Devil is in the details of corporate tax reform

By Kelcee Griffis (4JM) and Shannon Kaestle (4JM)

Burke_KarenWhat’s the best way to transform the business tax code? Well, it all depends on the details, if you ask Karen Burke, the Richard B. Stephens Eminent Scholar and one of UF Law’s newest faculty members.

As one of about 50 eminent scholars universitywide, Burke brings a wealth of experience and expertise in the field of business tax law and policy. She’s written extensively on these subjects and argues that broad solutions may have hidden implications.

Burke, who specializes in federal tax law, says most people agree with the easy part of business tax reform: reducing the corporate tax rate. But doing so could shift part of the tax burden to individuals who earn income through partnerships, a move that would prove politically unpopular.

“Everybody likes reducing taxes,” Burke said. “The difficult part is paying for it.”

Burke noted that cutting the corporate tax rate from 35 to 25 percent could cost the government significant revenue. If the corporate tax rate was cut and individual tax rates increased, more people would be encouraged to leave their money in corporations to avoid the higher individual rates. That also raises the question of how to differentiate between corporations and partnerships: Should all businesses be taxed under the same model? If so, which model?

“Those may seem like easy questions,” she said, “but when you get to the details, it’s really difficult.”

One option is to place all businesses under a single-level tax system but collect that single tax at the entity level. This might help the government to audit large partnerships, which can get left by the wayside under the status quo. Even this seemingly straightforward approach has its gray areas.

“There are still plenty of details to work out — what do you do with nonresidents and tax-exempt owners?” Burke said.

Another option involves switching to a territorial system in which corporations would not be taxed on income earned outside the U.S. Under this approach, the U.S. government could tax only income earned in the U.S. The drawback is that businesses could move operations out of the U.S. and into countries with significantly lower tax rates.

“If we move to a territorial system in the manner that some business groups would like, it could lose quite a lot of revenue and probably have bad effects by encouraging businesses to move overseas,” she said.

As with each potential remedy to the convoluted American tax system, Burke said it’s all in the fine print.

“The details will determine whether a proposal is good or bad,” she said. “These are the kinds of questions that make tax so interesting in the classroom. Students come in with some general background and discover that every proposal involves difficult tradeoffs. Reform is essential, but it’s not easy.”

Burke earned a Ph.D. in Modern European History from Harvard University and a J.D. from Stanford Law School. While working at a major Boston law firm, she obtained an LL.M. in Taxation from Boston University. She came to UF from the University of San Diego School of Law, where she held an endowed chair. She now teaches partnership taxation, corporate taxation and federal tax research at UF Law.

As one of the country’s leading scholars in income taxation, and partnership taxation in particular, Burke brings national acclaim with her, said Michael Friel, the associate dean and director of UF Law’s Graduate Tax program.

“We are very fortunate that Karen accepted our offer,” he said. “We’ve been in contact with her for a while, and I’m very pleased that the stars finally aligned so that it was the right time for her to move here.”

To the classroom, he said, Burke also brings a zest for the profession and a drive to help students individually.

“What I think Karen brings to students is a great breadth of knowledge for teaching taxation,” he said. “But beyond that, she loves teaching. She wants students to succeed.”