Tax
Common Control and the Delineation of the Taxable Entity
121 Yale L.J. 624 (2011). This Note proposes a solution to what has been one of the most vexing problems in state corporate taxation and in multijurisdictional taxation generally: the delineation of the scope of the entity that an individual jurisdiction is entitled to tax. Starting from the observation that the federal government already aggregates the income of commonly controlled groups of corporations to prevent them from taking advantage of the lowest tax brackets multiple times, this Note proposes that states “piggyback” on these efforts and allow the federal government thereby to shoulder the burden of delineating the taxable entity.
Bad News for Professor Koppelman: The Incidental Unconstitutionality of the Individual Mandate
In Bad News for Mail Robbers: The Obvious Constitutionality of Health Care Reform, Professor Andrew Koppelman argues that the individual mandate in the Patient Protection and Affordable Care Act is constitutionally authorized by the Necessary and Proper Clause. This view is fundamentally wrong. The Necessary and Proper Clause is based on eighteenth-century agency law, including the fundamental agency doctrine of principals and incidents. Accordingly, the Clause only allows Congress to exercise powers that are incident to—meaning subordinate to or less “worthy” than—its principal enumerated powers. The power to compel private persons to engage in commercial transactions with other private persons is not an incidental power. Thus, the mandate is not authorized by the Necessary and Proper Clause, whether or not such a power is “necessary and proper for carrying into Execution” other powers. In addition, eighteenth-century public law carried administrative law principles—including the fiduciary norms at the heart of agency law—into delegations of power to political actors. One of the most basic of these fiduciary norms is the obligation to treat multiple principals equally. That equal treatment requirement is violated by the individual mandate, which compels transactions with a favored oligopoly of insurance companies. In short, the mandate is not an exercise of incidental power within the scope of the Necessary and Proper Clause, nor is the mandate “proper.”
A Winn for Educational Pluralism
**This Essay is part of a new Yale Law Journal Online series called "Summary Judgment," featuring short commentaries on recent Supreme Court cases.** Over the past decade, scholarship tax credit programs, like the one at issue in Arizona Christian School Tuition Organization v. Winn, have emerged as a popular education policy tool. While details vary by state, scholarship tax credit programs allow individuals or corporations (and in some cases, including Arizona, both) to receive a state income tax credit for donations to charitable organizations—called “scholarship tuition organizations” in Arizona—that provide scholarships for children to attend private schools. Currently, seven states—Arizona, Florida, Georgia, Indiana, Iowa, Pennsylvania, and Rhode Island—have such programs in place. During the 2010-2011 school year, the scholarship organizations participating in these programs awarded nearly $290 million through over 123,000 scholarships. With two exceptions, scholarship tax credit programs exclusively target low-to-moderate-income students. For example, in Florida—the state with the largest scholarship tax credit program in the nation—eligibility is limited to students qualifying for free or reduced-price lunches, and scholarships are disproportionately awarded to Latino and African-American students. And the most recent evidence suggests that even the non-means-tested tax credit program at issue in Winn—Arizona’s individual scholarship tax credit program—disproportionately benefits low-income kids. Thus, scholarship tax credit programs help open the doors of high-quality private schools to thousands of children of modest means who might otherwise languish in failing public schools.
Winn and the Inadvisability of Constitutionalizing Tax Expenditure Analysis
**This Essay is part of a new Yale Law Journal Online series called "Summary Judgment," featuring short commentaries on recent Supreme Court cases.** In Arizona Christian School Tuition Organization v. Winn, the U.S. Supreme Court decided, by the thinnest of margins, that Arizona taxpayers cannot mount an Establishment Clause challenge to Arizona’s state income tax credits for “contributions to school tuition organizations.” Writing for a five-Justice majority, Justice Kennedy held that Flast v. Cohen only bestows standing upon taxpayers contesting direct monetary outlays on Establishment Clause grounds. Flast, the majority held, does not extend standing to taxpayers objecting under the Establishment Clause to tax provisions such as the Arizona income tax credit. In dissent, Justice Kagan, joined by three of her colleagues, concluded that Flast does afford standing to the Arizona taxpayers challenging the state’s tax credits for contributions to school tuition organizations. Central to Justice Kagan’s dissent was her invocation of the academic doctrine of “tax expenditure” analysis. That analysis, Justice Kagan wrote, recognizes that “targeted tax breaks . . . are just spending under a different name.” The Court has often confronted the question of whether direct public outlays and tax subsidies are equivalent for constitutional purposes. However, Justice Kagan’s dissent in Winn is only the second time that tax expenditure doctrine has formally played such an explicit, prominent role in the Court’s decisionmaking.
Bad News for Mail Robbers: The Obvious Constitutionality of Health Care Reform
The Supreme Court may be headed for its most dramatic intervention in American politics—and most flagrant abuse of its power—since Bush v. Gore. Challenges to President Obama’s health care law have started to work their way toward the Court and have been sustained by two Republican-appointed district judges. The constitutional objections are silly. However, because constitutional law is abstract and technical and because almost no one reads Supreme Court opinions, the conservative majority on the Court may feel emboldened to adopt these silly objections in order to crush the most important progressive legislation in decades. One lesson of Bush v. Gore, which did no harm at all to the Court’s prestige in the eyes of the public, is that if there are any limits to the Justices’ power, those limits are political: absent a likelihood of public outrage, they can do anything they want. So the fate of health care reform may depend on the constitutional issues being understood at least well enough for shame to have some effect on the Court.
Taxation and Liquidity
120 Yale L.J. 1682 (2011). One of the principal determinants of an asset’s return is its liquidity—the ease with which the asset can be bought and sold. Liquid assets yield a lower return than do otherwise comparable illiquid assets. This Article demonstrates that an income tax alters the tradeoff between asset liquidity and yield because: (1) high yields from illiquid assets are taxed; (2) imputed transaction services income from liquidity is untaxed; and (3) illiquidity costs are only sometimes deductible. As a result, assets have more liquidity and the price of liquidity in terms of yield is higher than it would be in the absence of an income tax. These distortions foster an excessively large financial sector, which exists in large part to create (tax-favored) liquidity. The tax wedge between liquidity and yield also creates clientele effects, in which low-rate taxpayers, such as nonprofit institutions, hold illiquid assets regardless of their liquidity needs. The liquidity/yield tax distortion also offers a new perspective on fundamental questions in federal income tax, such as the desirability of the realization requirement, preferential capital gains tax rates, and corporate taxation. These elements of the income tax mitigate or even negate the pro-liquidity tax bias identified in this Article.
The Taxing Power, The Affordable Care Act, and the Limits of Constitutional Compromise
Tax Cases Make Bad Work Product Law: The Discoverability of Litigation Risk Assessments After United States v. Textron
119 Yale L.J. 1715 (2010).
Taxing Unreasonable Compensation: § 162(a)(1) and Managerial Power
119 Yale L.J. 637 (2009).
