Tax Law Commons^™

Reparations As Redistribution, Kyle D. Logue

Articles

The most controversial, and most intriguing, remedy sought by proponents of slavery reparations involves massive redistribution of wealth from whites to blacks within the United States. This is not to say that reparations proponents have focused only on racial redistribution. Some have called for an official apology from the U.S. government. Others seek the creation of a foundation or institute, funded by U.S. tax dollars, to be devoted to furthering the interests of African Americans, including the funding of K- 12 educational programs for black children and the funding of general civil rights advocacy to counteract the lingering effects of …

Sensible Tax Policies In Open Economics, James R. Hines Jr.

Articles

This paper evaluates the design and the desirability of business taxes in small open economies, in light of evidence of the impact of taxation on the activities of multinational firms. The high degree of international capital mobility implies that small countries benefit by reducing their tax rates below the rates of other countries with whom they compete, possibly to the point of eliminating any taxes on inbound investment. Countries likewise have incentives not to tax the foreign incomes of resident companies. Host countries that are tempted to use their tax systems to subsidize and thereby encourage local employment, net exports, …

Corporate Income Tax Act Of 1909, Reuven S. Avi-Yonah

Book Chapters

The Corporate Tax Act of 1909 (36 Stat. 11, 112) imposed an excise tax on corporations for the privilege of doing business in corporate form. However, the excise tax was measured by corporate income. Thus the act was the origin of the current corporate income tax, which has been part of our federal tax system ever since and is currently the source of about 10 percent of federal revenues.

In 1895 the Supreme Court decided that Congress could not impose an income tax directly on individuals, because that would violate the constitutional requirement that all “direct” taxes be apportioned (that …

The Progressive Consuption Tax Revisited, Steven A. Bank

Michigan Law Review

Over the last decade, it has become increasingly evident that our current federal income tax is too complex, too easily evaded by the wealthy, and too likely to distribute the burdens of taxation to the people least able to bear it. Several years ago, frustration with these realities led to a groundswell of reform proposals, ranging from replacing the current graduated income tax rates with "flat," or proportionate, rates to abolishing the income tax altogether in favor of a national sales tax. While this tax reform frenzy dissipated almost as quickly as it began, the seeds of discontent remain. Professor …

The Myth Of Pretax Income, Lawrence Zelenak

Michigan Law Review

What constitutes a fair distribution of the burdens of taxation among the members of a society? Even as politicians and academics vigorously debate the answer to that question, there is widespread agreement that all are asking the right question. In The Myth of Ownership, however, Liam Murphy and Thomas Nagel claim that everyone has been asking the wrong question. To ask about the fair distribution of tax burdens is to take the distribution of pretax incomes as "presumptively just," so that justice in taxation "is a question of what justifies departures from that baseline" (p. 15). But Murphy and Nagel …

An Assignment By Any Other Name: Contingent-Fee Agreements As Partial Assignments Of The Claim, Andrew P. Lycans

Michigan Law Review

In 1959, Mrs. Ethel West Cotnam of Alabama won a groundbreaking lawsuit against the Internal Revenue Service when the Fifth Circuit Court of Appeals allowed her to subtract her legal fees, paid to her lawyer on a contingency basis, from her gross income. Mrs. Cotnam sued the estate of her former employer when the administrator refused to honor the decedent's promise to pay her one-fifth of his estate if she would care for him for the rest of his life. Upon the successful disposition of this suit, the Supreme Court of Alabama awarded Mrs. Cotnam $120,000. Of that amount, $50,365.83 …

Analysis Of Judicial Decisions Interpreting §482, Reuven S. Avi-Yonah

Other Publications

The purpose of this chapter is to survey the judicial interpretations of transfer pricing, as developed in the cases decided under §482. The chapter is divided into three major sections: first, an overview of the general legal principles underlying the judicial interpretation of §482; second, a chronological survey of the development of the case law under §482, with particular attention to the development of the arm's length standard and the search for comparables; third, an analytical survey of the techniques used by courts to decide transfer pricing cases, with particular emphasis on the techniques developed in recent cases to deal …

Ifa Branch Report: United States (Trends In Company / Shareholder Taxation: Single Or Double Taxation?), Reuven S. Avi-Yonah

Other Publications

United States IFA Branch Report on Trends in Company / Shareholder Taxation: Single or Double Taxation?

The Case For Retaining The Corporate Amt, Reuven S. Avi-Yonah

Articles

PROFESSORS Chorvat and Knoll present us with a strong argument for repealing the corporate alternative minimum tax (AMT). In 2001, repeal was recommended by the Joint Committee on Taxation as part of their simplification study, endorsed by the ABA/AICPA/TEI tax simplification project, and included in a bill passed by the House of Representatives. Since this issue is likely to arise again, it seems worthwhile to review the arguments raised by Chorvat and Knoll. Upon review, none of these arguments seem particularly persuasive; at best, they make a case for reforming the corporate AMT, not for repealing it. On the other …

Legal Transitions, Rational Expectations, And Legal Progress, Kyle D. Logue

Articles

In the literature on legal transitions, the term "transition policy" is generally understood to mean a rule or norm that influences policymakers' decisions concerning the extent to which legal change should be accompanied by transition relief, whether in the form of grandfathering or phase-ins or direct compensation. Legal change within this literature is defined broadly, and somewhat counter-intuitively, to include any resolution of the uncertainty regarding what the law will be in the future or how the law will be applied to future circumstances. Thus, a legal change would obviously include an unexpected repeal of a tax provision, such as …

Redistributing Optimally: Of Tax Rules, Legal Rules, And Insurance, Kyle D. Logue, Ronen Avraham

Articles

From the beginning of the law and economics movement, normative legal economists have focused almost exclusively on evaluating the efficiency of alternative legal rules. The distributional consequences of legal rules, therefore, have largely been ignored. It is tempting to conclude that legal economists are hostile or indifferent to concerns of distributional fairness. In fact, however, the discipline of economics has a great deal to say about distributional policy. The normative branch of economics, known as welfare economics, has always been deeply concerned with distributional issues. It is not that welfare economists purport to know a priori the "right" or "optimal" …

Gifts, Gafts And Gefts: The Income Tax Definition And Treatment Of Private And Charitable 'Gifts' And A Principled Policy Justification For The Exclusion Of Gifts From Income, Douglas A. Kahn, Jeffrey H. Kahn

Articles

Gifts have been given special treatment by the income tax laws since the first post-16th Amendment tax statute was adopted in 1913. The determination of how the income tax law should treat gifts raises a number of issues. For example: should gifts be given special treatment? If so, what should qualify as a gift? Should gifts to a private party be taxable to the donee? Should gifts to a private party be deductible by the donor? Should the donee's basis in a gift of property be determined by reference to the basis that the donor had, and should any modifications …

Tax Stories And Tax Histories: Is There A Role For History In Shaping Tax Law?, Reuven S. Avi-Yonah

Reviews

The teaching of law is usually rather ahistorical. Teachers commonly focus on current doctrine and policy debates, discarding on the "garbage pile of history" any law that has been repealed or superseded. And yet, much of law teaching is still based on reading cases. And cases are by definition historical artifacts - they arise from a specific time and place, and reflect a frequently long-gone historical context. Thus, it is hard to imagine a modern law course completely devoid of history, even if the history gets short shrift. A constitutional law course, for example, will likely include some discussion of …

Back To The 1930s? The Shaky Case For Exempting Dividends, Reuven S. Avi-Yonah

Articles

This article is based in part on the author’s U.S. Branch Report for Subject I of the 2003 Annual Congress of the International Fiscal Association, to be held next year in Sydney, Australia (forthcoming in Cahiers de droit fiscal international, 2003). He would like to thank Emil Sunley for his helpful comments on that earlier version, and Steve Bank, Michael Barr, David Bradford, Michael Graetz, and David Hasen for comments on this version. Special thanks are due to Yoram Keinan for his meticulous work on the EU regimes (see Appendix). All errors are the author’s. In this report, Prof. Avi-Yonah …

Difficulties In Achieving Coherent State And Local Fiscal Policy At The Intersection Of Direct Democracy And Republicanism: The Property Tax As A Case In Point, Mildred Wigfall Robinson

University of Michigan Journal of Law Reform

Professor Robinson explores the uneasiness present when acts of "direct democracy" through means of voter referenda and ballot initiatives conflict with the ideals of representative government, using fiscal matters, such as the property tax, as an example.

Part I explores the changes that have taken place in the last two decades in voter strategy and in patterns of judicial interpretation, briefly reviewing the history of the property tax focusing on taxpayer reaction to long overdue attempts at administrative reform, and showing how that effort indirectly contributed to the "taxpayer revolt. "It further examines how and why broad-scale attempts to utilize …

Why The Corporate Amt Should Be Retained, Reuven S. Avi-Yonah

Articles

The corporate AMT is under attack. Repeal has been proposed by the White House, endorsed by the ABA/AICPA/TEI tax simplification project, and included in the stimulus bill passed by the House of Representatives. Repeal is supported on two principal grounds: That the corporate AMT increases complexity, and that it is pro-cyclical.

The Uneasy Marriage Of Export Incentives And The Income Tax, Mihir A. Desai, James R. Hines Jr.

Articles

This paper investigates the economic effect of tax incentives for American exports. These incentives include a partial tax exemption for export profits (available by routing exports through foreign sales corporations) and the allocation of some export profits to foreign-source income for purposes of U.S. taxation. The analysis highlights three important aspects of these policies. First, official figures appear to understate dramatically the tax expenditures associated with some U.S. export incentives. Correctly measured, total export benefits provided through the income tax are equivalent to a 1-percent ad valorem subsidy. Second, the 1984 imposition of more rigorous requirements for obtaining export subsidies …

Treating Tax Issues Through Trade Regimes (Symposium: International Tax Policy In The New Millennium), Reuven S. Avi-Yonah

Articles

Professor Paul R. McDaniel has performed an extremely valuable service in clarifying the relationship between trade and tax law. In particular, he has done so by pointing out that, to a large extent, the two spheres do not overlap, much less clash in their objectives. This makes sense because, fundamentally, the goal of trade law is to facilitate trade, while the goal of tax law is to raise revenue. Thus, for example, an ideal tariff under trade law is set at zero, but an ideal tax under tax law is set at some positive rate. It therefore should not be …

The Zen Of Corporate Capital Structure Neutrality, Herwig J. Schlunk

Michigan Law Review

It is well understood that corporate capital structure affects tax collections. Most basically, corporate interest expense is deductible. With each interest accrual, the corporate tax base shrinks. Thus, there is a broad range of circumstances in which corporate managers are encouraged by the Internal Revenue Code (the "Code") to load their corporate capital structures with debt. But there is little support for the proposition that Conpress desires corporations to adopt such debt-laden capital structures. Indeed, much tax legislation suggests congressional displeasure with the achievable degree of corporate self- integration. On the other hand, corporate equity has its charms: shareholders are …

The Tyranny Of Money, Edward J. Mccaffery

Michigan Law Review

The more things change, the more they stay the same. A human activity almost as venerable as the accumulation and opulent display of vast riches is the condemnation of the accumulation and opulent display of vast riches. People have been busily engaged at each for several millennia now. Both continue in full flower as America races into the twenty-first century with its liberal capitalist democracy ascendant around the world, its rich richer than ever, its less-rich curiously lagging behind. Yet figuring out what, exactly, is wrong with the excessive accumulation and opulent display of wealth, on the one hand, and …

Globalization, Tax Competition, And The Fiscal Crisis Of The Welfare State, Reuven S. Avi-Yonah

Articles

This Article examines the increased use of tax incentives as weapons in the international competition to attract investment. Professor Avi-Yonah argues that the establishment of tax havens allows large amounts of capital to go untaxed, depriving both developed and developing countries of revenue and forcing them to rely on forms of taxation less progressive than the income tax. He points to social insurance programs, many of which are already on uncertain courses as aging populations imperil their fiscal health, as likely to bear the brunt of the revenue loss that tax havens cause. Professor Avi-Yonah contends that both economic efficiency …

Commentary (Response To Article By H. David Rosenbloom), Reuven S. Avi-Yonah

Articles

David Rosenbloom has delivered an important lecture on an important topic:' whether exploiting differences between the tax system of two different jurisdictions to minimize the taxes paid to either or both ("international tax arbitrage") is a problem, and if so, whether anything can be done about it in a world without a "world tax organization." As Rosenbloom states, international tax arbitrage is "the planning focus of the future,"2 and recently has been the focus of considerable discussion and debate (for example, upon the promulgation and subsequent withdrawal under fire of Notice 98-11).3 Rosenbloom's lecture is one of the first attempts …

If Taxpayers Can't Be Fooled, Maybe Congress Can: A Public Choice Perspective On The Tax Transition Debate, Kyle D. Logue

Reviews

In When Rules Change: An Economic and Political Analysis of Transition Relief and Retroactivity , Shaviro takes the various strands of the existing literature on retroactivity and weaves them together, applying his unique combination of legal expertise, political pragmatism, and theoretical sophistication in public finance economics as well as political science. The result is a subtle, balanced, and scholarly treatise on transition relief and retroactivity that should serve as the starting point for all future research in the field. In its stated objectives, the book is admirably ambitious.

This Review will, in a broad sense, follow Shaviro's characterization of the …

The Influence Of Income Tax Rules On Insurance Reserves, David F. Bradford, Kyle D. Logue

Book Chapters

An insurance company is a financial intermediary whose main line of business is the sale of a particular type of contingent contract, called an insurance policy. Under this contract, the insurer promises to pay some amount to the policyholder, or to some other beneficiary, following the occurrence of an insured event. In the context of property-casualty insurance, the relevant insured events include, for example, the accidental destruction of the insured's property or the award of a liability judgment against the insured. In return for this promise the insured pays the insurer a premium. The premium and the earnings on the …

The Constitutionality Of Taxing Compensatory Damages For Mental Distress When There Was No Accompanying Physical Injury, Douglas A. Kahn

Articles

Since 1919, statutory tax law has excluded from gross income compensatory damages received on account of a personal injury or sickness.1 The current version of that exclusion is set forth in section 104 (a) (2) of the Internal Revenue Code of 1986.2 The construction of that exclusion, both by the courts and by the Commissioner, underwent significant alterations over the 80-year period that the provision has existed.3 The statute itself was amended several times, most recently in 1996.4 It is the 1996 amendment that has raised a constitutional issue concerning the validity of a portion of the statute.5

The Effects Of Tax Law Changes On Property-Casualty Insurance Prices, David F. Bradford, Kyle D. Logue

Book Chapters

One of the most important components of the balance sheet of a property-casualty insurance company is the loss reserve. In spite of what the term may suggest, a loss reserve is not a pot of funds set aside for the uncertain future. It is an accounting entry, a liability on the balance sheet. More precisely termed the unpaid-losses account, the loss reserve expresses the amount the company expects to pay out in the future to cover indemnity payments that will come due on policies already written for losses that have already been incurred and to cover the costs of dealing …

A Critique Of The Proposed National Tobacco Resolution And A Suggested Alternative, Jon D. Hanson, Kyle D. Logue

Articles

The first criticism is that the proposed resolution would not require manufacturers and, in tum, consumers to pay anything approaching the true total costs of cigarettes, costs that we estimate to be at least $7 per pack, a number that is considerably higher than other estimates that have been reported in the media. Our estimate includes some, but not all, of the costs borne ultimately by smokers themselves, by smokers' insurers, and by individuals injured by second-hand smoke. It includes only future costs and excludes many of those. So, for example, the figure includes neither the health-care costs that have …

The Costs Of Cigarettes: The Economic Case For Ex Post Incentive-Based Regulation, Jon D. Hanson, Kyle D. Logue

Articles

Cigarette smoking causes over 420,000 deaths annually in the United States, roughly twenty percent of all U.S. deaths, making cigarettes the single greatest preventable cause of death in this country. Indeed, tobacco kills more people every year than alcohol, illicit drugs, automobile accidents, violent crime, and AIDS combined. And not only are cigarettes deadly to smokers; they kill nonsmokers as well. According to a recent report from the Environmental Protection Agency (EPA), the "sidestream" or "passive" smoke from cigarettes - so-called environmental tobacco smoke (ETS) - is responsible annually for approximately 3000 lung cancer deaths, between 150,000 and 300,000 lower …

Smokers' Compensation: Toward A Blueprint For Federal Regulation Of Cigarette Manufacturers, Jon D. Hanson, Kyle D. Logue, Michael S. Zamore

Articles

Although nothing is certain in Washington, sweeping federal legislation in the cigarette area is more likely now than has ever been the case. Congress is currently considering several proposals for comprehensive federal regulation of the cigarette market, a market that has until now gone largely untouched by government intervention. Among those proposals, the one that has received the most attention, and the one that in fact motivated policy makers to look anew at the problems posed by cigarettes, is the proposed national tobacco resolution (the "Proposed Resolution"). The Proposed Resolution, which has been advanced by a coalition of state attorneys …

U.S. Notice 98-11 And The Logic Of Subpart F: A Comparative Perspective, Reuven S. Avi-Yonah

Articles

In this report, Reuven S. Avi-Yonah argues that the dichotomy between active and passive income that underlies subpart F and Notice 98-11 is obsolete, and should be replaced with an explicit link to source tax rates, as most of our trading partners do in similar legislation.