Taxation Law Books

A few ants of the drone caste heard what the worker said and were morally outraged. They convinced their brother drones to force the colony to share its grain with the cicada and all its relatives. "From each according to his abilities, to each according to his needs," they said. For several years the drones ran the colony in the new, moral, way. The cicadas and the ants all nearly starved to death. Equally.

The drones of another colony, who agreed with the moral claim of the cicadas, pondered the sad fate of first colony. "The worker was right; the cicada made its own choices and had no moral claim on the ants' store of grain," they said. "But not everyone gets a fair start. To fix this, we will give everyone a share of the grain at the beginning of the summer, not at the end. Then at the end of the summer everyone will pay back the share he or she got at the beginning, plus interest. And those who do well and have extra grain will pay back extra to make up for those who don't have enough."

The cicadas thought this was a great idea. The workers weren't so sure. All that summer, the cicadas sang sweetly, the workers gathered grain (but not too much since they knew they'd have to give away any extra), and the drones watched. That winter they all nearly starved to death. Equally.

Ackerman and Alstott dismiss a number of other approaches, such as funding education better or raising minimum wages as too small and/or actually harmful and/or politically difficult. Unhappily, I'm inclined to think that their proposals are just as politically difficult.

And I have a quibble with the digs scattered through this book against "utilitarians," who are never named. As in all American ethical arguments, the example used is that of Nazi Germany, where Jews were one percent of the population. "[I]s it so clear," the authors ask, "that the average Jew suffered NINETY-NINE times as much as the average Aryan gained from his feelings of racial superiority?"

One response to this is that feelings like those often involve hatred, which, being unpleasant, is not a gain at all. But, even accepting that there was a gain for many racists, the trade-off is not necessary. The racists could have felt superior without killing anyone, an action which, if completed, would have deprived them of the allegedly beneficial presence of people they perceived as inferiors.

More importantly, these numbers (one and ninety-nine units of pleasure or suffering) do not mean anything. We could give a vivid description of the concentration camps and then ask "Isn't it abundantly clear that the average Jew suffered at least ninety-nine times as much as the average Aryan gained from his feelings of racial superiority?" The case for this "calculation" is exactly as good as for its opposite.

The value of utilitarianism lies not in calculations (calculations which Ackerman and Alstott accept while trying to dismiss) but in placing the well-being of people above adherence to any rule. Utilitarianism ought to be an ally of anyone who recognizes the harm done by devotion to certain rights and freedoms, such as the freedom to engage in unfair and cruel labor practices, the "right to work", and the faith that people have what they "deserve."

And don't get me started on the way readers of Foucault tend to characterize Bentham...

I've encountered two arguments against the Stake holder society. The first, which is well addressed in the book, is that some people would waste their $80,000. I agree with the authors that relatively few would waste their money, and that many would be much better off than they are now. I find that people who make this criticism are not themselves suggesting an alternative remedy to the drastic disparity in wealth in America, and are not even aware of it. In many cases, they profess a belief that there is no hunger in this country, that people only suffer if they don't work, and that everyone has a chance to make it.

The second argument I've encountered is that charity must be done "privately," that is, without the government. In some cases, advocates of private charity support huge organizations known for as much corruption and inefficiency as any government, real or imagined. In other cases, they support only one-on-one charity without any intervening (or skilled, organized, or powerful) agency. Often in supporting these charities, government -haters make clear that they do know that hunger exists in America, if not that people working 60 hours a week can qualify for food stamps (temporarily, of course).

Sometimes supporters of private charity argue that the way to help is to teach entrepreneurism, apparently oblivious to the pertinent absence of capital. Other times they argue for simply giving fish instead of fishing skills. After all, this is good for the giver, and the poor will always be with us.

Why do private and public charity need to be in conflict? I give some tiny amounts to organizations and to people I meet on the street, and I simultaneously argue for living wage laws, campaign finance reform, an end to corporate welfare and waste on weapons, spies, highways, and subsidies for cutters of national forests. I will now argue for a Stake holder society without feeling any conflict with dropping some canned food in a basket or helping build Habitat for Humanity houses.

If private charity were doing the job, no one would propose government charity (and vice versa). And a lot of what is proposed amounts to government neutrality. Many of our taxes are regressive. Our services are unevenly distributed, notably in education. And we have the money. Just yesterday (May 6, 1999) we threw an extra $13 billion at the Pentagon. That kind of money could end many debates over education by providing better schools in poor counties and cities. Our cities routinely give huge tax-breaks to companies that move to certain areas promising jobs that no one ever bothers to make sure are actually provided. These funds could be better spent.

And isn't it important that the top one percent of wealthy people in the U.S. could end poverty and still live like emperors? Need I be selfish and hypocritical and out-of-line to mention this fact. I don't think so. I cannot myself reach into my pocket and end poverty. I would if I could. By all means, let's have lots of private charity and local assistance. But let's think bigger than that too.

Gross points out that virtually every tax is unjustifiable and he's right on the money. While Gross argues for trashing the current tax code and implementing a National Sales Tax I would have liked to read the author's view on dumping the tax code and replacing it with a voluntary contribution plan: a plan where participants donate what ever amount they desire to the Federal government. This voluntary donation system works for the non-profit sector there's no reason it wouldn't work for the government sector. Of course this suggestion flies against the established orthodoxy and there are many entrenched parties, benefitting greatly from the current status quo, who don't want to see their "doxy" threatened.

Gross advocates dumping all federal, state and local income taxes to be replaced by a national sales tax. Bravo!!

While nothing gets people more upset than having their hard earned income extorted from them in the form of taxes nothing gets the bureaucrats and beneficiaries of the current tax system more rankled than suggesting that their cash-cow be slaughtered. Its time to realize that one group's golden hen is another's hungry shark. It is time to take the country's "income confiscating beast" to the abattoir.

Martin Gross has penned a masterpiece. It is a "must-read" book which should be placed next to Thomas Paine's "Common Sense". Two thumbs up and a 5 star rating.

The book is a must for anybody in investment banking, law, private equity, and other fields where a tax plays a large role in determining the outcome and structure of deals, compensation, etc.

In clear and simple language, "Capital Gains, Minimal Taxes" explains most investment-tax-related topics investors need to understand, ranging from calculating your basis on stocks and mutual funds to maximizing the allowed tax deduction for a capital loss.

Because taxes consume a substantial chunk of ordinary income, many knowledgeable investors wish to maximize their investment in things which are taxed at the more favorable capital gain tax rates (currently 10% for investors within the 15% income tax bracket and 20% for investors whose entire income falls above the 15% income tax bracket).

Thomas begins by working several examples to show investors how to calculate their tax burden given their tax bracket and the amount of their short-term and long-term capital gains and losses from stocks and mutual funds. Thomas devotes a chapter each to the special rules which apply to the taxation of individual stocks and mutual funds.

Thomas shows that, sometimes, we can lower the capital gains tax paid by identifying the specific shares of individual stock being sold. For example, suppose we buy 100 shares in Company XYZ at $10 per share on July 1, 1999. We buy 100 more shares of XYZ at $20 per share on July 9, 2000. We then sell 100 shares of XYZ on July 19, 2001 for $30 per share.

Unless we specified otherwise at the time of the sale, Thomas tells us that from a tax standpoint the shares sold will be treated on the first-in-first-out basis (FIFO). We will be taxed on a net long-term capital gain of $20 per share. However, had we identified the shares sold as those purchased on July 9, 2000, we would be taxed on only a net capital gain of $10 per share. Thomas explains the two things that must happen to ensure that the identification of shares will be deemed valid by the IRS.

Calculating your adjusted basis in a stock or mutual fund and properly determining your holding period is covered in detail with numerous examples. He also explains how mutual fund dividends and capital gain distributions are taxed.

Thomas gives us his opinion of the Alternative Minimum Tax (AMT). Thomas writes: "The basic idea behind the alternative minimum tax is a good one: people with very high levels of income shouldn't be able to completely avoid paying income tax while the rest of us pony up each year. The AMT is a poor reflection of that idea, however. Many high-income individuals escape its reach-and every year it ensnares more and more people who were never intended to be affected."

Employees who had massive gains followed by equally massive losses on their employee stock options are one example of people who would have benefited by knowing the tax laws better. As you've probably read in the news, some individuals have gone from being wealthy to not having enough total wealth to pay their current tax liability, compliments of the AMT not playing nicely with employee stock options.

While Thomas briefly touches upon the topic of employee stock options in Capital Gains, Minimal Taxes, he doesn't go into detail. Another bestselling book by Thomas, "Consider Your Options: Get the Most from Your Equity Compensation," addresses employee stock options.

Thomas writes, "It's worth noting that you can end up with a gain that's greater than the amount of money you realize in a sale. That's one reason to plan carefully when you use debt to acquire investment assets. You may have to come up with money from other sources to pay the tax on your gain ...There's only one thing worse than having to report gain that's greater than your net sale proceeds, and that's having the tax itself be greater than the net sale proceeds."

Other topics discussed in "Capital Gains, Minimal Taxes" include:

-- Tax rules for gifts
-- Dividend reinvestment plans
-- Wash Sale Rule
-- Capital loss carryovers
-- Taxation of stock acquired from a spouse
-- Separation, divorce, and who gets custody of the basis
-- Stock dividends and splits
-- Taxation of mergers and spin-offs
-- Stock that has become worthless
-- Qualified small business stock
-- Planning for lower taxes
-- Making estimated tax payments
-- Custodial accounts for minors and special issues affecting child investors
-- Tax deductibility of Investment Expenses and Investment Interest

Throughout "Capital Gains, Minimal Taxes," Thomas gives us tips for not inadvertently losing valuable tax deductions. And, he shows us ways investors could potentially save thousands of dollars through a little tax planning.

For example, upon inheriting stock, we learn that the basis of the stock is changed to its fair market value on the date of the giver's death. So, by holding a greatly appreciated stock and passing it on to heirs, we can eliminate taxes on all the capital gain that occurs between the original purchase and the end of our lives. While stock basis can "step up," Thomas explains that the reverse can also occur.

Suppose we had originally purchased stock for $20,000, but today the stock is only worth $2,000. If we die and the stock is inherited, the basis steps down to its market value of $2,000. No one gets to take the tax deduction for the $18,000 capital loss. Thomas notes that investors tend to sell their winners too early and their losers too late.

I consider myself a fairly knowledgeable investor, and I learned a great deal about the taxation of investments by reading "Capital Gains, Minimal Taxes." This book belongs in every serious investor's library. Remember, each dollar saved in taxes adds directly to your wealth. Peter Hupalo

Even if you don't take to his "burdened genius" persona, it won't prevent you from seeing new ways of looking at concepts in addition what your casebook provides. He wrote this as a "universal supplement," and has taken care to avoid a retread of any of the major texts.

Unlike previous editions, according to the author, this one has a Q & A section at the end of every chapter. They're useful exercises, especially since they have answers and explanations, unlike most casebooks.

One should not buy this book believing it is a practical manual on the topic of estate planning or asset protection. The book is remarkably easy to read and filled with hypotheticals based on a case sample, but it lacks the depth and detail required to be a good primary reference.

A summary of its contents may be helpful to prospective buyers: Its first fifty pages are concerned with theory, first discussing the rationale, legality and legitimacy of antitrust policy; then presenting and critiquing neoclassical competition theory, offering alternative theories, based in Austrian economics, in the process. The next 220 pages (including endnotes) are taken up with studies of more than 35 classic antitrust cases, organized into six topical chapters: monopoly under the Sherman Act; monopoly in busines history; price conspiracy and antitrust law; price discrimination and the competitive process; tying agreements and public policy; mergers, competition and antitrust policy. In each chapter, subsections explain the theory behind the analysis that follows and restate the chapter's conclusions at the end. The last chapter (ten pages) reviews the book's major findings, critiques both antitrust's enthusiasts and conventional critics and arrives at a radical conclusion from its examination of theory and history: "Nothing less than an extreme opposition in principle to all antitrust laws appears justified by the facts." An appendix (three pages) excerpts relevant sections of the Sherman Act, the Clayton Act and the Federal Trade Commission Act.

One observation made in its concluding chapter is that many antitrust critics do not reject antitrust law entirely, believing that there was at one time a "golden age" of antitrust when it was needed to curb monopoly and that today antitrust policy is often simply misguided. For those of you of this view: You are mistaken. Antitrust has never been justifiable, has never worked. Ever. And this book goes a long way toward proving it. This is why this book is important. It should be read by economists, students and anyone who would dare assert the realistic possibility of monopoly's arising in a free market: if you would assert this, you don't know as much as you think you do.

Dr. Armentano has written another book, *Antitrust: the Case for Repeal*; it is shorter and analyzes more recent antitrust cases (the most recent case in the book under review is from 1977), such as the one against Microsoft. I have not read it yet, but I expect it to be of comparable quality to *Antitrust and Monopoly*. For a philosophical and moral case for capitalism in general, see Ayn Rand's *Capitalism: the Unknown Ideal*, especially chapters 1 ("What is Capitalism?") and 3 ("America's Persecuted Minority: Big Business").