Wednesday, January 30, 2008
The other "lost"album in this sense that I have impatiently been awaiting, leaving aside bootlegs such as Neil Young's Chrome Dreams, is Tom Verlaine's Dreamtime, which I have but only as an old 33.
Their data breaks down violent incidents by hours, with 6 pm to 12 am being the presumed viewing times and 12 am to 6 am the aftermath. For the first of these two periods, violence apparently declines due to incapacitation, i.e., the potentially violent are sitting in theaters watching violent movies instead of wandering the streets. From 12 am to 6 am the effect is even stronger, apparently reflecting substitution. Attendees have chosen going to the movie in lieu of drinking more and getting into violent situations.
Bottom line, "our estimates suggest that in the short run violent movies deter almost 1,000 assaults on an average weekend. While our design does not allow us to estimate long-run effects, we find no evidence of medium-run effects up to three weeks after initial exposure."
I have no dog in this fight, merely finding the result interesting and initially counter-intuitive. Next step, of course, is for someone to propose a Pigovian subsidy for movie violence so we will have the optimal level rather than too few given the positive externality. (Meant as a joke.)
Or, to reverse the big pay-off line in The Rocky Horror Picture Show, "don't be it, dream it."
Tuesday, January 29, 2008
That said, but having read about the speech, just a couple of fairly obvious comments. First, while I certainly dislike earmarks, the hypocrisy here is truly hilarious in its blatancy, when you consider his approach to them during the six years when the Republicans controlled Congress. It's not like he's trying hard to pretend it is anything but a partisan game to him.
Second, for all the childish bluster about vetoing any tax increase that crosses his desk, what exactly does he think he is doing, other than raising future taxes, whenever he procures new unfunded spending?
Friday, January 25, 2008
UPDATE: A tough four-point loss in Game 2 of the season. Apparently a bit too much Marburying by some of the players.
For a bit of background flavor, this provision responded to one of Enron's more outrageous scams. Various Enron senior executives had special deferred comp deals that did not have to be disclosed in their financial statements under rules applying at the time or treated as currently taxable. The ground for non-taxability was that individuals using cash accounting don't have to report income currently if it hasn't been paid by the employer and remains unfunded and subject to credit risk.
Leaving aside for the moment the reason for having such doctrines in the cash accounting rules, the Enron deals' compliance with them was a sham. In particular, the moment Enron entered potential financial crisis the amounts were promptly paid (presumably a borderline fraudulent conveyance at the expense of creditors), plus offshore entities may have been used to make sure creditors couldn't actually get at the money.
As one might guess from Enron's association with these deals, the deferred compensation problem actually goes more to corporate governance (concealing and understating executive compensation) than to tax planning. Halperin and Yale show that there is very little tax advantage to deferred compensation if the applicable marginal tax rates are the same for (a) the employer as compared to the employee, and (b) one possible year of inclusion and deduction as compared to another year.
The authors argue that the big tax planning issue is taxpayers using deferred compensation deals to lower the tax rate on the investment return during the period before the compensation is paid. They propose a possible special tax to address this. I argued that the bigger issue might be effective electivity with respect to statutory changes in the tax rate, i.e., using the arrangements to put taxation of the compensation in the most tax-favorable year. The instability of U.S. tax policy and the use of phase-ins, phase-outs, and sunsets arguably increases the importance of this angle. From this perspective, requiring credit risk by strengthening the cash accounting doctrines that Enron flouted can be seen as burdening effective electivity, albeit in an arbitrary and imperfect way, by causing exercise of the when-to-realize election to bear a positive price. This is the same as the rationale for deterring tax sheltering via economic substance rules.
All agreed that current Code section 409A is a mess and that simply barring deferred compensation (i.e., allowing the arrangements to be made, but treating them as giving rise to current tax liability) might be best but is presumed to be politically unavailable.
Tuesday, January 22, 2008
Friday, January 18, 2008
My co-convenor for the first 7 weeks is Kevin Hassett of the American Enterprise Institute. This brings a strong conservative voice of the intellectually honest genre to the table, not a bad thing at a major American law school or indeed for me. I've spent time at AEI in the past and have often considered myself more center than left (because I like redistribution but think markets are important and find political processes & centralized decision-making suspect). Then along came Bush, causing me to foam at the mouth and feel much more left. So a counter-balance is as good for me as I think it is for everyone else in the class or at the sessions.
We discussed Lily Batchelder's work on inheritance taxation, which I've blogged about in the past. But this is the first time I've seen it discussed by someone who is strongly opposed to the bottom line, which is that an optimal tax policy set of tools would include this instrument. I've suggested in past blog entries that points in favor of Lily's approach include the following:
--Including gifts and bequests received, and interacting their tax consequences with consideration of the recipient's other resources, uses more distributionally relevant information than any other alternative on the table (i.e., don't tax bequests, use an estate tax, or tax accessions without regard to the recipient's other resources). This is only an argument for having bequests affect bottom line tax liability, not for having a positive as opposed to a negative tax rate on them.
--Evidence about accidental bequests and lack of donor planning suggests that this is an area where the tax draws less of a real planning response than one might expect under standard economic models. (By real response I mean adjusting one's work and saving in response to the tax, as distinct from hiring an estate lawyer to arrange various rigmaroles.)
Kevin pushed back effectively against this view, which is not to say I always entirely agreed with him. Two of the main points raised were as follows:
1) A soundbite-style misreading of Lily's work might interpret it as follows: most bequest dollars are accidental (i.e., incompletely annuitized taxpayer died before spending everything), such bequests can efficiently be taxed at 100%, hence a very high tax rate is fine. Kevin notes that this line of reasoning would be defective. Even with incomplete annuitization and consequent accidental bequests, in a rational planning model a prospective decedent who also had some altruistic bequest motives would leave more if the residue would go to kids than if it went to the government. This is true, but I concluded the differences on this issue are semantic. Relatively inelastic accidental bequests would affect the analysis in the direction that Lily suggests.
2) Given that gratuitous transfers unfold over time, rather than simply being lateral (e.g., if I don't eat the apple this period, I make a gift of it to someone who also eats it this period), taxing bequests involves taxing returns to capital, leading to the "exploding tax rate" problem with wealth and capital income taxation over long periods generally. Perhaps I am too much of a conceptual purist in wanting to say that the lateral and inter-temporal issues are theoretically distinguishable - in practice taxing the former means taxing the latter. But there are questions of how well very long-term rational planning models capture actual human behavior. E.g., even if a low-rate annual income tax adds up over 30 years to an 80% tax wedge between consuming today and in the future, how responsive are people to this?
Wednesday, January 16, 2008
This is potentially a very good thing. As per a recent article of mine (in the Tax Law Review) and book chapter (in my book Taxes, Spending, and the U.S. Government's March Towards Bankruptcy), TE analysis was undermined from the start by its being intertwined with (a) support for Stanley Surrey's particular tax policy agenda (progressivity and comprehensive income taxation), and (b) a sideshow concerning whether one could define a normative income tax baseline that everyone could accept.
In illustration, I recall years ago discussing with Bruce Bartlett, at an American Enterprise Institute event, an article he was writing on TE analysis. He was somewhat hostile to the concept because he saw it as a tool of the Surrey agenda, and I pointed out that in many ways he should really like what it does, since stealth spending programs packaged as tax cuts but that increase government intervention in the economy should not be what he likes best. I believe he agreed.
The real point behind TE analysis is analytical and independent of the Surrey agenda. People define taxes and spending based on form, but attribute substance to the formal distinction. Thus, an identical program can appear to make government "smaller" if it's done through the tax system or "bigger" if it's done via direct appropriations.
The underlying conceptual problem is that the taxes-spending distinction even if reformulated is vacuous. So TE analysis uses and reformats a distinction that in the best of all possible worlds would instead be discarded. But a more satisfying distinction lies between distributional and allocative policies - the former aim at who ends up with what, the latter at level and allocation of investment, etc. In the context of a distributionally rationalized income tax, TE analysis can help avoid confusion between what one might call "synthetic spending" that is formally packaged as if distributional - e.g., a "tax cut" - but that is economically equivalent to a direct outlay (and equally needs to be financed). The real contribution that TE analysis can make is to address this confusion and defang it a bit.
I'm hoping that the Joint Committee will adopt changes that move in this direction, making TE analysis both more useful and less controversial.
Who knew? This truly is a new paradigm, or else perhaps a very old one.
Tuesday, January 15, 2008
Sunday, January 13, 2008
Friday, January 11, 2008
Since the present value of all future US GDP under current projections is probably a bit over $800 trillion, this implies that the Rudy tax cuts would add more than $30 trillion to the fiscal gap. This is about 50 percent bigger than Medicare prescription drugs and 3 times bigger than the Social Security shortfall.
Thursday, January 10, 2008
Wednesday, January 09, 2008
CQ TODAY - BUDGET
Jan. 9, 2008 - 1:31 p.m.
Sparing Trees, Saving Money: The Fiscal 2009 'E-Budget'
By David Clarke, CQ Staff
There will be no delivery truck pulling up to the White House next month to unload freshly printed copies of President Bush's fiscal 2009 budget proposal, which is likely to total more than 2,000 pages.
The White House estimates it would need to order more than 3,000 copies of the books this year in order to provide copies to its own staff, lawmakers and the news media as it has done in the past.
Instead, it will send those eager readers to an Office of Management and Budget Web site (www.budget.gov) on Feb. 4, the day Bush will submit his new budget to Congress.
The move is an effort to save money and spare some trees, budget director Jim Nussle said Wednesday. "This step will save nearly 20 tons of paper, or roughly 480 trees," Nussle said in a statement. "In terms of fiscal savings, we estimate the E-Budget will save nearly a million dollars over the next five years."
For those who just can't live without the paper version, the four-volume set can still be ordered from the Government Printing Office. But Nussle urged all potential readers to embrace the E-Budget.
The budget has been online for several years, but this year OMB is hoping to publicize its availability more effectively. "Having an E-Budget also aligns well with the president's E-Gov initiative, which focuses on utilizing technology to make the Federal Government more efficient and to improve transparency in order to better serve citizens, businesses and agencies alike," Nussle said in his statement.[END OF ARTICLE]
As Jason clearly recognized in sending this to me, it offers an ideal set-up for numerous and diverse punchlines. He offers one, asking whether the $200,000 annual saving "make[s] up for Bush's other fiscal and environmental policies."
For mine, I note that a New York Times article nearly a year ago (available at http://www.nytimes.com/2007/01/17/business/17leonhardt.html ) suggests that the Iraq war had cost about $1.2 trillion to date. Call it $240 billion a year. No one seems to have realized that the Administration entirely paid for this - even before the e-budget initiative - simply by NOT printing an extra 3.6 million copies per year of its annual budget. (I assume for simplicity a fixed per unit cost.)
When is the press going to give Bush full credit for this? Liberal bias liberal bias liberal bias.
Friday, January 04, 2008
1. January 17 – Lily Batchelder,
2. January 24 – Daniel Halperin,
3. January 31 – Kevin Hassett, American Enterprise Institute, “Taxes and Wages.”
4. February 7 – Chris Sanchirico,
5. February 14 – Sarah Lawsky,
6. February 21 – Brian Galle,
7. February 28 – Jason Furman, Brookings Institution, “Dynamic Distributional Scoring.”
8. March 6 – Mihir Desai,
9. March 13 –
10. March 27 – Andrea Louis Campbell, MIT, paper to be determined.
11. April 3 – Jonathan Barry Forman, University of
12. April 10 – Alan Auerbach, Berkeley Economics Department, “Long-Term Objectives for Government Debt.”
13. April 17 – David Gamage,
14. April 24 – Daniel Shaviro,
Next week I will begin a semester's hard labor on my school's appointments committee. This may doom my reading for a while, given the tree-slaying tomes by potential hirees or invitees that I will need to spend my weekends slogging through.
On the Republican side, to backtrack for a moment to 2000, one lesson some people take from the campaign that year is that you shouldn't focus on personality in the shallow, superficial way that the press did in preferring Bush to Gore. But another, very different-sounding lesson (not necessarily inconsistent, however) is that the individual's campaign, including what it tells you about his or her personality, is actually highly pertinent.
Thus, Krugman keeps noting that Bush's campaign platform in 2000 showed how reckless and dishonest he is. I'd add that Bush's odious personal qualities were already on full display, although I along with others didn't fully grasp this. An example is his sadism, which came out in the debate with Gore when he gloated about giving people the death penalty. And of course the ignorance, smirking, arrogance, sense of entitlement, etcetera.
All this is prelude to asking about Romney: Just how bad is he, and how disastrous would it be if he were elected? (As now seems a lot less likely.) The prior might have been that his record suggests adequate competence and intelligence, and the fact that he's pandering so shamelessly is just a matter of rationally chosen political tactics. But I have come to think that it bespeaks more grievous defects that we hopefully will never get to learn about the hard way. Encouraging about the process if he and Rudy fail because the truth about them emerged through it.
One hard thing for me about the last seven years is that I believe in nuance and shades of gray. I don't like utterly despising people and finding them completely without any decency or redeeming qualities. But sometimes that is what you get. Next question, just how bad is McCain. He has done some bad things, such as the torture sell-out to Bush, but often appears to have good as well as bad qualities. And if the Rovean grip on the party is weakened, he might have an easier time expressing them. Then again, if he believes in endless war and a 100 years occupation of Iraq, along with endless tax cuts, the good may not matter enough.
Huckabee is actually a likable person in some ways. I have old friends whom I would tremble to see as president, and whom I wouldn't even recommend as, say, a spouse or parent, but who are enjoyable in the right context due to their having some nice qualities. Whatever one thinks of Christianism in politics or his hostility towards gays, rejection of evolution, etcetera, I have enjoyed his deft skewering of the Republican leadership's arrogant elitism. Plus I am hoping he's on a trajectory to destroy the coalition that has brought us where we are today - and in the best case scenario to lose like Goldwater or McGovern, but with the subsequent tail of George's loss, not Barry's.
Thursday, January 03, 2008
I generally don't bother discussing the Fair Tax, as it appears to be a dead horse both intellectually and politically. Even assuming one wants a flat rate consumption tax with no zero bracket, why use the retail sales tax model instead of a value-added tax (VAT)? The latter can lead to the same overall result but with better enforcement capabilities since the revenue authorities can cross-check rebates against taxes remitted on inter-business transactions, and since it can be embarrassing for a business to claim rebates on purchases without admitting to any sales on items that are no longer observable in inventory.
That said, I have learned more recently from people in VAT nations that the tradeoff is not quite as clearcut as I had thought. E.g., Europe has had fun lately with "carousel fraud," in which one side to an inter-business transaction claims a rebate, while the other side disappears before paying tax on the offsetting receipt. Also, U of Sydney law prof Graeme Cooper won, to my mind, the 2007 tax article title-of-the-year contest with his SSRN-posted piece, "The Discrete Charm of the VAT," available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1027512, in which he argues that the administrative tradeoffs are closer than various of us had been inclined to believe.