Category: Tax


Tax and Its Relationship to Slavery

American Taxation.jpg On Monday Professor Robin Einhorn of U.C. Berkeley gave a talk at my school about her recent book, American Taxation, American Slavery. Professor Einhorn’s book challenges some of the stories about the American aversion to taxation. As her essay “Tax Evasion and the Legacy of American Slavery” argues, the distrust of taxation has “more to do with protections for entrenched wealth than with promises of opportunity, and more to do with the demands of privileged elites than with the strivings of the common man.” The topic is provocative. The political history Prof. Einhorn sets forth shows how the institution of slavery influenced the Articles of Confederation, later state constitutions, and tax policies. Tax reveals the problem because of the fear that slavery could be taxed out of existence. If controversy tempts you to an area, this book may be for you as it has generated some debates within the legal history world. On a final note the topic reminds me of Jack Chin and Randy Wagner’s paper, The Tyranny of the Minority: Jim Crow and the Counter-Majoritarian Difficulty which is also a fascinating read.

Should All Lawyers Join Peer-to-Patent?

Paul Caron has been covering patents on tax strategies for some time, and an article by Steve Seidenberg in the ABA Journal has recently described the growing worries they’re creating among practitioners:

Since issuing its first patent for a tax strategy in 2003, the Patent and Trademark Office has issued at least 52 patents covering specific tax strategies. Another 84 published applications for tax strategy patents are pending. . . .In the ABA Section of Taxation, “members are shocked and dismayed at the very idea that legal advice can be patented,” says Drapkin [who heads the section’s Tax Strategy Patenting Task Force].

Apparently it’s not just tax lawyers who should be worried about a chain reaction of IP claims here. Drapkin says that “I’ve had conversations with lawyers who told me about corporate law patents that have been applied for,” and Wachtell lawyer Andrew A. Schwartz says “There could be hundreds, even thousands, of legal [strategy] patent applications that the PTO is waiting to rule on.” The chair-elect of the ABA section on IP law isn’t worried, but even she might be dismayed by rumors that someone is filing a “patent application for a new way of preparing patent applications.”

I’d personally like to see something like an extension of Veeck’s principles in both copyright and patent. In that case, the 5th Circuit ruled that a model building code entered the public domain once it was adopted as law. Good legal arguments are effectively an interpretation of law, an effort to get the judge or jury to see the law in a certain way. To the extent they are adopted, they should be considered so inextricably intertwined with the development of law itself that they are by nature public property. For that reason I’d even be hesitant to grant copyright protection to the expression of legal arguments, and I’m doubly suspicious of a patent on the ideas at their core.

On the other hand, given the increasing scope of patent protection, I don’t foresee arguments like mine going very far in the current PTO or Federal Circuit. . . and the Supreme Court ultimately declined to limit the scope of patents in a recent situation where it appeared they might.

So what is to be done? Beth Noveck’s Peer to Patent Project offers an exciting and innovative approach to the problem. . .

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How Much Should a Dog Consume?

In his provocative book How Much Should a Person Consume, Ramachandra Guha asks “can the world as a whole achieve American levels of car ownership? Can there be a world with four billion cars?”

I don’t have any easy answers there, but I do think there are some limits on what a person should consume. And the case of Leona Helmsley’s will suggests some for dogs, as well. Consider her $12 miillion bequest to a puffball named Trouble:

Trouble . . . has expensive tastes. According to the Post, Ms. Helmsley would order her hotel chefs to drop what they were doing to prepare special meals for Trouble when she was hungry. Still, $12 million is a lot of money for an eight-year old dog — even if her kibble is made from kobe. If Trouble invests her money in a diversified portfolio, she’ll earn at least $600,000 a year — without dipping into her principal!

Is $600,000 per year too much to spend on a dog? Or is this another happy story of growing incomes for dog butlers, “five-star kennels, doggy sitters and paw manicurists?” Given that hundreds of millions of people who live on less than a dollar a day, perhaps over $1600 per day of pet care is troubling, however much it expands the GDP.

Flying the Stratified Skies

edna.jpgTravel has always served to remind us of the divisions our “classless society” tries so hard to downplay. Sam Walton may have driven an old truck, but you’d be hard-pressed to find most top executives or trust-funders flying in less-than-first-class digs. As the song in Chitty-Chitty Bang-Bang put it,

O the posh posh traveling life, the traveling life for me

Pardon the dust of the upper crust – fetch us a cup of tea

Port out, starboard home, posh with a capital P. . .

Admittedly, for those of us crushed into coach, there was always a happy flipside to the narrative: the profligates up front were paying so much more for their seats, effectively subsidizing the rest of us.

But that subsidy effect has been on the wane in recent years. And now wealthy fliers have found a new way to effectively assure that the rest of us are subsidizing them:

Corporate jets pay a fraction of the taxes and fees that commercial airliners do. The F.A.A. estimates that private planes, which include both corporate jets and weekend fliers, account for 16 percent of the air traffic control system’s overhead but contribute only 3 percent of the fees earmarked to run the system.


The Air Transport Association has . . . created a Web-based ad campaign featuring a fictional traveler, Edna, complaining about the fee disparity while the computer screen displays waves of corporate jets filling the skies before and after sporting events like the Kentucky Derby and the Masters golf tournament.

It’s enough to wilt the mint in your julep. As the campy YouTube ad sloganeers, travelers like “wearing big wigs, not subsidizing them!” Edna (pictured above) wonders “Why should the rest of us pay ten times more using the same services?”

Fortunately, the FAA has heard her pain, and is planning on “sharply increasing the fuel tax for private jets and also hitting corporate fliers with extra charges to land at any of the country’s 30 most congested airports.”

The Last Shall Be First

diamond.jpgThe WSJ has a terrific article on “stretch” givers–people who make “donations seemingly out of proportion to the givers’ resources . . . . [which] require donors to make sacrifices or at least live more modestly than their income would allow.” Recent legal changes have helped this “movement,” as “[t]he Pension Protection Act of 2006 allows people 70½ years of age and older to make tax-free donations of up to $100,000 directly from Individual Retirement Accounts.” What’s particularly surprising about the article is that the big givers often end up doing better than stingier peers:

Arthur C. Brooks argues in his book “Who Really Cares,” which identifies the forces behind American charity, that people who give in a way that pinches are happier and, surprisingly, end up wealthier. According to Mr. Brooks’s analysis, a dollar donated to charity led to $3.75 in extra income for the donor in 2000. “They often create great discomfort among their families, but when people give there is substantial personal transformation,” says Mr. Brooks, an economist and professor of public administration at Syracuse University’s Maxwell School. “They tend to work harder,” leading to greater prosperity, and in the long run, he says, “this leads to more success, both financial and nonfinancial.”

I had worried that the “super givers” would Darwinianly be out-competed by greedier peers intent on keeping every penny “in the family.” But as one interviewee says in the article, she doesn’t “believe in inherited wealth” in part because she’s “seen it ruin so many nice families.” If that logic takes hold, perhaps we can expect to see “more aging Baby Boomers are choosing charity to add meaning to their lives — and to get a buzz that lasts longer than the kick that comes from splurging on a designer watch or expensive car.” Such a movement could well be self-reinforcing, as often the only reason people (believe they) need such luxuries is because of the competitive spending of peers. Perhaps diamond taxes can help keep the giving going.

Photo Credit: Flickr/Scottwills.

Vanity Taxes vs. Worthless Competitions

vanity.jpgNew Jersey adopted a “vanity tax” in 2004, levied on “any medical procedure performed on [an] individual which is directed at improving [his/her] appearance and which does not meaningfully promote the proper function of the body or prevent or treat illness or disease.” In a critique of the tax, Michael Duel argues that it is sexist and such surgery is frequently nondiscretionary:

Women can either feel inferior, enjoy a lower quality of life, and be rejected by mainstream society, or else suffer the pain and toil of cosmetic surgery to achieve the exact same ideals society uses to reject them.

Cosmetic surgeons have also railed against the tax, unctuously declaiming that it “discriminates against women” because they buy about 86% of the procedures.

NOW President Kim Gandy has a nice response to that canard:

In general, I’m opposed to most things that impact women disproportionately, but disproportionate use isn’t a good measure if a tax is unfair or not. I can’t imagine someone arguing against having a luxury tax on yachts because more of them are bought by men.

State Senator Karen Keiser is uppping the redistributive ante in Washington state, with a plan to earmark vanity tax revenue for health insurance for poor children. As one tax policy analyst claims, “In this anti-tax climate, these user-based, selective tax proposals are more palatable than broader ones.”

Duel also attacks the vanity tax as a matter of tax policy, but I have a feeling he misses its point. . .

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Ten Smiles Per Hour: Tax on the Dour?

happyface.jpgTaking a break from weighty topics like world hunger, Peter Singer reflects on an Australian City’s decision to encourage cheer among residents:

[T]he city of Port Phillip . . . has been using volunteers to find out how often people smile at those who pass them in the street. It then put up signs that look like speed limits, but tell pedestrians that they are in, for example, a “10 Smiles Per Hour Zone.” . . . . Mayor Janet Bolitho says that [smiling] . . . . encourages people to feel more connected with each other and safer, so it reduces fear of crime – an important element in the quality of life of many neighborhoods.

Singer backs the effort, based on some “happiness research” mentioned in my last post: “promoting friendship is often easy, cheap, and can have big payoffs in making people happier. So why shouldn’t that be a focus of public policy?”

I was reminded of Quentin Crisp’s classic comparison of England and America: the former combines a generous welfare state with icy social mores, while the latter has sunny individuals and comparatively stingy social provision. But we shouldn’t discount the role of happy cultures in creating happy people; as Barbara Ehrenreich has noted, perhaps the rise in rates of depression “can be connected with the decline in opportunities for pleasure, such as carnival and other traditional festivities.”

Some theorists of discrimination might argue that government intervention to change a sticky norm of unfriendliness amounts to a tax on the dour. Why are they being forced to affect sentiments they don’t authentically feel? But I think the problem has less to do with “faking it” than with the systematic substitution of, say, well-founded dread with carefree bonhomie. Consider U.S. teens’ expectations of future earning power:

American teens believe … that when they get older they will be earning an average annual salary of $145,500. Interestingly, boys expect to earn an average $173,000 a year and girls $114,200 … The fact is, only about 14 percent of U.S. households have incomes between $100,000 and $200,000, reports the U.S. Census Bureau. The median household income in the United States is actually $46,326.

Perhaps the boys’ keen understanding of current fiscal policy has led them to anticipate a hyperinflation.

Admittedly, the optimal level of cheer (or optimism) in a society is impossible to assess in the abstract. But I think Port Philip’s strategy may ultimately backfire. It threatens to set in motion a Gresham’s law of public gladness, whereby bad smiles drive out (or at least devalue) the good. Perhaps a certain seigniorage of cheer will increase gross happiness in the short run. But in the end, it may well set us on the road to a situation like that described in Vaclav Havel’s essay on the grocer in Power of the Powerless. Grinning done as public duty may be indistinguishable from a grimace.

Photo Credit: Flickr/TobyLeah.

Mankiw’s Fractured Fairy Tales

mr_peabody_and_sherman.jpgCome tax time, econoblogger Greg Mankiw is peddling parables about distributive justice designed to reconcile us to inequality. You see, if we tax high earners too much, they may just all flee to….well….another bar. Redistributive policies are ridiculed as gliding us down a slippery slope toward Harrison Bergeron-style taxation of height.

How to respond? Well, if there were thousands of people around who were, say, hundreds of times taller than the average person, and whose ability to consume resources were accordingly disparate, perhaps we’d try to find some way of rectifying the situation. As for “bar stool tax policy;” well, if the top guy also happened to be drinking 40% of the beer, er, income, perhaps we’d like to see him paying accordingly.

I suppose that Mankiw might say that the height paper is only an attack on “utilitarian social planner[s who] would like to transfer resources from high-ability individuals to low-ability individuals.” Only such a planner is attributed the desire to “levy a sizeable tax on height [such that a] tall person making $75,000 should pay about $4,500 more in taxes than a short person making the same income.” And perhaps he has dented “the theory of optimal taxation [according to which] any exogenous variable correlated with productivity should be a useful indicator for the government to use in determining the optimal tax liability.” But what relevance does this battle of ideal theories have for our world? Is any political party advancing the “theory of optimal taxation” Mankiw is trying to discredit?

It is easy enough to score debating points about the “impossibility” of perfect distributive justice, just as one can always dredge up Arrow’s impossibility theorem to discredit democratic procedures. But in a nation where an ever-growing number of people lack basic health insurance, and a world where tens of millions live on a dollar a day and a substantial proportion of the affluent do nothing to relieve their plight, it’s really difficult to see how reductiones ad absurda contribute to the practical decisions we have to make about distributing resources. Parlor games don’t lead to good policy.

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Costs of Inequality

As tax day approaches, Sheryl Sandberg of the Google Foundation has some sobering insights on the “charity gap”–how small a percentage of donations actually help the disadvantaged. “[O]nly 8% of donations provide food, shelter or other basic necessities. At most, an additional 23% is directed to the poor.” International deprivation is not a major concern of most donors; “The most generous estimate shows that only 8% of U.S. individual donations supports international causes of any kind.”

Another article, on the prevalence of organ markets, shows how this persistent inequality affects the global supply of and demand for body parts. It pleads for another type of giving:

Fewer than 40 percent of Americans have signed organ-donor cards, and only about half of their families consent to the donation of a loved one’s organs. . . . Many assume that if they don’t supply the organs, somebody else will. But [even if that is the case,] that somebody won’t be a corpse. It’ll be a fisherman or an out-of-work laborer who needs cash and can’t find another way to get it. The surest way to stop him from selling his kidney is to make it worthless, by flooding the market with free organs. If you haven’t filled out a donor card, do it now.

Both quotes bring to mind a recent quote I’d read, reportedly from an upcoming book by Pope Benedict XVI:

Confronted with the abuse of economic power, with the cruelty of capitalism that degrades man into merchandise, we have begun to see more clearly the dangers of wealth and we understand in a new way what Jesus intended in warning us about wealth.

As Thomas Berg has blogged, “great disparity seems likely to make it harder for people to practice the value of solidarity, that is, ‘see[ing] the “other”. . . not just as some kind of instrument, . . . but as our “neighbor,” . . . to be made a sharer on a par with ourselves in the banquet of life to which all are equally invited by God.'” (citing Solicitudo Rei Socialis, para. 39).

I look forward to seeing what the distinguished legal scholars attending the upcoming Class Crits Workshop (hat tip: Feminist Law Profs) at the SUNY Buffalo Law School have to say on these and related topics. (Note–they are still accepting proposals until April 23).