The Stamp Act and the Political Origins of American Legal and Economic Institutions – Article by Justin DuRivage & Claire Priest

From Volume 88, Number 4 (May 2015)

The American colonial protest against Parliament’s Stamp Act was a landmark event in the history of the Founding Era, propelling the colonies toward independence. To date, scholars have focused on colonists’ constitutional objections to the Stamp Act. Yet, the Stamp Act taxed legal and institutional services and, as this Article describes, the opposition to the Stamp Act also focused on defending low-cost institutions that served local communities. It examines the arguments for and against the Stamp Act as revealing two distinct visions of the role for institutions in economic growth. It suggests that American independence affirmed colonists’ commitment to low-cost locally managed institutions within their developing economy.



The Good, the Bad, and the Ugly: The Political Economy and Unintended Consequences of Perpetual Trusts – Note by Daniel J. Amato

From Volume 86, Number 3 (March 2013)

President Obama’s 2012 and 2013 budget proposals contained similar provisions to tax perpetual trusts ninety years after their creation at the maximum Generation-Skipping Tax rate of 55 percent—a move consistent with arguments by law professors and the American Law Institute. These proposals went little noticed except by investment publications, which advised individuals to create perpetual trusts before they could be taxed. Despite the support of the legal academy, the president’s proposal stands little chance of success. Nor should it come as a surprise that a tax proposal with little chance of success was proposed at the beginning of an election cycle—instead, as this Note explains, it should be expected.

Perpetual trusts, facilitated by the 1986 enactment of the Generation-Skipping Tax Exemption (“GST Exemption”) and the subsequent repeal of the rule against perpetuities (“RAP”) in most states, allow individuals to place money into trusts where it grows free of intergenerational transfer taxes forever. Prior to the 1986 tax reform, individuals could use successive life estates in trust to transfer money to their grandchildren without triggering the estate tax. To close this loophole, Congress enacted the Generation-Skipping Tax (“GST”) in 1986 to tax transfers to individuals more than one generation removed, and the GST Exemption to soften the taxpayer burden.



The State of Treasury Regulatory Authority After Mayo Foundation: Arguing for an Intentionalist Approach at Chevron Step One – Note by Joana Que

From Volume 85, Number 5 (July 2012)

On January 11th, 2011, the Supreme Court unanimously held in Mayo Foundation for Medical Education and Research v. United States that all agency regulations, including Treasury regulations, should be afforded the standard of deference set out in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc, a case that prescribed how courts should review agency regulations. Before Mayo, Chevron did not have very much influence in the tax world–Chevron had been cited in only a few Supreme Court tax cases, and the Tax Court continued to cite pre-Chevron authority when evaluating whether to defer to the Treasury’s construction of the Internal Revenue Code (“Tax Code”). Thus, the Mayo decision superseded a line of tax cases, including National Muffler Dealers Ass’n v. United States, which had established a less deferential, tax-specific standard of review.



Taxing Youth: Health Care Reform Writes a Costly Prescription that Leaves the Young and Healthy Paying the Bill – Note by Charles P. Litchfield

From Volume 85, Number 2 (January 2012)

With the American health care system facing a looming crisis due to unsustainable rates of medical cost inflation, the government has reacted by passing the Patient Protection and Affordable Care Act. While the present ubiquity of third-party payers in the form of health insurance or government programs spawns inefficiencies and perverse incentives that drive market forces to work against, rather than toward, maximum social welfare, the reform bill threatens to exacerbate the very inefficiencies it seeks to avoid. Rather than focusing on controlling medical cost inflation, the bill seeks to include high-risk groups that are normally priced out of the insurance market, thus placing more stress on the payment model. The individual mandate—making health insurance mandatory—ensures that the low-risk young and healthy demographic will bear the cost of this increased burden on the insurance system. This Note examines how the recent health reform bill proposes to restructure the insurance market itself and analyzes the inadequacies of the individual mandate. Further, it briefly explores the constitutional challenges to the mandate and discusses whether the health reform bill is salvageable in light of its deficiencies.



Whose Office Is This Anyway? A Look at the IRS’s New Position on Offshore Lending – Note by William A. Kessler II

From Volume 84, Number 6 (September 2011)

“Banks don’t lend anymore. Hedge funds have stepped in.” Lee Sheppard wrote these words in 2005, but the financial crisis starting in 2008 has shone a spotlight on this significant change in the reality of modern finance. What role hedge funds may have played in causing the financial crisis is debatable, but few will dispute that U.S. businesses have had trouble finding capital even as the economy, on the whole, has started to recover.

There are many possible contributors to the onset of the capital crunch. Among them are banks, which had difficulties meeting capital requirements, in part because their balance sheets were weighed down by mortgage-backed securities that proved to be less valuable than initially thought, and in part because of changes in accounting rules, as well as increases in minimum capital reserve requirements. The U.S. government and the Federal Reserve responded by combining to invest trillions of dollars to purchase “toxic” securities, guarantee loans, provide additional loans, and make direct capital injections into troubled financial institutions.



The Last Best Hope for Progressivity in Tax – Article by Edward J. McCaffery & James R. Hines Jr.

From Volume 83, Number 5 (July 2010)

We argue that a spending tax, as opposed to an income or wage tax, is the last best hope for a return to significantly more progressive marginal tax rates than obtain today. The simple explanation for this central claim looks to incentive effects, especially for rich people. High marginal tax rates under an income tax fall on and hence deter the productive activities of work and saving. High marginal rates under a wage tax fall on and hence deter the productive activity of work alone. But high marginal rates under a spending tax fall on and hence deter high-end spending, which is arguably a social bad, and do not necessarily deter the social goods of work and saving; indeed, a progressive spending tax may increase saving. The idea is that because one can escape or defer paying taxes under a progressive spending tax by saving, an activity with positive social externalities, the efficiency costs of high marginal rates under a spending tax can be mitigated. A spending tax can bear more steeply progressive rates with less cost in efficiency or social wealth than an income or wage tax. A progressive spending tax also holds out the possibility of sorting the rich or high-ability into two groups, elastic savers and inelastic spenders: separating the two types of taxpayers could yield welfare gains unavailable under income or wage taxes, which under current technologies can only sort the high-ability into workers and nonworkers. Progressive spending taxes also fall on consumption financed by windfall gains, doing so with diminished adverse incentive effects. 

Most of the Article sets out analytic possibilities. In the final part, we add a sketch of both a welfarist and a fairness-based argument for progressive spending taxes and conclude with a call for a major new research agenda.



Can Widening the Scope of Information Reporting to Include Income Derived from Online Sales Help to Narrow the Expanding Tax Gap? – Note by Maricel P. Montano

From Volume 83, Number 2 (January 2010)

Over the past decade, the Internet has become an integral part of our society, and its expansion has led to a surge in e-commerce. E-commerce, defined as “any business transaction completed over a computer network, including . . . the sale of goods or services,” has similarly become integral to our society. The popularity of e-commerce is reflected in the observation that most consumers consider online retail to be “a primary benefit of the Internet.” The Internet has dramatically enhanced the ease and convenience of engaging in e-commerce in the United States and worldwide. Purchasing items ranging from textbooks to antique lamps to luxury handbags is now only a mouse click away. Items can be purchased remotely from “click and mortar businesses”—retail businesses with both a physical and Internet presence—and small online businesses alike. 

Online selling platforms, such as eBay, Amazon, and Google Checkout, have facilitated the growth of sales by small businesses, sole proprietors, and casual sellers. For instance, eBay, “the world’s largest online marketplace,” has contributed to the evolution of e-commerce by bringing sellers and buyers together in a virtual marketplace, offering a variety of both new and used items. With more than 724,000 Americans reporting that they derived their primary or secondary source of income from eBay sales in 2005, tax law must be modernized to facilitate effective taxation of Internet commerce. In particular, income tax law must be updated to incorporate income generated by e-commerce and ensure that this income is properly reflected on the tax returns of online sellers and appropriately taxed.



Taxation and the Competitiveness of Sovereign Wealth Funds: Do Taxes Encourage Sovereign Wealth Funds to Invest in the United States? – Article by Michael S. Knoll

From Volume 82, Number 4 (May 2009)

Sovereign wealth funds (“SWFs”) have been making headlines. In 2008, SWFs made major investments in Morgan Stanley, Citigroup, Blackstone, Carlyle, and Merrill Lynch, most of which sought large infusions of cash in the wake of the credit crunch. SWFs have also made substantial investments outside of financial services, but those investments have generally not been as large or as visible.

Investments by SWFs are highly controversial. Press reports talk of the United States selling off its assets and mortgaging its future. Less colorfully, critics argue that foreign governments are expanding their influence over U.S. economic and foreign policy. Commentators and policymakers are concerned that foreign governments might use their SWFs to advance their own national interests to the detriment of those of the United States. Among the potential actions most frequently mentioned are transfers of technology and explicit or implicit threats to divest if the United States pursues policies at odds with the investor’s interests. There is another side. Proponents emphasize the economic benefits of reducing the cost of capital by attracting foreign capital. Still other commentators point to various social and economic benefits from the greater economic integration that comes when foreign investors, including foreign governments, invest in the United States.



Effecting the Impossible: An Argument Against Tax Strategy Patents – Note by Michael Moulton

From Volume 81, Number 3 (March 2008)

In 1998, in State Street Bank & Trust Co. v. Signature Financial Group, Inc., the U.S. Court of Appeals for the Federal Circuit rejected the contention that “business methods” are per se unpatentable, and stated that a business process patent can be granted on the same basis as any other patentable invention. The decision fostered a new awareness that business method claims could be patented, and in the wake of State Street Bank, the United States Patent and Trademark Office (“USPTO”) saw an almost six-fold increase from 1998 to 2001 in the number of patent applications for business methods. While some commentators applauded the State Street Bank decision, others maintained that methods of doing business should be an excluded category of invention, articulating that the traditional filters of patent law are not appropriately sized to sieve overly broad business practices from attaining patent protection. Despite those concerns, business methods remain patentable inventions.




No More Playing Favorites: Reconsidering the Conclusive Congressional Presumption that Intercollegiate Athletics are Substantially Related to Educational Purposes – Note by Gabriel Morgan

From Volume 81, Number 1 (November 2007)

Athletic competition strengthens not only athletes’ bodies, but also their minds by training them in the values of self-discipline, self-sacrifice, hard work, and the pursuit of excellence. In addition, athletes learn important lessons on social values, such as leadership, cooperation, camaraderie, and collective responsibility through participation in competitive events. The ability of athletic competitions to instill such desirable values in their participants potentially enables intercollegiate athletics to further traditional educational goals by supplementing and enriching the academic experience of student-athletes with valuable life lessons.