Past laurels

I've listened a few times to the new Bob Dylan album, and I do think it's quite nice in its mellow way. But today, while we were out for a drive, we were just a couple of minutes from our destination when it ended, so I put on "All I Really Want to Do" (written in 1964 and released on Another Side of Bob Dylan in 1965).

My gawd, what a difference. That song, one of his really great ones, is so cracklingly alive - funny and sarcastic and sincere and ambiguous and powerful. He playfully gives this astonishing catalog of all the things you shouldn't do with or to a romantic partner, including playing multiple types of head games. It's jokey and rhymey, but at the same time a brilliantly assembled and variant list.

Then the classic ending about not wanting to make her to "see like me, feel like me, or be like me" - which of course is also so right. But he laughs, which has always conveyed to me his sense of the utter weirdness of anyone being like Bob Dylan. But throughout, the sarcasm and sincerity are so inextricably mixed, including the obviously suspicious come-on inherent in "All I really want to do, is, baby, be friends with you." Yeah right. The ambiguity is a large part of what makes it so great. (Missing, of course, in the Byrds' pretty and tuneful but shallow version.)

It is too bad for other artists, in a way, that we listen to Dylan today because he did such great things more than 50 years ago.

Another, much briefer, Ed Kleinbard tribute

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

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

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

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

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

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

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

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

I’ll miss him, and so will our field.

Zoom talks online

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

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

In memory of Ed Kleinbard

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

 

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

 ; 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

NYC Tax Policy Colloquium - time finally set

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

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

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

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

1.                         Tuesday, August 25 – Steven Dean, NYU Law School

2.                         Tuesday, September 1 – Clinton Wallace, University of South Carolina School of Law

3.                         Tuesday, September 8  – Natasha Sarin, University of Pennsylvania Law School

4.                         Tuesday, September 15 – Adam Kern, Princeton Politics Depa't and NYU Law School

5.                         Tuesday, September 22 – Henrik Kleven, Princeton Economics Department

6.                         Tuesday, September 29 – Leandra Lederman, Indiana University Maurer School of Law

7.                         Tuesday, October 6 – Michelle Hanlon, MIT Sloan School of Management

8.                         Tuesday, October 13 – Steve Rosenthal, Urban-Brookings Tax Policy Center

9.                         Tuesday, October 20 –Michelle Layser, University of Illinois College of Law

10.                      Tuesday, October 27 – Daniel Shaviro, NYU Law School

11.                      Tuesday, November 10 – Owen Zidar, Princeton Economics Department

12.                      Tuesday, November 17 – Abdoulaye Ndiaye, NYU Stern Business School

13.                      Tuesday, November 24 – Lilian Faulhaber, Georgetown Law School

14.                      Tuesday, December 1 – Erin Scharff, Arizona State Sandra Day O’Connor College of Law

The Supreme Court denies cert in Altera

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

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

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

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

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

Familiar tax rules in unusual times

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A couple of important points here:

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

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

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

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

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

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

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

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

1.                         Tuesday, August 25 – Steven Dean, NYU Law School

2.                         Tuesday, September 1 – Clinton Wallace, University of South Carolina School of Law

3.                         Tuesday, September 8  – Natasha Sarin, University of Pennsylvania Law School

4.                         Tuesday, September 15 – Adam Kern, Princeton Politics Depa't and NYU Law School

5.                         Tuesday, September 22 – Henrik Kleven, Princeton Economics Department

6.                         Tuesday, September 29 – Leandra Lederman, Indiana University Maurer School of Law

7.                         Tuesday, October 6 – Michelle Hanlon, MIT Sloan School of Management

8.                         Tuesday, October 13 – Steve Rosenthal, Urban-Brookings Tax Policy Center

9.                         Tuesday, October 20 –Michelle Layser, University of Illinois College of Law

10.                      Tuesday, October 27 – Daniel Shaviro, NYU Law School

11.                      Tuesday, November 10 – Owen Zidar, Princeton Economics Department

12.                      Tuesday, November 17 – Abdoulaye Ndiaye, NYU Stern Business School

13.                      Tuesday, November 24 – Lilian Faulhaber, Georgetown Law School

14.                      Tuesday, December 1 – Erin Scharff, Arizona State Sandra Day O’Connor College of Law

Altera certiorari

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

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

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

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

Updated minimum tax paper

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

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

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

You can find the paper here.

Upcoming virtual conferences

I had planned to attend this year's Law and Society Association annual meeting, which was scheduled to start today in Denver. One small peeve I had was that, due to the LSA's rigid rules for defining their "Author Meets Readers" sessions, they were not going to let me do such a session with my newly published book, Literature and Inequality, even though we had a number of interested commenters lined up. Under their mysteriously rigid rules, the book would have had to be published earlier than its actual April 1, 2020 pub date in order to be eligible for the session this year. So I will do the "Author Meets Readers" session next year, at least if there is a normal LSA conference.

I had planned on attending the LSA annual meeting after all, and joining one of the tax panels to discuss either it or my newly posted article on minimum taxes. But I decided against participating via Zoom - which I certainly would have done for "Author Meets Readers."

This summer I will, however, be participating in the virtual version of Oxford Centre for Business Taxation's Annual Academic Symposium, on June 29 and 30. I'll discuss the minimum tax paper. Truly a shame that actual physical conferences are on hiatus. I always enjoy going there, and seeing all the folks in Oxford (including other guests). And I had planned to combine the Oxford travel with a day in Liverpool plus perhaps a walking tour in the Lake District. But so it goes; maybe next year.

I'm also planning to discuss the minimum tax paper at this year's National Tax Association Annual Meeting, which had been scheduled for November 19-21 in Denver. I believe that the plan to hold an actual physical conference has not as yet been canceled in favor of the virtual version, but obviously few will be surprised if that happens.

NTA has extended the paper submission deadline for a month, presumably reflecting all the attendant uncertainties, and those who are interested can submit here. I always enjoy this conference, as much for the social aspects as the intellectual content, but am not especially hopeful that in-person will be feasible this year. Still, I'll participate virtually if that's all there is.

New York State has to do a better job with voting by mail

New York State is not among the states with leadership that aims to suppress voter turnout and make it harder for people to vote. Its leaders are not like the 5 Supreme Court Justices who evidently are fine (or perhaps better than fine) with forcing voters who they very well know are primarily Democrats to risk death from the pandemic as the price of exercising the constitutional right to vote.

Yet New York State needs to get its act together, better than it has so far, if it wants to make sure that voting by mail is a sufficiently available option this November. I base this on my own experience with the State's well-intentioned effort to expand the availability of voting by mail for the June 23 Democratic Party. They're trying to do it right, but there are a couple of glitches that need to be ironed out.

Yesterday I got an application form for voting by mail in the primary. Here it is, with the lines that list my mailing address, etc., blotted out.

Here are the main problems:

1) My basis for requesting an absentee ballot comes from the second line in Box 1 on the top. I have checked the line that says "temporary illness or physical disability (including affected/potential COVID 19)." The bolded text offers my basis for checking the box. Yet on its face it's ambiguous. Am I entitled to check it, absent any actual temporary illness or physical disability of which I am aware? The cover letter on the flip side of this page makes it clear that mere fear of contracting COVID 19 supports requesting an absentee ballot. And they've added the bolded language to the preexisting form itself to help make that clear. But it doesn't really quite fit. Potential COVID 19, or even reasonable fear of contracting it, isn't really quite (or at least unambiguously) a subclass of "temporary illness or physical disability." I'd consider the interpretation allowing me to check this box in good faith to be uncertain at best, if not for the "legislative history" confirming that this is within the intended scope.

2) In Box 6, which I've partly obscured due to the personal info printed a few lines above it, I have 2 options. One is to have my ballot picked up by me or my designee at the Board of Elections, an option that doesn't make enormous sense here. So I've checked instead the box that says: "Mail ballot to me at (check box and complete ONLY if address is different than mailing address."

My first reading of this phrase led me to think that I couldn't use this option unless I was submitting a mailing address for the ballot that differed from my regular mailing address. This would have made the entire exercise pointless. Upon further reflection, I concluded that the words could only reasonably mean: "if you check box, complete the line below ONLY to supply an alternate mailing address if needed."

Yes, it's trivial, but a confusing and ill-drafted form like this is NOT going to get the job done in November, when the whole thing may matter a lot more.

Yesterday's Zoom conference on income-shifting by multinational companies

Here's the live stream of yesterday's TPC-UNC Tax Center Zoom conference on income-shifting by multinational companies. My 7 minutes start at 1:42:40.

Conference on income-shifting & the OECD - Thursday morning, 5/21/20

I've been remiss in not flogging this earlier - focusing on my current writing project - but tomorrow morning I'll be participating in a very interesting international tax policy conference with a number of outstanding participants. It's on Zoom, and is free, so anyone anywhere can watch whatever parts of it they like, subject only to having a computer or smartphone.

Sponsored by the Urban-Brookings Tax Policy Center and the UNC Tax Center, it's called Responding to Income-Shifting by Multinational Corporations, and the link for it is here. You can register for it here.

Here is the agenda (all times are EST):

9:30 a.m. Welcome and Introduction: Mark Mazur, Urban-Brookings Tax Policy Center

9:35 a.m. Keynote Address • Pascal Saint-Amans, OECD

9:50 a.m. Audience Q&A

10:00 a.m. Panel I. How Big a Problem is Income Shifting?:

Kimberly Clausing, Reed College
Scott Dyreng, Duke University
Leslie Robinson, Dartmouth College
Gabriel Zucman, University of California, Berkeley
Edward Maydew, University of North Carolina (moderator)

10:45 a.m. Audience Q&A

11:00 a.m. Panel II. The OECD’s Response to Income Shifting
Manal Corwin, KPMG
Lisa De Simone, Stanford University
Victoria Perry, International Monetary Fund
Daniel Shaviro, NYU Law School
Thornton Matheson, Urban-Brookings Tax Policy Center (moderator)

11:45 a.m. Audience Q&A

12:00 p.m. Event Concludes

I'm actually the second speaker on Panel II (although we're listed above alphabetically), so I will be speaking from roughly 11:08 to 11:15. I'm planning to discuss the OECD's Pillar 1 and Pillar 2 initiatives, although what exactly I'll say remains somewhat flexible pending  the keynote address, which may offer updates (at least to me) that are of interest.

Small musical note

Two old albums that I have been quite enjoying recently are the Zombies' Odessey and Oracle (1968) and XTC's Apple Venus, Vol. 1 (1999). Both are melodic and wistful in a way that brings to mind Paul McCartney and Brian Wilson in their good years. Their elegiac tone seems to fit my mood these days.

New items I've tried via Spotify include this year's releases by Fiona Apple (Fetch the Bolt Cutters) and Car Seat Headrest (Making a Door Less Open). But neither has yet broken through for me. I like the percussion and self-willedness of Fiona's latest, but admittedly after only a couple of listens it doesn't yet pack for me the emotional punch of her prior 3 albums, which I consider among the very best anyone has done this century. My impression is that she's in a better place emotionally, for which I'm glad, but that the raw anger and distress expressed on prior albums (albeit, mixed with other moods) were good for her art.

Haven't made it through the Car Seat Headrest yet; it's harder to find the time without health club visits and the car trips of normal times. Plus, if I only have a few minutes, why not just play Drunk Drivers / Killer Whales again.

My paper on minimum taxes

I've finally posted on SSRN my paper on minimum taxes of various kinds. Its specific title is: What Are Minimum Taxes, and Why Might One Favor or Disfavor Them? It's available here.

The draft has a March 4, 2020 date, to reflect that I haven't yet changed it to reflect some very useful comments that I've gotten from several readers since that time. But I not only appreciated those comments, but plan to make use of them in revising / improving the paper. Only, the time for doing that hasn't quite come yet, so in the interim I thought I would solicit more feedback regarding the original version.

I kind of like the paper, if I do say so myself, but it's definitely pitched in the conceptual albeit applied space, and is aimed at people who know a fair amount about current income tax issues, in the US and internationally, rather than being for generalists. But it may be of interest to tax law professors, tax practitioners, tax policymakers in Washington and abroad, economists who are interested and steeped in applied income tax issues (especially but not just international ones), and other people who are following, say, the OECD GloBE process.

The paper's abstract goes something like this:

The alternative minimum tax (AMT), a key and at the time widely lauded feature of the Tax Reform Act of 1986, soon fell into disrepute and was subsequently scaled back, to general approbation and relief. Yet in recent years minimum taxes have come back into vogue. For example, two key international tax provisions in the 2017 tax act (GILTI and the BEAT) had minimum tax structures, and the OECD has recently issued proposed guidelines for the design of a global minimum tax, meant for multilateral adoption.

In light of minimum taxes’ surprising return to center stage, this paper explores such issues as the following:

1) the purposive, technical, and semantic contours of instruments we call “minimum taxes,”

2) why a minimum tax structure matters – pertaining, for example, to the creation of clientele effects and discontinuous marginal incentives,

3) the lessons to be learned from the rise and fall of the AMT,

4) minimum taxes’ similarity to foreign tax credit limitations and loss nonrefundability,

5) the design question of whether, if highly profitable companies’ financial accounting income were made tax-relevant, this should be done through a minimum tax,

6) how one might rationalize (or not) the BEAT’s minimum tax structure, and

7) the main issues posed by global minimum taxes, including GILTI and the OECD’s Pillar Two GloBE proposal.

Branko Milanovic review of Literature and Inequality

Branko Milanovic, who is one of the world's leading scholars on the global history of economic inequality, has posted a review here of my new book, Literature and Inequality.

The review lauds my "very skillful analysis" of the societies discussed in the books that feature in my study, and adds that "Shaviro's book could set the tone for a new type of social studies that would combine the usual empirical work with archival research and valuable fiction."

The two main dialogue points he raises in the review pertain to: (1) marriages as potentially unsettling the social order when they are made, not just dynastically, but based on all of the diverse personal elements that can shape it in daily life, and (2) the picture of how great fortunes are made in classic fiction, versus the world of Econ 101 textbooks. As he notes, the books I discuss feature plenty of "swindles, cheats, cronyism, plunder, and bribery," as distinct from acts of productive entrepreneurship. It of course figures that those methods tend to be more fun to write and read about than the meticulous work of building up a successful business. Also, as I note in the book, artistically ambitious fiction writers tend not, as a group, to be enormously fond of business or the business classes. Nonetheless, he concludes that the fictional narratives, given real world parallels, should "give us pause when entertaining a more benevolent view of large fortunes in capitalist societies."

I very much look forward to our further discussing these and other issues during the Zoom session regarding my book that is scheduled for this October.

My follow-up book-in-progress to Literature and Inequality

In my prior post, I promised a follow-up to how my plans for a sequel to Literature and Inequality have developed.

Literature and Inequality looks at 9 books, 3 from each of 3 eras. It goes:

(1) England and France during the Age of Revolution: Austen's Pride and Prejudice, Stendhal's Le Rouge et le Noir, Balzac's Le Pere Goriot & La Maison Nucingen.

(2) Victorian and Edwardian England: Dickens' A Christmas Carol, Trollope's The Way We Live Now, Forster's Howards End.

(3) Gilded Age America: Twain & Warner's The Gilded Age, Wharton's The House of Mirth, Dreiser's The Financier & The Titan.

Part 2, as originally envisioned, was going to repeat the structure of having 3 eras with 3 works each, in this case the 1920s through World War II, then the 1950s through perhaps the 1970s (i.e., the peak of the "Great Easing"), then the 1980s to the present. I also anticipated looking not just at novels, but also possibly at plays, such as Death of a Salesman, and films, such as It's a Wonderful Life and The Wolf of Wall Street.

But I have decided instead to write something shorter and more focused. Here's the current state of the play, which I have been pursuing actively while sheltering in place at home. Current working title, which may change and might require a more informative subtitle: Bonfires of the American Dream.

Here my main premise is that two deeply embedded U.S. ideological sets of values, which I dub egalitarianism and market meritocracy, are both each contested internally and in tension with each other, in ways that make extreme high-end inequality very fraught here, and which texts of various kinds can help us to understand. I propose to illustrate how texts can be used to illuminate these tensions through examples drawn from each of three formats: lectures or speeches, literary fiction, and film - rather than to draw sweeping general conclusions from a limited data set.

Part 1, of which I have completed a first draft, discusses and contrasts (1) Russell Conwell's Acres of Diamonds lecture (very famous and prominent cultural artifact from the 1870s to 1920s) and (2) the John Galt speech in Ayn Rand's Atlas Shrugged.

Part 2, on which I am making (knock on wood) good progress at present, discusses The Great Gatsby. I take an interest here not just in the text itself, but also in how its reception has varied sharply as between eras.

Part 3, on which I've done some preliminary research, will aim to discuss and contrast It's a Wonderful Life and The Wolf of Wall Street.

The whole thing will be, I hope, no more than say 45,000 words. And if the project keeps going well, I should certainly be able to finish writing a complete first draft this summer.

Branko Milanovic on literature and inequality

This new blog post by Branko Milanovic discusses issues of common interest, including his book, The Haves and the Have-Nots, which helped to inspire my Literature and Inequality. (BTW, he calls my book "new and exciting," and promises to review it in his next post.)

The Haves and the Have-Nots contains brief vignettes on Pride and Prejudice (which I also discuss, at greater length), as well as Anna Karenina (which I am currently re-reading, as it happens, but just for fun and I don't anticipate writing about it).

His discussion of Pride and Prejudice was most helpful to me, e.g., because he uses the income numbers that Austen provides in the book, along with his own research in economic history, to reveal that the "middle-class" Bennets were actually, if just barely, in the top 1% if one were to rank the era's English households by per capita income. But he offers vignettes that emphasize the numbers (and their relevance), whereas I essay deep dives that look at broader cultural issues. So they are complementary efforts.

He suggests that I ought to have discussed a Fitzgerald novel, such as Tender is the Night or The Great Gatsby, in connection with the Gilded Age. But despite the similarities between the 1920s and the Gilded Age itself, I had planned to save this for Literature and Inequality's then-intended Part 2 or sequel, as part of a post-World War I sequence that might also have included Waugh and Wodehouse.

As it happens, my thinking about a follow-up book has changed since then. I decided to do something shorter and more focused - but including The Great Gatsby. More on that in my next post.

Upcoming TPC-UNC event on income-shifting by multinational corporations

On Thursday, May 21, from 9:30 am to 12 pm, the Urban-Brookings Tax Policy Center and the University of North Carolina Tax Center will be cosponsoring a Zoom event on income-shifting by multinational corporations. I am among the speakers. More information about the event is available here, and the registration page is here.

After a keynote address by the OECD's Pascal Saint-Amans, there will be two panels. The first will discuss the empirical issues, and the second, on which I am among the speakers, will focus on evaluating the OECD's response to multinationals' income-shifting efforts.

Book event now scheduled for the fall

It's still a ways off, but it looks like we'll be having a Zoom book event at NYU Law School on Literature and Inequality, on Thursday, October 15, from 4:30 to 6 pm EST. Kenji Yoshino and Branko Milanovic will be offering comments.

Short piece discussing Literature and Inequality

Westview, the neighborhood paper in my NYC neighborhood, has just published a short piece that I wrote discussing my new book.

The link is here, or for this week's entire issue here.

Given its brevity, I've pasted in the full text of my piece below:

Jewish immigrant families from a century ago, such as my grandparents on both sides, often had a distinct set of intellectual and artistic values. Suppose that, of two siblings born to a similar family, one had turned out to be Bill Gates, and the other had become the third violinist at the Philharmonic. Everyone in the family would probably have said, “It’s a shame Bill didn’t turn out as well as his sibling.”

With such a background, it was predictable that if I didn’t find a career in the arts (though I’ve written a novel, the royalties wouldn’t pay for a Fresh Direct shipment) I would at least become an academic. In that capacity, I’ve been teaching and writing for more than thirty years, mainly about tax policy, but also in related areas such as social justice, inequality, budget deficits, Social Security, and Medicare. But for fun I read works outside my fields, focusing especially on literature, high quality genre fiction, and history.

When Thomas Piketty published Capital in the Twenty-First Century, I realized that I could now combine my professional and side interests. Piketty had the great idea of using works of literature as a tool for increasing our understanding of inequality in different eras. Unfortunately, however, his discussion of such classic works as Jane Austen’s Pride and Prejudice and Honoré de Balzac’s Le Père Goriot is neither very deep nor entirely accurate. For example, he views Goriot as showing that early nineteenth century France was a pure rentier society, in which only inherited capital mattered—not what one achieved personally. This ignores the fact that Goriot is in large part the story of Eugène de Rastignac, to this day the preeminent arriviste or social climber in all of French literature.

I decided that I could do better than Piketty in using literature to help us understand inequality in different eras (although I respect his great work with economic data). In Literature and Inequality: Nine Perspectives from the Napoleonic Era Through the First Gilded Age, just published by the Anthem Press, I take a deep dive into a set of classic works that range from Pride and Prejudice and Goriot to Charles Dickens’ A Christmas Carol, Mark Twain’s (with Charles Dudley Warner) The Gilded Age, and Edith Wharton’s The House of Mirth.

My aim has been to enrich and deepen, qualitatively albeit anecdotally, what bare economic accounts can tell us about the feel of inequality, and how it was both rationalized and condemned, in different countries and different eras. I explore, for example, the cultural differences between American and English inequality, and the relationship between America’s two Gilded Ages: that which occurred during the late nineteenth century and that which exists today.

The book was fun to write, and I hope is fun to read. It does not require familiarity with the works that I discuss. Literature and Inequality is available from Amazon and other online booksellers, including in a Kindle edition, and I would be delighted to discuss it with any readers who wish to pursue a dialogue about it.

Mel Thomas

I am also saddened by the recent death of long-time Joint Committee on Taxation staffer Mel Thomas. Behind a paywall in Tax Notes, Martin Sullivan has published a tribute that begins as follows:

It was 2 a.m. when Senate Minority Leader Bob Dole wanted details on what boats would be subject to the proposed luxury excise tax. Negotiations were touch-and-go on a $500 billion bill. Only leadership and one staff member were allowed in a small conference room in the U.S. Capitol. Fortunately, that staffer was Mel Thomas, an expert on tax law and on boating.

Whether with a powerful member or a wet-behind-the-ears junior staffer, Mel Thomas always had time to share the encyclopedic knowledge he had gathered through years of study and experience. Mel was a teacher. His classroom was Congress. If he had been a professor, he would have been one of the rare breed who combined a world-class intellect with five-star teaching reviews. His imposing fullback physique did not fool anybody for a second. This old-school gentleman had a heart of gold.

Smart as Solomon. Underpaid. Behind the scenes. Nonpartisan. Dedicated. Hardworking. Never forgot it was a privilege to be on the staff. When the real work began, you wanted Mel in the room.

I got to know Mel when I was on the JCT staff between 1984 and 1987. We didn't work on the same matters, but it was a small staff and he had a large footprint. He was beloved by staffers - but at times less so by lobbyists! - either despite or because of his demanding rigor and excellence. A favorite quote: "You're wrong, but go ahead."

Ranjana Madhusudhan

I''m very sad to learn of the death of Ranjana Madhusudhan, former president of the National Tax Association, as well as Chief Economist for the New Jersey government, whom I always enjoyed seeing at the annual NTA meetings.

Zoom session last Thursday concerning my minimum tax paper

Courtesy of Leandra Lederman, here from youtube is the video of my Zoom presentation last Thursday regarding my new paper on minimum taxes. It includes a run-through of my slides for the talk.

Recent virtual travels.

Yesterday I greatly enjoyed virtually presenting, via Zoom, my new paper (soon to be posted on SSRN), What Are Minimum Taxes, and Why Might One Favor or Disfavor Them? The session was hosted by Leandra Lederman at Maurer Law School, and but for the pandemic I would have presented it there physically. Today, I was equally glad to present the paper virtually at the Critical Tax Conference, hosted by Neil Buchanan at U Florida Law School.

Although I like meeting in person with my colleagues at other schools when it is safe to do so, better Zoom than nothing. An hour from now, I will be attending my first-ever Zoom cocktail party, marking the end of the Critical Tax Conference's first day. I'm pretty sure it's BYO cocktail, as physical delivery by Zoom of actual drinks is still just on the drawing board.

Here is an abstract for the minimum tax paper:

The alternative minimum tax (AMT), a key and at the time widely lauded feature of the Tax Reform Act of 1986, soon fell into disrepute and was subsequently scaled back, to general approbation and relief. Yet in recent years minimum taxes have come back into vogue. For example, two key international tax provisions in the 2017 tax act (GILTI and the BEAT) had minimum tax structures, and the OECD has recently issued proposed guidelines for the design of a global minimum tax, meant for multilateral adoption.

In light of minimum taxes’ surprising return to center stage, this paper explores such issues as the following:

1) the purposive, technical, and semantic contours of instruments we call “minimum taxes,”

2) why a minimum tax structure matters – pertaining, for example, to the creation of clientele effects and discontinuous marginal incentives,

3) the lessons to be learned from the rise and fall of the AMT,

4) minimum taxes’ similarity to foreign tax credit limitations and loss nonrefundability,

5) the design question of whether, if highly profitable companies’ financial accounting income were made tax-relevant, this should be done through a minimum tax,

6) how one might rationalize (or not) the BEAT’s minimum tax structure, and

7) the main issues posed by global minimum taxes, including GILTI and the OECD’s Pillar Two GloBE proposal.

And finally, courtesy of Leandra Lederman, here is a virtual snapshot of the Maurer session yesterday:

Literature and Inequality update

I'd still prefer a lower price (authors are that way), but the Amazon Kindle price for Literature and Inequality has been lowered by 25 percent.

BTW, here is the back cover blurb from Daniel Markovits of Yale Law School, author of The Meritocracy Trap:

"Literature and Inequality is an eye-opening and powerfully affecting book. By rereading literary classics through the lens of high-end inequality, and by emphasizing their fascination with the contest between patrimonial complacency and meritocratic ambition, Shaviro opens a new window into familiar texts. And by confronting us with the lessons of his readings, Shaviro compels a new reckoning with the rising high-end inequality and regenerated caste system that increasingly plague our own age."

A coupla pictures

Just to lighten the mood, here are a coupla pictures. The first is me doing some writing yesterday. I have a new project that's going well at the moment. No mask because it's secluded private space.

And this, taken from the files (it just happened to be on my laptop) is the roundabout that gets mentioned in Penny Lane. I took this photo some years ago, during a side trip in Liverpool while I was attending a tax conference in Oxford. This year's in-person conference, which I had planned to attend, has of course been canceled.

Why are they so wrong?

I have been struck by the tendency of conservative intellectuals, including some I know (and am too fond of personally to rake over the coals in public) to get the pandemic so wrong. Non-Trumpists are included in this group; it's a more general ideologically driven myopia. They of course are going to want to forget it (and avoid learning from it) later on, but the lessons are worth considering even without any finger-pointing or shaming component.

Hostility to scientific (and all other) expertise, within the adjoining ideological swamp in which they swim, is one factor here, although some of these folks are genuine intellectuals. A second, of course, is reflexive anti-government sentiment, so that any sort of coordinated national response, especially at the expense of economic output of the sort that GDP measures, is immediately suspect. (Quick test: If, pre-Great Recession, you didn't believe in Keynesian policy responses to severe downturns, did you learn from that? Some did, e.g., Richard Posner, but others didn't.)

But another important contributing intellectual fallacy is over-estimating the extent to which relatively benign and sustainable equilibria will rapidly and spontaneously emerge in all "markets," including, say, the interaction between viruses (or other micro-predators - the particular substrate doesn't matter to over-generalizers) and their hosts.

Suppose, for example, that one has in mind the model of economic equilibrium in the market for consumer goods - Econ 101-style - along with the usual raft of assumptions suggesting that it will always spontaneously and instantaneously emerge in the absence of centralized interference, which of course is assumed, for its part, to be certain of miscarrying. (BTW, trained economists who actually understand economic theory in greater-than-Econ-101 depth realize that these models do NOT predict when or how fast equilibrium will emerge in multiply constrained real world conditions.)

Whether and when a relatively benign and sustainable equilibrium might emerge is really a matter of how the numbers play out in very complex and multifaceted settings where we don't know any of the inputs. But benign, sustainable equilibria don't always emerge, even in the very long term if too much gets destroyed along the way.

Consider the Black Death, American chestnut blight, Dutch elm disease, and the global overkill by hominins of large landed species that didn't coevolve with them. In each case, one who was sufficiently committed, intellectually and emotionally, to believing in the rapid, inevitable triumph of spontaneous order and the invisible hand would presumably "predict" that the runaway phenomenon will stop itself. And it is indeed true that some of the relevant forces will always be pushing in that direction. But those forces don't necessarily prevail in any particular setting or time frame.

Global warming is of course another example. Many of the same people who are embarrassing themselves with respect to the pandemic have likewise been doing so on climate change, apparently because their ideology demands that they predict that the benign (from our standpoint) feedback effects will overtake the adverse ones - although in fact it is purely a question of how particularized phenomena happen to play out mathematically.

Unfortunately, if the rapid emergence of (at least relatively) benign spontaneous order in all "markets" (defined as broadly as possible) is your religion,  then you are going to be very wrong sometimes.