Saturday, November 18, 2006

Wealth Redistribution in Favor of the Status Quo

To say Jim Chen has stolen my thunder in the immediately preceding post would be an understatement. But since I have already penned this, here goes. In a response to my blog identifying state-subsidized LLM in Tax programs as hard to defend, on another blog Professor Scott Schumacher writes: “why single out tax programs? . . . Are competent tax attorneys any less valuable to society than the competent contract attorneys that Harrison apparently believes are worthy of the public's largess? When you get right down to it, I doubt many citizens are happy to support any programs in the law schools.”

I will attempt to respond but first, a number of caveats. To begin with, Professor Schumacher has hinted at the harder question: Why subsidize legal education at all? I guess I would put it a little differently and say why subsidize without a guaranteed return on the public investment in the form of required public service? Second, I question the subsidization of the teaching of LLM students but not of the scholarship of their professors. Those who write about tax policy – both broadly and narrowly defined – may be producing the most important legal scholarship. Third, Professor Schmacher does not seem to defend an LLM program as much as say “what is the difference?” That is what I will take a crack at. Fourth, my comments are about law schools. I am similarly baffled by public subsidization of MBA programs and numerous others in which the students are likely fully to internalize the benefits of whatever they produce. Finally, this is an empirical question and I concede I do not know for sure. What I am also sure of is that responding with an example does not advance the discussion.

So, to the question: Is a tax LLM different? First, look at what law schools do. One thing is that they redistribute wealth or income from the public at large to people who jump through a series of hoops and make it into law school and to their professors. Now, unless someone thinks the redistribution itself is producing a "good" there has to be more.

The obvious "more" is that law schools should produce legal services that have value but which the market does not produce in sufficient quantities. First, this could mean that they produce legal services that are affected by market imperfections, including free-riding. Among the market imperfections, and contrary to what I think some economists would say, I include services to protect “goods” that are not subject to monetization – civil rights, environmental protection, etc. Second, to the extent we believe that all people have a right to effective representation, we operate to depress lawyer fees by making sure the supply of attorney services is high. (An inefficient way to achieve that outcome to be sure.)

I am not convinced that subsidizing post-LLM tax study contributes to the first objective. My hunch is that we could stop the subsidization of post-JD degree tax education today and there would be little or no unmet demand for the tax advice LLM graduates offer. The value of most tax advice would be fully monetized. I can think of few, if any, free-rider problems. Regardless of how the courses are taught, I think what is learned by most is Retaining Wealth I, Retaining Wealth II, and so on. Thus, the only justification for subsidization would be to depress the cost of tax advice. Maybe this is a defensible goal. If that were the goal we would have to revamp most of what is taught in an LLM tax program and include courses like “Tax Advice for the Poor and Working Poor.” But that is covered in the basic JD course. So whatever wage-depressing rationale may exist can hardly be traced to an advanced tax course. In any case, that’s my story and I’m sticking to it.


Anonymous Anonymous said...

This doesn't go to the core of your point, but I don't think you've characterized correctly what tax lawyers do. Yes, some tax lawyers try to find ways to allow their clients to retain wealth. But in my personal experience, many tax lawyers who represent large corporate clients try to find ways for their clients to comply with the tax law. We say no to our clients a lot. And look at some of the comments on regulations submitted to the IRS by, for example, the tax section of the NYSBA. Those comments are certainly not always taxpayer-favorable. We try to make sure that our clients don't pay too much tax; some of us also try to make sure that our clients don't pay too little tax. Some tax lawyers do take aggressive, perhaps indefensible, positions, but many of us are trying to make sure our clients don't have to pay penalties and don't go to jail. To the extent you believe that applying current tax law results in approximately a correct distribution of resources, and that complying with tax law is therefore desirable, then some tax lawyers are indeed doing work that provides a societal good. It might be argued (very persuasively) that the tax law itself doesn't correctly distribute wealth (mortgage deduction? AMT?), but I don't think that it's right to blame tax lawyers for trying to comply with such a law, and at any rate I don't think that's what you're arguing.

As for why there aren't more classes about helping low-income taxpayers comply or pay less tax--it's because we have a progressive tax system. If you don't make a lot of money, you don't pay a lot of tax, and the tax laws that cover you aren't that complicated (perhaps with the exception of complying with law regarding the EITC). That's why instead of having classes teaching people how to help low-income taxpayers, many schools just go ahead and help them, for free (with oversight and, I believe, funding from the IRS), through the VITA program--"Volunteer Income Tax Assistance." The University of Florida School of Law is one of many law schools that participate in the program.

11/18/2006 3:08 PM  
Blogger Jeffrey Harrison said...

Your points make sense to me. I am not sure I regard advising a corporate client not to violate the law as a social good in the sense that the market would not provide it without subsidizing the education of those providing the advice.

I did not mean to suggest that tax law for the poor would make any sense. Obviously the demand for tax advice depends on the amount of money involved. The demand by poor people and most middle class people is low. Moreover, I do not know of any positive externalities that accrue to them as a result of advice given to wealthier people and corporations. So, my point, is why ask them to contribute, through public law schools to what is net redistribution to the relatively wealthy.

11/18/2006 5:32 PM  
Anonymous Anonymous said...

I think I basically do agree with your larger point. But just to clarify: advising someone *how* not to violate the tax law is harder than it may seem. Seriously, that can take a lot of work--sometimes it's pretty hard just to figure out what constitutes violating tax law.

But I think I agree with you that there's no need for a state to subsidize such programs--NYU's LL.M. tax program practically says moo, it's such a cash cow, and people are falling over each other to get in. (Pace Jim's comment below, I think the general feeling is that NYU's LL.M. tax program is the premier tax LL.M. program in the country.)

11/18/2006 9:05 PM  

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