Volume 2012, No. 3


Thinking Outside the (Tax) Treaty

Adam H. Rosenzweig

While the legal literature contains numerous discussions on how to increase cooperation and resolve disputes in trade, investment, environment, intellectual property, and other areas, there has been remarkably little written on how to utilize these mechanisms to increase multinational cooperation for tax purposes. Rather, the debate has tended to devolve into two competing and irreconcilable camps: those supporting worldwide harmonization based on the network of bilateral tax treaties and those invoking the right to tax sovereignty to oppose any efforts at harmonization or cooperation.

The primary thesis of this Article is that the fundamental problem with cooperation in the modern international tax regime is that it builds on the tax treaty model, thus effectively excluding countries which have not entered into tax treaties—mostly small, poorer countries. Reconsidering international tax in this light leads to a potentially surprising conclusion: that the move towards institutionalizing the web of bilateral tax treaties—which has dominated the modern international tax debate—may actually be counter to its stated goal of encouraging broader worldwide tax cooperation across all nations of the world. Instead, this Article proposes the creation of a tax cooperation mechanism specifically geared towards non-treaty member countries, conceding certain disputes in exchange for increased cooperation more generally. Such an approach could effectively replicate some of the benefits of a tax treaty, but with non-treaty member countries, without needing to overcome the obstacles which have prevented full treaties from being entered among such countries to date. Building a tax cooperation mechanism specifically around the premise of incentivizing cooperation of the least cooperative states in this manner could harness the same forces that led to the emergence of the modern international tax regime in the early twentieth century to address the fiscal crisis facing the early twenty-first century.

Preparatory Negligence

Robert Heidt

This Essay discusses the appropriate significance in tort law of a negligent attempt to perform an injurious activity when the evidence is insufficient to show the actual performance of the activity was negligent. The author calls such a negligent attempt uncoupled with sufficient evidence of negligent performance “preparatory negligence.” An example would be driving a car when one is so inebriated that the decision to drive is negligent but those injured in a subsequent accident are unable to show the inebriated driver’s actual driving was negligent.

The author argues that preparatory negligence alone should never warrant tort liability. Rather, those injured must show negligence in some aspect of the performance of the activity. The least confusing way to describe this rule in terms of the usual elements of negligence liability is to hold that preparatory negligence alone is never a proximate cause of injury. But because a person’s preparatory negligence often increases the likelihood that his performance of his activity was negligent, the author describes some circumstances when preparatory negligence provides relevant and admissible evidence of negligent performance and on that ground should come to the attention of the fact finder.

Controlling Financial Chaos: The Power and Limits of Law

Steven L. Schwarcz

This Essay examines how law can help to control financial chaos. To that end, regulation should strive to not only maximize economic efficiency within the financial system but also protect the financial system itself. Any regulatory framework for achieving these goals, however, will be imperfect and have tradeoffs. Increasing financial complexity has created information failures that even disclosure cannot remedy, whereas law- imposed standardization would have its own flaws.

Bounded human rationality limits the effectiveness of even otherwise ideal laws. Furthermore, the increasing dispersion of financial risk is undermining monitoring incentives. We also do not yet fully understand how systemic risk is triggered and spread. Because regulation therefore cannot prevent systemic shocks, regulation should also operate to reduce systemic consequences by stabilizing parts of the financial system afflicted by those shocks.

The Incredible Ordinariness of Federal Penalties for Inactivity

Corey Rayburn Yung

Those arguing that the insurance mandate in the recent health care reform legislation, the Patient Protection and Affordable Care Act (ACA), is unconstitutional have prominently and repeatedly advanced the claim that the mandate’s punishment of personal inactivity is an unprecedented exercise of federal power. That contention is simply false.

Federal criminal law contains scores of provisions that facially or in application punish inactivity by individuals. These criminal statutes regulating inaction include not just traditional crimes by omission, where a common law duty is violated, but also offenses related to registration, record keeping, possession, receipt, preventive measures, nondisclosure, organization, misprision, and obstruction. By providing this account of criminal laws punishing and regulating inactivity, this Essay puts the ACA’s insurance mandate in the larger context of federal laws that would be in jeopardy if the mandate were held to be unconstitutional by the Supreme Court. The case of the ACA in regard to the Commerce and Necessary and Proper Clauses is not merely about the enforcement mechanism used for a single health care law as many have contended—it is about the shape and scope of federal criminal law that has been in place for over fifty years.