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This Article contributes to the tax legal literature by providing an analysis of labor unions and how we tax them. Although labor unions as a whole are a very small part of our economy and tax system, by looking at one narrow section of the tax-exempt sector we can shed light on the rest of the exempt sector. Additionally, although most tax policy scholarship focuses on one of three values—equity in an economic sense, efficiency in an economic sense, and administrability—I focus primarily on the value of equity in a governance sense.

I argue that, at least in the sphere of tax where tax choices directly impact our democracy, we should take into consideration values of democracy. In that sphere, we should not adopt tax policies that increase political voice inequality. Also, it is reasonable to adopt tax policies that increase the equality of political voice. Because I find that our current taxing system of interest groups broadly increases political voice inequality, I find our tax system wanting and make recommendations for change.

The Article proceeds as follows. Part I covers the tax treatment of labor interests. Part II begins to build a social choice function model by sketching the case for democracy and thereby political equality. Part III completes the social choice function model by highlighting the role of groups such as labor unions within a democracy and evaluates the role groups play in the matter of political equality. Part IV describes the history and tax law of labor unions. Some who are unfamiliar with the tax exemption requirements of labor unions might want to jump to Part IV.B for a discussion of that area of the law first. Part V assesses theories regarding the rationale for exempting nonprofit organizations. Part VI analyzes the implications of democratic group theory for the tax treatment of labor interests.



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