Page 23 - NYLS Magazine • 2014 • Vol. 33, No. 1

From left to right: Alan I. Appel, Michael Hirschfeld, Valeriya Avdeev, and Ann F. Thomas on
the panel addressing “Withholding and Information Reporting from 1913 to FATCA.”
Professor homas said. “Instead of your

employer withholding and paying your
tax over to the government, they would

just ile a report” on your earnings.

he business community argued that
information reporting was better than

withholding “because it didn’t require any
refunds or adjustments later on. And this

argument, believe it or not, eventually
carried the day,” Professor homas said.

“So this quite efective collection-at-
source system was repealed” in 1917.

Today, withholding generally applies
only to wages and salaries. he lack of

withholding allows many people —
especially those with capital gains and
the U.S. federal income tax has made no the 1913 income tax.is that it was based
owners of partnerships and LLCs—to
dent in inequality is that tax collections on a very vigorous and broad system
conceal income. Many large companies
are small relative to gross domestic of collection at source—withholding.
also beneit. “Some of the biggest
product. “he United States is a very low Indeed, it required withholding on multinationals, American ones, are paying
tax country.. But the consequence of virtually every kind of income that is
zero pretty much anywhere in the world,”
being a very low tax country is that we regular and determinable: rents, royalties, Ms. Sheppard said.
accomplish nothing by way of changing interest, and of course wages and salaries,”

the social environment,” Kleinbard said. Professor homas said, speaking at the The result is a skewed tax
“It is the size of the [tax] system that symposium’s panel on withholding
system, Ms. Sheppard said.
drives the results...not the progressivity of and information reporting. he other “We have told the wage
the system.”
members of the panel were Ms. Sheppard
earners of the country, ‘you
of Tax Notes; Professor Alan I. Appel,
A larger tax bite would allow more Director of the NYLS International Tax are the schmucks who are
government spending on low-income paying taxes.’”
Program; Professor Valeriya Avdeev of
individuals—and that is how inequality William Paterson University Business
is reduced, said Kleinbard. But instead of Some panelists suggested that tax lawyers
School; and Michael Hirschfeld, a
imposing large taxes and spending money partner at Dechert LLP and Chair of the are responsible for much of what is wrong
on the poor, the U.S. government is doing with the federal income tax. hey argued
ABA Section of Taxation. Withholding
the opposite. “Today we are getting less is the best way to ensure compliance, said that the tax would be both simpler and
obtain more revenue were it not for the
revenue than in the past and spending it Ms. Sheppard. “If you seriously want to
in ways that are subsidizing the middle collect, you withhold.”
aggressive anti-tax strategies concocted by
clever attorneys.
classes proportionately much more
than was true a couple of decades ago,” However, many in Wall Street and the
Tax avoidance schemes have been
Kleinbard said.
business community objected to the around since the early days of the federal
broad withholding required by the 1913
Another theme that emerged at the income tax, and so has the government’s
tax—largely because withholding was too
symposium: he federal income tax has efective. In particular, withholding made
problems raising revenue. “We have a
it extremely diicult for owners of bearer
substantial tax evasion problem in the bonds to evade taxes, and that “was a big
United States,” said Professor homas,
problem for the bearer bond industry,”
who directs the NYLS Graduate Tax Professor homas noted.
Program.

So Wall Street lobbied Congress hard,
he problem of tax evasion isn’t new, but promoting a new idea “on a relentless and
back in 1913, the federal income tax used
almost daily basis, which was we should
a simple and powerful method to ensure repeal collection-at-source and instead try

compliance. “One of the big features of
something called information reporting,”

From left to right: Elizabeth Kessenides, Michael L. Schler, Megan Brackney, and
moderator William P. LaPiana on the “Perspectives on the Practice of Tax Law” panel.

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