Prof and associate dean Jide Nzelibe wrote this succinct, informative note in response to a query from a distinguished alum who asked “what are NU law profs doing to contribute to vital tax policy debates?” In a separate note, we will profile some of the terrific applied and doctrinal work from professors who work in our esteemed LLM Tax program. This note describes part of what is happening in the international tax policy world:
In terms of hands-on engagement with ongoing tax policy debates, our colleague Charlotte Crane completed a term just over a year ago as the Professor in Residence (2010-2011) at the Office of Chief Counsel of the IRS. The Professor-in-Residence program provides some of the nation’s top legal academicians the opportunity to contribute to the development of legal tax policy and administration. Reporting directly to the IRS Chief Counsel, the Professor in Residence provides advice and assistance on a wide array of legal issues within the scope of his or her expertise. Charlotte herself has also written widely on the problems of defining broad-based taxes and the mechanisms through which these rules evolve.
Your email also raised issues about how tax policy affects the ability of the United States to be competitive in today’s economic environment. Our colleagues have also been at the forefront of these debates as well. For instance, in the past few years, Professors Cameron and Postlewaite have analyzed and critiqued two comprehensive proposals to reform the international tax system. The first proposal would move the current regime closer to an exemption or territorial system and provide that foreign income, whether earned directly or through a foreign subsidiary, would not be subject to United States taxation. Both the 2005 President’s Advisory Panel on Federal Tax Reform and the Treasury Department under the Bush Administration proposed reforms that would implement an exemption or territorial system. The second proposal would move the current regime closer to a pure worldwide tax system, sometimes referred to as a “full inclusion” system, under which the foreign income of foreign subsidiaries would be attributed to the United States parent. Postlewaite and Cameron have argued that proposals that dramatically shift the United States international tax system closer to a territorial system or to a full inclusion system are fraught with technical difficulties and uncertainties. But more importantly, they argue, such proposals strain an already polarized political system that must draft and consider such complex legislation. They argue that a more appropriate, and realistic, approach in such a situation is simply to “muddle through” by proposing incremental, rather than fundamental, changes to the status quo that move in the direction of generally agreed upon policy objectives before tackling the more politically difficult issues associated with fundamental reform. But they clarify that one cautionary aspect of incremental, as opposed to comprehensive, tax reform is the risk that an incremental approach may advance only those proposals that are projected to raise government revenue, particularly given the current budgetary constraints that confront the federal government, and that such proposals will be viewed by the legislative process as largely a means to fund other budgetary priorities.
Professor Thomas Brennan has written about the effects of the American Jobs Creation Act of 2004 (AJCA). This legislation granted a tax holiday to U.S. corporations with foreign subsidiaries, allowing the subsidiaries to remit certain funds to their parents at a much lower tax rate than previously possible. Many firms acted during this window of opportunity, and foreign subsidiaries distributed more than $300 billion in qualifying dividends to their U.S. parents. Assuming that a return of foreign earnings to the United States was the sole policy goal, Brennan argues that the AJCA was unarguably a short-term success, as substantial amounts of cash were returned to U.S. parent corporations during the window permitted by the statute. But he also shows that since the holiday window, there has been a dramatic increase in the rate at which firms add to their stockpile of foreign earnings kept overseas. The long-term result has been an aggregate increase in new foreign earnings added to the overseas stockpile that is greater than the amount of funds repatriated pursuant to the holiday. From this perspective, it seems that the AJCA may have been a net failure in achieving the policy goal of returning foreign earnings to the United States.
Professor Dharmapala, visiting at Northwestern from Illinois this semester, has also written about central issues in international tax policy, including empirical studies of the impact of the US international tax regime on US-based multinational firms. One contribution (coauthored with Mihir Desai of Harvard Business School) uses data on international direct and portfolio investment and finds empirical evidence consistent with the idea that the US international tax system disadvantages US-based multinational firms as vehicles for global diversification by shareholders. Like our colleague Tom Brennan, Professor Dharmapala has also analyzed the effects of the American Job Creation Act of 2004, which allowed US-based multinational firms to repatriate foreign earnings at a greatly reduced tax rate during 2005. He has also been invited to speak later this month (October 2013) at a conference of the International Tax Policy Forum, a Washington-based organization that promotes nonpartisan academic research and an informed dialogue on international tax issues. This presentation will focus on the findings of the empirical literature on multinational firms’ responses to taxes, and draw policy lessons relevant to the OECD’s current global initiative on “base erosion and profit shifting.”
Here is the abstract of their paper:
The Effect of Health Insurance on Near-Elderly Health and Mortality
Northwestern University – School of Law ; Northwestern University – Kellogg School of Management ; European Corporate Governance Institute (ECGI)
Northwestern University, Department of Economics
Federal Reserve Bank of Chicago
Northwestern University – School of Law
October 16, 2013
We use the best available longitudinal dataset, the Health and Retirement Survey, and a battery of causal inference methods to provide both central estimates and bounds on the effect of health insurance on health and mortality among the near elderly (initial age 50-61) over an 18-year period. Those uninsured in 1992 consume fewer healthcare services, but are not less healthy and, in our central estimates, do not die sooner than their insured counterparts. We discuss why a zero average effect of uninsurance on mortality and health is plausible, some selection effects that might explain our full results, and methodological concerns with prior studies.
Here is the link to the paper:
“What we have here, son, is a failure to communicate” (Cool Hand Luke)
Had a conversation yesterday with a first-year JD-MBA student, talk turning to our new Master of Science in Law (MSL) program for engineers, scientists, and medical professionals. He noted, from his experience with a family-owned company in the tech sector, the ways in which tech professionals approach their lawyers with a mix of trepidation and cynicism. Lawyers, to paint with a broad brush, are the enemy in the high-tech space. They retard innovation, curtail risk, and limit innovation. Or so are the fears, whether or not expressed, on the part of entrepreneurs who are looking to move their inventions to market, protect their intellectual property, construct a business plan for a unique start up, etc.
This reaction is not baseless. The juxtaposition of the lawyer’s role in counseling and in advocacy and the entrepreneur’s role in managing and taking risks is a complex one. Lawyers are the speed bumps, and sometimes the brakes. And the elaborate web of regulation hard-wired into our modern administrative state undergirds a system in which bold innovation and the rule of law exist in a ubiquitous tension.
That said, there are ways in which the law panic characteristic of many tech professionals is the result of the lack of a common language and a relevant common experience. Our MSL program, and other programs which are likely to emerge along similar lines, aims to combat some of these difficulties. By providing basic, applied legal skills in a law school setting, our program can help address this law panic. It can furnish STEM-trained professionals (or freshly-minted graduates) with the skills and the pertinent vocabulary to interact with lawyers in an environment where constructive communication is essential. To be crystal clear, our aim is not to make STEM professionals into lawyers. We have a great JD program that does that. Rather, our MSL program is made of a curriculum that furnishes the skills valuable to any tech-trained professional who is called upon to navigate and negotiate the complex regulatory jungle, to interface with their own lawyers and lawyers on the other side of the table, and to assist in realizing their own objectives through a foundational, background knowledge in legal principles.
Law panic creates what economists would rightly label transaction costs. It imposes obstacles between lawyers and their clients; it introduces noise into the channels of communication that are essential to move constructive ideas forward and to realize economically fruitful objectives. Careful attention should be paid, as with our program, to the sources and reasons for this disconnect; and creative solutions to this predicament is a worthwhile contribution to the well-being of not only the technology sector, but to economic progress more generally.
The first Northwestern Law MOOC is now up and running.
Bluhm Legal Clinic professors, Esther Barron and Steve Reed, are teaching a fascinating course on “Law and the Entrepreneur.” This course is the product of months of focused work by these instructors on the nexus between entrepreneurship and law. As I have written elsewhere on this blog, the development of core legal skills in the business space, including the small-business space, is essential. This can no longer be left just to lawyers.
The extraordinary interest in this course from around the world testifies to this deep interest in the subject and to the valuable work going on in the entrepreneurship law program at Northwestern.
Check out this description. There is still time to sign up!
My colleague Steven Lubet shared with me the wonderful news that one of our Bartlit Center Trial Teams won the championship of the National Criminal Trial Advocacy Competition. The event was sponsored by the California Association for Criminal Justice. This is the third time Northwestern students have competed in this tournament, winning the championship all three times.
Congratulations to Joy Dineo, Frank Doorley, Allison Freedman, and John Mack—all members of the Class of 2014. Special kudos to Joy Dineo, who was named Best Advocate for the entire tournament (out of nearly 100 competitors). The students were coached by our own Rick Levin, who has taught here for many years and who has a long and distinguished record with advocacy competitions, including another national championship in 2011.
The competition was held last weekend in San Francisco. Twenty-four teams from law schools across the country participated, but they couldn’t beat Northwestern Law’s 5-0 record.
re-posting excellent summary here
Do changes to sentencing laws reduce gun violence?
This is the question addressed in a landmark study by scholars and students in the Bluhm Legal Clinic at Northwestern Law School. The report, Combating Gun Violence in Illinois: Evidence-Based Solutions, states that not only do mandatory minimum sentences not reduce gun violence, but that they are in fact costly and counterproductive.
The report is posted on the Bluhm Legal Clinic’s website in .pdf form. I urge you to read it.
This report was written to challenge claims about the effectiveness of a proposal by Chicago Mayor Rahm Emanuel that would establish three-year mandatory minimum sentences for illegal gun possession. A benefit-cost analysis by Jens Ludwig of the University of Chicago Crime Lab argued that such sentences would reduce crime through deterrence and incapacitation.
This is a subject of considerable importance. The gun violence rate in Chicago is far too high and we must take action to make our community safer for everyone. But we must implement policies that actually bring the gun violence rate down. The research discussed in this report clearly indicates that mandatory minimums do not achieve this objective.
What does work? The report also looks at evidence-based programs that demonstrate real promise. One example is the “Boston Model,” which focuses on “targeted enforcement pressure on illicit firearms traffickers” together with a targeted set of “community-based police intervention actions.” This approach reduced firearm violence by 68% in one year, according to research conducted by the National Institute of Justice.
The report has sparked a great deal of discussion and debate. The Chicago Tribune’s Eric Zorn wrote a column on this issue last week entitled “Change of Subject,” which includes a series of robust responses by scholars and activists on both sides of the minimum mandatory sentencing issue.
Combating Gun Violence in Illinois was written on behalf of more than 30 law and social science professors from universities throughout Illinois by Children and Family Justice Center Clinical Fellow Stephanie Kollmann and the Bluhm Legal Clinic’s Dominique Nong, Kenneth & Harle Montgomery Foundation Clinical Fellow. Julie Biehl, Director of the Children and Family Justice Center, contributed, as did clinic students Jamie Liebert, Brendan Mooney, Rebba Omer, and Brett Werenski.
Gun violence is a solvable problem. Our approach must be, as the report states, “smart, strategic and grounded in evidence-based solutions.” It is a step in the right direction, and I commend my colleagues and our students for their efforts.
Interesting article from Harvard Business Review about the move from general counsels away from “pedigreed” law firms.
Hard for me to fathom whether and to what extent this is a problematic development from the vantage point of the law firm (or law school) marketplace more generally. The key issue, of course, is one of efficiency and value. Which firms can be expected to provide the best service for companies in trouble? That less “branded” firms develop cogent strategies for capturing this business seems to evidence a well functioning market. However, the next shoe to drop presumably is the development by the so-called “pedigreed” firms of nimble strategies to compete in this shifting marketplace.
The future will an interesting one, to say the least!
Interesting venture. Responds to interdisciplinary need in the law and technology sector. Kudos to Microsoft and UW for embarking in this promising endeavor.
Novel program which is the harbinger of similarly focused programs and initiatives, including at Northwestern.