With thanks to Tax Prof Blog for the link, I note with considerable interest a current battle in the Senate, in which I gather Republicans' votes will be front and center. Senator Tom Coburn is seeking the elimination of ethanol subsidies that include income tax expenditures, but is being opposed by Grover Norquist due to the no-new-taxes pledge, signed by 40 of the Senate's 47 Republicans and constituting, in my view, a tourniquet around the throat of long-term (and perhaps even short-term) U.S. fiscal sustainability.
Oh, yes. Norquist is on board with eliminating tax expenditures for ethanol, but only so long as Congress ALSO repeals the estate tax. Good one, you Lenin-lover, you.
Coburn's view, which is unambiguously logically correct, is that, even if you are categorically opposed to "tax increases," this has to be defined with at least some modicum of intellectual coherence, such that repealing what are effectively "spending" provisions smuggled into the tax code won't count as tax increases for this purpose. (See more on this point in my recent Tax Notes article, which is available here.)
An alternative view to the one that both Coburn and I take would mean one only cared about the form of particular policies on the books, not about actual economic substance.
I gather that Coburn's plan is not expected to pass. Indeed, the Obama Administration, earning a profiles-in-courage award as usual, apparently opposes the elimination of ethanol subsidies. Nonetheless, it would be a huge positive step if more Republicans adopted the Coburn view (which also was discernible in Congressman Ryan's budget document). Coburn thus deserves great praise on this score, even apart from the ethanol subsidies issue itself (on which he likewise is siding with the angels).
UPDATE: The Coburn amendment failed by one vote. That is, it won (under majoritarian rules) by 59-40, but this left it one vote short of the threshold needed to permit closure and thus avoid filibuster. And of course the Senate these days codes it as a loss if you merely win by a borderline landslide.
I wonder, however, if the amendment was guaranteed to lose by one vote no matter what. The Democratic and/or Republican leaderships may have decided (perhaps even cooperatively) to let as many people as possible vote for it, so they could score a good-guys stance with the voters, so long as it didn't actually prevail. This once happened with the balanced budget amendment in the 1990s - it lost by one vote, but reportedly would have lost by one vote even if it had attracted 10 more "true" supporters.
Tuesday, June 14, 2011
Monday, June 13, 2011
Pawlenty's tax cut proposal in perspective
The best available revenue estimate for Tim Pawlenty's crazy proposal to enact massive tax cuts, with only minimal specified financing, places the revenue cost at more than $1 trillion per year by 2014, the second year when it would be fully in place. The estimated annual cost would be more than $1.6 trillion by 2021.
Among other changes, Pawlenty would repeal the AMT and the estate tax, lower the top individual rate to 25% and the corporate rate to 15%, and eliminate the tax on interest, dividends, and capital gains. The main pay-for appears to be as follows: "Let’s grow the economy by 5%, instead of the anemic 2% currently envisioned."
This reminds me of the line from Shakespeare's Henry IV, Part I, where Glendower says "I can call spirits from the vasty deep," and Hotspur replies "Why, so can I, and so can any man / But will they come when you do call for them?"
If Pawlenty wants to dream, then I say why not call for 40% annual economic growth? Or perhaps 325%? If we're talking magical wish lists, why stop at so measly a number as 5%? Pawlenty evidently lacks the true courage of his claimed convictions.
On a more serious note, Economy Watch estimates that U.S. GDP in 2014 might be just over $17 trillion. While this obviously doesn't count the Pawlenty tax cut (which presumably would raise GDP if people were sufficiently myopic not to worry about future tax levels or default risks), it's worth noting, just for rough back-of-the-envelope purposes, that the revenue cost of the projected Pawlenty tax cut for 2014 is more than 6% of that amount. And the annual revenue-cost-to-GDP ratio very likely would stay at that level if we myopically ran forward the projections without taking into account the catastrophic budgetary effects that it would very swiftly have. So the infinite horizon estimate might also be in the neighborhood of 6% or more of GDP.
Just for comparison purposes, according to the most recent study by Alan Auerbach and William Gale, the most likely estimate of the long-term U.S. fiscal gap (under optimistic assumptions about healthcare growth) places it at between 6 and 7 percent of GDP.
So we are currently on a disastrous fiscal path, which everyone agrees cannot be permitted to continue, and at a very rough estimate Pawlenty, bottom-feeding for votes in the Republican nominating process, proposes roughly to double the size of the problem.
Personally I find his recklessness and irresponsibility thoroughly despicable, and all the more so because it is likely to prove politically contagious.
Among other changes, Pawlenty would repeal the AMT and the estate tax, lower the top individual rate to 25% and the corporate rate to 15%, and eliminate the tax on interest, dividends, and capital gains. The main pay-for appears to be as follows: "Let’s grow the economy by 5%, instead of the anemic 2% currently envisioned."
This reminds me of the line from Shakespeare's Henry IV, Part I, where Glendower says "I can call spirits from the vasty deep," and Hotspur replies "Why, so can I, and so can any man / But will they come when you do call for them?"
If Pawlenty wants to dream, then I say why not call for 40% annual economic growth? Or perhaps 325%? If we're talking magical wish lists, why stop at so measly a number as 5%? Pawlenty evidently lacks the true courage of his claimed convictions.
On a more serious note, Economy Watch estimates that U.S. GDP in 2014 might be just over $17 trillion. While this obviously doesn't count the Pawlenty tax cut (which presumably would raise GDP if people were sufficiently myopic not to worry about future tax levels or default risks), it's worth noting, just for rough back-of-the-envelope purposes, that the revenue cost of the projected Pawlenty tax cut for 2014 is more than 6% of that amount. And the annual revenue-cost-to-GDP ratio very likely would stay at that level if we myopically ran forward the projections without taking into account the catastrophic budgetary effects that it would very swiftly have. So the infinite horizon estimate might also be in the neighborhood of 6% or more of GDP.
Just for comparison purposes, according to the most recent study by Alan Auerbach and William Gale, the most likely estimate of the long-term U.S. fiscal gap (under optimistic assumptions about healthcare growth) places it at between 6 and 7 percent of GDP.
So we are currently on a disastrous fiscal path, which everyone agrees cannot be permitted to continue, and at a very rough estimate Pawlenty, bottom-feeding for votes in the Republican nominating process, proposes roughly to double the size of the problem.
Personally I find his recklessness and irresponsibility thoroughly despicable, and all the more so because it is likely to prove politically contagious.
Monday, June 06, 2011
Yuval Levin wants tax rates to be both high and low
I've seen several references today to an article in National Affairs called "Beyond the Welfare State," by Yuval Levin, who appears to be a relatively thoughtful conservative with actual interest in ideas. So I decided to give it a glance.
Not to be too critical, but I did notice this bit from his recommendations near the end of the piece:
What he calls the "conservative vision" would "begin with a simple and predictable tax system, with a broad base and low rates ....
"Second, essentially all government benefits — including benefits for the elderly — should be means-tested so that those in greater need receive more help and those who are not needy do not become dependent on public support." Etcetera.
Not to say one couldn't support both of these ideas. But does Levin realize that means-testing benefits is economically equivalent to raising (perhaps significantly) people's marginal tax rates in the benefits phase-out range?
Not to be too critical, but I did notice this bit from his recommendations near the end of the piece:
What he calls the "conservative vision" would "begin with a simple and predictable tax system, with a broad base and low rates ....
"Second, essentially all government benefits — including benefits for the elderly — should be means-tested so that those in greater need receive more help and those who are not needy do not become dependent on public support." Etcetera.
Not to say one couldn't support both of these ideas. But does Levin realize that means-testing benefits is economically equivalent to raising (perhaps significantly) people's marginal tax rates in the benefits phase-out range?
Utterly astounding, and indeed nauseating
Nobel Laureate economist Peter Diamond has withdrawn his candidacy to be a member of the Federal Reserve Board of Governors, a victim of Republican obstructionism. Apart from the fact that he is a great economist, whose work (for example, on Social Security) I personally have benefited from reading, his expertise on labor markets could not possibly be more central to the Fed's mission of stabilizing the economy by addressing both inflation and unemployment.
The Republican Senators who blocked his candidacy apparently claim that labor market expertise (and by extension, unemployment) is irrelevant to the Fed's mission. I hope they will have the honesty to campaign for public office, in 2012 and thereafter, on the basis of this view of unemployment's policy irrelevance. No one who is even minimally economically literate could deny the Fed's vital role in addressing business cycle-related unemployment. In many people's view (including mine), the Fed has been doing far too little on this score. The blocking of Diamond's appointment follows a broader pattern that raises serious questions about the Republicans' good faith interest in permitting the state of the U.S. economy to improve.
The Republican Senators who blocked his candidacy apparently claim that labor market expertise (and by extension, unemployment) is irrelevant to the Fed's mission. I hope they will have the honesty to campaign for public office, in 2012 and thereafter, on the basis of this view of unemployment's policy irrelevance. No one who is even minimally economically literate could deny the Fed's vital role in addressing business cycle-related unemployment. In many people's view (including mine), the Fed has been doing far too little on this score. The blocking of Diamond's appointment follows a broader pattern that raises serious questions about the Republicans' good faith interest in permitting the state of the U.S. economy to improve.
Saturday, June 04, 2011
Book report
I've been greatly enjoying Evan Connell's "Mr. Bridge" (when I was in Singapore) and now "Mrs. Bridge." The odd thing about these novels is that, on the surface, they are exactly the sort of thing that would be (and was) made into a Merchant-Ivory movie. They bring to mind Updike territory, although they read as if they were written earlier (reflecting that they are set 30 years earlier and in a much more conservative time, albeit one that is already changing).
Yet underneath and in truth, "Mr. Bridge" and "Mrs. Bridge" are savage and pitiless (albeit empathetic), offering exceptionally dark comedy.
Yet underneath and in truth, "Mr. Bridge" and "Mrs. Bridge" are savage and pitiless (albeit empathetic), offering exceptionally dark comedy.
Summer weather
Today's weather in NYC is more or less perfect - summer-like but not too hot - and I would certainly sign up for it 365 days a year (leaving aside the drought issue if it never rained). Unfortunately, as it happens I will have to be indoors working most of the day (a rarity for me on weekends).
People here sometimes say (be it rationalization or Stockholm syndrome) that they prefer the Northeast's varying seasonal weather to constant daily perfection. In response, I will generally dial up the sarcasm module and say yes, I agree, and for the same reason I find it so BORING if I'm healthy all the time. Isn't it more fascinating to get the flu occasionally for a couple of months, throw in back spasms and broken bones every now and then, break out in an itchy rash if everything is getting too comfortable, and perhaps even have the occasional digestive meltdown? That way, there's never a dull moment.
Perfect health and perfect weather are nonetheless just fine for me. There are plenty of other means out there for keeping one's life interesting.
People here sometimes say (be it rationalization or Stockholm syndrome) that they prefer the Northeast's varying seasonal weather to constant daily perfection. In response, I will generally dial up the sarcasm module and say yes, I agree, and for the same reason I find it so BORING if I'm healthy all the time. Isn't it more fascinating to get the flu occasionally for a couple of months, throw in back spasms and broken bones every now and then, break out in an itchy rash if everything is getting too comfortable, and perhaps even have the occasional digestive meltdown? That way, there's never a dull moment.
Perfect health and perfect weather are nonetheless just fine for me. There are plenty of other means out there for keeping one's life interesting.
Friday, June 03, 2011
Debt ceiling solution?
The Fourteenth Amendment to the U.S. Constitution states that '[t]he validity of the public debt of the United States, authorized by law ... shall not be questioned." I recently read something on-line suggesting that President Obama interpret this clause, when the crunch hits, as giving him the power to avoid a default by authorizing debt issuance in excess of the statutory ceiling. And I suppose he could throw in national security powers amid the threat of a national disaster as an extra justification for acting.
If I were in the White House and wearing a political rather than a legal hat, I would definitely recommend that this be done at the right time - not too far in advance, which would be a political disaster, but just at the crunch point, when it could be described as vital for U.S. national security, etcetera. This might then get all the pundits salivating about bold and decisive leadership. And after everything else we have seen from the Executive Branch in the last decade, or maybe I should say the last 50 to 60 years (the brief early 1970s retrenchment aside), it would hardly be discordant with the fundamentals of how our government now operates. After all, if the president can wage an undeclared war in Libya without Congressional authorization, as everyone seems to think he can, then, although these are separate legal questions, it's hardly an unprecedented power grab.
Would the action be constitutionally correct? I am admittedly skeptical. But the above clause was apparently adopted in anticipation of the concern that members of Congress from the ex-Confederate states would seek to compel default on U.S. public debt, or at least Civil War veterans' pensions (expressly mentioned in text from the clause that I skipped). So we are back in a recognizable scenario of concern that Congress will deliberately default, although to be sure the amendment doesn't mention delegating powers to the President to avoid questioning of the debt.
Constitutionally correct or not - and in the context of a potentially disastrous global and national economic crisis I think there is a colorable claim here - I can't see that anyone would have standing to contest it. The House, which presumably would not be joined by the Senate, seems unlikely to have standing or to be able to avoid "political question" problems, although with 5 hardcore Republicans on the Supreme Court who knows. But even if the House could get an injunction, Boehner et al would have to think twice about seeking to enjoin debt issuance and thereby directly triggering not just a global economic catastrophe but (as the White House could spin it) non-payment of our troops and needy seniors.
While there could subsequently be a legal issue concerning the enforceability of the debt issued at the President's say-so in excess of the statutory ceiling, one would probably expect that by then the debt would have been retrospectively validated.
If I were President Obama, I would not use the threat of doing this as leverage in the debt negotiations. Rather, I would spring it as a surprise at the last moment, in effect after baiting the trap. Dramatic 9 pm EST speech from the Oval Office with all the trimmings. Mention not just default and its consequences but the need to pay our troops, keep Social Security and Medicare operating, etcetera. Make the issue one of whether our troops and seniors should be paid or not.
Again, I am speaking here to what I would recommend as a political advisor. As a legal advisor, if asked to opine on what is the best view of the law, not what's the most that one could get away with, I would have a much harder time recommending this. But how many political actors in Washington do business this way any more? Even Supreme Court Justices all too often clearly don't. It's hard to play by different rules than everyone else without seriously handicapping yourself. And also I think a voluntary U.S. debt default is potentially a true global calamity. Being a bit tricky with one's legal interpretations in a true ticking time bomb scenario is a lot more justifiable than doing so just for political gain.
If I were in the White House and wearing a political rather than a legal hat, I would definitely recommend that this be done at the right time - not too far in advance, which would be a political disaster, but just at the crunch point, when it could be described as vital for U.S. national security, etcetera. This might then get all the pundits salivating about bold and decisive leadership. And after everything else we have seen from the Executive Branch in the last decade, or maybe I should say the last 50 to 60 years (the brief early 1970s retrenchment aside), it would hardly be discordant with the fundamentals of how our government now operates. After all, if the president can wage an undeclared war in Libya without Congressional authorization, as everyone seems to think he can, then, although these are separate legal questions, it's hardly an unprecedented power grab.
Would the action be constitutionally correct? I am admittedly skeptical. But the above clause was apparently adopted in anticipation of the concern that members of Congress from the ex-Confederate states would seek to compel default on U.S. public debt, or at least Civil War veterans' pensions (expressly mentioned in text from the clause that I skipped). So we are back in a recognizable scenario of concern that Congress will deliberately default, although to be sure the amendment doesn't mention delegating powers to the President to avoid questioning of the debt.
Constitutionally correct or not - and in the context of a potentially disastrous global and national economic crisis I think there is a colorable claim here - I can't see that anyone would have standing to contest it. The House, which presumably would not be joined by the Senate, seems unlikely to have standing or to be able to avoid "political question" problems, although with 5 hardcore Republicans on the Supreme Court who knows. But even if the House could get an injunction, Boehner et al would have to think twice about seeking to enjoin debt issuance and thereby directly triggering not just a global economic catastrophe but (as the White House could spin it) non-payment of our troops and needy seniors.
While there could subsequently be a legal issue concerning the enforceability of the debt issued at the President's say-so in excess of the statutory ceiling, one would probably expect that by then the debt would have been retrospectively validated.
If I were President Obama, I would not use the threat of doing this as leverage in the debt negotiations. Rather, I would spring it as a surprise at the last moment, in effect after baiting the trap. Dramatic 9 pm EST speech from the Oval Office with all the trimmings. Mention not just default and its consequences but the need to pay our troops, keep Social Security and Medicare operating, etcetera. Make the issue one of whether our troops and seniors should be paid or not.
Again, I am speaking here to what I would recommend as a political advisor. As a legal advisor, if asked to opine on what is the best view of the law, not what's the most that one could get away with, I would have a much harder time recommending this. But how many political actors in Washington do business this way any more? Even Supreme Court Justices all too often clearly don't. It's hard to play by different rules than everyone else without seriously handicapping yourself. And also I think a voluntary U.S. debt default is potentially a true global calamity. Being a bit tricky with one's legal interpretations in a true ticking time bomb scenario is a lot more justifiable than doing so just for political gain.
Friday, May 27, 2011
Apocalypse soon?
It's distressing when we have a ticking time bomb in the form of the debt limit problem, and today:
(a) McConnell said no deal without massive Medicare cuts, which almost certainly is a response to Tuesday's election. The evident idea is that the Democrats must surrender the ability to flog the Republicans on the Ryan plan, or else he is unwilling to surrender his hostage (i.e., the U.S. and world economies).
(b) Ryan said that any increase in tax revenues is absolutely, unconditionally unacceptable because to him this is a matter of "economic doctrine."
(a) McConnell said no deal without massive Medicare cuts, which almost certainly is a response to Tuesday's election. The evident idea is that the Democrats must surrender the ability to flog the Republicans on the Ryan plan, or else he is unwilling to surrender his hostage (i.e., the U.S. and world economies).
(b) Ryan said that any increase in tax revenues is absolutely, unconditionally unacceptable because to him this is a matter of "economic doctrine."
Thursday, May 26, 2011
Quick observation on Tuesday's election result
Did voters in upstate New York punish Republicans and the Paul Ryan budget for (a) honestly acknowledging that currently projected healthcare expenditure growth is unsustainable, or (b) proposing to throw poor people off the bus, to be joined by seniors once my age cohort reaches retirement age (but in the cynical hope that current seniors would shrug since they're exempted), in part to help make way for massive tax cuts for the top 1 percent of the income distribution?
If (b), I'd say they deserve the voter response they got. If (a), they are getting the same unfair punishment for acknowledging an aspect of reality that the Democrats faced in 2010.
My hunch is that, if one carefully queried the voters, one would find that it's at least two-thirds (a). But since I think the Republicans deserve what they got for (b) - especially given their 2010 election demagoguery, their threatening to block cost-saving under the current structure, and for that matter their enacting an unfunded Medicare prescription drug benefit in 2003 - my sympathy is extremely limited.
If (b), I'd say they deserve the voter response they got. If (a), they are getting the same unfair punishment for acknowledging an aspect of reality that the Democrats faced in 2010.
My hunch is that, if one carefully queried the voters, one would find that it's at least two-thirds (a). But since I think the Republicans deserve what they got for (b) - especially given their 2010 election demagoguery, their threatening to block cost-saving under the current structure, and for that matter their enacting an unfunded Medicare prescription drug benefit in 2003 - my sympathy is extremely limited.
Tuesday, May 24, 2011
My new Tax Notes article on tax reform
Yesterday, Tax Notes published the article that I've mentioned here several times, "1986-Style Tax Reform: A Good Idea Whose Time Has Passed."
A link is available here.
The abstract goes something like this:
"The Tax Reform Act of 1986 combined base-broadening (such as the curtailment of tax expenditures) with tax rate reduction, in a manner that was designed to be revenue-neutral and distribution-neutral. It thereby established an influential model for tax reform that continues to be cited frequently today. This report argues, however, that while 1986-style tax reform was a good idea in its time, it is no longer appropriate in current circumstances, for three main reasons. First, if tax expenditures are properly viewed as spending through the tax code, then a revenue neutrality norm, in which the budgetary gain from their repeal ostensibly needs to be offset by rate cuts, is intellectually incoherent. Second, the long-term U.S. fiscal gap makes rate-cutting, in particular for individuals, potentially imprudent. Third, if one wants to address rising high-end income concentration in the U.S. since 1986, the option of raising, rather than reducing, the top marginal income tax rates may need to be squarely considered."
A link is available here.
The abstract goes something like this:
"The Tax Reform Act of 1986 combined base-broadening (such as the curtailment of tax expenditures) with tax rate reduction, in a manner that was designed to be revenue-neutral and distribution-neutral. It thereby established an influential model for tax reform that continues to be cited frequently today. This report argues, however, that while 1986-style tax reform was a good idea in its time, it is no longer appropriate in current circumstances, for three main reasons. First, if tax expenditures are properly viewed as spending through the tax code, then a revenue neutrality norm, in which the budgetary gain from their repeal ostensibly needs to be offset by rate cuts, is intellectually incoherent. Second, the long-term U.S. fiscal gap makes rate-cutting, in particular for individuals, potentially imprudent. Third, if one wants to address rising high-end income concentration in the U.S. since 1986, the option of raising, rather than reducing, the top marginal income tax rates may need to be squarely considered."
Monday, May 23, 2011
Scofflaw?
Though the rule is no cats on the dining room table, it's hard to get too upset with Seymour when he is such a handsome and placid fellow.
I'm back from Singapore, and have more or less readjusted to NYC time. In my absence, summer seems to have arrived in a schedule sense (students have graduated and the place has emptied out for the summer, though I have a LOT of things to do) though unfortunately not in a weather sense.
I'll be on sabbatical this fall, and teaching the Tax Policy Colloquium with Alan Auerbach next winter. During the balance of 2011, I have work-related trips scheduled to Oxford, Louisville, Los Angeles, Vienna, and Sao Paulo, plus no doubt a couple more that aren't currently coming to mind.
Thursday, May 19, 2011
Final full day in Singapore
Tomorrow (Friday) is my final full day in Singapore. In addition to teaching my eighth and final marathon-length class over an 11-day span (ah, the narcissism and melancholy of spending too much time as a performer), I will be giving a late-morning hour-long talk to people at the NYU@NUS program generally. At the last minute (i.e., tonight), I have grown verging on enthusiastic, at least given my overall state of near-burnout and fatigue, about this talk.
When I was asked to give this talk, I had nothing more definite in mind than to reprise the main themes of my forthcoming Tax Notes paper, "1986-Style Tax Reform: A Good Idea Whose Time Has Passed." Forthcoming, I should add, this Monday, May 23. I will post a link on this blog as soon as I can; I'm pretty sure this can be done with Tax Notes articles once they're out.
The problems with the approaching talk were twofold (apart from simultaneous classroom preparation). First, although few people have seen my new paper as yet and I haven't widely discussed it, it's been on my mind over the last few months and I've discussed bits and pieces or ideas from it on numerous occasions (e.g., at my Senate Finance testimony earlier this month). Thus, to me it no longer feels quite as fresh as it might at this point. Second, it's U.S.-centric, hence not ideal for a talk in Singapore, especially to people who aren't any more tax-focused than they are U.S.-focused.
But I've been idly discussing Singapore-specific factors with various people during my brief stay here, and now feel qualified (at least for a fairly casual talk to a moderate-sized audience) to take things in a fresher and more locally pertinent direction. Hence, my lunch talk is now entitled (in my own mind; I didn't get to tell the organizers in time for any signage to reflect it), "Tax Reform: Singapore Versus the U.S."
As I've mainly written it out, I'll consider posting the talk's main contents here if, after the session is done, I still feel good about it. This, however, may have to wait until next week, as I am taking a 19 hour flight back home on Saturday morning.
When I was asked to give this talk, I had nothing more definite in mind than to reprise the main themes of my forthcoming Tax Notes paper, "1986-Style Tax Reform: A Good Idea Whose Time Has Passed." Forthcoming, I should add, this Monday, May 23. I will post a link on this blog as soon as I can; I'm pretty sure this can be done with Tax Notes articles once they're out.
The problems with the approaching talk were twofold (apart from simultaneous classroom preparation). First, although few people have seen my new paper as yet and I haven't widely discussed it, it's been on my mind over the last few months and I've discussed bits and pieces or ideas from it on numerous occasions (e.g., at my Senate Finance testimony earlier this month). Thus, to me it no longer feels quite as fresh as it might at this point. Second, it's U.S.-centric, hence not ideal for a talk in Singapore, especially to people who aren't any more tax-focused than they are U.S.-focused.
But I've been idly discussing Singapore-specific factors with various people during my brief stay here, and now feel qualified (at least for a fairly casual talk to a moderate-sized audience) to take things in a fresher and more locally pertinent direction. Hence, my lunch talk is now entitled (in my own mind; I didn't get to tell the organizers in time for any signage to reflect it), "Tax Reform: Singapore Versus the U.S."
As I've mainly written it out, I'll consider posting the talk's main contents here if, after the session is done, I still feel good about it. This, however, may have to wait until next week, as I am taking a 19 hour flight back home on Saturday morning.
Friday, May 13, 2011
Weekend in Singapore
When not preparing for my next class, going on various food, shopping, and cultural excursions (I've seen all the main Singapore tourist sites in past years), or going to the pool and the gym at my residence hotel, I've been reading James Ellroy's powerful and disturbing My Dark Places, which I picked up in the Borders here on Orchard Road. I may have to read more Ellroy, such as the well-regarded L.A. Quartet, though I wonder if it's possible that My Dark Places is his best.
Tuesday, May 10, 2011
Singapore ruminations
At the moment, by a strange quirk, it is both my birthday and my younger son's. His comes the day before mine, but as I am in Singapore, where the clock is 12 hours ahead of NYC time, and as it's still before 12 noon, we are currently having a joint birthday, only we won't get to communicate about it directly in simultaneous real time.
Perhaps it's not ideal to be spending one's birthday so far from home and loved ones, but I suppose there are compensations, ranging from my observation that lizards are Singapore's squirrels (they dash into the trees when you approach, then skitter around to keep the trunk between you and them), to a bizarre dream in which I was explaining to Willard Scott (!) that the early Neil Diamond song "Girl, You'll Be a Woman Soon," which was playing on his sound system at a garden party where he was offering people desserts, is better known from the cover version in Pulp Fiction (the only explanation I can offer for this dream is that I had been listening to early Neil Diamond recently and love that song, although it's rather off-kilter, un-PC by today's standards, and strange), to my plan to treat myself to a 5 pm viewing of "Source Code" at the nearby cinema (last showing before it disappears here), followed by a tasty and cheap if quick and informal dinner for one at a local food court (the chicken rice and Malaysian noodles are both excellent, but tonight I may look for something Indian).
Teaching a 3-plus hour daily class under current circumstances, in a small group that one really needs to engage directly (and they seem willing enough), while still adjusting to the time zone change and having had so little time since the end of the NYU semester, can feel a bit challenging even if (I hope) they don't see you sweat. It feels like being a stand-up comic who has dozens of familiar routines lodged somewhere in his cerebellum but hasn't gotten to rehearse them enough recently. Time management (too fast versus too slow), dealing with how I liked talking about a given issue 3 years ago as opposed to now, and balancing spontaneity against control, are among the challenges for which one might prefer to be in better-rested, better-rehearsed, more midseason form. But first days are always the most unsettling; in just a few minutes I'll be venturing forth for Day 2. And not long after that, while my birthday will continue for another 12 hours, my son's will be over.
UPDATE: Felt much better about the Day 2 class, plus I must have been a good boy, as I actually got an in-class birthday cake from the very kind people who run the program here.
Perhaps it's not ideal to be spending one's birthday so far from home and loved ones, but I suppose there are compensations, ranging from my observation that lizards are Singapore's squirrels (they dash into the trees when you approach, then skitter around to keep the trunk between you and them), to a bizarre dream in which I was explaining to Willard Scott (!) that the early Neil Diamond song "Girl, You'll Be a Woman Soon," which was playing on his sound system at a garden party where he was offering people desserts, is better known from the cover version in Pulp Fiction (the only explanation I can offer for this dream is that I had been listening to early Neil Diamond recently and love that song, although it's rather off-kilter, un-PC by today's standards, and strange), to my plan to treat myself to a 5 pm viewing of "Source Code" at the nearby cinema (last showing before it disappears here), followed by a tasty and cheap if quick and informal dinner for one at a local food court (the chicken rice and Malaysian noodles are both excellent, but tonight I may look for something Indian).
Teaching a 3-plus hour daily class under current circumstances, in a small group that one really needs to engage directly (and they seem willing enough), while still adjusting to the time zone change and having had so little time since the end of the NYU semester, can feel a bit challenging even if (I hope) they don't see you sweat. It feels like being a stand-up comic who has dozens of familiar routines lodged somewhere in his cerebellum but hasn't gotten to rehearse them enough recently. Time management (too fast versus too slow), dealing with how I liked talking about a given issue 3 years ago as opposed to now, and balancing spontaneity against control, are among the challenges for which one might prefer to be in better-rested, better-rehearsed, more midseason form. But first days are always the most unsettling; in just a few minutes I'll be venturing forth for Day 2. And not long after that, while my birthday will continue for another 12 hours, my son's will be over.
UPDATE: Felt much better about the Day 2 class, plus I must have been a good boy, as I actually got an in-class birthday cake from the very kind people who run the program here.
Friday, May 06, 2011
Off to Singapore
Tomorrow I am flying to Singapore, where I will be teaching a class (U.S. Personal and Business Income Tax Law), in the NYU @ NUS program at the National University of Singapore, over the 2-week period from May 10 through May 20. 3-1/4 hours per day over 8 days - definitely a grueling journey for faculty and students alike. The readings will include greatest hits from the Tax I casebook of which I'm a co-author (with Klein, Bankman, and Stark), as well as selections from Decoding the U.S. Corporate Tax and my book in progress on U.S. international taxation. We'll also read materials on tax shelters (including some famous U.S. cases) and, if we have time on the last day, discuss fundamental tax reform from a U.S. perspective.
As on my prior two visits to teach at NYU @ NUS, I'm looking forward to meeting the students, as well as to sampling Singapore's great food (such as from street hawkers and at Zam Zam on Arab Street in Little India).
As on my prior two visits to teach at NYU @ NUS, I'm looking forward to meeting the students, as well as to sampling Singapore's great food (such as from street hawkers and at Zam Zam on Arab Street in Little India).
Wednesday, May 04, 2011
May 3 Senate Finance Committee hearing on tax fairness
Yesterday, I testified before the Finance Committee of the U.S. Senate on fairness or distribution issues in the federal income tax system. You can view a stream of the entire proceedings here, and you can read my full written testimony here or here (the latter corrects an erroneous number from the testimony I actually submitted). In addition, the shorter written remarks that I prepared for my 5-minute slot, and then delivered more or less verbatim (taking exactly 4:57!), are available here.
My remarks emphasized three main points:
(1) Rising high-end income concentration may influence how one thinks about high-end tax rates, in particular as part of a broader tax reform process. In the 1986 tax reform process, people thought about high-end distributional neutrality as purely a function of making before-and-after comparisons for two groups: those earning from $100,000 to $200,000, and those earning more than $200,000. A much more nuanced approach to the high end may be necessary today (e.g., the Fiscal Commission Report looked at the top 20%, 10%, 5%, 1%, and 0.1%).
(2) The big-ticket tax expenditure items (such as home mortgage interest deductions, the employer-provided health insurance exclusion, and charitable deductions), tend to provide benefits that rise relative to income until close to the top of the income distribution, when they start falling as a percentage of income. This makes it quite difficult to achieve distributional neutrality 1986-style at the very top unless one starts addressing items such as the 15% dividend rate, which (a) doesn’t hit wage earners at the very top and (b) arguably isn’t a tax expenditure given the double corporate taxation issue.
(3) If tax expenditures are equivalent to spending through the tax code (as asserted by both the Fiscal Commission and the Ryan Budget plan, and as best illustrated by David Bradford’s weapons supplier tax credit example), then repealing them is not in substance a “tax cut,” and hence doesn’t need to be accompanied by tax rate cuts even if one has some view about tax revenues and the size of government. The ONLY reason to cut individual income tax rates, especially in the face of the long-term fiscal gap, is if the equilibrium one prefers (and can get to) includes lower rates, a point on which I am quite skeptical. More on this in my May 23 Tax Notes piece, “1986-Style Tax Reform: A Good Idea Whose Time Has Passed.”
At the hearing, the Republicans had a coordinated theme decrying the fact that, according to a Joint Committee on Taxation estimate, in 2009 51% of all households paid zero in income taxes. 51 percent is ostensibly a “tipping point” (although in fact it reflected the temporary impact of the recession), and is said to be a concern because you have no “skin in the game” if you pay no income tax, and thus ostensibly will vote under the “fiscal illusion” that government spending is free.
I would question how much political influence we should attribute to Americans who are too poor to pay income tax. Political scientists such as Hacker and Pierson would presumably say, try zero as a good baseline estimate of their influence. If I were looking at a fiscal illusion that government spending is somehow “free,” I would start my analysis with deficit financing. Plus, as I commented at one point, it is a mistake to focus on just one year and just one tax.
One of the Republican Senators at the hearing dismissed the significance of payroll taxes in this regard by noting that they are associated with providing Social Security and Medicare benefits at retirement, rather than going into general revenues. But more specifically, he called payroll taxes merely an “insurance premium.”
If payroll taxes are insurance premiums rather than taxes, and Social Security / Medicare benefits are insurance payouts rather than government spending, I suppose we will need to restate our budgetary accounts a bit.
Another coordinated theme on the Republican side of the aisle was that it's simply wrong to have the income tax system do anything whatsoever to affect distribution. It should simply be about raising revenue to pay for government outlays, period. Anything else is immoral. I replied that, if this is the case, we should definitely have a uniform head tax, under which Bill Gates would pay the same amount of tax as a homeless person. And if this is wrong (and I noted that Margaret Thatcher, who had been lauded earlier in the hearing, ran into some problems with a head tax), and we indeed want to tax something such as income based on some such notion as ability to pay, then we are all really playing the same game, and there is nothing left to complain about at a philosophical level.
I think it came out sounding a bit less harsh than that, but hopefully the point was clear.
One of the Democratic Senators invited me to take some pretty open potshots at the degree of good faith in the tax part of the Ryan budget, but I declined to impugn motives, and simply said that I felt its rate cuts were unwise and that its base-broadening remained entirely unspecified. But I granted that it's a lot easier to criticize popular but bad policies if you have my job than if you are a member of Congress.
My remarks emphasized three main points:
(1) Rising high-end income concentration may influence how one thinks about high-end tax rates, in particular as part of a broader tax reform process. In the 1986 tax reform process, people thought about high-end distributional neutrality as purely a function of making before-and-after comparisons for two groups: those earning from $100,000 to $200,000, and those earning more than $200,000. A much more nuanced approach to the high end may be necessary today (e.g., the Fiscal Commission Report looked at the top 20%, 10%, 5%, 1%, and 0.1%).
(2) The big-ticket tax expenditure items (such as home mortgage interest deductions, the employer-provided health insurance exclusion, and charitable deductions), tend to provide benefits that rise relative to income until close to the top of the income distribution, when they start falling as a percentage of income. This makes it quite difficult to achieve distributional neutrality 1986-style at the very top unless one starts addressing items such as the 15% dividend rate, which (a) doesn’t hit wage earners at the very top and (b) arguably isn’t a tax expenditure given the double corporate taxation issue.
(3) If tax expenditures are equivalent to spending through the tax code (as asserted by both the Fiscal Commission and the Ryan Budget plan, and as best illustrated by David Bradford’s weapons supplier tax credit example), then repealing them is not in substance a “tax cut,” and hence doesn’t need to be accompanied by tax rate cuts even if one has some view about tax revenues and the size of government. The ONLY reason to cut individual income tax rates, especially in the face of the long-term fiscal gap, is if the equilibrium one prefers (and can get to) includes lower rates, a point on which I am quite skeptical. More on this in my May 23 Tax Notes piece, “1986-Style Tax Reform: A Good Idea Whose Time Has Passed.”
At the hearing, the Republicans had a coordinated theme decrying the fact that, according to a Joint Committee on Taxation estimate, in 2009 51% of all households paid zero in income taxes. 51 percent is ostensibly a “tipping point” (although in fact it reflected the temporary impact of the recession), and is said to be a concern because you have no “skin in the game” if you pay no income tax, and thus ostensibly will vote under the “fiscal illusion” that government spending is free.
I would question how much political influence we should attribute to Americans who are too poor to pay income tax. Political scientists such as Hacker and Pierson would presumably say, try zero as a good baseline estimate of their influence. If I were looking at a fiscal illusion that government spending is somehow “free,” I would start my analysis with deficit financing. Plus, as I commented at one point, it is a mistake to focus on just one year and just one tax.
One of the Republican Senators at the hearing dismissed the significance of payroll taxes in this regard by noting that they are associated with providing Social Security and Medicare benefits at retirement, rather than going into general revenues. But more specifically, he called payroll taxes merely an “insurance premium.”
If payroll taxes are insurance premiums rather than taxes, and Social Security / Medicare benefits are insurance payouts rather than government spending, I suppose we will need to restate our budgetary accounts a bit.
Another coordinated theme on the Republican side of the aisle was that it's simply wrong to have the income tax system do anything whatsoever to affect distribution. It should simply be about raising revenue to pay for government outlays, period. Anything else is immoral. I replied that, if this is the case, we should definitely have a uniform head tax, under which Bill Gates would pay the same amount of tax as a homeless person. And if this is wrong (and I noted that Margaret Thatcher, who had been lauded earlier in the hearing, ran into some problems with a head tax), and we indeed want to tax something such as income based on some such notion as ability to pay, then we are all really playing the same game, and there is nothing left to complain about at a philosophical level.
I think it came out sounding a bit less harsh than that, but hopefully the point was clear.
One of the Democratic Senators invited me to take some pretty open potshots at the degree of good faith in the tax part of the Ryan budget, but I declined to impugn motives, and simply said that I felt its rate cuts were unwise and that its base-broadening remained entirely unspecified. But I granted that it's a lot easier to criticize popular but bad policies if you have my job than if you are a member of Congress.
Tuesday, May 03, 2011
Last 2011 NYU Tax Policy Colloquium
Last Thursday, Cheryl Block presented her work in progress, “Tax Justice and the Equitable Distribution of Bailout Costs,” as our last paper of the semester.
The paper posits that public anger over the financial sector bailout, along with reasons for thinking that the anger might in various respects have been justified, suggests the possibility that ability to pay principles don’t provide the best guide to thinking about how the costs of the bailout would equitably be distributed. E.g., is the view that the financial sector ought to pay a distinctive view that we need to think seriously about?
Cheryl agrees that there may be important incentive reasons for making the people who caused (and may again cause) a bailout to be necessary pay for the expected costs of their behavior. Not only ex ante, before they act, but even ex post, if the lesson that is learned will impress itself upon future actors. But she wants to leave the efficiency analysis to one side, for purposes of considering the equity issues as well.
My main criticism of this is that there is a considerable overlap between giving people proper incentives and deciding whether they are blameworthy or not. Our intuitions (in the realm of “distributive desert”) about punishing the guilty, etcetera, have a lot of overlap with the idea of giving people proper incentives (and not minding what they decide if they had the right incentives to consider harm to others, etc.). So it is difficult to pursue this analysis independently of efficiency even if one concludes that one’s (or at least my) admitted emotions of distributive desert (a.k.a. retribution) should be preferred to, say, utility maximization where the two, despite their considerable overlap, prove to be in conflict.
Also, I would say that the financial sector as such can’t pay since it’s not a human being. When we say this we presumably have particular individuals in mind – e.g., in this case, the managers and other highly-paid employees in the financial sector, along with their pals in the rating agencies, captured regulatory agencies, etc.
Just because it’s been a very busy semester, I was relieved to have it come to an end, even though so much of it is very interesting and fulfilling. The students were great and their degree of interest and involvement was exhilarating. Things have hardly let up for me since, however – I testified today before the Senate Finance Committee on equity issues in the income tax (more on this shortly), and am off on Saturday to teach in Singapore for 2 weeks. Pretty fast turnaround there, admittedly adding a bit to the stress, although I am hopeful that the Singapore class will go well too.
Next year (January through April 2012), I’ll be teaching the colloquium on Tuesdays with Alan Auerbach. I’m very much looking forward to doing it with Alan. Thanks to Mihir Desai for collaborating with me in the enterprise over the last two years.
The paper posits that public anger over the financial sector bailout, along with reasons for thinking that the anger might in various respects have been justified, suggests the possibility that ability to pay principles don’t provide the best guide to thinking about how the costs of the bailout would equitably be distributed. E.g., is the view that the financial sector ought to pay a distinctive view that we need to think seriously about?
Cheryl agrees that there may be important incentive reasons for making the people who caused (and may again cause) a bailout to be necessary pay for the expected costs of their behavior. Not only ex ante, before they act, but even ex post, if the lesson that is learned will impress itself upon future actors. But she wants to leave the efficiency analysis to one side, for purposes of considering the equity issues as well.
My main criticism of this is that there is a considerable overlap between giving people proper incentives and deciding whether they are blameworthy or not. Our intuitions (in the realm of “distributive desert”) about punishing the guilty, etcetera, have a lot of overlap with the idea of giving people proper incentives (and not minding what they decide if they had the right incentives to consider harm to others, etc.). So it is difficult to pursue this analysis independently of efficiency even if one concludes that one’s (or at least my) admitted emotions of distributive desert (a.k.a. retribution) should be preferred to, say, utility maximization where the two, despite their considerable overlap, prove to be in conflict.
Also, I would say that the financial sector as such can’t pay since it’s not a human being. When we say this we presumably have particular individuals in mind – e.g., in this case, the managers and other highly-paid employees in the financial sector, along with their pals in the rating agencies, captured regulatory agencies, etc.
Just because it’s been a very busy semester, I was relieved to have it come to an end, even though so much of it is very interesting and fulfilling. The students were great and their degree of interest and involvement was exhilarating. Things have hardly let up for me since, however – I testified today before the Senate Finance Committee on equity issues in the income tax (more on this shortly), and am off on Saturday to teach in Singapore for 2 weeks. Pretty fast turnaround there, admittedly adding a bit to the stress, although I am hopeful that the Singapore class will go well too.
Next year (January through April 2012), I’ll be teaching the colloquium on Tuesdays with Alan Auerbach. I’m very much looking forward to doing it with Alan. Thanks to Mihir Desai for collaborating with me in the enterprise over the last two years.
Wednesday, April 27, 2011
Panel discussion on corporate tax reform
This morning, I participated in a panel discussion on corporate tax reform sponsored by the New York State Society of Certified Public Accountants. The other participants were tax lawyer & accountant Laurence Keiser, Curtis Dubay of the Heritage Foundation, and Peter Merrill of PWC.
My turn at the spotlight was entitled "Corporate Tax Reform: If the Path is So Clear, What's the Problem?" A pdf copy of my slides is available here.
UPDATE: Apparently the event was live-blogged, yielding a summary of the discussion that you can see here.
FURTHER UPDATE: Here is a link to the webcast.
My turn at the spotlight was entitled "Corporate Tax Reform: If the Path is So Clear, What's the Problem?" A pdf copy of my slides is available here.
UPDATE: Apparently the event was live-blogged, yielding a summary of the discussion that you can see here.
FURTHER UPDATE: Here is a link to the webcast.
Tuesday, April 26, 2011
Senate Finance Committee testimony on May 3
On Tuesday next week, I will be testifying before the U.S. Senate Finance Committee on the subject: "Is the Distribution of Tax Burdens and Tax Benefits Equitable?"
I've submitted my written testimony, with which I am reasonably pleased, and I will post it here once the Committee has released it officially.
The other witnesses are (1) Scott Hodge of the Tax Foundation, (2) Aviva Aron-Dine, who has DC tax policy think tank experience and is getting an economics PhD at MIT, and (3) Alan Reynolds of the Cato Institute.
Unfortunately, this may conceivably shape up as a bit of a tag team event, with Aron-Dine and me on the Democrats' side and Hodge and Reynolds (neither of whom I have met) on the Republican side. But I hope not. There are things that we ought to be able to agree about, plus other things on which we ought to be able to agree on why & how we disagree.
If my several friends who do tax policy at AEI were among the Republican witnesses, I know that we would have this type of positive exchange. But how it turns out may depend on a combination of who people are and what sort of expectations they believe they face. (As an academic who doesn't want to be in Washington other than very occasionally, I am relatively exempt from such pressures.) And there are certainly some things in my testimony (albeit not everything) with which a principled conservative economist should be simpatico.
BTW, as this shows, I have published at Cato, in their Regulation Magazine.
I've submitted my written testimony, with which I am reasonably pleased, and I will post it here once the Committee has released it officially.
The other witnesses are (1) Scott Hodge of the Tax Foundation, (2) Aviva Aron-Dine, who has DC tax policy think tank experience and is getting an economics PhD at MIT, and (3) Alan Reynolds of the Cato Institute.
Unfortunately, this may conceivably shape up as a bit of a tag team event, with Aron-Dine and me on the Democrats' side and Hodge and Reynolds (neither of whom I have met) on the Republican side. But I hope not. There are things that we ought to be able to agree about, plus other things on which we ought to be able to agree on why & how we disagree.
If my several friends who do tax policy at AEI were among the Republican witnesses, I know that we would have this type of positive exchange. But how it turns out may depend on a combination of who people are and what sort of expectations they believe they face. (As an academic who doesn't want to be in Washington other than very occasionally, I am relatively exempt from such pressures.) And there are certainly some things in my testimony (albeit not everything) with which a principled conservative economist should be simpatico.
BTW, as this shows, I have published at Cato, in their Regulation Magazine.
Neil Young concert
This past Sunday night I attended my first rock concert since Pavement last September: Neil Young in Avery Fisher Hall. While I'm ambivalent about some of his work, he's certainly the best age 65, full-tilt, one-person rock band that I know, although (unsurprisingly) his older, recognizable numbers made more of an impression than his newer ones. My faves remain After the Gold Rush plus the best of his early work with Crazy Horse. (Going back further, he did some good things with Buffalo Springfield, but he didn't play anything quite that old.) Remarkable how he could play several of the guitar workout rock epics from the Crazy Horse era and not appear to either miss or need the rest of the band.
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