Monday, October 16, 2017
Most of my time away was spent in Berlin, where I was a Research Fellow for 3 weeks at NYU Berlin. My professional activity there consisted mainly of working on a new article draft on international tax policy. Then I spent a week in Vienna, where I taught a mini-course on International Tax Policy for graduate students in Vienna University's doctoral program in international business taxation (DIBT). Side trips to Amsterdam (for a public speaking event) and Ljubljana (for enjoyment).
Although I enjoyed the trip, it's nice to be back in NYC, which remains my favorite city apart from its winters.
Tuesday, October 10, 2017
I previously discussed the Altera decision here and here. Stripped to its substantive (as opposed to administrative law) essentials, it's a case in which the Tax Court ruled that an indisputably correct Treasury regulation, to the effect that the bulk of compensation costs in a cost-sharing deal between related parties should be included in the formula even if they're structured as incentive compensation, was arbitrary and capricious, hence an abuse of discretion. In effect, it's an abuse of discretion to say that 1 + 1 = 2, unless one spends pages of regulatory preamble explaining why taxpayers were incorrect when they filed briefs at the notice and comment stage arguing that 1 + 1 = 1.
The Tax Court relied upon aspects of true arm's length deals that had zero pertinence or relevance to related party paper-shuffling agreements, and accepted expert testimony to the effect that incentive compensation that in fact is worth millions of dollars should be viewed as having a cost of zero. Here's hoping that the Ninth Circuit straightens things out.
UPDATE: Here is the link for the Morse-Shay posting, further explaining why the Tax Court so clearly erred in striking down the regulation at issue in Altera.
Leandra Lederman adds her comments here.
Tuesday, October 03, 2017
Thursday, September 28, 2017
Is that what they are saying, albeit with a reduced rate for foreign source income? Seemingly yes, but then how is it a "territorial" system? And if they are taxing U.S. companies' foreign source income, how do they propose to "level the playing field between U.S.-headquartered parent companies and foreign-headquartered parent companies"?
The repatriation tax is of course a welcome feature of switching to territorial, but the rate imposed is all important here. I'm guessing it will end up being very low. The dual feature, as between cash equivalents and illiquid assets, has a rationale but is likely to be messy at best in practice.
It's really an insult to have to focus on so sketchy and poorly conceived an issuance. I have better things to do with my time, and there are more thoughtful people around, on the right as well as the left, with whom it would be more fruitful to interact intellectually.
Just two quick things, as I'm saving international for a follow-up post:
--Why raise the bottom rate from 10% to 12%? I can see no good reason for this apart from malicious class warfare. It can't be about revenue, given everything else in the plan.
--The 25% rate for business income of pass-throughs may take the prize as the worst new tax policy idea of the past thirty years. They say they'll have rules to prevent conversion of "personal income" into business income - but that just states (a part of) the problem, rather than offering any suggestion that it could be handled with any success or without massive and idiotic complexity. And why should "business income" get a lower tax rate than "personal income" - such as wages - anyway? Do they hate employment, as opposed to being self-employed? If so, why not simply fine people who take jobs working for someone else? That is essentially what they are proposing to do.
Wednesday, September 27, 2017
Back in Berlin, where I've been writing a new international tax article on the treatment of foreign taxes by the U.S. and other tax systems and how this might related to what I call unilateral and strategic tax policy approaches. This piece pushes forward on some ideas that I've covered more cursorily in the past, and is a nice change of pace for me before returning to my literature & high-end inequality book. Among other things, it's easier to write.
Tuesday, September 19, 2017
Corvids, due to their strikingly high intelligence, have been called "flying monkeys" by knowledgeable bird experts. I gather that they need the brains (which are definitely not "bird brains" in the colloquial sense) both for social reasons and to navigate a complex environment. E.g., given that they are willing and able to eat just about anything, they both need to make good choices, and may try to access things that require some work and cleverness.
But, alas, it doesn't seem practical (and might not be prudent) to try to make a new friend here.
I am confident that my cats, if they were on the scene, also wouldn't deem it prudent to seek a closer association, even if they could get through the closed window. This bird is too big for them.
Friday, September 15, 2017
"Using administrative data linking 10 million firms to their owners, this paper shows that private business owners who actively manage their firms are key for top-income inequality. Private business income accounts for most of the rise of top incomes since 2000 and the majority of top-earners receive private business income - most of which accrues to active owner-managers of mid-market firms in relatively skill-intensive and unconcentrated industries."
This would appear to suggest that the proposed lower tax rates for business owners of pass-throughs are almost precisely targeted to increase high-end inequality as much as possible, in exchange for as little efficiency payoff as possible. These probably tend to be people with low labor supply elasticity and/or who are in effect reaping rents.
So what might they be thinking, if we make the assumption (not 100% certain to be correct) that they actually are thinking strategically about the next stage? The following four things occur to me:
1) The fact that a corporate rate cut is likely to be at centerstage in the package may help them. Their argument that this doesn't help rich people can be both formalistic (corporations are separate taxpayers) and substantive (claims about the incidence of the corporate tax). Two points they will have to ignore, however, are (1) the transition incidence of cutting the corporate rate, which benefits existing shareholders if it wasn't fully anticipated, e.g., due to political uncertainty, and (2) the tax planning opportunities that a low corporate rate may give to high-income owner-employees.
2) They will be trying desperately to ignore the effects on high-income taxpayers of lowering the tax rate on amounts that business owners earn through pass-through entities. This is where the really big distributional action will be, if they go ahead with their reported plans to require people whom the tax system classifies as employees to pay significantly higher tax rates than those whom the tax system classifies as business owners. They'll call this a "small business" tax cut, but the point will be made in response that this a misportrayal of where the bulk of the benefit actually goes.
3) They anticipate announcing a package that takes away state and local tax deductions, and perhaps that also does something to home mortgage interest deductions. But these provisions seem highly unlikely to get through the Senate even if they are in the package and pass the House. Indeed, it's possible that they're being over-optimistic about the prospects even for unified "Big Six" endorsement of this.
4) Might they be planning not to propose repealing what is left of estate and gift taxes? Leaving that out of the package would certainly make it easier to claim that taxes aren't declining for the wealthy. But if I had to guess, they'll just try to brazen through the awkward tension between proposing estate and gift tax repeal and dressing up the package as no tax cut for the rich.
Thursday, September 14, 2017
Speaker Ryan wants to enact expensing, but "Senate Republicans believe it won't fly in their chamber."
Ryan also wants to eliminate (net?) corporate interest deductions, but "the break is important to many companies, and other negotiators [Senate? Administration?] want only to reduce it."
Ryan wants to repeal state and local tax deductions for individuals, "but some are concerned over what that means for upper-middle class people."
Meanwhile, Senator Hatch favors a corporate integration proposal that presumably is dividend deductibility, but "the idea has not gotten much traction with House Republicans."
These are some pretty fundamental disagreements. Indeed, other than cutting rates and exempting things, which as a standalone cannot plausibly be called "reform" and would of course raise budget issues, there's nothing of comparable importance left. (Home mortgage interest deductions are presumably even a bigger political lift than state and local tax deductions.)
Tuesday, September 12, 2017
Since the conference deals with what tax planners should expect in both the US and the EU, I wouldn't be surprised if they asked me whether it's realistic to expect Congress to enact comprehensive tax reform - say, by the end of this year or so.
Hmmm, that's a tough one. I will have to think about it.
Sunday, September 10, 2017
The canonical view of the Rolling Stones' career, for those in my approximate taste sector, goes something like this. In the 1960s, they were the best and most important white rock or pop musicians, with the exception of the Beatles and Dylan, plus in retrospect perhaps the Velvet Underground. But they were mainly just a great singles band (plus other outstanding tracks - e.g., Sitting on a Fence, What to Do, She Smiled Sweetly, and Ride On Baby, to name four that come right to mind), whose albums generally fell short of showing them consistently at their best. Then came the mistake of Satanic Majesties, after which they pulled themselves together by starting their mature period with Beggars Banquet, followed by the 3 classics - Let It Bleed, Sticky Fingers, and Exile on Main Street - after which they got bored and mostly dull for a few albums (albeit, still with a few great tracks). Then they woke up one last time for Some Girls, the fading echoes of which somewhat enlivened the next two albums (Emotional Rescue and Tattoo You). But after that, while perhaps there's a good track here or there, their recordings are generally best forgotten.
Canonical or not, this basically matches my view of their career, except that I would make one big revision that I know is not canonical. Of the "3 classics," I find Let It Bleed and Sticky Fingers overrated and at times boring, although of course they have a number of essential tracks. But Exile on Main Street truly is their pinnacle.
I would put Some Girls second and Between the Buttons, released in January 1967 as their version of Revolver, third. Each of my favorite 3 Stones albums has a distinctive internal creative dynamic. Exile on Main Street is basically a Richards album with Jagger just along for the ride. Some Girls is basically a Jagger album with Richards just along for the ride. And Between the Buttons gets a lot of its punch from Brian Jones' playing a different odd instrument to flavor the sound on almost every track. (It thus makes their much later work sound incredibly monochromatic and boring.)
Anyway, so what makes Exile on Main Street so much better (in my view at least) than Let It Bleed and Sticky Fingers? Again, the latter two have a number of incredible tracks. But there's a whole lot of not that interesting macho posturing going on, along with rock-blues stuff that sounds a bit generic although I realize of course that this is partly from its being imitated so much afterwards (but then again, they were imitating earlier black artists when they did it). Take Honky Tonk Women and Brown Sugar, even leaving to one side their racial and sexual political incorrectness, which were deliberate, pursuant to their outlaw image in a more retrograde era than ours today. Although these tracks are extremely catchy, dynamic, and fun, they can't be at or near the artistic and expressive pinnacle of popular music from the rock era, unless that pinnacle was considerably lower than some of us would like to believe.
But Exile on Main Street is not just rich, full, and beautiful in its sound (despite its famously murky mix) - it makes fantastic use of all the great extra musicians and singers they had on hand - but soulful, wistful, elegiac, and hurt. (Just one great example among many is Torn and Frayed.) Macho preening isn't its thing; instead it's about staring into an abyss of one's own creation. A suitable mood, perhaps, for the United States these days.
Tuesday, September 05, 2017
Thursday, August 31, 2017
Slides for the talk are available here.
It's true that lowering the tax rate on inbound investment (including that which might otherwise be outbound without facing the domestic rate) should increase U.S. investment, all else equal, presumably with positive implications for wages and/or jobs. Although, that said, two important points to keep in mind are:
(1) the labor market is complicated, and it's not a simple question how employment levels end up being set.
(2) the link between productivity and wages also is complicated. It used to be more or less assumed that, if labor productivity increased, including due to added capital investment, wages were bound to go up, too. But data from the last twenty years have cast doubt on this, as "capital" rather than "labor" - although the standard use of these terms may be questioned - has seemed to capture nearly all of the productivity growth. One really has to look closely at how markets operate, how wages are set, who has market power and in what dimensions, and so forth, in order to answer that.
So, even in the best case, calling tax cuts for Wall Street a shot in the arm for American workers is simplistic and questionable, even though it's surely true, all else equal, that we would like U.S. investment to increase and that lower effective tax rates on business investment should tend to accomplish this.
But then we have further aspects to think about. For example, the transition gain from cutting corporate taxes (or, more precisely, from a change in information regarding the likely future tax rate on corporate investment) goes to existing shareholders. Note also that the lower tax rate applies to the fruits of old investment, which are no longer subject to choice based on new incentives. (On the other hand, it is true that Auerbach-Kotlikoff models find a loss to old investment when new investment increases due to a cut in its effective tax rate.)
Also, unfunded tax cuts that the government has to finance through borrowing may lead to crowd-out of new investment. So even the basic simple model in which investment increases so workers gain will not clearly hold. And if you fund the rate cuts - however unlikely that might be in terms of the tax changes that the Republicans are seeking - then someone or something has to pay for it. So middle class taxpayers (and poor people who get reduced services) will have to pay - since it's not going to be the high-income ones, with this crew - and/or there have to be offsetting tax increases on investment (although there is the same issue here of new vs. old investment) that might blunt the incentive effects right from the start.
Final answer: These are complicated issues, so if you want to respect all nuance there is no clear answer to exactly who wins and loses from cutting taxes from Wall Street. And it also of course depends on the package's full details. But if I were forced to give an unnuanced short answer, I would say that the initial optics are probably the best short summary: cutting taxes for Wall Street benefits Wall Street. If that's populist, then it's clear the term has been substantially redefined.
Friday, August 25, 2017
Then on Tuesday 8/29 I'll give a talk to the Hastings Law School faculty regarding my literature book and its chapter on E.M. Forster's Howards End. While that's not a public event and I won't be posting slides during the talk, I wrote slides to use as my own lecture notes and may post them afterwards.
Then back to NYC on Wednesday 8/30. I'll be blissfully detached from the start of the new semester, as I'm on sabbatical this fall. On September 18 I'll start 3 weeks at NYU Berlin, mainly just doing my own work while there. I'll fly to Amsterdam for a day to do a tax panel there for CEOs and such, and also to Ljubljana for the weekend at one point for purely touristic reasons, and then I'll spend a week teaching or really more discussing international tax policy with Vienna University's excellent DIBT graduate students. Then back home for a while.
I may actually complete my literature book this fall - the trick that makes this possible is my dividing it into two separate books so it wouldn't be unduly long. The first book ends with the late Gilded Age, and with all the horrors of the twentieth century that eased high-end inequality (World War I, the Great Depression, World War II, and then more benignly the continuation) still looming around the corner but as yet out of sight. Before starting Book 2, which carries us through to the present, I will probably write an international tax policy article. Rather than just rehashing past things I've said in the past, I do have a couple of relatively novel ideas that I might tackle in this. One concerns thinking about the welter of inconsistent policies that arguably underlie the current U.S. system - when they must be used, e.g., to define (whether legislatively, administratively, or judicially) "abuses" that are counter to its "policy" - and the other, all the recent hoodoo about shifting entirely from origin basis to destination basis.
Thursday, August 24, 2017
Tuesday, August 22, 2017
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
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
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.
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
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
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
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
Thursday, July 13, 2017
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.
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
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.
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
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."
Wednesday, June 28, 2017
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
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
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
Friday, June 16, 2017
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
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
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
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.
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.