Category: Tax

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I’m Sorry… Sincerely, The IRS

Today, the New York Times reports, the National Taxpayer Advocate delivered her annual report to Congress. First established in 1998, the Taxpayer Advocate Service describes itself as “an independent organization within the IRS that assists taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.” Judging by the generous use of exclamation points on its home page, moreover, the Service would appear to be quite excited about this mission.

Among other things, I was struck by certain aspects of the IRS’ present-day operations that the annual report critiques. I hadn’t realized, for example, that the IRS makes widespread – if ineffectual – use of private debt collectors, or that it charges (sometimes substantial) fees to respond to taxpayer inquiries.

Two reform proposals in the annual report, however, particularly caught my eye:

First, there is the Advocate’s proposal to adopt a new taxpayer bill of rights – an odd-seeming concept, to begin with. (Isn’t the Administrative Procedure Act the “bill of rights” of the modern administrative state?) This bill of rights, moreover, would include a list of taxpayer “responsibilites,” including requirements that they (in the Times‘ words) “conduct themselves honestly and [] cooperate with auditors and tax collectors.” But what exactly is the “honest conduct” the Advocate has in mind? Avoiding fraudulent statements to the IRS? Surely, we’ve already got that covered. What’s other honest conduct might be expected? Some general promise of good and clean living?

Even more eye-catching were the report’s proposed “Apology Payments,” to be doled out by the Advocate’s office – in amounts ranging from $100 to $1,000, and up to a collective cap of $1 million – to taxpayers who suffer “excessive expense or undue burden” because of IRS error or delay. Leaving aside the procedural complexities of such a scheme, are there analogous arrangements to be found in other areas of law? (The Times reports that the U.K. and Australia already have such a scheme in their tax code.) Do we do it anywhere else?

The Heroism of Susan Pace Hamill

It is now sadly all too common to see public intellectuals pointedly ignoring–or even cheering on–growing inequality. Bloodless statistical accounts tend to miss the consequences that flow for poor families when taxes on the wealthiest are cut and social programs are gutted accordingly.

Professor Susan Pace Hamill has done an extraordinary job in turning public attention to this problem. According to the NYT’s David Cay Johnston, “her latest effort is a book, As Certain as Death (Carolina Academic Press, 2007), that seeks to document how the 50 states, in contravention of her view of biblical injunctions, do more to burden the poor and relieve the rich than vice versa.” Some statistics are really striking:

The poorest fifth of Alabama families, with incomes under $13,000, pay state and local taxes that take almost 11 cents out of each dollar. The richest 1 percent, who make $229,000 or more, pay less than 4 cents out of each dollar they earn, according to Citizens for Tax Justice, an advocacy group whose numbers are generally considered trustworthy even by many of its opponents.

As a cursory Google search shows, Professor Pace Hamill has honed her message with extraordinary clarity and skill in a variety of forums–law review articles, books, interviews, and even sermons. Prof. Pace Hamill’s engaged scholarship and contributions as a public intellectual provide a great model for those who seek to develop religiously inspired legal theory.

Hat Tip: TaxProfBlog; Mirror of Justice.

The Place of Charity

By the way, I don’t want to sound (from my last post) as if I am against all charity. I’m very concerned about the plight of those in LDC’s, and I’ve argued that charitable giving should be something of a moral requirement for many of us in the developed world. As this extraordinary program from Krista Tippett’s Speaking of Faith shows, charitable giving can help us find a true “moral balance” of sharing, saving, and spending.

Sometimes it is hard to know exactly where one’s contribution will do the most good. Over the past three years I have found many good causes through Global Giving, a group now sponsoring a Giving Challenge. Here are some causes I found compelling enough to give to:

Safe Water and Latrines for Bangladeshi Slum

Clean Water for DEPDC’s Underprivileged Children

Help Feed 200 Neglected Elderly in Guatemala

I’m also happy to report that GG’s president, Mari Kuraishi, recently gave a talk at a conference devoted to figuring out the best ways of assessing the reputation and value of various online entities–including charities. As efforts like these improve, questions about the accountability of charities will become less nagging.

Understanding Resistance to Redistribution

Over at Balkinization, Professor Brian Tamanaha worries that the “fabled American Dream, the supposed glue that holds our society together across its many fault lines, is a delusion for many.” He points to “new research [that] suggests the United States’ much-ballyhooed upward mobility is a myth, and one that’s slipping further from reality with each new generation.” (Even The Economist has recognized the problem!) Tamanaha wonders why the issue has so little visibility in national political debates, and gives several good reasons. I’d like to focus on one of them: the sense that increasing inequality “feels irresistible, the product of structural factors beyond our control.”

First, though this sense may be widespread, it is highly contestable empirically, and doesn’t really “ring true” at an intuitive level. Let’s not even talk about the justice or appropriateness of an executive making hundreds of times more than line workers–what about people who almost got to the top spot? As Eduardo Porter reports, “widening disparities in business, which show up in a variety of other ways, reflect a dynamic that is taking hold across the economy: the growing concentration of wealth and income among a select group at the pinnacle of success, leaving many others with similar talents and experience well behind.”

A form of “legitimation theodicy” has become important for some at the top, who reach for sports metaphors:

[Some] very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter’s “unique talent” for baseball, as Leo J. Hindery Jr. put it. “I think there are people, including myself at certain times in my career,” Mr. Hindery said, “who because of their uniqueness warrant whatever the market will bear.”

The flip side of this is a well-cultivated sense among the “losers” in the new economic order that their fates are their own fault. This is one reason why the SCHIP battle is so hard-fought right now: it is very important for those pursuing an inequality-enhancing agenda to insist that some people do not deserve health insurance. . . . and that that sin is so egregious as to be visited even upon their children.

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Questioning the Prosperity Gospel

camelneedle.jpgRecently Republican Senator Charles Grassley has begun to investigate “six televangelists who are part of an evangelical subculture known loosely as Prosperity gospel.” For example,

Grassley wanted to know how Kenneth Copeland–who as a church leader pays no taxes but is expected to plow revenue back into the public welfare–got a private plane and whether flights to Hawaii and Fiji qualified as business trips. Grassley sought credit card receipts and the numbers of the church’s offshore bank accounts.

The conflict raises some interesting theological questions–for example, what if the religious group sincerely believes that its leaders deserve extraordinary opulence? What if their high spending is not a diversion of resources, but instead is the very point of the religion? As I’m mentioned before regarding The Secret, wealth worship may be working its way into the DNA of American culture. Consider this conflict between Grassley and the Prosperity gospel crowd:

Prosperity adherents believe the right thoughts and speech, along with giving to the church, will prompt divine repayment in this life, with a return as high as $100 on each dollar handed up. On a small scale, Prosperity’s positive thinking has sometimes energized the march of the poor into the middle class, but many Christians find it theologically and ethically perverse. Prosperity dominates American religious TV, and millions of adherents send millions of dollars to preachers they have never met. For Grassley, this might be fine if the ministers put all the money back into their mission work. But his now famous question about Meyer’s $23,000 commode suggests he questions the destination of her estimated $124 million annual take.

I think the answer has to be that the Prosperity Gospel crowd is itself distorting and ignoring Christian doctrine–even if such an indictment sets up the state as a more authoritative interpreter of the Bible in this case than those it would prosecute.

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How the Economics of the Well-Off Can’t Help the Uninsured

Two of the most perceptive health policy analysts, Drs. Steffie Woolhandler and David U. Himmelstein, provide a good “reality check” for those who think a Massachusetts-style health plan can fully handle the problem of the uninsured. (Though it took me a long time to figure out their title, “I am not a Health Reform,” was a play on Nixon’s “I am not a Crook.”)

Woolhandler and Himmelstein observe that the past twenty years of failed state-based health care reform (and mandates) do not bode well for the plans now being discussed among presidential candidates:

In 1971, President Nixon sought to forestall single-payer national health insurance by proposing an alternative. He wanted to combine a mandate, which would require that employers cover their workers, with a Medicaid-like program for poor families, which all Americans would be able to join by paying sliding-scale premiums based on their income.

Nixon’s plan, though never passed, refuses to stay dead. Now Hillary Clinton, John Edwards and Barack Obama all propose Nixon-like reforms. Their plans resemble measures that were passed and then failed in several states over the past two decades.

W&H are particularly disappointed by the recent Massachusetts plan; “even under threat of fines, only 7 percent of the 244,000 uninsured people in the state who are required to buy unsubsidized coverage had signed up by Dec. 1. Few can afford the sky-high premiums.” W&H should also acknowledge that in some cases the uninsured themselves are responsible; according to one recent study, “twenty-five percent are eligible for public coverage.”

W&H suggest that mandates will not work, but do not have the space to fully explore why. I think they are right to emphasize lack of affordability in plans, but a recent book suggests some deeper issues. Charles Karelis’s The Persistence of Poverty: Why the Economics of the Well-Off Can’t Help the Poor argues that we cannot expect impoverished individuals to react to economic incentives the same way that middle- and upper-class people do.

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Tax and Its Relationship to Slavery

American Taxation.jpg On Monday Professor Robin Einhorn of U.C. Berkeley gave a talk at my school about her recent book, American Taxation, American Slavery. Professor Einhorn’s book challenges some of the stories about the American aversion to taxation. As her essay “Tax Evasion and the Legacy of American Slavery” argues, the distrust of taxation has “more to do with protections for entrenched wealth than with promises of opportunity, and more to do with the demands of privileged elites than with the strivings of the common man.” The topic is provocative. The political history Prof. Einhorn sets forth shows how the institution of slavery influenced the Articles of Confederation, later state constitutions, and tax policies. Tax reveals the problem because of the fear that slavery could be taxed out of existence. If controversy tempts you to an area, this book may be for you as it has generated some debates within the legal history world. On a final note the topic reminds me of Jack Chin and Randy Wagner’s paper, The Tyranny of the Minority: Jim Crow and the Counter-Majoritarian Difficulty which is also a fascinating read.

Should All Lawyers Join Peer-to-Patent?

Paul Caron has been covering patents on tax strategies for some time, and an article by Steve Seidenberg in the ABA Journal has recently described the growing worries they’re creating among practitioners:

Since issuing its first patent for a tax strategy in 2003, the Patent and Trademark Office has issued at least 52 patents covering specific tax strategies. Another 84 published applications for tax strategy patents are pending. . . .In the ABA Section of Taxation, “members are shocked and dismayed at the very idea that legal advice can be patented,” says Drapkin [who heads the section’s Tax Strategy Patenting Task Force].

Apparently it’s not just tax lawyers who should be worried about a chain reaction of IP claims here. Drapkin says that “I’ve had conversations with lawyers who told me about corporate law patents that have been applied for,” and Wachtell lawyer Andrew A. Schwartz says “There could be hundreds, even thousands, of legal [strategy] patent applications that the PTO is waiting to rule on.” The chair-elect of the ABA section on IP law isn’t worried, but even she might be dismayed by rumors that someone is filing a “patent application for a new way of preparing patent applications.”

I’d personally like to see something like an extension of Veeck’s principles in both copyright and patent. In that case, the 5th Circuit ruled that a model building code entered the public domain once it was adopted as law. Good legal arguments are effectively an interpretation of law, an effort to get the judge or jury to see the law in a certain way. To the extent they are adopted, they should be considered so inextricably intertwined with the development of law itself that they are by nature public property. For that reason I’d even be hesitant to grant copyright protection to the expression of legal arguments, and I’m doubly suspicious of a patent on the ideas at their core.

On the other hand, given the increasing scope of patent protection, I don’t foresee arguments like mine going very far in the current PTO or Federal Circuit. . . and the Supreme Court ultimately declined to limit the scope of patents in a recent situation where it appeared they might.

So what is to be done? Beth Noveck’s Peer to Patent Project offers an exciting and innovative approach to the problem. . .

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How Much Should a Dog Consume?

In his provocative book How Much Should a Person Consume, Ramachandra Guha asks “can the world as a whole achieve American levels of car ownership? Can there be a world with four billion cars?”

I don’t have any easy answers there, but I do think there are some limits on what a person should consume. And the case of Leona Helmsley’s will suggests some for dogs, as well. Consider her $12 miillion bequest to a puffball named Trouble:

Trouble . . . has expensive tastes. According to the Post, Ms. Helmsley would order her hotel chefs to drop what they were doing to prepare special meals for Trouble when she was hungry. Still, $12 million is a lot of money for an eight-year old dog — even if her kibble is made from kobe. If Trouble invests her money in a diversified portfolio, she’ll earn at least $600,000 a year — without dipping into her principal!

Is $600,000 per year too much to spend on a dog? Or is this another happy story of growing incomes for dog butlers, “five-star kennels, doggy sitters and paw manicurists?” Given that hundreds of millions of people who live on less than a dollar a day, perhaps over $1600 per day of pet care is troubling, however much it expands the GDP.

Flying the Stratified Skies

edna.jpgTravel has always served to remind us of the divisions our “classless society” tries so hard to downplay. Sam Walton may have driven an old truck, but you’d be hard-pressed to find most top executives or trust-funders flying in less-than-first-class digs. As the song in Chitty-Chitty Bang-Bang put it,

O the posh posh traveling life, the traveling life for me

Pardon the dust of the upper crust – fetch us a cup of tea

Port out, starboard home, posh with a capital P. . .

Admittedly, for those of us crushed into coach, there was always a happy flipside to the narrative: the profligates up front were paying so much more for their seats, effectively subsidizing the rest of us.

But that subsidy effect has been on the wane in recent years. And now wealthy fliers have found a new way to effectively assure that the rest of us are subsidizing them:

Corporate jets pay a fraction of the taxes and fees that commercial airliners do. The F.A.A. estimates that private planes, which include both corporate jets and weekend fliers, account for 16 percent of the air traffic control system’s overhead but contribute only 3 percent of the fees earmarked to run the system.

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The Air Transport Association has . . . created a Web-based ad campaign featuring a fictional traveler, Edna, complaining about the fee disparity while the computer screen displays waves of corporate jets filling the skies before and after sporting events like the Kentucky Derby and the Masters golf tournament.

It’s enough to wilt the mint in your julep. As the campy YouTube ad sloganeers, travelers like “wearing big wigs, not subsidizing them!” Edna (pictured above) wonders “Why should the rest of us pay ten times more using the same services?”

Fortunately, the FAA has heard her pain, and is planning on “sharply increasing the fuel tax for private jets and also hitting corporate fliers with extra charges to land at any of the country’s 30 most congested airports.”