New short video

Here you can watch my cat Gary steal the show as I discuss a recent tax paper of mine with Leandra Lederman and Allison Christians on their new short video series, Break Into Tax.

New book forthcoming next year

I've signed a contract with Anthem Press for the publication of my most recent book, currently titled Bonfires of the American Dream in American Rhetoric, Literature, and Film. Anthem also published Literature and Inequality. Currently scheduled to come out in May 2022.

The book includes 3 main case studies. The first discusses Russell Conwell's Acres of Diamonds speech and the John Galt speech near the end of Ayn Rand's Atlas Shrugged. The second discusses The Great Gatsby, with reference not just to the text itself but also its changing reception across the decades. The third discusses the films It's a Wonderful Life and The Wolf of Wall Street.

The new book is only half as long as Literature and Inequality, and more tightly focused. L & I not only had a much broader canvas but also was engaged in making the methodological case for such studies. Here much of the focus is on what features of our national culture across time could have brought us to where we are now.

Recent short explainers

 I have recently posted a couple of sort "explainer" pieces on websites that cover ongoing issues.

First, on the Just Security website run by my NYU colleague Ryan Goodman, I posted this piece on the Weisselberg indictment, aiming to correct misperceptions in the press that this was merely a technical or politically motivated "fringe benefits" case, rather than an assertion of rampant fraud that no responsible prosecutor could reasonably decline to file. This one got much broader coverage than reflections I post on this blog, so it probably isn't news to most of my readers here.

Second, last night Econofact.org posted a short solicited piece of mine entitled "Taxing Multinational Corporations." Here the question of interest is as follows:

"In debates regarding higher versus lower corporate income taxes, an important issue is the impact that changes in either direction would have on the level of domestic investment, and consequently on economic growth, the strength of the labor market, and government revenues.... What do economic reasoning and recent experience teach us about the effects of corporate tax rates on investment and economic growth in a global environment?"

This one dovetails nicely with an article in progress, entitled "The Economics, Law, and Politics of Increased Taxation of Multinationals" that I presented this past Friday at the Indiana-Leeds Summer Zoom Tax Workshop Series. I will probably post a draft of this on SSRN soon, but thought that I would advance it closer to a final draft first. That is the piece I will most likely be workshopping this fall at places such as the National Tax Association (although it might conceivably be superseded in some settings by other stuff that I'm working on now). It's fairly crisp, short, and I hope readable, and I might aim to publish it in Tax Notes, although it's not impossible that I might aim instead for a tax law review, especially one with decently quick turnaround.

Remote attendance at the 2021 NYU Tax Policy Colloquium

This coming fall, I will be doing the NYU Tax Policy Colloquium solo, and hence cutting it back from a 4-credit to a 2-credit course. This means that, rather than meeting twice each week - first with the students, and then in a public session with the author(s), I'll meet with the students one week to discuss the upcoming paper, and then in public the next week. Hence, the public sessions will only be biweekly, or if you prefer fortnightly. However, since we're having a 13-week semester, I've decided to have the extra session be a public one.

The public sessions will be hybrid, meaning that they are both live and on Zoom. I already knew that the authors can attend remotely via Zoom if they wish, although I am hoping to see them live. But now it's been confirmed that, for the public sessions, I can offer remote Zoom attendance to any and all who are interested, apart from the enrolled students, who - like me - are required to be there in person. Hence, I am hoping that, without too much cannibalizing of our live audience, we will get remote attendees from different places, time zones, and indeed continents.

So mark your virtual calendar if you are potentially interested. The live sessions, all meeting from 2:15 to 4:15 pm EST, will feature the following speakers and their papers:

1) Tuesday, September 14 - Jake Brooks and David Gamage

2) Tuesday, September 28 - Daniel Hemel

3) Tuesday, October 12 - Jennifer Blouin

4) Tuesday, October 26 - Manoj Viswanathan

5) Tuesday, November 9 - Ruth Mason and Michael Knoll

6) Tuesday, November 23 - Mindy Herzfeld

7) Tuesday, November 30 - Alan Auerbach.

There might also be small group dinners after the sessions - only for live attendees! (although I suppose one could attend via Zoom and then join the live dinner). But obviously that depends on pandemic developments, including both NYU's rules as they evolve or not over the course of  the year, and my own (along with potential attendees') degrees of comfort with doing this by the fall. Also, I would think we won't do a dinner in any week when the author is Zooming in.

New Jotwell post on Isabel Wilkerson's CASTE

 At Jotwell (aka "The Journal of Things We Like Lots"), I have posted here a short review of Isabel Wilkerson's recent book Caste.  It also mentions Dorothy Brown's recent book, The Whiteness of Wealth, although I don't review that book as such, as another Jotwell contributor had already stepped up to do that.

My piece also discusses broader issues of race and class in tax scholarship, albeit briefly as these are very short pieces.

G7 Finance Ministers Communique re. international tax policy

The G7 Finance Ministers' Communique from this past weekend included the following discussion of international tax policy:

"We strongly support the efforts underway through the G20/OECD Inclusive Framework to address the tax challenges arising from globalisation and the digitalisation of the economy and to adopt a global minimum tax. We commit to reaching an equitable solution on the allocation of taxing rights, with market countries awarded taxing rights on at least 20% of profit exceeding a 10% margin for the largest and most profitable multinational enterprises. We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies. We also commit to a global minimum tax of at least 15% on a country by country basis. We agree on the importance of progressing agreement in parallel on both Pillars and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors."

Here are a few comments on this paragraph:

1) The proposed allocation to market countries raises a few questions. For one, what is the relevant "profit"? By definition, this term requires comparing specified gross revenues to specified expenses and other deductible outlays. Are these to be determined by using standard income tax source rules? I would think not, as this would make the proposed allocation wildly ineffective. For example, the UK may consider itself the market country with respect to the revenues that Facebook earns from the use of its digital platform by UK residents. This probably has more in common with how gross revenues are defined in its digital services tax (DST) than with anything in its income tax. 

2) Note also that this rule will ostensibly apply to all of the "largest and most profitable multinational enterprises," without apparent limitation to those that are subject to DSTs. And it is also supposed to apply in countries that don't have DSTs. Moreover, even those that do have DSTs may define relevant revenues (as well as companies subject to the DST) quite distinctively.

3) Next and relatedly, what about the outlay/deduction side? This is needed not only to define profit, but also to determine the profit that exceeds a 10% margin.

4) To identify the "largest and most profitable multinational enterprises," one needs a measure of global income. How is this to be computed?

5) What if a country wants to retain its DST? The G7 statement says only that it will "provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes, and other relevant similar measures, on all companies."

6) Obviously, the 15% global minimum tax has lots of design work ahead (to put it mildly). It is presumably to be applied by the multinationals' residence countries - requiring a uniform definition of corporate residence? - and presumably with (100%?) foreign tax credits for source-based taxes. While the foreign tax credits would make it a residual tax, applying only insofar as the source-based taxes don't get there, this might leave plenty of scope for it, if source countries restrict themselves to 20% of profits above the 10% level (especially given the likelihood that there will be plenty of flex in how those profits are being defined).

7) How are countries are likely to respond in practice? While there is certainly room for pessimism, I don't think the standard view of how countries pursue their self-interest (like profit-seeking individuals in a simple neoclassical model) necessarily applies very strongly. Countries are collective entities that make political choices based on multiple actors who themselves may have narrow, not national, goals in mind. These may also be symbolic goals reflecting internal political dynamics. Consider the "self-interest" of the United States. Even in academic debate among knowledgeable people who are debating things in good faith, there is absolutely no consensus as to what is in the national self-interest in the international tax policy realm. Indeed, even only counting people whom I consider good personal friends, there is extreme dissensus.

8) When we start thinking in terms of a Biden Administration versus a Trump Administration, things get even less determinate, insofar as predicting the settings of the national policymaking compass is concerned. Even if we accept both administrations as trying to act in what they deem to be the national interest (which I don't think accurately describes the corrupt and treasonous Trump White House), they evidently define it radically differently. Suppose that all of the G7 countries had either (a) center-left to progressive regimes, or alternatively (b) right-wing "nationalist," plutocratic, pseudo-populist regimes. These two scenarios would lead to very different sets of policies being followed.

Upcoming summer Zoom talks

 Can you be in two places at once? With Zoom, the answer is yes. Thus, towards the end of this week I will be attending and participating in two conferences during the same stretch of days, although if not for the pandemic they would have been held live in distinct locations. I will also be an active participant in one session of each.

This Friday (May 28), at the Fifth Annual Public Finance Consortium at Indiana University (normally held in Bloomington, IN), from 10 to 10:40 am EST, I will be the discussant when David Gamage and Jake Brooks present their work-in-progress, "Tax Now or Tax Never: Political Optionality and the Case for Current-Assessment Reform."

Then this Sunday (May 30) at the Law and Society Association's 2021 Annual Meeting, which in the ordinary course would have been held in Chicago, from 10 to 11:45 am EST, I will participate in an "Author Meets Readers" session regarding my book Literature and Inequality. Tracey Roberts will be the session's moderator, and I very much look forward to the comments that will be offered by Diane Klein, Shu-Yi Oei, and Luisa Scarcella (plus members of the virtual audience).

Somewhat further down the road, on July 9, from 11:30 am to 1 pm EST, I will present my work-in-progress, "The Economics, Law, and National Politics of Seeking Increased Taxation of Multinationals" at the Indiana/Leeds Summer Tax Workshop Series, hosted by Leandra Lederman and Leopoldo Parada. I will also be presenting this paper later in the year, e.g., most likely at both the National Tax Association's Annual Meeting and in Vienna, Austria towards the end of the year.

I also anticipate attending a conference in USC Law School on November 5, honoring Ed Kleinbard, at which Joe Bankman and I are planning to present (after we have written it) a paper discussing Ed's work and contributions to the field.

Meanwhile I will be hosting the Tax Policy Colloquium at NYU this fall, although with what mix between live and Zoom is not yet clear. I am hoping for live public (as well as class) sessions, but it would be better still if the former accommodated remote attendees by Zoom. We will see.

Scholarship update

Now that my teaching for the 2020-21 academic year is actually done - leaving aside an exam next week - I've been able to turn back to writing as a fairly full-time activity. I'm sometimes able to write during the semester, but that hadn't been so this year - what with teaching on Zoom, wanting to rethink things even if I've taught them many times before, and having care issues relating to senior family members.

Finding topics, or at least fresh takes that I am interested in writing up, is also more challenging than it used to be. Let's face it, I've written about quite a lot of things since entering academia in 1987. So many things within the general realm of what I might write about are no longer fresh or new to me. And though I will return to a theme if I have reason to do so, I get bored too readily to make a regular practice of it.

On the other hand, if I can find an angle that excites or at least intrigues me, I feel I can bring more to the table in some ways than I could earlier in my career. There are certainly some advantages to my having a broader frame of reference, along with more knowledge and experience, than I did when I was younger.

That being so, I now have a pretty decent agenda of things to write about that will take me quite a while. The current list, leaving aside casebook updates, my annual Jotwell piece, and the like, stands as follows:

1) I've just started a piece with the working title The Economics, Law, and Politics of Seeking Increased Taxation of Multinationals. It discusses why and how understandings and main policy goals seem to have changed a bit recently in the international tax field. I previewed some of the thinking that underlies it here.

2) I've agreed to write a book chapter on inequality and redistribution in a forthcoming edited volume concerning new directions for tax policy research more generally. Among the main topics will be the state of the play and where to go next, as I see it, with regard to issues not just of class but also of race.

3) I've agreed to co-author (with a good friend whom I have co-authored with previously) a piece discussing Ed Kleinbard's scholarship for a tribute symposium. The aim here is not just to offer well-deserved praise, but also to place his work in context and discuss its relationship to the complementary roles played by different types of scholarship.

4) With Stanley Surrey's memoirs finally appearing in print shortly, I am planning to write an article about Surrey's distinct scholarly role and contributions. This, too, will have an element of looking at the underlying enterprise, and the "scientist vs. moralist" choice (as William F. Buckley, of all people, put it while interrogating Surrey) that one may face.

5) In my literature / inequality / sociology vein, I've long wanted to write something about P. G. Wodehouse, whose delightful work is far more interesting than he might have meant it to be with regard to changing early twentieth century notions of class. I had been unable to find an angle that quite worked for me, and "literature and inequality" didn't seem to be quite the right frame (albeit related to it), but I am hopeful that I may now have found an approach that might yield fruit. Where I'd publish the darned thing is another question - it wouldn't be either a book or a law review article.

I'm also now engaged in looking to publish my main work of the last year-plus, covering the era of the pandemic (and the first thing I have ever written entirely at home). It's a completed shortish book manuscript (45,000 words) - I believe quite lively and readable, and with things to say about where we are today as a country - that is currently entitled Bonfires of the American Dream in American Rhetoric, Literature, and Film. 

Tentative NYU Tax Policy Colloquium Plans for Fall 2021

I have been making plans for the fall 2021 NYU Tax Policy Colloquium, against the backdrop of continued pandemic-related uncertainty. Also, my co-convenor for the last three years, Lily Batchelder, may be moving up to better things for the next couple of years. I also have concluded that inviting another co-convenor is more than a bit tricky, given that said person would need to agree to be in NYC for live teaching if things do indeed proceed sufficiently well, pandemic-wise.

Speakers, by contrast, can be (and have been) invited on the basis that they will be able to participate via Zoom even if we are otherwise meeting live. An institutional commitment by NYU to live appearances by those who are teaching a given class (again, assuming that the pandemic sufficiently ends) apparently would not apply to guest speakers. And "hybrid" technologies for live plus Zoom have been in development for the last year.

However, while speakers can participate by Zoom, I simply don't know at this stage whether, in the event that we aren't all-Zoom due to the persistence of the pandemic, we would be able to accommodate Zoom attendees in the audience. In last fall's sessions, much though I missed having live sessions, I was delighted by our ability to draw participants who were many time zones away from us, and who could not have come in person, even absent the pandemic.

So there are a lot of open questions still. But I have decided that, if I'm going to be teaching the colloquium solo, I need to cut it back a bit. A fresh paper every week, with two hours meeting with the students plus a two-hour public session, is simply too grueling - far more effort, for example, than teaching a four-hour lecture class. So I will be cutting it back to one paper and one meeting a week, generally with each paper having a class meeting one week and a public session the next.

As the 2021 fall semester will be 13 rather than the usual 14 weeks, I decided  to schedule 7 public sessions, vs. 6 private ones. But of course we need to start in week 1 with a class session, so that we can start getting to know each other. Thus, the public sessions will be held in weeks 2, 4, 6, 8, 10, 12, and 13.

Another thing I don't know yet is when the sessions will take place. I am hoping that the public sessions will be at 4 pm EST or thereabouts. But they were earlier in the afternoon last fall, reflecting both our Zoom-adjusted schedule and the aim of allowing people to attend from European time zones. In any event, I'm pretty sure that all of the sessions will be held on Tuesdays.

Will we have our traditional small-group dinners after live public sessions? I am hoping so, but it is obviously too early to tell.

I have now scheduled all our speakers. Again, I am hoping that all will appear live and in person. But any of them may and will use Zoom instead if needed. Our public sessions will be as follows:

September 14 - Jake Brooks and David Gamage

September 28 - Daniel Hemel

October 12  Jennifer Blouin

October 26 - Manoj Viswanathan

November 9 - Ruth Mason and Michael Knoll

November 23 - Mindy Herzfeld

November 30 - Alan Auerbach

Link to Ed Kleinbard book event at USC

 I recently posted here about a Zoom book event that was held at USC on March 31, concerning the late Ed Kleinbard's great book, What's Luck Got To Do With It?

The event is now viewable here. Suzanne Greenberg, Ed McCaffery, and Greg Keating all offer excellent comments, after which there is audience discussion. My question (or rather, more of a comment) can be viewed at around 57:27. For some reason I am rocking back and forth a bit as I speak, which I usually have the sense not to do on Zoom (not sure why it happened this time), but the audio is okay even if I half-wish that bit of video could be (or had been) turned off.

Ten quick observations on the Made in America Tax Plan

 The Treasury Department has just released a short document, The Made in America Tax Plan, explaining and describing the main features in President Biden's proposed tax plan that, as I understand it, would be part of the budget reconciliation infrastructure bill.

As I seem to like lists of ten (as shown both here and here), here are ten quick preliminary reactions to what the report says and, in a few cases, doesn't as yet say.

1) The New Progressive Consensus - The report and its proposals are extensively grounded in recent cutting-edge academic research. (Perhaps this should be no surprise, given the list of experts who have joined the Biden Treasury Department - even if I have personal reasons for dissenting from Paul Krugman's statement that "it's hard to find a tax expert who hasn't joined the Biden team"!).

Let me dare to propose here a label for the underlying research. I think of it as the "new progressive consensus" regarding business and corporate taxation. To be clear, I don't mean to assert that there's a new consensus, generally shared among experts and researchers all the way across all methodological and ideological spectra, that happens to be progressive. Rather, among those who are more on the progressive side I discern this broader emerging consensus, which also has broader influence although it is by no means uncontested by those with different intellectual or ideological commitments. (Yes, despite the ideal of empirical economics as a "science," political preferences do indeed tend to correlate with empirical beliefs, and even those of us who are looking at the empirics entirely in good faith may have unconscious biases. There is also reason to think that, insofar as empirical beliefs and policy preferences are correlated, the causal arrow does not run just from the former to the latter.)

Perhaps the core element of the new progressive consensus that the Treasury document relies upon (with extensive research citations) is that, in substantial degree, the corporate income tax falls on excess profits, not normal returns. To that degree, corporate profits can be taxed efficiently and without reducing investment, the incidence of the tax will be borne predominantly by shareholders (and, over the longer term, wealthy holders of capital more generally), and the corporate income tax is a vital tool for achieving vertical distributive justice.

Once one is looking at rents, monopoly profits, and other sources of extra-normal returns, rather than at normal returns (e.g., the pure risk-free return to waiting), policy conclusion after policy conclusion can pretty much take a 180-degree turn. 

A second key element in the new progressive consensus is  that the artificiality of the legal concepts that are used in corporate income taxation - for example, the notion of income as having a geographical source - means that companies often respond to tax rate differences and changes far more through formalistic profit-shifting than through real changes in where they are actually doing particular things. Losing actual domestic "investment" that might have had positive spillovers is different from losing tax revenue due to the "games they play" - especially when the success of the latter is endogenous to the legal rules' particular details.

2) Labor, Capital, and "Capital" - A central policy aim of the report is to reverse the dramatic shift over many decades of tax burdens from labor to capital. I would note, however, that capital here includes "capital" - i.e., that which is reported as capital, for example because it takes the form of stock appreciation that the founders and other owner-employees chose not to pay out to themselves as explicit salary. In conventional speech, labor vs. capital used to denote different groups of people: the workers versus the owners. This then all got muddied, actually at least in part for good intellectual reasons, due to rising appreciation of the facts that workers have human capital and capitalists often work on their own behalf. But the old usage may be returning, for the good reason that it helps one to distinguish between groups whose income is predominantly reported as labor income versus capital income. That can make "labor vs. capital" a good proxy for "the poor and middle versus the top 1 or 0.1 percent," even if much of what we really mean is low-wage versus high-wage.

3) The Corporate Sector Versus the Broader Business Sector - The Treasury document focuses almost exclusively on the corporate income tax, although (as it notes) the US business sector has an unusually large non-corporate component. It notes that this difference does not explain away the fact that US corporate tax revenues, as a percentage of GDP, are exceptionally low by OECD standards. (The OECD norm is about 3%, as compared to, in the US, 2% pre-TCJA and 1% post-TCJA.) While obviously the relative size of the US non-corporate business sector affects these computations, relative to the case where all US business was corporate in form, it is very far from being the whole story, especially given how high US corporate profits have been over the last 15 years.

Still, the non-corporate part of the US business sector is important, too. While presumably this was beyond the report's assigned scope, and might also complicate the politics of enacting desired tax changes, it would certainly be a move in the right direction to supplement the document's proposals with repeal of the egregious section 199A passthrough deduction.

4) Importance of cross-crediting - Turning from broad generalities to the Biden plan's particulars, it advocates switching in GILTI from the allowance of cross-crediting, as between income earned in high-tax versus low-tax countries, to the use of a country-by-country regime. I have in recent work argued that cross-crediting has structurally undesirable tax planning effects even if one holds constant (through the use of other changes) a given regime's overall rigor or burden imposed. The Treasury document emphasizes instead the important point that, with cross-crediting, profit-shifting from the US even to high-tax foreign countries can have a substantial tax avoidance payoff, because seemingly high-tax foreign source income, unlike what is reported as US source income, can be shielded from US tax via cross-crediting.

5) Proposed changes to GILTI - There are three of particular importance here:

(a) raising GILTI's global minimum tax rate from 10.5% to 21% (through a reduction of the GILTI exclusion from 50% to 25%, while the corporate tax rate increases from 21% to 28%), 

(b) eliminating the current rules' exclusion of a deemed 10% return on foreign tangible assets, and

(c) as noted above, shifting from a worldwide to a per-country application of GILTI's 80% foreign tax credit. 

For reasons that I have discussed elsewhere, the latter two changes are significant structural improvements, even leaving aside their effect on the overall tax burden that GILTI imposes. There are also very good reasons to increase the tax rate on US companies foreign source income, pertaining (for example) to profit-shifting and overall US revenue needs.

The other side of the coin, obviously, is the question of whether the tax burdens that this imposes (via taxation of foreign source income) on US companies, relative to foreign companies, could redound to our national disadvantage. The Treasury responds to this concern mainly by (a) noting data and arguments that suggest limited real responses, (b) proposing to strengthen anti-inversion rules, and (c) as the question is not so much foreign source income for its own sake as the use of profit-shifting to avoid the US tax on US activity, proposing to strengthen anti-profit-shifting rules as they apply to foreign multinationals, outside the realm of GILTI. (This pertains in particular to the proposed BEAT replacement that I discuss below.)

A further possible response that may need to be considered as time goes on is expanding the definition of US corporate tax residence. As is well-known, we mainly determine US corporate residence on the basis of US incorporation, whereas most other countries rely on where management or headquarters or a large portion of operations are located. Our approach, though on its face quite formalistic, has actually proved more resilient (even with respect to new companies)than one might have expected, in part due to American incorporation's appeal, e.g., to Americans who are starting new companies and don't yet know if they will succeed in creating wildly successful global brands.

But, the more weight one places on US corporate residence, such as by making GILTI more effective, the stronger the case for considering a broader approach to corporate residence - e.g., extending it in the alternative to companies that are either incorporated OR headquartered here, perhaps with some provision for better coordinating our corporate residence rules with those of peer countries. The Treasury document sticks a toe in these waters, but only insofar as it would extend the anti-inversion rules to certain transactions in which the foreign acquirer is managed and controlled in the US.

6) Replacing the BEAT with "SHIELD" - The Treasury document notes the BEAT rules' poor design and frequent avoidability, leading to their ineffectiveness in curtailing profit-shifting to low-tax jurisdictions. I agree that the BEAT is a failure and ought to be repealed (or else, at the least, be unrecognizably transformed), subject to the point that profit-shifting through the making of US-deductible payments to foreign affiliates in low-tax jurisdictions still needs to be addressed.

The SHIELD proposal that the document sketches out as a replacement certainly sounds worthy of further development. In brief, it would deny US tax deductions for payments to foreign affiliates that are subject, in their own jurisdictions, to a low effective rate of tax. Pending a multilateral agreement between countries to lay this out, the default rate trigger would be the GILTI rate (i.e., 21%).

My scholarship has raised the question of to what extent a country (such as the US) actually benefits unilaterally when it thus disfavors the payment (by a company whose owners include resident individuals) of low, rather than high, foreign taxes. These objections may diminish substantially, however, in the case of cooperative multilateral effort to discourage profit-shifting - which the proposal, in this respect among others, aims to enhance and expand.

7) Buh-bye to FDII - The proposal would repeal FDII, our ill-designed (and probably illegal) export subsidy that can actually encourage outbound profit-shifting and asset-shifting. Given the length of this blogpost already, I will simply say: Hear, hear, and good riddance to bad rubbish.

8) Minimum tax on book income - The proposal retains, but scales back, the Biden campaign's proposal to impose a minimum tax on highly profitable companies' financial accounting income (aka book income). As modified, the minimum tax would apply at a 15% rate to US companies with more than $2 billion of reported profits for a given year. Certain tax credits, including foreign tax credits, would be allowed to reduce this minimum tax liability (which, as a minimum tax, would be payable only to the extent that it exceeded the company's regular corporate tax liability).

As I have discussed elsewhere, I am a bit skeptical about the use of a minimum tax structure here. Also, financial accounting experts, who know a lot more about book income than I do, tend to be resoundingly hostile to giving book income any sort of tax implications. I'm inclined to be respectful of their views on a subject that they know so much about, although I wonder every now and then about whether there might be a bit of a NIMBY aspect to their thinking. (In fairness, tax policy experts are subject to exactly the same thing.)

Even if one concludes that they are wrong, or at least that their concerns are overstated - but equally, if one agrees with them but takes it as given that some such provision is going to be enacted - a lot of hard design work needs to be done to make a minimum tax on book income the best overall instrument that it can be. For example, one issue posed by an annual exemption amount is year-by-year fluctuations in the relationship between annual book income and that amount. This concern extends, of course, to companies that report a financial accounting loss in a particular year, and huge profits in other years. There are also such questions as whether divergences between book income and taxable income that appear entirely "innocent" - i.e., as not actually suggestive (once properly understood) of either tax avoidance or financial reporting manipulation - should be backed out of the computation. But once one allows any of that, what about the danger of further empowering lobbyists to take aim either at financial accounting rules themselves or at their modified use in the book income minimum tax?

One obvious question about the proposal - which the Treasury document describes only in very general terms - is whether there is a notch problem here. For example, does the proposal (a) wholly exempt a company with $1.999 billion of book income in a given year, yet (b) potentially impose a tax liability of just over $300 million on a company with $2.001 billion of book income?

I would presume that the answer is No, and that, as good design sense would suggest, $2 billion is an exemption amount, with the result that only book income above the threshold would face the 15% minimum tax. But the document as written does not (at least to me) make this entirely clear.

9) The broader aim of calling off the race to the bottom and curtailing tax competition - Among the document's key responses to concern that the US would suffer competitive loss, relative to peer countries as well as tax havens, if it raised the effective rate both on US source income and on the foreign source income of US companies, is its advocacy of greater global tax cooperation. It's easy to be skeptical about the prospects of achieving such an aim. But the US has surprised skeptics on this front before, such as in the aftermath of FATCA's enactment. OECD BEPS-related global cooperation has also perhaps, on balance, exceeded the more pessimistic expectations that many (including me) may have had at the time. 

The SHIELD proposal is the document's most direct response to these concerns. As in the case of FATCA, the US would be deploying its global economic clout towards rewarding cooperation relative to noncooperation. Plus, as was the case with FATCA, other countries have something to gain as well, if cooperation in discouraging profit-shifting becomes sufficiently widespread. And it simply is not the case that, say, a lone holdout necessarily undermines the whole thing.

Suppose, for example, that a given tax haven holds out, while everyone else cooperates. It's a matter of OUR law, not the tax haven's, whether we afford legal respect for tax purposes to its determinations that a given company is its resident or that certain global income arose there. Moreover, only so much actual economic activity (if any) can shift to the haven, and what remains in our country - whether it involves production, consumption, residence, or anything else that it is costly to shift - can have its tax consequences depend on what we discern about the company's entire range of global activities.

10) The broader issue of "competitiveness" - There is surely no buzzword more commonly found in discussions of tax, trade, and global economic activity in general than that of "competitiveness." Unsurprisingly, the words "competitive" and "competitiveness" appear in the Treasury document no fewer than ten times.

Reflecting the terms' multifacetedness and ambiguity, the usages vary. For example, the document notes that making the US more productive, such as through well-designed infrastructure investment, would increase the appeal of investing and operating in the US, and employing US workers. Of course, making US people and assets more productive would be desirable (all else equal) even in the absence of global competitive concerns. But it is certainly fair play to invoke competitiveness rhetoric in favor of something that is more broadly desirable.

Otherwise, the document's main uses of "competitiveness" rhetoric are twofold. First, existing tax incentives to offshore investment actually make the US less competitive in the standard use of the term. Second, the competitive pressures in the global race to the bottom can be countered, at least to a significant degree, due both to the market power that the US has, and to the prospects for inducing greater multilateral cooperation.

Edward Kleinbard's What's Luck Got to Do With It?

 I have been meaning for some time to write an appreciative note here concerning the late Edward Kleinbard's outstanding new book - completed by him last year, just in time from a medical standpoint - What's Luck Got To Do With It?

The book is an important contribution, laser-focused on a key aspect of America's greatest current ills, involving the demise of anything approaching equal opportunity, as runaway high-end wealth inequality raises the ladders to be ever more distant from the ground floor.

Shock fact that the book mentions: the government does more to subsidize college education by children from rich families than poor or middle class ones (!). Only in America. This comes on top of the rich families' spending ever more in comparative as well as absolute terms than those below them in the economic scale.

The book follows up on Ed's previous book, We Are Better Than This: How Government Should Spend Our Money in pivoting from a primary tax focus to one of looking at the fiscal system as a whole, with emphasis on expanding opportunity by recognizing how superior peer countries' fiscal policies typically are to ours, with their greater provision of healthcare, education, and other basics.

One key topic of emphasis in the new book is how the ideology that Ed called market triumphalism, and I have similarly labeled as "market meritocracy," poisons the well by creating the false belief that both success and failure in one's career and economic enterprises are wholly deserved. Even if we falsely believed that people had reasonably equal starting points, the new book adduces powerful evidence regarding the dominant role of luck in determining who succeeds or fails, even with unequal "ability" levels on top of seemingly equal starting points.

The book convincingly ties the false downplaying of luck's role to underlying psychological factors. But - I suspect, out of diplomacy, because Ed was seeking to persuade, not alienate, American readers and especially those with potential policy influence - it does not place as much emphasis on how American ideology makes this an especially toxic line of  thinking in our popular culture and politics. This is a topic that I address in my as yet unplaced book manuscript, Bonfires of the American Dream (a kind of follow-up to Literature and Inequality).

One especially interesting aspect of What's Luck Got To Do With It? is its philosophical focus. At a USC Law School Zoom book talk yesterday - the video from which may soon be posted - this topic came up, especially in remarks by Ed's USC colleague Gregory Keating. In general, Ed's philosophical alignment in the new book has some common ground with that of "liberal egalitarianism," as espoused most prominently by Ronald Dworkin. Yet it is to the "right" of Dworkin in one sense, and to the "left" in another sense. (I put the terms "right" and "left" in scare quotes to clarify that I do not mean to link this too closely to the debased state of current U.S. politics, on the increasingly fascist right especially.)

The book is seemingly to the "right" of Dworkin in positing that people should be deemed to have a right to retain the "brute luck" associated with innate ability differences as a matter of birth, and that only brute luck differences from differential environments are fair game for redistribution.

But it is both seemingly and actually to the "left" of Dworkin in positing that option luck differences - from the playout of deliberate choices that we make - should be on the redistributive table as well.

I would disagree with Ed on the first of these two points - considering differences in innate ability an aspect of brute luck that is fair game for redistributive attention - if I were convinced that he were asserting it as a foundational moral principle. But I think the book makes it clear that he is offering this as a concession to win wider acceptance. For example, it describes as "unfair" the fact that taller people have higher average earnings than shorter ones, although it disclaims any effort to address this disparity. The view appears to be that, even with innate ability differences taken off the table - a move that not only comports with some intuitions that we all have, but that may help to encourage people to view themselves as responsible to do the best they can - there is still plenty of scope to make our society vastly more just than it currently is.

By contrast, the sense in which the book is to the "left" of Dworkin is critically important. Dworkin's framework can be used, whether or not he would have done so himself, to justify radically unequal outcomes that reflect, for example, Jeff Bezos' or Mark Zuckerberg's having won winner-take-all contests with huge payoffs, in part because they were simply a bit luckier than their rival contestants. With luck being as important to people's outcomes as the book shows that it is, meaningful egalitarianism of the scope that it had for Ed requires addressing ex post inequality (albeit, still with an eye to incentives) without allowing it to be ruled out of bounds simply because some won and others lost in competitive markets where they all deliberately played.

Genetic isolates

I recently used  one of those services where you send a saliva sample to a lab somewhere for DNA analysis. A part of the study just came back, telling me that I am 99.5% Ashkenazi Jewish, with perhaps a solitary Egyptian (!) ancestor 5 to 8 generations back. (Some tell me, however, that such very low % estimates are not very reliable.)

Mentioning this to friends on Facebook, I found that a whole lot of Jewish people in my age range who grew up in the US Northeast also did tests of this kind, and likewise were repeatedly found to be 98% or more Ashkenazi Jewish.

This suggests a truly striking degree of genetic isolation over many centuries, which of course is now perhaps trending way downwards. It pertains not just to marriage but also to anything else that might have led to children who had children. Given the centuries-long oppression of European Jews, one might have expected more forcible violations of Jews' genetic isolation. But perhaps any such children didn't fare as well for social / cultural reasons.

I also gather that all living Ashkenazi Jews are thought to be the survivors of a population bottleneck, descended from just a few hundred people (at most) who lived in late medieval times. (Were all the other European Jews from the diaspora murdered?) But there is controversy about their Middle Eastern as opposed to European ancestry, with possible gender differences. (Y chromosomes, obviously, pass only through the male line, while mitochondrial DNA passes only through the female line.)

Still waiting for the report on my degree of Neanderthal ancestry. You know the old joke (actually, I think it's mine): "Why am I 98% genetically the same as a chimp, but only 50% the same as my parents, siblings, and children?"

Fun with COVID statistics

 Two apparent facts about COVID-related statistics that I've read about in the last few days.

1) Average wages apparently rose in 2020, due to COVID - but the main reason was that lower wage earners disproportionately lost their jobs. So, with them taken disproportionately out of the workforce, those who still had jobs had higher average wages - wholly without regard to any wage gains from jobs that survived.

2) In the next ten years, it's apparently expected that the surviving American population will be on average healthier, and have longer average expected lifespans, than if COVID hadn't happened. But the reason is that older people who were less healthy than the average, and yet had life expectancies of, say, 5 to 10 years, were disproportionately killed now.

This makes the great human loss from these people's losing years that they otherwise would have had look as if it were actually a gain. After all, if the population were the same and life expectancies increased, that would clearly be good. But just as people's economic welfare declines if they lose their low-wage jobs - but this misleadingly causes average wages to increase - thus prematurely killing off the less-healthy makes it misleadingly seem as if constant-population lives were lengthening.

Mark Twain's famous (and if anything over-familiar) line about "lies, damned lies, and statistics" draws mainly, at least as I have always interpreted it, on the opportunities those citing statistics may have to choose the deliberately misleading. No doubt that will go on here as well. But it's also the case that we can in good faith mislead ourselves with (in these two cases) average figures drawn from a sub-group consisting of the more fortunate, when what we actually (do or should) care about is the larger group, including the less fortunate.

Upcoming session re. "Literature and Inequality"

I think you may have to be registered on the Princeton Class of 1978 website to attend this upcoming Zoom session, but just in case you are (or if it's available more broadly), perhaps this might be of interest:

 “Crisis and Imagination: Inequality and the Work of Literature”

Sunday March 21st, 5 pm ET

 

Dan Shaviro (Wayne Perry Professor of Taxation at New York University Law School) usually writes about tax policy, budget deficits, and Social Security.  So why would he now write a book called Literature and Inequality: Nine Perspectives from the Napoleonic Era Through the First Gilded Age? Do you wonder how such classic fictional works as Pride and Prejudice, A Christmas Carol, and Howards End, through their treatment of wealth, power, and status, might help us understand the growing inequalities in our world today?

 

Please join Dan and Michael Steinberg (Barnaby Conrad and Mary Critchfield Keeney Professor of History, and Professor of Music and German Studies at Brown University) in a discussion moderated by Amy Dru Stanley (history professor at the University of Chicago who studies American slavery and emancipation, law, political economy, gender, and human rights).  Starting from Dan's new book as their point of departure, these three Classmates, all with European Cultural Studies Program backgrounds that they have incorporated into their personal and professional lives, will help us understand their perspectives on the work that literature can do in helping us to understand the world around us.  Dan's book is available on Amazon.com in hardcover and Kindle versions.

I had been waiting for this for eleven months ...

 Not quite 2 hours ago, I got my first COVID vaccine (Pfizer). I became eligible in NYS on February 15, but hadn't been able to do better than scheduling a March 10 shot in the Javits Center. But today NYU Langone, where I see my doctors, notified me that slots were available immediately.

Right around now, I suppose the local forces in my right shoulder are saying: "What the f*** is this?! We'd better contact Headquarters for backup and analysis." Little do they, or for that matter HQ, realize that the central executive function (which I call me) had deliberately arranged this false-flag incursion, for all of our mutual benefit.

Part 1 of my article on digital service taxes has now appeared in print and online

 An article of mine (written in 2019) on digital service taxes has newly been posted here, courtesy of the Singapore Journal of Legal Studies, where it has just appeared. I don't share many American tax policy types' hostility to DSTs. Part 2 of the article will be in the next issue.

Trump and Bin Laden

I've been staying away from general political commentary in this blog, notwithstanding which I have of course been watching recent months' Washington dramas with amazement and a great deal of anger.

But now that Trump appears to be on the verge of being whitewashed by Republicans, and left by them in charge of a major political party from which he can continue to do great harm - although his having been silenced, for now, is incredibly merciful - I'll just make a brief comment here.

Trump is one of two people - Bin Laden is the other - to have orchestrated a violent attack on the US Capitol Building in the last twenty years. (The Capitol Building is believed to have been Flight 93's target.) Both were acts of war against the United States, although Bin Laden's was a foreign attack and Trump's a domestic one. Trump's attack not only came closer to success - they actually breached the building - but aimed to do far more to destroy our institutions and way of life. Bin Laden's was a raid, meant to terrorize and provoke a response that would feed further escalation of ongoing global conflicts. Trump's was meant to decapitate the legislative branch, with accompanying mass murder and hostage-taking, and to put a permanent end to democratic (small-d) governance in the United States.

After 9/11, there was (to say the least) no U.S. domestic support for Bin Laden. Given that what Trump attempted was just as bad, and indeed in some ways worse, it is remarkable that he should retain any domestic support or even tolerance, outside of the most extreme terrorist elements in our country.

Great new development at NYU Law School

 As is detailed here, NYU Law School has just established a new Tax Law Center. My colleagues Lily Batchelder and David Kamin spearheaded its creation, and Chye-Ching Huang is its Executive Director. 

As is more fully detailed here, the Tax Law Center will "seek[] to protect and strengthen the nation’s tax system through rigorous, high-impact legal work in the public interest. Its work includes offering technical input on tax legislation, submitting comments on tax regulations, and intervening in tax litigation, with the goals of protecting and improving the integrity of the tax system, saving and raising revenues, and advancing equity.

"The Center seeks to ensure that there is also a public interest voice—informed by deep tax technical expertise—that has input into the technical legal decisions that shape the tax system."

There is nothing out there today that does anything like this. E.g., the Urban-Brookings Tax Policy Center, which adds immense value to public understanding and debate, is engaged in a completely different enterprise.

The problems that the Tax Law Center can help to address have been well-known, as well as chronic, for more than 60 years. Stanley Surrey wrote about them in an ahead-of-its-time Harvard Law Review article from 1957 (!). As he noted about tax legislation in particular - but it is also true with respect to the tax regulatory process and tax litigation - there is rarely a public interest voice that could counterbalance private companies pushing their own interests.

At times, tax academics have made ad hoc efforts to fill the gap and address the imbalance. During the 2017 act's highly truncated legislative process, Kamin directed the writing and publication of the "Tax Games I and II" articles, pointing out a lot of the problems, that were so widely downloaded at the time. A number of us have also participated in writing and signing amicus briefs in federal tax cases where there was a risk of really bad and poorly informed outcomes. But the Tax Law Center moves towards institutionalizing the creation of an independent, expert voice that can reduce the information imbalances and faulty, biased analyses that can so contribute to bad outcomes.

 NYU may also do well here by doing good. Creating the Tax Law Center strengthens and expands our tax law community and enterprise, while also bringing opportunities here that are not so available elsewhere.

Horrible and tragic news

 I'm extremely saddened to learn, via Tax Prof although the underlying link is here, of David Shakow's death from COVID-19. David, an emeritus professor at U Penn Law School, was a friend and treasured colleague (though we were not at the same school) for many years. He was not only a first-rate scholar but a kind and gentle person who was great company. 

This news also makes me angry (or angrier) about the criminal indifference to COVID's spread that warped this country's response to COVID at least through yesterday (January 20). When you look at excess COVID deaths, in proportion to population, in the US as compared to peer countries, you see that there are people with blood on their hands who ought to be punished for their reckless indifference to our people's welfare and their own responsibilities.

But I don't wish to hijack this comment away from praising and remembering David. Just one example of his excellent work is this piece, coauthored with his Penn colleague Reed Shuldiner, that was twenty years ahead of its time.