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Eradicating Bush-League Arguments Root and Branch: The Article II Independent-State-Legislature Notion and Related Rubbish
No full textThe biggest news of October Term 2020 was what didn’t happen: In the run-up to, and aftermath of, yet another tight and hard-fought presidential election, the Supreme Court declined to double down on some of the worst aspects of the execrable Bush v. Gore1 opinions of twenty years ago.
But a close look at the Term reveals that there was a brief moment of genuine constitutional peril, a week when it seemed quite possible that the Court might once again—as it did in 2000—besmirch itself and plunge the country into a jurisprudential abyss.
In the days preceding the election of 2020, a veritable carnival of litigants—let’s call them Bush-Leaguers—teed up several cases based on a seemingly plausible but ultimately preposterous constitutional theory that had won the support of three notable justices back in 2000. Echoing the Rehnquist-Scalia-Thomas concurrence in Bush v. Gore, the 2020 Bush-Leaguers correctly noted that Article II permits each state to use its “legislature” to decide how that state’s presidential electors are to be chosen. From this correct starting point, Bush-Leaguers quickly careened off course, claiming that state courts could not properly tweak state voting laws to bring these laws into alignment with state constitutions (as construed by these state-court jurists). Perilously, four justices at various points in the autumn of 2020 appeared to fall for this beguiling Bush-League idea—an idea often referred to as the “Independent State Legislature” (ISL) theory. None of the other five justices came close to explaining all the reasons—and there are several—why this theory fails.
In what follows, we show why Bush-League arguments were wrong twenty years ago; how they were shown to be wrong by sound scholarship in the ensuing years; and why they are even more wrong today, thanks to recent and dispositive Supreme Court case law. All sensible constitutionalists—whether on the Court or off it, whether originalists or precedentalists, whether left or right of center—should bury Bush.
We also aim to demonstrate that the errors and evils of Bush v. Gore went far beyond the ISL ideas at the heart of the Rehnquist-Scalia-Thomas concurrence. Bush was wrong in just about every way that it is possible for a case to be wrong. If ever there were a bad seed, Bush was it. The recent efforts to revive and rehabilitate Bush’s reputation are thus genuine cause for jurisprudential concern—even alarm. We urge today’s Court to make a sharp and clean break with Bush as soon as possible, and to do so well before the next contested presidential election, which may be quite harrowing enough without any monkey business from the Court
Closing Gaps in the Estate and Gift Tax Base
Get PDFThree transfer tax minimization mechanisms—zeroed-out grantor retained annuity trusts (GRATs), intentionally defective grantor trusts (IDGTs), and family-controlled entities with steep valuation discounts—significantly shrink the federal estate and gift tax base. This white paper explains how Congress can close all three loopholes. We estimate that these actions—along with complementary base-protecting and base-expanding proposals—would raise more than 65 billion). They also would enhance the progressivity of the federal tax system and bolster the long-term revenue-raising capacity of the estate and gift taxes. To summarize key conclusions: Congress should repeal section 2702(b)(1), the provision that enables high-net-worth individuals to achieve extraordinary transfer tax savings via GRATs; Congress should harmonize the income tax and transfer tax treatment of IDGTs, preferably by treating these trusts as nongrantor trusts for income tax purposes; Congress should limit lack-of-marketability discounts and eliminate lack-of-control discounts with respect to transfers of interests in family-controlled entities; and Congress should supplement these three reforms with additional base-protecting and base-broadening measures: shifting to a tax-inclusive base for gift taxes; limiting the gift tax annual exclusion for transfers in trust; and expanding the requirement of consistency in value for transfer and income tax purposes. All of these steps remain relevant—and in some respects, even more urgent—if Congress enacts the Biden-Harris administration’s capital income tax reform proposal, which would limit the tax-free step-up in basis at death to the first 2 million per couple). Unless Congress secures the estate and gift tax base, high-net-worth taxpayers will respond to stepped-up basis reform by exploiting transfer-tax loopholes even more aggressively. For this reason, estate and gift tax loophole closers and stepped-up basis reform should be considered complements, not substitutes
Mega-IRAs, Mega-401(k)s, and Other Mega-Retirement Accounts: Statement for the Record
Get PDFThe Senate Finance Committee’s hearing on July 28, 2021 -- Building on Bipartisan Retirement Legislation: How Can Congress Help? -- spotlighted “mega-IRAs”: individual retirement accounts with balances of $5 million or more. An analysis by the Joint Committee on Taxation in advance of the July 28 hearing found that the number of taxpayers with mega-IRAs now exceeds 28,000. The hearing followed a June 2021 report by the nonprofit investigative journalism organization ProPublica, which revealed—based on leaked IRS files—that a handful of high-net-worth individuals had accumulated massive IRA balances. The Senate Finance Committee hearing and the ProPublica report emphasized one way that taxpayers amass mega-IRAs: by “stuffing” an account with undervalued assets such as pre-IPO stock and investment-fund carried interests. “Stuffing” no doubt occurs in some instances, and Congress could take steps to stop it (e.g., by prohibiting IRAs from holding non-publicly traded assets). However, it is unlikely that most mega-IRAs result from abusive stuffing tactics. Individuals engaged in stuffing would generally want to convert their IRAs from traditional to Roth accounts quickly. Yet JCT’s analysis found that 85 percent of mega-IRA owners hold only traditional accounts. How, then, have tens of thousands of high-income individuals created mega-IRAs? As our submission shows, existing rules allow high-income taxpayers to amass mega-IRAs straightforwardly—and legally—by “maxing out” 401(k) defined contribution plans, potentially combining defined contribution plans with defined benefit plans, and investing in S&P 500 index funds or other publicly traded assets. Mega-IRAs are indeed a problem, but they are a problem primarily caused by laws that lavish excessive tax benefits on high-income individuals. This statement for the record begins by illustrating how high-income individuals can create mega-IRAs through entirely legal means. Next, we review the choices that Congress has made over the last quarter-century that opened a wide door to mega-IRAs. We then explain why the JCT data and other sources strongly suggest that most mega-IRAs do not reflect stuffing. We conclude with concrete policy recommendations to stem the tide of mega-IRAs and other mega-retirement arrangements, which undermine the progressivity and revenue-raising potential of the federal income tax system
Edward Levi
No full textPhotograph courtesy of the University of Chicago Law School. For rights and permissions information for this photo, please contact [email protected]://chicagounbound.uchicago.edu/edward_levi_images/1000/thumbnail.jp
Extra! Extra! Read All about It: Failures in the Association between Law and Social Science
No full textLaw School Record, vol. 67, no. 2 (Spring 2021)
Get PDFMessage from the Dean Power in Numbers Colloquia in the Time of Covid-19 Eight Clerks for Eight Judges Building Community and Supporting Each Other Professor Martha C. Nussbaum Awarded 2021 Holberg Prize Professor Douglas Baird Named Chair of the National Bankruptcy Conference Faculty News Alumni News Development News In Memoriamhttps://chicagounbound.uchicago.edu/lawschoolrecord/1149/thumbnail.jp
Wilber G. Katz
No full textPhotograph courtesy of the University of Chicago Law School. For rights and permissions information for this photo, please contact [email protected]://chicagounbound.uchicago.edu/wilber_katz_images/1000/thumbnail.jp