Tuesday, August 22, 2017

Say it and get out?

Despite my most recent blog post on music, not everything I listen to was released before some of my readers were even born. Indeed, my playing roster - which these days is more a function of Spotify than my CD collection - includes material from each decade since the 1950s, admittedly with a particular focus on the 1960s, 1970s, 1990s, and 2000s. (Less from the 1980s and 2010s.)

And while I don't listen to music at home as much as I used to (or at work at all - whereas I wrote my college senior thesis to the sound of Marquee Moon and Elvis Costello), my needing to cope with the extreme boredom of health club elliptical machine sessions means that I am always on the lookout for things that I would like to listen to. These include, not just new things, but also old favorites that I haven't played for a while.  So there's a cycle of rediscovery that I try to keep going, although new fare is needed or else it will tend to run down.

Anyway, the last couple of days I've been listening to Lily Allen's two fine albums from the 2000s, which I hadn't played for quite a few years. She released them and then announced that she was quitting the music biz - although she's been back since with lesser impact culturally, artistically, and commercially.

Her retirement surprised me at the time, but in retrospect I understand it. Her methodology as a songwriter on those two albums seems to have involved her adopting a very clear topic and point of view for each song.  In effect, they were short stories, essays, or character studies, and you could almost imagine her having had a topic sentence in mind for each before she started writing it. It doesn't feel as if she started each song with a riff, like Keef or something - although the melodies and hooks are often quite strong.

Sometimes the pitch sentence seems to have been thematic - e.g., addiction, consumerism, George W. Bush, or young single women living unsatisfying lives - but often it involved drawing a picture of a particular person. These included her father, grandmother, brother, and apparently a rogue's gallery of mainly disappointing boyfriends. (Important message: be very careful if you date a songwriter.) It's plausible that she simply ran out of good material, in addition to entering a life stage where slagging those around her (often an artistically promising approach) would grow increasingly costly.

"If you can't keep it up at the same level, quit" can be good advice aesthetically, but it's not always an optimizing strategy in career terms. It brings to mind an issue that we academics can face. If you spend enough years writing about a bunch of things, you can reach the point where you no longer have a lot to say that's as important or as interesting (to yourself as well as others) as what you said before. Of course, you can always keep on saying the same thing again and again (especially if you feel that a point you've discussed remains underappreciated), but this faces diminishing returns.

A lot of us in the biz have dealt with this issue in different ways. A key one for me, although also for some others whom I know, is to try decidedly new things. I've been happy with that approach on my current literature project (more on this shortly, perhaps), but it certainly can be an audience risk.

Friday, August 18, 2017

Correcting Krugman's latest column

In re. today’s Krugman column comparing Trump to Caligula:

“Never mind tax reform [enacting regressive tax cuts]. Congress has to act within the next few weeks to enact a budget, or the government will shut down; to raise the debt ceiling, or the U.S. will go into default; to renew the Children’s Health Insurance Program, or millions of children will lose coverage.”

As noted yesterday, I don't think the Republicans' tax plans merit being called "tax reform" - especially by those who oppose them. It's analytically misleading. And while the mislabeling is within normal rhetorical bounds for the tax plans' supporters, opponents should feel strongly motivated to reject the labeling.

So here's hoping that Krugman, among others, will stop using the term "tax reform" to describe the Republicans' tax plans.

Thursday, August 17, 2017

"We Can Work It Out"

I've been ruminating lately about the above-named Beatles song, perhaps in part because we're at a time and in a place where things do not seem working out for our country or the world, on many levels, but also due to its own extraordinary merits, beauty, and pathos - despite its surface optimism - as a song.

There's a longstanding genre of popular songs in which the character played by the singer conspicuously doesn't get it, adding irony and pathos to his or her romantic plight. To name two examples from songs covered by the Beatles, in "Please, Mr. Postman" we know perfectly well that it isn't the postman's fault no letters are arriving from the loved one. The singer is deflecting his (or in the Marvelettes' original version her) anxiety away from the real source of the problem.

Likewise, in "Slow Down," the woman who's "moving way too fast," and who needs to "gimme a little loving ... if you want our love to last," plainly doesn't want it to last. She's got a "boyfriend down the street," after all. So the singer is petitioning her in vain, and misdiagnosing the problem because it's less painful than admitting straight up that she has dumped him.

"We Can Work It Out" is a subtler, less overt version of this self-deceiving narrator motif. The song (mainly written by McCartney) opens mid-argument - we don't hear what the argument is actually about - with the singer insisting that his girlfriend see it "my way," not hers. "Do I have to keep on talking till I can't go on?"

This is not generally a good way of bridging disagreements:  You don't say to the other person: "your way" is wrong, stop exasperating me. And for that matter, the singer openly admits that "my way" offers no guarantees. They will either "get it straight or say good night," and "only time will tell if I am right or I am wrong."

So you get the infectious optimism of the singer's insistence that "we can work it out" - conveyed also by the vocal performance, yet undercut by the realization that they probably won't work it out, that he is approaching it the wrong way - without adequate sympathy, flexibility, or understanding - and that he pretty much realizes where they're likely headed, even as this remains the best he can do to try to head it off.

One of the song's widely noted merits is the back-and-forth between McCartney's verses, which I've been quoting so far, and Lennon's terse middle-eight ("Life is very short and there's no time / For fussing and fighting my friend"). That section provides a great change of pace and musical contrast, but it's not really pessimism undercutting optimism, so much as weariness and impatience undercutting the pretense of optimism. And the slowdown at its end into 3/4 time as they head back to the verse ("So I will ask you once again ...") adds to the sense of impatience, impending failure, and just being stuck.

"We can work it out / We can work it out," the song ends - the singer radiating enthusiasm that is clearly just a thin shell masking anxiety - followed by a striking minor-key chord run on the harmonium that's held for a few seconds.

Be it good or bad, let's stop calling it "tax reform"

The media pervasively uses the term "tax reform" to describe the income tax changes that the Republicans are seeking.  And it pervasively compares these changes to 1986 tax reform. This should stop.

My reason for saying this is not just rhetorical - it's about using terms meaningfully to convey information. But I'll admit that the rhetorical aspect matters here. "Tax reform" sounds like it's a good thing. I happen to think that any tax changes that the Republican Congress passes and Trump signs will be horrendously bad - increasing the fiscal gap, hugely benefiting the top 0.1% at the expense of everyone else, and very possibly un-leveling the playing field (e.g., in favor of "business owners" at the expense of "employees"). But there's more than just rhetoric going on here - there's an implicit descriptive claim that appears to be false.

Historically, one thing that "tax reform" has meant is indeed "changes that I, the proponent, think are good." So by definition anyone who wants to change the tax laws is proposing "tax reform," and anyone who opposes those changes doesn't think that they constitute "tax reform."

But historically it has long had a more specific meaning than that, as I discussed in my 5/25/11 Tax Notes article, "1986-Style Tax Reform: A Good Idea Whose Time Has Passed." And the Republican plans aren't sufficiently well-related to this idea in order to be called "tax reform," other than in the "we think it's good, even if you think it's bad" sense.

From at least the 1950s through the early 1980s, "tax reform" tended to mean repealing income tax preferences, and broadening the tax base, so that the tax would become more progressive, with the high statutory rates at top income levels coming closer to be true effective rates.

Thus, for example, the Reagan changes in 1981 - mainly, greatly reducing income tax rates and speeding up cost recovery for business assets - weren't called "tax reform." Obviously, the proponents thought that these were good changes, but they didn't use a label that they knew meant something else.

Then the meaning of "tax reform" changed. A key moment was the introduction of Bradley-Gephardt by two Democrats, followed by Kemp-Kasten by two Republicans. The Reagan Administration Treasury I and Treasury II plans, followed by House and Senate bills that gave rise to the enactment of the Tax Reform Act of 1986, cemented the new meaning.

Now "tax reform" meant broadening the base and lowering the rates, with the aim of being both revenue-neutral and distribution-neutral. So it was no longer about increasing progressivity, but it also wasn't about reducing it.

Whether or not this is a good model, it is what the term "tax reform" has generally meant for more than 30 years. (In the above-cited article, I argue that it's no longer a good model for how we should change the tax laws.) The line of argument for it, which is pretty compelling if one agrees that the "preferences" it would eliminate are bad, relies (perhaps naively) on horizontal equity between taxpayers along with inter-asset neutrality. The underlying political economy theory holds that stuff Congress put in that diverges from taxing all income the same is likely to reflect interest group politics, administrative problems, or something else other than good policymaking.

More recent Republican-led "tax reform" efforts have often aimed at something quite different: reducing not only tax rates but progressivity and net revenue. Not always - Dave Camp's international tax reform plan when he was House Ways and Means chair tried to do something akin to "tax reform" as typically defined. And Mitt Romney in 2012 at least gestured towards revenue and distributional neutrality, although he was rightly criticized because that was not realistically achievable under his parameters (which he had deliberately left vague).

Now, however, Republicans in both the Administration and Capital Hill are pretty clearly - although there is occasional lying about it - aiming to reduce business taxation, reduce progressivity, and reduce revenues. Reducing tax rates is now the main feature, rather than one of two paired features. There may be some offsetting items that at least arguably constitute base-broadening, but they will be greatly outweighed by the rest of it.

This also, notoriously, will no longer be a bipartisan process. The idea of being revenue-neutral and distribution-neutral was crucial to the once-bipartisan character of "tax reform." In effect, the Democrats and Republicans said to each other: "Since we disagree about distribution and revenue levels, let's take all that off the table and find things about which we can agree." One reason that the likes of McConnell are so vehement about excluding Democrats from the process is that it would push them towards retaining those features, which they now oppose.

BTW, just as an aside, in the academic community the chief focus of discussion and interest has long since moved past 1986-style exercises. When we talk about tax reform, we are usually focused (whether pro or con) on (a) partially or wholly switching from income taxation to consumption taxation, and/or (b) finding more neutral ways to tax business income, be it domestically or internationally. This often proceeds under the view that revenue and/or distributional neutrality should be a key feature of the switch, so as to keep the main focus on the structural issues.

Okay, back to the bottom line. The term "tax reform" has come to have a clear historical meaning, beyond simply "we think this is good," based on attributes that emerging Republican proposals in Washington are certain to lack. So let's drop any pretense that the term is properly descriptive, other than in the sense that the proponents of course are arguing that their proposals are good.

And let's drop the analogy to 1986, which involved a very different set of changes, adopted in a very different era through a very different process. It's not illuminating here.

Friday, August 11, 2017

In memory of Harry Grubert

I am sad to pass on the news that Harry Grubert, longtime Senior Research Economist in the Office of Tax Analysis at the U.S. Department of  the Treasury, and also a friend I greatly admired, has died quietly from a long-term illness.

Harry had more knowledge about U.S. international taxation than any other living individual. I'm not referring to legal knowledge, of course, as he was an economist - albeit, an exceptionally well-informed one about the law. But his long years of research and study regarding U.S. multinational firms, based on tax data that he understood better than anyone else, made him an extraordinary resource, almost like a public utility in light of his kind generosity and willingness to share what he knew.

He was also a leading scholar who developed a number of interesting and important international tax reform ideas (often in coauthored work with Rosanne Altshuler), and one whose research yielded innumerable consequential empirical findings - for example, regarding the costs associated with U.S. multinationals keeping their funds tied up abroad.

I would generally see him a couple of times a year at research conferences, most recently in Oxford this past May. And he was a presenter at the NYU Tax Policy Colloquium, I believe three times. We wouldn't have kept asking him back if he hadn't combined excellent and important papers with being a great presenter and fount of knowledge as well as wisdom.

As a matter of style, Harry was a fox, not a hedgehog - he knew many things (and I do mean many), rather than being inclined to focus on one big thing. If you'd ask him, say, about Rule or Proposal X's effects, he'd say: Here are the 17 margins at which it has an impact. He could even snap at the hedgehogs a bit, when the mood took him (suitably to the metaphor, I suppose). But his kindness and generosity always prevailed, with all who engaged with him.

Thursday, August 03, 2017

Possibly near the end

Buddy, age 14 and a member of our household since he was 10 months old, is not looking good - this photo perhaps fails to capture the full dinginess and fatigue that you can see on him in person - and evidently is not feeling good. He just sits like this in one place all day, sometimes a sheltered place. He has multiple progressing medical conditions, including a tumor, a heart murmur, and most recently diabetes. We're not certain yet, but it appears today that he may have decided to stop eating.

Until recently he'd been sick only once in the entire time that we have had him. Energetic (one of the great escape artists of his generation), easygoing (albeit manically energetic as a kitten), and unfailingly benign in temperament, he has been a great companion for a very long time. He likes (liked?) to lick people he knows on the nose. It hurts to see him like this.

The vet will see him tomorrow, and perhaps we'll know more then.

UPDATE (8/6/17) - He's eating small quantities of things that are very fragrant and appealing (e.g., bonito flakes). The vet thinks the cancer may have spread to his lymph nodes; gives him a week or two. We're trying to keep him as happy and comfortable as possible in the interim.

UPDATE (8/14/17) - Buddy died tonight, hopefully without much pain. Tapped out about what to say, but a great cat who had I think a good life.

Monday, July 31, 2017

Video of a recent talk

A month ago (on June 30), I gave a talk at the Oxford Summer Conference entitled "A U.S. View of the EU State Aid Cases."  I briefly blogged about it here, and posted a link to my slides, which are available here.

The Oxford folks have now posted videos of all the sessions at the Sumer Conference, and a video of my talk is available here.

Friday, July 28, 2017

The latest on "tax reform"

Six Republicans in leadership positions with respect to tax policy - Ryan, McConnell, Mnuchin, Cohn, Hatch, and Brady - have now issued a public statement regarding their plans for significant tax legislation, which they call "tax reform." It appears to promise a more open, conventional, and committee-based process than that which the Republicans used with respect to healthcare. Other than that, here is the key paragraph, broken down sentence-by-sentence with my annotations after each:

"We have always been in agreement that tax relief for American families should be at the heart of our plan."  Comment: This is standard boilerplate. "Tax relief for American families," in the sense that this term is meant to have (e.g., middle-income two-parent households with children), will get only a small percentage of the benefits, if indeed they get any.

"We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones." Comment: This appears to mean that the self-employed, even if they are extremely high-income, will pay lower tax rates than employees. I've commented previously on what a poor design feature this is. But there is admittedly an underlying dilemma here. All else equal, it might make sense to align the tax rates of small business and large business. And it might make sense to lower the tax rates for internationally mobile capital income insofar as it is only lowering the "normal" rate of return. But it makes no sense to tax employees at higher tax rates than the self-employed, and it's also likely to be extremely regressive. There are indeed ways out of the box, but they generally would require more significant structural changes than these folks appear to be contemplating at this point.

"The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas." Comment: They're not committing to how much they'll cut tax rates, but this (unsurprisingly) means as a practical matter that the proposal will lose revenue, requiring it to be phased out after 10 years unless they come up with some trick to avoid that result. "Unprecedented capital expensing" is a consumption tax-like result that would make more sense if accompanied by interest deduction limits, on which they are at this point silent. "Permanence" seems to mean they want to avoid the phaseout if possible, by one means or another, but I think it will be impossible unless they play games with the budget rules. "Bring back jobs" doesn't have a definite meaning unless it refers to lowering the corporate rate. Shifting to a territorial system (which I'd presume they'd want to do) is hard to square with these words rhetorically. The reference to profits taxed overseas presumably means that they anticipate no longer taxing U.S. companies' dividends from foreign subsidiaries - suggesting the enactment of territoriality - perhaps with a deemed repatriation at the transition. I've for years advocated taxing deemed repatriations, to address the foreign profits issue, but I suspect they'd have a very low repatriation tax rate, because otherwise the taxpayers subject to it (who have friends) might be unhappy.

"And we are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base. While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform." Comment: That one speaks for itself. Buh-bye to the destination-based cash flow tax, at least for now. Ryan and Brady would have been politically unwise to fight further on this front.

Thursday, July 13, 2017

It all depends on how you look at it

The New York Mets must be the best team in baseball.  They have an All-Star outfielder whom their manager doesn't even plan to play.

Somehow it doesn't sound as good if you say that they have a manager who doesn't even plan to play their All-Star outfielder.

Speaker schedule for 2018 NYU Tax Policy Colloquium

We now have a tentative speaker schedule for the 2018 NYU Tax Policy Colloquium, which I will be co-teaching with Lily Batchelder. We'll be meeting on Tuesdays, from 4:10 to 6 pm, in Vanderbilt 208 (our usual room).  It goes like this:

1.  Tuesday, January 16 – Greg Leiserson.Washington Center for Equitable Growth.
2.  Tuesday, January 23 – Peter Dietsch, University of Montreal Philosophy Department.
3.  Tuesday, January 30 – Andrew Hayashi, University of Virginia Law School.
4.  Tuesday, February 6 – Gerald Auten, U.S. Treasury Department.

5.  Tuesday, February 13 – Vanessa Williamson, Brookings Institution.
6.  Tuesday, February 27 – Jacob Goldin, Stanford Law School.
7.  Tuesday, March 6 – Lisa Phillips, Osgoode Hall Law School.
8.  Tuesday, March 20 – Michelle Hanlon, MIT Sloan School of Management.
9.  Tuesday, March 27 – Damon Jones, University of Chicago Harris School of Public Policy.

10.  Tuesday, April 3 – Ajay Mehrotra, American Bar Foundation and Northwestern University School of Law.
11.  Tuesday, April 10 – Jason Furman, Harvard Kennedy School.
12.  Tuesday, April 17 – Emily Satterthwaite, University of Toronto Law School.
13.  Tuesday, April 24 – Wolfgang Schon, Max Planck Institute.
14.  Tuesday, May 1 – Joshua Blank, NYU Law School.

Leaving aside the horror of its being winter again at the time when the colloquium starts - and that will have happened anyway by then, colloquium or no colloquium - I'm looking forward to 14 interesting and diverse papers and discussions, and to another great semester.

Sunday, July 02, 2017

Travel reading

The amount I read for pleasure on my travels was reduced by my also needing to read papers that were being presented, while also polishing my presentations and working on my literature book. But, during the Mexico City and Oxford trips, I did get to read most of (1) Chimamanda Adichie's Americanah, and (2) Henry Blake Fuller's With the Procession.

In Americanah, it's a bit depressing from the perspective of 2017 to read about the characters' response to Obama's election and inauguration. But it's a really excellent work of both narrative fiction and sociology. A friend suggested that I consider it for my literature book, in which I'm not absolutely set on all of my current-era choices. But while it deals with class, and while I ought to deal with U.S. race-class interactions at some point, I don't see it as sufficiently directed at my particular interests in the book (as distinct from, as an American living in our society today).

With the Procession was published by Fuller in 1894 and is set in Gilded Age Chicago. I had decided, after initial inquiry well short of a full read, not to include it among my 3 U.S. Gilded Age chapters (which will deal in turn with Twain & Warner's The Gilded Age, Dreiser's The Financier and The Titan, and Wharton's House of Mirth). But it's sharply satiric and quite good, and certainly makes the list of the next 3 that I would have done from this era if I were spending more chapters on it (the others being William Dean Howells' The Rise of Silas Lapham, which I like but don't love, and Booth Tarkington's quite interesting The Magnificent Ambersons).

For those who might be interested, With the Procession is available as a free Kindle download from Amazon, although for some reason it can be hard to find in this format on their website.

Comments on the EC state aid cases at the Oxford Summer Conference

On Friday I spoke at the Oxford University Centre for Business Taxation's Summer Conference. This is a public event with a large audience, discussing matters of general tax policy interest, as distinct from the academic conference earlier in the week, which focuses on attendees' works in progress.

I discussed the EC state aid cases, with particular reference to the Apple-Ireland case, on a panel that was more generally focused on issues of tax uncertainty. My slides are available here. They're different and I think better than the slides I posted a few weeks ago when I discussed the same topic at a conference in Luxembourg. They generally aim to be balanced, fair, and above-the-fray.

Thursday, June 29, 2017

Some photos and an odd fact

From a Liverpool Beatles tour that I did today, in between yesterday's end of the Oxford academic symposium and tomorrow's one-day Oxford summer conference:

1) Here's where Julia Lennon was killed in July 1958 by a bus, moments after saying goodbye to John at the Mendips house where he was living with his Aunt Mimi.

2) On a more cheerful note, this is Strawberry Fields. And here's an odd fact: according to my guide, when Mimi would tell John that he'd get in trouble for climbing over the wall to spend time here (which he did around the back, not at the front gate), he'd reply: "They won't hang me for it, you know." The guide suggests that this is (part of?) what he had in mind when he wrote the line "Nothing to get hung about."
3) And here's the Penny Lane roundabout. There's also a barber shop and bank nearby, both apparently the same storefronts but extensively remodeled since back in the day.

Wednesday, June 28, 2017

Working in the same garden?

Courtesy of the Tax Prog Blog, I note that my old friend Mihir Desai, with whom I co-taught the Tax Policy Colloquium a few times, has published a book entitled "The Wisdom of Finance: Discovering Humanity in the World of Risk and Return."

From the description, it appears to be quite different from my literature project, but there is a commonality to our both engaging with the broader liberal arts, etc.  Plus, we have at least one text in common. To quote from what I take to be Mihir's opening:

"... This book is about how the philosopher Charles Sanders Peirce and the poet Wallace Stevens are insightful guides to the ideas of risk and insurance, and how Lizzie Bennet of Pride and Prejudice and Violet Effingham of Phineas Finn are masterful risk managers...."

Excuse me here while I break in for a moment  What's this "Lizzie Bennet"? It's ELIZABETH Bennet. Mihir doesn't know her well enough to call her that. I don't know her well enough to call her that. Quite improper, unless one is one of her intimates. Miss Bennet would be most displeased if she knew.

Monday, June 26, 2017

Comments on Kleinbard's "The Right Tax at the Right Time" (discussing his Dual BEIT proposal)

Today, at the Oxford University Centre for Business Taxation's 2017 Academic Symposium, I was the discussant for a paper by Ed Kleinbard that discusses his business tax reform proposal, the dual BEIT (dual for using the dual income tax to separate capital income from labor income; BEIT for business enterprise income tax).

The slides for my comments are available here. Two quick bottom lines might be (1) I think this proposal deserves to be on the agenda when people discuss business tax reform, and (2) for all of the various proposals out there, it's analytically useful to decompose them a bit into their multiple components.

Two acronyms in the slides that I didn't explain because I knew they would be covered in Ed's presentation are (1) COCA = cost of capital allowance (allowed to businesses on their assets inline of any actual interest deductions, and (2) PCO = participating controlling owner (who the proposal taxes on suspected labor income that has been retained at the entity level rather than being paid out as salary).

Wednesday, June 21, 2017

"Tax Scholarship, Illustrative Examples" panel at LSA

Today at the Law and Society Association's Annual Meeting, in Mexico City, I participated in a very interesting panel entitled "Tax Scholarship, Illustrative Examples."  Thanks to Neil Buchanan and Jennifer Bird-Pollan for arranging it.

My co-panelists were Leandra Lederman, Aja Mehrotra, and Lisa Philipps, and each of us had an entirely distinct topic. Leandra's was the relationship between tax enforcement and voluntary compliance, Ajay's was the rise of the VAT and why the US doesn't have one (with comparison to Japan, which didn't have one until 1989), and Lisa's was the relationship between  tax expenditure analysis and that of budget policy's effects on gender issues. The unifying theme, in part for more junior scholars in our informal LSA tax group, was looking at different directions that scholarship can take and the lessons for people who are in the earlier stages and still figuring out what sorts of things they want to and/or should do.

My talk was based on my literature and high-end inequality project, with particular reference to my Jane Austen chapter "Why Aren't Things Better Than This? Class Relations Within the Top One Percent in Jane Austen's Pride and Prejudice." But I also touched on the broader panel themes of deciding what sort of scholarship to do, etc.

The slides for my talk are available here.

Monday, June 19, 2017

Video of the Tax Reform panel at NYU last week

Here is the video of the tax reform panel at NYU last week. I speak from about 6:20 to 19:15.

Friday, June 16, 2017

Slight revision to my DBCFT slides

In case it's of interest, I've slightly revised my slides on the DBCFT. They are available here.

The only non-trivial change is the newly inserted Slide 11, which questions whether we all should continue focusing, to the degree we have been, on the DBCFT as  a leading tax reform instrument.

Thursday, June 15, 2017

VAT follow-up

At yesterday's ABA-Tax Analysts Tax Reform Panel, someone from the audience made the suggestion that, if Congress actually enacted a VAT, whether straightforwardly or via a disguise such as the DBCFT, it surely wouldn't be a pure-looking broad-based one. Rather, there would presumably be lots of special rules for particular industries, etc.

I actually once wrote and published a commissioned article about this very topic, for a conference on tax reform.  The piece is more than 10 years old, so the political discussion might be a tad out of date, but the more general points may still hold. It's available here.

Wednesday, June 14, 2017

ABA-Tax Analysts Tax Reform Panel

Today at NYU I participated in a panel, sponsored by the ABA and Tax Analysts, regarding the current prospects for tax reform (be it so-called or actual). My fellow panelists were Ajay Mehrotra, Peter Merrill, Ray Beeman, and Lee Sheppard. Here's a photo (courtesy of the Tax Analysts Twitter site). I'm second from the left, and the others are in the order in which I named them above.
Here's more or less what I said during my speaking slot near the start of the session (much of it based on the content of these slides):

There's an old joke in which a proud mother, watching her son march with the high school band, says: "Will you look at that! Everyone's out of step but my Johnny."

The U.S. federal tax system invariably brings this joke to my mind, at discussions of tax reform, because of how it differs from everyone else's.  All peer countries have a VAT, a lower statutory corporate rate than we do, and less relative reliance in their tax systems on income tax revenues.

It's not just due to the wisdom of crowds that we might reasonably suspect that we have it wrong. Our distinctiveness also contributes to the facts that (a) our tax system is more progressive than the norm, but (b) our overall fiscal system is considerably less progressive than the norm, plus (c) we have worse problems of tax competition and tax inefficiency than we would have if we conformed to standard global practice.

All that being said, tax reform is easy.  All that we need to do is: (1) enact a VAT, (2) lower our statutory corporate tax and overall reliance on income tax revenues, plus (3) take care of THE REST - i.e., make all other changes that are needed to get to an overall tax and fiscal system that we like.

Obviously, I'm kidding when I say that tax reform is easy. Even leaving aside the political issues, which I'll turn to shortly, the big problem lies in properly defining "THE REST." It includes deciding on: revenue levels going forward, spending levels going forward, and achieving desired distributional goals - which relate to people on both the top and the bottom of the wealth/income spectrum.

But the thing is, properly handling "THE REST" should mean that one can get a better fiscal system, by one's lights, whether one is on the left or the right politically, or anywhere in between.  Indeed, it even should mean in principle that there potentially are "Pareto deals" available from the standpoint of people on the left and the right. If they could negotiate in good faith towards creating a stable new fiscal system that included a VAT, there ought to be available options, with regard to "THE REST," that would leave both sides happier than they are now. For example, the left could get a bit more funding for social spending, the right a bit less capital income taxation, and if there is increased efficiency and inbound investment there ought to be a source of surplus available for them to split to mutual advantage.

But there are two problems that impede our getting to this happy state: (1) our broken politics, which would prevent us from either negotiating the Pareto deal or keeping it in place afterwards, and (2) the apparently unshakable political constraint against our having an explicit VAT.

Why can't we have an acknowledged VAT? Part of the problem is historical (1970s tax revolt, defeat of Al Ullman in the 1980 election after he advocated a VAT, Reagan "revolution," etc.). But it's more than just historical - after all, decades have passed since then, and it still seems to be true.

To my mind, the key to why we can't have a VAT lies partly in the old Larry Summers joke that's frequently quoted but rarely analyzed. Larry reportedly said: "We don't have a VAT because conservatives view it as a money machine, and liberals view it as a tax on the poor. But we'll get it when liberals figure out that it's a money machine, and conservatives see that it's a tax on the poor."

People usually just mention this joke and move on. But there are two odd things about it. First, it's paradoxical. Why should liberals and conservatives be so myopic in opposite ways? Even if it's true, it doesn't make sense without further explanation. Second, it seems to make a prediction ("we'll get it once..."), but the prediction doesn't seem to be coming true.

So how can we explain these two odd aspects? I see two main points. First, even outside the US it's politically hard to introduce a new tax such as the VAT. In many countries, it got help from, say, its replacing rightly disliked gross receipts taxes, or being a precondition of joining the EU, or responding to a fiscal crisis. Without something like that, it's a hard political sell even without crazy US politics.

Second, US political dissensus, and both sides' risk aversion, stands in the way of a deal. While it's true that a tax system with a VAT can be superior to what we now have, from either a liberal or conservative standpoint, so long as "THE REST" is properly specified, it's also true that a VAT would permit either side (if it had control) to make the system worse, from the other side's standpoint (for the reasons that the Summers joke identifies). So the players are angsty about a VAT unless they are confident enough about what "THE REST" will look like, not just today but also in the future.

The end result is that one can only introduce a VAT by camouflaging it. And as it happens, for a structural reason only Republicans can currently do this. They can sub it in for the existing corporate income tax, and not admit that it's a VAT, thus avoiding both the label and the creation of a new tax instrument. But the Democrats can't do this, given that they generally want to retain the corporate income tax, unless they can identify something else to replace it with. (Here the payroll tax comes to mind, but the problem is that one can't turn it into a VAT and claim that it's still the payroll tax - whereas one can convert the corporate income tax into a VAT and pretend it's still a corporate income tax.)

Examples of a disguised VAT that would replace the existing corporate income tax include (1) Ted Cruz's "business flat tax" from the 2016 campaign, which Marco Rubio correctly, if inelegantly, called a "VAT tax" (i.e., a value-added tax tax), and (2) the destination-based cash flow tax (DBCFT) from this year's Ryan plan.

The DBCFT appears to be politically dead, but the episode was nonetheless politically illuminating. The public didn't understand it, and I thought at times that tax policy experts got a  bit confounded by it as well. Now, experts individually and collectively did a really outstanding job of analyzing, for example, its trade effects, the currency issue, possible legal problems under the WTO and tax treaties, etc. But where I thought they sometimes went wrong is in thinking of it as  really a thing - like, say, the Bradford X-tax is a comprehensive thing - rather than as an assemblage of distinct proposals that is incomplete unless one specifies the rest of the fiscal system.

Conceptually, the DBCFT has 3 main parts. First, it creates a VAT - clearly, in my view, a good thing if "THE REST" is suitably tailored. Second, it lowers the origin-based corporate income tax to zero. There are reasonable arguments for doing this, but in my own view (shared, for example, by business tax reform plan authors such as Toder & Viard, Altshuler & Grubert, and Kleinbard) zero is too low here unless one sufficiently fixes a bunch of other things as well. Third, it has its own "everything else," - including, in particular, a wage deduction. But (a) one can't really assess the wage deduction without looking at how wages are treated overall by the tax and fiscal system, and (b) we still haven't really fully specified the rest, so it's hard to tell without more if the sum total is good or bad. Also, putting the wage deduction into the same tax instrument as the VAT, instead of adjusting the overall treatment of wages somewhere else in the tax or fiscal system, appears to have huge downsides - pertaining, for example, to WTO and tax treaty issues, along with the refundability problem for exporters that would always have "losses" by reason of paying wages.

The apparently politically adverse fate of the DBCFT may tell us that disguising the VAT doesn't sufficiently address the political obstacles to adopting it. And I am not optimistic regarding the merits of what Congress might do this year instead. If they vastly increase the fiscal gap and also fail to achieve bipartisan buy-in, they will just be making things worse (and more unstable) and setting the stage for more and more lurching "tax reforms."

Wednesday, June 07, 2017

There is little reason for anyone outside the U.S. to be thinking about the DBCFT as such

The destination-based cash flow tax has been attracting excitement from all over the place, dim though its current U.S. legislative prospects appear to be. In the EU, for example, I'm going to at least 2 events later this year at which it will be extensively discussed, and I am sure there are plenty more such events.

I don't think the DBCFT merits all this discussion - not because it's bad (depending on the broader context and myriad design/implementation details, it might even be good), but because it's not really a thing in the sense that people think it is.

What is the DBCFT, basically? As per the slides I recently posted, what it would amount to, in the U.S., is (1) enactment of a VAT, plus (2) elimination of the origin-based corporate income tax, plus (3) a wage deduction, plus (4) various other details - e.g., interest generally included and deducted, but no net interest deduction.  Let's go through these features, one at a time.

(1) Enactment of a VAT - Nearly all other countries already have one. The key reason for talking about the DBCFT is entirely U.S.-specific. It's about enacting a VAT without having to call it that.

Now, it's true that the policy options other countries might want to consider could include raising their VAT rates and using the extra revenues to help fund eliminating their origin-based corporate income taxes. But if so, why not put it that way? Who needs all the rigmarole about a "DBCFT" to describe and evaluate such a policy move?

(2) Eliminating the origin-based corporate income tax - Other countries tend to have lower-rate origin-based corporate income taxes than ours. But all such taxes, including ours, face serious problems in a world of global tax competition. So there is a case for eliminating origin-based corporate income taxes.

There might also, however, be reasons for keeping them. E.g., in order to tax rents earned by domestic producers on exports (a particularly important issue for the U.S., what with its West Coast IP mega-firms). And/or, to back up the income tax on individuals. Due to such issues, a number of recent U.S. business tax reform proposals have proposed NOT zeroing out the origin-based, entity-level corporate income tax. E.g., Altshuler-Grubert, Kleinbard, Toder-Viard.

The debate here - should origin-based corporate income taxes be eliminated? - is an important one, in which there are significant arguments on both sides. But I think this debate is murked up and mystified, not clarified, by posing the question as "should we shift to destination basis." Yes, there's a good case for having a destination-based consumption tax (i.e., a VAT) in one's tax instrument toolkit. But it isn't either-or - again, the question is whether we should ALSO keep something of the origin-based corporate income tax.

(3) Wage deduction - This is an important feature of the U.S. DBCFT as proposed. In the particular U.S. context, it might cause replacing existing business income taxation with the DBCFT to be more progressive than replacing it with a VAT that raised the same revenue.

But as a more general or abstract matter, one can't have an intelligent or coherent discussion of the wage deduction without looking at the overall treatment of wages in a given fiscal system. So the right question is how should we treat wages overall, not whether taxes that were collected from business entities should have a wage deduction.

The original X-tax proposal by David Bradford (building on the Hall-Rabushka flat tax) was a coherent and comprehensive package. It took a VAT (be it origin-basis, as it was at the end for Bradford, or destination basis) and packaged it not just with the wage deduction, but also with worker-level taxation of wages at graduated rates in the context of also replacing the individual income tax. That was a comprehensive overall plan that one could evaluate coherently.

But, in the DBCFT as such, the rest of the package isn't specified, so we don't know what we're doing overall or why. Now, in the specific U.S. context in which it was originally proposed, this arguably made sense. Alan Auerbach's rationale for the DBCFT, as I understand it, was that, even if non-business income taxation remained largely unchanged due to underlying disagreements, inertia, etcetera, it might still be possible to improve taxation on the business side. That's perfectly reasonable, as an incremental reform idea in the U.S. context. But it doesn't change the point that the fundamental system features to think about aren't "DBCFT or not," but VAT or not, origin-based corporate income tax or not, and how should wages be taxed given the business tax instrument PLUS everything else.

(4) Various other details - In many other ways, the "DBCFT" label or packaging convention has the potential to make things worse. E.g., VATs typically ignore interest income and deductions; the DBCFT would tax interest income, while allowing interest deductions up to the amount of the interest income. But this seems to be proposed less for its own sake than as a consequence of tweaking the existing corporate income tax without having to admit that one is enacting a VAT.

Similarly, combining a wage deduction with the VAT potentially makes business-level refundability problems much worse. So, why not handle wages wholly outside the VAT, such as by adjusting positive tax rates on them directly in the tax instruments that we use to tax wages? Then we wouldn't have to worry as much about refundability, providing interest on net losses, etcetera. The placement of wage deductions inside the DBCFT appears to be a byproduct of subbing it for the corporate income tax without overtly having a VAT (and to make it more progressive than just adopting a VAT while everything else remains the same as a political constraint), rather than of any direct instrumental design rationale.

In sum, let's all (in the academic world, at least - politics may have its own packaging rationales) try to be less excited about the "DBCFT," whether said excitement is favorable or hostile. Instead, let's think more clearly about destination-based VATs, about the retention or not of origin-based income taxes on business activity, about the overall tax treatment of wages, and about the treatment of financial flows and, for that matter, financial firms - all of which might be conceptualized more clearly if we were less transfixed by the shiny new label.

Back from the EU

After a whirlwind European tour I'm back in the U.S,, and at the moment quite tired but I hope to recover swiftly as I'm off again in less than two weeks.

In some ways, this was the "If this is Tuesday, it must be Belgium" tour. I slept in my own bed on May 26, on the airplane on May 27, in Zurich on May 28-29, in Luxembourg on May 30, in Haikko Borga, Finland on May 31, in Warsaw near the airport on June 1, in Lodz, Poland on June 2, in Helsinki on June 3, in Tallinn, Estonia on June 4, and in Helsinki again on June 5-6.

That's a lot of moving around, but in addition to giving 3 talks I did get to see a lot of nice things. My travel strategy is to hit a new city, get oriented, walk around all day (for as long as I'm there) checking out museums, churches, neighborhoods, parks, restaurants, food courts, shops off the main tourist track, etc., etc., and after a couple of days you really do get a feel of having seen something of a place. And all the travel was flawless - no delays, and the planning (which took some effort) all worked out.

I'm off to Mexico City followed by Oxford in a couple of weeks, and in September will have a very different sort of trip (3 weeks in Berlin with only very limited side travel).

I consistently find that I quite like Europe, although I regret being so limited to just speaking English.

State aid cases and my Luxembourg slides from last week

Here are the slides from my talk regarding the state aid cases at a conference in Luxembourg University last week. (I couldn't post them while abroad due to an error that I needed to fix from back home.)

I'll be discussing the state aid cases again later this month, at an Oxford Centre for Business Taxation annual conference, to be held on June 30. The conference, entitled "Escalating Uncertainty and Competition in Business Taxation, will follow immediately on the heels of their 2017 Academic Symposium, at which I'll be a discussant (re. an Ed Kleinbard paper discussing his business tax reform plan). But the Oxford state aid slides will be quite different from the ones I've just posted, reflecting the different setting.

Monday, June 05, 2017

Bill Andrews

I'm very sad to hear about the death of William Andrews, a great scholar and a lovely man who was also, as it happens, my second-ever Tax Policy Colloquium speaker, and an amazing example of what a clear and deep-thinking legal scholar can contribute to the field.

Vacation reading

I wanted to keep it relatively light and fun for my travels (which currently have me on a ferry back to Helsinki after a day in Tallinn). So I started with Carl Hiaasen's Razor Girl, fun but a bit trashy and not his best. Now, Don Winslow's The Cartel, fiction about Mexican drug cartels (and the U.S. and Mexican governments) amid the drug war down there. Harrowing (with apologies for the cliche); brings to mind The Wire in some ways. Great but not quite keeping it light.

Its precursor volume, The Power of the Dog, which is similarly good, brings to mind another book I read at about the same time that is completely unrelated despite having the same title. Thomas Savage's The Power of the Dog, published in 1967 and set among Montana ranchers in the 1920s, is exceptionally good. It's been compared to John Williams' brilliant classic Stoner, and both are among the handful of best books that I read for the first time, not having previously heard of them, in the last 10-15 years.

Saturday, June 03, 2017

DBCFT slides posted on SSRN

I've posted the slides from my June 1 talk, "The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?," on SSRN. They're available here.

Friday, June 02, 2017

European Association of Tax Law Professors, 2017 Congress

Today I spoke at the European Association of Tax Law Professors' 2017 Congress, in Lodz, Poland. (My first time in Poland - I flew into Warsaw last night, then took the train to Lodz this morning.) The event has certainly grown since I was last there 7 years ago (at a Congress in Leuven, Belgium). The conference's topic this year was corporate residence, a natural for me as I have written about it in the past.

Some thoughts (unrelated to my actual remarks) that I, yes, I admit I tweeted during the sessions, as they were brought to mind by the presentations, were as follows:

1) Should we in principle have a DBCFT? Not a well-posed question unless one specifies the rest of the fiscal system.


2) DBCFT = VAT + 0% origin-based corporate/business income tax + ??. Wage deduction not meaningful w/o specifying how other taxes treat wages.

My remarks about "the future of corporate residence - a U.S. perspective" are generally summarized by these slides.

Thursday, June 01, 2017

"The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?"

This morning, I was the keynote speaker at the annual conference of the Nordic Tax Research Council, meeting this year in Haikko Borga, Finland (outside Helsinki). I was unable to stay for the rest of the conference, as I am flying to Warsaw later this afternoon en route to Warsaw, from whence I will proceed to Lodz (pronounced "Wooch," I'm told), Poland in order to participate in the annual meeting of the European Tax Law Professors' Association, where I will discuss the future of the corporate residence concept.

As per the title of this blogpost, my talk was entitled "The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?" Perhaps I am presuming a bit, as it isn't officially dead yet. But even apart from its seeming to be dead so far as I can tell, those with more inside knowledge than I have assure me that it is indeed dead, at least for this year. (Speaker Ryan may not have gotten the news yet, however, and appears to be a bit stubborn about it.)

Apart from giving a Nordic audience some background that will be familiar to American tax policy folk, I try in the talk to take a broader look at the U.S. politics around VAT enactment, or rather non-enactment. The key to me is not just stopping with the old Larry Summers joke, but rather asking why the joke's punchline hasn't come true yet and shows no immediate prospect of doing so.

The joke (if that's what it is) goes something like this: "The U.S. doesn't have a VAT because conservatives view it as a money machine, and liberals view it as a tax on the poor. But we'll get the VAT once conservatives realize that it's a tax on the poor, and liberals realize that it's a money machine."

People in the biz always repeat the Summers observation, which through no fault of its own (or rather because of its pertinence) has become a cliche, but they never ask why it might be so. I suggest in the talk that there are rational underlying reasons for it, pertaining to both conservatives and liberals.

The slides for the talk are available here.

Wednesday, May 31, 2017

Luxembourg conference on tax cooperation and tax competition

Yesterday I participated in a conference at Luxembourg University's Faculty of Law entitled "Tax Cooperation vs. Tax Competition: Cross-Atlantic Perspectives."

First Tracy Kaye presented a talk on countries' cooperation (or not) with respect to information exchange. The U.S., despite its own efforts pursuant to FATCA, has been notably uncooperative itself with respect to implementing and following common reporting standards (CRS), and these days the odds of FATCA repeal would appear to be higher than those for expanded cooperation.  While Tracy considers repeal unlikely given the huge efforts that went into implementing FATCA and its apparent success in boosting compliance and revenues, the people who will make the call may not care much about any of that.  But said people are probably more likely to be in the Congressional leadership than the White House or Treasury given knowledge and staffing levels in the Executive Branch.

I was the second presenter, and I discussed the EU state aid cases from a mainly U.S. perspective that was drawn to a degree (but not rigidly or slavishly) from my paper on the subject.  I'll post short slides on this after my return to the U.S. in about a week,

The third presenter was Yariv Brauner, who discussed formulary apportionment, as a global option to replace transfer pricing, in light of the U.S. states' experience. They started with the three-factor formula (sales, payroll, property) but have been moving towards sales-only or mostly sales.  Yariv is skeptical that countries will find it in their interests to cooperate very fully, but there is an argument that sales-based apportionment might turn out to be decently incentive-compatible.

Then it was off to Finland (in a resort just outside Helsinki) where I will offer a talk tomorrow entitled "The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?"

Saturday, May 27, 2017

Sergeant Pepper reissue

I'm obviously deep in the tank for that Liverpool group, whose music spoke to me so deeply as an adolescent (at which time they had recently broken up) and has continued to do so afterwards.  But Sergeant Pepper is the one album by them that I sometimes feel is buried or outweighed by the hype. Part of the problem, of course, is its instant canonization as The Greatest Album of All Time, which as, Rob Sheffield sagely remarks in his new book, preceded their even composing most of the songs.

I perforce accepted this canonization at the time (going back to the early 1970s - in real time I heard a number of their great late-60s singles but not really the albums until around 1970). But even now it's hard to get past the hype, and to avoid holding it against the album.

On balance, I think the Sergeant Pepper album is great at both ends but weak in the middle.  And the concept is a bit too McCartney-weighted, rather than being more properly balanced. I do happen to like John's song "Good Morning, Good Morning" more than many do. To me it evokes ennui and desperation, rather than just being a throwaway.

Perhaps the album would have come out more consistently strong if they had held back Penny Lane and Strawberry Fields for it (although those two songs made a perfect and truly great single - possibly their best unless you prefer Hey Jude/Revolution).  But I prefer to the Sergeant Pepper album, at a minimum, Rubber Soul, Revolver, and the White Album (despite or perhaps because of its imperfections).  Also Abbey Road if one overlooks a couple of its weakest songs. One could also very reasonably prefer, say, A Hard Day's Night, although that raises commensurability issues. And even the lightly regarded Help! has an astoundingly strong Side 1.

So that brings us to the reissue, which if you go whole hog is 6 disks and more than $100. But I've decided that getting to listen to the remix, plus the outtakes from CD-2, on Spotify is good enough for me.  I'll live without the outtakes on CDs 3 and 4 (insofar as I don't already have them), given the price.

One problem with Sergeant Pepper outtakes is that they tend to sound a lot like the finished album tracks, minus all the touches that were added in production. Outtakes from other albums, when they were doing more live playing together and sometimes took detours before finding a given song's final form, tend to be more interesting. The one exception here, Strawberry Fields' with its fascinating evolution, has already been thoroughly covered elsewhere, especially if you don't limit yourself to the official releases from Anthology 2.

Next year will be the 50th anniversary of the White Album, and that could REALLY use an expanded reissue.  Despite some coverage on Anthology 3, there is lots more. For example, the complete Esher Demos (Beatles Unplugged in George's house right after they returned from India). This has been bootlegged but ought to be released officially. Revolution Take 20 (the "take your knickers off" take), which shows the join between Revolution 1 and Revolution 9. The full version of "Can you take me back where I came from?," although they picked the best part of it for the album. Paul's loud-soft-loud run-through of Why Don't We Do It In the Road. Whatever they have of John's demo take of Good Night, which I gather is incomplete but gets merged into the released version on Anthology 3. Maybe the long version of Helter Skelter, although my impression is that it's probably a bit dull and draggy (they wisely sped and amped it up for the released version). And there is probably more, such as early takes of songs from Let It Be and Abbey Road that were demoed at this stage.  Anyway, all that would be a real contribution, for which I might be willing to shell out > $100 if Spotify only had some of it.

Friday, May 26, 2017

Another possible title for my literature book

Here's the most recent potential title that I am considering for my literature/inequality book: "The Road to Ayn Randism: Literary Perspectives on the Rise, Fall, and Rise of High-End Inequality."

Good or bad, the title does reflect my most recent thinking about how best to summarize the book's overall themes and trajectory.

Immediately upcoming talks

Next week, I'm giving 3 different talks in 3 different countries:

1) Luxembourg City, Tuesday, May 30: A U.S. Perspective on BEPS and the State Aid Cases;

2) Haikko Borga, Finland, Thursday, June 1: The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?,

3) Lodz, Poland, Friday, June 2: A U.S. Perspective on the Future of Corporate Residence.

I will aim to post the slides from each talk right after giving it (i.e., in real time, while I'm still abroad). If this doesn't work for some reason, I'll post them late in the following week after I've returned to the U.S.

Wednesday, May 24, 2017

Now, that's some serious Laffer Curve action ...

Fun detail from Binyamin Applebaum's NYT article describing the sham accounting in the Administration's "budget proposal":

Mr. Trump has pledged to end estate taxation. His budget, however, projects that the government will collect more than $300 billion in estate taxes over the next decade. Indeed, the Trump administration projects higher estate tax revenue than the Obama administration did because it expects faster economic growth.

Even Arthur Laffer's napkin drawing showed zero revenue if the rate is zero. But I gather we are beyond such "pessimism" now.

Friday, May 19, 2017

Onward and upwards in my literature book

To my great pleasure and relief, I have finished the latest chapter in my literature book. Its title ended up being: "Anti-Success Manual?: Mark Twain's and Charles Dudley Warner's The Gilded Age."

These chapters differ from my prior writing in being more like music (if that's not too pretentious-sounding), and less like syllogisms. But I do feel that it's going well, and that I have the set of skills I need for this. The frustration in writing each chapter comes as I flail about for a while, feeling my way towards the right framing and direction, even as many of the pieces take shape early on. And I do feel that this one ended up coming together well.

Next up, Theodore Dreiser's The Financier and The Titan. I've already given them a preliminary read (plus I read them 30 years ago) - and they're great - but it's probably going to be a few weeks before I launch into researching and writing the chapter. BTW, one book that I plan to read early on in the process is John Franch's Robber Baron: The Life of Charles Tyson Yerkes.  Not only is the Yerkes the actual historical figure on whom Dreiser based his lead character, but I gather that he followed the actual incidents of Yerkes' life very closely. So it will be interesting to see how the historical and fictional figures relate to each other.

I have two distinct reasons for waiting before I launch the new chapter. First, I'll be in Europe from May 27 through June 7, delivering 3 distinct tax policy talks, for each of which I have already made PowerPoint slides. (More on this shortly, including the slides themselves after I've given the talks.) Second, I have to focus on a bunch of other things before I launch into something that will consume me a bit.

One of these other things concerns the book project as a whole. My sense of what the book is has been changing. It started out as more policy-based - a way of looking at high-end inequality given my conviction, as discussed here, that a conventional public economics framework is unusually inadequate for dealing fully with the issues presented.

I always felt a bit uneasy about that framework, because it risked being tendentious. E.g., using a social science framework to select books that were somehow "representative" was not at all what I had in mind. In truth, a key reason for doing the book was that I thought I could enjoy it and do it well, and that others would find it interesting, as well as unique. But that, in turn, had to do with what I thought I could bring to reading particular books in a distinctive way. It was about enriching perspectives, not about proving particular conclusions.

As I see it now, while there is an overall narrative, relating to the rise, transformation, and tensions of meritocracy, it's not about drawing Policy Conclusion X. Note also that, by the nature of the enterprise, it's primarily about feelings around inequality at or near the top. After all, my authors are generally affluent people (i.e., at least "middle class," a term that in common usage extends all the way up to the bottom portion of the top 1%), so they are writing mostly about feelings and tensions in that sector. But this is a very interesting and important subject - tensions within and between elites. It's well worth knowing about, from an enriched perspective that conventional social science could not easily bring, but it doesn't quite amount to, e.g., "We should tax the rich more" (or alternatively, less), apart from its helping to explode the narrow public econ view in which people only care about own consumption.

What should the book's title be? I'm still struggling with this, reflecting that I'm working out what the project as a whole is.  (I've now written 7 out of a contemplated 18 chapters on particular works - and I now have a very good sense of what a given chapter might try to do - but still an only incomplete sense of the trajectory.)

Early on, my working title was "Enviers, Rentiers, Arrivistes, and the Point-One Percent: What Literature Can Tell Us About High-End Inequality." But that might not be commercial enough.

This gave way to "Literature and the Rise of Toxic Meritocracy." But that might not be a good enough fit for what the book is turning out to be.

Daniel Markovits has already taken the title "Meritocracy and Its Discontents" for a book he's writing. Anyway, it probably fits his book better than mine.

"A Literary History of Meritocracy"? Probably not a good enough fit for what I'm doing, also it might create the wrong set of expectations.

I do strongly feel that the chapters are good, and that they are fitting together into a coherent whole. So presumably the title will come.

Friday, May 12, 2017

Don't be fooled

This strikes me as pathetic. What with the rising tide of evidence and speculation about Russian ties and collusion, Trump's tax lawyers have released a one-page letter that says, inter alia, that - subject to specified exceptions - his last ten years' tax returns do not show "(1) any income of any type from Russian sources, (2) any debt owed ... to Russian lenders or any interest paid ... to Russian lenders, (3) any equity investments by Russian persons or entities ... or (4) any equity or debt investments ... in Russian entities."

Sorry, guys, but without more information this is bordering on meaningless. I'm willing to accept that the lawyers probably wouldn't have signed this letter unless they felt that it was literally true - but they, or someone in the Trump camp, have chosen the terms to use and have their own definitions of those terms. They have decided what to say and what not to say.

Just for a couple of possibilities that don't seem to be ruled out here, what about U.S. entities owned by Russian people? What about entities or people from Russian allies or satellites or countries from the former Soviet Union? What about intermediaries more generally?

You can't pick your own questions to ask, based on your own definitions of terms, and expect other people to be gullible enough to draw the conclusions you want. It's too manipulated; too un-open. Even follow-up questions might not help enough here. We shouldn't be playing blind man's buff.

If you want people to draw favorable conclusions about a lack of distressing financial ties, do what every other presidential candidate for many decades has done - release the actual tax returns.

This type of modified limited hangout is so Nixonian that it makes me more suspicious, not less.

UPDATE: Here is a nice illustration of why the tax lawyers' letter is so misleading.

Non-australopithecus garhi

According to the Becoming Human website: "Australopithecus garhi ("garhi" means surprise in the Afar language) is a gracile australopith species ... found in the Middle Awash of Ethiopia. Found in deposits dated to 2.5 million years ago ... Au. garhi is important because it may be the oldest hominin species to make stone tools."

The name choice reflects Au. garhi's "surprising" features, e.g., its combining "a projecting apelike face and small braincase, similar to the Lucy species ... [with] teeth [that] were much larger" than expected. But it also no doubt reflects the discoverers' delighted surprise at their good fortune of stumbling on such a rare and important fossil.

Yesterday I had my own, albeit australopithecine-free, delighted garhi. I turned, ahem, 60 years old (which sounds better than saying I started my seventh decade), and I had thought I wouldn't mention it here despite the precedent from ten years ago. I still feel, knock on wood, exceptionally good and fit and so forth, but in some respects one doesn't like where it's all inevitably heading, even if the pace of retreat remains slow (tightly controlled retreat a la Hannibal's center at Cannae, but without his cavalry sweeping up the wings),

But it turned out that - choose your metaphor, either behind my back or under my nose (I don't think it could be both at the same time), a garhi was being prepared for me, in the form of a surprise birthday party.

In retrospect, there were several clues.  But being preoccupied with X, Y, and Z, as well as perhaps unconsciously unwilling to assume or expect anything, I genuinely preserved a blithe, almost Clouseau-ean, unawareness of what was afoot. So I was truly surprised, as well as moved, when I returned home with my wife (the master planner), thinking that we were on our way to dinner out, and found close to 50 people waiting there, along with all the food, drink, etcetera, that would be suitable for such a gathering.

There were people there whom I had first met in each of the six decades that I have now completed, and in every stage of my life. There were long-distance travelers from the North, South, and West who had decided to make the time to do this. People I see a fair amount, and others whom I hadn't seen for a very long time.

I don't want to get too maudlin here, but I am grateful to more people than I can say for how enriching to me it has been to know all of you.

Wednesday, May 10, 2017

Nobody knew writing about literature could be so complicated (?)

Okay, in truth I knew full well that writing about it would be plenty complicated. But I hadn't foreseen how much more complicated and tortuous I would find it than writing about my usual subjects.  I feel that it's going well (albeit slowly) as a substantive matter, but I keep getting lost for days at a time because something about my work so far in a given chapter perplexes me or seems wrong.

By contrast, last summer I twice wrote 10,000 word first drafts of tax articles in just three days - and then just had to polish them a bit, without further rethinking any of the basics. (They're available on SSRN here and here.)

Just as an example of the tangled pathways, and struggles to finalize overall framing and perspectives that have continually beset me in my book in progress about literature and high-end inequality, here are the three titles (so far) that I've had for my chapter about Mark Twain's and Charles Dudley Warner's The Gilded Age.

First, "Bleakness at Dawn: The Clang of a New Era in Mark Twain's and Charles Dudley Warner's The Gilded Age."

Then,"Anti-Success Manual?: Mark Twain's and Charles Dudley Warner's The Gilded Age."

Currently (and I'm hoping I finally have it), "Middle-Class Elitism in Mark Twain's and Charles Dudley Warner's The Gilded Age."

The issue here isn't what's the catchiest title, but what would well express the content of the chapter as I develop it. I keep adding layers and changing the angle of view (even though lots of the pieces are the same each way).

UPDATE: "Precociously Anti-Plutocratic Middle-Class Elitism in Mark Twain's and Charles Dudley Warner's The Gilded Age." But this one is too wordy, hence still a work in progress.

Another new publication

The Oxford University Press has just published (including online for subscribers) The Oxford Handbook of Law and Economics, Vol. 3: Public Law and Legal Institutions (ed. Francesco Parisi).

My chapter, entitled Economics of Tax Law, is available, although I would presume only for subscribers, here. But my SSRN working paper version, from early 2014, should be generally available here.

The Comey firing

I won't say much here about the Comey firing and the clear Watergate coverup analogy, but anyone who (like Senator Grassley) says that we should just "suck it up and move on" is an enemy of our country and our system of government.

Monday, May 08, 2017

Blast from the past

My kids, who are now each in their third decades (i.e., past age 20), used to be considerably younger than that. As they were dinosaur (and related prehistoric reptile) buffs, and perhaps not the only ones in the family, I adapted the words of "The 12 Nights of Christmas" for them.

Recently the lyric sheet resurfaced in connection with cleaning out old stuff that had been shoved in a closet for many years.  So here goes, taking it from the start of Day 12:

On the twelfth day of Christmas my true love gave to me:
12 tyrannosaurs tracking,
11 brachiosaurs browsing,
10 allosaurs ambling,
9 lambeosaurs lowing,
8 herrerasaurs hunting,
7 carnotauruses crashing,
6 liepleurodons lurking,
5 dromeosaurs,
4 triceratops, 3 stegos, 2 dilophosaurs, and a raptor in a fir tree.

Alas, I'm not convinced that the recipient would make it past Day 1.

Tuesday, May 02, 2017

Tax policy colloquium, week 14: Ray Rees and Richard Vann, "International Tax post-BEPS: Is the corporate tax really all that bad?"

Yesterday we completed Year 22 of the NYU Tax Policy Colloquium, with the above-titled article. It's still a work-in-progress, but was good to discuss; it's also to some extent Australia-focused but this creates interesting parallels to the U.S.

The portion of the title after the colon - "Is the corporate tax really all that bad?" - offers the article's main food for thought, in two distinct though interrelated dimensions: the substance of tax policy, and how tax policy gets made in real world political and intellectual settings. I see it as raising two distinct sets of issues. One is how we should think about the corporate tax today, and the other is how we should think about how the corporate tax has been discussed and debated.

1.  Defending the corporate tax
Economists have been predicting the demise of the corporate tax for decades, yet its revenues have been surprisingly resilient (looking not just at the U.S. but other OECD countries). And conceivably its demise or non-demise - whichever ends up happening - is contingent rather than inevitable. E.g., if we eliminated the existing corporate income tax by replacing it with a destination-based cash flow tax - which does not seem to be happening - that might be a contingent event that ended up affecting the ultimate playout.

The corporate income tax is often deemed the most distortionary at the margin of all major existing taxes, and the most subject to being eroded by tax competition. This, too, of course, depends on unfolding choices, e.g., with regard to OECD-BEPS efforts to address profit-shifting. But it's presently needed to defend the individual income tax (since owner-employees can otherwise incorporate, underpay themselves, and use it as a tax shelter) and also to tax rents. That's not to say those objectives mightn't hypothetically be advanced without relying on a corporate income tax, but that would require other changes.

Anyway, back to the paper's analysis. It notes the classic "small open economy" rationale for lowering corporate income tax rates (including all the way to zero). If inbound capital is perfectly elastic - hence unlimited at the global after-tax rate of return and unavailable at any lower after-tax rate of return - then all one accomplishes by taxing it, such as via an entity-level corporate income tax, is to bid up the pre-tax rate of return that outside investors demand. So in a model that has no rents and that assumes perfect elasticity at the requisite global rate of return, lowering the corporate tax rate brings in extra capital that permits local resource owners (such as workers) to generate additional positive returns (such as from higher wages).

Rees and Vann agree that this model has real world relevance. But they criticize relying on it too fast to support the conclusion that it urges for reasons that include the following:

--The benefit is deferred if inbound capital takes a while to arrive and be utilized. Meanwhile, an under-anticipated corporate rate cut yields immediate transition gains to shareholders (even if the long-run incidence of the corporate tax shifts to workers). And other taxes that are imposed to make up for the rate cut may operate more rapidly to impose burdens, depending on their character.

--In Australia but other places as well, the domestic corporate tax rate may basically be the rate that high-income residents pay, not just on their capital income in the economic sense, but also on labor income that they are able to shove into this tax environment. The taxes that pay for the corporate rate cut will often come from middle-income people (e.g., via VAT rate increases or increases in personal income tax rates that don't involve raising the top rate - both likely candidates in the case of Australia).

--If inbound capital is not quite as elastic as the model assumes, the benefits may be reduced. If domestic saving rates are somewhat elastic, and the pretax rate of return declines because not as much needs to be paid to attract inbound, Rees and Vann posit that a decline in the domestic savings rate may require more capital than otherwise to come in to fulfill the simple model's predictions, increasing the pressure on the assumption of full inbound elasticity.

--Rents are a very important and often under-emphasized part of the story. Rents earned by Australian companies often pertain to natural resources; for U.S. firms the story is often about intellectual property. Taxing rents is in principle efficient and is also likely to be progressive.

--Might taxpayer or citizen morale be adversely affected by not taxing corporations either (a) very effectively due to tax avoidance, or (b) at a rate commensurate with that paid by individuals? Views on this differ.

Turning to the U.S. context, I am opposed to lowering the corporate tax rate in isolation, which is to say without funding it in a manner that is distributionally appropriate. I also think it's vital to address the use of corporations as low-rate tax shelters by undercompensated owner-employees. Possible approaches might include: (1) allowing an allowance for corporate capital or corporate equity (ACC or ACE) in lieu of lowering the corporate rate, (2) using a dual income tax structure to ensure that only the "normal" return gets the benefit of low rates, and (3) using Grubert-Altshuler or Toder-Viard style approaches to increase taxation at the shareholder level.

2.  Assessing the terms of debate
The paper strongly criticizes the Australian Treasury Department for preparing studies of corporate tax rate cuts that do not appear to reflect fully honest and consistent modeling. This critique makes me feel, good for a change, about parallel institutions in the U.S. At least so far, and pending political interference that can't be ruled out in the upcoming tax "reform" debate, I believe that our Treasury, Joint Committee on Taxation, and Congressional Budget Office have both chosen to, and been allowed to, perform better than this. Plus we get important NGO backup, such as from the Tax Policy Center, which stepped into the breech when self-serving politicians (encouraged by some academics who should have known better) shut down distributional estimates on the Hill for proposed tax changes.

The paper also suggests an at least implicit critique, which may be expanded in later drafts, of how much (though not all) of the economics profession has tended to look at corporate income taxation, e.g., by stressing the small open economy analysis more than issues around the taxation of rents. This might parallel critiques that others have offered in the past, e.g., regarding "Econ 101ism" or the rise of neoliberalism.

Recently published articles

For some reason, Tax Prof Blog just now linked to my article, "The Mapmaker's Dilemma in Evaluating High-End Inequality," which came out a few months ago, so I will add the link here too.

To some extent the article merely summarizes and runs through some of the main issues associated with high-end inequality, but a few of the main points it makes that I think are useful are:

(1) the importance of distinguishing between high-end and low-end inequality (issues of plutocracy and poverty, respectively). Once one gets past thinking that the only issue posed is the declining marginal utility of a dollar, one comes to realize that the respective issues, while in some ways overlapping, are very distinct and not mirror images of each other.

(2) the centrality of issues outside the standard public economics / optimal income tax toolbox for evaluating high-end inequality. (This is my excuse for taking the approach in my book in progress about literature and high-end inequality. The Mapmaker's article was originally meant to be more or less the same as chapter 2 of the book, but I'm not leaning against using it in the book.)

(3) use of the "mapmaker" metaphor to discuss the issues posed by using simple and restrictive, versus more complex and inclusive, social science models. As should be obvious but is sometimes forgotten, the merits of the tradeoffs depend on the context and the question being asked.

Other pieces that I wrote some time ago but that have been published recently include:

--"The More It Changes, the More It Stays the Same?: Automatic Indexing and Current Policy," in Levmore and Fagan, The Timing of Lawmaking. The book on Amazon is here, and a working paper version of my chapter is here.

--"Taxing Potential Community Members' Foreign Source Income." Just came out as 70 Tax Law Review 75-110 (2016); working paper version available online here.

I tend to forget about a given project once I've finished it, but I suppose a large part of the whole point is to encourage people to read it. (I do indeed write both for myself and for an anticipated audience.)