Ferdinand the Bull

Many of those with young (or formerly young) children will remember the delightful children's tale of Ferdinand the Bull, who looked fierce but was useless for bullfighting because he just wanted to lie around sniffing the flowers. I was reminded of him by Shadow, our senior cat, when we were out at the country this weekend.

Even when the weather was nice, Ursula was hiding and evidently in no mood to go outside. Buddy was desperate to get out there, but couldn't be trusted safely other than with a harness and very long leash, so he wouldn't dash off and disappear for a couple of days, as he has done before.

Then there was Shadow. At age 17, he is slow-moving and requires only very loose supervision. This picture should convey the essence of his time outside although I didn't get one of him literally sniffing the flowers like Ferdinand (which at some length he did).

In sunlight, the dark fur is very efficient at rapid heat absorption.

Huge sigh of relief

With three weeks to spare before I head to Singapore for two weeks of teaching followed by two weeks of touring in Vietnam (mainly Sapa, Halong Bay, and Hoi An), I have finished a first draft of my forthcoming book for the Urban Institute Press, The U.S. Corporate Tax: What Is It, and Where Is It Headed? Although I still have to re-read and edit it carefully, before submitting it and getting comments from various official and unofficial reviewers, it looks like I'm going to meet the submission deadline (end of June), along with the length requirement (no more than 75,000 words, and right now I'm at 68,457).

I generally meet any and all deadlines, but not without reasonable and even at times unreasonable anxiety. (Although, as Bush would say, I sleep reasonably well notwithstanding.)

Chapter headings for the book - which I hope will appeal to policymakers and academics as well as being well-suited to assign as course reading to students in various types of institutions - are as follows:

1. Introduction

Part One: Basics

2. Why Have a Corporate Tax?

3. Efficiency Problems With the Corporate Tax

4. Pillars of Sand in the Structure of the Corporate Tax

Part Two: Economic Theory Meets the Corporate Tax

5. “Old Harberger” Versus “New Harberger” and the Structure of the Corporate Tax

6. The “Old View” Versus the “New View” of Dividend Taxation

7 Debt and Equity: Tradeoff Theory Versus the Miller Equilibrium

Part Three: The International Dimension

8. U.S. International Tax Rules: The Basics

9. International Tax Policy Dilemmas

Part Four: Where Do We Go From Here?

10. The Emerging Brave New World

11. Corporate Integration

12. Other Possible New Directions for the U.S. Corporate Tax

Press interview

I was interviewed earlier today by a reporter for an on-line financial publication concerning my proposal for partial adjustment of publicly traded companies' taxable income towards their financial accounting income. He had gotten the lead from my talk to the National Tax Association the other day.

The interview mainly concerned what I am ostensibly doing to promote this proposal. I tried to tell him up front - I'm not exactly promoting it; rather, I'm saying that it deserves to be considered, but might or might not prove to be meritorious on balance once all of the underlying empirics were nailed down.

He reacted to this with blank incomprehension, evidently regarding it as something to put behind him so he could get on with the interview. In effect, I suppose he viewed it much the same way as you or I would if a car dealer were to say "I'm not saying you should buy this car - just that it's among the cars you should consider." Yeah, right.

I am not exactly in that type of business, however. Indeed, to me it would be more anomalous to claim that a given proposal which raises various open empirical issues definitely IS meritorious, than to say that it is of interest and MIGHT be meritorious. After all, what could possibly be the good-faith basis for opining so definitively? We're not supposed to be George W. Bush out here in academia, issuing pronunciamentos based on the dictates of our guts.

This is one of the problems with playing the public intellectual role. On the one hand, you may have a responsibility to share what you know and believe. And there can be professional benefits to doing this, if only to one's reputation or vanity. But if you cross over, then at some point you are done as a legitimate thinker.

Optimal income taxation and the NBA draft lottery

This evening's NBA draft lottery reminds me that the lottery is a redistributive instrument balancing efficiency against distributive goals in much the same manner as the optimal income tax (OIT) in the public economics literature pioneered by Nobel economist James Mirrlees.

The NBA draft imposes a tax on regular season success by causing it to worsen one's draft position. It thereby promotes competitive balance but weakens incentives to win this year. Ordinarily, this doesn't cause serious incentive problems, but the NBA learned through experience that, when teams sure of missing the playoffs were ranked in strict reverse order in the draft, this could create really perverse incentives, such as trying to lose all your games so you would get a # 1 pick who was a clear standout (such as a David Robinson or Hakeem Olajuwon, back in the day). The NBA responded by weakening the draft's redistributive targeting via the lottery (under which the team with the worst record has only a 25% chance of getting the top pick), so as to weaken the perverse incentive to lose.

One difference between the NBA draft lottery and the OIT is that concern about incentive effects may be more discontinuous in the former than the latter. Under the OIT, any lost labor effort due to the tax wedge between private and social returns is regrettable. In the NBA, the point may be to make sure fans don't feel too upset about the games they are paying to watch, and short of that perhaps it doesn't matter. E.g., perhaps it's not a big problem if one reason the Miami Heat shuts down Shawn Marion for the year is that there's no longer any point to winning anyway, but it would be a big problem for the league if Pat Riley (given the active personnel) coached to lose a given game.

National Tax Association session in Washington

Yesterday I presented my tax and accounting paper at the NTA’s annual spring meeting in Washington. This involved racing through my perhaps 30 minutes worth of Power Point slides in only 20 minutes (I didn’t have time to shorten them). Lillian Mills of the University of Texas was my commentator.

Lillian began her comments by praising my paper (to quote her slides) as “beautifully written;” she subsequently added further kind words to this effect that I will (barely) resist quoting.

Uh-oh, I thought. I felt like the proverbial person who learns that his/her blind date thinks he/she is “really nice” and has a “great personality.” But her comments were fine, both objectively and from my own particular selfish perspective.

Like all other commentators and readers of the article, Lillian focused more on the 50 percent taxable income adjustment proposal that I offer than on the general analysis. This was inevitable once I made the proposal, albeit contrary to my preferences. I would want the proposal to get, say, 30 percent of the total attention, with the general analytics getting the rest, but instead the only choice I had when writing the paper was for the proposal to get 0 percent of the attention (if I omitted it) or else 90 percent. So it goes.

Not surprisingly, Lillian was a bit of a skeptic about the proposal. (I put it this way because most people with accounting backgrounds react this way, just like tax scholars tend to hate proposals that would monkey with the income tax to serve “outside” objectives.)

In substance, her main concern was that giving taxable income effects to financial accounting income would reduce the latter’s value relevance in practice. But most of the research she cited in support of this conclusion appeared to deal with making the financial accounting treatment follow the tax definition of income, rather than simply changing the incentive structure for reporting financial accounting income while the measure that was applied (one hopes) remained the same.

Other good points that she made I will address by revising the article rather than going through them here.

Also at the same session was Jim Hines, presenting his paper (first given at NYU last fall) arguing for exemption of US multinationals; outbound business investment on grounds of capital ownership neutrality (CON) and national ownership neutrality (NON). I am a big fan of Jim and his work. But much of the paper seemed to involve arguing by analogy, which one normally would expect more from lawyers than economists. And I remain mystified by Jim’s apparent position that, when choosing between taxes that distort on various margins, one should aim for zero distortion at one of the margins (pertaining to cross-border ownership). Usually one assumes that it is better to have small distortions on all of the margins than to set any of them to zero and thereby require (in a balanced budget setting without lump sum taxes) that the other distortions be larger. Why is it so clear that exemption for foreign source income is preferable to modestly taxing outbound investment in order to finance a slightly lower domestic rate?

A final note: I missed the earlier NTA panel at which economists with various of the presidential campaigns (or affiliated with the Democrats or Republicans generally) addressed tax policy in relation to the 2008 election. Among them was Doug Holtz-Eakin, whom I have criticized in a couple of earlier posts for his role as a front man and (apparently) unapologetic spokesman for the loonily irresponsible tax cut proposals that have been emerging from the McCain campaign. But I thought of Doug, during the later panels, whenever presenters from the Treasury Department or the Joint Committee on Taxation repeated the usual boilerplate by stating that the views they were expressing were purely personal, rather than attributable to their employers.

Holtz-Eakin, I was thinking – and perhaps all of the economists working for the campaigns – would be well-advised, for the next six months, to say the opposite whenever he makes an economic policy statement: “The views I am expressing are those of the __ campaign only. They should not be attributed to me personally.”

Oops, rounding error

Stan Collender reminds us that Bush in 2000 promised to eliminate the national debt by the end of this decade.  Instead, it is more than $9.3 trillion and rising by $1.59 billion per day.

On a par with his other achievements.

Joint Committee on Taxation addresses tax expenditure analysis

This past Monday, the JCT issued a pamphlet taking on an important conceptual issue, tax expenditure analysis, and making what I think are significant strides in how to rescue the analysis, and its important informational content, from sterile debates about what constitutes a "normal" tax base. The JCT's main move is to distinguish between (a) narrow subsidies, which on their face depart from the usual treatment of a broader category of items, evidently reflecting Congressional intent to affect resource allocation, and (b) what the pamphlet calls "tax-induced structural distortions," such as quirks arising by reason of the realization requirement. The JCT also proposes to measure negative tax subsidies (i.e., allocatively-minded penalties) as well as positive ones.

My writings on tax expenditures (such as in chapter 8 of Taxes, Spending, and the U.S. Government's March Toward Bankruptcy) are similar in spirit although different in some details (e.g., how to classify the earned income credit). So I am delighted to see the JCT taking up the cause of making the analysis more useful and less mired in pointless debates, such as that between income and consumption tax advocates, that are orthogonal to its informational content.

I first got interested in writing about the topic some years ago, when I was a commentator at an AEI event in which Bruce Bartlett criticized tax expenditure analysis because he saw it as a device used by income tax advocates to peddle their side of the ongoing debate. I agreed with him that it had been used this way, going back to Stanley Surrey, but argued that it has more general informati0nal content, and can advance agendas such as his (favoring small government and identifying departures from it) no less than Surrey's. Plus one need not have an agenda in order to favor more crisply identifying cases in which Congress conceals what seem clearly to be allocative policies (e.g., favoring a particular type of investment) by embedding them in a seemingly distributionally motivated instrument (such as a general income or consumption tax).

My favorite example of the core point made by tax expenditure analysis remains one that I got from David Bradford. Let's cut both taxes and spending by $50 billion, David pretended to urge, by zeroing out $50 billion of military spending (to buy advanced weapons) and enacting instead $50 billion worth of "tradable tax credits" that would go to the very same weapons suppliers for the very same weapons. At the end of the day, everything would be exactly the same, but taxes and spending would each be reported as $50 billion lower. Without a tax expenditure concept, it is hard to show as crisply that nothing in this scenario has genuinely changed.

Release of candidates' spouses' tax returns

Cindy McCain is refusing to release her separately-filed tax returns as part of the disclosure process generally demanded in a Presidential campaign. In 2004, Teresa Heinz Kerry similarly refused to release her returns for most of the campaign, although on October 16 of that year she released the front two pages of her 2003 tax return.

Perhaps all this focus on candidates' tax returns is a bit over-blown. I remember the big hoodoo when Hillary Clinton released her returns earlier this year, which turned out to be no big deal except that it provided interesting background on just how much the Clintons have earned (and a bit on the general details of how Bill earned some of it). But if disclosure is the norm, it strikes me as quite illogical to provide an out for spousal income simply by reason of separate filing. If it's germane to understanding the candidate's overall financial circumstances (assuming that's one reason for the norm of releasing the returns), separate filing seems likely, in most actual marital situations, to be quite irrelevant.

A further point of interest is that separate filing is usually a bad idea from a tax planning standpoint. So, if the McCains get away with this (as the Kerrys, admittedly, largely did), then effectively spousal disclosure is required unless the candidate is especially motivated to want to avoid it. Not exactly an ideal filter.

Hillary's next move

She is truly emerging as one of Wellesley's and Yale Law School's great "anti-elitists." I'm expecting her to denounce the theory of evolution any day now. If the U.S. had more Islamic than anti-Islamic voters, no doubt she would call for restoring the veil.

At least her feelings about economists are mutual. Long before the current campaign, very few economists who knew her in the Bill Clinton Administration had anything good to say about her. At best, they would remember what their mothers told them and decline to say anything at all.

Back from Israel

I am back from a very pleasant week in Israel, jet-lagged after a 6 hour plane delay that kept me in the Ben Gurion Airport from 9 pm to 5:30 am, but more or less functioning.

Yoram Margalioth of the University of Tel Aviv Law School was my very gracious host, and I also enjoyed meeting other Israeli tax academics (such as Tsilley Dagan, Yitzhak Hadari, Jacob Nussim, and Avi Tabbach). On my last day there, I gave two talks, one on my tax & accounting paper that is forthcoming in the Georgetown Law Journal, and the other on the content of an as yet unwritten paper that is tentatively called "The Intellectual State of the Play in U.S. International Taxation." There was some good discussion, including from students who read the tax & accounting paper (which I presented at a tax colloquium).

But of course the best part, apart from the hospitality of Yoram and others, was touring Israel. Highlights included Jerusalem, Masada, the Dead Sea, the ruins at Caesarea, and the Golan Heights. And of course all the hummus, pita, Jerusalem bagels, and other such delicacies that are available there. Highly recommended as a tourist site and as someplace for U.S. tax academics to visit.

On the downside, I didn't think Continental Airlines lived up to the billing that they give themselves for service in all those quite amusing TV commercials.

Drinking the kool-aid

The McCain campaign has been arguing that their proposal to allow companies to expense equipment purchases in the first year of use would come at no added budgetary cost. See, for example, here.

I am told that Doug Holtz-Eakin has been making this argument to reporters and at various public forums. Presumably he is arguing (a) that if you don't discount future dollars at the interest rate, the present value of expensing is the same as that for depreciation, and/or (b) once one has fully reached the steady state, if the amount invested each year is constant (a dubious assumption indeed), then the dollars deducted under expensing may be the same as those deducted under a slower depreciation rule.

Now, since I would favor a progressive consumption tax in the best of all possible worlds, I am in principle fine with expensing. (The big issue it poses in such a world is anomalous effects if Congress changes the tax rate between the date when the expensing deduction was claimed and that when the resulting income is taxed.) In our current, ostensibly income tax, world, my main problems with it are (a) inter-asset distortions, if it's given for some things but not others, and (b) inconsistency between consumption tax treatment on the inclusion side via expensing and income tax treatment on the deduction side via interest deductions (if the counter-party isn't including the interest income at the same marginal rate).

This is a sufficiently refined level of argument about the merits of expensing that it should be clear I am not a foaming-at-the-mouth foe of the idea.

But if Holtz-Eakin is claiming publicly, as I gather he is, that adopting it would have a zero revenue cost, then despite being an expert in the area who has written about these topics for years he is saying things that any second-year law student knows, after taking Tax I, to be trivially fallacious.

This is a good example of why I would never want to work on a political campaign. I hope he is duly ashamed of himself, but have no idea if he is.

To my mind, making clearly false claims in public is a much worse sin, from an economic adviser, than Goolsbee-gate from the days of the Ohio primary (which featured an economist saying sensible things in private rather than nonsense in public).

Final NYU Tax Policy Colloquium of 2008

Today Jason Furman presented a paper on healthcare, rightly (I'd say) lambasting the bizarre Cogan-Hubbard-Kessler plan to combat moral hazard in healthcare by increasing it, and proposing his own plan which is hardly bullet-proof (and presumably unenactable) yet has some clear virtues.

Brad DeLong once said in a post that the big issue among healthcare economists is whether the problem is moral hazard (people over-spending because they aren't paying in full hence don't require marginal benefit equal to marginal cost) or adverse selection (failure of insurance markets to permit risk pooling and actuarially fair pricing, on balance, for diverse groups).  Jason, to his credit, sees both as problems not just one.

Cogan-Hubbard-Kessler (henceforth CHK) seem to think the big problem is moral hazard from over-insurance, largely caused by the fact that the income tax permits exclusion of employer-provided health insurance but not deduction of medical expenses, creating an incentive to over-insure.  Hence they propose to make all healthcare expenses deductible, thereby externalizing the moral hazard / over-insurance problem from employer-provided healthcare to everything.

One point that doesn't seem to have occurred to CHK is that the incentive to over-insure goes ONLY to the difference between non-deductibility and coverage at the value of the income tax exclusion.  Say the marginal tax rate (MTR) is 42%, taking account not only of federal income tax marginal rates but state & local income taxes (though they are to a degree deductible) and payroll taxes (although on the Social Security part one may accrue benefits along with tax liabilities).  Under their theory, they should predict that the co-payment required for routine expenses, to the extent these are over-insured in response to the tax incentives, is 58%.  Higher co-pays can't be explained by their theory since they go beyond the tax benefit.  And without higher co-pays than this, they have no theoretical basis for expecting moral hazard to be reduced.

Anyway, CHK want to reduce moral hazard by increasing it, in the sense that it gets peeled out of employer-provided healthcare since you get a federal co-payment based on the MTR even if it is uninsured.  But they are addressing a problem that should not exist by their lights, given the absence of any tax incentive to go beyond the federal tax saving in designing the co-pay.  So their diagnosis must be wrong in order for their prescription to seem superficially appealing.

Perhaps they want to bring the current employer-provided healthcare system more generally crashing down, but that would strike me as a bit reckless and rash.  Albeit, no more so than the fiscal implications of their plan, which (in conventional Republican style these days) would add a vast sum to the fiscal gap.  But who's counting anyway?

Jason's plan is to provide refundable credits that aren't tied to the amount you actually pay - you get it for having qualifying insurance without regard to how much you pay.  So you pay at the margin both for the amount of qualifying health insurance that you select and for outlays outside the plan.  Hence moral hazard is addressed, along with adverse selection if the plan in other respects is successful.

One perplexity posed by the paper is that it suggests that, at the margin, healthcare outlays provide zero marginal healthcare benefits, because consumers (when economizing because their share of the cost has been increased) can't choose properly between reducing the healthcare that actually provides benefits and that which is pure waste or affirmatively harmful.   This is not theoretically implausible, since consumers (myself included) are poorly informed and have to rely on doctors whose incentives and ideology may be a bit off, but the evidence for it is weak, and if it is true a much more radical response than anything Jason suggests might be in order.   It might suggest that we can't rely on consumer preferences at all here, and/or that healthcare should be taxed like pollution even if health insurance is subsidized.

Jason is not on the side of the debate that says universal mandates should definitely be used, but the answer to that one was perhaps beyond our institutional expertise as a group (which is not to say that the experts all agree).

This is it for the year, so far as the NYU Tax Policy Colloquium is concerned.  I'll miss it, albeit cherishing my newfound time and freedom.  A great year, reflecting the efforts of my co-conveners (Kevin Hassett and Mihir Desai) along with the substantial contributions of both regular and sporadic attendees.  We'll be back next January, with Alan Auerbach as my co-convener, and 13 of our speakers are already set.  But more on that later.

On Sunday I head to Israel for a week.  I'll be giving two talks which presumably will be listed on Tax Prof Blog.  One concerns my tax & accounting paper, and the other a paper to be written later this summer called "The Intellectual State of the Play in U.S. International Taxation."  Back in the USA at a horrifically early hour on Monday, May 5.  Then in mid-June I leave to teach for two weeks in Singapore again (followed by two weeks vacation in Vietnam), and before that happens I need to finish my book in progress, "The U.S. Corporate Tax - What is It, and Where Is It Headed?"  Maybe the Coen brothers will want an option on that one, since it has a bit of suspense, but in the interim the Urban Institute Press will be publishing it.  All kidding aside, I do feel good about that book, and hope it can combine informing a lay audience (such as law and business school students) with being enlightening to policymakers and serious academics. 

Free gas for everyone throughout the Labor Day weekend!!

Now that Hillary Clinton has jumped on the McCain bandwagon with regard to suspending the gasoline tax, I think it's time to up the ante.

Why stop at merely eliminating the tax? Zero is so arbitrary as a floor. We could get even more financial relief to Americans during the vacation season, and even more fiscal stimulus, by adopting a gasoline subsidy.

Say, ten cents a gallon for starters. Maybe with a special bonus for cars that are gas-guzzlers, since they'll be paying more at the pump even after getting the subsidy. And maybe with free gas for everyone throughout the Labor Day weekend!!

Better still, let's make the subsidy an income tax credit for gasoline purchases, so that it still qualifies as a "tax cut."

Next up, tax credits for running your air conditioner.

Heads up for Tax Notes readers

My Senate Finance testimony from last Tuesday (April 15) appeared today in print at 119 Tax Notes 313 (April 21, 2008). Non-subscribers can still read my testimony here.

Where did the shame go?

I've always respected economist Douglas Holtz-Eakin, who is McCain's top economics adviser other than the public faces whom I fervently hope are just window-dressing, such as Phil Gramm and Jack Kemp. Holtz-Eakin is almost the only academic or policy intellectual (apart from Jack Goldsmith) to have a prominent Republican-appointed job in George W. Bush-era Washington and come out with his reputation enhanced, rather than besmirched. He brought honesty and candor, at least to the extent he could given the broader circumstances, to his job as head of the Congressional Budget Office.

This just makes it all the more nauseating to see him flacking for McCain's insane, almost criminally irresponsible, plans to cut taxes by $3.3 trillion over the next 8 years - to be financed, of course, by eliminating waste and abuse. When you look at the U.S. fiscal gap and McCain's expensive foreign policy plans plus the zero prospect that he will be able to take on entitlements issues (even in the unlikely event that he wants to), supporting such a plan is almost akin to saying that you want the U.S. to face a catastrophic fiscal meltdown within the next 10 to 15 years.

Back-of-the-envelope guess: I would be surprised if the infinite horizon fiscal gap estimate for McCain's proposed tax changes doesn't exceed the infinite horizon funding shortfall within Social Security. And it is more front-loaded, hence more of the damage would become irrevocable sooner.

When you work in a campaign, I suppose you get to this pass one step at a time. But it would really be nice if Holtz-Eakin could take a deep breath, step back for a second, and look at what he is doing with the eyes that I know he used to have. This is bad for his reputation, and it should be.

No-one ever resigns out of principle in Washington any more. But that is part of the problem.

UPDATE: This informative article notes that the Urban-Brookings Tax Policy Center estimates McCain's tax cuts at $5.7 trillion for the 8 years. The Center for Budget and Policy Priorities comes out at $5 trillion. But not to worry, Holtz-Eakin has identified potential tax savings that, if only they weren't politically impregnable, would make back maybe $3 billion a year. So he is well within reach of being one half of a percent of the way towards paying for it.

The revised estimate, by the way, makes it clear that the McCain tax cuts would add vastly more to the U.S. fiscal gap than the entire Social Security shortfall. Indeed, they'd get more than half the way there in a mere 8 years.

If economists could be disbarred for bad practice, I'd be ready to open the file on this one.

FURTHER UPDATE: A recent press release from the Center on Budget and Policy Priorities shows the 75-year cost of extending the Bush tax cuts as being 3-1/2 times the size of the Social Security shortfall during that period. And McCain of course wants to go far beyond merely extending the Bush tax cuts.

NYU Tax Policy Colloquium on David Gamage's Optimal Tax Theory Meets Tax Avoidance

I guess I've been doing these colloquium sessions for long enough now that, at some level of generality, nearly everything I encounter has happened before.  The genre for today's session, which happens at least every other year or so (maybe more), was being initially really irked by a paper, leading to skirmishing at lunch (today, including eye-rolling by all 3 of us), followed by a turn for the better after hammering it out.  For this to work, one has to try to be open-minded, and to voice objections clearly (up to the limits of civility, the franker the better), but also to convey wanting to increase mutual understanding, not win a battle.  Also, as a matter of social dynamics, I think one really needs somehow the group of 3 - two conveners (in this case, myself and Mihir Desai) along with the author.  One-on-one seems to develop worse dynamics and less engagement.

Anyway, Gamage's paper irked me as I read it in advance because it seemed to combine making very aggressive claims about errors and omissions in the prior literature (including renowned articles by Nobel economists) with not being entirely clear or persuasive about what was new.   The issue goes to how taking account of certain tax-responsive behaviors, such as reducing taxable income through adjustments to behavior other than reducing work or saving, might, if they have a certain cost structure, lead us to think very differently about optimal instruments.   The early draft we read suggests we might like "double taxation" of various kinds, but the true thrust turned out to be considerably different.

I don't quite have the energy, as I write this late at night, to go through all the permutations of where the discussion led us.  But in sum, if avoidance (i.e., tax-responsive real behavior particular to the institutional details of exactly how we are collecting the tax) turns out to have a rising marginal cost structure, then in some cases we might want to have as many separate collection points as possible, all else equal.

As a collectively developed analogy put it, to combat fare-jumping in the NYC subway, we might want to collect half of the fare when you enter and the other half when you leave, if in practice this means people will no longer find it worthwhile to jump over the turnstile and risk spraining their knees.  Leaving for later (i.e., for Gamage as he works on the draft) the question of how generalizable and important to real world situations this insight is.  I honestly don't know how this will come out, but I certainly wish him the best, and am reasonably hopeful that he will either develop the analysis in a more clearly useful fashion or turn to something else.

Another new publication

Yet another article that I wrote for a conference a couple of years ago is now on the verge of coming out. In "Simplifying Assumptions: How Might the Politics of Consumption Tax Reform Affect (Impair) the End Product?" I try to examine the political economy scenarios that would be necessary for a consumption tax to be enacted replacing the current income tax. I was asked by the conference organizers to assume that such a thing would actually happen, notwithstanding my skepticism on this point. I reach fairly pessimistic conclusions about whether the instrument that actually passed Congress would be something to feel terribly good about.

I certainly can't complain about how long it took the conference volume to come out, given that another roughly contemporaneous conference volume that Alan Auerbach and I are co-editing is taking even longer. (This is a book to be entitled "Institutional Foundations of Public Finance," collecting some generally excellent papers from a conference held at NYU in May 2006 in honor of the late David F. Bradford. Coming out at some point this year from the Harvard University Press.)

The volume in which my "Simplifying Assumptions" paper is coming out is Fundamental Tax Reform: Issues, Choices, and Implications," edited by John W. Diamond and George R. Zodrow. It is available (for advance ordering) for $36 here or $45 here. (Which to buy? - sounds like a tough choice.)

The real tax policy significance of Paris Hilton

Having seen her on one of the big TV screens in the health club when I was working out this morning, I'm reminded of how I think her symbolic significance to tax policy debates is sometimes (to my taste at least) misstated.

Proponents of estate or inheritance taxation sometimes see her as the poster child for their position in the debate. The idea being that she is the canonical undeserving heir who is wealthy simply because, from the financial standpoint (whether or not more generally) she had good luck in the choice-of-parents lottery. Hence, the implicit argument goes, we should want to tax away her undeserved good fortune, whether just to finance lower taxes on those who are more productive and deserving, or also on the Andrew Carnegie surmise that receiving a huge inheritance is actually a curse not a benefit.

Not exactly to defend her, but whenever I hear this usage it occurs to me that she has actually generated huge earnings in recent years. So, from a conventional economic standpoint that relies on market measures of earnings, she actually is a large-scale producer rather than a member of the "idle rich."

But this in turn points out another symbolic use. Within a standard optimal income tax framework, even ignoring the inherited dollars that she got to spend, her earnings make her a canonical example of someone with high "ability." So the real reminder that we get from her example is what "ability" really means in this framework - that it is about something external, relating to one's potential interactions with the environment in which one finds oneself, rather than something purely internal such as (genetically or otherwise derived) intelligence, taste, acting and singing ability, or charm.

So we might call an income, consumption, or earnings tax a "Paris Hilton tax" and mean the same thing (but with a bit more topspin) as if we called it a "Bill Gates tax."

Another musical note

Some time ago I purchased CD 1 of the 3-CD "69 Love Songs" by the Magnetic Fields (aka NYC songwriter Stephin Merritt plus associated musicians). It didn't quite take, but earlier this year I purchased their/his latest, "Distortion," which is a stylistic homage to the Jesus and Mary Chain that I preferred to the original. A fave on this new record is the hilarious "California Girls," which has a slightly different viewpoint than the Beach Boys song of that name. (Fitting into the concept here because J & MC were in some ways a Beach Boys homage with static and electronic distortion layered on top.) Sample lyrics: "Looking down your perfect noses at me and my kind / Did you really think that we won't mind? ... You will hear me say, as the pavement whirls / I hate California girls." [Sung by a woman so that it conveys jealousy rather than misogyny.]

Anyway, this led me to try 69 Love Songs, Part 1 again, and this time I liked it enough to spring for the last 2 volumes and 46 tracks, which I am now eagerly awaiting.

Robert Christgau aptly remarked of 69 Love Songs that to complain that it doesn't sound sincere is like complaining about a great jazz musician that he plays too many notes. That's what Merritt is selling. The album is a review / pastiche / homage / satire / compendium / commentary concerning love songs (as opposed to love) in all sorts of genres, with what are often astonishingly clever and witty lyrics - Noel Coward-level at times although with a different sensibility.

Really stupid tax policy ideas

McCain's proposal to suspend the gas tax for the summer (but who knows if it would ever really come back?) deserves some sort of prize. That one is going to be hard to top.