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The origins of double taxation

STEVEN A. BANK

in From Sword to Shield: The Transformation of the Corporate Income Tax, 1861 to Present

This chapter discusses the roots of double taxation. The 1930s marked a shift in tax policy toward corporations. Much of the focus during the post-war years had been on creating a separate corporate ... More

This chapter discusses the roots of double taxation. The 1930s marked a shift in tax policy toward corporations. Much of the focus during the post-war years had been on creating a separate corporate tax that would permit corporations to shield retained earnings from the high individual rates so they could be reinvested in the business. Toward the end of the 1920s, however, and in particular after the stock market crash in 1929 and the onset of the Great Depression, it became apparent that that there was a dark side to this system that enabled the locking-in of the earnings from corporate capital. President Franklin Delano Roosevelt and Congress initiated a number of corporate tax reforms designed to address the difficulties associated with earnings lock-in. Perhaps most controversial, legislation aimed at the problem of earnings lock-in was the enactment of an undistributed profits tax in 1936. Not only was this tax short-lived, but it led corporate managers and their representatives to support double taxation as a defensive maneuver against the punitive taxation of retained earnings.Less

The lost moment in corporate tax reform

STEVEN A. BANK

in From Sword to Shield: The Transformation of the Corporate Income Tax, 1861 to Present

The turning point in the development of the corporate tax may have been the decade following World War II. There was significant consensus that the taxation of corporations was problematic. ... More

The turning point in the development of the corporate tax may have been the decade following World War II. There was significant consensus that the taxation of corporations was problematic. Businesses had borne a significant brunt of the burden during the war. Over a four-year period, corporate income tax rates had more than doubled from 19 to 40 percent, and Congress enacted a new excess profits tax at rates topping out at 95 percent. By January of 1946, at least sixty proposals for the relief of double taxation were in circulation, many of which were repackaged or reintroduced during succeeding years. It was not until 1954, however, as part of a comprehensive revamp of the Internal Revenue Code, that Congress enacted a modicum of dividend tax relief in the form of a phased-in $100 exemption and a 4 percent shareholder credit. This chapter considers four questions: (1) Why did it take so long for dividend tax relief to be enacted, given the initial momentum in favor of reform?; (2) What led dividend tax reform to rise to the top of the agenda in 1954?; (3) Why, given the degree of interest in integration proposals, was the relief so modest? And; (4) Why was it ultimately so short-lived?.Less

Corporate tax at the turn of the century

STEVEN A. BANK

in From Sword to Shield: The Transformation of the Corporate Income Tax, 1861 to Present

This chapter discusses corporate tax in the early 20th century. The 1894 corporate income tax represented the culmination of a gradual evolution of corporate taxation at the state and federal level ... More

This chapter discusses corporate tax in the early 20th century. The 1894 corporate income tax represented the culmination of a gradual evolution of corporate taxation at the state and federal level during the 19th century, but it was still more closely aligned with the shareholder-centric corporate taxation of the Civil War era than with the modern corporate income tax. It was not until 1909 that Congress actually targeted the corporation with an entity-level tax. In that legislation, Congress imposed an excise tax against corporations, which was measured by corporate income. The 1909 corporate excise tax was imposed in lieu of a general income tax because of the Supreme Court's decision in Pollock that struck down the income tax enacted in 1894. Rather than being the forerunner of the modern corporate income tax, it was the successor to efforts beginning in the Spanish–American War in 1898 to enact a substitute for an income tax that would not run afoul of the Court's ruling. While corporate taxation between the Court's decision in Pollock and the ratification of the Sixteenth Amendment was significant because it targeted the corporation for the first time, the focus was still on reaching the shareholders. Thus, the separate tax principle, which Robert Clark has called one of the fundamental features of the modern corporate income tax system, was not fully introduced until later in the 20th century.Less

The rise of the separate corporate tax

STEVEN A. BANK

in From Sword to Shield: The Transformation of the Corporate Income Tax, 1861 to Present

This chapter details the advent of the separate corporate tax. Although the ratification of the Sixteenth Amendment in 1913 allowed Congress to adopt an individual income tax, the corporate income ... More

This chapter details the advent of the separate corporate tax. Although the ratification of the Sixteenth Amendment in 1913 allowed Congress to adopt an individual income tax, the corporate income tax remained a complementary, rather than separate, tax. The start of the separate entity-level tax can be traced to the divergence of the corporate and individual income tax rates beginning in World War I and continuing through the 1920s. During the war, Congress acknowledged the increasingly important role of retained earnings as a cushion in the event of downturn and as a fund for investment in the economy. Taxing all business income on the pass-through model applied to partnerships would subject corporate retained earnings to the skyrocketing individual surtax rates. To avoid this, Congress delinked the corporate and individual tax systems and thereby shielded retained earnings from those high individual rates. This began the transformation of the corporate income tax from a shareholder withholding mechanism — a sword — to a separate, entity-level, tax: a shield.Less

Nonrecognition and the corporate tax shield

STEVEN A. BANK

in From Sword to Shield: The Transformation of the Corporate Income Tax, 1861 to Present

This chapter continues the discussion of the transition to a separate corporate income tax in the 20th century. In the first two decades of the 20th century, mergers and acquisitions became ... More

This chapter continues the discussion of the transition to a separate corporate income tax in the 20th century. In the first two decades of the 20th century, mergers and acquisitions became commonplace, with large corporations securing control over many of the nation's largest industries. The first great merger movement, which took place at the turn of the century, was followed soon after by another period of significant consolidation during World War I. Between 1915 and 1920, an average of 139 firms disappeared annually as a result of mergers, with as many as 195 firms merging out of existence each year from 1917 to 1920. The chapter details the events leading to the enactment of the Revenue Acts of 1918, 1921, and 1924.Less

Taxation

Chŏng Yagyong

in Admonitions on Governing the People: Manual for All Administrators

This part of the text contains the English translation of nine chapters in Book VI of Mongmin simsŏ on administration for district magistrates. The chapters discuss the following: land ... More

This part of the text contains the English translation of nine chapters in Book VI of Mongmin simsŏ on administration for district magistrates. The chapters discuss the following: land administration, laws of taxation, grain administration, household registration, justice in levying corvée services, and agriculture.Less

Unjust Enrichment and the Idea of Public Law

Charles Mitchell and Peter Oliver

in Philosophical Foundations of the Law of Unjust Enrichment

This chapter considers Martin Loughlin's work on the nature of public law and its implications for claims to recover money paid as tax which is not due. Loughlin argues that most Anglo-American ... More

This chapter considers Martin Loughlin's work on the nature of public law and its implications for claims to recover money paid as tax which is not due. Loughlin argues that most Anglo-American jurists misunderstand public law because they take it to be an autonomous and self-contained body of rules, when its distinctive character actually consists in its role within the political sphere as part of the apparatus of government. The chapter analyses some leading cases on the recovery of overpaid tax from a Loughlinite perspective, arguing that if such claims do not fall exclusively within the public law sphere, then they should at least be seen as hybrids, to be decided with an eye to public law considerations although they are framed as private law actions in unjust enrichment. The point is made that such hybrid claims undermine corrective justice explanations of the law of unjust enrichment because their resolution turns on considerations other than the vindication of the parties' equal status as self-determining actors. Finally, while some cases are shown to be pre-occupied with doctrinal rule-making, others are shown to be more overtly driven by the desire to manage disputes between State and taxpayer in a politically astute way.Less

Tax Law

John Tiley and Stephen Oliver

in The Judicial House of Lords 1876–2009:

This chapter focuses on the House of Lords and its contribution to tax law. It considers how a number of issues raised in magisterial work have fared since 1970. It then looks at the most ... More

This chapter focuses on the House of Lords and its contribution to tax law. It considers how a number of issues raised in magisterial work have fared since 1970. It then looks at the most overwhelming change, which is that tax statutes are no longer treated as distinct from other statutes. The cases show the courts moving on from the attitudes of the Duke of Westminster case with its strict construction and unimaginative approach to the facts.Less

Religious Giving Outside the Law in New Delhi

Erica Bornstein

in Sacred Aid: Faith and Humanitarianism

This chapter explains how and why religious charity and secular humanitarianism have been legally separated into two distinctive fields in India. It first describes the nature and extent of religious ... More

This chapter explains how and why religious charity and secular humanitarianism have been legally separated into two distinctive fields in India. It first describes the nature and extent of religious giving in India, and notes that $92 million is donated annually to Hindu shrines. It then looks at three legislative contexts that helped in forming the divide, namely the British Trust law, the formation of the secular constitution of early postindependence India and Personal Law, and the control of modern nongovernmental organizations (NGOs) through Tax Law. It presents a summary of the scope and practice of Hindu religious giving, and then studies how distinctions between secular and religious giving were legally recorded during a period of colonial “noninterference” in Indian custom and religion.Less

Tax Avoidance

Avi-Yonah Reuven, Nicola Sartori, and Omri Marian

in Global Perspectives on Income Taxation Law

This chapter provides a brief overview of the different approaches that countries pursue with regard to the concept of tax avoidance. It begins by defining tax evasion, tax avoidance, and licit tax ... More

This chapter provides a brief overview of the different approaches that countries pursue with regard to the concept of tax avoidance. It begins by defining tax evasion, tax avoidance, and licit tax savings. It then analyzes the differences between civil law and common law countries in their approach to tax avoidance. It compares the “substance-over-form” doctrines (typical of common law countries) with the “general anti-abuse” doctrines (typical of civil law countries).Less

Some Theoretical Aspects of “Comparative Taxation”

Avi-Yonah Reuven, Nicola Sartori, and Omri Marian

in Global Perspectives on Income Taxation Law

This chapter begins with a brief discussion of the concept of “comparative taxation.” It then considers several approaches to the study of comparative tax law.

Giving Back: Norms, Ethics, and Law in the Service of Philanthropy *

Patricia Illingworth

in Giving Well: The Ethics of Philanthropy

This chapter looks at how charitable tax law can be used to increase giving. The chapter focuses (1) on the rule that nonitemizers may not deduct their charitable gifts and (2) on the water's edge ... More

This chapter looks at how charitable tax law can be used to increase giving. The chapter focuses (1) on the rule that nonitemizers may not deduct their charitable gifts and (2) on the water's edge policy, which states that for an organization to qualify as a charitable deduction for a taxpayer, it must be organized or created in the United States. The chapter argues that both of these laws would have detrimental consequences for social capital and, in turn, for giving. To increase giving, the author argues that law ought to take social capital into account. It is also argued that in the case of the water's edge policy, there is expressive content that is inconsistent with cosmopolitan conceptions of the good, and with the prospect to develop global social capital.Less

Federalism, Regulatory Competition, and The Limited Liability Movement: The Coyote Howled and the Herd Stampeded

J. WILLIAM CALLISON

in The Governance of Close Corporations and Partnerships: US and European Perspectives

This chapter describes the different tax treatments of US tax corporations and US tax partnerships, as well as the Internal Revenue Service's (IRS) and the court's original position that ... More

This chapter describes the different tax treatments of US tax corporations and US tax partnerships, as well as the Internal Revenue Service's (IRS) and the court's original position that unincorporated businesses cannot possess a majority of corporate business characteristics and be taxed as partnerships. It then considers the genesis of the limited liability company (LLC) form and the process by which the IRS abandoned its historic approach and divorced income tax classification from business characteristics. The chapter concludes by addressing normative and theoretical questions that went unanswered during the ensuring period of rapid statutory change, and by posing questions concerning the interplay of independent federal and state regimes in business organization law.Less

Selected International Tax Issues 1

Avi-Yonah Reuven, Nicola Sartori, and Omri Marian

in Global Perspectives on Income Taxation Law

This chapter discusses some basic international tax issues. Within the field of international tax law, convergence is evident mainly in the treaty network. There are currently over 2,500 bilateral ... More

This chapter discusses some basic international tax issues. Within the field of international tax law, convergence is evident mainly in the treaty network. There are currently over 2,500 bilateral income tax treaties, mostly designed to prevent double taxation and fiscal evasion, and they cover most countries in the world (e.g., all OECD countries have treaties with each other). Moreover, all the treaties follow the same OECD and UN models, and that means that about 80% of the wordings of the tax treaties are identical. This is a remarkable phenomenon, and it poses significant constraints on a country's tax laws.Less

Introduction

Avi-Yonah Reuven, Nicola Sartori, and Omri Marian

in Global Perspectives on Income Taxation Law

This introductory chapter first sets out the purpose of the book, which is to cover the standard topics in a basic income tax course from a comparative perspective. It then addresses the question of ... More

This introductory chapter first sets out the purpose of the book, which is to cover the standard topics in a basic income tax course from a comparative perspective. It then addresses the question of why we should care about comparative taxation.Less

Planning and Policy Issues Under the Existing U.S. Rules

Daniel N. Shaviro

in Fixing U.S. International Taxation

This chapter examines some of the main incentives and tax planning opportunities created by existing U.S. international tax rules, and discusses the impact of marginal changes to the rules. It also ... More

This chapter examines some of the main incentives and tax planning opportunities created by existing U.S. international tax rules, and discusses the impact of marginal changes to the rules. It also shows why the current system has such a horrendous ratio of tax planning, compliance, and administrative costs to U.S. revenue raised.Less

Married women’s right to pay taxes: debates on gender, economic citizenship and tax law reform in Denmark, 1945–83

Anna-Birte Ravn

in Gender equality and welfare politics in Scandinavia: The limits of political ambition?

This chapter describes the factors contributing to preserving the gendered tax-law system, and the factors finally leading to change. It then follows parliamentary debates and reports from official ... More

This chapter describes the factors contributing to preserving the gendered tax-law system, and the factors finally leading to change. It then follows parliamentary debates and reports from official commissions representing all political parties, and women's voices of opposition as they appeared in women's rights movements and among social democratic women in the period 1945–83. The debates are placed in the context of married women's changing labour-market participation and the economic consequences of the gendered tax-law system for women and for families of different classes. Finally, the Danish case is compared with similar developments in Sweden and Norway. A main conclusion is that during the period 1945–60, questions of class and redistribution between classes were predominant in Danish tax-legislation discourses and practices. After 1960, married women's gainful participation in the labour market started to increase, and so did the earned income of working-class married couples.Less