TaxProf Blog

Today at AALS: Tax and Wine

I am off to the AALS Annual Meeting in New Orleans. Today's tax highlight is the Section on Socio-Economics program on Socio-Economic Strategies for Economic Prosperity:

Concurrent Session:  Socio-Economic Perspectives on Tax Policy (3:30-4:20 p.m) (Hilton, Belle Chasse, 3rd Floor):

• I. Richard Gershon (Mississippi)
• David Cay Johnston (Columnist and Author)
• Thomas Murphy (Director, Derivatives & Risk Analytics Practice, Berkeley Research Group)
• Shu-Yi Oei (Tulane)

Concluding Plenary Session:  Changing the Economic Debate (4:30-5:15 p.m) (Hilton, Belle Chasse, 3rd Floor):  David Cay Johnston

Today's social highlight is the Tour de California Wine Tasting Reception hosted by Pepperdine (6:00-8:30 p.m) (Westin, Magnolia II, 3rd Floor).  I hope to see you there!

Senate Confirms Ronald Buch and Al Lauber as Tax Court Judges

The Senate has unanimously confirmed the nominations of two new Tax Court Judges:

Ronald L Buch, Jr. (Partner, Bingham McCutchen):  Ronald Buch is a partner at Bingham McCutchen LLP, where he principally represents clients in tax controversy matters. He joined Bingham in 2009 when it combined with McKee Nelson LLP, where he had worked on tax controversy matters since 2001. He also currently serves as an adjunct law professor at Georgetown University Law Center, teaching Tax Practice and Procedure (Administrative Practice) and Tax Research and Writing. Prior to joining McKee Nelson, Mr. Buch worked as an attorney with the IRS Office of Chief Counsel, where his work included representing the IRS before the United States Tax Court. Mr. Buch is a former Chair of the Administrative Practice Committee of the American Bar Association Section of Taxation and the District of Columbia Bar Association Taxation Section’s Tax Audits and Litigation Committee. Mr. Buch received a B.BA. from Northwood University, a J.D. from Michigan State University College of Law, and an LL.M. in Taxation from Capital University Law School.

ALbert Lauber  (Director, Graduate Tax Program, Georgetown):  Albert Lauber is the Director of the Graduate Tax and Securities Programs and a Visiting Professor of Law at Georgetown Law School. Previously, Mr. Lauber spent 17 years as a partner in Caplin & Drysdale, a Washington D.C. tax firm. There, he specialized in tax litigation at the trial and appellate levels, tax procedure, taxation of non-profit organizations, state and local taxation, and constitutional law. From 1983 to 1988, he served in the U.S. Department of Justice as Deputy Solicitor General and previously as Tax Assistant to the Solicitor General. He was a law clerk to Supreme Court Justice Harry A. Blackmun, and Judge Malcolm R. Wilkey, U.S. Court of Appeals for the D.C. Circuit. He received a B.A. and a J.D. from Yale University and Master’s degrees from Clare College and Cambridge University.

AHA Panel: Taxation and American Politics

The American Historical Association is holding its 127th Annual Meeting in New Orleans. Here is this afternoon's tax panel:  Taxation and American Politics: A Roundtable to Commemorate the One-Hundredth Anniversary of the Income Tax in America:

The year 2013 marks the 100^th anniversary of the ratification of the Sixteenth Amendment, which gave Congress the power to create a federal income tax and forever altered how the federal government raises revenue.  As anniversaries go, this one will likely pass without much notice, swamped as it will be by commemorations of the Battle of Gettysburg and the Emancipation Proclamation.  Yet the nation’s politics are increasingly shaped by the partisan politics of taxation.  The purpose of this roundtable session, which gathers together a distinguished group of political and economic historians, is to use this anniversary to consider the historical importance of taxation to American politics and to provide historical perspective on our current taxation debates.  Panelists will draw from their research on taxation and American slavery, the Progressive era origins of income taxation, the postwar politics of taxation, and the relationship between tax policy and America’s second Gilded Age to discuss the history of taxation, its role in American state-building, and its contemporary valences in the immediate wake of the 2012 national election.

Chair:  Alan Brinkley (Columbia)

Panel:

Robin Einhorn (UC-Berkeley)
Ajay K. Mehrotra (Indiana)
Alice M. O'Connor (UC-Santa Barbara)
Julian Zelizer (Princeton)

Fiscal Cliff Tax Bill Will Reduce Charitable Donations

Wall Street Journal op-ed:  The Taxman's Uncharitable New Rule: Washington's Fiscal-Cliff Deal Will Mean Less Philanthropy and More Government Dependency, by Ari Fleischer:

The Occupy Wall Street, what's-yours-is-mine-sentiment is alive and well, at least judging by the furious reaction to a recent message I sent out on Twitter concerning the tax increase that President Barack Obama just signed into law.

Anticipating that Congress's fiscal-cliff deal might limit charitable deductions, I shifted some of my planned giving from 2013 to 2012. When Congress did pass a phaseout of itemized deductions this week, I tweeted: "I increased donations to charity in 2012. This deal limits my deductions so I, & many others, will likely donate less in 2013." ...

The fact is that when the government reaches into someone's wallet, there is less money left in the wallet to spend or donate as its owner sees fit. When the government raises tax rates and limits deductions, there are consequences—and in this case the government is making the job of private charity even harder. ...

It happens almost every time: Congress tries to target "the rich" but everyone else suffers. That is what I'm afraid will happen thanks to the anti-charity effect of this new law.

If Congress and the president were able to enact real, meaningful tax reform that lowered rates and reduced or eliminated charitable and other deductions, it would be good for the economy and I would support it. And, like countless millions, I would continue to give to charity because it is the right thing to do.

But raising rates and eliminating deductions is the opposite of what we need to make the economy grow and encourage charitable giving. Particularly in a low-growth economy, the new law will likely hurt charities and force more people to rely on the government for assistance—meaning that the government will want to collect even more money as charities suffer.

Giving and caring run deep in the American character and help unify a much divided nation. But when the government goes too far in taking, it ends up with more people to give to and care for, because the private sector and charities have less.

Case Western Dean: There's No Oversupply of Lawyers

Bloomberg Law:  Dean: There's No Oversupply of Lawyers:

The U.S. Bureau of Labor Statistics projects there will be 74,000 new lawyer jobs this decade, while American law schools will produce more than 400,000 graduates. Despite those numbers, "it's not clear to me there's an oversupply problem at all," says Case Western Reserve Law School Dean Lawrence Mitchell. With so many legal needs of the poor going unmet, "finding different paths for people who truly want to be lawyers opens up all sorts of possibilities" for law graduates to find jobs, he maintains.

"We're running a business" that's grown more expensive every year because of clinics and smaller class sizes, he tells Bloomberg Law's Lee Pacchia. Contrary to popular wisdom, "I don't turn over a big chunk [of law school tuition dollars] to the university, and I'm not teaching 150 kids in a class," he says.

Mitchell wrote an op-ed in the New York Times in late November, taking to task the many critics of legal education. "The attack on law school disregards . . . we're working hard in good faith" to help students find employment, he says. "That's why I schlep all over the country for two months every summer, like Willie Loman, talking to hiring partners at law firms trying to get my kids jobs."

ABA Blawg 100 Results

Kudos to two members of our Law Professor Blogs Network for being selected by readers as the top law blog in their respective categories from among "the 100 best Web sites by lawyers, for lawyers, as chosen by the editors of the ABA Journal" -- the 2012 Blawg 100:

• Best niche blog:  Wills, Trusts & Estates Prof Blog
• Best legal research/writing blog:  Legal Writing Prof Blog

Four other members of our Law Professor Blogs Network were named to the Blawg 100:

• Legal Profession Blog:  11th place out of 14 blogs in Niche category
• The Legal Whiteboard:  8th place out of 9 blogs in Business of Law category
• M&A Law Prof Blog:  5th place out of 5 blogs in Corporate category
• TaxProf Blog:  5th place out of 14 blogs in Niche category

HGTV: Opinionated Law Professor Settles Down In St. Louis

HGTV House Hunters Episode HNT-7109H (Jan. 3, 2013): Opinionated Law Professor Settles Down In St. Louis:

Miriam Cherry has spent the past eight years moving around the country teaching law at various universities. But now that she has tenure, she can settle down in St. Louis, Missouri. There this opinionated and outspoken professor hopes to find a house with vintage charm where she can finish writing her book.

(Hat Tip: Francine Lipman.)

Banker Sues Arizona State Law Prof, Wash. U. Law Review, for Defamation in Of Meat and Manhood Article

New Jersey banker Robert Catalanello has sued Zachary Kramer (Associate Dean for Intellectual Life and Professor of Law, Arizona State) for defamation in his article, Of Meat and Manhood, 89 Wash. U. L. Rev. 287 (2011). Mr. Catalanello also named Washington University School of Law (which published the article) and Western New England University School of Law (which hosted a lecture based on the article).  The article discusses a lawsuit brought by a fired employee who alleged that Mr. Catalanello discriminated against him because of his vegetarianism and perceived homosexuality. The article opens with an alleged quote from Mr. Catalanello from the former employee's complaint:

You don‘t even eat steak dude. At what point in time did you realize you were gay? 

• ABA Journal
• Courthouse News Service
• JD Journal
• National Law Journal
• Wall Street Journal

(Hat Tip: Ann Murphy.)

WSJ Op-Ed: Message to Aspiring Lawyers -- Caveat Emptor

Wall Street Journal op-ed:  A Message to Aspiring Lawyers: Caveat Emptor -- Number of New Jobs Annually: 21,800. Number of Graduates: 44,000, by Chris Fletcher:

There is a crisis in law-school education, but don't expect the institutions to tell potential applicants about it. In short, there are far too many graduates for the number of jobs available, and the majority of those who get jobs are not being paid nearly enough to service their debt. ...

I graduated in 2011 and am one of the "lucky" ones. Within six months of graduation I secured a job in my area of interest, international human rights. ... In my case, although I found employment, my finances are precarious. With $169,000 in law-school debt and an annual salary of $55,000 (which is within the average range for a small firm), I cannot start paying off my debt in a responsible and timely manner, much less afford to have a wedding, start a family, buy a home, etc. ...

If this is my experience, then what about the graduates who are relatively not as "lucky," those with low-paying jobs not in their area of interest? Or those floating between temporary jobs? Or worse, those like my law-school friend and other similarly situated graduates who now rely on government assistance because they cannot find a job and their debt is too crushing? ...

One wishes that moral suasion would prompt law schools to alter their ways—admitting fewer students, making tuition less ruinous—but change is likely to come only through financial pressure when enrollment drops significantly. That day may not be far off. Given current conditions, prospective law-school students would be wise to start off the new year with a resolution to think twice about applying.

(Hat Tip: Grant Nelson.)

The 25 Most Influential People in Legal Education

National Jurist:  The 25 Most Influential People in Legal Educationn:

1. Brian Tamanaha (Professor, Washington U.)
2. William Henderson (Professor, Indiana)
3. Frank Wu (Chancellor & Dean, UC-Hastings)
4. Erwin Chemerinsky (Dean, UC-Irvine)
5. Kyle McEntee (Co-founder, Law School Transparency)
6. Patricia White (Dean, Miami)
7. Bryant Garth (Dean Emeritus and Professor, Southwestern)
8. David Levi (Dean, Duke)
9. Catherine Carpenter (Professor, Southwestern)
10. The Faculty of Washington & Lee
11. Claudio Grossman (Dean, American)
12. Phoebe Haddon (Dean, Maryland)
13. Blake Morant (Dean, Wake Forest)
14. Kevin Johnson (Dean, UC-Davis)
15. William Treanor (Dean and Executive VP, Georgetown)
16. Sophie Sparrow (Professor, New Hampshire)
17. Richard Sander (Professor, UCLA)
18. Paul Campos (Professor, Colorado)
19. Hiram Chodosh (Dean, Utah)
20. Jerry Organ (Professor, U. St. Thomas)
21. John O'Brien (Dean, New England)
22. Philip Weiser (Dean, Colorado)
23. Jim Chen (Professor, Louisville)
24. Lizabeth Moody (Dean Emeritus and Professor, Stetson)
25. John Garvey (Professor, New Hampshire)

Merritt and McEntee Launch Law School Cafe

Deborah J. Merritt  (Ohio State) and Kyle McEntee (Law School Transparency) have launched a new website, Law School Cafe:

Law School Cafe is a resource for anyone interested in reshaping legal education. Many law schools, workplaces, and bar associations are considering change; this site is designed to help you explore specific proposals.

Cafe Tables

The site’s main page includes a series of posts called “Cafe Tables.” Each table focuses on a particular proposal for change. Some innovations are small, others are large. We draw these proposals from many sources: published papers, other websites, formal comments submitted to the ABA’s Task Force on the Future of Legal Education, and personal conversations. If you have a proposal, please let Deborah Merritt (the cafe manager) know at merritt52@gmail.com.

Each table includes a brief description of the proposal, links to sources, and observations or questions to start the conversation. The comment threads are open: We invite you to offer your reactions, critiques, and ideas for improvement on each proposal (but please read the “Comment Policy” below). The tables offer a way to explore the pros and cons of each proposal, as well as to refine ideas.

If you have experience with a proposed change, or would like to offer an extended comment, please let the cafe manager know (again, that’s merritt52@gmail.com). You can create a “perspective” post for a table, which will appear on the main page together with the original post. The perspectives allow further development of ideas.

Book Club

The Book Club complements the Cafe Tables by offering brief summaries of recent papers or books related to legal education. These pieces don’t always propose specific changes, but they offer useful insights to the problems facing us. Comments are open here as well, so feel free to post your reactions.

More Fiscal Cliff Tax Commentary

Folllowing up on my prior posts (here and here):

• Fred Barnes (Wall Street Journal), The President Who Wants It All:  The Essence of Bipartisan Deals Is Win-Win: Both Sides Are Satisfied. Obama's Approach Is He Alone Wins
• Bloomberg, Budget Deal Lets More Savers Switch to Roth 401(k)
• Neil Buchanan (George Washington), A Mismatch Between Tax Politics and Deficit Rhetoric: A Very Bad Tax Deal Is Passed by Politicians Who Do Not Understand the Economics of Deficits
• Tim Carney (Washington Examiner), How Corporate Tax Credits Got in the 'Cliff' Deal
• Center on Budget and Policy Priorities, Budget Deal Makes Permanent 82 Percent of President Bush’s Tax Cuts
• Citizens for Tax Justice, Poorest Three-Fifths of Americans Get Just 18% of the Tax Cuts in the Fiscal Cliff Deal
• Citizens for Tax Justice, Revenue Impacts of the Fiscal Cliff Deal
• Howard Gleckman (Tax Policy Center), What the Fiscal Cliff Deal Really Means for Taxes and Spending
• Daniel Henninger (Wall Street Journal), Repealing Reagan:  After Trying for 25 Years, the Left Finally Unwinds the Reagan Tax Legacy
• Deborah Jacobs (Forbes), After the Fiscal Cliff Deal: Estate and Gift Tax Explained
• Deborah Jacobs (Forbes), Fiscal Cliff Deal Allows Giving IRA Assets to Charity
• Journal of Accountancy, Congress Passes Fiscal Cliff Act
• Greg Mankiw (Harvard), Tax Progressivity: Update
• New York Times, Piecing Together a Tax Plan’s Effects
• New York Times, Some Breaks for Industries Are Retained in Fiscal Deal
• Tony Nitti (Forbes), Secrets of the Fiscal Cliff Deal
• Matt Stoller (Roosevelt Institute), Eight Corporate Subsidies in the Fiscal Cliff Bill, From Goldman Sachs to Disney to NASCAR
• Tax Foundation, 2013 Tax Brackets
• Tax Policy Center, Distributional Analysis of the American Taxpayer Relief Act
• Wall Street Journal editorial:  Crony Capitalist Blowout:  A Tax Increase for Everyone but the Favored Wealthy Few
• Washington Post editorial, Congress Gives Out End-of-Year Perks to Interest Groups
• Washington Post WonkBlog, From NASCAR to Rum, the 10 Weirdest Parts of the ‘Fiscal Cliff’ Bill
• Robert Wood (Forbes), Fiscal Cliff, Dairy Cliff, What about the Payroll Tax Cliff?
• George Yin (Virginia), 'Fiscal Cliff' Compromise Is a Bad Deal

Tulane Joins Rankings Hall of Shame

Inside Higher Ed:  Yet Another Rankings Fabrication:

Tulane University has admitted that it sent U.S. News & World Report incorrect information about the test scores and total number of applicants for its M.B.A. program.

The admission -- as 2012 closed -- made the university the fourth college or university in that year [joining Claremont McKenna, Emory, and George Washington] to admit false reporting of some admissions data used for rankings. In 2011, two law schools [Illinois and Villanova] and one undergraduate institution were found to have engaged in false reporting of some admissions data. ...

Robert Morse, who heads the rankings at U.S. News, wrote on his blog that the incorrect data had been used in calculating Tulane's rank in the magazine's M.B.A. rankings. ... Currently the university is 43rd on that list. In the methodology the magazine uses to evaluate M.B.A. program, the average GMAT score has a weight of 16.25%, and the acceptance rate (which is based in part on the total number of applicants) counts for 1.25%.

• Huffington Post, Tulane University Sent False Information To U.S. News & World Report For College Rankings

Sullivan: Double Disappointment With the Fiscal Cliff Deal

Martin A. Sullivan (Tax Analysts),  Double Disappointment With the Deal, Doc 2013-46 (Jan. 3, 2013):

Martin A. Sullivan discusses the downsides of the fiscal cliff compromise.

All Tax Analysts content is available through the LexisNexis® services.

July 2012 California Bar Exam Results

The July 2012 California bar passage rates by school are out. Here are the results for first-time test-takers for the 21 California ABA-approved law law schools, along with each school's U.S. News ranking (California and overall):

Bar Pass Rank (Rate)	School	US News Rank CA (Overall)
1 (93.7%)	Stanford	1 (2)
2 (90.2%)	UC-Irvine	n/r
3 (89.0%)	UCLA	3 (15)
4 (88.0%)	USC	4 (18)
5 (86.3%)	UC-Berkeley	2 (7)
6 (86.1%)	Pepperdine	7 (49)
7 (81.5%)	Chapman	13 (110)
8 (78.9%)	UC-Davis	5 (29)
9 (78.6%)	Loyola-L.A.	8 (51)
10 (78.6%)	Western State	Tier 2
11 (77.8%)	San Diego	9 (65)
12 (76.9%)	UC-Hastings	6 (44)
76.9%	Statewide Ave. (CA ABA-Approved)
13 (76.7%)	Cal-Western	Tier 2
14 (73.3%)	McGeorge	11 (101)
15 (72.7%)	Santa Clara	10 (96)
16 (70.1%)	San Francisco	12 (106)
17 (69.7%)	Golden Gate	Tier 2
18 (69.7%)	Whittier	Tier 2
19 (64.3%)	Southwestern	14 (129)
20 (53.3%)	La Verne	Tier 2
21 (52.33%)	Thomas Jefferson	Tier 2

Here are the five out-of-state schools with the highest and lowest pass rates:

• 100%: Arizona State (8 test-takers)
• 94%:   Yale (31)
• 92%:   Harvard (89)
• 91%:   Virginia (22)
• 89%:   Pennsylvania (36)
• 25%:   Gonzaga (8),  UNLV (8)
• 22%:   Florida Coastal (9)
• 20%:   Loyola-New Orleans (5)
• 17%:   Thomas Cooley (18)

Prior TaxProf Blog coverage:

• July 2011 Results
• July 2010 Results
• July 2009 Results
• July 2008 Results

McLaughlin: Extinguishing and Amending Perpetual Conservation Easements

Nancy A. McLaughlin (Utah), Extinguishing and Amending Tax-Deductible Conservation Easements: Protecting the Federal Investment after Carpenter, Simmons, and Kaufman, 13 Fla. Tax Rev. 217 (2012):

Taxpayers are investing billions of dollars in conservation easements intended to permanently protect unique or otherwise significant land areas or structures through the federal charitable income tax deduction available to easement donors under Internal Revenue Code § 170(h). Astounding amounts of governmental and judicial resources are also being expended to ensure that the easements are not overvalued, that they satisfy elaborate conservation purposes and other threshold requirements, and that the donations are properly substantiated. This enormous up-front investment will be for naught, however, if the purportedly permanent protections prove to be ephemeral because government and nonprofit holders are able to release, sell, swap, or otherwise extinguish the easements in disregard of the restriction on transfer, extinguishment, division of proceeds, and other perpetuity-related requirements in § 170(h) and the Treasury Regulations. The Tax Court’s holding in Carpenter v. Comm’issioner [T.C. Memo. 2012-1] was an important victory for the IRS and the public because it provides some key guidance regarding compliance with § 170(h)’s perpetuity-related requirements. However, Carpenter has also engendered some confusion and speculation, and recent Circuit Court decisions have compounded the problem by undermining the IRS’s efforts to enforce the perpetuity-related requirements. This article examines these cases against the backdrop of the legislative history of § 170(h), state law, and public policy. It concludes that clear federal rules regarding the transfer, amendment, and extinguishment of tax-deductible conservation easements are needed because, without such rules, the purportedly perpetual protections will erode over time and the enormous public investment in the easements and the conservation values they are intended to protect for the benefit of future generations will be lost.

U.K. Taxation of Non-resident Entertainers and Sportsmen

Alan Simpson (J.D. 2012, Washington U.), Note, Taxation of Non-resident Entertainers and Sportsmen: The United Kingdom's Definition of Performance Income and How It Ought to be Measured, 11 Wash. U. Global Stud. L. Rev. 693 (2012):

This Note analyzes the U.K. approach to taxation of income earned for U.K. performances by foreign entertainers and athletes and agrees that the country of performance is the dispositive factor in determining which country is entitled to collect income tax on the endorsement income attributable to the performance. In Part II, this Note discusses the background of the relevant U.K. tax law. It reviews the U.K. court decisions in Agassi v. Robinson that led to the taxation of non-resident entertainers and athletes on endorsement contracts with companies that have no tax presence in the United Kingdom. Then, this Note discusses the U.K. acceptance of the substance-over-form tax doctrine after Agassi. In Part III, this Note evaluates the applicability of other sources of relevant international tax law, including the OECD and the United Kingdom—United States Bilateral Double Taxation Agreement. In Part IV, this Note recommends a definition for "performance income" within the OECD Model Tax Convention on Capital and Investment. By working through the different possible types of compensation for the same service, this Note arrives at a definition consistent with income tax theory. The resulting definition parallels the same definition upheld by the U.K. courts. This Note also chooses a means for calculating the amount of income tax a country should charge from a performer‘s overall endorsement contract. Finally, the Note concludes in Part V.

Columbia Journal of Tax Law Publishes New Issue

The Columbia Journal of Tax Law has published its seventh issue (Vol. 4, No. 1):

• Andrew P. Morriss (Alabama) & Lotta Moberg, Cartelizing Taxes: Understanding the OECD’s Campaign against “Harmful Tax Competition”, 4 Colum. J. Tax. L. 1 (2012):  "Formed in 1961 to promote global economic and social well-being, the Organisation for Economic Co-operation and Development (OECD) has become the collective voice of rich countries on international tax issues. After an initial focus on improving commerce through addressing double taxation issues, the organization shifted to a focus on restricting tax competition and increasing automatic exchanges of tax information. In this paper we analyze the reasons for this shift in policy focus. After describing the history of the OECD’s work on taxation, we examine the OECD’s project against “harmful tax competition” as it has played out since its launch in the 1990s. We analyze the mechanisms behind the project from a public choice perspective. While typical economic models portray tax competition as a prisoner’s dilemma between governments, a more powerful perspective is of the incentives of politicians and bureaucrats. We conclude that the project against tax competition is an example of the interplay between the interests of politicians and international bureaucrats. The OECD project illustrates the role that international organizations play in competition among interest groups."


• Ilan Benshalom (Hebrew University), Taxing Cash, 4 Colum. J. Tax. L. 65 (2012): "The cash economy enables, or at least significantly simplifies, many tax evasion schemes. This is not surprising; after all, cash transactions can go unreported and therefore remain concealed from both regulators and creditors. The tax collector operates as both a creditor and a regulator, which means that cash transactions impose negative externalities on tax collection and administration. These externalities could be corrected through a relatively simple Pigovian tax that would be imposed, prior to cash-mediated transactions, every time cash was withdrawn from the financial system. Tax authorities would not collect any tax when cash would be deposited.

  This article argues that such a cash tax would make tax collection both easier and more accurate. If a cash tax were imposed, most of the legitimate economy would shift to non-cash exchange methods. In such a setting, cash transactions would be effectively limited to two categories: low-value transactions and transactions that benefit from the anonymity associated with cash. Transactions associated with tax evasion and other types of criminal activities likely comprise most of the latter category. Hence, because cash would comprise a relatively small portion of the formal economy’s turnover, there are good reasons to believe that cash owners operating in the underground economy would be unable to roll over most of the cash-tax burden. This means that most of the cash-tax incidence would fall on those who use cash to engage in tax evasion or other forms of unreported behaviors. Such a cash tax would therefore reduce the lack-of-tax benefit associated with cash-based tax evasion along with the inequities and inefficiencies associated with it. Furthermore, it would allow policymakers to comprehensively address the externalities associated with unreported transactions in the cash economy."

  
  
• Michelle Lyon Drumbl (Washington & Lee), Decoupling Taxes and Marriage: Beyond Innocence and Income Splitting, 4 Colum. J. Tax. L. 94 (2012): "Fourteen years ago, members of Congress sympathetically listened as divorcees testified to their struggles to raise children while being pursued by the Internal Revenue Service for tax debts, often unknown to them, that were attributable to their ex-husbands’ income. Rather than adopting one of many proposals to end joint and several liability, Congress instead elected to expand the grounds on which these individuals could seek relief from such liability. Since that time, taxpayers have seen a steady expansion of the grounds for so-called “innocent spouse relief” that has evolved through a combination of legislative, administrative, and judicial action. Yet the process for relief remains time-consuming, inefficient, and unpredictable. The majority of initial requests for innocent spouse relief are denied. The taxpayer can appeal administratively and also seek judicial review if relief is denied, but sometimes will spend several years and untold resources in pursuit of a claim that may ultimately be unsuccessful. The process is also a questionable use of Internal Revenue Service personnel, in that it frequently calls upon these employees to address the most intimate aspects of a failed relationship, including spousal abuse, addictions, and mental health problems. These employees often must make a determination based upon a “he-said, she-said” presentation of the facts—an odd task for an agency charged with enforcing the revenue laws.

  This article visits the historic rationales for joint and several liability, both in light of the flawed relief process and also in the context of modern-day American society, in which married couples constitute only half of all households and cohabitation is increasingly more common. I conclude that Congress should eliminate the “married” filing statuses and require each married individual to file a separate return. If it did so, joint liability and the innocent spouse relief process would both cease to exist. The historical policy justifications for imposing joint and several liability are no longer rational in light of changed demographics and technological advances. Rather than an “unusual privilege,” which it was long said to be, filing jointly has become a risky conundrum, particularly for low-income taxpayers. As the nation debates tax reform, it is appropriate to rethink the policy of retaining the “married” filing statuses in light of the ways in which family structures, society, and the Internal Revenue Code have changed since joint and several liability was introduced in 1938.

Rattner: 2012 -- The Year in Charts

New York Times:  America in 2012, as Told in Charts, by Steven Rattner:

The weak economy, widening income inequality, gridlock in Congress and a presidential election: Those were perhaps the dominant economic and political themes of 2012. To supplement the torrent of rhetoric, I offer charts to help provide facts and context for the debate around these important issues. Below are nine of my favorites from the past year.

 

Grinberg: The Battle Over Taxing Offshore Accounts

Itai Grinberg (Georgetown), The Battle Over Taxing Offshore Accounts, 60 UCLA L. Rev. 304 (2012):

The international tax system is in the midst of a contest between automatic information reporting and anonymous withholding models for ensuring that nations have the ability to tax offshore accounts. At stake is the extent of many countries’ capacity to tax investment income of individuals and profits of closely held businesses through an income tax in an increasingly financially integrated world.

Incongruent initiatives of the European Union, the Organisation for Economic Cooperation and Development (OECD), Switzerland, and the United States together represent an emerging international regime in which financial institutions act to facilitate countries’ ability to tax their residents’ offshore accounts. The growing consensus that financial institutions should act as cross-border tax intermediaries represents a remarkable shift in international norms that has yet to be recognized in the academic literature.

The debate, however, is about how financial institutions should serve as cross-border tax intermediaries, and for which countries. Different outcomes in this contest portend starkly different futures for the extent of cross-border tax administrative assistance available to most countries. The triumph of an automatic information reporting model over an anonymous withholding model is key to (1) allowing for the taxation of principal, (2) ensuring that most countries are included in the benefit of financial institutions serving as cross-border tax intermediaries, (3) encouraging taxpayer engagement with the polity, and (4) supporting sovereign policy flexibility, especially in emerging and developing economies. This Article closes with proposals to help reconcile the emerging automatic information exchange approaches to produce an effective multilateral system.

Ending Student Loan Exceptionalism: The Case for Risk-Based Pricing and Dischargeability

Peter Zuckerman (Wachtell, Lipton, Rosen & Katz, New York), Note, Ending Student Loan Exceptionalism: The Case for Risk-Based Pricing and Dischargeability, 126 Harv. L. Rev. 587 (2012):

This Note proposes a two-part solution to the growing student loan crisis associated with higher education in general and law schools in particular. On the front end, it argues that student loans should be priced in a risk-based manner that would dissuade many individuals, including those thinking of attending law school, from assuming what proves to be unmanageable debt. On the back end, it argues that student debt that has been assumed and proven unmanageable should be more easily dischargeable in bankruptcy.

House Approves Fiscal Cliff Tax Deal

The House last night approved H.R. 8 by a vote of 257-167 to avert the fiscal cliff.  The bill now goes to the White House for President Obama's signature.  Highlights of the bill include:

• Raise the marginal tax rate to 39.6% on income over $450,000 (joint) and $400,000 (single).
• Raise the tax rate on dividends and long term capital gains to 20% on taxpayers with income over $450,000 (joint) and $400,000 (single).  The top rate would remain 15% for taxpayers with lower incomes.
• Estate and gift tax:  $5 million exemption (inflation-adjusted) and 40% rate.
• Permanent and retroactive patch for the AMT.
• Return of the exemption and itemized deduction phase-outs on taxpayers with income over $300,000 (joint) and $250,000 (single).
• One-year extension of 50% bonus depreciation.
• Extension of various tax extenders.

Documents:

• Legislative Language
• Senate Finance Committee Summary
• White House Fact Sheet
• President Obama Statement.
• Congressional Budget Office Revenue Estimate
• Joint Committee on Taxation Reveue Estimate

Commentary:

• Len Burman (Syracuse), Senate Bill Averts Fiscal Cliff--For Now--While Ignoring our Short- and Long-Term Fiscal Problems
• CCH, Tax Briefing
• Stephen J. Entin (Tax Foundation), Modeling the Economic and Distributional Effects of the Senate Tax Bill
• Howard Gleckman (Tax Policy Center), Congress Kicks the Fiscal Can off the Front Stoop
• Joseph Henchman (Tax Foundation), Details of the Fiscal Cliff Tax Deal
• Ezra Klein (Washington Post), Wonkbook: Everything You Need to Know About the Fiscal Cliff Deal
• Greg Mankiw (Harvard), President Rejects His Bipartisan Bowles-Simpson Commission
• Greg Mankiw (Harvard), The Neverending Quest for a More Redistributionist Tax System
• David Malpass (WSJ op-ed), Nothing Is Certain Except More Debt and Taxes,
• New York Times, Tax Deal’s Passage Ends Latest Standoff
• Dan Shaviro (NYU), The Fiscal Cliff Deal
• Joe Thorndike (Tax Analysts), Is Obama the Worst Legislative Negotiator of the Last Century?
• Wall Street Journal, Congress Passes Cliff Deal
• Wall Street Journal, High Earners Facing First Major Tax Increase in Years
• Wall Street Journal editorial, Obama's Tax Bill Comes Due
• Washington Post, Congress Approves ‘Fiscal Cliff’ Measure
• Washington Post, Tea Party Backers Swallow a Bitter Pill in ‘Cliff’ Bill
• Robert Wood (Forbes), Five Things Everyone Should Know about the Fiscal Cliff Tax Deal
• George Yin (Virginia), 'Fiscal Cliff' Compromise Is a Bad Deal

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PIRG: Reforming the Deductibility of Corporate Legal Settlements

US PIRG:  Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write Offs, with Recommendations for Reform:

BP’s recent $4.5 billion legal settlement with the Justice Department for its misdeeds in the Gulf oil spill was historic for being the largest ever criminal settlement. But it was historic for another reason as well—none of it is allowed to be tax deductible. Unfortunately, too many settlements for wrongdoing end up as tax deductions.

Corporations accused of wrongdoing commonly settle legal disputes with government regulators out of court. Doing so allows both the company and the government to avoid going to trial and the agency gets to appear as if it is teaching the company a lesson for its misdeeds. However, very often the corporations deduct the costs of the settlement on their taxes as an ordinary business expense, shifting a significant portion of the burden onto ordinary taxpayers to pick up the tab. ...

Taxpayers should not subsidize BP’s recklessness and deception in the Gulf, big banks’ costly tampering with interest rates in the Libor scandal, or other wrongdoing.

The law clearly states that punitive penalties and fines issued by government agencies are not tax-deductible, but agencies that negotiate settlements all too rarely make clear what portion of a settlement should be regarded as punitive. Corporate tax lawyers can take advantage of this ambiguity by acting as if none of the settlement was meant to be punishment for misdeeds. The IRS is ill prepared to challenge these claims, and taxpayers end up holding the bag.

To help ensure that corporate wrongdoing is not publicly subsidized and that taxpayers are not saddled with the burden, U.S. PIRG offers the following policy recommendations that could save billions of dollars each year.

• Washington Post, Government Doing More to Prevent Corporations from Deducting Settlements

NY Times: Relief for Student Borrowers

New York Times editorial:  Relief for Student Borrowers:

College graduates who began their careers during the Great Recession faced several long-term economic obstacles. These included lower earnings, higher unemployment rates and greater career instability — all of which made it more difficult to buy homes and save for retirement. It also made it harder to pay off student loans.

The Obama administration had this group in mind when it created the Pay As You Earn Repayment Plan for federal student loans, which allows recent student borrowers to arrange affordable payments and qualify for loan forgiveness. The program, which went into effect late last month, needs to be broadly advertised if it is to reach the people who need it most.

At least two-thirds of college graduates borrow to complete their undergraduate degrees. And there are now about 37 million borrowers with federal student loans. The Pay As You Earn program would reach an estimated 1.6 million people. It is limited to people who started borrowing during the recession, who have high debt relative to their incomes and who entered the work force at the worst possible time.

Since 2009, similar relief has been available for student loan borrowers with the Income Based Repayment program, which also allows for lower payments. But the Pay As You Earn program provides more generous relief. According to an analysis by the Institute for College Access and Success, a nonprofit group that monitors student debt, an unmarried student who graduates with loan debt of $26,600 — the average for student borrowers in 2011 — and who earns an adjusted gross income of $25,000 a year, would pay about $69 a month under the Pay As You Earn plan. The same student would pay about $103 under the Income Based Repayment program.

(Hat Tip: Mike Talbert.)

Sanchirico: Taxing Public Companies

Chris Sanchirico (Pennsylvania), New Ways to Think About a Tax on Public Companies:

Suppose someone proposed a special tax on businesses that make their ownership shares publicly available in affordable, easy-to-sell units. Such an idea would probably generate a lot of push-back. Efficiency advocates might complain that it taxed the very attributes that make equity markets efficient. Progressivity advocates might object on the grounds that it taxed those who have no alternative to publicly available investment opportunities.

In fact we already have such a tax. We call it the corporate income tax.

In what sense is the corporate tax a special levy on being publicly traded? And what do we know about the policy implications of such a charge?

Deborah Jones Merritt: Are Law Schools Like A&P and NASA?

Deborah Jones Merritt (Ohio State), Tried and True:

Why do smart people stick to outmoded ideas? Why do creative scientists or business people lose their ingenuity when it comes to their own business models? Pondering these questions, a reader pointed me to this classic essay in the National Geographic Adventure Blog.

In the essay, best-selling author Laurence Gonzales discusses epic failures [like] The Great Atlantic & Pacific Tea Company (A&P) [and NASA]. ... The final report on Columbia's crash noted that "[e]xternal criticism and doubt" only "reinforced the will to ‘impose the party line vision on the environment, not to reconsider it.'" NASA's executives, in other words, responded with perfect groupness: Bonded by their past success, they rejected any criticisms with hostility.

Legal education, unfortunately, shows all of the signs of groupness. How many times have you heard a law professor say: "We've been using the case method for more than a century. You can't argue with a hundred years of success!" How often have you heard administrators and faculty revel in the excellence of their schools and programs? How often does your law school, as described internally, sound like the "perfect place"? How often do you hear faculty attacking the "naive" suggestions of practitioners, students, alumni, and other outsiders?

It's important to be proud of our accomplishments; but it's vital to avoid groupness. During the last year, I've seen many welcome signs of law schools waking to the need for serious change. But I've also seen signs of resistance, of increased chest thumping and declarations of excellence. As we welcome the new year, let's embrace the lesson that A&P never learned: After a hundred years, times change.

CBO on Fiscal Cliff Deal: $1 in Spending Cuts ($15 Billion) for Every $41 in Tax Increases ($620 Billion)

The Senate early this morning passed H.R. 8 by a vote of 89-8 to avert the fiscal cliff.  The bill now moves to the House.  Highlights of the bill include:

• Raise the marginal tax rate to 39.6% on income over $450,000 (joint) and $400,000 (single).
• Raise the tax rate on dividends and long term capital gains to 20% on taxpayers with income over $450,000 (joint) and $400,000 (single).  The top rate would remain 15% for taxpayers with lower incomes.
• Estate and gift tax:  $5 million exemption (inflation-adjusted) and 40% rate.
• Permanent and retroactive patch for the AMT.
• Return of the exemption and itemized deduction phase-outs on taxpayers with income over $300,000 (joint) and $250,000 (single).
• One-year extension of 50% bonus depreciation.
• Extension of various tax extenders.

Revenue estimates from the Congressional Budget Office and Joint Committee on Taxation score the bill as adding $3.9 trillion to the deficit over ten years compared to existing (January 1, 2013) law.  The White House has released this fact sheet and statement from President Obama.

Press and blogosphere coverage:

• Bloomberg, Senate-Passed Deal Means Higher Tax on 77% of Households
• Len Burman (Syracuse), Senate Bill Averts Fiscal Cliff--For Now--While Ignoring our Short- and Long-Term Fiscal Problems
• Breitbart, Fiscal Cliff Deal: $1 in Spending Cuts for Every $41 in Tax Increases
• Greg Mankiw (Harvard), President Rejects His Bipartisan Bowles-Simpson Commission
• Greg Mankiw (Harvard), The Neverending Quest for a More Redistributionist Tax System 
• New York Times, The McConnell-Biden Plan
• New York Times, Senate Passes Legislation to Allow Taxes on Affluent to Rise
• Dan Shaviro (NYU), The Fiscal Cliff Deal
• Tax Policy Blog, Details of the Fiscal Cliff Tax Deal
• Tax Update Blog, New Year’s Day Special: Senate Passes Fiscal Cliff Bill in Wee Hours
• Tax Vox Blog, Congress Kicks the Fiscal Can off the Front Stoop
• Joe Thorndike (Tax Analysts), Is Obama the Worst Legislative Negotiator of the Last Century?
• Wall Street Journal, Details of Tax Law Changes Spelled Out
• Wall Street Journal, Fiscal-Cliff Focus Moves to House
• Washington Post, Everything You Need to Know About the Fiscal Cliff Deal

Update:  House Approves Fiscal Cliff Tax Deal

Campos: The Crisis of the American Law School

Paul Campos (Colorado), The Crisis of the American Law School, 46 U. Mich. J.L. Reform 225 (2012):

The economist Herbert Stein once remarked that if something cannot go on forever, it will stop. Over the past four decades, the cost of legal education in America has seemed to belie this aphorism: it has gone up relentlessly. Private law school tuition increased by a factor of four in real, inflation-adjusted terms between 1971 and 2011, while resident tuition at public law schools has nearly quadrupled in real terms over just the past two decades. Meanwhile, for more than thirty years, the percentage of the American economy devoted to legal services has been shrinking. In 1978 the legal sector accounted for 2.01% of the nation’s GDP: by 2009 that figure had shrunk to 1.37%—a 32% decrease. These two trends are not mutually sustainable. If the cost of becoming a lawyer continues to rise while the economic advantage conferred by a law degree continues to fall, then eventually both the market for new lawyers and for admission to law school will crash. In the early years of the 21st century, this abstract theoretical observation has begun to be confirmed by concrete events. The ongoing contraction in the employment market for new lawyers has combined with the continuing increase in the cost of legal education to produce what has begun to be recognized as a genuine crisis for both law schools and the legal profession.

Linder Posts Tax Papers on SSRN

Marc Linder (Iowa) has posted two tax papers on SSRN:

• Eisenhower-Era Marxist-Confiscatory Taxation: Requiem for the Rhetoric of Rate Reduction for the Rich, 70 Tul. L. Rev. 905 (1996)
• The Involuntary Conversion of Employees into Self-Employed: The Internal Revenue Service and Section 530, 22 Clearinghouse Rev. 14 (1988)

Has Law School Transparency Jumped the Shark?

Kyle P. McEntee, Patrick J. Lynch & Derek Michael Tokaz (all of Law School Transparency), The Crisis in Legal Education: Dabbling in Disaster Planning, 46 U. Mich. J.L. Reform 225 (2012):

The legal education crisis has already struck for many recent law school graduates, signaling potential disaster for law schools already struggling with their own economic challenges. Law schools have high fixed costs caused by competition between schools, the unchecked expansion of federal loan programs, a widely exploited information asymmetry about graduate employment outcomes, and a lack of financial discipline masquerading as innovation. As a result, tuition is up, jobs are down, and skepticism of the value of a J.D. has never been higher. If these trends do not reverse course, droves of students will continue to graduate with debt that greatly reduces their ability to fulfill the law school graduate’s traditional and important role in American society. The point at which the law school crisis becomes a disaster for legal education is debatable, but the importance of preparing for and forestalling this disaster is not.

This article serves two forward-looking purposes that stem from the premise that American legal education requires structural change to reduce the cost of obtaining a legal education. First, we set a framework for thinking about reforms to the method of delivering legal education. Second, we examine three blueprints for structural reform: one that has already been implemented and is ineffective, and two that set the discussion on the right track. These blueprints reject mere tinkering in favor of refocusing the attention of legal education stakeholders on the drastic structural changes needed to provide quality, affordable legal education.

While we provide only a starting point for considering how the two new models could work in principle, they serve as an intellectual blueprint that can pave the way for new and better ideas about legal education. It is clear that cost reform is necessary, and it is likely that substantial reform is coming. The shape of this reform depends on who gets involved, which we hope includes actors beyond those who have set legal education on a path toward disaster.

Bernard A. Burk (North Carolina), Law School Transparency Jumps the Rails (Or, Why Do So Many Worthy People Check Their Common Sense at the Door When They Start Talking About Law-School Reform?):

I’ve always admired Law School Transparency—even, I’d like to think, before it was fashionable.  There is a good deal to admire.  LST and its principals recognized early in the collapse of the law-job market that law schools were doing a discreditably poor job of making available the information necessary for a rational person to determine whether or where to get a law degree.  They believed that potential consumers of legal education would make better choices if they were better informed.  They were pointed, patient and persistent in pressing for more and better disclosure.  They were an instrumental part of the process that effected that change.  And they’ve offered a number of thoughtful and useful perspectives on the information they helped bring to light (I don’t particularly agree with a number of them, but I certainly respect the effort and empirically supported thought that went into them).

So I was intrigued to look into the latest contribution to the law-school reform discussion authored by LST’s co-founders and its research director ... What a disappointment.  Commentators with the public stature of Law School Transparency should not “dabble.”

I do not mean to say that three twenty-somethings who have essentially never practiced or taught law have no place explaining how to assemble a curriculum or run a law school so that its graduates will be both prepared to practice and attractive to legal employers in the most difficult legal job market in American history.  I do mean to say that, if you don’t know how to do it and you don’t know how to teach it, you really ought to do your homework so that your prescriptions are meticulously grounded in empirical experience and coherent argument.  Sadly, you won’t find much of either here....

Q: Then why are you being so harsh with LST?  You’ve really been kind of a jerk, you know.
A: Well, I am being harsh.  Here’s why: LST has (in my opinion) distinguished itself since it came upon the scene by its mostly measured and thoughtful idiom, and its basic confidence in the power of information to influence rational behavior and level the playing field.  The article I just criticized is an abrupt and in my opinion unwelcome departure from a style of public discourse that I genuinely admire, not only because it is predominantly engaged and positive (though it is), but because it is—again, in my opinion—effective.   Tossing around the rhetoric of “disaster” and “crisis” without meaningful effort to define the threat, couched in empirically vacuous and occasionally self-contradictory pronouncements, reverts to the toxic style of discourse sadly prevalent in current affairs, and doesn’t advance anything other than perhaps LST’s public profile.  There are more wholesome and productive ways to achieve that end.  In my opinion, LST should hold itself to the same standards of data-driven rationality and full disclosure to which it rightly holds the institutions it criticizes.

Update #1:  Bernie Burk has taken down his post (Google cache version here, via Brian Leiter), as he explains in Law School Transparency Jumps the Rails:

Some friends and colleagues who read my lengthy post on Law School Transparency's recent article on law-school reform gently suggested that I should stop publicly haranguing myself on the bus before people began to worry about my stability (those who read the post will understand the reference).  Kyle McEntee of LST also contributed a measured and thoughtful Comment of the kind that I had come to value and respect from him and his organization, for which I thank him. 

I remain uncomfortable with both the form and the substance of LST's proposals, but I also recognize the merit of the friendly advice I've received that there are more constructive ways to contribute to this important discussion than the one I chose.  So I'll work on it and try again in a few days.

Update #2:  Bernie Burk refashioned his post on 7:20 p.m. on New Year's Eve (yes, I have no life) as Law School Transparency Jumps the Rails (Or, Why I’m Still Disappointed with LST’s Latest Contribution to the Discussion on Law-School Reform):

With thanks to the commenters and correspondents who responded to my original post on this subject with an absolutely fascinating range of views, I’m going to take another run at explaining why I’m still disappointed with the recent article by Law School Transparency co-founders and research director Kyle McEntee, Patrick Lynch and Derek Tokaz (to whom I will refer in this post interchangeably with LST, though I’m not sure whether they would agree with that).  The paper, forthcoming in the University of Michigan Journal of Law Reform, is rather dramatically entitled “The Crisis in Legal Education:  Dabbling in Disaster Planning.”  Familiarity with my original post is not presupposed.

As I mentioned in my original post, I’ve always admired Law School Transparency—even, I’d like to think, before it was fashionable.  There is a good deal to admire.  LST and its principals recognized early in the collapse of the law-job market that law schools were doing a discreditably poor job of making available the information necessary for a rational person to determine whether or where to get a law degree.  They believed that potential consumers of legal education would make better choices if they were better informed.  They were pointed, patient and persistent in pressing for more and better disclosure.  They were an instrumental part of the process that effected that change.  And they’ve offered a number of thoughtful perspectives on the information they helped bring to light (I don’t particularly agree with a number of them, but I certainly respect the effort and empirically supported analysis that went into them).

So what’s my problem with “Dabbling in Disaster Planning” (beyond everything the title ought to tell you without asking further)?  Here’s a catalogue of my most serious concerns:

• Don’t overdramatize
• Don’t allow hysterical language to mask a failure to define the issue you need to address
• Don’t ignore the implications of your justifications
• Don’t ignore inconvenient facts
• Don’t assume away the problems you perceive; recognize and try to solve them

LST deserves everyone’s gratitude for an earnest and courageous effort to advance the discussion on a miserably complicated and difficult set of problems. The execution leaves something to be desired for the reasons just discussed. But at a minimum, it highlights a number of the challenges that are going to have to be addressed before meaningful and effective reform will be possible. We can only hope that, as each of us comes forward with our own ideas, the mistakes we make are new. 

(Hat Tip: Greg McNeal.)

If You're Young, Don’t Give To Charity

If You’re Young, Don’t Give To Charity:

Several people I know, all under 30, want to do good. They want to do so much good, in fact, that they donate a large fraction of their income to charity.

This is almost always a bad idea. It’s admirable, but it’s the wrong decision. If you’re under 30, don’t give away large amounts of money, and send this blog post to anyone who does. The reason is simple:

Wealth almost entirely belongs to the old. The median 60-year-old has 45 times (yes, forty-five times) the net worth of the median 30-year-old. 99% – not 80%, not even 95%, but ninety-nine percent – of American billionaires are over 40.

Old people, of course, have more time to accumulate wealth. They’ve also had more time to learn skills, make friends, earn degrees, gain experiences… everything that gives someone higher earning potential. They also have almost all the political power. There are a hundred US Senators, and not a single one is under 40. You can’t even be President until you’re 35. It’s not surprising, then, that old people utterly dominate lists of the wealthy.

What does that imply? Any money a 25-year-old can give – even if they donate half their income – is chump change. It’s a single drop in a large bucket, compared to what they can donate later in life, when they’re older and much much richer. It doesn’t matter. At all. It means nothing.

(Hat Tip: Glenn Reynolds.)

Mankiw: Wishful Thinking and Middle-Class Taxes

New York Times op-ed:  Wishful Thinking and Middle-Class Taxes, by N. Gregory Mankiw (Harvard University, Department of Economics):

In the continuing fiscal negotiations between President Obama and House Republicans, both sides have, from the very beginning, agreed on one point: Taxes on the middle class must not rise. But maybe it’s time to reconsider this premise. An unwavering commitment to keep middle-class taxes low could be one reason the political process has become so deeply dysfunctional. ...

Republicans and Democrats agree on the nature of the problem, but they embrace very different solutions. My fear is that both sides are engaged in an excess of wishful thinking, with a dash of mendacity. If Republicans had their way, they would focus the entire solution on the spending side. ... Democrats, meanwhile, want to preserve the social safety net pretty much as is. ...

When President Obama talks about taxing the rich, he means the top 2 percent of Americans. John A. Boehner, the House speaker, talks about an even thinner slice. But the current and future fiscal imbalances are too large to exempt 98 percent or more of the public from being part of the solution.

Ultimately, unless we scale back entitlement programs far more than anyone in Washington is now seriously considering, we will have no choice but to increase taxes on a vast majority of Americans. This could involve higher tax rates or an elimination of popular deductions. Or it could mean an entirely new tax, such as a value-added tax or a carbon tax.

To be sure, the path ahead is not easy. No politician who wants to be re-elected is eager to entertain the possibility of higher taxes on the middle class. But fiscal negotiations might become a bit easier if everyone started by agreeing that the policies we choose must be constrained by the laws of arithmetic.

TaxProf Blog Weekend Roundup

Saturday:

• Freakonomics:  An Economist’s Guide to Year-End Charitable Giving
• Cato:  Six Reasons To Keep Capital Gains Tax Rates Low
• The Deductibility of Payments to Whistleblowers Under the False Claims Act

Sunday:

• Law School Transparency Files Complaint Against Rutgers-Camden Over Student Recruiting
• French Court: 75% Tax Rate on Millionaires Is Unconstitutional
• Top 5 Tax Paper Downloads

Law School Transparency Files Complaint Against Rutgers-Camden Over Student Recruiting

Law School Transparency has filed a complaint with the ABA Section on Legal Education and Admissions to the Bar against Rutgers-Camden Law School over a recruiting email sent to a prospective student:

Law School Transparency alleges that Rutgers School of Law – Camden violated Standard 509 and Interpretation 509-4 [in effect in 2011-12]. A law school administrator made misleading statements about the successes of the school’s graduates. The same administrator also made a false statement about graduate salary outcomes when she asserted that many top graduates accepted jobs at firms making in excess of $130,000, when in fact zero graduates reported earning more than $130,000.

Prior TaxProf Blog coverage:

• LST Calls for Resignation of Rutgers Dean and ABA Investigation of Improper Recruiting of Law Students (May 21, 2012)
• Rutgers-Camden Dean Doubles Down on Questionable Marketing Pitch to Prospective Law Students (May 23, 2012)

French Court: 75% Tax Rate on Millionaires Is Unconstitutional

New York Times:  French Council Strikes Down 75% Tax Rate:

France’s Constitutional Council on Saturday struck down the Socialist government’s plan to impose a 75 percent marginal income tax rate on the wealthy, a measure that figured prominently among the campaign promises of President François Hollande and that had become a divisive emblem of his approach to cutting the budget deficit.

Prime Minister Jean-Marc Ayrault quickly pledged that the government would reintroduce a revised version of the tax for next year to address the criticisms of the Constitutional Council, which ruled that the measure did not tax affected households equally.

The 75 percent rate was always a symbolic political gesture, as Mr. Hollande himself has acknowledged. It was to expire in two years and would have applied only to annual income above 1 million euros, or about $1.3 million, and so would have affected no more than a few thousand taxpayers.

Tax revenues from the measure would have reached just a few hundred million dollars, little more than a bucket of water in France’s deficit sea; the budget deficit is about $112 billion this year.

• BBC
• Bloomberg
• The Guardian
• Wall Street Journal editorial
• Washington Post

(Hat Tip: Mike Talbert.)

Top 5 Tax Paper Downloads

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads on SSRN, with a new paper debuting on the list at #5.  The #1 paper is #4 in all-time downloads among 8,866 tax papers:

1.  [4515 Downloads]  Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Scheduled Tax Law, by Gerald T. Prante & Austin John (both of Lynchburg College, School of Business and Economics)

2.  [264 Downloads]  Taxation in the Bible, by Geoffrey P. Miller (NYU)

3.  [238 Downloads]  The End of Taxation without End: A New Tax Regime for U.S. Expatriates, by Bernard Schneider (Queen Mary, University of London School of Law)

4.  [169 Downloads]  Romney's Tax Plan Won't Work Like Reagan's Did, by Bruce Bartlett

5.  [152 Downloads]   Important Developments in Federal Income Taxation, by Edward A. Morse (Creighton)

Freakonomics: An Economist’s Guide to Year-End Charitable Giving

Freakonomics:  An Economist’s Guide to Year-End Charitable Giving:

The end of the year is a giving season for many (I suppose a cynical economist might think tax deductions has something to do with it). Most of us like to make sure we’re making well-researched and wise decisions when it comes to our money, be it reading the online reviews before a purchase or investing our savings. By contrast, donating to charities can seem like a “black box.” Many of us our rely on what feels right or seek out an organization in an area we have a personal connection to, but examining some bad habits about charity giving might help make sure our dollars go farther this giving season.

Bad Giving Habit #1: Choosing based on low overhead and fundraising expense ratios 
Bad Giving Habit #2: Restricting what the organization can do with your money 
Bad Giving Habit #3: Spreading the love, dividing your donations among many charities 
Bad Giving Habit #4: Fooling yourself that you give what you think you should be giving 
Bad Giving Habit #5: Giving to things that advertise well, rather than to what works 
So what’s a good habit? Copying 

Cato: Six Reasons To Keep Capital Gains Tax Rates Low

Chris Edwards (Cato Institute), Advantages of Low Capital Gains Tax Rates:

The top federal capital gains tax rate is scheduled to increase from 15% to 23.8% next year. Some policymakers think that a reduced rate for capital gains is an unjustified tax preference. However, capital gains are different than ordinary income and have been subject to special low rates since 1922. Nearly every country has reduced tax rates on individual long-term capital gains, with some countries imposing no tax at all.

This bulletin describes why policymakers should keep capital gains taxes low, and it presents data on capital gains tax rates for the 34 nations in the OECD. If the U.S. capital gains tax rate rises next year as scheduled, it will be much higher than the average OECD rate.

Policymakers should reconsider capital gains tax policy. Capital gains taxes raise less than five percent of federal revenues, yet they do substantial damage. Higher rates will harm investment, entrepreneurship, and growth, and will raise little, if any, added federal revenue.

Related op-ed:  Six Reasons To Keep Capital Gains Tax Rates Low

The Deductibility of Payments to Whistleblowers Under the False Claims Act

Jonathan D. Grossman (J.D. 2012, NYU), Note, The Case Against the Tax Deductibility of FCA Relator Fees, 87 N.Y.U. L. Rev. 1452 (2012):

The False Claims Act (FCA) imposes severe penalties on those who commit fraud against the federal government. The statute currently requires violators to pay treble damages plus a statutory penalty of five to ten thousand dollars per violation. The goal of the statute is to deter fraud by setting punitive damages at a high level. However, the tax law, as currently interpreted by the IRS, blunts the force of the statute by allowing a violator to deduct a portion of an FCA damages award as a business expense. Specifically, Treasury regulations allow for the deductibility of any portion of an FCA settlement or damages award that is paid to the whistleblower, known as the “relator,” who brings suit under the FCA for the alleged fraud. This Note argues that, for reasons of efficiency and equity, the IRS should change its current position and disallow relator fee deductions. 

Burman & Slemrod: Closing Tax Loopholes Isn’t Enough

New York Times op-ed:  Closing Loopholes Isn’t Enough, by Leonard E. Burman (Syracuse) & Joel B. Slemrod (Michigan):

[T]hose Republicans who acknowledge that additional tax dollars will be necessary say we can get what we need without increasing a single tax rate. All we have to do is close up some “loopholes” and “broaden the base”! We can keep in place the Bush-era tax cuts, they say, and make up any lost revenue simply by eliminating various deductions, exclusions and credits.

At first glance, the idea seems great. Who wouldn’t want to root out the tax evaders and finaglers who are shirking the shared burden? And the idea of a broader base of taxpayers paying lower rates across the board sounds so much simpler and fairer for every citizen.

But closing loopholes is neither sufficient to do the job nor as “fair” to everyone as it might seem.

There is no painless way to raise revenue, as past attempts have shown. Increased levies on corporations are ultimately passed along to shareholders, workers or customers. Raising taxes on foreign companies increases the cost of capital as businesses keep their cash overseas. Even a fix as “obvious” as doubling down on audits to catch tax cheaters ends up creating a burden for honest citizens caught in the snare.

Closing loopholes and purging deductions are no more exempt from the laws of tax physics than any of the above. ... [I]n the end, none of these fixes will be enough to raise the revenue we need to balance the budget, begin to pay off America’s debt and avoid the fiscal cliff. Nor can we cut spending enough to achieve those goals. ...

That leaves us with one choice: do all of the above. Let’s trim spending where we can, broaden the base where it makes the most sense and, yes, raise marginal tax rates as well. Returning tax rates to Clinton-era levels for married filers making over $250,000 a year and singles making $200,000 or more, as President Obama has proposed, would be a good start, and might provide the impetus for more serious discussions of tax and entitlement reform.

The only thing we shouldn’t do is pretend any of these fixes will be painless or easy for everyone. They won’t. Even in a happy, thriving democracy, someone ends up holding the bag.

(Hat Tip: Ann Murphy, Mike Talbert.)

Allen: Let's Talk About Tax -- Fixing Bank Incentives to Sabotage Stability

Hilary J. Allen (Loyola-New Orleans), Let's Talk About Tax: Fixing Bank Incentives to Sabotage Stability:

Regulatory capital requirements are in place to improve bank (and systemic) stability, by forcing banks to fund themselves with more loss-absorbent equity. But banks have strong incentives to prefer debt funding to equity funding, and thus to arbitrage regulatory capital requirements. In particular, banks have (often successfully) petitioned regulators to allow them to satisfy regulatory capital requirements with hybrid debt-equity instruments that can be treated as debt for tax purposes. Unfortunately, the Financial Crisis showed that the first generation of these hybrid instruments, including trust preferred securities, did not live up to their promise of promoting bank stability. The next generation of hybrids, the contingent convertible bonds or “cocos”, have the potential to be downright harmful to stability.

We therefore need to address bank incentives to create hybrid instruments, and otherwise arbitrage regulatory capital requirements. While regulatory capital requirements are almost always discussed in isolation from tax policy, this Article recognizes that banks’ reluctance to fund themselves with larger cushions of common equity is, in large part, a tax problem. Financial regulators, rather than accepting such tax preferences as a given, should engage with their tax colleagues and revisit the wisdom of tax policies that incentivize reliance on debt funding, and the instability such reliance creates. To that end, this Article takes the first step in fusing together regulatory capital scholarship with the tax literature on reducing debt bias, and proposes that common equity held by banks as regulatory capital should be made tax deductible. The hope is that this will inspire experts in the fields of economics, tax and financial regulation (particularly within the Basel Committee on Banking Supervision) to collaborate in refining this Article’s proposal, so that the efficacy of regulatory capital requirements (and financial stability) can be maximized.

NFIB v. Sebelius: So It's a Tax, Now What?

Timothy Sandefur (Pacific Legal Foundation), So It's a Tax, Now What? Some of the Problems Remaining after NFIB v. Sebelius:

Few predicted the Supreme Court’s ruling in NFIB v. Sebelius to conclude that the “Individual Mandate” provision of the Patient Protection And Affordable Care Act (PPACA) is not a regulation of interstate commerce, but is instead a tax on persons who do not choose to buy “minimum acceptable” health insurance. This legal theory was addressed in only a few pages of the government’s extensive briefing in the case and occupied practically no time during the unusual, three-day oral arguments. To this day, the Obama Administration, which claims to have won the case, has refused to accept this “Tax Power” theory. Those of us who oppose the law on legal and policy grounds must, however, live with the decision, and, what is harder, try to make sense of it. This article will address some of the questions that remain in the wake of the NFIB decision. In Part I, I review the rationale of NFIB, and one especially significant problem that remains with regard to Commerce and Tax Clause jurisprudence. In Part II, I take the decision’s Tax Power rationale at its word: how does converting the Individual Mandate into a tax change the effect and the constitutionality of the PPACA? In Parts III through V, I address three constitutional problems with the constitutionality of this tax — the Apportionment, Uniformity, and Origination Clauses, respectively. I conclude that, even if recharacterized as a tax, the requirement to buy a health insurance policy is unconstitutional.

Harvard Law School Offers First Free Online Course

National Law Journal:  Harvard Law Offering First Free Online Course:

How does a free law class taught by Harvard faculty sound?

Harvard Law School is accepting applications for its first online course via edX—a new online education venture between six leading universities. The 12-week copyright course begins on January 28 and will be open to 500 students. Applications for a spot in the free class, taught by William Fisher III, director of Harvard University's Berkman Center for Internet & Society, must be received by January 3.

The course is not a MOOC, or massive open online course, in which hundreds or thousands of students complete an online course largely on their own. Instead, the edX copyright course is intended to mimic a traditional Harvard law class. Students will be broken into smaller sections of no more than 25, and a former or current student of Fisher's will facilitate discussions among section members in real time. Students will also take a three-hour test, just as regular Harvard law students do. ...

The group edX was founded six months ago as a nonprofit by Harvard and the Massachusetts Institute of Technology. It has since added the University of California, Berkeley; Georgetown University; Wellesley College; and the University of Texas as partners. Its goal is to develop an open-source online learning platform for online education. Thus far, all of the edX courses are free.

Will 'Fiscal Cliff' Cause More Millionaires to Die by Dec. 31?

CNBC:  Will 'Fiscal Cliff' Accelerate Millionaire Deaths?:

Because the "fiscal cliff" will not stop for death, it looks as if death's carriage may make a "kindly" stop to pick up some American millionaires this year, to paraphrase Emily Dickinson.

In 2010, after a year in which the estate tax was zeroed out altogether, Congress passed a law that set the estate tax at 35% and exempted all estates under $5 million, adjusted for inflation. That law expires in January 2013 when the exemption will fall to $1 million and the tax will rise to 55%.

Many families are faced with a stark proposition. If the life of an elderly wealthy family member extends into 2013, the tax bills will be substantially higher. An estate that could bequest $3 million this year will leave just $1.9 million after taxes next year. Shifting a death from January to December could produce $1.1 million in tax savings. 

It may seem incredible to contemplate pulling the plug on grandma to save tax dollars. While we know that investors will sell stocks to avoid rising capital gains taxes, accelerating the death of a loved one seems at least a bit morbid—perhaps even evil. Will people really make life and death decisions based on taxes? ...

There is good evidence that there is some "elasticity" in the timing of important decisions about life and death. ...

An earlier paper by Gans and Leigh looked into another natural experiment. In 1979, Australia abolished its federal inheritance taxes. Official records show that approximately 50 deaths were shifted from the week before the abolition to the week after....

This isn't just something peculiar to Australia. Economists Wojciech Kopczuk of Columbia University and Joel Slemrod of the University of Michigan studied how mortality rates in the United States were changed by falling estate taxes. They note that while the evidence of "death elasticity" is "not overwhelming," every $10,000 in available tax savings increases the chance of dying in the low-tax period by 1.6%. This is true both when taxes are falling, so that people are surviving longer to achieve the tax savings, and when they are rising, so that people are dying earlier, according to Kopczuk and Slemrod.

"Death elasticity" does not necessarily mean that greedy relatives are pulling the plug on the dying or forcing the sickly to extend their lives into a lower taxed period. According to a 2008 paper from University of Pittsburgh Medical Center Doctor G. Stuart Mendenhall, while tax increases give potential heirs large economic incentives to limit care that would prolong life, distressed patients may "voluntarily trade prolongation of their life past the end [a low tax period] for large financial implications for their kin. ...

We had something of a natural experiment in death and taxes in 2010, when the estate tax was eliminated for one year. Many predicted that this would result in many fewer deaths at the end of 2009 and a surge in deaths prior to taxes rising in 2011.

My own research hasn't uncovered any formal academic work on this period. Perhaps it is too recent. Or perhaps the setting of the exemption at $5 million made the sample size of those that could achieve significant tax savings by dying in 2010 rather than 2011 too small.

But based on past reactions to changes in taxes, it at least seems likely that some deaths that might otherwise have occurred shortly after January 1 will occur shortly before. Death may slip in ahead of the tax man for some with estates worth over $1 million.

The Top Ten Tax Cases of 2012

Forbes:  The Top Ten Tax Cases of 2012, by Anthony J. Nitti (WithumSmith & Brown, Aspen, CO):

#10:  Olive v. Commissioner, 139 T.C. 2 (2012):  The IRS Wages War on the Medicinal Marijuana Industry

#9:  Sophy v. Commissioner, 138 T.C. 8 (2012), and Bronstein v. Commissioner, 138 T.C. 21 (2012):  The Mortgage Interest Limitation Is More Complicated Than You Realize

#8:  Storey v. Commissioner, T.C. Memo 2012-115 (2012):  The Tax Court Strikes a Blow For the Documentary Filmmaking Industry

#7:  Rolfs v. Commissioner, 135 T.C. 24 (2012), and Patel v. Commissioner, 138. T.C. 23 (2012):  The IRS Would Like You to Stop Burning Your Houses Down Already

#6:  Mohamed v. Commissioner, 2012-152 (2012):  The Failure to Adequately Substantiate Your Charitable Contribution Deductions Can be Costly. Like $19 Million Costly

#5  Maguire v. Commissioner, T.C. Memo 2012-160: The Tax Court Allows S Corporation Shareholders to Fix Years of Sloppy Tax Planning

#4:  Watson v. Commissioner, 668 F.3d 1008 (8th Cir., 2012):  The Courts Offer a Guide to Determining an S Corporation Shareholder/Employee’s “Reasonable Compensation”

#3:  Kawahima v. Holder, 132 S.Ct. 1166 (2012):  Clarence Thomas Sends Two Japanese Citizens Packing for Filing a False Tax Return

#2:  Quality Stores 110 AFTR 2d 2012-5827 (6th Cir., 2012):  The Sixth Circuit Holds That Severance Pay Pursuant to an Involuntary Layoff Is Not Subject to FICA Employment Taxes

#1: National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (June 28, 2012):  Obamacare Is Constitutional Because the Individual Insurance Mandate Is Both a Penalty and a Tax. Wait...What?

Goldin: Reconsidering Substance Over Form in PPL

Jacob Goldin (Ph.D. Candidate (Economics), Princeton University), Reconsidering Substance Over Form in PPL, 137 Tax Notes 1229 (Dec. 17, 2012):

The controversy surrounding PPL v Commissioner has framed the issue as one of substance versus form, accepting that the tax in question is economically equivalent to a tax on income. However, the fact that the tax is levied on the basis of average profits rather than total profits causes it to differ from conventional income taxes in important ways.

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Territorial Taxation for Dummies

Jack Henneman (Integra, Plainsboro, NJ), Corporate Taxation for the Layman, and Why We Need a "Territorial" System:

There has been a great deal of discussion about adopting a "territorial" corporate tax system, much of it jaw-droppingly ignorant. It seemed to us that it would be much in order to explain corporate taxation for the layman interested in the policy debate.

First, a couple of warnings. The topic is infinitely complicated, so we will generalize in ways that will irritate tax and accounting professionals, and probably get too basic for most people who took business classes in college. We are, however, undeterred!

Deborah Jones Merritt: Should Law School Deans be Disbarred for Misleading Prospective Students?

Following up on yesterday's post, Subjecting Law School Officials to Professional Discipline for Deceitful Marketing to Prospective Students:  Deborah Jones Merritt (Ohio State), Deans Disbarred?:

That's a specter that Ben Trachtenberg raises in an important new piece that will appear in the Nebraska Law Review. Trachtenberg reviews the misleading practices that have tarnished legal education during the last few years -- from manufactured admissions statistics to deceptive employment data -- and asks whether any of this conduct violates the legal profession's Rules of Professional Conduct.

For the fraudulent acts committed by Paul Pless at the University of Illinois and Mark Sargent at Villanova, the answer almost certainly is "yes." ... Personally, I think it's embarrassing that no one has filed disciplinary complaints against Pless or Sargent. The new deans at Illinois and Villanova should have done so as soon as the wrongdoing was substantiated. This would have been an effective way to close out these incidents -- and to signal to the public that we take integrity seriously in the legal profession.

But let's move on. What about all of those other "lesser" acts of deception that law schools have practiced? Trachtenberg catalogues many of these: the rosy representations of high employment rates, the omissions of material data (such as the number of graduates reporting salaries, the number employed by their own school, or the number working part-time), the clever use of nested statistics, the understated debt, and the failure to explain significant details about scholarship awards. Do any of these acts violate the Rules of Professional Conduct?

Trachtenberg acknowledges, somewhat reluctantly, that courts would hesitate to discipline much of this behavior. ... Unethical behavior doesn't start with the big acts, it begins with the small ones. Once you abuse another person's trust, even in a small way, you set the stage for larger lies. And the abuses here weren't so small: Law schools made specific representations about salaries, scholarships, and other facts to encourage six-figure investments. The people making the representations were professionals with advanced degrees, who had inside knowledge of the legal industry. Most of the people receiving the representations were college students with relatively little knowledge of either law schools or law practice. ...

It's time to reclaim our integrity by acknowledging just how wrong all of this was -- and by moving even more aggressively to make our representations to prospective students as informative and helpful as possible. If you were a prospective student, what information would you want before investing three years of your life and $100,000 or more in law school? How would you want that information presented? These are the questions we have to answer as responsible professionals.

If you want to hear more about Ben's paper, and you'll be at next week's AALS conference, join us for our "Hot Topics" panel discussion on Saturday, January 5, from 8:30-10:15 a.m. Ben, Jeff Stake, Scott Norberg, Jerry Organ, and I will discuss "Transparency Revisited: New Data, New Directions." As Ben's paper suggests, this issue isn't over. Plus, you can stop by to compliment Ben on originating the title of this post: He used it for early drafts of his paper, before accepting a more academic, law-review-appropriate title.

Wall Street Journal, Professor: Law School Advertising Violates Legal Ethics:

Professor Trachtenberg argues ... that there is ”little doubt that dishonest law school marketing conducted by members of the bar justifies professional discipline.” He told Law Blog the paper was less a call to arms than “a warning for people who are in this business.” Professor Trachtenberg is weighing whether to approach bar counsel -- the lawyers who police their own in each state -- for advisory opinions on whether “common stuff that seems to happen at a lot of law schools” meets ethical standards, he said. "I think if bar counsel says ‘No,’ it could be a good wake up call,” he said.

Madoff: The Wealthy Should be Required to Report All Income

Washington Post op-ed:  Tax Fairness and the Wealthy, by Ray D. Madoff (Boston College):

A central question for leaders confronting our fiscal crisis is fairness in the tax system — in particular, whether the wealthiest Americans are paying their fair share. While there appears — or, at least, appeared — to be some agreement between President Obama and House Speaker John Boehner that taxes on the wealthy must go up, the amount of the increase remains undecided. Many argue that the wealthy are already paying a disproportionate share of taxes, a view that new data from the IRS appear to support. Missing from the conversation, however, is an appreciation of the way these data fail to accurately describe the true income of the wealthiest Americans. 

The IRS recently released its analysis of 2010 tax returns, which shows the allocation of taxes over different income groups. This information is both informative and misleading. According to these latest figures, in 2010 the top 1% of earners (those with adjusted gross incomes of at least $369,691) paid about 37% of all income taxes but reported just less than 19% of all income. Based on these data, the U.S. income tax system looks truly progressive. This lends credence to the view that the wealthy are paying even more than their fair share.

But statistics can be only as good as the information on which they are based, and here the data are fundamentally misleading. People pay income tax only on amounts that Congress counts as income. This excludes the sources of revenue most commonly enjoyed by the richest Americans: gifts, inheritances, distributions from trusts and proceeds of life insurance.

How much tax-free income do the wealthy enjoy each year? While we can all guess — and common sense tells us that the numbers are significant — we cannot know for sure. This income is not only tax-free, but there also is not even an obligation to report it. ...

It is time for Congress to shine a light on the types of income most enjoyed by the wealthy. Individuals should be required to report all sources of income, including gifts, inheritances, life insurance and distributions from trusts so that we can begin to assess the impact of these exclusions.

Everyone agrees that fairness matters when it comes to income taxes. But we cannot have an honest discussion about tax fairness when we are kept in the dark about how much income people actually receive. Only when full reporting is required can we have an accurate picture of people’s true income. Then we can begin to fashion a tax plan that is fair for all Americans.