INTRODUCTION TO ONE-HUNDRED YEARS OF THE FEDERAL INCOME TAX
Joseph M. Dodge, Steve R. Johnson, Jeffrey H. Kahn
Income taxation in the United States got off to a less than auspicious start. A few American colonies experimented with taxes that crudely attempted to reach certain income from business and professional activities during the 17th and 18th centuries. Secretary of the Treasury Alexander Dallas urged adoption of an income tax during the War of 1812, but that conflict ended before action was taken on his proposal.
THE FORGOTTEN HENRY SIMONS
Surely just about everyone in the U.S. federal income tax field has heard of Henry Simons, although mainly for just one thing: his famous definition of “personal income” as the market value of one’s consumption plus change in net worth during the relevant period, as stated in his classic 1938 work, Personal Income Taxation. Simons’ formulation of what became known as the Haig-Simons income definition provided a central orientation point for U.S. tax policy thinking for many decades thereafter. Even today, it remains extremely important.
WHEN WE TAXED THE PYRAMIDS
Steven A. Bank
One of the more anomalous structural features of the corporate income tax is the dividends received deduction, which permits a corporation to deduct from income an amount equal to some or all of the dividends it receives in its capacity as a shareholder of another domestic corporation. At first glance, the provision seems to be justified by the general sentiment against taxing corporate income more than twice. If this is the explanation, however, the dividends received deduction is underinclusive because some intercorporate dividends are only partially deductible. As currently drafted, the amount of the deduction is based on the degree of a shareholder’s control. Dividends are completely (100%) exempt if a corporate shareholder owns at least 80% of the distributing corporation, 80% exempt if the ownership interest is less than 80% but at least 20%, and 70% exempt if the ownership interest is less than 20%. If avoiding triple (or more) taxation was the rationale, it is not clear why all intercorporate dividends would not be completely exempt from further taxation. Given partial deductibility and the importance of degree of control, it is therefore natural to conclude that the dividends received deduction is less about a concern over multiple layers of taxation and more about substance-over-form concerns. In other words, it is about differentiating true dividends from distributions that are really just shifts in money from a corporation’s right pocket to its left pocket. If that is the explanation, however, the dividends received deduction is overinclusive because it applies to very small investments in another corporation where the distribution really does move money from one taxpayer to an entirely different taxpayer. Thus, a corporation that owns a single share of stock in a large public corporation still can exclude 70% of the dividend from income.
SOME INCOME TAX SIMPLIFICATION PROPOSALS
Joseph M. Dodge
This Article proposes various moves for simplification of the task of computing the tax base under the individual income tax, with a principal view of making the income tax capable of compliance by “ordinary” individuals without the aid of tax preparation software or outside assistance.
Part II offers a brief overview of the pros and cons of simplification as a reform agenda or project. Part III deals with simplification moves that can be carried out independently of conventional tax reform proposals. Part IV considers simplification benefits that are attendant upon plausible tax reform (or revenue-raising) proposals. Part V offers some concluding remarks.
A PROPOSED REPLACEMENT OF THE TAX EXPENDITURE CONCEPT AND A DIFFERENT PERSPECTIVE ON ACCELERATED DEPRECIATION
Douglas A. Kahn
The concept of tax expenditures has been widely accepted and has even been adopted into federal law, which requires the annual promulgation of tax expenditure budgets. Pursuant to that mandate, several federal governmental offices publish lists of what they deem to be tax expenditures. One such budget is published by the Department of Treasury, and a different budget is published by the Staff of the Joint Committee on Taxation. While there is considerable overlap in those two budgets, they are not identical, and they utilize different norms and baselines for determining what constitutes a tax expenditure. In addition, forty-five states publish their own versions of a tax expenditure budget.
THE END OF CASH, THE INCOME TAX, AND THE NEXT 100 YEARS
Jeffrey H. Kahn, Gregg D. Polsky
One theme of this symposium, which celebrates the 100th anniversary of the federal income tax, is “The Next 100 Years.” What will the next hundred years have in store for the federal income tax? We suspect that technological innovations will play a very significant role. Technology has dramatically affected life in the United States over the past century in many areas, perhaps most notably in communications. On the other hand, the income tax is technologically very similar to the way it was in its early years, and technological developments have been at the margins of the income tax and have not affected its core elements.
OPERATIVE MECHANISMS AND LIMITING FACTORS
As we celebrate the centennial anniversary of the U.S. federal income tax and look forward to the next hundred years, it is worth reflecting on the nature of tax scholarship. The U.S. tax system is incomprehensibly complex. Any attempt to assess the U.S. tax system must therefore rely on applying some theoretical frame. Which frames are chosen, and how they are applied, potentially has firstorder consequences for how we understand the role of the income tax as a central component of the U.S. system of governance.
REFORMING FEDERAL TAX LITIGATION: AN AGENDA
Steve R. Johnson
King Vertigorn, it is said, wished to build a castle to defend Britain against invaders. Each day, his mason raised and set the stones. Each night, however, the earth would rumble, bringing the work crashing to the ground. Vexed, Vertigorn asked Merlin for an explanation. Merlin’s mystical divination revealed that, in a cavern far below the surface, there resided two foes, a red dragon and a white dragon. In their perpetual struggle for dominance, first one dragon then the other would gain temporary ascendancy. Their jostling unsettled the ground, rendering all construction temporary.
WILL THE FEDERAL INCOME TAX HAVE A BICENTENNIAL?
Lawrence A. Zelenak
Will there be a Florida State University Law Review symposium issue in 2113 celebrating (or lamenting) the bicentennial of the federal income tax? In the conventional usage of tax policy wonks, “income” tax has a specific technical meaning. The defining characteristics of an income tax are that it taxes saved income (in addition, of course, to taxing income devoted to current consumption) and that it taxes the investment return on savings. The taxation of saved income distinguishes an income tax from a consumption tax, and the taxation of investment returns distinguishes an income tax from a wage tax. Despite the income tax label, the federal income tax has very significant consumption tax features, including most prominently the exclusion from the tax base of unrealized appreciation and the long-term deferral of tax on most retirement savings.