Mitchell Kane, Professor of Law, has co-authored an amicus brief in PPL Corp. v. Commissioner, Docket No. 12-43. Erin Scharff, Acting Assistant Professor of Tax Law, was the counsel of record on the brief. The U.S. Supreme Court will hear oral arguments in the case on February 20th. The issue presented is “Whether, in determining the creditability of a foreign tax, courts should employ a formalistic approach that looks solely at the form of the foreign tax statute and ignores how the tax actually operates, or should employ a substance-based approach that considers factors such as the practical operation and intended effect of the foreign tax.” A copy of the brief is available here.
Many decry the fact that policymakers are nowhere close to addressing the longterm fiscal shortfall and as evidence they point to the Congressional Budget Office’s projection of enormous long-term deficits under current policy. This report contends that the minimum deficit reduction incorporated in leading progressive and conservative budgets can put us on a path toward closing the long-term deficit. A significant gap would remain even if consensus were fully realized. However, this report describes a plausible path for further cutting the long-term deficit, as well as important revenue and spending backstops. Finally, it explains that while the country can and should try to reach a fiscally sustainable path, because of the uncertainty surrounding many of those reforms — especially the restructuring of the healthcare system — we cannot expect an immediate solution.
A complete list of the Tax Policy Colloquium presentations for the rest of the Spring 2013 semester is available here.
Daniel Shaviro, Wayne Perry Professor of Taxation, NYU School of Law, has published “1986-Style Tax Reform: A Good Idea Whose Time Has Passed”, Tax Notes (May 23, 2011). The article can be downloaded here. A brief abstract is below:
The Tax Reform Act of 1986 combined base broadening(such as the curtailment of tax expenditures)with a reduction in tax rates, in a manner designed to be revenue neutral and distribution neutral. It established an influential model for tax reform that continues to be cited frequently. This report argues, however,that while 1986-style tax reform was a good idea in its time, it is no longer appropriate for three main reasons.First, if tax expenditures are properly viewed as spending through the tax code, a revenue neutrality norm in which the budgetary gain from their repealostensibly needs to be offset by rate cuts is intellectually incoherent. Second, the long-term U.S. fiscal gap makes rate-cutting, in particular for individuals, potentiallyimprudent. Third, if one wants to address rising high-end income concentration in the UnitedStates since 1986, the option of raising, rather than reducing, the top marginal income tax rates may need to be squarely considered.
The debate over whether tax privacy—a set of statutory rules that prohibits the federal government from publicly releasing any taxpayer’s tax return—promotes individual tax compliance is as old as the income tax itself. It dates back to the Civil War and resurfaces often, especially when the government seeks innovative ways to collect tax revenue more effectively. For over 150 years, the tax privacy debate has followed predictable patterns. Throughout the long history of this debate, both sides have fixated on the question of how a taxpayer would comply with the tax system if he knew other taxpayers could see his personal tax return. Neither side, however, has addressed the converse question: how would seeing other taxpayers’ returns affect whether a taxpayer complies? This Article probes that unexplored question and, in doing so, offers a new defense of tax privacy: that tax privacy enables the government to manipulate taxpayers’ perceptions of its tax enforcement capabilities by publicizing specific examples of its tax enforcement strengths without exposing specific examples of its tax enforcement weaknesses. Because salient examples may implicate well-known cognitive biases, this “manipulation function” of tax privacy can cause taxpayers to develop an inflated perception of the government’s ability to detect tax offenses, punish their perpetrators and compel all but a few outliers to comply. Without the curtain of tax privacy, by contrast, taxpayers could see specific examples of the government’s tax enforcement weaknesses that would contradict this perception. After considering this new defense of tax privacy in the context of deterrence and reciprocity models of taxpayer behavior, I argue that the manipulation function of tax privacy likely encourages individuals to report their taxes properly and that it should be exploited to enhance voluntary compliance.
A complete list of the Tax Policy Colloquium presentations for the rest of the Spring 2011 semester is available here.
Willard B. Taylor, Sullivan & Cromwell, LLP, Adjunct Professor of Law, NYU School of Law, has published Blockers, Stoppers and the Entity Classification Rules,64 Tax Lawyer __ (2011).An excerpt from the Introduction is below
Tax lawyers often refer to “blockers” or “stoppers”—what are these? Generically, a blocker or stopper is an entity inserted in a structure to change the character of the underlying income or assets, or both, to address entity qualification issues, to change the method of reporting, or otherwise to get a result that would not be available without the use of more than one entity. One example, discussed further below, would be a case where a regulated investment company (RIC) organizes a foreign subsidiary to invest in commodities or otherwise makes investments that could not be made by the RIC directly without jeopardizing its qualification, and thus converts “bad” assets and income into assets (i.e., shares of the foreign subsidiary) and income (i.e., dividends, subpart F inclusions, and gains from sales of the shares) that are “good” for RIC qualification purposes. The structures vary in significance from, for example, changes in the taxable base to less consequential changes in the way the taxable base is reported. Some are innocent, in the sense of being blessed by the statute (such as the use of a taxable subsidiary of a real estate investment trust (REIT)), but others may require a leap of faith….
On Monday, February 14, Dan Shaviro, Wayne Perry Professor of Taxation, NYU School of Law, will participate in an event titled “Tax Cuts & The Impending Budget Crisis” at Yale Law School hosted by the American Constitution Society. A description of the event is below:
A discussion with Prof. Michael Graetz, Isidor and Seville Sulzbacher Professor of Law at Columbia Law School and author of 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the U.S., and Daniel Shaviro, Wayne Perry Professor of Taxation at NYU School of Law and author of Taxes, Spending, and the U.S. Government’s March Toward Bankruptcy.
On January 14, Deborah Schenk, Ronald and Marilynn Grossman Professor of Taxation, NYU School of Law, and Dan Shaviro, Wayne Perry Professor of Taxation, participated in a conference at Loyola Law School Los Angeles on tax expenditure reform. Professor Schenk participated in a panel titled The Salience of Tax Expenditures and Implications for Reform and Professor Shaviro participated in a panel titled Reforming the Tax Expenditure Budget Presentation. A video of the event is available here.
Charles I. Kingson, Adjunct Professor of Law, NYU School of Law, has published A Short Course on the Collapse of Meaning in Corporate Tax Law, 130 Tax Notes 83 (January 3, 2011). A brief abstract is below:
The report discusses how various corporate transactions are characterized as distributions to shareholders, transfers to third parties, or both. Distributions to shareholders in liquidation are governed at the corporate level by sections 336 and 337 and at the shareholder level by sections 331 and 332. Reorganization transfers are governed at the corporate level primarily by section 361 and at the shareholder level by section 354.
The report addresses the overlap and priority among those sections. Of course, characterizing a transaction depends on what happened for tax purposes. The report therefore examines step transactions, which determine ownership: who owned what, when, and why.
Lily Batchelder, Professor of Law and Public Policy (on leave), NYU School of Law, who is currently serving as Chief Tax Counsel of the US Senate Finance Committee, has posted a new paper: “The Mommy Track Divides: The Impact of Childbearing on Wages of Women of Differing Skill Levels” (with Elizabeth Wilde and David T. Ellwood). The paper is available here. A brief abstract is below:
This paper explores how the wage and career consequences of motherhood differ by skill and timing. Past work has often found smaller or even negligible effects from childbearing for high-skill women, but we find the opposite. Wage trajectories diverge sharply for high scoring women after, but not before, they have children, while there is little change for low-skill women. It appears that the lifetime costs of childbearing, especially early childbearing, are particularly high for skilled women. These differential costs of childbearing may account for the far greater tendency of high-skill women to delay or avoid childbearing altogether.
The paper was recently profiled on the New York Times Economix Bloghere and in The Atlantic here.
On December 2nd, the Graduate Tax Program hosted a discussion titled Innovation and Capital Gains Tax Policy. A description of the event and the participants is below:
Founders of a start-up are taxed at lower capital gains rates when they eventually sell the business. Taxing entrepreneurs at a low rate is often justified as a method of encouraging innovation. This discussion will consider whether tax policy, in fact, affects the rate of innovation and what would happen to entrepreneurship if current law were changed.
Daniel Shaviro, NYU School of Law, participated in a panel discussion titled “International Corporate Taxation: Are We Headed in the Right Direction?”. The slides from his talk are available here.
Joshua Blank, NYU School of Law, participated in a panel discussion titled “Psychology and Taxation.” He provided commentary on “On Tax Salience” by David Gamage (UC-Berkeley) and Darien Shanske (UC-Hastings).
Daniel Shaviro, Wayne Perry Professor of Taxation, NYU School of Law, has posted “Taxation and the Financial Sector”, co-authored with Douglas A. Shackelford (UNC) and Joel Slemrod (Michigan), which will be published in the December 2010 issue of the National Tax Journal, here. A brief abstract is below:
In the aftermath of the recent financial crisis, a variety of taxes on financial institutions have been proposed or enacted. The justifications for these taxes range from punishing those deemed to have caused or unduly profited from the crisis, to addressing the budgetary costs of the crisis, to better aligning banks’ and bank executives’ incentives in light of the broader social costs and benefits of their actions. Although there is a long-standing literature on corrective, or Pigouvian, taxation, most of it has been applied to environmental externalities, and the externalities that arise from the actions of financial institutions are structurally different. This paper reviews the justifications for special taxes on financial institutions, and addresses what kinds of taxes are most likely to achieve the various stated objectives, which often are in conflict. It then critically assesses the principal taxes that have been proposed or enacted to date: financial transactions taxes, bonus taxes, and taxes on firms in the financial sector based on size, bank liabilities, or excess profits.
On Monday, October 25, 2010, Deborah Schenk, Ronald and Marilynn Grossman Professor of Taxation, NYU School of Law, presented “Recent Developments in S Corporations” at the Northwest Tax Institute in Seattle, Washington.
On Monday, October 18th, Victor Fleischer (University of Colorado Law School), who is visiting NYU Law during the Fall 2010 semester presented a paper titled “Taxing Founders’ Stock” at the weekly NYU Law faculty workshop. A brief abstract is below:
Founders of a start-up usually take common stock as a large portion of their compensation for current and future labor efforts. Getting paid in founders’ stock allows entrepreneurs to defer paying tax and—more importantly—allows them to pay tax at the long-term capital gains rate. Politicians, entrepreneurs, and many academics claim that the favorable tax treatment of founders’ stock is an effective method of subsidizing entrepreneurship.
This Article questions the widely-held view that we should tax founders’ stock at a low rate. The economic efficiency case for a tax preference for founders’ stock is weak. Tax policy is an ineffective policy instrument for subsidizing entrepreneurship; tax has an effect on entrepreneurial entry, but the effect is small. Tax is less important than geographic, cultural, and business factors. And tax is less important than other elements of the legal infrastructure, such as immigration policy, employment law, and securities law.
The case for reform is compelling. Taxing founders at a low rate is a conspicuous loophole in the fabric of our progressive income tax system, uniquely undermining our commitment to equal opportunity and distributive justice. Founders’ stock is often bequeathed to heirs who receive a step up in basis, allowing founders to avoid the income tax altogether, leaving a legacy of dynastic wealth subject only to the rather dodgy application of the estate tax.
While it would be desirable to eliminate the tax subsidy and instead tax gains from founders’ stock as labor income, fixing the problem is not easy. I offer a range of possible solutions that policymakers might consider.
International tax policy experts often mistakenly conflate two distinct margins: (1) the overall tax burden on outbound investment, and (2) the marginal reimbursement rate (MRR) for foreign taxes paid, which is 100 percent under a foreign tax credit system, but equals the marginal tax rate for foreign source income under an explicit or implicit deductibility system (such as exemption). From a unilateral national welfare standpoint, whatever the right answer at margin (1), deductibility is clearly optimal, and creditability dangerously over-generous, at margin (2).
Every spring, the federal government appears to deliver an abundance of announcements that describe criminal convictions and civil injunctions involving taxpayers who have been accused of committing tax fraud. Commentators have occasionally suggested that the government announces a large number of tax enforcement actions in close proximity to a critical date in the tax compliance landscape: April 15, “Tax Day.” Despite their provocative implications, these claims are speculative at best, as they lack any empirical support. This Article fills the empirical void by seeking to answer a straightforward question: when does the government publicize tax enforcement? To conduct our study, we analyzed all 782 press releases issued by the U.S. Department of Justice Tax Division during the seven-year period of 2003 through 2009 in which the agency announced a civil or criminal tax enforcement action against a specific taxpayer identified by name. Our principal finding is that, from 2003 through 2009, the government issued a disproportionately large number of tax enforcement press releases during the weeks immediately prior to Tax Day compared to the rest of the year and that this difference is highly statistically significant. A convincing explanation for this finding is that government officials deliberately use tax enforcement publicity to influence individual taxpayers’ perceptions and knowledge of audit probability, tax penalties and the government’s tax enforcement efficacy while taxpayers are preparing to file their annual individual tax returns.
On September 21, 2010, Daniel Shaviro, Wayne Perry Professor of Taxation, NYU School of Law, delivered the 15th annual David R. Tillinghast Lecture on International Taxation to a crowd of 300 students and practitioners.
On Tues., September 21st at 6:00 PM, Daniel Shaviro, Wayne Perry Professor of Taxation, will deliver the 15th Annual David R. Tillinghast Lecture on International Taxation.
Professor Shaviro’s lecture is titled “The Rising Tax-Electivity of U.S. Corporate Residence.” Professor Shaviro will deliver the lecture in Greenberg Lounge (1st floor of Vanderbilt Hall).
The Tillinghast lectures are presented through the cooperation of NYU School of Law and the New York law firm Baker & McKenzie to honor David R. Tillinghast , a partner in the firm and a leading international tax lawyer. To register to attend the event, please click here .
This paper analyzes the ways in which taxation can distort prices in greenhouse gas emissions permit markets that encompass multiple periods and multiple jurisdictions. The paper first distinguishes between two broad ways in which the tax system intersects with permit markets. The first relates to the optimal provision of public goods and encompasses the set of questions typically dealt with under the analysis of a potential “double dividend” from environmental taxes. The second relates to abatement efficiency and involves the removal of tax induced distortions to otherwise efficient incentives for firms to abate emissions at least cost. The paper then describes two ways in which a tax system can seek to address abatement efficiency. The tax system can attempt to equalize tax treatment of actual abatement across firms and the tax treatment of permits across firms (inter-firm neutrality). Or, the system can attempt to equalize the tax treatment of actual abatement and permits within each firm (intra-firm neutrality). The paper describes the requisite conditions for these two neutrality approaches and the predicted effects on permit prices. It also demonstrates that in a multi-period regime one can expect to observe both premia to banking permits (the typical lock-in problem described in the literature) as well as penalties to banking permits. Moreover, only the norm of inter-firm neutrality can adequately address both banking premia and banking penalties. The paper also shows that the preferred approach to neutrality is likely to evolve with the geographic expansion of the market. Inter-firm neutrality is the preferred approach in a national market because of its superior ability to deal with inter-temporal distortions; intra-firm neutrality is the preferred approach in the multi-jurisdictional context because of the relative ease of coordinating tax treatment within firms as opposed to across firms. Finally, the paper applies the relevant neutrality norms to two crucial tax policy questions that arise under permit markets: the appropriate treatment of permits allocated gratis and the appropriate sourcing of abatement and permit costs.
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