Thursday, June 30, 2016

From the annals of Trump University

For the last week or so, I've been getting daily (or more) blast emails from the Trump campaign, even though I'm not a member of a foreign parliament.  Today's was the strangest yet - it verges on being threatening, starting with its title line: "Fwd: Mr. Trump is reviewing our records." The body of the email then goes like this:
Time is running short Friend, so I'll get right to the point.
Earlier today, Mr. Trump sent you a message regarding the urgent need to get you on board with the campaign at this critical time (if you missed it, you can read it below).

Mr. Trump pays close attention to campaign data and he's looking for at least 2,300 additional donors before Midnight. 

Friend, reviewing our records I noticed you haven't responded yet

Can you chip in just $3 to help us meet this goal before MIDNIGHT TONIGHT? 

I know you don't want to see Hillary Clinton elected to the White House. She won't just carry on Barack Obama's radical agenda if elected – she'll be even worse

As Mr. Trump has said, she's a disaster . . . and the American people have already suffered long enough under the inept and corrupt career politicians. 

So please, join us and stand with Mr. Trump today with a $3 contribution

Every additional donor tonight will make a difference in our fight to Make America Great Again. 

Thank you.


Brad Parscale
Digital Director, Trump for President
This verges on saying: We're personally checking on  you - indeed, "Mr. Trump" might be doing so - and you'd best get with the program.

Plus, I like the classic "midnight deadline" pressure sales tactic (albeit, related to the FEC filing deadline for the next report).

Earlier emails said that Trump would match each contribution up to $2M total.  But, while matching donations is an old fundraising technique, as applied to self-donations it's a bit odd.  What's the threat - not to give himself as much money?

Also, given the apparent untruth (at least so far) of the Trump campaign's statement the other day that they had already filed an FEC document forgiving his loans to the campaign, it's possible that the actual plan here is an anti-match - use of any funds that he receives during this period to pay down those loans.

UPDATE: There's an old saying that honey catches more flies  than vinegar.  Perhaps for that reason, the latest Trump fundraising email to come across my transom offers me a free hat ("Make America great again,: of course) if I contribute enough.

Kleinbard on the Senate Finance deliberations regarding corporate integration

There's been a moderate to-do in the press recently regarding plans by Senator Hatch, the chair of the Senate Finance Committee, to release a corporate integration plan. Here, for example, is a May 18 BNA article, "Hatch Pushes Corporate Integration Despite Revenue Concerns," and more recently Tax Notes reported that Hatch is just waiting now for the Joint Committee on Taxation revenue score.

An interesting article, just posted on SSRN by Ed Kleinbard, provides some useful analysis and background.  As the title suggests - "The Trojan Horse of Corporate Integration" - it is fair to say that Kleinbard is skeptical of the plan, which he notes represents a surprising shift in direction for DC policymakers, who had not recently been focusing on corporate integration.

Rather than repeat his analysis, which is well worth an independent look from all interested readers, let me just throw a gloss on a couple of aspects, as to which I'll emphasize different aspects than he does.

Suppose the plan, although its full details have not yet been publicly announced, takes the following form.  Corporations get a full dividends-paid deduction, although, like deductions generally, it would not be refundable to the extent in excess of taxable income.  But the amount of the dividends-paid deduction will also give rise to a withholding tax liability that the corporation will remit to the U.S. Treasury on behalf of shareholders that receive the dividends.

For simplicity, let's just focus on the current year, leaving aside the details that the plan will no doubt have regarding the treatment of excess distributions (i.e., dividends in excess of taxable income), carryovers between taxable years, etc. The main points of interest to me here emerge out of the basic one-year model where dividends DON'T exceed other taxable income.

To illustrate in the simplest way possible: Suppose that Acme Products has $10 million of taxable income.  Assuming for simplicity a flat 35% corporate rate, if it did nothing further, it would pay $3.5 million of corporate tax.  But instead, it pays $10 million of dividends to its shareholders.  This zeroes out taxable income, so it pays the Treasury zero on its own behalf that is denominated an entity-level corporate tax.  BUT - if the withholding tax rate is 35%, it pays $3.5 million just as if there had been no dividend payout, only this is now denominated a withholding tax on the shareholders.  So they get $6.5 million, not $10 million - just as they would have if there were no dividends-paid deduction and the company had nonetheless decided to pay out all of its after-tax earnings as an immediate dividend.

What's happened so far at the entity level, by reason of the proposal, is purely a re-labeling.  The company still remitted $3.5 million of tax, just as it would have in the absence of a dividends-paid deduction (or if it paid no dividends).  But the taxes it paid are now deemed to be a shareholder-level tax, rather than an entity-level tax.  Thus, as I further discuss below, it's plausible that the accountants, in their wisdom, would decide that paying the dividends (and hence the withholding tax) caused Acme's financial accounting income for the year to be $10 million, rather than $6.5 million.  So the company has more reported earnings by reason of a labeling convention!

What happens at the shareholder level?  This depends on further details of the proposal once announced.  Under present law, obviously, the dividends would be taxable if the shareholder was. (But, as recent work by Steven Rosenthal and Lydia Austin shows, in practice about 75% faces no shareholder-level tax.)  Under the proposal, the shareholder-level effect would depend upon (a) the relationship between the shareholder-level rate and the withholding tax rate and (b) the question of whether, and if so when, the withholding tax was refundable when in excess of the shareholder-level tax.  I gather that a key part of the plan is to deny refundability to various or all tax-exempts, thus sticking them with the full 35% rate, which of course merely perpetuates the fact that they effectively get stuck with the entity-level tax under present law.

As Michael Graetz and Al Warren have noted in their work on the subject, this can be the same as having an imputation credit system of corporate integration.  Nonrefundability (or refundability, as the case may be) can be made a feature under either system. But calling it a withholding tax, instead of using the usual framing, would presumably increase reported financial statement income.

At the risk of unduly repeating the example from above, let's start with Case A, involving standard imputation framing.  Again, Acme earns $10M, remits $3.5M to the U.S. Treasury, shareholders get $6.5M (subject to whatever else happens at the SH level).  But as there was formally an entity-level corporate tax, financial statement income is $6.5M.

Case B, dividend deduction plus withholding tax.  In economic substance, everything is exactly the same (keeping in mind that SH-level tax effects can be made the same under both proposals).  That is, we still have Acme earning $10M, remitting $3.5M to the Treasury, and SHs getting $6.5M.  But now financial statement income is reported as $10M, because Acme merely remitted a tax that was formally defined as someone else's (i.e., the shareholders') obligation.

Here is another way to do the same thing.  Congress passes an imputation proposal, rather than a dividend deduction proposal.  But it commands the FASB to command accountants who are applying GAAP not to deduct entity-level corporate taxes from reported earnings insofar as any dividends generating imputation credits are paid out. So long as all the details are conformed properly, it can come out exactly the same. (Hence Kleinbard's question in his write-up: "Financial Accounting - How Stupid Are We?")

Suppose that I, unlike Kleinbard, wanted to argue in favor of the plan. What would I say?  Probably I'd say that the point is as follows.  Suppose that you like imputation but have observed that it isn't going anywhere, and that you think the third approach that I described above (commanding FASB to mandate non-deductibility from reported earnings of what are formally entity-level taxes) is optically unfeasible, By doing the proposal instead of imputation, you grease the wheels for its passage by giving corporate managers a big financial accounting benefit that - if (in Kleinbard's terms) we are indeed stupid enough - will make them big supporters.  (BTW, whom should we think of as the relevant "we" in practice?  Marginal investors? Big players? Someone else?)

Kleinbard doesn't buy this line of argument, partly because he's skeptical that "we" are that stupid, and partly because he notes that the most sophisticated thinking about capital income taxation has moved on from corporate integration that focuses on dividend payouts to more fundamentally addressing the taxation of capital income in general.

So let's throw another potential argument for the proposal onto the hopper.  It's thought by some that this will have a positive impact on the "trapped earnings" problem for U.S. companies that have massively shifted their profits into tax havens, and also declared much of these profits to be "permanently reinvested earnings" (PRE),  The PRE designation, if accepted by the accountants, permits one to score the deferred U.S. taxes at zero for financial accounting purposes, rather than at full value without regard to deferral (and to the prospect that they might never become payable at the currently applicable U.S. repatriation tax rate).

So let's go back to Acme.  Suppose that Acme has zero U.S. taxable income, because all its earnings are through foreign tax haven subsidiaries.  Say that it has $10M of PRE that faced zero in foreign taxes, and that it's unwilling to bring this money home, even though it wants to pay dividends to its shareholders, because then it would pay $3.5M in U.S. taxes that would come as a negative adjustment to earnings given the PRE designation.

Now the thinking is as follows. If we enact the Hatch plan, its $10M in taxable income from the repatriation is perfectly offset by a $10M dividends paid deduction.  It still remits $3.5M of tax, and the shareholders still only get $6.5M due to the withholding tax, but now Acme avoids the negative earnings hit because the accountants now believe that this tax was merely remitted on behalf of someone else (i.e., the shareholders). No negative adjustment to PRE, so Acme is happy.

In this scenario, the Treasury also ostensibly is happy.  After all, even under current law with the two levels of tax (subject to the Rosenthal-Austin point), how much in tax revenues did they actually expect to get?  Zero in the current period, if Acme wouldn't have repatriated.  And even in the long run, who knows - given, for example, the possibility that Congress will enact another repatriation holiday (a la 2004) at some point.

So, is everyone better off?  Well, possibly not the shareholders.  After all, given the chance of a future holiday, etc., they may have stood an excellent chance of, at some point, getting their hands on MORE than $6.5M (in present value) out of the $10M that Acme has squirreled away in the tax haven.  Indeed, the boon to the Treasury, if it materializes, would appear to reflect managerial focus on maximizing reported earnings, as distinct from actually doing what's best for the shareholders.  So perhaps the best argument for the proposal in the end (which Kleinbard acknowledges), is that it leverages managerial indifference to shareholder welfare into a mechanism for benefiting the public fisc.

If one believes that "we" really are as "stupid" as this argument for the proposal posits, does this potentially tip the balance in its favor? After all, if the managers are indifferent to shareholder welfare in various respects, why not have the fisc take advantage?  Kleinbard does, however, offer various counter-arguments. I'll leave final bottom-line judgments to the readers.

Wednesday, June 29, 2016

Trump on waterboarding

Per Vox: "I like it a lot. I don't think it's tough enough. Can you imagine them sitting around the table or wherever they're eating their dinner, talking about the Americans don't do waterboarding and yet we chop off heads? They probably think we're weak, we're stupid, we don't know what we're doing, we have no leadership. You know, you have to fight fire with fire."

This does not appear to be a prudential rationale for torture.  It's to impress "them" by showing that "we" are as "tough" and "smart" as "they" are.  Otherwise, presumably, "they" will laugh at us.

Monday, June 27, 2016

Redemption of a lazy cliche?

When Americans talk about the U.K., or for that matter about the U.S., there is generally no lazier, tireder, more meretricious cliche than the Churchill Invocation, in which it's always 1938 and always about Munich.  Of course, whereas Churchill was bravely and farsightedly urging a benighted, unready country to stand tall against a brutal, ravening bully, in the U.S. it's generally invoked to support beating up on smaller, weaker, countries or for that matter civilian groups that, even if not as friendly as we might wish, are also not irredeemably hostile (unless and until we make them so).

And of course U.K. people, compared to those in the U.S., are likelier to know Churchill's full political history, which  had low points in addition to the world-historic high point that we always have in mind (even when it's wholly off-point) on this side of the Pond.

But in the U.K., where the winning pro-Brexit forces were too cynical to have any plan, and the government decided not to make any plans, and where there is currently neither a functioning government nor an organized opposition, it's time to think about Churchill 1938, albeit at a greater level of abstraction.

Although I'm non-UK and obviously don't know the politics, I am getting the sense that Brexit is likely to happen, even though it still requires a set of deliberate political acts by people who already well know (or will soon find out) both (a) that it is unwise, and (b) that the public didn't choose it knowingly (as opposed to voting symbolically so as to "send a message," or else under the influence of false information).  Plus, for that matter, the wrong public voted - to match voice with consequences, young people and future generations should have counted for more here than they did in the actual balloting.

But the reasons it seems likely to happen are (a) politicians in both of the major parties who know better are playing it safe or thinking small or treating it as "politics as usual," and (b) those with a large enough voice to do something individually, such as the U.K.'s own U.S.-born version of Trump, might prefer to see terrible things happen (even if they couldn't dodge the blame) than have to admit what a sham they've been playing out in public.

So if "being like Churchill" means being brave, and taking the long view, and not worrying about whether it's to one's current political advantage, or about who else will go along, or about whether it's good for one's current image, and if "being like Churchill" has no necessary connection to the particulars of the canonical 1938 Munich showdown, then at last it's time for it now.  But takers seem likely to be in short supply.

Brexit / international tax policy follow-up

I was a bit soft-spoken about Brexit in my prior post ("I'm inclined to think that Brexit will predominantly have bad effects") as I didn't want to rant or screech, especially in a very preliminary response before getting a chance to read more about it.

But here's the odd thing, clarifying a point that was implicit in the post but that I hadn't as yet thought through as clearly.  Damaging (or even calamitous) as Brexit may be for the English on the whole if it actually goes through (and I say "the English," not "the UK" or "the British" advisedly), it may actually increase their flexibility in international tax policymaking, which (all else equal) would potentially be a good thing.  But, alas for them, "all else equal" is not a good operating assumption.

If the English value their own international tax policymaking flexibility, they can actually use it in a number of different ways post-Brexit that would not have been as feasible before.  Removing European Commission and European Court of Justice oversight increases their freedom of action whether they want to use it towards (a) cracking down more on their own multinationals, without having to worry about such ECJ decisions such as Cadbury Schweppes, (b) becoming even more of a tax haven, such as by doing state aid without facing oversight by the EC, or (c) reviving corporate integration via shareholder imputation, without having to credit other EU countries' corporate taxes or to offer refunds to other EU countries' residents.

What does this leave out?  Well, here are a few things:

(1) how Brexit's terms are negotiated - e.g., it could conceivably involve agreeing to limits on international tax policymaking flexibility,

(2) how remaining EU countries change their tax policy towards the English (e.g., the gain in flexibility is reciprocal - other EU countries would now presumably be able to treat English companies and taxes less favorably than before), and

(3) everything else that could happen to the English by reason of Brexit if it actually goes through (i.e., if they don't do the smart thing by never actually triggering Article 50).

Friday, June 24, 2016

Brexit and tax policy

I'm inclined to think that Brexit will predominantly have bad effects, on both sides of the English Channel and on both sides of the Atlantic Ocean.  But it all depends on what people do next.  Although it's a strategic trade-off, I think the EU folks would be far wiser to play this in a "nice" way than a "mean" way.  I don't think their overall position is strong enough for "mean" to pay off.

Interesting tax policy, among other, implications for the UK.  (Or should I say, the English? - suppose Scotland, Northern Ireland, and even Wales were to leave and rejoin the EU.)

Some years ago, the European Court of Justice (ECJ) seemed to be actively obstructing UK efforts to have strong CFC rules that would protect the UK tax base against sheltering activity that took advantage of EU tax havens.  This may have been one reason that the UK switched strategies and decided to set up business as itself somewhat of a tax haven.

Without the ECJ, the UK may be free, if it likes, to go back to the previous strategy.  But the thing is, I suspect they've made their choice and are unlikely to revisit it.  (This reflects that there are competing strategic arguments for both types of approaches.)  I note that the UK apparently was opposed to stronger CFC rules within the OECD-BEPS process, a stance that was not ECJ-constrained.

Of course, with Cameron resigning, we don't know for sure who will be controlling UK tax and other policy in either the short or long term.

Leaving the EU would also presumably free the UK to engage in "state aid" of the sort that the EU has been barring when it comes from the likes of Ireland or Luxembourg.  So they could now double down on the tax haven strategy if they like.

I suspect that it is actually, or at least technically, possible for Brexit to end up not mattering all that much. If the two sides sufficiently agree to cooperate, e.g., as a condition of mutually favorable trade arrangements, life could go on with surprisingly little change.  But the political dynamics may be wrong for that to happen.

One final small tax policy point: Michael Graetz and Al Warren have argued in the policy debate that the ECJ caused the UK to abandon corporate integration via imputation.  Another view holds that the UK was trending in that direction anyway.  We now have a test case for the Graetz-Warren claim, unless they can establish a credible "path dependence" explanation for why the UK wouldn't revive imputation, similar to my point above regarding CFC rules et al.  (Except, my point relies on the existence of imponderable tradeoffs, whereas they may be more inclined to see imputation as a huge and clearcut policy improvement.)

Tuesday, June 21, 2016

I guess he really is desperate

Today I got a fundraising email from one Donald J. Trump,who says:

"This is the first fundraising email I have ever sent on behalf of my campaign.  That's right.  THE FIRST ONE.

"And I'm going to help make it the most successful first introductory fundraising email in modern political history by personally matching every dollar that comes in WITHIN THE NEXT 48 HOURS, up to $2 million!"

While matching donations is a well-known fund-raising gambit, it's a bit of an odd twist that the donations he says he'll be matching would be to himself.

Are we to assume that Trump WON'T give himself the full $2 million if the targets don't pony up enough?

But on the other hand, should we assume that he WILL have sufficient funds to give himself the full $2 million even if they do?

UPDATE: Talking Points Memo, which has reproduced the email on-line, points out that it doesn't definitively say whether Trump's $2 million match will be a true contribution or a loan.

The fact that the Trump campaign owes Trump $50 million for past loans, and has been paying 20% of its outlays to Trump organizations, is not exactly catnip to the prospective donor.

Monday, June 20, 2016

Short publication

As promised or threatened, Tax Notes has indeed today published the lunch remarks I gave at the National Tax Association Spring Symposium on May 12. The cite is Shaviro, 10 Observations Concerning International Tax Policy, 151 Tax Notes 1705-1710 (June 20, 2016).

Perhaps because it's in their "Current and Quotable" section, it doesn't appear to be in today's online version of Tax Notes for subscribers.  (Nor is John Samuels' "The Joint Committee Staff - From the Outside Looking In," also in "Current and Quotable.")  But I'm permitted to post it on SSRN two weeks after its appearance in Tax Notes, and thus I will do so in early July.

UPDATE: The talk is available here, but probably requires a Tax Notes subscription to access.

Tax Notes article on AEI corporate tax reform panel

In today's Tax Notes, Andrew Velarde describes the proceedings at AEI last Friday (I'd post, the link, but presumably it's subscribers only).  He accurately summarizes the main gist of my comments as follows:

"Daniel N. Shaviro of New York University School of Law lauded the plan's move away from its old pure integration model, saying that 'there's a lot to like' in the new plan. He called the annual tax collection and the addressing of debt-equity positions of tax-exempts positive points to the proposal, but he still worried that companies may be discouraged from going public, even with the transition rules, and that the divide between publicly traded and nonpublicly traded companies still remained. Shaviro also expressed some skepticism that corporate tax reform could be accomplished in such sweeping measures.

"Shaviro said that one possible solution would be to address the biggest problems of the U.S. corporate tax system more narrowly, arguing for stronger thin capitalization rules and debt limits, rules on normal versus extra-normal returns, and international tax changes. 'There's a time for a bunt, instead of a grand slam,' he said.

Friday, June 17, 2016

AEI corporate tax reform panel

I'm back in NYC from appearing at AEI in Washington this morning, where I offered comments on the Toder-Viard corporate tax reform proposal.

A video for the event is here.  My remarks begin at about the 33-minute mark.

You can view the slides for my talk here.

Rather than addressing the plan's very thoughtfully designed features item-by-item, I sought to locate it conceptually within the universe of corporate tax reform and entity-level corporate rate reduction proposals, and to explain what I think are the broader conceptual challenges in the field, as well as their relationship to the various alternative plans' particular merits.  I also briefly addressed the "dividend deduction plus withholding tax" plan that I gather Senator Hatch and the Senate Finance Committee staff are currently working on.

Thursday, June 16, 2016


Tomorrow morning I'll be in Washington, commenting on the Toder-Viard corporate tax reform plan (and on corporate tax reform more generally) at this AEI event.  Slides to be posted here on Monday.  Also on Monday, a written-out version of my NTA spring symposium lunch talk from May 12 will be appearing in Tax Notes.

Monday, June 13, 2016

Universal basic income

The idea of offering lump sum payments to all citizens or residents, often called "universal basic income" or "demogrants" or the "negative income tax," has been cycling back into public consciousness recently, although it was just rejected in Switzerland by a vote of 77% to 23% (!), and although I can't imagine it happening in the U.S., at least explicitly, at any time in the foreseeable future.

Still, the UBI and related concepts combine (a) genuine policy merits with both (b) being frequently misunderstood and (c) having an unusual mix of support on both the left and the right (e.g., James Tobin and Milton Friedman; George McGovern and Richard Nixon; Martin Luther King and Friedrich Hayek).

Ben Leff has recently posted a blog entry regarding UBI (see also his prior post here) in which he was kind enough to post a link to an article that I wrote, more than 15 years ago (egad), touching on this topic.

I hope my readers will forgive me for being unable to resist noting here that Leff says my article "figuratively blew my mind when I first read it .... When I told my wife that Shaviro's article had blown my mind, she said, 'Compare it to Carlos Castaneda, and I said 'More! It blew my mind more than Castaneda.'"  He then offers a crisp account of several of the main points I made in that article.

UBI is an extremely rich topic, touching in multiple ways not just on economics, but also on political science, distributive justice, administrative law, and poverty program mechanics.  It's thus well worth writing about.  Even if an express UBI is politically unattainable, the discussion can have not just theoretical but perhaps even practical benefits, by reason of its improving our understanding of the relevant issues and design trade-offs.

Tuesday, June 07, 2016

A photo from Amsterdam - but I don't think it was at my talk

I hope this photo wasn't taken at my talk - the subject looks entirely too skeptical for my taste.
It was indeed taken in Amsterdam, however, during a break from all the art museums, windmills, rijsttafel dinners, etc.

Enough teasing already, here's my talk concerning the U.S. response to OECD-BEPS and the EU state aid cases

Although my talk at the Amsterdam conference really was intended as a talk, not a formal paper, I've published on SSRN a very modestly expanded and formalized version of it - available here.

Monday, June 06, 2016

Just a teaser

Here are the slides for my talk at last Wednesday's conference in Amsterdam concerning the U.S. response to OECD-BEPS and the EU state aid cases.

The sense in which it's just a teaser is that the slides are fairly skeletal, taking the form of a very general outline of the points I covered.  But, as noted previously, I am planning to post a very slightly expanded version of my remarks, perhaps as soon as tomorrow.

Saturday, June 04, 2016

Back from Amsterdam

Got back mid-day today after a week in Amsterdam, including one day at the NYU-Amsterdam Center for Tax Law Conference on EU anti-profit-shifting efforts, including those in OECD-BEPS.

My talk, "The U.S. Response to OECD-BEPS and the EU State Aid Cases," looked at both the U.S. climate of discussion regarding these two initiatives, and at what one might guess U.S. policymakers might do in 2017 and thereafter.  This naturally required looking briefly at U.S. politics, e.g., at what a Clinton or Trump White House might be expected to do.  The latter topic, naturally, is one of particular interest to non-U.S. audiences.

I'll post my talk here and/or on SSRN (I believe it's a hair north of 2,000 words) early next week, although I don't anticipate submitting it for formal publication anywhere.