substitute for the itemized deductions, such as the deductions for extraordinary medical expenses, charitable contributions, and home mortgage interest. This seemingly reasonable compromise in fact leads to substantial, and surprising, conceptual complexity. In particular, close analysis of each of the two roles shows that their effects, and related criticisms, are often contradictory, which in turn makes it difficult, …

Where Credit Is Due: Advantages Of The Credit-Invoice Method For A Partial Replacement Vat, Itai Grinberg

Georgetown Law Faculty Publications and Other Works

If a value-added tax (VAT) were chosen to supplement or replace some portion of the revenue from the income tax, a choice would likely be made between the credit-invoice method and the subtraction-method for calculating VAT liability. Credit-invoice method VATs and subtraction-method VATs are, at a conceptual level, very similar taxes. The key substantive difference between most subtraction-method VAT proposals and extant credit-invoice method VATs is that subtraction-method VAT proposals generally do not impose an invoice requirement. The invoice requirement substantially reduces tax avoidance opportunities in the VAT, and also ensures the ability to provide appropriate treatment for exports while …

The Misuse Of Textualism: A Further Reply To Prof. Kahn, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

Because readers have already endured four articles, two by me and two by Prof. Douglas A. Kahn, debating the meaning of section 67(e)(1), I am reluctant to respond to Prof. Kahn’s rejoinder, which appeared in the January 18 issue of Tax Notes. Nevertheless, our disagreement implicates the judicial craft of two U.S. Supreme Court members, Chief Justice John Roberts and Justice Sonia Sotomayor. I therefore feel it important to answer Prof. Kahn’s latest contentions, recognizing my duty to be as brief as possible.

Tax Penalties And Tax Compliance, Michael Doran

Georgetown Law Faculty Publications and Other Works

This paper examines the relationship between tax penalties and tax compliance. Conventional accounts, drawing from deterrence theory and norms theory, assume that the relationship is purely instrumental--that the function of tax penalties is solely to promote tax compliance. This paper identifies another aspect of the relationship that generally has been overlooked by the existing literature: the function of tax penalties in defining tax compliance. Tax penalties determine the standards of conduct that satisfy a taxpayer's obligations to the government; they distinguish compliant taxpayers from non-compliant taxpayers. This paper argues that tax compliance in a self-assessment system should require the taxpayer …

Time To Start Over On Deferred Compensation, Michael Doran

Georgetown Law Faculty Publications and Other Works

Writing good regulations--"good" in the sense of promoting the public interest--always presents challenges. Regulators must hit a small but important target where private conduct is brought within appropriate government control, but unnecessary compliance burdens and other deadweight costs are minimized. Even if they see the government's objectives clearly, regulators often have only a limited understanding of the underlying private activities. Moreover, regulators may be unaware of how their rules disrupt or distort those activities in socially harmful ways.

Regulators occasionally hit the target exactly. More often, they miss--though not by an intolerably wide margin (good enough for government work, as …

Intergenerational Equity In Fiscal Policy Reform, Michael Doran

Georgetown Law Faculty Publications and Other Works

This article argues that the idea of evaluating government fiscal policy along the dimension of intergenerational equity is largely misguided. In sharp contrast to the intragenerational distribution of wealth--where government policy plays an active and commanding role in transferring resources between and among different groups--the intergenerational distribution of wealth is determined mainly by decisions of private actors that fall outside government policy and that may blunt or even reverse the distributional effects of government policy. Unless a far greater share of intergenerational transfers is brought within the scope of government fiscal policy through such unlikely measures as the confiscatory taxation …

A Republic Of The Mind: Cognitive Biases, Fiscal Federalism, And Section 164 Of The Tax Code, Brian Galle

Georgetown Law Faculty Publications and Other Works

In its efforts to guide money to the states, our federal government annually passes up more than $75 billion in potential revenue under a single provision of the Tax Code. That provision, section 164 of the Code, allows itemizing taxpayers to deduct the cost of the state and local income, property, and (to a limited extent) sales taxes they paid during the tax year. The eye-popping size of that number makes section 164 a perennial issue in tax policy circles, and as one of the deductions omitted from the Alternative Minimum Tax's (AMT) parallel tax universe, the section is also …

Why Civil Rights Lawyers Should Study Tax, Stephen B. Cohen, Laura Sager

Georgetown Law Faculty Publications and Other Works

This Article discusses the intersection of civil rights law and income taxation in the three areas listed above: damages for unlawful discrimination, the forgiveness of debt by a predatory lender, and tax-exempt status for private educational and religious institutions. Our purpose is not to attempt an exhaustive examination of the issues in each area but to convey a sense of the range of tax problems that civil rights lawyers may need to confront.

Words, Words, Words!!! Teaching The Language Of Tax, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

The basic course in federal income tax is usually a challenge for both teacher and student because so many different and difficult things are being taught at once: a prolix and opaque statute; complex financial transactions; and economic, political, and social analysis of the effects of the tax law. In addition, I believe that a teacher of tax must be a teacher of language, focusing explicitly and self-consciously on the ambiguous, imprecise, and confusing words that are embedded in tax law and discourse and that constitute a significant obstacle for students taking the basic course in federal income taxation.

When Are Capitalization Exceptions Justified?, Ethan Yale

Georgetown Law Faculty Publications and Other Works

It is a widely accepted general principle that a taxpayer should capitalize an expenditure that produces a benefit lasting beyond the current tax period. Yet rules putting this principle into practice are among the most controversial in all of federal income taxation. Many argue that a retreat from the general principle is warranted when designing capitalization rules, and even those who argue that capitalization rules ought to be sweeping usually conclude that exceptions are necessary or desirable. For instance, most commentators accept uncritically that expenses incurred to procure certain intangible capital should be expensed, as under current law, without exploring …

Even Before Enron: Banking Regulators, The Income Tax, The S&L Crisis, And Deceptive Accounting At The Supreme Court, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

Years before the ENRON debacle, the Supreme Court heard a pair of cases involving dishonest financial accounting, Frank Lyon Co. v. U.S. and Cottage Savings Ass'n. v. Commissioner. In both cases, federal bank regulators had encouraged deceptive financial accounting, and the deceptive accounting became the basis for taxpayer claims. The Supreme Court, however, did not comment in either opinion on the deceptive character of the financial accounting that gave rise to tax litigation.

Hester Prynne, Lydia Bennet, And Section 306 Stock: The Concept Of Tainting In The American Novel, The British Novel, And The Internal Revenue Code, Stephen B. Cohen, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

Did Nathaniel Hawthorne's novel, The Scarlet Letter, inspire Section 306 of the Internal Revenue Code? This code provision adopts a peculiarly Hawthorne-like solution to a tax avoidance scheme known as the "preferred stock bailout." Section 306 taints the stock used in the scheme as "Section 306 stock." Special rules then govern all subsequent dispositions of the tainted stock. With its concept of a taint that can dog a stock from acquisition to disposition, Section 306 might have been designed by a novelist rather than a tax technician.

The Tax Of Physics, The Physics Of Tax, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

Sometimes ideas from science illuminate muddled legal thinking. Physics teaches that, for every particle of matter, there exists a corresponding particle of anti-matter. A particle of matter and its corresponding particle of anti-matter are identical except that they have opposite electrical charges. A proton's charge is positive, an anti-proton's negative. When matter and anti-matter meet, they produce the most powerful explosion in nature, totally annihilating each other.

With these laws of physics in mind, consider that a donor can make a gift in one of two ways: either by assuming a debt or by transferring as asset. In an instance …

Child Care, Work, And The Federal Income Tax, Brian Wolfman

Georgetown Law Faculty Publications and Other Works

This article explores the federal income tax treatment of employment-related child care expenses. It takes both a theoretical and historical approach, examining the various ways in which the Code has dealt with child care in relation to conventional tax notions and values at play in the community at large.

Part II outlines the history of the Code's various childcare provisions. It is a critical analysis whose purpose is to decide whether any of the provisions, which have existed, can be explained by a particular tax theory.

Part III asks whether employment-related childcare expenses can be characterized as "business" or "personal" …

Reconciling Business Purpose With Bail-Out Prevention: Federal Tax Policy And Corporate Divisions, Stephen B. Cohen

Georgetown Law Faculty Publications and Other Works

Corporate divisions-spin-offs, split-offs, and split-ups-unfortunately pose a more complex problem than Senator Humphrey's childlike vision would lead one to believe: the reconciliation of competing goals of maximizing business flexibility and minimizing tax avoidance. It is widely believed that divisions are essential to business planning; thus, tax-free treatment promotes business flexibility. Yet, an untaxed division may allow tax avoidance through "bail-out" of corporate earnings and profits at capital gain rates.