Saturday, March 17, 2018

Raking in the bucks?

I just got a $5.39 royalty check - the latest rich winnings from my satirical law firm novel, Getting It.

Since Getting It is just $3.99 on Kindle., I guess I could use this latest killing to buy it in that format - at present, I only have hard copies plus the doc/pdf files - and still have a cool $1.40 left over. (Enough for a beer out of a Trader Joe's sixpack.)

Thursday, March 15, 2018

Another new publication!

I've now published my second article of the day. (I wrote both in December / January, each being only about 10,000 words total.)

This one is entitled "Evaluating the New U.S. Pass-Through Rules." It was officially published / posted today in Issue 1 of the 2018 British Tax Review, pages 49-67.

The abstract goes like this:

"The pass-through rules that the U.S. Congress enacted in 2017 - permitting the owners of unincorporated businesses in favored industries to escape tax on 20 per cent of their income - achieved a rare and unenviable trifecta, by making the tax system less efficient, less fair, and more complicated. It lacked any coherent (or even clearly articulated) underlying principle, was shoddily executed, and ought to be promptly repealed. Given the broader surrounding circumstances, the mere fact of its enactment sends out a disturbing message about disregard among high-ranking US policymakers for basic principles of competence, transparency, and fair governance."

With the permission of the publishers, it's available for download here.

As you can perhaps tell from the abstract, this article is a bit on the candid and unvarnished side - even though it's been toned down significantly from earlier drafts. But I think the tone is justified given the passthrough rules' egregiousness - at least leaving aside the old maxim that, if you can't say something nice, you shouldn't say anything at all. (That maxim would tend to hold down the quantity of writing about the passthrough rules.)

It also addresses the 2017 act's negligence or worse (it appears to have been deliberate) in cutting the corporate rate without addressing the use of C corporations as tax shelters that can be used to lower the rate on labor income. Read the article and you'll find a few well-chosen (I'd like to think) words about that.

New publication

My paper "Goodbye to All That? A Requiem for the Destination-Based Cash Flow Tax" has now officially been published online, in the Bulletin for International Taxation, Volume 72, no. 4/5 (2018). You can find it here, or for that matter also here.

Shortened abstract: "In this article, the author addresses the destination-based cash flow tax, which was recently proposed as a tax reform option in the United States, compares it to its forebears, the flat tax and the X-tax, and concludes that, although its substance has potential merit, it does not warrant further consideration in tax policy debate."

Wednesday, March 14, 2018

Cat update

A reader recently asked me: Why no cat updates lately? I suppose the point is well-taken, given that the Internet's chief virtue, limiting oneself to those that are purely benign, appears to pertain to cat photos and videos.

Having just gotten back from a few days away, our current three are letting us know they missed us.  They had food and regular visits in our absence, but I guess it just wasn't the same.

Seymour, of course, is mellowest about it. He doesn't stir much from this chair except to eat, but he's purring more when petted.

Then there are The Kittens, so to be known forever because we adopted them when they were 6-8 weeks old, at which time I could hold them both in one hand, although by now they are over 5-1/2 years old. (Similarly, my father had a set of female cousins, all born before 1920, who were known collectively as The Girls even when they were in their eighties.) They were pretty frantic on our return because, even though they are cats, we evidently loom large in their universe.

Gary has been meowing loudly and bringing us small mouse toys in his mouth. It was hard to sleep last night because he kept scratching at the covers so he'd have warm hands to sleep on. It was almost enough to make one doubt the common view that he's perfect. A gently probing paw on the face at night is okay most of the time, but best if he's calm enough to have retracted the claws fully.

Last but certainly not least - he wouldn't like that - there is Sylvester, whose frantic mental world I've always wished I could imaginatively inhabit for just 5 seconds, so long as I could have a good long rest to recover right afterwards. (We like to say, it's a shame his mom seems to have dropped him on his head early on.)

He has been meowing loudly for food, even when he isn't hungry. When he lets me pick him up (an element of surprise helps), he gives a sudden screech, but then, so long as I begin petting his head very vigorously, the way he likes it, he just hangs there like a rag doll, all four paws extended outwards and down, for as long as I am willing to keep it up.

It's nice to be back, fellas.

Saturday, March 10, 2018

Tax policy colloquium, week 7: Lisa Philipps’ Gendering the Analysis of Tax Expenditures: Bridging Two Solititudes in Canadian Tax Policy

This past Tuesday, Lisa Philipps presented the above-titledpaper, happily the day before (rather than that of) our hideous Nor’easter. I was unable to post the next day, as I usually do, due to the crush of other obligations, but now, from a sunnier realm than NYC, here are some thoughts about the paper and topic.

The impetus for the paper (co-authored with Isabella Bakker) is as follows.  Canada’s executive branch, which one might say (without reckless exaggeration) is at present somewhat differently directed than our own, has begun disseminating gender-based analysis of budget measures.  But tax expenditure (TE) analysis and information reporting have not similarly changed.  So the paper’s main impetus is to argue that gender-based analysis of the impact of Canadian TEs would offer a worthwhile expansion of publicly available information and knowledge.

The paper then offers preliminary analysis of various TEs as officially listed and measured. What makes this technically feasible is that Canada has separate filing by married couples. So access to the data permits one to say, for a particular TE, X amount has been claimed by men, and Y amount by women.

Among the pertinent items on the list are childcare and dependent benefits, a child care expenses deduction, and narrowly tailored tax credits or deductions for volunteer firefighters, clergy, police, and members of the military. Also, alimony deductions (and presumably exclusions, as under U.S. income tax law for pre-2019 divorce agreements). And also, pension-splitting.  Under this one, half of one’s pension payments can be reported in taxable income by one’s spouse, rather than by oneself, if both sign an agreement to that effect, without regard to whether said spouse has a legal claim to said half. This is commonly called income-splitting for pensions, in the same sense that, under the U.S. rules, having a joint return in which all relevant dollar amounts (such as tax brackets) are double their levels under individual returns may be arithmetically equivalent to separate returns with income splitting. (The key point here, of course, is the effect of progressive rates.)

Anyway, here are some of my thoughts on the topics raised by the paper:

1) What is a tax expenditure? – The paper takes the government’s official listing of TEs for granted, which is perfectly fine given its purpose of expanding public knowledge regarding the gender impact of various tax rules. But this is a pet topic for me that I have written about elsewhere. In brief, I think the only way to make the term analytically useful or meaningful, in the context of income taxation, is as a way of distinguishing between purely allocative rules (the clear TEs) and those that are part of the distribution system’s doing its job. For example, it would be hard to argue reasonably that solar panel tax credits are an aspect of figuring out who is better off and who is worse off. Rather, such a feature of an income tax would have to reflect (as a matter of plausible rationales, and even if in fact it was passed to reward campaign contributors in the solar panels industry) an allocative aim of affecting people’s energy choices.

From this perspective, many of the items that the paper discusses – for example, the treatment of alimony or marriage or pension benefits within the household or children – really aren’t reasonably labeled as TEs. Even if also reflecting allocative effect and intent (as they well might), they are also a part of how the distribution system “decides” to distribute tax burdens between individuals based on household information about them.

But none of this in any way leans against the paper’s analysis, which takes the official TE list for granted. Indeed, the fact that none of the household-related items are TEs, if one accepts my view as to how thate term is best used, does not in the slightest detract from the importance of analyzing their gender impact.

2) Incidence issues with respect to tax expenditures – The paper takes advantage of the fact that, because Canada has separate filing by married couples (along with information regarding the filer’s claimed gender), one can actually figure out, by gender, who is claiming particular tax benefits. In the US, joint returns would make this impossible from an available data standpoint. But there are still (as the authors acknowledge) incidence questions regarding benefit. E.g., suppose a man in the 40 percent bracket makes deductible alimony payments to a woman in the 20 percent bracket.

Case 1, she is being conned (e.g., as he has better legal representation) and she gets the same amount they would have agreed to had they structured so that it wasn’t called alimony and was neither deductible nor includable. (This is feasible under U.S. income tax law for pre-2019 agreements; I don’t know whether Canadian law makes this any harder.) Here the economic incidence equals the nominal incidence – benefit to him, ost to her.

Case 2, this is mutually well-advised tax minimization. Given the tax bracket differences, her periodic receipt is adjusted upwards by between 20 and 40 percent, relative to the case where the payments would neither be deductible nor includable. In this scenario, both are better-off by reason of the tax treatment.

It’s an empirical question, and one that cannot be answered via tax return information, which of these two cases is more representative in practice, at a particular time and place.

3) Joint return vs. separate return – I increasingly feel that, for analytical purposes, it’s confusing rather than helpful to distinguish between the “joint return” and “separate return” approaches. (This is not to deny, of course, that, if one is making a concrete political proposal, using the terminology may be essential.)

Case in point, joint returns with double for all the dollar amounts can be the same as separate returns with income-splitting (i.e., half of the total income reported on each return).

Here’s what’s of greater interest: (a) the use of what I’d call “household information” (including income of other household members, the # of mouths to be fed, etc.) in determining taxes and/or transfers for any individuals in the household; (b) what for now I’ll just call “the rest” (administrative and filing aspects, legal liability with respect to claims made, etc.)

I tend to be less instinctively predisposed than the paper’s authors to put legal ownership to particular items at the center of how to think about what’s actually going on (for tax and transfer purposes) in a particular household. But agreed, that stuff can matter, and indeed a lot, depending on the household’s (hard to observe) internal rules and power relationships.

4) Secondary earners – Often in a couple, whether married or not and whether or not recognized by tax or transfer systems as a couple, there will be a “primary earner” and a “secondary earner.” This is not just a function of who is earning more this year, but of who is more definitely tied to engaging in taxable market work. When a given couple has a “secondary earner,” that individual tends to be much more tax-elastic with respect to labor supply than the primary earner. Among other things, this may reflect said individual’s capacity to perform valuable non-market and hence non-taxable services, including taking care of the couple’s children (if any) but also anything else that takes time and effort.

Secondary earners’ greater labor supply elasticity (where present) provides a standard efficiency reason for taxing them at lower rates. But of course in a U.S. joint return, if the primary earner will be working in any event and the question is whether the secondary earner will choose to do so, such individual’s first dollar of potential earnings may already face a high marginal tax rate, because the couple is taking for granted that the primary earner will be earning $X and thus running them at least partway up the marginal rate ladder.

In response to this problem, from 1981(?) to 1986 the U.S. federal income tax system offered a secondary earner deduction. But this was repealed in 1986, on the rationale that it was both too costly and no longer necessary given flatter marginal rates. (But of course, if it hadn’t been necessary it wouldn’t have raised significant revenue – hence these two rationales were inconsistent with each other.)

Anyway, I think secondary earner deductions should be back on the table as an important possible change to current US federal income tax rules. Note, they needn’t require retaining joint returns if there is sufficient cross-reference between spouses’ “separate” returns.

Secondary earner deductions have the potential to be both efficient and horizontally equitable. Efficient because they respond to the possibility that the secondary earner, by working, is forgoing tax-free imputed income. Horizontally equitable, because two couples with the same net taxable incomes are not in fact similarly situated if one has two earners in the workforce and the other just one. The former evidently has both a lower current wage rate and less time available for tax-free yet valuable home production.

There are lots of design questions around reinstating the secondary earner deduction. But if it tends to offer greater benefits higher up the income scale than lower, other adjustments can be made to retain the vertical burden distribution that one wants. Note also that, while I’ve followed past practice in calling it a secondary earner “deduction,” it might also be structured as, say, a flat percentage credit.

5) Other U.S. fiscal system bias against two-earner couples – The fact that the secondary earner has taxable income upon working but not upon staying home is only one way in which the U.S. fiscal system both discourages secondary earners from working and disfavors two-earner households. Other important aspects (and there is a huge literature on this – I’m just referring here to issues that are very well-known in some circles) include the design of Social Security and Medicare, both of which discourage work by secondary earners and disfavor two-earner couples relative to one-earner couples.

6) Childcare expenses – One needs an integrated response to all this, but the question of how the tax system should treat actual or imputed childcare expenses is another huge topic that I don’t think the U.S. system currently handles very well. And this of course goes well beyond just the tax system or even the fiscal system, to include broader issues that might conceivably be better handled through “spending.”

Wednesday, March 07, 2018


I am currently rushing to complete a particular section of the article I'm in the middle of writing on the new international tax rules from the 2017 act, before heading out tomorrow (weather permitting) for an all too short vacation respite during part of our spring break.

If nothing else, the two particular rules that I've been writing about so far are cleverly named - BEAT (for "base  anti-erosion tax") and GILTI (for "global intangible low-taxed income").  Less so for the third that I'll get to later this month, FDII (for "foreign-derived intangible income").

Tax article writers have already been having much fun in their titles with both names.  E.g., "Get With the BEAT," "More GILTI Than You Thought," and "Guilty as Charged."

By contrast, my current article title is "Does the United States Now Have a 'Territorial' Tax System?" I answer this question "NO" by the top of page 2, and then get on with the rest of it.

But I couldn't help thinking of how GILTI might be renamed, without any loss of acroynmic punch. Suppose it were called "Foreign Intangible Low-taxed or Tax Haven Income." This would support using the acronym FILTHI.

Hurrah for spring break

"I might take a boat, I might take a plane,
I might have to walk but I'm going just the same
To Negril, Jamaica - Negril, Jamaica, here I come
They've got some crazy good sunsets there,
And I'm going to see me some."
Actually the airplane option - endangered by the storm, but hopefully things will have cleared up enough by tomorrow - would appear to be the only realistic one here. 
Before going, however, or perhaps just afterwards, I'll plan to post regarding yesterday's interesting Tax Policy Colloquium paper, by Lisa Philipps of Osgoode Law School in Canada.

Monday, March 05, 2018

NYU Law Forum on the 2017 tax act

Early last month, I participated (with my colleagues Lily Batchelder, David Kamin, and Mitchell Kane) in an NYU Law Forum were we discussed the 2017 tax act with a room full of law students. (The discussion was pitched to their generally not being tax experts.)  We had a pretty good time, and it even somehow seemed as if the audience largely enjoyed it, too.

An article on the NYU website discussing the session is available here.  And if you scroll down, you'll find a video of the full event.

Wednesday, February 28, 2018

Tax policy colloquium, week 6: Jacob Goldin's Tax Benefit Complexity and Take-Up: Lessons from the Earned Income Tax Credit

My recent radio silence here reflects multiple demands on my time these days, including health issues for a more senior close relative. These things are never fun, but everyone goes through them at some point, unless something even worse happens.

But anyway, back here at NYU, after a week off (due to calendar complexities), the Tax Policy Colloquium resumed yesterday, with Jacob Goldin presenting this paper on increasing EITC take-up by individuals who are eligible for it. It draws on related empirical work (by Goldin and Taylor Cranor) suggesting that, when jurisdictions require employers to provide EITC information to their employees, this has "precise null effects on EITC take-up." That is, Cranor and Goldin conclude in the empirical paper, not that they can't find any effect on take-up, but that they have found, with high confidence, a lack of any effect.

In the paper that we discussed yesterday at the colloquium, Goldin assessess how EITC take-up might best be increased. He concludes that by far the most efficacious method would be to increase income tax filing by eligible individuals, in particular those who would get a net refund from filing but don't currently do so.

A key point on which this argument relies is the near-ubiquity of assisted preparation methods (APMs) among filers who qualify for the EITC. An APM can either involve electronic software, a la TurboTax, or the aid of a tax professional, including through free VITA assistance. (Or both, as the tax professional is likely to be using electronic software.)

With APMs that use electronic software, the paper argues that the issue of computational complexity for the EITC pretty much disappears. Enter the pertinent information, and presumably the net liability or refund, including by reason of the EITC, will come out on the other end.

There is still the problem of informational complexity, given the multiple factual prerequisites for claiming the EITC. (E.g., where a child is spending time in multiple households &/or is supported in part by multiple adults, one gets the question of who is entitled to claim the EITC.) But the paper argues that the EITC has almost no marginal effect on informational complexity for a given taxpayer, since nearly all of the facts that are needed to determine EITC eligibility and its amount are also needed on the tax return for other purposes.

Here are a few other interesting issues that the paper invites one to think about:

1) Is there any way to loosen up a bit on who gets to claim the EITC? In principle, ought it to be allowed to anyone who is involved in the child's support? Obviously the problem here is coordinating between potential claimants, so that only one claims it, and preferably it's whomever they agreed to. Probably not realistically feasible to address this without much greater changes to how tax filing takes place, and/or how the income tax is generally administered. But there may be a decent number of cases in which, seemingly, there is both under-claiming by the person who's supposed to claim it, and an "incorrect" claim by someone else, in circumstances where it makes little or no difference. This can lead to misleading statistics regarding both under-claiming and EITC  malfeasance.

2) Is stigma a significant issue in discouraging EITC take-up? I am inclined to doubt it. After all, one gets it via one's tax return, a refund is cash, and it's associated with work that our society valorizes (and perhaps even over-valorizes). But on the other hand, Vanessa Williamson's paper from week 5 suggested that people value being called 'taxpayers."

The main reasons for underclaiming may be (a) under-awareness of it, leading to non-filing where one would have gotten a net refund, and (b) rationally choosing not to file, e.g., because the refund would be smaller than the cost of the APM one would use. But rational non-filing is less benign when what makes it personally rational is that the refund would be garnished and used, say, to pay back arrears in child support.

3) The EITC, of course, is far more generous for taxpayers with children than those without.  This seems misguided in one sense, but not another.

It makes a whole lot of sense for the fiscal system to be more generous, especially at the low end of the distribution, to households with children (or more children) than to those without them. The welfare of the children is the main reason for this, but their presence may also greatly increase the marginal utility of a dollar to their parents or other caregivers.

For reasons I'll discuss shortly, it also may make sense to have an EITC - even taking as given that the overall amount of aid given to poorer individuals will be constant with or without it, so that the only question at issue is whether some of the aid is positively tied to wages, EITC-style.

But the case for basing such aid on wages seems to me to be primarily independent of the case for giving more aid to poor households with children than to those without.

Why would one tie the relative benefit that poor households with children receive, relative to those without children, to whether the caregivers work? One reason is that working raises the cost of childcare. But that in principle ought to be handled at a more general level, without tying it to wages earned in the way that the EITC does. Perhaps a second reason is that the reasons for encouraging low-wage work, where the alternative is no work rather than higher-wage work, might include modeling working to the kids. But the latter is a bit of a thin reed here, e.g., since why punish children in households where the caregivers don't have market jobs.

4) Why favor increased EITC take-up? I agree with the paper that we should favor it (other than perhaps in cases where it's rationally not claimed and this doesn't reflect the garnishment issue. But the analysis of why we should favor it has several complications that are worth noting.

The main reason for favoring increased take-up, of course, is to increase the welfare of people in the claimants' households. But also, the EITC can have positive labor supply effects that are part of the EITC's underlying rationale.

Labor supply effects may arise either on the extensive margin (whether or not one works) or on the intensive margin (how much one works). I believe the EITC empirical literature suggests that the extensive effects tend to be more significant empirically.  This is a good thing, given that the EITC's extensive effects ought to be purely positive. One never has a negative EITC - it's either positive (rising via an initial 40% wage subsidy) or zero (reflecting its being phased out at a 21% rate). The intensive effects, by contrast, can be either positive or negative. Wage-earning is encouraged at the margin during the 40% phase-in stage, and discouraged at the margin during the 21% phase-out stage.

Why encourage work, via a wage subsidy? In a standard optimal tax model, it usually turns out that the tax rate on earnings should be somewhere between 0% and 100%, rather than being negative 40% via the payment of a wage subsidy.

Note, by the way, that the wage subsidy causes the EITC to be anti-insurance, as between successful and unsuccessful job-seekers. The former are already doing better than the latter by reason of having succeeded in the mutual job quest, then they're further rewarded by the EITC, while the latter get nothing.

The reasons for nonetheless possibly favoring a wage subsidy via the EITC include:

(a) claims about positive externalities, if working today increases the likelihood of working in the future & this benefits others, such as one's children or for that matter other taxpayers,

(b) parallel claims about positive internalities, and

(c) concern about the overall marginal tax rate. At low income levels, even if one gets a 40% wage subsidy via the EITC, one may still have a positive MTR due to other features of the fiscal system, such as the phase-out of means-tested benefits.

But now let's bring this back to the question of increasing take-up. Suppose people get the EITC despite not knowing it's there. Or more precisely, suppose they know too little about it to have any well-developed understanding of how it is affecting their after-tax-and-transfer bottom line. This wouldn't negate favoring increased take-up due to the welfare effects in claimants' households - but does it negate reliance on the work-encouraging rationales for the EITC?

Not necessarily. Many years ago at the colloquium, we had an econometrics paper (I believe, by Nada Eissa and Hilary Hoynes) that showed apparent behavioral responses to fine points of EITC design. An attendee scoffed at the findings, saying they couldn't be true because surely none of the people whose actions the data reflected had more than the crudest understanding of how the rules actually worked. The author's response was: That may well be, but nonetheless our empirical finding is what it is.

My thought (and that of others in the room) at the time was that this wasn't actually implausible. Suppose there was a work subsidy, always positive at the extensive margin whether or not at the intensive margin, that no-one knew was there (although workers knew how much $$ they ended up with, reflecting payment of the subsidy into their bank accounts). It might still increase labor supply at the extensive margin, through the following mechanism. It would cause people who worked to do better than they would have otherwise. People might have a sense of how they were doing overall when they worked vs. didn't work, and might also have this sense as to their neighbors. The invisible wage subsidy might thus encourage work indirectly, by causing people to associate working with a better end state of affairs.