Book review for Fixing U.S. International Taxation

Christiana Panayi of the Queen Mary University in London has written a book review of my recently published book Fixing U.S. International Taxation.  It should be appearing shortly in the British Tax Review.  The text of the review goes something like this:

"Professor Daniel Shaviro is a well-known and widely published professor of international taxation at New York University. As the title suggests, in this book Shaviro advances several proposals aimed at improving US international tax law. Broadly, his main proposal is to set the average effective rate on foreign-source income of US multinationals somewhere below the statutory corporate rate and above zero. He also proposes to eliminate deferral advantages and to abolish the foreign tax credit, replacing it with a deduction for foreign taxes.

"Shaviro’s writing is clear and highly thought-provoking. In spite of the complexities of the issues in place, the author manages to offer a concise and comprehensible overview of the problems plaguing the current discourse on reform of US international tax law.

"There are six chapters in this 200 page book.

"Chapter one is an introductory chapter. Here, Shaviro identifies the problems with the current rules of US international tax law, and reviews the academic debate on these problems. He sets out “the core dilemmas in international tax policy” and “the defects in prevailing modes of analysis”, before laying down the parameters for his proposals and the main policy implications.

"All of these issues are examined in greater detail in the following chapters.

"Chapters two and three delve into the basics of the US international tax regime. The author focuses on what he considers to be the main building blocks of this regime, namely the rules for determining corporate residence, some source rules such as transfer pricing, the rules on foreign tax credits and the rules on deferral and Subpart F. Chapter three revisits these building blocks, but the focus is on the main incentives and tax planning opportunities that the existing rules create and the possible impact of marginal changes to these rules.

"Chapter four explores the global welfare perspective on US international tax policy. The author reaches the conclusion that global welfare analysis plays a small role, notwithstanding its normative appeal. In fact, in Shaviro’s view, prevailing international tax practices are not greatly influenced by global welfare considerations. In any case, the author argues that the potential gains that are available through global cooperation are much more limited than in the field of international trade. In this chapter, the author goes on to reject what he calls the global “alphabet

soup” and the single-bullet approach of achieving global welfare. The alphabet soup is a reference to the acronyms used for capital export neutrality (CEN), capital import neutrality (CIN), national neutrality (NN), and, more recently, capital ownership neutrality (CON), national ownership neutrality (NON) and global portfolio neutrality (GPN). All of these concepts are analysed at some length. Shaviro concludes that  “[w]hile global welfare considerations may be important when unilateral cooperation is sufficiently feasible, in the main countries must and will make international tax policy choices in a largely unilateral setting”.

"This idea, which he describes as the unilateral national welfare perspective, is further elaborated in Chapter five, wherein the basic elements of this perspective are analysed. Shaviro argues that foreign-sourced income should be subject to a lower rate than is currently the case, but the base should be broadened. Both deferral and foreign tax credits should be eliminated.

"On the basis of these conclusions, Shaviro sets out in Chapter six the practical steps that should be taken to improve US international tax policy. In addition to the above proposals, Shaviro makes further interesting suggestions. Inter alia, he argues that the concept of US corporate residence should include companies that are incorporated abroad but have US headquarters. He also argues for the application of formulary approach to allocating interest expenses.

"Interestingly, though rather briefly, at the end of this chapter, Shaviro touches on the topic of transfer pricing versus formulary apportionment, and emphasises the importance of 'think[ing] about the proper choice of factors' under formulary apportionment. He suggests the use of all three traditional factors (sales, employees and assets), but would give extra weight to the sales factor.

"This book offers an excellent analysis of the topic and it is especially helpful to non-US tax lawyers. One of its main strengths is that while it shows a wealth of knowledge of public finance, the writing is plain and understandable to those not well versed with public economics. Apart from the bold—but practical—suggestions made for reform, the book also identifies issues that need further examination. It provides an excellent benchmark for further research to be undertaken.

"Rather humbly, Shaviro closes the book 'with the hope that you, at least—the current reader—have found new ideas here that will stimulate further reflection'. Most open-minded readers will certainly do so."

NYU-UCLA conference on Piketty's Capital in the Twenty-First Century

The conference is this Friday, 9 am - 4 pm, alas by invitation only due to space limitations (but we might be able to fit in a few more people), at NYU Law School.  Papers by Liam Murphy (philosophy), Suzanne Mettler (political science), Gregory Clark (economic history), Wojciech Kopsczuk (economics), and myself with Joe Bankman (law).  Piketty to respond verbally to all papers.

Papers are or will be available to those registered for the conference, but not to be posted just yet.  I am reasonably happy with Joe's and my paper, but obviously we will see how others respond.

A short comment on baseball

A now-mediocre player, on a now-mediocre team, gets a walk-off hit at home (apparently, his first such in 7 years) in a meaningless game. Fans go crazy. But living in the past turns sour at some point (as we Met fans well know)..

Another long silence ...

While on sabbatical, I've been traveling again, mixed personal and work.  Recent locales: Paris, Giverny, Vienna, Budapest, now Vienna again, all fantastic places in very different ways.  I'll be back in NYC on Wednesday.

While away, I've noticed a disagreement about U.S. corporate inversions among 2 friends, Ed Kleinbard at USC Law School and Kim Blanchard at Weil Gotschal.  Ed's views on inversions are well-known, and I generally agree with them (although his approach and mine to U.S. international tax issues certainly differ in some respects - e.g., I am more hostile to the foreign tax credit and more leery about how far we can push residence-based WW taxation of U.S. companies even in the short run).

Kim had a recent letter to Tax Notes disagreeing with Ed (who no doubt will be responding very soon).  I read her piece (from afar) as suggesting that Ed views the new wave of inversions as essentially sham transactions that are purely motivated by tax avoidance, whereas clearly some of them may have significant non-tax effects that may even be sought-after and intended independently of the tax benefits.  E.g., if a big U.S. company merges with a big non-U.S. company, then even if they put the latter company on top for tax reasons, and even if the tax benefits of ceasing to have a U.S. company at the very top are appealing, then the deal may be far from a pure paper-shuffling sham.

I don't think that one needs sham transactions to have the concerns about inversions that Ed has been expressing.  The need to have a real and not wholly insignificant merger, in order to get the tax benefits of an inversion, does indeed provide a potential friction that can reduce the frequency of inversions relative to the scenario where it's purely a paper play, but that doesn't prevent one from having concerns about the effects on the U.S. tax base of permitting them to go forward in the face of their often having significant tax benefits that will increase their frequency.

I would tend to favor treating even economically significant inversions as triggering an automatic deemed repatriation ending deferral (at least for a significant % of foreign earnings) for the U.S. company's CFCs (even if they remain such), possibly with deferred payment that bears an interest rate for the deferral.  I also think we need to find our way towards what I call more residence-neutral rules for determining the source of income earned by companies that are active in the U.S. as well as abroad, i.e., addressing the extra opportunities to strip income out of the U.S. that may arise for foreign-headed multinationals.  But in the interim I'd regard inversions as a problem even when they are "real" transactions with significant non-tax effects.

Allergies

... are the body's version of McCarthyism.  The immune system can't find enough real enemies, so it invents fake ones and makes everything worse.

Explaining August's nearly unbroken radio silence

Another month almost gone - the last in my favorite three-month stretch of the year (aka the true, as opposed to purely astronomical or even meteorological, summer) - and I have scarcely posted lately.  Thus, for example, I have yet to mention here the Burger King inversion story, although over the last couple of days I have been discussing it with members of the press.

I've been traveling for much of the month, first on vacation and then, as a parent, to help deliver a rising freshman to his college in southern California.  Two side benefits that I got from the latter trip were as follows.

First, I was able to fit in a trip to the Nixon Museum in Yorba Linda.  As a long-time Nixon aficionado, this was a treat indeed.  (I realize that no one under 50 can truly appreciate Nixon's astounding comic, dramatic, and literary greatness as a better-than-fictional character.)

Nixon's memoirs begin with the line "I was born in the house my father built."  Speak of great openings, although I never tried to read the rest as I gather it falls short of his most personally revealing work, "Six Crises."  But the house his father built is actually there at the library, at its original site, and I got to step inside.  Also at the Nixon Library is the famous helicopter from which he did his characteristic V-for-Victory pose before boarding to fly away from the White House after he resigned.  Other features include his and Pat's graves, a reconstruction of the White House East Room, and a fairly balanced review of his career.  (The National Archives now runs the place, helping to account for the balance.)

Rather a melancholic site, however, especially in light of Nixon's grandiose ambitions, along with the certainty that he must have felt, even as late as March 1973, that he had fully achieved them.  His ultimate disgrace not only is recounted there, but affects everything about the site.  Not for him the giant Pharaonic monument that I am sure he wanted.  For one thing, the money evidently wasn't there post-disgrace.  Instead, it is quite modest.  Presumably to help make ends meet, they have to rent out the place for weddings, real estate seminars, and the like.  You don't see that sort of thing in Napoleon's Invalides.

Biggest surprise: We got there just after it opened, and the parking lot was completely full, requiring us to park in the Quaker church lot (I think it was) across the street.  I had been joking all the way there about the giant lines we would face, and then was startled to see this evidently confirmed.  But not so fast.  It turned out that the reason for the full parking lot was a seminar offering pointers to real estate salesman.

Best comment: Standing just outside the main building during a tour, my wife and I saw a little field mouse race down a corner of the sidewalk and disappear into a small hole on the lawn.  She noted that seeing a rat on the grounds would have been more appropriate still.

On to the second side benefit of the trip.  It gave me a chance to read Balzac's Pere Goriot, discussed extensively by Thomas Piketty in Capital in the Twenty-First Century and to feature as well in the review that I am co-authoring with Joe Bankman for the NYU-UCLA Tax Policy Symposium on (and with) Piketty that will take place at NYU on October 3.  (Side-comment: We realized that this was Yom Kippur Eve when we scheduled the event, but it was the only mutually convenient date available).

I had previously read Pere Goriot and several other works by Balzac, back in the 1970s, when it in particular had made a strong impression although I didn't entirely like it, but hadn't been through it since.  Lots of boiling melodrama, long declamatory speeches, etc.  "What will Paris say?"  I must admit that I continue to strongly prefer two roughly contemporary French novels that I regard as similar in genre (i.e., bildungsroman featuring an upwardly mobile adventurer): Stendhal's The Red and the Black, which was published five years earlier, and Flaubert's Sentimental Education, which came out more than 30 years later.  But Balzac certainly has a rude and highly theatrical gusto, and if unfashionably unjaded he is certainly plenty cynical.

In our NYU-UCLA commentary, we will be quibbling a bit with how Piketty interprets Pere Goriot as a social document. But I'll save that for later - with luck we may reach the stage of posting the full piece on SSRN within a couple of weeks or even less.

The Obama Administration's move towards greater unilateral executive action

Today's New York Times notes "Mr. Obama's increasingly expansive appetite for the use of unilateral action on issues including immigration, tax policy, and gay rights," which it says has "emboldened activists and businesses to flock to the administration with their policy wish lists."

Esteemed colleagues at other law schools have been playing a prominent role in urging unilateral executive action to address significant tax policy issues that typically, in the past, would have been handled through legislation.  For example,  Steve Shay has written about what the Administration can do unilaterally through its regulatory levers about corporate inversions. Victor Fleischer argues that the Treasury's regulatory authority would permit it to address unilaterally, not just inversions (as to which he says "[t]here is no question that Professor Shay gets the law right" concerning the Treasury's regulatory powers), but also the carried interest loophole for hedge fund managers.

As I was quoted as saying in Fleischer's carried interest write-up, it should be no surprise that the Treasury is thinking in these terms, even though traditionally it would not have acted to change policies that customary practice assigns to the legislative process.  "[W]hen the legislative process is as broken as it has become today ... it's simply inevitable that administrations will care less about such comity, and be more willing to advance their policy views in controversial areas through the unilateral exercise of regulatory authority."

Would it be better if the Obama Administration were more circumspect, even assuming (in keeping with my own views) that Shay and Fleischer are right in tax policy terms?  Definitely yes in a better, but counter-factual, state of the world.  But when the legislative process has so completely broken down, the question changes to that of whether one is sufficiently incrementally worsening things at the institutional level to outweigh the policy benefits.

In other words, suppose the Obama Administration changes policies in these two areas but then the next Republican Administration reverses both sets of regulatory changes, and also pushes through lots of stuff that either comity or blind acceptance of then-prevailing practice discouraged the Bush Administration from doing.  Then the next Democratic Administration flips things back the other way, and so on.  Meanwhile, as the Times article notes, special deals and favors start being meted out through regulatory changes, without even the admittedly limited scrutiny that such things get when done legislatively.

This does not sound like a great state of the world.  But I think it is where we are headed in any event, and under administrations from both parties.  So again, I see the principled question for the Obama Administration as whether it is significantly aggravating / speeding up this process if it takes an aggressive stand during its last 2-plus years in office.

I tend to think not, on the ground that we are headed there with all due speed anyway, and that the next Republican Administration will not be greatly discouraged from doing such things, where it wants to, by Obama Administration forbearance.  Think of filibusters, which minorities always had the power to do, but generally accepted as subject to limitations of convention that have by now almost wholly eroded.  In that type of environment, honoring conventional limitations on the exercise of one's legal rights or powers makes a lot less sense than otherwise.  It's a prisoner's dilemma scenario in which everyone else is defecting anyway.

UPDATE: Jonathan Chait provides a well-chosen hypothetical for critiquing the view that I take above.  In response to discretionary non-enforcement of legal rules - as distinct from issuing new regulations - he argues that, if President Obama can, say, decide not to enforce particular immigration laws, then what is to prevent, say, a President Romney from announcing that he would stop all enforcement actions against the non-payment of estate taxes?

The example is not legally on point for my discussion above, since discretionary non-enforcement of a law on the books is distinct from revising administrative regulations that permissibly define applicable law.  But the same concern about escalating breakdown of accepted norms that we rely on in practice is surely germane.  And the conclusion might either be that one should tread a bit lightly after all, or that we are in big trouble whether one side unilaterally does so or not, given the accelerating breakdown of norms that, as Chait notes, are no less crucial than our express constitutional and legal structure to "secur[ing] our republic."

Forthcoming conference at NYU Law School on Piketty's Capital in the Twenty-First Century

Here is the text of an announcement that has just been sent out.  The event has been in the works for some months now, but I didn't think I should mention it here until it officially went public.

I will mention further details in due course.

Fourth Annual NYU/UCLA Tax Policy Symposium:

Thomas Piketty’s Capital in the Twenty-First Century

NYU School of Law

Greenberg Lounge (40 Washington Square South)

Friday, October 3, 2014, 9:00 AM to 4:00 PM

On Friday, October 3^rd, at NYU School of Law, the Fourth Annual NYU/UCLA Tax Policy Symposium will address Thomas Piketty’s groundbreaking and best-selling book, Capital in the Twenty-First Century.  The day-long event will consist of five panels featuring leading scholars who will analyze the book from economic, legal, historical, political science and philosophical perspectives.  Thomas Piketty will participate in the discussion and deliver responses to each of the papers presented.

Confirmed panels and paper presentations are:

·         Wojciech Kopczuk, Columbia University; moderated by David Kamin, NYU School of Law

·         Joseph Bankman, Stanford Law School, and Daniel Shaviro, NYU School of Law; moderated by Eric Zolt, UCLA School of Law

·         Gregory Clark, UC-Davis; moderated by Joshua Blank, NYU School of Law

·         Suzanne Mettler, Cornell; moderated by Jason Oh, UCLA School of Law

·         Liam Murphy, NYU School of Law; moderated by Kirk Stark, UCLA School of Law

All papers will be published in the Tax Law Review in 2015.

Due to the anticipated high interest in this event, participation will be limited to NYU Law and UCLA School of Law faculty, students and invited guests.  An invitation and registration information will be e-mailed shortly.

The NYU/UCLA Tax Policy Symposium hosted by NYU School of Law and UCLA School of Law is a joint annual conference focusing on tax policy issues from both a legal and economic perspective.  It provides a forum in which leading scholars, policymakers, and practitioners can analyze complex tax policy questions and options for reform, and brings together members of both NYU Law’s tax law faculty and UCLA Law’s business law and policy program.  It builds on tax policy symposia that have historically been hosted by the Tax Law Review, the premier law school journal for tax policy scholarship, and the UCLA Colloquium on Tax Policy and Public Finance, started in 2004.  Financial support for this conference is provided by NYU School of Law and the Lowell Milken Institute of Business Law and Policy, UCLA School of Law.

Kotlikoff versus Baker and Krugman

This past Thursday, Laurence Kotlikoff had a NY Times op-ed with two main points.  First, the infinite horizon U.S. fiscal gap is huge, and ought to be reported.  It stands at $210 trillion, and eliminating it would require an immediate, permanent 59% increase in federal revenues, or else an immediate, permanent 38% reduction in federal spending.  Second, we must immediately start raising taxes and/or cutting benefits in order to address it.  Indeed, "this is not just an economics problem.  It's a moral issue" - which he frames in terms of policy transparency, but surely with an underlying premise that it would be immoral to leave the full burden of policy adjustment to be borne by the members of future generations.

As unsurprising as Kotlikoff's column (if you know his views) are Dean Baker's and Paul Krugman's responses (if you know theirs).

First, Baker: all we learn from this is "why we should not use infinite horizon budget accounting.  Kotlikoff showed how this accounting could be used to scare people to promote a political agenda, while providing no information whatsoever."  E.g., if we just go out 75 years the fiscal gap is far more manageable.   And we could tame it by bringing healthcare costs per capita into line with those in other economically advanced countries, so why cut benefits? And Kotlikoff could / should have pointed out that the unfunded infinite horizon Social Security liability of $25 trillion, which he gives significant emphasis in the Times op-ed, equals just 1.4% of future income  (i.e., the present value of GDP in the infinite horizon forecast).

It seems to me that Baker is showing a different point than he thinks - that we can actually have reasoned debate about the numbers Kotlikoff wants to emphasize, rather than that we shouldn't use them because they will be misunderstood.  But moving on to Krugman, he agrees that the fiscal gap suggests that current policy is unsustainable and will have to change at some point.  "But why, exactly, is that something that must be done immediately?  If you state the supposed logic, it seems to be that to avoid future benefit cuts, we must cut future benefits.  I've asked for further clarification many times, and never gotten it."

But Krugman then answers his own question: "You can argue that it's better to avoid abrupt changes - to put things on a glide path to sustainability.  But that's a much weaker point than you might expect given all the cries of bankruptcy and crisis."

Fair enough.  But there's more to this point than Krugman says here.  In a 2006 book that has the admittedly Kotlikoffian-sounding title "Taxes, Spending, and the U.S. Government's March Towards Bankruptcy," I make a "smoothing" argument that goes beyond just avoiding abrupt changes.  Subject to other considerations such as macroeconomic policy and the aim of benefiting poorer relative to richer age cohorts, and leaving aside political economy issues, I argue that one should generally want to both announce and start implementing indefinitely sustainable policies ASAP.  Credible early announcement can provide greater certainty, and sharing the pain of course correction between all years can have "smoothing" benefits.  For example, suppose that your future healthcare benefits were going to be cut.  If all years are expected to be similar, and if "fat" tends to get eliminated before "bone," you'd probably prefer a 5% cut for all future years to no cut in some years and a 10% cut in others.

Let me add a word about that title, by the way, given that, even by 2006, I had moved further from the Kotlikoff camp and closer to the Baker-Krugman camp than I had been, say, in the late 1990s (although I remain fully in neither camp).  My preferred title was "The Use and Abuse of Fiscal Language."  My publisher, no doubt correctly, felt that this would not serve the book's prospects very well.  And while I discerned a "march towards bankruptcy," this was not nearly so much based on the types of numbers that Kotlikoff likes to cite (and which I agree should be included in public debate) as on pessimism about the capacity of the U.S. political system to handle tough policy choices of almost any serious or difficult kind.  Surely that pessimism remains as plausible as ever, whether or not government bankruptcy is the particular disaster that it's most likely to cause.

Conversation with Givewell about tax reform

As Wikipedia explains, "GiveWell is an American non-profit charity evaluator created in 2007 by two former Bridgewater Associates investment analysts, Holden Karnofsky and Elie Hassenfeld."   Their main mission is to identify good causes that might then receive substantial funding.

One of the topics they've identified as a possible cause to consider funding is design work on fundamental tax reform.  So they have been interviewing various people in the field, most recently me.  You can find a file memo regarding their conversation with me here.

I was not as bullish as I would like to have been about charitable funding to develop new tax reform ideas, because of the great respect I have for the various plans that are already out there (e.g., X-tax, Graetz plan, income tax base-broadening), along with my view that the main obstacles are political rather than technical.

Understanding and responding to corporate inversions

[This post has been corrected since it was initially posted.]

The last few days have seen a flurry of discussion about corporate inversions.  Examples include this Washington Post op-ed by Treasury Secretary Jacob Lew, and today’s NYT op-ed by Paul Krugman.

Corporate inversions are transactions in which a U.S. multinational transmutes itself into a foreign multinational by arranging to convert the U.S. entity into a mere subsidiary, rather than the company at the top of the chain.  Once this has been done, there is still a U.S. company conducting U.S. operations.  But there are two big changes on the ground.

First, unrepatriated foreign earnings of the U.S. company's remaining foreign subsidiaries are easier than previously to redeploy without a taxable repatriation.  Once there is a parent that isn't under the U.S. affiliate, they can simply loan their trapped cash to that company, or use it to buy the company's stock.  Even if this generates interest or dividend income of the foreign sub that is taxable under subpart F (and low-dividend stock can be attractive in minimizing this problem), the inversion has usually yielded plenty of interest deductions from loan financing that was used in making the deal.  Apparently the term of art for this, as Edward Kleinbard notes in a Wall Street Journal op-ed, is "hopscotch transactions," since one skips over the U.S. parent in directing one's funds where one likes.

By the way, the importance that companies attach to keeping deferral going shows how unrealistic it is to analyze the value of deferral on the assumption that repatriation is inevitable at some point at the currently applicable repatriation tax rate.  It's well-known in the literature that deferral does nothing to reduce the present value of the expected repatriation tax if it is certain to be incurred eventually and if the U.S. repatriation tax rate will always be the same.  Are companies too stupid to know this?  I don't think so.  I will say more below on why they evidently value continuing deferral despite its not reducing the present value of the deferred liability under the above assumptions.  

Second, inversion makes it vastly easier to reduce taxes on one’s U.S operations.  For example, the use of both intra-company and third-party debt to strip earnings out of the U.S. and make sure they will show up elsewhere instead can be a highly effective tax planning strategy post-inversion.  The key is simply that they use affiliates that are not subsidiaries of the U.S. company.  That prevents both the creation of subpart F income when the U.S. company pays interest to foreign affiliates (since only its subsidiaries can give rise to subpart F income) and the application of the interest allocation rules to treat interest deductions as reducing foreign source income (which would potentially lead to foreign tax credit disallowance).  For fuller accounts, see Kleinbard's op-ed and Stephen Shay’s article in Monday’s Tax Notes.

An earlier flurry of inversions was shut down by the 2004 enactment of an anti-inversion statute in 2004 that basically prevents pure paper-shuffling transactions from working, as in the case where a U.S. company creates a Caymans affiliate that emerges at the end of the day as the parent on top even though nothing substantive has actually happened.  But the rules are now being beaten by transactions that have just enough economic substance to work - e.g., where there is an actual acquisition or merger of some kind, with an actual company located in a country where the U.S. group had some prior activity, but the whole thing is still in fact highly tax-influenced.  So the Obama Administration has been calling for legislation to address these transactions and prevent them from being tax-effective.

On Sunday I was on Arise TV, an Africa-based international news and entertainment station, to discuss inversions for a few minutes on a news show.  The host wanted to address whether inversions are immoral.  My response was, that’s not a very useful way to think about the problem.  Companies are going to do what they do (although it’s true that I myself would feel bad about spending my time doing this sort of deal), and the important thing is that we have rules in place that lead to the results we want.  More on what I mean by that in a moment.

But inevitably, moralistic vocabulary is going to be a part of these discussions.  In 2004 there was talk of “corporate Benedict Arnolds,” and President Obama has been speaking of “corporate deserters.”  This is pretty much how discussion needs to proceed in general public debate if one accepts – as I do – the bottom line conclusion that allowing the transactions to be tax-effective is undesirable.

As summarized by Treasury Secretary Lew, the proposed legislation would cause inversions to be ineffective for tax purposes if the multinational company “is still managed and controlled in the United States, does a significant amount of its business here and does not do a significant amount of its business in the country it claims as its new home ….  [In addition, t]o make sure the merged company is not merely masquerading as a non-U.S. company, shareholders of the foreign company [that ostensibly acquired the U.S. company] would have to own at least 50 percent of the newly merged company – the current legal standard requires only 20 percent.”

I support this legislation because I see no reason why we should let it so be easy for U.S. companies to avoid the repatriation tax that ostensibly has merely been deferred, and because I also see no reason to make it easier for them to strip away U.S. earnings.  But the fact that these are the two problems has four broader implications worth noting here.

First, as Kleinbard has noted, anti-hopscotch rules, making the loan to the new foreign parent subpart F income, could be deployed to address the sidestepping of repatriation taxes that the transactions faciliate.

Second, as a tougher alternative to merely addressing "hopscotch," Congress could consider enacting an “exit tax” when U.S. companies with unrepatriated foreign earnings cease to be U.S. companies – even in deals that would pass muster under the new proposed legislation.  The exit tax could be based on the amount of U.S. tax that the company would have paid had it repatriated all of its earnings just before the change in legal status occurred.  Under the simplest version, the tax due would be the amount of unrepatriated foreign earnings times the U.S. corporate tax, minus the amount of tax reduction that would have resulted from claiming foreign tax credits.  But one could also consider other approaches, such as providing “rough justice” in the form of a lower tax rate in lieu of counting up all the credits.  Obviously, if this were done, subsequent repatriations to the U.S. company by foreign affiliates that had kept their status as such would not be duplicatively taxable all over again.

Third, so far as stripping income out of the U.S. tax base is concerned, it would be desirable to move towards having “residence-neutral” rules that applied similarly to U.S. and foreign multinationals.  In particular, there ought to be ongoing multilateral discussion (such as through the OECD) of causing information from the entire global corporate group to be available to countries that merely host subsidiaries, rather than the parents.  This, for example, would permit the U.S. to apply interest allocation rules neutrally as between U.S. and foreign multinationals, for purposes of measuring U.S. source income.

Fourth, in the tax policy literature, we ought to be operating from realistic, rather than unrealistic, assumptions.  I noted above that deferral does nothing to reduce the present value of the expected repatriation tax if it is certain to be incurred eventually and if the U.S. repatriation tax rate will always be the same.  The reason is that, with further standard assumptions, the amount of tax ultimately due grows at the discount rate, so its present value stays the same.

It’s important for people who are working in the field to understand this point, which often is called the “new view” of dividend repatriations but is in fact a provable theorem (aka a tautology) under the requisite assumptions.  But what they should NOT do is assume that the assumptions are true.  Inversions raise the issue of the deferred tax simply disappearing.  But consider as well the fact that the U.S. could change the repatriation tax rate – for example, by lowering it to zero through the adoption of a territorial system without enactment of a transition tax, or through the enactment of further tax holidays.  (I say “further” because a dividend tax holiday was enacted in 2004, and there has been lots of discussion of doing it again.)

A better way of framing one’s understanding of deferral is to say that it has option value.  By deferring, one gets the option to benefit from future disappearance of the repatriation tax and/or from a reduction in the repatriation tax rate.  This would be economically valuable even if that rate were as likely to go up as down – which almost surely is not the case, especially given that the company will generally control the timing of repatriations.

A recent article by Al Warren did a nice job of explaining the logic behind the new view if one assumes (as he expressly does) not only that repatriation at some point is inevitable, but that the current tax rate on it is fixed.  But from a broader perspective, if one wants to inform current policy debate, what Warren did was assume away the most interesting and important aspects of the real world problem that he addresses (i.e., how to think about deferral when different possible models of international tax reform are on the table).

Cable TV appearance this Sunday

This Sunday (July 27), I'll be interviewed live, at 4 pm EST or so, on an international TV channel called Arise TV that is viewable domestically on-line (www.arise.tv), on Time Warner Cable, and on Verizon Fios (481).  The subject will be corporate inversions to eliminate U.S. resident status, and President Obama's recent call for legislation combating them.

New article draft posted on SSRN

I have just posted a recently completed article draft on SSRN, entitled "Multiple Myopias, Multiple Selves, and the Under-Saving Problem."  It's available here.

It will be appearing in 2015 in volume 47 of the Connecticut Law Review, as the lead article in a special Commentary Issue.  (It will thus be accompanied by two or three papers by people in the field offering comments.)

The abstract goes something like this:

In both public policy debate and the academic literature, there is widespread, though not universal, agreement that millions of Americans are saving too little for their own retirements.  If this is true, we could potentially increase such individuals’ welfare through the adoption of policies that resulted in their saving more.  A key dilemma, however, is that, unless one understands why people are under-saving, it is hard to evaluate the likely responses to or merits of a given policy.

Possible explanations for systematic under-saving include at least the following: (1) naïve myopia, (2) sophisticated or self-aware myopia, (3) procrastination, or putting off any active decision because deciding is difficult or stressful, (4) mistake aversion, or not wanting to risk regret of an “active” decision that turns out poorly, and (5) acting as if one had multiple selves with distinct utility functions, causing decisions to depend on which is dominant at a given time.

These causal accounts differ predictively, with regard to how they suggest people subject to them would respond to a given policy.  They also differ diagnostically, with regard to whether the increased saving induced would be by the “right” people (i.e., those whom we believe are under-saving).  Yet they can be hard to tell apart in practice.  What is more, the same individual may be subject to several at once, or to alternative ones at different times.

The alternative explanations for systematic under-saving can have very differing implications for such issues in U.S. public policy debate as the following:

1) Should income tax benefits for retirement saving be reduced or even repealed?

2) Should the U.S. federal income tax be partly or fully replaced by a consumption tax?

3) Should “nudges” such as automatic enrollment be used to increase employee participation in employer-run retirement savings plans?

4) Should Social Security retirement benefits be scaled back for long-term fiscal plans, or alternatively expanded?

5) Should the design of Social Security be changed, such as by making the relationship between payroll taxes paid and benefits received both actually and optically clearer?

            The paper’s aim is not to offer definite answers to any of these questions, but simply to improve understanding of the likely relationship between leading theoretical explanations for under-saving and the above issues.

Jotwell post on Piketty book

I have published a very brief essay on Jotwell concerning Thomas Piketty's Capital in the Twenty-First Century.  You  can find it here.

As you can perhaps see from reading it, it's less of an actual response to or full assessment of Piketty's book (unlike, say, Neil Buchanan's Jotwell piece on Piketty, which you can find here), than a preliminary statement of what I actually do want to write about at greater length.  This reflects that I will actually be doing so.  Further details to be available shortly.

What I'm doing on my summer vacation

Gad, but I love the summer.  First of all there's the weather.  So long as the AC in my house doesn't break, I say bring on the heat.  I like a real summer, and we've had bits of it although at times it's been too cool and wet.  The only thing I really don't like about this time of year is mosquitoes.

The horrible winter and early spring are still exacting their price re. one my favorite parts of the summer - fresh produce at the Union Square Farmers' Market.  Generally you get strawberries by mid-May, then by the start of June it goes full Technicolor.  Blueberries, red and black raspberries, apricots, soon after that peaches and blackberries, etcetera.  This year is different.  Blueberries and red raspberries were both 2 + weeks late, no black raspberries yet, and apricots and peaches may simply not happen in the Northeast this year.  That's a shame as they're way better than the stuff that gets shipped here from far away.  So I am still waiting for full Technicolor, and may have to wait until June 2015 (assuming the next winter is less awful).

OK, back to the summer positives. Weeks that aren't jammed full with appointments are one nice feature - even leaving aside classes, my calendar is never so open during the rest of the year.  And as it happens my summer travel (in the school calendar sense) has been scheduled just for May and August, so open time yawns in front of me.  But that's a good thing, and I wish there were more.

On the work front, I've just finished a draft of an article entitled "Multiple Myopia, Multiple Selves, and the Under-Saving Problem."  The piece will end up being the headline piece in a spring 2015 "Commentary Issue" of the Connecticut Law Review, where there will also be invited commentators.  I will post a draft of the article in SSRN at some point well before that, but I want to sit on it at least briefly first.  After all, while there are second bites at the apple (aka revisions before publishing), I suspect that the first SSRN draft is the one that gets read by the greatest number of people.

I've now started work on a piece that I will be co-authoring with a friend that addresses Piketty's Capital in the Twenty-First Century.  More on that in due course, including on the underlying event at which we'll be presenting the paper.

In the fall, I'll be writing a short Tax Notes piece for a conference to which I've been invited concerning certain of the perennial tax reform issues that are always on the table.  More on that in due course, after that event has been publicly announced.

And after that, I guess I'll have to see, though there are several possible candidates.  But I don't think I'll be writing much in international tax in the immediate future (as I like doing new things and changing my focus as needed to feel fresh).

Alternative (or complementary) theory to CEO narcissism

In an earlier post, I noted recent corporate governance literature suggesting that narcissist CEOs, who are identified by criteria that include their pay relative to that of other company officials, tend to perform worse in various ways, such as by reason of their taking undue risks.

There's also a recent paper suggesting that high-paid CEOs tend to perform worse than other CEOs through an entirely different mechanism.  According to the abstract:

"CEO pay is negatively related to future stock returns for periods up to three years after sorting on pay.  For example, firms that pay their CEOs in the top ten percent of excess pay earn negative abnormal returns over the next three years of approximately -8%.  The effect is stronger for CEOs who receive higher incentive pay relative to their peers.  Our results appear to be driven by high-pay induced CEO overconfidence that leads to shareholder wealth losses from activities such as over-investment and value-destroying mergers and acquisitions."

Some are born narcissistic, others achieve narcissism, and yet others have narcissism thrust upon them.  And no doubt, to paraphrase Joseph Heller's line in Catch-22 about Major Major Major and mediocrity, for some CEOs it is all three.

I let him go right afterwards

Let's hope he's still out there, happily catching mosquitoes.

Henry Simons article again

The Tax Prof blog has just posted a link to the recently published "100 years of the income tax" symposium issue of the FSU Law Review, which includes my piece, "The Forgotten Henry Simons."

As I like this piece and enjoyed writing it, even though it's in a sense between chairs - not quite either historical or analytical - and as some people have been kind enough to tell me that they enjoyed reading it - a response that I had indeed fairly centrally aimed for when writing it - I will treat this as an occasion to re-post a link to the piece, here.

Academic literature on CEO narcissism

This link on the TaxProf blog to a newly posted article called "The Effect of CEO Narcissism on Corporate Tax Policies" alerted me to the fact that there apparently is a broader literature, previously unknown to me, associating narcissistic personality traits of CEOs with the companies' playing more aggressive tax and accounting games, building larger empires through acquisitions, taking risks that lead to volatile economic outcomes, etcetera.  See, for example, this article and this one.

As it's accepted in this literature that the best measure of CEO narcissism - getting CEOs to fill out psychological surveys, presumably in a spirit of honest self-disclosure - is not realistically available, the papers use what (drawing on preexisting psychology literature) they call "unobtrusive indicators" of this personality profile.  These may include, for example, "the prominence of the CEO’s photograph in the company’s annual report; the CEO’s prominence in the company’s press releases; the length of the CEO’s Who’s Who entry; the CEO’s use of first person singular pronouns in interviews; the CEO’s cash compensation divided by that of the second-highest paid executive in the firm; and the CEO’s non-cash compensation divided by that of the second- highest paid executive in the firm." [From Chatterjee and Hambrick, which is the second of the three articles linked above.]

Certainly an interesting literature that I plan to look at some more when I have the chance.

Capital levies talk published in International Tax Notes

As noted in earlier posts, on May 15 I gave a "Distinguished Lecture" at Luxembourg University entitled "Capital Levies: A Solution for the Sovereign Debt Problem?"  The talk addresses recent discussion in the EU of having countries enact putatively one-time wealth taxes in order to reduce public debt levels.

The talk has been published in today's International Tax Notes (June 16, 2014; 74 Tax Notes International 1027-1031), and its full text is available here.

Definitely written as a talk not an article - e.g., no footnotes, and the main literary references are to Aesop's Who Will Bell the Cat? and Piketty's Capital in the Twenty-First Century.  In brief, I'm skeptical about the EU capital levy proposals despite sympathy with their underlying goals.

2015 NYU Tax Policy Colloquium, this time with dates

Unless I have messed up in converting people's expressed preferences (or tolerances) into a consistent set of dates, next spring's NYU Tax Policy Colloquium schedule is currently set to go as follows:

1.  January 20 – Brigitte Madrian, Harvard Kennedy School.

2.  January 27 – David Kamin, NYU Law School.

3.  February 3 – Kimberly Blanchard, Weil, Gotshal & Manges.

4.  February 10 – Linda Sugin, Fordham Law School.

5.  February 24 – Eric Toder, Urban Institute.

6.  March 3 – Ruth Mason, University of Virginia Law School.

7.  March 10 – George Yin, University of Virginia Law School

8.  March 24 – Leigh Osofsky, University of Miami School of Law.

9.  March 31 – Shu-Yi Oei, Tulane Law School

10.  April 7 – Lillian Mills, University of Texas Business School.

11.  April 14 – Lawrence Zelenak, Duke University School of Law.

12.  April 21 – David Albouy, University of Illinois Economics Department.

13.  April 28 – David Schizer, Columbia Law School.

14.  May 5 – Gregg Polsky, University of North Carolina School Law.

Treasury regulatory authority and the carried interest rule for investment fund managers

Victor Fleischer has a short piece in today's NY Times Dealbook suggesting that the Treasury Department, at the behest of the Obama Administration, could simply flex its regulatory muscles and eliminate the current practice whereby investment fund managers commonly treat compensation that takes the form of "carried interest"  as yielding long-term capital gain that is taxed at only a 20 percent rate, rather than ordinary income that typically would face a 39.6 percent rate.

This change has of course received legislative consideration in recent years but gotten nowhere, in part due to opposition from Republicans - apart from departing Ways and Means Chairman Dave Camp, who would have eliminated the carried interest tax break as part of his ambitious tax reform plan.  (It's only fair to note, however, that not all Congressional Democrats are wildly enthusiastic about the change either.)

Vic argues that, as a matter of regulatory authority, there is "plenty of room" for the Treasury to issue regulations making this change.  He closes by noting that, while doing so might be contrary to common tax regulatory practice in recent decades, which has tended to defer to Congress when hot-button changes are on the table, perhaps we are in a new era:

"Out of deference to Congress, the Treasury Department has traditionally avoided making policy in areas where the legislative branch may act.  'But when the legislative process is as broken as it has become today,' said Daniel N. Shaviro, a law professor at New York University, 'it's simply inevitable that Administrations will care less about such comity, and be more willing to advance their policy views in controversial areas through the unilateral exercise of regulatory authority.'"

Better price for e-version of Fixing U.S. International Taxation

While Amazon is charging $39.19 for the Kindle version of my international tax book - not much of a price difference from the hardcover version - Barnes & Noble is charging significantly less for the Nook version.  $27.99, to be precise.

Yes, I recognize that Nook devices are not quite as numerous out there as Kindle readers.  But the Nook app is generally available, at least for iPads, iPhones, and the like.

UPDATE: I sent Amazon an email noting that the Nook price is lower - and, lo and behold, Amazon has now lowered the Kindle price for Fixing U.S. International Taxation to the same $27.99.   See the link here.

That's definitely a hurrah, from my standpoint.  Though this is up to you not me, I am hoping that it prompts some sales.

Next year's NYU Tax Policy Colloquium schedule

Next year, the NYU Tax Policy Colloquium will again take place on Tuesdays, from January 20 through May 5 but not on February 17 or March 17.  My co-convenor will be Alan Viard of the American Enterprise Institute, whom I am happy to welcome as a first-time collaborator on this gig.

Our presenters, listed for convenience in alphabetical order, will be as follows:

(1)   David Albouy, University of Illinois Economics Department

(2)   Kimberly Blanchard, Weil, Gotshal & Manges

(3)   David Kamin, NYU Law School

(4)   Brigitte Madrian, Harvard Kennedy School

(5)   Ruth Mason, University of Virginia Law School

(6)   Lillian Mills, University of Texas Business School

(7)   Shu-Yi Oei, Tulane Law School

(8)   Leigh Osofsky, University of Miami School of Law

(9)   Gregg Polsky, University of North Carolina School of Law

(10)  David Schizer, Columbia Law School

(11)   Linda Sugin, Fordham Law School

(12)  Eric Toder, Urban Institute

(13)  George Yin, University of Virginia Law School

(14)  Lawrence Zelenak, Duke University School of Law

As a whole, our speaker list for next year, as compared to this past year, is weighted a little bit more on the "law" as opposed to the "economics" side of the interdisciplinary spectrum.  This is partly a byproduct of the vagaries of rotating through various people whom I have wanted to invite, but it is also partly deliberate, in terms of what I think is the best fit for our students and audience.

I should have the actual schedule, with speakers assigned to particular dates, available shortly.

Rising tax competition

In Fixing U.S. International Taxation, I emphasize the question of what countries should do about their international tax rules if acting unilaterally - that is, in the absence of strategic interactions with other countries ranging from cooperation to retaliation (as under a tit-for-tat strategy).  This reflects my considering the unilateral scenario as very important, and as not having previously been either given enough attention or adequately analyzed.  But I hold no definite brief against either the feasibility or the desirability of cooperation.

Meanwhile the OECD's BEPS project has been going on, reflecting efforts at the achievement of broad multilateral cooperation that, as I am careful to say in the book, both (a) can change the relevant policy calculus and (b) is great if it can be pulled off.  But I do admittedly express a bit of mild skepticism on the latter score.

Today's Reuters has an article by Tom Bergin that throws a bit of cold water on cooperative hopes, at least in one particular setting.  Bergin notes that the UK's recent shift towards engaging in tax competition, and perhaps even towards competing with Ireland for popularity with US companies as an appealing tax haven, has not gone unnoticed by those companies.

As a small country, the UK certainly has good reason to consider approaching international tax policy in this way.  And the US, if inclined to complain, does not have entirely clean hands itself.  (Thus, consider how our check-the-box rules have helped US companies reduce their tax liabilities in EU countries, leading to a bit of finger-pointing by people in the EU but accompanying US reluctance to do anything about it.)  But the UK's taking this approach is certainly not great for the US, in particular if we want to rein in tax planning by our multinationals on either a unilateral or a multilateral basis, given that the UK is one of the best substitutes out there for US legal activity (common language, similar legal systems, geographically closer to us than most countries outside of the Americas, etc.).

Semantics and substance

Al Warren has published a piece in SSRN that evidently was inspired by my work on how international tax rules can affect resident multinationals’ incentive to minimize their foreign tax liabilities.  As readers acquainted with the field may know, I have emphasized the importance of considering the marginal reimbursement rates (MRRs) that companies face in particular circumstances.  For example, if paying $1 of foreign tax would reduce the present value of a given U.S. company’s expected U.S. tax liability by 60 cents, that company faces a 60 percent MRR.

Warren has added a useful semantic point to my analysis.  It has occurred to him that with, say, a 35 percent U.S. corporate tax rate, permitting taxpayers to claim as a foreign tax credit 35 percent of the foreign taxes they pay would create the same MRR as a normal deduction, while a roughly 285% deduction (i.e., deducting just over $2.85 if one paid a dollar in foreign tax) would create the same MRR as a normal foreign tax credit.

Oddly, Warren’s piece could be read as implying that I focus on the labels of deduction versus credit, rather than on rules’ actual effects.  But that of course cannot be so, as the entire purpose of my MRR concept is to look past labels to measure the effective U.S. tax benefit that resident companies obtain from paying foreign taxes.  Consider, for example, the following passage from my book, Fixing U.S. International Taxation:

“[I]t would be a considerable surprise if the unilaterally optimal solution involved having, at any given margin, a company’s U.S. taxes increase by a dollar when it reduced its foreign taxes by a full dollar (i.e., the creditability result, whether or not it formally reflects offering foreign tax credits). Instead, the optimal solution might involve companies reaping a worse-than-deductibility, albeit better-than-creditability, marginal result from reporting profits in tax havens.”

Despite any possible confusion, I am glad that Warren was able to learn and benefit from my work, and that he has offered an interesting extension.

Fixing U.S. International Taxation available on Kindle

My international tax book is now available on the Amazon website, on Kindle.  Link is here.  I do wish the price were a bit lower.  But then again, I'd probably have been willing to sell it for a dollar, and then waive the dollar upon request; which perhaps helps to show why authors don't get to set prices when using commercial publishers that have expenses.

I gather that the book should also be showing up soon on other platforms for electronic download.

Pending publications

The June 9 edition of International Tax Notes will be publishing the text of my recent lecture at Luxembourg University, entitled "Capital Levies: A Solution to the Sovereign Debt Problem?," in its "Current and Quotable" section.

In addition, Jotwell should, within a couple of weeks, be publishing a short teaser that I've written on the subject of Thomas Piketty's "Capital in the Twenty-First Century."  I call it a "teaser" because I'll be working on a much more substantial piece on this topic over the summer.

These are both micro-pieces - about 4,400 words for the capital levy talk and 1,200 for the Jotwell bit.  More in due course on the larger-scale pieces that I will be writing this summer and in the fall (when I am on sabbatical but will mainly be in residence at NYU).

UPDATE: It turns out that my capital levies piece will appear in International Tax Notes on June 16, not June 9.

Also, a Kindle version of Fixing U.S. International Taxation should be up in Amazon within the next day.  I'll feature this exciting (?) fact in a new blog post shortly.

My slides from the BEPS conference

The slides that I used at the Bocconi University BEPS conference this past Wednesday are available here.

A one-paragraph summary of my intended content, which I largely followed in writing up the slides, went as follows:

The US and EU have both some ability to address multinationals' base erosion and profit-shifting unilaterally, and good reason to want to do so.  Even if they might reasonably choose to allow profit-shifting up to a point, on the view that multinational investment and residence are highly mobile, at present things appear to have gone too far.  The two main tools for unilaterally addressing profit-shifting are (a) rules that address the reported source of net income, including transfer pricing / formulary apportionment and the treatment of interest expense, and (b) subpart F-style anti-tax haven rules, including those in territorial countries that limit the scope of exemption for resident companies' foreign source income.  These two sets of rules have different strengths and weaknesses, although it is notable that the latter can't help with respect to non-resident multinationals.  A more formulary approach to source may be unilaterally sustainable, and indeed might potentially induce other countries to follow suit.

An idea worth noting that I added to the slides after writing the above paragraph was that, against the background of U.S. concern about Pfizer / AstraZenica-style inversion transactions, we might want to consider an exit tax with respect to the unrepatriated foreign earnings of U.S. companies that expatriate.

Note, by the way, that in the absence of such an exit tax, the opportunity to repatriate is one more reason why "new view" assumptions - under which U.S. companies can't reduce the present value of the repatriation tax by keeping their foreign earnings abroad - may not hold.  Other reasons include the option value of waiting (e.g., lest the U.S. enact exemption in the future or else offer further repatriation tax holidays), and the possibility that one need never repatriate if doing so is merely an adverse paper-shuffling election, not needed to have all needed practical access to the funds and not just the firm level but even the shareholder level.

BEPS conference at Bocconi University in Milan

While for technical reasons I can't post my slides from the conference today until I am back in NYC, here are a few quick thoughts inspired by the session, which featured academics, government officials, and practitioners from various countries:

1) Many Europeans take a view of the U.S. check-the-box rules, which permit U.S. multinationals to avoid tax abroad on foreign-to-foreign income-shifting that otherwise would give them U.S. tax liability under subpart F, that is quite different from what one mostly hears in the U.S.  (If I do say so myself, however, I anticipate it in my international tax book.)  To the Europeans, the check-the-box rules, rather than being some dastardly scheme that the U.S. multinationals have managed to put over on the U.S. Treasury due to an inadvertent error in the regulatory process 15 years ago, are a deliberate device in the field of ongoing tax competition that the U.S. uses to benefit its multinationals, by permitting them to avoid foreign countries' taxes more easily.  The parallel they like to cite is the UK's engaging in headquarters tax competition by lowering its corporate tax rate, scaling back its CFC rules, and enacting a low-tax "patent box" regime.

2) For this and other reasons, U.S. willingness to cooperate with EU countries, in the BEPS project and otherwise, is held to be in some doubt.  Along these lines, someone asked the Americans at the conference if we saw any chance that the U.S. would cooperate with ongoing multi-jurisdictional efforts to address VAT evasion cooperatively.  We were skeptical that this would happen, given that the U.S. doesn't have its own VAT.

3) The International Monetary Fund staff has been preparing a report on BEPS-type issues, with particular focus on the issues faced by developing countries, that will probably be publicly available within a few weeks.  This sounds like it is likely to be a very useful and informative document.

4) Speakers from private industry at the sessions emphasized the extent to which managers' efforts at tax reduction, in publicly traded companies, are driven by the objective of not having a higher worldwide effective tax rate than one's peer companies.

5) Milan is currently having a taxi strike that, as I noted in an earlier post, added a touch of adventure to my arrival.  (It may also complicate my departure tomorrow morning.)  The cause, apparently, is that the Uber app, permitting one to arrange car transport services on-line outside of the official medallion system has recently been introduced here, leading to disgruntlement among Milan's taxi drivers, who paid very large amounts for their medallions.  One of the speakers compared the taxi drivers' dilemma to that of countries that still are hoping they can levy significant source-based or residence-based corporate taxes.

European travels

After five days in Luxembourg, I have just this evening arrived in Milan.

In Luxembourg, as planned and previously noted I taught two classes (one on income taxation / consumption taxation, one on tax expenditures and allocative / distributional government policy through the tax system and otherwise).  Plus I gave a public talk on recent EU discussion of capital levies, and participated in a panel discussion of my international tax book.  People appear to agree that the book has some original ideas, whether or not they subscribe to them 100 percent.  (As it's written from more or less a big-country perspective, even if not exclusively that of the U.S., no surprise to encounter some disagreement in a country like Luxembourg that occupies quite a different niche in the international tax community.)

I may find a vehicle for publishing my capital levies talk, which I had initially thought I would simply post here.  More on that soon.

Here in Milan, also as previously noted I will be attending a conference on the OECD's BEPS project (addressing base erosion and profit-shifting).  I was able to use a stint in the airport to prepare slides that I will indeed post here.

Luxembourg City is quite nice, an old European city that happens to be situated amid picturesque mountains and valleys.  More French than German, contrary to what I had expected.  Like Jerusalem, its location evidently reflects the site's defensive potential as a fortress, rather than, say, exceptional access to rivers and harbors.

Keeping in mind what all work and no play did to poor Jack Torrance, I also managed to fit in a couple of weekend day trips, seeing the beautiful nearby German city of Trier on the first day, and then hiking in the woods from Beaufort to Echternach in the Mullerthal region of eastern Luxembourg on the second day.

Here in Milan, the excitement of managing my transport from Malpensa Airport to my hotel was certainly increased a bit by the fact that there is a taxi strike here today.  That could potentially be quite an obstacle for the unprepared arriving traveler.  But I had already planned on taking a train from the airport to a transit hub in town, and was then able to negotiate subway + tram + just a block on foot in order to find my hotel.

I've used Malpensa before but never seen the city, which at first glance looks huge but pleasant.

Light posting immediately ahead?

I'm about to leave on an overnight flight to Luxembourg (through Frankfurt), where this Thursday and Friday mornings (at Luxembourg University) I will teach two classes.  The first will be on income taxation / consumption taxation, and the second on tax expenditures/ fiscal language.

Also, on Thursday and Friday evenings I will give / participate in talks, the first concerning capital levy proposals in the EU recently, and the second concerning my international tax book.

I'm also planning to fit tourism / sightseeing into my schedule.  But I may conceivably post concerning public aspects of the various events.  My talk on capital levies is all written out and ready for posting, if I don't conceive of some different and inconsistent use for it.

After that I head to Milan, where on Wednesday of next week I will participate in a one-day conference concerning the OECD's BEPS project.  Then back to NYC, and it's as yet uncertain if I'll be going abroad again before this September.  I am one of those few people who actually likes the summer in New York City, conditioned only on my home AC's working properly.  No outerwear needed, everything is green, fresh fruit in farmer's markets, lots of free time professionally, etc.

Foreign tax credits

Martin Sullivan, in his review of my international tax book here, rightly notes that I "stand[] out from the rest of the international tax reform crowd" in what he (OK, fine) calls my "strident opposition to the foreign tax credit."

The reason for the difference is that I look at what the FTC is capable of doing (i.e., entirely eliminating cost-consciousness by U.S. multinationals) rather than just what it currently does (mainly not doing so, by reason of how deferral blunts the incentive effects that FTCs would have standing alone).

I'll admit that I got to my point of view by thinking about FTCs in the abstract, rather than in practice.  But the reason my perspective is important is that it shows what FTCs would do if surrounded by a different set of U.S. international tax rules - which people on various sides often propose changing without prior reflection about the interactions.

An example is the "minimum tax" idea that gets thrown about in Washington these days - possibly meaning, although it varies with the context, that US multinationals would automatically owe at least 20% of their worldwide income (computed without respect to deferral) to the US government, subject to a dollar-for-dollar offset by FTCs.  This rule change, by effectively repealing deferral up to the 20% line, would indeed cause US multinationals to be wholly indifferent to foreign taxes up to the point where they hit the 20% threshold.  So it might cost the companies money without raising significant revenue for the US government.

Another example of the broader point surfaced today in a Reuters article on the OECD's BEPS project (aimed at base erosion and profit-shifting).  The article states that IRS deputy commissioner Michael Danilack has noted that "some foreign countries are using the BEPS project as a reason to get more aggressive on [US] companies' tax audits.

"'The whole BEPS discussion has encouraged countries that felt they weren't getting their fair share to be more aggressive,' he said, warning of 'a great, big sucking sound"' of U.S. tax revenue declines.

"The United States could lose revenue under BEPS, he said, because the IRS offers foreign tax credits to U.S. companies for taxes that they have already paid to foreign governments.... [Thus, i]f a foreign government collects more taxes from U.S. companies, then the IRS might have to issue more tax credits, which could undercut U.S. corporate tax collections."

If we are dickering with foreign governments re. who gets the money if U.S. multinationals have to pay more to someone - with the companies themselves being a key, but independent, strategic player whose actions both sides must take into account - then it's not an incredibly great bargaining position to say, in effect: "We're warning you - if you grab the money, we will respond by conceding every single dollar to you, even if we simultaneously toughen up our own rules."

Kindle version of Fixing U.S. International Taxation

At present, my book is only available in hard copy.  Amazon offers it for $43.70, and used copies aren't much lower.  But I am told that a Kindle version should be available within about ten business days, presumably meaning before the end of the month.

Martin Sullivan of Tax Notes reviews my international tax book

Today in Tax Notes, Martin Sullivan was kind enough to review Fixing U.S. International Taxation.  I am pretty sure that you can read the entire review here, unless you need to be a Tax Notes subscriber.

You can see Taxprof Blog's quick summary here, including the first three and last two paragraphs of Sullivan's review.  The last two go something like this:

"In a mere 200 pages, Shaviro provides his readers with an invaluable guide through the economic and legal ideas that have framed the debate on international taxation for the last 50 years. But the literature review is ancillary. The true value comes from Shaviro's proposals and ideas. The subject matter is unavoidably complex, but he strives to boil down the material to the stuff that helps us achieve the task assigned in the title of the book. His explanations are clearly developed and rational so that readers with only a minimal background in international tax can follow even the most difficult issues. Unlike so much that is written on international tax, there is no ostensible pro- or anti-business slant and no political bias.

"Stylistically, Shaviro writes in plain language that suggests all the highfalutin talk about international tax policy may just all boil down to common sense. On top of all its other virtues, Shaviro's book is timely: If lawmakers follow through on the ideas floated by Camp and Baucus, we may be experiencing the largest changes in U.S. international taxation since the inception of the income tax. If you are striving for a true understanding of the issues involved in this historic transformation, you are lucky Shaviro wrote this book when he did."

Technology of the future?

While in a B&B on a short overnight family-related roadtrip, I started reading a copy of Evelyn Waugh's Brideshead Revisited that they had in the room,  (I'm a big Waugh fan, but tend to prefer the snark, or for that matter the harrowing Ordeal of Gilbert Penfold, to the mellow mists of memory.)  As I obviously couldn't finish it there, I was on the verge of buying it on Kindle, when it occurred to me that I might already have it at home, even though I hadn't read it previously.

So here is the scenario that occurred to me: "Siri, could you ask Sentinel™ to check on whether we have Waugh's Brideshead Revisited?  That's W-A-U-G-H, near the end of the fiction section in the library."

Perhaps Sentinel™ could also feed the cats, or at least tell us how they are doing.  I think of it as having a voice like Hal's in 2001.