The Journal of Things We Like (Lots)
Select Page

How Should We Think About Wealth Tax Avoidance?

Diana Onu, Lynne Oats, Erich Kirchler, & Andre Julian Hartmann, Gaming the System: An Investigation of Small Business Owners' Attitudes to Tax Avoidance, Tax Planning, and Tax Evasion, 10 Games 46 (2019).

A recently published empirical study by Diana Onu, Lynne Oats, Erich Kirchler, and Andre Julian Hartmann compares taxpayer attitudes towards acceptable tax planning, aggressive (yet legal) tax avoidance, and illegal tax evasion. While the study itself examines small business owners subject to income tax in the U.K., its implications should be of great interest to policymakers concerned about legal avoidance strategies with respect to any tax base. For example, aggressive but legal tax avoidance might be an important concern under recent wealth tax proposals in the United States.

As noted by the study’s authors, tax compliance literature has traditionally focused on the binary choice between compliance and evasion. That literature explores the various underpinnings of the decision to evade, from deterrence theory, to social norms, to attitudes that evasion is a victimless crime. But largely absent from this literature on individual taxpayers are studies of the motivations underlying aggressive, yet legal, tax avoidance strategies. In thinking about the U.S. tax system, this makes sense. Aggressive avoidance strategies are typically attributed to firms, where individual attitudes and other psychological factors are arguably less relevant. Evasion, on the other hand, is typically attributed to individual taxpayers (most often, sole proprietors), who often lack the resources to employ aggressive yet legal avoidance strategies. But if the U.S. were to adopt a wealth tax like the one proposed by Elizabeth Warren, the stakes or potential payoffs from avoidance might grow. If so, individual level avoidance strategies would presumably become much more commonplace.

So what do we know about the psychological factors that motivate legal tax avoidance, as distinct from evasion? It turns out, not much, but the study by Onu, Oats, Kirchler, and Hartmann sheds some light on this question.

In the study, 330 small business owners in the U.K. were surveyed using a 7-point Likert scale to gauge how they would respond to hypothetical scenarios involving tax minimization strategies. For example, participants were asked how likely they would be to participate in a tax scheme that uses an offshore intermediary if an accountant endorsed it as a legal method to generate significant tax savings. The responses reveal that participants differentiate three types of behavior ranging from least compliant to most compliant. The behavior types include what the authors describe as: (1) “tax planning” (saving tax in a manner intended by the law); (2) “tax avoidance” (complying with the letter of the law but not its spirit, solely for the purpose of saving tax); and (3) “tax evasion” (illegal practices like concealing income).

The study also surveyed participants on various attitudes towards taxes, including personal norms, social norms, fairness, perceptions of audits and penalties, knowledge of the tax system, and the seriousness of evasion. This allowed the authors to use a linear regression analysis to link particular attitudes to tax planning, tax avoidance, and evasion.

The study revealed some interesting distinctions. The likelihood of engaging in tax planning was linked to “the belief that the tax system is flexible and …[may] be used for tax efficiencies,” as well as having high levels of confidence in one’s knowledge about taxes.

The likelihood of engaging in tax avoidance was similarly associated with a belief that the tax system is flexible. However, tax avoidance was also linked to beliefs that the tax system is unfair and that it can be exploited for profit, and to “low personal norms of public good contribution” (i.e., low tax morale).

Tax evasion was not associated with beliefs about the tax system at all. Rather, people who indicated willingness to engage in tax evasion were those who did not perceive tax evasion to be a serious crime, and who had low tax morale.

In sum, both tax avoidance and tax evasion are associated with low tax morale but tax planning is not. Importantly, the predictors of tax avoidance and tax evasion also differ. While avoidance is associated with a belief that one is treated unfairly by the tax system, evasion is associated with a view that it’s a trivial crime.

These findings have enormous implications for tax compliance scholars and policymakers. If we extend the traditional focus of the tax compliance literature beyond evasion to include legal avoidance strategies, the importance of taxpayer beliefs becomes much more important. While perceptions of fairness, for example, appear to be relatively unimportant to the decision to over-claim business deductions (evasion), they appear to be highly relevant to the decision to adopt legal yet aggressive avoidance strategies like moving assets offshore.

This brings us back to wealth taxes. As many commentators have pointed out, a major downside of a wealth tax is the administrative cost and efficiency loss resulting from sophisticated and highly resourced individuals attempting to avoid it. Although not aimed at wealth tax compliance, the study by Onu, Oats, Kirchler, and Hartmann sheds some light on the factors that would predict such avoidance. If we think perceptions of unfairness or other negative beliefs are particularly high in the U.S., we have reason to think wealth tax avoidance may be more prevalent than income tax evasion.

Perhaps most illuminating about linking tax avoidance to taxpayer attitudes is the following point made by the authors: “Of course, capturing what is moral at any given time is difficult….[T]he definition of what is acceptable practice is socially-situated and will shift in different historical periods or social groups.” In other words, attitudes about what constitutes unacceptable tax avoidance versus appropriate tax planning are context-specific and likely to shift over time. This point is highly relevant to the current debate over wealth taxation in the U.S. Some commentators have argued that wealth taxes are feasible because, in the past century, the U.S. has taxed rich people at much higher rates than it does now, which shows that collecting more taxes from the rich is possible (i.e., won’t necessarily trigger total avoidance). While this point has merit, there is also reason to be cautious about whether our historical experience can be relied upon.

It may be that the high marginal rates throughout much of the 20th century were possible because beliefs about the tax system were much different than they are today. For example, if today’s taxpayers have low tax morale and perceive that they are being treated unfairly by the tax system, we may in fact see more legal avoidance than in years past. The study by Onu, Oats, Kirchler, and Hartmann suggests that taxpayer beliefs may be one of the most important drivers of avoidance behavior. Policymakers would be well advised, therefore, to take such beliefs into account in designing taxes and take steps to combat low tax morale and perceptions of unfairness.

Cite as: Kathleen DeLaney Thomas, How Should We Think About Wealth Tax Avoidance?, JOTWELL (February 10, 2020) (reviewing Diana Onu, Lynne Oats, Erich Kirchler, & Andre Julian Hartmann, Gaming the System: An Investigation of Small Business Owners' Attitudes to Tax Avoidance, Tax Planning, and Tax Evasion, 10 Games 46 (2019)),

Writing Books Versus Journal Articles

Why write a book rather than journal articles? Insofar as we write for ourselves, it’s a function of the project. Some ideas for projects may best lend themselves to articles, but others may need to be book-length in terms of their scope. But we also write for other people, and one great thing about being an academic is that you have wide entrepreneurial choice regarding which audiences you wish to reach—be it in general, or project-by-project. There’s no right or wrong about it (well, maybe there are better and worse choices sometimes), any more than novels should all fit in a particular genre, or scientific research should restrict itself to a particular subject area or methodology. There’s also no right answer as between the aims of advancing knowledge, engaging in art for art’s sake, and attempting to improve the world—all of these enterprises have value, and of course they often overlap.

Two outstanding recent books by prominent tax economists—Kim Clausing and William Gale—show how attempting to improve the world can overlap with advancing the other goals noted above through clear, lucid, convincing explanation and analysis. For the most part, Clausing and Gale explain things that some people already know, in addition to passionately advancing viewpoints to which I am generally sympathetic, although of course not everything they say is wholly beyond debate. Both books reflect admirable project choices by scholars who have done important original research to focus on amalgamation and explanation this time around, in response to the bad place where our country is right now across multiple dimensions (not limited to current political headlines). Clausing and Gale successfully communicate an urgency that even hardcore art-for-art’s-sake devotees will respect and admire as showing the authors’ commitment to valuable public service. But the books are also very different, in ways that help to show the lack of any single formula for making signal contributions to our society and discourse as a public intellectual.

Kim Clausing’s Open combines the case for embracing free trade, immigration, and global capital flows with that for vigorously addressing inequality and protecting the vulnerable. It explains not only why protectionism is such a wrong turn—although we should keep in mind the losers from wrenching economic change—but also how markets, properly bounded, can contribute to important social goals that go beyond those associated (to some, pejoratively) merely with neoliberalism. The book ends with a sensible package of proposals (including proposals for real international tax policy reform), which, in a saner political system than we have, we would surely be evaluating.

William Gale’s Fiscal Therapy examines America’s pervasive fiscal myopia. This is not just a matter of budget deficits—or, more broadly, the long-term fiscal gap between projected outlays and revenues—or even of that plus adverse global climate change. It extends also to that sometimes overused, but always under-implemented, phrase, investing in the future, such as through better education, healthcare, and infrastructure improvement. Gale not only explores one complex problem after another with clarity and balance, but offers comprehensive solutions that ought to attract widespread sympathy and dialogue from people of good faith with a broad range of ideological preferences.

Even experts who are unusually polymathic will learn a lot from these two books. But we also owe it to our public calling to help disseminate the issues, ideas, and analyses that Clausing and Gale so skillfully analyze and elucidate. They are each to be thanked both for performing a great public service, and for doing it so engagingly and well.

Cite as: Daniel Shaviro, Writing Books Versus Journal Articles, JOTWELL (January 23, 2020) (reviewing Kimberly Clausing, Open: The Progressive Case for Free Trade, Immigration, and Global Capital (2019). William G. Gale, Fiscal Therapy: Curing America’s Debt Addiction and Investing in the Future (2019). ),

Time to Banish Partnership Hybrids from Partnership Taxation?

Christine Hurt, Partnership Lost, 53 U. Rich. L. Rev. 491 (2019).

Christine Hurt’s Partnership Lost uses the developmental history and law of corporations and “uncorporations” to examine whether a principled justification exists for the differing tax regimes for subchapter C corporations as compared to subchapter K partnerships. As her Milton-evoking title suggests, Hurt describes an early, prelapsarian partnership state, dating to the creation of the income tax. The early partnership form did not spare its owners from personal liability, did not grant them dominion over an entity with perpetual life, did not provide them with the ability to transfer ownership freely, did not permit them to rely passively on the managerial efforts of others, and did not allow them to circumvent fiduciary obligations to each other and to the partnership.

Hurt describes the modern “hybrid” partnership in comparison to this early partnership model. She sets out the developments in the uniform acts and state laws, particularly those of Delaware, that have since allowed partnership hybrids to acquire desirable corporate characteristics, such as limited liability, passive investors, and centralized management, while remaining partnerships for tax purposes. The hybrid partnership, as an “uncorporation,” can avoid certain governance and other requirements. “The backstops against managerial opportunities” applicable to corporations often do not apply. The result is that “[t]he hybrid entity is more corporation-like than the corporation.”

These developments did not occur in a void. As Hurt explains, tax partnerships have generally enjoyed an overall tax rate lower than the aggregate tax rate faced by corporations and their owners. Those steeped in entity taxation will recognize that the characteristics missing from the posited early partnership form are essentially the Kintner factors from tax law, which prior to 1997 were used to evaluate on a case-by-case basis whether a state law entity would be taxed as a subchapter K partnership or as a C corporation. Current tax law’s check-the-box regulations, which replaced the Kintner entity classification regulations, now allow virtually any unincorporated, multi-owner, domestic business to be taxed under subchapter K.

The tax arbitrage possibilities opened up by the advent of check-the-box have been written about widely, but Hurt highlights that the impact of Kintner factor repeal was not limited to the tax sphere. Hurt explains that the general partnership constrained “agency problems more effectively than the corporate structure,” and “[a]rguably, the presence of those partnership characteristics served as necessary backstops to managerial opportunism, and made other agency safeguards present in corporations unnecessary for investor-partners.” Loss of the Kintner factors meant loss of their “attempt to isolate the fundamental tension in corporate law: the separation of ownership and control.” Hurt thus provides a critique of the check-the-box regulations grounded in governance considerations that complements critiques grounded in tax policy. By gathering into one article the major developments in the tax and non-tax law of uncorporations, Hurt makes starkly clear the fig-leaf dimensions of the justifications for the check-the-box regulations.

Hurt argues that modern partnership hybrids have fallen from the early partnership form state of grace and should not enjoy the fruits of pass-through taxation. Hurt does not rule out that an integrated tax for business entities may be the better approach. But, assuming a continued division between pass-through and corporate taxation, she suggests three substantive characteristics that could provide support for offering some entities pass-through taxation. These three characteristics are (1) smaller size, including consideration of “income, revenues, or assets” and not simply the number of owners; (2) active involvement of owners, including use of the Howey test from securities law to distinguish owners who are like sole proprietors from passive investors who intend to profit “solely from the efforts of others”; and (3) the absence of owners’ ability to demand payment of investment returns through buybacks or distributions. Application of these characteristics would support allowing “active owners of small, livelihood businesses” to remain tax partnerships, but would prevent other entities and owners from accessing pass-through taxation. Elsewhere in the article, Hurt discusses differences in the contracting abilities and fiduciary obligations among entities, but stops short of discussing whether this could change which entities should be eligible for pass-through taxation.

Hurt contends that now is an opportune time to banish hybrid partnerships from pass-through taxation. Because of the reduction to the dividend tax rate (added in 2003) and to the overall corporate tax rate (added for 2018), the statutory rate differential between tax partnerships and C corporations is smaller than it has been for some time. As a result, the expulsion may be less painful. Hurt also notes that given the current similarity in tax rates among business entities, the C corporation might even be a preferred form. Hurt notes, “The ultimate question is this: If there is no tax advantage to being either a corporation or a partnership, then which form emerges the victor?” Hurt speculates that, in spite of the contractarian flexibility available to hybrid partnerships, state law corporations would be preferred because of the various transaction costs associated with subchapter K.

Hurt’s article provides an engaging overview of the co-development of subchapter K access and uncorporation law. To be sure, the breadth of coverage means that the impact on that co-development of tax-focused nuances—such as the differences between the pass-through regimes of subchapter K and subchapter S—does not receive elaboration. But the article is not aimed at critiquing the details of pass-through taxation; rather, it makes an argument grounded in business entities law. Hurt writes that in a system where “entities classified as partnerships can bear more corporate characteristics than partnership characteristics, providing those entities with tax advantages originally reserved for small, livelihood businesses seems perverse.” Hurt is persuasive in demonstrating that, having clothed themselves with the characteristics of corporations, hybrid entities should not continue to have access to pass-through taxation by mere avoidance of formal incorporation.

Cite as: Charlene D. Luke, Time to Banish Partnership Hybrids from Partnership Taxation?, JOTWELL (December 16, 2019) (reviewing Christine Hurt, Partnership Lost, 53 U. Rich. L. Rev. 491 (2019)),

A Do-Over for the Tax Unit

Margherita Borella, Mariacristina De Nardi, and Fang Yang, Are Marriage-Related Taxes and Social Security Benefits Holding Back Female Labor Supply?, NBER Working Paper No. 26097 (July 23, 2019), available at SSRN.

There has been a surge in empirical literature examining gendered patterns of behavior and outcomes across numerous economic contexts, especially choices within and across families. Relatively little of it has focused explicitly on how the basic structure of our tax laws interacts with and influences such choices. Encouragingly, a recent working paper by Margherita Borella, Mariacristina De Nardi, and Fang Yang does exactly that.

Borella, De Nardi, and Yang (BD&Y) study two key policies within the U.S. tax-transfer system: joint income tax filing for married couples and access to Social Security benefits for spouses. The joint income tax filing rule means that a married secondary earner will owe income tax at the marginal rate established by “stacking” her income on her spouse’s income, which generally is a higher rate than would apply if the secondary earner was single. Social Security benefits also increase to account for an earner’s spouse, but do not increase to account for an earner’s unmarried partner.

Both of these policies are gender-neutral on face; however, the background conditions under which they operate are not. Lower average female wages, hours, participation rates, and overall weaker attachments to the formal labor force as compared to males imply that, for the average heterosexual married couple, secondary earners are female. Conceptually, joint tax filing’s income-stacking effect penalizes married women in the same way that its income-splitting effect benefits married men. These same factors plus longer female lifespans set up Social Security’s spousal benefit rules as additional potential deterrents to formal market work for women. In light of these patterns, BD&Y pose their research question: “to what extent does the fact that taxes and old age Social Security survivor benefits depend on one’s marital status discourage female labor supply and affect welfare?” (P. 2.)

This is a terrific question that has been difficult to answer without a natural experiment or an elaborate decades-long field trial. BD&Y address it with an original modeling and computationally intensive empirical approach that proceeds from rich survey data (see the discussion below the line for a brief summary). Their model considers a series of factors that have not been part of prior models, such as the possibility of non-discrete changes to male labor force participation as a result of women’s participation choices, the non-childcare costs of working for non-parents as well as parents, and the relationship between market wages and shadow non-market wages. Like all structural models of economic behavior, BD&Y’s model begins from some strong assumptions. But the additional factors BD&Y take into account arguably aren’t just bells and whistles: marriage-based rules are likely to affect, and interact with, many dimensions of behavior. Thus, BD&Y’s model helps broaden researchers’ scrutiny to new mechanisms that may be at play.

BD&Y rely on two sources of data to answer their question: the Panel Study of Income Dynamics (PSID) and the Health and Retirement Survey (HRS). Within this data, the authors focus on two distinct cohorts of individuals. They study the cohort born 1941-1945 because “their entire adult life is covered by the PSID…and then by the HRS…we have excellent data over their entire life cycle.” (Pp. 3, 9.) They also study the cohort that was born ten years later (1951-55) because its data also spans a good part of their lifecycle and, importantly, the labor force participation patterns of the 1955 cohort are higher than the 1945 cohort and broadly similar to that of later cohorts. (Pp. 4, 57.) BD&Y use data on about 5000 individuals that were born in the relevant years. (P. 57.) They then use computational methods to “simulate a representative population of people as they age and die” (P. 24) and choose the parameters of their model so that nearly 450 different “fit” criteria (such as averages and other statistical measures) that the data generates looks like those in the observed data. These parameters are crucial determinants of individuals’ decisions about whether and how much to work, consume, and save over the full course of their working lives and into retirement. Then, they are able to change one of the “structural” features of their model—how married individuals file taxes—and observe how people would behave under this different scenario.

The result is pretty staggering. When BD&Y estimate their model for the 1945 cohort under the assumption that married persons file taxes as single individuals rather than jointly, they predict that the single-filing system would increase married women’s labor participation by more than 20 percentage points from age 25 through age 35 as compared to the status quo.(P. 39.) From ages 35 to 60, married women’s participation would be 10 percentage points higher. Single women’s participation also would increase slightly until age 60. The mechanism here appears to be that many women expect to get married and, once joint tax filing is removed, they adjust their participation accordingly. (P. 39.) According to Figure 10 in the paper, the participation of single men holds steady; after age 60, married men’s participation falls slightly. (P. 38.)

What is the effect of removing joint tax filing on workers’ incomes from labor? The authors discuss only their estimates of the effects of eliminating both joint tax filing and Social Security’s marriage-based rules. When both policies are changed, there are strong responses. BD&Y find that increased female labor market experience pushes up married women’s wages by about 5% and that this, together with the drastic rise in participation and a moderate increase in hours worked for each woman working, drive significant female labor income effects for both the 1945 and 1955 cohorts. (P. 41.) For the 1955 cohort, Figure 13 charts labor income increases for married women as being about $5,000 to $6,000 higher annually (in 2016 dollars) for nearly all pre-retirement years.  Average annual labor income for single women also increases significantly.  Male labor income remains stable until about age 50, at which point it falls moderately (about $1,000 per year) until age 65. (P. 41.)

These results underscore the centrality of policies that narrow the gap between females’ and males’ labor supply choices, particularly earlier in their careers. For men and women alike, BD&Y’s results echo other studies in finding that accumulated human capital from work experience has a greater influence on wages than other factors like education. (Pp. 25-26.) Robust female participation, particularly during lifecycle years when their children are likely to be small, lays the groundwork for greater wage and income equality later in the lifecycle. BD&Y’s paper provides evidence that joint filing discourages this outcome.

In going to great lengths to estimate rigorously the impact of a core structural element of the U.S. income tax (joint filing), BD&Y have done valuable work. Their findings are not presented as a rallying cry for revisiting longstanding normative questions about gender (in)equality’s role in the design of tax policy. But the larger context invites such a read. At bottom, this paper provides new empirical support for the premise that gender belongs at the center of tax policy debates about inequality.

Situating BD&Y’s Model and Empirical Approach

The authors address their research question in four steps.

First, they model the structure of individuals’ preferences about whether and how much to work, consume, and save each year across their adult lives. The model features three distinct lifecycle periods: working years, early retirement years, and retirement years. It posits a set of constraints that varies across each stage; each of these constraints takes into account gender, year, and marital status. The model includes wages (more on this), shocks to wages, fixed non-childcare costs of working such as commuting, costs of raising children, purchasing childcare, accumulated earnings, assets, Social Security benefits, Medicaid, SSI, medical expenses, and death, among other variables. The tax environment experienced by each individual varies by cohort, year, and marital status as reflected in the PSID data and the National Bureau of Economic Research’s TAXSIM simulation program, which allows for negative tax rates including the EITC. (Pp. 16, 73-75.)

Second, BD&Y use data for the cohorts born in 1945 and 1955 to simulate larger representative datasets for each cohort. Specifically, they “use the model to simulate a representative population of people as they age and die, and we find the parameter values that allow simulated life-cycle decision profiles to best match…the data profiles for that cohort.” The mechanics of this involve matching 448 different “moments” (population averages) for each of the two cohorts. (P. 24.)

Third, they generate estimates of their structural model to learn how labor supply responds to taxes and Social Security for each cohort. The authors explain that “to have reliable solutions, we compute them brute force [using numerical methods] on a [discretized asset] grid.” (Pp. 24, 76.) Buried in one of the many appendices is the statement that “[e]stimating the model for one cohort implies solving it thousands of times, which thus requires at least 3 or 4 weeks each time…to check for local minima, robustness, and so on.” (P. 77.) Kudos to them for not giving up.

Last, BD&Y investigate the counterfactual of removing the marriage-based tax filing and Social Security policies. In particular, the revised model subjects married individuals to the tax and Social Security functions that would be applied in a given year to similarly situated unmarried individuals. Methodologically, this is the main payoff to using a model like BD&Y’s: “[t]he basic gain from using the structural models is that they allow a better understanding of the mechanisms and analysis of counterfactuals.” (Pp. 42, 44.) In addition, it allows BD&Y to say something about how policies affect welfare. Would eliminating the marriage-based policies result in an increase or decrease in overall “value” to different groups of individuals in each cohort? BD&Y use a series of value functions, which are akin to dollar-denominated translation of utilities (P. 17), for nine different groups. The groups correspond to the model’s three lifecycle stages for each of three marriage/gender statuses (single male, single female, and married male-female couple from which individuals’ value functions are derived). (Pp. 17-23.)

Cite as: Emily Satterthwaite, A Do-Over for the Tax Unit, JOTWELL (November 22, 2019) (reviewing Margherita Borella, Mariacristina De Nardi, and Fang Yang, Are Marriage-Related Taxes and Social Security Benefits Holding Back Female Labor Supply?, NBER Working Paper No. 26097 (July 23, 2019), available at SSRN),

Constructing Doctrines for Modern Legislative Realities

Jesse M. Cross, The Staffer's Error Doctrine, 56 Harv. J. Leg. 83 (2019).

In recent years, legal scholars have begun to focus in earnest on the realities of the legislative process. Just to name a few topics, this research has included studies about congressional drafting and canons, agency involvement in legislative drafting, how legislative drafting has changed over time, how statutory drafters make discrete drafting decisions, and much more. Understanding these realities is essential to how we use, and make meaning of, the statutes that pervade our legal system.

Jesse Cross’s recently published article, The Staffer’s Error Doctrine, is an important contribution to this body of work. In this article, Cross provides a deep account of how Congress has come to rely upon what Cross calls a “staffer delegation model.” Cross explains that Congress has not always relied so extensively on congressional staff to draft legislation. Rather, Congress previously used a mix of committees and delegation to agencies. Cross argues that concern over executive power, along with expanded internal bureaucracy, has prompted Congress instead to increasingly turn to an army of congressional staffers to draft legislation. As Cross explores, members of Congress have acknowledged that this turn to staffers gives staffers not only clerical tasks, but also significant power to make policy through legislation. And, as Cross persuasively argues, this is a systematic byproduct of a Constitution that creates generalist legislators, notwithstanding a world that increasingly requires subject-matter experts to create good law.

Cross embellishes this staffer delegation model by answering a puzzle not yet addressed by the legal literature: If members of Congress only concern themselves with legislation at a high level and staffers engage in the nitty gritty of legislative drafting, how do members of Congress learn about what is in the legislation and how much do they actually learn? Drawing on his own experience as a drafter of congressional statutes and interviews with twenty-five congressional staffers, Cross reports that members of Congress overwhelmingly rely on memoranda, summary documents, briefings, and conversations for their information about proposed legislation. Critically, many of Cross’s interviewees emphasized the premium placed on brevity and high-level summaries in these staffer reports. This yields what many referred to as the “one-page rule,” which, at least in many chambers, requires staffers to distill often extremely lengthy and complicated proposed legislation into one page of high-level text for members of Congress. To be sure, Cross details how these one-page summaries are often accompanied by other information, including conversations between staffers and members of Congress. But these conversations are also often high-level and brief, leaving staffers with the principal responsibility for the content of legislation. Cross’s exploration of the staffer delegation model through details such as the one-page rule crystalizes in a particularly poignant way how members of Congress themselves have ceded the detailed work of actually drafting and reviewing the laws that they pass.

In so crystallizing this phenomenon, Cross forces us to more seriously consider a question that has been an undercurrent in much of the recent legislation literature, but has not received sustained attention: how can we legitimate staffers’ extraordinary roles in the legislative process? Cross argues that staffers have become a modern bureaucracy themselves, akin to the administrative state. This leads Cross to propose a “staffer’s error” doctrine, which would “direct judges to identify instances in which the work product of staffers (viz., statutory text) undermined rather than advanced decisions made directly by members of Congress (viz., the selection of overarching policy goals).” Cross even offers a persuasive case that this is what the Court was doing in King v. Burwell, even without having explicitly embraced this doctrine. Cross anticipates some of the objections a more transparent embrace of a staffer’s error doctrine: Congress actually votes on the legislation its staffers produce, unlike in the administrative context. However, Cross’s study helps push readers to consider how meaningful this distinction really is, given the realities of legislative practices.

Aside from deepening our knowledge about the legislative process generally, Cross’s work has practical significance for the burgeoning study of the tax legislative process. Shuyi Oei and I have studied how tax law drafters make particular drafting decisions. In more recent work, I have examined the many drafting mistakes that were made as part of the 2017 tax reform. The latter work details how agencies, like the IRS, often quietly go about fixing such mistakes, as was the case with the sexual abuse drafting mistake from the 2017 tax reform. How we feel about such fixes should include an understanding of the legislative process that went into making the mistakes. Cross’s article, with its elaboration of the “one-page rule” and other details, is a real contribution to this understanding.

Cite as: Leigh Osofsky, Constructing Doctrines for Modern Legislative Realities, JOTWELL (October 23, 2019) (reviewing Jesse M. Cross, The Staffer's Error Doctrine, 56 Harv. J. Leg. 83 (2019)),

Refashioning Anti-Abuse Doctrines As Substantive Canons

Jonathan H. Choi, The Substantive Canons of Tax Law, 72 Stan. L. Rev. ___ (forthcoming 2020), available at SSRN.

Jurists and legal scholars who think about methods and approaches for resolving questions of statutory meaning like to talk about traditional tools of statutory interpretation and the metaphorical toolbox in which those tools are kept. Textualism versus purposivism; the relative merits of text, history, and purpose; and the meaning and utility of both semantic and substantive canons are all common fodder for discussion and debate. Adding to the literature at the intersection of statutory interpretation and tax, Jonathan Choi offers an interesting and thorough treatment of why we ought to think of tax anti-abuse doctrines like the economic substance doctrine, the step transaction doctrine, and the assignment-of-income doctrine as substantive canons of statutory interpretation. (Helpfully, Choi provides a nice appendix, including footnotes, in which he catalogues substantive tax canons, including a couple of “not a canon” entries.)

Choi begins his article by surveying all of the reasons we ought to be dissatisfied with the status quo of tax anti-abuse doctrines. Courts and the IRS do not apply tax anti-abuse doctrines consistently. The Internal Revenue Code’s own terms sometimes contradict a particular tax anti-abuse doctrine, for example by requiring form to trump substance notwithstanding the doctrine preferencing substance over form, exacerbating the difficulty. Also, because tax anti-abuse doctrines are purposivist by nature and origin, they do not mix very well with the more textualist approach to statutory interpretation adopted by contemporary courts. Overall, the picture that Choi paints of tax anti-abuse doctrines is one of confusion and inconsistency.

Having identified the problem, Choi turns to his proposed solution, “the substantive canon framework.” Drawing from the literature and jurisprudence on statutory interpretation, Choi describes substantive canons as “inform[ing] the substantive meanings of statutes based on normative concerns.” A nontax example of a substantive canon is the rule of lenity, which calls upon reviewing courts to construe ambiguous criminal statutes to favor defendants, for reasons rooted in notions of democratic legitimacy and fair notice. Yet substantive canons are not necessarily purposivist in nature. Critically, given Choi’s account of the problems facing tax anti-abuse doctrines, textualists often rely on substantive canons to help resolve statutory meaning. Hence, Choi contends that courts should think of tax anti-abuse doctrines as substantive canons, and should employ them as such by asking two questions: first, whether the facts and circumstances of a taxpayer’s case suggest that a tax anti-abuse doctrine is relevant; and if so, then second, “whether statutory text or purpose rebuts this presumption.”

Central to Choi’s two-step framework is his characterization of substantive canons. As Choi acknowledges, some scholars and judges think of substantive canons as mere “ambiguity tie-breakers” that apply only “‘at the end of the interpretive analysis,’ after statutory text, legislative history, or whatever other tools the court prefers have still left the court ‘in great doubt’ about the statute’s meaning.” Choi disagrees and classifies substantive canons instead as rebuttable presumptions that apply “at the beginning of the interpretive analysis,” on the ground that “this is closer to how they are currently treated.”  In particular, he maintains that textualists actually are “more likely to use canons…as ‘safety valves’ that prevent formalist textualism from producing absurd results.” Well, perhaps. Regardless, Choi’s two steps clearly place the tax anti-avoidance canons at the beginning rather than at the end of the analysis.

Choi goes on to apply his two-step substantive canon framework to a handful of cases. And he then suggests that, even if judges do not want to adopt his approach, Congress can mandate it by codifying the tax anti-avoidance doctrines, much as it did in 2010 with Internal Revenue Code § 7701(o) and the economic substance doctrine (though, as discussed below, §7701(o) arguably leaves open a pretty critical question regarding the timing of the doctrine’s consideration). Finally, Choi addresses potential criticisms. He defends tax anti-avoidance doctrines as providing the sorts of background norms on which substantive canons typically are based.The tax anti-avoidance doctrines, he maintains, reflect longstanding and universally-accepted concepts that are familiar throughout the community of tax experts and lawyers more generally—so much so that drafters of tax legislation undoubtedly take them into account. Choi also contends that his substantive canon framework fits well with the nature of tax anti-avoidance doctrines, allowing courts to employ them in a more intuitive (and thus more consistent) manner.

Choi’s article contributes to the academic literature simply by engaging seriously and deeply in the tax context with the more general scholarship and jurisprudence regard substantive canons, though he is by no means the first scholar to do so. His treatment of tax anti-avoidance doctrines as substantive canons is not, however, purely theoretical. This fall, the Supreme Court will decide whether to grant a petition for certiorari filed in Tucker v. Comm’r, with former Solicitor General Gregory Garre as lead counsel, asking the Court to decide whether the economic substance doctrine is “properly invoked only as a tool for interpreting the meaning of tax laws,” or whether it may “be invoked to supplant any tax results that…stem from the application of clear, unambiguous, and mechanical provisions of tax law.” According to the Tucker cert petition, irrespective of Internal Revenue Code § 7701(o), the circuits are divided over exactly when to apply the economic substance doctrine, with some circuits relying on the doctrine more like an ambiguity tie-breaker, and others invoking the doctrine even where the Code’s text is unambiguous.

Neither the cert petition in Tucker nor the circuit court opinions it cites rely upon or address Choi’s substantive canon framework. For that matter, the taxpayer’s position in Tucker clearly would relegate the economic substance doctrine to the role of ambiguity tie-breaker, rather than the rebuttable presumption that Choi prefers. Nevertheless, the Tucker cert petition’s framing of the economic substance doctrine in traditional statutory interpretation terms is consistent with Choi’s suggestion that we think of tax anti-avoidance doctrines in such a way. And, whether or not the courts adopt Choi’s substantive canon framework, perhaps recharacterizing tax anti-avoidance doctrines as tools of statutory interpretation will, in one way or another, help resolve the confusion and inconsistency that Choi identifies.

Cite as: Kristin Hickman, Refashioning Anti-Abuse Doctrines As Substantive Canons, JOTWELL (September 30, 2019) (reviewing Jonathan H. Choi, The Substantive Canons of Tax Law, 72 Stan. L. Rev. ___ (forthcoming 2020), available at SSRN),

What Is Lost in Translation? From Theory to Practice in Tax Policy

Alan Auerbach, Tax Equivalences and Their Implications, 33 Tax Policy and the Economy 81 (2019).

In Tax Equivalences and Their Implications, Alan Auerbach reviews some of the commonly invoked equivalences that have been incorporated into the vocabulary of tax policy discussions during the last half-century. He offers a quick (and refreshingly accessible) summary of the analysis economists have used to break down the study of tax instruments so that their predicted impacts can be compared in terms of their overall effect on the economy. More important, he points out the situations in which these generally useful assumptions about equivalence across tax instruments will not hold, and, in doing so, hints that arguments from equivalence may have sometimes played a perhaps oversized role in tax policy discussions.

Equivalence for Auerbach’s purposes generally refers to the idea that identified tax policies have, in his words, “the same impact on fundamental economic outcomes.” One key economic outcome is the extent of the misallocation of resources resulting from the dead-weight losses taxes always entail. Under an economist’s view, for instance, a labor income tax can be seen as equivalent to a consumption tax as long as there is no initial wealth (and therefore earnings are only derived from labor) and all earnings are consumed.

Not so very long ago, governments seeking revenue had to grab it wherever they could. The possibility of adequate revenue collection, given the physical and political constraints faced by a government, was pretty much the only relevant criterion in tax base design. Consideration of the impact of any particular levy in the overall economy was an indulgence few governments could have undertaken, even if they had had the analytical tools to do so. Gaining popular acceptance of a tax, based on such theoretical analysis, was rarely imagined.

This situation has been reversed over the last century or so. Choices among tax policies now take into account more than just the relative likelihood of collections adequate to meet the demands of the government’s creditors. Proposed revenue measures are regularly subject to economic analysis to predict their impact on the economy, and implemented revenue measures are subject to scrutiny (albeit less often) about whether these predictions have been fulfilled. Indeed, the theoretical endorsement of economists has become a primary motivator of innovations in tax base design.

Prominent in the arguments used in these endorsements has been the possibility of equivalences among various stylized tax bases. These potential equivalences have been the drivers behind many tax policy proposals—both for entirely new tax structures and for tweaks in old ones. The potential equivalence between a value added tax and a wage tax combined with a cash flow business tax (an equivalence that relies on normal returns to all factors) was the driving insight behind the “flat tax” proposals of the 1980s. (P. 86.) The potential equivalence between a destination-based cash flow tax and a value added tax with a deduction for wages was both the analysis behind, and the downfall of, the tax urged as part of the 2016 Republican platform. (P. 103.)

Some of the equivalences Auerbach explores may only be of academic interest, and then only to those legal academics least concerned with on-the-ground implementation. The conditions under which changes in investment portfolios can render a tax on risk-free returns equivalent to a tax on wealth (P. 89) may be one such discussion. So might the presentation of a retrospective capital gains tax as equivalent to a realization-based capital gains tax. (Pp. 100-01.)

But there is much here that would help a legally-trained student of tax policy who is making an initial attempt to engage with the economists’ contributions to tax policy debates. One such benefit is a  warning about the possibility that the economist is stating her conclusions about rates as they would apply to a tax-inclusive base rather than a tax-exclusive base. (A 20% sales tax, as normally stated in tax statutes, imposed on a tax-exclusive sales price base could be sold as a 17% tax, if the proponent is referring to a rate stated on a tax-inclusive base; 20 is 20% of 100, but less than 17% of 120. (P. 85.))

Another payoff is in Auerbach’s acknowledgment that the equivalence assumed in economic analysis will often not be honored under traditional ways used by lawyers and other non-economists to classify taxes. He further observes that classifications, because they are often codified in constitutions and other grants of revenue-raising power, can operate as serious real-world constraints on tax policy.

Auerbach’s observation here is both more timely and more timeless than he may realize. Unmentioned is the additional complicating fact that each different classifier may approach the classification differently, even when the same label is applied—the “direct tax” constraint that the U.S. Congress faces probably does not apply to the same group of tax instruments that are covered by treaties addressing “direct taxes.” It is somewhat ironic that imagining equivalence among taxes was the essence of the 1796 Supreme Court’s early approval of the federal carriage tax as not a direct tax. Congress could, everyone conceded, have imposed an excise tax on the purchase of a carriage. Given that this result was permissible without apportionment and therefore regardless of the geographical aspects of the economic impact of the tax, why couldn’t Congress, in effect, require that tax to be paid in installments over the life of the carriage instead of on its purchase? If one assumes all carriages have a similar life (and ignores any problems that might be associated in transition with the imposition of a retroactive excise tax), the equivalence holds, as the opinion of Justice Paterson effectively argues in Hylton v. United States.

The biggest reward to the reader is in the discussion of the circumstances in which the equivalences that can be so useful as assumptions in theoretical analyses can break down in the real world. Market imperfections can be one source of breakdown. Labor taxes will be harsher than consumption taxes with the same present value if the earner cannot borrow against future earnings. (P. 92.) Immediate expensing can be better than deductions with the same present value for similarly liquidity-constrained firms. (Pp. 92-93.) Expensing will not be equivalent to exemption in the face of above-market returns. (P. 93.) In other circumstances, the full implications of equivalences can be obscured because of inadequacies in information and its reporting. Auerbach calls out government accounting rules, that use truncated timing windows (P. 95) and financial accounting rules that use nominal rather than discounted values (P. 96), as culprits here.

In his conclusions, Auerbach stresses the importance of considering the ways in which equivalences may fail. He further notes that this consideration is useful in understanding the political reasons for choosing one approach over another. Here, he seems to be implicitly conceding that the rhetoric based on theoretical equivalence may sometimes receive oversized importance.

Cite as: Charlotte Crane, What Is Lost in Translation? From Theory to Practice in Tax Policy, JOTWELL (September 2, 2019) (reviewing Alan Auerbach, Tax Equivalences and Their Implications, 33 Tax Policy and the Economy 81 (2019)),

The Policy Maker’s Guide to a Universal Basic Income

Miranda Perry Fleischer & Daniel Jacob Hernel, The Architecture of a Basic Income, __ U. Chi. L. Rev. __ (forthcoming), available at SSRN (Mar. 27, 2019 draft).

Miranda Fleischer and Daniel Hemel have written a terrific article, The Architecture of a Basic Income, about a universal basic income, or UBI. They offer concrete policy advice grounded in philosophical priors. They successfully separate questions about fundamental policy design from questions about political packaging. Their paper should become a go-to resource for the increasing swell of interest in UBI policy.

Fleischer and Hemel give the following definition of UBI: “[A] program that ensures that all members of a polity have access to at least a minimum sum of money.” (P. 6.) They provide three philosophical perspectives that support a UBI: welfarism, founded on the premise of declining marginal utility of income; resource egalitarianism, or the idea that ex ante redistribution should support each individual’s ability to develop; and libertarianism, based on the Lockean proviso that individuals’ acquisition of property rights should leave “enough, and as good,” for others.

The choices that Fleischer and Hemel recommend for UBI design seek a philosophical consensus where possible. But despite their fidelity to philosophical foundations, their recommendations manage to stay grounded and pragmatic. Fleischer and Hemel acknowledge the arbitrary nature of some line-drawing exercises and explain available benchmarks. At key junctions when differing philosophies support inconsistent answers, they turn to simplicity of administration as a tiebreaker. And they are honest about how expensive a UBI would be, while correctly explaining that the funding mechanism can leverage the redistributive potential of the entire federal income tax system, rather than relying on poorly designed phaseouts.

The authors highlight six design issues raised by a UBI and make recommendations in each category, as indicated below:

  1. Size: $500 per month.
  2. Eligibility: All citizens and lawful permanent residents regardless of age.
  3. Uniformity: Yes. For instance, no explicit income or asset phaseout (but see Funding Mechanisms, below) and no geographic cost of living adjustment.
  4. Assignability: Limited. For instance, allow use of one year’s worth of future payments as collateral for loan.
  5. Payment Mechanism: Biweekly, via Social Security Administration.
  6. Funding Mechanisms to cover nearly $1.9 trillion cost: (1) elimination or reduction of some cash and cash substitute transfer programs, plus (2) an income tax surtax administered by the Internal Revenue Service.

(Pp. 4-5.) When Fleischer and Hemel discuss the Size and Assignability features, they acknowledge that each presents a line-drawing exercise that invites a somewhat arbitrary answer. Yet the authors also provide useful benchmarks. $500 per month amounts to about half poverty level income, or the “deep poverty” threshold. It also translates to a cost of about 10% of GDP, which is approximately the gap between government spending in the U.S. and government spending in some other OECD countries that have more robust public safety nets. (P. 30.) The recommendation for limited assignability is likewise a “tentative” suggestion about line-drawing in the face of opposing considerations of welfarism (which might resist assignability) and libertarianism (which might support it).

The authors’ conclusions about Eligibility and Uniformity also illustrate their efforts to reconcile philosophical tensions. Providing a uniform amount to every individual amounts to an unconditional UBI, one that is not limited, for instance, by cost of living based on location, age, disability, willingness to work, school attendance, nutrition or health care requirements and so forth. Libertarians, the authors say, as they have in prior work, will prefer that “if transfers are to occur at all, they should be unconditional and unrestricted.” But Fleischer and Hemel admit that the welfarist and resource egalitarian cases for an unconditional UBI are weaker. Restricted transfers (for instance, in-kind transfers of housing or health care) might increase welfare more than cash. Conditional transfers (for instance, contingent on disability) might better equalize ex ante of opportunity. But they treat the question as empirical, and say that the evidence does not suggest that restricted or conditional transfers increase welfare more, or even the playing field more effectively. They also express doubt about the law’s capacity to accurately identify welfare-increasing or opportunity-leveling conditions. Ultimately, Fleischer and Hemel give the tie to simplicity of administration and favor an unconditional UBI in the face of uncertainty about welfarist and resource egalitarian outcomes.

UBI proposals, as Fleischer and Hemel explain, frequently get stuck on a phase-out question. The logic of the phase-out question is as follows. If the purpose of a UBI is to ensure that everyone has access to “at least a minimum sum of money,” then individuals who already have enough should not get a UBI. If individuals who already have enough should not get a UBI, then a UBI should be phased out, for instance based on income. This is the way that existing transfer programs work. The problem is that such phaseouts can result in extremely high marginal rates of tax on extra dollars of income or wealth, sometime exceeding 100%. (P. 56.)

But as Fleischer and Hemel point out, program-specific phaseouts are unnecessary. Instead, the desired result of gradually removing the benefit of a UBI as an individual’s income increases can be neatly and completely accomplished through the federal income tax rate schedule. This is what Fleischer and Hemel propose. They explain that the broader income tax system can  accomplish less distortionary phaseouts when each individual receives a UBI. (P. 9.) They also specifically recommend an income tax surtax of about 7%. This would raise the $1.2 trillion needed to fund a UBI assuming the repeal or modification of several other transfer programs. This surtax, they calculate, would mean that a single individual’s UBI would not be fully offset by additional income tax until an income level of $60,000. (P. 57.)

Fleischer and Hemel show that a universal UBI paid for through the income tax system could be politically framed as a poverty relief policy. Underneath the hood, the UBI and the income tax system would join together to pursue the goals of the policy without extreme phase-out distortions. At the same time, the program could be honestly presented and justified as a redistributive project that squares with a range of philosophical viewpoints.

Cite as: Susan Morse, The Policy Maker’s Guide to a Universal Basic Income, JOTWELL (July 29, 2019) (reviewing Miranda Perry Fleischer & Daniel Jacob Hernel, The Architecture of a Basic Income, __ U. Chi. L. Rev. __ (forthcoming), available at SSRN (Mar. 27, 2019 draft)),

The Law of Taxation Is the Lynchpin of Civilization

John Snape & Dominic de Cogan, Introduction: On the Significance of Revenue Cases, in Landmark Cases in Revenue Law 1 (John Snape & Dominic de Cogan eds. 2018).

John Snape and Dominic de Cogan, two legal scholars from universities in England, have provided a significant contribution to the emerging scholarly discussion in many different countries about the nature and limits of the law—not just tax law, which is their nominal domain in this chapter and book, but of all law. Without being at all polemical, and although they give a fair hearing to those with whom they disagree, they make an undeniable case for the claim that the study of tax law is ultimately the study of, to be honest, everything.

Their argument is subtle and nuanced in a number of important ways, but in the end they could not be more clear. Tax laws are, in the point of view to which they adhere, “not exclusively legal and not even exclusively about tax.” (P. 25.) Even detailed tax statutes have “no coherence or morality outside [of a] political and public law context.” (P. 25.)

Here, I explore a few of the subtleties of their argument and, much more importantly, the ultimately revolutionary impact that this chapter could and should have on our understanding of the study of tax law.

Snape and de Cogan’s edited volume is part of the Landmark Cases series, an analogue (which the editors readily acknowledge) to the Stories series in the United States that began with Tax Stories. Like its American counterpart, a Landmark Cases volume can serve as an avenue for understanding an area of the law through the study of a small canon of foundational legal decisions that continue to shape our understanding of that particular area of the law.

Especially for those who are interested in comparative perspectives in taxation, then, this volume is essential. In particular, it provides insights about tax avoidance and the nature of compulsion in tax law, in the British context. But the reason that I am reviewing here only Snape and de Cogan’s introductory chapter, rather than the (extremely valuable) book within which it resides, is that they make an argument in twenty-six elegant pages that, as I suggested above, should be understood as the planting of a flag in an ongoing debate over the nature of law and its interpretation.

This is not to say that the authors would ever be so immodest as to make a claim to universality. They are careful and measured in their words, and they allow the argument to become evident to the reader through its own power. That modesty, however, should not obscure what is truly at stake.

Within the first few paragraphs of their essay, Snape and de Cogan make two essential choices that frame the way we will think about this topic going forward. First, they acknowledge without fanfare that there is an ideological split that drives much of tax analysis. They do not waste our time with claims that the complicated nature of law cannot be reduced to two schools of thought, because it can. They do not use the words “right” and “left” as shorthand descriptors, but that is what this is all about. The classical economic liberals and self-styled libertarians who “emphasize property rights, balanced budgets and small government” (P. 1) disagree with “those who emphasize solidarity, individual duties as opposed to rights, fiscal stimuli and a large state.” (P. 2.) The authors acknowledge the necessarily broad terms of these descriptions, but there is no pretense that they have found a “third way” or some unifying factor that others have missed.

Having made the refreshing choice, without being argumentative, simply to acknowledge that the analysis is correctly understood as the familiar right/left split, Snape and de Cogan then make a second distinction that is even more important—and that ultimately, though not obviously in an ex ante fashion, explains why the left side of that split has the better of the debate. They explain that the proper topic of discussion is “revenue law,” not merely “tax law,” which includes “both its ‘raising’ and ‘expending’ sides” (P. 2), or in American English, the entirety of both the taxing and spending sides of the fiscal state. This goes beyond even the concept of tax expenditures, encompassing direct expenditures and indeed all activities of (all levels of) government.

Why is this important? Although Oliver Wendell Holmes’s famous observation that we “get civilized society” in exchange for paying taxes (to which the title of this Jot pays homage) might not be as well known in the UK as it is here, Snape and de Cogan are very much on the same page as the great jurist. They state plainly that, “without revenue law, there would be no United Kingdom of Great Britain and Northern Ireland.” (Pp. 24-25.)

Why does that truism matter? Using a broad meaning of “welfare,” they point out that “[t]he strict division that can be made between tax and welfare law on a certain understanding of property rights dissipates if entitlements to benefits and liabilities to taxes are reconceived as equally dependent on law, rather than being referable to some pre-legal property entitlement.” (P. 3.)

Readers who are familiar with The Myth of Ownership, Liam Murphy and Thomas Nagel’s now-classic 2002 book, will readily see that the Snape/de Cogan analysis provides the broader framework within which Murphy and Nagel’s argument fits. It is not only (as Murphy and Nagel correctly explain) that pre-tax income is an incoherent concept because any choice of a tax system— even to fund an absolutely minimal state— necessarily changes the amounts that people would think of as “their” income from which the state extracts a share. It is much larger than that.

Snape and de Cogan make clear— and I am not saying that they “argue” this point, because they are simply making an observation that is logically unavoidable and is not a matter of debate— that the “property entitlements” that determine economic and social outcomes are not “natural” or preordained. Different politically determined choices about such entitlements necessarily change our incomes, our relationships to the state, and our dealings with one another.

Revenue law can “pinpoint the nexus between personal freedom and collective wellbeing” (P. 16) because, for example, anti-poverty law “benefits poorer people [but] also enmeshes them.” (P. 25.) Most fundamentally, “revenue law moulds how goods in society are distributed in the furtherance of political decisions.” (P. 25.) Even looking only at what might seem to be narrow rulings in tax cases, “the legal questions in each case are a function of earlier political judgements, or to be more precise the expression of the judgements in revenue statutes.” (P. 9.)

In short, Snape and de Cogan frame a book containing classic cases in tax law as a means of understanding the deeply social and political nature of tax law, revenue law, the government, and the people’s interactions in what they hope will be a civilized society. Seeing issues from this more inclusive framing will allow legal scholars to contribute to that desired outcome without unnecessarily narrowing (and thus inevitably distorting) their focus.

Cite as: Neil H. Buchanan, The Law of Taxation Is the Lynchpin of Civilization, JOTWELL (June 26, 2019) (reviewing John Snape & Dominic de Cogan, Introduction: On the Significance of Revenue Cases, in Landmark Cases in Revenue Law 1 (John Snape & Dominic de Cogan eds. 2018)),

A Path to International Tax Reform and Improved Wealth Distribution Across the Globe

Tarcísio Diniz Magalhães, What Is Really Wrong with Global Tax Governance and How to Properly Fix It, 10 World Tax J. (2018).

Thomas Piketty’s work brought the reality of unequal distributions of wealth into mainstream media and popular discourse. In the tax world, the conversation now regularly turns to a consideration of whether and how the international tax regime contributes to existing patterns of wealth and income distribution across nations. Certainly, the tax norms and rules that shape the basic roadmap of international tax (including source, residence and permanent establishment provisions) contribute to existing distributions of wealth—and relatedly taxable income—across jurisdictions. Why do these patterns persist? And perhaps more importantly, what would it take for change?

A recent article by Tarcísio Diniz Magalhães aims to develop answers to both questions. That article builds on an active conversation in international tax. In responding to the question, Magalhães argues that the international tax world we see today is the product of a 100 years of tax policy advocacy and design by a subset of nations and actors—and that this subset has maintained a hold on international tax policy norms through a combination of power and expertise. Although the story of developed economies dominating the origins of international tax is not new, Magalhães offers a nuanced argument regarding how these countries have maintained their level of influence in policy design. His weaving of technical tax expertise into a narrative that has typically been cast as a raw power play provides a closer look at the mechanisms by which privileged positions can be maintained. This process of tax law design is, in his view, more important than the substantive outcomes—although the substantive outcomes have been less than ideal from the perspective of many developing countries.

Magalhães builds on a claim from international relations theory that when issues and debates are framed as technical ones demanding expertise, that characterization allows their resolution to be placed in the hands of a small group of experts. To the extent parties are deemed to lack expertise, they are excluded from decision-making. The expertise approach allows important policy choices to be removed from the sphere of political debate and beyond the reach of most participants. As Magalhães describes the process, “technical discourses in general have the propensity to hide, behind a veil of neutrality and scientificity, normative assumptions about what is right and wrong, what is fair and unfair, while denying the presence of ideologies and entrenched power relations.” The claim does not require that experts affirmatively engage in a subversion of political dialogue—it is simply the outcome of a process that predictably and historically has excluded a range of players from direct participation. Magalhães notes that the “inherently political” nature of tax law, though known to tax scholars, has nonetheless received inadequate attention in the formulation and analysis of tax policy. Ultimately, expert driven conversations can “delegitimize[] moral disagreements” over rules, practices and norms.

Turning to tax, Magalhães challenges a characterization of the current international tax regime as a system of neutral principles so widely accepted that they should be considered part of customary international law. Moreover, even if these principles have been widely adopted, he contends that fact does not justify a process that generates significant distributional effects, is not universally accepted, and was not the product of broad-based participation among nations. Magalhães details the role of the OECD in serving as the locus of international tax expertise and dialogue over many decades in what he describes as a “club model” of global tax governance.

Following this line of argument brings us to the question of how this process of international tax law design might change. Although the dissection of the international tax regime provides ideas regarding what kinds of changes to global governance would be needed to unseat both current actors and current processes, it turns out that promising alternatives are difficult to identify. Magalhães reviews a number of different recommendations offered by others seeking to broaden participation in international tax policy creation. Among the most prominent is creation of an international tax organization (ITO), which could provide technical analysis and support and serve as a truly global forum in which countries could coordinate or harmonize their taxes. Over the years, this option has been advocated by a variety of scholars, tax specialists and others including Vito Tanzi, Fran Horner, Michael McIntyre, and Kofi Annan. More recently, the prospects for an ITO have been revitalized by the work of three political theorists (Thomas Rixen, Peter Dietsch, and Douglas Bamford).

Magalhães details the OECD resistance to an ITO (an idea that in fact never secured a sufficient footing in tax policy circles to be pursued). But he does not stand behind the new calls for an ITO which are grounded in a goal of curbing tax competition and which envision a new body “entrusted with lawmaking and enforcement power [and] sanctioning governments that engage[] in tax competition.” Although acknowledging potentially serious concerns with tax competition, Magalhães resists the claim that there is a universally agreed anti-tax competition norm which can serve as a fundamental and binding norm of the newly re-proposed ITO. Because no such universal norm exists, an ITO regime would mean that developing countries (and here others) would find themselves under a body whose principles were both fixed and pre-established by nonmembers. Nonmajoritarian rule would be replicated once again in international tax.

Moving away from ITOs, three tax analysts (H. David Rosenbloom, Noam Noked, and Mohamed S. Helal) have come together to advocate for something different: an informal tax cooperation forum (TCF). Although this model has the appeal of enabling jurisdictions to identify those who share similar views and goals and work together on issues of common interest such as treaties, formulary apportionment, anti-avoidance rules, tax competition, tax harmonization, and dispute resolution, Magalhães questions the ability of such bodies to have any notable effect and create meaningful change given their envisioned informality.

The question, then, is what is left? What options can avoid the problems of the past and provide “a real space for political resistance, deliberation or empowerment”? Expanding on the efforts of some developing countries (including Bangladesh, China, India, and Singapore) to challenge the “status quo” of international tax policy, Magalhães encourages developing countries to pursue “counterhegemonic projects” and embrace “alternative epistemic communities.” The ultimate goal would be the “creation of a multipolar world order” with initial steps involving regional platforms and integration. To the extent that this alternative path anticipates reliance on its own set of experts, some of the issues with the global tax past risk replication, in particular the concern that political issues get framed as technical ones to be resolved by experts in a potentially nondemocratic fashion. Even if the experts create no democratic deficit in the tax policy design process, the group(s) must ultimately generate some discernible base of power in order to exert influence in global debates. It is certainly likely that by coming together they can strengthen their unified voice, but whether that voice is sufficient to be heard across the globe remains a question.

Magalhães offers an astute critique of current global tax policy-making that reaches beyond power and highlights the more subtle impact of framing and expertise. Even when these features of the process are not the product of calculated efforts, they can nonetheless combine to solidify a particular vision of international tax. Magalhães’ forthcoming work continues to explore these issues of global fiscal policymaking and promises continued insights in both understanding and in reforming global tax governance. I plan to stay tuned.

Cite as: Diane Ring, A Path to International Tax Reform and Improved Wealth Distribution Across the Globe, JOTWELL (May 21, 2019) (reviewing Tarcísio Diniz Magalhães, What Is Really Wrong with Global Tax Governance and How to Properly Fix It, 10 World Tax J. (2018)),