Since I was there at the time, I remember. The answer is: one thing, and one thing only. He was a heckuva good TV talk show host over the period of several days right afterwards.
I don't want to minimize this too much. It actually mattered to a degree. A key virtue is that he was actually calm. With all the grief and shock in the air, he helped New Yorkers to feel better.
But that was it. So far as actual emergency management is concerned, the less said the better. Think of the lost command post that he put on top of the WTC, possibly as a love nest. Or the dead firemen who would have survived if they could have communicated by radio with the police. Or the lack of health precautions for people at the site, who are still getting sick due to his negligence. Or the fact that he spent more hours at Yankee games between 9/11 and the end of that year than at the site (not that he was really needed there).
Good talk show host for a few days. Period. Via a completely different persona than his mad dog spewings on the campaign trail these days. And again, this was genuinely valuable and I still appreciate it. But it is a slim reed for a Presidential campaign.
Wednesday, October 31, 2007
Monday, October 29, 2007
Invidious comparison
I felt slightly bad about rooting for the higher-budget, bigger-bully Red Sox, an involuntary reflex reflecting all the years of counting on them (faute de mieux) to stop the Yankees. I also wanted the thing to end already, so I wouldn't have to keep on staying up late.
If you think the World Series outcome was inevitable, even after 8 innings of Game 4, think back to game 4 of the 2004 ALCS. It's difficult to draw any distinction between the Yankees' degree of dominance (and seeming inevitability) through that point in 2004, and that for the Red Sox this time around. E.g., the Yankees in 2004 had outscored the Red Sox by 36-19 through the 8th inning of game 4, versus 29-10 for the Sox this time around.
Only, Rivera blew it and Papelbon didn't.
If you think the World Series outcome was inevitable, even after 8 innings of Game 4, think back to game 4 of the 2004 ALCS. It's difficult to draw any distinction between the Yankees' degree of dominance (and seeming inevitability) through that point in 2004, and that for the Red Sox this time around. E.g., the Yankees in 2004 had outscored the Red Sox by 36-19 through the 8th inning of game 4, versus 29-10 for the Sox this time around.
Only, Rivera blew it and Papelbon didn't.
Friday, October 26, 2007
New tax bill introduced by Congressman Rangel
House Ways & Means Chair Rangel has introduced a major tax bill, the "Tax Reduction and Reform Act of 2007." Zero chance of enactment - probably zero chance of passage, but even if passed it would be vetoed by Bush - but it matters for two reasons. First, revenue-raisers in it might be used to pay for extending AMT relief. Second, all of its provisions automatically land on the shelf full of items that might be considered in the future, e.g., in 2009 under a Democratic President. (Which is not to say that Hillary or any of the others would actually take much from this bill - it would simply add to the background list of options.)
Clear discussion of the bill would be helpful but is unlikely to emerge in the political process. I gather no Democrats wanted to co-sponsor. Republicans will presumably yammer centrally furnished talking points about how it's a huge tax increase (a lie - it's a mix of tax increases and cuts), reflecting once again that they behave more like a Bolshevik-style cabal than like the type of political party one really would expect to find in a country with several centuries' worth of democratic traditions. But I am hopeful that thoughtful conservative commentators will take it seriously - there actually are parts of it that they ought to like, although they might quite reasonably dislike it on balance.
Anyway, here is a quick summary of several main features with my thoughts about them.
1) Lower-income tax reductions - The bill would cut taxes for lower-income Americans via about $86 billion (over 10 years) worth of increases to the standard deduction, earned income tax credit, and refundable child credit. This is a straight distribution issue. I'm sympathetic, but readers can evaluate it for themselves (the counter-argument is that it gives infra-marginal rate cuts that need financing via distortionary taxes).
2) AMT shuffle - interesting methodology here to try to pay for AMT repeal. Complete AMT repeal, costing $795B over 10 years, is financed by a "limitation of benefits of individual AMT repeal" provision (raising $831B). This is simply a rate increase of 4% initially, then 4.6%, on groups at income levels with a lot of AMT exposure. Amusing that the top rate gets back to exactly its pre-2001 level of 39.6%. Substantively, the idea is to raise top rates in lieu of having the AMT. Semantically, the idea is to call this a mere limitation of the benefits of AMT repeal. As a political or semantic matter, I don't think it will work. Substantive merits are mixed - getting rid of the AMT may be good but in part this amounts to higher marginal rates instead of indirectly denying state and local tax deductions. Further marginal rate increase here, although as a "bubble rate" not at the very top, from restoring the phaseout of personal exemptions. I would argue that personal exemptions are appropriate at all income levels, so the best rationale for this is an optimal income tax thing about not putting the highest rates at the very top.
3) Business, including international - Top corporate rate is cut from 35% to 30.5%. (Republicans will of course ignore this.) 90% of the revenue loss from this is offset by the revenue gain from (a) repealing the idiotic special lower tax rate for domestic production activities, (b) denying deductions related to foreign source income that is not currently taxable, until such income is actually repatriated & thus becomes taxable here, and (c) barring the use of LIFO accounting for inventories. This is a good package that almost any good-faith independent observer ought to like, with the possible exception of (b). I tend to think (b) probably is good policy - preventing what is effectively better-than-exempt treatment for foreign source income - but I feel a need to hear more about this issue from people who know more about the intimate institutional details.
One interesting effect, if you put it all together, is that marginal tax rates for individuals become much higher than for corporations if all this is enacted - 39.6%, plus more in the personal exemption phase-out range, versus 30.5%. I gather that the 15% dividend rate would be allowed to expire. Never mind, in an era when double taxation of corporate income is ever easier to avoid through sophisticated planning, this seems likely to make the corporate tax a net benefit rather than a net burden. All those economists doing incidence studies of the burden of the corporate tax (a subject I've been studying and writing about for my latest academic project) are going to have to turn around and write new papers about the incidence of the benefit from the corporate tax.
4) Other - about a gazillion one-year extenders. Not the fault of the Rangel bill, but I find it pretty unedifying to have all this stuff on regular extenders needing annual lobbying infusions to get them renewed for another year. This is a case where Congress and the lobbyists may be colluding to screw the lobbyists' clients. But again I don't lay this on Rangel or the bill - the extenders simply bring this preexisting situation to mind.
Among other features, the bill would take on carried interests, put "economic substance" in the Internal Revenue Code (which at least would stop Scalia & Thomas from saying, in any event prospectively, that there is no such doctrine), and address various little planning tricks that the staffers on Capital Hill have evidently learned about.
On the whole, I would definitely take this package over present law. Not going to happen, of course. Even apart from the lack of votes, and the Republican noise machine lying about it, it's inherently pretty hard to enact a break-even package with hundreds of billions of dollars worth of tax cuts and tax increases both, because the losers tend to screech more than the winners. Certainly a good try, in most respects, to throw out the AMT in a fiscally responsible manner and to improve the corporate tax rules through the classic combination of rate cuts and base-broadening.
Clear discussion of the bill would be helpful but is unlikely to emerge in the political process. I gather no Democrats wanted to co-sponsor. Republicans will presumably yammer centrally furnished talking points about how it's a huge tax increase (a lie - it's a mix of tax increases and cuts), reflecting once again that they behave more like a Bolshevik-style cabal than like the type of political party one really would expect to find in a country with several centuries' worth of democratic traditions. But I am hopeful that thoughtful conservative commentators will take it seriously - there actually are parts of it that they ought to like, although they might quite reasonably dislike it on balance.
Anyway, here is a quick summary of several main features with my thoughts about them.
1) Lower-income tax reductions - The bill would cut taxes for lower-income Americans via about $86 billion (over 10 years) worth of increases to the standard deduction, earned income tax credit, and refundable child credit. This is a straight distribution issue. I'm sympathetic, but readers can evaluate it for themselves (the counter-argument is that it gives infra-marginal rate cuts that need financing via distortionary taxes).
2) AMT shuffle - interesting methodology here to try to pay for AMT repeal. Complete AMT repeal, costing $795B over 10 years, is financed by a "limitation of benefits of individual AMT repeal" provision (raising $831B). This is simply a rate increase of 4% initially, then 4.6%, on groups at income levels with a lot of AMT exposure. Amusing that the top rate gets back to exactly its pre-2001 level of 39.6%. Substantively, the idea is to raise top rates in lieu of having the AMT. Semantically, the idea is to call this a mere limitation of the benefits of AMT repeal. As a political or semantic matter, I don't think it will work. Substantive merits are mixed - getting rid of the AMT may be good but in part this amounts to higher marginal rates instead of indirectly denying state and local tax deductions. Further marginal rate increase here, although as a "bubble rate" not at the very top, from restoring the phaseout of personal exemptions. I would argue that personal exemptions are appropriate at all income levels, so the best rationale for this is an optimal income tax thing about not putting the highest rates at the very top.
3) Business, including international - Top corporate rate is cut from 35% to 30.5%. (Republicans will of course ignore this.) 90% of the revenue loss from this is offset by the revenue gain from (a) repealing the idiotic special lower tax rate for domestic production activities, (b) denying deductions related to foreign source income that is not currently taxable, until such income is actually repatriated & thus becomes taxable here, and (c) barring the use of LIFO accounting for inventories. This is a good package that almost any good-faith independent observer ought to like, with the possible exception of (b). I tend to think (b) probably is good policy - preventing what is effectively better-than-exempt treatment for foreign source income - but I feel a need to hear more about this issue from people who know more about the intimate institutional details.
One interesting effect, if you put it all together, is that marginal tax rates for individuals become much higher than for corporations if all this is enacted - 39.6%, plus more in the personal exemption phase-out range, versus 30.5%. I gather that the 15% dividend rate would be allowed to expire. Never mind, in an era when double taxation of corporate income is ever easier to avoid through sophisticated planning, this seems likely to make the corporate tax a net benefit rather than a net burden. All those economists doing incidence studies of the burden of the corporate tax (a subject I've been studying and writing about for my latest academic project) are going to have to turn around and write new papers about the incidence of the benefit from the corporate tax.
4) Other - about a gazillion one-year extenders. Not the fault of the Rangel bill, but I find it pretty unedifying to have all this stuff on regular extenders needing annual lobbying infusions to get them renewed for another year. This is a case where Congress and the lobbyists may be colluding to screw the lobbyists' clients. But again I don't lay this on Rangel or the bill - the extenders simply bring this preexisting situation to mind.
Among other features, the bill would take on carried interests, put "economic substance" in the Internal Revenue Code (which at least would stop Scalia & Thomas from saying, in any event prospectively, that there is no such doctrine), and address various little planning tricks that the staffers on Capital Hill have evidently learned about.
On the whole, I would definitely take this package over present law. Not going to happen, of course. Even apart from the lack of votes, and the Republican noise machine lying about it, it's inherently pretty hard to enact a break-even package with hundreds of billions of dollars worth of tax cuts and tax increases both, because the losers tend to screech more than the winners. Certainly a good try, in most respects, to throw out the AMT in a fiscally responsible manner and to improve the corporate tax rules through the classic combination of rate cuts and base-broadening.
Thursday, October 25, 2007
Interesting National Bureau of Economic Research study of the Iraq "surge"
According to Michael Greenstone of the MIT Economics Department, in his new NBER working paper, "Is the 'Surge' Working? Some New Facts" (NBER Working Paper 13458, 10/07), while various on-the-ground Iraqi indicators are mixed, perhaps the most salient fact is that Iraq's bonds have declined by 40% since the surge started. He concludes:
"This decline signals a 40% increase in the market's expectation that Iraq will default. This finding suggests that, to date, the Surge is failing to pave the way toward a stable Iraq and may in fact be undermining it."
Bond prices reflect, of course, people betting real money for real payoffs down the road, either good or bad. This market, unlike that for Washington punditry, is one in which it actually pays off to be right, rather than wrong.
"This decline signals a 40% increase in the market's expectation that Iraq will default. This finding suggests that, to date, the Surge is failing to pave the way toward a stable Iraq and may in fact be undermining it."
Bond prices reflect, of course, people betting real money for real payoffs down the road, either good or bad. This market, unlike that for Washington punditry, is one in which it actually pays off to be right, rather than wrong.
Wednesday, October 24, 2007
Current reading
I've just finished Ken Kalfus' A Disorder Peculiar to the Country, a black comedy about a divorce from hell, set in NYC on 9/11 and the ensuing months. For the first two-thirds I liked it, though sometimes I had to make myself pick it up, what with the themes being what they are. Often very dark and painfully funny. But it turned too episodic and scattershot, didn't build quite as I would have expected, and at the end took a sharp turn into a sarcastic historical fantasy ending that is the sort of thing I ought to like, but that I didn't feel built on or went with what had come before. So the potential effect, for me, was lost.
Next, Alexander Waugh's Fathers and Sons.
Next, Alexander Waugh's Fathers and Sons.
Monday, October 22, 2007
Just asking
If Bush sought legislation permitting him to throw the entire Democratic Congressional leadership in jail, would they support it? I rather think they would.
Friday, October 19, 2007
Strange alliance
Although obviously I am no fan of the Christian right, I must say I am encouraged by recent talk (to the extent one believes it) that they will take major steps to block Giuliani's candidacy. I don't know anyone in New York who doesn't regard the prospect of his becoming President with a mixture of astonishment and trepidation. This includes people (such as me) who believe he was in many respects a successful mayor.
As a Presidential candidate, Giuliani stands for two things: war and dictatorship. In a mayor, such inclinations don't matter so much. As President, they would go well beyond making him the living embodiment of the Peter Principle. Anyone who can block him, on any grounds, is doing a good thing whether or not for the right reasons.
As a Presidential candidate, Giuliani stands for two things: war and dictatorship. In a mayor, such inclinations don't matter so much. As President, they would go well beyond making him the living embodiment of the Peter Principle. Anyone who can block him, on any grounds, is doing a good thing whether or not for the right reasons.
Thursday, October 18, 2007
What's so funny?
If you want your Halloween chills a couple of weeks early, check out the video of Bush smiling and giggling as he raises the idea of World War III with Iran.
If you know you've decided to attack, I suppose it's funny, at least to a certain type of mentality.
There's no magic bullet reason for doing this - a similar rat's nest of reasons, I would think, to those for attacking Iraq. Finding it fun and exciting is certainly one of the reasons.
For another, consider how the media will play it, and how the Democrats will react, if the Iranians take any violent counter-measures, be they in the U.S., in Iraq, or elsewhere. The Administration can only win from ratcheting up the tensions, having "America under attack," etcetera.
If you know you've decided to attack, I suppose it's funny, at least to a certain type of mentality.
There's no magic bullet reason for doing this - a similar rat's nest of reasons, I would think, to those for attacking Iraq. Finding it fun and exciting is certainly one of the reasons.
For another, consider how the media will play it, and how the Democrats will react, if the Iranians take any violent counter-measures, be they in the U.S., in Iraq, or elsewhere. The Administration can only win from ratcheting up the tensions, having "America under attack," etcetera.
Wednesday, October 17, 2007
War with Iran?
From today's NY Times coverage of Bush's press conference:
“If Iran had a nuclear weapon, it’d be a dangerous threat to world peace,” Mr. Bush said. “So I told people that if you’re interested in avoiding World War III, it seems like you ought to be interested in preventing them from having the knowledge necessary to make a nuclear weapon.”
If I am interpreting this correctly, Bush is suggesting that Iran should be attacked unless there are other means of "preventing them from having the knowledge necessary to make a nuclear weapon.”
This mere "knowledge" standard appears to be much lower than the standard supposedly applied to Iraq, where the Administration claimed that Saddam actually had WMD including an active nuclear program. It does not, for example, appear to require any sort of access to bomb-making materials.
I personally put the odds of an attack at greater than 50 percent. The only arguments I have heard against the likelihood of its happening are that (a) it would be insane, and (b) people (whether the public, the military, or Secretary Gates) wouldn't stand for it. I can't see that (a) matters to this crew, or that the public will stop it, or that the military can stop it given the principle of civilian control plus generals' craven careerism. I fear that means we're down to Secretary Gates.
“If Iran had a nuclear weapon, it’d be a dangerous threat to world peace,” Mr. Bush said. “So I told people that if you’re interested in avoiding World War III, it seems like you ought to be interested in preventing them from having the knowledge necessary to make a nuclear weapon.”
If I am interpreting this correctly, Bush is suggesting that Iran should be attacked unless there are other means of "preventing them from having the knowledge necessary to make a nuclear weapon.”
This mere "knowledge" standard appears to be much lower than the standard supposedly applied to Iraq, where the Administration claimed that Saddam actually had WMD including an active nuclear program. It does not, for example, appear to require any sort of access to bomb-making materials.
I personally put the odds of an attack at greater than 50 percent. The only arguments I have heard against the likelihood of its happening are that (a) it would be insane, and (b) people (whether the public, the military, or Secretary Gates) wouldn't stand for it. I can't see that (a) matters to this crew, or that the public will stop it, or that the military can stop it given the principle of civilian control plus generals' craven careerism. I fear that means we're down to Secretary Gates.
Friday, October 12, 2007
Presidential line item veto
The Republican Presidential candidates are having a little spat about the line item veto, which Rudy as Mayor successfully sued to have struck down on constitutional separation of powers grounds. Attacked for this at the last debate, he took the extremely bizarre position - for a Republican Presidential candidate - that it actually matters whether something is constitutional or not.
By the way, I read about all this in newspapers and blogs. If there is one rule I live by, it is never to watch either Republican or Democratic Presidential candidate debates. Doctor's advice, or at least it would be if I asked him after properly laying out the facts.
Anyway, today McCain renewed the attack, although I think it started from Romney, saying that no true fiscal conservative could oppose the line item veto. And this is not necessarily a purely hypothetical debate, since conceivably clever structuring could create something rather like the line item veto that would withstand constitutional scrutiny. (Even leaving aside whether the "unitary executive" types on today's Court would vote differently.)
But one small problem here. As I point out in my recent book, Taxes, Spending, and the U.S. Government's March Toward Bankruptcy, it is theoretically ambiguous whether a line item veto will increase or decrease government spending, budget deficits, or the fiscal gap - whichever one chooses as the operative measure. It all depends on how the president uses it.
There are decent political economy arguments for the view that presidents will typically have a lower preference than members of Congress for lots of small handouts to this interest group or that. (Although Bush never minded earmarks or other pork until the first Wednesday of November 2006.) But presidents also tend to like really big-ticket projects - monuments to their "great leadership," perhaps - much more than do the members of Congress. This is pretty much a constant across presidents.
Give a president the line item veto, and while there is reason to think that anyone except for Bush from 2001-2006 will occasionally use it to lop off egregious handouts here and there, there is also reason to think that they will see it as a bargaining chip, the threat of which can help them win extra votes for the really big items they are struggling to press through.
So I think it is plausible that the line item veto would exacerbate rather than ease problems of fiscal discipline.
There may be some empirical evidence from the state level supporting the more conventional view. But there is a big difference between presidents and governors regarding the incentive to swing for the fences with really big "historic" programs.
By the way, I read about all this in newspapers and blogs. If there is one rule I live by, it is never to watch either Republican or Democratic Presidential candidate debates. Doctor's advice, or at least it would be if I asked him after properly laying out the facts.
Anyway, today McCain renewed the attack, although I think it started from Romney, saying that no true fiscal conservative could oppose the line item veto. And this is not necessarily a purely hypothetical debate, since conceivably clever structuring could create something rather like the line item veto that would withstand constitutional scrutiny. (Even leaving aside whether the "unitary executive" types on today's Court would vote differently.)
But one small problem here. As I point out in my recent book, Taxes, Spending, and the U.S. Government's March Toward Bankruptcy, it is theoretically ambiguous whether a line item veto will increase or decrease government spending, budget deficits, or the fiscal gap - whichever one chooses as the operative measure. It all depends on how the president uses it.
There are decent political economy arguments for the view that presidents will typically have a lower preference than members of Congress for lots of small handouts to this interest group or that. (Although Bush never minded earmarks or other pork until the first Wednesday of November 2006.) But presidents also tend to like really big-ticket projects - monuments to their "great leadership," perhaps - much more than do the members of Congress. This is pretty much a constant across presidents.
Give a president the line item veto, and while there is reason to think that anyone except for Bush from 2001-2006 will occasionally use it to lop off egregious handouts here and there, there is also reason to think that they will see it as a bargaining chip, the threat of which can help them win extra votes for the really big items they are struggling to press through.
So I think it is plausible that the line item veto would exacerbate rather than ease problems of fiscal discipline.
There may be some empirical evidence from the state level supporting the more conventional view. But there is a big difference between presidents and governors regarding the incentive to swing for the fences with really big "historic" programs.
Thursday, October 11, 2007
Extremely lucky travel day
Today I flew roundtrip NYC - Boston to present my new paper on tax and accounting at Boston College Law School, where I saw various old friends in the biz (Diane Ring, Jim Repetti, David Walker, Marjorie Kornhauser). Given the storm sweeping up the East Coast, I was astonishingly lucky in how it played out for me - I could easily have spent hours in the airport but actually saved time due to the travel delays. On a normal travel day I would have returned on the 3:30 shuttle, but because the 2:30 was delayed I managed to board it and leave Boston at 3. Back in NYC the Marine Air Terminal (where the Delta shuttle lands) was an absolute horror show, jammed with people and with one of the longest airport cab lines I've ever seen. But I caught a ride back with a limo driver who had lost his scheduled pick-up due to the wall-to-wall canceled flights from DC and Chicago, and who also proved a wizard at the sort of shortcuts through backed-up traffic that I resent when I am one of the other drivers. Plus I heard his very interesting life story, or at least the dramatic highlights.
Either I'm living right or the gods are making up for the pulled hamstring I suffered while playing tennis last week. Or else perhaps neither. (And do I owe the gods for those gnats in Cleveland game 2?)
One thing I like about my paper, in the course of presenting it, is that the proposal I offer (a 50% adjustment of companies' taxable income towards their financial accounting income, with a few miscellaneous bells and whistles) has some interesting pluses and minuses that - rightly, I think, from an expositional standpoint - I don't fully explore in my paper, as they would make it too long and ponderous. Maybe others will choose to write about the proposal if it gets off the ground sufficiently. I am also increasingly persuaded that it makes basic sense, at least enough to get off the ground as a serious contender even if in the end one might choose not to adopt it. (Although I myself would adopt it.)
Either I'm living right or the gods are making up for the pulled hamstring I suffered while playing tennis last week. Or else perhaps neither. (And do I owe the gods for those gnats in Cleveland game 2?)
One thing I like about my paper, in the course of presenting it, is that the proposal I offer (a 50% adjustment of companies' taxable income towards their financial accounting income, with a few miscellaneous bells and whistles) has some interesting pluses and minuses that - rightly, I think, from an expositional standpoint - I don't fully explore in my paper, as they would make it too long and ponderous. Maybe others will choose to write about the proposal if it gets off the ground sufficiently. I am also increasingly persuaded that it makes basic sense, at least enough to get off the ground as a serious contender even if in the end one might choose not to adopt it. (Although I myself would adopt it.)
Wednesday, October 10, 2007
How much did I pay for the new Radiohead album?
$ 5 U.S.
UPDATE: Pretty good album, by the way. Would certainly have been worth full price.
UPDATE: Pretty good album, by the way. Would certainly have been worth full price.
Monday, October 08, 2007
Today's Krugman column
He argues today that the Republicans have always been as they are now under Bush. I disagree. His analysis is a bit like saying that someone who has gone stark raving mad with a 105 fever was always just like this because back in the day he had an infected toenail. Yes, Barry Goldwater did some bad things, and the Reagan Administration did Iran-Contra. But they also worked in a bipartisan and responsible way with the Democrats on tax and budget policy in 1982, 1983, 1984, 1985-86, and 1988. They effectively admitted that the "riverboat gamble" had failed within 6 months of trying it. And, despite the Beirut fiasco, which of course is far from the worst blunder our country has ever perpetrated, they certainly did nothing like Iraq, Blackwater, the sinister plans for Iran, etc., etc.
No one is a saint in politics, not the Republicans at any time and certainly not the Democrats at any time. But our institutions can't survive for much longer with the Republicans that we have now, and it's worth remembering that they were never like this, more than just a little bit perhaps, before 1994.
No one is a saint in politics, not the Republicans at any time and certainly not the Democrats at any time. But our institutions can't survive for much longer with the Republicans that we have now, and it's worth remembering that they were never like this, more than just a little bit perhaps, before 1994.
Saturday, October 06, 2007
It's only chamber pop, but I like it
The New Pornographers' Challengers, mildly criticized in early reviews for being too sedate, is actually quite enjoyable. It sounds a bit at times like Belle & Sebastian playing early-70s Bowie.
Friday, October 05, 2007
Encouraging news
I just saw a link somewhere to a new NBER study finding that people have U-shaped happiness across their lifetimes, sinking to a low point at age 49 for men and 45 for women before steadily rising again.
I suppose this is good news for me - apparently I have bottomed out and am headed back up again. Separate analysis, perhaps, for my wife ...
I suppose this is good news for me - apparently I have bottomed out and am headed back up again. Separate analysis, perhaps, for my wife ...
The word from Washington
I've just returned from a brief trip to Washington, where I attended a conference on taxes, technology, and privacy, and offered comments on a paper by Kyle Logue and Joel Slemrod on endowment taxation, the use by the tax system of genetic "tags" that correlate with expected income, etc.
While there, I happened to chat with several people who have worked for a long time in different agencies of the executive branch of the government (not just tax-related), and who report on what a historically unprecedented horror it is for career professionals in the government to have to deal with the current Bush Administration (earlier Republican Administrations were generally fine). Essentially, it's like being in the Soviet Union with a party commissar harassing everyone, except that while he can (and does) make your life miserable and prevent all honest governance he at least can't have you arrested.
Once the national nightmare has ended, someone should really go around collecting accounts from people in different departments. While unlikely to be a best-seller, it would be genuinely eye-opening reading with a lot of startling stories about dishonesty and dirty work.
While there, I happened to chat with several people who have worked for a long time in different agencies of the executive branch of the government (not just tax-related), and who report on what a historically unprecedented horror it is for career professionals in the government to have to deal with the current Bush Administration (earlier Republican Administrations were generally fine). Essentially, it's like being in the Soviet Union with a party commissar harassing everyone, except that while he can (and does) make your life miserable and prevent all honest governance he at least can't have you arrested.
Once the national nightmare has ended, someone should really go around collecting accounts from people in different departments. While unlikely to be a best-seller, it would be genuinely eye-opening reading with a lot of startling stories about dishonesty and dirty work.
Monday, October 01, 2007
Horrifying collapse of the Mets
By reminding myself of the (to me, hilarious and delightful) 2004 playoff collapse of the Yankees, I can at least avoid paranoid thoughts about the structure of the universe. Then again, who knows what horrors lurk in the 2007 baseball post-season.
If one could take a pill and eliminate one's rooting interest for a given team, I would certainly do so with respect to the Mets. But not mainly because of the horrifying choke they have perpetrated. From the standpoint of the principles that lead me to despise the Yankees, the Mets, not to mention the Red Sox, are merely lesser versions of the same thing. Okay, significantly lesser versions given the Yanks' nearly 2-1 spending advantage over the Mets, even though the Mets are the # 3 spenders in baseball.
No such pill exists, however. (And I would decline on ethical or aesthetic grounds to take the companion pill making me a Yankees fan.) The sad thing for me is that this Met fandom just goes so deep, immune to rational questioning and far beyond any positive rooting interest that I have in any other team in any sport. It all goes back to 1964, when at age 7 I became the only Mets fan on my block (in the Bronx, no less). Apparently, rooting interests that were laid down in sediments that deep simply go far beyond any laid down more recently in their emotional depth and ineradicability.
If one could take a pill and eliminate one's rooting interest for a given team, I would certainly do so with respect to the Mets. But not mainly because of the horrifying choke they have perpetrated. From the standpoint of the principles that lead me to despise the Yankees, the Mets, not to mention the Red Sox, are merely lesser versions of the same thing. Okay, significantly lesser versions given the Yanks' nearly 2-1 spending advantage over the Mets, even though the Mets are the # 3 spenders in baseball.
No such pill exists, however. (And I would decline on ethical or aesthetic grounds to take the companion pill making me a Yankees fan.) The sad thing for me is that this Met fandom just goes so deep, immune to rational questioning and far beyond any positive rooting interest that I have in any other team in any sport. It all goes back to 1964, when at age 7 I became the only Mets fan on my block (in the Bronx, no less). Apparently, rooting interests that were laid down in sediments that deep simply go far beyond any laid down more recently in their emotional depth and ineradicability.
Friday, September 28, 2007
New Proposed Legislation - Senator Levin's Ending Corporate Favors for Stock Options Act
Thanks to a tip from Victor Fleischer, i just came across the following link to Senator Carl Levin's newly proposed Ending Corporate Favors for Stock Options Act. For better or worse, this bill is an interesting move in the ongoing set of disputes about tax and corporate governance, taxable income vs. accounting income, etc.
At the risk of excessively repeating myself, here is the link again for my recently posted article draft on this general topic.
The first thing the Levin bill does is limit corporate tax deductions for employee stock options (not just for highly paid executives) to the amount being deducted for financial accounting purposes.
On this, I would start by saying that I generally favor mandating greater tax-book conformity, in response to managerial incentive problems involving tax sheltering and earnings management I advocate only partial conformity in my article because I don't want Congress to start mucking around more with the financial accounting definition of income - it's bad enough that they already do things to the tax definition. This is generally consistent with that view, so long as it doesn't lead a subsequent Congress to muck around directly with the financial accounting definition in order to get an indirect tax result. One objection to this proposal, however, is that we already have a form of discipline on the tax end because the employer deduction generally must be coincident with an employee inclusion. I would think it's uncommon for the net of the two to favor the taxpayers, because presumably the company is more likely than the employee to have a low rate (given net operating losses and such). So, if I'm right that there isn't a systemic problem with the tax deduction being claimed, the only rationale here would be to discourage structuring options to have a bigger tax than financial accounting deduction. Arguably defensible under the skeptical view of the social merits of such tax-accounting "arbitrages" that I express in my piece, unless we don't think people are deliberately structuring into the inconsistency.
Second, the Levin bill lets corporations take the tax deduction in the same year it's reported on the company books, apparently even if the employee hasn't included it yet. This I don't like. Companies that don't need to worry as much about reported earnings, e.g., because they're relatively closely held and thus have a well-informed audience for their financial accounting income, now have a license to play tax games. I actually address this sort of problem in my paper, by the way, by limiting reductions of taxable income towards lower financial accounting income to the amount of previous adjustments in the opposite direction. No such control here. I wonder if the provision should have a negative revenue estimate, given this point.
Third (leaving out some miscellaneous stuff), the bill extends current law's $1 million annual limit on deductions for a publicly traded corporation's payments to top executives, so that it extends to stock options as well as straight compensation. But the existing exception to the $1 million limit for "performance-based compensation" remains. He's just moving stock options out of the performance-based box.
Even if you like the $1 million limit, and few people do, this is just silly. All one needs to do to avoid it is have a virtual stock option instead of a literal one. E.g., you have performance-based compensation that pays you off based on the stock price, but it isn't called a stock option despite having identical economics. Outside the rule, presumably?
At the risk of excessively repeating myself, here is the link again for my recently posted article draft on this general topic.
The first thing the Levin bill does is limit corporate tax deductions for employee stock options (not just for highly paid executives) to the amount being deducted for financial accounting purposes.
On this, I would start by saying that I generally favor mandating greater tax-book conformity, in response to managerial incentive problems involving tax sheltering and earnings management I advocate only partial conformity in my article because I don't want Congress to start mucking around more with the financial accounting definition of income - it's bad enough that they already do things to the tax definition. This is generally consistent with that view, so long as it doesn't lead a subsequent Congress to muck around directly with the financial accounting definition in order to get an indirect tax result. One objection to this proposal, however, is that we already have a form of discipline on the tax end because the employer deduction generally must be coincident with an employee inclusion. I would think it's uncommon for the net of the two to favor the taxpayers, because presumably the company is more likely than the employee to have a low rate (given net operating losses and such). So, if I'm right that there isn't a systemic problem with the tax deduction being claimed, the only rationale here would be to discourage structuring options to have a bigger tax than financial accounting deduction. Arguably defensible under the skeptical view of the social merits of such tax-accounting "arbitrages" that I express in my piece, unless we don't think people are deliberately structuring into the inconsistency.
Second, the Levin bill lets corporations take the tax deduction in the same year it's reported on the company books, apparently even if the employee hasn't included it yet. This I don't like. Companies that don't need to worry as much about reported earnings, e.g., because they're relatively closely held and thus have a well-informed audience for their financial accounting income, now have a license to play tax games. I actually address this sort of problem in my paper, by the way, by limiting reductions of taxable income towards lower financial accounting income to the amount of previous adjustments in the opposite direction. No such control here. I wonder if the provision should have a negative revenue estimate, given this point.
Third (leaving out some miscellaneous stuff), the bill extends current law's $1 million annual limit on deductions for a publicly traded corporation's payments to top executives, so that it extends to stock options as well as straight compensation. But the existing exception to the $1 million limit for "performance-based compensation" remains. He's just moving stock options out of the performance-based box.
Even if you like the $1 million limit, and few people do, this is just silly. All one needs to do to avoid it is have a virtual stock option instead of a literal one. E.g., you have performance-based compensation that pays you off based on the stock price, but it isn't called a stock option despite having identical economics. Outside the rule, presumably?
Tuesday, September 25, 2007
My new article on SSRN
My new article, The Optimal Relationship between Taxable Income and Financial Accounting Income: Analysis and a Proposal, is now available on SSRN. Here is the link.
International tax policy
This evening I attended the annual Tillinghast Lecture on international taxation at NYU Law School. The speaker was John Samuels of General Electric, who has been called the leading in-house corporate tax counsel in the US today.
I have met Samuels several times over the years when presenting papers at the International Tax Policy Forum in DC, which he directs. My post about my most recent appearance there, where my interlocutors, including Samuels, succeeded in stirring some doubts concerning how I have been thinking about international tax policy, is here.
But this time John was on the firing line, not me. And I was very interested in hearing about the alternative (and as it happens, more pro-US multinationals) view of international tax policy that he holds and had effectively argued for at my ITPF session.
John started by criticizing the standard US (at least in pro-government circles) view of international tax policy as aiming to promote worldwide economic welfare (as distinct from national economic welfare) by advancing capital export neutrality (CEN), which urges, among other applications, that US companies face as high a tax rate on outbound investment as on home investment, so that they will go for the investment with the highest pre-tax yield. He condemned the foolishness of pursuing WW welfare when everyone else is pursuing national welfare.
There was a missing piece at this stage of the talk, but one that he was, I think, prepared to supply. Under the long-standard economic analysis, dating back to Peggy Musgrave's early-1960s work, the right thing to do from a selfish standpoint with outbound investment of your own nationals is to be less generous than the current US international tax regime - not more so. Musgrave describes "national neutrality," under which nations make no effort to ameliorate double taxation, merely allowing deduction of dollars paid to foreign governments on outbound investment. Result under the standard analysis: outbound investment is greatly deterred to everyone's WW detriment. For example, if France and the US both have 40% tax rates, a US firm earning $100 in France ends up with only $36 ($40 French tax leaves $60, then 40% US tax on this residue). Only, within the standard analysis, the US has no reason to change its behavior here unless there is reciprocal forbearance - i.e., France as well as the US retreats on revenue claims via foreign tax credits or exemption of foreign source income. Big difference from free trade, where everyone benefits from being a good guy even if it is unilateral. Here, it has to be reciprocal. Hence, my paper from the above-noted ITPF session where I talked about it in terms of prisoner's dilemmas.
Often when the US tries to clobber its multinationals on outbound investment, this is rationalized as cooperating when everyone else is defecting, from the standpoint of tax harmonization versus tax competition. John's talk was highly critical of US policy on this point, leaving unrebutted the critique that what we're doing might alternatively be rationalized as moving closer to national neutrality by increasing US taxation of outbound investment by shaving foreign tax credits.
The central bone of contention, and of John's answer to this national neutrality point, and of the responses to my article at ITPF the other month, goes to whether US outbound investment is a substitute or a complement for home investment. Substitute is what you'd expect if a given US company has a fixed pool of capital. E.g., we have $10M to invest, and we'll put it either here or there. Tne national neutrality view depends on substitution, rather than complementarity, thus rationalized in terms of where you spend your finite budget. But research by Mihir Desai, Jim Hines, and others fails to find substitution and instead finds complementarity. In other words, making more foreign investments if anything increases a US firm's home investments, rather than crowding them out.
How can this be, when the idea of budget constraints is among the most fundamental in economics? The idea is that the various firms from around the world are competing for capital. Assume for now it's loan capital not equity they are competing for. They're battling each other to borrow money in order to invest it at a high return.
Let's make it concrete. GE or MacDonald's is considering investing in China. Given home country bias in where people buy stock, we assume that these US companies are mainly US-owned, so the profits are going ultimately to US individuals who own the shares. GE or MacDonald's is competing with a German firm (a) to make a given investment in China that is expected to be profitable, and (b) to borrow $$ on worldwide capital markets to fund the iinvestment.
John argues that the US firm can't compete with the German firm if it has to pay more tax due to the US international tax system. Problem # 1: paying a higher tax rate doesn't necessarily make you non-competitive. Example: a 40% taxpayer and a 30% taxpayer can compete without competitive advantage to the former (other than, e.g., in generating funds internally). Both will price their goods for the highest pre-tax profit, the 30% guy simply gets to keep more of it. If the bank offers 10% interest, the 30% guy isn't going to out-compete the 40% guy to put money there; he'll simply do better after-tax (but the home country government does better in the 40% case, making it in this sense potentially a wash).
Problem # 2: Why does GE or MacDonald's have this profitable investment opportunity? Multinationals are set up, modern corporate theory has it, to exploit rents that are available to them through the most efficient ownership structure to exploit these rents. In plain English, MacDonald's has that stupid name that people value, so they can sell manure-filled cow slop for big bucks. GE has internal knowhow and valuable patents or something like that. Rents in this lingo are special opportunities to realize extra-normal returns. Economic theory says that you can tax rents (once established) without changing behavior. E.g., if Michael Jordan's best opportunity is to earn $30 million playing basketball, and second best is to earn $100,000 playing baseball, tax his basketball earnings at 90% and it's still the best thing he's got going.
So why can't one tax the rents, also why are there rents if the Germans are out there competing with GE. Don't they get competed away? Why doesn't it all boil down to Americans getting the normal return on their saving, meaning that we ain't gonna get no richer unless we save more.
Next problem: if GE or MacDonald's isn't tax-deterred from making this investment, how is it going to fund it, as a complement rather than a substitute for home investment, absent a magical money machine? The answer, presumably, is that it raises the money - not from Americans, who aren't saving any more, but from foreign investors on WW capital markets. But now the rent ceases to be captured by Americans unless we posit that GE or MacDonald's, despite being able to attract the rent in China notwithstanding German competition, and despite being so readily tax-deterred on the US side if we don't treat them as favorably as Germany treats the German firm, can decline to share it with the foreign investors. They ostensibly lack the market power to do any more than get the normal rate of return on debt, leaving the extra profit still to be captured by the American shareholders.
Something about this story still doesn't compute for me. I am starting to think that what Samuels is showing is WW inefficiency, not national inefficiency. The world loses if the capital goes through the German firm rather than through GE, despite GE's being the more efficient operator, because the suppliers of WW capital would rather go through that firm in order to get the corporate residence company tax savings. That sounds like a decent WW efficiency argument. But why is it a US problem if Americans, not being the suppliers of the extra capital, aren't going to be the ones who reap the extra profit?
Perhaps at best he's saying that the US tax regime will generate WW inefficiencies while doing little for us given the escape hatch of investing through a foreign firm. So we don't really gain that much, he may be saying, and WW efficiency suffers. But the case he thought he was making was that US living standards will be hurt if GE doesn't get to make that foreign investment that is being competed against by the Germans and that is funded at the margin by foreign capital from somewhere or other. And I am finding it hard to make this story stand up.
I have met Samuels several times over the years when presenting papers at the International Tax Policy Forum in DC, which he directs. My post about my most recent appearance there, where my interlocutors, including Samuels, succeeded in stirring some doubts concerning how I have been thinking about international tax policy, is here.
But this time John was on the firing line, not me. And I was very interested in hearing about the alternative (and as it happens, more pro-US multinationals) view of international tax policy that he holds and had effectively argued for at my ITPF session.
John started by criticizing the standard US (at least in pro-government circles) view of international tax policy as aiming to promote worldwide economic welfare (as distinct from national economic welfare) by advancing capital export neutrality (CEN), which urges, among other applications, that US companies face as high a tax rate on outbound investment as on home investment, so that they will go for the investment with the highest pre-tax yield. He condemned the foolishness of pursuing WW welfare when everyone else is pursuing national welfare.
There was a missing piece at this stage of the talk, but one that he was, I think, prepared to supply. Under the long-standard economic analysis, dating back to Peggy Musgrave's early-1960s work, the right thing to do from a selfish standpoint with outbound investment of your own nationals is to be less generous than the current US international tax regime - not more so. Musgrave describes "national neutrality," under which nations make no effort to ameliorate double taxation, merely allowing deduction of dollars paid to foreign governments on outbound investment. Result under the standard analysis: outbound investment is greatly deterred to everyone's WW detriment. For example, if France and the US both have 40% tax rates, a US firm earning $100 in France ends up with only $36 ($40 French tax leaves $60, then 40% US tax on this residue). Only, within the standard analysis, the US has no reason to change its behavior here unless there is reciprocal forbearance - i.e., France as well as the US retreats on revenue claims via foreign tax credits or exemption of foreign source income. Big difference from free trade, where everyone benefits from being a good guy even if it is unilateral. Here, it has to be reciprocal. Hence, my paper from the above-noted ITPF session where I talked about it in terms of prisoner's dilemmas.
Often when the US tries to clobber its multinationals on outbound investment, this is rationalized as cooperating when everyone else is defecting, from the standpoint of tax harmonization versus tax competition. John's talk was highly critical of US policy on this point, leaving unrebutted the critique that what we're doing might alternatively be rationalized as moving closer to national neutrality by increasing US taxation of outbound investment by shaving foreign tax credits.
The central bone of contention, and of John's answer to this national neutrality point, and of the responses to my article at ITPF the other month, goes to whether US outbound investment is a substitute or a complement for home investment. Substitute is what you'd expect if a given US company has a fixed pool of capital. E.g., we have $10M to invest, and we'll put it either here or there. Tne national neutrality view depends on substitution, rather than complementarity, thus rationalized in terms of where you spend your finite budget. But research by Mihir Desai, Jim Hines, and others fails to find substitution and instead finds complementarity. In other words, making more foreign investments if anything increases a US firm's home investments, rather than crowding them out.
How can this be, when the idea of budget constraints is among the most fundamental in economics? The idea is that the various firms from around the world are competing for capital. Assume for now it's loan capital not equity they are competing for. They're battling each other to borrow money in order to invest it at a high return.
Let's make it concrete. GE or MacDonald's is considering investing in China. Given home country bias in where people buy stock, we assume that these US companies are mainly US-owned, so the profits are going ultimately to US individuals who own the shares. GE or MacDonald's is competing with a German firm (a) to make a given investment in China that is expected to be profitable, and (b) to borrow $$ on worldwide capital markets to fund the iinvestment.
John argues that the US firm can't compete with the German firm if it has to pay more tax due to the US international tax system. Problem # 1: paying a higher tax rate doesn't necessarily make you non-competitive. Example: a 40% taxpayer and a 30% taxpayer can compete without competitive advantage to the former (other than, e.g., in generating funds internally). Both will price their goods for the highest pre-tax profit, the 30% guy simply gets to keep more of it. If the bank offers 10% interest, the 30% guy isn't going to out-compete the 40% guy to put money there; he'll simply do better after-tax (but the home country government does better in the 40% case, making it in this sense potentially a wash).
Problem # 2: Why does GE or MacDonald's have this profitable investment opportunity? Multinationals are set up, modern corporate theory has it, to exploit rents that are available to them through the most efficient ownership structure to exploit these rents. In plain English, MacDonald's has that stupid name that people value, so they can sell manure-filled cow slop for big bucks. GE has internal knowhow and valuable patents or something like that. Rents in this lingo are special opportunities to realize extra-normal returns. Economic theory says that you can tax rents (once established) without changing behavior. E.g., if Michael Jordan's best opportunity is to earn $30 million playing basketball, and second best is to earn $100,000 playing baseball, tax his basketball earnings at 90% and it's still the best thing he's got going.
So why can't one tax the rents, also why are there rents if the Germans are out there competing with GE. Don't they get competed away? Why doesn't it all boil down to Americans getting the normal return on their saving, meaning that we ain't gonna get no richer unless we save more.
Next problem: if GE or MacDonald's isn't tax-deterred from making this investment, how is it going to fund it, as a complement rather than a substitute for home investment, absent a magical money machine? The answer, presumably, is that it raises the money - not from Americans, who aren't saving any more, but from foreign investors on WW capital markets. But now the rent ceases to be captured by Americans unless we posit that GE or MacDonald's, despite being able to attract the rent in China notwithstanding German competition, and despite being so readily tax-deterred on the US side if we don't treat them as favorably as Germany treats the German firm, can decline to share it with the foreign investors. They ostensibly lack the market power to do any more than get the normal rate of return on debt, leaving the extra profit still to be captured by the American shareholders.
Something about this story still doesn't compute for me. I am starting to think that what Samuels is showing is WW inefficiency, not national inefficiency. The world loses if the capital goes through the German firm rather than through GE, despite GE's being the more efficient operator, because the suppliers of WW capital would rather go through that firm in order to get the corporate residence company tax savings. That sounds like a decent WW efficiency argument. But why is it a US problem if Americans, not being the suppliers of the extra capital, aren't going to be the ones who reap the extra profit?
Perhaps at best he's saying that the US tax regime will generate WW inefficiencies while doing little for us given the escape hatch of investing through a foreign firm. So we don't really gain that much, he may be saying, and WW efficiency suffers. But the case he thought he was making was that US living standards will be hurt if GE doesn't get to make that foreign investment that is being competed against by the Germans and that is funded at the margin by foreign capital from somewhere or other. And I am finding it hard to make this story stand up.
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