Is Local Consumer Protection Law a Better Retributive Mechanism than the Tax System

As Judge Calabresi has argued, preemption decisions are, at their core, a choice about which tier of government should have policy-making authority. In prior work, Mark Seidenfeld and I argued that the choice of whether or not to preempt state law decisions should be based explicitly on fiscal federalism considerations. The economic discipline of fiscal federalism attempts to measure the welfare effects of situating a given policy either locally, nationally, or somewhere in between

Free Exercise Rights of Capital Jurors

The Supreme Court has said that the Constitution permits trial judges to exclude from the pool of potential capital trial jurors any persons whose views on the death penalty would likely substantially impair their ability to reach an impartial verdict. This Note argues that the Court\u27s analysis to date is incomplete, in that it omits close evaluation of potential conflicts between such exclusions and the Free Exercise Clause. The Note argues further that a court should apply strict scrutiny to any state action, such as exclusion for cause, that burdens the use of religious beliefs in the mental processes of jurors. The Note then weighs several possible government interests that might be offered to meet the test of heightened scrutiny, ultimately finding them each likely to fail. It concludes by suggesting a revised formulation of the present standard that provides more protection for the religious liberty of prospective jurors

Tax Fairness

This Article argues that, contrary to the consensus of economists and many legal scholars, the norm of horizontal equity in taxation has independent meaning as a default rule in favor of existing arrangements. Although it has long been said, and widely thought, that tax should be fair in its dealings with individuals who are situated similarly to one another, no one has been able to say convincingly just what that fairness comprises. As a result, the learned referees in the last major dispute over the significance of horizontal equity judged that fairness\u27s critic had decidedly won the day. Since then, there have been ever more critics, but no cogent, comprehensive defense. My defense is both theoretical and practical. First, I argue that horizontal equity is a special aspect of the revenue function in taxation. Because it enshrines the status quo before enactment of a new tax law, horizontal equity can be reconceived as a commitment by the authors of tax legislation to honor the past and future policy choices of others, with whom they are jointly engaged in a project of deliberative democracy. Alternately, horizontal equity may bejustfied by welfare gains from a shared agreement to leave certain controversial questions of distributive justice undecided during the revenue-raisingp rocess. Both oft hese rationalesl eave open-indeed,t hey clear the air for-arguments about the ultimate ends law, and tax law in particular, should serve in society

A Republic of the Mind: Cognitive Biases, Fiscal Federalism, and Section 164 of the Tax Code

In its efforts to guide money to the states, our federal government annually passes up more than $75 billion in potential revenue under a single provision of the Tax Code. That provision, section 164 of the Code, allows itemizing taxpayers to deduct the cost of the state and local income, property, and (to a limited extent) sales taxes they paid during the tax year. The eye-popping size of that number makes section 164 a perennial issue in tax policy circles, and as one of the deductions omitted from the Alternative Minimum Tax\u27s (AMT) parallel tax universe, the section is also a key component of debates about the AMT. Indeed, the President\u27s Advisory Panel on Tax Reform recommends eliminating the deduction to pay for its proposed AMT reform

Social Enterprise: Who Needs It?

State statutes authorizing firms to pursue mixtures of profitable and socially beneficial goals have proliferated in the past five years. In this invited response essay, I argue that for one large class of charitable goals, the so-called “social enterprise” firm is often privately wasteful. Although the hybrid form is a bit more sensible for firms that combine profit with simple, easily monitored social benefits, existing laws fail to protect stake-holders against opportunistic conversion of the firm to pure profit-seeking. Given these failings, I suggest that social enterprise’s legislative popularity can best be traced to a race to the bottom among states competing to siphon away federal tax dollars for local businesses. Not all hybrid forms inevitably are failures, however. For example, the convertible debt instruments proposed by Dana Brakman Reiser and Steven Dean— the inspiration for this response—offer a promising route forward for “cold glow” firms wishing to clean up some easily-measured but harmful business practices

Federal Fairness to State Taxpayers: Irrationality, Unfunded Mandates, and the SALT Deduction

By sheer dollars alone, the largest impact of the Alternative Minimum Tax is to deny many taxpayers the deduction for the taxes they paid to their state and local governments under § 164 of the Internal Revenue Code. This Article provides a fine-grained analysis of the overall fairness of the state-andlocal- tax deduction--and, by implication, the fairness of its partial repeal through the Alternative Minimum Tax. I offer for the first time a close examination of how newly understood limits on taxpayer mobility and rationality might affect individuals\u27 choices of bundles of local taxes and localgovernment services, which in turn informs our assessment of the \u27fairness of those exchanges. Many of these lessons can be generalized to consumer choices more generally. In addition, I track the reciprocal benefits and burdens that flow between the national government and local governmentsagain, although the influx or outgo of billions of dollars surely affects how the federal tax system should account for the outputs of local government, scholars have neglected that question. Finally, I note that § 164, and therefore the Alternative Minimum Tax, can have serious effects on federal-state relations, such that the debate over both provisions is in many ways a debate not only over fairness but also about federalism

Pay It Forward? Law and the Problem of Restricted-Spending Philanthropy

American foundations and other philanthropic giving entities hold about $1 trillion in investment assets, and that figure continues to grow every year. Even as urgent contemporary needs go unmet, philanthropic organizations spend only a tiny fraction of their wealth each year, mostly due to restrictive terms in contracts between donors and firms limiting the rate at which donations can be distributed. Law has played a critical role in underwriting and encouraging this buildup of philanthropic wealth. For instance, contributors can typically take a full tax deduction for the value of their contributions today, no matter when the foundation spends their money, and pay no tax on the investment earnings the organization reaps in the meantime. What, if anything, justifies public support for “restricted spending” charity? This Article offers the first comprehensive assessment of that question and supplies original empirical evidence on several key aspects of it. I argue that restricted spending sacrifices crucial information, leaves superior opportunities on the table, and on average transfers funds to times when they are less useful. While there is a place for large and long-lived philanthropic organizations in American society, that role does not require public support for restricted spending. As long as foundations can demonstrate their value to new donors, they will continue to thrive. I set out a series of policy recommendations aimed at better reconciling nonprofit law and the principles that justify it. I support my claims with new evidence drawn from a data set of over 200,000 firm-year observations of private foundations. For example, I find that foundations earn about twice as much money per year as in earlier studies funded by foundation-industry lobbyists and that they are growing three times faster than those earlier studies suggested. This finding implies that the law could require a much higher annual “payout” from foundations. I also find that new laws introduced in about a dozen states since 2006 have significantly slowed foundation spending in the enacting states. Last, I offer simulations of several policy proposals for making foundations more effective at fighting recessions

Getting Spending: How to Replace Clear Statement Rules with Clear Thinking about Conditional Grants of Federal Funds

How much federalism is too much? The answer, of course, depends on whom you ask. It is no surprise, then, that in both judicial and academic debates about the proper balance between national and local power, the fiercest arguments have been fought not over how much? (perhaps an impossible question in any event) but who? Thus, for each key aspect of national power-for example, the scope of the Commerce and Treaty powers, the Tenth and Fourteenth Amendments, and Congress\u27s ability to subject states to suits for damages by private individuals -- there is an accompanying literature considering who best to decide where the federalism shadow falls. In recent years the Supreme Court has asserted a strong role for itself in nearly all of these areas. A notable exception is the Spending Clause. Although the Court has penciled in a rough set of judicially-enforceable limits on Congress\u27s power to spend funds for the general welfare, as a practical matter these guidelines have been purely hortatory. The Court has been content to leave to ordinary politics the balance between national conceptions of general welfare and state autonomy

Hidden Taxes

The idea of hidden taxes is as old as John Stuart Mill, but convincing evidence of their existence is new. In this Article, I survey and critique recent studies that claim to show that there are some taxes that can go unnoticed by those who pay them. I also develop the array of unanswered theoretical questions and policy implications that potentially follow from the studies’ results. Probably the central question for hidden taxes is whether they might enable government to raise revenue without also distorting the economy. If so, I argue, they have the potential to radically refashion the architecture of redistributive government. But, as I also show, whether that is true turns on the cognitive mechanisms that might permit taxes to go unnoticed. For example, if hidden taxes are caused not by rational ignorance but by cognitive shortcomings, then it is likely that the burden of a hidden tax will be borne disproportionately by poorer taxpayers, and vice-versa. Thus, I attempt to integrate with the tax literature some recent developments in our understanding of bounded rationality in consumers more generally

Charities in Politics: A Reappraisal

Federal law significantly limits the political activities of charities, but no one really knows why. In the wake of Citizens United, the absence of any strong normative grounding for the limits may leave the rules vulnerable to constitutional challenge. This Article steps into that breach, offering a set of policy reasons to separate politics from charity. I also sketch ways in which my more-precise exposition of the rationale for the limits helps guide interpretation of the complex legal rules implementing them. Any defense of the political limits begins with significant challenges because of a long tradition of scholarly criticism of them. Critics of the limits suggest that the “market failures” that justify tax subsidies for charity also afflict group efforts to monitor politicians and organize politically, so that the subsidy should extend to cover those activities. These claims, though, overlook a series of additional issues suggested by transaction cost economics and other aspects of economic theory. Most significantly, even if lobbying and electioneering should be subsidized, it does not follow that these functions should be carried out by charities. I argue that combining politics with charity produces a set of diseconomies of scope, including higher agency costs, diminished “warm glow” from giving, and greater inframarginality of deduction recipients. In addition, I argue that the economically ideal tools for reaching the socially optimal levels of charity and lobbying are incompatible with one another. While there are also off-setting gains from the combination, many of these gains further exacerbate the diseconomies