I've initiated posting on SSRN my new short (7,000 words) article, "The 2008-09 Financial Crisis: Implications for Income Tax Reform," and will post the link when it's up.
The paper is based on PowerPoint slides for a talk I gave in Milan (or actually from NYC via skype) earlier this year, as per the preceding blog entry. It may appear next year in a conference volume relating to that session.
UPDATE: The link is here. Abstract is as follows:
Tax rules encouraging excessive debt, complex financial transactions, poorly designed incentive compensation for corporate managers, and highly leveraged home ownership all may have contributed to the financial crisis, but do not appear to have been among the primary causes. Even without a strong causal link, however, the preexisting case for tax reform at all these margins arguably is strengthened by the 2008 financial crisis, which suggests that tax rules not only fell short of classic neutrality benchmarks but generally leaned in precisely the wrong direction.
Friday, July 31, 2009
Tuesday, July 21, 2009
Oops, more delays
If there's one thing I really want to accomplish over the rest of the summer - other than taking advantage of the NYC farmers markets' fresh fruit bonanza while it lasts - it's to make serious progress on my international tax book, which has taken very definite form inside my head but needs to be extracted and actualized.
But first I had to get straight the reading list and plan of action for the seminar on corporate and international tax policy that I am teaching this fall (starting a week before Labor Day). It's all very well to assign the students reading from this handy item, but I realized that wouldn't do the job all by itself. Luckily, my syllabus is now set, leaving me much more enthusiastic about the seminar than I was a mere 24 hours ago, when I still had various unsolved obstacles. Now the main concern I have left is whether I will draw genuinely interested students, rather than people who simply seek to fulfill a course requirement or keep their classes early in the week. (My holy grail is a filter to select positively for students who are genuinely interested, although admittedly, from the standpoint of the overall NYU faculty, this amounts to attempted cream-skimming.)
Now with that done, I've reluctantly persuaded myself that it makes a great deal of sense to write a short piece on taxes and the financial crisis, for a forthcoming volume associated with the conference, at Bocconi University in Milan, that I attended at the end of April (if only virtually, by skype, due to back spasms), and reported on here. The slides on which I will base the paper are still available here.
In other news, I should soon have 3 fresh publications out there on the at least virtual street. One is my paper for the George Washington Law Review on the long-term U.S. fiscal gap, a second is a piece for the British Tax Review on the Obama Administration's international tax reform proposals, and the third is a very short one for Tax Notes that's part of a series they should be publishing shortly on where the Volcker tax reform panel that ostensibly is hard at work should look for ideas. More on these when they come out.
And while I'm at it, I don't believe I've ever posted a link for my recently published article, Internationalization of Income Measures and the U.S. Book-Tax Relationship, which appears to be available here.
But first I had to get straight the reading list and plan of action for the seminar on corporate and international tax policy that I am teaching this fall (starting a week before Labor Day). It's all very well to assign the students reading from this handy item, but I realized that wouldn't do the job all by itself. Luckily, my syllabus is now set, leaving me much more enthusiastic about the seminar than I was a mere 24 hours ago, when I still had various unsolved obstacles. Now the main concern I have left is whether I will draw genuinely interested students, rather than people who simply seek to fulfill a course requirement or keep their classes early in the week. (My holy grail is a filter to select positively for students who are genuinely interested, although admittedly, from the standpoint of the overall NYU faculty, this amounts to attempted cream-skimming.)
Now with that done, I've reluctantly persuaded myself that it makes a great deal of sense to write a short piece on taxes and the financial crisis, for a forthcoming volume associated with the conference, at Bocconi University in Milan, that I attended at the end of April (if only virtually, by skype, due to back spasms), and reported on here. The slides on which I will base the paper are still available here.
In other news, I should soon have 3 fresh publications out there on the at least virtual street. One is my paper for the George Washington Law Review on the long-term U.S. fiscal gap, a second is a piece for the British Tax Review on the Obama Administration's international tax reform proposals, and the third is a very short one for Tax Notes that's part of a series they should be publishing shortly on where the Volcker tax reform panel that ostensibly is hard at work should look for ideas. More on these when they come out.
And while I'm at it, I don't believe I've ever posted a link for my recently published article, Internationalization of Income Measures and the U.S. Book-Tax Relationship, which appears to be available here.
Monday, July 20, 2009
Oxford talks on U.S. international taxation
Powerpoint slides for the two talks that I gave a couple of weeks back in Oxford are now available on-line here.
The one from July 7, "Planning and Policy Issues Raised by the Structure of the U.S. International Tax Rules," is based on chapter 2 of my book-in-progress. (At least I like to think of it as my book-in-progress - I'm getting so backed up right now with other things I need to finish first that I'm starting to envy the Red Queen and Alice, for being able to stay in place by running fast.)
The one from July 10, "The Obama Administration's Tax Reform Proposals Concerning Controlled Foreign Corporations," echoes a forthcoming British Tax Review piece in which I expand on the views I first set forth here.
The one from July 7, "Planning and Policy Issues Raised by the Structure of the U.S. International Tax Rules," is based on chapter 2 of my book-in-progress. (At least I like to think of it as my book-in-progress - I'm getting so backed up right now with other things I need to finish first that I'm starting to envy the Red Queen and Alice, for being able to stay in place by running fast.)
The one from July 10, "The Obama Administration's Tax Reform Proposals Concerning Controlled Foreign Corporations," echoes a forthcoming British Tax Review piece in which I expand on the views I first set forth here.
Sunday, July 19, 2009
U.K. vs. U.S. international tax policy
My trip to Oxford earlier this month for a pair of conferences, one academic and the other mainly business and government, gave me a close-up look at how tax policymaking differs both substantively and procedurally in the two countries.
Substantively, the differences are pretty clear. The U.K. is in the process of greatly scaling back worldwide taxation of its resident corporations, whereas in the U.S. the Obama Administration has proposed heading in the opposite direction. This partly reflects differences in the countries' situations. The U.K. is obviously more deeply embedded in the "small open economy scenario" than we are, having a smaller internal market right next to the rest of Europe. Plus, corporate threats of expatriation in response to worldwide taxation play out very differently for a technical reason. In the U.S., where corporate residence depends on one's place of incorporation, companies that attempted "inversion transactions" a few years back (placing, say, a Caymans corporation at the top of the multinational chain and taking the U.S. firm out of the line of ownership of other foreign corporations) led to a huge 9/11-influenced political stink about "Benedict Arnold corporations" and the like.
In the U.K., by contrast, domestic residence follows from having U.K. headquarters. Thus, when companies threaten to leave, this apparently contributes to a very different reaction. Whereas the formalism of corporate inversion transactions helps feed the U.S. political anger about them, people in the U.K. evidently take to some extent the view that, if the headquarters truly leave, the expatriation transaction "should" work - the normative basis that people think of as underlying corporate residence has genuinely changed.
So by having a somewhat more economically substantive economic residence rule, the U.K. ends up inducing a greater sense in popular thinking that companies really can expatriate if they want to, leading to the threat of departure's having a different and stronger political valence. This in turn provides a big impetus for the drive to weaken worldwide residence-based corporate taxation in the U.K.
But all that concerns the substance of the policy, not the procedure. The latter is quite different as well. To begin with, as it's a parliamentary system, once the U.K. government announced what it wanted to do, everyone pretty much agreed that it was definitely going to happen, with only the details remaining open. Given the long-term political fragility of the Labor government, this presumably reflects some combination of the view that they can definitely serve out their time (without a no-confidence vote) and get this done before calling elections, and/or the view that the Conservatives would also be sure to adopt this policy given its pro-business direction.
Compare the fate of U.S. Administrations' tax policy proposals, which typically vary along a range from "maybe you'll get something loosely like this if you fight like hell and get lucky" to "dead on arrival."
Perhaps more surprising is the procedural differences in developing the details of the policy. In the U.S., the Administration will typically announce a full-blown (even if sketchy) proposal on which they have publicly consulted no-one. Obviously, there may be political dealings going on behind closed doors, and in the most extreme cases (such as the energy policy Cheney developed in 2001) they are pretty much explicitly written by current and past/future lobbyists on what's close to a pay-to-play basis. But given how contrary this is to the U.S. ideal of the government simply announcing its policy, in those cases the interest group input is as hidden as possible.
Then in Congress there's a lot of interest group input (obviously), and in recent years lobbyists have even been permitted to do the actual drafting (unthinkable in the 1980s and before). But even so the ideal is that the government policymakers decide, since public input is assumed (all too rightfully) to be sleazy giveaways to organized interests at the expense of the general public.
The biggest U.S. departure I can think of from this pertains to drafting regulations. The Treasury Department realizes it needs detailed input in order for regulations to be workable and to address the problems it aims at. So it solicits and receives notice & comment (as required by the Administrative Procedure Act), and makes serious use of input from affected taxpayers (and expert practitioners), even if it ultimately makes the calls itself subject to whatever White House control is being exercised (much greater in the GW Bush era than previously).
In the U.K., the Treasury announced the general details of its intended international tax policy change, but announced as well that it wanted extensive input from the business community in making workable rules that would avoid imposing excessive burdens. They more or less said they wanted to come up with something that the business community felt it could live with, although they didn't offer carte blanche to give people whatever they wanted. One big example of the input's impact: the UK government initially intended to retain their version of subpart F insofar as it taxes resident companies' foreign source passive income (such as portfolio dividends and interest), but has now pretty much agreed to give up on this point, subject only to doing what they feel is necessary to protect (a) overall revenues and (b) taxation of what is truly U.K.-source active business income.
It's easy to view this through a U.S. interest group lens, as merely a more overt and less secretive or shamefaced version of Cheney oil industry sleaze or lobbyists writing "rifleshot" tax giveaways for themselves. But, even leaving aside the distinct point that I tend to agree with this shift substantively, I get the sense that, while clearly the interest group story is a part of it (and the credible threat to expatriate is a further part of it), there also is some sense of consultation and consensus that really doesn't have an exact parallel in the U.S. setting.
The U.K.'s parliamentary system clearly plays a role in the U.S. versus U.K. procedural differences - but it doesn't necessarily explain this. After all, in the parliamentary model, it's vastly easier to shove an unpopular change down everyone's throat. I think the difference in scale may be crucial here. The U.S. is so big that wide-ranging consultation and consensus simply can't work the same way as in a smaller country like the U.K.
In Federalist # 10, Madison famously said that when you extend the sphere you create a better democratic process because there are too many interests for any one of them to be able to shove its agenda down everyone else's throat. The story here is very different and has an opposite normative spin (if I am right in viewing the U.K. example relatively benignly). Indeed, it's more of an anti-Federalist type story in which a "community" can run things with greater cooperation and consensus than a vast republic. Obviously, reflecting modern technology, the community-compatible size has greatly increased, and the underlying values being expressed are radically different.
Once again I find myself worrying that the U.S. has become unusually ungovernable by advanced-country standards.
Substantively, the differences are pretty clear. The U.K. is in the process of greatly scaling back worldwide taxation of its resident corporations, whereas in the U.S. the Obama Administration has proposed heading in the opposite direction. This partly reflects differences in the countries' situations. The U.K. is obviously more deeply embedded in the "small open economy scenario" than we are, having a smaller internal market right next to the rest of Europe. Plus, corporate threats of expatriation in response to worldwide taxation play out very differently for a technical reason. In the U.S., where corporate residence depends on one's place of incorporation, companies that attempted "inversion transactions" a few years back (placing, say, a Caymans corporation at the top of the multinational chain and taking the U.S. firm out of the line of ownership of other foreign corporations) led to a huge 9/11-influenced political stink about "Benedict Arnold corporations" and the like.
In the U.K., by contrast, domestic residence follows from having U.K. headquarters. Thus, when companies threaten to leave, this apparently contributes to a very different reaction. Whereas the formalism of corporate inversion transactions helps feed the U.S. political anger about them, people in the U.K. evidently take to some extent the view that, if the headquarters truly leave, the expatriation transaction "should" work - the normative basis that people think of as underlying corporate residence has genuinely changed.
So by having a somewhat more economically substantive economic residence rule, the U.K. ends up inducing a greater sense in popular thinking that companies really can expatriate if they want to, leading to the threat of departure's having a different and stronger political valence. This in turn provides a big impetus for the drive to weaken worldwide residence-based corporate taxation in the U.K.
But all that concerns the substance of the policy, not the procedure. The latter is quite different as well. To begin with, as it's a parliamentary system, once the U.K. government announced what it wanted to do, everyone pretty much agreed that it was definitely going to happen, with only the details remaining open. Given the long-term political fragility of the Labor government, this presumably reflects some combination of the view that they can definitely serve out their time (without a no-confidence vote) and get this done before calling elections, and/or the view that the Conservatives would also be sure to adopt this policy given its pro-business direction.
Compare the fate of U.S. Administrations' tax policy proposals, which typically vary along a range from "maybe you'll get something loosely like this if you fight like hell and get lucky" to "dead on arrival."
Perhaps more surprising is the procedural differences in developing the details of the policy. In the U.S., the Administration will typically announce a full-blown (even if sketchy) proposal on which they have publicly consulted no-one. Obviously, there may be political dealings going on behind closed doors, and in the most extreme cases (such as the energy policy Cheney developed in 2001) they are pretty much explicitly written by current and past/future lobbyists on what's close to a pay-to-play basis. But given how contrary this is to the U.S. ideal of the government simply announcing its policy, in those cases the interest group input is as hidden as possible.
Then in Congress there's a lot of interest group input (obviously), and in recent years lobbyists have even been permitted to do the actual drafting (unthinkable in the 1980s and before). But even so the ideal is that the government policymakers decide, since public input is assumed (all too rightfully) to be sleazy giveaways to organized interests at the expense of the general public.
The biggest U.S. departure I can think of from this pertains to drafting regulations. The Treasury Department realizes it needs detailed input in order for regulations to be workable and to address the problems it aims at. So it solicits and receives notice & comment (as required by the Administrative Procedure Act), and makes serious use of input from affected taxpayers (and expert practitioners), even if it ultimately makes the calls itself subject to whatever White House control is being exercised (much greater in the GW Bush era than previously).
In the U.K., the Treasury announced the general details of its intended international tax policy change, but announced as well that it wanted extensive input from the business community in making workable rules that would avoid imposing excessive burdens. They more or less said they wanted to come up with something that the business community felt it could live with, although they didn't offer carte blanche to give people whatever they wanted. One big example of the input's impact: the UK government initially intended to retain their version of subpart F insofar as it taxes resident companies' foreign source passive income (such as portfolio dividends and interest), but has now pretty much agreed to give up on this point, subject only to doing what they feel is necessary to protect (a) overall revenues and (b) taxation of what is truly U.K.-source active business income.
It's easy to view this through a U.S. interest group lens, as merely a more overt and less secretive or shamefaced version of Cheney oil industry sleaze or lobbyists writing "rifleshot" tax giveaways for themselves. But, even leaving aside the distinct point that I tend to agree with this shift substantively, I get the sense that, while clearly the interest group story is a part of it (and the credible threat to expatriate is a further part of it), there also is some sense of consultation and consensus that really doesn't have an exact parallel in the U.S. setting.
The U.K.'s parliamentary system clearly plays a role in the U.S. versus U.K. procedural differences - but it doesn't necessarily explain this. After all, in the parliamentary model, it's vastly easier to shove an unpopular change down everyone's throat. I think the difference in scale may be crucial here. The U.S. is so big that wide-ranging consultation and consensus simply can't work the same way as in a smaller country like the U.K.
In Federalist # 10, Madison famously said that when you extend the sphere you create a better democratic process because there are too many interests for any one of them to be able to shove its agenda down everyone else's throat. The story here is very different and has an opposite normative spin (if I am right in viewing the U.K. example relatively benignly). Indeed, it's more of an anti-Federalist type story in which a "community" can run things with greater cooperation and consensus than a vast republic. Obviously, reflecting modern technology, the community-compatible size has greatly increased, and the underlying values being expressed are radically different.
Once again I find myself worrying that the U.S. has become unusually ungovernable by advanced-country standards.
Back in the U.S.A.
After a whirlwind week of sightseeing in London, we're back home and only slightly jet-lagged.
Although I'm a summerphile with a taste for heat (at least up to the mid-80s), London's weather was reasonably pleasant. There's seemingly a rule there that it has to spritz at least briefly every day, no matter how sunny it may look in the morning, but for the most part we had decent weather. The Underground is superior to the NYC subway in many ways - easier to use and with much more frequent trains (the tradeoff, clearly worth it for my money, is that it shuts down in the dead of night). The extremely long summer daylight hours (17+ hours at this time of year) are also exhilarating, although of course one pays dearly for this in the winter (I'm told the Sun pretty much disappears, between short hours and fog, from November through March).
There's lots of art in London that's either great or interesting - an example of the latter being my old favorite, the National Portrait Gallery, with its psychologically illuminating portraits of famous Britishers ranging from kings to poets. Though often averse to tack, I couldn't resist bringing home a Richard III towel, showing the famous painting in which he looks conscientious and careworn (the inspiration for Josephine Tey's delightful "The Daughter of Time"). But I passed up a Tate Gallery T-shirt I liked (saying "Your pizza is ready now") because the price was too high.
My most enjoyable read of the vacation was Tom Holland's "Rubicon: The Last Years of the Roman Republic," which turns the exploits of Marius, Sulla, Caesar, Crassus, et al into something at least on a par for excitement with "The Godfather." I gather it's historically sound if one forgives the rampant speculation about Romans' individual and collective beliefs and motives. Truly a compelling page-turner.
"Waiting for Godot" was predictably a bit too much to ask of our adolescents in tow (I declined to offer an advance preview of the plot, though it would have been easy to do in a sentence), but they greatly enjoyed "The 39 Steps" (enjoyable farce, though to my taste a bit too ready to rely on laughs that were easy but not enormously interesting).
Although I'm a summerphile with a taste for heat (at least up to the mid-80s), London's weather was reasonably pleasant. There's seemingly a rule there that it has to spritz at least briefly every day, no matter how sunny it may look in the morning, but for the most part we had decent weather. The Underground is superior to the NYC subway in many ways - easier to use and with much more frequent trains (the tradeoff, clearly worth it for my money, is that it shuts down in the dead of night). The extremely long summer daylight hours (17+ hours at this time of year) are also exhilarating, although of course one pays dearly for this in the winter (I'm told the Sun pretty much disappears, between short hours and fog, from November through March).
There's lots of art in London that's either great or interesting - an example of the latter being my old favorite, the National Portrait Gallery, with its psychologically illuminating portraits of famous Britishers ranging from kings to poets. Though often averse to tack, I couldn't resist bringing home a Richard III towel, showing the famous painting in which he looks conscientious and careworn (the inspiration for Josephine Tey's delightful "The Daughter of Time"). But I passed up a Tate Gallery T-shirt I liked (saying "Your pizza is ready now") because the price was too high.
My most enjoyable read of the vacation was Tom Holland's "Rubicon: The Last Years of the Roman Republic," which turns the exploits of Marius, Sulla, Caesar, Crassus, et al into something at least on a par for excitement with "The Godfather." I gather it's historically sound if one forgives the rampant speculation about Romans' individual and collective beliefs and motives. Truly a compelling page-turner.
"Waiting for Godot" was predictably a bit too much to ask of our adolescents in tow (I declined to offer an advance preview of the plot, though it would have been easy to do in a sentence), but they greatly enjoyed "The 39 Steps" (enjoyable farce, though to my taste a bit too ready to rely on laughs that were easy but not enormously interesting).
Friday, July 10, 2009
A week in Oxford
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.
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.
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.
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