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    Yale Law Journal: Volume 121, Number 5 - March 2012
    Yale Law Journal: Volume 121, Number 5 - March 2012
    Yale Law Journal: Volume 121, Number 5 - March 2012
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    Yale Law Journal: Volume 121, Number 5 - March 2012

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    About this ebook

    This issue of The Yale Law Journal (the 5th issue of Volume 121, academic year 2011-2012) features articles and essays by several notable scholars. Principal contributors include Ruth Mason and Michael Knoll (an article on tax discrimination), and Michael Graetz and Alvin Warren, Jr. (a featured essay also analyzing tax discrimination). Student contributions discuss such issues as the 26th Amendment's enforcement power, the Attestation Clause in history, and software licensing agreements.

    The editors of The Yale Law Journal are a group of Yale Law School students, who also contribute Notes and Comments to the Journal's content. The principal articles are written by internationally recognized legal scholars.

    LanguageEnglish
    PublisherQuid Pro, LLC
    Release dateApr 18, 2014
    ISBN9781610279406
    Yale Law Journal: Volume 121, Number 5 - March 2012
    Author

    Yale Law Journal

    The editors of The Yale Law Journal are a group of Yale Law School students, who also contribute Notes and Comments to the Journal’s content. The principal articles are written by leading legal scholars.

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      Book preview

      Yale Law Journal - Yale Law Journal

      THE YALE LAW JOURNAL

      VOLUME 121, NUMBER 5

      MARCH 2012

      Yale Law School

      New Haven, Connecticut

      Yale Law Journal

      Smashwords edition: published by Quid Pro Books, at Smashwords. Copyright © 2012 by The Yale Law Journal Company, Inc. All rights reserved. This work or parts of it may not be reproduced, copied or transmitted (except as permitted by sections 107 and 108 of the U.S. Copyright Law and except by reviewers for the public press), by any means including voice recordings and the copying of its digital form, without the written permission of the print publisher.

      The publisher of various editions and formats is The Yale Law Journal, who exclusively authorized Quid Pro to digitally publish its issues in ebook editions; so published, for The Yale Law Journal, by Quid Pro Books. Available in major digital formats and at leading ebook retailers and booksellers.

      Quid Pro Books

      Quid Pro, LLC

      5860 Citrus Blvd., suite D-101

      New Orleans, Louisiana 70123

      www.quidprobooks.com

      Cataloging for eBook of Volume 121, Number 5:

      ISBN-10: 1610279409 (eBook format)

      ISBN/EAN: 978-1-61027-940-6 (eBook format)

      CONTENTS

      ARTICLE

      WHAT IS TAX DISCRIMINATION?

      By Ruth Mason & Michael S. Knoll

      (121 YALE L.J. 1014)

      ESSAY

      INCOME TAX DISCRIMINATION: STILL STUCK IN THE LABYRINTH OF IMPOSSIBILITY

      By Michael J. Graetz & Alvin C. Warren, Jr.

      (121 YALE L.J. 1118)

      NOTES

      THE TWENTY-SIXTH AMENDMENT ENFORCEMENT POWER

      By Eric S. Fish

      (121 YALE L.J. 1168)

      DONE IN CONVENTION: THE ATTESTATION CLAUSE AND THE DECLARATION OF INDEPENDENCE

      By Jesse Cross

      (121 YALE L.J. 1236)

      COMMENT

      SHIFTING THE BURDEN IN SOFTWARE LICENSING AGREEMENTS

      By Stephen S. Gilstrap

      (121 YALE L.J. 1271)

      About the Yale Law Journal

      RESPONSES. The Yale Law Journal invites short papers responding to scholarship appearing in the Journal within the last year. Responses should be submitted to The Yale Law Journal Online at http://yalelawjournal.org/submissions.html. We cannot guarantee that submitted responses will be published. Those responses that are selected for publication will be edited with the cooperation of the author.

      The Yale Law Journal is published eight times a year (monthly from October through June, excluding February) by The Yale Law Journal Company, Inc. Editorial and general offices are located in the Sterling Law Building at Yale University. POSTMASTER: Send address changes to The Yale Law Journal, P.O. Box 208215, New Haven, Connecticut 06520-8215.

      SUBSCRIPTIONS. A year subscription for Volume 121 is $55.00 payable in advance (please see our website for overseas shipping charges). Remittance must be made by U.S. Dollar drafts payable at a U.S. bank. Unfortunately, we are not able to accept payments in cash or by credit card. Subscription requests received after the first issue of a volume has been printed will run for eight consecutive issues unless otherwise indicated by the subscriber. Subscription backstarting is not permitted to include prior volume years. Overseas delivery is not guaranteed.

      CLAIMS. Domestic claims for non-receipt of issues should be made within 90 days of the month of publication, overseas claims within 180 days; thereafter, the regular back issue rate will be charged for replacement. All subscriptions will be renewed automatically unless the subscriber provides timely notice of cancellation prior to the start of a new volume year. Address changes must be made at least two months before publication date. Please provide an old mailing label or the entire old address; the new address must include the ZIP code. Address changes or other requests for subscription information should be directed to the Business Manager.

      SINGLE AND BACK ISSUES. Each issue of Volume 121 of the Journal can be purchased prepaid from The Yale Law Journal Company, Inc. for $25 (check must accompany order). For Connecticut deliveries, add 6% state sales tax. Remittance must be made by U.S. Dollar drafts payable to a U.S. bank. Unfortunately, we are not able to accept payments in cash or credit card. To purchase back issues from Volumes 1-120, please contact William S. Hein and Company, Inc., 1285 Main Street, Buffalo, New York 14209, (800) 828-7571. Back issues can also be found in electronic format on HeinOnline (http://heinonline.org/).

      MANUSCRIPTS. The Journal invites the submission of unsolicited articles, essays, and book reviews. Manuscripts must be submitted online at http://yalelawjournal.org/submissions.html.

      COPYRIGHT. Copyright © 2012 by The Yale Law Journal Company, Inc. Requests for copyright permissions should be directed to Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, http://www.copyright.com/.

      PRODUCTION. Citations in the Journal conform to The Bluebook: A Uniform System of Citation (19th ed. 2010), copyright by The Columbia Law Review Association, The Harvard Law Review Association, the University of Pennsylvania Law Review, and The Yale Law Journal. The Journal is printed by Joe Christensen, Inc., in Lincoln, Nebraska. Periodicals postage paid at New Haven, Connecticut, and additional mailing offices. Publication number ISSN 0044-0094.

      INTERNET ADDRESS. The Yale Law Journal’s homepage is located at http://www.yalelawjournal.org.

      YALE LAW SCHOOL

      OFFICERS OF ADMINISTRATION

        Richard Charles Levin, B.A., B.Litt., Ph.D., President of the University

        Peter Salovey, A.B., M.A., Ph.D., Provost of the University

        Robert C. Post, A.B., J.D., Ph.D., Dean

        Douglas Kysar, B.A., J.D., Deputy Dean

        S. Blair Kauffman, B.S., B.A., J.D., LL.M., M.L.L., Law Librarian

        Megan A. Barnett, B.A., J.D., Associate Dean

        Sharon C. Brooks, B.A., J.D., Assistant Dean

        Toni Hahn Davis, B.A., J.D., M.S.W., LL.M., Associate Dean

        Brent Dickman, B.B.A., M.B.A., Associate Dean

        Mark LaFontaine, B.A., J.D., Associate Dean

        Asha Rangappa, A.B., J.D., Associate Dean

        Mike K. Thompson, B.A., M.B.A., J.D., Associate Dean

      FACULTY EMERITI

        Guido Calabresi, B.S., B.A., LL.B., M.A., Dr.Jur., LL.D., D.Phil., H.Litt.D., D.Poli.Sci., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

        Dennis E. Curtis, B.S., LL.B., Clinical Professor Emeritus of Law and Professorial Lecturer in Law

        Harlon Leigh Dalton, B.A., J.D., Professor Emeritus of Law

        Carroll L. Lucht, B.A., M.S.W., J.D., Clinical Professor Emeritus of Law, Supervising Attorney, and Professorial Lecturer in Law

        Mirjan Radovan Damaška, LL.B., Dr.Jur., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

        Jan Ginter Deutsch, LL.B., Ph.D., Walter Hale Hamilton Professor Emeritus of Law and Professorial Lecturer in Law

        Owen M. Fiss, B.A., B.Phil., LL.B., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

        Michael J. Graetz, B.B.A., LL.B., LL.D., Justus S. Hotchkiss Professor Emeritus of Law and Professorial Lecturer in Law

        Quintin Johnstone, B.A., J.S.D., Justus S. Hotchkiss Professor Emeritus of Law

        Carol M. Rose, B.A., M.A., J.D., Ph.D., Gordon Bradford Tweedy Professor Emeritus of Law and Organization, and Professorial Lecturer in Law

        Peter H. Schuck, B.A., M.A., J.D., LL.M., Simeon E. Baldwin Professor Emeritus and Professor (Adjunct) of Law

        John G. Simon, B.A., LL.B., LL.D., Augustus E. Lines Professor Emeritus of Law and Professorial Lecturer in Law

        Stephen Wizner, A.B., J.D., William O. Douglas Clinical Professor Emeritus of Law, Supervising Attorney, and Professorial Lecturer in Law

      FACULTY

      † Bruce Ackerman, B.A., LL.B., Sterling Professor of Law and Political Science

        Muneer I. Ahmad, A.B., J.D., Clinical Professor of Law

        Anne L. Alstott, A.B., J.D., Professor of Law

      ‡ Akhil Reed Amar, B.A., J.D., Sterling Professor of Law

        Ian Ayres, B.A., J.D., Ph.D., William K. Townsend Professor of Law

        Jack M. Balkin, A.B., J.D., Ph.D., Knight Professor of Constitutional Law and the First Amendment

        Aharon Barak, LL.M., Dr.Jur., Visiting Professor of Law and Gruber Global Constitutionalism Fellow (fall term)

        Barton Beebe, B.A., Ph.D., J.D., Anne Urowsky Visiting Professor of Law (fall term)

        Raymond Brescia, B.A., J.D., Visiting Clinical Associate Professor of Law

        Lea Brilmayer, B.A., J.D., LL.M., Howard M. Holtzmann Professor of International Law

      † Richard R.W. Brooks, B.A., M.A., Ph.D., J.D., Leighton Homer Surbeck Professor of Law

      ‡ Robert A. Burt, B.A., M.A., J.D., Alexander M. Bickel Professor of Law

        Guido Calabresi, B.S., B.A., LL.B., M.A., Dr.Jur., LL.D., D.Phil., H.Litt.D., D.Poli.Sci., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      ‡ Stephen Lisle Carter, B.A., J.D., William Nelson Cromwell Professor of Law

      ‡ Amy Chua, A.B., J.D., John M. Duff, Jr. Professor of Law

        Jules L. Coleman, B.A., M.S.L., Ph.D., Wesley Newcomb Hohfeld Professor of Jurisprudence and Professor of Philosophy

        Dennis E. Curtis, B.S., LL.B., Clinical Professor Emeritus of Law and Professorial Lecturer in Law

        Hanoch Dagan, LL.B., LL.M., J.S.D., Visiting Professor of Law and Oscar M. Ruebhausen Distinguished Senior Fellow (fall term)

        Harlon Leigh Dalton, B.A., J.D., Professor Emeritus of Law

        Mirjan Radovan Damaška, LL.B., Dr.Jur., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

        Drew S. Days, III, B.A., LL.B., Alfred M. Rankin Professor Emeritus of Law and Professorial Lecturer in Law

        Jan Ginter Deutsch, B.A., LL.B., Ph.D., M.A., Walter Hale Hamilton Professor Emeritus of Law and Professorial Lecturer in Law

        Fiona Doherty, B.A., J.D., Visiting Clinical Associate Professor of Law

      ‡ Steven Barry Duke, B.S., J.D., LL.M., Professor of Law

      † Robert C. Ellickson, A.B., LL.B., Walter E. Meyer Professor of Property and Urban Law

        Edwin Donald Elliott, B.A., J.D., Professor (Adjunct) of Law

      ‡ William N. Eskridge, Jr., B.A., M.A., J.D., John A. Garver Professor of Jurisprudence

      * Daniel C. Esty, A.B., M.A., J.D., Hillhouse Professor of Environmental Law and Policy, School of Forestry & Environmental Studies; and Clinical Professor of Environmental Law and Policy, Law School

        Stanley Fish, B.A., M.A., Ph.D., Visiting Professor of Law and Oscar M. Ruebhausen Distinguished Senior Fellow (fall term)

        Owen M. Fiss, B.A., B.Phil., LL.B., Sterling Professor Emeritus of Law and Professorial Lecturer in Law

      ‡ James Forman Jr., A.B., J.D., Clinical Professor of Law

        Bryan Garsten, B.A., M.Phil., Ph.D., Professor (Adjunct) of Law (spring term)

        Heather K. Gerken, B.A., J.D., J. Skelly Wright Professor of Law

      ‡ Paul Gewirtz, B.A., J.D., Potter Stewart Professor of Constitutional Law

        Robert W. Gordon, A.B., J.D., Chancellor Kent Professor of Law and Legal History

        Michael J. Graetz, B.B.A., LL.B., LL.D., Justus S. Hotchkiss Professor Emeritus of Law and Professorial Lecturer in Law

        Dieter Grimm, LL.M., Dr.Jur., Visiting Professor of Law and Gruber Global Constitutionalism Fellow (spring term)

        Lani Guinier, B.A., J.D., Visiting Professor of Law (fall term)

      ‡ Henry B. Hansmann, A.B., J.D., Ph.D., Augustus E. Lines Professor of Law

        Robert D. Harrison, B.A., J.D., Ph.D., Lecturer in Legal Method

        Oona Hathaway, B.A., J.D., Gerard C. and Bernice Latrobe Smith Professor of International Law

        Kristin Henning, B.A., J.D., LL.M., Sidley Austin-Robert D. McLean ’70 Visiting Clinical Professor of Law (spring term)

        Daniel E. Ho, B.A., A.M., Ph.D., J.D., Maurice R. Greenberg Visiting Professor of Law (spring term)

        Quintin Johnstone, B.A., J.S.D., Justus S. Hotchkiss Professor Emeritus of Law and Professorial Lecturer in Law

        Christine Jolls, B.A., J.D., Ph.D., Gordon Bradford Tweedy Professor of Law and Organization

      * Dan M. Kahan, B.A., J.D., Elizabeth K. Dollard Professor of Law

        Paul W. Kahn, B.A., J.D., Ph.D., Robert W. Winner Professor of Law and the Humanities, and Director, Orville H. Schell, Jr. Center for International Human Rights

        Pamela S. Karlan, B.A., J.D., Visiting Professor of Law (fall term)

        S. Blair Kauffman, B.S., B.A., J.D., LL.M., M.L.L., Law Librarian and Professor of Law

        Daniel Kevles, B.A., Ph.D., Professor (Adjunct) of Law (spring term)

        Alvin K. Klevorick, B.A., M.A., Ph.D., John Thomas Smith Professor of Law and Professor of Economics

      * Harold Hongju Koh, A.B., B.A., J.D., M.A., Martin R. Flug ’55 Professor of International Law

      * Anthony Townsend Kronman, B.A., J.D., Ph.D., Sterling Professor of Law

        Douglas Kysar, B.A., J.D., Deputy Dean and Joseph M. Field ’55 Professor of Law

        John H. Langbein, A.B., LL.B., Ph.D., Sterling Professor of Law and Legal History

        Sanford Levinson, B.A., Ph.D., J.D., Visiting Professor of Law (fall term)

      * Yair Listokin, A.B., M.A., Ph.D., J.D., Associate Professor of Law

        Carroll L. Lucht, B.A., M.S.W., J.D., Clinical Professor Emeritus of Law, Supervising Attorney, and Professorial Lecturer in Law

        Jonathan R. Macey, A.B., J.D., Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law

        Miguel Maduro, Dr.Jur., Visiting Professor of Law and Gruber Global Constitutionalism Fellow (fall term)

      † Daniel Markovits, B.A., M.Sc., D.Phil., J.D., Professor of Law

      ‡ Jerry Louis Mashaw, B.A., LL.B., Ph.D., Sterling Professor of Law

        Tracey L. Meares, B.S., J.D., Walton Hale Hamilton Professor of Law

        Noah Messing, B.A., J.D., Lecturer in the Practice of Law and Legal Writing

        Jeffrey A. Meyer, B.A., J.D., Visiting Professor of Law

        Samuel Moyn, B.A., M.A., Ph.D., J.D., Irving S. Ribicoff Visiting Professor of Law (spring term)

        Nicholas Parrillo, A.B., M.A., J.D., Associate Professor of Law

      † Jean Koh Peters, A.B., J.D., Sol Goldman Clinical Professor of Law and Supervising Attorney

        Robert C. Post, A.B., J.D., Ph.D., Dean and Sol & Lillian Goldman Professor of Law

        J.L. Pottenger, Jr., A.B., J.D., Nathan Baker Clinical Professor of Law and Supervising Attorney

      † Claire Priest, B.A., J.D., Ph.D., Professor of Law

      ‡ George L. Priest, B.A., J.D., Edward J. Phelps Professor of Law and Economics and Kauffman Distinguished Research Scholar in Law, Economics, and Entrepreneurship

        William Michael Reisman, B.A., J.S.D., Myres S. McDougal Professor of International Law

        Judith Resnik, B.A., J.D., Arthur Liman Professor of Law

        Roberta Romano, B.A., M.A., J.D., Sterling Professor of Law and Director, Yale Law School Center for the Study of Corporate Law

        Carol M. Rose, B.A., M.A., J.D., Ph.D., Gordon Bradford Tweedy Professor Emeritus of Law and Organization, and Professorial Lecturer in Law

      † Susan Rose-Ackerman, B.A., Ph.D., Henry R. Luce Professor of Jurisprudence (Law School and Department of Political Science)

        Jed Rubenfeld, A.B., J.D., Robert R. Slaughter Professor of Law

        Peter H. Schuck, B.A., M.A., J.D., LL.M., Simeon E. Baldwin Professor Emeritus of Law and Professor (Adjunct) of Law

        Vicki Schultz, B.A., J.D., Ford Foundation Professor of Law

      † Alan Schwartz, B.S., LL.B., Sterling Professor of Law

        Ian Shapiro, B.Sc., M.Phil., Ph.D., J.D., Professor (Adjunct) of Law (spring term)

        Scott J. Shapiro, B.A., J.D., Ph.D., Professor of Law and Philosophy

        Robert J. Shiller, B.A., Ph.D., Professor (Adjunct) of Law (fall term)

      † Reva Siegel, B.A., M.Phil., J.D., Nicholas deB. Katzenbach Professor of Law

        James J. Silk, A.B., M.A., J.D., Clinical Professor of Law, Allard K. Lowenstein International Human Rights Clinic, and Executive Director, Orville H. Schell, Jr. Center for International Human Rights

        John G. Simon, B.A., LL.B., LL.D., Augustus E. Lines Professor Emeritus of Law and Professorial Lecturer in Law

        Robert A. Solomon, B.A., J.D., Clinical Professor of Emeritus of Law

        Kate Stith, A.B., M.P.P., J.D., Lafayette S. Foster Professor of Law

        Alec Stone Sweet, B.A., M.A., Ph.D., Leitner Professor of International Law, Politics, and International Studies

        Gerald Torres, A.B., J.D., LL.M., Maurice R. Greenberg Visiting Professor of Law (fall term)

        James Q. Whitman, J.D., Ph.D., Ford Foundation Professor of Comparative and Foreign Law

        Ralph Karl Winter, Jr., B.A., LL.B., Professor (Adjunct) of Law

        Michael J. Wishnie, B.A., J.D., Clinical Professor of Law and Director, Jerome N. Frank Legal Services Organization

      † John Fabian Witt, B.A., J.D., Ph.D., Allen H. Duffy Class of 1960 Professor of Law

        Stephen Wizner, A.B., J.D., William O. Douglas Clinical Professor Emeritus of Law, Supervising Attorney, and Professorial Lecturer in Law

        Howard V. Zonana, B.A., M.D., Professor of Psychiatry and Clinical Professor (Adjunct) of Law

      * On leave of absence, 2011–2012.

      † On leave of absence, fall term, 2011.

      ‡ On leave of absence, spring term, 2012.

      LECTURERS IN LAW

        John C. Balzano, B.A., M.A., J.D.

        Nicholas Bramble, B.A., M.A., J.D.

        Adam S. Cohen, A.B., J.D.

        Linda Greenhouse, B.A., M.S.L., Joseph Goldstein Lecturer in Law

        Lucas Guttentag, A.B., J.D.

        Jamie P. Horsley, M.A., J.D.

        Katherine Kennedy, A.B., J.D., Timothy B. Atkeson Environmental Lecturer in Law

        Theresa J. Lee, B.A., M.A., J.D.

        Jeffrey M. Prescott, B.A., J.D., (on leave)

        Jamin Raskin, B.A., J.D.

        Sia Sanneh, B.A., M.A., J.D.

        Daniel Wade, B.A., M.A., M.Div., M.S., J.D.

      VISITING LECTURERS IN LAW

        Josh Abramowitz, B.A., J.D.

        Guillermo Aguilar-Alvarez, Lic. en Derecho (J.D.)

        Stephen Bright, B.A., J.D., Harvey Karp Visiting Lecturer in Law

        G. Eric Brunstad, Jr., B.A., J.D., LL.M.

        Cynthia Carr, B.A., J.D., LL.M.

        Brett Cohen, B.A., J.D.

        Eugene R. Fidell, B.A., LL.B., Florence Rogatz Visiting Lecturer in Law

        Lawrence J. Fox, B.A., J.D., George W. and Sadella D. Crawford Visiting Lecturer in Law

        Eugene Garver, A.B., Ph.D.

        Nancy Gertner, B.A., M.A., J.D.

        Frank Iacobucci, LL.B., LL.M., Gruber Global Constitutionalism Fellow and Visiting Lecturer in Law

        Benjamin Heineman, B.A., B.Litt., J.D.

        Howard Kahn, A.B., Ph.D.

        Brett M. Kavanaugh, B.A., J.D.

        Mark R. Kravitz, B.A., J.D.

        Daryl J. Levinson, A.B., M.A., J.D.

        Barbara Marcus, B.A., M.S., Ph.D.

        Braxton McKee, M.D.

        Andrew J. Pincus, B.A., J.D.

        Charles A. Rothfeld, A.B., J.D.

        John M. Samuels, B.A., J.D., LL.M.

        David A. Schultz, B.A., M.A., J.D.

        Michael Solender, B.A., J.D.

        Ko-Yung Tung, B.A., J.D.

        Stefan Underhill, B.A., J.D.

        Neil Walker, LL.B., Ph.D.

        John M. Walker, Jr., B.A., J.D.

      THE YALE LAW JOURNAL

      VOLUME 121

      What Is Tax Discrimination?

      Ruth Mason & Michael S. Knoll

      121 YALE L.J. 1014 (2012)

      What Is Tax Discrimination?

      RUTH MASON & MICHAEL S. KNOLL

      ABSTRACT. Prohibitions of tax discrimination have long appeared in constitutions, tax treaties, trade treaties, and other sources, but despite their ubiquity, little agreement exists as to how such provisions should be interpreted. Some commentators have concluded that tax discrimination is an incoherent concept. In this Article, we argue that in common markets, like the EU and the United States, the best interpretation of the nondiscrimination principle is that it requires what we call competitive neutrality, which prevents states from putting residents at a tax-induced competitive advantage or disadvantage relative to nonresidents in securing jobs. We show that, contrary to the prevailing view, maintaining a level playing field between resident and nonresident taxpayers requires neither tax rate harmonization nor equal taxation of residents and nonresidents. Our approach produces simple rules of thumb that provide states and courts with clear direction in writing tax laws and evaluating challenges to those laws.

      AUTHORS. Ruth Mason is Professor of Law and Nancy & Bill Trachsel Corporate Law Scholar, University of Connecticut School of Law. Michael S. Knoll is the Theodore K. Warner Professor, University of Pennsylvania Law School; Professor of Real Estate, Wharton School; Co-Director, Center for Tax Law and Policy, University of Pennsylvania. Copyright 2012 by Ruth Mason and Michael Knoll. All rights reserved. The authors would like to thank Reuven Avi-Yonah, Yariv Brauner, Kim Brooks, Karen Brown, Albert Choi, Graeme Cooper, Steven Dean, Mihir Desai, William Eskridge, Mary Louise Fellows, Michael Graetz, James Hines, Mitchell Kane, Lily Kahng, Michael Lang, Sarah Lawsky, Pasquale Pistone, Diane Ring, Alexander Rust, Wolfgang Schön, Daniel Shaviro, Kirk Stark, Alvin Warren, Ethan Yale, George Yin, tax workshop participants at McGill Faculty of Law, University of Michigan Law School, National Tax Association, NYU School of Law, Seattle University School of Law, Vienna University of Economics and Business, and faculty workshop participants at Brooklyn Law School, Columbia Law School, Georgetown Law Center, University of New South Wales Australian School of Business, University of Pennsylvania Law School, University of Virginia School of Law, and Yale Law School. We owe special thanks to Mike Aikins, Al Dong, Benjamin Meltzer, and Jarrod Shobe for research assistance.

      ARTICLE CONTENTS

      INTRODUCTION

      I. NONDISCRIMINATION IN EU TAXATION

      A. Goals of the EU

      B. ECJ Interpretations of Tax Discrimination

      C. Two Cases

      II. TOWARD A COHERENT CONCEPTION OF TAX DISCRIMINATION

      A. Some Caveats

      1. Economic Efficiency

      2. Labor, Not Capital

      3. Assumptions

      4. What We Mean by Welfare

      5. Why These Benchmarks?

      B. Locational Neutrality

      C. Leisure Neutrality

      D. Competitive Neutrality

      1. Source Taxes

      2. Residence Taxes

      3. Maintaining Competitive Neutrality

      E. Simple Guidelines for Tax Neutrality

      F. Limits on Judicial Authority To Impose Tax Neutrality

      G. Resolving Cases Using the Benchmarks

      III. EU NONDISCRIMINATION AS COMPETITIVE NEUTRALITY

      A. Interpretive Arguments

      1. The Goals of the EU Treaties

      2. The Language and Structure of the Treaty

      a. Avoiding Construing Treaty Provisions as Superfluous

      b. Consistency in Interpreting the Fundamental Freedoms

      c. The Language of the Fundamental Freedoms

      3. ECJ Nondiscrimination Doctrine

      a. Direct Effect

      b. Tax Cases

      c. Distinguishing the ECJ’s Nondiscrimination and Restrictions Jurisprudence

      B. Normative Arguments

      1. Welfare Promotion

      2. Increased Predictability

      3. Promotion of Representation Reinforcement and Political Unity

      4. Avoidance of Legislative Decisions

      C. Settling Open Questions

      1. Comparing Absolute Tax Rates

      2. Progressive Taxation

      3. Double Benefits and Burdens

      4. A Way out of the Labyrinth

      IV. TAX NONDISCRIMINATION IN THE UNITED STATES

      CONCLUSION

      INTRODUCTION

      States may be accused of tax discrimination when they tax outsiders differently from insiders, where insiders refers to nationals, resident individuals, and resident companies.¹ Stating the tax nondiscrimination principle is deceptively simple: tax likes alike. For example, suppose a resident and a nonresident both earn $100,000 in the same jurisdiction. At first blush, a principle of tax nondiscrimination would seem to require that the resident and nonresident be taxed the same. But differences between insiders and outsiders, such as their usage of government services, may justify differences in their tax treatment. Accordingly, before we can conclude that treating such taxpayers differently is discriminatory, we must first understand what values the nondiscrimination principle promotes.

      So far, however, judges, government officials, and scholars have failed to clearly articulate the value or values that legal prohibitions of tax discrimination promote. That failure has provoked commentators to describe the concept of nondiscrimination adopted by the European Court of Justice

      (ECJ) as baffling,² theoretical and arcane,³ and incoherent.⁴ Similarly, commentators describe the U.S. tax discrimination cases as slippery⁵ and in need of a principled approach.⁶ And the Supreme Court has labeled its own tax discrimination jurisprudence a quagmire⁷ and a ‘tangled underbrush.’⁸

      Lack of a clear definition has not prevented prohibitions of tax discrimination from appearing in (or being read into) statutes, constitutions, and international treaties.⁹ For example, the Supreme Court interprets the dormant Commerce Clause to prohibit tax discrimination by U.S. states.¹⁰ Similarly, the ECJ has interpreted the fundamental freedoms of the Treaty on the Functioning of the European Union (TFEU) to prevent tax discrimination by EU member states.¹¹ Explicit prohibitions of tax discrimination also appear in every U.S. income tax treaty currently in force,¹² and the influential model tax treaties of the Organisation for Economic Cooperation and Development (OECD),¹³ the United States,¹⁴ and the United Nations¹⁵ all dedicate an article to tax discrimination. Finally, prohibitions of tax discrimination appear in major multilateral and regional trade agreements.¹⁶

      Although the concept of tax discrimination is ill-defined and poorly understood, its influence seems continually to expand. It has become particularly important in the EU, where tax cases constitute about 10% of the ECJ’s caseload.¹⁷ The ECJ has relied upon the nondiscrimination concept to justify invalidating longstanding tax practices, prompting harsh criticism from scholars and tax officials.¹⁸ For example, the ECJ held that an EU member state could not categorically deny an EU national earning income within its territory but residing in another member state the same deductions for personal and family expenses that it allowed to its own residents.¹⁹ The court held such denials discriminatory notwithstanding the fact that the practice is widespread internationally and expressly permitted under tax treaties.²⁰ In interpreting the Privileges and Immunities Clause, the U.S. Supreme Court has drawn the same conclusion: a U.S. state cannot categorically deny personal tax benefits to residents of other U.S. states.²¹ Spurred by these judicial decisions, tax officials and scholars have begun to scrutinize the nondiscrimination concept intensely.²² Notwithstanding this scrutiny, a clear definition of tax discrimination has failed to emerge. This continuing lack of guidance leaves government officials to develop tax policies and taxpayers to make business decisions in a highly uncertain legal environment.

      Although legal limits on tax discrimination are widely viewed as promoting economic efficiency, there is no consensus regarding what efficiency value they promote. As this Article explains, economists and policymakers traditionally have evaluated cross-border tax policies under two competing efficiency criteria: capital export neutrality and capital import neutrality.²³ A law is capital-export-neutral when it does not distort the allocation of capital across states.²⁴ In contrast, a law is capital-import-neutral when it does not differently distort the savings-consumption tradeoff across taxpayers residing in different states.²⁵

      In an influential recent article in this Journal, Professors Michael Graetz and Alvin Warren argued that the ECJ’s approach to tax discrimination cases is fundamentally inconsistent.²⁶ As support for this claim, Graetz and Warren pointed to the fact that the ECJ has imposed nondiscrimination obligations on both states taxing in a source capacity and states taxing in a residence capacity.²⁷ In international tax parlance, the source state is the state where the taxpayer earns income, while the residence state is the state where the taxpayer resides. But a capital export neutrality construction of nondiscrimination would impose nondiscrimination obligations only on residence states, whereas a capital import neutrality construction of nondiscrimination would impose nondiscrimination obligations only on source states.²⁸ Graetz and Warren argued that the ECJ’s imposition of nondiscrimination obligations at both source and residence did not appear to pursue either neutrality principle. Making matters worse in their view, by imposing nondiscrimination obligations at both source and residence, the ECJ seemed to evince an intention simultaneously to achieve both capital export neutrality and capital import neutrality. But, as Graetz and Warren correctly point out, it is impossible for states to achieve both kinds of efficiency benchmarks simultaneously unless they harmonize their tax rates and bases.²⁹ Accordingly, because the ECJ has repeatedly held that EU law does not require tax harmonization on the grounds that such harmonization would invade the member states’ tax autonomy,³⁰ imposition of nondiscrimination obligations at source and residence seemed not only to serve no clear efficiency goal, but also erected, in Graetz and Warren’s terms, a labyrinth of impossibility.³¹ Similarly, although Graetz and Warren did not address the issue, tax discrimination doctrine in the United States is susceptible to the same criticism, since U.S. courts have interpreted the Constitution to place nondiscrimination obligations on states taxing in both source and residence capacities, while at the same time holding that the Constitution does not require states to harmonize their taxes.³²

      In this Article, we provide a way out of this labyrinth of impossibility by offering a new efficiency benchmark that is consistent with imposing nondiscrimination obligations on both source and residence states. We draw on recent scholarship by economists Michael Devereux, Mihir Desai, and James Hines to formulate a new version of nondiscrimination, one we call competitive neutrality.³³ A tax law is competitively neutral when it does not distort the matching of owners with investments (or workers with jobs). Viewed in this way, a tax system is competitively neutral if it maintains a level tax playing field between resident and nonresident taxpayers. As a result, competitive neutrality formalizes the intuition that the nondiscrimination principle is about promoting competition.

      Part I provides background on tax discrimination and uses examples from ECJ case law to illustrate the kinds of state tax practices that give rise to discrimination challenges. Part I also shows that a clear conception of the principle of tax nondiscrimination has failed to emerge.

      Part II provides three alternative interpretations for tax discrimination. Because we analyze labor taxation, in Part II we translate the traditional tax efficiency benchmarks, which were developed to analyze capital taxes, into the labor tax context. We call the labor analogue of capital export neutrality locational neutrality, because it obtains when taxes do not distort the allocation of labor across states. We call the labor analogue of capital import neutrality leisure neutrality, because it obtains when taxes do not differently distort the work-leisure tradeoffs faced by taxpayers residing in different states. In Part II, we provide the first formal account of what it would mean to interpret the nondiscrimination principle to require locational neutrality or leisure neutrality. Thus, for courts and scholars that reject our argument that the efficiency component of the tax nondiscrimination principle in common markets best accords with competitive neutrality, we provide clear guidelines for resolving cases under the two traditional tax efficiency benchmarks. In Part II, we also explain why imposing nondiscrimination obligations at both source and residence is not compatible with either locational or leisure neutrality. We dedicate the largest portion of Part II to the introduction of competitive neutrality, the new tax neutrality benchmark. We explain its formal requirements, explain how it would work as a nondiscrimination principle using simple examples, and show that competitive neutrality is consistent with imposing nondiscrimination obligations on both source and residence states. Finally, Part II makes our formal discussion of the three neutrality benchmarks concrete by showing how each benchmark would apply to the ECJ labor tax cases discussed in Part I.

      While the principal goal of this Article is to elaborate an efficiency benchmark that accords better with the ECJ’s tax doctrine than do either of the traditional benchmarks, Part III goes further to argue that competitive neutrality also represents a better interpretation of the TFEU than do either of the other benchmarks. In Part III, we also set forth normative and practical arguments in favor of a competitive neutrality interpretation of nondiscrimination. For example, leveling the playing field between resident and nonresident workers and between foreign and domestic work would promote welfare. This becomes clear when we consider that protectionist sentiments can be strong, especially during tough economic times. We also argue that competitive neutrality aligns better than do the other benchmarks with other non-efficiency goals, such as the promotion of political unity among EU nationals from different member states. On a more practical note, expressly adopting a competitive neutrality interpretation of nondiscrimination would simplify the resolution of tax cases and further integrate the common market. Finally, it would resolve several persistent questions posed in the scholarly literature analyzing tax discrimination. For example, we show that, contrary to widespread assumption, discrimination cannot be identified by a simple comparison of absolute tax rates.

      While we use the ECJ tax cases as an example to illustrate our arguments about the meaning of tax discrimination, our arguments have broader applicability due to the pervasiveness of legal prohibitions of tax discrimination. Accordingly, Part IV discusses the implications of our arguments for U.S. constitutional law. Although the U.S. Constitution does not contain an express prohibition of tax discrimination, the Supreme Court has interpreted the Equal Protection, Commerce, and Privileges and Immunities Clauses to prohibit the states from engaging in tax discrimination. Our guidelines for how to interpret nondiscrimination to require, in the alternative, locational, leisure, or competitive neutrality, also could be used by U.S. courts adjudicating tax discrimination claims brought under the Constitution. Moreover, we argue that, like the ECJ, the Supreme Court regards competitive neutrality as an important component of tax nondiscrimination under the Constitution. As with the ECJ, clear announcement by the Supreme Court that tax nondiscrimination requires competitive neutrality (or either of the other two benchmarks) would bring much-needed clarity and predictability to the Supreme Court’s tax discrimination cases.

      We conclude by observing that, although we rely heavily on economic analysis in arguing that the principle of nondiscrimination in taxation should be understood as promoting competitive neutrality, the approach we develop does not require courts to engage in extensive economic analysis. Rather, our approach reduces to straightforward directives both for courts to apply when evaluating tax discrimination claims and for legislatures to follow when enacting tax laws.

      I. NONDISCRIMINATION IN EU TAXATION

      This Part provides background on tax discrimination in common markets, and, in particular, in the EU common market. Section I.A briefly traces the origins of the prohibition of tax discrimination in the EU, and Section I.B illustrates the operation of that principle in two canonical ECJ tax discrimination cases. Together, these Sections illustrate that a clear guiding principle for resolving such cases has failed to emerge, resulting in haphazard and unsatisfying decisions.

      A. Goals of the EU

      The fundamental economic purpose motivating adoption of the EU treaties was to raise European wages and living standards by uniting the independent nations of Europe into a cohesive economic union that would eliminate barriers to cross-border trade, investment, business, and work.³⁴ The founders of the EU believed that fusing the separate national economies of Europe into a single and substantially larger economy would allow local, European-based companies to assemble capital, labor, and resources on a larger and more efficient scale. The resulting improvement in productivity would be the engine of economic growth and improved living standards.³⁵

      Since the adoption of the Treaty of Rome in 1957, the member states of what is now the EU have endorsed the notion that they can improve the living and working conditions of their citizens by furthering the integration of the member states’ economies.³⁶ The Single European Act of 1986 and the Maastricht Treaty of 1992 reiterate this position.³⁷ The entry into force of the Treaty of Lisbon at the end of 2009 preserves and reinforces the primacy of economic integration. Throughout this Article, we refer to both the EU and the United States as common markets, although the integration of the EU member states’ economies has been referred to variously as establishing a common market, a single market, or an internal market.³⁸

      Economic integration among the EU member states is accomplished through both positive integration and negative integration.³⁹ Positive integration refers to legislative harmonization of member state policies pursuant to EU-level regulations or directives.⁴⁰ For example, EU-wide harmonization of value-added taxation was accomplished by a series of council directives.⁴¹

      Negative integration refers to elimination by the ECJ of individual member state policies and practices that, in violation of EU law, impede the integration of the various member states into a single market.⁴² Principles of negative integration usually take the form of thou-shalt-not dictates directed to the member states,⁴³ but they can also be stated affirmatively, usually as rights. The EU fundamental freedoms prominently promote negative integration.⁴⁴

      The Treaty on the Functioning of the European Union (TFEU) sets forth four fundamental freedoms—the free movement of goods, workers, capital, and services.⁴⁵ Together with the

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