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Friday, August 25, 2017

Weekly SSRN Tax Article Review And Roundup

By David Gamage

This week,David Gamage (Indiana) reviewsa newdraft article by Zachary Liscow (Yale), Is Eciency Biased?.

Anyone interested in how the methodology of law and economics accounts for distributive justice should stop
whatever else they might be doing so that they can immediately read Zach Liscows new draft article. Indeed, I wish
that this article had been available when I started my legal academic career, as Liscows article claries several
puzzles that had been confounding me for over a decade.

The essence of Liscows critique is that eciency-oriented analysis in law and economics relies on allocating legal
entitlements based on willingness to pay. However, wealthier individuals will often have a greater willingness to pay
for many legal entitlements as compared to poorer individualsas a direct result of the fact that the wealthier
individuals have more money.

This insight is not new. Liscows contribution is in carefully working through the implications of this insight. He
concludes that, ecient polices without distributional osets are systematically regressive in the distribution of
entitlements.[] If there is no wealth transfer that goes along with the adoption of ecient policies, government
policies will tend to systematically advantage the well-o. (p. 37)

This conclusion primarily relates to eciency-oriented analysis in regard to non-cash legal entitlements. Whether this bias also exists with respect to eciency-
oriented analysis of cash-based entitlements depends on the criteria used for evaluating bias and other complications. Nevertheless, tax scholars should understand
that many key issues in tax design involve the allocation of non-cash legal entitlements.

Liscow points this out with the example of the home mortgage interest deduction. In his words, The mortgage interest deduction is best-considered a non-tax
policy, not a tax policy, since it is a payment that, although cash, depends upon how much one spends on a mortgage and is not designed to compensate for the
distributional eects of a policy change. (p. 15).

Consider also the tax rules governing fringe benets. Poorer individuals likely have far lower willingness to pay for many fringe benets than do richer individuals.
Thus, if legal regimes force poorer individuals to fund fringe benets out of their own pockets, this would likely harm the welfare of these poorer individuals (especially
if the criteria used is based on the willingness to pay of the less poor). Yet we should expect a dierent analytic result when the question involves funding fringe
benets out of the public sc. In this scenario, the observation that wealthier individuals have greater willingness to pay for fringe benets than poorer individuals
should not, in and of itself, justify legal regimes that fund fringe benets for the wealthier and not the poorer, at least without distributional osets.

I have only scratched the surface here of explaining the insights that arise from Liscows excellent analysis, and so I again implore those interested in these questions
to read Liscows article. I am condent that Liscows article will be considered a seminal contribution in how eciency-oriented analysis in law and economics
accounts for distributive justice. Any tax scholar who takes account of economic methodologies will need to consider Liscows insights.

Heres the rest of this weeks SSRN Tax Roundup:

David Elkins (Netanya Academic College - School of Law), The Case Against Income Taxation of Multinational Enterprises, Virginia Tax Review, Vol. 36, p. 143, 2017
Brian D. Galle (Georgetown University Law Center), How to Save Unemployment Insurance, Arizona State Law Journal, Forthcoming
William W. Park (Boston University), Arbitrability and Tax, Arbitrability: International and comparative Perspectives 179 (L. Mistelis & S. Brekoulakis, eds., 2008)
Kyle Rozema (University of Chicago - Law School), Tax Incidence in a Vertical Supply Chain: Evidence from Cigarette Wholesale Prices

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