The Taxation of Carried Interests in Private Equity

This essay analyzes the tax treatment of carried interests in private equity. It argues that there are two competing analogies: service income and investment income. Standard approaches are not able to resolve which of the competing analogies is better and often fail even to recognize that there are competing analogies. The best method for determining the proper treatment of carried interests is through direct examination of the effects of each of the possible treatments, known as the theory of line drawing in the tax law. From this approach, it is clear that the better treatment of holders of carried interests is as investors. Key pieces of evidence include the longstanding policy premises behind partnership taxation and the complexity and avoidance problems with attempts to tax carried interests as service income

Tax Expenditures, Principal-Agent Problems, and Redundancy

This Article considers tax expenditures from two related perspectives. First, it analyzes how the incentives on Congress to use a tax expenditure change when principal-agent problems are considered. For example, it considers whether tax expenditures can reduce moral hazard or adverse selection problems created by delegations to expert agencies. Second, it considers the condition under which tax expenditures should be expected to be redundant with direct expenditures, as many are. The two perspectives—principal-agent problems and redundancy—are related because redundancy is often seen as a solution to the principal-agent problem. The Article concludes that both principal-agent concerns and redundancy might lead to an increase in the use of tax expenditures, although the circumstances in which we should expect this are relatively narrow. The Article then examines the example of the low-income housing tax credit, concluding that the credit should be replaced with a direct expenditure in the form of increased tenant vouchers

Toward a New Approach to Disability Law

This Article argues that a new approach to the laws governing disabilities is needed. Existing approaches, largely based on the social model of disabilities are unable to answer basic questions, such as the extent to which resources should be devoted to the disabled. The Article argues that basing disability policy directly on welfarist theories of distributive justice offers a better approach and begins the task of developing what such an approach would look like. Under a welfarist approach, policy toward the disabled depends on how a given disability affects the well-being of an individual. Under reasonable assumptions, redistribution toward individuals with disabilities is desirable, but the extent and form depends on a variety of factors. If disabilities are observable, adjustments to the income tax schedule should be preferred. If disabilities are not observable, commodity taxes or in-kind provision of certain goods (such as accommodations) may be desirable to solve screening problems. In this case, inefficient over supply of these goods is likely to be optimal. Finally, to the extent that needs of the disabled are public goods, supply of such goods may be desirable (even if disabilities are observable)

The Irreducible Complexity of Firm-Level Income Taxes: Theory and Doctrine in the Corporate Tax

This paper argues that firm-level income taxes have an irreducible core of complexity, stemming from the ability to hold and sell an asset in two ways: directly and through the stock of a subsidiary. Both methods of selling must be taxed but coordinating the tax at each level, stock and assets, leads to complexity and line drawing. There are two implications. First, much of the doctrinal rules found in the current corporate tax can be explained through this overarching framework. Second, reform proposals will not be able to eliminate the core of complexity. The Comprehensive Business Income Tax is used as an example: the paper argues that it will inevitably have much of complexity associated with the current corporate tax