Archive for the ‘Tax’ Category

Taxonomy of Innovation Incentives

posted by Andrew Blair-Stanek

IP folks don’t talk enough with tax-law folks, and vice versa. This has some unfortunate results. IP has become a leading tax-avoidance vehicle, without drawing sufficient notice from IP scholars and practitioners. And R&D tax incentives are rarely evaluated alongside patents, prizes, and research grants as effective ways to foster innovation.

An insightful article forthcoming in the Texas Law Review, by Daniel Hemel and Lisa Larrimore Ouellette, takes a big step in bridging this gap. They observe that all innovation incentives can be broken down along three dimensions: (1) who decides (government vs. the market), (2) when paid (ex ante vs. ex post), and (3) who pays (government vs. users). For example, patents are market-driven, with money delivered ex post, from users of the patented technology. By contrast, R&D tax incentives are market-driven, with money delivered ex ante, from the government.

These three dimensions lead to a 2 x 2 x 2 matrix, suggesting a total of eight types of innovation incentives. But only five are currently used: patents, prizes, research grants, R&D tax incentives, and patent boxes (which provide favorable tax rates on patent income). As a result, Hemel and Ouellette’s taxonomy suggests three new mechanisms to encourage innovation. Their taxonomy also teases out some exciting new insights on the relative merits of existing innovation incentives, including some previously overlooked benefits of R&D tax incentives.

 

  June 18, 2013 at 4:15 pm  Tags: Daniel Hemel, innovation, IRC 174, IRC 41, Lisa Larrimore Ouellette, r&d, taxes  Posted in: Intellectual Property, Law Rev (Texas), Tax, Technology   Print This Post   No Comments

Tall Latte with a Double Shot of Tax Avoidance

posted by Andrew Blair-Stanek

Intellectual property has become a major tax-avoidance vehicle for multinationals. Front-page articles in the New York Times and Wall Street Journal have detailed how IP-heavy companies like Apple, Google, and Big Pharma play games with their IP to avoid taxes on a massive scale. For example, Apple uses IP-based tax-avoidance strategies to reduce its effective tax rate to approximately 8%, well below the statutory 35% corporate tax rate (and well below most middle-class Americans’ tax rates).

Two characteristics of IP make it the ideal tax-avoidance vehicle. First, the uniqueness of every piece of IP makes its fair market value extremely hard to establish, allowing taxpayers to choose whatever valuations result in the least tax. Second, unlike workers or physical assets like factories or stores, IP can easily be moved to tax havens via mere paperwork.

But Starbucks is a bricks-and-mortar retailer dependent upon physical presence in high-tax countries. It wouldn’t seem to be in a position to use these IP-based tax tricks. Yet in an excellent, eye-opening paper, Edward Kleinbard (USC) delves into the strategies that Starbucks uses to substantially reduce its worldwide tax burden. Most interestingly, Starbucks puts IP like trademarks, proprietary roasting methods, operational expertise, and store trade dress into low-tax jurisdictions. Kleinbard cogently observes that the ability of a bricks-and-mortar retailer like Starbucks to play such games demonstrates how deep the flaws run in current U.S. and international tax policy.

 

  June 11, 2013 at 5:01 pm  Tags: Intellectual Property, Kleinbard, Starbucks, tax law  Posted in: Intellectual Property, Tax   Print This Post   No Comments

The IRS Scandal, Property Rules, and Liability Rules

posted by Andrew Blair-Stanek

Regardless of your take on the IRS targeting conservative groups applying for 501(c)(4) status, the episode demonstrates once again that Congress, the Administration, and the media have multiple avenues to pressure the IRS to act or to reconsider earlier actions. This susceptibility to political pressure has broad, counterintuitive implications for how to best deter violations of requirements throughout tax law.

In their path-breaking law & economics article, Calabresi & Melamed observed that every entitlement can be protected by either a property rule (e.g. injunctions, disgorgement of profits) or a liability rule (e.g. compensatory damages). The same is true in tax law. When a taxpayer violates a requirement for a favorable tax status, the tax code either imposes additional tax proportionate to the harm (a liability rule) or imposes the draconian penalty of taking away the tax status entirely (a property rule).

Which rule is most likely to deter a well-connected organization from violating a requirement imposed on it by tax law? At first glance, property rules (i.e. yanking the organization’s favorable tax status) appear to be the most effective deterrent. But the IRS routinely hesitates to take this draconian step, which would result in complaints to Congress, the Administration, the media, and other organizations. Even if the tax code, as written, imposes this property-rule remedy, the IRS can and often does decline to impose it in practice.

Examples of this problem abound throughout tax law. My favorite example is a real estate investment trust (or “REIT”) that had its IPO in 2007 and revealed in its SEC filing that it was in clear violation of one of the requirements (I.R.C. § 856(a)(2)) to qualify as a REIT for tax purposes. How brazen! But what was the IRS to do? The requirement is protected by a property rule: the only remedy available to the IRS was to take away the REIT’s favorable tax status entirely. This would have been draconian. All the REIT’s shareholders would have complained to their congresspersons, the financial press would have run stories, and the National Association of Real Estate Investment Trusts would have raised a ruckus. The IRS didn’t dare impose this property-rule remedy. The IRS did nothing, and the REIT suffered no consequences for the violation.

Would this REIT have been so brazen if the requirement had, instead, been protected by a liability rule, which would merely have imposed additional tax proportional to the violation? Almost certainly not. And that is the counterintuitive result: liability rules are often more effective in practice than draconian property rules in deterring taxpayers from violating tax-law requirements.

The relative merits of property rules and liability rules in tax law are explored in depth by this forthcoming Virginia Law Review article.

 

  June 4, 2013 at 11:18 am  Tags: Calabresi and Melamed, law and economics, liability rules, property rules, tax law  Posted in: Economic Analysis of Law, Law Rev (Virginia), Tax   Print This Post   2 Comments

Money Laundries

posted by Frank Pasquale

I was recently reading a Money Laundering Threat Assessment (from 2005), and the following lines came up on p. 49:

[T]he trust laws of some jurisdictions have aided money launderers in their use of trusts to conceal identity and to perpetrate fraud. In certain jurisdictions, such as the Cook Islands, Nevis, and Niue, the trust laws no longer require the names of the settlor and the beneficiaries to be placed in the trust deed, permit settlors to retain control over the trust, and allow trusts to be revocable and of unlimited duration.

My question is: why is this even called a trust? Shouldn’t it bear some other name? At least Liechtenstein has the decency to call its creepy money-hiding methods “Anstalts.”

The larger consequences here are terrifying. The wealth defense industry has created an environment where all manner of swindlers, thieves, and terrorists can hide ill-gotten gains. As a forthcoming University of Pennsylvania piece by Shima Baradaran, Michael Findley, Daniel Nelson, and J.C. Sharman puts it:

On the whole, forming an anonymous shell company is as easy as ever, despite increased regulations following 9/11. The results are disconcerting and demonstrate that we are much too far from a world that is safe from terror.

I nevertheless expect that most of the centomillionaire and billionaire class will continue to fight efforts to crack down on shell companies and trusts, and will find ample “help” to argue their case. Perhaps someone will even pen an ode to financial privacy. Meanwhile, we have no idea what taxes may be due from trillions of dollars in offshore wealth, or to what purposes it is directed.

Expect to hear many more stories on this issue. The stakes could not be higher. As Liu Xiaobo has stated, corruption is the “officialization of the criminal and the criminalization of the official.” Persisting even in a world of brutal want and austerity-induced suffering, tax havenry epitomizes that sinister merger.

  April 26, 2013 at 10:42 pm   Posted in: Military Law, Privacy, Tax, Wills, Trusts, and Estates   Print This Post   2 Comments

Carried Interest Loophole: Is Anyone Still Defending It (for Free)?

posted by Frank Pasquale

The New York Times ran an excellent opinion piece yesterday on the bizarre carried interest loophole, tailor-made to nearly halve the tax rate for a tiny sliver of financiers:

Millions of general partners in investment funds receive carried-interest income when they earn profits for their clients. Since these partners do not have to risk any of their own capital, carried interest is really a taxpayer-subsidized fee for managing their clients’ money . . . . No other affluent Americans enjoy this benefit. A brain surgeon, stockbroker, corporate lawyer or actor will have to pay the new top marginal rate percent, while a general partner who manages other people’s money pays, on carried-interest income, only the 20 percent rate on long-term capital gains. . . . The difference in revenue to the United States government when this combined income is taxed at 20 percent rather than at 39.6 percent is about $11 billion annually.

I imagine there are plenty of think tanks happy to characterize this discrepancy as a reflection of (their donors’) wisdom and free enterprise at work. I vaguely recall some academics defending it years ago. But is anyone still doing so, given that we now know how lavishly the finance sector is subsidized, and how tax policy exacerbates inequality in so many other ways?

  February 26, 2013 at 7:53 am   Posted in: Tax   Print This Post   One Comment

Volume 60, Issue 2 (December 2012)

posted by UCLA Law Review

Volume 60, Issue 2 (December 2012)

Articles

The Battle Over Taxing Offshore Accounts	Itai Grinberg	304
The Structural Exceptionalism of Bankruptcy Administration	Rafael I. Pardo & Kathryn A. Watts	384
Patients’ Racial Preferences and the Medical Culture of Accommodation	Kimani Paul-Emile	462

Comments

“Not Susceptible to the Logic of Turner”: Johnson v. California and the Future of Gender Equal Protection Claims From Prisons

Grace DiLaura

506

  December 28, 2012 at 11:54 pm   Posted in: Bankruptcy, Constitutional Law, Feminism and Gender, Health Law, International & Comparative Law, Law Rev (UCLA), Tax   Print This Post   No Comments

The Boy Scouts and Discrimination

posted by Caroline Mala Corbin

Imagine the Boys Scouts of America discriminated on the basis of race. In this hypothetical, no black parents are allowed to lead troops, and no black children are even allowed to join them. If your child were eligible, would you let him become a Boy Scout? My guess is that the answer would be no. There are plenty of alternative extracurricular activities available, including other scouting clubs, so why belong to a racist one whose policies stigmatize innocent children and perpetuate hostility towards a group based on a completely irrelevant characteristic? In fact, you might not want to support them in any way. The federal government certainly does not: groups that discriminate on the basis of race are ineligible for government funding and cannot qualify as a tax exempt organization. In short, no government money would flow to them, not even in the form of tax breaks. As an expressive association, the Boy Scouts might have a constitutional right to discriminate, but that doesn’t mean that our tax dollars should help them.

In recognition of National Coming Out Day on October 11, let’s tweak the hypothetical and substitute sexual orientation for race. Shouldn’t the results be the same?

 

  October 9, 2012 at 12:51 pm  Tags: Boy Scouts, discrimination, National Coming Out Day, Race, sexual orientation  Posted in: Civil Rights, Constitutional Law, First Amendment, Tax   Print This Post   13 Comments

Escrow of Capital Gains Taxes on Stocks and Bonds

posted by Gerard Magliocca

Here’s a question for tax experts out there.  Why don’t brokerages escrow capital gains taxes in a manner similar to a bank escrow of property taxes on a mortgage?  It would seem to make sense from the perspective of the customer (you wouldn’t have to pay capital gains as a lump sum every quarter or every year), and from the perspective of the IRS (they could more efficiently collect taxes from a small group of brokerage firms and could, in theory, collect them in real time)?  Is there any reason why this practice is not used?

  September 7, 2012 at 11:37 am   Posted in: Tax   Print This Post   5 Comments

Stanford Law Review Online: The Dirty Little Secret of (Estate) Tax Reform

posted by Stanford Law Review

The Stanford Law Review Online has just published an Essay by Edward McCaffery entitled The Dirty Little Secret of (Estate) Tax Reform. Professor McCaffery argues that Congress encourages and perpetuates the cycle of special interest spending on the tax reform issue:

Spoiler alert! The dirty little secret of estate tax reform is the same as the dirty little secret about many things that transpire, or fail to transpire, inside the Beltway: it’s all about money. But no, it is not quite what you think. The secret is not that special interests give boatloads of money to politicians. Of course they do. That may well be dirty, but it is hardly secret. The dirty little secret I come to lay bare is that Congress likes it this way. Congress wants there to be special interests, small groups with high stakes in what it does or does not do. These are necessary conditions for Congress to get what it needs: money, for itself and its campaigns. Although the near certainty of getting re-elected could point to the contrary, elected officials raise more money than ever. Tax reform in general, and estate tax repeal or reform in particular, illustrate the point: Congress has shown an appetite for keeping the issue of estate tax repeal alive through a never-ending series of brinksmanship votes; it never does anything fundamental or, for that matter, principled, but rakes in cash year in and year out for just considering the matter.

He concludes:

On the estate tax, then, it is easy to predict what will happen: not much. We will not see a return to year 2000 levels, and we will not see repeal. The one cautionary note I must add is that, going back to the game, something has to happen sometime, or the parties paying Congress and lobbyists will wise up and stop paying to play. But that has not kicked in yet, decades into the story, and it may not kick in until more people read this Essay, and start to watch the watchdogs. Fat chance of that happening, too, I suppose. In the meantime, without a meaningful wealth-transfer tax (the gift and estate taxes raise a very minimal amount of revenue and may even lose money when the income tax savings of standard estate-planning techniques, such as charitable and life insurance trusts, are taken into account), one fundamental insight of the special interest model continue to obtain. Big groups with small stakes—that is, most of us—continue to pay through increasingly burdensome middle class taxes for most of what government does, including stringing along those “lucky” enough to be members of a special interest group. It’s a variant of a very old story, and it is time to stop keeping it secret.

Read the full article, The Dirty Little Secret of (Estate) Tax Reform by Edward McCaffery, at the Stanford Law Review Online.

  August 14, 2012 at 10:00 am  Tags: Congress, death tax, estate tax, Politics, special interests, tax, tax law, taxes  Posted in: Current Events, Empirical Analysis of Law, Law Rev (Stanford), Politics, Tax, Uncategorized   Print This Post   2 Comments

Is Harry Reid Engaging in Libel by Implication?

posted by Frank Pasquale

Harry Reid has sparked an uproar by suggesting that Mitt Romney paid no taxes. On the floor of the Senate, Reid stated, “The word’s out that he [Romney] hasn’t paid any taxes for 10 years.” Glenn Kessler summarizes Reid’s follow-up on the claim:

He originally told the Huffington Post that a person who had invested with Bain Capital had called his office and told him this. Then, he told reporters in Nevada that “I have had a number of people tell me that.” Reid has refused to identify his source (or sources).

Kessler notes that, “Without seeing Romney’s taxes, we cannot definitively prove Reid incorrect.” He still faults Reid for making the accusation. Others praise Reid because “his allegations are easy to disprove with evidence that Mitt Romney himself has, viz., Romney’s tax returns,” and “every party nominee for 40 years” has been more forthcoming than Romney about their taxes.

The controversy reminded me of an article on “Libel by Implication,” and a decade-old defamation case, Howard v. Antilla. That case concerned a New York Times article, which asked, “Is Robert Howard really [the felon] Howard Finkelstein? A lot of investors in Mr. Howard’s Presstek Inc., would like to know. But not even the Securities and Exchange Commission can say for sure. And the lingering mystery has roiled a hot stock and left the S.E.C. blushing.” The article reported rumors that turned out to be false, though the defendant said it was based on “1500 pages of notes and documents in her investigative file.” A jury found for Antilla on the defamation claim, but awarded Howard $480,000 on a false light claim. The First Circuit eventually vacated the verdict, engaging in some fine distinctions between claims that someone “might be” and “is” some suspect identity:
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  August 7, 2012 at 11:02 am   Posted in: First Amendment, Tax   Print This Post   4 Comments

Renouncing Citizenship to Avoid Taxes

posted by Gerard Magliocca

There was news in recent days that one of the co-founders of Facebook (Eduardo Savarin) has renounced his U.S. citizenship to avoid paying a hefty tax bill (approximately $600 million) when the company goes public this week.  I’m ignorant of the law on this point, but are there really no restrictions on the right to relinquish citizenship on a date of your choosing?  If there are equitable limitations, this would seem like a good time to invoke them and say that he cannot opportunistically avoid taxes in this way. If there are no such limits, I wonder if the Government will consider exercising its discretion to deny him entry into the United States from now on.

  May 13, 2012 at 5:19 pm   Posted in: Tax   Print This Post   9 Comments

The Yale Law Journal Online: “Early-Bird Special” Indeed!: Why the Tax Anti-Injunction Act Permits the Present Challenges to the Minimum Coverage Provision

posted by Yale Law Journal

  January 25, 2012 at 11:14 am   Posted in: Health Law, Law Rev (Yale), Tax   Print This Post   No Comments

Stanford Law Review Online: How to Reach the Constitutional Question in the Health Care Cases

posted by Stanford Law Review

In a Note just published by the Stanford Law Review Online, Daniel J. Hemel discusses a jurisdictional issue that might delay a ruling by the Supreme Court on the constitutionality of the Patient Protection and Affordable Care Act, and a novel way in which the Solicitor General could bypass that hurdle. In How to Reach the Constitutional Question in the Health Care Cases, he writes:

Although the Supreme Court has agreed to hear three suits challenging the 2010 health care reform legislation, it is not at all clear that the Court will resolve the constitutional questions at stake in those cases. Rather, the Justices may decide that a Reconstruction-era statute, the Tax Anti-Injunction Act (TA-IA), requires them to defer a ruling on the merits of the constitutional challenges until 2015 at the earliest. . . . Fortunately (at least for those who favor a quick resolution to the constitutional questions at stake in the health care litigation), there is a way for the Solicitor General to bypass the TA-IA bar—even if one agrees with the interpretation of the TA-IA adopted by the Fourth Circuit and Judge Kavanaugh. Specifically, the Solicitor General can initiate an action against one or more of the fourteen states that have announced their intention to resist enforcement of the health care law, and he can bring this action directly in the Supreme Court under the Court’s original jurisdiction. Such an action would be a suit for the purpose of facilitating—not restraining—the enforcement of the health care law. Thus, it would open up an avenue to an immediate adjudication of the constitutional challenges.

Read the full Note, How to Reach the Constitutional Question in the Health Care Cases by Daniel J. Hemel, at the Stanford Law Review Online.

  January 9, 2012 at 12:52 pm  Tags: academia, Constitutional Law, Current Events, health care law, jurisdiction, PPACA, Supreme Court, Tax Anti-Injunction Act  Posted in: Constitutional Law, Courts, Current Events, Health Law, Law Rev (Stanford), Tax   Print This Post   One Comment

Pascal on Power and Justice (A Thought for the New Year)

posted by Frank Pasquale

The past few years I’ve tried to find an inspiring quote for the New Year for the blog. There’s a rich vein of insight to be mined from the Carnegie Council podcasts, which I recently discovered on iTunes. One speaker I particularly enjoyed was Krishen Mehta, a former partner with PricewaterhouseCoopers who is now the co-chairman of Global Financial Integrity’s advisory board. Asked about what motivated him to try to stop the shocking abuse of tax havens and mispriced trade by oligarchs, he said the following:

It really is a war against the poor. The inequity that has existed in the past is going to continue unless civil society is informed, asks the right questions of its government, of its business leadership, and asks for more responsibility. One of my favorite writers is Blaise Pascal, who said that “justice and power must be brought together so that whatever is just may be powerful and whatever is powerful may be just.”

A recent study concluded that, “For a salary of between £75,000 and £200,000, tax accountants destroy £47 in value, for every pound they generate.” Mehta, by contrast, is not only creating value, but doing so for the most vulnerable people. How appropriate that a thinker admired by both mathematicians and philosophers would inspire him.

Image Credit: Augustin Pajou. As described on Wikimedia Commons: “Blaise Pascal (1623–1662) studying the cycloid, engraved on the tablet he is holding in his left hand; the scattered papers at his feet are his Pensées, the open book his Lettres provinciales.”

  December 31, 2011 at 7:58 pm   Posted in: Accounting, Law and Inequality, Tax   Print This Post   One Comment

The Poor Get One Strike; Banks Get Thousands

posted by Frank Pasquale

Most readers of this blog are already familiar with draconian treatment of the poor by various law enforcers and state bureaucracies. Here’s yet another example:

[A] one-strike clause . . . allows the public housing authority to evict [the tenant] if any member of her household or any guest engages in certain kinds of criminal activity. . . . Stories abound about the one-strike policy being wielded in seemingly egregious ways to evict “innocent tenants,” such as a disabled elderly man in California whose caretaker was caught with crack. . . .The Chicago Reporter wrote in September that 86 percent of Chicago’s one-strike evictions last year did not arise from criminal activity by the person named on the lease.

“These policies, the effect of them on children, families, women, families of color, were not thought through. And I think now a national conversation is beginning to rethink that,” said Ariela Migdal, a senior staff attorney with the Women’s Rights Project of the American Civil Liberties Union. Migdal pointed to a June 2011 letter from HUD Secretary Shaun Donovan to public housing directors, encouraging the directors to use their “broad discretion” to create a flexible set of standards for who will be admitted to and allowed to stay in public housing.

Certainly the Obama administration has ample experience deploying “discretion” and “mercy” in other areas.  For example, consider Barry Ritholtz’s summary of a shocking Reuters report by Scott Paltrow on foreclosure fraud:
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  December 26, 2011 at 12:26 pm   Posted in: Corruption, Criminal Law, Financial Institutions, Law and Inequality, Tax   Print This Post   7 Comments

Pope Benedict’s Message on Peace, Justice, and Wealth Redistribution

posted by Frank Pasquale

Pope Benedict’s interpretations of Catholic Social Thought have been consistently inspiring. His recent message on the World Day of Justice and Peace focused on the material foundations of a just and well-ordered society.

“Blessed are the peacemakers, for they shall be called sons of God”, as Jesus says in the Sermon on the Mount (Mt 5:9). Peace for all is the fruit of justice for all, and no one can shirk this essential task of promoting justice, according to one’s particular areas of competence and responsibility. . . .

Peace . . . is not merely a gift to be received: it is also a task to be undertaken. In order to be true peacemakers, we must educate ourselves in compassion, solidarity, working together, fraternity, in being active within the community and concerned to raise awareness about national and international issues and the importance of seeking adequate mechanisms for the redistribution of wealth, the promotion of growth, cooperation for development and conflict resolution.

This position confirms a long line of encyclicals urging the fair distribution of global resources. As Pope Benedict earlier stated in Caritas in Veritate, “Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function.”
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  December 23, 2011 at 3:44 pm   Posted in: Financial Institutions, Religion, Tax   Print This Post   No Comments

Understanding Wealth Defense: Direct Action from the 0.1%

posted by Frank Pasquale

The OWS protests have provoked reflection on the morality of direct action and civil disobedience. How far should the police go to spy on, disrupt, or punish peaceful protesters? Is pepper spray a dangerous chemical agent or “a food product, essentially?” Does current American inequality merit a direct action follow-up to the Civil Rights Movement, whose mass-arrestees and water-cannoned marchers are now viewed as heroes?

It’s difficult to answer these questions without understanding the past and present tactics of the groups OWS is protesting. We can learn something about those tactics from Jeffrey A. Winters’ book Oligarchy and his recent articles. In Winters’ treatment of America’s politics of wealth defense, we can discern a transition from high-stakes defiance of government tax authority to an established position “inside the system.”

Winters recounts how Congress passed a tax on the top 0.1% in 1894, only to be slapped down by a Supreme Court “which struck it down in a 5-4 decision.” After the 16th Amendment effectively repealed that Supreme Court decision, Congress had the novel idea of actually helping pay for a war (WWI) with revenue from those best able to fund it. As Winters notes, “the highest rate [leapt] from 7 percent in 1915 to 77 percent in 1918,” and “the number of brackets went from seven to 56 over the same period.” This provoked direct action from the wealthiest “through tax avoidance and outright evasion.” At this point, Winters writes,
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  November 26, 2011 at 10:14 am   Posted in: Constitutional Law, First Amendment, Law and Inequality, Tax   Print This Post   One Comment

Come With Me and Escape

posted by Deven Desai

“If you like Pina Coladas, and getting caught in the rain.
If you’re not into yoga, if you have half-a-brain.”

Bay Area radio struggles to have decent music. I tend to cycle through the few stations that may have something of interest. A recent addition to the dial focuses on 60s. 70s, and 80s. As a competitor points out, the new comer tends to repeat the same track several times a day. Recently the song Escape (The Pina Colada Song) has been playing quite a bit. The funny thing to me is that yoga and health food seem to have been dating and compatibility differentiators for more than 30 years. The style of the song and especially the attire, however, may not be as timeless; just reminders of the end of the seventies and the start of eighties (It was the last number 1 of the seventies and first of the eighties). Oddly that decade seems a bit more sane regarding taxes.

It took more than two years to produce that tax code overhaul. During that time, Reagan went on the road to plead his case for the plan. At a high school in Atlanta, Ga., in 1985, Reagan said they were going to “close the unproductive loopholes that allow some of the truly wealthy to avoid paying their fair share.”
Meanwhile in Congress, Democrats and Republicans worked together to merge competing proposals for tax reform. Still in office today, Democratic Sen. Patrick Leahy of Vermont was there during the passage of the bill. He says it was a different era.
“We had a lot of grownups in both parties, people who actually wanted the government to work,” Leahy says.

All of which makes me wish there was a world where I could write a personal ad seeking a new politician and find that the one who turned up was already in place. Now that is a fantasy.

Anyway, enjoy the song. Oh as moment of who knew: The song was released on September 21, 1979. The movie “10” which is a rather similar story and also a huge hit of the era was released October 5, 1979. As far I know they were not connected directly; yet they stuck together in my head because of the story lines.

  November 3, 2011 at 12:12 am   Posted in: Culture, Just for Fun, Tax   Print This Post   No Comments

Jost on a Drafting Error in the Affordable Care Act

posted by Frank Pasquale

A few days ago, Timothy Jost offered insights on the Fourth Circuit’s jurisdictional rulings on constitutional challenges to the Affordable Care Act. (That post was part of a terrific series he has done for the Health Affairs Blog.) Today, Jost offers a fascinating perspective on “an ACA drafting error that would seem to deprive millions of uninsured Americans of tax credits to purchase health insurance and invalidate regulations recently proposed by HHS and the Treasury Department:”

The mistake is found in section 1401 of the ACA, which creates a new section 36B of the IRC. Two subsections of 36B ((b)(2)(A) and (c)(2)(A)(i)) suggest that premium tax credit eligibility under the ACA depends on the applicant being enrolled in a qualified health plan “through an Exchange established by the State under section 1311.” This would in turn suggest that individuals enrolled in a qualified health plan through a federal exchange established under section 1321(c) would not be eligible for premium tax credits, contrary to the recent proposed regulations.

That this is a drafting error is obvious to anyone who understands the ACA. Section 1311 of the ACA requests the states to establish American Health Benefit Exchanges and sets out the duties of the exchanges. Section 1321 of the ACA, however, provides that if a state elects not to establish and exchange or fails to do so, HHS must “establish and operate” an exchange in such a state and “take such actions as are necessary to implement” the other requirements of title I of the ACA, which includes section 1401. There is no coherent policy reason why Congress would have refused premium tax credits to the citizens of states that ended up with a federal exchange. None of the CBO reports scoring the ACA suggest that premium tax credits would only be available though 1311 state exchanges and not through 1321 federal exchanges. It is, finally, highly unlikely that the House, whose bill included only a federal exchange, would have approved a bill that only provided tax credits through state exchanges but not through the federal exchange.

For the full argument, check out his post at the Health Reform Watch blog.

  September 11, 2011 at 10:04 am   Posted in: Administrative Law, Health Law, Tax   Print This Post   20 Comments

Do the Rich Need the Rest?

posted by Frank Pasquale

The top 10% of Americans now make about as much as the bottom 90%. But within that group, an even smaller fraction dominates. Nobel Prize winning economist Joe Stiglitz has observed that the US is ruled by the top 1%, for the top 1%. And within that top 1%, the top tenth has been triumphant. Earning on average $5.6 million in 2008 (and at least $1.7 million), the group has seen its income rise 385% from 1970 to 2008, while earnings of the bottom 90% declined.

Worldwide, the rich are pulling away from the rest as well. Given this political reality, what kind of future is likely for the bottom 99%? Will the sort of precarious existence now common for the poor and lower-middle classes climb higher up the income ladder?

Michael Lind suggests this is likely, because so many jobs can be done by “less expensive and more deferential foreign nationals,” or prisoners. WSJ reporter Robert Frank has also observed a decoupling of destinies: “the economic fate of Richistan seems increasingly separate from the fate of the U.S.” (or any particular country).

Meanwhile, progressive thinkers like Bruce Judson, Robert Reich, and David Callahan have hoped for the rise of a conscientious superclass. In their view, any nation’s wealthy should see middle class prosperity as part of its own self-interest properly understood. Most of these thinkers hold up Germany or Sweden as models of egalitarianism that helps even those at the top. A book called “The Spirit Level” has made a complementary case, arguing that, as a statistical matter, even the richest in an unequal society tend to be less healthy and secure than those at the top of a more equal social order. (Consider, for instance, that even if you were in the oil-drilling elite of Equatorial Guinea, making $250,000 per year, you might well want to move to Sweden for a similar position paying $100,000 a year.)
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  June 25, 2011 at 5:16 pm   Posted in: Health Law, Law and Inequality, Politics, Tax   Print This Post   4 Comments

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