Wednesday, October 26, 2022

Tax Policy Colloquium for October 25: Alex Raskolnikov's Should Only The Richest Pay More?

Yesterday at the colloquium, Alex Raskolnikov presented Should Only the Richest Pay More?, a paper which I believe has been receiving a bit of well-deserved attention on the conference etc. circuit.

While reading it, I thought of Voltaire's famous (although probably apocryphal) statement: "I detest what you say, but I will defend to the death your right to say it."

Here, by contrast, I was thinking: "I generally agree with what you say, but a part of me wishes that you wouldn't say it!"

The paper starts by suggesting that the upper income echelons in our society might reasonably be divided into 3 groups: the really rich (the top 0.1%), the pretty rich (the rest of the top 1%), and the affluent (the rest of the top 10%). As the paper shows, 

The "really rich" earn at least $2 million a year. Often they are top executives, superstar lawyers or doctors, or highly successful business owners and real estate or finance professionals.

The "pretty rich" earn between $500,000 and $2 million a year. Often they are successful doctors, lawyers, engineers, software developers, or mid-level executives, along with a few academics in select fields.

The affluent earn between $150,000 and $500,000 per year (although here as well as above one might want to consider the relevance of regional adjustments). While this group is highly heterogeneous, recent college or professional school graduates may enter it promptly upon becoming Big Law associates, practicing surgeons, or software engineers at top tech companies.

The paper makes three main arguments: 

(a) Much recent tax policy talk in the biz has overly distinguished between the top 0.1 percent and others in the top 10 percent. This has occurred at the level of both diagnosis (discussing whose economic blast-off from the lower echelons has adversely affected society as a whole) and tax policy prescription (whose taxes should be increased in a progressive tax reform that aims both to raise revenue and to mitigate rising high-end inequality).

(b) Progressive tax reform proposals, which often these days are limited to the top 0.1%, should at least consider raising taxes on the entire top 10%. Even if concerns about political feasibility weigh against the broader reach, it should at least be more on the table in academic discussions.

(c) The recent literature's deafening silence on such a broader reach (this is my phrase, but I think it expresses the paper's view) merits interrogation.

To illustrate the shift, consider progressive tax reform plans from 20-ish years ago, such as Michael Graetz's plan to replace the income tax on up to the first (say) $100,000 of income with a VAT, or Bruce Ackerman's and Anne Alstott's plan to use a wealth tax to fund cash grants that people would start receiving at age 18. Both had a broader reach at the top than recent plans to, say, impose wealth taxes, or else to tax accrued but unrealized capital gains, but with these proposals applying only at the very top of the income spectrum. The paper argues that, while it's one thing for Elizabeth Warren or the Biden Administration to aim proposed tax increases purely at the really rich and perhaps the pretty rich, it's another thing for academic commentators, who need not be limited in all their writing by political feasibility concerns, to avoid all consideration or even discussion of extending progressive tax increases to the affluent.

As the paper notes, one can see this shift happening in real time in, say, Piketty et al's work over the last 20 years. And in popular culture, one can see it in the 2011 Zuccotti Park Occupy Wall Street protests, which distinguished between the top 1 percent and everyone else. But to the contrary, the paper argues, the affluent resemble the top 0.1 percent in the extent to which they both (i) have gained economically in recent decades, relative to everyone else, and (ii) have contributed, through their rise, to the broader social ills that many (myself included) attribute to extreme high-end inequality.

Here I will offer 2 types of comments: critiquing the paper's main arguments, and seeking to explain the attitudinal changes that it notes.

1) Critiquing the paper's main arguments - I agree with the paper's conclusion that there is enough continuity, as we march down the economic scale from the really rich through the pretty rich to the affluent, to suggest that tax increases for all ought to be on the table from a progressive standpoint (which I share with those whom the paper critiques). But I think that in some cases the current draft overstates the similarities between these groups. In other words, I think the differences are greater than the paper allows, albeit not great enough to support the sharp distinctions between the groups that the paper criticizes. Just to pick a couple of main areas (there are more in the paper than I will seek to review here):

a) Political and cultural influence - The paper argues that the affluent may have as great (and democratically disproportionate) an influence on US political outcomes as the really rich, who have been widely blamed (including by me) for exerting plutocratic power.

I agree that the affluent are very powerful in certain narrow realms of particular interest to them. Consider the politics around §529 plans (and short-lived proposals to reduce their tax benefits), or around tax subsidies for retirement savings that do far more to benefit their retirement saving than that of people who really need help in this regard. Or concerning SALT deductions, even though (to date) the coastal affluent have not been able to reverse their losses from the 2017 act.

But I believe that the super-rich have far broader, more pervasive, and more agenda-setting influence. Consider the long-plotted, well-funded plan now recently crowned with success, to capture the Supreme Court and much of the federal judiciary for Federalist Society ideologues with a consciously anti-democratic agenda. Or consider the decades-long anti-tax and anti-regulatory campaigns that have been funded through right-wing think tanks as well as through campaign contributions. Or consider big-donor dark money, whose rise since the Supreme Court more fully unleashed it has been pervasive (even if deployable to a degree by Democrats as well as Republicans).

On the cultural front and with regard to public discourse, note how the likes of the Murdochs and Fox News, Zuckerberg and Facebook, and perhaps soon Musk and Twitter can shape things for all of us. It's true, as the paper notes, that these institutions are staffed by members of the affluent class. But does this really democratize them, even just from the 0.1 percent to the full 10 percent, given under whose direction the well-paid flunkies are laboring?

b) Keeping up with the Joneses - Bob Frank and others (including me) have discussed the importance of relative position to people's wellbeing and behavior. Thus, for example, when people in one's reference group start having fancier weddings or living in bigger houses, one may feel a need to match them just to avoid losing ground in either status competition or one's own feelings of personal satisfaction. The paper notes that one's reference group often prioritizes those who are equal to or just above oneself economically, as opposed to those all the way at the top.

While there is certainly some truth to this, there are prominent social science theories (such as those of Veblen as well as Bob Frank) suggesting that radiation down from the top has a pervasive influence on the entire process, even if it in effect functions one step as a time. This happens to fit my own intuitions about how these social processes operate, although I recognize that there are unresolved empirical questions here.

c) Comparative rate of progress - As the paper notes, in multiple studies of how wealth and income distribution have changed in recent decades, the relative gains of the top 10 percent appear to rival those of top 0.1 percent, while everyone below has relatively stagnated. (The pretty rich have also gained somewhat less in comparative terms than the really rich or the affluent.) The gains of the affluent reflect increased "skill bias" in the labor market, rewarding the well-educated with good college and professional degrees, while the gains of the really rich reflect rising globalization and economic concentration, resulting "tournaments" with a few big winners, the rise of rent-seeking, IP's growing role, etcetera. So, if one is concerned about relative change, both groups should be kept in mind.

But on the other hand relative change in position is not as such what matters the most. While it raises transition concerns, arguably today's statics (and what we expect in the near future) have greater normative weight than what things used to look like. For example, if today the positions of the affluent and/or the really rich have negative effects on the rest of society, how much does it matter whether these effects are new as opposed to having been around for decades?

There's lots more in the article that I won't touch on here. But, in general, I agree that, even if the paper might overstate a bit the extent to which the current positions of the really rich and the merely affluent present exactly the same issues, I agree that the issues posed are similar enough to support the paper's conclusion that progressive tax policy thinking should look more broadly, and that there is a strong case for raising taxes on the affluent as well as on the really rich. And yes, even if political feasibility concerns support the narrower scope, the broader reach should at least be on the table (more than it now is) in academic discourse.

2) Why the changes in attitude? - If the reach of academic discussions of progressive tax changes has narrowed in the last two decades, and I agree that it has, what might explain the shift? In the mode of explanation rather than justification, I think the key change is that things have gotten so much darker and more dystopian in our country since the era of the Graetz and Ackerman-Alstott proposals.

a) Political feasibility - It's not just that one's proposals may have little chance of being enacted unless they hold harmless the bottom 99 percent of the distribution. The bigger problem is that Republicans and the right have weaponized and debased tax policy talk, making responsible budget talk about needed long-term tax levels close to impossible.

There's a "Nixon goes to China" thing going on here. Only a responsible person on the right could safely bring broader-ranging tax increases back into public discourse. And unfortunately that appears to be a null set or oxymoron, in sharp contrast to 1980s US politics.

Plus, those on the right who would attack any broader-ranging tax increases are not merely undermining long-term revenue adequacy and distributive justice - many of the same people are also actually trying to overthrow American democracy. This creates an environment in which even independent-minded academics could reasonably think: If I don't align with the Democrats' (politically constrained) tax policy discourse, I might actually be aiding the cause of galloping American fascism.

I'm not saying here that this feeling is correct - that is, that one shouldn't conduct a broader progressive tax policy discourse due to the grotesquely and indeed transparently malignant evil that is triumphantly on the march in America today - but rather that it may influence (even if unduly) the questions one poses to oneself and the issues that one chooses to write about.

b) Who's to blame? - Twenty years ago, the main concern among progressive tax policy analysts was simply that personal welfare and economic opportunity were too unequally distributed. Hence, even if one was merely affluent, it was easy to see that others were worse-off and had fewer opportunities than oneself and one's children, and that one ought to support doing something about this.

Today, by contrast, there is a widespread sense (which I share) that things have gone darkly wrong in our society, and that this may have something to do with the rise of high-end inequality. So people are looking for scapegoats or villains.

The paper captures this current spirit, asking such questions as "Who ruined the American Dream?" and "Who sapped the American spirit?" These are not questions that the likes of Graetz or Ackerman-Alstott were asking in the more halcyon era of the late nineties and early aughts.

Once one is viewing high-end inequality in this way, I think it becomes psychologically more uncomfortable to include oneself among the targets of progressive tax policy than it was 20 years ago. It's one thing to agree that one is doing pretty well and others less so, and quite another to include oneself in the roster of those who one deems responsible for the awful current state of things.

Again, I offer this suggestion by way of explanation, not justification. It certainly makes me want to focus more on the top 0.1 percent than the top 10 percent, even if I ought to be focusing on both.

Friday, October 14, 2022

Cheat sheet / Admittedly a cheap shot

In my Law / Literature / Social Sciences class at NYU Law School, we read The Great Gatsby 2 weeks ago, and we'll be reading The House of Mirth for next week. For each week's reading, I attach a short "Advance Discussion" doc with lots of questions that the students can use to organize their thinking. (I.e., they don't have to answer any of the questions - it's just to stimulate thought and offer possible discussion topics, etc.)

Here is a question that I just added to my House of Mirth list,  reflecting the view that it's pedagogically good to link different weeks' discussions:

"In The Great Gatsby, Jay Gatsby is deliberately built up as a mysterious character. But is Lily Bart also mysterious, in the sense that we often do not know why she makes particular choices throughout the novel? Is she also a mystery to herself? How would you compare these two mysteries (if such they both are)?"

If I were to answer this question myself - and notwithstanding that I actually do like (albeit, not love) The Great Gatsby - the first difference I'd point to is that the "mystery" in The House of Mirth is actually interesting.

Thursday, October 13, 2022

Book panel at NYU Law School

Yesterday at NYU Law School, we had a book panel to discuss my recent publication, Bonfires of the American Dream in American Rhetoric, Literature, and Film.

Our Dean, Troy McKenzie, said in introducing the panel that he'll never look the same way again at the film It's a Wonderful Life (which I compare in the book to The Wolf of Wall Street). It's true that I view Wonderful Life as a pretty dark film, offering interesting contrasts (in light of Wolf) between American views of the rich and the poor in the 1930s and 1940s versus today. But I myself still get choked up when I watch it, even though (or perhaps because) I find its happy ending so unpersuasive.

Next my colleague Christopher Sprigman spoke, offering comments about the lack of US social solidarity that I diagnose and seek to explain in the book.

Then Vanessa Williamson of the Brookings Institution discussed the class and racial social divides that also feature prominently in the book, addressing both their historical roots and data suggesting that they are especially bad today.

After that, I offered some background about the book, and then we did Q & A. Here, among other things, I got to explain an earlier throwaway comment to the effect that Piketty got Balzac wrong in Capital in the 21st Century.

In the "things that make you go hmm" category, the event was attended by NYU law students, tax colleagues, members of the broader NYC tax community, visiting assistant professors at the law school (both tax and non-tax), other NYU visitors, and precisely zero (other than panelists) non-tax tenured or tenure track members of the NYU Law School faculty.

I believe that a video of the event with subtitles will be publicly available once it's been cleaned up for dead time, etcetera.

If I do say so myself, there were some testimonials at the panel to the effect that the book is fun to read. It's also mercifully short - the first book of mine about which this can accurately be said. But then again, one learns from experience (I hope).

If any of this sounds tempting, it is available for $18.99 here.

Wednesday, October 12, 2022

Tax Policy Colloquium for October 11: Bridget Crawford's Pink Tax and Other Tropes

Yesterday at the colloquium, Bridget Crawford presented Pink Tax and Other Tropes. It discusses the rhetorical practice of calling things "taxes," not just when / because they literally are, but in cases where the use is metaphorical or (even for a literal tax) the assigned name involves metonymy or synecdoche. The five examples the paper looks at in some depth are the so-called nanny tax, death tax, soda tax, Black tax, and pink tax (with especial interest in the last of these, as per the title).

I always enjoy conceptual papers of this kind. My main thoughts about the paper and the broader topic can be grouped into the following headings:

1) Use of the "tax" trope

Why do we call something the "this" tax or the "that" tax? Sometimes it is merely a descriptive shorthand for something that is literally / formally a tax provision. At other times, however (but also in some of the labels deployed to describe literal taxes), the label is a rhetorical tool, aimed at invoking a negative response to the provision or, for a figurative tax, the underlying phenomenon.

The paper notes the role of U.S. anti-tax ideology in motivating some of these labeling exercises. While one can almost never go wrong in ascribing great significance to this ideology, I think that the amount of work it is doing in the paper's case studies is variable. Sometimes the point seems to be, not that taxes are bad, but that the juxtaposition between "tax" and the descriptor is unjust or anomalous.

By point of comparison, consider the phrase "driving while Black." It's not anti-driving - rather, it asserts that Black people unfairly face special adverse consequences when driving (or doing other routine daily activities). Similarly, the phrase "Black tax" arguably is not so much drawing on anti-tax sentiment as asserting that in the US one's race can cause one, unfairly, to face various systematic burdens in one's life.

2) The paper's five main examples

Each of the paper's five main examples is interesting and merits attention.

    a) Nanny tax - This phrase debuted, at least in terms of national prominence, when Bill Clinton's two first choices for Attorney General, Zoe Baird and Kimba Wood, were forced to withdraw as a result of so-called "nannygate." Like millions of other Americans, they reportedly had not complied with the taxpaying and reporting obligations that one may incur when one hires people to provide services. Often these are provided in an informal household setting, and the service provider may be a chauffeur, housekeeper, babysitter, etcetera - not just a nanny.

The choice of the term "nanny tax" in the partisan political setting of a new president's Cabinet appointments reflected, I think, a bit of sexist hostility to professional women whose careers require them to use full-time childcare help, rather than just the odd babysitting hour here or there. Apparently male appointees who have violated this same rule in more recent years have avoided being forced out, because they didn't face the same sexist hostility. But it is also true that part of the "gotcha" that was successfully directed against Baird and Wood reflected the view that an Attorney General designate ought to have complied with all pertinent legal obligations.

In terms of the phrase's broader applicability, I don't think it reflects objection to the idea that hiring a nanny (or other domestic worker) should trigger tax liabilities. Rather, it is founded on the obligation's imposing compliance burdens on transactions in the informal household sector where people sometimes are not used to bearing them. The reporting thresholds have been raised since the time of the controversy, but arguably not enough, and noncompliance remains at high levels even among the otherwise generally compliant.

    b) Death tax - This term was deployed by the extremely well-organized and well-funded movement that sought to achieve repeal of the federal estate and gift tax. The movement succeeded in getting this tax repealed in full for one whole year, and otherwise in having the exemption thresholds raised significantly. The term "death tax" was helpful in this movement, at a minimum in enabling them to develop polling results which suggested massive public opposition to estate and gift taxes. (Differently worded polls, however, tended to show at least a modest level of public support for the very same taxes.)

The term "death tax" for the estate and gift tax is inaccurate and dishonest. Death is neither necessary nor sufficient for it to apply. It is a tax on transmitting wealth to others, incurred by only a tiny fraction of decedents' estates, and incurred inter vivos if one makes sufficiently large gifts.

One view of why the label proved so politically potent might be that it makes people (falsely) believe that everyone incurs the tax because everyone dies. But I don't think that was actually the main source of its potency (nor, do I think, was it anti-tax sentiment tout court). Rather, it was a bit like "driving while Black." Targets of the phraseology were being induced to react to the sentiment that death is simply a bad / burdensome / unfair time to impose tax liability. E.g., the death of a loved one is already a sad time, now this too?

    c) Soda tax - These are literal taxes, although synecdoche is involved if the provisions also apply to sugary drinks (or other products) beyond just soda. The term has also been used to describe regulatory provisions, such as those sought in NYC some years back by Mayor Bloomberg, that seek to reduce soda consumption by means other than imposing a fiscal levy.

I think of this as pretty much a straight-up term, rather than a rhetorical weapon, used by the provisions' supporters and foes alike as a handy shorthand descriptor. Soda taxes are rightly controversial, in that they have both virtues and vices (and to my mind it's largely an empirical question which prevails in a given setting). I personally am fine with their addressing both the externalities and the internalities associated with drinking sugary products. But even so there are such questions as that of the impact on people in lower-income households, who may benefit insofar as they switch to healthier diets but who face added burdens insofar as their diets don't improve but they are paying more tax (and/or adopt burdensome means of avoiding the tax).

    d) Black tax and e) pink tax - I discuss these more fully below. Here we are mainly in the realm of discussing figurative rather than literal taxes. The paper argues that such figurative uses of the tax trope are generally less effective than literal ones in generating a direct legislative response. I agree, but would emphasize that this is not the only use that figurative rhetoric may have.

3) What is rhetoric "for"?

The above tax tropes vary in the degree to which they are being used as rhetorical tools to support a particular viewpoint, as distinct from merely offering handy descriptors. How should one judge a particular use of the trope? One relevant question is whether it promotes accurate or inaccurate public understanding of the underlying "thing," be it a literal tax or merely a figurative one. Here "death tax," for example, badly fails the test, as (by design) it promotes misunderstanding.

A second relevant question, in the case of deliberate rhetorical use, is how effectively it promotes the underlying aim. Here "death tax" seems to have done well for those who shared the proponents' aim. Crawford's paper skeptically interrogates the efficacy of "Black tax" and "pink tax" in this regard. It emphasizes the lack of legislative successes that can be associated with these figurative uses of the tax trope. By way of contrast, the paper notes that the one literal tax within the pink tax rubric - what has become known as the tampon tax - has proven terminologically effective in getting these taxes legislatively scaled back. I'll say more about tampon taxes shortly. But for now let's focus on how one might assess figurative taxes' rhetorical effectiveness beyond just looking for legislative victories.

One who uses the term Black tax or pink tax is arguing that Blacks and women, respectively, face pervasive unfair burdens in US society (or elsewhere) that reflect the influence of racism and sexism. The argument is not just about current legislation, although it might inspire various proposals, but about how to view the state of social justice in our society. Hence the "payoff" from using these terms, if realized, may be indirect and more lagged.

And note again that tax tropes offer only one way of doing this. Consider again "driving while Black." Or the slogan "Black Lives Matter." The latter is a shorthand way of saying "While Black lives matter [which should be obvious], they have been treated as if they don't matter." Its being a shorthand for the longer version has permitted trolls to misunderstand it deliberately (e.g., the anti-Semitic clown Ye with his "White lives matter").

In thinking about the long-term political and cultural efficacy of such terms, I think it's useful to think of there being 3 groups in society, relative to one's underlying aims: supporters, persuadables, and opponents. A successful phrase is one that (a) stimulates, focuses, and motivates supporters, while also (b) reaching persuadables, and (c) not handing a useful rhetorical weapon to opponents. [Consider, for example, how racist politicians around the country have benefited from misapplying and weaponizing the term "critical race theory.")

In the context of the phrases Black tax and pink tax, the persuadables are people who can be outraged by racism or sexism - e.g., when they learn about police killings or Harvey Weinstein's actions - but who have a lower estimate of these problems' general pervasiveness and seriousness than those who are already "supporters." Gaining the persuadables' support is the key to achieving majority status for one's views, although in the US what the majority thinks (other than a Supreme Court majority) has had increasingly little impact on policy outcomes.

I wonder if the terms Black tax and pink tax are currently still a bridge too far for many of the persuadables whom the terms' proponents want to reach. But sentiments can't change over time, as evidenced, e.g., by the rise over the last twenty years of support for marriage equality (another well-chosen descriptor).

4) The Black tax

This term is used to describe the pervasive disadvantages that Black Americans by reason of both current and historic racism. Per one of the paper's sources, it refers to the cost of implicit bias on African-Americans that manifests in housing, business, finance, the automotive industry, online commerce and employment by way of segregation, employment discrimination, and race-based differentials in marketplace fees and pricing. It can also include the risks and disadvantages that are captured by such phrases as "driving [etcetera] while Black."

As this is already a fairly long post, I will note here that many of its manifestations are potentially relevant to tax policy design. When people discuss reparations for slavery and continued racism, the analysis is at least partly backwards-looking. Basing proposed fiscal policies on racism's continued impact is both forward-looking and potentially consistent with broader principles that are widely accepted in public economics and welfare economics more generally.

5) The pink tax

This term is used to describe such phenomena as the gender wage gap, gender-based pricing differentials, gender-based personal safety costs, and the "second shift." Its use as a term is controversial even among supporters of the underlying anti-sexist cause, e.g., due to differing views regarding whether it promotes / relies upon undesirable gender stereotypes.

Again for reasons of brevity here, rather than discussing each of these manifestations in particular, I will merely note that they are potentially highly relevant to tax (and broader fiscal) policy design, whether this were to involve expressly gender-based provisions or, say, deductions/exclusions for particular items.

The paper also discusses the one literal (rather than just figurative) tax within the pink tax rubric, which is the so-called tampon tax on female menstrual products. As background, US retail sales taxes (RSTs) often exempt "necessities" while taxing other consumer products ("luxuries"). Often products for men, such as Viagra, are exempted whereas tampons are taxed. However, there has been a widely successful movement, in a number of states, to move tampons to the exempt category. The allies in this movement have included (a) people who are more broadly engaged in combating sexism, (b) high school students and the like whose limited budgets are strained by the need to pay the tax on top of the pretax price itself (and by the products' not being otherwise made available to them), and (c) more generally anti-tax Republicans.

As it happens, under the Internal Revenue Code the cost of buying tampons qualifies for reimbursement in a health saving account (HSA). But it might not be deductible (I am not sure) as a section 213 medical expense. The latter would only matter for people whose medical expenses (as defined by the Code provision) exceed the statutory floor and who are itemizing.

On tampon taxes more generally, I would make the following two arguments:

a) Agreed that they are misclassified by RSTs that treat them as luxuries but exempt "necessities."

b) Well-designed consumption taxes would not exempt necessities, however, so long as other adequate provision was made for the taxes' fiscal impact on lower-income households.

c) In a properly comprehensive consumption tax, the cost of buying a tampon (in common with consumer purchases generally) would be included, not exempted.

d) Despite (c) above, the fact that some people but not others need to purchase tampons is relevant to what one might call ability to pay. Suppose that A and B are relevantly identical (e.g., they earn the same amounts with the same level of labor supply), but that A but not B needs to purchase tampons due to a biological difference between them. All else equal, B has greater ability to pay, and A should have greater marginal utility of a dollar. Moreover, needing tampons is an unchosen condition, hence one not triggering moral hazard (leaving aside the choice between costlier and cheaper tampons), and subject to adverse selection if private insurers offer it in circumstances where take-up depends on one's knowledge of how the ex ante uncertainty regarding one's need for them has been resolved.

This might support one or more of the following: (i) gender-based provisions in one's fiscal system, (ii) the use of at least partial deductions or exemptions for tampon purchases, and/or (iii) free or subsidized tampon provision by a national healthcare or health insurance system.

Newly published book on tax policy

 I have a chapter in a newly published (Edward Elgar) book called A Research Agenda for Tax Law.

My chapter is called Tax Law, Inequality, and Redistribution: Recent and Possible Future Developments.

If my list of participating authors is correct & up to date, then the other chapters are by Leopoldo Parada, Judith Freedman, Leandra Lederman, Ruth Mason, Allison Christians, Steven Dean, Svetislav Kostic, Karoline Spies, Rita Szudoczky, Yariv Brauner, and Miranda Stewart.