Superficial Proxies for Simplicity in Tax Law

Emily Cauble*

Simplification of tax law is complicated. Yet, political rhetoric surrounding tax simplification often focuses on simplistic, superficial indicators of complexity in tax law such as word counts, page counts, number of regulations, and similar quantitative metrics. This preoccupation with the volume of enacted law often results in law that is more complex in a real sense. Achieving real simplification—a reduction in costs faced by taxpayers at various stages in the tax planning, tax compliance, and tax enforcement process—often requires enacting more law, not less. In addition, conceptualizing simplicity in simplistic terms can leave the public vulnerable to policies advanced under the guise of simplification that have real aims that are less innocuous. A perennial example involves lawmakers proposing a reduction in the number of tax brackets under the heading of simplifying tax law. In reality, this change does very little, if anything, to simplify law in a meaningful sense, and its truer aim is to reduce progressivity in the tax code. Although the tax legislation ultimately enacted in December 2017 did not change the number of brackets applicable to individual taxpayers, political discourse preceding its enactment once again touted a reduction in the number of tax brackets as a simplifying measure.

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The Historical Case for Constitutional “Concepts”

Glenn E. Chappell*

The concepts/conceptions dichotomy is prominent in both the philosophy of language and the field of constitutional interpretation. It is most prominently illustrated through the provisions in the Constitution that contain broad, open-ended moral language. Those who hold the “conceptions” view believe that the legal content of those provisions includes both abstract moral concepts and its communicators’ subjective beliefs about, or conceptions of, how those concepts should apply. Under this view, the judge’s role is mostly empirical: he is tasked with examining historical evidence to ascertain those conceptions, which in turn supply applicational criteria by which he can decide specific cases. Alternatively, those who hold the “concepts,” or conceptual, view believe that the Constitution’s language directs the reader to objective moral concepts only; hence, its legal content does not contain any particular person’s or group of persons’ conceptions of those concepts. Thus, under this view, the judge’s task is mostly analytical: he must attempt to analyze the concepts to ascertain their defining criteria and develop applicational criteria from that analysis.

Through a focused study of the interpretive methods of William Cushing, James Madison, and lawmakers in the Virginia House of Delegates, this article demonstrates that this debate has existed since at least the founding era, and that the above-named founding-era authorities held a conceptual view of the Constitution’s language, as evidenced by the logic-driven, as opposed to historical, research-driven, mode of construction they employed to apply the Constitution’s provisions to particular cases. Specifically, they analyzed the Constitution’s text, structure, and moral authority to develop an American conception of the concept at issue—a conception wholly unconcerned with the subjective beliefs of any particular person or polity as to how the concept should apply. Finally, this article sets forth a preliminary sketch of the conceptual approach’s normative claim. It concludes that the conceptual approach taken by these authorities better respects the constitutional text, the Rule of Law, and the ideal of objectivity in law than those that seek to derive legal content from the conceptions of past actors.

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The Unconstitutional Tampon Tax*

Bridget J. Crawford* & Emily Gold Waldman**

Thirty-five states impose a sales tax on menstrual hygiene products, while products like spermicidal condoms and erectile dysfunction medications are tax-free. This sales tax—commonly called the “tampon tax”—represents an expense that girls and women must bear on top of the cost of biologically necessary items that they need in order to attend school, work, and otherwise participate in public life. This article explores the constitutionality of the tampon tax and argues that it is an impermissible form of gender discrimination under the Equal Protection Clause. First, menstrual hygiene products are a unique proxy for female sex, and therefore any disadvantageous tax classification of these products amounts to a facial classification on the basis of sex. There is no “exceedingly persuasive justification” for taxing menstrual hygiene products, and so the tax must fail intermediate scrutiny. Even assuming arguendo that the tampon tax is not viewed as a tax on female sex, it is still unconstitutional because it cannot pass rational basis review.

Since 2016, four states and the District of Columbia have legislatively repealed their sales tax on menstrual hygiene products. One state, Nevada, did so by ballot referendum in 2018. Other states will consider repeal bills in upcoming legislative sessions or may consider ballot initiatives in the future. Women have also brought class action litigation in four jurisdictions, seeking declarations that the state tampon tax is unconstitutional and requesting refunds of prior taxes paid. The article develops the constitutional arguments that can be used by litigators in any ongoing or future case, recognizing that menstrual equity activism, including impact litigation, is likely to continue in the future.

Ultimately, what and whom a society seeks to tax signal its larger values. The continued imposition of state sales tax on menstrual hygiene products, seemingly without a principled distinction from other products that are exempted as necessities, exacerbates the aggregate economic inequality that already exists between the sexes. The tampon tax is unconstitutional and should be repealed in all states.

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Partnership Lost

Christine Hurt*

A century ago, two distinct business entities existed that could best be defined by describing either one of them as simply not the other. The corporation and the general partnership were mirror images of one another and opposites on a spectrum of corporate governance, limited liability, and taxation. Partnerships, seen as small, livelihood enterprises between active-owner partners, had personal liability but pass-through taxation. Corporations, seen as larger, capital-intensive enterprises with passive-owner shareholders, had limited liability but double taxation. The tax distinctions survive today, but the stereotypical partnership does not; in fact, the modern partnership is more corporation-like than partnership-like.

Today, the corporation-partnership dichotomy has disappeared.“Tax partnerships” for federal tax purposes can be formed undervarious state statutes that mimic closely the traditional corporation: centralized management; freely transferable shares; limited liability; perpetual life; and even elimination of fiduciary duties. In response to requests by various constituencies, state legislatures have spent the past few decades creating hybrid business entities that boast the best characteristics of both corporations and general partnerships. As state lawmakers made the pass-through entity more corporation-like, federal lawmakers conceded the fight on which entities could have pass-through taxation. Now, any noncorporate entity receives pass-through taxation as a default classification, and even publicly traded partnerships with thousands of“partners” may qualify. The hybrid entity is more corporation-like than the corporation, for which nonwaivable duties still remain.

However, in December 2017, Congress passed and President Donald J. Trump signed the 2017 Tax Cuts and Jobs Act into law. This legislation, arguably the first major piece of tax legislation since 1986, reduces the top corporate tax rate, decreasing the “double tax”on corporate profits to nearly equal the partnership tax rate. The 2017 tax reforms present a perfect point in time to study why hybrid entities have gained in popularity so swiftly. Are these entities popular because of the freedom of the parties to contract for optimal governance mechanisms, mimicking the best parts of corporate governance without drawbacks of fiduciary duties? On the other hand, the popularity of the hybrid entities may be merely economic, based on these entities tax advantages. If entity tax rates have converged, perhaps federal taxation should rethink whether two types of entity taxation is necessary at all or, in the alternative, whether pass- through taxation should be granted to entities based on criteria other than state law classification, such as size, active ownership, or limited liability.

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Private Ordering and Improving Information Flow to the Board of Directors: The Duty to Inform Bylaw

Jennifer O’Hare*

It seems that almost every day there is another report of a corporate scandal at a public company. Whether the scandal involves sexual harassment by senior management or widespread illegal conduct by employees, the first question asked by investors and themedia is usually, “Where was the board?” And the board’s response is almost always, “We didn’t know.” Directors of public companies rely on officers to provide the information the board needs to manage the corporation, but, strangely enough, officers may not even be legally required to provide information to the board. The Delaware General Corporation Law is silent on the issue. Some commentators have argued that fiduciary duties impose on officers a duty to provide information to the board, but the Delaware courts have been slow to address this issue. In this article, I demonstrate that the few cases addressing the fiduciary duties of officers do not completely clarify whether officers have a fiduciary duty to provide information to the board or what the duty requires. I then propose a new approach: using private ordering to improve the information flow to the board of directors. I recommend that the bylaws of all public companies should include a new type of bylaw, a “Duty to Inform Bylaw.” A Duty to Inform Bylaw would impose on the Chief Executive Officer and the Chief Financial Officer a duty to inform the board promptly of all information necessary to enable the board to manage the business and affairs of the company in conformity with its statutory and fiduciary obligations.

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Of Hats and Robes: Judicial Review of Nonadjudicative Article III Functions

Jeffrey L. Rensberger*

We are accustomed to thinking of Article III courts and judges deciding cases and controversies. But, federal judges and courts have historically also engaged in official but nonadjudicative activities. In addition to a history of federal judges serving on nonjudicial commissions, federal judges and the Supreme Court participate in the rulemaking process for the federal procedural and evidentiary rules. Although some argue to the contrary, the Supreme Court has approved such arrangements in the face of separation of powers objections. Since Article III officers and courts perform nonadjudicative duties, the question arises of how federal courts who address a challenge to these nonadjudicative actions should review them. This article focuses on perhaps the most common enlistment of Article III entities in nonadjudicative activities: the creation of the Federal Rules of Civil Procedure (and other federal rules). Since these rules were created by federal judges, is some measure of deference due them when their validity is challenged? The federal procedural rulemaking apparatus resembles federal agency rulemaking, and in that context the Supreme Court has established a strong deference to agencies under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. This article concludes that the federal courts as adjudicators should not defer to the federal judges or courts as rulemakers, because to do so deprives parties of the opportunity to challenge a federal rule in an adjudicated proceeding with the procedural protections that accompany litigation. Finally, the same reasons that lead to a rejection of deference in this context apply equally to other agency rulemaking, leading to the implication that Chevron deference in general should be rejected.

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On Opioids and ERISA: The Urgent Case for a Federal Ban on Discretionary Clauses

Katherine T. Vukadin*

The American opioid epidemic cuts across all social divisions, touching the employed and unemployed. Those with private health insurance are one of the fastest-growing affected groups, but this group struggles most to get care. Despite their insured status, the privately-insured received treatment at half the rate of those with Medicaid and at even lower rates than the uninsured. This article focuses on a significant barrier to treatment for those in employer-sponsored benefit plans: the discretionary clause. A discretionary clause grants the decision maker broad latitude and ensures that any federal court review is deferential. Claims processing in such a legal climate is stingy; recent investigations show that mental health and addiction claims are treated worst of all. Twenty-five states recently banned discretionary clauses in insurance products, but the bans do not reach most ERISA plans.

This article posits that ERISA should be amended to ban discretionary clauses. The article explains ERISA and discretionary clauses; it then shows the effect of discretionary clauses on actual cases and claims processing, focusing on mental health and sub- stance abuse. The article then explains the recent movement away from discretionary clauses and shows why the arguments against discretionary clauses apply with even greater force to ERISA-governed plans.

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Regulating from the Ground Up: Controlling Financial Institutions with Bank Workers’ Unions

Emma Cusumano*

In the Wells Fargo accounts scandal, millions of banking accounts were created for customers without their consent. The scan dal cost Wells Fargo customers millions of dollars in direct and indirect charges. Investigations revealed that employees were pressured into creating these false accounts through abusive bank- ing practices promulgated from the top. These practices are not unique to Wells Fargo; instead, they are ubiquitous in the financial services industry.

Current financial regulations do not adequately address how to mitigate banks’ harmful practices. This comment explores the premise that bank worker unionization could serve as a much-needed check on the power of financial institutions and the directors and officers who run them. The comment provides an overview of why large financial institutions are incentivized to engage in harmful and economically unsound banking practices. The comment then outlines the potential for unions to constrain abusive commercial banking interests and recounts current efforts to unionize bank workers. Finally, the comment argues that threats to dismantle current consumer protection enforcement and banking regulations call for a new, worker-centered approach to hold financial institutions accountable to the public.

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Obtaining and Enforcing a Security Interest in Local Currency Under Article 9 of the UCC

Marina C. Leary*

Community currency is known by many names including complementary currency, alternative currency, and parallel currency. Community currency operates alongside an official or national currency (e.g., dollars or euros) with the purpose of circulating within a small geographic area to facilitate the sale of goods and services. In other words, community currency refers to a privatized form of currency that is not backed by a government entity. With the increased use of community currency, it has the potential to serve as collateral for a security interest under the Article 9 of the Uniform Commercial Code. Although there are several types of community currency, this article will focus on obtaining and enforcing a security interest in local currency. After analyzing local currency under the UCC in its current form, this comment will offer several suggestions to better handle a security interest in local currency under the UCC.

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Evaluating a Permanent Court Solution for International Investment Disputes

Emily Palombo*

Despite the original objective of investor state dispute settlement (“ISDS”)—to create an unbiased arbitration mechanism to resolve conflicts between states and foreign investors—ISDS tribunals have gained the reputation of being one-sided, nontransparent, and inconsistent in decisions rendered. A major reform proposed to address the criticism of ISDS is the creation of one permanent tribunal, rather than numerous ad hoc tribunals constituted separately for each investment dispute. Discussion of ISDS reform in light of its historical context poses the question: is ISDS really a broken system, or have our global priorities and concerns changed over time? While improvements can be made, the current ISDS system is still faithfully serving its original purpose as a neutral tribunal where disputes can be arbitrated. In contrast, the creation of a permanent investment tribunal may thwart the principles envisioned for ISDS at its inception, most importantly, the balance between the protection of state sovereignty and the recognition of the investor as an autonomous private entity. This comment discusses a permanent court solution to international investment disputes in light of the European Council’s 2018 directive authorizing the European Commission to negotiate, on behalf of the European Union, a convention to establish a permanent body to settle investment disputes called the multilateral investment court (“MIC”). It compares the proposed MIC with the structure of the permanent investment tribunal, known as the Investment Court System, contemplated by the Comprehensive Economic and Trade Agreement. Ultimately, this comment concludes that ISDS tribunals can address many concerns through reform to the existing ad hoc system without requiring permanency, thus continuing to respect the original aims of the ISDS system and to foster international investment.

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