Tuesday, June 29, 2010

Horrifying conflict

In September 2009, I purchased tickets to see one of my favorite bands of all time, Pavement, perform a reunion concert in Central Park on September 21, 2010. As Pitchfork or some other music blog remarked at the time, the degree of advance planning that this required seemed likely to be a challenge for Pavement's core audience of 1990s-style hipsters. But not being in that demographic myself, I figured: No sweat.

The tickets were a hot item, and I had to act fast to get them. But Pavement then went on to announce a number of additional reunion concerts, including a number prior to that date elsewhere, and also several more that week in Central Park.

Sometime in the interim, I agreed to give the NYU Tillinghast Lecture on International Taxation this fall. I was only offered one date: Tuesday, September 21. But somehow I had persuaded myself that the Pavement tickets were for a Monday, suggesting to my evidently easily addled brain that they must be for September 20. I guess this means I should steer clear in the future of making jokes or sardonic remarks about hipsters. (At least in relation to their planning abilities.)

I've now finally become aware of the conflict. So what to do? I am reminded of the old Jack Benny joke:

Armed robber: "Your money or your life!?"

Dead silence.

Armed robber: "Well!?!?!"

Jack Benny: "I'm thinking! I'm thinking!"

Unlike Jack, however, I recognize that I don't really have a choice. At this point, I've credibly committed to one of the two options, and I don't (alas) mean the Pavement concert.

Luckily, the market for Pavement tickets may now realistically be thick enough that I can, so to speak, have my cake and eat it too (although I've never understood why anyone would want cake, other than to eat it). Surely I can both sell my 9/21 Pavement tickets, such as on Stub Hub or Craigslist, and buy tickets for later the same week on one of those venues. Or, better still, cut out the middlemen by arranging a swap. (Please contact me off-line if you're interested in either or both sides of this.)

Yet another Amazon customer review of Getting It

From the Amazon UK website, under the heading "Just couldn't put it down" (with five stars):

"Getting it is an excellent and highly entertaining book. It's a must-read for law students, lawyers and not only. The characters are so alive that you begin to empathise with them and live through their agonies. The book is also hilarious at places - the conversation between Gidget and Doberman on their first date is simply amazing. I highly recommend it to all but especially those who cherish a bit of intellectual challenge. Well done to Dan Shaviro!"

In the interest of full disclosure, I should note that I know the reviewer (as well as one of the two earlier reviewers), but I did not solicit the review.

Monday, June 28, 2010

Travel snafu

I was scheduled to leave NYC tonight on a 10 pm flight to London, from whence I would have proceeded to Oxford on Tuesday morning to appear at a conference at the Said Business School. I was scheduled to present my foreign tax credits paper on Wednesday and then to comment on an international tax paper by Richard Vann a couple of days after that. Then on to Munich where I will be giving a couple of talks and attending conferences at the Max Planck Institute in Munich (on tax policy, not physics).

Knowing how bad the Holland Tunnel can be, I got to Newark Airport way early - at 7:40 pm for a 10:10 pm flight. Only problem: the flight had been rescheduled to leave at 8 pm. So much for that idea - you can't sprint through airports any more these days, especially for international, like in that old O.J. Simpson (!) commercial that I seem to recall from, well, obviously it couldn't been from later than the early 1990s.

No chance of getting to England tonight, and the outlook for getting there tomorrow was fairly bleak what with summer travel volume. I was offered the opportunity to arrive by 7 am and sit around hoping to get seated on stand-by for one flight after another, but without enormous hopes of success. With my main talk scheduled for Oxford on Wednesday, and mediocre prospects of getting there in time, I decided to pull the plug and cancel the London/Oxford wing of the trip, instead going straight to Munich on Thursday (where fortuitously, after talking to the flight people for 3 different airlines, I was able to get a seat on the flight that my family is already taking there).

I'm sorry to miss the Oxford conference and numerous friends who will be there, as well as to have let down the conference schedulers & made them scramble at the last minute to rearrange the sessions. I happen to greatly like both Oxford & London, and perhaps will get to try again, more successfully, next year.

Empty nest of a sort

Our cats have been relocated for their care during our upcoming trip, to what I believe they regard as a splendid wild game preserve in northern New Jersey. Chipmunk population there has gone through the roof, but all our heroes can do is look - which they do quite avidly, as well as chasing the little critters along the wrong side of the windows. At least they get to claw and partially eat the occasional cave cricket that took a very wrong turn from the outside world into the hall or kitchen. Myself, I would give any place holding them a very wide berth if I weighed under 5 pounds.

Even with 4 humans around, our home seems bereft without them. Their favorite sleeping spots are empty. We don't have them following us up and down the stairs. (More the latter as it's towards their food, but Buddy is like Kramer from Seinfeld - he'll follow you anywhere.) They are so interested, alert, aware, and in their species-appropriate way intelligent and observant that it feels wrong not to have them continually underfoot. Not to mention our missing for now the pleasure of having been accepted as surrogate mothers.

Marty Ginsburg

I was very saddened by the news of Marty's death, though I had known he was ill. Truly a wonderful and lovely man (gentle, ironic, appreciative of life), as well as a preeminent and brilliant legal scholar from a different era.

Thursday, June 24, 2010

Competitive imbalance

Most people have little interest in a sporting event where one team is vastly better than the other - the $200 million Yankees versus the $40 million Royals, for example, or a lion versus an unarmed slave in the Roman Colosseum back in the day.

But games often have two distinct subgames - e.g., offense versus defense, or (in tennis) server versus returner. If the two subgames are wildly one-sided but each contestant has the huge advantage in one of them, the overall contest will be close. But it's still potentially boring, in that you know how each matchup within the game is going to end up almost all the time.

To my mind, this flaw is shared by Wimbledon men's tennis (where Isner just beat Mahut in the fifth set, 70 to 68) and the World Cup, where the offense generally seems to have almost no chance of scoring. On grass courts, returners often are hopelessly outmatched in the men's game. And amusingly crazy though the result was in Isner-Mahut, I'd say it's far better to have a close match where there's, say, a 25% chance of a service break each time around. Last year's Federer-Roddick final, though entertaining, helps make the point - the servers were simply too dominant. (And this is an old problem - Edberg once lost the Wimbledon final in 4 sets with only one break of serve - by him - in the entire match.)

In the World Cup, the fact that you can go away for an hour (if you're watching it to begin with) and be almost certain nothing will happen is, to my mind, a serious defect that prevents me from getting at all interested. You see a team trying to move towards the enemy goal, but know that, if you watch it on offense for a minute, its chance of scoring is probably less than 1 percent. So why bother to watch? If the rules were changed somehow so that an average score was, say, 4 to 3 (like hockey), I think it would be a vastly more entertaining game.

Then again, perhaps such jejune impatience is only to be expected of an American.

UPDATE: Uh-oh. From the Wimbledon website: "Isner's reward is a second round meeting with Dutchman Thiemo De Bakker, himself the winner of a marathon first match when he beat Colombia's Santiago Giraldo 16-14 in the deciding set. Perhaps they should be made to play best of three sets."

FURTHER UPDATE: De Bakker beats Isner in straight sets, 0, 3, and 2. I guess Isner left it all on the court on Wednesday.

Tuesday, June 22, 2010

Financial institutions paper

My article on taxing financial institutions post-2008, coauthored with Doug Shackelford and Joel Slemrod (hence, known to some readers as "S-S-S") appears to be getting a lot of play. Already my all-time # 3 download, for example, and recently linked here by Ezra Klein at his widely read WaPo blog (where it's item # 4).

Another Amazon customer review of Getting It

Herewith my second customer review at Amazon:

"I highly enjoyed this debut work by Professor Shaviro. 'Getting It' is a very fast, fun read about three senior associates in a last-ditch battle for partnership. Unlike many other very good (The Firm, In the Shadow of the Law) legal novels set in law firms, "Getting It" is a more satirical portrayal of big firm life, and it is the better for it. Although Shaviro appears to have worked in private practice (at a smaller firm) for just a few years, he precisely captures some of the 'moments' of firm life in a way that left me laughing out loud.

"Overall, 'Getting It' was significantly better than I expected. Really, an excellent read. As a tax lawyer, I only wish he had written it about tax associates! But I suppose litigation is more relatable and has more mass appeal. Perhaps the next time around..."

Now, if only I could persuade some other of you holdouts (I know you're out there) that it will be "significantly better" than you expect...

Monday, June 21, 2010

One more week in NYC

Hot weather notwithstanding, I love (one could almost say live for) NYC summers. So long as the AC is working and bug problems (mosquitoes, etc.) aren't too bad, sign me up for this full-time. But unfortunately school schedules (my kids' as well as my own) mean that we can't as easily get out of town for extended vacations during the rest of the year, when I sometimes really wish we could get (and stay) away.

Since summer it has to be, as usual this summer it'll be combined work and play across the ocean. Next week I head to Oxford for a conference where I'll present my foreign tax credit paper (and possibly the S-S-S financial institutions paper if scheduling issues can be solved). Thence to Munich for 2 weeks, the first at the Max Planck Institute (where inter alia I'll present the same 2 papers) and the second touring the region with Munich as home base, which given its location in central Europe is a pretty open-ended proposition. Dachau (which I saw some years ago), Mad King Ludwig's castle, probably Salzburg, etcetera.

Sunday, June 20, 2010

David Zaring review of Getting It at the Conglomerate Blog

David Zaring at the Conglomerate Blog (which tax types will recall also used to feature Vic Fleischer) has just posted a brief review of Getting It. David finds it "concise, witty, and sometimes racy. I just sped through it, and commend it to you all."

As a serial reviewer of legal fiction, David compares Getting It to Kermit Roosevelt's In the Shadow of the Law, which I haven't read but realize I should. The two apparently take similarly dim views of life in a big law firm, though (as David notes) Kermit wrote in the thriller genre whereas I employ "black humor."

A word on the "concise" point. Getting It is indeed short - if you want to be technical about it, 61,000 words or so. Elephantine fiction is all the vogue these days. Back in the day, another aspiring author told me I'd have a better shot of finding a mainstream commercial publisher if I expanded it to 100,000 words or so. I declined; padding it struck me as insane, and I think the pace is a real strong point.

If you're taking your summer vacation any time soon, keep in mind that the Amazon shipping weight is only 6.4 ounces. But I get the sense from readers that you may want to set aside a stretch of time when you don't have to worry about other obligations while in the middle of it.

Saturday, June 19, 2010


League semifinals. Down 1 point. 2 seconds to play. My son is driving to the hoop, is deliberately fouled. Should be 2 shots for the win - but the ref incorrectly calls it on the ground, not shooting, so they have to inbound. Proof that the ref was wrong is right here. You can see he's going up for the shot - just as everyone saw it live except for the one person whose view mattered.

Friday, June 18, 2010

Free market economics, Joe Barton-style

If you think about it, tort liability is a shakedown, not to mention extortion, redistribution, and big government at work. So I guess companies shouldn't ever be liable for damages.

Basketball note

It's a funny thing how, if you tend to root for underdogs as I do, that means your teams usually lose. Perhaps I should have considered this more fully up front, meaning at age 7 or so.

I rooted against the Celtics in the 1980s and actually did pretty well (the Lakers took 5 titles and the 76ers 1 to the Celtics' 3). But now I root against the Lakers, who have taken the Celtics' marquee spot in the sport, and this is not going so well. (OK, I admit I rooted for Michael Jordan, but I was a Chicagoan for most of that time, and found myself admiring his bid to rise above the human frailties that beset us all.)

Though the Lakers were the better team, the Celtics could have won (ex post I'd say Game 7 was a 40 percent shot). For the slightly weaker team to win, it needs a number of things to go its way. Several did for the Celtics, but they needed just a bit more, such as Ray Allen hitting more than one out of every twenty 3's, or perhaps Nate Robinson connecting on that twisting layup and going on a binge. It might also have helped if the referees, throughout the series, hadn't classified guarding Kobe as per se a foul (or if they hadn't repeatedly called more fouls on the Celtics for no apparent reason), but perhaps that's the sour grapes talking.

Thursday, June 17, 2010

Too much, yet too little, deficit aversion

I have to agree with Ezra Klein that the current Washington mania for refusing to address unemployment via stimulative fiscal policy is giving us the worst of both worlds. On the one hand, ignorance and an essentially aesthetic aversion to doing things that are known to work mean that we will have higher unemployment than necessary for years to come. This disastrously affects people's long-term earnings prospects and guarantees continued poisoning of the political environment. Of course, the people who oppose fiscal stimulus will be the main political winners from the anger that ongoing unemployment creates. Talk of having the wrong incentives. Yet I see absolutely no evidence - not the slightest - that the dominant political aversion to short-term stimulus implies any willingness whatsoever to address the long-term fiscal problems we face. If anything, the aesthetic mood includes an increased eagerness, documented by Bruce Bartlett, to force a U.S. default as an almost criminally negligent act of political posturing.

Sunday, June 13, 2010

Possible choice to play Doberman in the (purely hypothetical) film?

A friend suggests Ed Helms, who plays Andy in The Office. Maybe so if Helms has the range - Doberman is far more formidable and energetic than Andy, as well as adding some of Jim's surface and Dwight's substance.

Saturday, June 12, 2010

Who needs a dog when you've got Ursula

She can be so affectionate that I feel it isn't presumptuous to say: "I love you too."

Friday, June 11, 2010

What else is purchased by Amazon buyers of Getting It?

Someone actually asked me this burning question recently, so I decided to give the Amazon page a look, and found the following:

Daniel Shaviro, Decoding the Corporate Tax - good thinking.
Michael Lewis, The Big Short: Inside the Doomsday Machine - good match, as the world of Getting It certainly has affinities with that of rogue capitalism early 21st century style.
Carment Reinhart, This Time is Different: 8 Centuries of Financial Folly - ditto for the prior 8 centuries.
James Hirsch, Willie Mays: The Life and Legend - nice to see a fellow baseball fan, though I'm not convinced Mays is interesting to read about.
Michael Sandel, Justice: What is the Right Thing to Do? - good match in a different sense, as Getting It could be subtitled "Injustice: What Is the Wrong Thing to Do?"
Julee Rosso, Silver Palate Cookbook: 25th Anniversary Edition - must be a kindred spirit; I have and use the original one.
Christopher Buckley, Supreme Courtship - Though Getting It is darker, I suppose there are stylistic affinities here. I wish I could get in touch with Buckley and persuade him to take a look at Getting It, as I'm convinced he'd like it. Same for James Wolcott. But I don't have connections to either of them - any offline suggestions would be much appreciated.
Roberto Bolano, 2666: A Novel - I've heard of this and it sounds very interesting.
Stephen Carter, Jericho’s Fall - with all due respect to Steve, I think we have different literary aesthetics.
Richard Posner, The Failure of Capitalism - I've meant to read this but am already too familiar with the subject matter and thesis (with which I generally agree) to have it as a high current priority.
Antonin Scalia, Making Your Case - I hear Bill Doberman will be working with Nino on the second edition.
Joseph Glennon, Civil Procedure: Examples and Explanations - two great beach reads are better than one?

Cuisinart coffee grinder
Canon digital camera
The Wire: Complete Series (DVD)

Thursday, June 10, 2010

Ars brevis, vita longa

Well, I've had my day of glory - Getting It rose briefly as high as # 622 in the Amazon book ratings (higher than I ever imagined) on the strength of Kashmir Hill's Above the Law review (takeaway phrase: "an 'American Psycho' take on Biglaw") - but is now slowly declining again.

Today was a very long travel day, as I flew round trip between NYC and Toronto to deliver the talk I noted in my previous entry. Hope it went over well; I certainly tried to say a lot in limited time. But better over-ambitious than predictable or boring, I'd like to think.

One thing of value I learned, for the next time I travel to Toronto, concerns the huge advantages of flying via Porter Airlines to the small airport on Toronto Island in the center of town (Billy Bishop Toronto Center Airport). You dash through this tiny airport to a ferry that leaves every 15 minutes and delivers you 5 minutes after that into the heart of town, near the giant needle and all that stuff. Vastly better than dealing with the size and commute from Pearson Airport well out of town.

Main topic for the day, before my pre-dinner talk, was the Canadian tax treatment of stock options (similar in some respects to ours, but complicated by the fact that their corporate rate is much lower than their individual rate, so deferring the inclusion and deduction alike doesn't balance out to equaling the treatment of cash compensation). Speakers on this topic noted the benefit of tax neutrality, but if corporate governance isn't working right (as in the Bebchuk story of options being misused) one needs to consider regulatory responses. Only, once one is considering command & control regulations, if one has just co-written a paper (as I have) on trying to use a Pigouvian tax approach in a new area for it (bank regulation), one is naturally inclined to wonder if that approach has any prospects here. As in the bank subject in the S-S-S- paper, the problem is defining and measuring the harm so you know how to price it. But if you don't know that, it's hard to get the regulatory approach right either (which is not to say one should do nothing if markets are screwing up - just that one will have an ugly problem no matter what).

Wednesday, June 09, 2010

Talk at Canadian Tax Policy Research Symposium

Off to Toronto tomorrow, just for a few hours with no overnight, to give a dinner talk at a Tax Policy Research Symposium in Toronto, featuring many of the leading tax academics north of the border. Alas, no dinner for me, as I'll have to fly home immediately afterward to attend a son's middle school graduation on Friday.

It certainly poses extra challenges to be a before-dinner rather than after-dinner speaker, as this is bound to affect the audience's mood as I speak. ("Isn't he done yet? I'm hungry.")

The slides I'm planning to use for my talk, entitled "Three False Statements Concerning International Tax Policy," are available here.

Another review of Getting It

The very popular and enjoyably snarky legal blog Above the Law has just posted a review of Getting It and interview of the author (moi), by Kashmir Hill. She says, among other things:

"If you’re the type who is convinced that the people you work with in Biglaw are evil, conniving, and ready to stab you in the back with a really sharp highlighter, you will love Getting It ... In a post titled “james joyce meets the paper chase,” an Amazon reviewer says: “If Joyce or Kafka had worked at Arnold and Porter, this would be their book.

"I’ve read a lot of lawyer fiction, but never something quite like this. The satirical novel is .... an 'American Psycho' take on Biglaw — funny and fast-paced, a great summer quick read. I devoured it on a plane to Chicago....

"People have told Shaviro it could easily be made into a movie. He could see a young James Spader playing Lowell Stellworth and a young Matthew Broderick playing protagonist/antagonist Bill Doberman. He lives on the same block as Broderick and Sarah Jessica Parker and has considered dropping off a copy of the book.

“Neighbors do favors for each other,” said Shaviro. “I’d give him a book. He’d give me tickets to a Broadway show.”

UPDATE: Above the Law certainly has some pull. My Amazon rating has gone from 650,000 this morning to (so far) # 824.

Friday, June 04, 2010

Invigorated by a change in projects

Although I like my foreign tax credits paper and think of it as making a significant contribution, the last stages of massaging the final version pre-edit (worse still, two final versions pending two edits) is never much fun. So I am relieved to have put it behind me for now.

David Bradford once observed that, if you ever polish an article to the point of formal perfection, you've badly misallocated the last few hours of your time, which would have yielded a far greater marginal product had you said "close enough" and started on something new.

In my case, something new means an article I had started work on about 4 months ago but then had to shelve until now after just a couple of days. (In the words of a former University of Chicago colleague, it was cooling its heels on the back burner.) Luckily, my subconscious appears to have been at work in the interim, giving me a clearer and cleaner sense of the project, which should save some effort by permitting the first draft to come closer to the final one.

Evidence that I am now thinking more clearly: The prior working title was quite turgid: "A Voluntary Worldwide Tax? Corporate Residence and the Transition Problem In U.S. International Taxation." As revised: "The Rising Tax-Electivity of U.S. Corporate Residence."

Christian Science Monitor article on the "S-S-S" bank tax analysis

I've previously noted here my article draft (co-authored with Doug Shackelford and Joel Slemrod) concerning bank taxation in the aftermath of the 2008 financial crisis. SSRN link is here.

The Christian Science Monitor has just posted a blog entry, discussing the article and inviting readers to make comments, here.

Final version of the article will be published in the December 2010 issue of the National Tax Journal (along with the short version of my foreign tax credits piece).

UPDATE: My error: though the link is correct, the CSM is actually just picking up on a Tax Vox blog post by Howard Gleckman at the Brookings-Urban Tax Policy Center.

Revised "album" version of my foreign tax credit article

I've also now posted here a revised and improved "long" version of my foreign tax credit article, the one that will be appearing in the Journal of Legal Analysis.

Thursday, June 03, 2010

Quasi-new paper now available on SSRN

I've previously posted word here of my SSRN paper, "The Case Against Foreign Tax Credits," a revised (and I think significantly improved / clarified) version of which should be available through SSRN shortly.

But I have also now posted a much shorter version, less than half the length, with the title "Rethinking Foreign Tax Creditability." I find the shorter version more fun to read, but the longer one does address more issues, and each (I hope) is properly adapted for the setting in which I expect it to be published in the next few months.

"Rethinking" will be in the National Tax Journal's December issue, containing papers from the National Tax Association's 2010 Spring Symposium, and is directed as much (if not more) to economists, accountants, policymakers, etc. as to lawyers. "The Case Against" will be in a faculty-edited law review, the newly established Journal of Legal Analysis, I believe early next year. It attempts more comprehensive issue coverage of a sort that I felt was appropriate and indeed desirable in that setting.

Anyway, here is the SSRN link for "Rethinking Foreign Tax Creditability." The abstract is as follows:

"International tax policy experts often mistakenly conflate two distinct margins: (1) the overall tax burden on outbound investment, and (2) the marginal reimbursement rate (MRR) for foreign taxes paid, which is 100 percent under a foreign tax credit system, but equals the marginal tax rate for foreign source income under an explicit or implicit deductibility system (such as exemption). From a unilateral national welfare standpoint, whatever the right answer at margin (1), deductibility is clearly optimal, and creditability dangerously over-generous, at margin (2)."

Redundancy warning: these are indeed effectively the same paper, and they have much text in common (albeit with distinct introductory and concluding sections). But the version I've linked to here is under 6,000 words, and potentially worth it, even if you've read the first draft of the long version, if you are sufficiently interested in the topic and found that first draft less pellucid than I had hoped it would be.

Yes, another word on Getting It

While I await a review on a popular legal blog that should be up next week, here's what Nancy Matsumoto (my West View interviewer and reviewer) has to say on her blog:

"NYU tax law professor Daniel Shaviro's new novel Getting It is the perfect summer read, in case you are looking for one. This mordant satire, set in a 1980s-era Washington D.C. law firm, follows the adventures of three associates (one of them particularly venal), vying for partnership. The book is a hilarious dissection of American corporate law firm culture and one that rang true for me."

Wednesday, June 02, 2010

International tax policy: domestic expenses that produce foreign income

The latest issue of the National Tax Journal contains a brief "Comment and Reply" section on Jim Hines' 2008 article, "Foreign Income and Domestic Deductions." The comment is by Johannes Becker of the Planck Institute in Munich and Clemens Fuest of the Said Business School at Oxford (coincidentally, two places I am going this summer), and Hines offers a very brief reply.

The exchange is important for people interested in the topic. However, as it's written mainly for economists (with equations playing a prominent role), it may not get the broad attention and readership among other interested individuals that it deserves.

Hines starts from the premise that adopting exemption for the foreign source income of domestic firms is optimal. The question presented is what should then be done with respect to the domestically incurred expenses of producing foreign source income. E.g., suppose a U.S. firm borrows in the U.S., incurring interest expense, in order to invest abroad. Or suppose a portion of its domestic headquarters operations are devoted to producing foreign source income that the U.S., having hypothetically adopted exemption, is not going to tax.

There has been widespread agreement that, at least in principle, one would want to disallow domestically incurred expenses that produce untaxed foreign source income. In effect, since the expenses are an input to determining foreign source income, which one has decided to exempt/ignore, they should be ignored as well. But Hines' article argues that "the only policy consistent with efficiency ... is to permit full domestic deductibility of expenses incurred in the home country." With all due respect to Jim, I think it's fair to say that this has met with widespread skepticism.

I had noticed that Jim's argument seemed too lawyer-like in a bad way (if I may say so as a lawyer). That is, the claim is largely one of logical consistency with exemption, in effect treating the decision to adopt exemption as if it were a precedent.

Becker and Fuest make this a lot clearer. They start by quoting the following statement from Hines: "Exempting foreign income from taxation implies that the government values equally one dollar of after-tax domestic income earned by home-country firms and one dollar of after-foreign tax foreign income, since home-country firms make this tradeoff at the margin."

Let's try a simple numerical example to make this more salient. If the U.S. adopts exemption and has a 35% domestic rate, a U.S. firm will be indifferent between earning $100 in the U.S. ($65 after paying U.S. tax) and earning $65 abroad after paying foreign taxes. Since exemption gives the firm this tradeoff, Hines asserts that this tradeoff is indeed the socially optimal one from a U.S. national standpoint, and is the one that the government, if benevolent, employs in its social welfare function. As Becker and Fuest note, this necessarily means that, in the benevolent government's social welfare function, domestic taxes paid are worth zero (!!!!!!!!!!!!!).

A more plausible social welfare function would hold that a dollar of domestic taxes paid is worth $1, since the government could simply give it to someone.

One way of describing the underlying error (made clear by Becker and Fuest) is that it confuses first-best with second-best optimality. Suppose an exemption system is best for reasons that relate to the government's lack of market power with respect to taxing foreign source income on a corporate residence basis. (The argument is ultimately similar to that against imposing tariffs if the government lacks the market power to make foreigners bear the incidence of the tax.) Even though this might make exemption, like not having a tariff, the best choice, it doesn't imply that domestic taxpayers have optimal incentives in all respects given, for example, that other domestic taxes which are second-best need to be imposed.

Analogously, suppose that imposing a wage tax is best, all things considered, as in a typical optimal tax model where efficiency and distributional objectives are being traded off (and where, as there's just one period, there is no difference between an income tax, consumption tax, or wage tax). The fact that a wage tax is optimal, all things considered, does NOT mean that tax revenues have a social value of zero and that people making work versus leisure decisions (where the return to work, but not the value of leisure, is taxed) have exactly the set of incentives that the government considers optimal.

Becker and Fuest, using a model with a more plausible social welfare function in which domestic tax revenues have value, find that deductions yielding foreign source income should not be allowed. And if expenses producing domestic versus foreign source income cannot be distinguished, partial deductibility of some kind (such as from using an apportionment formula) is optimal. Finally, they find that full deductibility "subsidizes the ownership of foreign affiliates and therefore leads to inefficiently high levels of such ownership."

Hines' reply appears largely to demur. Rather than defending his earlier line of analysis, he argues that foreign investment yields positive externalities domestically. Hence, it should be subsidized, rather than exempt. He does not address, however, what the optimal Pigouvian subsidy for positive-externality-yielding foreign investment should look like. I would be surprised if it took the form of subsidizing such investment that happens to use domestically incurred expenses.

The glass is 1% empty, not 99% full

Why am I already bemoaning that the summer is just too short? I don't find myself, on December 2, thinking that the winter will be over soon.

Lately it's occurred to me that I could learn from Buddy. As you can see from the picture here, he generally just accepts things as they come (in this case, an upcoming ride in the car). While a bit of a maniac and perpetually food-obsessed like Wile E. Coyote to the nth power, this little fellow is always hopeful, never lets anything get him down, and seems to think at all times that something great is about to happen to him.

Like Paul's uncle in A Hard Day's Night, he's very clean but also a mixer. The family mythology lauds him as the silliest of our cats. But perhaps he ought primarily to be admired, rather than (albeit gently and lovingly) mocked.

Tuesday, June 01, 2010

Traveling in Belgium

One striking thing about my just-completed trip to Belgium was that I never once needed to take a taxi. I arrived at Brussels International Airport at 8 am this past Thursday, and all I had to do to get to Leuven (about 20 miles away) was go down a couple of levels in the airport and take a train. They're available every 20 minutes or so and only take 15 minutes to get to Leuven. From there, with Google's help, I was able to walk to my hotel.

A few days later I traveled 70 miles, from Leuven to Bruges, and once again the train was all I needed. Then to return to the Brussels Airport, arriving 2 hours early for a 9:45 am flight on Sunday, train travel made it far easier than the equivalent in most other travel destinations that I've known.

True, the U.S. is a lot bigger than Belgium, and New York is not especially small. But imagine if there were high-quality, fast, and direct rail links that made it easy to get from, say, Penn Station to one or more of the 3 major NYC-area airports.

Both Leuven and Bruges are very pleasant cities with the classic medieval / Renaissance era churches, town halls, etcetera. The best art museums are in Brussels, where I didn't get a chance to go, but Bruges has one in particular (the Groeningemuseum) that I rather liked - highlights of local artists from the 1400s through almost the present. The Flemish portion of Belgium (where I was throughout) also has good beer, as well as tasty white asparagus prepared in the Flemish style with vinegar (and plenty of fish and beef), plus the inevitable (not that there's anything wrong with that) chocolate shops at all touristed locations. I didn't get to try the surprisingly prevalent Asian food in Leuven.

Easy to get by speaking English there, though if you speak in French (which would require greater fluency than the bare rudiments I still have) you might run into feelings associated with the country's big cultural divide, which lies between Flemish and French speakers. Though leave it to the U.S. (with its red and blue states) to have (worse?) regional tensions despite a common language.

In Bruges, the central touristic high points are built more or less at the scale of parallel sites in London, except that the rest of the town is, well, a bit smaller. Tough break for Bruges when the Zwin Channel, which gave it sea access and made it a trade center, silted up in the early 1500s. Perhaps there is a global warming scenario in which the Zwin is restored without burying all of Belgium and Holland underwater?

More on my Leuven trip

As previously noted, last Friday (May 28) I spent the day at the 12th (?) Annual Congress of the European Association of Tax Law Professors (EATLP). I suppose one might compare this organization to the AALS Tax Section in the U.S., except (a) it's not part of a broader umbrella organization such as the AALS, and (b) it plays a different role given distinctions between the U.S. and European academic environments.

Tax and other legal scholarship in Europe are headed in the same direction, I'd say, as U.S. legal scholarship. (Insert sarcastic comment here if you must, but I believe this is generally a good direction.) In other words, the movement is towards being more academic, inter-disciplinary, etcetera. But the U.S. has perhaps gone further to date along the same road, e.g., with regard to having incorporated economics and other related disciplines into legal thinking. Though, that said, when called upon by my panel's title to address what "law and economics" is, I mentioned the line from Moliere about the guy who is startled to learn that all his life he has been speaking in prose. The underlying idea in law and economics is to assess laws in terms of their real world empirical effects (whether studied directly or analyzed through theoretical models that are believed to relate to the real world). And in all the panels prior to mine, people had been doing exactly this, at least in many instances (i.e., arguing for or against a proposition based on what they believed about real world effects).

The U.S. is a huge country, filled with law schools, and I would think has lots more tax law professors than all of Europe put together. Plus, we have lots of different institutions in place where we tax law profs meet each other, discuss ideas, etc. This is one reason why the AALS Tax Section isn't pretty much obligatory for anyone who wants to stay in touch with everyone else in the field, and indeed tends to be attended disproportionately by people who may not be as connected with some of the institutions (such as the host of tax policy colloquia) that enable us to meet and discuss each other's work. In Europe, having a smaller tax prof population and fewer developed institutions for the group to stay in touch, I gather that EATLP plays a large role in creating the needed larger sense of community.

The attendance at EATLP 2010 was probably in about the 150 to 200 range. Nearly all Europeans but there were also a few people from Japan, plus 4 Americans, including the 2 invited speakers (Charlotte Crane and me). The main activity for last Friday was 4 sessions on "Retroactivity in Tax Law." Each session had a single proposition to be debated, with two main speakers, one in favor and one opposed. People presumably tended to believe in the arguments they were making, but they were expressly charged with acting as advocates, rather than fully expressing all the nuances of their own personal views.

The speakers would get their say and then respond to each other, then the audience would chip in, and at the end the speakers would get another turn. There also were before-and-after audience votes in favor of vs. against the proposition that was being debated. In the "before" vote, you could check off "Don't yet have an opinion," but at the end you had to go Yes or No. At the end the votes were graphically shown on-screen, permitting audience discernment of winners and losers regarding both (a) the propositions themselves and (b) the speakers' ability to change things in their own favor.

The first proposition held that European Court of Justice decisions should "more often" lack retroactive application. This, of course, is contrary to how judicial decisions usually work (since, ostensibly, they "find" rather than "create" law). The argument for it was that the ECJ's tax decisions are so arbitrary, ungrounded, and unpredictable that retroactive application made no sense (e.g., no one could try to anticipate the decisions). Surely a bit overstated, and the implication might be to get rid of, otherwise greatly limit, or otherwise greatly improve, the ECJ, rather than simply denying retroactive effect to its decisions, so the proposition lost.

The second proposition held that it's OK for legislation to apply from the date of announcement (such as a government press release), even if it's not enacted for some months afterwards. To an American, this proposition is entirely uncontroversial. E.g., if the Obama Administration announced in January a proposed new law greatly slowing down tax depreciation, one would be unsurprised if it applied (assuming enactment within a few months) to all property placed in service after the announcement date. Otherwise, you get the rush to market to beat the enactment date (or delay in acquiring new depreciable property if the proposed change speeds up depreciation). And even those who are more anti-retroactivity than I am would say there's no reliance problem with applying the new law before it is formally enacted given the announcement. To European tax law professors, however, the proposition appeared to be more considerably controversial than it is to most of us in the U.S., reflecting, I think, a more formalist legal approach that is expressed in disparaging references to "legislating by press release." If I recall correctly, the proposition prevailed, but in the U.S. it wouldn't even have been thought debatable.

The third proposition concerned the use of retroactive tax legislation to confirm a particular interpretation of existing law (or else to support administrative practice). E.g., a country's parliament might pass a new law on June 1, 2010 to the effect that a given law (passed in 1950) has always meant X rather than Y, and this indeed would ostensibly nail down that, even back in 1950, it did indeed mean X not Y. My American perspective was to find this a bit surprising (since one legislature can't necessarily be deemed to have the same intent as an earlier one), but I felt that I was missing the context - there was obviously some set of cases that people had in mind.

Finally, the fourth panel, entitled "Retroactivity in Law and Economics" featured me in defense of the proposition (with Charlotte Crane opposed) that "When disadvantageous changes in tax rules are introduced, taxpayers should not receive transition relief." I interpreted this as being about tax preferences, and as holding that there shouldn't be an asymmetric approach holding that taxpayers win wen tax preferences are expanded but aren't permitted to lose when they're made smaller. And I interpreted my role as making an amalgam of the so-called new view, interpreted as Graetz then Kaplow then me (among others), and reviewing its motivations, main points, etc.

Here are the PPT slides for my talk. For reasons of time, I didn't get to cover the issues of income to consumption tax change, repealing worldwide taxation of domestic companies, etc.

As I expected given the more traditional legal framework accepted by most attendees, my side of the debate lost big-time in both the before and after votes. But I picked up at least half of the undecideds. I therefore decided that I would view myself as having won, but that Charlotte could also, equally reasonably, claim that she also won. No rule against two winners, after all, and the outcome was otherwise ambiguous (though not about the proposition itself, which as expected lost).