Suchergebnisse

This Article contends that the government should consider – rather than ignore – distributional consequences both in the design of legal rules and during legal transitions. This does not mean that the distributional effect of every legal rule should be measured and taken into account in the rule's design. But if the likely distributional effects are unintended, large, and objectionable, if the efficiency of the legal rule is doubtful, if the compensating tax-and-transfer adjustment is not forthcoming (or has not occurred), policymakers should take distribution into account. One way of doing so is to choose among several alternative legal rules of questionable efficiency the one with better distributional consequences. Another is to slow the pace of legal change in certain cases. This Article also does not suggest that every transitional loss should be reimbursed. But if losses are large and unforeseeable, if private risk-mitigation mechanisms are unavailable, the government should step in. Enacting a broad-based transitional assistance program for low-skill workers and replacing our complex, obscure, state-specific social safety net with a simpler, transparent, nationally uniform one would go a long way toward mitigating the losses discussed here.

This special Issue of the Columbia Journal of Tax Law is bound to have both an immediate impact and a lasting significance. The immediate impact is assured because the sole focus of this Issue is the tax plan proposed by the Congressional Republicans as part of their broad reform agenda called A Better Way: Our Vision For A Confident America. As this Issue goes to print, the Better Way Plan (or the Plan for short) is being debated in the White House, on Capitol Hill, in the press, in academic circles, think tanks, the U.S. Chamber of Commerce, and all major law and accounting firms, as well as in many other places. For anyone thinking through the implications of the Plan, this Issue is a must read. At the same time, the contributions in this Issue will provide a lasting benefit to the tax policy community. Even though the intellectual foundations of the tax system proposed in the Plan were laid decades ago, the core ideas underlying the Plan have never been considered, tested, and scrutinized nearly as rigorously and comprehensively as they are now. Simply put, the level of intellectual capital that is being invested in analyzing the Plan is extraordinary. This Issue combines some of the best applied work on the subject to date. So it will benefit academics, policymakers, and practitioners thinking about the tax systems similar to the one proposed in the Plan for decades to come. This Issue is a guide to the Plan based on what we know so far, and this Introduction is a guide to the Issue.

This special Issue of the Columbia Journal of Tax Law is bound to have both an immediate impact and a lasting significance. The immediate impact is assured because the sole focus of this Issue is the tax plan proposed by the Congressional Republicans as part of their broad reform agenda called A Better Way: Our Vision For A Confident America.[1] As this Issue goes to print, the Better Way Plan (or the Plan for short) is being debated in the White House, on Capitol Hill, in the press, in academic circles, think tanks, the U.S. Chamber of Commerce, and all major law and accounting firms, as well as in many other places. For anyone thinking through the implications of the Plan, this Issue is a must read. At the same time, the contributions in this Issue will provide a lasting benefit to the tax policy community. Even though the intellectual foundations of the tax system proposed in the Plan were laid decades ago, the core ideas underlying the Plan have never been considered, tested, and scrutinized nearly as rigorously and comprehensively as they are now. Simply put, the level of intellectual capital that is being invested in analyzing the Plan is extraordinary. This Issue combines some of the best applied work on the subject to date. So it will benefit academics, policymakers, and practitioners thinking about the tax systems similar to the one proposed in the Plan for decades to come. This Issue is a guide to the Plan based on what we know so far, and this Introduction is a guide to the Issue.

People pay their taxes for many different reasons. Some choose to game the system, paying only when the cost of noncompliance outweighs its benefits. Others comply out of habit, a sense of duty or reciprocity, a desire to avoid feelings of guilt or shame, and for many other reasons. Our tax enforcement system has ignored this variety of taxpaying motivations for decades. It continues to rely primarily on audits and penalties, at least where information reporting and withholding are impossible. Fines and audits deter those rationally playing the tax compliance game, but are wasteful or even counterproductive when applied to others. The shortcomings of the current one-size-fits-all approach to tax enforcement are well understood. They also appear to be insurmountable. This Article argues that it is possible to design a more tailored regime. The idea is to separate taxpayers based on their taxpaying motivations by creating two different enforcement regimes and inducing taxpayers to choose one when they file their annual returns. With this separation accomplished, the government can target enforcement by matching enforcement policies to taxpayer types. Those who choose to game the system will be deterred by higher penalties in one regime. Everyone else will be induced to comply by cooperative enforcement measures in the other. If successful, separation and targeted enforcement will improve tax compliance without raising its social cost, or keep the level of compliance unchanged while making tax administration more efficient.

People pay their taxes for many different reasons. Some choose to game the system, paying only when the cost of noncompliance outweighs its benefits. Others comply out of habit, a sense of duty or reciprocity, a desire to avoid feelings of guilt or shame, and for many other reasons. Our tax enforcement system has ignored this variety of taxpaying motivations for decades. It continues to rely primarily on audits and penalties, at least where information reporting and withholding are impossible. Fines and audits work well for those rationally playing the tax compliance game, but are wasteful or even counterproductive when applied to others. The shortcomings of the current one-size-fits-all approach to tax enforcement are well understood. They also appear to be insurmountable. This Article argues that it is possible to design a more tailored regime. The idea is to separate all taxpayers based on their taxpaying motivations by creating two different enforcement regimes and inducing taxpayers to choose one when they file their annual returns. Once the separation is accomplished, the government can target enforcement by matching enforcement policies to taxpayer types. Those who choose to game the system would be deterred by higher penalties in one regime. All others would be induced to comply by cooperative enforcement measures in the other. If successful, separation and targeted enforcement would improve tax compliance without raising its social cost, or keep the level of compliance unchanged while making tax administration more efficient.

Most human interactions take place in reliance on tacit understandings, customary practices, and other legally unenforceable agreements. A considerable literature studying these informal arrangements (commonly referred to as social norms) has a decidedly positive flavor, arguing that many, if not most, of these norms are welfare enhancing. This Article looks at the less-appreciated darker side of social norms. It combines an analysis of modern sophisticated tax planning techniques with existing empirical studies of commercial relationships to reveal a disturbing connection. By relying on tacit understandings rather than express contractual terms, many taxpayers shift some of their tax liabilities to those whose opportunity to take advantage of social norms is more limited or nonexistent. The resulting inefficiency and inequity is the social cost of social norms. Reducing this cost, however, turns out to be a challenging task. This Article introduces a tax-focused classification of social norms and singles out the type of norms that are particularly inefficient. Unfortunately, while reducing the use of these norms (or eliminating them altogether) would be welfare enhancing, it is unlikely to succeed in practice Indiscriminately attacking all norms is administratively easier, but socially costly. This Article proposes a compromise between these two courses of action that is more administrable than the first approach and less costly than the second. It also offers a guide that will assist the government in identifying particularly inefficient norms

Avoidance and evasion continue to frustrate the government's efforts to collect much-needed tax revenues. This Article articulates one of the reasons for this lack of success and proposes a new type of penalty that would strengthen tax enforcement while improving efficiency. Economic analysis of deterrence suggests that rational taxpayers choose avoidance and evasion strategies based on expected rather than nominal sanctions. I argue that many taxpayers do just that. Because the probability of detection varies dramatically among different items on a tax return while nominal penalties do not take the likelihood of detection into account, expected penalties for inconspicuous noncompliance are particularly low. Adjusting existing penalties will not solve the problem because what is (and is not) inconspicuous depends on a given return and, therefore, is not susceptible to the type of generalization on which the current penalties rely. This Article offers a novel solution. Because taxpayers often hide aggressive subtractions (such as deductions, credits, and losses) by mixing them with legitimate subtractions of the same type, I propose to set the new penalty to equal a fraction of the legitimate subtraction reported on the same line of a tax return that contains the illegitimate one. With this penalty in place, the harder it is for the government to find an aggressive transaction, the higher is the statutory sanction if the transaction is detected. The proposed penalty adjusts itself As a result, the inefficient incentives to hide noncompliance are diminished and deterrence is improved.

Most human interactions take place in reliance on tacit understandings, customary practices, and other legally unenforceable agreements. A considerable literature studying these informal arrangements (commonly referred to as social norms) has a decidedly positive flavor, arguing that many, if not most, of these norms are welfare-enhancing. This Article looks at the less-appreciated darker side of social norms. It combines the analysis of the modern sophisticated tax planning techniques with the existing empirical studies of commercial relationships to reveal a disturbing connection. By relying on tacit understandings rather than express contractual terms, many taxpayers shift some of their tax liabilities to those whose opportunity to take advantage of social norms is more limited or non-existent. The resulting inefficiency and inequity is the social cost of social norms. Reducing this cost, however, turns out to be a challenging task. The Article introduces a tax-focused classification of social norms and singles out the type of norms that are particularly inefficient. Unfortunately, while reducing the use of these norms (or eliminating them altogether) would be welfare-enhancing, it is unlikely to succeed in practice. Indiscriminately attacking all norms is easier administratively, but socially costly. The Article proposes a compromise between these two courses of action that is more administrable than the first approach and less costly than the second. It also offers a guide that would assist the government in identifying particularly inefficient norms.

Ownership is one of the most fundamental concepts in tax law, yet it remains remarkably confused. The uncertainty inhibits tax planning, leads to inconsistent responses from the government, and produces unexpected outcomes in the courts. There has been no shortage of scholarly attention to the issue, but most of the commentary has been either exceedingly narrow or focused on far-reaching reforms. As a result, the law of tax ownership lacks conceptual foundation. This article attempts to remedy the deficiency by proposing a comprehensive approach to tax ownership and demonstrating that the doctrine may (and should) be significantly clarified without a dramatic overhaul of the existing substantive law. The approach rests on dividing all ownership questions into four categories depending on the context in which the questions arose. Using this analytical framework, the article allocates various tax ownership authorities to appropriate categories and develops the underlying principles guiding the analysis for each group. Because these principles differ among the categories, the article suggests that the existence of numerous seemingly inconsistent tax ownership decisions should be understood not as a sign of a confused doctrine, but as an appropriate result reflecting the underlying conceptual differences. By rationalizing and organizing the law of tax ownership, the article provides a framework for resolving future tax ownership controversies.

Avoidance and evasion continue to frustrate the government's efforts to collect much needed tax revenues. This article articulates one of the reasons for this lack of success and proposes a new type of penalty that would strengthen tax enforcement while improving efficiency. The economic analysis of deterrence suggests that rational taxpayers choose among various avoidance or evasion strategies that are subject to identical statutory sanctions those that are more difficult for the government to find. I argue that many taxpayers do just that. Because probability of detection varies dramatically among different items on a tax return while nominal penalties do not take likelihood of detection into account, expected penalties for inconspicuous noncompliance are particularly low. Adjusting existing penalties will not solve the problem because what is (and is not) inconspicuous depends on a given tax return and, therefore, is not susceptible to the type of generalization on which the current penalties rely. I propose to complement the existing sanctions with a new penalty equal to a fraction of the legitimate subtraction item (such as a deduction, credit, or loss) reported on the same line of a return that contains the illegitimate one. With this penalty in place, the harder it is for the government to find a given avoidance transaction, the higher is the statutory sanction if the transaction is detected. The proposed penalty adjusts itself. As a result, the differences in expected penalties for many forms of avoidance and, to a lesser extent, evasion are reduced, the inefficient incentive to hide noncompliance is diminished, and the overall deterrence is improved.