Friday, March 10, 2017

NYU-KPMG 17th Annual Tax Symposium at NYU Law School

Just now at NYU, I participated in the mid-day debate session at this year's NYU-KPMG Tax Symposium.  This year's session was entitled "U.S. Tax Reform - A Perfect Storm."

We had four interesting propositions to discuss (or five, depending on how you count), but not only did the debaters tend to agree on them all - so did the audience. They have people vote after each proposition through little hand-held devices, and each time one side won the support, not merely of all the panelists, but also of close to 80% vote of the audience.

The propositions, and what I had to say about each, are as follows:

1) Should the Blueprint's destination-based cash flow tax with border adjustments replace the corporate income tax?
The NO side carried this by what would prove to be the usual huge margin. Our panel met right after Michael Graetz had discussed his proposal to enact a VAT and use the revenues to lower the individual and corporate income taxes (including through a $100,000 exclusion amount for the former). Graetz had argued that his proposal pretty much accomplishes everything the DBCFT is meant to accomplish, and I decided to use that as an entry point for my brief remarks. I said: It's kind of as if they had decided to enact Graetz's plan, but only as gratuitously modified to make a horrible mess of it.  In particular:

a) Graetz would keep the corporate income tax, but lower the rate to 15%. The Blueprints, by repealing it, would in effect go all the way to zero. For time reasons I just said: I agree with Graetz not the Blueprints on this one, but there are arguments on each side and it's a legitimate debate.

b) Due to the wage subsidy, the DBCFT runs into big problems with taxpayer losses that (unlike a typical VAT) it would make nonrefundable. Thoughtful commentators have argued that the interest charge is likely, in practice, to fall well short of fully addressing these problems.

c) The VAT Graetz has in his plan would be WTO-compliant. The DBCFT is highly likely to violate the WTO, and thus risks leading to a trade war or requiring prompt repeal.

d) The DBCFT strips out all of the features in the Graetz plan that aim to address revenue and distributional issues.

e) The DBCFT is a novel instrument that it will be tricky to get right, and I lack confidence that the people designing it will be able to get it right within the time they will have. This is not a knock at the staff, but at the leadership and how I gather they plan to rush it through.

1-a) If NO above, should the plan be adopted without border adjustments?
Once again, NO by acclamation. The specific question proposes increasing the proposed 20% rate to make up for the short-term revenue effect of dropping border adjustability. So I suppose it would mainly amount in practice to a smaller rate cut, still with expensing and net interest nondeductibility.

I mainly addressed the rate cut, saying there's a wide consensus about cutting the statutory U.S. corporate rate within a broader set of changes.  I agree that this should be done in the right way, but do not think that this Congress or Administration would do it anywhere close to right.

2) Should the U.S. adopt a VAT and use revenue therefrom to pay for significant personal and corporate income tax rate cuts?  (A la, via the Graetz plan.)
YES by acclamation. I said yes, depending on how the VAT revenues are used in terms of the full budget package. VATs in isolation are regressive but are commonly parts of fiscal systems more progressive than that in the U.S.  I differ from Graetz in that I would use only some of the revenues to cut income taxes, while using others to fund things that I believe the government should be doing (e.g., with regard to healthcare, education, and infrastructure). But I consider Graetz's proposal, not merely a great deal better than present law, but probably also a whole lot better than anything that's at all likely to pass, be it now or in the foreseeable future.

3) Should FATCA be repealed as part of U.S. tax reform?
All panelists, and apparently the audience, agreed that this would be crazy, after all that the U.S. has done to get global coordination around FATCA. Since it was genuinely uncertain, when FATCA was enacted, that it would work out as well as it did, I compared repeal today to putting your chips on red at the roulette wheel and then, when the wheel comes up red, pulling them back off without collecting your winnings. But I and others did agree that the burdens the U.S. income tax system generally - not just through FATCA - places on nonresident citizens ought to be addressed. Whatever one's ultimate views on citizenship taxation, there's currently way too much burden being imposed relative to revenue collected.

4) Should Chevron deference be given to Treasury regulations that construe the Internal Revenue Code?
This would mean that the courts would evaluate each legal issue resolved by a tax regulation de novo, rather than giving affirmative weight to what the Treasury decided.  Under Chevron, the administrative agency's interpretation of an ambiguity in the statute must be reasonable, even if the court thought some other interpretation was more reasonable still.  Without Chevron, the court would simply decide what interpretation it felt was the most reasonable one. 

Once again, YES (for retaining Chevron deference in tax) by acclamation. Other panelists noted the Treasury's superior tax expertise in interpreting and fleshing out complex statutes than one would expect from generalist federal judges. I noted that taxpayers often place a lot of value on certainty, which would likely be sharply reduced by this change. So they might be unhappy about it on balance even if they were glad that, in particular cases where they dislike a regulation, it would strengthen their hands.

I think of the move to overturn Chevron as part of the contemporary Republican war against the administrative state.  Even if one is more sympathetic to that war than I am, tax may be an example of an area in which the people who are subject to the regulation would be far less enthusiastic about it than they might be in some other areas. I noted by analogy that, when Justice Scalia was waging his holy war against the use of legislative history, it was my impression that tax legislative history is widely viewed by people in the field as serving a far more benign role than Scalia saw it as having.

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