Slides for my Columbia talk, describing my international tax book

In a couple of hours, as per my prior blog entry, I will be heading up (using the arbitrary convention, derived from maps rather than gravity, that "north" is "up") to Columbia Law School to present / discuss chapter 1 of Fixing U.S. International Taxation.

Some fairly condensed slides for the talk, aimed at providing a very swift tour of the book's basic ideas, are available here.

Presenting my international tax book at Columbia tomorrow

Tomorrow (on Halloween, no less), I am presenting chapter 1 of my forthcoming book, Fixing U.S. International Taxation, at Columbia's Tax Policy Colloquium.  Here is a link to the event from the Tax Prof Blog, here is the Columbia link for the chapter that I am presenting, and here is the link for Columbia's Tax Policy Colloquium.

For that matter, here is Amazon's link for the book itself, which has a February 25, 2014 publication date and can be pre-ordered now for $43.70. Same price here at Barnes & Noble. Act now, of course, while supplies last.

New York Times article by James Stewart on taxing the ultra-rich

The New York Times has just posted on-line an article by James Stewart, discussing mayoral candidate Bill de Blasio's "tale of two cities" theme and recently expressed interest in taxing the ultra-wealthy (whom he defines as those making more than $500,000 per year) to fund pre-kindergarten and after-school care.

It's not clear how much (if anything) de Blasio could actually do in this regard, given Albany's power over tax changes even if they are just in and for New York City.  But I am quoted a few times in page two of the article (available here) with regard to the question of what New York City ought to do, assuming it could set its own tax policy.

Despite the fiscal federalism arguments for setting distributional policy at the national level, I see a pretty good case for New York City raising taxes, up to a prudent point, on people at the very top of the income spectrum.  It is largely a question of market power - how much would we get in tax revenues relative to the problem of inducing exit?  But New York City really does appear to have some market power these days, as a global destination city much like London, implying that we have some leeway to get revenues from the super-rich even though the exit problem clearly must be kept in mind.

For those who still read hard copy of the Times, the article will be appearing in tomorrow's (Saturday's) business section.

Fiona Apple concert at the Beacon Theatre in NYC

Last night I saw Fiona Apple in concert at the Beacon on New York's Upper West Side, which all-importantly (for one, not just of my age, but with my knee and back conditions in particular) has seats.  I'm pretty much done, except for an over-the-top special event, attending crowded concerts in open space rooms where people mill around for hours, then crowd in and subtly push past you.  But the Beacon is a nice midsized theater venue, although perhaps the sound could be better.  (From the front of the second level or loge - I couldn't get seats on the ground floor although willing to pay for them - it was hard to hear some of her stage patter, and also the sound balance seemed to be off - Blake Mills' electric guitar was too much louder than her piano when she played it.)

She is really my favorite rock / pop artist who is still arguably mid-career and active.  (The likes of McCartney, Bob Dylan, and Ray Davies don't count, even if I may occasionally buy and moderately enjoy their new albums.)  So I was definitely primed to go, and regret that I didn't also get tickets for the concert the Beacon had added for the previous day in response to high ticket demand.

One of the things you wonder about when you attend a Fiona Apple concert is whether she'll make it through.  There was the famous meltdown some years back, when I gather she felt the sound was bad and stormed off the stage.  There was also a corporate event that she played (in Japan?) a few months back, where she understandably got angry that people weren't listening.  And recently she lost it when a fan urged her to take care of herself so she'd be around for years (I presume, implicitly calling her bulimic).  But this time she made it through, apparently in good spirits.

Someone I know who is less completely pro-Fiona than I am came up with a good phrase to describe her vibe on stage - "jittery bag of bones."  And added the comment that she evidently has "issues," which would not come as a surprise to anyone who listens to her music.  She's not exactly trying to avoid that impression.  I noted in a blog entry here some months back that John Lennon's 1970 primal scream album is about as good a comp for her as anything else that comes for mind, only her work is generally better than that at-times-plodding classic.

The concert had some great high points, but they were a bit interspersed.  She is touring with LA country-folk-rock-popster Blake Mills, and while his guitar playing for her was good (apart from being mixed too high), the concert was close to a 50-50 split between their material.  With all due respect, and though he'd certainly be fun in a small venue, I found her material considerably more gripping.  But good for her, I suppose, after "Left Alone" or "Not About Love," which don't hold back either vocally or emotionally, to be able to take a back seat for a few minutes.

Comments on Zelenak paper discussing the Romney "47%" kerfuffle

As noted in a prior post, last Friday I was at UCLA Law School, attending the Third Annual NYU-UCLA Tax Policy Conference.  My mission (I had decided to accept it) was to offer comments on Larry Zelenak's paper, "Mitt Romney, the 47 Percent, and the Future of the Mass Income Tax."

Larry's paper will be forthcoming at some point in the Tax Law Review, which will have an issue devoted to the 4 papers that were presented at this conference.  My comments will probably appear as well, in the form of a very short commentary paper.  But here is a PDF version of PPT slides that I used as lecture notes (without projecting them) for my brief commentary at the session.

New (or should I say old) music

"We put a lot of energy and effort into making this album.  Hard work?  Not at all.  We don't work music, we play it!  Cheers to you.  Love, Paul."

OK, I admit it.  Buoyed by Pitchfork's 7.8 rating, I (legally) downloaded the new McCartney album.  It's actually pretty good.  Energetic, fresh-sounding though very recognizable, and it truly does sound in tune with the above quote.  At age 71, he appears to have retained a lot of his basic musical talent (although of course he won't be adding to the past's very greatest high points).  He also appears to have overcome the bouts of excruciating lapses in taste that plagued him every now and then even in the Beatles years and then during most of his solo career.

In news of a less dated musical interest, I'm very much looking forward to what I believe are seats near the front at the Fiona Apple concert in NYC on Tuesday.  Hopefully she'll get through it fine and no innocent well-wishers (or others) will set her off.

Upcoming commentary on Zelenak / Romney paper

This afternoon, after teaching a class, I am flying to Los Angeles to participate in the Third Annual NYU-UCLA Tax Policy Conference.  This year's subject is Politics and Taxation, and the conference program is available here.

As you can see from the program, I will be commenting on a paper by Larry Zelenak entitled "Mitt Romney, the 47%, and the Future of the Mass Income Tax."  The inspiration for this paper is the collision between two things that are actually, as Larry recognizes, quite different.  The first is his own view, expressed in a recent book, that mass income tax filing can strengthen "fiscal citizenship."  The second is Mitt Romney's ill-received 2012 campaign snark about the "47 percent" whose non-payment of current year income taxes suggested, to Romney's not very capacious brain, both (a) that they would never take responsibility for their own lives and (b) that they wouldn't vote for him since he wasn't offering them anything.

Needless to say, I will have a few things to say on these topics.  Following my perhaps peculiar recent practice, I've made Power Point slides for my remarks that I plan to use as notes for my commentary, but not actually to use (i.e., project) as  slides.  I will post them here when I get a chance, probably early next week.

The United States may already have lost

Word this morning appears to be that the House Republicans are ready to cave, and that the Reid-McConnell deal will likely get through both houses, thus ending the default crisis and the government shutdown for the moment.

But the United States may already have permanently tarnished its hugely important reputation, with other countries and in global capital markets, as a safe and secure counter-party (for lending or anything else) with tolerably well-functioning governance.

I mean, this time the whole world really noticed and started to wonder.  You see articles like this ("Viewing U.S. in fear and dismay") and also like this ("Fitch puts U.S. on notice for possible credit downgrade").  By the way, while I don't know anything about Fitch or its motives for threatening the downgrade, this strikes me as much less of a stunt than the earlier Standard & Poor move, which I viewed against the background of S&P's having sullied its reputation in the run-up to the financial crisis.  Why wouldn't one downgrade the U.S. credit rating if we can evidently get so close to default, and when there are people with potential influence in the Republican Party who actually think default would be a good.thing?

Obviously, if nothing like this happens again, the capital markets and the world are likely to forget about it.  But keep in mind that the time extensions being discussed in the Reid-McConnell deal are only a few months, and that the people who set the House Republican strategy over the last few months (often dragging the putative leadership along with them) are likely to keep trying, whether through the same stunts or new ones.

UPDATE: Early evidence concerning the economic costs of the contrived crisis.

If you do something unforgivable, you must become unforgiving

OK, let's catastrophize for a moment, in a vein that I hope will seem completely misguided by a couple of days from now.  But while the probability of this may be low, I don't think it's zero.

Suppose the House Republicans pass a bill with ransom demands and then leave town (or else simply refuse to accede to anything without ransom).  Say the Senate and White House reject these demands, and the result is a debt limit breach, and that this in turn has very clear bad consequences.  At this point, having triggered the unforgivable, all the House Republicans could really do is double down, such as by blaming the other side for rejecting their "reasonable compromise" and accusing the Obama Administration and the Treasury of deliberately mishandling  the post-breach cash flows.

Indeed, if House Republicans accept the logic of unavoidable escalation, it is hard to see where they would stop.  Impeachment?  Charges of "economic treason"?  Sometimes the best defense is a good offense, or at least it may feel that way in the heat of battle.  And tribalism being what it is (an argument that applies, of course, to all sides), they would definitely have supporters, no matter how far they went.  In short, this could get very ugly indeed.

We are used to having the parties spin alternate histories, where "we" tried to do good things but "they" messed everything up.  But if what's happened is really unforgivably bad, and if it clearly reflected a major social breakdown amid dueling accusations of fundamentally antisocial behavior, we could end up in a place where the United States has never been before, other than from 1861 through 1865.  And as examples such as World War I show, this can happen startlingly fast, and without anyone's having expected it, quite simply from the logic of dueling escalation.

Cover of my forthcoming book on international tax policy

NYU Tax Policy Colloquium Nobelist update

With the recent Nobel Economics Prize announcement, the Tax Policy Colloquium at NYU Law School has now retroactively had two Nobel-winning economists as speakers: Peter Diamond last year, and Robert Shiller about 15 years ago, with this paper (if I remember correctly) discussing Social Security.  I had seen Shiller present it at an NBER meeting, and I was struck by how interesting and conceptual it was (unlike, say, Feldstein's contemporaneous work about private accounts, which rigorously steered clear of any underlying analytics - and which thus negatively inspired my book on Social Security reform).

Ending of Breaking Bad vs. that of my novel, Getting It

Someone who has read my novel, Getting It, noted that I had commented somewhere that I thought the ending of Breaking Bad was a bit too neat.  But didn't I wrap up everything in Getting It as well?  And didn't characters in both, to some extent - at least, some of them and in some ways - get more either of what they wanted, and/or of what they deserved, than one might have expected?  (I am trying to avoid giving out too much info about either ending.)

But I feel my ending is more sardonic, and thus in its way (i.e., without guns, death, drugs, crime, etcetera), dare I say, darker.  Which is not to overly criticize Breaking Bad for its ending, which I enjoyed too much (especially on re-viewing) to be entirely, as opposed to say 60% or else judged against a very high standard, disappointed by it.

Bringing it all back home

This morning as I left for work, the front door was open and my wife was just outside for a moment.  I realized she didn't have her keys.

Given the role models we have in Washington these days, the idle thought (as a joke, of course) occurred to me: Suppose I closed the front door and told her that she's locked out unless I'm offered some concession.  No matter if I had nothing in particular in mind at the moment - surely, over a couple of hours, I could think of something. Meanwhile, if necessary, I could express wounded sadness if she didn't want to discuss, negotiate, and compromise over whatever I came up with.  Aren't spouses supposed to discuss and compromise?

Needless to say, since I don't believe in following bad role models, and since I value my marriage and am not a sociopath, I decided not to implement this brilliant strategy.

International tax developments

According to an article in yesterday's New York Times, what I call U.S. corporate residence electivity may be declining.  U.S. companies are apparently finding it increasingly easy to shed their status as such through merger with foreign companies.  This route has always been legally effective (so long as it isn't just a paper-shuffling sham transaction, like "inverting" to create a new Caymans-incorporated parent), but apparently it's becoming more practically available.

Two very different possible legal responses would be:

(a) Broadening the statutory definition of resident U.S. companies to include those that are incorporated OR headquartered here, rather than just those that are incorporated here, and/or

(b) Reducing the relative tax burdens that are associated with being defined as a U.S. corporation.  But a few further points about that:

       (i) While rising U.S. corporate residence electivity clearly lowers the optimal relative tax burdens associated with residence, it's a separate question whether current law burdens should be lowered.  Suppose they were previously much too low.  Then rising electivity might merely mean that they were closer to the optimum, but still too low.

      (ii) One key reason why companies like to avoid being classified as U.S. residents is that such a status impedes playing games to shift profits earned in the U.S. so that they can be reported as having been earned abroad.  One way to reduce the relative tax burdens that are associated with U.S. corporate residence is to increase our rules' effectiveness in combating profit-shifting by foreign resident companies.  This would probably require a "unitary business" approach - that is, looking at the entire global corporate group even if the U.S. affiliate isn't formally the common parent.

      (iii) Responses (a) and (b) above are definitely not a case of either-or.  Indeed, one could do both.  Note also that they are substantively interrelated.  For example, successfully using (a) to reduce U.S. corporate tax residence electivity would weaken the case for (b), or more precisely it would raise the optimal relative tax burden that was associated with U.S. corporate residence.

The next stage after a debt default

While I readily admit that I have less ability to predict what will happen in Washington than those who are closer to the scene, I can see a plausible debt ceiling breach scenario going forward.  Unfortunately, it is not a very pleasant scenario.

It appears clear that crashing through the debt ceiling would lead to a sudden and very sharp fiscal contraction, which very likely would lead to a severe recession.  It might also lead to a catastrophic credit event from failure to honor U.S. debt obligations promptly, although admittedly the timing and even the certainty of this aspect are less clear.

The Republicans oughtn't to let any of this happen if they will clearly get the blame.  But they have room to dispute responsibility on both.  A disastrous recession could be blamed on Obamacare, or on naming Janet Yellen to head the Fed, or on excess regulation, or on anything else that "balanced" media commentators are willing to present as one side's view of a legitimate debate.  A credit event could be blamed on the Treasury, for mismanaging cash flows after the debt ceiling breach - perhaps with the further argument that it was deliberate.

So long as responsibility can be disputed - and especially if the Democrats will inevitably "own" the state of the economy in 2014 and 2016 - the Republicans may in the end see no good reason not to do it.  Add the possibility that they will be able to convince themselves that these self-serving explanations are actually true, and you have a very scary situation indeed.

Martin Feldstein heads further down the rabbit hole

As a possible debt limit breach nears (and I now consider it more likely than not to happen), Republicans have begun to argue that debt default isn't actually a problem.

I guess they pretty much have to say that at this point, given how they are getting called out on the extortion angle.  And to be fair, we really don't know exactly what will happen.  The people at Treasury, who are in the best position to know, and who say it would be disastrous (probably around November 1 or so), admittedly have a dog in the fight.  Now, I myself - concededly, without direct personal knowledge / expertise on the question of how it would actually play out - am very much inclined to believe them, but it's certainly legitimate to raise the issue.

So the dispute about how bad it would/will be was bound to get going, given where the debate now stands.  And one therefore naturally expects both sides to start trotting out their heavy artillery.  But at the same time, if you're a piece of heavy artillery and your side contacts you, one perspective that you might consider adopting is that, while we genuinely don't know what would happen (and one can raise the possibility that the Treasury is being too dire), the risks are great enough that surely no sane person should want the actual experiment to take place.

Against this background, I must say that I was startled to read about Martin Feldstein saying the following on Bloomberg TV about the risk of a catastrophic debt default: "I think it's a non-issue.  I think it wouldn't happen....  I think default as such is a scare tactic....  [The Treasury] can't pay for everything, but it can certainly avoid defaulting on the debt.  It can certainly avoid not paying Social Security checks, and so that's going to happen."

Might Feldstein be right?  I don't know enough to say that it's impossible.  But is he being honest?  No, because he has no way of knowing that it is actually true, when it depends (among other things) on Treasury's daily cash flows, computer payment systems, etcetera.  So I think we must give him a grade of F here, even without saying conclusively (as I can't, given the limits of my own knowledge on this issue) that he is definitely wrong.  He presumably was asked to come out and speak the party line, so as to raise a cloud of doubt about the issue of debt default calamity, and for whatever reasons he agreed to do so.  Is he concerned about the effect on his reputation if it turns out that he is wrong?  Apparently not.

This is not the first time that Feldstein has risked his reputation in ways that may strike the outsider as unwise. During the 2012 presidential campaign, he published an op-ed in the Wall Street Journal asserting that Romney's tax plan could indeed add up arithmetically as claimed.  This involved his making at least one comical arithmetical error, and including at least one assumption that he did not mention, but had to know was highly dubious.  Per a response from people at the Tax Policy Center who had released the definitive study showing that Romney's plan could not add up:

"1. He assumes that each dollar of itemized deductions lost by households with income above $100,000 would generate 30 cents in revenue.  However, the Romney plan has a maximum rate of only 28 percent ....

"2. He assumes that taxpayers earning more than $100,000 who currently itemize would lose not only their itemized deductions but also their ability take the standard deduction.  Normally, taxpayers have the option of itemizing their deductions or taking the standard deduction.  [I myself would say that, while one is free to advocate such a change, honesty with one's readers would indicate making this clear.]

"If the standard deduction was retained for all households, and denying itemized deductions was assumed to raise revenue at a more realistic average marginal tax rate of 24 percent under Romney's plan, Feldstein's proposals would fall about $70 billion short of revenue-neutral, even if taxpayers don't change their behavior."

OK, am I being unduly harsh with Feldstein here, because he and I have both to a degree chosen sides,. and not the same side?  What about, say, Krugman?  But Krugman says what he thinks, not what party leaders ask him to say.  What's more, right or wrong, and even if he plays a few rhetorical tricks, he says things that he reasonably thinks he knows about, and believes in good faith are true.  Plus, he generally avoids elementary errors  It's hard to view Feldstein in the same light here.

Overheard this morning on the streets of Greenwich Village

Older woman, speaking loudly and animatedly on her cellphone as she walks down a crowded street:

"How am I supposed to be an affectionate mother?!  You sold the jewelry!"

I guess this helps show that younger people on Facebook aren't the only ones who over-share.

Coase Theorem vs. the two fundamental theorems of welfare economics

As Paul Krugman would say, this post is "somewhat wonkish."

Two facts that came together for me in the last few days are the following:

(1) It has occurred to me that the Coase Theorem, depending on how one states it, is simply a special application of either the First Fundamental Theorem of Welfare Economics or the Second Fundamental Theorem.  (In the Wikipedia link to the Coase Theorem that I've provided here, versions 1 and 2 of the Coase Theorem are the First Fundamental Theorem at work, while version 3 involves the Second Fundamental Theorem.)  I'm probably not the first person to think of this, but I don't recall seeing it stated anywhere, and it leads to an interesting question, which is why people who were familiar with those theorems nonetheless initially found the Coase Theorem surprising and counter-intuitive.  This in turn may help to illuminate what made Coase important.

(2) I was recently contacted, along with a number of other people (many of them with Chicago connections) in law and economics, with regard to a forthcoming tribute to Ronald Coase that I believe will be appearing in the University of Chicago Law Review.  The tribute pieces are meant to be very short (e.g., 500 words), although they are permitted to be longer.

It therefore occurred to me that, by very briefly writing up (1), and including a punchline regarding the questions that I note above, I could also do my part with regard to (2).  So I wrote it up today, in between doing other things, and have sent it in.

The final is just 750 words long (including footnotes), and I will plan to post or link to it here at some point.

Debt default endgame?

On November 1,  $25 billion in Social Security checks are due to go out.  Some experts anticipate that this will be the forcing event for a debt default resolution, if there hasn't already been a stock market crash or other dire macroeconomic event.

$18 billion in Medicare payments are also due to go out on November 1.  But, as those go to providers, rather than directly to seniors, the short-term optics aren't quite as politically intense.

In the scenario that I've been reading about, the Administration announces, a few days prior, that Social Security checks won't be going out due to insufficient funds.  It attributes this to the House's unwillingness to raise the debt ceiling, no doubt with a personial reference to the Speaker in particular.

In an "optimistic" version of the scenario (keeping in mind that this is a relative term), the House then folds.  But does this necessarily follow?  The House Republicans might instead respond by saying it's not their fault but the Administration's, both for not "negotiating" and for not prioritizing these payments over all the others that the government owes.  They might even vote budgetary authorization for the Treasury to issue and use new debt just for Social Security payments, a la their "partial shutdown" efforts over the last few days.

We might then face a situation where millions of seniors are screaming (and suffering) because they haven't gotten their checks, and yet the battle continues.  Far-fetched, perhaps, but I don't think entirely impossible so long as blame can be contested.  Once you start playing chicken it's hard to fold, and the Republicans might feel they'd simply gone too far to quit the game with nothing.

The stopped clock gets it right

Thomas Friedman isn't actually a stopped clock, but I usually don't find his work insightful or even readable.  But every now and then he comes through with a good column.  Today is one of those days:

"What is at stake in this government shutdown forced by a radical Tea Party minority is nothing less than the principle upon which our democracy is based: majority rule. President Obama must not give in to this hostage taking — not just because Obamacare is at stake, but because the future of how we govern ourselves is at stake."

I know people on the Republican side (or, at least, a sane version of the Republican side) who agree that what's going on here is an attempted constitutional coup d'etat.  The coup plotters' contempt for democracy and for a cooperative social fabric is so clear that I really wonder what they would do if actually in power.  I don't think we can assume that they would honor democratic values or constitutional norms.

The House Republican leadership (people such as Boehner and Ryan) appear to be placing themselves in a position where they can't back down from triggering a full-blown debt default without leaving themselves publicly embarrassed and internally discredited.  This could be Nixon's "madman" strategy (his idea that, if you convince the other side that you are crazy enough to pull the trigger, they will have to back down).  But instead they may just be trapping themselves.  The problem is that the Democrats, even if convinced that the House Republicans really will pull the trigger, can't afford to back down, due to the point in Friedman's column.  It would be like Charles Lindbergh paying ransom in a setting where, the very next day, the kidnappers could grab the baby all over again.

So far as I can tell, this creates a very high likelihood that we will have a full-blown debt default, leaving the next move (at some point after October 17) to the Obama Administration.