Tax Law Changes Research Articles

Democracy Avoidance in Tax Lawmaking

The Tax Cuts and Jobs Act was the most significant tax law in more than three decades, but the strategy for getting it enacted included a variety of maneuvers to avoid public scrutiny. As a result, many taxpayers did not know how they would be affected until they filed their own tax returns more than a year later. This Article identifies this lack of transparency as part of a persistent pathology of avoiding and constraining democratic inputs and responsiveness in U.S. federal tax lawmaking. Indeed, some scholars and policy makers have sought to channel tax lawmaking away from democratically grounded decisions and towards prescribed outcomes, justifying these moves with strands of public choice theory that are expressly critical of democratic decision making. I critique this democracy avoidance approach to tax lawmaking, and make the case that tax law should be a product of mechanisms that provide greater transparency, accountability, and responsiveness to advance democratic legitimacy. I propose four reforms to tax lawmaking in the U.S. Congress to make resulting tax laws more democratically legitimate. One proposal, for example, is to require Congress to consider (and publicize) precisely how a proposed change in tax law is expected to affect different example taxpayers, including taxpayers from each congressional district. This would allow actual taxpayers observing the lawmaking process to anticipate their treatment under a proposed law, and in turn demand greater responsiveness to their real interests from their representatives. Other proposals build on this approach, calling for drastically more transparency and a radical—but, I argue, achievable—reworking of the types of analysis produced in the federal tax legislative process for consumption by non-experts.

The Tax Gap's Many Shades of Gray

The “tax gap”—the difference between the amount of “true tax” and the amount of tax actually paid—has garnered widespread attention in recent months. Much of the commentary on the subject equates the tax gap with “tax evasion,” a term broadly understood to connote intentional (and potentially criminal) underreporting. This paper cautions against conflating the tax gap with tax evasion. The tax gap includes substantial gray areas where the law is ambiguous and the IRS’s determination of “true tax” is debatable. On top of that, the IRS’s methodology for measuring the tax gap includes upward adjustments that are recommended by front-line examiners but reversed on administrative appeal or judicial review. Moreover, a substantial portion of the estimated tax gap is derived from a statistical technique called “detection controlled estimation” that potentially magnifies the impact of later-reversed recommendations on the ultimate tax gap measure. Weighing in the opposite direction, the IRS’s approach to measuring the tax gap excludes some amounts that clearly constitute tax evasion (most significantly, underreporting of tax on illegal-source income). Understanding the tax gap’s shades of gray can inform discussions of tax law and policy. We explain how proposals to use the tax gap as a performance target may produce perverse incentives for the IRS. We further explain how additional IRS funding—though necessary to improve the agency’s ability to enforce the tax laws—may have counterintuitive effects on the estimates of the tax gap. We also illustrate—using examples from the taxation of passthrough entities—how legislative reforms can reduce the size and scope of legal gray areas that contribute to the tax gap. Our analysis highlights the importance of increased IRS funding levels and substantive tax law changes as complementary strategies for improving tax compliance.

Does Household Tax Burden Have an Impact on Individuals’ Savings in Banks? The Case of Ukraine

Abstract This paper aims to assess the impact of the effective and nominal household tax burden on household deposits in Ukrainian banks. We used the effective tax burden, which includes personal income taxes and value-added tax (VAT) paid. We considered changes in Ukrainian tax law from 2003 to 2016, which included a change from progressive income taxation to proportional income taxation, a decrease in tax rates in 2003, and an increase in tax rates in 2014–2016. The data sample consists of publicly available data on Ukrainian households’ income, savings, and taxes paid in 1996–2019. The analysis was performed using panel regression and the difference-in-difference (DID) method. The tax burden impact on bank deposits is significant and is caused partly by the shadow economy. The results of the study are relevant for Ukraine and countries with similar economies. The methodological approaches developed in the paper can be used for similar studies in other developing countries.

The Urgency for the Implementation of Transition Norm “Lex Favor Reo” in the Imposition of Tax Sanction in Indonesia

Taxation regulations in Indonesia are very dynamic, due to frequent changes in tax laws and regulations. Taxpayers need to make extra efforts to keep abreast of the latest tax regulations. This can cause taxpayers to experience difficulties in carrying out their tax obligations. On the other hand, Indonesia adheres to the principle of legal fiction, so that for every statutory regulation that has been promulgated, the public is deemed to have known the law and understands it, so that there is no excuse for the violations to the law. Problem may arise when the tax authorities conduct tax audits on taxpayers and find the taxpayers do not carry out tax obligations in accordance with the taxation provisions in effect at the time the transaction happens, so that the tax authorities will impose tax sanctions on taxpayers in accordance with the tax regulations in force at the time when the transactions happen, not based on the latest tax regulations, which are in effect when the taxpayer’s error is discovered by the tax authorities. The imposition of these sanctions raises a problem: has the imposition of tax sanctions provided justice and legal certainty? How is the imposition of tax sanctions that provide justice and legal certainty? Legal certainty is one of the main factors for investors in deciding which countries to invest in. Therefore, in our opinion, a “new model for the imposition of tax sanctions” is needed in Indonesia, namely by applying the Lex Favor Reo Transitoir (transition) principle in the imposition of tax sanctions. This research is significant to conduct, so that the imposition of tax sanctions provides better justice and legal service. The application of the “new model of imposition of tax sanctions” also has urgency, so that the imposition of tax sanctions for taxpayers provides a sense of justice and legal certainty which in turn can attract investors to invest in Indonesia as well as to avoid capital flight. This condition will make Indonesian economy grow rapidly and, in the end, will increase state revenue from taxes.

Problematyczne aspekty powiązań standardów rachunkowości finansowej z opodatkowaniem podmiotów prawnych podatkiem dochodowym od osób prawnych

W artykule dokonano kompleksowej analizy oraz oceny teoretycznych i praktycznych problemów stosowania standardów rachunkowości finansowej w ramach nakładania podatku na przychód osób prawnych, zaproponowano także możliwe rozwiązania tych problemów, a tym samym wskazano konieczne zmiany w prawie podatkowym Republiki Litewskiej.

The Political Mobilization of America's Congregations

AbstractWe use data from the National Congregations Study (NCS), including data from the fourth wave, to describe congregations’ political activity in 2018–2019, and to examine change in that activity since 1998. Congregations have become more politically mobilized since 1998, with the majority of congregations (56 percent) engaged in at least one of the political activities asked about in 2018–2019. Black Protestant congregations in particular experienced a surge in political activity since 2012, and congregations with politically liberal convictions or in traditions with more immigrant members have substantially increased their advocacy on behalf of immigrants in recent years. Overall, since 2012 and possibly since 1998, the political mobilization of congregations on the left has increased more than political mobilization of congregations on the right. We also find that 4 percent of (overwhelmingly Catholic) congregations have declared themselves sanctuaries for undocumented immigrants, and a surprisingly large minority (17 percent) of congregations would publicly endorse or oppose political candidates if doing so would not put their tax status at risk. Ironically, in light of the support for this tax law change among conservative leaders, African American and politically liberal congregations are by far most likely to publicly endorse a candidate if they could.

Amicus Brief of Tax Scholars in Support of Appellants

It is hard to describe tax law succinctly. The federal Internal Revenue Code is over 6,000 pages and contains over 4 million words. As scholars who write about taxation, we are well aware of this challenge. Nevertheless, the 100-word summary that appeared on Invest in Education’s petitions accurately describes its proposed change to Arizona tax law. Arizona's Invest in Education initiative would establish a new, separate surcharge of 3.5% on taxable income above certain threshold amounts. This new surcharge shall be imposed “[i]n addition to any other tax imposed by this chapter” and, it will be “collected regardless of whether the income tax rate brackets in this chapter are changed, replaced or eliminated by an act of the legislature.” Invest in Education’s 100-word summary described this provision as “establishing a 3.5% surcharge on taxable income above $250,000 annually for single persons or married persons filing separately, and on taxable income above $500,000 annually for married persons filing jointly or head of household filers.” This description straightforwardly describes the tax law change proposed in the initiative text. The Arizona trial court held there were three tax-related problems with the 100-word summary. The trial court concluded that the use of the term “surcharge” rather than “tax” was misleading, and it held that the description omitted two principal provisions: the relative percentage change in the marginal tax rate and the fact that the definition of taxable income includes income that individuals earn as owners of pass-through entities. The trial court’s conclusions are based in confusion about tax law and a misreading of the Arizona Supreme Court's decision in Molera v. Reagan. As this brief explains, there is nothing misleading about the 100-word summary, and it accurately described the principal tax provision.

ANALISIS STRUKTUR BIAYA, PENGELUARAN MODAL, DAN PROFITABILITAS PERUSAHAAN SEBELUM DAN SESUDAH PERUBAHAN KEEMPAT UU PPH 1984 (Studi pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia)

Introduction: Tax rate changes in Income Tax Law 1984 can be provided companies more beneficial so investment and tax revenue should be increased. The change in tax regulation will be affect to companies’ cost structure. Tax influence capital budgeting by tax effect in cash flow calculation and companies’ longterm capital expenditure too. In the end, cost structure and capital expenditure activities change will be affect companies’ net income after tax.Methods: Almost all companies which listed in stock exchange are manufacture industry, so manufacture handle an important part in Indonesian economic. To see the effect of tax regulation changes which is recently valid, then need to do comparison between before and after period of implementation Income Tax Law changes. The sample is taken by using purposive sampling from manufacture companies which listed in Indonesia Stock Exchange. The data is secondary data, financial annual report since 2008 up to 2010.Results: The result for hypothesis testing show that cost structure of manufacture industry is statistically different. Conclusion and suggestion: Capital expenditure and profitability of manufacture industry is not statistically different before and after period of implementation Income Tax Law 1984.

The inheritance and gift tax in Germany: Reform potentials for tax revenue, efficiency and distribution

The inheritance tax is often seen as an effective tool to reduce wealth inequality, raise public revenues if needed, and increase incentives to work by lowering the tax burden on labour, which is especially high in Germany, according to the OECD. The purpose of this paper is to shed light on the question of whether an inheritance tax is a promising tool for fighting wealth inequality without having distorting effects on the economy. For this purpose, firstly, the distributional effects of inheritances on wealth distribution are evaluated for Germany and are then compared with those in Austria and France, using data from the Household Finance and Consumption Survey (HFCS). A change in German inheritance tax law in 2009 is further used in a difference-in-difference analysis to identify the behavioural effects of the change in the inheritance tax on the volume of bequests, which are large and robust for different specifications.

The Possibility for Stateless Dynastic Wealth and the Case of China

Part I of this paper explains how wealth managers have modified the trust to create the possibility for stateless dynastic wealth. By this I mean wealth that is held by a family through a trust that is established in a haven state to eliminate the power of other states to regulate and oversee transmission and management of wealth and to make it very difficult for courts in another state to levy against wealth on behalf of private creditors. These structures also permit legal tax avoidance if income and wealth is not attributed to family members. And they facilitate tax evasion by not reporting foreign income and wealth. I use the relatively novel structure of a perpetual purpose trust to illustrate. Part II is a case study of China. It draws on multiple sources of information to estimate the potential demand for wealth preservation services in China and the current extent of the use of such services. I selected China as a case study in part because it was in the remit of the conference for which this paper was written, which was sponsored by the Chinese Journal of Comparative Law. This was a happy coincidence. Several factors make China an interesting case study. Private wealth has grown exponentially in China in the last fifty years, creating large potential demand for wealth preservation services. But China has been slow in developing internal legal structures like family trusts that would enable wealth holders in China to preserve wealth using Chinese law and Chinese entities. This creates an incentive to move wealth outside of China in addition to the usual incentives canvassed in Part I. Political risk adds to the incentive to move wealth outside of China. But it seems that relatively little wealth has moved outside of China compared to other wealthy states. Some of this lack of uptake of wealth management services may be attributed to unfamiliarity with such services. I speculate that a significant part can be attributed to restrictions imposed by China on the movement of capital. These restrictions increase the cost of moving capital out of China. This would imply is that there is not strong intrinsic demand for the more exotic services wealth managers can provide, such as the structure described in Part I. This is consistent with the experience in the U.S. where a change in tax law in 1986 is thought to explain an increase in demand for perpetual trusts. If this speculation is correct, then China would expect there to be a significant increase in capital export if it liberalized capital accounts and increased taxes on wealth. And, if the U.S. adopted significant wealth taxes such as have been proposed by some progressive Democrats, then we should expect wealthy individuals to respond by increasing use of structures such as the structure described in Part I.

Designing International Tax Reform: What Went Wrong?

With the passage of the most significant change to the international tax rules since the early days of the income tax in the 1910s, the debate as to the merit of these changes has been ongoing. Academic commentary on the law known as the Tax Cuts & Jobs Act (TCJA) has been largely negative, with the law being criticized for reducing equity, benefiting wealthier business owners at the expense of individuals in the long term (while also increasing the deficit) and adding to complexity and tax planning opportunities. These critiques give rise to the question of how best, and under what criteria, to evaluate the changes brought about by the tax law. This paper analyzes the tax law changes adopted in the TCJA that impact cross-border investment by measuring them under a “second best” approach – one that acknowledges that any international tax regime will necessarily involve a trade-off in maximizing different goals and making a choice between the inefficiencies introduced by any set of rules to allow for a more measured and realistic consideration of the benefits of the new law relative to the possible alternatives. The analysis indicates that many of the international tax law changes introduced by the TCJA closely followed proposals made by economists in the years leading up to the law’s passage. The divergence between the theory of what the law was intended to do and its results to date provides lessons for economists engaging in policymaking.

Do Analysts Mind the GAAP? Evidence From the Tax Cuts and Jobs Act of 2017

This study examines the quality of analysts’ GAAP-based earnings forecasts. Ideally, addressing this question requires events that have an ex ante estimable earnings impact, and affect GAAP earnings but not street earnings. The deferred tax adjustment as a result of a 2017 tax law change meets these criteria. Focusing on the fourth quarter of 2017 (2017Q4), we find that analysts’ GAAP earnings forecasts and revisions fail to incorporate the vast majority of the deferred tax adjustment. We explore two potential explanations for this finding – task-specific complexity and lack of GAAP earnings forecasting effort. We find evidence consistent with the latter. Our final analyses consider two implications of our findings. First, despite analysts underreacting to the deferred tax adjustment, investors promptly impound the adjustment into stock prices at the legislative enactment date, indicating that analysts’ GAAP earnings forecasts are not a good proxy for investor expectations of GAAP earnings during our sample period. Second, analysts who best incorporate the adjustment into their 2017Q4 GAAP earnings forecasts issue more accurate GAAP earnings forecasts for subsequent quarters, indicating that our inferences extend beyond a single quarter and account. Collectively, these findings have implications for research that relies on analysts’ GAAP earnings forecasts to be of reasonable quality.

Incorporating Financial Statement Information to Improve Forecasts of Corporate Taxable Income

We contribute to the research on the information content of earnings as it applies to the forecasting of economic activity across reporting models. We examine whether publicly available financial statement information is incrementally useful in forecasting confidentially reported taxable income. More precise firm-level taxable income forecasts can improve policymakers’ modeling of the tax system and their ability to analyze the effect of proposed changes in corporate tax law. When aggregated, improved micro-forecasts can also yield more accurate macro-forecasts of corporate taxable income, a significant component of the federal budget. We find that financial statement information improves firm-level estimates of future taxable income by providing more timely information. We also document the usefulness of the deferred tax valuation allowance in improving taxable income estimates for loss firms. Our evidence suggests public financial statement information complements proprietary data to improve estimates of future taxable income for budgetary and policy use.

Could the Benefits of the Public Service Loan Forgiveness Program Be Retroactively Curtailed?

There is a sharp tension between the expectations that hundreds of thousands to millions of persons have or will have regarding their right to have their federal student loan debts forgiven under the Public Service Loan Forgiveness (“PSLF”) program and the legitimate public concerns regarding the large costs and regressive incidence of the PSLF program’s benefits. In 2017, the Trump Administration proposed abolishing the PSLF program for future federal Direct Loans, but this proposal was not adopted. A similar proposal was made in 2019 as part of the Administration’s fiscal 2020 budget proposal, with little chance of adoption. But given the large costs of the program, which I estimate will eventually rise to $12 billion per year or more as an estimated 200,000 people per year who currently have outstanding federal Direct Loans will eventually seek debt forgiveness, and given the regressively skewed incidence of its benefits in favor of relatively affluent mid-career doctors and lawyers, I think that there will be further legislative curtailment efforts made in 2020 or later by the Trump Administration or by members of Congress, this time perhaps a more aggressive proposal for retroactive elimination of the program, or at least a push for a tax law amendment to include this forgiven debt as taxable income as is now done for debts forgiven under the other federal income-based loan forgiveness plans. This Article considers several contractual arguments as well as Constitutional arguments that opponents of such proposed statutes could offer. The contractual arguments against retroactive elimination of the PSLF program include arguments based on: the express loan terms; the implied contractual covenant of good faith and fair dealing; promissory estoppel; and unconscionability. Some of these arguments have considerable merit, at least for those Direct Loan borrowers who can make certain fact-specific showings. Opponents of such legislation might also be able to invoke constitutional substantive due process concerns under the authority of the 1986 Supreme Court case of Bowen v. POSSE. They also could offer a plausible Takings Clause argument against a tax law change if the courts choose to regard the PSLF program’s tax exemption for forgiven debt as a contractual commitment rather than as only a revocable privilege. This Article does not take a strong normative position on these potential legal issues. It does, however, suggest a compromise that might fairly balance the interests at issue: continue the PSLF program in its current form, but repeal the tax exemption for forgiven debt so as to recapture for the Treasury in a modestly progressive manner approximately one-quarter to one-third of the benefits of the debt forgiveness. Such a compromise should probably also include a provision for spreading the payment of those taxes over at least several years after debt forgiveness to avoid unduly burdening these persons with a sudden, large tax liability that is not accompanied by the receipt of funds to pay those taxes.

РОЗВИТОК ЦИФРОВИХ ПЛАТФОРМ ТА ПРІОРИТЕТИ ЕКОНОМІЧНОЇ ПОЛІТИКИ

The article explores the activities of digital platforms in the modern era of digital transformation. The proliferation of the platform type of economic relations is an objective process related to the digital and technological transformations in the modern world. This form provides the best competitive advantage for the platform customers as a result of receiving a "network" effect, which increases the value of the platform as its quantitative indicators increase. Platforms have been identified to generate both positive effects and increased risks associated with anticompetitive behavior due to the emergence of new forces with powerful market power. In addition, platforms can contribute to erosion of the tax base, increasing all kinds of discrimination and inequality. In Ukraine, as an open economy, the proliferation of new forms of economic relations organization creates a significant potential for productivity gains due to the wide potential for reducing transaction costs for economic relations entities and increasing their competitiveness both domestically and internationally. The article proposes to support the reorganization of socio-economic relations related to the proliferation of platforms on the basis of changes in antitrust, labor and tax law.

Tax Complexity in Australia – A Survey-Based Comparison to the OECD Average

This article comprehensively reviews Australia’s corporate income tax complexity as faced by multinational corporations (MNCs) and compares it to the average of the remaining OECD countries. Building on unique survey data, I find that the Australian tax code is considerably more complex than the OECD average, which is mainly due to overly complex anti-avoidance legislation, such as regulations on transfer pricing, general anti-avoidance or controlled foreign corporations (CFC). In contrast, Australia’s tax framework, which covers processes and features such as tax law enactment or tax audits, is close to the OECD average. A more granular analysis yields further interesting insights. For example, excessive details in the tax code and the time between the announcement of a tax law change and its enactment turn out to be serious issues in Australia relative to the remaining OECD countries.

Mispricing and Anomalies: An Exogenous Shock to Short Selling from the Dividend Tax Law Change

We study the causal effect of short selling on asset pricing anomalies by exploiting a novel exogenous shock to short selling. After the Job and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003, equity lenders are reluctant to lend shares around the dividend record dates because substitute dividends that they would receive are taxed at ordinary income rates while qualified dividends are taxed at 15 percent, thus creating a negative shock to short selling. Using arguably the most comprehensive set of anomalies to date and the difference-in-differences (DID) regression framework, we find that anomalies become stronger after the dividend record months in the post-JGTRRA periods, driven by stronger mispricing in the dividend record months. We further show that the effect mainly comes from the overpriced stocks. Overall, our results provide strong evidence that most anomalies are likely due to mispricing, with valuation anomalies as an exception.

Prawa podatnika a stanowienie prawa podatkowego – wybrane zagadnienia

Dobre funkcjonowanie mechanizmów finansowych państwa wymaga sprawnego prowadzenia polityki finansowej, w tym polityki podatkowej. Przewidywalność zmian prawa podatkowego stanowiących wyraz realizacji polityki znanej podatnikom jest zgodna z zasadą pewności prawa, gdyż istotnie redukuje ujemne konsekwencje braku stabilności. Jak wiadomo, posiedzenia Sejmu i Senatu są jawne. Jawne powinny być jednak także projekty przepisów prawa podatkowego, a nawet założenia owe projekty poprzedzające. Z jednej strony umożliwiłoby to, a co najmniej znacznie ułatwiło, przeprowadzenie odpowiednich konsultacji publicznych, z drugiej zaś redukowało niepewność podatników co do przyszłego prawa. W toku prac nad projektem należy dbać o poprawność języka prawnego i szanować zasady techniki prawodawczej. Konsultowanie i opiniowanie projektów przepisów podatkowych przez różne podmioty, w tym przez ekspertów, ma olbrzymie znaczenie dla prac ustawodawczych. Prowadzenie konsultacji z udziałem podatników, przedstawicieli organizacji społecznych, samorządowych i gospodarczych oraz samorządów zawodowych ma wpływ na jakość prawa i sprzyja odpowiedniemu wyważeniu interesu publicznego i prywatnego w prawie podatkowym. W przypadku niezrozumiałego przepisu, podatnika winna chronić zasada in dubio pro tributario. Przepis taki nie może być także podstawą zastosowania wobec podatnika sankcji. Do zasad podatkowych mających największe znaczenie z punktu widzenia praw podatnika należy zasada pewności. Pewność i bezpieczeństwo prawne podatnika ściśle wiążą się z zasadą lex retro non agit. Ważne są też zasady: ochrony praw nabytych i ochrony interesów w toku. Warto podkreślić, że projekt ustawy Karta Praw Podatnika wniesiony niedawno do Sejmu niemało miejsca poświęca przepisom dotyczącym stanowienia prawa podatkowego. Obserwacja praktyki dowodzi, że takie przepisy są potrzebne, gdyż przyczyniłyby się z jednej strony do poprawy jakości naszego prawa podatkowego, z drugiej zaś do wzmocnienia ochrony praw podatnika.

TAX PLANNING IN THE ENTERPRISE MANAGEMENT SYSTEM

The differences between the concepts of “tax planning”, “tax minimization” and “tax optimization” are investigated and it is established that tax minimization is the maximum reduction of all taxes, tax optimization is the achievement of a proportion between all aspects of an entity's activity; tax planning The system of measures of the enterprise is directed to the maximum use of the current legislation for the purpose of legal optimization of payments. It has been determined that the ways to reduce the tax burden include tax benefits, preferential taxation and the possibility of choosing a simplified system of taxation by small business entities. The levels and requirements to be followed in tax planning are identified and substantiated: organization of accounting and tax accounting, examine tax law, determine the list of benefits, correct accrual and timely payment, using legal methods to reduce the tax burden.
 The methods which are applied in tax planning are substantiated: current internal control, preliminary tax examination, comparative analysis.
 It is determined that tax planning is influenced by certain factors: the sphere of the activity in which the entity operates, the types of activity it is engaged in; status of belonging to a legal or natural person; the purpose of tax planning and the possibility of applying tax benefits. The tax planning system should be formed in accordance with principles: compliance with tax law; justification of the feasibility of applying the tax system; prompt response to changes in tax law; use of tax planning methods; use favorable tax regimes. Tax planning spends efforts on the following functions: analytical, accumulation, distribution, control.
 It is established that the assessment of the effectiveness of the enterprise tax policy should be made through a system of indicators: the level of tax burden on the enterprise; the level of influence of tax planning on the magnitude of the enterprise's tax liabilities and the effectiveness of the enterprise's tax planning and tax policy in general. Effectively organized tax policy at the enterprise will help improve the results of the enterprise. Tax planning should be an integral part of the overall planning of the enterprise.

Recent Amendments to EU, Luxembourg and US Tax Laws, and Their Implications for US Holding and Financing Branch Structures

This article considers the European Commission’s McDonald’s State aid investigation and why it was dropped. The article also examines recent Luxembourg tax law changes together with proposed US tax provisions to assess the potential effect on US holding and financing branch structures based in Luxembourg.