TaxProf Blog

Jeesoo Nam (USC) presents Justice in Tax Enforcement at Duke today, as part of its Tax Policy Seminar hosted by Larry Zelenak:

The IRS has limited resources with which to pursue enforcement actions against people who have underpaid on their taxes. Given such limitations, the agency can only pursue a small subset of underpayers. How should the agency decide who to pursue?

This Article argues that the answer to this question depends on a fundamental issue of justice. Is the decrease in well-being that underpayers experience when tax laws are enforced against them good or bad from the standpoint of justice? When taxpayers underpay, they are illegally keeping money that they should have paid to the government to instead spend on themselves. When the government enforces the law, it deprives such underpayers of the use of their illegally gotten gains. Surprisingly, theories split on whether this deprivation is intrinsically good or bad. On a desert-based theory of justice, when people underpay on their taxes, they take for themselves more than they deserve. Thus, depriving underpayers of illegally appropriated cash is good from the standpoint of justice. It brings those underpayers back to the level of well-being they deserve. On a welfarist theory of justice, such deprivation is bad because all deprivation is bad, even deprivation of illegally gotten gains. This Article teases out the implications of these competing perspectives for the question of how the IRS should choose who it targets in its enforcement actions.

Jennifer Bird-Pollan (Wayne State) presents The State and Local Tax Deduction Cap and Its (Unintended?) Sexist Consequences at Georgia today, as part of its Tax Policy Colloquium Series hosted by Assaf Harpaz:

If two individuals earning similar amounts marry and file jointly, they will owe more in total tax than if they had remained unmarried and filed singly. The income of the second earner spouse is taxed at a higher marginal rate than it would be if that taxpayer were single, making work less financially rewarding. As a result, the consequences of marriage penalties fall disproportionately on women, and the tax system reduces the financial incentive for second earners to work outside the home. The Tax Cuts and Jobs Act introduced a per-return cap on the deductibility of state and local taxes, which further compounds this issue by requiring married couples to share a single deduction cap, while unmarried individuals can each claim the full amount. This creates a new and more straightforward marriage penalty that particularly burdens second earners. Despite this, the policy was enacted without meaningful discussion of its consequences, and ignoring these effects risks reinforcing outdated and harmful gender norms. Ultimately, imposing the cap on a per-return basis rather than a per-taxpayer basis further discourages women from participating in the workforce.

For more information on the Tax Policy Colloquium, please contact Assaf Harpaz.

David Gamage (Missouri) presents Confronting The Tax-And-Oligarchy Catch-22 at Toronto, as part of its James Hausman Tax Law and Policy Workshop Series hosted by Ben Alarie:

Why have taxes on concentrated wealth weakened across decades, even though polling typically shows strong majority support? This Article argues that the answer lies in a structural dynamic we call the tax-and-oligarchy catch-22. Taxing extreme wealth is among democracy’s most direct tools for constraining oligarchic power, yet extreme wealth reliably finances the political work of blocking, diluting, or unwinding such taxes. The catch-22 operates through political optionality. When the wealthiest households can defer tax indefinitely, they preserve capacity for campaigns, litigation, lobbying, and producing expert doubt about reforms that might reach them. Every dollar of deferred tax is a dollar available to lobby against its own eventual collection. Progressive Era reforms were designed to interrupt this dynamic. For decades they partially succeeded. But the constraints have eroded, and today’s largest fortunes face minimal effective taxation.

This Article responds with a democratic tax firewall, an approach that treats durability as a first-order design constraint rather than an afterthought. Drawing on political science, history, and recent state-level campaigns, we identify design choices that can help reforms resist quiet erosion and show how sustained technical preparation can position reformers to act when political windows open.

James R. Repetti (Boston College) presents Private Equity, Health Calamity: How Our Tax Laws Aid Private Equity Investment in Hospitals and Nursing Homes at Irvine, as part of its Graduate Tax Policy Colloquium:

The social welfare impact of investments by Private Equity funds (PEs) in various sectors of our economy is mixed due to the significant debt imposed on PE target companies and the short investment horizon of PE funds. With respect to PE investments in hospitals and nursing homes, however, most empirical studies suggest that PE investments significantly harm welfare. The large amounts of debt incurred by the targets of PE acquisitions increase the risk of default and contribute to excessive cost-cutting measures that harm patients. 

Our tax system contains two features that significantly promote PE acquisitions. First, our tax system exempts gain realized by charitable organizations from the sale of their hospitals and nursing homes to for-profit purchasers. Theory predicts, and empirical evidence suggests, that tax-exempt sellers are willing to sell hospitals for less than a taxable seller would be due to this tax exemption. Given that these assets will no longer be deployed in the charitable sector, our tax system should not subsidize transfers to for-profit purchasers that reduce social welfare by exempting the gain from taxation. Even if the tax-exempt seller is not sharing its exemption with the for-profit buyer, policy considerations suggest that gain from such a sale should not be exempt. Since the tax-exempt seller has chosen to stop participating in the health-related activity, this is an appropriate time to return the foregone tax revenue to the government for a determination of its future best use, rather than allowing the tax-exempt to unilaterally make that decision. 

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