Although sometimes difficult to detect, governmental power abuses can have detrimental impacts. Property tax assessments provide an effective lens to examine this phenomenon because, given the complexity of calculating property tax assessments, it is difficult for citizens to know when local government has exceeded its legitimate taxing authority and crossed into the realm of illegal extraction. Michigan is an ideal case study because it protects property owners by making assessment-related power abuses more visible through a unique state constitutional provision: property tax assessments cannot exceed 50 percent of a property’s market value. Abuses have persisted nevertheless. Between 2011 and 2015, one in four properties in Detroit were subject to property tax foreclosure, and inflated property tax assessments that violate the Michigan Constitution are the unseen thread in this complex tapestry of foreclosure.
Against this backdrop, this Article makes three primary contributions. First, no other article has argued and proven that property tax assessments in Detroit are illegal. Using assessment and sales data from 2009–2015 for the entire City of Detroit, we find that property tax assessments are substantially in excess of the state constitutional limit, and this illegality is most pronounced for lower-valued properties. Second, to remedy inflated assessments, in 2014 and 2015 Detroit’s assessor implemented assessment decreases ranging from 5 percent to 20 percent for select districts, but we find that systemic assessment inequity persisted for lower valued properties despite these reductions. Third, this Article uses the case of illegal property tax assessments in Detroit to develop a new theoretical concept called “stategraft,” which is when state agents transfer property from residents to the state in violation of the state’s own laws and to the detriment of a vulnerable group. Although the concept was developed using the Detroit case, stategraft applies beyond Detroit to many other cases, including the discriminatory fines imposed and enforced by the police and courts in Ferguson, Missouri; broken treaties with Native Americans; and abuses of civil forfeiture laws.
The estate tax and income tax rules independently attempt to either promote or deter different behaviors. The interaction of these different rules often leads to disparate or unintended consequences to taxpayers: for example, achieving an overall lower effective tax rate by paying more estate tax to lower the income tax rate. This overlay of the estate tax rules on the income tax rules is a key problem at the core of our tax system. Yet, few scholars focus on this topic.
In this Article, I document the actual behavior of the trust and estate bar. By looking at how attorneys approach the intersection of estate and income taxes, I demonstrate deficiencies in the current scholarly belief, which is based largely on anecdotal information, that the wealthy have a preference for paying less or no estate tax. I show the real-world preferences that indicate wealthy taxpayers are paying high levels of estate tax to minimize the income tax incidents. After showing the shift of preferences and the resulting overall tax loss to the fisc, the Article then proposes useful policy solutions, such as elimination of the estate tax or using death as an income tax triggering event.
This Article sets out the case for repealing the $1 million tax cap on executive pay. The cap is easily avoided and, when not avoided, widely ignored. Since enactment in 1993, the cap has had little effect in reducing executive pay or in linking pay to performance. Even worse, the cap increases corporate tax liabilities—liabilities that likely burden workers and investors. In effect, the cap punishes rank-and-file employees and shareholders for pay deals made by directors and executives. This Article demonstrates why prominent reform proposals would be ineffective and counterproductive. It then devises a novel reform approach—a confiscatory tax on excessive executive pay—that would limit executive pay without burdening workers or investors. But this Article rejects the confiscatory tax because of the serious distortions that it would cause for business-organization and labor-supply decisions. Ultimately, the superior policy position is to repeal the cap. Concerns about income inequality are better addressed through robust progressive taxation, and concerns about corporate governance are better addressed through non-tax mechanisms, such as reform of the business-judgment rule and expansion of director liability.
Fairness in the administration of the tax law is a subject of intense debate in the United States. As myriad headlines reveal, the Internal Revenue Service (“IRS”) has been accused of failing to enforce the tax law equitably in its review of tax-exempt status applications by political organizations, international tax structures of multinational corporations, and estate tax returns of millionaires, among other areas. Many have argued that greater “tax transparency” would better empower the public to hold the IRS accountable and the IRS to defend itself against accusations of malfeasance. Mandatory public disclosure of taxpayers’ tax return information is often proposed as a way to achieve greater tax transparency. Yet, in addition to concerns regarding exposure of personal and proprietary information, broad public disclosure measures pose potential threats to the taxing authority’s ability to enforce the tax law.
Given the competing values of accountability and enforcement, what tax return information should be observable by the public? This Article considers the role of timing. The IRS continually engages in enforcement actions ex post—after taxpayers pursue transactions and claim tax positions—such as by conducting audits or negotiating settlements. But it also frequently engages in actions ex ante—before taxpayers pursue transactions and claim tax positions—by issuing advance tax rulings to, and entering into agreements with, specific taxpayers. While current law appears to require public disclosure of certain types of ex ante tax administration, many forms of ex ante tax administration remain concealed from public view. This Article argues that documents related to a specific taxpayer’s tax affairs that reflect ex ante tax administration should be publicly accessible as a means of accountability, but that documents that reflect ex post tax actions should remain private in order to preserve effective tax enforcement. Further, this Article proposes that the public should have access not only to ex ante tax administration actions where the taxing authority grants taxpayers’ requests, but also to those actions where the taxing authority denies such requests, even if it does so without issuing an official written determination, a concept it defines as “dual tax transparency.”
The separation of a taxpayer’s income into capital and labor components, and the application of separate rate schedules to each, are hallmarks of “dual income tax” instruments, of the sort explored in practice most comprehensively by several Nordic countries. Building on earlier work on dual tax systems and capital income tax structures, I propose a novel and reasonably accurate flat-rate tax on capital income that builds on well-understood tax policies, that achieves integration between corporate and investor income, and that successfully distinguishes capital from labor income. I term this tax instrument the Dual Business Enterprise Income Tax, or Dual BEIT. Its virtues include minimizing the relevance of the realization doctrine, eliminating distinctions across different forms of capital investment, and offering business enterprises a profits (consumption) tax environment in which to operate.
To make the project more tractable, the two themes just advanced—the why and the how of the Dual BEIT—are each the subject of a separate article. This is the “why” Article. Together, the two demonstrate that the Dual BEIT satisfies theoretical concerns, once those are filtered through the political economy imperatives of the quotidian world, and is straightforward to implement and administer.
The United States is the only country that taxes its citizens’ worldwide income, even when those citizens live indefinitely abroad. This Article critically evaluates the traditional equity, efficiency, and administrability arguments for taxing nonresident citizens. It also raises new concerns about citizenship taxation, including that it puts the United States at a disadvantage when competing with other countries for highly skilled migrants.
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.
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.
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.
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.