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Session Summary: Inequality and the Federal Tax System

Summary provided by Michael Ariens (St. Mary’s University School of Law)

Inequality, (Re)Distribution of Wealth, and the Federal Tax System

Prof. Andrew Swain discussed the burden of proof in equitable tax apportionment cases for multistate businesses, who look to apportion income most favorably to different state tax regimes. These are Indiana and Mississippi cases, both of which held in their supreme courts that the state department of revenue was in the right, though the burden in each differed (summary judgment and post-trial cases), and getting non lawyers, including accountants, to understand these concepts, as burdens are a particular idea in law, is quite difficult. The courts, he concluded, both got it right.

Prof. Alyssa DiRusso spoke on the Calexit Movement, the desire of some to redirect their own taxes to demonstrate displeasure with the federal government, sometimes to state governments. Most clients are not politically motivated on taxes, but some are. She discussed several ways to redirect income and other taxes. First, one can shift taxes from the federal to a state government via a charitable deduction to a state, thus zeroing out federal estate taxes. Relatedly, a gift to a local or state government can reduce income taxes. Overall, lawyers should ask private clients whether and where to pay taxes.

Prof. Ariel Glogower spoke of how to tax more fairly in light of vast differences in labor income, wealth, and capital income among persons. An income tax is unfair to those who lack wealth (and may be debtors). A tax only on wealth may not capture correctly the economic wellbeing of one. The key is to try to tax not the signals of wealth, but the underlying attribute, which he called economic wellbeing. His suggestion was a wealth annuity tax, which can tax income, both labor and capital, and wealth. One aspect of this approach is to consider time frames. So a wealth annuity tax would shift over a person’s lifetime. This annuity tax would include a principal amount, not merely the capital income.

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