Post-Disaster Tax Legislation: A Series of Unfortunate Events

By Aprill, Ellen P.; Schmalbeck, Richard L. | Duke Law Journal, October 2006 | Go to article overview

Post-Disaster Tax Legislation: A Series of Unfortunate Events


Aprill, Ellen P., Schmalbeck, Richard L., Duke Law Journal


ABSTRACT

When a disaster strikes the United States, Congress typically feels heavy pressure to enact legislation, including tax legislation, to provide relief. This Article discusses features of two tax legislative initiatives, which responded to two quite different disasters: first, the response to the devastation of the fall 2005 hurricane season and, then, the response to the earlier terrorist attacks on the World Trade Center and Pentagon of September 11, 2001. The Article first raises the possibility that some of the provisions of these acts may be vulnerable to indirect constitutional challenge under the Uniformity Clause. In examining some of the problems inherent in post-disaster tax legislation, it discusses the role, usually unfortunate, of sympathy in tax legislation. It goes on to consider how, despite the fact that the targets of relief legislation are generally thought to be people in need, it nevertheless seems to be the case that a good deal of the benefits of disaster legislation in the tax area goes to relatively high-income and high-wealth taxpayers. It asks whether a better approach can be institutionalized. It suggests that Congress identify those provisions enacted in response to the recent disasters that make sense generally, such as five-year carryback of net operating losses, and amend the tax code to adopt these rules generally. It further recommends that Congress identify those provisions needed in particular when a whole area is devastated--a five-year period for replacing destroyed property, credit for wages to pre-disaster employees, and routine extensions of filing deadlines--and make them available to any declared disaster area. It urges as well two kinds of longer-term approaches. One is to consider and evaluate disaster tax relief provisions as a kind of national insurance against disasters that the private market does not supply. The other is to develop off-the-shelf provisions to be activated when a disaster strikes.

INTRODUCTION

In recent years, when a disaster strikes the United States, whether a natural disaster such as Hurricane Katrina in 2005 or an unnatural disaster such as the attacks on the World Trade Center and the Pentagon in 2001, Congress typically feels heavy pressure to enact legislation to provide relief. Among the tools available to Congress in discharging these perceived obligations is the Internal Revenue Code (I.R.C.). But there are substantial problems with the tax legislative solutions Congress typically crafts under these circumstances.

First, any relief comes slowly, for the federal legislative process is not built for speed. Congress must be in session, or called into one if it is not. Bills must be drafted, considered, and approved by the relevant committees--in the case of tax legislation, the House Ways and Means Committee and the Senate Finance Committee. Care must be taken to comply with special rules that apply to tax legislation. (1) After debate and vote in each house, the bills must ordinarily be considered by a conference committee to resolve differences between the House and Senate versions, and then each house must separately approve the conference version of the bill. (2) Finally, the president must find a free moment in the Rose Garden for the signing ceremony, at which point the congressional work is finished, except perhaps for the technical corrections bill that will follow to fix the errors that seem unavoidably to infect the process, especially when done in haste. (3)

Second, when Congress does eventually take action, it tends to overreact. There appears to be a legislative imperative, a felt need to be seen by constituents as engaged actively in providing whatever relief or succor within the imagination of Congress, and within fairly elastic budgetary constraints. In such an atmosphere, the powerful House Ways and Means and Senate Finance Committees are likely to assert their role, involving tax benefits as an element of any disaster relief package. …

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