OBTAINING LOWER AND UPPER BOUNDS ON THE VALUE OF SEASONAL CLIMATE FORECASTS AS A FUNCTION OF RISK PREFERENCES

A methodological approach to obtain bounds on the value of information based on an inexact representation of the decision makerÂ’s utility function is presented. Stochastic dominance procedures are used to derive the bounds. These bounds provide more information than the single point estimates associated with traditional decision analysis approach to valuing information, in that classes of utility functions can be considered instead of one specific utility function. Empirical results for valuing seasonal climate forecasts illustrate that the type of management strategy given by the decision makerÂ’s prior knowledge interacts with the decision makerÂ’s risk preferences to determine the bounds.Risk and Uncertainty,

Should Personal Injury Damage Awards Be Taxed?

The exclusion of personal injury damage awards from gross income is inconsistent with established principles of taxation. Section 104(a)(2) of the Internal Revenue Code excludes from gross income “the amount of any damages received . . . on account of personal injury or sickness.” While the existence of Section 104(a)(2) traditionally has been justified as a humanitarian gesture, more logical explanations have been offered. Damage awards cannot accurately be characterized as a return of capital. Nor does the involuntary nature of the transaction justify the exclusion. While so-called imputed income is not taxed, the reasons supporting its non-taxability do not extend to damage awards representing a cash substitute for such income. Excluding damage awards avoids certain administrative problems that may otherwise arise, but those problems could be resolved by less drastic means. These justifications for the exclusion cannot be rationalized as a logical application of tax theory. To the extent that such a justification is lacking, the exclusion should be evaluated as a tax subsidy. Although Congress did not originally intend the exclusion to be a subsidy, it functions as such in the context of modern tax law. The exclusion provided by Section 104(a)(2) compensates tort victims by allowing receipts that logically should be included in gross income to escape taxation. While an expenditure of government funds for the benefit of innocent tort victims has emotional appeal, a closer inspection of the ramifications of the subsidy reveals that it is not a wise investment of public resources. The subsidy is not fairly allocated and the government subsidization of injuries is contrary to sound tort policy. If damage awards were taxed, the policy goals of the tort system would be advanced rather than frustrated, since defendants would not be under-penalized and plaintiffs would not be overcompensated

Back to the Future: Marriage and Divorce under the 2017 Tax Act

The Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act) significantly altered the federal tax consequences of marriage and divorce by mostly eliminating the so-called marriage penalty from the individual income tax rates and abolishing the deduction for alimony payments. These changes represent the latest congressional tinkering with issues that have persisted since the earliest days of the modem income tax, turning back the clock with regard to taxation for both married and divorced couples. For the first time, since the enactment of the Tax Reform Act of 1969, the rate brackets for married taxpayers filing joint returns are twice as wide as the brackets applicable to unmarried taxpayers. For the first time since 1942, alimony payments are not deductible by the payor and not includable in the recipient\u27s gross income. The significance of these changes can best be appreciated by examining their historical context, and this article will undertake that examination

Cadillacs, Gold Watches, and the Tax Reform Act of 1986: The Continuing Evolution of the Tax Treatment of Gifts to Employees

To eliminate uncertainty for taxpayers and inconsistency from the courts, Congress passed the Tax Reform Act of 1986, which is applicable to “gifts” from employers to employees. Congress added three Internal Revenue Code provisions applicable to such gifts. First, Section 102 sets forth a general rule that property transferred by an employer to an employee shall not be excluded from the employee’s gross income as a gift. Second, Section 74 potentially excludes certain retirement awards. Third, Section 274 limits an employer’s deductions for such retirement awards. These three provisions should mark the end of many years of uncertainty for taxpayers and inconsistency on the part of the courts, Congress, and the Commissioner. At the same time, the new provisions, like any new legislation, give rise to new uncertainties. Historically, uncertainty and inconsistency have characterized the tax treatment of gifts to employees. Courts, Congress, and the Internal Revenue Service have all contributed to the confusion over whether an employee may exclude from gross income the value of a gift from his employer, and whether the employer may deduct the cost of such a gift as a business expense. Even with the guidance provided in Commissioner v. Duberstein, holding that an excludible gift must proceed from “detached and disinterested generosity,” courts continued to reach widely varying results in seemingly similar fact patterns. Shortly after Duberstein was decided, Congress enacted a dollar limitation on the deductibility of gifts as a business expense. This implied that a gift might be both deductible by the donor and excludable by the doneee. Next, Congress adopted a blanket rule that transfers to employees are not excludable from the employee’s gross income as gifts, which finalized the Tax Reform Act of 1986 and resolved much of the uncertainty that previously existed

Baseball\u27s Conflict of Law

There is a conflict of laws in Major League Baseball, resulting from the National League’s refusal to adopt the Designated Hitter Rule, and the American League’s refusal to abandon it. As is often the case when rules of two jurisdictions diverge, the conflict reflects a difference in priorities and philosophies between the two leagues. By adopting and maintaining the Designated Hitter Rule, the American League demonstrates its preference for offensive output at the expense of baseball tradition. The National League preserves tradition by adhering to the natural law of baseball

1969: The Birth of Tax Reform

This narrative poem framed from Robert Penn Warren’s epic poem, “Brother to Dragons,” transforms Warren’s poem into a satirical take on tax reform covering the origins, implementation, effectiveness, and future of American tax reform legislation. The poem begins by highlighting economic, political, social, and pop culture events from the American 1960s. The author discusses the emergence of and reasons for tax reform detailing the policy behind reform along with the positive and negative aspects of the original Tax Reform Act of 1969. The first reform attempted to curtail tax shelters by limiting risk write-offs, but exceptions in the reformation allowed tax shelters to continue to benefit the rich. The author suggests tax reform is merely a political tool for legislators to increase campaign funds by preventing the elimination of favorable tax provisions. The Revenue Act of 1978 also proved ineffective in eliminating tax shelter abuse. Then came the biggest reform up to date. The Tax Reform Act of 1986 effectively shut down tax shelters by adding legislation, which states losses from “passive activities” may be deducted only against income from similar sources. However, the reform still fails to eliminate tax benefits for the rich. The author then lapses into a narrative in an attempt to understand if true reform is possible. The author gives no answer, but insinuates reform is now on the conscience of Americans and the task is real: find reform

The Infield Fly Rule and the Internal Revenue Code: An Even Further Aside

Baseball’s infield fly rule and certain provisions of the Internal Revenue Code are similar. The purpose of the infield fly rule is to prevent the defense from making a double play by subterfuge, at a time when the offense is helpless to prevent it. In baseball, as in life, fairness is an elusive concept that defies precise definition. Considering the infield fly rule, the “unfairness” derives from the infielder’s ability to manipulate a situation without incurring any risk. Federal tax law, like the rules of baseball, recognizes and responds to the “manipulation without risk” phenomenon. Section 267 of the Internal Revenue Code requires a determination either that the sale between related parties is an unfair bargain or that the seller has retained an indirect interest in the property. There are differences between the rules of baseball and certain provisions of the Internal Revenue Code. The concept of judicial review, allowing time for fact-finding, is a difference between the the two. In baseball, the umpire is the ultimate fact-finder. By analogy, Section 267 allows for a Commissioner to review the transaction, with due time, to make a determination of fairness. Life and baseball are not identical, but simply imitate each other. The existence of functionally similar manipulation-without-risk rules in baseball and federal taxation indicates that similarities do exist

Should Personal Injury Damage Awards Be Taxed?

The exclusion of personal injury damage awards from gross income is inconsistent with established principles of taxation. Section 104(a)(2) of the Internal Revenue Code excludes from gross income “the amount of any damages received . . . on account of personal injury or sickness.” While the existence of Section 104(a)(2) traditionally has been justified as a humanitarian gesture, more logical explanations have been offered. Damage awards cannot accurately be characterized as a return of capital. Nor does the involuntary nature of the transaction justify the exclusion. While so-called imputed income is not taxed, the reasons supporting its non-taxability do not extend to damage awards representing a cash substitute for such income. Excluding damage awards avoids certain administrative problems that may otherwise arise, but those problems could be resolved by less drastic means. These justifications for the exclusion cannot be rationalized as a logical application of tax theory. To the extent that such a justification is lacking, the exclusion should be evaluated as a tax subsidy. Although Congress did not originally intend the exclusion to be a subsidy, it functions as such in the context of modern tax law. The exclusion provided by Section 104(a)(2) compensates tort victims by allowing receipts that logically should be included in gross income to escape taxation. While an expenditure of government funds for the benefit of innocent tort victims has emotional appeal, a closer inspection of the ramifications of the subsidy reveals that it is not a wise investment of public resources. The subsidy is not fairly allocated and the government subsidization of injuries is contrary to sound tort policy. If damage awards were taxed, the policy goals of the tort system would be advanced rather than frustrated, since defendants would not be under-penalized and plaintiffs would not be overcompensated

Mercury Concentrations in Streams of East Texas

Recent studies on potential mercury (Hg) contamination of fish from East Texas lakes and waterways have caused concern about mercury levels in East Texas waters. Historical records of Hg concentrations in 33 East Texas streams showed that median concentrations for each stream segment were no different than other U.S. streams. All the means and medians for stream segments having at least 20 recorded measurements were less than Texas (2.4 µg/L) water quality standards. Water samples collected in December 1995 and March 1996 from 6 different stream sites in Nacogdoches County had concentrations similar to historical records. Due to biological magnification, fish Hg levels can be 20,000 times greater than water Hg levels and levels are greater in large fish than in small fish. Although a recent study on sediment cores in 13 East Texas reservoirs and lakes suggested possible increases in mercury concentrations across the region, all Hg concentrations in water and sediment were far below Texas acute and chronic quality standards. No significant correlations were found between fish mercury concentrations and mercury concentrations in water or sediment. Potential agricultural inputs of Hg in East Texas are very low; the most likely source of Hg is atmospheric deposition from fossil fuel combustion and other industrial practices. The following may be considered to minimize potential health risks: 1) consume smaller fish from a variety of waterbodies, 2) increase consumption interval, 3) avoid eating skin and fatty tissues, and 4) limit consumption to quantities recommended by the Texas Health Department