Columbia Journal of Tax Law

The Tax Redistribution Gap

Eric Baudry — 2025-04-29

The tax revenue gap—the difference between how much the IRS collects in tax revenue and how much it should collect based on the text of the Internal Revenue Code—is both well-defined and well-studied. But raising revenue is just one purpose of taxation; the tax code also operates to redistribute wealth. Drawing from the tax revenue gap and redistribution literatures, this article coins a parallel concept, the tax redistribution gap, to map the extent to which the tax system falls short of its redistributive goals.

Introducing a tax redistribution gap measure challenges background assumptions in current tax discourse: first, it would call out a reliance on pre-market income as a distributive baseline, which serves to overstate the redistributive impact of the tax code; second, it would increase the profile of redistribution among policymakers and the public—understandably, measures like the tax revenue gap and tax expenditure budgets focus dialogue on tax evasion and over-spending by the government.

Ultimately, the tax redistribution gap would provide a single measure that displays how we are falling short of a key task of the state (redistribution). And by understanding and comparing the component ways our current tax systems falls short of it intended outcomes, we can better tailor redistributive policy solutions.

The Flip and Flop of Taxing Alimony

Jeffrey H. Kahn — 2025-04-29

Since the dawn of income taxation in America, the tax treatment of alimony payments has flipped, flopped, and flipped again. The tax burden was first borne by the person paying alimony, then by the person receiving it. The burden has since shifted back to the alimony payor. This, we argue, was a flop.

The Tax Cuts and Jobs Act of 2017 eliminated a tax deduction for alimony payments that served to reduce the taxable income of the payor and shift the payments into the taxable income of the recipient. Congress justified this deviation from the longstanding deduction/income treatment based an old Supreme Court case that held alimony was to be taxed to husbands as part of their moral and legal obligations to support their wives. More likely, Congress was acting for its own benefit—eliminating the deduction is estimated to raise billions for the fisc.

In this Article, we argue that this change was a mistake. Treating alimony payments as income to the recipient better comports with the Tax Code’s progressive rate structure and the concept of taxing a party based on “ability to pay.” The argument proceeds in two parts. First, we argue that alimony payments do not constitute consumption by the payor. Thus, like gifts, alimony payments should only be taxed to one of the parties involved in the transfer. Existing scholarship seems to coalesce on this point. Still, this does not tell us whom to tax: the alimony payor or the recipient? Distinguishing the income tax treatment of alimony from that of gifts, we argue the latter.

As a theoretical matter, allowing a deduction for alimony payments aligns with our progressive rate structure by accounting for the payor’s lower marginal “ability to pay” after making alimony payments. These payments represent future consumption by the recipient, not the payor, and thus reflect an increase in the recipient’s “ability to pay” taxes on such sums. And, as a practical matter, allowing parties the flexibility to allocate the tax burden among themselves is a negotiating chip that may grease the wheels in other areas of the divorce settlement process. We recommend that Congress flip once more and return the tax treatment of alimony to what it was prior to the 2017 Act reform.

Reflections on Section 367(b) Regulations and Inbound Transactions

Paul Oosterhuis — 2025-04-29

Cross-border combinations of U.S. and foreign public companies are unusual but happen from time to time. Our broad and often arbitrary anti-inversion rules discourage such transactions utilizing a foreign parent company for the combined group. But using a U.S. parent company can also be painful to the foreign company shareholders. Our section 367(b) regulations require gain recognition for the foreign company’s material shareholders subject to U.S. tax. That seems to be a high price to pay for the pleasure of bringing the foreign corporate group into the U.S. tax net.

Much has been discussed and written about the section 367(b) regulations that compel this result since the regulation’s finalization in 2000 and especially since the enactment of the 2017 Tax Cuts and Jobs Act. This article reflects our exploration into what led the original regulation writers down the path they took and suggests that maybe they were wrong in their thinking. Our hope is that it will stimulate a broader discussion of the goals of the section 367(b) regulations as applied to inbound transactions and how they should be implemented in the current regime of section 245A deductions and GILTI and Subpart F inclusions.