Is Tax Reform Possible?

This article by Lori Montgomery explains that the Senate Finance Committee met yesterday to try to eliminate up to 75 tax expenditures -- that is, tax deductions, credits, and other give-aways that spend the people's money through the tax code rather than through direct federal spending. As Montgomery explains, though Senators on both sides of the aisle seemed proud that they decided to chop some tax benefits, they largely failed. Here's an excerpt:

It was supposed to be a first step toward tax reform. But as lawmakers tackled a list of 75 special-interest tax breaks, the special interests repeatedly won. An accelerated write-off for owners of NASCAR tracks: That has to stay. An economic development credit for a StarKist tuna cannery in American Samoa: That stays, too. A rum-tax rebate for Puerto Rico and the U.S. Virgin Islands worth millions of dollars a year to one of the world’s largest distillers: Check. A $2,500 credit for electric motorcycles and other low-speed vehicles: That stays. But “in the spirit of tax reform,” its sponsor, Sen. Ron Wyden (D-Ore.), said he agreed that electric golf carts would no longer be eligible.

Savings from generic drugs exceeded $1.9 billion in 2011

The Generic Pharmaceutical Association has this report today on "Generic Drug Savings in the U.S." The cover boasts "Savings $1 Trillion over 10 Years." The blog Pharmalot read the report before me and noted these findings: In 2011, although nearly 80 percent of 4 billion prescriptions written in the US were for generics, generics accounted for only 27 percent of total drug spending. And the report forecasts that generic use of biologics (for example, blood and tissue products) will reach nearly 87 percent by 2015.

On a related issue, Public Citizen petitioned the Food and Drug Administration last August to amend its labeling regulations to allow generic drug manufacturers to revise drug labeling when they become aware that labeling is inadequate, based on new information about, for example, risks or contraindications. The petition is based in part on the fact that generics gain so much market share so quickly after they come on the market, and yet the manufacturers lack brand-name manufacturers' ability to revise labeling. Bills to effect the same result were introduced in both the Senate and the House last April. The FDA has yet to respond substantively to either Public Citizen's petition or to the bills.

Margaret Lemos on State Attorney General Representative Suits

Margaret H. Lemos of Duke has written Aggregate Litigation Goes Public: Representative Suits by State Attorneys General, 126 Harvard Law Review (2012).  Here's the abstract: 

State attorneys general represent their citizens in aggregate litigation that bears a striking resemblance to the much-maligned damages class action. Yet, while class actions are subject to a raft of procedural rules designed to protect absent class members, equivalent suits in the public sphere are largely free from constraint. The procedural disconnect between the two categories of aggregate litigation reflects a widespread assumption that attorneys general will adequately represent the interests of the state’s citizens, obviating any need for case-specific mechanisms for assuring the loyalty of lawyer to client.

This Article challenges the presumption of adequate public representation. By conflating consent of the governed with consent of the client, the conventional wisdom ignores the important differences between political and adjudicative representation. Class-action scholars have produced mountains of commentary detailing the agency costs of aggregate litigation, including substantial conflicts between the interests of class counsel and the members of the plaintiff class. I show that the same risks are present in state suits. Attorneys general may not be driven by the pursuit of attorney’s fees, but their status as political representatives means that they must negotiate between the interests of the public at large and those of the individuals they purport to represent in an adjudicative capacity. The potential for conflicted representation would not be troubling if citizens could easily monitor and control the work of the attorney general, but, as in the class context, they cannot. If anything, the costs of monitoring and control are higher in the public sphere because the only way to “fire” the attorney general is to vote her out of office — hardly a viable solution when the attorney general’s political responsiveness is the source of the conflict. Thus, far from solving the problems that scholars have emphasized in the class-action context, the fact that the attorney general is an elected or appointed official should provide cause for heightened concern. That concern assumes a constitutional character when state litigation stands as a bar to subsequent private claims for damages or other monetary relief. In order to protect the due-process rights of the individuals whose interests are at stake in public aggregate litigation, courts must either ramp up the procedural requirements for state suits, or — better — hold that public suits cannot bind private claimants.

Federal Trade Commission Proposes to Expand Its Rules to Protect Kids' Online Privacy

In an expansion of pending rules proposed in September 2011, the Federal Trade Commission yesterday proposed rules to further protect kids' on-line privacy under the Children's Online Privacy Protection Act. As Cecilia Kang explains in this article, the FTC has proposed "online privacy rules that would make it harder for advertisers and social networks to collect information about children without permission from parents. The FTC said its proposed rules would require ad networks, social networks and other third-party partners of Web sites to ask parents for permission to collect information about users 12 years old or younger."

Read the FTC's original proposed rule from last September, the proposal issued yesterday, and the FTC's webpage explaining the new proposal and linking to a varierty of relevant information.

Eric Voigt on Voluntary Refund Policies as an Alternative to Class Actions

 

Eric Voigt

 of Faulkner University, Jones School of Law has written A Company's Voluntary Refund Program for Consumers Can Be a Fair and Efficient Alternative to a Class Action, 31 Review of Litigation 617 (University of Texas) 2012. Here's the abstract:

Consumer product companies are establishing internal programs where they are voluntarily compensating consumers for damages caused by their products. When a company implements a refund program in response to a threatened or pending class action, may federal courts rely solely on the voluntary refunds in denying class certification? The short answer is yes.

This Article analyzes Rule 23(b)(3) of the Federal Rules of Civil Procedure and the requirement that a class action be "superior to other available methods for fairly and efficiently adjudicating the controversy." The Article argues that courts must compare the superiority of a class action not only to judicial procedures but also to a company's voluntary refund program. This Article also contends that a court must deny class certification when a reimbursement policy is fair and efficient. These arguments are strongly supported by the Advisory Committee Notes to the 1966 amendment to Rule 23, commentary by two former members of the Committee, the original purpose of the superiority requirement, and courts' and commentators' initial interpretations of the 1966 amendment. Last, the Article discusses what features a refund program must have to be a fair and efficient alternative to a class action.

Surprisingly, no federal court or scholar has analyzed the history or purpose of Rule 23(b)(3) as it applies to voluntary refund programs. Further, the relevancy of a refund program to the denial of class certification has been addressed in only one article (which took an opposing view) and by only a few courts.

 

The health care decision, coercion, and clean air

As lawyers, scholars and policymakers continue to ponder the implications of the health care decision, including its ominous Spending Clause ruling, this thoughtful post discusses how a revitalized concept of coercion could jeopardize federal environmental laws like the Clean Air Act that establish cooperative federal-state arrangements like Medicaid does.

Michael Graetz on Romney's Taxes

This op-ed by tax law professor Michael Graetz is the most sophisticated speculation that I've seen on what Mitt Romney may be hiding by not releasing many of his tax returns. Among other things, Graetz explains why Romney's federal gift tax returns (as well as his income tax returns) may be revealing. In this regard, Graetz says that Romney likely should have, but may not have, filed gift tax returns, and he explains why non-filing can be a serious problem. Graetz also speculates that, to minimize his gift-tax liability, Romney may have greatly understated the value of assets he gave to a $100 million trust set up for his five sons.

Brookings Institution: Tax Plan Like The One Proposed by Mitt Romney Would Help Rich and Hurt All Other Taxpayers

Read the study here. Here's a summary of Brookings' key findings:

Our major conclusion is that a revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed -- including reducing marginal tax rates substantially, eliminating the individual alternative minimum tax (AMT) and maintaining all tax breaks for saving and investment -– would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers. This is true even when we bias our assumptions about which and whose tax expenditures are reduced to make the resulting tax system as progressive as possible. For instance, even when we assume that tax breaks -– like the charitable deduction, mortgage interest deduction, and the exclusion for health insurance -– are completely eliminated for higher-income households first, and only then reduced as necessary for other households to achieve overall revenue-neutrality– the net effect of the plan would be a tax cut for high-income households coupled with a tax increase for middle-income households.

Brookings is quick to point out that it did not "score Governor Romney’s plan directly, as certain components of his plan are not specified in sufficient detail, nor do we make assumptions regarding what those components might be." But it did say that Romney's plan would lower the tax burden on the rich and increase it on all other taxpayers even after making all reasonable assumptions in favor of progressivity.

The Washington Post's article on the Brookings' analysis puts it this way:

The study was conducted by researchers at the Brookings Institution and the nonpartisan Tax Policy Center, who seem to bend over backward to be fair to the Republican presidential candidate. To cover the cost of his plan — which would reduce tax rates by 20 percent, repeal the estate tax and eliminate taxes on investment income for middle-class taxpayers — the researchers assume that Romney would go after breaks for the richest taxpayers first.

 

 

Federal Housing Finance Agency Rejects Chopping Debt on Underwater Mortgages

The Obama Administration wanted the Federal Housing Finance Agency (FHFA) to offer consumers whose mortgage debt exceeded the value of their homes reductions on mortgage principal. As explained here, the FHFA has rejected that approach as a tool for helping ailing homeowners get out from under water. Here's an excerpt:

A key federal regulator has rejected a push by the Obama administration to reduce the mortgage debt of millions of distressed homeowners. It's a setback for the White House, which wants to reduce foreclosures to help the economic recovery. Edward DeMarco, acting director of the Federal Housing Finance Agency, said Tuesday that allowing up to 2.6 million borrowers who owe more than their houses are worth to have their mortgage principal reduced would end up costing taxpayers money and could encourage additional defaults. Fannie Mae and Freddie Mac, the housing finance giants seized by the government in 2008, own or back about 60% of the nation's mortgages. And although many banks are reducing mortgage principal for some delinquent borrowers, they are prohibited from taking that step with Fannie and Freddie loans. "We continue to share with everyone in government the goal of providing good opportunities to assist troubled borrowers, while protecting taxpayers," DeMarco told reporters Tuesday in announcing his decision after months of review. "The choices we've had to make are hard, but they need to be made."

CFPB Brings Its First Enforcement Action Against a Law Firm

The Blog of the Legal Times describes here an enforcement action brought by the Consumer Financial Protection Bureau against a law firm that the CFPB says tricked its clients into paying it for non-existent mortgage modification services. Read the CFPB's complaint.