Retroactivity Revisited

In three prior articles, I considered transitional problems of changes the tax law. My general analysis and its specific application to the adoption of a consumption tax were criticized last year in this journal by Avishai Shachar. By taking liabilities explicitly into account in considering tax transition rules, Shachar extended the fundamental principles generated by my theory of legal transitions. Shachar, however, misunderstood or mischaracterized much of my earlier work. In this comment, I respond briefly to Shachar\u27s criticisms. In Part I, I set out the context and conclusions of my general theory and suggest that Shachar agrees with its principal insights. In Part II, I show that, although Shachar correctly suggests that a comprehensive analysis of transitional rules must take liabilities into account, his central analytical premise – that [e]ach increase in the price of an asset has an equal and offsetting impact on the \u27burden\u27 of a liability – is surely wrong. I also demonstrate in that Part several difficulties with Shachar\u27s general approach to transitional problems. Finally, in Part I, I comment briefly on his specific recommendations for transition to a consumption tax

The 1982 Minimum Tax Amendment as a First Step in the Transition to a "Flat-Rate" Tax

The massive body of tax legislation enacted in the first two years of the Reagan Administration offers little guidance for predicting the future direction of United States tax policy. Dramatically different Congressional coalitions—each led by the President—passed by very narrow margins the nation's largest tax reduction (the Economic Recovery Tax Act of 1981) and then the next year enacted the largest peacetime tax increase (the Tax Equity and Fiscal Responsibility Act of 1982). In each case, short-term political and fiscal concerns dominated the debates. The 1981 legislation reduced taxes in an effort to stimulate economic activity and investment by according substantial tax relief to businesses and high income individuals; the 1982 legislation requires significant additional taxes from these same sources to reduce triple-digit deficits, a reduction also deemed necessary for economic recovery. Although the two Acts together provide for an overall reduction in business taxes and a phased-in decrease in marginal tax rates applicable to individuals, they impart the overwhelming impression that uncertainty, confusion, and inconsistency currently dominate the tax legislative process

The David R. Tillinghast Lecture: Taxing International Income: Inadequate Principles, Outdated Concepts, and Unsatisfactory Policies

It is a pleasure to be here today to deliver the first David R. Tillinghast Lecture of the 21st century, a lecture honoring a man who has done much to shape and stimulate our thinking about the international tax world of the 20th. Our nation\u27s system for taxing international income today is largely a creature of the period 1918-1928, a time when the income tax was itself in childhood. From the inception of the income tax (1913 for individuals, 1909 for corporations) until 1918, foreign taxes were deducted like any other business expense. In 1918, the foreign tax credit (FTC) was enacted. This unilateral decision by the United States to allow taxes paid abroad to reduce U.S. tax liability dollar for dollar – taken principally to redress the unfairness of double taxation of foreign source income – was extraordinarily generous to those nations where U.S. companies earned income. In contrast, Britain, also a large capital exporter, until the 1940\u27s credited only foreign taxes paid within the British Empire and limited its credit to a maximum of one-half the British taxes on the foreign income. In 1921, Congress limited the foreign tax credit to ensure that a taxpayer\u27s total foreign tax credits could not exceed the amount of U.S. tax liability on the taxpayer\u27s foreign source income. This limitation was enacted to prevent taxes from countries with higher rates from reducing U.S. tax liability on U.S. source income

Retroactivity Revisited

In three prior articles, I considered transitional problems of changes the tax law. My general analysis and its specific application to the adoption of a consumption tax were criticized last year in this journal by Avishai Shachar. By taking liabilities explicitly into account in considering tax transition rules, Shachar extended the fundamental principles generated by my theory of legal transitions. Shachar, however, misunderstood or mischaracterized much of my earlier work. In this comment, I respond briefly to Shachar\u27s criticisms. In Part I, I set out the context and conclusions of my general theory and suggest that Shachar agrees with its principal insights. In Part II, I show that, although Shachar correctly suggests that a comprehensive analysis of transitional rules must take liabilities into account, his central analytical premise—that [e]ach increase in the price of an asset has an equal and offsetting impact on the \u27burden\u27 of a liability —is surely wrong. I also demonstrate in that Part several difficulties with Shachar\u27s general approach to transitional problems. Finally, in Part III, I comment briefly on his specific recommendations for transition to a consumption tax

The Truth-in-Negotiations Act - An Examination of Defective Pricing in Government Contracts

Charges of excessive profitmaking on government contracts have issued from the Senate floor and the nation\u27s press and have provided the impetus for recent congressional investigations and proposals for remedial legislation. Profiteering by government contractors is a problem of potentially enormous dimensions since purchases by the federal government total more than seventy-seven billion dollars—over ten per cent of the gross national product. Because the greatest part of these purchases are made by the Department of Defense, congressional action aimed at minimizing excessive profits has focused upon Defense Department procurement activities under the Armed Services Procurement Act (ASPA)

The Truth About Tax Reform

The Tax Reform Act of 1986 has been widely heralded as the most important tax legislation since the income tax was converted to a tax on the masses during the Second World War. Since his favorite proposal for a constitutional amendment—the one calling for a balanced budget—was not adopted, the 1986 Tax Reform Act clearly will be the major domestic achievement of Ronald Reagan\u27s presidency. This law even produced the new Internal Revenue Code of 1986; no more Internal Revenue Code of 1954, as amended. It took until the very end of 1987 until we were forced to add that felicitous phrase as amended to the 1986 Code. The near term future of the income tax—and, perhaps, even its long-term destiny—will be shaped by the Tax Reform Act of 1986. It is, to be sure, significant legislation, some would even say unique, massive both in its scope and in its detail—at least a 9.1 if we had a Richter scale for this sort of thing. What seems most unique to me about this legislation, however, is the character of the commentary it has inspired, commentary marked by hyperbole. Hyperbole about the 1986 Act from the politicians and the press is, of course, unexceptional; hyperbole, after all, is their stock in trade. I am surprised, however, that nobody even asked President Reagan, Are you sure? when he described the 1986 Tax Act as \u27\u27the best anti-poverty measure, the best pro-family measure and the best job-creation measure ever to come out of the Congress of the United States. Wrong. Wrong. Wrong. Zero for three, Mr. President

Taxing International Income - Inadequate Principles, Outdated Concepts, and Unsatisfactory Policy

It is a pleasure to be here today to deliver the first David R. Tillinghast Lecture of the 21st century, a lecture honoring a man who has done much to shape and stimulate our thinking about the international tax world of the 20th. Our nation\u27s system for taxing international income today is largely a creature of the period 1918-1928, a time when the income tax was itself in childhood. From the inception of the income tax (1913 for individuals, 1909 for corporations) until 1918, foreign taxes were deducted like any other business expense. In 1918, the foreign tax credit (FTC) was enacted. This unilateral decision by the United States to allow taxes paid abroad to reduce U.S. tax liability dollar for dollar—taken principally to redress the unfairness of double taxation of foreign source income—was extraordinarily generous to those nations where U.S. companies earned income. In contrast, Britain, also a large capital exporter, until the 1940\u27s credited only foreign taxes paid within the British Empire and limited its credit to a maximum of one-half the British taxes on the foreign income