It's nice to be missed

"Wait a second, where is he? He's supposed to be on the bed."

Taken while I was in Vienna.

Extra credit if you can spot (most of) Seymour in addition to Ursula.

The flap over AEI's firing of David Frum

I don't know Frum personally, and he's not in my field. But two reasons to wade briefly into this scrum are (a) I've spent some time at AEI, though not much recently, and (b) I have some familiarity with the people involved in the subsidiary scrum, relating to Bruce Bartlett's assertion that Frum told him AEI was muzzling its healthcare scholars because they were too supportive, for its politically directed tastes, of the Obama healthcare plan.

Some rebuttals of the claim that AEI could have been muzzling its healthcare scholars note that, for example, Glenn Hubbard has frequently and recently opined in print about healthcare reform. But, while Glenn has a long history of writing about healthcare in relation to the fiscal system, he would not have been among the people Frum would have had in mind. I won't name AEI's healthcare specialists here, but you can find their names on the AEI website, and I don't think they've had much to say publicly on the topic in the last couple of years, which is interesting and indeed surprising.

I'd also note that (a) when I met and talked with these individuals in connection with my Medicare book, it was clear they are serious people and straight shooters, not political hacks, (b) I would be surprised if they were NOT sympathetic to the approach of mandating health insurance coverage, given this idea's deep roots in (without restriction to) conservative, Republican, and generally pro-market circles, along with the fundamental argument in support of the mandate as a response to adverse selection (a central problem in promoting the general availability of adequate medical treatment).

In short, I see a compelling circumstantial case in favor of the claim of muzzling that Bartlett reports.

Just as we need two responsible political parties in order to address big problems like the fiscal gap, so we need reputable and independent think tanks across the political spectrum, developing and debating alternative approaches with reasonable honesty and openness (although of course they can't be interchangeable with academic institutions if they are relying on funders to advance particular ideological stances). AEI has often had one foot in the reputable camp - it has in fact sponsored a lot of genuine and excellent scholarship over the years - and one foot in the camp of hiring political operators to make party line statements. Sometimes even particular individuals step at different times into both pools (if I may change my metaphor).

When AEI fires Frum right after his recent controversial remarks, and possibly (though I realize this remains unproven) sets about muzzling good experts, while also hiring a few too many rancid and rabid hacks (even if an occasional one comes with the territory), it slaps in the face the reputable people who continue to work there. Sure, maybe they should consider leaving, but that's easy for us to say. Opportunities aren't infinite, indeed sometimes they're scarcely even finite. AEI and its legitimate scholars have been members in good standing of a broader, ideologically diverse community of experts in various fields. And whatever the other incentives that AEI might face, it is hurting itself, good-faith versions of the ideas it espouses, and the broader policy process if it throws this away in the pursuit of enforced political orthodoxy.

On-line interview

The Bizy Moms website, which is devoted to helping mothers who work out of the home "because moms deserve the best!," recently contacted me to suggest an interview on their blog concerning tax and budget policy, etc. My characteristically cheerful responses to their questions about the U.S. tax and fiscal situation are now available here.

My very trivial turn at "standing athwart history yelling 'Stop!'"

Old William F. Buckley quote, of course. I thought of it recently in the very trivial setting of what name one attaches to the canonical "economic income" definition. It used to be called "Haig-Simons income." But there's been a recent tendency in the literature to call it, instead, "Schanz-Haig-Simons income."

This is where I feel compelled to stand athwart history, yelling "Stop!" Do we really need the extra name? Schanz was a late 19th century German economist who apparently described something approaching the now-standard economic definition of income (market value of consumption plus change in net worth during the relevant period) before Haig and Simons did so in the U.K. and U.S., respectively, a few decades later.

Okay, fine. People don't always get all the credit that they arguably deserve. But do we really need the extra name whenever we trot out the concept? To start doing this now, more than one hundred years after the fact, strikes me as pretentious, unduly long-winded, and over-scrupulous.

Has Schanz's family been complaining? Has he been detected spinning angrily in his grave?

But perhaps I should try instead the opposite approach. Does "Schanz-Haig Simons income" go far enough? Luckily, one can do research really fast on Google these days, and about 30 seconds there persuaded me (via the link here) that we can do even better than S-H-S, if "better" is to be defined this way. If we are trying to be entirely scrupulous, there is a case to be made for calling the concept Smith-Malthus-Sax-Garelli-Schanz-Seligman-Haig-Simons income. Or, for short, S-M-S-G-S-S-H-S income.

This is only a placeholder, of course. Surely an ancient Roman must have hit upon it as well. Severus Pontificus, perhaps? Or Saevius Nicanor?

But pending that final expansion (? - there's always ancient Babylonia to consider), what do you think, you advocates (I know you're out there) of using the term Schanz-Haig-Simons income? Have you gone nearly far enough? I'm prepared to consider taking the next logical step if you will.

The healthcare bill's mandate to buy health insurance

By now there's been clear coverage of the fact that requiring the purchase of health insurance coverage is historically a Republican idea. But leaving that ad hominem point aside, is there any reason actually to object to it?

The above article contains one important discussion point, from Mitt Romney before he became a laughing stock:

"'Some of my libertarian friends balk at what looks like an individual mandate,' Romney wrote in The Wall Street Journal in 2006. 'But remember, someone has to pay for the health care that must, by law, be provided: Either the individual pays or the taxpayers pay. A free ride on government is not libertarian.'

"Romney was referring to the federal law that requires everyone to be treated in emergency rooms, regardless of their ability to pay."

To sidestep Romney's argument, you pretty much need to demand that emergency rooms be permitted, and perhaps even strongly encouraged (to prevent penalizing compassion), to shut their doors to those who cannot pay for lifesaving services.

That's point 1. But there also is point 2, which admittedly would not appeal to a pure, slam-the-emergency-room doors, libertarian, but should be conclusive for anyone who supports any element whatsoever of redistribution (as from "ability to pay" taxation that is not rationalized purely on benefit grounds, or from supporting any kind of welfare system whatsoever).

As public economics types have understood for several decades, an income, consumption, or wage tax, especially if accompanied by any sort of welfare or public aid system, is best rationalized as mandatory earnings-ability insurance. Earn more and you pay more, do badly enough and perhaps you get something. Mandatory application of the insurance scheme is necessary to forestall adverse selection, which prevents markets from satisfying consumer demand for this particular insurance product. Grant the desirability of such a system - and rejecting it pretty much requires fetishizing markets even in the presence of clearly demonstrable market failure that otherwise would lead to frustrated consumer preferences - and the debate is over. Not about the healthcare bill itself, of course, but about the theoretical claim that there is anything wrong in principle with mandating the purchase of health insurance.

The only difference I can see between mandatory earnings-ability insurance and mandatory health insurance is that the latter is in kind, rather than in cash. But it pertains to a pretty universally demanded consumer good. This is not much like requiring people to buy cars that only some might want.

UPDATE: Another obvious analogy is to Social Security (mandatory retirement saving plus mandatory annuitization). Or for that matter Medicare, financed by mandatory payroll deductions, or unemployment insurance.

It's true that those are tied to deciding to work, whereas the health insurance mandate applies even if you stay home, but that makes no possible difference (why thus penalize working if it's otherwise illegitimate?), other than perhaps on some desperate stab at legal rather than normative analysis, emphasizing a pre-1930s view of the Commerce Clause.

Getting It now available from Amazon, Barnes & Noble

My novel, Getting It, is now available, not only via the iUniverse website (click here), but also via Amazon and bn.com.

The best price is at bn.com, where there's a member discount and it qualifies for free shipping even if you don't get anything else.

Amazon has a customer review (possibly by someone I might know). Only 4 stars rather than 5 (but this reviewer appears to be reluctant to give 5 even for other things he/she likes), but says, inter alia: "Anyone who has ever dealt with crude business associates, fallen in love, or been a young professional--which is to say, anyone likely to be reading this--will enjoy Dan Shaviro's maiden novel, Getting It .... [A] tale of youthful and yet cynical intrigue that is also a wry comment on a society that knows the price of everything and the value of very little.... If Joyce or Kafka had worked at [a big DC firm], this would be their book."

Obviously, this is a radically different enterprise than my academic work (and note that it is NOT set at a tax firm, such as the one I worked at). But if you ever find me to be an amusing or interesting writer at this site (certainly for you to judge, but why are you here otherwise?), why not give it a try.

I may not be an objective observer, but I feel it's genuinely amusing and a good read, as well as having, well. wry comments on a society that knows the price of everything and the value of very little - while also dishing out true just deserts to almost everyone. Plus a tight dramatic structure that I feel kicks in pretty swiftly (as per the preview here). Rarely have so few fought so hard for rewards that are worth so little.

Okay, enough special pleading - I find it awkward, but I do hope that some or even many of you will give it a try.

Tax conference in Vienna

I'm just back from a whirlwind trip to Vienna (about 75 hours on the ground there), where I attended a conference, "Tax Treaties from a Legal and Economic Perspective," that was run by Michael Lang's Institute for Austrian and International Tax Law and the Vienna University of Economics and Business. I presented - or rather, in keeping with their format, Johannes Voget of Oxford ably presented - the shorter of the two extant versions of my paper on foreign tax credits. I felt it was generally well-received. Voget noted that firm heterogeneity could conceivably affect the analysis of a burden-neutral shift to deductibility, which is clearly right though I don't feel this paper is the right place to deal with it, and I was reminded again that I need to be clear about the distinction between (a) what a pure foreign tax credit does and (b) what happens in a system such as ours that, due to deferral and foreign tax credit limits, is often pretty far from being a pure foreign tax credit system. I focus on analyzing (a), as it's key to whether we should have foreign tax credits, and try to be clear on how (b) differs from (a), but perhaps this needs to be clarified just a tad more.

I almost always enjoy (and certainly did this time) these conference settings. You go to a faraway place, get to explore it for a brief time, and have all these sessions and meals over a short period with a set group, including a few people you already know, and you form these little groups that go through the adventure together. As is my practice when going to a conference in Europe, I took an overnight flight and arrived a day early. At 8 am (local time) last Thursday I hit the ground in Vienna, knowing that, despite almost no sleep on the plane, with an angry hamstring and a soon to be even angrier lower back, I needed to survive on my own and not go to sleep for the next 11 hours. After a cab to the hotel and brief recovery time, I headed out on foot to see Vienna's sites, or at least as many I could fit into the time period without wanting to tackle just yet its admittedly excellent public transit system.

When I'm walking around with other people, dating back to my childhood as the non-map-reading younger sibling, I'm pretty much clueless about directions, where anything is, etc. But generally I can function better when I have to. This time around I made it to the central landmark about 2 miles from my hotel (Stephensplatz, with a glorious medieval church), then took in a couple of Jewish museums that memorialize some of the bad things that have happened there over the centuries, had a Viennese rather than touristic lunch (finger sandwiches with herring & such), and staggered on to the city's primary art museum, the Kunsthistorisches Museum. I was able to find everything and even, eventually, navigate back to my hotel by an improvised route.

But by the time I got to the Kunsthistorisches Museum, I was so tired and sore that I really couldn't take in the Titians, Raphaels, Durers, Vermeers, etc. that it features, and indeed could do little more than sit on the comfy sofas in all of the large exhibition rooms looking at a few paintings from afar. And still only 2:30 - hours to go before the 7 pm reception that would start the conference officially. (I've found that, if you sleep before bedtime on this type of trip, your adjustment to the time zone is disastrously set back.)

Then it all changed for the better. The sun came out and the weather turned delightful, plus I found an outdoor cafe (not hard to do in Vienna) with cappuccino that happened to come with a complementary small fudge square. I felt like Harry, Ron, or Hermione being revived by Lupin's chocolates. And the sunlight was a big part of this - we're biologically tropical, after all, and it evidently helps a lot in body clock readjustment.

I spent the rest of the afternoon going to bakeries and gourmet supermarkets, both for fun and to acquire both a chocolate tart and an apple tart to bring home to my family. (Mission successful, and the tarts were still quite good when I got home on Sunday night.) Both from feeling better and from getting to see this side of Vienna, I began to like the place a lot more. It doesn't strike me as having a lot of must-see tourist sights if you've traveled elsewhere in western Europe, but it does seem very pleasant and livable, as well as frequently beautiful - a place where people like to linger in outdoor cafes, when the weather permits, and where they definitely like food.

The conference itself aimed to pioneer increased lawyer-economist dialogue, which is obviously crucial in tax policy but far less an established fact in Europe than the U.S. And it used the technique we have in the NYU Tax Policy Colloquium, of not having authors present their own papers, and of generally having economists comment on legal papers and lawyers on economist papers. The size of the group and the number of papers being presented - sometimes 5 in a single session - made it hard to succeed consistently in achieving the aims, plus the very fact that lawyer-economist dialogue is generally less far along in Europe than the U.S. inevitably meant there was occasional lack of connection (although this shows the value of the effort rather than suggesting it didn't work). I thought it was successful on the whole though perhaps the format could be tweaked a bit in future sessions.

Reflecting Vienna's location in central Europe, there were lots of attendees from countries whose tax people I really haven't met before (e.g., Poland, the Czech Republic, Slovakia, Estonia, and Khazakstan). Another interesting feature for me. Plus the dinners required traveling long distances by public transportation (bus, train, and tram) in order to get to what I think were pretty authentic, rather than just touristic, settings. Definitely fun, though I'm glad I didn't take it as far as the Canadian faction that decided to go out beer-drinking all night. (If you read this, you know who you are.)

Now it's back to NYC and NYU, not too badly jet-lagged and hoping that my back will hold out, for the 5-week sprint to the end of the semester.

Tax policy colloquium on David Weisbach's "Trade and Carbon Taxes"

Good session last Thursday even though David's paper, being primarily empirical (concerning effects of carbon taxes on global emissions under different scenarios, based on a computable general equilibrium model of the world economy) was not entirely tailor-made for our format.

Key unsurprising conclusion was that, if all Annex B countries (i.e., relatively developed economies, taken from the list of Kyoto signatories) adopt a uniform carbon tax, the glass is either half-full or half-empty, compared to the payoff in reduced carbon emissions relative to a global carbon tax. One only gets about a third of the reduction that a global tax would provide, reflecting above all the anticipated rise of China, India, South Korea, and South America (e.g., Brazil) as huge players in the world economy.

This is a much better result than some models suggest, in that carbon leakage (i.e., increased emissions in non-carbon tax countries) potentially, but not in this simulation, would make the whole thing pointless. On the other hand, it's not really good enough to make one believe that uniform adoption by Annex B countries of a carbon tax at plausible levels would come anywhere close to doing the necessary job to rein in global warming.

But suppose you still have two extra hands. On the third hand, bring along China, India, and Brazil, along with a few other countries in Asia and South America, and one is at the point of achieving really substantial progress after all. But on the fourth hand, when you look at U.S. politics (plus that in lots of other countries, e.g., China) and consider as well the weakness of the purely selfish case for cooperating to solve the prisoner's dilemma if everyone is acting unilaterally, the logical conclusion is that we are going to boil.

"Free Preview" of Getting It

Here is the "Free Preview" of Getting It, which (again) you can purchase right here.

1. The Legions of Hate

At the well-appointed offices of Ashby & Cinders, Peter Crossley, the partner who had been rather casually appointed to handle the new Barlow matter, was waiting for his subordinates. They were due to visit him at 4 o'clock, and already it was 3:59:30.

Crossley had the etiquette of the situation firmly in hand. For the associates to arrive early would be unexampled cheek -- as if he weren't busy every moment of the day prior to the appointment. To arrive late would be unexampled cheek -- as if he could wait all day for them, when his time was worth $250 per hour.

Fortunately, Crossley had ordered his secretary not to admit them until precisely 4:05. And at 4:04:45, he could place a call to his wife. This way, after their five minute wait outside, he could make them wait in his office for another ten minutes, staring if they liked at the contrast between the light gray carpet and dark gray chairs, and feeling uncomfortable while he engaged in personal conversation. With any luck, they would rise apologetically to leave, and he would be able to wave them impatiently back into their chairs.

Crossley chewed on his lower lip as he reviewed the situation. Assignment to the Barlow case was a dubious honor; it was unlikely to generate much in the way of either billings or glory. Had he been assigned to it out of contempt -- the why-waste-our-best philosophy? Or to make him look bad? Or simply by lot, because someone senior thought it was his turn? On the other hand, it was nicely timed to let him enjoy flexing his already well-honed metaphorical muscles. With a little crude hinting, he could imply to the associates, without being far wrong, that the case was a life-or-death affair -- the last crucial step, taken under his watchful eye, in determining which, if any, of them would make partner.

The pleasures that awaited him were easy to visualize. First, in six weeks, would come the annual partners' meeting. There would be the flattering attention as he gave his precis of each associate. He would offer faint praise, complimenting one's energy, another's thoroughness, and a third's nuts and bolts knowhow. Then he would express his concerns, speaking sorrowfully of the problems with each one's performance. Much as he liked his protégés, he would tell the group, it was his duty to share these concerns. Finally, there would be the exquisite agony of telling probably two, but better yet all three, of the associates that they would be well-advised to seek employment elsewhere. As the type of person who had tortured insects as a boy but since fallen victim to a tender conscience, Crossley rarely felt pleasures as delicious as at that horrible moment when an associate's eyes would pop open upon grasping the bad news.

By now, it was 4:05 and, though he had not placed his phone call, two of the associates were admitted. Their order of entry had all the inevitability, if none of the tragedy, of Greek tragedy. First was eager Bill Doberman, loudly saluting him and claiming to have left Mr. Cinders "in the lurch" in order to arrive in time for the meeting. Doberman was immediately followed by Lowell Stellworth, the languid yet fanatical master of the lengthy footnote. Only Arnold Porter had not arrived. This poor soul, painfully earnest and perennially besieged, could be expected late as usual, puffing his apologies about being detained by another partner.

Doberman and Stellworth made a kind of Jeff and Jeff pair as they entered without Porter, the Mutt of the group. Each was a smidgeon under six feet, and convinced that he was slightly the taller of the two.

They were so poorly matched, however, that any good interior decorator would have applauded Crossley's plan to trade in at least one of them next month. Doberman was trim, with smooth skin, symmetric features, and white teeth that he flashed a lot (whether to smile or grimace) because he knew from looking at the bathroom mirror that they were striking. The secretaries admired his cheekbones, and the contrast between his healthy pink skin and almost black hair. His eyes were also dark, although perhaps a bit too big and staring -- the main criticism one heard in the hallways -- but some found this intense and magnetic. He was prone to make direct eye contact to the point of being invasive, evidently relishing this as an assertion of will.

Stellworth was long-limbed and gangly, with pale blond hair that he combed straight back, leaving a large forehead over his brown wire-rim glasses. The secretaries applauded his upright posture and old money air, but found his body movements awkward. They also noted that his eyes were not quite even and his teeth oddly spaced and a bit yellow. Was it definitely too late for braces?

Their mode of dress was almost a match. Both had chosen medium gray suits today; and for both it was invariably either that, charcoal, or dark blue with pinstripes (they happened to have pinstriped the same color tone). Doberman, today and especially in the charcoal, favored a tighter, more Italian rather than Brooks Brothers cut. He had also jumped with both feet onto the yellow tie bandwagon, and today was wearing a specimen that Stellworth, who favored dark red with understated stripes or dots, would almost have called garish.

"I can never get over what a nice office you have!" Doberman exclaimed as he darted over the threshold and paused, leaving no more room for Stellworth than was strictly necessary. Stellworth winced at this remark as he squeezed through; his own methods of sycophancy were less direct.

"I like it," responded Crossley, flashing the ghastly forced smile with which he always expected, quite misguidedly, to reassure his interlocutors. "I always say that, from my double window, it almost looks like Paris, more than Washington. All those broad boulevards and sidewalk cafes."

"Not just that! It's so spacious, and you've furnished it with such excellent taste. If I had this office, I wouldn't change a thing."

This was almost going too far. Doberman was ambitious enough to want the office himself, although there was no conceivable way he would ever get it. Even Crossley, a partner for eight years, had been lucky when a senior partner retired and everyone above him in the pecking order was too busy or preoccupied to move. If Crossley had his way and maintained his current billable hours, there was about a forty percent chance that he would die here.

Porter shambled in, precariously balancing a stack of law books, his face puffy from interrupted sleep. Evidently his boys had gotten him up again. Crossley, to paper over any tension about the late arrival, grinned again and asked the associates if they would like his secretary to bring them coffee. All assented -- Doberman, to show his fervent approval of every Crossley suggestion; Stellworth, because he had not touched coffee for nearly twenty minutes; and Porter, because he was afraid to say no.

Crossley cleared his throat and ran a hand through his sandy, thinning hair. He tried to pull in his paunch, a recent and distressing addition to his body frame that made him resent these barely more than thirty-year-old associates all the more.

"I hope none of you has irrevocable plans for the weekend. A rather urgent situation has arisen.” He paused significantly, and Stellworth shot a prying look at Doberman, hoping to catch an indiscreet flicker of disappointment.

[End of Preview, though not of Chapter 1.]

Upcoming talks

Evidently unable to sit still (or eager not to put to waste my recent passport renewal), I've apparently arranged or agreed to the following academic speech & travel schedule over the next few months:

March 20 - discuss my foreign tax credit paper at a conference in Vienna sponsored by the Tax Institute for Austrian and International Tax Law (along with the Austrian branch of the International Fiscal Association).

April 22 - discuss international tax issues at the 10th Annual NYU-KPMG Tax Program. I suppose I don't have to pack a travel bag for this one.

May 13-14 - at the National Tax Association's Spring Symposium in Washington, D.C., discuss my foreign tax credit paper on one panel, and a paper I am co-authoring with Doug Shackelford and Joel Slemrod, currently entitled "Taxation and the Financial Sector," on another panel.

May 28 - at the European Association of Tax Law Professors' 2010 Congress, in Leuven, Belgium, discuss or debate the law and economics approach (I would rather say the welfare economics approach) to transition and retroactivity issues, with Charlotte Crane of Northwestern Law School.

June 10 - give a dinner talk (probably on international or transition issues) at the Canadian Tax Policy Research Symposium in Toronto.

June 29-30 - attend, and possibly present my foreign tax credit paper at, the Annual Symposium at the Oxford University Centre for Business Taxation.

July 5 - spend a week at the Max Planck Institute in Munich (focusing on tax policy, not physics), probably presenting a paper or two.

August - nothing definite yet, but this might change.

September 21 - give the annual Tillinghast Lecture on international tax issues at NYU Law School. This one probably won't be my foreign tax credit piece, but rather a new one concerning the rising electivity of U.S. corporate residence.

Nie ma alternatywy dla podwyzszenia podatkow!

I believe that's Polish for "There is no alternative to raising taxes." It's the headline of my interview in the Polish magazine Wprost, concerning long-term budget and sustainability problems in lots of countries around the world, available in its Polish translation here.

The on-line Google translator (turning it back into English) conveys my remarks as including the following:

"States have moved closer to the border of financial collapse, which was previously only monster somewhere in the distant future. In the end, however, on their own skin convinced that there is no free lunch. Rising costs of public debt incurred by everyone, even those who finance them as holders of government bonds. They also will be taxed. And it is in their own interest, because without higher state taxes will not be able to redeem these bonds them. Simple rule that you must repay the loan, applies to all, what we find best, managing our household budgets."

This, again, is Google's re-translation, from the published Polish version of my originally English language interview. I presume it reads a lot better in Polish.

Getting It - now available from iUniverse

My satirical novel, Getting It, has gone live on the iUniverse website, and is now available for purchase. Price is $14.95, not including shipping. It should be up soon on Amazon and bn.com, which presumably would affect shipping charges.

The link is right here.

Brief description, as per the "Overview" at the website, is as follows:

"Young D.C. lawyer Bill Doberman, who fancies himself the James Bond of the Potomac. is a liar, a conniver, a phony, a hypocrite, and a cad – and those are his good points. But will they be enough to win him the much desired booby prize of partnership at Ashby & Cinders?

"He will need all his skills to out-compete the dour Lowell Stellworth, languid yet fanatical master of the lengthy footnote, while also dodging hostile senior partners, posing as an arts connoisseur, and keeping his two girlfriends at the firm from finding out about each other. All this in the hope of qualifying at the end for even longer hours and a pay cut."

You can also access a "Free Preview" at the website, consisting of the first 4+ pages or so of Chapter 1.

Fiscally reckless extension of expiring tax cuts

The Obama Administration's budget proposal for fiscal year 2011 includes proposals to extend permanently a number of tax cuts that were adopted in 2001 and 2003 - extending just about everything major from those Bush Administration enactments, if I recall correctly, other than their elimination of the 36% and 39.6% income tax brackets and repeal of the estate tax. (Dividend and capital gains rates, however, would go to 20% rather than staying at 15%.)

As the Congressional Budget Office declined to follow the Administration in treating permanent extension as the new baseline, the Joint Committee on Taxation treats the proposed extensions as revenue-losers for estimating purposes. (Of course, the choice of baseline has no effect on the dollar comparison between extension and non-extension - it just determines whether you put a plus sign or a minus sign on the difference.)

Anyway, the JCT has now released its revenue estimates, which score the extension as costing $2.465 trillion in revenue during the ten-year period from 2010 t0 2020.

This is obviously fiscally reckless and unsustainable given the long-term U.S. budgetary picture. In general, it doesn't lower taxes relative to expiration - it simply shifts higher taxes from the present to the future.

I understand the political dynamic here, and I realize one could reasonably argue that it's hard to blame the Obama Administration too much. Because in fact the voters' baseline for the dreaded concept of a "tax increase" is current policy rather than current law - as Rebecca Kysar correctly argues in the paper we discussed at the NYU Tax Policy Colloquium last week - the Administration had no choice unless it wanted to face huge attacks at a very tough time for supposedly imposing the "biggest tax increase in U.S. history" - a charge we no doubt would have heard had they merely proposed to keep present law with the tax cut sunsets. Plus, for business cycle reasons I suppose one might have wanted to postpone at least some of the sunsets for a year or two in any event. And in addition some of the sunsets are good policy structurally or otherwise (e.g., addressing double taxation via a dividend tax that is below the ordinary income rate, and providing a refundable child tax credit along with marriage penalty relief).

Still, dropping $2.465 trillion over ten years when one already faces an unsustainable long-term budget picture that the political system appears utterly unable to address is, at a minimum, highly disappointing.

Publication updates

My novel should be publicly available very shortly, and I've submitted my foreign tax credit article to a handful of leading law reviews (though I have alternative publication plans if, ahem, they are all too benighted to accept it).

"Spending" cap

GOP Congressmen Jeb Hensarling and Mike Pence have a WSJ op-ed calling for a constitutional amendment "limit[ing] spending to one-fifth of the economy (our historical spending average since World War II). The limit could only be waived by a declaration of war or by a two-thirds congressional vote."

Whatever you think of the underlying policy aim, this would be comically ineffectual given that, as I have explained elsewhere, "spending" is not an economically meaningful term.

What are some of the games we would see if such an amendment were adopted? One would be tax credits in lieu of direct spending for everything under the Sun. Current year income tax liability, past or future years' income tax liability, payroll tax or gas tax or other tax liability - you name it, and "spending" could easily be designed to avoid the label by ostensibly reducing or refunding it.

A second game would be relabeling cash flows as being of debt principal. Start with the low-hanging fruit of re-designating Social Security taxes as partly loans, and Social Security benefits as thus partly repayments of loan principal. (For people already retired by the enactment date, we could simply call the benefits payroll tax refunds.) Perhaps this could work for Medicare as well, e.g., your "loan" is repaid via a payment to the service provider.

The government might also be able to give people scrip instead of current payment (as California was doing last year in their budget crisis), or to make transfers that are designated loans, the repayment of which is only subsequently forgiven.

And all this is on five minutes reflection. Now imagine turning Goldman Sachs (fresh off their Greek adventures) loose on the problem.

NYU Tax Policy Colloquium of March 4, 2010

Yesterday, Rebecca Kysar presented her paper, Lasting Legislation. In large part, this paper responds to George Yin's paper (presented at a past NYU colloquium) arguing that the widely reviled sunsets of the 2001 and 2003 tax cuts were actually a good thing. I must confess to a lack of sympathy with George's thesis. thus creating general agreement with Rebecca though there nonetheless was plenty to discuss.

BTW, I should note that it's occurred to me this year that, as the sessions are off the record, I perhaps shouldn't discuss them here as such - rather, I discuss my thoughts about the issues raised by the paper we discussed, so that there will be no possible problem with this. (Perhaps in past years it had never occurred to me that I actually have any readers here.)

Anyway, I see George's argument as twofold. First, given the horrendous U.S. fiscal situation, isn't it good ex post that all those tax cuts formally expired and thus will disappear (or have already done so) unless and until they are reinstated through a new act of Congress. Second, isn't there a nice match between not applying the legislation to "out" years (past the official 10-year budget window) and not having revenue estimates for those years formally before the Congress.

But in thinking about the 2001 and 2003 tax cut sunsets - which I would group, actually, with the front side of crazily complex and varying deferred implementation that these bills also featured - I think 3 points are paramount.

First, they were faux temporary - no one actually was claiming they should apply only temporarily (in the manner, say, of the 2004 dividend tax holiday, which raises its own set of issues concerning time consistency but is fundamentally different).

Second, the sunsets were optional - chosen by the proponents of the tax cuts to serve those individuals' purposes. So the question presented here is not whether tax cuts should generally have sunsets, but whether proponents should (without encountering too much condemnation, as we're discussing a soft "norm" here) have the sunsetting option in their toolkit. Having this option, which one can use or not as one likes, can only empower and aid the proponents of tax cuts. (Which I consider wildly reckless under current fiscal circumstances, when financing isn't provided, given the long-term fiscal gap - this is about tax-shifting, not high versus low taxes over the long run.)

Third, the whole point of the sunsets, particularly in 2001, was to evade budget rules that are meant to restrain fiscal irresponsibility of this kind. (In particular, the Byrd Rule in the Senate concerning revenue loss past the 10-year budget window.) This, of course, is rather ironic given the healthcare debate today - it involved aggressive Republican gamesmanship to avoid needing 60 votes and get what they wanted with a simple majority. Odd, how majority rule apparently wasn't a terrible thing back then.

I think that's enough to make the case that the sunsets were terrible policy unless one takes the view that tax cuts should generally be enabled and budget rules evaded. That might be a plausible stance if (a) the tax cuts had been financed, (b) there was no long-term fiscal gap, and (c) there was no particular reason to think Congress errs in the direction of enacting unfinanced policies that create a long-term fiscal gap. But for any of those points to hold, we would have to travel to an alternative Bizarro Universe (albeit, a better one than ours).

The delayed implementation rules in 2001 and 2003, none of which made any sense substantively, were also budgetary gamesmanship, meant to create much bigger tax cuts than the budget agreements (or legislative understandings) about their permissible 10-year cost would otherwise allow. Delayed implementation makes a further mockery of 10-year budget windows, by causing them to be much less representative than otherwise of the true size over time of the new programs being enacted. This was exploited once again with the Medicare prescription drug benefit, a wholly unfinanced $20 trillion entitlement (that being its infinite horizon cost as subsequently estimated) that supposedly cost only $350 billion (?) over 10 years due to extremely delayed start-up, solely to game this number, plus dishonest squelching by the Bush Administration of revised estimates showing that it was costlier even inside the window.

Is the Obama Administration doing the same thing now with delayed implementation of the healthcare plan? Presumably so, but I confess to not knowing the details here, plus it is supposedly financed over the long term.

My main takeaways from thinking about all these issues were as follows. First, there really is no substitute for infinite horizon budget forecasting that disregards claimed future tax increases or benefit cuts that are discontinuous (i.e., not being phased in gradually within the short term) and not otherwise entirely credible. Second, such forecasting would have to be used in relatively binding budget rules to make any difference. These would have to be independently estimated, non-waivable, and would have to use a combination of mandatory adjustment rules to move back towards balance and/or super-majority rules. (Though note that super-majority rules only help in this setting if you have today's hyper-partisanship - in other situations they can simply lead to bigger and costlier logrolls.) Third, none of this is going to happen.

Why do I support super-majority rules for making increases to the fiscal gap harder to enact but not for, say, healthcare? The only difference is whether one wants to systematically discourage a particular type of legislation. I see a pathology in the form of increasing the fiscal gap through non-sustainable policies. An argument that this reasoning applies as well to "big" legislation generally - if applied symmetrically to Democratic and Republican initiatives - could only be rebutted by challenging that particular application of the discouragement principle - not by reference to majority rule versus requiring a larger consensus as such.

What's so great about cats?

That isn't a question I would ever ask - it's too self-evident to me, down much deeper than the level where you have words. But a skeptical colleague asked me it the other day, before elaborating with the usual non-cat owner's line about how they don't really care about you, it's just about food, etc. (Though why shouldn't the food matter?)

I said it's not just that, the interaction is much more intense than that, reflecting that they have put us in the mother slot in their mental toolkits, but found it hard to explain more.

A minute after the conversation was over I thought of the additional answer that I would have liked to give. Just one among many, but at least it's a start at capturing the aesthetic angle. What's so great about cats? "They allow us to admire them as they deserve."

Women's tennis at Madison Square Garden

Good exhibition tennis matches in Madison Square Garden last night. Clijsters beat Ivanovic and Venus Williams beat Kuznetsova in close 1-setters, then Venus over Clijsters in a close, back & forth, 3-set final, all viewed by us from pretty good seats. (John McEnroe was there broadcasting, and once we had moved down a bit I wanted to taunt him for having worse seats than ours. Probably just as well that I didn’t.)

But perhaps I’ve been watching too much Project Runway? First I discussed with my kids how Michael Kors might score the outfits, then I suggested a new reality show, "Tim Gunn, Tennis Coach." He'd say stuff like "I really like your inside out forehand, but are you hitting enough backhands down the line? Think about it."