Today's Law, Society, and Taxation panels at the 2023 Law & Society Association Annual Meeting in San Juan, Puerto Rico:
Taxation & Social Impact (Tessa Davis (South Carolina), Chair/Discussant):
The tax code is used in a vareity of ways to enact or support social goals that are not necessarily explicitly tied to economic ends. The papers in this session will think about how tax and spending programs are used to achieve particular ends. Papers in the session will consider both intended and unintended consequences of the relevant provisions on the social outcomes of the individual taxpayers affected by the rules.
Darryll Jones (Florida A&M), Defunding Hate: Charity, Epistemology, Speech Incantations, And Federal Tax Exemption:
That it would strike most people as entirely absurd to refer to hate groups as charitable has, to this point, not discouraged more than a few scholars from doing exactly that. Thus, conventional wisdom holds that hate groups – groups that teach people how and why they should hate the "other" – educate and are ipso facto entitled to tax exemption under IRC 501(c)(3). It is not that sloven minds truly believe hate groups are charities, it is that they think there is no justification for denying tax exemption to hate groups other than that government – we the people – despise their ideas. Even tax scholars understand that government may not interact with people on the basis of their ideas. Those who have thrown up their hands, even in the face of absurdity, recognize that our instinct is to deny tax exemption because we don't like what hate groups say when they teach. This is an admitted fact in my thesis. I nevertheless prove a constitutional justification for excluding hate groups from tax exemption. Can it be that tolerating hate speech, if we must, demands subsidizing hate speech through tax exemption and the charitable contributions deduction? To that question Justice Stevens once stated, "[a] free society must tolerate such groups. It need not subsidize them, give them its official imprimatur, or grant them equal access to . . . facilities."
Amada Armenta (UCLA; Google Scholar), From Tax Avoidance to Compliance: How Undocumented Immigrants Make Decisions About Taxes:
Individuals experience a relationship with the government and the legal system through taxpaying. This paper examines the attitudes undocumented Mexican immigrants residing in Philadelphia express about taxes, including their decisions to comply with tax law by filing an annual tax return. Mexican immigrants' tax attitudes are interesting because migrants have moved from a country of low tax compliance and low tax morale to one of high tax compliance and high tax morale. The data reveal that undocumented residents move from noncompliance (by not filing a tax return) to compliance as they have children, accrue more years of residence, and work formally. In becoming tax filers, undocumented residents shape their legibility to the state, arming themselves with evidence that they are "deserving" of legal status should the law change. However, while hope for the future motivates many undocumented residents to continue filing their taxes to stay in compliance with the law, those who are motivated to file returns for economic reasons opt out as they learn their tax obligations are higher than they expect.
Jennifer Bird-Pollan (Kentucky; Google Scholar), The Moral Imperative of School Lunch:
It's news to exactly no one that the United States offers dramatically fewer social supports to its residents than does almost every other comparable country. Despite its continued status as one of the richest countries in the world, the U.S. uses shockingly little of its national wealth to support the well-being of its citizens, including that of its weakest and least protected citizens. While efforts to change this general approach have had various levels of success over the years, there does seem to be growing support for the notion that feeding children might be generally uncontroversial and a deserving use of national resources. Creative solutions regarding the provision of school lunch or comparable financial support during the worst months of the Covid-19 pandemic, and recent moves to universal school lunch in major metropolitan school districts, as well as the 2022 ballot initiative in Colorado in which voters demonstrated directly their support for feeding children in public schools make a compelling case that universal school lunch may be an idea whose time has come in the United States. This project will track the recent changes nationwide to the provision of food in public schools, and will make the argument that feeding children in schools is a moral imperative that requires funding at both the state and federal level.
Emily Lawson (Temple), Towards a Gender-Affirming Tax Code:
As an increasing number of state legislators seek to disenfranchise and strip away rights from transgender and gender nonconforming Americans, the Federal government must make all efforts to reaffirm its support of this community. Efforts to advance the rights of the transgender community should necessarily extend to the Internal Revenue Code. The 2010 Tax Court decision, O'Donnabhain v. Commissioner, determined gender-affirming care could be deductible under section 213 as a necessary medical expense but only in limited circumstances. O'Donnabhain was severely limited by the requirement of a diagnosis of gender identity disorder (GID) and the court's approach to understanding gender-affirming care. This requirement that a taxpayer must have a particular medical diagnosis further stigmatizes the transgender community and excludes those who seek gender-affirming care outside of a medical diagnosis of GID.
This paper argues that the Internal Revenue Service should clarify the deductibility of gender-affirming care and allow all gender-affirming procedures and therapies associated with transgender and gender nonconforming individuals to be deductible. Expanding the utility of this deduction is important not just for those who will use the deduction but as an affirmative statement of federal policy. The tax policy reforms presented in this paper send a message that gender affirming care is not cosmetic surgery, it is lifesaving medical care. The first section examines the deductibility of certain medical expenses for gender-affirming care under section 213. The second section outlines the limitations of framing these deductions as "medical necessities." The final section proposes that Congress amend section 213 to include specific carve outs for gender-affirming care or that the IRS issue guidance that removes the "medical necessity" requirement in enforcement.
The Political Economy of Tax Law (Ajay Mehrotra (Northwestern; Google Scholar), Chair & Omri Marian (UC-Irvine; Google Scholar), Discussant):
This panel brings together scholars researching the role of law and tax policies in defining global capitalism. The papers in this panel explore the legal process that led to the transformation of USVI into tax-havens, the role of legal expertise in enabling tax-avoidance, the ways in which the life insurance tax industry and actuarial assumptions facilitated tax avoidance, and the legal history of how the Nixon administration proposed to implement a VAT in the US. Altogether the papers in this panel tell the story of how fiscal policies, taxation, legal actors, and expert knowledge have facilitated tax avoidance and wealth extraction.
Andrew Granato (Yale; Google Scholar), A Matter of High Interest: How a Quiet Change to an Actuarial Assumption Turbocharges the Life Insurance Tax Shelter:
This Article will showcase the limits of a highly technical approach to tax policy with the first analysis of an almost completely unnoticed sea change in life insurance tax law, one that engorges a tax shelter at a moment of great attention to laws that enable the wealthiest members of society to face lower effective tax rates than their secretaries.
Life insurance has received extremely favorable federal tax treatment since the inception of the federal income tax. In the 1980s, in response to an increasing wave of policies smuggling traditional investment products into products calling themselves life insurance, Congress formalized a mathematical definition of life insurance policies directly into the Internal Revenue Code (§ 7702). § 7702, a fully realized actuarial simulation, placed quantifiable limits on the degree to which policyholders could treat a life insurance policy like an investment (such as a mutual fund) rather than as insurance protection.
For decades, the provision was left alone; however, buried in the 2020 COVID-19 omnibus relief bill, Congress included – with essentially no public debate– a change to a key actuarial assumption of the § 7702 test. The result, though heavily obscured by layers of mathematics, was that § 7702 was made substantially more permissive, giving policyholders much greater leeway to use life insurance policies as conduits for tax-exempt wealth accumulation. After over thirty years of near-total absence of analysis of Congress' life insurance definition in the legal literature, this paper resurrects the history, purpose, and structural limitations of § 7702 and the hyper-technical approach to tax policy it embodies. It further provides the first analysis of the new world of life insurance after the stealth § 7702 amendment, one in which swathes of the industry are preparing to leverage their extraordinary tax advantage into a new role at the center of high-end tax avoidance.
Ajay Mehrotra (Northwestern; Google Scholar), Nixon’s VAT: The Rise and Fall of the 1970s National Value-added Tax to Fund Education:
Nearly all developed countries, and many in the developing world, have some type of a broad-based, national consumption tax, frequently in the form of a value-added tax (VAT). In many of these countries, the VAT funds a robust social-welfare state, with national spending on healthcare, education, and the like. The United States is a glaring exception. This paper – which is part of a larger project exploring "why no VAT in the U.S.?" – examines the rise and fall of a 1970s national VAT proposal aimed at funding education proposed by the Nixon Administration.
This paper seeks to identify and analyze the general economic, social, political, and legal conditions that gave rise to several VAT proposals in the late 1960s and early 1970s. This paper also seeks to explore the broader forces, seminal events, and pivotal historical figures that resisted the VAT during this period and why they were successful in rejecting this new national revenue source. Among these forces was the racial tensions related to busing and school integration. Some opponents of the federal education VAT feared that the growing powers of the federal government would intrude on social and race relations. The ultimate goal of this paper, and the lager project of which it is a part, is to understand better the twentieth-century American resistance to a comprehensive national consumption tax, and why the United States remains the only advanced, industrialized democracy without such a levy.
Ian Murray (European University Institute), Terrestrial Paradise: Dodging to Develop in the US Virgin Islands:
Since 2018, the European Union has included the United States Virgin Islands (USVI) on its list of non-cooperative jurisdictions for tax purposes, citing, among other things, preferential tax regimes available to firms under its U.S.-government sanctioned "Economic Development Programme." This paper examines the origins and impact of these tax breaks, in particular those available to "international financial services entities," who in some respects face lower requirements to qualify than other types of businesses. It observes the context of economic competition with Puerto Rico as a window on the landscape of economic growth narratives in the U.S.-controlled Caribbean. It then evaluates claims that the programme has failed to produce observable economic progress in the USVI, raising questions about who truly benefits from policies that use fiscal evasion to promote economic development.
In so doing, this paper builds upon the rich literature criticizing development economics for privileging aggregate capital accumulation over accompanying distributional concerns. Chiefly, it revisits Deidre McCloskey's portrayal of the discipline as a pseudo-scientific exercise in social engineering, merging her postmodernist appraisal with subsequent strands of academic disillusion with the capitalist growth imperative. It further probes the spatiotemporal boundaries of what Vanessa Ogle has called archipelago capitalism, questioning the need to perpetuate colonial constructs as pretexts for modern financial maneuvers in a digital age, when most so-called "offshore transactions" bear only a fleeting and legally fictitious connection to any terrestrial "offshore jurisdiction." In the spirit of the law and society tradition, it exposes the "Economic Development Programme" and similar growth-oriented legal initiatives as products of the very historically contingent geographies of domination they perpetuate.
Corentin Durand (Sciences Po Paris; Google Scholar), A Kind of Switzerland. Shaping Tax Law in Neutral Places in France
In this paper, we look at the spaces where legal experts from different professional settings of a very contested field “ taxes” meet and talk about the law, without explicitly advocating for their own interests (forums, professional associations, boards of scientific institutions, etc.). To do so, we build on the notion of 'neutral space', coined by Pierre Bourdieu and Luc Boltanski in 1976 in an attempt at unpacking the collective work which results in 'the production of dominant ideology'. We argue that this notion is useful to the point where it draws attention not just to the production of knowledge and ignorance and the building of professional boundaries, but also to the practical neutralization of interests while debating about law from a diversity of points of view. Above all, it allows to analyze the production of shared expertise and commonplaces, here about the dominant fiscal ideology, without setting aside the divergence of interests within the ruling class. To do so, we draw from 48 interviews conducted in France with tax attorneys in major law firms, senior members of the tax administration, heads of tax in major companies, members of the Administrative High Court and taw law university professors. We also constructed a database for all speakers at events organized by various tax law organizations and conducted direct observation at several of these events. To navigate this data, we will first describe tax law as an inherently impure legal discipline, at the crossroads of law, finance and accountability. Then, we will look at the diversity of legal experts who shape these neutral spaces, but also at who get de facto excluded. Our last part will be devoted to the neutralization practices that allow the construction of shared expertise and ideology despite of the divergence of interests among their members.
Taxation of Wealth (Ari Glogower (Northwestern; Google Scholar), Chair/Discussant)
Much of the work of contemporary tax policy is aimed at redistributively repairing social inequality caused by radical economic inequality. The papers in this session will examine a variety of issues related to the taxation of wealth and other tax strategies aimed at combatting inequality. These strategies include specific tax provisions and programs, but also include ways of considering the effects of such rules and issues around implementation matters as well.
Charles Delmotte (Michigan State; Google Scholar), Dissecting Wealth Taxation:
Work by Hemel, Glogower, Schanske, Galle, Gamage etc. shows a wealth tax consensus in the legal academe. Tax theorists see wealth taxation as a welcome and required measure to combat wealth inequality. This article works out two counterarguments that have not been considered yet. The point is not to knock down the wealth tax support, but to add intellectual diversity and make sure the full menu of arguments is considered. Specifically, several effects of wealth taxation will concern progressive tax scholars. In other terms, this article reveals the reasons why progressives will not want a wealth tax in the U.S.
Wealth taxes require the government to determine the value of one's wealth. Unlike for transactional taxes, like income or sales, where the tax base is determined by the underlying exchange, a wealth tax requires governments to assess one's tax base. Earlier work by Delmotte (2017) and Delmotte and Cowen (2019) has shown that assets don't float around with price tags; and the valuation issue for wealth taxes is much larger than the neoclassic economic models show. Governments often don't have the required knowledge to know the value of assets independent from market exchanges.
Second, it is not clear whether wealth taxes satisfy the Rawlsian difference principle. The most important progressive political philosopher of the 20st century, Rawls proclaimed that rules and institutions are allowed to generate inequality, if they maximize the benefits for the least well off – compared to other arrangements. This perspective calls not for taxes that minimize inequality, but rather for types of reform that "unlock" wealth and combat rent-seeking; so that wealth is invested and employed in ways that benefits lower-income groups. Hence, an alternative take is not to focus on "the rich" but on the "the poor."
Alex Raskolnikov (Columbia), Distributional Limits of Legal Rules:
Proponents of using legal rules to achieve distributional aims have spent much effort defending the idea but not much time working out its implementation. A number of recent articles aiming to remedy the situation reveal a tension that the articles' authors do not seem to recognize. The motivations for their proposals do not match the likely effects of the proposed rules. The motivation is the "skyrocketing inequality" and the runaway incomes and wealth of the top one or 0.1 percent, but the effects of the proposed rules will inevitably affect a much larger group, perhaps the top decile or quintile.
This article will consider whether it is possible to design legal rules that would target the very top of the distribution and will conclude that such targeting is possible but unattractive. It would involve, in essence, creation of a separate, punitive legal regime for the rich-law-for-the-rich as I will call it. So far, the most far-reaching proposals in that spirit advocate only separate enforcement or procedure regime for the rich, not separate substantive law. This is not an accident.
The reluctance to embrace law-for-the-rich reveals distributional limits of legal rules. The article will identify others as well. Yet the takeaway will not be that the tax-and-transfer system is the only place where distributional considerations may play a role. While legal rules cannot be fruitfully used for redistributing from the top, they can be so used to avoid, or at least soften, harmful effects at the bottom. The two main mechanisms are (i) slowing adoption of efficient legal rules that have problematic distributional consequences and (ii) using distributional considerations to choose among several possible alternative legal reforms whose relative efficiency is unclear or roughly the same.
Phyllis Taite (Oklahoma City), Exploding Economic Inequality: Tax Policy is the Key:
Economic inequality addresses both income and wealth inequality. Economists, researchers and scholars have demonstrated how vast wealth disparities have significantly impacted economic inequalities. The awareness of the inequalities caused by wealth concentration has not led to significant changes to reverse the effects. The counter-arguments that efforts to combat wealth concentration could cause disincentives to save and inhibit job creation without acknowledging economic and tax policies favor wealthy, white property owners. Rather than continue to the debate, it is long overdue to engage an action plan. Four pillars to enhance wealth mobility include education, homeownership, property ownership, and tax policy. These pillars have disproportionately subsidized white households. It is long overdue to use tax policy to restore Black communities and reduce wealth disparities.
David Gamage (Indiana-Maurer; Google Scholar), Fixing the Personal Tax System: A Multi-Part Approach:
This paper argues that no single solution is likely to suffice for fixing the critical flaws of the personal tax system, and instead a multi-part approach is needed. This paper argues for a multi-part approach consisting of: (1) either a wealth tax, a billionaires income tax reform, or an integrated hybrid of both; (2) a high-end consumed income tax reform, (3) shrinking the existing realization-based personal income tax and payroll taxes in a manner that would end the capital gains tax preferences.
