Conceptualizing the “Fat Tax”: The Role of Food Taxes in Developed Economies – Article by Jeff Strnad

From Volume 78, Number 5 (July 2005)

The powerful morbidity and mortality effects of diet combined with growing concern about the obesity “epidemic” have led public health scholars and public interest advocates to call for taxes on food. The proposals fall into two different categories. First, there are “junk food taxes” on less nutritious foods such as soft drinks, candy, or snack foods. Second, there are more ambitious taxes that would apply to a much broader range of foods and food components.



Corporate Inversions: A Symptom of a Larger Problem, the Corporate Income Tax – Note by James Mann

From Volume 78, Number 2 (January 2005)

A corporate inversion is a paper transaction in which an American corporation reincorporates in a foreign nation without moving any of its operations to that country. The principle reason that a corporation will invert is to save money on taxes, in some cases as much as $60 million annually. Politicians, believing these companies are reincorporating in a foreign country to evade taxes, have introduced numerous bills to try to stop these companies from moving overseas. Senator John Kerry, the 2004 Democratic presidential nominee, stated that he plans to stop inversions within 500 days of his election to office. These corporations, however, have demonstrated that they will not give up these tax savings without a fight. Leucadia National Corp., a company that underwent an inversion in 2002, has hired a high-priced lobbying firm to block congressional efforts to stop inversions.

Members of Congress, believing that inverted corporations should be punished for renouncing their citizenship and their executives should be taxed for making this unpatriotic decision, have proposed complex legislation designed to close this tax loophole. Unfortunately, these solutions will not work. In reality, inversions are only a symptom of a much larger problem: American corporations are uncompetitive in foreign nations because of the corporate income tax. Today, the United States taxes corporate earnings at a rate of approximately 35%. Of sixty-nine countries surveyed as of January 2004, only Japan had higher corporate tax rates. These higher tax rates have yielded an inefficient result: some companies have committed transactions with the sole purpose of reducing their tax liabilities.



Getting Schooled by the Hybrid-Based Tax: Equity and Efficiency in the Federal Tax Treatment of Debt-Financed Post-Secondary Educational Expenditures – Note by Adam Hime

From Volume 77, Number 4 (May 2004)

The design of the tax system and substance of tax laws have an effect on nearly every economic decision made by individuals. Whether to invest or consume, buy or sell, and what forms of consumption or savings in which to engage are all issues that are influenced by the design of the tax system and the substance of tax laws. The tax treatment of debt in the U.S. hybrid-based income tax system generates inequities and inefficiencies that result from both an inconsistent base and failures in timing. Americans with high net wealth and sophisticated tax advisors can strategically use the inconsistent base and timing problems associated with debt to avoid, delay, or shift tax burdens. Unfortunately, for lower- and middle-class Americans without the benefit of tax advisors, the inconsistent base and timing problems associated with debt in our tax system can be economically detrimental.

One major type of debt that is disproportionately held by lower- and middle-class Americans under thirty-five years of age is debt accumulated to finance post-secondary education and other similar personal investments in their human capital. The unfair and inefficient tax treatment of debt that is acquired to finance post-secondary education is the focus of this Note. These inequities and inefficiencies can be resolved, in whole or in part, by tax reform. This Note discusses three alternative tax reform proposals, focusing on how each may impact the tax treatment of student loan debt. One of these reform proposals functions within the context of a hybrid-based tax, defining debt accumulated to finance post-secondary education as an amortizable investment and generating deductions for taxpayers in later years when their investments provide a higher salary than they would have had without this additional education. The other two reform proposals require fundamentally redefining the tax base and moving toward a pure, consistent income tax or a pure, consistent consumption tax.



Attacks on a Tax: An Alternative to the Earned Income Tax Credit to Remedy the Unfairness in the Payroll Tax System – Note by Dan Seltzer

From Volume 77, Number 1 (November 2003)

The United States raises revenue through a variety of taxes that are fragmented or “disaggregated” into multiple components. Although most Americans think of taxes primarily in terms of the income tax, its lesser known cousin, the payroll tax, produces nearly identical revenues while falling disproportionately on the poor and middle-class. Disaggregating the tax system into several component taxes thus conceals the true aggregate tax burden on taxpayers. This misleading effect is exaggerated because the media and politicians focus on the income tax while ignoring the equally significant payroll tax.

In recent years, taxes have played a central role in most major political campaigns. President George W. Bush centered his campaign on tax issues, and passage of his 2001 tax relief package, the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), was one of the first major accomplishments of his administration. Yet, despite this pronounced emphasis on reducing taxes, the media and politicians from both parties appear oblivious to the payroll tax, even though it represents the single largest tax for two-thirds of all Americans. Indeed, even as President Bush made tax cuts for the working poor a priority for his administration, these cuts generally affected only income taxes. His 2001 budget included extensive discussion on the income tax, but the sole mention of the payroll tax appeared in a footnote.



Supplying the Tax Shelter Industry: Contingent Fee Compensation for Accountants Spurs Production – Note by Ben Wang

From Volume 76, Number 5 (July 2003)

The use of abusive tax shelters by major corporations has been called “‘the most serious compliance issue threatening the American tax system . . . .’” Losses to the Department of the Treasury (“Treasury”) are estimated to range anywhere from $7 billion to $30 billion per year. Meanwhile, corporate profits have risen 23.5% while their corresponding tax obligations rose by only 7.7%. Personal income taxes, on the other hand, are up 44%, which represents 79% of the total federal income tax and is estimated to increase to 85% by the year 2004. Also astounding is that the corporate tax-to-profit ratio has dropped between 1.5% and 2.9%, roughly translating into a decrease in corporate income tax receipts between $13 and $24 billion. Although the decrease in corporate tax receipts is unlikely to be attributed to a single cause, many commentators point to the growing acceptance of abusive tax shelters by large corporations as a major contributor.

The growing acceptance of abusive tax shelters by large corporations has been characterized as a “race to the bottom.” The perception that competitors are actively participating in abusive tax shelters has created an environment ripe for the promotion of tax schemes promising to zero out a corporation’s taxes. The major accounting firms are using armies of professionals to promote these schemes. Moreover, they have developed the resources, both in expertise and manpower, to capitalize on and perpetuate the perception. The role played by the Big Five in the tax shelter industry is extensive. They have created for themselves a vested interest in the proliferation of tax shelters through the use of contingency fees.