Archive for the ‘Tax’ Category

The Boss and the Estate Tax

posted by Gerard Magliocca

One odd angle surrounding George Steinbrenner’s death is that there is currently no federal estate tax. The estate tax lapsed at the end of 2009 and Congress is deadlocked about how or whether to bring it back. The initial thought was that any restoration would be made retroactive to January 1, 2010, but that might not happen now.  As a result, Steinbrenner’s heirs may reap a huge windfall.

If Congress brings back the estate tax with a prospective resumption date (for example, on October 1, 2010), that would create a rather odd . . . er . . . incentive for the heirs of the elderly.  Let’s hope that mistake doesn’t happen.

  July 14, 2010 at 6:44 pm   Posted in: Tax   Print This Post   4 Comments

Switzerland: Lawless Zone?

posted by Frank Pasquale

Today’s big Swiss story is on the Polanski (non-)extradition. This recent article on Swiss banking helps situate Swiss non-cooperation with authorities in a larger context:

The anonymous emails carried a tantalizing subject line: “Tax evasion: client list available.” The messages, sent two years ago to tax authorities across Europe, made an audacious claim: The sender could provide a large client list of a Swiss-based private bank, plus access to its computer systems. . . .

Switzerland strenuously objects to foreign authorities using [this] data to pursue tax dodgers and has warned it won’t cooperate with any investigation stemming from what it regards as stolen data. . . .

France has said it would use the data to pursue tax cheats. “We obtained those data in a legal manner,” then-budget minister Eric Woerth said in February. “France isn’t on the line for fraud, tax evaders are.” In a twist, it is the French government that is now making the data available, promising to hand it over to other governments in pursuit of tax cheats.

While many have claimed that “privacy is dead,” Switzerland strenuously tries to protect it for many of the worst tax cheats. Such actions not only exacerbate global inequality, they also create an environment that aids the formation of some of the biggest crime and terror networks in the world. If financial secrecy jurisdictions and tax havens grow, we should expect the same “total information awareness” network advanced by homeland security experts applied to the transactions of anyone who does business in them.

  July 12, 2010 at 11:03 am   Posted in: Privacy, Privacy (Consumer Privacy), Privacy (National Security), Tax   Print This Post   4 Comments

Disparate Impact and the Tanning Tax

posted by Frank Pasquale

I have previously blogged in favor of a vanity tax, so I was happy to see the health reform legislation included a 10% tax on tanning salons. But not everyone is so pleased to see it:

When an article about the fallout from the tax — which took effect last week — appeared on the Washington Post’s Web site Wednesday, dozens of commenters questioned the tax’s legality. The case can seem deceptively simple: Since patrons of tanning salons are almost exclusively white, the tax will be almost entirely paid by white people and, therefore, violates their constitutional right to equal protection under the law.

Randall Kennedy dismisses that claim out of hand. But I hope the angry tanners join me in endorsing a plan to address the grave injustice here: legal scrutiny of face-whitening creams. Tax tanning, tax lightening, and we may well move closer to a society that can transcend the fickle “beauty bias.”

  July 9, 2010 at 10:35 am   Posted in: Health Law, Tax   Print This Post   12 Comments

Survivors’ Costs Gone Wild, Beverage Tax Edition

posted by Frank Pasquale

Gradgrind is alive and well, as this exchange on soda taxes illustrates:

This discussion between Greg Mankiw and David Leonhardt reads a bit like an economics textbook gone rogue. At issue is whether a soda tax makes sense. David Leonhardt says it does: There’s good evidence that it will reduce obesity, which will reduce health-care costs. Au contraire, says Mankiw: You have to “net out the appropriate budgetary savings from shorter lifespans.” In other words, maybe it’s not worth itra-klein/2010/06/life_matters.html”>, as the obese live shorter lives and so cost the government less.

Ezra Klein goes on to describe how the calculation of survivors’ costs (without offsetting valuation of survival benefits) “disadvantages the quality/value agenda as compared with the cost-control agenda.”

I would add a couple more points to complicate the analysis:
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  June 19, 2010 at 3:28 pm   Posted in: Economic Analysis of Law, Health Law, Tax   Print This Post   No Comments

The Transfer Pricing Scandal

posted by Frank Pasquale

Bloomberg Businessweek reporter Jesse Drucker does a great job explaining how some of our greatest minds in tax law spend their days: helping companies dodge $60 billion in taxes annually via “transfer pricing.” This practice involves booking profits in tax havens in order to avoid paying where products are actually sold:

Transfer pricing lets companies such as Forest, Oracle Corp., Eli Lilly & Co. and Pfizer Inc., legally avoid some income taxes by converting sales in one country to profits in another — on paper only, and often in places where they have few employees or actual sales. . . . The anti-tax activists of the national Tea Party movement haven’t put transfer pricing on signs in their demonstrations, yet it deserves attention, said Mark Skoda, chairman and founder of the Memphis Tea Party. “I find the issue of corporations paying no tax or little tax in the United States, when the majority of their operations are here, problematic,” Skoda said in an interview. “The problem is that this is sort of the level of micro that people don’t look at.”

Senator Carl Levin (D-Mich.), the chairman of the Senate Permanent Subcommittee on Investigations, calls transfer pricing “the corporate equivalent of the secret offshore accounts of individual tax dodgers.” Senator Byron Dorgan (D-N.D.) calls for scrapping the IRS rules that allow this “unbelievable scandal.” Enforcement of these rules, according to Dorgan, is impossible. “It’s the equivalent of asking the Internal Revenue Service to connect the ends of two different plates of spaghetti.”

It’s funny how rarely (if ever) I’ve heard about this issue from the great deficit hawks of our time. While austerity is constantly preached for the poor, these schemes drain billions from the treasury. Perhaps budget cutters consider tax havens to be an arcane law enforcement issue. But some authors say that tax havens, far from being an aberration in an era of capitalist globalization, are part of its core logic:
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  June 12, 2010 at 12:01 pm   Posted in: Law and Inequality, Tax   Print This Post   11 Comments

GW’s Junior Scholar Workshop and Prizes

posted by Lawrence Cunningham

As anticipated, the Center for Law, Economics and Finance at George Washington University Law School (C-LEAF)  has formally announced its first annual Junior Faculty Business and Financial Law Workshop and Junior Faculty Scholarship Prizes.    The Inaugural Workshop will be held and Prizes awarded on April 1-2, 2011, at GW Law School in Washington, DC.

Up to ten papers will be chosen from those submitted for presentation at the Workshop. At the Workshop, one or more senior scholars will comment on each paper, followed by general discussion of each paper among all participants. The Workshop audience will include invited junior scholars, faculty from GW’s Law School and Business School, faculty from other institutions, and invited guests.

At the conclusion of the Workshop, up to three papers will be awarded Junior Faculty Scholarship Prizes, of $3,000, $2,000, and $1,000, respectively. Chosen papers will be featured on C-LEAF’s website as part of its Working Paper Series. In addition to participating in the Workshop, all scholars selected to present at the  Workshop will be invited to become Fellows of C-LEAF. Read the rest of this post »

  June 8, 2010 at 1:00 pm   Posted in: Administrative Announcements, Articles and Books, Conferences, Corporate Finance, Corporate Law, Law School, Law School (Scholarship), Securities, Securities Regulation, Tax   Print This Post   One Comment

The Yale Law Journal Online: Conditional Taxation and the Constitutionality of Health Care Reform

posted by Yale Law Journal

The recent passage of health care reform has sparked contentious debate on the constitutionality of the requirement that individuals purchase a qualifying health insurance plan or be subject to a tax (the “individualized responsibility requirement” or “IRR”). In the latest YLJ Online Essay, Conditional Taxation and the Constitutionality of Health Care Reform, Professor Brian Galle argues that even if the commerce power and Necessary and Proper Clause do not clearly authorize the IRR, it is a straightforward application of Congress’s broad taxation authority. Professor Galle further contends that attacks on the normative desirability of this reading of the taxing power are misguided.

Preferred citation: Brian Galle, Conditional Taxation and the Constitutionality of Health Care Reform, 120 YALE L.J. ONLINE 27 (2010), http://yalelawjournal.org/2010/5/31/galle.html.

  May 31, 2010 at 8:36 am   Posted in: Constitutional Law, Health Law, Law Rev (Yale), Law Rev Forum, Tax   Print This Post   No Comments

The Yale Law Journal, Vol. 119, Issue 3 (December 2009)

posted by Yale Law Journal

  January 12, 2010 at 9:48 pm   Posted in: Constitutional Law, Immigration, International & Comparative Law, Law Rev (Yale), Law Rev Contents, Property Law, Tax   Print This Post   No Comments

Ben Stein, Ferris Bueller, and the Ecconomy

posted by Deven Desai

In 1986, yes 1986, Ben Stein was the “Economics Teacher” in Ferris Bueller’s Day Off. Some may remember this scene which helped launch Mr. Stein’s career. In it Stein discusses the Laffer curve and “something d-o-o economics”

In 2008 Stein wrote an open letter to John McCain about taxes. Stein is a rather loyal Republican as far as I can tell. Nonetheless, the letter notes some key points that seem to be lost time and again.

Here is a choice quote:

The next thing is that the Republican Party (my party and yours) has for the last 30 years or so been operating under a demonstrably false and misleading premise: that tax cuts pay for themselves by generating so much economic growth that they replace the sums lost by tax cutting.

This would be a lovely thing if true, and the best of all ideas, the “something for nothing” idea. In fact, tax cuts lower federal revenue and generate federal deficits. It is also true that they do stimulate the economy and after a long period of years, federal tax receipts go back to where they were before the tax cuts.

In addition, Stein explains that the system of spending and cutting taxes cannot pay for itself. As he puts it, cuts make folks happy but passes the cost on to the next generation. Worse:

[I]mmense federal deficits in modern life are financed largely by foreign buyers of our debt. This means that the American taxpayer must work a good chunk of the year to send money to China, Japan, the petro-states and other buyers of United States debt. In effect, we become their peons.

By flooding the world with debt, we in effect beg foreigners to take our dollars, and this leads to a lower value of the dollar and a higher cost of imports, including oil. If you feel pain filling up the tank, you can partly thank those tax cuts. If you feel the sting of inflation, you can partly thank the supply siders. Deficits matter.

Then Stein says point blank the only group who can and should be taxed are the rich because, “By definition, the truly rich have a lot more money than they need. If they don’t, then they are not rich by my standards.” Higher taxes and strong enforcement against off-shore tax-evasion were the keys for Stein. He closes by pointing out that all the things that we love to have such as health care and a strong military requires money which can be had in several ways “by indenturing our children, selling ourselves into peonage to foreigners, making ourselves a colony again, generating inflation — or we can have some integrity and levy taxes equal to what we spend.” Finally he asks the hard question: “Do you have the guts to stand up to the myth makers and tax cutters and the rich? Or will you just kick the can down the road?” I think it is time that we ask the same questions of all of us. Will we suck it up and set things right or try to push the problem onto the next generation (a tactic whose time is probably gone anyway)? Anyone? Anyone?

  December 2, 2009 at 9:33 am   Posted in: Tax   Print This Post   No Comments

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.

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  July 16, 2009 at 6:32 am   Posted in: Health Law, Tax   Print This Post   6 Comments

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″:

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  June 25, 2009 at 2:49 pm   Posted in: Tax   Print This Post   2 Comments

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).

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  June 25, 2009 at 12:59 pm   Posted in: Tax   Print This Post   6 Comments

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   Print This Post   One Comment

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.

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  June 23, 2009 at 9:39 am   Posted in: Tax   Print This Post   11 Comments

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.

Photo courtesy of Widener University School of Law.

  June 23, 2009 at 7:49 am   Posted in: Tax   Print This Post   No Comments

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.
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  May 29, 2009 at 7:33 am   Posted in: Economic Analysis of Law, Law and Inequality, Tax   Print This Post   2 Comments

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.

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.)

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  May 14, 2009 at 11:18 am   Posted in: Tax   Print This Post   10 Comments

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.

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  May 13, 2009 at 10:46 am   Posted in: Tax   Print This Post   No Comments

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.)

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.

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  May 9, 2009 at 5:02 pm   Posted in: Tax   Print This Post   5 Comments

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)

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   Print This Post   2 Comments

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