I've just completed a week in Oxford (with family), attending a Summer Symposium and a Summer Conference held by the Centre for Business Taxation at the Said Business School at Oxford University. More shortly on the substance, including my own two talks (one on the main problems with the U.S. international tax rules, the other on the Obama Administration's international tax proposals). But anyway, most of the world is heading towards an exemption system for outbound investment by resident multinationals (a term of art, of course, as corporate residence isn't a meaningful concept). Today I compared the U.S., which is potentially headed in the other direction, to the boy in the high school parade of whom his proud mother says: "Will you look at that! Everyone is out of step except for my son, Johny!"
One amusing moment today came in a discussion of U.K. law. One issue is UK companies threatening to "expatriate" if the home company rules don't become more favorable. A second issue is ongoing litigation by HM Treasury on economic substance-type grounds.
On the latter, someone from the audience said something about how pretty soon some companies will be singing "the Clash song, 'I Fought the Law and the Law Won.'"
One of the speakers very promptly responded: "Or rather, 'Should I Stay or Should I Go?'"
OK, maybe you had to be there, but it was quite quick and funny in context.
I've also taken enough time off from the conference to go to Blenheim Palace and the slightly Disneyized but nonetheless interesting Warwick Castle. And the conference festivities included a humbling experience punting along the river (how Charles Dodgson could extemporize Alice in Wonderland while punting I'll never understand), and an amusing performance of Twelfth Night. Tomorrow, Stonehenge, and then a week in London.
Friday, July 10, 2009
Thursday, July 02, 2009
On the road again
Last week (June 22-26) I was at an international tax conference in Berkeley. As it was devoted to looking at existing literature, I didn't hear much that was new to me while there.
Tomorrow I'm off again to another international tax conference, this one in Oxford at the Said Business School (July 6-10) and involving a number of new papers or talks. I'll be presenting twice, and hope to get the PowerPoint slides up on the NYU website, in which case I'll link them here. One concerns a chapter of my new international tax book in progress, while the other discusses U.S. trends in international tax policy with particular reference to the Obama Administration's international tax proposals.
After that, a week's vacation in London and then back to NYC as the summer bleeds away all too fast. Summer is by far my favorite time here, from a weather as well as a free time standpoint. I spend the winter cursing the cold and lack of fresh produce, and wishing the summer would get here already. Then I spend the summer half-enjoying it (at least when the rain lets up) and half-brooding about how fleeting it is.
Tomorrow I'm off again to another international tax conference, this one in Oxford at the Said Business School (July 6-10) and involving a number of new papers or talks. I'll be presenting twice, and hope to get the PowerPoint slides up on the NYU website, in which case I'll link them here. One concerns a chapter of my new international tax book in progress, while the other discusses U.S. trends in international tax policy with particular reference to the Obama Administration's international tax proposals.
After that, a week's vacation in London and then back to NYC as the summer bleeds away all too fast. Summer is by far my favorite time here, from a weather as well as a free time standpoint. I spend the winter cursing the cold and lack of fresh produce, and wishing the summer would get here already. Then I spend the summer half-enjoying it (at least when the rain lets up) and half-brooding about how fleeting it is.
Tax expenditure analysis at the Joint Committee on Taxation
While Ed Kleinbard was Chief of Staff at the Joint Committee on Taxation, he sought to modify and revive tax expenditure analysis, along grounds which I thought added to its usefulness and intellectual coherence. What is going to happen to JCT's tax expenditure analysis now that Ed has moved on to USC Law School?
From an interview with new JCT chief of staff Tom Barthold in the June 29 edition of Tax Notes:
TA: Your predecessor also focused a lot on the tax expenditure issue and, for example, looking at how to define expenditures. Will you continue that work, or are there areas that kind of fall into rethinking how the JCT looks at things?
Barthold: I don't currently have a special new thing that I want to do. The staff, as part of its Budget Act responsibilities, identifies and estimates tax expenditures annually. Of course we'll continue to do that. Ed Kleinbard wanted to emphasize it a little bit differently. The taxwriting committees frequently hold hearings where they say, "We want to look at the tax benefits that we've provided to topic X." When the committees look at that, that's a tax expenditure analysis. When our staff prepares background materials for committee hearings, it's often a discussion of how much does this cost, what are the distributional consequences, are there alternatives, what are the economic effects? That's really what a tax expenditure analysis is about.
I suspect that a redacted though still accurate version of this colloquy might read as follows:
TA: Your predecessor sought to revive and change tax expenditure analysis. Will you continue that work?
Barthold: No.
From an interview with new JCT chief of staff Tom Barthold in the June 29 edition of Tax Notes:
TA: Your predecessor also focused a lot on the tax expenditure issue and, for example, looking at how to define expenditures. Will you continue that work, or are there areas that kind of fall into rethinking how the JCT looks at things?
Barthold: I don't currently have a special new thing that I want to do. The staff, as part of its Budget Act responsibilities, identifies and estimates tax expenditures annually. Of course we'll continue to do that. Ed Kleinbard wanted to emphasize it a little bit differently. The taxwriting committees frequently hold hearings where they say, "We want to look at the tax benefits that we've provided to topic X." When the committees look at that, that's a tax expenditure analysis. When our staff prepares background materials for committee hearings, it's often a discussion of how much does this cost, what are the distributional consequences, are there alternatives, what are the economic effects? That's really what a tax expenditure analysis is about.
I suspect that a redacted though still accurate version of this colloquy might read as follows:
TA: Your predecessor sought to revive and change tax expenditure analysis. Will you continue that work?
Barthold: No.
California's budget crisis and the upcoming federal budget crisis
California is teetering on the budgetary cliff these days, issuing IOUs in lieu of meeting its obligations because it can't adopt a plan to close the budget gap even though it is wealthy enough to do so without serious difficulty.
The IOUs remind me of the line in Duck Soup, where Groucho asks Ambassador Trentino for a personal loan until payday and offers a 30-day note. "If it isn't paid in 30 days, you can keep the note."
Living across the country from California, and thus not myself directly facing the main consequences as this plays out, the question that occurs to me is whether this is a harbinger of future U.S. budgetary problems. I am inclined to think that it is.
Obviously, the federal and California situations are easy to distinguish. The U.S. government presides over an even bigger economy, from which exit by tax base factors is costlier. The U.S. borrows in its own currency, and thus has a one-time option to default implicitly through inflation, although this is a bit of a nuclear option given the likely macroeconomic consequences. And the federal government doesn't have Proposition 13 or the other various fiscal hamstrings adopted in California via the statewide ballot process.
But the key point in common is that California's crisis is an entirely self-inflicted wound, reflecting the political system's inability to respond adequately, even when everyone knows (in broad outline) what it has to do, since it's consumed with ideological posturing and chicken games. That is already a problem on the federal level as well, and there is no particular reason to believe that it will ease.
The IOUs remind me of the line in Duck Soup, where Groucho asks Ambassador Trentino for a personal loan until payday and offers a 30-day note. "If it isn't paid in 30 days, you can keep the note."
Living across the country from California, and thus not myself directly facing the main consequences as this plays out, the question that occurs to me is whether this is a harbinger of future U.S. budgetary problems. I am inclined to think that it is.
Obviously, the federal and California situations are easy to distinguish. The U.S. government presides over an even bigger economy, from which exit by tax base factors is costlier. The U.S. borrows in its own currency, and thus has a one-time option to default implicitly through inflation, although this is a bit of a nuclear option given the likely macroeconomic consequences. And the federal government doesn't have Proposition 13 or the other various fiscal hamstrings adopted in California via the statewide ballot process.
But the key point in common is that California's crisis is an entirely self-inflicted wound, reflecting the political system's inability to respond adequately, even when everyone knows (in broad outline) what it has to do, since it's consumed with ideological posturing and chicken games. That is already a problem on the federal level as well, and there is no particular reason to believe that it will ease.
Saturday, June 27, 2009
Shadow, 1991(?)-2009
Today, with a bit of heart-wrenching assistance on the home front, Shadow met his end. At age 18, his body was breaking down on several fronts, with multiple severe conditions that required a very high level of active daily care - seemingly inadequate, however, so far as we could tell, to give him a decent quality of life. At the end he had diabetes, a thyroid problem, bladder problems, kidney disease, was unsteady, and may have had bad arthritis. He would still eat, but slept and rested the remainder of the time, meowing plaintively in an uncharacteristic way and sometimes seemingly trying to keep himself awake, which I've never seen from a cat before.
He was one of the nicest and kindest creatures of any species that I have ever known. I'm not sure our species entirely deserves his extremely positive view of us - although I suppose his experiences with us were pretty uniformly good.
I first met him in a men's clothing store that was having a closing sale. We made friends right away, which I must say wasn't hard to do, and he actually was following me around the store on a short acquaintance. He made us all very happy for eight years, and I just wish we could have known him longer.
Extremely mellow and easygoing at all times, except that he sometimes felt strongly about our food. Here you can see him in happier times, ingeniously using his front paw to extract milk that had been left for a minute in a glass on the table.
Friday, June 19, 2009
Finally, a reason to live in Washington!
... So as NOT to subscribe to the Washington Post, now that it has fired its only good print or on-line political columnist, Dan Froomkin, for political incorrectness as defined from a neoconservative perspective.
I already don't and wouldn't subscribe to the Post, but living in Washington would make it more pointed.
All things considered, probably not a good enough reason to live in Washington.
I already don't and wouldn't subscribe to the Post, but living in Washington would make it more pointed.
All things considered, probably not a good enough reason to live in Washington.
Monday, June 15, 2009
Recent diversions
Mark Maxwell's novel Nixoncarver; Lily Allen (both albums but especially It's Not Me, It's You). The first is mainly for hardcore Nixon (and to a lesser extent Carver) fans; the latter should be (and is) for lots of people.
Not sure I like my new green background on the top, but it's for Iranian solidarity.
Not sure I like my new green background on the top, but it's for Iranian solidarity.
Friday, June 12, 2009
Battle of the revenue estimates
As noted in several news articles with links at the TaxProf blog, the Joint Committee on Taxation estimates that President Obama's international tax proposals will bring in about $50 billion less than the Administration had estimated, over the period from 2011 (when the proposals would take effect) through 2019.
I thought it might be helpful to show the line by line comparisons of the estimates for the main proposals applying to U.S. multinationals:
1) Defer deductions for (other than research & experimentation) that current law apportions or allocates to foreign source income that is deferred: $60.1 billion according to the Administration, versus $51.5 billion according to the JCT. I guess we could say this one is not entirely un-close.
2) Deny foreign tax credit where the associated income isn't recognized and require pooling approach for determining which foreign tax credits are made available by repatriation: $43 billion according to the Administration, versus $55.7 billion (the sum of two amounts estimated separately) according to the JCT. The JCT is higher here, and higher for changes 1 & 2 combined. I wonder if a difference in "stacking" convention is operating here (e.g., when either of two proposals, standing alone, would raise a given dollar, to which of them do you credit it?).
3) Prevent use of "disregarded entities" in overseas tax planning: $86.5 billion according to the Administration, versus $31 billion according to the JCT.
This last one seems to be the source of the big difference. Everything else, including proposals for individuals, adds up roughly the same as between the two sets of estimates over all. So evidently the big disagreement concerns item # 3 above, which would eliminate a device that multinationals use to shift income abroad from high-tax to low-tax jurisdictions without thereby (as would happen if they did it more straightforwardly) incurring a deemed dividend to the U.S. parent under subpart F in the U.S. international rules.
I must say, even without analyzing any data, I thought the Administration's estimate of the disregarded entities change seemed a bit high. I would assume that, as between the two estimates, the one by the JCT (a) treats taxpayers as much more able to find alternative routes to the same tax planning ends, and/or (b) assumes that taxpayers give up on their overseas tax planning maneuvers, since subpart F would now eliminate the benefit, and therefore they end up paying higher taxes to the source jurisdictions, rather than to the U.S. Treasury.
The Obama international tax proposals were probably DOA (in the short run at least) anyway, given the combination of (a) bipartisan opposition, (b) the existence of higher-priority legislative issues, and (c) the lack of top staff on hand in Treasury (especially given the sad recent news that Beth Garrett has withdrawn her candidacy for the Assistant Secretary of the Treasury for Tax Policy position).
A couple of quick points about the disregarded entities proposal:
(a) It merely corrects a mistake that the Treasury made in 1997 when it changed the rules for classifying ambiguous legal entities as C corporations or not for purposes of the U.S. federal income tax. The Treasury surely has the power to act unilaterally on this by fixing the regulations, only (a) under federal budget rules, the Administration then wouldn't get credit for the extra revenue (though obviously the budget deficit would reflect whatever revenue came in, and (b) Congressional leaders, hearing angry complaints from U.S. multinationals, might regard it as a breach of comity. But this doesn't mean the Administration's proposal is good - the past mistake is water under the bridge, and the question of interest today is whether the proposed legislative change would on balance be good or bad policy.
(b)The proposal clearly makes sense IF one favors the use of subpart F to prevent companies from shifting business income abroad from the true source jurisdictions to tax havens. Note that the source jurisdictions could do this themselves (and get the revenue) if they wanted, such as through tougher rules for transfer pricing and the use of debt to strip away local earnings. Perhaps they don't want to because they see it as a targeted tax break for mobile capital investment. I myself am on the taxpayers' rather than the Obama Administration's side in this debate, on the view that the proposal would result in revenue-raising for other countries not the U.S., or else simply lead to reallocation of who does foreign business investment from U.S.-incorporated to non-U.S. incorporated companies.
Clearly it's in the U.S. national interest, all else equal, for companies owned by U.S. individuals to pay lower taxes abroad (since the money goes to someone else, not to us). To take an opposite and pro-Administration view of this issue, one might have to either (a) believe that we still come out ahead from reciprocal anti-tax avoidance efforts, which strikes me as unlikely, or (b) view the lower tax rates abroad as likely to reduce investment and revenues in the U.S., which the empirical evidence (with good logical underpinnings) tends to rebut.
I thought it might be helpful to show the line by line comparisons of the estimates for the main proposals applying to U.S. multinationals:
1) Defer deductions for (other than research & experimentation) that current law apportions or allocates to foreign source income that is deferred: $60.1 billion according to the Administration, versus $51.5 billion according to the JCT. I guess we could say this one is not entirely un-close.
2) Deny foreign tax credit where the associated income isn't recognized and require pooling approach for determining which foreign tax credits are made available by repatriation: $43 billion according to the Administration, versus $55.7 billion (the sum of two amounts estimated separately) according to the JCT. The JCT is higher here, and higher for changes 1 & 2 combined. I wonder if a difference in "stacking" convention is operating here (e.g., when either of two proposals, standing alone, would raise a given dollar, to which of them do you credit it?).
3) Prevent use of "disregarded entities" in overseas tax planning: $86.5 billion according to the Administration, versus $31 billion according to the JCT.
This last one seems to be the source of the big difference. Everything else, including proposals for individuals, adds up roughly the same as between the two sets of estimates over all. So evidently the big disagreement concerns item # 3 above, which would eliminate a device that multinationals use to shift income abroad from high-tax to low-tax jurisdictions without thereby (as would happen if they did it more straightforwardly) incurring a deemed dividend to the U.S. parent under subpart F in the U.S. international rules.
I must say, even without analyzing any data, I thought the Administration's estimate of the disregarded entities change seemed a bit high. I would assume that, as between the two estimates, the one by the JCT (a) treats taxpayers as much more able to find alternative routes to the same tax planning ends, and/or (b) assumes that taxpayers give up on their overseas tax planning maneuvers, since subpart F would now eliminate the benefit, and therefore they end up paying higher taxes to the source jurisdictions, rather than to the U.S. Treasury.
The Obama international tax proposals were probably DOA (in the short run at least) anyway, given the combination of (a) bipartisan opposition, (b) the existence of higher-priority legislative issues, and (c) the lack of top staff on hand in Treasury (especially given the sad recent news that Beth Garrett has withdrawn her candidacy for the Assistant Secretary of the Treasury for Tax Policy position).
A couple of quick points about the disregarded entities proposal:
(a) It merely corrects a mistake that the Treasury made in 1997 when it changed the rules for classifying ambiguous legal entities as C corporations or not for purposes of the U.S. federal income tax. The Treasury surely has the power to act unilaterally on this by fixing the regulations, only (a) under federal budget rules, the Administration then wouldn't get credit for the extra revenue (though obviously the budget deficit would reflect whatever revenue came in, and (b) Congressional leaders, hearing angry complaints from U.S. multinationals, might regard it as a breach of comity. But this doesn't mean the Administration's proposal is good - the past mistake is water under the bridge, and the question of interest today is whether the proposed legislative change would on balance be good or bad policy.
(b)The proposal clearly makes sense IF one favors the use of subpart F to prevent companies from shifting business income abroad from the true source jurisdictions to tax havens. Note that the source jurisdictions could do this themselves (and get the revenue) if they wanted, such as through tougher rules for transfer pricing and the use of debt to strip away local earnings. Perhaps they don't want to because they see it as a targeted tax break for mobile capital investment. I myself am on the taxpayers' rather than the Obama Administration's side in this debate, on the view that the proposal would result in revenue-raising for other countries not the U.S., or else simply lead to reallocation of who does foreign business investment from U.S.-incorporated to non-U.S. incorporated companies.
Clearly it's in the U.S. national interest, all else equal, for companies owned by U.S. individuals to pay lower taxes abroad (since the money goes to someone else, not to us). To take an opposite and pro-Administration view of this issue, one might have to either (a) believe that we still come out ahead from reciprocal anti-tax avoidance efforts, which strikes me as unlikely, or (b) view the lower tax rates abroad as likely to reduce investment and revenues in the U.S., which the empirical evidence (with good logical underpinnings) tends to rebut.
Wednesday, June 10, 2009
Remiss?
Not many blog entries lately, because in summer my engagements reduce sufficiently that I'm not distracted and running from one thing to another. Instead, I can focus at work on my writing, and my energy goes into that. I'm nearly done with chapter 2 (not counting a short intro chapter) of a book on U.S. international taxation that I'm fairly enthused about, in that I feel it will contain new insights and advance the debate. Not that anyone will accept them or anything, but still. A few will possibly see the merits.
My most recent book, Decoding the U.S. Corporate Tax, didn't center on bringing new insight to the practical issues in the field because they haven't engaged me as deeply. Instead, its prime strength is in explaining how and why the rich but under-appreciated economic literature in the area is important, and why none of it really fits (which is the lawyers' fault, not the economists). I do feel this makes the book valuable, as well as often fun to read. But in international tax the practical policy questions engage me more and I feel the theoretical literature has to a greater extent fallen short.
Anyhow, some other random notes. Tonight I attended (most of) an Elvis Costello concert on his country & bluegrass tour. Enjoyable, professional, nice band and sound, seems at this stage an amiable raconteur. I'd never seen him before, but I'll swear by his first 4 albums (plus Spike to a lesser extent). These days, a bit literalist and lacking in poetry as a writer. And almost the only songs I recognized were Blame It On Cain and the Velvet Underground's Femme Fatale. Still, nice to have seen him.
On a completely different subject, I'd meant to post a link to Greg Mankiw's recent co-authored paper that offers a nice little summary of the optimal income tax literature. So here it is. Next time I'm teaching a basic tax policy class I may well assign it, and people who want an intro to the field may find it useful. I had been waiting to have the chance to post a corrected link to an old paper of mine that discusses some related ideas, and that more or less started a micro-genre in the legal tax policy literature on endowment taxation. So here that is. I found to my surprise that this link has a problem - the paper as posted is lacking two charts that may help in understanding the discussion, as well as the bibliography. I'm trying to post a corrected version but it's not up yet. Better the posted one than nothing, I suppose.
My most recent book, Decoding the U.S. Corporate Tax, didn't center on bringing new insight to the practical issues in the field because they haven't engaged me as deeply. Instead, its prime strength is in explaining how and why the rich but under-appreciated economic literature in the area is important, and why none of it really fits (which is the lawyers' fault, not the economists). I do feel this makes the book valuable, as well as often fun to read. But in international tax the practical policy questions engage me more and I feel the theoretical literature has to a greater extent fallen short.
Anyhow, some other random notes. Tonight I attended (most of) an Elvis Costello concert on his country & bluegrass tour. Enjoyable, professional, nice band and sound, seems at this stage an amiable raconteur. I'd never seen him before, but I'll swear by his first 4 albums (plus Spike to a lesser extent). These days, a bit literalist and lacking in poetry as a writer. And almost the only songs I recognized were Blame It On Cain and the Velvet Underground's Femme Fatale. Still, nice to have seen him.
On a completely different subject, I'd meant to post a link to Greg Mankiw's recent co-authored paper that offers a nice little summary of the optimal income tax literature. So here it is. Next time I'm teaching a basic tax policy class I may well assign it, and people who want an intro to the field may find it useful. I had been waiting to have the chance to post a corrected link to an old paper of mine that discusses some related ideas, and that more or less started a micro-genre in the legal tax policy literature on endowment taxation. So here that is. I found to my surprise that this link has a problem - the paper as posted is lacking two charts that may help in understanding the discussion, as well as the bibliography. I'm trying to post a corrected version but it's not up yet. Better the posted one than nothing, I suppose.
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