The distinction between property rules and liability rules has revolutionized our understanding of many areas of law. But scholars have long assumed that this distinction has no relevance to tax law. This assumption is flatly wrong. Tax law currently uses both property rules and liability rules, and the choice between them has real consequences. When a taxpayer violates a requirement for a favorable tax status, tax law either imposes additional tax proportionate to the harm (a liability rule) or imposes the draconian penalty of taking away the tax status entirely (a property rule). This recognition has three key implications. First, Congress can and should draw on the rich property and liability rule literature to draft better tax legislation and to reform the tax code. Second, novel variations on property and liability rules can be used to rethink the remedies given to the IRS. Third, tax law will enrich the literature on property and liability rules across many other areas of law.
Issue 6
On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership
In the past twenty-five years, derivatives markets have grown exponentially. Large, modern derivatives markets increasingly enable in- vestors to hold economic interests in corporations without owning voting rights, and vice versa. This leads to both empty voters—investors whose voting rights in a corporation exceed their economic interests— and hidden owners—investors whose economic interests exceed their voting rights.
We present formal analysis that shows how, when financial markets are opaque, empty voting and hidden ownership can render financial markets unpredictable, unstable, and inefficient. By contrast, we show that when financial markets are transparent, empty voting and hidden ownership have dramatically different effects: they follow predictable patterns, encourage stable outcomes, and promote efficiency. Our analysis lends insight into the operation of securities markets in general and derivatives markets in particular. It also provides a new justification for a robust mandatory disclosure regime and facilitates analysis of proposed substantive securities regulations.
Closing the Accountability Gap for Indian Tribes
The recognition of the right of Indian tribes to self-determination in federal and international law generates strong protections for tribal autonomy, allowing tribes to exercise extensive governmental powers. But federal and international law also combine to create an accountability gap for tribal human rights violations—that is, a space in which victims lack access to a remedy and tribes are able to act with impunity. Just as U.S. states and municipalities can use their governmental powers to both protect and violate human rights, so too can tribes. But when a tribe fails to provide a remedy for its violation, a victim may be unable to access a remedy under federal law due to federal deference to tribal sovereignty. A victim has no recourse directly against the tribe under international law, and tribal self-determination limits the ability of a victim to bring a complaint against the U.S under international law.
This Note proposes filling the accountability gap by recognizing that the right of Indian tribes to self-determination under international law contains a duty to respect, protect, and fulfill human rights. Rather than looking to the United States to provide recourse, which would infringe on tribal self-determination, this proposal recognizes that when a tribe violates a human right, the tribe is breaching international law and owes the victim a remedy. This Note argues that recognition of such a duty would benefit tribes by legitimizing tribal self-determination and governance and closes by discussing how the duty would be implemented in practice.