Radio appearance to discuss taxes and jobs

This morning at 7:15 am EST, I was a guest on a New Orleans radio show, hosted by Tommy Tucker on WLL. (This was 6:15 am New Orleans time.) The topic was our new president's trade policies, in relation to employment.

With regard to using tariffs, either generally or selectively against particular companies that move plants out, as a way of increasing employment, here's what I said. Let's travel back to 2012, when Romney was running against Obama. Some economists believed Romney's plans were better for the economy and jobs, others believed Obama's plans were better. Now let's go to the present. Not a single reputable economist in the country believes that Trump's trade policies will increase employment. And these aren't just academic economists - real businesses pay real economists real money to help them anticipate economic developments.

I noted that it might be easy to arrange a story every week about some company that supposedly moves in jobs or decides not to move them out due to Trump. Companies have every reason to court both good publicity in the country and favor with the current administration by cooperating to devise these stories, even if they aren't really true regarding what happened and why. But even if they were true, in a country where (even when things are going great) hundreds of thousands of jobs are created and lost on a regular basis in real time, they're utterly trivial in terms of the overall employment situation.

Retaliatory tariffs against particular companies might be illegal under U.S. law. They would also risk prompting retaliation by other countries that could cost us jobs and raise consumer prices. Plus, even if a particular company was affected by the threat, when you think about the level of dynamism and change in the world economy, this focus on particular companies that might move out particular jobs is a bit like trying to calm the Pacific Ocean by putting a giant concrete block at one point where the waves are a bit choppy. You can't affect the ocean as a whole that way.

A listener asked me what I would do to promote employment. I said for the short term, stimulus, such as building infrastructure, and in the long run, better education, job training and re-training, social insurance and other (such as childcare) support that makes it easier for people to work.

Then I was asked about the border adjustment plan in Ryan's so-called "Better Way." I said, this is a really interesting proposal, we could have a 3-hour academic seminar discussing it. But the big point is this. While it might conceivably lead to a good place, both the transition of getting to it and the fit between it and the rest of the tax system create gigantic problems that make me very nervous and that would need to be carefully addressed over a long implementation period - which isn't how it will happen, if it does happen.

On that note, we were done.

Not to live in the past, but ...

The last novel that I mentioned in the prior blog post reminds me of what is surely the most astounding 3-film run in the history of cinema: Hitchcock's Vertigo, followed by North by Northwest, followed by Psycho.

The first of these was so perverse and personal that, by his standards, it was both a critical and commercial failure at the time. So he decided: "I'll show them," by making one of the most delightful and perfectly commercial films ever, albeit still wholly rooted in his own distinctive feel for paranoia. Then, when the studios wanted him to just keep making more of the same, he went for maximum shock and discomfort, at a time when doing this was daring and startling.

The individual greatness of each of these three films is augmented by seeing how they change course and react to each other.

Books I read on the beach

Counting right before and right after my 6 days in Jamaica:

1) Theodore Dreiser, The Titan - I had initially thought that, in my literature book, I would only write about the predecessor volume, The Financier. But this one is in some ways even more interesting sociologically. It foreshadows Ayn Rand (and is much closer to that than to Horatio Alger), except that the author stands somewhat apart from the lead character's regard for his own "greatness." Someone, perhaps David Frum, called this book an Ayn Rand novel written by a socialist, and that's a good way of putting it.

2) Lindsay Cameron, Biglaw - I read this for my first-year reading group, covering 4 novels about law school or  legal practice (with the other three being by Lisa McElroy, David Lat, and me). The idea is that we read the books, then meet and talk with the authors, including Ms. Cameron this coming Wednesday. Biglaw does a great job of satirically yet horrifyingly conveying the NYC Biglaw corporate setting. I certainly hope that it's exaggerated for literary effect, rather than meant to be accurate! But I fear that it actually is all too accurate. Something to ask the author about.

3) Edith Wharton, House of Mirth - also for my literature book. Great and very sad; I was half or more of the way through before I saw my line of approach for writing about it. An odd point about the book's structure: it's all about Lily Bart having one chance after another after another after another to succeed in achieving complete financial security. But she throws all of these chances away, sometimes whimsically or self-indulgently, but often based on her actually accepting the Old Money social ideals that everyone else realizes by now are wholly fraudulent.  And she's the only one who still actually believes in those ideals (which are aesthetic, not by any means ethical).  Okay, Selden believes in them too, but they cost him nothing rather than everything.

4) Booth Tarkington, Alice Adams - interesting Midwestern early 20th century social portrait of a whimsical and ill-starred character, by the author of The Magnificent Ambersons (which I may also, though only briefly, write about in the literature book). I kept picturing a flightier Katherine Hepburn (who played the title part in the movie of Alice Adams), but the book mercifully lacked the movie's saccharine ending.

5) Margaret Millar, A Stranger in My Grave - interesting mid-century noir fiction, although the resolution was a bit pat.

6) Georges Simenon, The Mahe Circle - very dark and perverse, concerning a mad and suicidal obsession. One of his "dur" rather than Maigret novels.

7) Elmore Leonard, 52 Pickup - fun reading for the plane, though it got a bit tense near the end.

8) Pierre Boileau and Thomas Narcejac, Vertigo - The novel that was the basis for the immortal Hitchcock film. They apparently wrote it in the hope that he would option it. Set in 1940s France, and with a couple of key plot differences including a different (but also dark) ending. Obviously, I knew what the key plot twist would be before it happened. Quite good in its own way, especially if you come to it from the movie and find the transmutations interesting.

I seem to have used the word "dark" quite a lot in this blog entry. Sorry about that from a writerly standpoint, but it certainly is the word of the day for me these days.

Back in the U.S.A.

It's a shame to have left behind this:

But at least I got to come home to this:

Temporary escape

I'm leaving for a warm climate (outside the U.S.) for 6 days, returning late on January 20 as I don't teach my first class (Tax Policy Colloquium with paper by Lily Batchelder) until Monday, January 23.

Three ways a president can make money through his businesses, absent a blind trust

One is to shape government policies, procurement decisions, etcetera, to favor his businesses. A second is to get business from others who seek to curry favor (the emoluments issue). A third is to have the businesses act on inside information about impending news before it becomes public.

This should not be normal

It's not just Trump.

As Rebecca Kysar notes, courtesy of Tax Policy Center estimates:

"The House blueprint ... awards three-quarters of its tax cuts to earners in the top 1 percent ....  Even factoring in favorable macroeconomic effects, the plan would also add trillions to the country's debt, creating an unsustainable fiscal chasm."

We've been too gaslighted for too long to find this surprising. But if you step back for a second and just think about it in political, social, economic and budgetary context, its reckless and malicious irresponsibility beggars belief. In no still-sane country could such a plan even be proposed by anyone, apart from tin-hat lunatics ranting on street corners.

This is not normal.  A country in which it has become normal is not normal.

Plus ca change

From Booth Tarkington's The Magnificent Ambersons, which I am reading (and so far enjoying) on the view that I might use it in Part 3 of my literature book (U.S. from the Civil War through World War I):

"He does anything he likes to, without any regard for what people think. Then why should he mind so furiously when the least little thing reflects upon him, or on anything or anybody connected with him?"

Eugene patted her hand. "That's one of the greatest puzzles of human vanity, dear; and I don't pretend to know the answer. In all my life, the most arrogant people that I've known have been the most sensitive. The people who have done the most in contempt of other people's opinions and who consider themselves the highest above it, have been the most furious if it went against them. Arrogant and domineering people can't stand the least, lightest, faintest breath of criticism. It just kills them."

The Beatles' Let It Be (Spectorized version)

I hadn't played the official Phil Spector version of Let It Be for probably 30 years, since I have alternate versions that I prefer (the original Get Back as compiled by Glyn Johns, plus various compilations of outtakes and alternative versions). But needing something fresh to play in the health club, I decided to save it on Spotify and give it a shot.

The Spector version is better than I remembered or expected. Although all the extra orchestration is a bit questionable, only on The Long and Winding Road does it really go beyond the pale, and that song drags enough to need something (albeit, not what Spector gave it - one can appreciate how much lighter a touch George Martin had on orchestral backing for their songs).

Let It Be has a different George Harrison solo, which I hadn't heard for the 30 years. It's well-done, but less original (more standard issue late-60s Lead Guitar Part) than what George usually played.

You can see how they try to cover up the lack of Lennon songs by including Across the Universe (well worth it, but from 1968), his lead vocals on Dig It, Maggie Mae, and of course the delightful retread of One After 909. He hadn't written (or at least completed writing) anything suitable apart from I Dig a Pony and Don't Let Me Down - which Spector disliked, so relegated to Side B of a single.  There's an outtake where John slags himself for not having anything good on hand for them to play.

The album remains the Beatles' only failure to convert material on hand into an entirely suitable finished product. But over the 40+ years since, they've done their fans and themselves a disservice by not releasing (a) an expanded version of the movie that shows more of the tensions (c'mon, it's old news by now), plus (b) a box set of the sessions - say, one CD for Let It Be plus other official releases from the sessions, one for the Glyn Johns versions of Get Back, and two more for outtakes. There's enough good  (if often rough and unpolished) extra material from the sessions to support, say, two 50 or 60-minute extra disks, one from Twickenham and one from the Apple sessions.  McCartney's Let It Be Naked (with a ridiculously short, inadequate, and unlistenable "bonus" disk) was worse than nothing as it apparently supplanted doing the reissue properly.

Or they could just put everything from the sessions on iTunes and let people make their own compilations.

Okay, I guess that's enough Beatles nerding for now.

Simple border adjustment example

Given all the talk (and confusion) about how border adjustment in a properly designed destination-based corporate tax would work, I thought a really simple example might help.  BTW, I myself find this unintuitive - my brain tends to reject it, so every time I think about it after a long time away, I have to work it out again for myself.  But anyway, here goes.

Say a U.S. company sells imported Scottish wool sweaters for $100.  To keep things simple, no profit - the company simply buys them from a Scottish firm for $100 (and has no other expenses).  Suppose the dollar and the Euro are in exact parity, so the Scottish firm gets €100.

Since the U.S. company has no profit, it doesn't have income tax liability.  (Again, this is just to keep things simple.)  But now Congress enacts a 20% destination-based corporate tax (DBCT). So amounts paid for imports are no longer deductible.

Now the U.S. company is going to have to pay $20 of tax upon selling the Scottish sweater for $100 to a U.S. consumer.  So it is only willing to pay the Scottish firm $80.

No dice, so far as the Scottish firm is concerned, if it is selling as many sweaters as it likes on world markets for $100 = €100 and the dollar remains in parity with the Euro.  But if the dollar appreciates against the Euro so that $80 = €100, everyone''s happy and it all works just as before.

Now let's add the export case.  A U.S. firm was making cotton sweaters for $100 and selling them for $100, both at home and to EU firms. But now, under the 20% DBCT, it's going to exclude from "income" the amount that it gets from foreign purchasers, while still expensing the $100 that it spends. Now it only needs $80 from EU purchasers, rather than $100, to break even as it was before. And again this happens without any change if the dollar appreciates against the Euro so that $80 = €100.

Now, how does the currency shift happen?  Ay, there's the rub, as they say, but now that supply and demand have changed as described above things should at some point get there, at least in the simple story. (Real world institutions and complications may have a huge interim effect, however.) Or to put it differently, there won't be a stable equilibrium until they get there, and until that moment shifts in supply and demand at the old exchange rate will be pushing in that direction. But how and when it gets there is actually, in my view, potentially quite disruptive in ways we might not like.

One last point about all this. The appreciation of the dollar against the Euro (etc.) would reduce the dollar value of Americans' foreign asset holdings, and increase the Euro (etc.) value of foreigners' U.S. asset holdings.  As Alan Viard has noted:

“The wealth transfers could be quite large. Assume, for simplicity, that foreigners hold $10 trillion of American assets and that Americans hold the same amount of foreign assets. Adding a border adjustment to a 20 percent (tax-inclusive) VAT would increase foreigners’ wealth by $2 trillion and reduce Americans’ wealth by $2 trillion. Because cross-border holdings are balanced in this example, the border adjustment would not change the present discounted value of federal revenue, but it would cause $2 trillion of that revenue to be collected from Americans rather than from foreigners.”

What is more: “Because the United States is a net debtor country, the border adjustment would actually cause a net loss to the U.S. Treasury ... and foreign investors’ gains would exceed American investors’ losses.”

Tariffs and border adjustments

Yesterday the Trump transition team said it wanted a 5% tariff on all imports, today it's up to 10%. Who knows, maybe by tomorrow it will be 15% or 20%.

Supposedly this would happen either by executive order or else as part of corporate tax reform.

Any guesses out there regarding whether other countries would retaliate against U.S. goods? Not my field, but I suspect this could be a really major body blow to the U.S. and world economies. If it tanks things sufficiently, Trump may conclude he needs to do something really big to distract voters from the mess. War? Use nuclear weapons abroad? Why not?

Meanwhile, talk continues about the possibility of enacting a destination-based corporate tax, which CNBC says (using a simple example) could "boost the taxes on a sweater from $1.75 to $17."

Among the experts who has been addressing the border adjustment issue is Alan Viard at AEI, who notes that, while exchange rate changes (appreciation of the dollar) would over time wash out the impact on cross-border trade, how fast it would happen is debatable. "Logically, it should be a quick, or immediate adjustment, but economists are not good at predicting speed."  Plus, as he's noted elsewhere in relation to the issue of adopting a VAT (which likewise taxes imports but not exports), there can be (a) temporary discouragement of trade as institutions adjust, (b) a giant transitional giveaway of revenues from U.S. taxpayers to foreign persons, and (c) adverse effects on trade in particular sectors.

Most bizarre of all is the suggestion above, from the article on linking the tariff to tax reform, that Trump wants to do the destination-based corporate tax PLUS a 10% tariff.

He's like a child playing with tinker toys that have bombs attached on the underside.

Latest developments in my literature book

I've managed to finish Part 2 of my literature book (now entitled "Literature and the Rise of Toxic Inequality") before the break.

Part 1 (England and France During the Age of Revolution) has chapters on Austen's Pride and Prejudice, Stendhal's The Red and the Black, and Balzac's Pere Goriot. Part 2 (England from the 1840s Through World War I) has chapters on Dickens's A Christmas Carol, Trollope's The Way We Live Now, and Forster's Howards End. Each part opens and closes with short intro and then summary sections that knit the three works together and find overall themes or trajectories, related to that of the book as a whole.

I'm now ready to start Part 3 (The United States Between the Civil War and World War I, or perhaps just pre-World War I). I'm planning 3 chapters, the second and third of which will be Dreiser (The Financier and/or The Titan) and Wharton (The House of Mirth). While I do plan to take a true break between semesters, I've thought I could read and cogitate a bit on this part, which leads to the question of what book from earlier in the era I should put first.

My first choice was Horatio Alger's aptly-named Ragged Dick (despite recognizing what a comedown it would be in terms of literary quality from everything else on the list so far).  But my gawd is it thin. There are a few interesting points here - e.g., these really aren't the Horatio Alger myth as we think of it but something different (handsome boy uses older male benefactors to find modest success), but this point has already been well written about, plus is tangential to the themes I have in mind in this project. There are a few other interesting aspects to think about - e.g., hatred of rich boys who are described as effeminate, the role of villains, intense self-consciousness about putting on airs and acting "aristocratic," looks plus honesty plus "pluck" are the keys to success as distinct from intelligence or hard work - but I'm still not feeling it at the moment.

Two other possibilities are Howells' The Rise of Silas Lapham and Twain/Warner's The Gilded Age. But I've never read either, so I don't start out with the feeling that either or both might feel right. I'll probably read them over the break.

A more out-of-the-box idea is urban/office life from 3 shorter works that straddle the Civil War: Poe's The Business Man (1840), Melville's Bartleby The Scrivener (1853), and then Alger's Ragged Dick (which is from 1867). But only if I can make it all fit together, which actually strikes me at the moment, perhaps unreasonably, as not entirely impossible. It would certainly be a change of pace, possibly a good thing in terms of sustaining the overall scheme.

Any other suggestions out there?

UPDATE: Based on suggestions plus my own looking around, I may add Booth Tarkington's The Magnificent Ambersons, if it passes the test when I read it. Will also consider Twain/Warner The Gilded Age. Plus, Silas Lapham still in play.  Poe / Melville / Alger will probably just show up in the Intro to Part 3, where I think they can help set the stage re. a couple of central themes.

Upcoming NYU Tax Policy Colloquium

Starting a month from tomorrow, Rosanne Altshuler and I will be co-hosting the 22nd(!) NYU Tax Policy Colloquium. Here is our schedule for the semester. All sessions meet from 4 to 5:50 pm in Vanderbilt 208 at NYU Law School.

1.  Monday, January 23 – Lily Batchelder, NYU Law School. “Accounting for Behavioral Biases in Business Tax Reform: The Case of Expensing.”

2.  Monday, January 30 – Mark Gergen, Berkeley Law School.  “How to Tax Global Capital.”

3.  Monday, February 6 – Alan Auerbach, Berkeley Economics Department. “U.S. Inequality, Fiscal Progressivity, and Work Disincentives: An Intragenerational Accounting.”

4.  Monday, February 13 – Allison Christians, McGill Law School.  “Human Rights at the Borders of Tax Sovereignty”

5.  Tuesday, February 21 – Jason Oh, UCLA Law School. "Are the Rich Responsible for Progressive Marginal Rates?"

6.  Monday, February 27 – Stephen Shay, Harvard Law School. “’A Better Way’ Tax Reform: Theory and Practice.”

7.  Monday, March 6 – Scott Dyreng, Duke Business School. “Trade-offs in the Repatriation of Foreign Earnings.”

8.  Monday, March 20 – Daniel Hemel, University of Chicago Law School.  "Federalism as a Safeguard of Progressive Taxation."  

9.  Monday, March 27 – Leonard Burman, Urban Institute.  “Is U.S. Corporate Income Double-Taxed?”

10.  Monday, April 3 – Kathleen Delaney Thomas, University of North Carolina Law School.  “Taxing the Gig Economy.”

11.  Monday, April 10 – Julie Cullen, UC San Diego Department of Economics. “Political Alignment and Tax Evasion.”

12.  Monday, April 17 – Miranda Perry Fleischer, University of San Diego Law School.  “The Libertarian Case for a Universal Basic Income.”

13.  Monday, April 24 – Joel Slemrod, University of Michigan Business School.  “Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts.”

14.  Monday, May 1 – Richard Vann, University of Sydney Law School.  "International tax post-BEPS: Is the corporate tax really all that bad?”

A destination-based corporate tax?

Lynlee Browning unsurprisingly does a nice job summarizing the current debate over the possibility of enacting a destination-based corporate tax (DBCT).  One point that could be added, however, is that, if they enacted it, there would be NO reason of international competitiveness to keep the rate as low as they have it, w0%.

Keep in mind, a (DBCT) is a consumption tax.  So, leaving aside a lot of important design details, in some ways it's like having a better-designed retail sales tax.

Only the ignorant and the disingenuous (but both groups are legion in Washington) would assert that, say, a comprehensive and decently enforced 40% retail sales tax would raise "competitiveness" issues in re. attracting global investment to the United States.

If the DBCT is indeed enacted, it would certainly serve a lot of folks right (but also raise rate-change transition issues that David Bradford identified) if first (a) the Republicans were drummed out of office for gutting Obamacare, Medicaid, Medicare, and Social Security, and then (b) Democrats different from those we now know raised the DBCT rate to 40 or 50 percent (with accompanying measures addressing both high-end and low-end inequality).

Apple EU state aid case, latest developments

Today the European Commission finally released a redacted version of its decision in the Apple EU state aid case.  (The delay reflected stripping out confidential business info, etc., that had been cited in the full official decision.)  I haven't had a chance to read it yet but will be doing so shortly and will then offer here any comments that I might have.  At a first glance, it's certainly in the ballpark of what I had expected.

Also today, Ireland published a short statement explaining its grounds for disagreeing with the EC verdict.

The main legal issue Ireland raises (apart from predictable boilerplate and disagreements about proper EC review scope, etc.) that will likely be at the heart of the ultimate ECJ decision is that of undue “selectivity.”   There’s really no dispute that Ireland (a) was selectively favorable to Apple as compared to domestic companies, but (b) was not selectively favorable to Apple as compared to other multinationals.  Thus, while I am not an expert on EU law, that is the nub of the legal issue.  Is generally treating inbound multinationals more favorably than other companies improper selectivity – or would impermissible selectivity require, say, favoring Apple but not Google, Starbucks, Amazon, etc.?

Of course, I don’t know enough about EU institutions to have a view as to whether this will be decided based on legal argumentation or someone’s policy judgments, which presumably would be responding (one way or another) to the current strains that the EU is feeling given nationalist sentiments all around.

Video of my TV appearance on Brian Lehrer's POTUS 2016

The video is available here.  I enjoyed this show, which is definitely more highbrow than a lot of the more mass-marketed TV content. I first appear on-screen about 4:50 in, and then I start speaking at about 7 minutes in.

Tax base design and holiday greetings

A holiday email that I got from a Washington budget expert with whom I am on friendly terms read in part: "May your revenues exceed your outlays in the year ahead."

I responded: "I see that you are taking a cash-flow rather than a Haig-Simons perspective here!  Otherwise, you would have said: 'May the present value of your expected future net receipts increase in the year ahead.'"

TV appearance tonight

Tonight, at 7:30 pm EST, I'll be appearing on a CUNY-TV show, POTUS 2016, hosted by Brian Lehrer, along with economists James K. Galbraith and James Bessen.  We'll be discussing the significance to U.S. employment of globalization, technological change, and (in my bailiwick) international tax policy.  Topics such as the Trump Carrier deal may also come up.

UPDATE: CUNY-TV may not be widely available through cable services, but I am told the show will be accessible online tomorrow (Dec. 15) via http://www.cuny.tv/ .

FURTHER UPDATE: Hopefully online soon.  Teaser here.

Good news about the weather

After today, we are 3.3% done with Adjusted Winter (my term for the on average coldest 91-day stretch of the year). Only 88 days until Adjusted Spring (starting on March 11).

Book on literature and high-end inequality

Here is the latest version of my opening chapter.  I think I've progressed towards locating the narrative arc.  Inquiries from agents or editors welcome.