The Case For (And Against) Surrogate Taxation

The 2017 Tax Cut and Jobs Act significantly revised long-standing rules regarding the tax treatment of many employer provided in-kind benefits. Instead of including the value of these benefits in the recipients’ taxable income, for the most part the new rules disallow employers a deduction for the cost of providing the affected benefits. This article argues that the two components of this legislative scheme – relying on cost of provision as the measure of taxable income and on imposing the nominal tax obligation on providers rather than recipients – are distinct policy decisions. It argues that the better approach would be to require employers to allocate their costs of providing benefits among recipients of those benefits.