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Abstract:
More than three-quarters of a century after the Supreme Court’s decision in United States v. Kirby Lumber established that the cancellation of a debt produces taxable income, there is still uncertainty - both in the courts and among commentators - concerning the rationale for the taxation of cancellation-of-debt (COD) income. Is the taxation of COD income based on the simple fact that the cancellation of a debt improves the taxpayer’s balance sheet, thus increasing the taxpayer’s net worth in the year of cancellation? Or is it based on a multi-year perspective, in which inclusion of the cancelled debt in income is necessary because the overall transaction - consisting of the creation of the debt in one year and the cancellation of it in another - produces an economic gain for the taxpayer? The choice between the rationales is crucial in a significant number of cases involving no-benefit debts. In a no-benefit debt cancellation situation, the taxpayer received nothing of value when the debt was created. This article examines the theoretical underpinnings of the taxation of COD income, and concludes that the whole-transaction analysis should be recognized as the only rationale for the taxation of COD income, with the result that COD income should not follow from the cancellation of a nobenefit debt. The article also analyzes nine fact patterns in which a taxpayer at least arguably received nothing of value when the debt was incurred, so that the cancellation of the debt should not produce COD income. The consideration of one of these categories - cancellations of obligations to pay accrued nondeductible interest–is particularly timely, because of the prospect that hundreds of thousands, or even millions, of taxpayers may soon be relieved of obligations to pay accrued credit card interest. Another of these categories - the cancellation of gambling debts - ades.

Abstract:
When tax returns were prepared with pencil and paper-in an era now gone forever-Congress did not impose income tax provisions of great computational complexity on large numbers of taxpayers, in the belief that it was unreasonable to require average taxpayers (or their paid preparers) to struggle with computationally complex provisions. As return preparation software gradually replaced the pencil in recent decades, the complexity constraint weakened and eventually disappeared. Congress has responded by imposing unprecedented computational complexity on large numbers of taxpayers, primarily through the expanded scope of the alternative minimum tax and the proliferation of phase outs of credits, deductions, and exclusions. This response would not be problematic, if the only objection to computational complexity were the difficulty of performing the calculations-a difficulty overcome by the widespread adoption of software. Unfortunately, computationally complex provisions generally constitute bad tax policy, even apart from computational concerns. For taxpayers faced with a welter of computationally complex provisions, the income tax is a black box, the inner workings of which are beyond their comprehension. This undermines both the political legitimacy of the tax system and the ability of taxpayers to engage in informed tax planning. In response to the demise of the complexity constraint, argues this Essay, Congress should develop a self-imposed constraint against the enactment (or survival) of computationally complex provisions of widespread applicability.

Abstract:
Tax policy analysts often claim that tax distributional analysis should be based on a lifetime perspective, at least as a theoretical ideal. A prominent argument in favor of a consumption tax base over an income tax base appeals to this lifetime equity perspective, as does the argument for lifetime income averaging under an income tax with progressive marginal rates. These appeals to lifetime equity assume, in most cases without discussion, that personal identity over time is an unproblematic concept, so that the whole-life person is clearly the ideal unit for purposes of distributional analysis. However, the philosopher Derek Parfit claims that personal identity is not stable over time; to Parfit there is an important sense in which a person today is not the same person he was several decades ago. To one who is persuaded by Parfit’s view, the merits of the whole-life approach to tax equity analysis will be far from clear. This article describes Parfit’s account of the nature of personal identity over time, and considers how tax policy analysis changes if one takes the Parfitian view rather than the standard view of personal identity. The article concludes that the arguments for consumption taxation (in preference to income taxation) and for lifetime averaging are much weaker under Parfit’s account of personal identity, and that age-sensitive taxation (e.g., different tax rate schedules for taxpayers of different ages) becomes more attractive under Parfit’s account.

Abstract:
The debate between proponents of income taxation and proponents of consumption taxation has focused almost exclusively on the differing treatment of savings under the two tax bases. This is odd, given that income and consumption tax bases also differ in their treatment of debt-financed consumption. This Essay addresses the largely-ignored question of the taxation of debt-financed consumption. It contends that a strong case can be made in favor of a hybrid income-consumption tax base under which taxation is triggered by the earlier of consumption or income, so that both debt-financed consumption and saved income are included in the tax base. The Essay explains how one might reasonably favor consumption tax treatment of consumer debt even if one favors strict accretion-style income taxation on the savings side. It also considers how the case for the proposed tax treatment of debt-financed consumption is strengthened if most life cycle savings are already taxed under a consumption tax model (as is the case under the current federal income tax). Adoption of the proposal would have significant consequences - largely favorable - for many taxpayers. If taxpayers use loans to smooth consumption by shifting spending power from higher-income later years to lower-income earlier years (as in the case of student loans to cover living expenses, and credit card debt incurred during periods of unemployment), then treating those loans as determinative of the timing of taxation will benefit taxpayers by shifting tax base inclusions from higher-bracket years to lower-bracket years. It might also be appropriate to allow the earned income tax credit (EITC) with respect to debt-financed consumption.

Abstract:
This essay considers whether it would be morally acceptable for a nation to use massive intergenerational borrowing to pursue a no-growth policy, under which the anticipated standard of living of members of future generations would be no higher than the standard of living of members of the present generation. The essay examines whether justification for such a policy can be found in either the political theory of John Rawls or in the application of utilitarian principles to intergenerational ethics. It concludes that under a Rawlsian analysis there is a strong argument that the current generation has no obligation to strive for higher standards of living for future generations, but that under utilitarian principles there is such an obligation.

Abstract:
In the Emergency Improvement and Extension Act of 2008, Congress called for a $1.5 million carbon audit of the Internal Revenue Code, to be conducted by the National Academy of Sciences (NAS). This article offers some suggestions concerning the approach the NAS should take in conducting the audit. It argues that tax expenditure analysis should play no role in the audit. Instead of first identifying tax expenditures and then evaluating those expenditures for their environmental impacts, the NAS should include in its carbon audit any existing tax provision which satisfies two criteria: that there is a technically and politically realistic alternative to the provision, and that the choice between the current provision and the alternative would be likely to have a significant impact on greenhouse gas emissions. A provision that does not currently exist in the Code should also be included in the study if it satisfies the same two criteria - that is, if its enactment is technically and politically realistic, and if its enactment would be likely to have a significant effect (good or bad) on greenhouse gas emissions.

Abstract:
The federal income tax did not become a mass tax until World War II. Although some form of mass federal taxation was imperative for the financing of the war, a mass income tax was not inevitable. But for the determined opposition of the Roosevelt administration, Congress would almost certainly have enacted a federal retail sales tax during the war - perhaps in addition to the conversion of the income tax to a mass tax, but perhaps as the only form of mass taxation aimed at paying for the war. This article describes the wartime debates among proponents of different methods of federal mass taxation - conversion of the income tax to a mass tax, enactment of a federal retail sales tax, or both. Following that description, the article considers the continuing impact of the wartime choice of the income tax as the only instrument of mass taxation. The article concludes that the use of the mass income tax - rather than the combination of an elite income tax and a mass retail sales tax (or value-added tax) - has made a significant difference in several areas, including: the distribution of the benefits of postwar tax cuts and the burdens of postwar tax increases; public perceptions of the nature of the relationship between taxpayers and the federal government; the proliferation of tax subsidies targeted at particular categories of nonbusiness expenditures, ranging from long-term care to hybrid cars; income support for low-wage workers with dependent children; and federal policy toward homeownership.

Abstract:
This essay examines some of the difficulties of understanding public opinion on taxes, and offers some suggestions as to how the conscientious legislator might proceed in light of those difficulties. The essay begins by describing two contexts in which public opinion appears to contradict itself, and suggests how the apparent contradictions might be resolved. It then offers three suggestions for the conscientious legislator whose goal is to discern (rather than to manipulate) public opinion on taxes - to be neither unduly optimistic nor despairing about the potential for educating the public on tax policy issues, to understand and guard against the manipulation of public opinion by those with particular tax policy agendas, and to be guided by opinion surveys which give the public a range of policy options rather than forcing a choice between two polar positions.

Abstract:
This essay responds to Alex Raskolnikov’s proposal to replace the current federal income tax compliance regime with a two-track approach based on taxpayer choice. The “deterrence regime” (DR) would be designed to be chosen by “gamers”, and the “compliance regime” (CR) would be designed to be chosen by all other taxpayers. Penalty rates would be significantly higher in the DR than in the CR. In this response, Lawrence Zelenak notes that the tax shelter disclosure rules of current law can also be viewed as a way of imposing a special compliance regime-featuring high odds of detection rather than high penalty rates-on gamers. Zelenak compares Raskolnikov’s proposal with the current regime, and suggests that there are plausible grounds for preferring the current regime to the proposal.