Thursday, July 13, 2017

It all depends on how you look at it

The New York Mets must be the best team in baseball.  They have an All-Star outfielder whom their manager doesn't even plan to play.

Somehow it doesn't sound as good if you say that they have a manager who doesn't even plan to play their All-Star outfielder.

Speaker schedule for 2018 NYU Tax Policy Colloquium

We now have a tentative speaker schedule for the 2018 NYU Tax Policy Colloquium, which I will be co-teaching with Lily Batchelder. We'll be meeting on Tuesdays, from 4:10 to 6 pm, in Vanderbilt 208 (our usual room).  It goes like this:

1.  Tuesday, January 16 – Greg Leiserson.Washington Center for Equitable Growth.
2.  Tuesday, January 23 – Peter Dietsch, University of Montreal Philosophy Department.
3.  Tuesday, January 30 – Andrew Hayashi, University of Virginia Law School.
4.  Tuesday, February 6 – Gerald Auten, U.S. Treasury Department.

5.  Tuesday, February 13 – Vanessa Williamson, Brookings Institution.
6.  Tuesday, February 27 – Jacob Goldin, Stanford Law School.
7.  Tuesday, March 6 – Lisa Phillips, Osgoode Hall Law School.
8.  Tuesday, March 20 – Michelle Hanlon, MIT Sloan School of Management.
9.  Tuesday, March 27 – Damon Jones, University of Chicago Harris School of Public Policy.

10.  Tuesday, April 3 – Ajay Mehrotra, American Bar Foundation and Northwestern University School of Law.
11.  Tuesday, April 10 – Jason Furman, Harvard Kennedy School.
12.  Tuesday, April 17 – Emily Satterthwaite, University of Toronto Law School.
13.  Tuesday, April 24 – Wolfgang Schon, Max Planck Institute.
14.  Tuesday, May 1 – Joshua Blank, NYU Law School.

Leaving aside the horror of its being winter again at the time when the colloquium starts - and that will have happened anyway by then, colloquium or no colloquium - I'm looking forward to 14 interesting and diverse papers and discussions, and to another great semester.

Sunday, July 02, 2017

Travel reading

The amount I read for pleasure on my travels was reduced by my also needing to read papers that were being presented, while also polishing my presentations and working on my literature book. But, during the Mexico City and Oxford trips, I did get to read most of (1) Chimamanda Adichie's Americanah, and (2) Henry Blake Fuller's With the Procession.

In Americanah, it's a bit depressing from the perspective of 2017 to read about the characters' response to Obama's election and inauguration. But it's a really excellent work of both narrative fiction and sociology. A friend suggested that I consider it for my literature book, in which I'm not absolutely set on all of my current-era choices. But while it deals with class, and while I ought to deal with U.S. race-class interactions at some point, I don't see it as sufficiently directed at my particular interests in the book (as distinct from, as an American living in our society today).

With the Procession was published by Fuller in 1894 and is set in Gilded Age Chicago. I had decided, after initial inquiry well short of a full read, not to include it among my 3 U.S. Gilded Age chapters (which will deal in turn with Twain & Warner's The Gilded Age, Dreiser's The Financier and The Titan, and Wharton's House of Mirth). But it's sharply satiric and quite good, and certainly makes the list of the next 3 that I would have done from this era if I were spending more chapters on it (the others being William Dean Howells' The Rise of Silas Lapham, which I like but don't love, and Booth Tarkington's quite interesting The Magnificent Ambersons).

For those who might be interested, With the Procession is available as a free Kindle download from Amazon, although for some reason it can be hard to find in this format on their website.

Comments on the EC state aid cases at the Oxford Summer Conference

On Friday I spoke at the Oxford University Centre for Business Taxation's Summer Conference. This is a public event with a large audience, discussing matters of general tax policy interest, as distinct from the academic conference earlier in the week, which focuses on attendees' works in progress.

I discussed the EC state aid cases, with particular reference to the Apple-Ireland case, on a panel that was more generally focused on issues of tax uncertainty. My slides are available here. They're different and I think better than the slides I posted a few weeks ago when I discussed the same topic at a conference in Luxembourg. They generally aim to be balanced, fair, and above-the-fray.

Thursday, June 29, 2017

Some photos and an odd fact

From a Liverpool Beatles tour that I did today, in between yesterday's end of the Oxford academic symposium and tomorrow's one-day Oxford summer conference:

1) Here's where Julia Lennon was killed in July 1958 by a bus, moments after saying goodbye to John at the Mendips house where he was living with his Aunt Mimi.

2) On a more cheerful note, this is Strawberry Fields. And here's an odd fact: according to my guide, when Mimi would tell John that he'd get in trouble for climbing over the wall to spend time here (which he did around the back, not at the front gate), he'd reply: "They won't hang me for it, you know." The guide suggests that this is (part of?) what he had in mind when he wrote the line "Nothing to get hung about."
3) And here's the Penny Lane roundabout. There's also a barber shop and bank nearby, both apparently the same storefronts but extensively remodeled since back in the day.

Wednesday, June 28, 2017

Working in the same garden?

Courtesy of the Tax Prog Blog, I note that my old friend Mihir Desai, with whom I co-taught the Tax Policy Colloquium a few times, has published a book entitled "The Wisdom of Finance: Discovering Humanity in the World of Risk and Return."

From the description, it appears to be quite different from my literature project, but there is a commonality to our both engaging with the broader liberal arts, etc.  Plus, we have at least one text in common. To quote from what I take to be Mihir's opening:

"... This book is about how the philosopher Charles Sanders Peirce and the poet Wallace Stevens are insightful guides to the ideas of risk and insurance, and how Lizzie Bennet of Pride and Prejudice and Violet Effingham of Phineas Finn are masterful risk managers...."

Excuse me here while I break in for a moment  What's this "Lizzie Bennet"? It's ELIZABETH Bennet. Mihir doesn't know her well enough to call her that. I don't know her well enough to call her that. Quite improper, unless one is one of her intimates. Miss Bennet would be most displeased if she knew.

Monday, June 26, 2017

Comments on Kleinbard's "The Right Tax at the Right Time" (discussing his Dual BEIT proposal)

Today, at the Oxford University Centre for Business Taxation's 2017 Academic Symposium, I was the discussant for a paper by Ed Kleinbard that discusses his business tax reform proposal, the dual BEIT (dual for using the dual income tax to separate capital income from labor income; BEIT for business enterprise income tax).

The slides for my comments are available here. Two quick bottom lines might be (1) I think this proposal deserves to be on the agenda when people discuss business tax reform, and (2) for all of the various proposals out there, it's analytically useful to decompose them a bit into their multiple components.

Two acronyms in the slides that I didn't explain because I knew they would be covered in Ed's presentation are (1) COCA = cost of capital allowance (allowed to businesses on their assets inline of any actual interest deductions, and (2) PCO = participating controlling owner (who the proposal taxes on suspected labor income that has been retained at the entity level rather than being paid out as salary).

Wednesday, June 21, 2017

"Tax Scholarship, Illustrative Examples" panel at LSA

Today at the Law and Society Association's Annual Meeting, in Mexico City, I participated in a very interesting panel entitled "Tax Scholarship, Illustrative Examples."  Thanks to Neil Buchanan and Jennifer Bird-Pollan for arranging it.

My co-panelists were Leandra Lederman, Aja Mehrotra, and Lisa Philipps, and each of us had an entirely distinct topic. Leandra's was the relationship between tax enforcement and voluntary compliance, Ajay's was the rise of the VAT and why the US doesn't have one (with comparison to Japan, which didn't have one until 1989), and Lisa's was the relationship between  tax expenditure analysis and that of budget policy's effects on gender issues. The unifying theme, in part for more junior scholars in our informal LSA tax group, was looking at different directions that scholarship can take and the lessons for people who are in the earlier stages and still figuring out what sorts of things they want to and/or should do.

My talk was based on my literature and high-end inequality project, with particular reference to my Jane Austen chapter "Why Aren't Things Better Than This? Class Relations Within the Top One Percent in Jane Austen's Pride and Prejudice." But I also touched on the broader panel themes of deciding what sort of scholarship to do, etc.

The slides for my talk are available here.

Monday, June 19, 2017

Video of the Tax Reform panel at NYU last week

Here is the video of the tax reform panel at NYU last week. I speak from about 6:20 to 19:15.

Friday, June 16, 2017

Slight revision to my DBCFT slides

In case it's of interest, I've slightly revised my slides on the DBCFT. They are available here.

The only non-trivial change is the newly inserted Slide 11, which questions whether we all should continue focusing, to the degree we have been, on the DBCFT as  a leading tax reform instrument.

Thursday, June 15, 2017

VAT follow-up

At yesterday's ABA-Tax Analysts Tax Reform Panel, someone from the audience made the suggestion that, if Congress actually enacted a VAT, whether straightforwardly or via a disguise such as the DBCFT, it surely wouldn't be a pure-looking broad-based one. Rather, there would presumably be lots of special rules for particular industries, etc.

I actually once wrote and published a commissioned article about this very topic, for a conference on tax reform.  The piece is more than 10 years old, so the political discussion might be a tad out of date, but the more general points may still hold. It's available here.

Wednesday, June 14, 2017

ABA-Tax Analysts Tax Reform Panel

Today at NYU I participated in a panel, sponsored by the ABA and Tax Analysts, regarding the current prospects for tax reform (be it so-called or actual). My fellow panelists were Ajay Mehrotra, Peter Merrill, Ray Beeman, and Lee Sheppard. Here's a photo (courtesy of the Tax Analysts Twitter site). I'm second from the left, and the others are in the order in which I named them above.
Here's more or less what I said during my speaking slot near the start of the session (much of it based on the content of these slides):

There's an old joke in which a proud mother, watching her son march with the high school band, says: "Will you look at that! Everyone's out of step but my Johnny."

The U.S. federal tax system invariably brings this joke to my mind, at discussions of tax reform, because of how it differs from everyone else's.  All peer countries have a VAT, a lower statutory corporate rate than we do, and less relative reliance in their tax systems on income tax revenues.

It's not just due to the wisdom of crowds that we might reasonably suspect that we have it wrong. Our distinctiveness also contributes to the facts that (a) our tax system is more progressive than the norm, but (b) our overall fiscal system is considerably less progressive than the norm, plus (c) we have worse problems of tax competition and tax inefficiency than we would have if we conformed to standard global practice.

All that being said, tax reform is easy.  All that we need to do is: (1) enact a VAT, (2) lower our statutory corporate tax and overall reliance on income tax revenues, plus (3) take care of THE REST - i.e., make all other changes that are needed to get to an overall tax and fiscal system that we like.

Obviously, I'm kidding when I say that tax reform is easy. Even leaving aside the political issues, which I'll turn to shortly, the big problem lies in properly defining "THE REST." It includes deciding on: revenue levels going forward, spending levels going forward, and achieving desired distributional goals - which relate to people on both the top and the bottom of the wealth/income spectrum.

But the thing is, properly handling "THE REST" should mean that one can get a better fiscal system, by one's lights, whether one is on the left or the right politically, or anywhere in between.  Indeed, it even should mean in principle that there potentially are "Pareto deals" available from the standpoint of people on the left and the right. If they could negotiate in good faith towards creating a stable new fiscal system that included a VAT, there ought to be available options, with regard to "THE REST," that would leave both sides happier than they are now. For example, the left could get a bit more funding for social spending, the right a bit less capital income taxation, and if there is increased efficiency and inbound investment there ought to be a source of surplus available for them to split to mutual advantage.

But there are two problems that impede our getting to this happy state: (1) our broken politics, which would prevent us from either negotiating the Pareto deal or keeping it in place afterwards, and (2) the apparently unshakable political constraint against our having an explicit VAT.

Why can't we have an acknowledged VAT? Part of the problem is historical (1970s tax revolt, defeat of Al Ullman in the 1980 election after he advocated a VAT, Reagan "revolution," etc.). But it's more than just historical - after all, decades have passed since then, and it still seems to be true.

To my mind, the key to why we can't have a VAT lies partly in the old Larry Summers joke that's frequently quoted but rarely analyzed. Larry reportedly said: "We don't have a VAT because conservatives view it as a money machine, and liberals view it as a tax on the poor. But we'll get it when liberals figure out that it's a money machine, and conservatives see that it's a tax on the poor."

People usually just mention this joke and move on. But there are two odd things about it. First, it's paradoxical. Why should liberals and conservatives be so myopic in opposite ways? Even if it's true, it doesn't make sense without further explanation. Second, it seems to make a prediction ("we'll get it once..."), but the prediction doesn't seem to be coming true.

So how can we explain these two odd aspects? I see two main points. First, even outside the US it's politically hard to introduce a new tax such as the VAT. In many countries, it got help from, say, its replacing rightly disliked gross receipts taxes, or being a precondition of joining the EU, or responding to a fiscal crisis. Without something like that, it's a hard political sell even without crazy US politics.

Second, US political dissensus, and both sides' risk aversion, stands in the way of a deal. While it's true that a tax system with a VAT can be superior to what we now have, from either a liberal or conservative standpoint, so long as "THE REST" is properly specified, it's also true that a VAT would permit either side (if it had control) to make the system worse, from the other side's standpoint (for the reasons that the Summers joke identifies). So the players are angsty about a VAT unless they are confident enough about what "THE REST" will look like, not just today but also in the future.

The end result is that one can only introduce a VAT by camouflaging it. And as it happens, for a structural reason only Republicans can currently do this. They can sub it in for the existing corporate income tax, and not admit that it's a VAT, thus avoiding both the label and the creation of a new tax instrument. But the Democrats can't do this, given that they generally want to retain the corporate income tax, unless they can identify something else to replace it with. (Here the payroll tax comes to mind, but the problem is that one can't turn it into a VAT and claim that it's still the payroll tax - whereas one can convert the corporate income tax into a VAT and pretend it's still a corporate income tax.)

Examples of a disguised VAT that would replace the existing corporate income tax include (1) Ted Cruz's "business flat tax" from the 2016 campaign, which Marco Rubio correctly, if inelegantly, called a "VAT tax" (i.e., a value-added tax tax), and (2) the destination-based cash flow tax (DBCFT) from this year's Ryan plan.

The DBCFT appears to be politically dead, but the episode was nonetheless politically illuminating. The public didn't understand it, and I thought at times that tax policy experts got a  bit confounded by it as well. Now, experts individually and collectively did a really outstanding job of analyzing, for example, its trade effects, the currency issue, possible legal problems under the WTO and tax treaties, etc. But where I thought they sometimes went wrong is in thinking of it as  really a thing - like, say, the Bradford X-tax is a comprehensive thing - rather than as an assemblage of distinct proposals that is incomplete unless one specifies the rest of the fiscal system.

Conceptually, the DBCFT has 3 main parts. First, it creates a VAT - clearly, in my view, a good thing if "THE REST" is suitably tailored. Second, it lowers the origin-based corporate income tax to zero. There are reasonable arguments for doing this, but in my own view (shared, for example, by business tax reform plan authors such as Toder & Viard, Altshuler & Grubert, and Kleinbard) zero is too low here unless one sufficiently fixes a bunch of other things as well. Third, it has its own "everything else," - including, in particular, a wage deduction. But (a) one can't really assess the wage deduction without looking at how wages are treated overall by the tax and fiscal system, and (b) we still haven't really fully specified the rest, so it's hard to tell without more if the sum total is good or bad. Also, putting the wage deduction into the same tax instrument as the VAT, instead of adjusting the overall treatment of wages somewhere else in the tax or fiscal system, appears to have huge downsides - pertaining, for example, to WTO and tax treaty issues, along with the refundability problem for exporters that would always have "losses" by reason of paying wages.

The apparently politically adverse fate of the DBCFT may tell us that disguising the VAT doesn't sufficiently address the political obstacles to adopting it. And I am not optimistic regarding the merits of what Congress might do this year instead. If they vastly increase the fiscal gap and also fail to achieve bipartisan buy-in, they will just be making things worse (and more unstable) and setting the stage for more and more lurching "tax reforms."

Wednesday, June 07, 2017

There is little reason for anyone outside the U.S. to be thinking about the DBCFT as such

The destination-based cash flow tax has been attracting excitement from all over the place, dim though its current U.S. legislative prospects appear to be. In the EU, for example, I'm going to at least 2 events later this year at which it will be extensively discussed, and I am sure there are plenty more such events.

I don't think the DBCFT merits all this discussion - not because it's bad (depending on the broader context and myriad design/implementation details, it might even be good), but because it's not really a thing in the sense that people think it is.

What is the DBCFT, basically? As per the slides I recently posted, what it would amount to, in the U.S., is (1) enactment of a VAT, plus (2) elimination of the origin-based corporate income tax, plus (3) a wage deduction, plus (4) various other details - e.g., interest generally included and deducted, but no net interest deduction.  Let's go through these features, one at a time.

(1) Enactment of a VAT - Nearly all other countries already have one. The key reason for talking about the DBCFT is entirely U.S.-specific. It's about enacting a VAT without having to call it that.

Now, it's true that the policy options other countries might want to consider could include raising their VAT rates and using the extra revenues to help fund eliminating their origin-based corporate income taxes. But if so, why not put it that way? Who needs all the rigmarole about a "DBCFT" to describe and evaluate such a policy move?

(2) Eliminating the origin-based corporate income tax - Other countries tend to have lower-rate origin-based corporate income taxes than ours. But all such taxes, including ours, face serious problems in a world of global tax competition. So there is a case for eliminating origin-based corporate income taxes.

There might also, however, be reasons for keeping them. E.g., in order to tax rents earned by domestic producers on exports (a particularly important issue for the U.S., what with its West Coast IP mega-firms). And/or, to back up the income tax on individuals. Due to such issues, a number of recent U.S. business tax reform proposals have proposed NOT zeroing out the origin-based, entity-level corporate income tax. E.g., Altshuler-Grubert, Kleinbard, Toder-Viard.

The debate here - should origin-based corporate income taxes be eliminated? - is an important one, in which there are significant arguments on both sides. But I think this debate is murked up and mystified, not clarified, by posing the question as "should we shift to destination basis." Yes, there's a good case for having a destination-based consumption tax (i.e., a VAT) in one's tax instrument toolkit. But it isn't either-or - again, the question is whether we should ALSO keep something of the origin-based corporate income tax.

(3) Wage deduction - This is an important feature of the U.S. DBCFT as proposed. In the particular U.S. context, it might cause replacing existing business income taxation with the DBCFT to be more progressive than replacing it with a VAT that raised the same revenue.

But as a more general or abstract matter, one can't have an intelligent or coherent discussion of the wage deduction without looking at the overall treatment of wages in a given fiscal system. So the right question is how should we treat wages overall, not whether taxes that were collected from business entities should have a wage deduction.

The original X-tax proposal by David Bradford (building on the Hall-Rabushka flat tax) was a coherent and comprehensive package. It took a VAT (be it origin-basis, as it was at the end for Bradford, or destination basis) and packaged it not just with the wage deduction, but also with worker-level taxation of wages at graduated rates in the context of also replacing the individual income tax. That was a comprehensive overall plan that one could evaluate coherently.

But, in the DBCFT as such, the rest of the package isn't specified, so we don't know what we're doing overall or why. Now, in the specific U.S. context in which it was originally proposed, this arguably made sense. Alan Auerbach's rationale for the DBCFT, as I understand it, was that, even if non-business income taxation remained largely unchanged due to underlying disagreements, inertia, etcetera, it might still be possible to improve taxation on the business side. That's perfectly reasonable, as an incremental reform idea in the U.S. context. But it doesn't change the point that the fundamental system features to think about aren't "DBCFT or not," but VAT or not, origin-based corporate income tax or not, and how should wages be taxed given the business tax instrument PLUS everything else.

(4) Various other details - In many other ways, the "DBCFT" label or packaging convention has the potential to make things worse. E.g., VATs typically ignore interest income and deductions; the DBCFT would tax interest income, while allowing interest deductions up to the amount of the interest income. But this seems to be proposed less for its own sake than as a consequence of tweaking the existing corporate income tax without having to admit that one is enacting a VAT.

Similarly, combining a wage deduction with the VAT potentially makes business-level refundability problems much worse. So, why not handle wages wholly outside the VAT, such as by adjusting positive tax rates on them directly in the tax instruments that we use to tax wages? Then we wouldn't have to worry as much about refundability, providing interest on net losses, etcetera. The placement of wage deductions inside the DBCFT appears to be a byproduct of subbing it for the corporate income tax without overtly having a VAT (and to make it more progressive than just adopting a VAT while everything else remains the same as a political constraint), rather than of any direct instrumental design rationale.

In sum, let's all (in the academic world, at least - politics may have its own packaging rationales) try to be less excited about the "DBCFT," whether said excitement is favorable or hostile. Instead, let's think more clearly about destination-based VATs, about the retention or not of origin-based income taxes on business activity, about the overall tax treatment of wages, and about the treatment of financial flows and, for that matter, financial firms - all of which might be conceptualized more clearly if we were less transfixed by the shiny new label.

Back from the EU

After a whirlwind European tour I'm back in the U.S,, and at the moment quite tired but I hope to recover swiftly as I'm off again in less than two weeks.

In some ways, this was the "If this is Tuesday, it must be Belgium" tour. I slept in my own bed on May 26, on the airplane on May 27, in Zurich on May 28-29, in Luxembourg on May 30, in Haikko Borga, Finland on May 31, in Warsaw near the airport on June 1, in Lodz, Poland on June 2, in Helsinki on June 3, in Tallinn, Estonia on June 4, and in Helsinki again on June 5-6.

That's a lot of moving around, but in addition to giving 3 talks I did get to see a lot of nice things. My travel strategy is to hit a new city, get oriented, walk around all day (for as long as I'm there) checking out museums, churches, neighborhoods, parks, restaurants, food courts, shops off the main tourist track, etc., etc., and after a couple of days you really do get a feel of having seen something of a place. And all the travel was flawless - no delays, and the planning (which took some effort) all worked out.

I'm off to Mexico City followed by Oxford in a couple of weeks, and in September will have a very different sort of trip (3 weeks in Berlin with only very limited side travel).

I consistently find that I quite like Europe, although I regret being so limited to just speaking English.

State aid cases and my Luxembourg slides from last week

Here are the slides from my talk regarding the state aid cases at a conference in Luxembourg University last week. (I couldn't post them while abroad due to an error that I needed to fix from back home.)

I'll be discussing the state aid cases again later this month, at an Oxford Centre for Business Taxation annual conference, to be held on June 30. The conference, entitled "Escalating Uncertainty and Competition in Business Taxation, will follow immediately on the heels of their 2017 Academic Symposium, at which I'll be a discussant (re. an Ed Kleinbard paper discussing his business tax reform plan). But the Oxford state aid slides will be quite different from the ones I've just posted, reflecting the different setting.

Monday, June 05, 2017

Bill Andrews

I'm very sad to hear about the death of William Andrews, a great scholar and a lovely man who was also, as it happens, my second-ever Tax Policy Colloquium speaker, and an amazing example of what a clear and deep-thinking legal scholar can contribute to the field.

Vacation reading

I wanted to keep it relatively light and fun for my travels (which currently have me on a ferry back to Helsinki after a day in Tallinn). So I started with Carl Hiaasen's Razor Girl, fun but a bit trashy and not his best. Now, Don Winslow's The Cartel, fiction about Mexican drug cartels (and the U.S. and Mexican governments) amid the drug war down there. Harrowing (with apologies for the cliche); brings to mind The Wire in some ways. Great but not quite keeping it light.

Its precursor volume, The Power of the Dog, which is similarly good, brings to mind another book I read at about the same time that is completely unrelated despite having the same title. Thomas Savage's The Power of the Dog, published in 1967 and set among Montana ranchers in the 1920s, is exceptionally good. It's been compared to John Williams' brilliant classic Stoner, and both are among the handful of best books that I read for the first time, not having previously heard of them, in the last 10-15 years.

Saturday, June 03, 2017

DBCFT slides posted on SSRN

I've posted the slides from my June 1 talk, "The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?," on SSRN. They're available here.

Friday, June 02, 2017

European Association of Tax Law Professors, 2017 Congress

Today I spoke at the European Association of Tax Law Professors' 2017 Congress, in Lodz, Poland. (My first time in Poland - I flew into Warsaw last night, then took the train to Lodz this morning.) The event has certainly grown since I was last there 7 years ago (at a Congress in Leuven, Belgium). The conference's topic this year was corporate residence, a natural for me as I have written about it in the past.

Some thoughts (unrelated to my actual remarks) that I, yes, I admit I tweeted during the sessions, as they were brought to mind by the presentations, were as follows:

1) Should we in principle have a DBCFT? Not a well-posed question unless one specifies the rest of the fiscal system.


2) DBCFT = VAT + 0% origin-based corporate/business income tax + ??. Wage deduction not meaningful w/o specifying how other taxes treat wages.

My remarks about "the future of corporate residence - a U.S. perspective" are generally summarized by these slides.

Thursday, June 01, 2017

"The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?"

This morning, I was the keynote speaker at the annual conference of the Nordic Tax Research Council, meeting this year in Haikko Borga, Finland (outside Helsinki). I was unable to stay for the rest of the conference, as I am flying to Warsaw later this afternoon en route to Warsaw, from whence I will proceed to Lodz (pronounced "Wooch," I'm told), Poland in order to participate in the annual meeting of the European Tax Law Professors' Association, where I will discuss the future of the corporate residence concept.

As per the title of this blogpost, my talk was entitled "The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?" Perhaps I am presuming a bit, as it isn't officially dead yet. But even apart from its seeming to be dead so far as I can tell, those with more inside knowledge than I have assure me that it is indeed dead, at least for this year. (Speaker Ryan may not have gotten the news yet, however, and appears to be a bit stubborn about it.)

Apart from giving a Nordic audience some background that will be familiar to American tax policy folk, I try in the talk to take a broader look at the U.S. politics around VAT enactment, or rather non-enactment. The key to me is not just stopping with the old Larry Summers joke, but rather asking why the joke's punchline hasn't come true yet and shows no immediate prospect of doing so.

The joke (if that's what it is) goes something like this: "The U.S. doesn't have a VAT because conservatives view it as a money machine, and liberals view it as a tax on the poor. But we'll get the VAT once conservatives realize that it's a tax on the poor, and liberals realize that it's a money machine."

People in the biz always repeat the Summers observation, which through no fault of its own (or rather because of its pertinence) has become a cliche, but they never ask why it might be so. I suggest in the talk that there are rational underlying reasons for it, pertaining to both conservatives and liberals.

The slides for the talk are available here.

Wednesday, May 31, 2017

Luxembourg conference on tax cooperation and tax competition

Yesterday I participated in a conference at Luxembourg University's Faculty of Law entitled "Tax Cooperation vs. Tax Competition: Cross-Atlantic Perspectives."

First Tracy Kaye presented a talk on countries' cooperation (or not) with respect to information exchange. The U.S., despite its own efforts pursuant to FATCA, has been notably uncooperative itself with respect to implementing and following common reporting standards (CRS), and these days the odds of FATCA repeal would appear to be higher than those for expanded cooperation.  While Tracy considers repeal unlikely given the huge efforts that went into implementing FATCA and its apparent success in boosting compliance and revenues, the people who will make the call may not care much about any of that.  But said people are probably more likely to be in the Congressional leadership than the White House or Treasury given knowledge and staffing levels in the Executive Branch.

I was the second presenter, and I discussed the EU state aid cases from a mainly U.S. perspective that was drawn to a degree (but not rigidly or slavishly) from my paper on the subject.  I'll post short slides on this after my return to the U.S. in about a week,

The third presenter was Yariv Brauner, who discussed formulary apportionment, as a global option to replace transfer pricing, in light of the U.S. states' experience. They started with the three-factor formula (sales, payroll, property) but have been moving towards sales-only or mostly sales.  Yariv is skeptical that countries will find it in their interests to cooperate very fully, but there is an argument that sales-based apportionment might turn out to be decently incentive-compatible.

Then it was off to Finland (in a resort just outside Helsinki) where I will offer a talk tomorrow entitled "The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?"

Saturday, May 27, 2017

Sergeant Pepper reissue

I'm obviously deep in the tank for that Liverpool group, whose music spoke to me so deeply as an adolescent (at which time they had recently broken up) and has continued to do so afterwards.  But Sergeant Pepper is the one album by them that I sometimes feel is buried or outweighed by the hype. Part of the problem, of course, is its instant canonization as The Greatest Album of All Time, which as, Rob Sheffield sagely remarks in his new book, preceded their even composing most of the songs.

I perforce accepted this canonization at the time (going back to the early 1970s - in real time I heard a number of their great late-60s singles but not really the albums until around 1970). But even now it's hard to get past the hype, and to avoid holding it against the album.

On balance, I think the Sergeant Pepper album is great at both ends but weak in the middle.  And the concept is a bit too McCartney-weighted, rather than being more properly balanced. I do happen to like John's song "Good Morning, Good Morning" more than many do. To me it evokes ennui and desperation, rather than just being a throwaway.

Perhaps the album would have come out more consistently strong if they had held back Penny Lane and Strawberry Fields for it (although those two songs made a perfect and truly great single - possibly their best unless you prefer Hey Jude/Revolution).  But I prefer to the Sergeant Pepper album, at a minimum, Rubber Soul, Revolver, and the White Album (despite or perhaps because of its imperfections).  Also Abbey Road if one overlooks a couple of its weakest songs. One could also very reasonably prefer, say, A Hard Day's Night, although that raises commensurability issues. And even the lightly regarded Help! has an astoundingly strong Side 1.

So that brings us to the reissue, which if you go whole hog is 6 disks and more than $100. But I've decided that getting to listen to the remix, plus the outtakes from CD-2, on Spotify is good enough for me.  I'll live without the outtakes on CDs 3 and 4 (insofar as I don't already have them), given the price.

One problem with Sergeant Pepper outtakes is that they tend to sound a lot like the finished album tracks, minus all the touches that were added in production. Outtakes from other albums, when they were doing more live playing together and sometimes took detours before finding a given song's final form, tend to be more interesting. The one exception here, Strawberry Fields' with its fascinating evolution, has already been thoroughly covered elsewhere, especially if you don't limit yourself to the official releases from Anthology 2.

Next year will be the 50th anniversary of the White Album, and that could REALLY use an expanded reissue.  Despite some coverage on Anthology 3, there is lots more. For example, the complete Esher Demos (Beatles Unplugged in George's house right after they returned from India). This has been bootlegged but ought to be released officially. Revolution Take 20 (the "take your knickers off" take), which shows the join between Revolution 1 and Revolution 9. The full version of "Can you take me back where I came from?," although they picked the best part of it for the album. Paul's loud-soft-loud run-through of Why Don't We Do It In the Road. Whatever they have of John's demo take of Good Night, which I gather is incomplete but gets merged into the released version on Anthology 3. Maybe the long version of Helter Skelter, although my impression is that it's probably a bit dull and draggy (they wisely sped and amped it up for the released version). And there is probably more, such as early takes of songs from Let It Be and Abbey Road that were demoed at this stage.  Anyway, all that would be a real contribution, for which I might be willing to shell out > $100 if Spotify only had some of it.

Friday, May 26, 2017

Another possible title for my literature book

Here's the most recent potential title that I am considering for my literature/inequality book: "The Road to Ayn Randism: Literary Perspectives on the Rise, Fall, and Rise of High-End Inequality."

Good or bad, the title does reflect my most recent thinking about how best to summarize the book's overall themes and trajectory.

Immediately upcoming talks

Next week, I'm giving 3 different talks in 3 different countries:

1) Luxembourg City, Tuesday, May 30: A U.S. Perspective on BEPS and the State Aid Cases;

2) Haikko Borga, Finland, Thursday, June 1: The Rise and Fall of the Destination-Based Cash Flow Tax: What Was That All About?,

3) Lodz, Poland, Friday, June 2: A U.S. Perspective on the Future of Corporate Residence.

I will aim to post the slides from each talk right after giving it (i.e., in real time, while I'm still abroad). If this doesn't work for some reason, I'll post them late in the following week after I've returned to the U.S.

Wednesday, May 24, 2017

Now, that's some serious Laffer Curve action ...

Fun detail from Binyamin Applebaum's NYT article describing the sham accounting in the Administration's "budget proposal":

Mr. Trump has pledged to end estate taxation. His budget, however, projects that the government will collect more than $300 billion in estate taxes over the next decade. Indeed, the Trump administration projects higher estate tax revenue than the Obama administration did because it expects faster economic growth.

Even Arthur Laffer's napkin drawing showed zero revenue if the rate is zero. But I gather we are beyond such "pessimism" now.

Friday, May 19, 2017

Onward and upwards in my literature book

To my great pleasure and relief, I have finished the latest chapter in my literature book. Its title ended up being: "Anti-Success Manual?: Mark Twain's and Charles Dudley Warner's The Gilded Age."

These chapters differ from my prior writing in being more like music (if that's not too pretentious-sounding), and less like syllogisms. But I do feel that it's going well, and that I have the set of skills I need for this. The frustration in writing each chapter comes as I flail about for a while, feeling my way towards the right framing and direction, even as many of the pieces take shape early on. And I do feel that this one ended up coming together well.

Next up, Theodore Dreiser's The Financier and The Titan. I've already given them a preliminary read (plus I read them 30 years ago) - and they're great - but it's probably going to be a few weeks before I launch into researching and writing the chapter. BTW, one book that I plan to read early on in the process is John Franch's Robber Baron: The Life of Charles Tyson Yerkes.  Not only is the Yerkes the actual historical figure on whom Dreiser based his lead character, but I gather that he followed the actual incidents of Yerkes' life very closely. So it will be interesting to see how the historical and fictional figures relate to each other.

I have two distinct reasons for waiting before I launch the new chapter. First, I'll be in Europe from May 27 through June 7, delivering 3 distinct tax policy talks, for each of which I have already made PowerPoint slides. (More on this shortly, including the slides themselves after I've given the talks.) Second, I have to focus on a bunch of other things before I launch into something that will consume me a bit.

One of these other things concerns the book project as a whole. My sense of what the book is has been changing. It started out as more policy-based - a way of looking at high-end inequality given my conviction, as discussed here, that a conventional public economics framework is unusually inadequate for dealing fully with the issues presented.

I always felt a bit uneasy about that framework, because it risked being tendentious. E.g., using a social science framework to select books that were somehow "representative" was not at all what I had in mind. In truth, a key reason for doing the book was that I thought I could enjoy it and do it well, and that others would find it interesting, as well as unique. But that, in turn, had to do with what I thought I could bring to reading particular books in a distinctive way. It was about enriching perspectives, not about proving particular conclusions.

As I see it now, while there is an overall narrative, relating to the rise, transformation, and tensions of meritocracy, it's not about drawing Policy Conclusion X. Note also that, by the nature of the enterprise, it's primarily about feelings around inequality at or near the top. After all, my authors are generally affluent people (i.e., at least "middle class," a term that in common usage extends all the way up to the bottom portion of the top 1%), so they are writing mostly about feelings and tensions in that sector. But this is a very interesting and important subject - tensions within and between elites. It's well worth knowing about, from an enriched perspective that conventional social science could not easily bring, but it doesn't quite amount to, e.g., "We should tax the rich more" (or alternatively, less), apart from its helping to explode the narrow public econ view in which people only care about own consumption.

What should the book's title be? I'm still struggling with this, reflecting that I'm working out what the project as a whole is.  (I've now written 7 out of a contemplated 18 chapters on particular works - and I now have a very good sense of what a given chapter might try to do - but still an only incomplete sense of the trajectory.)

Early on, my working title was "Enviers, Rentiers, Arrivistes, and the Point-One Percent: What Literature Can Tell Us About High-End Inequality." But that might not be commercial enough.

This gave way to "Literature and the Rise of Toxic Meritocracy." But that might not be a good enough fit for what the book is turning out to be.

Daniel Markovits has already taken the title "Meritocracy and Its Discontents" for a book he's writing. Anyway, it probably fits his book better than mine.

"A Literary History of Meritocracy"? Probably not a good enough fit for what I'm doing, also it might create the wrong set of expectations.

I do strongly feel that the chapters are good, and that they are fitting together into a coherent whole. So presumably the title will come.

Friday, May 12, 2017

Don't be fooled

This strikes me as pathetic. What with the rising tide of evidence and speculation about Russian ties and collusion, Trump's tax lawyers have released a one-page letter that says, inter alia, that - subject to specified exceptions - his last ten years' tax returns do not show "(1) any income of any type from Russian sources, (2) any debt owed ... to Russian lenders or any interest paid ... to Russian lenders, (3) any equity investments by Russian persons or entities ... or (4) any equity or debt investments ... in Russian entities."

Sorry, guys, but without more information this is bordering on meaningless. I'm willing to accept that the lawyers probably wouldn't have signed this letter unless they felt that it was literally true - but they, or someone in the Trump camp, have chosen the terms to use and have their own definitions of those terms. They have decided what to say and what not to say.

Just for a couple of possibilities that don't seem to be ruled out here, what about U.S. entities owned by Russian people? What about entities or people from Russian allies or satellites or countries from the former Soviet Union? What about intermediaries more generally?

You can't pick your own questions to ask, based on your own definitions of terms, and expect other people to be gullible enough to draw the conclusions you want. It's too manipulated; too un-open. Even follow-up questions might not help enough here. We shouldn't be playing blind man's buff.

If you want people to draw favorable conclusions about a lack of distressing financial ties, do what every other presidential candidate for many decades has done - release the actual tax returns.

This type of modified limited hangout is so Nixonian that it makes me more suspicious, not less.

UPDATE: Here is a nice illustration of why the tax lawyers' letter is so misleading.

Non-australopithecus garhi

According to the Becoming Human website: "Australopithecus garhi ("garhi" means surprise in the Afar language) is a gracile australopith species ... found in the Middle Awash of Ethiopia. Found in deposits dated to 2.5 million years ago ... Au. garhi is important because it may be the oldest hominin species to make stone tools."

The name choice reflects Au. garhi's "surprising" features, e.g., its combining "a projecting apelike face and small braincase, similar to the Lucy species ... [with] teeth [that] were much larger" than expected. But it also no doubt reflects the discoverers' delighted surprise at their good fortune of stumbling on such a rare and important fossil.

Yesterday I had my own, albeit australopithecine-free, delighted garhi. I turned, ahem, 60 years old (which sounds better than saying I started my seventh decade), and I had thought I wouldn't mention it here despite the precedent from ten years ago. I still feel, knock on wood, exceptionally good and fit and so forth, but in some respects one doesn't like where it's all inevitably heading, even if the pace of retreat remains slow (tightly controlled retreat a la Hannibal's center at Cannae, but without his cavalry sweeping up the wings),

But it turned out that - choose your metaphor, either behind my back or under my nose (I don't think it could be both at the same time), a garhi was being prepared for me, in the form of a surprise birthday party.

In retrospect, there were several clues.  But being preoccupied with X, Y, and Z, as well as perhaps unconsciously unwilling to assume or expect anything, I genuinely preserved a blithe, almost Clouseau-ean, unawareness of what was afoot. So I was truly surprised, as well as moved, when I returned home with my wife (the master planner), thinking that we were on our way to dinner out, and found close to 50 people waiting there, along with all the food, drink, etcetera, that would be suitable for such a gathering.

There were people there whom I had first met in each of the six decades that I have now completed, and in every stage of my life. There were long-distance travelers from the North, South, and West who had decided to make the time to do this. People I see a fair amount, and others whom I hadn't seen for a very long time.

I don't want to get too maudlin here, but I am grateful to more people than I can say for how enriching to me it has been to know all of you.

Wednesday, May 10, 2017

Nobody knew writing about literature could be so complicated (?)

Okay, in truth I knew full well that writing about it would be plenty complicated. But I hadn't foreseen how much more complicated and tortuous I would find it than writing about my usual subjects.  I feel that it's going well (albeit slowly) as a substantive matter, but I keep getting lost for days at a time because something about my work so far in a given chapter perplexes me or seems wrong.

By contrast, last summer I twice wrote 10,000 word first drafts of tax articles in just three days - and then just had to polish them a bit, without further rethinking any of the basics. (They're available on SSRN here and here.)

Just as an example of the tangled pathways, and struggles to finalize overall framing and perspectives that have continually beset me in my book in progress about literature and high-end inequality, here are the three titles (so far) that I've had for my chapter about Mark Twain's and Charles Dudley Warner's The Gilded Age.

First, "Bleakness at Dawn: The Clang of a New Era in Mark Twain's and Charles Dudley Warner's The Gilded Age."

Then,"Anti-Success Manual?: Mark Twain's and Charles Dudley Warner's The Gilded Age."

Currently (and I'm hoping I finally have it), "Middle-Class Elitism in Mark Twain's and Charles Dudley Warner's The Gilded Age."

The issue here isn't what's the catchiest title, but what would well express the content of the chapter as I develop it. I keep adding layers and changing the angle of view (even though lots of the pieces are the same each way).

UPDATE: "Precociously Anti-Plutocratic Middle-Class Elitism in Mark Twain's and Charles Dudley Warner's The Gilded Age." But this one is too wordy, hence still a work in progress.

Another new publication

The Oxford University Press has just published (including online for subscribers) The Oxford Handbook of Law and Economics, Vol. 3: Public Law and Legal Institutions (ed. Francesco Parisi).

My chapter, entitled Economics of Tax Law, is available, although I would presume only for subscribers, here. But my SSRN working paper version, from early 2014, should be generally available here.

The Comey firing

I won't say much here about the Comey firing and the clear Watergate coverup analogy, but anyone who (like Senator Grassley) says that we should just "suck it up and move on" is an enemy of our country and our system of government.

Monday, May 08, 2017

Blast from the past

My kids, who are now each in their third decades (i.e., past age 20), used to be considerably younger than that. As they were dinosaur (and related prehistoric reptile) buffs, and perhaps not the only ones in the family, I adapted the words of "The 12 Nights of Christmas" for them.

Recently the lyric sheet resurfaced in connection with cleaning out old stuff that had been shoved in a closet for many years.  So here goes, taking it from the start of Day 12:

On the twelfth day of Christmas my true love gave to me:
12 tyrannosaurs tracking,
11 brachiosaurs browsing,
10 allosaurs ambling,
9 lambeosaurs lowing,
8 herrerasaurs hunting,
7 carnotauruses crashing,
6 liepleurodons lurking,
5 dromeosaurs,
4 triceratops, 3 stegos, 2 dilophosaurs, and a raptor in a fir tree.

Alas, I'm not convinced that the recipient would make it past Day 1.

Tuesday, May 02, 2017

Tax policy colloquium, week 14: Ray Rees and Richard Vann, "International Tax post-BEPS: Is the corporate tax really all that bad?"

Yesterday we completed Year 22 of the NYU Tax Policy Colloquium, with the above-titled article. It's still a work-in-progress, but was good to discuss; it's also to some extent Australia-focused but this creates interesting parallels to the U.S.

The portion of the title after the colon - "Is the corporate tax really all that bad?" - offers the article's main food for thought, in two distinct though interrelated dimensions: the substance of tax policy, and how tax policy gets made in real world political and intellectual settings. I see it as raising two distinct sets of issues. One is how we should think about the corporate tax today, and the other is how we should think about how the corporate tax has been discussed and debated.

1.  Defending the corporate tax
Economists have been predicting the demise of the corporate tax for decades, yet its revenues have been surprisingly resilient (looking not just at the U.S. but other OECD countries). And conceivably its demise or non-demise - whichever ends up happening - is contingent rather than inevitable. E.g., if we eliminated the existing corporate income tax by replacing it with a destination-based cash flow tax - which does not seem to be happening - that might be a contingent event that ended up affecting the ultimate playout.

The corporate income tax is often deemed the most distortionary at the margin of all major existing taxes, and the most subject to being eroded by tax competition. This, too, of course, depends on unfolding choices, e.g., with regard to OECD-BEPS efforts to address profit-shifting. But it's presently needed to defend the individual income tax (since owner-employees can otherwise incorporate, underpay themselves, and use it as a tax shelter) and also to tax rents. That's not to say those objectives mightn't hypothetically be advanced without relying on a corporate income tax, but that would require other changes.

Anyway, back to the paper's analysis. It notes the classic "small open economy" rationale for lowering corporate income tax rates (including all the way to zero). If inbound capital is perfectly elastic - hence unlimited at the global after-tax rate of return and unavailable at any lower after-tax rate of return - then all one accomplishes by taxing it, such as via an entity-level corporate income tax, is to bid up the pre-tax rate of return that outside investors demand. So in a model that has no rents and that assumes perfect elasticity at the requisite global rate of return, lowering the corporate tax rate brings in extra capital that permits local resource owners (such as workers) to generate additional positive returns (such as from higher wages).

Rees and Vann agree that this model has real world relevance. But they criticize relying on it too fast to support the conclusion that it urges for reasons that include the following:

--The benefit is deferred if inbound capital takes a while to arrive and be utilized. Meanwhile, an under-anticipated corporate rate cut yields immediate transition gains to shareholders (even if the long-run incidence of the corporate tax shifts to workers). And other taxes that are imposed to make up for the rate cut may operate more rapidly to impose burdens, depending on their character.

--In Australia but other places as well, the domestic corporate tax rate may basically be the rate that high-income residents pay, not just on their capital income in the economic sense, but also on labor income that they are able to shove into this tax environment. The taxes that pay for the corporate rate cut will often come from middle-income people (e.g., via VAT rate increases or increases in personal income tax rates that don't involve raising the top rate - both likely candidates in the case of Australia).

--If inbound capital is not quite as elastic as the model assumes, the benefits may be reduced. If domestic saving rates are somewhat elastic, and the pretax rate of return declines because not as much needs to be paid to attract inbound, Rees and Vann posit that a decline in the domestic savings rate may require more capital than otherwise to come in to fulfill the simple model's predictions, increasing the pressure on the assumption of full inbound elasticity.

--Rents are a very important and often under-emphasized part of the story. Rents earned by Australian companies often pertain to natural resources; for U.S. firms the story is often about intellectual property. Taxing rents is in principle efficient and is also likely to be progressive.

--Might taxpayer or citizen morale be adversely affected by not taxing corporations either (a) very effectively due to tax avoidance, or (b) at a rate commensurate with that paid by individuals? Views on this differ.

Turning to the U.S. context, I am opposed to lowering the corporate tax rate in isolation, which is to say without funding it in a manner that is distributionally appropriate. I also think it's vital to address the use of corporations as low-rate tax shelters by undercompensated owner-employees. Possible approaches might include: (1) allowing an allowance for corporate capital or corporate equity (ACC or ACE) in lieu of lowering the corporate rate, (2) using a dual income tax structure to ensure that only the "normal" return gets the benefit of low rates, and (3) using Grubert-Altshuler or Toder-Viard style approaches to increase taxation at the shareholder level.

2.  Assessing the terms of debate
The paper strongly criticizes the Australian Treasury Department for preparing studies of corporate tax rate cuts that do not appear to reflect fully honest and consistent modeling. This critique makes me feel, good for a change, about parallel institutions in the U.S. At least so far, and pending political interference that can't be ruled out in the upcoming tax "reform" debate, I believe that our Treasury, Joint Committee on Taxation, and Congressional Budget Office have both chosen to, and been allowed to, perform better than this. Plus we get important NGO backup, such as from the Tax Policy Center, which stepped into the breech when self-serving politicians (encouraged by some academics who should have known better) shut down distributional estimates on the Hill for proposed tax changes.

The paper also suggests an at least implicit critique, which may be expanded in later drafts, of how much (though not all) of the economics profession has tended to look at corporate income taxation, e.g., by stressing the small open economy analysis more than issues around the taxation of rents. This might parallel critiques that others have offered in the past, e.g., regarding "Econ 101ism" or the rise of neoliberalism.

Recently published articles

For some reason, Tax Prof Blog just now linked to my article, "The Mapmaker's Dilemma in Evaluating High-End Inequality," which came out a few months ago, so I will add the link here too.

To some extent the article merely summarizes and runs through some of the main issues associated with high-end inequality, but a few of the main points it makes that I think are useful are:

(1) the importance of distinguishing between high-end and low-end inequality (issues of plutocracy and poverty, respectively). Once one gets past thinking that the only issue posed is the declining marginal utility of a dollar, one comes to realize that the respective issues, while in some ways overlapping, are very distinct and not mirror images of each other.

(2) the centrality of issues outside the standard public economics / optimal income tax toolbox for evaluating high-end inequality. (This is my excuse for taking the approach in my book in progress about literature and high-end inequality. The Mapmaker's article was originally meant to be more or less the same as chapter 2 of the book, but I'm not leaning against using it in the book.)

(3) use of the "mapmaker" metaphor to discuss the issues posed by using simple and restrictive, versus more complex and inclusive, social science models. As should be obvious but is sometimes forgotten, the merits of the tradeoffs depend on the context and the question being asked.

Other pieces that I wrote some time ago but that have been published recently include:

--"The More It Changes, the More It Stays the Same?: Automatic Indexing and Current Policy," in Levmore and Fagan, The Timing of Lawmaking. The book on Amazon is here, and a working paper version of my chapter is here.

--"Taxing Potential Community Members' Foreign Source Income." Just came out as 70 Tax Law Review 75-110 (2016); working paper version available online here.

I tend to forget about a given project once I've finished it, but I suppose a large part of the whole point is to encourage people to read it. (I do indeed write both for myself and for an anticipated audience.)

Saturday, April 29, 2017

The Maltese Falcon: earlier version

I just saw (on DVR) the 1931 version of The Maltese Falcon. It's not very good, but fascinating to compare to the classic remake. Much worse acting, pacing, etc., but the cast of characters is exactly the same, and each 1941 performance was so indelible that it's startling to see someone else trying to do what's recognizably, at a general level, the same thing.

Weirdest difference: the Sam Spade character is grinning broadly about 95% of the time. (This was not exactly Bogart's approach - even his smiles are grim.) Best difference: it's pre-Code, so the film is far more candid and explicit re. Spade and Miss Wonderly.

Friday, April 28, 2017

New article idea

I agreed a couple of months ago to give a talk in Finland on June 1, at the 2017 Annual Conference of the Nordic Tax Research Council. It was planned at the time that I would address the Ryan tax reform plan - meaning in particular the destination-based cash flow tax (DBCFT) - for my northern European audience that can only watch U.S. developments from afar. I'm also committed to write a very short paper for the Nordic Tax Journal based on the talk.

The DBCFT is of course an interesting topic, and for the above purposes I thought I could reasonably be a consumer at the research stage, and purveyor to my audience in delivering the talk and paper, of the best work that's been done in the U.S. (by a number of excellent people) analyzing the issues that it raises. But I also knew that the DBCFT might have collapsed politically by the time of the talk, and figured that, under that seemingly likely scenario, I'd need a backup plan. This would have the potential, however, to make the talk more fun and interesting for me, by reason of its putting me in a position to contribute more of my own particular thoughts (as opposed to mainly reporting about others' work).

I think we're now at that point. While it's dangerous to base one's ongoing work on assumptions regarding what's going to happen in Washington, it certainly does appear to be the case that the enactment of a destination-based corporate tax is dead in the U.S., at least for the time being.

But it's an interesting question why this thing, which is so different, at least formally, from what everyone else in the world does, should have risen to such prominence before its apparent political collapse. This isn't a criticism of the DBCFT or its proponents - rather, it's a point about the peculiarity of U.S. taxation and tax politics, such that we're the only OECD country without a VAT, our corporate income tax statutory rate is unusually high, etc. It's because things are so peculiar here that the policy aims underlying the proposal took this particular form. And that's worth laying out a bit, in ways that will be more familiar going in to Americans than others, but even for Americans perhaps illuminating to explore.

So here's my current working title: "The Rise and Fall of the DBCFT: What Was That All About?" There might be enough content here to support, not just my talk in Finland on June 1 and short paper in a journal that few Americans will read, but also more extensive U.S. development and dissemination of the main themes.

UPDATE: I've completed slides for the talk, will post them after giving it on June 1, and probably will write a short article version after that.

Thursday, April 27, 2017

2017 Tribeca Film Festival

We've been going for several years now. You get an 8-pack, and that entitles you to 4 films (2 tickets to each). You try to spread them out, one movie every couple of days, reasonable screen times for a working stiff, and pick films that are radically different from each other (as they were this year).

This year's haul: (1) Flower, somewhat dark indie film, adolescent & family dysfunction, 3-1/2 stars out of 4.

(2) Blurred Lines, only 2 to 2-1/2 stars, arts world documentary, too predictable, the basic critique is fine but it ought to have been more original and insightful.

(3) Newton, 3-1/2 stars but possibly our favorite of the group (although Flower was close), drama/comedy from India, sociologically interesting to an Amurrican.

(4) The Circle, 3 stars, liked it but shouldn't have picked it given forthcoming multi-screen commercial release, great atmosphere and good performances by Emma Watson and especially Tom Hanks, (he plays a great quasi-villain, her character as written was a bit incoherent), had some credibility and melodramatic shortcut problems. I haven't read the novel but am curious re. how similar it is or isn't (Eggers did co-author the screenplay).

Not all 15 percent tax rates are the same

My last post on the 500-word scrawling that has amusingly been called Trump's tax "plan" was quite critical of the proposed 15 percent rate for "business" income, which potentially includes any income that one can contrive to have paid to a business entity (including any state-law entity such as an LLC of which you own 100%), rather than directly to oneself as a wage. I noted that, in practice, this is likely to result in an upside-down rate structure in which rich people commonly pay 15% while their employees pay tax at higher rates. And I noted that it in effect penalizes being an employee who gets paid a salary directly, as if this were a crime that needed to be punished or at least discouraged.

But some readers may have asked: What about the capital gains rate? It was 15% for a while, although it's 20% now. Is the proposed 15% business rate worse than that?

The answer is very clearly Yes. Now, there are some cases in which the 15% capital gains rate works exactly the same way as the "business rate" would - allowing high-earnerrs who have flexibility over cash flow, are well-advised, etc., to get the same result as above. Hedge fund managers can often do this, and it underlies the "carried interest" controversy.

But it's harder to do the capital gains trick than it would be to take advantage of the small business loophole. So less people are able to do it. Plus, there's a whole lot of other stuff mixed in to the capital gains category that has a case for more favorable treatment,

Depending on the particular facts, complicating issues may include the following:

--Capital gain on selling corporate stock gives rise to double taxation if the income is taxed at the corporate level - sometimes a big if.

--There may be nominal inflationary gain mixed in.

--To the extent that capital gain merely reflects earning the normal rate of return on capital, there are arguments for taxing it at a lower rate than that which is economically labor income or rents.

--The capital gains tax is to some extent, and in many cases, a voluntary tax. Hence, the Laffer curve can actually kick in at politically conceivable tax rate levels (e.g., by the time the rate gets into the 30s). This problem is greatly exacerbated by the tax-free step-up in basis for appreciated assets at death, which means the tax can be permanently avoided, rather than merely being deferred. That rule ought to be fixed, but as long as it isn't it constrains how high the capital gains rate should be.

This is not necessarily to defend a 15% or even 20% capital gains rate, especially if we have options at hand beyond just raising the rate, designed (for example) to reduce the feasibility of shoving labor income into the capital gains basket.

But at least we are in the realm of complicated issues and policy tradeoffs - which is not the case with respect to a general 15% "business rate."

It's true that, if we enact a significantly lower corporate rate, it's important to think about the corporate versus non-corporate business tax rate relationship. But (a) the corporate tax is to a degree, albeit imperfectly, more about globally mobile capital than the "business tax," (b) the response should focus on limiting use of the corporation as a tax shelter to escape individual rates on labor income and rents - not extending this problem even further, and (c) corporate income still potentially faces shareholder-level taxation, via the taxation of capital gain and dividends.

Great example of how the "business rate" works: Kansas has idiotically, and to its great detriment, enacted a version of what Trump now wants to do. The Kansas rules actually exempt so-called business income, since state rates are much lower than federal to begin with.

In response, Bill Self, the coach of the Kansas University basketball team, who gets paid $3 million per year, restructured a bit so that 90% of his salary would be "business income' that was exempt from the Kansas income tax. Gruesome details here.

Enacting the 15% business rate, especially in light of Trump's personal stake in the matter (so far as we can understand it despite the lack of transparency), and in light of the Kansas experience, would be straight-out looting and fiscal sabotage, not a policy move that is reasonably debatable or defensible.

Wednesday, April 26, 2017

Preliminary thoughts on the Trump Administration's tax "plan" - what's the rationale for an "employee surtax"?

Perhaps the Trump tax proposal shouldn't be taken too seriously, as it's apparently being rushed out to meet the self-imposed "100 days" deadline and may face mixed prospects at best on the Hill. But when an administration actually claims it wants to do something, it can't just be laughed at as non-serious, even if the proposal is in fact a joke substantively. After all, they're showing us who they are. And what's more, who knows what might end up happening?

That said, suppose the Trump plan includes a 15% rate for corporations and "small business," defined as all passthroughs as well as proprietorships - i.e., non-employee business and labor income generally. And suppose there are neither serious revenue offsets nor significant efforts to limit tax planning that takes advantage of the disparity between the twin 15% rates and the higher (up to 33%?) rates that would still apply to individuals.

Point 1, this seems likely to be such a huge revenue loser that the growth effects might be negative, given fiscal drag from the extra deficits and debt.

Point 2, the Trump tax plan brings to mind the gabelle - the infamous French salt tax, from before the French Revolution, from which nobles were exempt. Given the degree of correlation between income levels and likely ability to take advantage of the 15% passthrough/small business/non-employee rate, it would frequently apply higher marginal rates to people at modest income levels than to those at high income levels.

Think of a law firm in which the partners pay tax at a 15% rate, while the associates, paralegals, and secretaries pay at higher rates (up to 35%). Or think of a high-priced surgeon who pays tax at a 15% rate, while the secretary who answers his phone might pay tax at a higher rate.

The reason I analogize it to the gabelle, rather than just saying the rate structure is upside down, is because one could conceptualize it as being equivalent to having a generally applicable 15% rate, plus (once the marginal rate for employment income gets above that level) a special surtax or penalty tax that applies only to employees, and thus effectively fines or punishes people for having this status. The self-employed, like pre-revolutionary France's nobles when they used salt, are exempt from the employee surtax.

True, entitlement to the lower rate is not perfectly reverse income-correlated. Uber drivers would presumably get the 15% rate. And high-paid CEOs, to the extent they were getting cash salary, would presumably reach the 33% marginal rate. But the "employee surtax" of up to 20% is one from which proportionately more "nobles" than "commoners" would be exempt.

Depending on how the plan defines non-employee income, I suppose it's possible that law professors could start claiming the 15% rate as to their Schedule C income, such as from consulting. So there's that.

Point 3. Why have an employee surtax? This is not only regressive, but inefficient. It interferes with people's making normal business arrangements on a pretax basis. It creates a large tax penalty for employment, as opposed to other ways of earning labor income. Apart from the pure tax planning aspects of trying to avoid employment status, it could shift actual business arrangements in wasteful directions. Indeed, if employment status is tax-penalized enough, I wonder if the incidence could start to shift a bit. This is the scenario in which employee wages have to rise, pre-tax, in order to make up for the tax penalty. It's municipal bonds in reverse - they generally offer less pre-tax than, say, corporate bonds because the income is exempt. In this scenario, employees would be getting more pre-tax than the self-employed / independent contractors because they were in effect subject to a special "employee surtax."

Tuesday, April 25, 2017

NYU Tax Policy Colloquium, week 13: Joel Slemrod (et al), "Taxing Hidden Wealth"

Yesterday our colloquium speaker was Joel Slemrod, presenting "Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initatives on Evasive Foreign Accounts."

The paper uses IRS data to examine what happened after (and presumably in consequence of) a number of steps being taken to address U.S. individual income tax evasion via the hiding of income in foreign accounts. The relevant changes during the period being studied included (1) persuading a number of tax havens to accept information exchange agreements, (2) ending Swiss bank secrecy in the aftermath of the UBS scandal, (3) increasing penalties and enforcement with respect to non-filing of legally mandated FBAR foreign financial asset and bank account disclosures, (4) enacting and implementing FATCA, and (5) offering voluntary disclosure programs under which individuals who had failed to report foreign income could step forward and avoid criminal penalties (although they would have to pay several years' back taxes plus interest and 20% to 27.5% penalties).

One cannot in the abstract predict how effective such measures will be. For example, they might simply induce people to do a better job of hiding their foreign accounts. But the paper finds that compliant responses were quite large, leading to significant increases in tax revenue and reported foreign source interest, dividends, and capital gains. So the set of initiatives appears to have been quite successful, coming closer to what an optimist than a pessimist might have expected up front.

The paper also finds that there were significant "quiet disclosures." That is, people suddenly started filing FBAR reports and including lots of foreign interest and dividend income on their tax returns, as if all this had suddenly arisen in Year 1 of such reporting and inclusion. It's a fair inference that this commonly involved switching from evasion to compliance without participating in the voluntary disclosure programs. This had the advantage of permitting the quiet disclosers to avoid paying back taxes et al, at the cost of leaving them potentially subject to an audit that could include a criminal tax fraud investigation. The IRS warned people that quiet disclosure was a bad idea given this potential blowback, but in practice appears not, at least so far, to have followed up significantly on the threat.

The size and clarity of the empirical results promise this paper major (and well-deserved) attention. For example, if FATCA repeal starts being discussed, there's strong evidence here that the full panoply of what has been done (including but not limited FATCA) has worked very well.

Also of interest is the size of the offshore accounts that were newly reported by U.S. taxpayers in the aftermath of the suite of new policies. The paper estimates that more than 90% of  the newly reported foreign asset values came from accounts worth more than $1 million or more. So these were not small fish by most lights.

Two things that one would like to know more about, and that further work by the authors might be able to help illuminate, are:

(1) How rich are these million-dollar account-holders? Contrast the case of (a) a super-rich individual who shoves a million-plus into foreign accounts, while holding other wealth more transparently, from that of (b) someone whose business, after several decades, sells for a million-dollar profit that gets stashed in a foreign account. So here it's the big enchilada in this individual's portfolio, and he or she, while evidently successful, is not super-rich. One reason that this is of interest is that, insofar as (a) is a common answer, it would tend to undermine the standard assumption that the super-rich mainly just avoid taxes, rather than evade them.

(2) Insofar as foreign accounts were being used to evade U.S. taxes, was it mainly about the principal, or just the interest? If principal, then the full amount deposited in the accounts should have been taxed (whether as capital gain, such as from selling a business, or ordinary income, such as contractor fees) but wasn't. But less was at stake (albeit, still raising an important enforcement issue) if people were just hiding the interest and dividends, etc., that they earned on previously earned after-tax income.

People who took advantage of the voluntary disclosure programs got a really good deal insofar as they were able to hide the principal and wait until enough years have passed so the lookback wouldn't find it.

Wednesday, April 19, 2017

Libertarianism and support for progressive redistribution

In light of this past Monday's paper at our colloquium discussing the possibility that libertarians might support a universal basic income, I thought it might be germane to note my 2013 article, "The Forgotten Henry Simons," which explains how and why  Simons combined (a) considering himself a libertarian, at a time when this was a far lonelier stance than it is today, with (b) favoring a highly progressive income tax.

The accepted meaning of "libertarianism" has changed significantly since Simons died more than 70 years ago, but he was indeed closely associated with Friedrich Hayek, and George Stiglitz dubbed him the "Crown Prince of ... the Chicago school of economics."

Recent interview on corporate tax reform and border adjustment

A few weeks back I was interviewed (via email) by Yossi Krausz, the managing editor of Ami Magazine, for an article on the prospects for tax reform. They're an NYC magazine aimed mainly at the Orthodox Jewish community. It was an Ami reporter who, back in February, asked Trump the question about rising anti-Semitism around the country that drew an angry and thin-skinned response from him.

The article has now appeared, although it doesn't appear to be available online. Title: "Will Trump Pass Tax Reform? Doubts in the Wake of the Healthcare Debacle." Here are the quotes from my interview:

1) I called it unlikely that the Democrats would cooperate with the Republicans on a corporate tax reform bill: "Many Democrats want to lower the corporate rate, and they may also share Republican dislike for (universally reviled!) aspects of our current systm for taxing US multinationals' foreign source income, but I doubt that the parties will find common ground."

2) Re. the border adjustment tax: "I expect it to be dropped due to intense opposition in some circles, plus the difficulty of making it work right, which would require more expertise and time than the White House or congressional leadership is williug or able to bring to bear on it....

"Almost no one understands border adjustment. This leads to both undue support and undue opposition; for example, people who like tariffs may support it although it's trade-neutral over the long run, people who hate value-added taxes may support it even though it's basically a VAT plus a couple of extra features, and companies that think it will hurt them may be wrong about the economics (although we don't know this for sure)."

Tuesday, April 18, 2017

Tax policy colloquium, week 12: Miranda Perry Fleischer's "Atlas Nods: The Libertarian Case for a Basic Income" - Part 2

My prior post touched on a variety of background philosophical issues raised by Miranda Perry Fleischer’s presentation yesterday at the colloquium of her paper (co-authored with Daniel Hemel), Atlas Nods: The Libertarian Case for a Basic Income. Herewith are some brief reflections on what I consider issue 2: how a demogrant or “universal basic income” (UBI) might be designed. One important general point is that, while people often think about UBI in very basic terms – i.e., as just a uniform cash grant – its optimal design raises many of the same issues as designing, say, income-conditioned transfers or income tax rate brackets. For example:

1) Cash vs. non-cash – As noted in the prior post, David Bradford and I wrote about this set of issues some 18 years ago. Despite the consumer sovereignty arguments for giving poor people cash rather than in-kind benefits, the grounds for in-kind are not limited to paternalism. For example, even apart from altruistic externalities (as in the case where the altruist would rather give people food or shelter than items that they reasonably preferred), the need for in-kind benefits may respond to other market failures, as arguably in healthcare and health insurance, or may reflect distributive desert (e.g., as evidence of a poor health endowment.

Issues of cash versus non-cash are not limited to what we may think of as in-kind transfers, but also extend to the provision of goods and services that do not have a purely public goods (i.e., non-rival and non-excludable) character. One could imagine a classical liberal proposing, first, that public schools be replaced by vouchers for private schools, and then, second, that the vouchers be replaced by straight-up cash. But this would obviously be subject to objection.
housing, healthcare, public schools – once allow altruistic externalities, a lot of stuff! Especially

2) Which programs should one trade in for the UBI? – On both the right and the left, views about the UBI often are influenced (either expressly or implicitly) by the view that its adoption might either increase or reduce the overall amount of redistribution through fiscal and other policy. While such effects might certainly be relevant to the evaluation, it is also desirable to think about it, purely as a design matter, from a broadly distribution-neutral standpoint. Hence, as in the paper by Perry Fleischer and Hemel, it is worth asking which government programs might be traded in for the UBI if it were adopted.

This is made more complicated, however, by the fact that various programs combine a vertically redistributive element with addressing issues that are distinct from just poverty. For  example, unemployment insurance is not just about being poor because one lost one’s job, but about negative income shocks that may adversely affect people. Social Security has significant distributional effects but is also a mechanism for putting a floor on one’s retirement saving (taken as given one’s lifetime income, net of taxes and transfers).

3) Who should get the UBI? – Here the issues include those around legal and undocumented immigration, residence, etcetera.

4) Age of the recipient – Should babies and young children, via the custodial parents or other caretakers, immediately get the same full amount as adults? Does it matter that their current consumption needs might be lower? Would this affect decisions about having children or about custody, and if so what do we think of these effects? Should seniors get larger annual grants than working-age adults, because they are more likely to be unable to work? (This question would intersect with those of Social Security and Medicare design.)

5) Other tax/transfer design issues – Should household structure matter? (E.g., couples versus singles.) One can’t just assume not, given the complexity of the issues here. Should there be regional cost-of-living adjustments?

6) Conditional vs. unconditional – The UBI is neither income-conditioned nor conditioned on willingness to work. The former is just optics, but the latter is important (albeit, not limited to UBI; one can have the same issue with expressly income-conditioned welfare benefits).

The reason that it’s just optics not to income-condition the UBI is that limiting it based on income is just another way of applying an effective marginal tax rate. For example, suppose that Assyria has a $10,000 demogrant, along with a 50% tax rate on one’s first $20,000 of income (not counting the demogrant), whereas Babylonia has a 0% tax rate on the first $20,000 of income, but also provides $10,000 in “welfare benefits” to people with zero income, ratably reduced to zero in welfare benefits as income increases from 0 to $20,000. No matter what your income level, you’ll end up with the same net benefit in either society. So it is only true optically, not substantively, that Assyria is giving the cash transfer even to its rich people (who presumably don’t need it), whereas Babylonia isn’t.

Work conditioning does matter substantively, however, whether or not the grant for poor people is expressly income-conditioned. And here, getting back to issues from my prior post regarding whether libertarians or classical liberals should like the UBI, things get trickier. If you have the Eric Mack view that rescue should only extend to those who are faultless, a willingness-to-work requirement may make sense. Indeed, even within a utilitarian framework there are arguments for it, although here they would be purely consequentialist. (These might pertain, for example, to positive externalities or internalities associated with requiring people to work if they can.)

Fleischer-Perry and Hemel challenge the case for a work requirement, under a libertarian or classical liberal framework, by arguing that in practice it is likely to be unacceptably intrusive and error-prone. But arguably that puts it a bit strongly, if the filter is not completely ineffectual and there are other reasons for favoring it.

7) A single up-front grant versus periodic (such as annual or monthly) grants – Fleischer Perry and Hemel rightly note that a “luck egalitarian” might dislike the fact that, with periodic UBI payments, the longer-lived end up getting more money than the shorter-lived.  Life annuities (as under Social Security) would appear to be anti-insurance if one were thinking purely in terms of overall lifetime welfare. That is, if you’re already luckier in that you get to live longer, you’re made luckier still by getting more money too. What makes a life annuity true insurance, rather than anti-insurance, is that living longer creates the risk that one will need more resources for one’s support. So it increases expected utility despite its rewarding those who are (in an overall rather than a marginal utility sense) already the “winners.”

With incomplete capital markets, the choice between an upfront grant and periodic grants matters for reasons apart from variations in life expectancy and actual lifespan. Ackerman and Alstott note that, if it’s hard to borrow against the value of expected future grants, cash upfront may be more empowering in some circumstances. (Of course, there are other mechanisms for addressing this, e.g., education loans and not currently taxing expected future earnings.) But on the other hand the empowerment might also lead to costly errors in judgment while one is still young. Arguably libertarians, because of the not- just-instrumental value they place on choice (including any notion that it’s just your tough luck if you suffer from choosing poorly), should be more sympathetic than others to allowing people, say, to pledge future UBI in exchange for cash today.

8) Is the UBI “too popular,” from a libertarian or classical liberal standpoint? – Fleischer-Perry and Hemel question the premise by some that libertarians and classical liberals who dislike redistribution, but figure that there is bound to be some of it, should like the UBI as a kind of political second-best, limiting the amount of redistribution and the related intrusion into people’s lives. They base this part on the idea that “universal” programs can become very popular. A case in point is the decision by Social Security’s founders to call it a “universal” program (and to make its transfers between participants relatively opaque). But there is little evidence to date of the risk that it would become, at least from a particular standpoint, too popular. (BTW, I note also that some on the left are skeptical of UBI because they believe it would cause the government’s redistributive mechanisms to end up being smaller, rather than larger.) The two main things that seem to limit UBI’s political appeal are (a) fiscal illusion from its not being expressly income-conditioned (as in, “Why give it to Bill Gates?”, and more substantively (b) notions of more limited distributive desert that are related to conditionality and willingness to work.