Medical deductions article

My medical deductions article, forthcoming in the Tax Law Review, has indeed gone live here.

The abstract goes as follows: 

Recent decades have seen explosive growth in the availability and efficacy of assisted reproductive technologies (ART) – for example, egg extraction and storage, egg donation, intracytoplasmic sperm injection, in vitro fertilization, and surrogacy. ART greatly enhances millions of lives – not least those of the tens of thousands of people (in the United States alone) who owe their own births to it each year – but it can be extremely costly. Moreover, ART is just one current within a broader ocean of potentially transformative but often very costly) technological advances in the provision of healthcare. However welcome the rise of these technologies may be, they present challenges regarding how their provision should be funded, other than by the prospective users themselves.

Taking on a narrow piece of this broader puzzle, this paper concludes that, under the US federal income tax, medical expense deductions for ART expenses should be available in certain situations where the IRS and the courts – possibly reflecting anti-LGBTQ bias – have recently determined otherwise. More importantly, however, it seeks to situate both the ART debate, and that concerning broader advances in healthcare technology, within an analytical framework that may aid fuller and more definitive inquiries by others.

New article on medical deductions in the income tax

Three weeks ago, I posted an article on SSRN entitled "Assisted Reproductive Technologies, Other New Frontiers in Medicine, and the Income Tax's Role as a Back-up Health Insurance System." It's forthcoming in the Tax Law Review.

The abstract goes like this: 

As I knew would happen, SSRN's AI bots embargoed it (nearly 3 weeks ago) on the ground that it might be offering medical advice. It isn't, but they are not very advanced or bright just yet. The article is therefore stuck indefinitely in purgatory (I know this from experience), although I hope to get it liberated therefrom when I take the time (which I don't really have) to call SSRN and discuss the situation with a live human.

This happened once before, when a paper of mine which had absolutely not the remotest connection with anything medical got embargoed because its title included the words "Ancillary Benefits," which is a term used in health insurance although I wasn't using it that way.

Despite the embargo (e.g., it's not listed as one of my papers), the link for it appears to work. So if interested you can try this.

Book (including an article of mine) on Stanley Surrey

Duke Law School's Law and Contemporary Problems journal has just published a new issue, entitled The Legacy of Stanley S. Surrey, edited by Ajay Mehrotra and Lawrence Zelenak. It responds to the recent re-surfacing of Surrey's memoirs, still in progress (but mostly complete) when Surrey died in 1984, and then published (with useful annotations) through Mehrotra's and Zelenak's efforts. Surrey remains a figure of particular interest, and was certainly the most influential U.S. tax law academic ever.

The entire issue is available online here. I won't issue shout-outs for particular chapters, as that would seemingly diminish the ones I didn't list, but there are a number of particular interest.

My chapter, entitled "Moralist" Versus "Scientist": Stanley Surrey and the Public Intellectual Practice of Tax Policy, is available here.

Michigan conference on Friday, October 6, discussing the "International Tax Revolution"

Two days ago I spoke at an international tax conference at the University of Michigan Law School, discussing OECD-BEPS Pillars 1 and 2. The video link is supposed to be here,  but it appears not to work without permission. If you can view it, my remarks begin at 4:43:34.

The speakers in the morning session were mainly academics who had worked on OECD-BEPS during government or NGO stints, and they were mainly upbeat about its prospects (at least, Pillar 2) and merits (at least, compared to prior law).

The speakers in the afternoon session were considerably more negative. While I was one of the afternoon speakers, I was not one of the more negative ones. My remarks were more on the positive than the normative side, discussing how one might think about the underlying international tax politics that may affect the Pillars' acceptance or rejection around the world.

But I will mention two of the negative comments that were made during the afternoon session that I briefly rebutted during my remarks. I won't name the speakers (although you can find it on the video, if it's accessible), because, as they're friends, I feel I'd owe them a bit more context and description of their side of the debate before expressing my disagreement publicly.

The first of these two negative comments, pertaining to Pillar 1, went something like this. Suppose we are considering some situation such as the UK's desire to tax Facebook / Meta's profits from ads sold to reach UK users. The UK currently does this through a digital services tax, but Pillar 1 is designed to replace this. Why should the UK be able to reach these profits, the speaker asked? Its claim that "value creation" occurred in the UK is ludicrously false [a point with which I agree], as it really happened in the US, where people who live and work there created and are tending to the IP.

Here my next move would be to say: So what if there was no value creation in the UK? There is a kind of bilateral monopoly situation here, involving the profits Meta can earn in the UK that is non-rival to its simultaneously earning profits elsewhere too. It's silly to moralize about who is "entitled" to what share of bilateral monopoly profits, so why should we presume that the US should be the only party able to tax it. Rather, let us hope that the two parties find a way to work it out amicably, keeping in mind both that Meta has generally been greatly undertaxed on the quasi-rents that it earns around the world, but could potentially be over-taxed if every nation starts grabbing as much as they can of the quasi-rents based on presuming that they are actually rents.

My panel colleague, who is an economist, instead argued that, since value creation occurred in the US, as a matter of proper political incentives only the US should be allowed to tax the profits. It has an incentive not to overtax them but to do things "right," whereas source or market countries such as the UK have every reason to overtax.

The mistake my good friend makes here is practicing political science without a license. He seems to think that we have individuals from a rational behavior model acting based on self-interest. But suppose the UK faces political constraints (Meta political clout & money, fear of the US response) that push against its overtaxing the profits. And suppose the US is inclined to undertax them due to interest group politics, which may empower our multinationals. In short, it is an uncertain empirical claim that assigning the tax rights exclusively to the US will lead to better outcomes. Not to mention, if the UK wants to tax these profits (an unsurprising state of affairs, especially when it observes the US not doing so), so what if we have a political economy argument telling them to back off. What if they don't want to? Then we have a problem we need to solve, hopefully reasonably amicably and not too inefficiently, in any event.

Another panel colleague expressed extreme skepticism that moderating tax competition between countries via Pillar 2 would slow down their economic competition. Countries can simply substitute subsidies, such as via direct spending, for lower taxes. (An observation that actually underlay the European Court of Justice's battle against state aid.) So there's no point to the whole thing and it won't get us anywhere that's helpful.

Now, this observation might actually prove to be correct. We will see. But it does invite the retort: If non-tax subsidies are such a great substitute for tax subsidies, why don't we see more of them already? The rationale for seeking to moderate economic competition for MNC investment (and nominal profit allocation) by moderating tax competition is that the latter is an especially fruitful (i.e., low-perceived cost) way to do it politically. This in turn brings us to the longstanding debate regarding whether tax expenditures are used, not just out of random convenience, but because they are optically less "costly" than their direct-spending substitutes. Here I tend to believe that the answer is often to a degree somewhat Yes. Hence, it is not impossible or even implausible (although I wouldn't claim much more than that) that Pillar 2 might ease overall economic competition regarding multinationals' locational choices.

Tax Policy Colloquium,: Rebecca Kysar's The Global Tax Deal and the New International Economic Order, Part 2

On to issues in 2 & 3, in response to Kysar's The Global Tax Deal and the New International Economic Order.

2. How can we explain emerging multilateralism in international tax policy, given the barriers to successful cooperation? In the prior blog post, I was discussing the factors affecting support for tax multilateralism in a single country, focusing primarily on the US. However, even if countries want to act cooperatively, this may be hard to pull off.

At least two considerations may tend to make it a tough uphill climb. First, countries often have very distinctive or even conflicting interests. For example, one has both developed and developing countries. Net capital importers versus exporters. The US versus the EU with respect to the latter's taxing the big US multinationals. Second, there can often be zero-sum conflicts. For example, do we get a given dollar of tax revenue, or do you?

The paper mentions the common interests that countries also have (e.g., from the tax competition prisoner's dilemma perspective). While I agree that this is part of the story, I'd also add a second factor.

A standard story about irreconcilable differences (especially if not steeped in contemporary IR theory) might rest on two background assumptions that are not always true. The first is that each country has a clear national interest. The second is that a country's political actors proceed in good faith to advance this interest, as faithful agents for the country as a whole.

This is not always a bad framework to use. For example, it can help one to understand Ireland's decision, in the early stages of the Pillar 2 process, that its best play (all things considered) was to go along and secure a place inside, rather than outside, the tent. Or consider Poland's and Hungary's making financial demands of the EU before they would withdraw their objections to Pillar 2.

But for a more complicated story, consider US domestic politics. The Biden Administration and Congressional Republicans fundamentally disagree about where the national interest in international tax policy lies. (And this is not a Trumpist phenomenon - the divide has been around for decades, and a version of it can also be seen in the academic literature.)

Without getting into all the details here, as will be explored in a paper that I am currently co-authoring with Daniel Hemel (the title will be something like Two-Level Games in International Tax), domestic players routinely use the foreign realm as an arena through which they can respectively try to advance their own sides' prospects in domestic political fights. [We'll have an OECD-BEPS case study in our paper, but also one from 1957, involving Stanley Surrey and the battle over the "tax sparing" provision in a draft treaty with Pakistan. We might also have had a 1920s League of Nations case study, involving the likes of ERA Seligman and TS Adams, but we concluded that we weren't sufficiently sure-footed in the literature to be certain that the story we thought we saw was actually right.]

International tax cooperation is made easier in one dimension by these two-level games, which can foster cooperation and common interests between the players on each side (in re. how to tax business) in multiple countries.

3. A new international economic order? In using those words, at least in the current draft, the paper might seem to be claiming more than it actually is. Things are still clearly in flux, although Pillar 2 (but not Pillar 1) appears to be doing fairly well even if US cooperation is, at best, not in the immediate offing. But the claim is that, with the decline of the neoliberal "Washington Consensus," concerns about distribution between and even within countries are now very much on the agenda internationally. And there is also some hope that they may come to be negotiated out to a degree, using compromise to build broad agreements.

A different way to put it might be to say that the international tax policy agenda has changed, and that topics once deemed off-limits are now widely (if not universally) agreed to be on the table. If pro-democracy forces prevail around the world - as is by no means certain - one might even see, at some point, a new and improved such order gradually emerging, at least until the next set of shocks leaves us unmoored again.

NYU Tax Policy Colloquium, session 2: Rebecca Kysar's The Global Tax Deal and the New International Economic Order: Part 1

Yesterday, at the colloquium's second public session of the semester, Rebecca Kysar (who is visiting at NYU) presented the above-titled paper. It reflects, not just her longstanding international tax policy interests, but also her recent stint at the U.S. Treasury Department, where she was deeply involved in the international negotiations over Pillar 2 (the global minimum tax).

The paper focuses on an apparent paradox that is suggested by the 2021 global accord on implementing Pillar 2. In the trade policy realm, multilateralism has notoriously been giving way to go-it-alone protectionism or narrower regional and other alliances. Yet tax seemingly shows a newfound rise in multilateral cooperation (perhaps little noticed by international scholars outside the tax realm itself). How might one explain the disparity? The paper posits that in both cases - trade and tax - the trigger was public dissatisfaction with the distribution of the gains (as well as losses) from globalization, creating populist anti-business sentiment.

My main thoughts about the issues that the paper raises can be grouped into three main categories:

1) Multilateralism in tax versus trade: Again, multilateral cooperation appears to be falling in trade yet rising in tax, reflecting how populist anti-business sentiment has operated in each realm. But I would note an important difference in how it operates, at least in the US.

Trade: Standard economic theory holds that free trade helps all countries. While some individuals will be losers from it, the idea is that in each country gains will exceed losses. Hence, a given nation could in theory compensate the losers and reap a Pareto improvement from allowing free trade.

As it happens, this scenario does not always apply. For example, a country with monopsony power can benefit from optimal tariffs, and (as I and others have noted with respect to the digital economy), from taxing location-specific rents. In a scenario where lots of countries had the capacity to levy optimal tariffs, multilateralism could in theory yield a global welfare improvement from their all agreeing not to do it. But that scenario has not been at central stage in motivating backsliding from free trade.

Why does one need multilateralism with respect to "regular" (non-optimal) tariffs? It's seemingly unnecessary, as one can unilaterally decide not to harm oneself (and others) by imposing them.

The answer comes from interest group politics. Gains from free trade (e.g., to all consumers) are often more diffuse than losses (e.g., in a declining industry). So multilateralism's main role, in this story, is to secure the adoption of policies that would benefit each country even without reciprocity. I.e.: "I'll forgo my self-harming tariffs if you'll forgo yours.")

The decline of this model isn't just due to interest group politics, which we've had all along. Current bipartisan U.S. dissatisfaction with free trade reflects related political trends in each party.

On the Democratic side, not just politicians but the commentariat have concluded that concentrated losses (which generally don't get much compensation) are not just an interest group issue but one that matters. For example, we may care about workers in failing industry who lose their livelihoods because the skills they have developed no longer have value.

It's also thought that the economic gains from free trade are concentrated at the top. In principle, one could offset this by commensurately ramping up progressive redistribution. But in practice it works the other way. When the top rises, so does its political power, and hence it may pay less tax than if the rules remain fixed, not more.

Absent sufficient policy responses to the concentrated losses and wealth rise at the top, there is no theoretical reason to assume that the US is always better-off by reason of free trade's full operation. Thus, limiting free trade in some instances may serve as a kind of political second-best.

On the Republican side, where support for free trade was seemingly more hard-wired by both ideology and the interests of the donor class, its political downturn was initially forced on the party by Trump. But by now many others in the party have deduced that tariffs or other free trade barriers can be a political winner. This reflects electoral realignments, driving members of the white so-called working class (often not blue-collar at all) into the party's base.

Indeed, both sides have by now long since noted that voters who feel hostile towards free trade are often to be found in swing states that can turn elections. So there is a strong political impetus to move away from free trade, and thus to reject multilateral cooperation that helps to sustain it.

Tax: A very influential view holds that multilateral cooperation is needed to prevent multinational companies (MNCs) from engaging in tax avoidance. Tax competition yields a prisoner's dilemma, and multilateral cooperation is needed to address it.

Just as in trade, however, the need for multilateralism has been disputed. At least for large political entities with market power (e.g., the US and EU), there is some significant ability to impose tax unilaterally on either a corporate residence basis or that of "source" (using the scare quotes to detach from existing source rules). Just as with trade, therefore, multilateralism might be needed at least in part for domestic political reasons, such as overcoming domestic political opposition from the MNCs.

Either way, however, tax differs from trade in that here anti-business populism supports rather than opposes multilateral cooperation. Cue here all the headlines about Apple, Amazon, Facebook/Meta, etcetera earning huge profits and paying little tax, along with the results of public opinion surveys on the topic.

Does this difference in the political implications of anti-business populism explain the seeming paradox at the heart of the paper? To a degree, yes. But there is a big difference. US public political support for making MNCs pay more is far weaker and less politically consequential than that for protectionism. I would that it has verging on zero influence on the outcome of any election. At the most, doing the MNCs' political bidding may very slightly increase voters' perception that a particular politician is not on their side.

International tax policy in the US is mainly just an insiders' game for elites inside the Beltway. So the only reason anti-business populism matters at all in the Washington tax policy realm is that it has changed the views of Democratic (but not Republican) elites. [As an aside, the Republicans did in 2017 enact GILTI and the BEAT, but this reflected that they were being forced by budget limits to choose between the MNCs and business interests that they liked even more - viz., the odious pass-through rules.]

Hence, for anti-business populism to affect US international tax policy, the Democrats must be firmly in control of the legislative and/or regulatory process. And there's kind of an intensity or unanimity handicap here, since the Republicans are more fervent on this side of the debate than the Democrats on theirs, reflecting the MNCs' interest group influence on both.

SO: anti-business populism helps to explain both of the trends that the paper notes. But it's much stronger in trade than tax; hence, we are much more decisively moving away from multilateralism in the firner than towards it in the latter.

This is a US story. Is anti-business populism in tax stronger politically in, say, the EU than here? Probably so, reflecting that Europeans are less drunk on the anti-tax cocktail than are Americans, and also view the big American MNCs as "them' rather than as "us."

TO BE CONTINUED IN A FOLLOW-UP BLOG ENTRY

NYU Tax Policy Colloquium, week 1: Christine Kim's Taxing the Metaverse

 On this past Tuesday, the NYU Tax Policy Colloquium had its first "public" session of the year, thus completing the kickoff to our Year 28. Christine Kim was our guest, discussing her paper Taxing the Metaverse.

The paper defines the Metaverse as virtual worlds in which there is "economic activity," defined as consuming, creating, accumulating, or trading digital items with "real economic value." That in turn is defined as arising when the items can be converted into, or at least measured in terms of, a taxable currency such as U.S. dollars or crypto. [In the rest of this post, I will use "$$" to denote U.S. dollars.]

Some examples include the following:

1) Second Life: In this onlife simulation one can get "Linden dollars" in several different ways. You can earn them through business transactions in the sim world, or buy them for $$, or get some if you subscribe to Second Life rather than playing it for free. You can also sell Linden dollars for $$ on Paypal.

2) World of Warcraft: This online game requires paying a monthly subscription fee. But when you are there, you can earn "gold" inside the system, and make $$ by selling it or various types of items to other players.

3) Nonfungible tokens (NFTs): These are unique items that one can create digitally through Blockchain and then sell for $$ to whoever wants them. One can think of them as akin to, say, trading cards or unique art objects such as paintings.

Then a non-example, under the above definition: To brush up my French, which I learned to a decent degree in my pre-college years but have since spent a lifetime forgetting, I spend a little time most days on Duolingo, doing very gamified 5- or 10-minute French lessons. My "achievements" earn me "lingots." But, so far as I can tell, all I can do with these lingots is buy "streak freezes." Duolingo records how many days in a row I have done at least 1 lesson, but with a streak freeze I can take a day off and Duolingo won't treat it as breaking my consecutive-days streak. This presumably falls well short of "economic value," since I can't get $$ for my lingots or, so far as I know, get anything that is actually valuable for them. (I wouldn't pay any actual cash for a streak freeze.)

In the first three of these items, however, there sometimes is significant economic value. While most Second Life players don't get anything significant via Linden dollars, apparently someone became a millionaire that way. And there are a few World of Warcraft players who do pretty well. NFTs also have become big $$ generators for some individuals.

The paper is concerned with the big hitters from metaverses like these, not just for their own sake but on the view that there may be a lot more of this in the future. Mark Zuckerberg is not the only person who has guessed or bet that the Metaverse (consisting of all the individual metaverses) will become big in the future. For example, I found online a KPMG report positing that, by 2030, "we could be spending more time in the metaverse than in the real world. People will be applying for jobs, earning a living, meeting with friends, shopping, even getting married using the virtual capabilities of the metaverse."

I am not sure how capacious the "we" in this statement actually is. But suppose we have people making money as virtual real estate brokers on Second Life rather than as actual ones in physical reality. Or that, instead of being a tennis pro in the real world, one makes a living selling shields or whatever in WoW. Or that artists who would have made real-world paintings are instead selling NFTs. (This is already happening to a degree.) Then there might conceivably be greater urgency than there is today regarding taxing the Metaverse in a sufficiently similar manner to how we tax activity in the physical world.

At the consumer level, presumably the above "we" will continue to need actual food, a place to stay, etc. But suppose that one was perfectly happy to keep one's "real" consumption minimal, such that, like Hamlet without the bad dreams, one could "be bounded in a nutshell and count [one]self a king of infinite space." The paper aims to address today's heavy hitters in #1-3 above, with an eye towards preparing for this possible future.

Current tax treatment of Metaverse "income" generally involves taxing people when they get actual $$. The paper advocates generally taxing them sooner, i.e., on an accrual rather than a realization basis.

I see the paper as raising 3 main topics: (1) How should we evaluate taxing Metaverse "income' in general?, (2) Should we generally tax it sooner as the paper advocates?, and (3) How should tax jurisdiction over Metaverse items be allocated between countries?

1) How should we evaluate "taxing the Metaverse"? The paper sees a case for taxing anything in the Metaverse  that looks like income under the Haig-Simons definition, or that seems analogous to items in IRC Code section 61. I'd advocate going one turtle deeper and examining the efficiency and equity consequences of taxing versus not taxing it. (People sometimes add a third category to this, administrability, but I regard this as an aspect of the efficiency analysis.)

From an efficiency standpoint, deadweight loss results from tax-motivated substitution. But even a pure Haig-Simons income tax, as conventionally defined, doesn't tax everything. E.g., it reaches work (and market consumption) but not leisure. Thus a key question, with regard to taxing Metaverse items, is the extent to which they are serving as substitutes for taxable rather than nontaxable activity. For example, playing Second Life instead of reading books and going jogging is generally less of a concern than becoming a virtual real estate broker within it instead of an actual-world one.

Note also that earning WoW gold that offsets one's periodic subscription costs is probably less of a clearcut concern than earning $$ value in excess of that amount. The former might be viewed as reducing the expected cost of the consumption, which often is used as a proxy for its subjective value.

NFTs' closest substitutes presumably are various real-world art and trading card items of various kinds. These generally are taxed on a realization basis. This would tend to reduce the efficiency costs of taxing NFTs the same way, rather than on an accrual basis.

From an equity standpoint, the main issue is inequality. I would say that there are generally 3 types of reasons for caring about inequality: (a) because it can affect the marginal utility of $$ that might be taxed, (b) because it can affect the social consequences of inequality that people in the society actually subjectively experience, and (c) because it can affect the application of the observer's / policymaker's own inequality aversion, if any.

So, when people accumulate value of some kind in the Metaverse, does it affect any of these three things? The marginal utility of one's $$s is presumably greatly affected by convertibility into $$. As for the other two, it very much depends on one's framework. By analogy, consider two individuals who are identical in their circumstances and utility functions, except that A is in a happy and fulfilling relationship, while B wants to be but isn't. Clearly A is better-off than B. But does A therefore have lower marginal utility of $$? Not necessarily (although the answer would more clearly be Yes if one could somehow "buy" a fulfilling relationship for $$). Does this type of inequality in circumstances create social distress from inequality that could be mitigated by transferring $$ from A to B? Again not necessarily. (Consider the distinction that Robert Frank and others draw between positional and nonpositional goods.) And do you, if you are the observer, intuitively feel that this sort of inequality is wrong and needs mitigating via $$ transfers? Again not necessarily.

This is not to end the above conversation or reach any particular answer, but just to outline the inquiries that might need to be made.

2) Taxing sooner: I generally share the paper's inclination towards taxing accrued income "sooner" when this is sufficiently feasible. But one is reminded of the debates about currently taxing, say, publicly traded stock on an accrual basis when non-publicly traded, but otherwise similar, assets are not being taxed before realization. This makes the issues more complicated than they would otherwise be.

In discussing the paper with students in the class that we held the week before the public session, I noted the difficulties that arise when one wants to allow tax payments to be deferred, without deferral's reducing their present value, under an income tax. Under a perpetual, fixed-rate consumption tax, deferral does not benefit the taxpayer. E.g., suppose that the tax rate is 40% and the interest rate is 10%. Then, if you earn $100 and can either pay consumption tax of $40 this year or $44 in a year, deferral does not reduce the tax's present value. But under an income tax the effective tax rate, as to the whole, must rise with each year's  saving and reinvestment, if one is to avoid making deferral tax-beneficial. This creates complications that a huge scholarly literature has examined. 

The paper proposes adapting the so-called "ULTRA" method that David Gamage, Brian Galle, and Darien Shanske laid out in a recent paper. This method provides a mechanism that can be used either in a wealth tax or (with modest adaptations) to impose deferred income taxation that is present-value equivalent to current income taxation. But the paper suggests (and I have not had the chance to verify this) that applying it to Metaverse items would require knowing the path of fair market value, which might be feasible for some such items but again raises issues akin to those raised by the divide between publicly traded and non-publicly traded assets.

For Metaverse value that is convertible into $$, one current taxation method would be to pay the tax on a current basis in Lindens or "gold" or whatever, that the government would then immediately sell for $$. But this leads us directly to the next question, concerning tax jurisdiction.

3) Tax jurisdiction: Suppose that Individual A, who resides in Country X, earns income that we agree arose in Country Y. This, from X's standpoint it is foreign source income of a resident, and Y would tax it on a source basis. This brings us into the realm of international taxation and international tax policy, such as the decades-long debate regarding residence-based taxation versus source-based taxation.

A's Metaverse income potentially raises issues in this domain. One might think of it as arising "nowhere," or in virtual rather than physical space. Or one could try to give it a geographical source based on such considerations as where A was physically situated while earning it, or alternatively where the servers or the underlying metaverse-providing company is deemed to have been located.

Because we are dealing here with the taxation of an individual who (let us assume) is located in the space where he or she resides, I am inclined to see residence-based taxation as standing on strong ground. The physical location of corporations and other business entities is much more challenging to tax on a residence basis than that of particular individuals acting as such - both because the former might not literally "reside" anywhere, and because the normative links between a "person" and any given country may be far weaker where the "person" isn't an actual individual.

So, while we have gone pretty far in the international tax realm away from considering residence-based taxation a very good approach for taxing corporations and other business entities, for individuals we are still (I think) pretty much still there, despite the issues presented by migration, the rise of "tax nomads," etcetera.

Still, it is common for the Country Y's of the world to want to tax the income that they reasonably deem to have been earned there by individuals who reside in Country Y. (And of course every country is X in some instances, and Y in other instances.) And, to paraphrase Seinfeld, it's not as if there's anything wrong with that. If I'm an American but I am earning income by selling something to Britishers, there is no compelling normative argument against letting the UK tax that income if the UK likes. (It is not as if some wholly unrelated third country, say Belgium, is inviting international tax chaos by trying to tax this income despite, let us posit, any particular relationship between it and either the income or me.) But once this happens we do have a bit of a problem as between US and UK taxes, if we don't want to tax-penalize cross-border activity.

Still, the motivation to tax such "foreign source income" is probably strongest if the source jurisdiction has some sort of market power that can cause the incidence of the tax to fall, at least in some degree, on the nonresident individual. This might not be the case either if the server happens to be there, or perhaps even if the Metaverse business happens to be there. (We are discussing here taxing the Metaverse user, not the business itself.)

Much of the time, therefore, there may be little reason to take seriously the prospect of source-based, as distinct from residence-based, taxation of people's Metaverse income. But then again, this conclusion will not always follow. E.g., suppose that my business model as a WoW savant is to sell gold and shields to Britishers in particular. The issues raised might not be entirely dissimilar to those posed by, say, Facebook's (I'm sorry, Meta's) earning income in the UK, and thus facing digital services taxes that might conceivably be replaced someday (but I'm not betting on it) by taxes under Pillar 1. Or, at least further analysis would be needed to establish whether these two cases are relevantly different. (But I won't further lengthen this post by including such analysis here - but see, e.g., papers on digital service taxes and the like by Wei Cui, by Bankman-Kane-Sykes, and by myself, among others.) Accordingly, I suppose one can't categorically say that it seems wisest for taxes on individuals' Metaverse income to be taxed exclusively on a residence basis, even subject to such caveats as the ascertainability of a given user's actual residence.

Susswein et al on tax expenditures

 In an article in today's Tax Notes (here, but it's behind a paywall), DC tax lawyers Donald Susswein, Kyle Brown, and J. Anthony Coughlan report their "surprising finding that there are billions in deferred corporate and individual capital gains taxes missing from the official tax expenditure budgets."

What they have in mind is realized but not recognized capital gains from tax-free corporate mergers and acquisitions, in cases where the transactions aren't mere changes in legal form (like reincorporating an existing corporation with all the same owners for some sort of minor technical reason). Rather:

"We are talking about exchanges that substantially change the parties’ economic holdings before and after the deal. Examples would include the tax-free merger of companies like Exxon and Mobil into Exxon Mobil Corp. or the tax-free transfer of $1.65 billion in Google stock to the founders of a 2-year-old startup like YouTube, deferring individual and corporate capital gains taxes on as much as $1.65 billion of realized capital gains in a single deal. These and thousands of similar arm’s-length exchanges clearly meet the official definition of a tax expenditure (there would be no feasibility problem with taxing the Exxon or Google deals if they failed to satisfy all of the technical requirements for tax-free treatment). But they are seemingly invisible to the tax expenditure budgets."

Their point is not that the underlying recognition rule is bad policy (reflecting that classifying something as a tax expenditure does not necessarily mean that it is bad policy). Rather, it's that these are clearly "income" under the "normal" income tax rules - which only count realized, not unrealized capital gains - on which the tax expenditure budget has long relied.

The article takes a bit of a wrong turn in relating all this to purported ambiguities in the Haig-Simons income definition. What makes that a wrong turn is the fact that the conventional tax expenditure budget expressly does not rely on the Haig-Simons concept, which again would apply even to unrealized gains.

I think that their article nonetheless makes an interesting point that may advance one's thinking about the use of tax expenditures as a concept. If one were to disagree with it within the conventional definition of tax expenditures (relying on the "normal" income tax structure, one would say that this structure excludes, not only unrealized gains, but what one might call (for want of a better term), kind-of, almost, quasi-unrealized gains. They themselves say that "[n]o one could object to not listing [mere changes in legal form] as tax expenditures." So they aren't actually drawing the line, for "normal" structure purposes, at technical realization vs. no technical realization. Rather, they are drawing it at technical realization plus something of economic significance changes as a result of the transaction.

This is a perfectly respectable way to define the "normal income tax structure" for tax expenditure purposes. Only, raising it highlights the unclarity of the underlying question: Why are we using that concept to begin with? What normative arguments should govern the debate about that choice?

When I wrote about tax expenditures some years ago - indirectly inspiring, I gather, the Joint Committee of Taxation's short-lived efforts to revise the concept when Ed Kleinbard was the JCT Chief of Staff - I thought that a far more coherent and useful concept than normal versus not normal structure was the famous distinction in Richard Musgrave's public economics work between the government's distributional and allocative branches. E.g., the distributional branch might or might not want to allow deductions for medical expenses (a long-debated policy question).  But it definitely would not distinguish between municipal and corporate bonds, which both income and consumption tax advocates agree should be taxed the same (whether both are included or both excluded) if one is merely trying to measure distribution without regard to implicit taxes. And it also would not countenance a tax credit or deduction for solar heating panels, as only the allocative branch would consider that a possibly worthwhile rule. I argued that, in the ordinary case, what we call a "tax expenditure" is an allocative rule (whether good or bad) that has been placed in what we think of as a mainly distributional system.

I thought that an improved version of the concept would distinguish between (a) rules that were clearly just allocative (at least, when thought about in a principled way), (b) rules that were clearly within the distribution branch's (such as deducting losses and gains in order to calculate net income), and (c) those as to which the distribution branch's preferred treatment was legitimately debatable (such as medical deductions)

[Let me insert here a brief detour. I have completed writing and will soon be posting on SSRN an article about medical deductions et al, which discusses among other things the recently much debated issue of deductions for the cost of assisted reproductive technologies or ART.]

Okay, back to the main topic. I thought that there should also be a category in the revised tax expenditure budget for items that reflect (at least in part) the concerns of the distribution system but that respond to administrative concerns rather than the aim of directly & correctly measuring (say) Haig-Simons income. This is where I would have put unrealized gains. It would be good, if the TE budgets are at all relevantly informative, to include a category for unrealized gains even though they are not, at least exclusively or even primarily, an intervention by the allocation system for incentive or other such reasons.

So the Susswein et al point could be construed as holding that amounts realized but not recognized by reason of the nonrecognition rules for corporate transactions should be divided into 2 categories. Those that apply to mere changes in legal form would go into my category of rules reflecting the administrative et al concerns of the distribution system. Those for the likes of the Exxon-Mobil and Google-YouTube transactions would be classified as tax expenditures. Not an unreasonable idea at all, although one would need to come up with and apply a dividing line.

Then again, maybe all this (including my work as well as theirs) vastly exceeds the real policy gains, if any, to be derived from trying to rationalize the tax expenditure budget. But I think there is some intellectual value to trying to get the underlying concepts (more) straight, and the Susswein et al article is helpful in this regard.

But one last quibble: Susswein et al argue that clarifying these points, while "obviously relevant to the tax expenditure budgets ... may be even more important to the question of whether unrecognized gains should be included in the determination of average tax rates (and other tax policy questions)." Here I disagree. When we are thinking, say, about the overall distributional effects of the tax system, or the broader fiscal system - e.g., how favorably does it treat the super-rich relative to those below them - Haig-Simons income is one of the distributional measures that one might consider using. (As I discuss here, another possibility is lifetime income.) The "normal" income tax structure really has no role to play in, and associated questions of what set of underlying motivations particular income tax rules might address, has really no role to play in, and nothing to contribute to, that discussion.

Two new papers on SSRN

I have posted two new papers on SSRN, comprising my new writing so far this year.

One is entitled "Time Is, Time Was: Evaluating the Use of the Life Cycle Model as a Fiscal Policy Tool.." It's available here.

The abstract goes something like this:

What time periods should we use in tax and other fiscal policy to evaluate people’s circumstances, and thus to determine either how they are being treated, or how they ought to be? This question is both fundamental and pervasive.
Standard economic reasoning offers grounds for entirely basing one’s thinking on lifetime models. In particular, the closely related permanent income and life cycle hypotheses support employing a purely lifetime perspective in evaluating people’s circumstances and treatment. The resulting model posits that people make decisions on a lifetime basis, seeking to optimize lifetime utility in the face of both (1) period-specific declining marginal utility of consumption, and (2) whatever preferences they happen to have as between consumption in different periods. Accordingly, in the presence of complete markets (including a lack of borrowing constraints), the question of when one earns a given dollar ostensibly makes no difference regarding when one spends it on consumption. And equivalently, when one pays a given dollar of tax will make no difference regarding how much one spends in any period.
This model applies the same basic logic as a two-goods model in an Economics 101 casebook (featuring, say, pizza and movies), but in a far more complex setting in which its application is considerably more challenging. Despite its ruthless simplification, it likely has some degree of descriptive accuracy. People surely do make some plans across very long time horizons, such as early-life career choice, and subsequent planning (however imperfect it may be) for retirement.
Yet the factors that undermine life cycle view’s accuracy and normative relevance are not limited to borrowing constraints. Also of crucial importance are people’s tendency to treat different periods as effectively separate, and a number of other constraints that would prevent them (even if so minded) from equalizing the marginal utility of consumption as between periods.
In sum, therefore, the life cycle model is not sufficiently descriptively accurate to be treated as more than an important orienting benchmark. Like such other “it doesn’t matter” theories as the Coase Theorem, the Efficient Markets Hypothesis, and the Modigliani-Miller Theorem, its value lies more in its showing us where to look for falsifying conditions, than in its actual empirical validity.

The other is entitled "Ancillary Benefits and Income Versus Consumption Taxation in Liam Murphy's and Thomas Nagel's The Myth of Ownership." It's available here. And the abstract:

Nearly twenty years after the publication of Liam Murphy’s and Thomas Nagel’s landmark book, The Myth of Ownership, it is instructive to revisit the tax base debate (concerning the relative abstract merits of income and consumption taxation) that were prominent in my own interactions with them at the time. In retrospect, I believe that they were right to question the simplistic models that might appear to establish the clear theoretical superiority of “ideal” consumption taxes over “ideal” income taxes. However, our debate at the time also focused on their claim that unconsumed wealth’s ancillary benefits to the wealth-holder – for example, its augmenting one’s “security, political power, and social standing” – importantly contradicted the models' treatment of “savings and wealth [as entirely] subsidiary to consumption and deriv[ing] their value entirely from it.” In retrospect, our mutual sense at the time that ancillary benefits stood at the heart of the income versus consumption tax debate now appears to be misplaced. While what one makes of such benefits may be analytically relevant, it is probably less important than questions of political risk and of lifetime versus shorter-period distributional assessment.

Both will be appearing in edited volumes, relating respectively to an upcoming tax conference at Oxford and a 20-years-later set of responses to Murphy and Nagel.

SSRN follies

Earlier today, I decided to post on the Social Science Research Network (SSRN) two papers that I have written since the start of the year. Once they're up, I planned to link them here and make minor efforts to publicize them to potentially interested readers.

But one of them has been pulled by SSRN due to bizarro malfunctioning on their part that I have as not yet been able to get them to correct.

The paper at issue is called "Ancillary Benefits and Income Versus Consumption Taxation in Liam Murphy's and Thomas Nagel's The Myth of Ownership." It revisits my friendly disagreement with the authors, about twenty years ago, and my rethinking of my views since that time, regarding the relative merits of income and consumption taxes.

Here is the first email I got from SSRN about it:

"The SSRN Processing Team has added the following comment to your submission, Ancillary Benefits and Income Versus Consumption Taxation in Liam Murphy's and Thomas Nagel's The Myth of Ownership (Abstract ID 4459236):

"SSRN's medical screening process has begun. While under review, your paper will be temporarily removed from public view and your My Papers page."

Here is my response:

"This makes no sense. Why would this paper require "medical screening"? It has nothing more to do with medical issues than it does with the Man on the Moon. Please restore the paper for public viewing ASAP."

I also called SSRN and spoke to a live human who said she would get a further response from their reviewers. It came within a couple of hours, and read as follows:

"Dear Daniel,

"Your paper or analysis may be framed around a legal, economic, or other topic question; however, if the data that is used in the analysis is medical or health related, we must use caution around both patient and health information. We conduct medical screening on any such papers that include medical or health data to provide complete transparency and to follow best practices around any health data. Due to the caution that is required around health care or medical preprints for prevention of harm and to meet required reporting standards, SSRN screens these papers to ensure they have appropriate declarations around competing interests and funding as well as ethical approval and trial registration, where appropriate."

Here is how I responded:

"I’m sorry to have to repeat this, but nothing in the paper is IN ANY WAY WHATSOEVER medical or health related. It’s about philosophers and tax policy.

"My paper does NOT use any data - much less data that is medical or health related. It is not within a billion miles of having anything to do with patient or health information. There is absolutely nothing even remotely related to medical content OF ANY KIND.

"Please correct its erroneous suspension as soon as possible."

[Added 5 minutes later:] Now, looking back at all this, I think I've finally guessed the nature of the problem. If  you do a Google search for "ancillary benefits" (a phrase which is in my paper title), you can get something like this:

"Ancillary benefits are secondary health benefits provided alongside group health insurance to cover things like prescriptions and medical bills incurred during hospital stays."

 By contrast, when I speak of "ancillary benefits" in the paper, I am referring to Murphy's and Nagel's discussion of the benefits people may enjoy by reason of wealth-holding other than getting to consume the wealth - for example, its augmenting one's "security, political power, and social standing."

While this makes the whole thing less incomprehensible, I am not at present finding it very mollifying. 

2023 NYU Tax Policy Colloquium

The 2023 NYU Tax Policy Colloquium will have 6 public sessions, each of them on a Tuesday afternoon from 4:25 to 6:25 pm (and to be followed by a small group dinner). Our speakers will be as follows:

September 12: Christine Kim, Cardozo Law School

September 26: Rebecca Kysar, Fordham Law School (visiting at NYU)

October 10: Jeremy Bearer-Friend, George Washington Law School

October 24: Kimberly Clausing, UCLA Law School

November 14: Ajay Mehrotra, Northwestern Law School

November 28: Edward Fox, University of Michigan Law School.

As an aside, while future years are a bit up in the air right now, it is possible that I will resume having weekly public sessions of the Tax Policy Colloquium (with the class meeting in the mornings to discuss the papers before the public session), even on a solo basis without a co-teacher, in which case we'll be back to having 13 papers a year instead of 6.

Should Fox News get to deduct the damages it is paying to Dominion?

There has been a bit of (naive?) outrage out there about the fact that Fox News will presumably get to deduct the $787 million of damages that it has agreed to pay Dominion, thus greatly reducing the after-tax cost (and in effect sharing it with US taxpayers, although it is true that on the other side Dominion will presumably be including and paying tax on its recovery).

From a standard tax policy standpoint, there is actually nothing wrong with this - indeed, it is the correct answer. As I discussed with a Lever News journalist here:

“If your business model is to tell lies so that you’ll get viewers and have lots of advertising revenues, then, odious though this business model may be, the tax system’s job is to tax you on the profits that you actually make from it,” Daniel Shaviro, a professor of tax law at NYU, told The Lever. “And those profits are indeed reduced when you are successfully sued by the victims of your malicious falsehoods.”

But there is another side to it. As suggested by the public outcry when Dominion settled instead of forcing a trial, Fox's malign behavior was and remains grossly under-deterred. Dominion was able to collect for the private harm imposed on its business by Fox's willingness to spew lies into the public realm, but no one gets to collect for the vast public harm that it malignantly inflicted. My own personal view is that the damages for that, if they could be measured and collected, would be many times greater, in billions of dollars, than Fox's entire business is worth.

But there is no law in place allowing such collection for the public harm. And, no such law would be politically feasible (e.g., to deter Fox in the future) even if it were easy to design and clearly constitutional. And, even if such a law were easy to design, it would risk being held unconstitutional, even by an honest Supreme Court. And, holding such a law unconstitutional might even be the best thing, all told, given the possibility that such a provision could be misused to deter free speech that has greater value than Fox's simply poisoning the public realm by lying for profit.

From that standpoint, if one could deny Fox deductions for the damage award - this time, and in the Smartmatic case, and in future instances where it was contemplating defaming private parties while also poisoning the public realm - it would seemingly be a good thing. Only, how could one design such a rule to avoid the political and constitutional problems, and to avoid over-deterring potential torts where there is no negative externality? Maybe it can't be done, but even so there is reason to regret (even if just idly) that Fox must remain under-deterred.

All hands on deck

 The Supreme Court has asked for amicus briefs regarding whether it should grant certiorari in the case of Moore v. United States, in which taxpayers challenged the constitutionality of the transition tax in the 2017 tax act regarding undistributed earnings from controlled foreign corporations (which were taxed at a low rate in combination with the repeal of deferral, under which they would have been taxable upon repatriation).

The taxpayers' challenge is based on the view that Eisner v. Macomber (1920) makes realization  a constitutional prerequisite to taxing income (without apportionment between the states) under the Sixteenth Amendment. The Ninth Circuit rejected this challenge, based on extensive post-Macomber precedents, and held forthrightly that realization is not a constitutional prerequisite to taxing income. 

Macomber has never been expressly overruled by the Supreme Court, but by 1940 (in Helvering v. Bruun) it was very openly refusing to follow it outside of its particular facts, which related to stock dividends. There has probably been no time since, until the right-wing takeover of the court accelerated in the last few years, when there would have been any chance of the Court's relying on it to block a provision such as the 2017 transition tax. But Chief Justice Roberts cited Macomber as apparently still good precedent in his 2012 opinion upholding Obamacare (National Federation of Independent Business v. Sebelius) - a sly nudge that (to mix my metaphors) may now be on the verge of bearing fruit.

It is difficult to exaggerate how destructive a Supreme Court decision reviving Macomber's constitutionalized realization requirement could potentially be. In addition to ruling out efforts to tax unrealized appreciation (e.g., through new legislation such as that proposed by Senator Wyden), it might also conceivably, depending on how broadly it was worded, make impossible the taxation of original issue discount (OID) bond interest until the due date. This, in turn, could unleash tax sheltering that might cost the federal government billions of dollars in revenue, most or all of it from the upper income brackets. That prospect, however, may actually be enticing to several members of the Supreme Court, who appear to want to blow things up.

Not that it would necessarily make much of a difference, but responsible members of the legal tax academy ought to weigh in on this issue if the Supreme Court grants certiorari in Moore v. Harper.

ChatGPT strikes (out) again

 Here is what ChatGPT thinks my novel, Getting It, is about. Not a word of this (attribution of authorship aside) is correct:

"Getting It" is a book written by Daniel Shaviro, a tax law professor at NYU School of Law. The book explores the current state of U.S. tax policy and suggests reforms that could improve the fairness and effectiveness of the tax system.

Shaviro argues that the U.S. tax system is overly complex, inefficient, and inequitable, and that it fails to achieve its stated goals of raising revenue and promoting economic growth. He proposes a number of reforms that would simplify the tax code, reduce tax evasion and avoidance, and ensure that the wealthy pay their fair share.

Some of the specific proposals in the book include replacing the income tax with a consumption tax, increasing taxes on the wealthy and corporations, and reforming the estate tax. Overall, the book is a thought-provoking and accessible exploration of one of the most important and contentious issues in American public policy.

By contrast, here is what the book description at Amazon says.:

"Young D.C. lawyer Bill Doberman, who fancies himself the James Bond of the Potomac. is a liar, a conniver, a phony, a hypocrite, and a cad, and those are his good points. But will they be enough to win him the much desired booby prize of partnership at Ashby & Cinders?

My "Law, Literature, and Social Science" seminar

I have posted on SSRN a syllabus and the weekly discussion questions for the seminar, "Law, Literature, and Social Science," that I am now teaching for the second time. Conceptualizing and executing it took a TON of work, and I feel it's been a successful class both times. Also, I feel that it's fairly novel, albeit perhaps idiosyncratic. Given the unlikelihood that I could either publish this work conventionally or monetize it any way, I thought I'd share it, in the hope that others might find it of interest. It's available here.

Talk on Bonfires of the American Dream, part 2

 As I noted in the prior blog post, yesterday, at an NYU Law and Culture Colloquium, I discussed the Great Gatsby chapter from my recent book, Bonfires of the American Dream. That post offered broader background concerning the project; this one will briefly discuss the Gatsby chapter.

Again as personal background, I have always liked The Great Gatsby (which I first read in high school, but I think on my own rather than for class), but I don't quite love it. It's obviously well-written, and I like its darkness, unhappiness, sense of estrangement, noir elements, and use of a very passive, and possibly quite unreliable, narrator. But I have never personally resonated enormously either to its poetry (e.g., the famous closing paragraph about boats beating against the current), or to the somewhat heavy-handed use of symbolism that makes high school English teachers so happy (e.g., Dr. T.J. Eckleberg).

Obviously, Gatsby has been written about a lot. In finding my own discussion space for it, I was interested in its changing cultural reception over time. As the chapter discusses, it was a flop when it came out, forgotten and seemingly buried by the time F. Scott Fitzgerald died. Then it rose from the dead, starting in about 1945, becoming perhaps the Great American Novel for a while, although more recently its star has dimmed, at least among elite literary critics. It may be modernist, but it isn't very post-modern.

In the 1950s, the literary critics who embraced it appeared to be especially entranced by its arguably supporting what I call a hipster critique of American culture - suggesting that, while upward mobility and social / economic success might be within reach for the aspiring, the pursuit thereof was empty, alienating, and unsatisfying. Many regarded it as a devastating indictment, the grounds for which weren't entirely clear, of the American Dream. Given underlying elements of social and self-satisfaction among these critics, it functioned as pessimism for optimists.

In today's much angrier and more pessimistic era, that has become pretty thin gruel as a critique of American culture. Hence my suggestion that Gatsby now operates more as voyeurism for pessimists than as pessimism for optimists - as in the Baz Luhrmann movie version.

The underlying ambiguity between those two responses is baked in the novel itself. But rather than more fully review my Gatsby chapter here, I'll just mention a couple of related themes. The first is the relationship between conscious authorial intent and what we might learn for sociological purposes from reading literature. The second is whether what we might choose to call "great" literature offers deeper or different insights than, say, really bad literature.

On conscious authorial intent, Gatsby offers an interesting picture. There is something intentionally didactic going on, relating to Fitzgerald's autobiographically rooted anxieties about the contemporary American upper class. That's probably why Tom Buchanan is the least nuanced of the major characters in the book. (Daisy Buchanan is a bit more nuanced, in relation to her travails as a woman.) We also get Fitzgerald's personal pet theory about why high-end inequality matters, which is that, unless you are born rich, you will lack self-confidence. This theory falls fairly far short in illuminating all of the issues that are raised by modern high-end inequality. Especially, since we are now past the era of the leisure class and of status's primary reliance on birth, and living in an era where even the dynastically wealthy claim to be self-made.

But the book is at its best when it gets away from Fitzgerald the would-be social thinker, and isn't just reflecting the beliefs that he could have put into an op-ed (had these existed at the time). An example is the Gatsby parties, which Gatsby says are full of "interesting people ... who do interesting things." Fitzgerald is showing us the rise of celebrity culture alongside the old hierarchy of birth and inherited wealth.

The book is also great on consumerism and ennui. Plus, its disturbing elements of racism (along with mockery of overly intense racism) and of anti-Semitism make for interesting, if unsettling, reading today.

If you wanted to defend the proposition that great literature has more to offer sociologically than bad literature, Gatsby arguably suggests that the former, by escaping in interesting ways the author's conscious or didactic beliefs, can become especially revelatory.

But I'm not sure that I would defend the proposition that you learn more sociologically from great than bad literature.

I do mainly focus my writing in this area on great and very good works (by my estimation) - although the John Galt speech in Atlas Shrugged is an exception, and possibly the single worst thing that I have ever read. (Although, I haven't read Mein Kampf and don't plan to.) But my main reason for doing so is simply that it's more enjoyable to spend your time in good company than bad.

Talk on Bonfires of the American Dream, part 1

 Yesterday, at an NYU Law and Culture Colloquium, I discussed the Great Gatsby chapter from my recent book, Bonfires of the American Dream. This book has been falling between the cracks a bit, although here is its Kirkus review - which is a shame, certainly from my personal standpoint but also because I think it's a good read (as well as short) that has important things to say. This may be true of a lot of books that fall between the cracks (as there are just so many of them), but a lot of people out there might connect with it, if only they knew about it and gave it a chance. Maybe including you?

Anyway, here is a considerably fleshed-out version of notes that I used to make brief remarks at the start of the session:

Instead of presenting my Gatsby chapter as if it were a separate paper, let me give some context for the book it's in, as well as the genre in my recent work of which it is a part.

Going back 40+ years, when I was in college (at Princeton) I majored in history, and (despite focusing on American history) participated in the European Culture Studies (ECS) program, then run by Carl Schorske. The central ECS idea was to treat cultural products - from literature, the visual arts, philosophy, music, etc. - as objects for historical study. I wrote my senior thesis on some very interesting diaries that were left behind by the eighteenth century Virginia planter (and slaveholder) William Byrd II, which gave a remarkably intimate portrait of his life.

For most of my college career I was planning to go to graduate school in history and, while not enormously methodologically self-conscious, I had a fairly clear idea of the sort of work that I might do. But on a glorious spring day near the end of my junior year, as I struggled to find materials for a term paper on the medieval town, it suddenly occurred to me that I didn't want to do this with my life. (This reflected a combination of my understanding the already dire career prospects for history PhDs, with a comprehension that scouring library shelves was not really what I wanted for myself.) This left me with the obvious default plan for that era: I'll go to law school like 90% of my friends! 

After law school I entered tax practice, and subsequently tax law & policy in academia, because I almost accidentally stumbled into learning about its advantages in both realms.

Academic tax law features a mix between "just law," math/quantitative, social scientist, and (to a lesser degree) humanities approaches. My work has been mainly in the social scientist camp, with an occasional side helping of humanities.

I've enjoyed working in that space, and I still do. But it was perhaps under-utilizing my humanities side.

I've always had strong arts interests, extending to books, film/TV, and popular music, and also once wrote a satirical novel about scoundrels competing with each other at a law firm that is also, I think, a fun short read (and only $4.03 at Amazon!). But about 10 years ago I saw an opportunity to expand my academic use of the humanities side to my interests.

With the rise of high-end inequality as a tax (and other) policy problem, I noticed that the dominant public economics frame treated declining marginal utility as the only reason for being concerned about it. I agree about the relevance of declining marginal utility, but believe that there are also other concerns, relating to hierarchy, status competition, etcetera. Those problems call for a broader sociological approach, which might be enlightened by (among other things) studying cultural products ECS-style.

Then came Piketty's famous publication of Capital in the 21st Century. I got on the bandwagon early enough to invite him (before his dance card was filled) to a symposium discussing the book at NYU Law School, and i co-authored one of the papers at the conference.

Piketty got a lot of popular mileage in the book from his discussing famous novels by Austen and Balzac. His use of them was a bit limited by my ECS standards, but he did make some interesting points about them.

I noticed, however, that he got Balzac wrong! He treats Le Pere Goriot as showing the utter futility of using personal effort to get rich, as opposed to relying on inheritance. Yet Goriot's closest thing to a lead character is Eugene de Rastignac, who is surely the preeminent arriviste or social climber in all of French literature. Rastignac learns in the novel (from the famous Vautrin speech) that there is simply no point to his seeking wealth as a lawyer. The returns would simply be too small, deferred, and uncertain. But he doesn't give up on social climbing through personal effort - rather, he learns that a better career choice is that of social parasite (e.g., going to salons, seducing rich women who can help him, trying to inveigle or finagle their husbands, etc.).

That paper plus my ECS training and my sense that the legal and economics literatures about high-end inequality were missing something led to a book, Literature and Inequality, that features 9 studies of classic French, British, and American novels from the nineeteenth through the early twentieth century. That was going to be Part 1, and then Part 2 would hypothetically feature 9 more recent British and American works (e.g., Waugh, Wodehouse, Gatsby, Bonfire of the Vanities, and several others TBD).

But then I realized that I didn't want to write Part 2. Instead, I'd do something much shorter, focused on the US setting where I feel more sure-footed, and shifting the emphasis to factors that might help to explain the rise of Trump and American fascism.

In particular, I was interested in the role played by the tensions between two deeply rooted American cultural ideals: egalitarianism (at least for white males) and what I call market meritocracy, or the view that everyone has a fair chance, and that market outcomes decide who is worthy and who is not. (Suggesting that the "winners" deserve everything that the market gives them, while the "losers" deserve nothing but hatred and scorn.)

The book has three main substantive chapters (leaving aside the Introduction and Conclusion). The first discusses the John Galt speech in Ayn Rand's Atlas Shrugged, and compares it to a much less malignant late 19th century entry in the so-called success literature genre, Russell Conwell's Acres of Diamonds speech, which he gave to paying audience thousands of times between 1870 and 1925, thereby earning enough moolah to found Temple University.

The last chapter compares 2 movies that have a surprising amount in common, apart from the pervasive cultural influences of their very different eras: Frank Capra's It's a Wonderful Life from 1946, and Martin Scorsese's The Wolf of Wall Street from 2013.

The middle chapter, which I presented at the workshop and will recapitulate briefly in a follow-up blog post to this one, discusses The Great Gatsby.

Fiction recommendation

 I just finished Olivia Manning's Levant Trilogy, a follow-up to her Balkan Trilogy. These are 6 novels (about 1,500 pages total) set during World War II, and following her own experiences as a young Englishwoman who follows her newly-married husband (whom she barely knows) from England to his posting as a university lecturer in Bucharest in 1939. The fortunes of war (which is also the name generally given to the sextet) chase them first to Athens and then to Cairo. Her husband Guy is the single worst husband I have ever seen in fiction, if you eliminate all those who are angry, violent, abusive, dangerous, unfaithful, etcetera. There is also a broader rotating cast, composed of numerous other mainly English characters whose foibles and vanities are generally at center stage.

Despite the drama surrounding the War's events, these are quiet, observant social novels full of character observation, almost like country house fiction except set amid violent chaos, and generally lacking major dramatic events other than those on the broader canvas imposed by history. It seems like they ought to be boring, but instead I found them enthralling throughout. (I didn't read them straight through, however, but over some months with other books in between.)

Highly recommended, although I can't guarantee that everyone will find them as compelling as I did.

New paper posted on SSRN

I have just posted on SSRN a paper that I wrote last year, entitled "Would an Unapportioned U.S. Federal Wealth Tax Be Constitutional, and What Does That Mean?"

It's available here, and the abstract is as follows:

To assess the constitutionality of an unapportioned federal wealth tax, and/or of a federal income tax provision reaching wealthy taxpayers’ unrealized gains, one needs an underlying framework for making judgments about legal claims. While no such framework can be entirely specified, at least to general agreement, this does not support nihilistically rejecting all comparative judgments about better versus worse, or more versus less convincing, instances of legal analysis.
While it appears nearly certain that the Supreme Court‘s current right-wing majority would strike down an unapportioned federal wealth tax, the “correct” answer to this constitutional question cannot be proven to general agreement. I myself would disagree with such a holding by the Court. An important variable in resolving the issue for oneself is how much continuing precedential weight one should give to Pollock v. Farmers’ Loan & Trust Co. – a case that itself blatantly disrespected precedent, but that did so more than a century ago, and that (on the other hand) some argue has already ceased to be good law. The principle of respecting precedent both has instrumental value and has been long (if fitfully) honored within the American legal system, but all agree that its weight is not absolute.
An unapportioned minimum income tax on the wealthiest Americans that included in income their unrealized capital gains would likely be constitutional under currently prevalent legal doctrine. It is true, however, that Eisner v. Macomber (1920), if it were held to remain good law beyond its immediate facts, would support holding it unconstitutional. The prospect that the current Supreme Court’s six right-wingers will decide to revive Macomber provides only one reason for suspecting that they might strike down such a provision, perhaps while also launching a broader constitutional war against central tenets of the current regime for taxing wealthy individuals and capital income. However, it lies beyond the power of conventional legal analysis to predict either what form such a war would take, or on what terms it might end up being resolved.

Just the other day at the NYU-UCLA Tax Conference

At the NYU-UCLA Tax Conference last week, an economist was giving a talk about the Biden Administration's budget proposal to tax billionaires on unrealized appreciation. This provision moves beyond the Wyden mark-to-market tax, making it somewhat more of a prepayment provision for future tax liabilities that might be more conventionally realized.

In the question period, I opined that the 6 right-wingers on the Supreme Court would probably strike it down, relying on Eisner v. Macomber's statement (formally unreversed, although widely viewed as having been repudiated by the Court more than 80 years ago), to the effect that realization is a mandated constitutional prerequisite for treating something as "income." I suggested that the six of them just wouldn't care about the prepayment issue, because why bother with it when you have the votes.

"I'm not a lawyer ..." he started to answer.

"Neither are they" was my reply.