Tuesday, June 30, 2020

Another, much briefer, Ed Kleinbard tribute

Today at a Zoom conference I was asked to offer brief words about Ed Kleinbard. Not wanting to repeat myself entirely, I said approximately the following:

Ed was a great personal friend, but today I want to emphasize the professional side.

He became the most respected and admired practicing tax lawyer in America – but that wasn’t enough for him. He saw how much of the tax law is arbitrary and formalistic. But instead of concluding “Ah, it’s just a game,” he decided to change his career at age 55, which is incredibly brave, and not at all easy. It brings to mind Michael Jordan going to play baseball, except Ed succeeded.

He combined an incredible understanding of capital income taxation, including its international components, with a zeal for doing good in the world, through the use of logic and rigor. He was brilliant and boundlessly energetic, and made a number of major contributions. Just to name two: his work in bringing “stateless income” to wide public attention. And, his grossly under-appreciated work on the business enterprise income tax or BEIT, paired with dual income taxation.

He also has a book coming out next year with the Oxford University Press, called “What’s Luck Got to Do With It?” It’s about fairness, opportunity, and the importance of luck, but of course with a specific policy focus as well. I and others aim to make sure that it does come out as scheduled, although, given the projected publication date, it may not yet have been copy-edited.

As a mutual lawyer friend noted to me yesterday, Ed “didn’t suffer fools and mountebanks well.” Of course, you didn’t have to be one to get into a policy argument with him! (As a number of our mutual academic friends can testify.)

He also does not seem to have liked it when people’s work was sloppy or careless. This reflected his belief that people should care about doing things well.

We can all learn from Ed – certainly I can – that what we’re doing in tax scholarship isn’t just art for art’s sake, although that matters too, but is also moral, both because it affects people and because it’s right to try to do things well, not poorly.

I’ll miss him, and so will our field.

Zoom talks online

You can now see online the Zoom paper presentations that 11 tax scholars, including me, gave at the Critical Tax Conference a couple of months back. With closed captioning, no less. I discussed my minimum tax paper, which I also discussed today via Zoom at the Oxford Tax Policy Centre's annual symposium.

The link for the 11 Critical Tax Zoom talks is here. I'm the eighth one down.

Monday, June 29, 2020

In memory of Ed Kleinbard

I wanted to express my very great grief, both personally and professionally, regarding the death of Ed Kleinbard, who succumbed last night to a vicious cancer that he had been fiercely, bravely, and creatively battling for many years.


I'll start by repeating some words written by Joe Bankman. Then I'll switch to a personal note.


From Joe: “Ed spent the first 25 years of his career in practice, where he helped shape the tax treatment of derivatives and wrote academic and practical articles on tax reform.  He served as Chief of Staff to the Joint Committee on Taxation from 2007-2009, and then accepted a full-time appointment at USC in 2009.


“In the next ten years, Ed wrote over a hundred pieces, ranging from books, to book chapters, long law review articles, and op-eds.    He was one of the two or three most widely-read, and influential, tax scholars in the country.


“He is perhaps best known for his work on corporate tax avoidance.  He coined the phrase ‘stateless income’ to describe the ability of multinationals to site their worldwide income to tax-haven countries with zero rates of tax.  Most of his writing is on distributive justice.


“Ed was a friend and co-author.  He was funny, loyal, passionate, and acerbic.”


On my own personal note: I heard about Ed long before I first met him. He was a legend in the NYC and national tax bars – among people who don’t take easily to viewing others as legends. But in his case one had no choice - he stood out like a star among planets.


The first time I ever met him was at an NYU Tax Policy Colloquium. He arrived 5 minutes late, hence didn’t introduce himself at the start. As it happened, at that session, I kept praising what I called important work by a man named Ed Kleinbard. (It concerned a piece he had written on “tax cubbyholes” that did an extraordinary job of explaining how tax law converts the multidimensional continua of real world financial instruments into discrete, manipulable, discontinuously treated categories. This was a novel point when Ed first made it.)

Meanwhile, Ed had a lot to say at the session, and a couple of other NYC tax practitioners in the room kept calling him “Eddie” (a form of address that I don’t think he preferred). Finally I asked him who he was, he said “Ed Kleinbard,” and everyone laughed because of how I had been praising his work. Someone told me afterwards that, if I had known who he was all along & been playing dumb in this way, it would have proved I was a natural Dean candidate. (But of course no such bad luck.)


I soon became good friends with Ed, who by this point was close to his career change (Joint Committee of Taxation chief of staff, then law teaching & scholarship). Indeed, I wanted to recruit him to the NYU law faculty, although this did not end up happening. I always learned from him, and always found him delightful. A true polymath, among other things.


Because the academic world, like so many other realms, is at times a social club, some of his work did not receive as much respectful attention as it deserved. I have here particularly in mind his work on reforming the corporate tax (and capital income taxation more generally), such as through the business enterprise income tax (BEIT) and dual income taxation. Far worse ideas than his - which is a very good one - have gotten far more attention than the BEIT ever did.


Ed is the second great friend of mine in academics to die tragically before his time. The first was David Bradford. (I’d also count Walter Blum, but at least he got to live into his 70s before succumbing, also prematurely, to cancer.) Each one’s death leaves me feeling bereft – not that it is about me. I would so like have dinner with each of them again, and discuss things of mutual interest, both personal and professional.


The last time I saw Ed was at USC last December, where I flew out to give a talk. As it happened, the day before I flew out there, I had a terrifying health scare, which turned out NOT to materialize. (I.e., a preliminary test raised the possibility of something very bad, but a follow-up test that I had the next week showed that I was actually okay.)


With that potential bad news haunting me, I stepped into a restaurant in downtown LA to meet Ed for dinner, the night before my USC talk. Almost his first words upon seeing me were that I didn’t look so good. We talked it out, and he was incredibly encouraging, as well as empathetic and enlightening given his own  health issues. He also offered great advice in the event that things should turn out badly, in the follow-up test, rather than well. I almost felt as if I had let him down by turning out to be okay.


I remember thinking afterwards that there wasn’t anyone in the world, leaving aside immediate family, who could have been so supportive and encouraging, as well as concretely helpful, as Ed was in that conversation. (Knock on wood re. my escape: and, for ALL of us, any such reprieves are only temporary.)


I am sure I am not the only one who wants to think about how best to honor Ed. One or more public events honoring both him and his work should certainly be a part of this, even if it has to be held via Zoom. Something ought also to be published as a part of this, with many people’s contributions. I hope to be able to hear &/or say more about this in the days to come.

Friday, June 26, 2020

NYC Tax Policy Colloquium - time finally set

In my earlier post about this year's Zoom-only Tax Policy Colloquium, I noted that the time for our PM sessions had not been set. After internally discussions we've now been able to put it at 2 to 3:50 PM, EST, on fall semester Tuesdays.

One advantage of this time, we hope, is that people from California to Europe will find it feasible. Probably a tougher sell in, say, Australia, but one can always hope.

As noted earlier, we're planning a cocktail or tea time after the session, for a small group by Zoom. Given the time of the sessions, these probably won't happen right afterwards, but perhaps at 5 or so EST, varying with the presenting authors' preferences. (And we'd probably skip a given session if the author opted out.)

Finally, here again is our schedule for the fall semester:

1.                         Tuesday, August 25 – Steven Dean, NYU Law School
2.                         Tuesday, September 1 – Clinton Wallace, University of South Carolina School of Law
3.                         Tuesday, September 8  – Natasha Sarin, University of Pennsylvania Law School
4.                         Tuesday, September 15 – Adam Kern, Princeton Politics Depa't and NYU Law School
5.                         Tuesday, September 22 – Henrik Kleven, Princeton Economics Department
6.                         Tuesday, September 29 – Leandra Lederman, Indiana University Maurer School of Law
7.                         Tuesday, October 6 – Michelle Hanlon, MIT Sloan School of Management
8.                         Tuesday, October 13 – Steve Rosenthal, Urban-Brookings Tax Policy Center
9.                         Tuesday, October 20 –Michelle Layser, University of Illinois College of Law
10.                      Tuesday, October 27 – Daniel Shaviro, NYU Law School
11.                      Tuesday, November 10 – Owen Zidar, Princeton Economics Department
12.                      Tuesday, November 17 – Abdoulaye Ndiaye, NYU Stern Business School
13.                      Tuesday, November 24 – Lilian Faulhaber, Georgetown Law School
14.                      Tuesday, December 1 – Erin Scharff, Arizona State Sandra Day O’Connor College of Law

Monday, June 22, 2020

The Supreme Court denies cert in Altera

Yay, the Altera case is finally over, as the Supreme Court denied the taxpayer's petition for a writ of certiorari.

Given how the 2017 tax act changed the relevant law going forward, this case really was not cert-worthy. Plus, in my view and that of many of my colleagues in the international tax policy community, the taxpayer's case was extremely weak, even though it somehow won (unanimously!) at the Tax Court level. The view taken in Treasury regulations, to the effect that taxpayers could not (still further) game the cost-sharing regulations between themselves and tax haven subsidiaries by disregarding incentive compensation, was clearly correct on the merits, and had ample support within relevant existing law.

Plus, the taxpayer's challenge to the adequacy of the Treasury / IRS response to their (in my view) feeble arguments at the Notice & Comment stage not only was itself feeble, but threatened to undermine Treasury preambles as a useful document for taxpayers, by converting them from an explanation that tries to be helpful into a pre-litigation document.

Had the Supreme Court granted cert here, it would probably have betokened either confusion on their part, or a breathless eagerness to find cudgels to throw at the IRS and Treasury (or perhaps regulatory discretion more generally).

Insofar as there are still open disputes on the Altera issue winding their way either through the audit process or the courts, one hopes that all parties will have the good sense simply to settle them without much further ado - perhaps on IRS-friendly terms given the case's 9th Circuit outcome.

Familiar tax rules in unusual times

According to a WSJ piece (subscription required) from last Friday by Richard Rubin and Theo Francis:

"U.S. companies brought home $124 billion in foreign profits in this year’s first quarter, the highest level since an immediate rush after the 2017 tax law, according to data released Friday by the Commerce Department.

"The repatriations, made just as the coronovirus-related recession was starting, were a sign of how much companies may have needed cash in their U.S. operations."

This is interesting in relation to thinking about international tax policy, as it reminds us of how contingent and changeable our core assumptions may be, even if based on years of observation and experience. Let me back up to explain.

Until the 2017 tax act, U.S. international tax law had a rule called deferral, under which foreign source income (FSI) earned through foreign subsidiaries wasn't taxable to the U.S. parents until it was repatriated for tax purposes, such as through the payment of a dividend. The rule's origins rested on absurd formalism: the notion that there was actually a meaningful separation between a U.S. parent and wholly-owned foreign subsidiaries (as distinct from foreign branches), simply because they were separate legal entities. The reason the rule persisted for so long was that it was generally contested (both politically and intellectually) how resident multinationals' FSI ought to be taxed, given that (a) the companies' domestic source income was (at least in principle) being taxed here, and (b) nonresident companies' FSI (from our perspective) wasn't being taxed here.

So maintaining deferral, subject to the repatriation tax, was an absurd ceasefire in place that persisted simply because how best to replace it was unclear. The 2017 tax act, for all its faults and foibles, did at least offer up some sort of solution, in which deferral was repealed but the domestic taxability of resident companies' FSI otherwise increased (through the transition tax plus the enactment of GILTI).

One common assumption that guided the entire debate was that US multinationals'' repatriation decisions were extremely tax-elastic. At the core, repatriation is completely meaningless economically IF their internal capital markets function entire seamlessly. While it was known that this wasn't 100% true - causing "lock-in," as companies awaited tax holidays or the repeal of deferral - to create some deadweight loss - it was deemed sufficiently true to be a good basic operating assumption, subject to one's remaining aware of the need for nuance. Second, it was thought to be the case that big U.S. companies generally weren't enormously cash-constrained, and that, for example, even if their U.S. domestic investments were sometimes quite low, e.g., during recent recessions before the current one, this had more to do with a shortage of appealing investment opportunities than of cash.

Maybe this time would have been different. That is, consider again the $124 billion that just came home due to an apparent rise in hunger for available cash. (If it was brought home for other reasons, such as fearing that the funds would be less "safe" otherwise, that might not change the analysis).

This money came home in the absence of adverse tax consequences - at least, from the repatriation itself; subsequent tax burdens from how the cash is used may still end up being affected. So we don't know how much of it would have come home in the presence of a repatriation tax (which would itself have depended on the companies' broader tax positions and ability to use further tax planning).

But if we accept that bringing the money home did matter more than it usually would have, then we get two likely conclusions:

(1) the U.S. Treasury would have gotten unusually high tax revenues from the repatriation tax under 2020 circumstances, making the repeal of deferral more regrettable than it might otherwise have seemed (subject to macroeconomic concerns about getting the $$ now rather than during an upturn), and

(2) the deadweight loss from cases in which companies decided NOT to bring the money hom,e given the tax bite would have been higher than usual under 2020 circumstances, making the repeal of deferral more welcome (i.e., less regrettable) than it might otherwise have seemed.

The overall takeaway depends in part on the relative magnitude of these two effects, i.e., on what would have happened under the counterfactual. We don't know, and it might not be the most desirable place in which to deploy scarce revenue-estimating resources. But the broader point, that things we take for granted may sometimes change, is worth more generally having in mind.

Wednesday, June 17, 2020

Trying to think outside the proverbial box - aka, is having to use Zoom a problem or an opportunity?

As the summer continues to hurtle forward far too fast (and, yes, I realize it isn't even June 21 yet), the fall semester NYU Tax Policy Colloquium is also growing near. Our first session will be held on Tuesday, August 25 (!!).

A couple of important points here:

First, it will be all-Zoom and only Zoom, even if NYU Law School sticks to its current plan of trying to hold some live classes on campus.

Second, I am delighted to be co-teaching it with Lily Batchelder again. She will be in Washington, not New York, although that is only one of the reasons why we are going all-Zoom. We would have done so in any event.

Third, we don't yet know WHEN the public sessions in the afternoon will be held. The PM sessions have always been from 4 to 6 pm EST. But a preliminary schedule we got from the law school indicated that it would be pushed back to the evening. Only, since that is based on the attempt to accommodate people safely in the law school building - requiring extended transition times between class sessions - we are hoping that we can move it back to the late afternoon given that we will be all-Zoom.

Our private AM sessions with students, by the way, also on Zoom, will be meeting on Monday afternoons. We are brainstorming how to make this as human and live-like as possible, given that we won't be meeting with the students in an actual physical classroom.

But here is the potentially great thing about the PM sessions. They can be attended by people anywhere in the world. We will send out our usual email invites, and people who say they are coming will be sent a Zoom invite. And these will indeed be Zoom sessions, not webinars, so people will be able to participate verbally and be physically viewable on-screen as they do so. Lily and I will both have sufficiently upgraded our Zoom games by then (we hope), so that we can properly host and maintain order while also making it as broadly participatory and community-like as possible.

Here are two questions for readers who think they might attend. (You can answer me by email, preferably to posting a comment on this blogpost.) First, since the PM session times are still uncertain, what sort of time would be ideal for you? We hope to find out soon whether earlier than in the old days is possible, no less than later. Obviously, if you aren't in the eastern US timezone, that is likely to affect your preferences, and we'd like to know.

Second, we always had small group dinners after the PM sessions, but that obviously isn't going to be happening this year. But here's a thought - what if we had a small group Zoom dinner or cocktail party afterwards? These of course are only notionally such - the idea is just that you might have your own drink or food while you Zoom-chat with the rest of us. We'd probably aim for a group about 8, would include some of our students (if interested) in that number, and might only do it in weeks when the speaker was interested in participating. But again, I'd be interested in hearing offline if that is of interest to anyone.

Finally, here once again is our schedule for the fall semester:

1.                         Tuesday, August 25 – Steven Dean, NYU Law School
2.                         Tuesday, September 1 – Clinton Wallace, University of South Carolina School of Law
3.                         Tuesday, September 8  – Natasha Sarin, University of Pennsylvania Law School
4.                         Tuesday, September 15 – Adam Kern, Princeton Politics Depa't and NYU Law School
5.                         Tuesday, September 22 – Henrik Kleven, Princeton Economics Department
6.                         Tuesday, September 29 – Leandra Lederman, Indiana University Maurer School of Law
7.                         Tuesday, October 6 – Michelle Hanlon, MIT Sloan School of Management
8.                         Tuesday, October 13 – Steve Rosenthal, Urban-Brookings Tax Policy Center
9.                         Tuesday, October 20 –Michelle Layser, University of Illinois College of Law
10.                      Tuesday, October 27 – Daniel Shaviro, NYU Law School
11.                      Tuesday, November 10 – Owen Zidar, Princeton Economics Department
12.                      Tuesday, November 17 – Abdoulaye Ndiaye, NYU Stern Business School
13.                      Tuesday, November 24 – Lilian Faulhaber, Georgetown Law School
14.                      Tuesday, December 1 – Erin Scharff, Arizona State Sandra Day O’Connor College of Law

Thursday, June 11, 2020

Altera certiorari

I've blogged occasionally (such as here and here) about the Altera case, in which the Ninth Circuit (reversing the Tax Court) upheld a tax regulation that limited a U.S. multinational's ability to engage in transfer pricing shenanigans with a wholly owned tax haven affiliate under the cost-sharing rules. I also joined in an amicus brief to the 9th Circuit, urging that they reverse the Tax Court's uncharacteristically misguided ruling in the case.

The taxpayer in Altera is seeking certiorari, and the Supreme Court will consider the petition later this month. As Susan Morse and Steve Shay note here, the government brief has far the better of the debate, and cert ought to be denied.

Morse and Shay further note that there is relatively little of broader legal interest at stake in the case, at this point in the U.S. international tax regime's evolution, because it's mainly a backward-looking issue about a narrow question: whether "the government changed its tune. But to the contrary, the government has been singing the same tune for two decades or more."

What worries me is that the Supreme Court's dominant five may be looking opportunistically for a chance to flog the IRS and regulatory discretion (other than when they like it) more generally, and may be too ignorant and indifferent to the actual legal context here to be much put off by Altera's unsuitability for such a purpose. If they both properly understand the issues here and are acting like judges, rather than legislators, then a grant of certiorari ought to be most unlikely. But these days one never knows.

Tuesday, June 09, 2020

Updated minimum tax paper

While noteworthy things keep happening around the United States and indeed the world, I have been continuing my shelter-in-place and doing some work. I have just now posted on SSRN a revised version of my paper, What Are Minimum Taxes, and Why Might One Favor or Disfavor Them?

This version takes advantage of excellent comments that I received from several readers, and also has a new, very short intro. It also has a much shorter and more to-the-point abstract, which goes like this:

"Minimum taxes (including global minimum taxes) have serious drawbacks, and generally make sense, if at all, only if otherwise superior options must be ruled out for reasons of optics or political economy. Yet, given the “compared to what?” question that haunts all real-world tax policymaking, one cannot reasonably say that they should never be used. Still, any such use should generally be contingent, reluctant, and based on understanding their structural deficiencies."

You can find the paper here.