Sunday, March 30, 2008
Thursday, March 27, 2008
As it happens, I haven't posted on any other candidate's tax plans other than ol' Fred Thompson (you know, the actor) along with some snark concerning this now-forgotten guy who used to be a big shot, I think named Rudy Guiliano or Guilianus or something like that (it's hard to remember these days).
I've been thus scattershot about the candidates' tax plans because I find it hard to really take an interest in these things until I have reason to believe that the candidate is actually going to (a) win and (b) propose his or her plan. Plus, I sometimes have an aversion to overly low-hanging fruit, which is what criticizing a candidate's tax plan can amount to given all the political constraints on proposing sensible tax policies. So in a way it was a compliment, albeit less to Obama himself than to his economic advisor Austan Goolsbee, that I considered the plan worth criticizing.
Anyway, someone's campaign must be reading these things given the apparent genesis of the invitation. Good to know I'm not all alone out here.
Sunday, March 23, 2008
OK, I'll fess up to the one other bit of work I did, which was to plan (at a basic conceptual level) my remarks at the NYU Tax Policy Colloquium this Thursday, where we will discuss "How Americans Think About Taxes: Public Opinion and the American Fiscal State," a forthcoming (Princeton University Press) book excerpt by Andrea Louise Campbell of MIT's Political Science Department. I like the excerpt, which discusses why tax politics has moved recently in a less progressive direction despite the arguable financial self-interest to the contrary of non-rich American voters. Campbell uses, among other inputs, detailed polling data over several decades and a sophisticated theory of perceived cost-benefit from tax rules. Naturally, given my work and interests, this is a topic on which I have plenty of my own ideas. I anticipate a fruitful discussion.
I also found the time to read 4 books. (Reading fast is a bloody nightmare when it comes to packing for a vacation trip - you end up with plenty of bulk and still have to worry about running out.) First was "Zhou En-Lai: The Last Perfect Revolutionary." This perhaps unlikely bit of beach reading is a book written by a Chinese exile and U.S. emigre who for years had access to top secret Chinese Communist Party files from the 1960s and 1970s. After a slow start it became fascinating and even genuinely moving, showing how Zhou worked with the utterly mad and monstrous Mao, trying above all to survive and also to moderate him but also enabling him. The book reaches the conclusion that Zhou tried to be a decent person but failed because of the demands the system placed on him plus his own human failings such as the need to subordinate himself and comply. Extra points for satisfying the curiosity of one who grew up reading the crazy news from China in the Cultural Revolution era without having any information (which no one in the West had) about what was really going on behind the scenes. E.g., what was the deal with Mao's "closest comrade in arms," Lin Biao? Now I know, and it's a much more interesting story than I had expected.
Second book was "Smile When You're Lying: Confessions of a Rogue Travel Writer" by Chuck Thompson, an at times uproarious collection of travel experiences packaged as an expose of all the fakery and hype in the travel industry. Good not so clean fun.
Third was "Mayflower," by Nathaniel Philbrick, a history of the Plymouth Bay and related settlements from founding through the horrific Indian wars of the 1670s. Guess who were clearly the bad guys. A good read but not in my view great.
One of the Iberostar's best features is the wildlife living on the property - howler monkeys that I got to see daily after stumbling on their PM hangout site in the canopy, big iguanas, peculiar rodents that might be capybaras, and some beautiful though exceptionally pompous peacocks that were strutting around the pathways and in one case decided to challenge me. (I held my ground, figuring that I weigh more.) Best activity was letting waves wash me onto a surfbreaking structure resembling rock but actually a canvas filled with sand. Very slippery in spots where algae had grown onto it.
In the picture here I'm in the background, having ridden a wave onto the structure but not having yet been washed off. (This apparently was the day I decided not to stand up any more before the waves got me - there's only so much pounding you can take at age 50 plus.)
Second picture is one of the local beastie residents whose favorite AM sunning site we discovered. You can see that he or she is sitting on top of another iguana's tail.
Today (Sunday), things are not quite so idyllic. I'm in my office reading literally hundreds of pages for work (appointments committee, etc.) that I decided not to trouble myself with while in Mexico. Or rather, I am finding a way not to read them at the moment.
Friday, March 14, 2008
Ruth proposes a Kantian-sounding (but not actually Kantian) diagnostic for tax discrimination, which the European Court of Justice (ECJ) has a mission to strike down while permitting mere "disparity." She would have the ECJ ask whether cross-border activity or those engaging in it would be disadvantaged if the tax law of the jurisdiction that is being challenged were universalized, i.e., adopted to the last comma by all other jurisdictions. It's a proposed diagnostic rather than a proposed standard, because one could analogize it to the skin test for tuberculosis - the question is whether one actually has tuberculosis, not whether one's skin swells where they inject you, but if it doesn't swell then you're home free whereas if it does you face further tests.
The key problem here is that, while we have an objective standard for tuberculosis (once all the facts are known, one unmistakably either has it or doesn't), the same cannot as easily be said for tax discrimination. What is it? Mihir Desai, my co-convenor for the last seven weeks of the colloquium, and I felt that one really needs to define it, at least conceptually, in order to have any sense of what one is trying to do, but lawyers who have spent less time with economists than I have often scoff at this and say no worries, we can proceed anyway. Definition, we don't need no stinkin' definition.
Mihir proposed an idea that Michael Graetz and Al Warren have also written about, to the effect that discrimination might be found if one violates either capital import neutrality (equal treatment of one's outbound investments with those in the source jurisdiction) or capital export neutrality (equal treatment of home and outbound investment). The punchline Michael and Al derive from this, and which Mihir suggested as well, is that tax discrimination, if defined this way, is a hopelessly incoherent concept. All taxes, home and abroad, would need to be harmonized if one wanted to fully satisfy both CIN and CEN, and this is not among the options on the table. The Europeans in the room loudly hooted at this interpretation of what they and the ECJ have in mind by tax discrimination - as I gather they also did in the past, on multiple occasions, when Graetz and Warren proposed this view.
Luckily for me (since I have to make some comments later today at the EC Tax Policy conference here), I felt that the session eventually helped me to understand what they appear to have in mind when they discuss tax discrimination. Very roughly speaking, and falling short of an operational definition, I'd say the idea is (a) negative cross-border tax synergies, or higher total taxes from being in two jurisdictions than one would have had from the sum of being separately in each, that (b) are not considered justifiable all things considered (e.g., considering how bad the impact is, how deliberate it seems to be, how easily the government could have avoided it without being forced to change rules that it might like for "innocent" reasons, etc.).
Not very crisp, and I don't have the time pre-vacation to try to spell it out more, but for me at least this helps conceptually. Seen this way, the idea isn't incoherent, although it is a bit mushy, underspecified, and vague. And not necessarily a bad idea to have courts doing this in an ECJ-type or US national setting.
Wednesday, March 12, 2008
Ray Davies' new album is really good. Probably his best album of new material since Arthur (with the Kinks) back in 1969, although this is not as high praise as it may sound as there are few intervening contenders. The Kinks, after having extraordinary self-direction and integrity in the mid-1960s, when they paid a price for not trying to fit in, spent the next couple of decades being as crassly and reductively commercial as one could possibly be. Plus Ray got too boringly bitter. The current album has a few overly preachy political moments, but overall it's a bit as if Lennon had lived, mellowed, and rediscovered a voice that could work for him.
The new Dengue Fever album is very enjoyable and lively. Not sure if I will want more of their work, but the fusion definitely works.
Friday, March 07, 2008
One question I raised at the PM session is whether outbound investment is necessarily distinctive in this regard, if what we have in the main is a story about economies of scale and rising vertical / horizontal integration in an era when the general worldwide business environment may be transforming itself. E.g., suppose we did the same type of study regarding whether investment in California by a nationwide firm is a substitute or a complement for investing elsewhere in the US, and got the same result.
But the main topic was the U.S. international tax policy implications, about which I am reluctant to say too much because it would make this post too long and anyway I'm planning to write about it this summer. But one thing that became clear is that exempting outbound investment by US firms does not necessarily emerge as the logical consequence of the paper's findings, and that when Desai, Jim Hines, and others describe exemption or national ownership neutrality (NON) as an efficiency benchmark, they don't mean a tax policy benchmark. To give a sense of the difference, a lump sum tax such as a uniform head tax is in some settings an efficiency benchmark, but not a reasonable proposed policy. In that setting, the complicating issue is concerns of distribution as well as efficiency. In the international setting, the complicating issue is that one is choosing between inefficient tax instruments and attempting to minimize overall inefficiency.
I call this post "Intellectual progress at the NYU Tax Policy Colloquium" not because of that point in particular, but because it was one of those sessions - meeting our ideal, which one can't always do - at which the group dynamics and interplay resulted in advancing the thinking of lots of participants about these issues. It was a collective exercise and perhaps will show up in the future writings of several of us.
Wednesday, March 05, 2008
[A]t least one of [Warren's] key conclusions, dismissing the BEIT plan as having no apparent rationale, is overly harsh in an important way. I therefore wish to augment the debate by explaining why, in my view, the BEIT remains an important corporate tax reform proposal that merits further attention notwithstanding any defects in its current form that he may have demonstrated.
I should note, however, that in two respects my analysis here is orthogonal, rather than directly responsive, to
Second, one reason I consider the BEIT potentially appealing relates to a possible direction of U.S. tax law change that neither Kleinbard nor Warren considers because it has not happened yet, and indeed may never happen. Purely as a matter of prediction, and without regard to the policy merits (though they might be positive), I believe there is a strong chance that worldwide competitive pressures will lead the United States to adopt a corporate tax rate that is significantly below the top individual rate .... [This] would give new importance to the way in which the BEIT relates entity level and investor level tax collection.
Only one previously proposed corporate integration plan resembles the BEIT in its approach to the income tax distinction between debt and equity: the comprehensive business income tax (CBIT) that the U.S. Treasury Department proposed in 1992. In effect, the CBIT would revise the tax treatment of debt to be more like that of equity, by denying deductions for interest at the business level and making the receipt of both interest and dividends generally tax-free to investors. The BEIT reverses this, making the tax treatment of equity more like that of debt, by providing cost of capital deductions at the company level along with inclusions at the investor level.
This reconciliation between the tax treatment of debt and equity, accomplished by both the CBIT and the BEIT, could be enormously important. Modern financial innovation has made the tax distinction between the two types of instrument ever more porous and manipulable. Insofar as investors can slap whichever label they prefer on whatever sort of investment position they wish to have, the debt-equity distinction amounts to an election to use either the corporation’s tax rate (via the use of equity) or one’s own (via the use of debt), whichever is lower. It is hard to think of a good rationale for such an election, and allowing it might be all the more significant if the corporate rate were reduced significantly below the top individual rate.
Why reverse the CBIT approach and tax the normal return at the investor rather than the corporate level? This has been my main concern about the BEIT, as the change might not make enough difference to be worth the trouble if the corporate rate and the top individual rate are the same. However, if I am right in my surmise that the corporate rate may soon be lowered significantly below the top individual rate, then at some point it really will matter. What is more, one could argue that the BEIT approach is better in this scenario, if the reason for the lower corporate rate is entity-level capital mobility that does not apply in the same way to high-income individuals who are
Tuesday, March 04, 2008
The Tax Prof blog has more of the details at http://taxprof.typepad.com/taxprof_blog/2008/03/bankman-shaviro.html
In this exchange, the problem is that we are talking past each other a bit. I am more interested in the pure analytics, they in what is likely to be one's practical bottom-line conclusion. I don't think they really disagree with me about the analytics, only they seem to me a little less interested in looking there as a pure intellectual exercise. And I don't disagree with them about the likely bottom line conclusion in favor of a consumption tax.
Was I just nitpicking? I don't think so. It's important to have a really clean grasp of the analytics before proceeding with real world conclusions, which one should do as well but with all due intellectual reticence given the gap between simplified economic models and real world implementations.
Monday, March 03, 2008
Other recent album purchases: new releases by Ray Davies (still a great songwriter and vocalist) and Stephen Malkmus (won't know until it's released tomorrow), plus the reissue of Nick Lowe's Jesus of Cool.
Kevin began the day unenthusiastic about my admittedly tentative proposal, under which publicly traded companies' taxable income would be adjusted part-way (say, 50 percent) towards an adjusted measure of the financial accounting income of the same affiliated group of companies. But in the course of the colloquy he acknowledged to moving in the direction of greater sympathy for my approach, in particular because it tries to address the downside to a full-fledged "one book" approach, which I locate primarily in legislative politics.
Some of the flavor of the discussion at the colloquium session is captured in a new subsection I added near the end of the paper, addressing particular critiques that I have heard often.
"1. Why not simply increase penalties and regulatory oversight? Doing so might be a good idea whether or not the taxable income adjustment was adopted. Moreover, insofar as it reduced the magnitude of the problems posed by tax sheltering and earnings management, it would
"2. Why not instead directly improve the systems’ income definitions? This as well would be
"3. How can going halfway towards a one-book system be a good idea, if going all the way is not? The experience of countries such as
"The core reason, in my view, for avoiding a predominantly one-book system (even with specified exceptions, such as for foreign subsidiaries) is that it would put the
I have now sent the paper to a bunch of leading student-edited law reviews and am hoping for the best.