Tenure Buyouts: Employment Death Taxes and the Curious Obesity of 'Wages'
44 Pages Posted: 31 Aug 2009
Date Written: August 27, 2009
Prior to January of 1994, institutions of higher education could appeal to an exemption in the Age Discrimination in Employment Act of 1967 to force the retirement of tenured faculty members who had attained the age of seventy. With the expiration of that exemption, tenured faculty members may now retire well after that age, and for various personal and professional reasons, the postponement phenomenon is widespread. Despite the considerable appeal of a tenure buyout system, there is a real question as to whether buyout payments are subject to payroll taxes as “wages” with respect to “employment;” U.S. Courts of Appeals have split on the issue. This Article highlights the fact that expanding or narrowing the ambit of payroll tax “wages” has far-reaching impact, given that payroll tax revenues fund not only Social Security and Medicare programs but also general government expenditures. In addition to arguing that burgeoning entitlement program needs and virtually chronic federal budget woes have exerted expansive pressure on the “wages” concept, the Article contends that the position adopted by the Third Circuit in University of Pittsburgh v. United States represents judicial overreach because the court imported a definitional standard from the world of the Social Security Act into the tax arena despite clear and wise exhortation, per United States v. Cleveland Indians Baseball Co., not to indulge that tendency. Given the modest attention payroll tax policy gets on the political stage, the historical academic focus on progressive tax policy, and the ease of silent piggybacking on the employer-employee relationship, the payroll tax machinery is capable of truly admirable stealth, which can, in fact, pay off handsomely in the form of substantial revenue from low- and mid-wage earners.
Keywords: tenure, buyout, wages, social security, medicare, higher education, retirement, ADEA, payroll taxes, employment, Social Security Act, regressive taxes
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