Tax Law Commons^™

The Oecd Harmful Tax Competition Report: A Tenth Anniversary Retrospective, Reuven S. Avi-Yonah

Articles

Eleven years ago the Organisation for Economic Co-operation and Development published its report "Harmful Tax Competition: An Emerging Global Issue." The Report identified for the first time two problem areas facing international income taxation of geographically mobile activities: tax havens and harmful preferential tax regimes. It sought to initiate activities to eliminate both types of problems.

Tax Reform In The (Multi)National Interest, Reuven S. Avi-Yonah

Articles

This letter will attempt to raise some proposals for U.S. corporate and international tax reform. It will begin by asking why we need to tax corporations at all, since the rationale for the corporate tax is important for assessing reform proposals. It will then discuss options for corporate and international tax reform, beginning with long-term options (a 10-year horizon), continuing with the medium term (2-5 years), and concluding with short-term options like the Obama proposals (1-2 years).

Reconsidering The Taxation Of Foreign Income, James R. Hines Jr.

Articles

The purpose of this Article is to analyze the consequences of taxing active foreign business income,1 and in particular, to compare a regime in which a home country taxes foreign income to a regime in which it does not. In practice, countries typically do not adopt such extreme policy positions. For example, a country such as France, which largely exempts foreign business income from taxation, nevertheless taxes small pieces of foreign income;2 and a country such as the United States, which attempts to tax the foreign incomes of U.S. corporations, permits taxpayers to defer home country taxation in some circumstances, …

Peter Mieszkowski And The General Equilibrium Revolution In Public Finance, James R. Hines Jr.

Articles

The importance of understanding the implications of general equilibrium is by now abundantly clear to researchers analyzing public fi nance issues. What is perhaps less apparent is that this was not always so. The study of public fi nance was radically transformed during the 15 years between 1959 and 1974 by the pioneering efforts of a small number of leading scholars, notably including Peter Mieszkowski. Thanks to their efforts, the analysis of applied problems in public finance moved from partial equilibrium to general equilibrium, providing the methods and insights that characterize modern public economics. The transformation began with the publication …

Protectionist Pitfalls In U.S. Tax Reform, James R. Hines Jr.

Book Chapters

The magnitude of current and projected U.S. budget deficits makes it appropriate for the government to cast its net wide in seeking new revenue sources. In doing so, however, there is the danger of misconstruing the role of domestic taxation in a global economy, and thereby designing a tax reform proposal with significant protectionist elements.

Combating Global Climate Change: Why A Carbon Tax Is A Better Response To Global Warming Than Cap And Trade, Reuven S. Avi-Yonah, David M. Uhlmann

Articles

Global climate change is the most significant environmental issue facing our nation and the world. There no longer is any question that global warming is occurring. Nor is there any serious debate about whether human activity is the root cause. If we fail to make significant reductions in greenhouse gas emissions over the next ten to twenty years, we face the possibility of catastrophic environmental harm by the end of this century.

Structuring A Us Federal Vat, Reuven S. Avi-Yonah

Articles

On 18 and 19 February 2009, the American Tax Policy Institute (ATPI) sponsored a conference in Washington, DC, on “Structuring a Federal VAT: Design and Coordination Issues.” The purpose of the conference was to lay the ground for a potential future adoption of a federalVAT in the United States by discussing some of the technical issues related to two broad topics: firstly, how should such a US federal VAT be designed and, secondly, how should it be coordinated with the existing state retail sales taxes (RST). In this article, the author summarized the conference presentations.

Risks, Rents And Regressivity Revisited, Reuven S. Avi-Yonah

Articles

This article seeks to survey the debate in the United States about whether the tax base should be income or consumption, and then focus on some recent arguments that have been made in favour of a consumption tax. In the author's opinion, none of these arguments are convincing, and he would favour adopting a consumption tax in addition to, and not in lieu of, the existing income tax.

Allocating Business Profits For Tax Purposes: A Proposal To Adopt A Formulary Profit Split, Reuven S. Avi-Yonah, Kimberly A. Clausing, Michael C. Durst

Law & Economics Working Papers Archive: 2003-2009

The current system of taxing the income of multinational firms in the United States is flawed across multiple dimensions. The system provides an artificial tax incentive to earn income in low-tax countries, rewards aggressive tax planning, and is not compatible with any common metrics of efficiency. The U.S. system is also notoriously complex; observers are nearly unanimous in lamenting the heavy compliance burdens and the impracticality of coherent enforcement. Further, despite a corporate tax rate one standard deviation above that of other OECD countries, the U.S. corporate tax system raises relatively little revenue, due in part to the shifting of …

Enforcing Dividend Withholding On Derivatives, Reuven S. Avi-Yonah

Articles

The United States imposes a 30 percent withholding tax on dividends paid to nonresident aliens. However, this tax is rarely paid by portfolio investors because they can swap into U.S. securities, receiving payments to match both capital gain and dividends. Treasury has ruled that swap payments have an origin in the taxpayer’s residence so there is no withholding obligation on payments that match dividends. The proposal would impose withholding tax on dividend equivalents on the ground that there is no policy justification for a distinction between dividends, substitute dividends under securities lending transaction (which are treated as dividends and are …

Will The Tax Man Cometh To Coach Rodriguez?, Douglas A. Kahn, Jeffrey H. Kahn

Articles

There has been much in the news recently about coaches of major college sports teams moving to a new school and incurring an obligation to make payment to their old school under a buyout provision in their contract. The most recent example is the highly publicized move of Richard Rodriguez from West Virginia University to the University of Michigan. Coach Rodriguez had a contract with his former employer that required him to pay $4 million dollars to West Virginia if he left for another coaching position. After a suit was filed, it was reported that the parties agreed that the …

The Oecd Harmful Tax Competition Report: A 10th Anniversary Retrospective, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

Ten years ago the OECD published its report on Harmful Tax Competition: An Emerging Global Issue. This was followed by a series of concrete measures designed to limit some forms of harmful tax competition, such as preferential regimes in OECD countries and offshore tax havens. The OECD initiative has met considerable resistance and in some ways has fallen short of its goals. Nevertheless, this paper will argue that it has been a worthwhile effort and has achieved some measure of success. The paper will then go on to outline some future directions for the project.

Back To The Future? The Potential Revival Of Territoriality, Reuven S. Avi-Yonah

Law & Economics Working Papers Archive: 2003-2009

Until 1993, the United States led the rest of the developed world in strengthening residence-based world-wide corporate and individual income taxation. However, since 1994 this trend seems to have been reversed, at least in part, and similar developments are taking place overseas (e.g., in France and the UK). Thus, there seems to be a trend to reduce the scope of residence jurisdiction, while increasing the emphasis on source jurisdiction. If this trend continues, it seems likely that both traditional territorial countries like France and traditional world-wide countries like to UK and the US would move toward territoriality and decrease emphasis …

Senator Mccain’S Corporate Tax Proposals: A Critical Examination, Reuven S. Avi-Yonah

Other Publications

Senator John McCain (R-AZ) has proposed two major changes to the corporate tax code: cutting the corporate tax rate from 35 percent to 25 percent and allowing corporations to deduct the full cost of investments in technology and equipment in the first year, an accounting process known as expensing. The first proposal aims to enhance U.S. economic competitiveness, create jobs, and increase wages. The second proposal aims in particular to boost capital expenditures and “reward investment in cutting-edge technologies.”

Both measures, if enacted by Congress, would greatly alter the role of corporate revenues in our tax system. Corporate taxes account …

Condemnation Without Justification, Douglas A. Kahn

Articles

On August 6-8, 2007, Prof. Neil Buchanan posted in Michael Dorf’s blog (http://michaeldorf.org/; for the blog entry regarding the death tax, see http:// michaeldorf.org/2007/08/dishonest-tax-rhetoric-part-3- of-3.html) a three-part series on what he deemed to be examples of political use of terminology to describe tax issues in a manner that is likely to mislead the public. Prof. Buchanan described this practice as ‘‘dishonest tax rhetoric.’’ He awarded first, second, and third prizes for the most egregious examples of dishonest rhetoric. I, however, found no objection to the usages he considered to be the two worst examples. Let us consider his first and …

Senator Mccain's Corporate Tax Proposals A Critical Examination, Reuven S. Avi-Yonah

Other Publications

Senator John McCain (R-AZ) has proposed two major changes to the corporate tax code: cutting the corporate tax rate from 35 percent to 25 percent and allowing corporations to deduct the full cost of investments in technology and equipment in the first year, an accounting process known as expensing. The first proposal aims to enhance U.S. economic competitiveness, create jobs, and increase wages. The second proposal aims in particular to boost capital expenditures and “reward investment in cutting-edge technologies.”1

Comment On Yin, Reforming The Taxation Of Foreign Direct Investment By Us Taxpayers, Reuven S. Avi-Yonah

Articles

In this excellent article, George Yin addresses an important proposal by the President's Advisory Panel on Federal Tax Reform. The Advisory Panel proposed that the United States should permanently switch from taxing the parent corporation of U.S. multinationals on worldwide income to a modified territorial regime under which dividends paid out of active business income would be exempt from U.S. tax.' The Joint Committee on Taxation made a similar recommendation.2

Foreign Income And Domestic Deductions, James R. Hines Jr.

Articles

To what extent should taxpayers deduct expenses incurred domestically that contribute to foreign income production? It is widely believed that if the home country does not tax foreign income, then it also should not permit deductions for that portion of domestic expenses attributable to earning foreign income. This prescription is, however, inconsistent with the decision to exempt foreign income from taxation in the first place. The paper shows that, for any system of taxing foreign income, the consistent and efficient treatment is to permit domestic expense deductions for all expenses incurred domestically. This differs from the current U.S. regime, under …

Third-Party Tax Administration: The Case Of Low- And Moderate-Income Households, Michael S. Barr, Jane K. Dokko

Articles

Using a unique household-level data set, this article investigates the taxfiling experiences and refund behavior of low- and moderate-income (LMI) households. We document households' tax-filing behavior, attitudes about the withholding system, use of tax refunds to consume and save, and the mechanisms by which households would prefer to receive their income. We also document the prevalence of the use of tax-preparation services and the receipt of tax refunds and refund-anticipation loans. Finally, we argue that there may be a role for tax administration to enable LMI households to make welfare-improving financial decisions.

Genes As Tags: The Tax Implications Of Widely Available Genetic Information, Kyle D. Logue, Joel Slemrod

Articles

Advances in genetic research promise to loosen the tradeoff between progressivity and effi ciency by allowing tax liability (or transfer eligibility) to be based in part on immutable characteristics of individuals (“tags”) that are correlated with their expected lot in life. Use of genetic tags would reduce reliance on tax bases (such as income) that are subject to individual choices and, therefore, subject to ineffi cient distortion to those choices. If genetic information can be used by private employers and insurers, the case for basing tax in part on it becomes more compelling, as genetic inequalities would be exacerbated by …

Business Profits (Article 7 Oecd Model Convention), Reuven S. Avi-Yonah, Kimberly A. Clausing

Book Chapters

The 2006 OECD Report on attribution of profits to permanent establishments states that its recommendation "was not constrained by either the original intent or by the historical practice and interpretation of Article 7." Moreover, the Report recommends a redrafting of both the Article itself and the Commentary. Given this, it seems appropriate to begin by asking: If we were working on a clean slate, what would be the best way to tax MNEs at source in the light of 21st century business practices? The beginning point has to be that a modern MNE does not operate as if its constituent …

Genes As Tags: The Tax Implications Of Widely Available Genetic Information, Kyle D. Logue, Joel B. Slemrod

Law & Economics Working Papers Archive: 2003-2009

This paper examines how progress in genetics' specifically, the proliferation of knowledge about the human genome' may influence the feasibility and desirability of a tax that is based on individual human endowments or ability. The paper explores various forms that such a genetic endowment tax-and-transfer regime might take and identifies some of the benefits and costs of such a regime. The authors take no position on whether a genetic endowment tax would be desirable or not. However, one contribution of the paper is to observe that current law in the U.S., which restricts the use of genetic information by insurers …

Business Income (Article 7 Oecd Mc), Reuven S. Avi-Yonah, Kimberly A. Clausing

Law & Economics Working Papers Archive: 2003-2009

The 2006 OECD Report on attribution of profits to permanent establishments states that its recommendation “was not constrained by either the original intent or by the historical practice and interpretation of Article 7.” Moreover, the Report recommends a redrafting of both the Article itself and the Commentary. Given this, it seems appropriate to begin by asking: If we were working on a clean slate, what would be the best way to tax MNEs at source in the light of 21st century business practices?

The beginning point has to be that a modern MNE does not operate as if its constituent …

A Proposal To Adopt Formulary Apportionment For Corporate Income Taxation: The Hamilton Project, Reuven S. Avi-Yonah, Kimberly Clausing

Law & Economics Working Papers Archive: 2003-2009

The current system of taxing the income of multinational firms in the United States is flawed across multiple dimensions. The system provides an artificial tax incentive to earn income in low-tax countries, rewards aggressive tax planning, and is not compatible with any common metrics of efficiency. The U.S. system is also notoriously complex; observers are nearly unanimous in lamenting the heavy compliance burdens and the impracticality of coherent enforcement. Further, despite a corporate tax rate one standard deviation above that of other OECD countries, the U.S. corporate tax system raises relatively little revenue, due in part to the shifting of …

Optimal Tax Compliance And Penalties When The Law Is Uncertain, Kyle D. Logue

Articles

This article examines the optimal level of tax compliance and the optimal penalty for noncompliance in circumstances in which the substance of the tax law is uncertain - that is, when the precise application of the Internal Revenue Code to a particular situation is not clear. In such situations, a number of interesting questions arise. This article will consider two of them. First, as a normative matter, how certain should taxpayers be before they rely on a particular interpretation of a substantively uncertain tax rule? If a particular position is not clearly prohibited but neither is it clearly allowed, what …

The Economic Impact Of Backdating Of Executive Stock Options, M. P. Narayanan, Cindi A. Schipani, H. Nejat Seyhun

Michigan Law Review

This Article discusses the economic impact of legal, tax, disclosure, and incentive issues arising from the revelation of dating games with regard to executive option grant dates. It provides an estimate of the value loss incurred by shareholders of firms implicated in backdating and compares it to the potential gain that executives might have obtained through backdating. Using a sample of firms that have already been implicated in backdating, we find that the revelation of backdating results in an average loss to shareholders of about 7%. This translates to about $400 million per firm. By contrast, we estimate that the …

The Theory And Practice Of Tax Reform, Lawrence Zelenak

Michigan Law Review

On January 7, 2005, President Bush-flush with recent electoral victory- issued an Executive Order creating the President's Advisory Panel on Federal Tax Reform. The Order instructed the bipartisan Panel to recommend one or more plans for major reform of the federal income tax. The president did not, however, permit the Panel to begin its work on a blank slate. Instead, the Order required (among other things) that the Panel's proposals be revenue-neutral, simpler than current law, "appropriately progressive," and supportive of homeownership and charity. Although the Order contemplated that the Panel might offer more than one tax reform plan, it …

A Creditable Vat?, Reuven S. Avi-Yonah

Articles

In the early 1990s, Bolivia tried to adopt a popular U.S. tax reform proposal: replacing its corporate income tax with a cash-flow -type consumption tax, broadly similar in structure to taxes proposed by a long line of theorists from Prof. William Andrews in 1974 to the President's Advisory Panel on Federal Tax Reform in 2006. Unfortunately, the Bolivian experiment ran into an insuperable obstacle: the U.S. foreign tax credit (FTC) rules. The U.S. Treasury decided that the Bolivian tax would not be creditable for U.S. corporations investing in Bolivia. Given the importance of U.S. foreign direct investment (FDI) for Bolivia, …

Banking The Poor: Overcoming The Financial Services Mismatch, Michael S. Barr

Book Chapters

Low-income households often lack access to bank accounts and face high costs for transacting basic financial services through check cashers and other alternative financial service providers. Twenty-two percent of low- and moderateincome American households do not have a checking or savings account. Many other "underbanked" families have bank accounts but still rely on high-cost financial services. These households find it more difficult to save and plan financially for the future. Living paycheck to paycheck leaves them vulnerable to medical or job emergencies that may endanger their financial stability, and lack of longer-term savings undermines their ability to improve skills, purchase …

Taxing Consumption And Other Sins, James R. Hines Jr.

Articles

Federal and state governments in the United States use income and payroll taxes as their primary tools to collect revenue. In the rest of the world, governments also use income and payroll taxes, but rely much more heavily than does the United States on taxing consumption. Consumption taxes take many forms, including general sales taxes, value-added taxes, and excise taxes on the consumption of specific items including gasoline, alcohol, tobacco products, firearms, air travel, telephone communication, and others. The U.S. government does not use a value-added tax, making the United States unique among high-income countries and a rarity in the …