Diane Ring

My teaching and research generally focuses on taxation, especially international tax.  However, I have always had an outsider’s fascination with antitrust law and policy. So when I saw a recent article entitled: Economic Analysis and Evaluation of ‘Fair Prices’:  Can Antitrust and International Taxation Learn from Each Other? I was intrigued and couldn’t resist.  The article, by Alessandro Turina and Nicolo Zingales explores the economic analysis of pricing and comparability in the transfer pricing regime of international tax and in the competition (antitrust) law of excessive and predatory pricing.  Their perspective is global as they draw upon U.S. law, E.U. law, OECD practice, and the distinctive outlook of various European countries.

The authors are restrained in their claims and comparison–they acknowledge the differences in purpose and structure between transfer pricing and antitrust laws.  But compelling parallels exist that command our attention.  Both regimes rely heavily on price-based analysis in which the underlying methodologies struggle to determine “comparability.”  Moreover, both strive to find the appropriate balance among legal certainty, administrability, and burden of proof as between business and government.  The article provides a baseline introduction to transfer pricing and competition law, thereby allowing the generally informed reader the ability to understand the place of price analysis in each regime and the challenge of determining comparability.

In transfer pricing, where the aim is to appropriately price transactions between related parties, the standard bench mark has been the price at which unrelated parties would deal in a comparable transaction.  In competition law, the EU approach to “excessive” pricing includes a determination as to whether the price charged is unfair “when compared to competing products.”  Similarly, some approaches to predatory pricing require identifying the market and the competition–i.e. which businesses and products are similar to the business under scrutiny.  As Turina and Zingales discuss, there are competing economic models, differing ideas about measuring cost, and conflicting perspectives about where the risk of decision-maker error should lie (that is, if the economics cannot completely answer the question of whether the price is arm’s length, excessive, or predatory should the system err on the side of low taxes and low prices?–or not).  Ultimately, as the authors articulate, “[i]n both cases, the foremost conceptual difficulty encountered by policy makers is how to turn principles and standards which are often based on complex and abstract economic concepts into a workable diagnostic tool with which real actors such as firms (and not markets!) come into dealing.”

The article also can serve as a launching point for thinking more pervasively about the role and use of economic analysis and principles in both setting and applying tax law and antitrust law.  Is it possible, as some suggest, that economics has taken over antitrust law and reasoning in the U.S.?  What about the implementation of the transfer pricing regime (and the preparation of the ever-important transfer pricing studies)?  What do we really mean when we say this?  Is there an implicit expectation that law is something more than economic principles, even in the context of business transactions being assessed against a market measure?  Does it reflect views about the limitations of economic models and data to answer questions of case by case application rather than offer more sweeping market level assessments?  And what can and should be done in recognition of any of these points?  There are no simple answers, only more variations on the question.  But the opportunity to consider the related reliance by both tax and antitrust law on an economic analysis of pricing and comparability reveals the important role played by economic reasoning and the broader concerns about the dynamics among law, legal policy, and economics.  Even if you don’t have a particular interest in transfer pricing or antitrust, the article provides a valuable occasion to consider how we should import economic concepts into legal regimes and at what risk.

Susan Morse

Before reading Andrea Campbell’s recent book chapter, I relied mainly on two reference points for a mental framework of public opinion relating to taxes:  Donald Duck and Pat Soldano.  The famous Disney cartoon shorts from the 1940s aimed to convince a patriotic public that mass income taxes would help “Beat the Axis,” thus smoothing the transition from a class-based income tax.   Lobbyist and anti-estate tax crusader Pat Soldano, as Michael Graetz and Ian Shapiro tell it in their book Death by a Thousand Cuts, helped persuade America that repealing the estate tax would save hardworking family farms and businesses from the clutches of the federal government, making passage of the 2001 estate tax bill possible.   In my mental model, Donald Duck stood for effective pro-tax government propaganda.  Pat Soldano represented successful grassroots cultivation of anti-tax popular sentiment with the power to hold policymakers hostage, leaving them mainly with the escape hatch of debt financing.  But how did we get from Donald to Pat?

Campbell, a political scientist at MIT, gives a more comprehensive, empirical picture of the evolution of American public opinion on taxation.  She uses two data sources:  Gallup and other poll data, starting in 1939, and political communication such as presidential campaign speeches.  Her work suggests that “the dawn of mass taxation came with surprising calm,” with data such as 1943 Gallup poll results showing that 78 percent of respondents thought their annual federal income tax due was “fair.”  Campbell also traces increased public resistance to taxes starting in the late 1960s.  As she acknowledges, many developments contributed to this shift to anti-tax sentiment, including decreasing real after-tax income and growing public disapproval of government spending, for example on Vietnam and on social programs associated with racial divides.  She offers empirics to illustrate the trend, such as coded political speech data demonstrating a generally upward trend in the frequency with which taxes were mentioned starting in 1968.  The data extends to 2000 and later, and she includes an analysis of the increased correlation between a belief that one’s taxes are too high and a decision to vote for a Republican candidate for President in the 1990s, when other factors are held constant.

But it is the data from the 1950s and 1960s that I found most interesting.   Campbell reports, for example, that “the percentage of Americans saying their federal income taxes were too high fell . . . from 71 percent in 1952, to 46 percent in 1961.”   This result, remarkably, coincides with a period of high rates–for example, the top marginal rate between 1954 and 1963 was 91% and the lowest 20%.  According to Campbell’s data, the Kennedy-Johnson tax cut of 1964, which cut marginal individual income tax rates across the board by as much as 20%, was not presaged by big swings in public opinion about taxes or accompanied by significant public political rhetoric.

Campbell characterizes the prevailing public tax policy sentiment during the 1950s as “ambivalence.”  The data may also be consistent with satisfaction with the public benefits obtained in exchange for taxes, or with acceptance of the goal of a balanced federal budget.  In any case, they are striking in light of other accounts of contemporaneous elite tax policy debate, which engaged the tensions between fiscal conservatism and Keynesian policies, base broadening and tax expenditures, and equity and efficiency.  (Campbell cites histories by W. Elliott Brownlee, Dennis Ventry and Julian Zelizer.)  The  public opinion data suggest a division between debates among policy making elites and public political discourse; one question is whether other indicators of public discussion about taxes, such as newspaper commentary, would also show such a divide.

Campbell has a forthcoming book that will expand on her published chapter.  It promises to add further to the discussion of how the American public used to think about taxes and how it came to adopt a visceral anti-tax viewpoint.  Perhaps her work can also shed light on whether and how current public opinion might shift to accommodate fiscal crisis solutions that include (dare I say it) higher taxes.

Allison Christians

Craig Boise and Andrew Morriss have produced a fascinating account of the emergence and role of the offshore financial sector with this case study of the Netherlands Antilles—once a powerhouse, now struggling to stay alive in the global economy.  With places like the Antilles again in the political and media spotlight, cast in their now-familiar role as renegades in international society, I have long thought we were overdue for an account that carefully considers the view from these countries and provides the context we critically need to understand the dynamics between tax competition and economic development.  This article may well be the most accessible account of the complicated history that shaped U.S. policy toward a growing number of tiny islands with tiny populations and limited opportunities for economic vitality.

It is certainly the most thorough and thoughtful analysis I have encountered on the topic of why “tax havens” exist.  Boise and Morriss bring us on a lively tour through the history of the Antilles and its complicated relationship with the United States.  They use first-hand accounts and historical research to build a narrative that is decidedly different than the story usually told by those who emphasize the need for crackdown when cooperation cannot yield a mutually beneficial result.  For instance, it may surprise readers to learn that the rise of the Antilles as an offshore financial center occurred not as opportunistic banditry but as the result of a serendipitous confluence of factors, all of which served goals other than facilitating tax evasion.  You will have to read the paper to find out how the Antilles met a dire need for asset protection during World War II, and how it facilitated American access to the Eurobond markets at a time when the United States depended heavily on foreign borrowing for its economic success.  You will also need to read this paper to see why the crackdown on places like the Antilles will likely be as futile as it is harmful to the populations whose livelihood depends on their ability to facilitate transactions in the global economy.

Readers will no doubt be unsympathetic to tax havens, and certainly to tax evaders—I am certainly no fan of Bono, the Rolling Stones, or any other person or group that prefers not to contribute to the social orders that make their fortune possible.  But this paper shows that the problem of tax evasion cannot plausibly be viewed as simply a collective action problem that could be solved by universal adherence to norms that would “level” the tax competition playing field, as envisioned in places like the OECD.  Once it is clear that the benefit of eliminating tax havens goes only to the world’s wealthiest countries, we may be less inclined to sit in moral judgment of nations that rely on their financial services industries for their economic survival.

You should read this paper if you want to understand what it is that offshore financial sectors offer to American and other investors and what role the United States and other developed countries play in ensuring that tax havens will always exist (even as the message to the public declares otherwise). You may come away from the paper with a little less enthusiasm than the authors for the regulatory tactics employed by these islands, but we could all do better to understand the context of the problems we face in a world of bound sovereigns but footloose capital.  I highly recommend this article and hope that it becomes required reading for anyone who takes seriously the dual issues of global tax evasion and disparate economic development.

Section Editors

The Section Editors choose the Contributing Editors and exercise editorial control over their section.  In addition, each Section Editor will write at least one contribution (“jot”) per year.  Questions about contributing to a section ought usually to be addressed to the section editors.

Professor Alison Christians
University of Wisconsin School of Law

Professor George Mundstock
University of Miami School of Law

Contributing Editors

Contributing Editors agree to write at least one jot for Jotwell each year.

Professor Craig M. Boise
Associate Director of the Center for Business Law & Regulation, DePaul University College of Law

Professor Kimberley Ruth Brooks
H. Heward Stikeman Chair in the Law of Taxation,  McGill University, Faculty of Law

Professor Neil H. Buchanan
The George Washington University Law School

Professor Charlotte Crane
Northwestern University School of Law

Professor Michael A. Livingston
Rutgers School of Law – Camden

Professor Diane Ring
Boston College Law School

Professor Donald B. Tobin
Associate Dean for Faculty, Frank E. and Virginia H. Bazler Designated Professor in Business Law, The Ohio State University, Moritz College of Law

Jotwell: The Journal of Things We Like (Lots) seeks short reviews of (very) recent scholarship related to the law that the reviewer likes and thinks deserves a wide audience. The ideal Jotwell review will not merely celebrate scholarly achievement, but situate it in the context of other scholarship in a manner that explains to both specialists and non-specialists why the work is important.

Although critique is welcome, reviewers should choose the subjects they write about with an eye toward identifying and celebrating work that makes an original contribution, and that will be of interest to others. First-time contributors may wish to consult the Jotwell Mission Statement for more information about what Jotwell seeks, and what it seeks to achieve.

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• be between 500-1000 words;
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Initially, Jotwell particularly seeks contributions relating to:

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We intend to add more sections in the coming months.

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• Authors are welcome to follow The Bluebook: A Uniform System of Citation (18th ed. 2005), or the The Redbook: A Manual on Legal Style (2d Ed.) or indeed to adopt any other citation form which makes it easy to find the work cited.

Technical

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Contributors should email their article, in plain text, in HTML, or in a common wordprocessor format (Open Office, WordPerfect, or Word) to ed.jotwell@gmail.com and we will forward the article to the appropriate Section Editors. Or you may, if you prefer, contact the appropriate Section Editors directly.

The Journal of Things We Like (Lots)–JOTWELL–invites you to join us in filling a telling gap in legal scholarship by creating a space where legal academics will go to identify, celebrate, and discuss the best new legal scholarship. Currently there are about 350 law reviews in North America, not to mention relevant journals in related disciplines, foreign publications, and new online pre-print services such as SSRN and BePress. Never in legal publishing have so many written so much, and never has it been harder to figure out what to read, both inside and especially outside one’s own specialization. Perhaps if legal academics were more given to writing (and valuing) review essays, this problem would be less serious. But that is not, in the main, our style.

We in the legal academy value originality. We celebrate the new. And, whether we admit it or not, we also value incisiveness. An essay deconstructing, distinguishing, or even dismembering another’s theory is much more likely to be published, not to mention valued, than one which focuses mainly on praising the work of others. Books may be reviewed, but articles are responded to; and any writer of a response understands that his job is to do more than simply agree.

Most of us are able to keep abreast of our fields, but it is increasingly hard to know what we should be reading in related areas. It is nearly impossible to situate oneself in other fields that may be of interest but cannot be the major focus of our attention.

A small number of major law journals once served as the gatekeepers of legitimacy and, in so doing, signaled what was important. To be published in Harvard or Yale or other comparable journals was to enjoy an imprimatur that commanded attention; to read, or at least scan, those journals was due diligence that one was keeping up with developments in legal thinking and theory. The elite journals still have importance – something in Harvard is likely to get it and its author noticed. However, a focus on those few most-cited journals alone was never enough, and it certainly is not adequate today. Great articles appear in relatively obscure places. (And odd things sometimes find their way into major journals.) Plus, legal publishing has been both fragmented and democratized: specialty journals, faculty peer reviewed journals, interdisciplinary journals, all now play important roles in the intellectual ecology.

The Michigan Law Review publishes a useful annual review of new law books, but there’s nothing comparable for legal articles, some of which are almost as long as books (or are future books). Today, new intermediaries, notably subject-oriented legal blogs, provide useful if sometimes erratic notices and observations regarding the very latest scholarship. But there’s still a gap: other than asking the right person, there’s no easy and obvious way to find out what’s new, important, and interesting in most areas of the law.

Jotwell will help fill that gap. We will not be afraid to be laudatory, nor will we give points for scoring them. Rather, we will challenge ourselves and our colleagues to share their wisdom and be generous with their praise. We will be positive without apology.

Tell us what we ought to read!

How It Works

Jotwell will be organized in sections, each reflecting a subject area of legal specialization. Each section, with its own url of the form sectionname.jotwell.com, will be managed by a pair of Section Editors who will have independent editorial control over that section. The Section Editors will also be responsible for selecting a team of ten or more Contributing Editors. Each of these editors will commit to writing at least one Jotwell essay of 500-1000 words per year in which they identify and explain the significance of one or more significant recent works – preferably an article accessible online, but we won’t be doctrinaire about it. Our aim is to have at least one contribution appear in each section on a fixed day every month, although we won’t object to more. Section Editors will also be responsible for approving unsolicited essays for publication. Our initial sections will cover administrative law, constitutional law, corporate law, criminal law, cyberlaw, intellectual property law, legal profession, and tax law — and we intend to add new sections when there is interest in doing so.

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