Mar 11, 2026 Adam Thimmesch
Since 2020, many states have been cutting their income tax rates and narrowing their bases, while others have been considering wealth tax proposals and other progressive revenue tools. These divergent actions raise critical questions about modern fiscal federalism. When is subnational redistribution feasible? When does tax competition instead lock states into a uniform tax-cut script? And how does federal tax policy impact states’ choices?
Kirk Stark’s article, Taxation, Redistribution, and the Urban-Rural Divide, offers an interesting and useful evaluation of these questions by assessing modern fiscal federalism through a spatial lens built on insights from a variety of fields, including economic geography, U.S. history, and political science. His article recognizes that the traditional “textbook” model of fiscal federalism often dismisses subnational progressive taxation as implausible. The logic, rooted in the Tiebout model, is simple: if a state tries to “tax the rich,” the rich—or their mobile capital—will simply move. This understanding conventionally leaves the federal government to address equity and progressivity while states instead compete on service quality.
This story is, of course, incomplete in practice. Mobility is far from homogeneous, either interpersonally or interregionally. In addition, the ‘stickiness’ of urban markets is a known phenomenon in economic geography, which means that urban locations have greater power to impose taxes than the traditional account permits. Stark uses these insights to evaluate the reality of “asymmetric tax competition” between urban and rural states.
Of course, the story of urbanism is largely one about localities, and other scholars have rightfully identified that cities, rather than states, are often the proper subunit for analysis. On this point, Stark’s article implicitly recognizes that states still call the shots in many ways, especially as we see greater levels of preemption of local law by states across areas of law, including tax.
Stark also recognizes that classifying states as urban or rural is not an obvious endeavor, and he starts the article by confronting this challenge. This was a particularly interesting part of the article to me, because it required me to think more deeply about how urbanism and rurality look different under different lenses. Specifically, Stark offered and assessed three different metrics for measuring urbanism or rurality—census urban population shares, USDA rural-urban continuum codes, and census-tract level density indices. States fare differently under different metrics, and some states—like my own state of Nebraska—fall on different sides of the urban-rural divide depending on the metric used.
On its own, this introduction of different methodologies for discussing the urban-rural divide is useful for those who think about the effect of place on tax policy and the effect of tax policy on place. The law and rurality literature, in particular, invites more meaningful and granular discussions of rural America, and Stark’s incorporation of this element of analysis into tax policy is welcome and important.
Stark adds greater nuance to his article by then categorizing state tax structures into four quadrants based on their overall tax burdens (high or low) and their relative tax progressivities (high or low). That exercise facilitates an interesting geographic and historic assessment of state-tax policies across the country. As he shows, major urban agglomerations appear in all four quadrants, suggesting that density is not determinative. Nevertheless, urban states along the coasts disproportionately occupy the high-tax/high-progressivity quadrant, and rural states cluster instead toward the low-tax/regressive quadrant. These results might seem intuitive, but Stark provides an analytic, data-oriented framework for these categorizations.
I also particularly liked that the article then explores how this “sorting” results from historic and geographic factors that supplement a purely political account. In particular, Stark carefully evaluates the tax policies of the American South, and he explains how the history of slavery and Reconstruction Era policies shape state tax policy to this day. He also looks at “outlier” rural and urban states—Maine and Vermont (rural/progressive states) and Texas and Florida (urban/regressive states)—and investigates the histories that explain their tax structures. These explorations demonstrate the importance of looking at the factors that contribute to state fiscal policy—and to state fiscal health more broadly.
The article then flips the lens upward and shows how rural-urban dynamics shape federal tax policy as well. Stark explains how the same urban concentrations that allow for subnational redistribution also skew tax politics against redistribution at the federal level. Principally, because progressive voters are geographically clustered, they have difficulty translating their preferences into progressive federal tax legislation given equal state representation in the Senate. The countermajoritarian nature of House districting and the Electoral college have similar effects. Stark links these anti-urban structural biases to the regressive direction of major federal tax reforms over the last quarter-century.
This discussion of how the urban-rural divide impacts federal tax policy is both interesting on its own and particularly important for understanding the efforts by some states to impose progressive income taxes or taxes on wealth. The classic account of American fiscal federalism assigns to the federal government the role of redistribution, providing a progressive backstop to state-level regressivity. But if our constitutional anti-urban bias makes that backstop unreliable, then progressivity cannot be treated as primarily a federal responsibility. Stark’s article therefore explains both why states can impose taxes that once seemed unwise and why those taxes may be desirable.
Overall, the article explains why subnational redistribution can succeed where the textbook model predicts futility, why federal redistribution underperforms even when national majorities favor it, and why the United States may be headed toward an increasingly asymmetric fiscal union. Stark’s article thus provides readers with a deeper understanding of American fiscal federalism and a stronger foundation for confronting modern day tax-reform politics.
Feb 12, 2026 Charlene D. Luke
Edward J. McCaffery and Darryll K. Jones offer an engaging explanation for the lack of progress in closing the carried interest loophole in The Curiouser and Curiouser Case of Carried Interests. This well-known loophole—which has been analyzed extensively in the literature—allows top hedge fund and private equity managers to pay tax on service income at the lower rate afforded long-term capital gains. The article draws on earlier scholarship by each of the co-authors and provides an updated account of the decades-long lack of progress in closing the loophole.
In 2006, McCaffery and Linda Cohen published Shakedown at Gucci Gulch: The New Logic of Collective Action, 84 N.C. L. Rev. 1159 (2006). That 2006 article drew on Mancur Olson’s 1965 book, The Logic of Collective Action, which theorized the conditions required for special interest lobbyists to overcome collective action problems and wield outsized legislative influence. McCaffery and Cohen posited that Olson’s framework did not adequately explain the shenanigans surrounding estate tax repeal. Instead of legislators being the dupes of special interest groups, legislators were engaging in extortionate brinkmanship to increase campaign contributions from the special interests with the most to gain (or to lose) from estate tax legislation. As McCaffery and Jones summarize in their article, the game is “reverse” Mancur Olson because “legislators come first, special interests second.”
In 2008, Jones published The Taxation of Profit Interests and Reverse Mancur Olson Phenomenon, 36 Cap. U.L. Rev. 853 (2008), and applied the McCaffery and Cohen’s reverse Mancur Olson framing to the carried interest loophole. McCaffery and Jones explain that Jones’s 2008 article “was rather more sanguine” about the likelihood that the carried interest loophole would be closed soon than McCaffery and Cohen had been about estate tax reform.
But, as McCaffery and Jones observe, “Flash forward 15 years, and here we all are: still talking, and still not doing much, about carried interest.” The co-authors use the details of those subsequent years of “carried interest capers” to make a compelling case that congressional failure to close the carried interest loophole flows from legislators’ desire to reap campaign contributions.
The article deliberately refrains from making the normative case for removing the loophole. It suggests, however, that such efforts by others (noting in particular the influential work of Victor Fleischer and his key article, Two and Twenty: Taxing Partnership Profits in Private Equity Funds, 83 N.Y.U. L. Rev 1 (2008)) helped set the stage for legislators, at times aided and abetted by the executive branch, to be able to use plausible threats of closing the loophole as a tool for fundraising.
Internal Revenue Code § 1061 provides one curious example in the history of carried interest (in)action. This Code provision was enacted in 2017’s Tax Cuts and Jobs Act under the first Trump administration. Section 1061 applies only to private equity and hedge fund managers. It does not, however, get into the “maze of subchapter K” partnership tax rules to prevent managers from using longstanding IRS guidance to convert service income into preferential capital gains. Instead, § 1061 operates, in essence, to increase the holding period required for the preferential tax rate from more than one year to more than three years. As McCaffery and Jones explain, however, by 2010—seven years before § 1061 was enacted—the average holding period of such interests was 3.8 years and rose to 5.4 years by 2020.
In presenting the history of § 1061 as a case study of the reverse-Mancur Olson phenomenon, the article highlights three essential ingredients. First, there must “be one or more small groups with high stakes” and money to spend. Private equity and hedge fund managers clearly fit this bill. As the authors notes, the top 25 fund managers in 2022 together raked in $21.5 billion, and a “13.2% tax break (from 37% to 23.8%) is worth $132 million annually” per $1 billion dollars.
Second, “there must be plausible legislative action, for who would pay without threat of pain or promise of benefit?” And third, the issue must have “‘two or more sides’ to prevent all lawmakers from gathering on the one side where the money is and—heaven forbid—actually doing something.” The second and third conditions operate hand-in-glove in the carried interest situation because the two sides needed to string things along come not from distinct special interest groups (as occurred in the estate tax case) but rather from “closely divided government.”
As McCaffery and Jones highlight, “[h]istorically, private equity has supported Democrats.” And, because of their overall approach on taxes, Democrats have been able to mount the more credible opposition to the loophole. Presidential candidate Hillary Clinton campaigned on the issue, even vowing “to use her regulatory authority” to do something. This prompted “an opportunity to Trump to play the principled hero” on the issue, “tweaking Clinton.” McCaffery and Jones document how then-candidate Trump campaigned on the issue but, once in office, left the negotiations with “Wall Street players who would be predictably sympathetic to the break.”
President Trump was, however, able to create a plausible threat of action by Republican legislators, leading to a large, new infusion of private equity contributions for Republicans, most notably for Senator Collins. The authors recount how Senator Collins made a day-long threat to increase the holding period to more than 8-years as part of the 2017 legislative process, which because it might have done something, “set off a flurry of concerned communications.” She backed off, and ProPublica reporters later uncovered that she received more campaign contributions from private equity than any other senator.
Enactment of § 1061 in turn allowed Democratic legislators in 2022 to plausibly propose increasing the holding period to more than five years, with Senators Manchin and Sinema (with an assist from Senator Schumer) reaping the most in contributions from private equity in the lead up to not actually changing § 1061.
The article concludes that in recent years, these legislative shakedowns “play[] out from simple assumptions about rational behavior”: legislators “need money”; “Congress has monopolistic control over the power to tax”; and at times a particular “politician (Collins, Manchin, Sinema) may have monopolistic power over Congress’s monopolistic power to tax.” Each party has been able to use the carried interest issue to take a turn at shaking down private equity.
The public is, for all practical purposes, not a party to the game because it is “a very long longshot indeed” that a citizen’s vote would turn on the carried interest issue. As a result, reverse-Mancur Olson gamesmanship plays out “in plain sight.” Because it is a manifestation of rational behavior by all the players, McCaffery and Jones conclude that there are not “magic answers” to the carried interest problem (or to other manifestations of the phenomenon for that matter).
The article notes, “If we are going to get money out of our politics, we must get the reasons that money is in politics out of our politics. As long as a complex set of tax laws allows opportunities for lawmakers to use their taxing power to fundraise, the games will go on…” While the overall arc and tone of the article is fairly bleak—albeit in a witty and entertaining way—the authors’ case study persuasively emphasizes the necessity of “better watch[ing] the watch dogs” through calling out the process by which lawmakers are leveraging the tax system to fundraise.
Jan 22, 2026 Adam Rosenzweig
Conor Clarke & Ari Glogower,
Apportioned Direct Taxes, 79
Tax L. Rev. __ (forthcoming 2026), available at
SSRN.
In June 2024 the Supreme Court issued its decision in Moore v. United States, a case many had predicted would be one of the most consequential tax cases of the past century. Instead, however, the Court managed to avoid deciding the most difficult and consequential issues by reframing the case and ruling on narrower, more technical grounds. Yet Moore may well still prove as consequential as expected, but for a different reason– that, for the first time, the Court explicitly utilized the “history and tradition” to interpret the taxing power, stating that “the Sixteenth Amendment expressly confirmed what had been the understanding of the Constitution before Pollock …” In doing so, Moore also serves as an invitation to to reconsider the historical record and understanding of the taxing power specifically with an eye towards shaping the Court’s modern interpretation of the Constitution.
Conor Clarke and Ari Glogower take up this cause in their new article, Apportioned Direct Taxes (ADT). The authors have two primary goals in ADT: (1) to provide a comprehensive survey of all “direct tax” legislation adopted by Congress prior to the Sixteenth Amendment including not only legislative history but administration and enforcement considerations as well, and (2) to identify what if any lessons emerge from that survey to help the courts to interpret the breadth and scope of the term “direct taxes” as used in the Constitution.
With respect to (1), by considering every direct tax adopted by Congress holistically, ADT identifies big picture themes which might not have necessarily emerged looking at each tax in isolation. Among these include: the willingness of Congress to experiment with various forms of direct taxes, the role of flexibility and responsiveness in the administration of direct taxes, and the trend over time away from direct taxes towards income taxes. These findings often complement much of the conventional wisdom regarding direct taxes but at times even contradict, or at least seriously call into question, many current assumptions regarding the scope of nature of actual direct taxes. For example, a commonly repeated adage in the tax literature provides that apportionment is unfeasible in the real world, which in turn suggests that any direct tax would be effectively unconstitutional per se. ADT challenges this assumption by describing real-world examples of Congress in fact adopting direct taxes that were actually apportioned; thus, while it may remain true that apportionment may not be practicable for Congress to adopt in today’s world, that is different than saying the historical record does not support any claim that apportioned direct taxes necessarily fall outside the scope of the taxing power itself.
Most importantly, however, ADT does not claim to be legal history qua history, nor does it claim to make the same contribution to the tax literature as an archival historian might. Rather, ADT utilizes history to take the “history and tradition” standard seriously as a means of guiding the scope and breadth of the modern interpretation of the Constitutional taxing power. To this end, ADT does not try to use the history to justify a particular interpretation but rather allows the descriptive history section to speak for itself and allow themes to emerge naturally from the historical narrative. In this manner, ADT could also be implicitly asking the reader to confront their own potential assumptions and/or normative priors and try, if possible, to reconsider the question from a blank slate (so to speak).
One of the most intriguing examples involves the timing of apportioning a real world tax to comply with the Constitutional apportionment requirement: at the time the tax is enacted, the time it is collected, both, or other? Perhaps surprising to some, ADT concludes that direct taxes in the past were apportioned at the time of enactment and not the time of enforcement or collection to allow the flexibility necessary to administer a real tax in the real world. The implication is that a direct tax enacted by Congress could be apportioned among the States based on population on its face and then it should be considered to satisfy the Constitutional apportionment requirement regardless how it actually ends up being collected and/or implemented In turn, ADT reaches what is perhaps a surprising conclusion to some–that under the Court’s own “history and tradition” standard the “direct tax” power may actually be broad, flexible, and pragmatic rather than impracticable and constraining as is often argued in the modern tax literature.
In this respect, ADT highlights a subtle but real internal tension within the “history and tradition” standard itself–that the more complexity and nuance is added to the historical narrative, the harder it becomes to identify any one clear lesson (or doctrinal standard) from that narrative. If true, could the inevitable conclusion of the “history and tradition” standard ultimately be doctrinal ambivalence in much the same manner as Llewellyn famously demonstrated for canons of construction? Further, at what point should the Court consider the historical record “closed” for purposes of interpreting the taxing power and what if new evidence is discovered after that point that would fundamentally change the historical understanding of the taxing power? Which should control–old precedent or new history? Taken to its logical extreme, rather than serve its intended purpose of anchoring or constraining judicial interpretation of the Constitutional taxing power could the “history and tradition” standard actually prove to do the exact opposite?
Of course no single article can address, let alone answer, all of these questions, and there is no way to know if the conclusion reached in ADT will ultimately win the day, but the mere fact that ADT forces the reader to confront such questions by addressing them with sincere academic rigor represents an important and valuable step in the right direction.
Dec 18, 2025 Emily Satterthwaite
Direct international aid flows directly to individuals and communities in the form of such essentials as food, water, medicine, and cash. As humanitarian crises erupt around the world, this form of assistance has become both politically contentious and more necessary than ever. Yehonatan Givati’s timely new paper, Income and Preferences for International Redistribution: Theory and Evidence, offers an enlightening framework to think about patterns of support for such aid programs. It builds on theoretical and empirical research that has established a relationship between preferences for domestic redistribution and income: poor citizens will likely support rich-to-poor redistributive policies within their own countries more than rich citizens. But what about international redistribution? How might an individual’s relative income level influence her support for internationally redistributive policies?
Givati begins by observing that the relationship between income and preferences for international redistribution is much less obvious than in the domestic context. Because lump-sum international redistribution must be financed through higher taxes, higher-income individuals have more to lose from international redistribution. This implies a negative relationship between income and support for international redistribution. At the same time, lower-income individuals may perceive that, given fixed funding levels, international redistribution will come at the expense of domestic redistribution. This implies a positive relationship between income and support for international redistribution.
To untangle these intuitions, Givati proposes a model in which a rational, utility-maximizing representative individual works and consumes. The individual chooses amounts of labor and leisure to maximize her utility, which is derived from consumption and leisure, plus two further elements: (1) she has altruistic preferences for a lump-sum “domestic grant” (like a universal basic income) that is paid to each individual within her country and (2) she also has altruistic preferences for a lump-sum “international grant” that is paid to each individual within a group of foreign countries. (P. 7.) In the model, the lump-sum domestic and international grants are financed by proportional (flat) income tax rates, so each of the taxes, by definition, is redistributive. (P. 6.)
The model allows Givati to assess the effect on an individual’s utility of an increase in the tax that finances international redistribution. Again, there are arrows pointing in opposite directions. On one hand, a tax increase (weakly) increases her utility because it provides more international redistribution and the individual has altruistic preferences. On the other hand, a tax increase distorts her labor-leisure choice. The increased tax causes her to work less even if the domestic grant tax rate does not change. This increases her leisure but decreases her income and leaves less income to be taxed to fund domestic redistribution. (P. 10.) This implies that an increase in taxes for international redistribution decreases utility. Balancing these effects on utility, the model gives us an expression for the optimal, utility-maximizing level of the tax that finances international redistribution.
From this expression, the paper can answer its central question of how the optimal level of tax that finances international redistribution varies with an individual’s income. Givati finds that an increase in income reduces the optimal level of the tax for international redistribution (P. 10): the cost of the program increases with income, but the benefit, including the indirect utility from the program, is fixed. This implies that there should be an overall negative effect on utility of an increase in taxes for international redistribution.
All of this makes theoretical sense. But is it true, in the real world? Does support for international redistribution really decrease as income rises? Or, as columnist Nicholas Kristof has put it, is it simply that “Americans are weary of international burdens and don’t feel it is their job to save every impoverished person?”
Somewhat amazingly (and Givati believes he is the first to use this data), four existing surveys share a question that asks about support, through taxes, for international redistribution. The 2000 and 2021 General Social Surveys (GSS), which are U.S.-focused, and the 1999 and 2019 International Social Survey Programs (ISSP), which are focused on other countries, include identical prompts, with which participants indicate their agreement on a 5-point scale: “People in wealthy countries should make an additional tax contribution to help people in poor countries” (emphasis mine). The prompts work well with Givati’s model because they contemplate direct aid to individuals and suggest the existence of two separate taxes, one for international redistribution and one for domestic redistribution.
These highly-relevant surveys allow Givati to assess whether poor people are more or less likely than rich people to support international redistribution within a given country. He first looks at the U.S. using the 2021 GSS data and, using both graphical evidence and ordinary least squares regression analysis with a range of controls, shows that there is a negative correlation between respondents’ support for international redistribution and their income. (P. 21.) Next, he investigates whether the correlation holds in other countries using the 2019 ISSP data, and finds that it does. (P. 23, Table 4.) He notes the possibility that a country’s status as rich or poor may affect whether the rich in that country support international redistribution more than the poor. He seeks to rule this out in two ways: first, by interacting the coefficient for the measure of respondents’ income with that for country-level GDP per capita (no effect found!) and, second, by breaking up the countries in the ISSP data into deciles by GDP per capita, and running regressions within each decile. On this latter test, for every one of the deciles, the coefficient on support for international redistribution is negative and statistically significant (P. 25, Table 5), meaning that no matter how rich or poor a country is, the negative relationship between income and support for international redistribution holds.
One might wonder: are the 2019 and 2021 data that Givati uses simply creatures of their times? Might preferences surrounding international redistribution have changed rapidly with the recent rise of populist politics and isolationist foreign policies? Only future surveys can tell. However, Givati shows that the correlation has historical stability: using the earlier datasets (GSS from 2000 and ISSP from 1999), he confirms a negative relationship between taxpayers’ income and their support for international redistribution. (P. 31-33, Table 8.)
Or, alternatively, maybe the poor are simply more generous than the rich? And the rich should aspire to be like the poor in this regard? These questions are beyond Givati’s scope. That said, I came away from the paper with a fervent-if-small-and-research-oriented hope: that the GSS and ISSP surveys will start asking, on an annual basis, about support for international redistribution. Regardless, Givati’s contribution offers needed insight into how support for international redistribution is itself distributed across societies.
Oct 30, 2025 Charlotte Crane
Reuven Avi-Yonah, Doron Norotzki, & Tamir Shana,
From Relic to Relevance, The Resurgence of Tariffs, 77
U. Cal. L. J. __ (forthcoming, 2026), available at
SSRN (Mar. 10, 2025).
There’s a lot of confusion about the justifications for and the consequences of tariffs in the news these days. The essay by Reuven Avi-Yonah, Doron Norotzki, and Tamir Shana entitled From Relic to Relevance, The Resurgence of Tariffs, attempts to remedy the situation. Its bottom-line conclusion is that it is extremely difficult to imagine a tariff system sufficiently robust to raise revenue adequate to replace the income tax even if revenue were the only concern. Moreover, it is virtually impossible to implement such a tariff without the real possibility of wreaking havoc on both domestic and international economies. The authors of Relic to Relevance (hereinafter “Relic authors”) want us all to understand why reliance on tariffs, especially as a replacement for the income tax, could be so dangerous.
As the Relic authors outline, introducing major changes in tax instruments is tricky business. In peace time, the United States Congress has rarely made such moves. The first time was the expected result of the adoption of the Constitution; expected because the need for a revenue source controlled by Congress and for uniform trade policy had been primary motivations for adopting a constitution to replace the Articles of Confederation. In its first substantive piece of legislation, Congress enacted the Act for Laying a Duty on Goods. This Act became law on the first Fourth of July celebrated under the new Constitution in 1789 (1 Stat. 24).
Even in those early days, the tensions outlined by the Relic authors between tariffs for protection and tariffs for revenue were present. James Madison had hoped to avoid the distortion of foreign relations that might occur as a result of ill-considered tariffs and tonnage duties. He further was aware of the domestic strife that could result from duties aimed at protecting domestic manufactures, especially when the cries for protection were regionally based. (These statements are contained, among other places, in Madison’s address to the House on Tonnage Duties). Congress nevertheless caved into the pressure to use its revenue-raising powers to provide an advantage to American shipping and to protect to nascent domestic industries.
But in 1789 the only realistic choices available to Congress for raising substantial amounts of revenue were either (1) a tariff imposed at a single rate on the value of all goods imported (generally referred to as an impost) or (2) a tariff that distinguished among types and sources of goods. (Tonnage duties on the ships used in trade, rather than on the goods being traded, might effectuate mercantilist trade policy but were never likely to raise much revenue. Property taxes, along with tariffs, had newly been permitted to Congress, but they require far more administrative capacity than the new Congress could muster, and they represented a far greater political risk.) The single-rate approach to taxing imports would clearly be the politically cleanest revenue-raising device. The latter—a tariff on specific goods—would, then as now, involve more political tension. As the Relic authors outline throughout the essay, the latter also involves a greater need for sophisticated calibration to avoid disastrously adverse economic consequences.
As is clear from the history recounted in Relic to Relevance, the use of the tariff for both protection and revenue has historically presented enormous challenges to the political institutions in the United States. Only after the income tax was introduced and later expanded during the First World War could Congress leave behind the friction and controversy associated with tariffs. In outlining this history, the Relic authors provide a valuable survey of the historical and economic literature on the subject of tariffs, and on the tax instruments most often thought to resemble tariffs.
Relic usefully provides a comparison of the political and economic ramifications of various revenue instruments available to the modern Congress. Relic also offers the reader several starting points for assessing whether a well-calibrated tariff system could possibly generate as much revenue as the federal government requires. Although the essay is written as if to outline the conditions that must be met in order to make such a tariff acceptable, it seems clear the authors ultimately are skeptical that these conditions can be met.
Cite as: Charlotte Crane,
Relics Reevaluated: How to think about Tariffs in a World Dominated by the Income Tax, JOTWELL
(October 30, 2025) (reviewing Reuven Avi-Yonah, Doron Norotzki, & Tamir Shana,
From Relic to Relevance, The Resurgence of Tariffs, 77
U. Cal. L. J. __ (forthcoming, 2026), available at SSRN (Mar. 10, 2025)),
https://tax.jotwell.com/relics-reevaluated-how-to-think-about-tariffs-in-a-world-dominated-by-the-income-tax/.
Sep 30, 2025 Susan Morse
Marilyn Hajj,
Waiter, Extra Tip, No Tax: A Distributional Analysis, 33
Geo. J. on Poverty L. and Pol’y __ (forthcoming, 2026), available at
SSRN (Feb. 1, 2025).
In Waiter, Extra Tip, No Tax: A Distributional Analysis, Marilyn Hajj offers a poverty law take on a classic and timely tax question: the taxation of tips. Her refreshing article avoids tax law’s knee-jerk opposition to a tax break for tips by offering an analysis that advocates for redistribution to low-income tipped workers. Although she does not give the tip tax breaks in the recently enacted One Big Beautiful Bill Act glowing marks, she explains that the new law would be preferable to the earlier status quo if it were better targeted and more accessible to low-income workers.
Hajj begins with the story of tipping, which traces to the “vails” expected by household staff at English homes in the 1700s. American tipping “seems to have originated in the traveling aristocracy.” After the Civil War, it developed into a custom of class and race bias. Hajj writes that Black workers in service jobs, for instance at restaurants or as railroad porters, received lower wages, and that employers used tips to justify this. The hospitality industry successfully defeated anti-tipping statute statutes; initially obtained an exemption from the federal minimum wage; and continues to take advantage of a “tip credit” rule that results, in some states, in an hourly minimum wage of $2.13 for tipped workers. Of tipped workers, 37% do not make enough to owe any income tax and 11.3% experience poverty, which is more than double the rate for non-tipped workers.
Hajj writes with the voice of a scholar immersed in both poverty law and tax law. Tax law professors like to teach Commissioner v. Duberstein, a 1960 Supreme Court case that categorized tips as taxable income due to the absence of “detached and disinterested generosity.” But Hajj is not interested in the usual tax law question of compliance for taxes on tips. She argues that whatever the merits of a broad income tax base, that base should not be broadened on the backs of the poor, especially when the rich enjoy tax breaks galore. According to Hajj, tax relief for tips should be an anti-poverty policy, tailored to maximize the benefits for tipped workers.
Hajj argues that an ideal tax break for tips would be structured as a deduction, not an exclusion, from income. This would enable tipped workers to continue to increase tax benefits that increase with income, such as the child tax credit and the earned income tax credit, even though they might lose some such benefits, particularly the EITC, based on tip income in higher-income phase-out ranges. The tip provision in the One Big Beautiful Bill Act enacted in 2025 does this, through a “between-the-lines” deduction available to both itemizers and nonitemizers and capped at $25,000.
Hajj’s ideal tax break for tips also would phase out, as the OBBBA tip provision does. It features a graduated phase out beginning at $150,000 and ending at $400,000 for single filers. But as Hajj argues, this means that the OBBBA’s tip tax break benefits many workers who earn far more than the average of about $32,000 earned by a restaurant server. Here, she writes, the tip deduction is poorly targeted and does not match anti-poverty policy. She prefers a “cutoff” at $75,000, which is closer to median family income. She also objects to the requirement that workers provide social security numbers and file jointly, since this disadvantages immigrant families. And she argues that the law should also find a way to require service establishments to pay the full minimum wage to tipped workers.
Another issue is which workers will be eligible for the tip deduction. The OBBBA limits eligibility to occupations that “traditionally and customarily” receive tips, an approach that Hajj endorses. She worries that otherwise new professions may game the system by structuring compensation to include tips. She seems persuaded instead by the historic story of tipping and by the logic that the tip deduction is, although inadequate, an appropriate way to address existing wage suppression.
As Hajj explains, the tip tax provisions also include relief for employers, who are incentivized to report tips by the Section 45B tax credit. This credit equals the payroll tax on reported tips that exceed the amount needed to bring wages up to a minimum wage threshold. The OBBBA expands this credit to include beauty service establishments. Also, employers get a larger credit if the minimum wage threshold is lower, and the OBBBA allows food and beverage establishments to continue using the 2007 hourly rate of $5.15 rather than the current hourly rate of $7.25.
The full picture of poverty law also involves non-tax benefits such as Section 8 housing vouchers, SNAP food assistance, and Medicaid. Here there is an interesting interaction that Hajj might explore more. The expanded Section 45B employer tax credit and the reduced incentive, because of the OBBBA deduction, for employees to prefer unreported tips might mean employers will report more tips than they used to. If they do, is it possible that the reported income of tipped workers will increase even if their actual income remains the same? That could decrease the availability of non-tax benefits under other programs.
Sometimes perhaps we get too attached to the tenets of tax law. It’s true that a deduction for tips disturbs our collective commitment to the calculation of taxable income as a broad and inclusive concept. But it’s a small ripple compared to the ability to delay tax on wealth appreciation until sale or other realization. Hajj’s perspective shows us another important side of the tip tax break issue.
Cite as: Susan Morse,
Taxing Tips Is Not Just About Tax Law, JOTWELL
(September 30, 2025) (reviewing Marilyn Hajj,
Waiter, Extra Tip, No Tax: A Distributional Analysis, 33
Geo. J. on Poverty L. and Pol’y __ (forthcoming, 2026), available at SSRN (Feb. 1, 2025)),
https://tax.jotwell.com/taxing-tips-is-not-just-about-tax-law/.
Sep 1, 2025 Afton Titus
This article’s importance lies in its boldness to say the quiet parts out loud–-that tax systems rely on gendered assumptions and reproduce inequality. In doing so, this paper argues that the tax systems in Europe (and others globally) quietly and invisibly discriminate against women. More importantly, this fact is somehow not the focus of comprehensive study in either feminist or political economy research, although this is slowly picking up traction in tax scholarship. This paper asks frankly: Why is taxation not more commonly treated as a site for gendered power? And what do feminist research and political economy scholarship lose by its invisibility? In short, this paper is an appeal for scholars to bring their feminist and political economy insights into the study of taxation.
As such, this paper is mainly addressed to scholars of political economy and feminist public policy. However, tax scholars may find themselves susceptible to this call as well. Tax scholars may see this paper as an invitation to anchor normative tax debates in political theory and feminist institutional analysis. It may also pique their interest to answer the questions Seelkopf very pointedly asks. These are questions like: How does the tax system in your jurisdiction affect women differently? Does your country still have joint filing, and what are its effects on women? What effect do VAT exemptions have on women in your jurisdiction? Seelkopf tackles both issues directly. Drawing on economic literature, she shows that joint taxation substantially raises the marginal tax rate faced by secondary earners, who are overwhelmingly women, thereby deepening gender‐based income disparities. Turning to VAT exemptions for feminine hygiene products, she finds that empirical studies on whether these lower prices or increase corporate profits are inconclusive, although there have been lower prices for non-brand products noted.
These are just a taste of some of the intriguing questions Seelkopf raises in her bold paper. Tax scholars may find this paper light on technical details, but that is perhaps the point. It argues that tax systems reproduce gendered power dynamics and says little on how specific tax instruments or laws do so; that is for the reader to fill in.
For me, what is most striking is the clarity with which this paper frames the very basic underpinnings of taxation into a gendered understanding. For instance, what could be more basic than the understanding that taxation is based on the acceptance of the social contract, meaning that the state must have an idea of who the average taxpayer entering into that contract is? Seelkopf explains that many tax systems today still rely on an outdated male-breadwinner model. This reflects a social contract where women are seen as secondary earners, dependents, caregivers whose tax contributions are either undervalued or unseen altogether. Then, when we seek to debunk this assumption by resorting to technical data we are confronted with the inability of datasets to do this very thing. In those produced by the OECD and many other countries, the assumption that the ‘typical taxpayer’ is either a single male or a male sole breadwinner in a nuclear family is still deeply embedded. Seelkopf makes a good point here. It is therefore heartening to see some literature addressing the implications of tax policies for women workers, and ways in which the social contract should change to reflect modern reality. However, there is still much that needs to be done.
This a sobering realization. But not, perhaps, a new one. What sets this paper apart for the message that it carries today, is that it is so clear about the loss scholarship suffers through this situation. By ignoring the gendered effect of taxation, both feminist and political economy scholarship miss how tax policy actively reproduces inequality and social hierarchies. Moreover, the absence of the link between gender and tax policies obscures key political economy puzzles in that it becomes harder to explain policy choices and fiscal legitimacy when half of the population’s fiscal relationship with the state is either mischaracterized or ignored. Finally, the absence of gender analysis exposes flaws in the basic categories and assumptions of political economy. Seelkopf explains how the use of ‘the household’ as a unit of analysis erases intra-household inequality, and how standard models assume a male subject as the normative taxpayer. This not only distorts empirical findings but also undermines the internal coherence of political economy models.
This paper is an excellent jumpstart for those seeking research interests. It accurately and succinctly identifies the research gaps while also detailing fascinating research questions springing from that gap–-questions which deserve to become research fields on their own. Moreover, it provides a compelling argument for creating and sustaining multidisciplinary research across taxation, political economy, and feminist public policy.
Jul 17, 2025 Neil H. Buchanan
Rebecca Morrow,
The Income Tax as a Market Correction, available at
SSRN (March 28, 2025).
The fundamental problem with orthodox economic analysis of policy issues is the lack of a clear baseline. That is, standard economic arguments revolve around moving the world from its currently impure and benighted “inefficient” equilibrium back to its idyllic efficient state (known technically as Pareto efficiency). Yet, as I have discussed here, we do not and cannot know what that perfectly efficient state looks like – or even how we would know it when we achieved it. In turn, that means that we do not know whether any particular legal change or policy intervention will move us closer to or further away from the efficient state of the world. Indeed, we might already be in that supposedly ideal state, which would mean that any changes would move us into a suboptimal world.
Rebecca Morrow’s The Income Tax as a Market Correction uses the inherent unknowability about what is and is not efficient to offer a profound (and also somewhat cheeky) retort to the many economists who call the income tax inefficient. Professor Morrow is right that having an income tax could be more efficient than not having an income tax – because, again, anything is possible in a world without a known baseline – but she goes further and argues that the income tax in the United States probably is more efficient than the alternative.
I have three small hesitations regarding Professor Morrow’s article that I should confess up front. First, any analysis that plays in the efficiency sandbox is potentially problematic in that doing so can reinforce the idea that efficiency is the “right” way to assess policy. Second, Professor Morrow could, and I believe that she should, have been even stronger in making her argument. Third, she makes a sub-argument in favor of the realization requirement, which I think is very bad policy on other grounds. Regarding my first concern, I can only say that the efficiency trope is so ubiquitous at this point that the marginal damage to the public and scholarly conversations that might be caused by reinforcing it is vanishingly small. On my second concern, I concede that Professor Morrow’s scholarly reserve is most likely more effective than my more contrarian approach might be. (Moreover, I am both an economist and a legal scholar, so I feel more comfortable openly criticizing my colleagues.) Finally, on my third concern, as the Rolling Stones put it, “we can’t always get what we want.” Reasonable minds can differ.
In any event, this is a law review article that I “like lots,” and I hope it will enjoy a wide readership.
In my own writing, most exhaustively in A Tale of Two Formalisms: How Law and Economics Mirrors Originalism and Textualism (with Michael C. Dorf), 106 Cornell L. Rev. 591 (2020), I have emphasized the baseline problem to point out that even if one were to aspire to economic efficiency – of which the famous economist and philosopher Amartya Sen once said: “A society can be Pareto optimal and still perfectly disgusting” – the choice of legal rules that can form a baseline is fully open-ended. That is, we can determine what outcome is Pareto efficient only after we have specified the contours of contract law, securities law, tort law, criminal law, and so on.
But nothing about efficiency analysis can tell us what those contours must be. There is a Pareto efficient outcome from market transactions in a world where human beings cannot own other human beings, but there is also a Pareto efficient outcome in a world where enslavement is legal. Even the smaller questions, such as whether patents should expire in 10 years or 75 – or whether to have patent law at all – are similarly open-ended and inherently impossible to answer using economic analysis (again, because they form the basis for economic analysis). I also discussed this problem in my 2021 jot: “Bringing Law and Policy Back from the Black Hole of Efficiency-Based Analysis: Another Important Step Toward Refocusing on Justice,” (reviewing work by Professors Jeremy Bearer-Friend, Ari Glogower, Ariel Jurow Kleiman & Clinton G. Wallace).
Professor Morrow opens her foray into this debate with a delightfully unexpected personal comment: “I confess. As a tax professor, it has long hurt my feelings that economists label tax as a market distortion. My field is summed up as an impurity on the otherwise pristine complexion of the economist’s pure market.” Quite so, and well said. She and every other legal scholar have long been told that they need to let the orthodox economists tell them what is and is not efficient, and there is no shortage of economists who rail at taxes for being an abomination against Professor Pareto. Her first paragraph alone is loaded with enough trenchant observations to justify the article’s existence, but I will limit myself to one more quotation, which is the last sentence of that paragraph: “After all, could a market exist without government enforcement of market rules, and could a lasting, functioning government exist without tax?“
That rhetorical question is an update of Justice Oliver Wendell Holmes’s famous line: “I pay my tax bills more readily than any others—for whether the money is well or ill spent I get civilized society for it.” Holmes expands the importance of paying taxes to civilized society itself, but Professor Morrow wisely narrows her gaze to the essential observation that we could not even have an economy without a tax system, because there would be no one to enforce the laws (and in fact no laws to enforce). Anarchy and nihilism are not good for business.
Ah, but why does Professor Morrow put her considerable argumentative skills behind the income tax specifically? After all, Holmes can get his civilized society with a government funded by wealth taxes, sales taxes, or anything else, so long as those taxes fund the government. The economy could then function without the income tax. Why should we prefer the income tax to other methods of financing the government?
Here, Professor Morrow shows her sophisticated understanding of economics and how orthodox economists do their work. Specifically, the standard move among economists is to find a market “imperfection” that a smart economist can correct with the right policy. The most well-known example of this is in environmental economics, where “market failure” results in too much pollution, making it possible to argue that reducing pollution is a move in the right (that is, efficient) direction.
Using that style of argument, Professor Morrow identifies people’s risk aversion as the offending market failure and then explains why the income tax causes people to be willing to take greater risks. Her analysis in Section II, explaining why an income tax “un-distorts” (my word, not hers) the distortion caused by risk aversion, is especially strong. Her bottom line is that the income tax uniquely serves this counter-distortionary role. In short, she is able to make a very standard analytical move (without having to blow up the entire notion of efficiency, which is what I would do) and show that the standard economic case against the income tax is flawed.
This is the kind of deep, clever scholarship that turns the orthodoxy back on itself. It is also very well written. Professor Morrow’s work is an impressive contribution to the literature.
Jun 19, 2025 Dorothy Brown
Professor Deanna S. Newton’s article, Closing the Opportunity Gap, is an example of the best of legal scholarship, one which provides a thorough critique of a well-known problem, but also engages with unique policy prescriptions designed to actually make a difference. The article discusses Opportunity Zones, introduced by the Tax Cuts and Jobs Act of 2017 and designed to “encourage investment in economically distressed areas by offering investors tax benefits.” (P. 1161.)
Professor Newton begins by acknowledging the most frequent critique of Opportunity Zones, namely “that most benefits from Opportunity Zone legislation go to wealthy investors rather than the residents within Opportunity Zones.” (P. 1161.) Her Introduction includes an anecdote about how then-Florida Governor Rick Scott designated a West Palm Beach area “that houses $100 million superyachts” as an Opportunity Zone area, but left behind “three low-income areas” because they did not receive such a designation. (P. 1162.)
Professor Newton describes clearly the tax game that is being played. If an investor profits $40 million from selling a business in 2018, and the $40 million gain is a capital gain, and the investor might be liable for $8 million in taxes. However, if the investor takes the $40 million gain and instead invests it in an Opportunity Fund (an investment vehicle to directly contribute capital to Opportunity Zones on the investor’s behalf) the investor could delay paying the $8 million in tax. If the investor keeps the Opportunity Fund investment for at least ten years, the investor won’t have to pay any tax on the difference between the purchase and sale prices for the assets originally invested in the Opportunity Fund. (P. 1163; Pp. 1173-75.)
The goal was for the Opportunity Fund to create benefits for marginalized communities. As Professor Newton tells us, “Unfortunately, Opportunity Zones have failed to meet this goal.” (P. 1163.) Opportunity Zones have contributed to gentrifying communities because they do not require residential retention or affordable housing programs. As Professor Newton deftly describes, when a community is undergoing gentrification, the community attracts new businesses and new people, which inevitably lead to higher land values and housing prices that existing residents cannot afford, with the result that existing residents are “ultimately… displaced.” (P. 1164.)
She points out the connection between Opportunity Zones and NFL Stadiums. For example, fifteen out of thirty NFL stadiums are located with Opportunity Zones, with three others next to Opportunity Zones. This allows NFL teams, stadium owners, and others the opportunity to invest in hotels, retail property, or mixed-use projects around the stadium, and receive tax breaks, all the while buying out community members and existing businesses, and pushing out others as property values increase. (And as we learned through Pro Publica reporting, sports team owners already pay low tax rates.)
Professor Newton points out that much of the scholarship addressing Opportunity Zones, with which she deeply engages, argues for their repeal. (Pp. 1176-80.) I have to admit, I was sympathetic towards much of that scholarship before reading Professor Newton’s article. She has made me re-evaluate my abolitionist mindset towards Opportunity Zones and similar tax credits. As Professor Newton describes her position, she “argues for a set of reforms that will make good on legislators’ and supporters’ good faith conviction that the Opportunity Zone program can benefit communities.” (P. 1165.) She argues for a framework that applies best practices and principles from community development scholarship, which insists “on active and direct participation by both community members and investors.” (P. 1165, emphasis in original.)
Professor Newton argues that Opportunity Zone incentives currently do not recognize the value of existing assets already in the community and do not engage the community and investors. She advocates for an interdisciplinary approach, and proposes two intriguing reforms: (i) first, that investors should be required to make a one-time “buy-in” or pay an “initiation fee” (P. 1202); and (ii) second, that a percentage of each Opportunity Zone should be reserved for current community members to invest in, which they will be able to do because the amount of the “buy-in” would be allocated to the community members and would fund their investment. She discusses the practicalities of how the amount of the buy-in should be determined (Pp. 1206-09); how the community fund should be managed (Pp. 1209-11); and how community members can accumulate assets through this approach (P. 1211-20.)
Professor Newton concludes by once again arguing that Opportunity Zones should be reformed based on community development principles. It is an argument with the potential to transform marginalized communities. “Opportunity Zone reform must include participation by investors and community members in the decision-making process, in program implementation, and in benefit sharing.” (P. 1221.) But the truly radical nature of her argument is how she envisions a future where existing community members financially and socially benefit from Opportunity Zones. Here’s hoping that Professor Newton’s vision materializes in the not-too-distant future.
May 21, 2025 Jon Choi
Work requirements are pervasive in American social safety nets: for example, the federal Earned Income Tax Credit and Child Tax Credit both only kick in after a taxpayer makes a certain level of income. Work requirements are controversial because they exclude the worst-off (including those who are unable to work) from receiving government benefits. One important reason that they remain is that conditioning benefits on employment is thought to encourage labor force participation. But is this really true? A remarkable new paper by Jacob Goldin, Tatiana Homonoff, Neel Lal, Ithai Lurie, Katherine Michelmore, and Matthew Unrath provides compelling evidence that, at least in the context of state child tax credits, the answer is no.
In Work Requirements and Child Tax Benefits, the authors rigorously study the effects of conditioning child tax benefits on work. Their primary focus is a 2022 reform in California that eliminated the work requirement for the state’s Young Child Tax Credit (YCTC). Before this change, families needed at least $1 of earned income to receive the full $1000 credit; afterward, even non-working families qualified. The authors complement this analysis with evidence from five other states with varying child tax credit designs.
The paper is remarkably comprehensive and assembles an impressive dataset, examining different samples including Medicaid recipients and Census data to capture flows into and out of employment. The authors employ a regression discontinuity design that compares labor force participation of mothers whose children turn six just before versus just after the end of the year (which determines eligibility for these young child credits). They also develop an innovative “placebo-based tuning” methodology to optimize their empirical specification.
Drawing on administrative tax data, the authors find that eliminating the YCTC work requirement did not meaningfully reduce maternal labor force participation. Their estimates are extremely precise—the 95% confidence interval excludes reductions larger than 0.35 percentage points. The authors validate this headline finding with a variety of thoughtful robustness checks, which answer virtually every question I had (and plenty more that I didn’t) about the internal and external validity of the project.
These findings challenge conventional wisdom about work requirements. The estimated effect of eliminating work requirements is small—up to an order of magnitude smaller than the effect found in prior policy simulations. This suggests that concerns about work disincentives from expanding child tax credit eligibility to non-workers are significantly overstated. The authors’ finding that eliminating these requirements has minimal impacts on labor force participation therefore provides important evidence as policymakers weigh the pros and cons of maintaining work requirements, both at the state and federal level.
Like all good research, this paper leaves us with new questions. Why are labor supply responses so modest? The authors suggest several possibilities—perhaps the EITC’s substantial work incentives already dominate decision-making, or maybe tax credit eligibility rules aren’t sufficiently salient to influence behavior. The paper therefore provides a useful starting point for various deeper dives on extensions to its core findings.
Overall, the authors have produced a careful, methodologically innovative paper with important policy implications. Their findings suggest that we may be able to expand child tax benefits to non-working families—reaching those who may need assistance most—without meaningfully reducing labor force participation. This is an important result and definitely worth a read for anyone interested in tax or poverty law.
Cite as: Jon Choi,
Do Work Requirements Matter? New Evidence, JOTWELL
(May 21, 2025) (reviewing Jacob Goldin, Tatiana Homonoff, Neel Lal, Ithai Lurie, Katherine Michelmore, & Matthew Unrath,
Work Requirements and Child Tax Benefits,
National Bureau of Economic Research (2024)),
https://tax.jotwell.com/do-work-requirements-matter-new-evidence/.
