Yin on the 'Greatest Tax Suit in the History of the World' and Why It Matters Today


UVA Law Professor George K. Yin's latest paper is "James Couzens, Andrew Mellon, the 'Greatest Tax Suit in the History of the World,' and Creation of the Joint Committee on Taxation and Its Staff."

October 16, 2012

Uncovering how much government officials and those running for office pay — or should pay — in taxes has been a popular pastime for longer than many realize, as a new article by University of Virginia law professor George K. Yin illustrates.

Yin's latest work, "James Couzens, Andrew Mellon, the 'Greatest Tax Suit in the History of the World,' and Creation of the Joint Committee on Taxation and Its Staff," now available on SSRN, explores the origins of the nonpartisan U.S. Congress' Joint Committee on Taxation, which was formed in 1926 following a controversial tax scandal.

As Yin explains, the story involves questions that remain relevant today, including who should have access to individual tax returns, and under what circumstances?

What is the story of the "greatest tax suit in the history of the world?"

Labeled that way by The Washington Post, the story concerns a federal tax suit against James Couzens, a Republican senator from Michigan who was reportedly the wealthiest member of Congress at the time. The suit appeared to continue a bitter feud between Couzens and Andrew Mellon (who was secretary of the treasury) that had been going on for over a year. The press followed the case very closely because of the prominence of the taxpayer, the amount of tax at issue ($10 million to $11 million, equal to about $140 million today), and the speculation about Mellon's involvement and the feud. Also, because the principal issue — the amount of Couzens' gain upon sale of his Ford Motor Co. stock — turned on the value of that stock in 1913 (when the company was still closely held), there was a lot of fascinating testimony about Henry Ford and his first years starting the company. (The first Model T was sold in 1908.) Ford, Mellon and John D. Rockefeller were thought at the time to be the three richest persons in the country. So it would be the equivalent today of a big tax case against a current senator, following a protracted feud with Warren Buffett (serving as treasury secretary), and involving Bill Gates and the origins of Microsoft.

How did this conflict between Couzens and Mellon ultimately lead to the creation of the U.S. Joint Committee on Taxation and its staff?

The conflict resulted in a [Calvin] Coolidge administration attempt to shut down a congressional tax investigation. Also, many in Congress believed that the administration had abused its executive authority in the course of the disagreement (such as the filing of the tax action against Couzens). These disputes helped lead Congress to strengthen its resources so that it wouldn't have to be so reliant upon the Treasury Department in tax matters. At the same time, the conflict revealed many problems with the tax law that helped each chamber to understand the type of resources that were needed. The antagonism with the executive branch and improved understanding of the House and Senate were both instrumental in creation of the committee and determination of the staff's specific (and unusual) responsibilities.

What insight can we gain about today's tax dilemmas by looking at the origins of Congress' Joint Committee on Taxation?

One interesting connection to current debates concerns the confidentiality of tax return information. For various reasons, the amount of both Couzens' and Mellon's taxes came up in the dispute, and many in Congress thought that Mellon breached the confidentiality of Couzens' returns. In response, Congress changed the law to allow it to examine Mellon's returns (and anyone else's) if it wanted. Congress created the Joint Committee and its staff in part to enable access to tax returns and prevent abusive use of such information by the executive branch. To this day, the Joint Committee and its chief of staff are given direct access to returns.

These events occurred near the beginning of the modern income tax, when Congress was still trying to figure out who should have access to all of the tax information the government was beginning to collect. These issues remain important and controversial today. Obviously, we have had the controversy about Gov. [Mitt] Romney's tax returns, but the issue comes up in many other contexts. For example, whenever Congress passes a law (such as health care reform) that relies to some extent on the tax system, there is almost inevitably a question of whether further disclosures of tax return information should be permitted, and to whom.

From 2003-05, you served as the chief of staff of the Joint Committee on Taxation. What makes this staff so unique and important?

The staff is nonpartisan, serves both chambers of Congress, and assists with all of the tax law-making responsibilities of the legislators — the conception, analysis and evaluation of tax legislative proposals, and the tasks necessary to see them enacted. No other staff in any other area of law has that responsibility while being nonpartisan and serving both chambers. The staff also provides the official revenue estimates used by Congress of all tax legislative proposals, and reviews all large tax refunds made by the IRS. Finally, the staff has performed important (and sensitive) tax-related investigations, such as examining President Nixon's tax returns and the tax positions of Enron. As a nonpartisan office of a joint committee that works so closely in the formation of the law, the staff sometimes finds itself at the intersection of the two great divides in Congress — the gulf separating the parties and the two houses — when the final negotiations of legislative solutions occur. Retaining its influence under those circumstances is probably the staff's single biggest challenge.

What led to your interest in exploring this topic?

In 2003, as chief of staff, I reviewed the staff's draft of one of the committee reports to the Medicare prescription drug bill. The Joint Committee staff regularly prepares the first draft of all committee reports related to tax legislation, and a very small portion of that bill included some tax provisions. I was surprised to learn that the tax portion of the draft report far exceeded its share of the bill, and my initial reaction was embarrassment that the staff had been so verbose. When I looked at the non-tax portion of the draft report, however, I realized that it really wasn't much of a report (at least by tax standards). There was little in the way of explanation of the statute and examples for the public, their advisers, and the agency responsible for writing regulations. It occurred to me that there is no "Joint Committee staff" to help in the health law area, but why not? That got me going.

How does this article fit in with your larger body of research?

Most of my scholarship has been tax related, and my recent work has tended to involve some intersection between tax and the legislative and political process. This article continues that focus, but from a historical perspective. Obviously, my experience on the Joint Committee staff has helped fuel my interest in that staff and the tax legislative process generally.

What will you be working on next?

I have another draft I am working on concerning the impact of nonpartisan staff on congressional gridlock. After I complete these two drafts, my original plan was to continue with the Joint Committee staff's story. My current work only deals with its origins, and I know that there are some wonderfully interesting developments down the road, including all of the great tax legislation enacted during the New Deal, World War II, and the middle of the 20th century (culminating, perhaps, with the Tax Reform Act of 1986), as well as the staff's examination of Nixon's returns. During most of that period, the Joint Committee staff pretty much had a monopoly on staff work in the tax area, and my guess is that we can learn a lot about both the legislative process and the law just by following the staff's activities pretty closely. Unfortunately, I spent enough time at the [National] Archives this summer to know that the documents I would want to examine to begin to understand the later developments are in an extreme state of disarray, and I am somewhat doubtful that I will ever be able to complete that project. I have many backup ideas, however; the background behind many legislative ideas and key figures does not seem to have been researched very extensively, and I suspect there are more great stories yet to be told.

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