Archive for the ‘Tax’ Category
Is the House’s Proposed Health Surcharge Progressive Enough?
posted by Frank Pasquale
The usual suspects are alarmed by the House Health Reform Bill’s proposed surcharge on high income earners. As the NYT explains with some examples, “Starting in 2011, a family making $500,000 would have to pay $1,500 in additional income tax to help subsidize coverage for the uninsured. A family making $1 million would have to pay $9,000.” The surcharge rises with income, and over time, to hit 5.4% (by 2013) for households earning over $1 million annually. Households making between $280,000 and $500,000 per year would only face a 2% surcharge by 2013.
Beneath all the sturm und drang about soaking the rich, the press should focus on three underlying realities. First, income and wealth vastly increased at the top of the distribution over the past thirty years — in part because of corporate cost savings that included denial of health coverage to millions of workers. Second, inequality itself exacerbates the health care crisis, by fueling the allocation of medical care according to profit potential, not need. Third, inequality causes health problems, because societies grow “more dysfunctional, violent, sick and sad if the gap between social classes grows too wide.” The surcharge on the rich is not some random resentment inflicted by Frenchified Madame DeFarges on America’s John Galts. The surcharge will itself help address some of the problems health reform is designed to solve. I’ll unpack these thoughts in a series of posts this week.
Nevertheless, the surcharge is not progressive enough, and this should be the main message of liberals commenting on the House bill.
July 16, 2009 at 6:32 am
Posted in: Health Law, Tax
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The Metro Crash and Tax: WMATA Clarifies
posted by Sarah Lawsky
In a just-posted article, the Wall Street Journal sheds some light on WMATA’s claim that the 1000-series cars could not be replaced because “tax advantage leases…require that WMATA keep the 1000 Series cars in service at least until the end of 2014″:
June 25, 2009 at 2:49 pm
Posted in: Tax
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The Metro Crash and Tax: Leaseback Infrequently Asked Questions
posted by Sarah Lawsky
As discussed in an earlier post, Metro said that it could not comply with the NTSB recommendation that Metro replace its 1000-series Rohr cars because of a “tax advantage lease.” This post explains tax advantage leases in more detail–not the specifics of the WMATA’s Rohr leases, which we haven’t seen, but rather sale-leasebacks (sometimes called “sale-in/lease-outs,” or “SILOs”) in general. We’ll talk about two parties: TransitCo, which, like WMATA, is a tax-exempt transit authority, and Taxpayer, which is not tax exempt and has a regular flow of income. (This post discusses domestic sale-leasebacks; there are additional tweaks for cross-border sale-leasebacks.)
So: Leaseback Infrequently Asked Questions (or, Everything You Wanted To Know About Leasebacks but Were Afraid To Ask, Because You Thought You Would Probably Get Really Bored).
June 25, 2009 at 12:59 pm
Posted in: Tax
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The Metro Crash and Tax: Known Unknowns
posted by Sarah Lawsky
We know that a 1000-series Rohr car was involved in the recent Metro crash, that the National Transportation Safety Board had recommended that the 1000-series cars be replaced, and that at least one reason Metro provided for not replacing the 1000-series cars was that “tax advantage leases…require that WMATA keep the 1000 Series cars in service at least until the end of 2014.” In a future post, I will explain more about the general type of deal (sale-leasebacks) in which Metro was involved. However, I first want to emphasize that there are at least two very important things I, at least, do not know about the crash and the sale-leaseback deals.
First, I do not know whether the 1000-series cars caused or exacerbated the damage and injuries from the crash. We know that the cars are old, and that the NTSB recommended they be replaced, but as the excellent “Dr. Gridlock” writes, “Those cars do need to be replaced. They’re approaching the end of their useful lives, and it would make no sense to fix them again. But at the moment, we have no idea whether the age of the 1000 Series had anything to do with the cause of the accident or its consequences for those aboard.” This information will come only after the crash is fully investigated, and perhaps not even then.
Second, because I have not been able to locate the sale-leaseback contracts, I do not know how those contracts would have treated replacing the cars. (If anyone has the contracts, it would be wonderful if you wanted to send them to me). When WMATA says that it could not replace the cars because of “tax advantage leases,” I do not know whether that means the leases actually require that the cars remain in service (i.e., switching out the cars would trigger a termination fee), that switching out the cars would be possible but expensive under the lease (i.e., would not trigger a termination fee but would trigger some other kind of cost), or something else.
Obviously, the relevance of tax deal to the damage caused by the crash depends on the answers to these questions, answers I do not have.
(Title hat-tip: Donald Rumsfeld.)
(Edit: This is the second post in a series. One, two, three, four, five.)
June 24, 2009 at 5:09 pm
Posted in: Tax
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The Washington Metro Crash and Tax
posted by Sarah Lawsky
Taxes raise revenue, of course, but they also induce behavior. Sometimes these behavioral responses are intended by lawmakers (for example, when lawmakers raise taxes on an activity they deem undesirable, such as smoking), but often they are not.
The deadliness of yesterday’s Metro crash in Washington, DC, my hometown and current location, may be, at least in part, one of these unintended consequences.
June 23, 2009 at 9:39 am
Posted in: Tax
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Update: The Code and Regs Find a Home
posted by Sarah Lawsky
The Winter 2008 complete Code and Regs have found a happy home–indeed, perhaps the best home imaginable. They have gone to live with Sheldon S. Cohen, a former IRS commissioner, adjunct GW Law professor, and all-around good guy.
Sheldon S. Cohen, Former IRS Commissioner, Adjunct GW Law Professor, and All-Around Good Guy
Photo courtesy of Widener University School of Law.
June 23, 2009 at 7:49 am
Posted in: Tax
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Compensation Caps and Relative Deprivation
posted by Frank Pasquale
Former Fed Vice Chair Alan S. Blinder’s column “Crazy Compensation and the Crisis” offers a sensible perspective on some origins of the current economic crisis:
Take a typical trader at a bank, investment bank, hedge fund or whatever. . . .[W]hen they place financial bets [they face the following odds]: Heads, you become richer than Croesus; tails, you get no bonus, receive instead about four times the national average salary, and may (or may not) have to look for a new job. These bright young people are no dummies. Faced with such skewed incentives, they place lots of big bets. If tails come up, OPM [other people's money] will absorb almost all of the losses anyway.
[Now] let’s consider the incentives facing the CEO and other top executives of a large bank or investment bank (but, as I’ll explain, not a hedge fund). For them, it’s often: Heads, you become richer than Croesus ever imagined; tails, you receive a golden parachute that still leaves you richer than Croesus. So they want to flip those big coins, too.
After this flash of insight, Blinder retreats into quietism, counseling that “fixing compensation should be the responsibility of corporate boards of directors and, in particular, of their compensation committees.” I don’t know why he doesn’t consider the power of an income tax system that’s much more progressive at the very top income levels. As David Leonhardt observes,
Today . . . the very well off and the superwealthy are lumped together. The top bracket last year started at $357,700. Any income above that — whether it was the 400,000th dollar earned by a surgeon or the 40 millionth earned by a Wall Street titan — was taxed the same, at 35 percent. This change [from the past] is especially striking, because there is so much more income at the top of the distribution now than there was in the past.
Of course, we may need to be sensitive to the rising costs of living for the wealthy.
Read the rest of this post »
May 29, 2009 at 7:33 am
Posted in: Economic Analysis of Law, Law and Inequality, Tax
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Geek, Memory
posted by Sarah Lawsky
Do you remember the first time you rode a bike? Your first day of school? When your younger sibling was born? How about your first experience with tax?
I have two early memories of tax, neither pleasant.
In the first, I was about six years old and went to the store near my grandmother’s apartment to buy a pretzel stick, which cost ten cents. It said so right on the plastic container. But when I gave the mean proprietor a quarter, he gave me back 14 cents. After standing outside crying for a while, I finally got up the courage to go back in and confront him: “I think you gave me the wrong change.” “Haven’t you ever heard of sales tax, kid?” he yelled. No, actually, I hadn’t.
Mean, horrible game.
My second tax memory, from around the same time: The fourth square of the Monopoly board is labeled “Income Tax,” and, until last year, if you landed on it you had to pay $200 or, if you preferred, 10% of your total worth. The practice in my family was always to pay the $200. But one day my father landed on this square and for some reason (probably, in retrospect, because the game had just started) decided he would pay the 10%. I protested. There are, as I discuss below the jump, a lot of things wrong with this rule, but when I was six, the biggest thing wrong with the rule is that it took a really long time to calculate your total worth. “You’ll never finish!” I yelled. “This is boring!” Infuriated by the heavy compliance burden, I quit.
What are your early tax memories?
(Below the jump, I discuss three additional serious problems with the 10% rule, one definitional, one substantive, and one related to the fact that it’s really hard to be six years old.)
May 14, 2009 at 11:18 am
Posted in: Tax
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Embryo Exchanges and the Adoption Tax Credit
posted by Sarah Lawsky
So, where are we? We know what an embryo exchange is. We know that Georgia has enacted a law (signed by Governor Perdue last week, effective July 1), the Option of Adoption Act, that permits, but does not require, the intended parents in an embryo exchange to obtain an order of parentage or adoption. And we know that some people have claimed that, given the Georgia law, a federal adoption tax credit is available for expenses incurred in embryo exchanges. But this claim is incorrect. No federal adoption tax credit is available for such expenses.
May 13, 2009 at 10:46 am
Posted in: Tax
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When’s Your Baby?
posted by Sarah Lawsky
The tax code has plenty of perks for having kids. (I’m not really supposed to give tax advice, but I should say that notwithstanding the $1000 per child tax credit, and the additional per-child dependent exemption, and, if your income is low enough, an increased earned-income tax credit, as well as various other child-related tax benefits, having children will be a net financial loss.)
Very bad tax shelter.
But when do you get these tax advantages? When do you have kids? (No, not like that–have kids whenever it works for you–why are you asking me?) I mean, is a child an individual for tax purposes only when he is born, or are yet-to-be-born children also individuals for tax purposes? As I’ll discuss in a later post, this question matters for figuring out whether a federal adoption tax credit is available for embryo exchanges, because the federal adoption tax credit is available only for the adoption of an “eligible child,” and an eligible child is defined as an “individual” who meets certain requirements. So we will need to figure out whether an embryo counts as an individual for these purposes.
May 9, 2009 at 5:02 pm
Posted in: Tax
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Cluck
posted by Sarah Lawsky
“Tax is…close to the top of the pecking order, I imagine.”
–Alfred Brophy, Reef C. Ivey II Professor of Law, University of North Carolina School of Law, The Faculty Lounge, May 4, 2009 (link added)
Tax Chicken: "I'm Number One!"
Image: gingerchrismc, Free range (Flickr.com); used under a Creative Commons Attribution-Noncommercial 2.0 Generic license
May 6, 2009 at 11:46 am
Posted in: Tax
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Hey, Tax Code, You Stay Boring!
posted by Sarah Lawsky
Being a tax professor often involves questions like whether a pre-transaction redemption should be taken into account when determining whether substantially all assets have been transferred so that the transaction can qualify as a C reorganization. The bottom line about these questions is: nobody cares. I mean, your client might care, and if you’re taking a corporate tax exam, your professor might care, but probably your mom doesn’t care (unless she’s a tax dork too, in which case, lucky you!).
But the tax code can be used not only to raise revenue, but also to provide incentives or disincentives for various activities and to express views and values. So in addition to the many important but sometimes obscure or technical questions always present in tax law, difficult moral issues–”hot” issues about which lots of people have immediate, strong views–can also get mixed up with tax.
May 5, 2009 at 3:24 pm
Posted in: Tax
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“Been There, Done That” or “Reflections on the Estate Tax”
posted by Sarah Waldeck
I read somewhere that certain magazines publish the same article about once every eighteen months. The text is never identical and there might be a new twist, but it’s pretty much the same old fare. (Think Modern Bride with the headline Pale Ivory This Year’s Color for Summer Brides.) And you really can’t even fault the magazines. Really, what is there to say about a wedding that hasn’t been said already?
This is how I’ve come to feel about the estate tax over the course of the last couple of weeks. The tax is back in the news because President Obama’s proposed budget announced that he would retain the tax with its current rate and exemption levels, rather than allowing the tax to expire in 2010. The House voted to retain the 2009 version of the tax, but the Senate has voted to lower the top rate from 45 to 35 percent and to increase the exemption from $3.5 million to $5 million (and thus from $7 million per couple to $10 million per couple).
April 8, 2009 at 6:30 pm
Posted in: Tax
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Who Are the “Moneyed Elite”?
posted by Lawrence Cunningham
Inspired by Frank’s post, one wonders who, exactly, are the “moneyed elite” in the United States?
Andrew Sullivan uses the term suggesting a reference to people whose annual incomes run to multi-millions of dollars and whose net worth is accordingly in excess of some $10 million or so.
Another reference appears to the new book Richistan, where the threshold of even the least among the moneyed elite seems to contemplate a net worth of least $1 million (ranging up to $10 million). Annual income is unspecified but supposes average home values of $810,000 which implies incomes of some small multiple of that, certainly exceeding $1 million.
If these are the right parameters to think of the “moneyed elite,” then one wonders about cheering President Obama’s reported tax plan. It reportedly targets tax increases, and reduced tax deductions and credits, at individuals whose annual income is $100,000 (no tax credit) or $125,000 (highest tax rate and least deductions).
Are these really the “moneyed elite” in this country? To be sure, President Bush and Congress ran up an extraordinary deficit the past several years (the figure $1 trillion is heard); President Obama and Congress just passed a nearly $1 trillion stimulus package; and the President and his Treasury Department, with Congressional support, are sustaining the commitment, running to nearly another $1 trillion, to rescue the financial system.
Somebody has to pay for all this. But is it fair to say that imposing higher taxes on people whose incomes are $100,000, $125,000 or even $250,000 (the figure President Obama used in his speech Tuesday night), putting the burden on “the moneyed elite”? It is doubtful that such earners had anywhere near a net worth of $1 million even at the height of the market last year; with the plummeting of asset values since September, moneyed elite, or even affluent, as the New York Times puts it, may not be the best way to describe their financial condition.
February 26, 2009 at 10:53 am
Posted in: Tax
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Audit Them All (extended remix)
posted by Jason Mazzone
Last week, I posted my proposal to Audit Them All and I received many helpful comments from readers. Today, I have an extended version of the proposal in Legal Times (free but you have to register). Thank you Co Op readers for the valuable feedback you provided!
February 9, 2009 at 2:01 pm
Posted in: Tax
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Audit them all
posted by Jason Mazzone
Tom Daschle, former Senator and nominee for Secretary of Health and Human Services, didn’t fully pay his taxes. Apparently, Daschle didn’t tell his accountant about a free car service (worth a whopping $250,000) and consulting income (another $88,000) over a three year period. Tax laws are complex and so perhaps Daschle didn’t realize at the time that these things constituted taxable income. Regardless, the perception Daschle leaves is that powerful people don’t pay everything they owe.
In the world of tax compliance, perceptions matter a good deal.
February 2, 2009 at 5:18 pm
Posted in: Tax
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Tim Geithner and Tom Daschle Are No-Goodniks
posted by Brian Kalt
I have enjoyed my visit at Concurring Opinions, but alas, my time is up and this will probably be my last (and maybe least) post.
I am one of those who is irked by the Timothy Geithner and now the Tom Daschle tax controversies. Geithner avoided paying tens of thousands of dollars in self-employment taxes. Then he paid back the part that he was forced to. Then, when his nomination as Treasury Secretary loomed, he paid the rest of it. And he wasn’t straightforward about his reasoning for the timing of all of this. Wags took the opportunity to argue that we need to reform the tax code, to make it simple enough that even the Treasury Secretary can follow it. Geithner was confirmed, apparently because none of the candidates who paid their taxes correctly were good enough for the job.
Now, Tom Daschle is facing similar issues. Nominated for Secretary of Health and Human Services, he amended his last three years’ worth of tax returns. Upon further reflection, he realized that he had failed to report hundreds of thousands of dollars in income, and that he shouldn’t have claimed some of the deductions that he took. He wrote a check for $140,000 and is now hoping for the best. It apparently wasn’t very challenging to get it right the second time around; why couldn’t he have had his “people” be equally careful in the first place? The most obvious reason is that nobody was watching then.
I agree with the idea that you can gauge how ethical someone is by how they behave when they think nobody is watching. Given the difference between how Geithner and Daschle behaved before and after people were watching, I think that they both fail the test.
I’m in a self-righteous mood about this right now, because I am doing my taxes this week and I found some old mistakes.
January 31, 2009 at 10:35 am
Posted in: Current Events, Legal Ethics, Politics, Tax
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Why the Persistence of Tax Havens?
posted by Frank Pasquale
The last remnants of British imperialism are still wreaking havoc today. The Canadian Governor-General’s bizarre proroguing of the Parliament there threatens to make a figurehead a kingmaker. More dangerously, tax havens like the Isle of Man, Guernsey, and Jersey cost governments worldwide billions of dollars of revenue annually:
Because of the secrecy surrounding the treasure islands, no one knows how much money they divert from developing countries. Christian Aid’s estimate – of $160 billion a year – is the lowest figure, though 60% greater than the international aid the poor world receives. The Pope suggests $255bn; the US research group Global Financial Integrity proposes $900bn. In all cases we’re talking about the means by which hundreds of thousands of lives could have been preserved in the world’s poorest countries. But Britain’s network of tax havens permits multinational companies, dodgy businessmen and corrupt leaders to snatch money from [tax authorities].
As governments face ever-greater fiscal responsibilities in the midst of crisis, many of those best able to shoulder the burden are AWOL. Even though “organised crime . . . depends on tax havens,” they persist. Why?
December 29, 2008 at 8:23 pm
Posted in: International & Comparative Law, Tax
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The Shock Doctrine Meets Tax Law
posted by Frank Pasquale
Naomi Klein could have predicted it. As panic over the financial crisis set in, the US Treasury department put into action a “two-decade effort by conservative economists and Republican administration officials” to eviscerate a limit on tax shelters.
In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention. But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion. . . .
Until the financial meltdown, its opponents thought it would be nearly impossible to revamp [Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers] because this would look like a corporate giveaway, according to lobbyists. . . . [According to other experts,] “It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops,” said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. “I’ve been in tax law for 20 years, and I’ve never seen anything like this.”
Sen. Charles E. Grassley (R-Iowa), ranking member on the Finance Committee, was particularly outraged and had his staff push for an explanation from the Bush administration, according to congressional aides. . . [But] “[w]e’re all nervous about saying that this was illegal because of our fears about the marketplace,” said one congressional aide, who like others spoke on condition of anonymity because of the sensitivity of the matter. “To the extent we want to try to publicly stop this, we’re going to be gumming up some important deals.”
Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts [has stated;] “We’re left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?”
Which makes one wonder–where will the main engineers of this giveaway be working after they leave Treasury? How richly will they be rewarded for their policy innovation? Or was this more a form of “return on investment,” rather than the kind of service that generally garners tips? As Gretchen Morgenson has written, more transparency, please.
November 10, 2008 at 1:39 pm
Posted in: Corporate Finance, Politics, Tax
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Citizens and Taxpayers
posted by Neil Buchanan
Under the provocative title “How Many Americans Should Have Skin in the Income Tax?” the TaxProf blog recently described a study by the Tax Foundation regarding the number of people who pay no federal income tax. While about one-third of income tax filers reported no federal income tax liability in 2006 (up from 20% in 1981), this number is estimated to rise to 43% under John McCain’s proposed tax policies and 44% under Barack Obama’s. TaxProf concluded: “The Tax Foundation rightly notes: ‘It is time for a serious public discussion of whether it is desirable to have so many Americans disconnected from the cost of government and what the consequences are of using the tax system as a vehicle for social policy.’” It is, indeed, a good idea to have a serious discussion about why this question seriously misses the point.
This view of low-income taxpayers is reminiscent of the Wall Street Journal editorial page’s infamous “lucky duckies” argument from several years ago. The basic idea is that
October 8, 2008 at 9:31 am
Posted in: Politics, Tax
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