Thursday, March 29, 2012

Tax policy colloquium on 3/27/12 - Steve Shay paper on shifting to a territorial tax system

On Tuesday, Stephen Shay of Harvard Law School presented his paper (c0-authored with Clifton Fleming and Bob Peroni), Unpacking Territorial. It was an early draft that they rushed out for our convenience, so it isn't posted and hence no link here.

The article addresses the case for (and in particular against) having the US shift to a territorial system in which foreign source income is more or less (though not quite entirely) exempted. More particularly, it critiques the approach taken in the Camp bill, which attempted to be revenue-neutral (at least in the short term) and to address concerns about domestic base erosion that are important in any case but would be made even more pressing by the adoption of a more territorial set of rules.

I believe the paper scores some very powerful blows against the structure of the Camp bill, and shows that it would need substantial modification even assuming sympathy with the basic idea. But that critique should probably wait until the authors are far enough along to post their work, which I am sure they plan to do with all deliberate speed.

We used the occasion, however, to discuss both that critique and the underlying merits of a shift to exemption, since both are discussed at some length in the paper.

The following is a modestly amended version of the first half of the notes I prepared for the session, aimed at discussing the merits of territoriality versus present law.

(1) The case against exemption – If start with positive rate (say, 25% or 35%) for U.S. source income and zero for foreign source income (FSI), isn’t revenue-neutral lowering of the domestic rate + raising of the foreign rate likely to increase efficiency? Note that deadweight loss increases more than proportionately with the rate. National ownership neutrality (NON) as self-refuting re. the case for exemption; why seek distortion at one margin among many, rather than seeking to minimize overall distortion?

But even proponents of WW consolidation agree that the U.S. should impose a lower effective tax rate net of foreign tax credits (FTCs) on FSI than on domestic source income.
Suppose all foreign countries had a 20% rate, causing US companies that invested there to pay $15 of US tax on each $100 of earnings (assuming a 35% US rate and allowance of FTCs). WW proponents would be arguing for an effective US tax rate 18.75% (15/80) on after-foreign-tax earnings.

Given this example, is “double taxation” really the problem to be addressed in international taxation? E.g., suppose the US denied only allowed foreign taxes to be deducted, not credited, but lowered the tax rate for FSI to 10%. Then we apparently would be “double-taxing” FSI, yet the above company would only be paying $8, instead of $15, of US tax.

(2) Some dubious arguments against exemption

--Would reduced domestic investment be a first-order result of adopting exemption? – Depends on whether US multinationals face a fixed budget constraint despite access to world capital markets; why assume here that CEN, not CON, assumptions are correct?

--Why label territoriality a tax expenditure? Arithmetical equivalence to worldwide taxation plus specified “spending” proves nothing. After all, allowing business deductions is arithmetically equivalent to taxing gross income plus providing “spending” to replicate the lost tax benefits, but no one would say that this is a useful application of tax expenditure analysis. Need an agreed “normative tax base” (or at least treatment of a particular item) to make TE analysis potentially useful.

(3) Possible advantages of exemption (vs. present law)

--It repeals deferral (although so could a WW approach).

--It might improve repatriation incentives. Under the new view, the repatriation tax rate doesn’t have to be zero for deferral not to induce lockout – it just has to be constant over time. But the real issue here is repatriation tax rate volatility, which exemption might reduce.

--It replaces foreign tax credits with foreign tax deductibility (implicit under 0% tax on FSI, explicit with respect to foreign dividends under the Camp bill with its 5% rate), thus inducing US taxpayers to equate $1 of foreign tax liability with any other $1 cost or forgone income.

--Isn’t any system with deferral and foreign tax credits likely to have a horrible ratio of deadweight loss to US tax revenue collected? (Note that deadweight loss includes paying more foreign taxes by reason of the credit.)

--Of course, the tax rate on FSI need not be 0% (or 5%) to achieve these benefits.

--Adopting exemption would induce the accountants to change the “permanently reinvested earnings” rule that distorts behavior (in addition to being bad accounting). To be sure, one could address this rule directly without changing substantive US income tax law.

Tuesday, March 27, 2012

Act now while supplies last

My novel, Getting It, is now available on Amazon in a Kindle edition for only $3.99 (!). The link is here.

I've genuinely gotten great feedback from dozens of people who have read it. The only disconcerting element has been that they often say it was much better than they expected. Hmmm ... how well did they really know me ... what are they trying to say ...

Just one quote for now, from a review in the Above the Law blog a couple of years back:

"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, a novel by Daniel Shaviro. 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 populated with sadistic partners and scheming associates competing for partnership, including the caddish Bill Doberman, dopey Arnold Porter, and self-involved Lowell Stellworth. It’s an 'American Psycho' take on Biglaw — funny and fast-paced, a great summer quick read. I devoured it on a plane to Chicago."

Apologies to my long-time readers for recycling this quote. But in its own way Getting It is my favorite among all the things that I've written, so I naturally feel solicitous towards it.

C'mon, folks, only $3.99, and guaranteed to be more fun (plus better for you) than a comparably priced ice cream sundae.

Monday, March 26, 2012

Just asking

If the Supreme Court strikes down the healthcare law on the ground that the mandate was a "penalty" not a "tax," doesn't that mean Congress could enact exactly the same law the day after, throw in the word "tax" a couple of times without changing any substance, and it would be constitutional?

I am guessing that, if they do strike down the healthcare law, they will want to come as close as possible to the Bush v. Gore formula of trying to issue a one-off decision with zero precedential value. I doubt they'd have the nerve to state this expressly again. But given that many of the Republicans on the Court favor broad federal powers when they like what's happening (or who did it), why would they want to create any less flexibility for themselves the next time around?

Basing the reversal purely on word choice would have this desirable quality, from their perspective, by offering a roadmap that could be used to prevent the decision from serving as a significant precedent.

Thursday, March 22, 2012

Video link in which I discuss my forthcoming paper on taxing financial institutions

The NYU Law School periodically posts video links in which faculty members discuss some aspect of their recent scholarship or scholarly interests. Just posted is a 3-1/2 minute piece in which I discuss my recently posted and soon to be published article concerning new taxes on financial institutions. You can find the link here; it's currently the first item at the top of the page, but as new videos are posted it will migrate downwards.

Unlike Twist and Shout, which the Beatles did live in the studio in one take, I needed a second take (with a few false starts in between) to get to the final version. Not sure mine came out quite as well, but then again they had been playing it live for years, whereas I was in effect jamming.

Tax policy colloquium on 3/20/12 - Susan Morse's paper on the "corporate offshore excise tax"

This past Tuesday, Susan Morse appeared at our colloquium to discuss her paper draft, "International Corporate Tax Reform and a Corporate Offshore Excise Tax."

The paper concerns the idea, which I have been floating for some time and which appeared in the international and corporate tax reform proposal disseminated by Ways and Means Chairman Camp, of addressing the windfall gain that U.S. companies would enjoy with respect to existing foreign earnings that have not yet been repatriated if the U.S. shifted to an exemption system for foreign source income. While one can (and I have) said a lot more about this idea, and its pluses and minuses, the core idea is as follows: U.S. companies have apparently racked up about $2 trillion in foreign earnings under the current U.S. international tax regime. Collection of the tax has merely been deferred until the income is repatriated. Why should this expected tax be reset to zero, just because we decide to adopt a new regime prospectively?

Among the proposal's advantages is that, if anticipated, it would reduce pre-enactment lock-in of U.S. companies' foreign earnings. The CFO of a given U.S. company would feel really stupid if the company ended up paying a repatriation tax that could have been avoided by waiting for exemption to be enacted. But if a transition tax would be waiting for the earnings anyway, then perhaps no reason not to repatriate earnings today (depending, of course, on how the tax would work).

I felt the paper was a bit too cautious in suggesting that perhaps the COET tax rate shouldn't be higher than the 5.25% "tax holiday" rate that companies handed themselves (via their legislative influence) a few years back. But why would one ever accept a self-serving "opening offer"? I could certainly see arguments for a full 35% rate (offset by the cash-out, to zero on this tax but not below, of foreign tax credits), even if the domestic rate simultaneously declines to 25%. After all, that new lower rate is itself a transition windfall for earnings that are realized under the new system but reflect decisions that were made under the old one.

I'd also note that:

(a) even if companies figured they might never repatriate and pay the 35% tax, they wouldn't have strong grounds for viewing themselves as ex post expropriated if the U.S. simply made indefinite continuation of deferral harder to sustain,

(b) we can monetize into the tax rate the present value of the deadweight loss that companies would avoid through the elimination of the repatriation tax, without making the firms worse-off than under present law.

A further issue presented by the paper is: 35% (or 5.25%) of what? The obvious tax base here would be the earnings and profits (E&P) of US companies' controlled foreign subsidiaries, grossed-up by foreign taxes paid if the credit is being allowed. The paper suggests using instead the accounting measure of permanently reinvested earnings (PREs), or those which the companies swore to the accountants would never ever ever be brought home. While I actually like the idea (which most accountants, I'm sure, would hate) of penalizing after-the-fact the use of this accounting technique, I'm not at this point persuaded that there are good grounds for not simply using the familiar tax concept of E&P.

One last and somewhat frivolous note: in the interests of catchiness, I would propose taking the COET (for "Corporate Offshore Excise Tax"), and renaming it the "COPE" (for "Corporate Offshore Profits Excise-tax"). I'm no marketing expert, but this is a lot catchier, and I can already see the journalistic possibilities ("Can U.S. Companies Cope with the COPE?").

Saturday, March 17, 2012

New York's compassionate mayor

My favorite quotes in today's New York Times come from an article describing Mayor Bloomberg's visit to Goldman Sachs yesterday, apparently to cheer them up.

"It's from the gut ... These are his people, and he felt their pain .... I know this sounds strange, but running to cheer up the people in Goldman Sachs shows what's in his heart."

But no tears, apparently, for any of the "muppets" whom Goldman has gulled over the years, or for the U.S. taxpayers who paid 100 cents on the dollar (with respect to risky bets on AIG that Goldman had otherwise lost) on what has been called Goldman's "backdoor bailout" in the early stages of the financial crisis.

Friday, March 16, 2012

Forthcoming article

My recently posted article, "The Financial Transactions Tax Versus (?) the Financial Activities Tax," is tentatively scheduled to appear in Tax Notes on April 23. For this purpose, I have re-formatted it (without changing what's posted at SSRN) to use law review-style, rather than social science journal-style, references and citations.

Wednesday, March 14, 2012

Strange dream last night

This morning, I woke up from a dream in which I had been carrying a very large tame salamander in a big paper shopping bag with handles, walking down suburban streets with rectangular, green, well-trimmed lawns, in a temperate climate, on the way to my aunt's and uncle's house (although the former is in fact deceased) in the Bay Area. I apparently had just landed at SFO and bought the salamander. The beastie (whom I'll label as a male for convenience, though I had no sense of the gender) was about two feet long. enjoyed gobbling down nasty-looking bugs with multiple legs, and had dry skin like a lizard, rather than moist skin like an amphibian (which I noted with puzzlement, though without reclassifying him). At one point he had gotten out of the shopping bag, without my noticing right away, but I found him sitting on a lawn. He then was quite amiable about my grabbing him and putting him back in.

The dilemma that distressed me as I walked down the street, shopping bag in hand, perhaps looking for a Bay Area Rapid Transit stop (though I didn't have the BART's name in mind), was the following. On the one hand, I realized that my hosts might be less than thrilled if I showed up on their doorstep carrying a two-foot long amphibian (or even lizard) in a shopping bag. On the other hand, I was concerned that, if I simply released the creature to fend for himself, he might not be able to survive. I was totally fine with releasing him if I thought he would be okay, and I noted to myself that at least the Bay Area doesn't get cold like many places, but I still wasn't quite satisfied that I could release him in good faith.

The alarm clock jolted me out of this dilemma before I could decide what to do about it.

The Goldman Sachs resignation letter

Much excitement today around the blogosphere about Greg Smith's Goldman Sachs resignation letter - which took the form of a New York Times op-ed - in which he denounces the firm's "toxic" environment and commitment to ripping off its clients.

My favorite paragraph was the following:

"What are three quick ways to become a leader [at Goldman]? a) Execute on the firm’s 'axes,' which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) 'Hunt Elephants.' In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."

Having taken the time to read a number of reactions, it strikes me that absolutely no one except for Goldman Sachs itself appears to have any doubt about the basic accuracy of his account.

Instead, criticisms of Smith's column appear in almost all cases to make one or more of the following points:

1) If he's so shocked, shocked, then what was he doing there for 12 years? But this in no way undermines the accuracy of his critique.

2) He says Goldman's culture has gotten worse, but it was always like that. Or, always since it ceased to be a private partnership. Same.

3) He blames Goldman's leadership, but the problem goes far beyond them, reflecting a broader Goldman culture or still broader financial sector culture and incentives. Same.

4) The clients need to be smarter, or they'll inevitably be ripped off. Same.

5) Clients may rationally use Goldman even though they know it rips them off and can't be trusted. Thus, Smith's suggestion that the firm is endangering its future by destroying client trust is overstated. Same.

For myself, long before reading this column, I knew for certain that, even if I were rich enough to use Goldman, I most certainly wouldn't, for the reasons stated by Smith. (Maybe if I were rich enough that they were afraid of me ... ) So there are really no surprises here for me.

I do think, however, that all this - with particular reference to point 5 above - is an important part of the story when we seek to explain financial institutions' recent hyper-profitability. Grist, I would say, for enacting something like the financial activities tax (FAT) that I discuss here.

Friday, March 09, 2012

Upcoming Urban Institute session on taxing financial institutions and activities

On Friday, May 18, I will be going to the Urban Institute in Washington DC to appear on a lunchtime panel that will discuss financial transactions taxes and financial activities taxes. Other panelists will ensure a diversity of viewpoints, but I'm not entirely sure if I am supposed to name them just yet (although I know who they are). More details on this in due course.

As it happens, the 42nd annual Spring Symposium of the National Tax Association, followed by the NTA's state and local program, will be taking place in Washington on Thursday and Friday, May 17-18. The last regular Spring Symposium session ends at 12:15 pm on Friday, giving way at that point to the state and local tax panels.

If you are planning to be in Washington for the NTA, but were not planning to attend the state and local tax panels (which often attract a distinct audience), all you would have to miss, in order to attend the FTT-FAT session at Urban, is the very last Friday panel at the Spring Symposium. The prior NTA session ends at 10:45 am, and lunch will start being served at the Urban event at 11:45. The two sites are just a few stops apart on the DC Metro.

Tax policy colloquium on 3/6/12 - Ed Kleinbard's paper on capital income taxation

This past Tuesday, Ed Kleinbard came in from USC Law School to discuss his paper, The Sorry State of Capital Income Taxation. A packed house greeted the brief return of one of New York's most eminent (within the tax field) prodigal sons.

The paper discussed Ed's corporate integration / general business and income tax reform proposal, the business enterprise income tax (BEIT), along with his recent work concerning dual income taxes (which try to separate labor income from capital income in closely held companies), the new features being (a) discussion of how they might be combined and (b) of their relevance in the new tax rate environment that we may face in the near future. Today, of course, the top individual income tax rate is the same as the basic corporate rate (35%), but it is very plausible that they will move apart. For example, one could easily imagine a scenario in which the corporate rate dropped to 25%, while the top individual rate rose to 40%. As Ed points out, if the dividend and capital gains rate rose from 15% to 20% (which also has a good chance of happening), then there'd be an odd neutrality under some circumstances.

Case 1, earn $100 through a corporation, leaving $75 after corporate tax. Distribute it as a dividend, leaving $60 after payment of the 20% dividend tax.

Case 2, earn $100 outside the corporate realm, leaving $60 after paying the top individual rate.

Not to make too much of this almost accidental neutrality, however (which requires not only a particular set of rates, but current-year distribution of the corporate profits). Not to worry, however; Ed, while mentioning it, doesn't make too much of it.

Despite the new features in the paper, a key reason for reading it is to learn (or remind oneself) about the BEIT, which is not just a corporate integration proposal but a comprehensive plan to address how capital income is taxed under U.S. law. It would get rid of numerous formal distortions under current law (e.g., corporate vs. non-corporate and debt versus equity). In addition, it would convert the entity-level corporate tax into the equivalent of a cash-flow consumption tax, while reserving actual income taxation (in the sense of taxing the pure return to waiting) for application at the individual level.

Instead of literally applying cash-flow consumption tax treatment at the corporate level, the BEIT provides a corporate cost of capital allowance ("COCA") that is sometimes known in the literature as an ACC (allowance for corporate capital). A mere allowance for corporate equity (ACE) allows interest-like deductions on corporate equity, but continues to base interest deductions for debt on the instrument terms. So debt vs. equity may still matter under ACE.

Ed's ACC ignores all financial instrument labels, and simply applies an interest deduction to a corporate or other business entity's "inside basis" (that is, all the capital it has received but not yet deducted). With the proper interest rate, this creates present value equivalence to expensing all business level cash outlays - since, the disvalue of deferring the deduction of an outlay, rather than expensing it, is precisely offset by the time-value deduction.

In a sense, this can make inside basis entirely irrelevant. For example, if Congress enacts accelerated depreciation for some assets, this creates no tax preference for them relative to others, since the assets with slower depreciation result in greater basis that yields the business an interest deduction. Likewise, while Ed fully taxes the gain when one company buys another (e.g., suppose Microsoft bought Facebook, generating an enormous tax liability since Ed would repeal all tax-free corporate reorganization rules), the detriment would be precisely offset by having a higher basis that would start generating interest deductions. (In asserting equivalence, I ignore the possibility of tax rate changes, as well as of applying the wrong interest rate.)

In principle under this approach, one could make basis changes wholly elective (leaving aside all the real world issues, such as rate changes). Arbitrarily deciding to declare $1 billion of gain would be equivalent to paying $1 billion for a government bond that paid a market interest rate. Arbitrarily writing down all inside basis to zero would be equivalent to borrowing from the government the amount of the current year tax saving, at a market interest rate.

The individual level works quite differently, however. What one might call people's "outside" basis - that is, the amount they have paid for all of the financial assets they hold - likewise gets an imputed rate of return, only here it's positive (an income accrual) rather than a deduction. Ed anticipates that this will raise net revenue, even when considered jointly with the business-level COCA deduction, because people trade their financial assets comparatively rapidly.

The BEIT would impose zero tax on individual-level capital gains. But there would still be a tax detriment to the sale of an appreciated asset, and a tax benefit to the sale of a loss asset. Thus, suppose that I am holding GE stock with a basis of $100 and a value of $500. If the assumed rate of return that leads to income inclusion at the individual level is 5%, I am currently accruing only $5 per year. But if I sell it to you for $500, then, even though I pay no tax on the sale, you will start accruing income of $25 per year.

Among the implications of this is that there would still be "strategic trading" by investors, who would be inclined to hold the winners and sell the losers. (It would come to an end at death, however, since Ed proposes that the BEIT include a "fair market value" reset at that time. This may sound like a tax benefit, like the tax-free step-up in basis at death under current law, given the absence of a capital gains tax, but in fact it's a detriment for the reason noted above.)

Anyway, this in turn suggests that, if the BEIT was enacted, there would still be a need for such features of current law as the wash sale rules (which deny loss recognition on the sale of an asset that you repurchase within 30 days). Only, what the rule would do is deny the basis reset, since the loss would not be directly allowed.

Likewise, consider the capital loss limitation, which provides that individuals generally cannot deduct capital losses to the extent in excess of capital gains (an annual $3,ooo net loss allowance aside). One presumably would still need something like this under the BEIT, since in its absence smart investors would sell all their losers while holding all their winners. The revised form of the rule might deny negative basis resets to the extent in excess (by some permitted minimum amount) of positive basis resets.

Final question (for extra credit): Why does the corporate part of the BEIT work better than the individual part, so far as realization timing is concerned? The answer, of course, is that the corporate part is a consumption tax, while the individual part is an income tax, so realization timing matters for the latter in a way that it doesn't for the former.

Thursday, March 08, 2012


With not entirely unmixed feelings, it looks like I will be (perhaps just temporarily) joining the world of Twitter, probably sometime in May.

NYU Law School is coordinating the deployment of a bunch of faculty members with expertise in various areas to "tweet" (ouch, I winced just typing that) several times weekly about issues in their fields that arise during the presidential campaign. While I think I could develop a skill at saying things in 140 characters or less that would be at least moderately amusing, it's not really the direction in which I'm keenest to take my "brand" (ouch, I just winced again typing that, and worse than the first time).

It's hard to be thoughtful, rather than cheap-laughingly cute, within those constraints. And I don't want to condition myself too much towards thinking in terms of what I'm going to say next in 140 characters. Indeed, for some reason I'm reminded of the Eugene O'Neill character's father in Long Day's Journey Into Night, who - if I recall correctly (it's been several decades since I saw or read the play) - ruins his acting talent by stooping, albeit profitably, to cheap melodrama.

Still, I suppose I can at least link to things here in the hopes of boosting their readership, so I will probably try it.

Tuesday, March 06, 2012

Revised version of FAT / FTT article (second try)

When I recently posted the link for the revised version of my FTT / FAT article, I didn't realize that I had mistakenly uploaded a document consisting solely of the title page. The full article is now available for download here.

Monday, March 05, 2012

NYU Tax Policy Colloquium - schedule change

On April 24, in lieu of our previously scheduled speaker Bill Gale, my colloquium co-convenor, Alan Auerbach, will present his paper, "The Mirrlees Review: A U.S. Perspective.”

You can get more info about the Mirrlees Review here.

Friday, March 02, 2012

Revised version of my FTT / FAT article

The revised and slightly expanded version of my article, "The Financial Transactions Tax Versus (?) the Financial Activities Tax," is now available on SSRN, here. Thanks largely to excellent comments and feedback that I received from various people, it is now significantly clearer and fuller in a number of respects.

I'm hoping that it will appear in Tax Notes around May or June or so. I'll also be discussing it (or at least the FTT versus FAT issue) in Washington at the Tax Policy Center on April 27, as well as at a tax conference in Oxford in late June.

Good work there, Mitt and Rick

As explained by Floyd Norris in today's New York Times, while Rick Santorum's tax proposals would slash federal revenues by 40 percent, he would manage to raise taxes on single mothers. Gee, I wonder why that happened.

There's also news today concerning Romney's latest tax plan. The Tax Policy Center has released a new estimate, based on the available public info plus discussions with his advisors. The TPC doesn't credit Romney with any of the base-broadening that he has promised via the repeal of tax preferences, since the campaign is apparently unwilling to provide any details.

Absent any such base-broadening, the Tax Policy Center finds that, "on a static basis, the Romney plan would lower federal tax liability by about $900 billion in calendar year 2015 compared with current law, roughly a 24 percent cut in total projected revenue." The static revenue loss is still $480 billion even if the baseline is current policy, which includes assumed indefinite extension of the expiring Bush tax cuts.

Well, at least Romney is being true to his old Bain Capital ways, in the sense that he is proposing to have the U.S. take on a whole lot of extra debt.

Also noteworthy are the Romney plan's distributional effects. The following is a list of the average tax cut and the percent change in after-tax income that the Tax Policy Center ascribes to the Romney plan for 2015, compared to the current law baseline:

Lowest Quintile: $256 average tax cut, 0.7% increase in after-tax income
Second Quintile: $1,016 average tax cut, 3.2% increase in after-tax income
Middle Quintile: $2,130 average tax cut, 4.4% increase in after-tax income
Fourth Quintile: $4,994 average tax cut, 6.5% increase in after-tax income
Top Quintile: $27,508 average tax cut, 12.6% increase in after-tax income

Top 1 Percent: $237,983 average tax cut, 18.5% increase in after-tax income
Top 0.1 Percent: $1,148,834 average tax cut, 21.7% increase in after-tax income

This ignores the incidence of accompanying spending-side changes, which it appears would be sharply tilted towards curtailment at the bottom of the income distribution. In addition, as a static estimate, it ignores behavioral responses to enacting what I would call just temporarily lower rates (since comparably large spending cuts are most unlikely to materialize, even if he does manage to squeeze the poor a bit). Romney's advisors would want to take credit for a positive economic growth response. But there is no reason to expect this when the rate cuts transparently cannot be more than temporary, given that they would greatly worsen the U.S. budget picture and make the threat of default both more likely and more imminent.

Academic projects

This afternoon, for the first time in at least three months, I've actually gotten to turn my attention to my long-promised, now-in-version-4, book on international tax policy, tentatively called "Fixing the U.S. International Tax Rules." [The title is a double entendre. But the title of my novel went further by being a quadruple entendre, as I explain, a couple of pages from the top, somewhere in here.]

If all goes well, I'll actually finish writing the book this year. (In word count terms I've already written more than 100%, but I've had to keep going back and starting over with a clearer orientation, which is an unusual problem for me.)

Perhaps this is mad, but I am also hoping to write three articles this year, each for a conference. For the Second Annual NYU-UCLA Tax Conference, which is planned (though not as yet entirely announced) for NYU this October, I may write something that overlaps with the book (though not to be an actual chapter in it), concerning how tariff policy and international tax policy relate to each other.

Second, I've agreed to give a lecture at another law school next year, in which I'll discuss the future of Social Security and Medicare in light of the conceptual apparatus I developed in my books concerning these programs (see here and here), with particular emphasis on the classic Samuelson model of Social Security, which is a great device for thinking both about optimal intergenerational policy and about the political economy issues. No further details for now, as I don't believe the lecture has been officially announced yet.

Third, I'm leaning towards agreeing to do a "what-we've-learned" quasi-historical review of what "we" understand about individual, corporate, and international taxation today, as opposed to what "they" understood 100 years ago when the U.S. federal income tax started. For what "they" understood, I may look forward to as late as the 1930s, and will be focusing on the leading policy writers (people such as Seligman, Simons, Fisher, and T.S. Adams), not the Washington sausage factory. Likewise, "we" refers to what I construe, no doubt to less than everyone's satisfaction, as best opinion today. But again this refers to intellectual frameworks and how to conceptualize the key policy aims and tradeoffs, rather than to bottom-line policy recommendations, much less what happens in Washington.

Thursday, March 01, 2012

Tax policy colloquium on 2/28/12 - my paper on financial sector taxation

This week's session of the Tax Policy Colloquium involved my own paper on financial transactions taxes and financial activities taxes.

We had a good session. But rather than comment on it here, I have simply revised the article itself to reflect the input I received (at NYU this week plus Stanford last week plus from other readers).

I've posted the revised version on SSRN, but it has not yet shown up there.

The revised abstract goes something like this:

"In both Europe and the United States, there has been much recent debate regarding whether, in response to the 2008 financial crisis, one should enact a financial transactions tax (FTT) or a financial activities tax (FAT) – commonly viewed as mutually exclusive alternatives. This article evaluates these two alternative instruments, focusing on recent proposals by the European Commission and the International Monetary Fund. It concludes that the case for enacting an FAT is considerably stronger than that for an FTT, mainly because the FAT focuses on a broad 'net' measure, rather than a narrow 'gross' measure, of financial sector activity.

"The article further concludes that a rationale for the FTT not emphasized by the European Commission – its addressing wasteful over-investment in the activity of seeking trading gains at the expense of other traders – could conceivably support its enactment, though it is uncertain that the social benefits would exceed the costs. The issues raised by this alternative rationale are independent of whether or not an FAT has been enacted. Finally, the desirability of enacting an FTT may be affected by broader political economy constraints on revenue-raising and on the pursuit of greater tax progressivity by alternative (including clearly superior) means."