The revolving door at Treasury

Today's NYT story by Jesse Drucker and Danny Hakim, concerning the revolving door between the big accounting firms and  the Treasury Department (as well as the IRS and Capital Hill tax staffs), offers a case study in the difference between "shocking" (which it is) and "surprising" (which it isn't, to those who are familiar with how Washington works).

The people discussed in the article are generally not quite in my world, but close to it (e.g., potentially co-panelists at certain types of conferences), with whom I happen to value having cordial relations. But perhaps if those who did the sorts of things described in the article were a little more afraid of grand jury investigations and the like - although nothing improper will ever be provable - they would act with a bit more discretion. They are creating at least the appearance of impropriety, and embracing systemic, even if one chooses not to say personal, corruption.

The theory behind allowing this is that the government ostensibly benefits from getting talented and knowledgeable tax people to work for it for a few years, despite paying them far below a market salary. But it's rare to get something for nothing in this world, and the article raises the question of whether it's worth renting the technical skills and issue familiarity at the cost of outsourcing policy choices, in a classic case of regulatory capture by the directly regulated at the expense of the general public.

I have personal experience with an earlier stage of the revolving door, that struck me as less corrupt than what we see happening today. I wonder if there are any lessons to be learned from it, or if it simply reflects a prior state of the world in which current trends had not yet as fully developed.

I entered law practice in 1981. After 3 years at a DC tax specialty firm, I jumped to the Joint Committee on Taxation, despite not realizing that the process leading to the Tax Reform Act of 1986 was about to start, because I thought it would be more fun, exciting, and educational than staying in practice, which I had come to realize was probably not for me. I definitely had tax academics in mind as the next step down the road, although I don't think that I clearly saw my way there yet.

I got to know a lot of similarly junior staffers (who nonetheless had significant responsibilities, as did I) at both JCT and Treasury who had very similar profiles to mine, apart from the fact that almost none of them were similarly interested in academics. Like me, most of them planned to, and did, stay for only 3 years or so, after which they generally returned to private practice. This was mostly at law firms - accounting firms weren't as big a player back then in the tax lawyer market as they subsequently became.

But here's the thing. Most of us entered the government without really having strongly developed specialties (beyond, say, a field as general as corporate, international, or pensions) or as yet our own clients. We generally were associates, too junior to be up for partner in the next couple of years. The great majority who were not aspiring academics anticipated that, on their return to the private sector, they would go back in with partnership being at worst a year or two down the road and presumed to be on offer unless things really didn't work out. But it generally wouldn't be at the same law firm.

My own sense of things was as follows. I was definitely performing before an audience of expert tax lawyers who were evaluating me. (There was generally no reason for them to know that I planned to go into academics, rather than back into private practice.) They'd come into meet with me if I was working on something in their area and they didn't have the muscle to see someone more senior with greater clout. They were evaluating me to ask themselves such questions as: was I smart, was I technically competent, and also was I fair-minded, i.e., not too reflexively hostile. But they also didn't want a pushover (at least in the evaluative sense - obviously they would have liked  to get everything  they were asking for!), because in that case they wouldn't have respected me.

So my incentive, had I been planning to return to private practice, would have been to show them that I was the type of person they'd like on their team - not that I was already on their team.

That strikes me as a bit different than the process that Drucker and Hakim portray in their article. Why the change? I think it's partly about the growth and professionalization (in a bad sense) of the whole process, along with the rising role of the big accounting firms. But I think it's also about the seniority level of the people who are joining the government for 3-year stints. These more senior people know way more than we did upon coming in. (I knew very little, as my practice experience had focused significantly on a couple of very fun and interesting but fact-specific cases.) But we were ready, willing, and able to learn, and we generally lacked the sorts of standing commitments that our successors today, especially at the Treasury Department, evidently often have.

I think tougher anti-revolving-door rules are needed, perhaps forbidding going back too fast to the same employer (broadly defined, to cover both one's prior employer and one's clients through that employer). But I wonder if also a change in hiring practices, to focus on more junior people who are just two or three years out of law school, might help as well. Or has the world changed sufficiently to make that merely naive?