Fake News and the Tax Law

The public misunderstands many aspects of the tax system. For example, people frequently misunderstand how marginal tax rates work, misperceive their own average tax rates, and believe they benefit from tax deductions for which they are ineligible. Such confusion is understandable given the complexity of our tax laws. Unfortunately, research suggests these misconceptions shape voter preferences about tax policy which, in turn, impact the policies themselves. That people are easily confused by taxes is nothing new. With the rise of social media platforms, however, the speed at which misinformation campaigns can now move to shape public opinion is far faster. The past five years have seen a dramatic shift in the landscape of false information and scholars in a variety of disciplines, from law to psychology to journalism, have explored the increasing influence of fake news. Building on this burgeoning literature, this Article is the first to examine the incidence and impact of fake news on tax law. We analyze a unique dataset of tax stories flagged as “false” or “untrue” by reputable, third-party news sources. We use this dataset to explore common themes in fake tax news, as well as the ways tax laws’ complexity contributes to spreading false information. We then offer recommendations for how tax administrators and policymakers can combat these misinformation efforts. Specifically, we argue that insights from the literature on fake news can and should inform how administrators disseminate true tax information to the public. Further, understanding what types of tax laws are easily misunderstood or subject to manipulation should inform substantive tax policy design

Fake News and the Tax Law

The public misunderstands many aspects of the tax system. For example, people frequently misunderstand how marginal tax rates work, misperceive their own average tax rates, and believe they benefit from tax deductions for which they are ineligible. Such confusion is understandable given the complexity of our tax laws. Unfortunately, research suggests these misconceptions shape voter preferences about tax policy which, in turn, impact the policies themselves. That people are easily confused by taxes is nothing new. With the rise of social media platforms, however, the speed at which misinformation campaigns can now move to shape public opinion is far faster. The past five years have seen a dramatic shift in the landscape of false information and scholars in a variety of disciplines, from law to psychology to journalism, have explored the increasing influence of fake news. Building on this burgeoning literature, this Article is the first to examine the incidence and impact of fake news on tax law. We analyze a unique dataset of tax stories flagged as “false” or “untrue” by reputable, third-party news sources. We use this dataset to explore common themes in fake tax news, as well as the ways tax laws’ complexity contributes to spreading false information. We then offer recommendations for how tax administrators and policymakers can combat these misinformation efforts. Specifically, we argue that insights from the literature on fake news can and should inform how administrators disseminate true tax information to the public. Further, understanding what types of tax laws are easily misunderstood or subject to manipulation should inform substantive tax policy design

The Surprisingly Strong Case for Local Income Taxes in the Era of Increased Remote Work

Traditional theoretical literature on fiscal federalism urges cities to finance themselves with taxes on immobile sources. Thus, the literature sees real property taxes as the best source of local revenue; real property, after all, cannot be easily moved. This same literature eschews local income taxes because it is easy for a taxpayer to move, thus allowing exit from local income tax obligations. Practice here seems to follow theory: cities do not tend to levy income taxes. However, this general trend has caused scholars to overlook important exceptions. In fact, many cities impose income taxes and have for a long time. In this Article, we argue these exceptions are not a vestigial mistake. The persistence of local income taxes suggests that the traditional fiscal federalism view is too absolute. Rather, local income taxes can play a useful role in the municipal revenue toolkit, provided that such taxes are not too administratively burdensome and levied at a low rate that considers the city’s competitive position. In this Article, we provide an account of local income taxes in practice. Because the existence of these taxes has been obscured by the theoretical dismissal of local income taxation, this account itself is a contribution to the existing local finance literature. We then argue that the traditional skepticism of local income taxes should be tempered. Evidence from agglomeration economics suggests some limits on the traditional mobility story; agglomerations make exit difficult for many industries and professions. Moreover, to the extent these agglomerations enable a segment of the population to earn more, it can be both fair and efficient to raise money through local income taxes. We make this case for local income taxation well aware of increasing skepticism of local tax authority in an era of rising remote work. But the move to increased remote work does not doom local income taxes, either as a practical or legal matter. Remote work will not eliminate agglomerations so much as shift where they occur

States Should Quickly Reform Unemployment Insurance

COVID-19 is causing mass layoffs and related economic hardship, as well as budget crises for state and local governments. This article is part of Project SAFE (State Action in Fiscal Emergencies), an academic effort to help states weather the fiscal crisis by providing policy recommendations backed by research. This article will focus on how state governments should reform unemployment insurance (UI) eligibility and benefits and the taxes funding these programs

Brief of Interested Law Professors As \u3ci\u3eAmici Curiae\u3c/i\u3e Supporting Petitioner in \u3ci\u3eBrohl v. Direct Marketing Association\u3c/i\u3e

Amici curiae are 14 professors of law who have devoted much of their teaching and research to the area of state taxes and the role of state tax policy in our federal system. The names and affiliations (for identification purposes only) of amici are included in an addendum to this brief. The amici are concerned with the effect of this Court’s dormant Commerce Clause jurisprudence on the development of fair and efficient state tax systems. No decision of this Court has had more effect on state sales and use tax systems than Quill Corporation v. North Dakota. We believe the Tenth Circuit properly decided the case below. But if the Court decides to grant the Direct Marketing Association’s petition to review the issue of discrimination which it raises, we respectfully request that the Court also grant the conditional crosspetition filed by Executive Director Barbara J. Brohl of the Colorado Department of Revenue asking the Court to reconsider Quill. This brief sets forth the reasons for our support of that cross-petitio

Brief of Tax Law Professors as \u3ci\u3eAmici Curiae\u3c/i\u3e in Support of Petitioner in \u3ci\u3eLoudoun County, Virginia v. Dulles Duty Free, LLC\u3c/i\u3e

Amici are professors of tax law at universities across the United States. As scholars and teachers, they have considered the doctrinal roots and practical consequences of judicial limits on state and local taxation. Amici join this brief solely on their own behalf and not as representatives of their universities. A full list of amici appears in the Appendix to this brief

Green Fees: The Challenge of Pricing Externalities under State Law

Policymakers at the state and local level are increasingly interested in using market-based pricing mechanisms as regulatory tools. For example, at the state level, several states have recently considered state-level carbon pricing, while at the local level, municipal governments are increasingly turning to stormwater remediation fees to pay for the treatment of municipal runoff required by the Clean Water Act. These regulatory programs are inspired by the insight of English economist Arthur Pigou, who suggested governments could price social costs into market transactions by imposing a tax. Such policies, however, are frequently subject to state court litigation challenging them as unlawful taxes. State law restricts both state and local governments’ ability to enact taxes, but similar restrictions are often not in place to limit the enactment of regulatory actions or user fees. Unfortunately, state courts have struggled to appropriately classify these fees under existing state law doctrines. Such legal instability makes state and local governments less likely to adopt such policies, even when there are strong arguments for doing so. This Article takes a critical look at current state law governing the distinction between user fees and taxes. This Article then argues that Pigovian levies do not fit neatly into either legal category under the definitions in place in most states. As a result, this Article proposes reforms to state user fee definitions that would bring needed clarity to user fee doctrine. Specifically, this Article suggests state courts recognize separate categories of user fees. One such category, price-based regulatory tools, would allow governments to impose Pigovian charges as user fees so long as the charge was roughly commensurate with the externality costs or with the governments’ expenses in abating the externality. I. Introduction II. User Fees v. Taxes ... A. The Variety of User Fees ... B. Legal Differences between Taxes and User Fees ... 1. Political Process Restrictions ... 2. Restrictions on Local Taxing Authority ... 3. State Law Requirements of Tax Uniformity ... 4. Tax-Exemptions ... 5. Federal Law … C. The Doctrine Does Not Readily Distinguish Taxes from User Fees ... 1. Single-Factor Approaches ... 2. The Multi-Factor Approach ... 3. The California Approach ... 4. Federal Court Approaches III. Pigovian Taxes v. Pigovian User Fees ... A. Emissions Taxes ... 1. Emissions Taxes in Theory ... 2. Emissions Taxes in Practice ... 3. Emissions Taxes under State Law ... B. Stormwater Remediation Fees ... 1. Stormwater Remediation Fees in Theory and Practice ... 2. Stormwater Remediation Fees under State Law IV. A New Way Forward ... A. The Need for Reform ... B. The Proposal ... 1. Classic User Fees ... 2. Traditional Regulatory Fees ... 3. Price-Based Regulatory Tools ... C. Problems with the Proposal ... 1. Greater Revenue Authority Is Undesirable ... 2. Voter Preferences/Constitutional Interpretation … 3. Measuring Externality Costs V. Conclusio