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Relics Reevaluated: How to think about Tariffs in a World Dominated by the Income Tax

Oct 30, 2025 Charlotte CraneAdd a Comment

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.

Taxing Tips Is Not Just About Tax Law

Sep 30, 2025 Susan MorseAdd a Comment

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.

Invisible, But Taxed: Gender, Power, and the Tax State

Sep 1, 2025 Afton TitusAdd a Comment

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.

“I’m Not a Distortion, You’re a Distortion!”

Jul 17, 2025 Neil H. BuchananAdd a Comment

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.

Opportunity Zones: A Better Path Forward

Jun 19, 2025 Dorothy Brown1 comment

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.

Do Work Requirements Matter? New Evidence

May 21, 2025 Jon ChoiAdd a Comment

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.