This essay analyzes the forces that led five common law states to adopt community property regimes between 1939 and 1947. Focusing on Oklahoma, the first state to switch, this article traces these laws from initial proposals through their repeal after Congress enacted nationalized income-splitting in 1948. Earlier studies have focused on the impact of these laws, primarily on wives as secondary earners within families, and not on their development. From the various political and social forces precipitating this trend, this study explores the actual reasons states adopted these regimes and shows that an economic goal, namely reducing married couples' federal income taxes, drove state legislatures. Thus, while examining state legislative processes, this paper shows the goal of federal tax reduction led to changes in an entirely separate area of state law. This analysis also provides a new perspective on the American federal system, illustrating the complex and reciprocal relationship between state and federal laws and incentives. While initially states altered their domestic laws to give their residents a benefit under the federal tax code, using the federal system to win benefits for their residents vis-a-vis those of other states, these state-law changes ultimately induced the federal government to adopt a uniform national policy on income-splitting.
Friday, September 12, 2008
McMahon on Community Property and American Tax Policy
Stephanie Hunter McMahon, University of Cincinnati College of Law, has posted the paper To Save State Residents: States' Use of Community Property for Federal Tax Reduction, 1939-1947. (It can be profitably read alongside a classic by Carolyn C. Jones, "Split Income and Separate Spheres: Tax Law and Gender Roles in the 1940s," 6 Law and History Review 259 (1988).) Here is the abstract for McMahon's paper, illustrated with portraits of C.C. and Pearl Harmon, who figure in one of her cases: