Invisible Taxpayers

The paradigm tax dispute involves a taxpayer on one side and the government on the other. In that traditional dyad, only the taxpayer matters, even though the interrelatedness of taxpayers across the fiscal system means that the outcome of any one dispute often affects the interests of many other taxpayers. Yet everyone else is invisible to the legal system, without enforceable rights in the administrative or judicial structure. This article focuses attention on such invisible taxpayers and what justice for them would require. It proposes a theory of tax injury that is determined by “legal shares” and argues that conventional standing doctrine can accommodate broader taxpayer access if courts acknowledge the financial interrelatedness of taxpayers. Invisibility deprives taxpayers of both economic fairness (a traditional tax policy norm) and democratic fairness (a norm requiring tax institutions to treat people with equal respect and concern). This article explains how the Supreme Court has turned tax expenditures into invisible laws. It evaluates tax expenditures as tax law, challenging the standard scholarly approach that assumes tax expenditures should be not only economically, but also legally, equivalent to direct spending programs. Examination of invisible taxpayers and invisible laws reveals some troubling truths about the tax system. Invisibility has led to substantial injustice for real people. It has allowed unconstitutional taxation to proceed without challenge. And it has reduced the role of courts in taxation to a very narrow one, while simultaneously allowing unchecked discretion for both Congress and the Internal Revenue Service. This article explains (1) how standing doctrine denies redress to some taxpayers who suffer injustice, and (2) how tax expenditures make some harms immune from attack. It argues that both courts and administrative procedures could ameliorate these injustices

Invisible Taxpayers

The paradigm tax dispute involves a taxpayer on one side and the government on the other. In that traditional dyad, only the taxpayer matters, even though the interrelatedness of taxpayers across the fiscal system means that the outcome of any one dispute often affects the interests of many other taxpayers. Yet everyone else is invisible to the legal system, without enforceable rights in the administrative or judicial structure. This article focuses attention on such invisible taxpayers and what justice for them would require. It proposes a theory of tax injury that is determined by “legal shares” and argues that conventional standing doctrine can accommodate broader taxpayer access if courts acknowledge the financial interrelatedness of taxpayers. Invisibility deprives taxpayers of both economic fairness (a traditional tax policy norm) and democratic fairness (a norm requiring tax institutions to treat people with equal respect and concern). This article explains how the Supreme Court has turned tax expenditures into invisible laws. It evaluates tax expenditures as tax law, challenging the standard scholarly approach that assumes tax expenditures should be not only economically, but also legally, equivalent to direct spending programs. Examination of invisible taxpayers and invisible laws reveals some troubling truths about the tax system. Invisibility has led to substantial injustice for real people. It has allowed unconstitutional taxation to proceed without challenge. And it has reduced the role of courts in taxation to a very narrow one, while simultaneously allowing unchecked discretion for both Congress and the Internal Revenue Service. This article explains (1) how standing doctrine denies redress to some taxpayers who suffer injustice, and (2) how tax expenditures make some harms immune from attack. It argues that both courts and administrative procedures could ameliorate these injustices

Rhetoric and Reality in the Tax Law of Charity

This Article contrasts the rhetoric of public benefit connected to charity in the law with the reality of private control of charitable organizations. It argues that the tension between the rhetoric and reality have produced norms of entitlement that undermine taxation. It offers an approach to the role of charity under the law by defining the obligations of government in a just society, qualifying the economic framework dominant in the literature concerning charities, and identifying what private charity can achieve that governments cannot. This Article concludes by endorsing the charitable deduction in the tax law on terms consistent with this revised approach

The Social Meaning of the Tax Cuts and Jobs Act

This Essay exposes the moral messages implicit in the Tax Cuts and Jobs Act (TCJA). It argues that the legislation reflects values that were not openly debated or discussed in the legislative process, but are crucial to the distributional effects of the law. The TCJA reduces progressivity and increases deficits because it favors traditional families, prefers capital to labor income, treats people as detached from each other, makes charity the narrow concern of the rich, and privileges the acquisition of assets. Fairness in taxation depends on explicitly identifying social values that produce economic justice and purposely designing the law to achieve fairness

Theories of Distributive Justice and Limitations on Taxation: What Rawls Demands from Tax Systems Symposium - Rawls and the Law: Panel VI: Property, Taxation, and Distributive Justice

This Essay attempts to map out how such an inquiry would be conducted in light of Rawls. Rather than searching in theories of justice for required precepts of taxation, we might more fruitfully ask what constraints, if any, a particular theory of justice imposes on the tax system. Application of such an approach to Rawls\u27s theory of justice may explain his apparent preference for a flat consumptionbased tax. This preference is otherwise quite puzzling in light of much of what Rawls wrote about economic justice, and might lead us to expect him to endorse a progressive income tax. If Rawls\u27s discussion of economic justice is treated as offering limitations rather than mandates for taxation, then a variety of tax systems may be part of a just Rawlsian society, including a flat consumption-based tax. Extension of this approach to other political theories might produce a shorter list of acceptable taxes, depending on the extent to which the chosen theory is likely to constrain government action

Encouraging Corporate Charity

The tax law governing corporate philanthropy is stuck in an archaic notion of corporate charity that does not necessarily benefit either charities or corporate stakeholders. Four developments in the last few years provoked this reexamination of the Internal Revenue Code and its awkward dichotomy between business expenses and charitable contributions. They offer new reasons for replacing the charitable contribution deduction for corporations with a business expense deduction: (1) a statutory reduction in the rate of tax on dividends received by individual shareholders, (2) empirical evidence showing very low effective tax rates paid by corporations, (3) death of the preeminent model of corporate philanthropy - Berkshire Hathaway\u27s shareholder-designation program, and (4) adoption of final capitalization regulations that significantly weaken the capitalization requirement and no longer pose much of an obstacle to immediate deduction of corporate payments to charities. This seemingly small legal change offers many benefits in today\u27s climate: it would increase the coherence of a corporation\u27s tax treatment, help to minimize the agency costs in corporate philanthropy, and change the way that corporations define their charitable endeavors, encouraging greater overall corporate commitment to charitable and community needs, both within and outside their business operations

Don\u27t Give Up on Taxes

Professor Sugin discusses professor Edward D. Kleinbard\u27s latest book, We are Better Than This (2015, Oxford) about the fiscal system and the broader implications of progressive taxation as a policy goal

Sustaining Progressivity in the Budget Process: Commentary on Gale and Orszag\u27s an Economic Assessment of Tax Policy in the Bush Administration, 2001-2004

This Commentary proposes the adoption of pay-go procedural rules for tax lawmaking that favor tax cuts that decrease income inequality, in response to biases in distributional tables and distortions in the political process. It suggests that the failure to use present value analysis in the budget process has had unfortunate, unintended consequences, in particular, a congressional preference for a prepaid-type consumption tax. This Commentary argues that efforts to index the Alternative Minimum Tax (the AMT ) should not deflect attention from the AMT\u27s most fundamental distributional problem—its failure to treat dividends and capital gains as preference items. It suggests that there may be some institutional advantages in global sunsets of important tax legislation, even when the legislation is not intended to expire. Finally, this Commentary considers the intersection of budget processes and progressivity in the tax expenditure budget. It argues that the Bush administration\u27s recent changes in the treatment of the corporate tax and its incomplete analysis of comprehensive tax bases, undermine the usefulness of the tax expenditure budget, and have made tax expenditures suddenly appear more progressive, even though they are not

Improving Charity Governance with Advance Rulings

Governing charitable organizations isn’t getting any easier. Not only has the number of organizations grown, but their legal complexity has increased as well. Charities play a crucial role in the economic, social, and cultural structures of society, but they are privately governed organizations with legal structures that closely resemble businesses. The better charities are run, the more they can contribute to their public missions and overall social welfare. The state does not dictate “how to ‘do’ charity,” but state attorneys general (“AG”) are the primary overseers of charity behavior, responsible for enforcing the obligations of loyalty, care, and obedience that fiduciaries have under the laws of every state. The AG’s burden is great because very few other parties are allowed to bring suit to enforce these duties. This paper is primarily concerned with institutionalizing better nonprofit governance by helping fiduciaries understand their obligations in difficult cases. The advance ruling process it advocates aims to strengthen the private governance of charities by growing a body of law one real question at a time. Nevertheless, it is important to recognize that legal efforts to improve governance must continue along both a narrow path for individual charity problems and a wider one to better establish standards of behavior in the sector as a whole. There is a place in charity governance for best practices that are not law, and it is important to identify which issues are appropriate for attorney general enforcement as an application of law. General principles of good governance with the imprimatur of law can be made widely available either as legislation, regulation, or official state standards of best practices. These are worthwhile initiatives, but they are not my focus today