A Farewell to Stimulus?

The IRS' UBS prosecution is working. In fact, it is working so well that the IRS has decided to open up shop across the globe to ferret out secret accounts held by US residents.

From Bloomberg:

The IRS will open offices in Beijing, Panama City and Sydney in connection with the probe, which has revealed accounts held in 70 countries and every continent except Antarctica, he said. The agency also intends to hire more than 800 new employees in the next year and add staff to eight existing overseas offices, including Hong Kong and Barbados.

So is this a good thing? It seems clear that the current administration is bent on closing the tax gap by actually enforcing the existing tax laws (Hint: recent estimates put the tax gap, the difference between what is owed and what is collected, at well over $300 Billion). Good. Better to collect from people who under pay now rather than punish compliant taxpayers with higher rates in the future (for instance, through the imposition of a crippling Value Added Tax).

But there is a dark side to the IRS' increased enforcement efforts. The IRS will be draining private investment funds to pay the US' ballooning debt obligations. In effect, money will be moved out of the capital markets and (theoretically) productive investment opportunities to the black hole of government spending. Translation? An effective tax hike.

Of course, in any normal times, requiring taxpayers to pay what they already owe is not a controversial position. However, when an economy is in a recession, government generally acts to stimulate private industry back into action. This stimulus is usually accomplished by issuing debt, expending funds, and hoping the multiplier effect does the trick (essentially, allowing the money to flow through to private entities who spend it on other items which helps boost GDP).

But when government simultaneously increases the effective tax rates, it acts to damper the stimulus and can prolong the recession. Some argue this is exactly what happened in Japan in 1997: Japan prematurely increased taxes which helped prolong its asset price bubble recession. Nothing about what subsequently happened in Japan is something we want to happen in the US.

So while the IRS' collection efforts are warranted, perhaps they are badly timed. Of course, it could turn out that the IRS' bounty will amount to a mere pittance. But if it is any serious amount of cash, the government may just be shooting its stimulus package in the foot.

The NFL and Rush Limbaugh

Pro-football fans and political pundits alike have been talking about Rush Limbaugh's proposed bid to buy the St. Louis Rams football franchise, but many in the NFL are not too happy with the prospect of Mr. Limbaugh owning a team. In fact, the bid "ran into opposition within the NFL on Tuesday as [Indianapolis] Colts owner Jim Irsay vowed to vote against him, and commissioner Roger Goodell said . . . [his] 'divisive' comments would not be tolerated from any NFL insider." This got me thinking preemptively of the antitrust problems the NFL may run into if an effort to stall Mr. Limbaugh's bid is successful. (For details on the basic antitrust principles I omit for brevity, click here).

Congress granted the NFL an antitrust exemption by passing the Sports Broadcasting Act of 1961. See 15 U.S.C. §§ 1291-95. Sparing a detailed explanation, the Act essentially permits NFL teams to jointly agree to, and negotiate, television deals. Id. § 1291. Yet the provision further states that it does not otherwise limit "the applicability or nonapplicability of the antitrust laws to any act, contract, agreement, rule, course of conduct, or other activity by, between, or among persons engaging in, conducting, or participating in . . . organized professional . . . football." Id. § 1294. Thus, unless I am missing something, general antitrust principles such as the prohibition on anticompetitive group boycotts could ostensibly still apply to many business aspects of the NFL. It must also be noted, of course, that the Supreme Court will soon hear arguments clarifying the latter issue in American Needle, Inc. v. NFL, 538 F.3d 736 (7th Cir. 2008), cert. granted 2009 U.S. LEXIS 4899 (June 29, 2009), where it will review the Seventh Circuit's recent decision that the NFL is a single entity which is fully immune from antitrust liability under § 1 of the Sherman Act. Until this question is conclusively resolved, however, let's discuss the potential implications in this case.

In the modern approach to group boycotts, courts subject defendants who concertedly refuse to deal with a plaintiff to per se condemnation only if the plaintiff can show that the conduct simply has no redeeming merit, and that the group possessed market power or exclusive access to a critical competitive element--otherwise, the conduct should be judged under the sliding scale approach of the rule of reason. See Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 293-95 (1985) (distinguishing cases holding group boycotts subject to per se condemnation to be limited to their facts as concerted refusals to deal “[which] are so likely to restrict competition without any offsetting efficiency gains. . . .”); cf. FTC v. Indiana Federation of Dentists, 476 U.S. 447, 459 (1986) (applying the rule of reason approach because the Northwest factors were not met in a case where members of a dentists’ federation agreed to collectively refuse to provide patient x-rays to insurance companies, preventing them from evaluating the reasonableness of insurance charges, and from implementing other cost containment measures).

Commentators have analyzed whether some of the NFL's current policies would implicate the boycott rules under § 1 of the Sherman Act. But could a boycott of Mr. Limbaugh's bid to purchase the Rams--be it through a players' joint refusal to deal with him, an owners' boycott or otherwise--be subject to antitrust scrutiny? My hunch is that a boycott could be problematic, even under a favorable rule of reason analysis, because it does not seem to have much of an economic motivation. From current rhetoric--and perhaps understandably--the boycott would be based almost entirely on the controversial statements Mr. Limbaugh made regarding Donovan McNabb several years ago.

I invite our readers to chime in on this matter. I am not too sure how a court would resolve it, particularly given the uncertainty in the federal courts on the scope of the NFL's antitrust immunity. Perhaps the forthcoming Supreme Court decision will obviate the need for speculation.

Clerkship Series: Day 3 -- Ranking the T14 by all-time Supreme Court Clerk Placement

For this edition of the Clerkship Series, I decided to rank the Top 14 law schools (the so-called "T14") by all-time Supreme Court clerk placement. I attempted to search the internet for information on the total number of clerks each law school in the T14 has ever placed on the Supreme Court, but was unable to find the precise statistics. It is true that Artemus Ward and David Weiden wrote Sorcerers' Apprentices, a resource that provides an extensive, detailed account of key issues relating to Supreme Court clerks, their duties, and the Court viewed from their perspectives. And of course, Wikipedia provides a fairly solid reference point (here) which lists the Supreme Court clerks of each Justice by law school dating as far back as 100 years. But I could not find an actual tally online.

While it is conceivable that such an online tally exists, I instead decided to draw on the Wikipedia list, and to do some independent research of my own to compile an unscientific ranking. As a preliminary matter, Wikipedia's numeric data differed slightly from the information I obtained from the administrative offices of various T14 law schools. Instead of precisely accounting for these minor differences, I decided to simply group each school within a defined range (i.e., 100-200 clerks total). The schools within the top four ranges are ranked according to their quantitative totals. Because of the numerical deficiencies in the data (the variance in information I obtained from the schools and Wikipedia), I could not rank schools within the last two ranges. In the fourth range at least, each school had very similar placement numbers (i.e., Wikipedia says Penn, NYU, and Northwestern have placed nearly the same amount of total clerks).

It is essential to emphasize that this ranking is not meant to be scientific, though it does shed some light into which schools do the best job of landing their students the most prestigious clerkship out there. Now on to the stats. . . .

-------------

The Defined Ranges:

400+

200-300

100-200

50-100

30-50

1-30

(by total clerk placement)

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The Rankings:

400+ (Harvard)

200-300 (Yale)

100-200 (1. Chicago, 2. Stanford, 3. Columbia)

50-100 (1. Virginia, 2. Michigan)

30-50 (Berkeley, Northwestern, NYU, Penn)

1-30 (Georgetown, Duke, Cornell)

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I know this list may draw some criticism because of my decision to limit the sample to T14 schools. Indeed, it is absolutely true that a few schools outside of the T14 have placed more clerks than some on this list. For example, the University of Texas has placed 30 clerks--substantially more than Cornell, which has only placed 7. My decision to exclude these schools was solely based on my desire to draw the line somewhere. After all, the Justices have employed hundreds of clerks since the early 20th Century, and many schools have at least one clerk represented in that number. Finally, it must again be emphasized that I was only able to conclusively gather the information from the schools themselves and from Wikipedia, so to the extent that there are any unlisted clerks or other problems, I apologize. I'll be pleased to make updates to this list as information trickles into our inbox.

Protest - A Dying Art?

Historically, protest has been seen as a sign of passion and an effective tool for change. Whether it was the Vietnam War, the Civil Rights Movement, or the Women's Rights Movement, advocates have gathered to show their solidarity in combatting both governmental and societal problems. We're generally taught about these movements with the spin that the protests were worth it even if these people were beaten, executed, and thrown in jail. Does that still ring true? Read about one man's attempt to revive the power of protest. Maybe the government would be more sympathetic if it wasn't just one person, and the issue wasn't the environment, but is that ok?

More Bad News for the Golden State

Things have not been going well for California. Despite the State's efforts to balance its budget and reform its tax system, revenue is still declining.

From Bloomberg:

Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August.

And this is after drastic shock treatment:

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing. Even with those actions, state budget officials predict an additional $38 billion in deficits in the next three fiscal years combined, including $7.4 billion in the year starting July 1.

Other than Professor Stark's novel proposal, no one seems to have a good solution for what ails California. Meg Whitman, the former CEO of eBay and a candidate for governor, suggests that California should fire 40,000 state employees to help reduce spending. Of course, firing that many politically well-connected people smells a bit of unreality to me.

Alas, without further spending cuts and with a legislature unable to secure public approval for more tax increases, it looks increasingly likely that California will need a constitutional convention to save itself from the poor house.

Stay tuned for an article about what the California constitutional convention would entail and how it would reform the State's budget system. Creating a government from scratch? It's a law student's delight.

Entering the Academy -- An Update

As a follow-up to Robin's article on entering academia, we received some helpful insight from Dr. Brian Leiter, the John P. Wilson Professor of Law and Chair of the Law Teaching: Placement of Graduates Committee at the University of Chicago Law School. Dr. Leiter pointed us in the direction of a helpful guide he prepared for prospective academics at this website. The guide is extremely informative, and we strongly recommend taking a look at it if you are at all interested in becoming a law professor.

Cheers!

Dreams of Terry-fication... or: "Cop a Feel?"

An interesting article out of the AP yesterday: Seems like Cops like heavy petting...

All jesting and innuendo aside, the substance of this article kind of startles me. I've always been uneasy with the concept of Terry stops in general. While I understand the need for police officers to ensure their safety (and prevent possible crimes), it seems to me that the whole "secure in their persons" language of the Fourth Amendment has been waylaid into oblivion.

I guess I should just chalk this up as another Warren Court decision. I mean, I'm in favor of a stronger, more assertive judiciary; however, my ideal judiciary would be a nullifying force, not an enacting/demanding force. Oh well... in the mean time (and, in this economy), I guess I'll take my free massages where I can get them...

Entering the Academy - One Step at a Time

Law schools work diligently to prepare students for rigorous careers in private practice, prestigious positions as judicial clerks, and/or rewarding opportunities to work in public interest. But if everyone is off practicing law, who will be left to teach it?

The students who often fall through the cracks in terms of career guidance are those who want to pursue academia. To address this problem, I spoke with Professor Richard Craswell of Stanford Law School about what law schools can do to encourage this career path and Professor Theodore Ruger of the University of Pennsylvania Law School ("Penn") to find out what law schools look for in a candidate.

Professor Craswell currently serves as the Chair of the Faculty Committee at Stanford in charge of helping students who want to enter the academy. He explained that Stanford assists students both while they are getting their JD as well as after they graduate. During law school, Stanford offers a seminar about selected topics in legal scholarship in which faculty members present topics that they are interested in each week and engage students in a discussion about current hot issues that scholars are writing about. Also, the administration encourages students to sit in on weekly faculty workshops in which similar presentations are given. Professor Craswell stressed the importance of these programs in that students can both start thinking about their own scholarly research and form informal faculty contacts. Finally, Stanford offers an introduction to teaching as a profession workshop on its website where it directs students to helpful and applicable resources.

After a student graduates, he or she can contact the faculty committee, and it will review resumes, offer advice for first round interviews, schedule practice interviews, and give extensive feedback to prepare the candidate to enter the job market. All of these resources enable Stanford to proudly send many graduates into the academy, and hopefully other schools will follow in its footsteps.

On the flip side, Professor Ruger addressed the hiring process from a law school’s perspective. Law schools hire on two different pathways--entry level and lateral. For entry level positions, the Association of American Law Schools creates a registry of candidates that are on the market in a given year. Candidates register their resume with AALS in August, and at the end of the summer, AALS distributes those materials to the member law schools. It then holds first round interviews in November in which representatives from law schools come and conduct 20-30 interviews with various professorial candidates. Schools then choose a handful of candidates to come visit for a callback, which consists of a full day of interviews and a “job talk” presenting a piece of the candidate’s written work.

When asked what top tier law schools look for in a candidate, Professor Ruger claimed that:

in the past 10-20 years, the bar has been raised dramatically in terms of expecting people to write and publish between the time they leave law school and the time they go on the market. Therefore, it would be very rare to hire someone based on nothing but a law school record.

In the time between school and applying for a position, Professor Ruger emphasized the importance of compiling scholarly work and estimated that for a school like Penn, 30 percent of new hires will most likely have either a PhD or another advanced degree along with a JD.

When asked what advice he would give law students who know they want to be academics, Professor Ruger claimed,

[l]aw schools are looking for people who have a real curiosity and spark- so try to find an area of law that really engages you.

He also emphasized the importance of developing strong relationships with professors who can serve as both mentors and references. Finally, he promoted doing as much writing as you can, whether in seminars, on a journal, or as a research assistant.

For those law students who do eventually want to enter the academy, I hope that your schools will effectively facilitate your career path, and I look forward to reading your scholarship in the future.

Today's Media Threatens Our Criminal Justice System

Am I the only one who wonders what has become of the media? Even the supposedly reputable news outlets have become glorified tabloids. As much as I dislike Glen Beck, Sean Hannity, and yes, even Keith Olbermann, there is one “newscaster” that I reserve the bulk of my anger for: Nancy Grace.

To put it simply, Nancy Grace is bad for America. CNN’s website describes the program as “television's only justice themed/interview/debate show, designed for those interested in the breaking crime news of the day.” I describe it as a threat to the integrity of our criminal justice system.

The recent coverage of the Annie Le murder at Yale is a prime example of what I am referring to. It was a heinous, truly sickening crime, and the culprit obviously deserves the harshest of punishments. However, the media in general, and especially Ms. Grace, often forget that defendants are presumed innocent until proven guilty. They overlook the Sixth Amendment guarantee to a fair trial (and, specifically, a trial “by an impartial jury”) and the due process guaranteed by the Fifth and Fourteenth Amendments.

The media began its assault on alleged murderer Raymond Clark III immediately upon his being named a person of interest. For starters, news quickly leaked that Mr. Clark had failed a lie detector test. Some news outlets even used the above picture of Mr. Clark dressed as a devil for Halloween. Many news shows then began hypothesizing what Mr. Clark’s motive was. I recall a guest psychologist stating that Mr. Clark was clearly a misogynist. Others claimed that he had an infatuation with Asians, as evidenced by his membership to the Asian Awareness Club in high school, or that he perhaps suffered from jealously due to the fact that he never attended any college (never mind a prestigious one such as Yale). Unfortunately, this speculative drivel was being fed to the potential juror pool.

Obviously the defendant’s constitutional rights must be balanced against the First Amendment guarantee to free speech and press. The trial judge does have an affirmative duty to limit prejudice, whether by delaying trial, changing venue, or conducting a searching voir dire. See Sheppard v. Maxwell, 384 U.S. 333, 362-63 (1966). If such a duty is not fulfilled, there is serious risk that a conviction will be reversed. Id. Justice Burger acknowledged that “[t]he extraordinary protections afforded by the First Amendment carry with them something in the nature of a fiduciary duty to exercise the protected rights responsibility.” Nebraska Press Ass’n v. Stuart, 427 U.S. 539, 560 (1976). He went on to explain that “[i]t is not asking too much to suggest that those who exercise First Amendment rights in newspapers or broadcasting enterprises direct some effort to protect the rights of an accused to a fair trial by unbiased jurors.” Id. Ultimately, however, Justice Burger held a gag order on the press unconstitutional, and it appears that Nancy Grace has a constitutional right to spew as much garbage as she would like. Id. at 568.

My question is this: Even though journalists such as Ms. Grace have a constitutional right to broadcast information that threatens a defendant’s right to a fair trial, do they not have a moral duty to avoid doing so? Go ahead and call me an idealistic law student, but I believe that just because you have a constitutional right to engage in certain types of action doesn’t necessarily mean that such action isn’t morally reprehensible. Whatever happened to journalistic integrity?

Berlusconi Immunity Law Tossed

From the Guardian:

Italy was cast back into political turmoil tonight when the country's constitutional court threw out a law passed by Silvio Berlusconi's government that gave him immunity from prosecution for as long as he remained prime minister. . . . The majority decision represented a severe blow for Berlusconi, who was already struggling to contain the damage from a lurid sex and drugs scandal in which he is accused of using the services of prostitutes.

The court held the immunity law to be unconstitutional under both Articles 3 and 138 of the Italian Constitution. Article 3 states in relevant part that "[a]ll citizens have equal social status and are equal before the law, without regard to their sex, race, language, religion, political opinions, and personal or social conditions"; Article 138 deals principally with procedures for constitutional amendment. Despite the court's latter brief statement on the basis of its holding, "[t]he detailed reasoning behind the judges' decision will not be released for several weeks."

Berlusconi did not have very positive words for the court, noting that "[t]his system, and above all the way in which the members of the court are chosen, risks upsetting over time the correct balance between the powers of the state." His frustration is less than surprising, however, as it has consistently been his contention that he is the political target of "left-wing" judges.

This case sort of reminds me of another famous (albeit, quite older) case dealing with the political friction between the executive and judiciary.

------

UPDATE: Berlusconi to defend himself on TV, in courtrooms. AP.

Trademarking Boise State's Football Field?

The Boise State Broncos are taking the college football world by storm. Currently ranked 6th in the nation, the Broncos have an outside chance at contending for a national title. It seems, however, that Boise State will also be taking the legal world by storm, as the university is attempting to trademark its signature blue football field. Harboring hopes for both a national championship and a successful trademark registration, will Boise State be disappointed?

It will likely come as a surprise to many that Boise State is not the only college team with a blue field. The University of New Haven, which restarted its division II football program after a five year absence, also uses a blue turf. According to a New Haven Register article, Boise State has recently contacted University of New Haven officials to express concern over the similarity of the two fields. Rachel Bickerton, Boise State’s director of trademark enforcement and licensing, issued a statement to the Register summarizing the university’s position:

Since 1986, the blue field has been an iconic symbol for Boise State University and Boise. It is recognized near and far as the home of Broncos. We consider the blue turf to be part of our identity, and we place great value on that uniqueness.

Trademarking the color of a football field seems a bit silly, but is it legally practical? Trademarks include any word, name, symbol, or device or any combination therefrom, and, in fact, the Supreme Court has held that there is nothing preventing a color from meeting trademark requirements. Qualitex Co. v. Jacobson Prod. Co., 514 U.S. 159, 172-73 (1995). In Qualitex, the Court was presented with the issue of whether the green-gold color of a manufacturer’s dry cleaning press pads could be registered as a trademark. Id. at 161-62. It was explained that a color may receive trademark protection only upon a showing of a secondary meaning. Id. at 163-64. The Court reasoned that "over time, customers may come to treat a particular color on a product or its packaging . . . as signifying a brand. And, if so, that color would have come to identify and distinguish the goods--i.e. 'to 'indicate' their 'source'--much in the way that descriptive words on a product . . . can come to indicate a product's origin.'" Id. at 163.

I have no background in trademark law, and I invite our faithful readers, who are undoubtedly more knowledgeable than I on the subject, to comment. Has Boise State’s blue field acquired a secondary meaning? I would venture to say that it has because, in my opinion, the consuming public associates a blue turf with Boise State football.

In summary, then, Boise State may be satisfied with the outcome of its trademark registration. On the other hand, a national championship is likely out of the picture due to a weak strength of schedule. But rejoice Boise State fans! The mere prospect for a possible BCS bid and a successful trademark registration isn’t so bad, is it?

2,000 Legal Jobs Lost

From Law.com:

According to a monthly jobs report released Friday by the U.S. Bureau of Labor Statistics, the nation lost 263,000 jobs in September as the unemployment rate reached 9.8 percent, the highest in 26 years.

The legal sector wasn't spared. When the data is seasonally adjusted, the sector shed another 2,000 jobs. When not seasonally adjusted, the legal industry lost 13,600 jobs, likely a result of the conclusion of most summer associate programs and the return of students to their law schools.

Click here for the article.

Nearly Half of America Pays No Federal Income Tax (TTT)

Yes, it is true. According to CNN, 47% of Americans will pay no federal income tax this year. Perhaps even more shocking is that:

Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000.

Can a country running a $1.6 trillion deficit really allow so many of its citizens to escape the burden of taxation? Should all citizens be required to remit a portion of their earnings to the treasury as the cost of their citizenship, even if only a token amount?

Whatever your feelings, expect to see that 47% number to drop considerably in the very near future.

Clerkship Series: Day 2 -- Landing a Federal Clerkship in October

In our Day 1 posting of the clerkship series, Nima conveyed NYU Law Assistant Dean Deborah Ellis' encouraging words that all is not lost for securing a clerkship this hiring season. As Dean Ellis noted, "[t]here are many judges who have not hired, especially at the trial . . . and state level[s]." While it is difficult to gauge how much hiring activity will really transpire over the course of the next few weeks, at least some hiring is on the horizon—many of President Obama's pending judicial nominees will be getting confirmed, and additional nominations are likely imminent. Indeed, as Jeffrey Toobin pointed out in The New Yorker:

Obama already has the chance to nominate judges for twenty-one seats on the federal appellate bench—more than ten per cent of the hundred and seventy-nine judges on those courts. At least half a dozen more seats should open in the next few months. . . . On the federal district courts, there are seventy-two vacancies, also about ten per cent of the total . . . .

That's a lot of new judges who will need law clerks. And although the pace of confirmations has been anything but speedy (only three judges so far, cf. President Bush's fifty-three confirmations during the first year of his Presidency), the Senate sent four nominees to the full Senate for a vote just this past week: Joseph Greenaway (nominated for 3d Cir.), Roberto Lange (nominated for D.S.D.), Irene Cornelia Berger (nominated for S.D. W. Va.) and Charlene Edwards Honeywell (nominated for M.D. Fla.).

So polish off your applications, and get ready to land a federal clerkship in October...or beyond.

How to Fix the Criminal Justice System - Ban Candy

Researchers at Cardiff University in the U.K. discovered an interesting correlation this week: kids who eat a lot of candy are more likely to become criminals in adulthood.

Simon Moore, one of the researchers, explains the results:

Intrigued by this association, Moore turned to the British Cohort Study, a long-term survey of 17,000 people born during a one-week period in April 1970. That study included periodic evaluations of many different aspects of the growing children's lives, such as what they ate, certain health measures and socioeconomic status. Moore plumbed the data for information on kids' diet and their later behavior: at age 10, the children were asked how much candy they consumed, and at age 34, they were questioned about whether they had been convicted of a crime. Moore's analysis suggests a correlation: 69% of people who had been convicted of a violent act by age 34 reported eating candy almost every day as youngsters; 42% of people who had not been arrested for violent behavior reported the same. 'Initially we thought this [effect] was probably due to something else," says Moore. "So we tried to control for parental permissiveness, economic status, whether the kids were urban or rural. But the result remained. We couldn't get rid of it.'

Of course, as well educated (and presumably low candy consuming) individuals, we learned long ago that correlation does not imply causation. Nonetheless, Mr. Moore believes there is a rationale behind the results:

‘The key message is that this study really raises more questions than answers,’ says Moore. One of those questions is whether sweets themselves contain compounds that promote antisocial and aggressive behavior, or whether the excessive eating of sweets represents a lack of discipline in childhood that translates to poor impulse control in adulthood. Moore is leaning toward the latter. It's possible that children who are given sweets too frequently never learn how to delay gratification - that is, they never develop enough patience to wait for things they want, leading to impulsivity in adulthood. It's also possible that children who are poorly behaved from the start tend to get more candy.

So there you have it. Avoid feeding your child a steady diet of Coke, Pop Rocks, and Candy Corn and you may just help solve California’s prison crisis.

Clerkship Series: Update

As mentioned in our Day 1 posting of the 2009-2010 Clerkship Series, the Blackbook Legal Blog will feature a series of exciting discussions regarding the clerkship process over the course of the next few weeks. In connection with our series, we are delighted to share that we have teamed up with Law Clerk Addict, and will be cross-posting our articles there.

Much more is on the way, so stay tuned! And, as always, please feel free to write us at tips@blackbooklegal.com with any suggestions or ideas.

I'll be Taxed

Time for me to chime in on the tax reform proposals in the Golden State. California's budget system is broken. The recent patchwork by the legislature failed to fix the fundamental problem in California's revenue system: volatility.

California uses a steeply progressive income tax to generate the bulk of its revenue. In fact, the system is so progressive that:

More than half of California's income tax revenue is paid by those with incomes of $200,000 or more.

That is an awful lot of revenue generated from a very small group of people. That small group ("the Rich") tends to generate their income from volatile investment activities in the form of capital gains (i.e. gains on stocks, bonds, hedge funds, etc.). When asset performance degrades, the Rich tend to take the brunt of the losses and ultimately remit less money to the treasury. Conversely, when assets perform well, the Rich tend to make enormous gains and treasure flows from Sacramento to the rest of the State.

California (and to a similar extent, the federal government) have placed a leveraged bet on the Rich. When their income goes up, the State profits handsomely via capital gains taxes and high marginal rates while sparing the rest of the taxpayers. When the Rich's income declines, however, the leveraged bet collapses (a dollar lost on someone who is taxed at 20% is a bigger hit to the State than a dollar lost on someone who is taxed at 5% or has no capital gains income to tax at all). A downward movement in the Rich's income creates an enormous drop in revenue that devastates the State's finances.

This is exactly what happened this year in California. With the demise of the Rich, so went California's budget.

The proposed solution is a fairly simple one: abandon steeply progressive rates in favor of flatter rates on more types of income (e.g., instead of 20% and 5% income brackets on individuals income, have a 10% flat rate and add a flat tax on businesses). If the State had a broader tax base and a flatter rate, volatility would decline. Of course, the odds of giving the Rich a tax break during a fiscal crisis, particularly in California's notorious Legislature, seem like a snowball's chance in...well...you know.

Perhaps there is a better way. Professor Kirk Stark at UCLA School of Law has come up with a novel suggestion. To reduce volatility, require the State to apportion out capital gains taxes over a period of years. The Professor explains his idea quite elegantly:

But rather than reducing taxes on wealthy investors, why not just unhitch the timing of their tax payments from the boom-bust cycle of the market? This could be done quite simply by giving taxpayers who incur capital gains taxes the option of claiming a "capital gains tax credit" that would be recaptured over the ensuing three years. As an example, let's assume that the amount of the credit is 75 percent of the capital gains taxotherwise owed in the year of the sale. In our example above, Mickey would be entitled to a credit of $1,500 (i.e., $2,000 multiplied by 75 percent) in the year that he sells his Disney stock. His tax liability for the year of the sale would be $500 ($2,000 minus $1,500) rather than the full $2,000. This credit would then be recaptured (i.e., paid back) in three equal installments over the next three years, with the result that Mickey would add $500 to his tax bill for each of the next three years. The bottom line is that a $2,000 tax bill would be paid over a period of four years.

The net effect of this system - i.e., combining an upfront tax credit with a recapture rule - is that capital gains tax revenue would drip into the state in smaller increments rather than surging during the boom years and later drying up completely. It also bears noting that this system offers something of a preference for capital gains, since it operates like an interest- free loan from the state to taxpayers who would otherwise have to pay the capital gains tax upfront all at once.

Tax the rich, reduce revenue volatility, and entice people to invest? I think the Professor is onto something. Perhaps he should run for office.

OCI (Unsurprisingly) Bleak at Top Schools . . . Like Harvard

According to Law.com:

Think you've got it tough? You could be a student at Harvard Law School, where big firm recruitment is down 20 percent, the Harvard Crimson reports. . . . HLS administrators and experts hinted to the Crimson that the school might push back the start of its fall recruiting season. And starting this spring, HLS will host
a second recruitment period for "firms whose outlooks have changed" in anticipation of an economic recovery.

A second recruitment period at Harvard? Man, these are weird times.

Incorporate This?

Breaking news: The Supremes have granted cert. on the Chicago gun case. The issue is whether or not the rule from Heller (i.e. the right to own guns in one's home is a 'fundamental right') should be incorporated against the states.

I wonder what impact (if any) this will have on the N.J. Blogger case. Remember him? The guy who wanted to kill Posner, Easterbrook, and Bauer because they refused to overturn the Cruikshank case? (For more insight into the pertinent legal issues, see Volokh).

More importantly, how crazy will this lunatic get if the Supremes disagree with him?

Personally, I think the Supremes will incorporate the Heller rule against the states. There really isn't much of a reason why it shouldn't be incorporated. Additionally, (and strictly as a matter of policy) Chicago is one of the most dangerous cities in the nation and it also has some of the most restrictive regulations on handgun possession and licensure. Steve Chapman agrees.

UPDATE (6:21 ET) For our more ambitious/eager readers, here's the link for the petition for cert.

Is President Obama Aborting his Campaign Promises?

The new hot topic surrounding the President's healthcare plan is a ban on federal insurance subsidies that will assist women in obtaining abortions. The New York Times reports that the ban has support from both Republicans and a large number of moderate Democrats, and both the House and Senate are waiting to hear the position of the Obama administration.

Obama has encouraged a fresh conversation on the abortion issue, and he has clearly established his support of reproductive rights. In the short time since becoming president, Obama has already struck down the Mexico City policy prohibiting U.S. money from funding international family-planning clinics promoting abortion. Also, he has nominated several pro-abortion advocates for high positions, including David Ogden as Deputy Attorney General and Elena Kagan as Solicitor General. However, the president has firmly promised to reach a middle ground with pro-life supporters, and he may just have to compromise on his healthcare plan to do it.