New Blog Post: Francine Lipman, I’ve Got ITINs on My Mind, The Surley Subgroup, Sept. 24, 2016.
New Blog Post: Francine Lipman, I’ve Got ITINs on My Mind, The Surley Subgroup, Sept. 24, 2016.
Blog Post: Francine J. Lipman, “2015 Poverty Measures Released: Antipoverty Relief Delivered through the IRC = EITC & CTC,” The Surly Subgroup, Sept. 18, 2016.
New Article: Francine J. Lipman & James E. Williamson, Reconciling the Premium Tax Credit: Painful Complications for Lower and Middle-Income Taxpayers, 69 SMU L. Rev. __ (forthcoming 2016). Abstract below:
The Patient Protection and Affordable Care Act (ACA) makes available to certain middle and lower-income individuals a refundable tax credit, the Premium Tax Credit (PTC), designed to help them pay the premiums on their qualified health care plans. To achieve Congress’s goal of making health insurance affordable, the PTC is most often provided directly to an individual’s insurance provider each month in advance of actually claiming the PTC on the individual’s year-end annual tax return. Of the almost twelve million individuals who have enrolled in health insurance through the federal and state health exchanges in 2015, 85% of these individuals receive the advanced PTC (APTC). In the federal health exchange, the APTC averaged $268, covering 72% of the $374 average monthly premium, resulting in $105 net monthly payments per individual or $1,260 annually.
The amount of the APTC is based upon an estimate of an individual’s household income to be earned for that tax year in which she is entitled to claim the credit. However, the allowable PTC that any individual may receive is based upon the individual’s actual “household income” for that tax year. An individual’s household income is in turn dependent upon her “modified adjusted gross income” from the tax return upon which she is claiming the credit. Therefore, the amount of the PTC an individual is entitled to for any given year cannot be determined until the individual has completed her federal income tax return for that year. For example, the amount of an individual’s PTC for 2014, the first year the credit was available, is determined by the income as shown on an individual’s 2014 federal income tax return, which is not prepared until early 2015.
In most cases, the estimated APTC used to subsidize health insurance premiums during the tax year will differ from the actual PTC as finally determined when the individual files her annual income tax return. Through the end of October 2015, taxpayers filed 143 million 2014 income tax returns, including 3.5 million 2014 income tax returns of the 4.8 million expected tax returns with 2014 PTC. These tax returns reported $11.3 billion of the $15.5 billion 2014 APTC. If the actual PTC is less than the APTC, taxpayers will have to pay the difference when they file their tax return, which would increase the amount of tax owed or decrease the amount to be refunded. Approximately 51% of the 2014 returns, or 1.8 million returns filed, reported APTC in excess of the actual PTC by an average of $860 for the year. About 61% of these taxpayers still reported a refund. If the actual PTC is greater than the APTC, the difference will be refunded or applied against other taxes that the taxpayer might owe. Approximately, 40% of the 2014 returns filed, or 1.3 million returns, reported PTC in excess of any APTC by an average amount of $600.
While the PTC is a fully refundable tax credit and can be paid directly to insurance providers in advance, it can also be applied like more traditional income tax credits. Most tax credits are claimed on an individual’s year-end income tax return, serving as a reimbursement of expenses paid by the taxpayer months, or even more than a year, before the credit is received. Similarly, qualifying individuals have the option of paying their monthly health insurance premiums in full without any subsidy and waiting until they file their federal income tax return to claim any PTC. This approach is consistent with most other refundable and nonrefundable federal income tax credits including the child tax credit, dependent-care credit, adoption expense credit, lifetime learning credit, HOPE scholarship and American Opportunity tax credits, and earned income tax credit. If the taxpayer owes no other taxes, the government will refund the PTC in full. If the taxpayer owes other taxes, the PTC will offset any tax liability due, and the taxpayer will receive a refund of any balance in excess of the tax liability.
This Article will explain the details of the PTC focusing on the unusual and complicated reconciliation process for individuals receiving the APTC. Given the recent implementation of the PTC and the first reconciliation experience for taxpayers in 2015, there is a dearth of scholarship on this topic. Despite the enactment of the ACA in 2010, academics have neither presented nor analyzed the detailed complexity of this unusual prepaid refundable tax credit for middle and lower-income taxpayers. This Article will fill this void by describing the many details of PTC using a variety of examples to expose the significant complexities inherent in this critical health care subsidy. This deconstruction of the PTC and its requisite reconciliation will serve as a platform for subsequent scholarship that will serve to enhance the PTC to better achieve Congress’s goal of providing access to affordable health care for all Americans.
Call-for-Papers: “Human Rights And Tax In An Unequal World” — Full information here, deadline for proposals of July 1, 2016.
The NYU Center for Human Rights and Global Justice (CHRGJ) invites submissions of scholarly papers for a conference on human rights and tax, to be held at NYU School of Law on September 22-23, 2016. The conference aims to develop a deeper understanding of the ways in which tax policy is a centrally important form of human rights policy, and to consider how the international human rights framework can best be used to promote greater equality and justice through the global tax regime.
New Blog Post: Francine Lipman, Oklahoma Decreases Working Poor Family Benefits, Surley Subgroup Blog, May 29, 2106.
which includes a link to a report: Center on Budget and Policy Priorities, How Much Would a State Earned Income Tax Credit Cost in Fiscal Year 2017?, Jan. 2017.
New Article: Francine J. Lipman & James Owens, Irresponsibly Taxing Irresponsibility: The Individual Tax Penalty Under the Affordable Care Act, 23 Geo. J. Poverty L. Pol’y 423 (2016). Abstract below:
In recent decades, Congress has used the federal income tax system increasingly to administer and deliver social benefits. This transition is consistent with the evolution of the American welfare system into workfare over the last several decades. As more and more social welfare benefits are conditioned upon work, family composition, and means-tested by income levels, the income tax system where this data is already systematically aggregated, authenticated, and processed has become the go-to administrative agency.
Nevertheless, as the National Taxpayer Advocate Nina Olson has noted there are “substantial differences between benefits agencies and enforcement agencies in terms of culture, mindset, and the skills and training of their employees. As the Internal Revenue Service (the “IRS”) prepares to administer large portions of the health care legislation, it will have to shift from being an enforcement agency that primarily says, in effect, ‘you owe us’ to an agency that places much greater emphasis on hiring and training caseworkers to help eligible taxpayers receive benefits and work one-on-one with taxpayers to resolve legitimate disagreements.” Inherent in and integral to the Patient Protection and Affordable Care Act (the “Act”), the health care legislation signed into law by President Obama in 2010, is an individual mandate or a new individual tax penalty, that is, the Shared Responsibility Payment (the “SRP”).
This Article will fill an existing gap in tax scholarship regarding the SRP by providing comprehensive examples of how the SRP operates for taxpayers at various household income levels. Through these examples the authors expose an inherent problem in the design of the SRP that they remedy with a statutory amendment. Part II begins with a brief history of the Act before moving to a discussion of the IRS’ significant obligations under the Act. Part III uses a series of practical examples to detail and describe how the SRP operates. Part III also details (1) what type of health insurance coverage qualifies as “minimum essential coverage” and what coverage does not; (2) the myriad of exemptions from the SRP; and (3) the actual calculation of the SRP. This analysis demonstrates the significant penalty the tax imposes—especially on the lowest income households who are not exempt. These detailed examples evidence that the SRP is notably regressive.
Congress intended that the SRP be harsh so that most households would obtain qualifying health care coverage in lieu of paying the SRP. For those households that do not qualify for an exemption and do not obtain qualifying coverage, the penalty is as significant as intended. However, the design and structure of the SRP provides a much harsher penalty for lower-income individuals than higher-income individuals. Specifically, because of the inherent floor and ceiling in the complex design of the SRP, it disproportionately taxes lower-income families at a higher rate as compared to higher-income families. Part IV presents a reconstructed SRP that resolves this issue by eliminating the floor and ceiling. This remedy not only replaces the regressive structure with a modestly progressive structure, but also meaningfully simplifies the SRP. Part V concludes by reflecting on how the authors’ redesign of the SRP better achieves Congress’ goal of affordable comprehensive health care for all.
New Article: Edward J. McCaffery, Taxing Wealth Seriously, SSRN Feb. 2016. Abstract below:
The social and political problems of wealth inequality in America are severe and getting worse. A surprise is that the U.S. tax system, as is, is a significant cause of these problems, not a cure for them. The tax-law doctrines that allow those who already have financial wealth to live, luxuriously and tax-free, or to pass on their wealth tax-free to heirs, are simple. The applicable legal doctrines have been in place for nearly a century under the income tax, the primary social tool for addressing matters of economic inequality. The analytic pathways to reform are easy to see once the law is properly understood. Yet our political systems show no serious interest in taxing wealth seriously. We are letting capital off the hook, and ratcheting up taxes on labor, at precisely a time when deep-seated and long-running economic forces suggest that this is precisely the wrong thing to do. It is time — past time — for a change. This Article canvasses a century of tax policy in the United States to show that we have never been serious about taxing wealth seriously, and to lay out pathways towards reform.
This is perhaps of interest to schools without a tax clinic or to other organizations… Funding Opportunity: “IRS Accepting Applications for Part-Year Low Income Taxpayer Clinic Grants in Identified Underserved Areas Starting March 1“
New Brief Article: Francine J. Lipman, Pro Bono Matters in the City of (Fallen) Angels, ABA Tax Times, Feb. 2016.
New Article: Matthew Dimick, Should the Law Do Anything About Economic Inequality?, SSRN Jan. 2016. Abstract below:
What should be done about rising income and wealth inequality? Should the design and adoption of legal rules take into account their effects on the distribution of income and wealth? Or should the tax-and-transfer system be the exclusive means to address concerns about inequality? A widely-held view argues for the latter: only the tax system, and not the legal system, should be used to redistribute income. While this argument comes in a variety of normative arguments and has support across the political spectrum, there is also a well-known law-and-economics version. This argument, known as the “double-distortion” argument, is simply stated. Legal rules that redistribute income only add to the economic distortions that are already present in the tax system. It would therefore be better for everyone, and especially the poor, to instead adopt an efficient, nonredistributive legal rule, and increase redistribution through the tax system.
This Article challenges the double-distortion argument from a law-and-economics perspective. There are two main arguments, in addition to several other subsidiary points. First, in the abstract, there is no reason to believe that legal rules that have redistributive effects will always reduce efficiency; indeed, they can sometimes increase efficiency. Examples from the regulation of product markets, labor markets, and financial markets underscore this claim. In these cases, legal redistribution is more efficient than redistribution through the tax system. Second, legal rules are likely to be more attractive than taxation precisely in cases where inequality itself or normative concerns about inequality is high. Under the optimal tax policy, higher inequality or greater concern about inequality will justify larger tax distortions. Therefore, a particular legal rule is more likely to be more efficient than the optimal tax policy under these circumstances. The ultimate conclusion is that a mix of legal rules and taxation, rather than taxation exclusively, will be the best way to address economic inequality.