Kaplow and Shavell and the Priority of Income Taxation and Transfer

David Blankfein-Tabachnick & Kevin A. Kordana

Volume 69, Issue 1, 1-44

This Article rejects a central claim of taxation and private law theory, namely, Kaplow and Shavell’s prominent thesis that egalitarian social goals are most efficiently achieved through income taxation and transfer, as opposed to egalitarian alterations in private law rules. Kaplow and Shavell compare the efficiency of rules of tort to rules of tax and transfer in meeting egalitarian goals, concluding that taxation and transfer is always more efficient than other private law legal rules. We argue that Kaplow and Shavell reach this conclusion only through inattention to the body of private law that informs the very basis of their discussion: underlying property entitlements. This Article contends that Kaplow and Shavell’s comparison of rules of taxation to rules of tort fails to take proper account of the powerful role that (re)assigning underlying property entitlements plays in achieving egalitarian goals, even at the level of formal theory. We conclude that, contrary to Kaplow and Shavell’s prominent claim, as a matter of efficiency, the rules of income taxation and transfer are not always preferable to alterations in the initial assignment of property entitlements in achieving distributive or egalitarian goals.

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“The Big Chill”: Personal Liability and the Targeting of Financial Sector Compliance Officers

Court E. Golumbic

Volume 69, Issue 1, 45-94

Financial sector compliance officers have been referred to by prominent law enforcement and regulatory officials as “essential partners” in ensuring compliance with relevant laws and regulations. Yet a series of recent enforcement actions in which individual compliance officers have been sanctioned personally have placed strains on the partnership, fueling concern among these professionals that they are being unfairly targeted.

Law enforcement and regulatory officials have responded with assurances that the partnership remains intact. In the rare instances in which financial sector compliance officers have been held personally responsible for program failures, they have stressed, the actions were undertaken only after careful consideration, where the facts demonstrated that the compliance officers “crossed a clear line.”

Efforts to justify regulators’ charging practices have been ineffective, however, for the perception of targeting has endured. Indeed, it has coincided with increased attrition within the ranks of senior compliance officers in the industry. The Author offers several possible explanations for this “chilling effect.”

Regardless of the cause, regulators are confronted with a fundamental policy question: whether the benefits of current charging practices justify the continued exodus of senior compliance professional from their firms or the industry entirely. The Author advances two proposals to reverse the perception of compliance officer targeting and its attendant chilling effect, including the adoption in the United States of a supervisory structure akin to the United Kingdom’s “Senior Managers Regime”

These proposals reflect a clear message. Actions must be taken to reverse the perception of compliance officer targeting before the “big chill” sets in, and the industry finds that this critical function has been robbed of its best and brightest.

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Amputating Rights-Making

Anthony Michael Kreis

Volume 69, Issue 1, 95-118

In a majority of states, it remains legal to deny people housing, employment, or services because of their sexual orientation or gender identity. The LGBT community has taken great strides to push back against the harms of discrimination, successfully securing municipal antidiscrimination laws in a number of discrete (and typically liberal) cities. While an individual’s right to enjoy full, equal citizenship should not depend on their zip code, hard-wrought municipal protections are a crucial step toward achieving more robust civil rights protections.

Hostile state legislators in Arkansas, North Carolina, and Tennessee crafted laws to prohibit localities from protecting classes of people beyond state law with the aim to block LGBT civil rights ordinances. Legislators in a handful of other states have offered similar bills. How should courts treat neutral laws adopted by states that amputate municipal civil rights-making powers? This Article argues that courts should use political restructuring doctrine, evolving LGBT rights jurisprudence, and the landmark decision Arlington Heights v. Metropolitan Housing Development Corporation, to void municipal civil rights preemption laws as constitutionally deficient.

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Race Politics, O’Hare Airport Expansion, and Promissory Estoppel: The More Things Change, the More They Stay the Same

Judith L. Maute

Volume 69, Issue 1, 119-178

Quake Construction v. American Airlines, Inc. is featured in some prominent American casebooks on contract formation or precontractual liability, where scholars and authorities debate when liability should properly attach. The case is widely cited by courts and secondary authorities, both on precontractual liability based on a letter of intent and the more unwieldy doctrine of promissory estoppel.

Quake is a 1990 Illinois Supreme Court decision which, on its face, appears to present the garden variety contracts issue of what to do when parties have reached a written preliminary agreement anticipating a formal writing that never occurs. Besides the fascinating doctrinal issues presented, the backstory reveals sensitive racial issues in Chicago’s political context at the time.

The dispute arose shortly after Mayor Washington was elected the City’s first black mayor and he sought to open up public projects to minority groups that had been previously excluded from the public trough. Much pressure was exerted upon American Airlines and Jones Brothers, its construction management company, which awarded the small,
$1 million project to Quake as part of the larger O’Hare Airport expansion. This Minority Business Set Aside (“MBE”) award was done without the due diligence prudent for major jobs. Eight days later, when Quake’s president appeared at a preconstruction meeting as the only person of color, without any of the named MBE’s listed on its bid, American’s representatives summarily terminated the relationship.

Nearly nine years of litigation focused only on whether the trial court correctly granted defense motions to dismiss. The Illinois Supreme Court reversed and remanded, finding the letter sufficiently ambiguous that plaintiff should have an opportunity to present parol evidence on the parties’ intent on the contract claim. In four short paragraphs the majority opinion recognized the possibility of plaintiff recovering under a standalone claim for promissory estoppel, based on claimed reliance occurring during the short time between the notice of award and termination for this small construction contract.

The lack of clarity in drafting and implementation of the letter of intent should give pause to commercial actors about the risks of sloppiness in the bargaining process, especially when dealing with parties who may be perceived as somewhat unsophisticated. This Article’s doctrinal treatment and backstory are a cautionary tale to lawyers embarking on commercial relations using letters of intent.

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A Constitutional Jurisprudence of Children’s Vulnerability

Lois A. Weithorn

Volume 69, Issue 1, 179-274

The Unites States Supreme Court identified “the peculiar vulnerability of children” as one of the “three reasons” for differentiating the treatment of children under the Constitution from that of adults. Yet, although explicit and implicit characterizations of children as vulnerable abound in the Court’s opinions and scholarly commentary, there has been little analysis of how the construct of vulnerability mediates children’s relationship to the Constitution.

This Article examines the Court’s analytic uses of constructions of children’s vulnerability. Informed by legal scholarship and empirical findings on human vulnerability emerging from the field of bioethics, philosophy, psychology, and developmental neuroscience, the Article deconstructs the concept of children’s vulnerability and proposes five categories derived from the Court’s constitutional jurisprudence and interdisciplinary scholarship: harm-based vulnerability; influence-based vulnerability; capacity-based vulnerability; status-based vulnerability; and dependency-based vulnerability. It applies the classification to representative cases from among the approximately one hundred relevant cases decided by the U.S. Supreme Court. The Article contextualizes the analyses of constitutional jurisprudence and children’s vulnerability with discussions of relevant social history and developmental science. It then critically examines the Court’s use of vulnerability constructs in a narrower subset of cases, exploring the relationship between these constructs and relevant empirical knowledge.

In conclusion, the Article critiques the often-tenuous relationship between the state of scientific knowledge and the Court’s characterizations of children’s vulnerability. The Court frequently relies upon these constructs when determining constitutional questions. This Article contends that when the Court makes “factual” assertions about children’s characteristics of functioningassertions that are the subject matter of developmental sciencethese assertions should rest on the best available evidence. The Article recommends continued scholarly attention to, and scrutiny of, judicial reliance on notions of children’s vulnerability in constitutional analysis.

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Government Lawyers in the Trump Administration

W. Bradley Wendel

Volume 69, Issue 1, 275-352

The words and actions of candidate, President-Elect, and now President Donald Trump indicate that this administration will aggressively seek to use state power with little regard for the rule of law. A great deal has been written about the constitutional and administrative law regulating inter and intra branch separation of powers. However, there is no comprehensive legal and theoretical analysis of government lawyers as lawyers.

This Article engages with numerous contested issues in the law of lawyering, the history of unethical behavior by government attorneys, and jurisprudence to provide a constructive legal and ethical conception of government legal advisors. In practical terms, it may serve as a source of guidance for lawyers in the new administration, or as a roadmap for discipline by lawyer regulators. More theoretically, it defends a conception of the rule of law as a practice of reason-giving, not dependent upon legal objectivity or determinacy. The Executive Order banning travel to the United States from several Muslim-majority countries, and the subsequent firing of Acting Attorney General Sally Yates, are case studies illustrating the ethical analysis in this Article.

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Executive Foreign Affairs Power and Immigration Relief

Mitchell R. VanLandingham

Volume 69, Issue 1, 353-386

This Note addresses whether the president may take action on immigration as an exercise of foreign affairs power. In particular, it focuses on DACA and DAPA, two Obama-era policies of deferred action for certain classes of undocumented immigrants. Exactly how much authority a president and his executive departments should have over immigration without running afoul of Congress’s Article I power “to create a uniform Rule of Naturalization” is still unsettled. Furthermore, it is shaded in public debate by partisan views on immigration and how much power a given party thinks its own president should have.

As immigrants still formally owe their allegiance to a foreign sovereign, might the executive branch perform lenient or ameliorative actions over them via executive foreign affairs power? Would that only add to the trend of creating a more monarchical presidency? What would the boundaries of this power look like? This Note posits that presidential foreign affairs authority, based on past practice, supports the president’s power to offer limited forms of immigration relief, at least in the absence of clear congressional prohibition, if the president judges that denying such relief might have foreign affairs consequences.

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The Devil in the Details: How the Complexity, Costs, and Uncertainty of Treasury Regulations Encourage Corporate Inversion

Jessica Wilson

Volume 69, Issue 1, 387-429

Politicians and scholars have discussed reforming the corporate tax system for many years, especially with the emergence of certain tax avoidance practices like inversion and earnings stripping. While debate in this area has focused primarily on making changes to the high corporate tax rate and the taxation of worldwide income in the United States as ways to reverse the inversion problem, less discussion has focused on how the Treasury’s punitive approach via tax regulations can have the effect of encouraging, rather than discouraging, firms to relocate and shift profits overseas. Even considering the recent developments in international tax law under the Organisation for Economic Co-operation (“OECD”) Base Erosion and Profit Shifting (“BEPS”) project and recent rulings by the European Commission, which focus on corporate tax avoidance, a corporation can greatly reduce its tax and compliance burden by relocating to a foreign jurisdiction.

This Note examines the added burden of the U.S. Treasury’s approach to dealing with corporate inversion, with a detailed discussion of the Treasury’s 2016 anti-inversion regulations. Furthermore, this Note examines the costs and burdens associated with remaining a U.S. company for tax purposes, as compared to some of the costs and benefits associated with inversion. It argues that for many companies, the complexity and costs under corporate tax regulations in the U.S. provide an incentive for inversion separate from that of the high corporate tax rate and taxation of worldwide income.

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