Introductory Flashcards
What is a corporation’s basis when a person contributes property in exchange for equity
Corporation takes the transferor’s basis (slight simplification but works)
What can reconciliations bills address?
spending, revenue, and the debt ceiling
what prevents extraneous provisions in a reconciliation bill? Who enforces it?
The Byrd Rule - policed by senators objecting and the senate parliamentarian ruling on the objection
What is pay go?
A house rule that prevents legislation from increasing the deficit over a 10 year period (but is often waived)
The Byrd rule has a similar component in the Senate that can’t be waived
What is the division of labor between Congress Treasury and the IRS?
Congress makes laws
Treasury makes regulations
IRS enforces the laws (and provides revenue rulings, revenue procedures, and private guidance)
What is the function of Revenue Rulings?
They bind the IRS to an interpretation of the statute/regs but do not bind the taxpayer (of course if you violate one, expect the IRS to be after you)
What is horizontal and vertical equity
Horizontal equity is the idea that similar taxpayers should be treated similarly.
Vertical equity is the idea that if one taxpayer is better off then they should be taxed more
What happens if taxation is inefficient?
investment decisions and economic behavior is skewed towards tax favorites
Social deadweight lists (Value of option to rational chooser - FMV of option rationally chosen)
What are the two conceptual ways of computing the tax base?
Inbound View (not super practical) Use analysis (more practical)
What is the inbound view of income tax?
Income tax base = all wealth accessions - Costs of Wealth accessions
What is the use analysis view of income tax
Total taxpayer receipts = Spend to Produce CY income (deduct) + spend to produce FY income (tax) + consumption (tax)
Alternatively (Haig Simons) Taxable Income = Consumption in CY from CY receipts + Increase in savings - Decrease in savings OR Taxable income = Consumption + change in net worth
What is the substitutive effect?
When an activity is taxed more, people tend to do less of it and the tax base falls
What is the premise of a consumption tax?
Invested amounts are deductible
Under what assumptions does the consumption tax base = the income tax base?
Nobody inherits anything and everyone spends everything over their lifetime
Explain why a consumption tax is a tax on labor only?
In a consumption tax when you invest, you get a deduction now that if phrased in terms of future value will exactly offset the cash flows from your investment. Therefore that investment is never taxed and therefore all that is left to be taxed is labor
