Category Archives: Taxation

New Article: “Irresponsibly Taxing Irresponsibility: The Individual Tax Penalty Under the Affordable Care Act”

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: “Taxing Wealth Seriously”

DSC_0468New 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.

Funding Opportunity: “IRS Accepting Applications for Part-Year Low Income Taxpayer Clinic Grants in Identified Underserved Areas Starting March 1”

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: “Pro Bono Matters in the City of (Fallen) Angels”

New Brief Article: Francine J. Lipman, Pro Bono Matters in the City of (Fallen) Angels, ABA Tax Times, Feb. 2016.

New Article: “Should the Law Do Anything About Economic Inequality?”

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.

New Article: “Rethinking The Sales Tax Food Exclusion With SNAP Benefits”

New Article: Anna Johnson & Steven M. Sheffrin, Rethinking The Sales Tax Food Exclusion With SNAP Benefits, 79 State Tax Notes 149 (Jan. 11, 2016).  Abstract below:

Most states either totally or partially exclude food at home from the general sales tax. This exclusion generates a debate between tax policy analysts with their emphasis on broad base, low-rate tax systems against the advocates for the poor who argue that the exemption for food is necessary on distributional grounds. States that do tax food at home are often singled out as having particularly regressive and punitive tax systems. What is missing from this debate is a serious discussion of the consequences of non-taxability of benefits under the Supplemental Nutritional Assistance Program (food stamps). We present evidence that the SNAP program effectively reaches the vast majority of the poor thus making the taxability of food at home much less important for individuals in lower income tiers.

-Thanks to http://taxprof.typepad.com/ for the heads up!

 News Coverage: For the Wealthiest, a Private Tax System That Saves Them Billions – The New York Times

News Coverage: For the Wealthiest, a Private Tax System That Saves Them Billions – The New York Times

New Article: “The Real Marriage Penalty: How Welfare Law Discourages Marriage Despite Public Policy Statements to the Contrary – and What Can Be Done About it”

DSC_0022New Article: Spencer Rand, The Real Marriage Penalty: How Welfare Law Discourages Marriage Despite Public Policy Statements to the Contrary – and What Can Be Done About it, 18 UDC/DCSL L Rev.  93 (2015).  Abstract below:

On marriage, people lose welfare benefits abruptly. It is devastating to them, diminishing and in some cases overwhelming any economic benefits of marriage. It makes marriage unattainable and a status for the rich alone. It is also a surprising and unintended outcome of policymakers, who since at least Reconstruction and with much fanfare in the 1996 welfare reform touted marriage for the poor as a self-help measure and poverty cure. It is these same government policy makers, however, who make marriage impossible. Low-income people tend to marry each other. Both incomes need to be brought into the home to raise people out of poverty. When people lose welfare on marrying, the family’s combined income is often lower than if they had stayed separated or chose to live together without marrying. They cannot survive. Unable to marry, they are statistically less likely to remain together as long. They lose out on statistically more long-term relationships, long-term spousal government and employee benefits, and legal protections on the dissolution of their relationships from divorce and estate laws.

This article situates marriage promotion laws among poverty programs in the United States and looks at some of the policy reasons people have argued for the marriage as a poverty cure, such as economic, legal, and social gains, and policy reasons against marriage promotion programs, including those who think such policies are racist and disrespectful. Suggesting that marriage promotion may or may not be wrong but that marriage may be helpful to the poor whether encouraging it is appropriate, it catalogues some of the welfare programs that are much harder for married people to obtain. These include many public assistance programs, like SSI and TANF. It also includes some social insurance programs, like some Social Security and Medicare. It describes how many people are financially better off at least in the short-term by living with their partner outside of wedlock, perhaps forfeiting long-term benefits. Most commonly, the penalties stem from deeming income of spouses to each other right away and from expecting a spouse with relatively limited resources to spend those before either spouse gets help, depleting the resources that keep people out of poverty. The paper suggest delaying attributing income and resources to spouses until the family can develop the pragmatic benefits of marriage, raising the amount of income or resources married couples can have before being penalized, and creating tax credits to make marriage economically beneficial.

New Article: “Corrective Progressivity”

New Article: Eric A. Kades, Corrective Progressivity, SSRN 2015.  Abstract below:

In these times of widening inequality, regressive taxation is about the last thing needed in the United States. Yet that is exactly what we observe in every single state: overall state tax regimes (various combinations of income, property, and sales taxes) impose their highest rates on the poor and lower and lower rates as income increases. This article describes Corrective Progressivity (CP), a federal income tax mechanism to undo all of this variegated regressive state taxation in one fell swoop. Under CP, federal income tax rates vary from state to state — in each state the federal income tax varies inversely with that state’s overall state tax rates so that the total (state federal) tax burden achieves a target level of progressivity. CP would make tax burdens in the states with the most regressive tax systems much more equitable, raising average tax rates by as much as 20% on top incomes and lowering them (into the negative/subsidy range) by a similar amount at the bottom of the income distribution. Although having federal income tax rates vary from state to state sounds like the epitome of a violation of the Constitution’s Uniformity Clause, CP passes muster both as matter of the doctrine of that clause and its underlying policy purpose.

New Article: “Reducing Inequality with a Retrospective Tax on Capital”

New Article: James Kwak, Reducing Inequality with a Retrospective Tax on Capital, Cornell J. L. & Pub. Pol’y forthcoming, SSRN May 2015.  Abstract below:

Inequality in the developed world is high and growing: in the United States, 1% of the population now owns more than 40% of all wealth. In Capital in the Twenty-First Century, the economist Thomas Piketty argues that inequality is only likely to increase: invested capital tends to grow faster than the economy as a whole, causing wealth to concentrate in a small number of hands and eventually producing a society dominated by inherited fortunes. The solution he proposes, an annual wealth tax, has been reflexively dismissed even by supporters of his overall thesis, and presents a number of practical difficulties. However, a retrospective capital tax — which imposes a tax on the sale of an asset based on its (imputed) historical values — can reduce the rate of return on investments and thereby slow down the growth of wealth inequality. A retrospective capital tax mitigates or avoids the administrative and constitutional problems with a simple annual wealth tax and can reduce the rate of return on capital more effectively than a traditional income tax. This Article proposes a revenue-neutral implementation of a retrospective capital tax in the United States that would apply to only 5% of the population and replace most existing taxes on capital, including the estate tax and the corporate income tax. Despite conventional wisdom, there are reasons to believe that such a tax could be politically feasible even in the United States today.