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"Zelenak, Lawrence"
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MAYBE JUST A LITTLE BIT SPECIAL, AFTER ALL?
The attitude—common among tax professionals—that tax is special (mostly because of its supposedly unique complexity), and that special legal rules should apply in the tax context, has been described and excoriated by scholars as \"tax exceptionalism\" or \"tax myopia.\" The Supreme Court dealt tax exceptionalism a grievous blow in its 2011 opinion in Mayo Foundation for Medical Education & Research v. United States, in which it held that the Chevron standard for determining the validity of regulations applied in tax just as it applied in other fields. One commentator gleefully celebrated Mayo as the death knell of tax exceptionalism, declaring, \"The tax world finally recognized a stark fact of life in 2011: Tax law is not special.\" This Article offers, with numerous hedges and qualifications, a defense of the exceptionalists and of exceptionalism. It makes three points for the defense. First, it is not so much tax professionals who think tax is special; rather, the view of tax as a thing apart is held most strongly by everyone else. Second, to the extent tax professionals do believe that tax is special, they resemble antitrust lawyers who think that antitrust is special, bankruptcy lawyers who think that bankruptcy is special, and so on. In other words, there is nothing exceptional about tax exceptionalism. And, finally, to the extent tax professionals not only think tax is special but also think it is more special than, say, antitrust lawyers think that antitrust is special, they may not be altogether wrong. Maybe tax really is just a little bit special, after all.
Journal Article
CUSTOM AND THE RULE OF LAW IN THE ADMINISTRATION OF THE INCOME TAX
From the early years of the federal income tax to the present, the Internal Revenue Service (IRS) has engaged in what might be termed \"customary deviations\" from the dictates of the Internal Revenue Code, always in a taxpayer-favorable direction. A prominent current example is the IRS's \"don't ask, don't tell\" policy with respect to employee-retained frequent flier miles; in a 2002 announcement (which, as of 2012, is still in force), the IRS indicated that such miles were technically within the scope of the statutory definition of gross income, but that the IRS had no intention of enforcing the law. This Essay describes and evaluates the phenomenon of administratively-created customary deviations from the Code. After defining the concept of customary deviations and explaining why such deviations are sometimes attractive to tax administrators, the Essay offers a brief historical survey of customary deviations, paying particular attention to the pre-1984 treatment of a miscellany of fringe benefits of employment, and to a spate of recent announcements that the IRS would not enforce the Code's anti-loss-trafficking rules in certain contexts. The Essay also explains how the development of customary deviations has depended on the absence of third-party standing in tax litigation, and how the lack of any judicial check on unauthorized giveaways by tax administrators threatens rule-of-law values. It concludes with a proposal for legislation aimed at retaining the practical advantages of customary deviations while assuaging rule-of-law concerns.
Journal Article
LEAVING IT UP TO TREASURY: CONGRESSIONAL ABDICATION ON MAJOR POLICY ISSUES IN THE EARLY YEARS OF THE INCOME TAX
Zelenak explains how, in the case of basic issues of income-tax design, early income tax statutes failed to resolve the issues, thus requiring Treasury to decide what Congress had not. These issues include the taxability--or not--of capital gains, the deductibility--or not--of capital losses and the transferee's basis in appreciated property received by gift or bequest. The primary goal of this is to shed some light on the interplay between Congress and Treasury in the development of the early modern income tax, by demonstrating that several of the important features of the early income tax--some of which remain in the federal income tax of the twenty-first century--were not, as one might easily suppose, the results of congressional decisions. Rather, they were the results of decisions made by Treasury in the aftermath of congressional failure to address important issues.
Journal Article
Designing a Billionaire's Tax
With ProPublica’s dramatic revelation in 2021 of the low “true tax rates” of America’s billionaires serving as a catalyst, the exclusion of unrealized gains from the base of the federal income tax has been challenged to an extent unprecedented in the century-plus history of the tax. In late 2021, a proposal by Senate Finance Committee Chair Ron Wyden (D, OR) to tax billionaires’ unrealized gains in tradable assets might have become law, but for the opposition of Senator Joe Manchin (D, WV). And in early 2022, the Treasury Department of President Joe Biden included a minimum tax on the unrealized gains of the ultrarich in its tax reform proposals. A narrower reform, taxing billionaires who borrow against unrealized appreciation to finance lavish consumption expenditures, has also been urged. All three of these proposed reforms—but especially the first two—would transform the fundamental character of the income tax as applied to the wealthiest Americans. This Article describes the three approaches, considers design challenges under each and evaluates their relative merits.
Journal Article
THE INCOME TAX, THE CONSTITUTION, AND THE UNREALIZED IMPORTANCE OF HELVERING V. GRIFFITHS
The Supreme Court recently granted certiorari in Moore v. United States, for the purpose of deciding whether the realization doctrine remains a constitutional limitation on Congress's ability to impose an unapportioned income tax, as the Supreme Court held in its famous 1920 decision in Eisner v. Macomber. For most of the past hundred-plus years, Macomber has languished somewhere between life and death--never overruled by the Court, but never again applied by the Court to invalidate a provision of the income tax (including some provisions that the 1920 Court would surely have considered impermissible). Should the Court now declare Macomber fully alive, the impact on the present and future of the federal income tax would be far reaching. Existing provisions of major revenue significance would be invalidated (including the 2017 redesign of cross-border taxation at issue in Moore,), and a number of intriguing reform proposals would be constitutional nonstarters (including the so-called billionaires' tax proposed by the Biden administration). Although it is natural to look to 1920 and Macomber as the cause of today's uncertain scope of the congressional power to tax income, what did not happen in the Court's 1943 decision in Helvering v. Griffiths is as significant as what did happen in 1920. Despite Griffiths being of comparable importance to Macomber, it has faded into obscurity, even as Macomber remains the most famous tax case of them all. The presence o/Moore on the Court's docket today depends on Macomber's wildly improbable survival in 1943. That survival was the product of a perfect storm of unlikely circumstances. This article tells the story of Griffiths, and how Congress and the Roosevelt administration snatched defeat from the jaws of victory (with a crucial assist from Justice Jackson). The story is offered here both for its own sake--it is fascinating and little known--and because of its timeliness as Moore awaits the Court's consideration. Although the article's focus is on Griffiths, not Moore, the story may offer lessons for today's Supreme Court, for Congress, and for the Biden administration.
Journal Article
FOREWORD: THE PAST, PRESENT, AND FUTURE OF THE FEDERAL TAX LEGISLATIVE PROCESS
The Tax Cuts and Jobs Act of 2017 is—for better or worse—the most significant piece of federal tax legislation since the Tax Reform Act of 1986. Despite the comparable significance of the two tax acts, they could scarcely have been more different in terms of the legislative processes that produced them. The 1986 Act grew out of not one, but two, lengthy Executive Branch tax reform studies—the multi-volume “Treasury I” of November 1984, and President Reagan’s nearly 500-page proposal of May 1985 (often referred to as “Treasury II”). In response to the proposals from the Treasury and the White House, the congressional tax writing committees each convened over forty days of hearings and conducted markups lasting seventeen and twenty-six days. Following the release of Treasury II, more than sixteen months passed between the first hearings of the House Ways and Means Committee in June 1985 and President Reagan’s signing of the bill in October 1986, and almost two years separated the release of Treasury I from the presidential signing.
Journal Article
Taxing Endowment
Writing in 1888, Francis A. Walker, the first president of the American Economic Association, claimed that the ideal tax base was neither wealth, nor income, nor consumption, but rather \"'faculty', or native or acquired power of production.\" According to Walker, only this tax base-what people 'could' earn, rather than the often lesser amounts they actually earn-could achieve an equitable distribution of the tax burden.
Journal Article
GIVING CREDITS WHERE CREDITS ARE DUE: A HALF CENTURY'S EVOLUTION IN THE DESIGN OF PERSONAL TAX EXPENDITURES
In the late 1960s, when Stanley Surrey introduced the concept of tax expenditures and the federal government began producing tax expenditure budgets, personal tax expenditures in the form of deductions (for nonbusiness interest, charitable donations, state and local taxes, and medical expenses) equaled roughly 1.2% of gross domestic product, and personal tax expenditures in the form of credits were virtually nonexistent. Although Surrey was critical of all tax expenditures, he had particular scorn for tax expenditures in the form of deductions, which he characterized as upside-down subsidies. He explained that converting deduction tax expenditures to credits would make them less objectionable, by eliminating their upside-down character. Over the ensuing half century, Congress has shifted from deductions to credits--gradually for decades, with a dramatic acceleration of the shift in 2017. Today, in sharpest contrast with the Surrey era, major tax expenditures in the form of personal credits equal roughly 1.23% of GDP, while major deduction expenditures have fallen to about 0.61%. This Article describes this fundamental transformation of a significant fraction of the national economy, first from a big picture perspective and then with detailed accounts of the evolution of the major personal tax expenditures. The Article also offers a policy analysis of the transformation, with three major conclusions: (1) Congress has been overly influenced by Surrey's upside-down critique, in that it has wrongly viewed as upside-down subsidies deductions justified on income-defining (ability-to-pay) grounds; (2) in designing personal tax expenditures, Congress has legislated as if a number of design features automatically follow from the choice between deduction and credit, when in fact they do not; and (3) Congress has been right (at least mostly) to ignore Surrey's recommendation that all credits should be taxable.
Journal Article
THE COURT AND THE CODE: A RESPONSE TO THE WARP AND WOOF OF STATUTORY INTERPRETATION
Most tax lawyers (myself included) believe there are features of the Internal Revenue Code that distinguish the art of interpreting the code from the interpretation of most other statutes. It is gratifying that the thoughtful and thorough work of Professors James J. Brudney and Corey Ditslear tends to support that belief, both descriptively and normatively. Strictly speaking, Professors Brudney and Ditslear establish only that interpreting the code is a different exercise from interpreting federal workplace statutes, but most tax lawyers would be willing to assume (on perhaps too little evidence) that the interpretation of workplace statutes is in the interpretive mainstream and that code interpretation is the outlier. In this brief Response, I offer a few observations-admittedly, somewhat scattershot-on some of the questions considered by Professors Brudney and Ditslear. My comments focus on the role of tax legislative history in the interpretive process, the usefulness (or lack thereof) of tax-specific canons of statutory interpretation, the ability of Supreme Court Justices without extensive pre-judicial tax backgrounds to write high-quality opinions in tax cases, and the limitations of quantitative analysis of judicial opinions.
Journal Article