Fighting For Equity in Tax Law

Why is there a need for the work that the Center is doing?

There are a number of extremely strong advocacy groups that weigh in on the broad policy contours of legislative and other tax law decisions. And there are also a number of great advocacy groups who do terrific work in translating those broad contours of the law for the public at large. However, a lot of that capacity has not existed as much when it comes to engaging in the highly technical decisions around either crafting tax legislation, or the next stage of making tax law, which is translating that into regulations, which often is highly consequential for how much different companies or people actually pay in tax. 

And just so people understand, that’s a process that’s handled by the IRS? 

Treasury and the IRS take the legislation and then write regulations and guidance that are even more detailed, that tell people and businesses exactly what the law, in their view, means. And when that happens, there will be a process by which taxpayers and other interested people can make comments on what they think the law does mean, or what they think the regulations should be. And what we often see in that process is that, overwhelmingly, the inputs come from high-income taxpayers or their tax advisers, or industry groups, where they’re asking for the regulations to be crafted to lower their tax liability, and reduce revenues raised 

For instance, just one provision of the 2017 tax law created a big new deduction for certain types of businesses. And when it got to the regulatory process, there were still a lot of decisions that had to be made about exactly who could benefit. And a set of academics, Shu-Yi Oei and Lee Osofsky, did an analysis of the comments that came in on these regulations and found that of around 350 comments, six were comments that could be even generously categorized as coming from a public interest perspective, whereas the three- to four-hundred other comments were coming from industry groups or taxpayers, overwhelmingly asking for a larger benefit or deduction. 

One of the things that I mentioned in my testimony last month [before the Senate Finance Committee]: The regulations on the international parts of the tax law, together with a couple of other technical changes, may have added something like $110 billion to the cost of the law. 

Explain more about the costs. We just spent $1.9 trillion on a recovery package that polls showed a majority of people approved of. Why should an ordinary person be concerned about $100 billion or so in lost government revenue? 

That’s a great question, and the fact is that someone will end up ultimately paying for the cost of those revenues that don’t get collected, or the cost of the outright tax cut. That could be in less ability over time to make investments, or to respond to the types of crisis that we just saw resulting from the pandemic. Over the long run, what you see is that countries that have much more adequate investments in a whole range of areas where the U.S. is lagging — including, for instance, early education, paid parental leave, poverty reduction or various other critical priorities — tend to raise a lot more revenue overall to support those investments. 

In other areas that I’m familiar with, advocacy groups understand that they need to watchdog not only the legislative process but also the rule-making process. Why not in the tax sphere? 

Kind of the old view on this entire field is that taxpayers are the Davids and it’s the government apparatus that’s the Goliath. But if you actually look at it now, there aren’t enough tax expert staffers on the Hill who are able to keep up with all the demands for drafting legislation or respond to all the different inputs that come from taxpayers. And the IRS and Treasury Department are really under-resourced when it comes to auditing and following through on some of the highest income filers. So what you see is that the administration can often be outgunned and out-resourced by these really large corporations and high-net worth individuals.

You also want to find ways to make it easier to bring lawsuits aimed at increasing revenue. Explain how that would work. 

There’s a question mark about whether this will work. But traditionally, when the IRS and Treasury have promulgated a regulation or made an administrative decision, the only people who have been able to challenge regulations in court are ones that are paying higher taxes because of it. And that just means that the only direction in which litigation can tilt is to the loss of more revenue. David Kamin and Daniel Hemel, two professors of tax law, analyzed this when the Trump Administration considered doing a big tax cut on capital gains, which would have been unlawful and outside the bounds of regulatory authority. And at the time, one of the things that people who were pushing for this action were saying was, ​‘well, just do it anyway, because nobody’s going to be able to challenge it. Nobody who’s paying less in tax is going to challenge it, certainly.’ And [Kamin and Hemel] said, well that is the old view but, based on recent decisions in administrative law, in different areas of law, including in immigration or labor law or environmental law, maybe states that are impacted by loss of revenue that they would experience, or other types of litigants, might actually be able to challenge those sorts of regulations. 

How will you know when you succeed? Are there specific reforms you want to see, or is it just staying on top of the process consistently? 

I think ​‘both, and.’ Even if we were to get to our ideal of really robust and well-funded tax lawmaking institutions and processes that have fewer factors in them that tilt in the direction of loss of revenue through the tax process, there would still be room for a public interest voice to formally weigh in.

Will you also be trying to communicate with the public, to change the way some of these issues are seen? 

I absolutely think that’s the case, and again we would be helping to build on some of the great work that’s already been done, and will continue to do in collaboration with other experts, academics, and practitioners. We want to help explain that the process of the 2017 tax law didn’t end when it was enacted. In fact, a lot of big decisions and a lot of lobbying continued through that regulatory process. I think being able to take some of those really important decisions and demystifying them, explaining what the ultimate impact is for the tax code and for the public at large, is a really important role that we can help to fill. 

In addition, I see a lot of our potential value in making it easier, potentially, for like-minded public-interest-oriented academics and practitioners to have input into these processes. And to support and highlight some of the really terrific work that should be, in my view, formally represented in some of these policy processes.