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.

Final NYU Tax Policy Colloquium for 2022: Ariel Jurow Kleiman's Fiscal Impoverishment by Taxation

Yesterday (November 29) we had our last session of the year. Ariel Jurow Kleiman presented a forthcoming law review article, Impoverishment by Taxation, along with a related (but broader) book proposal.

While I don't discuss the sessions as such here because they're off the record, just as a quick word I have high aspirations for them that can be challenging to fulfill entirely in practice. Basically I want to combine a stimulating class that will deeply engage the students with a cutting-edge academic seminar that will enlighten and inform all of the participants (myself and the author included). I felt that this year went well, for reasons that had as much to do with the students, and with other participants in the public sessions, as with anything that I or even the authors brought to the table. 

The sessions have evolved over the years (and indeed decades), reflecting the thing's evolution as an institution but also I suppose my changing goals. I used to be a lot more combative, but the more senior you are the less appropriate this is. (Plus I have grown more agnostic about a lot of things.) I think of myself as trying now to be late-career Chris Paul rather than any-stage Russell Westbrook. This requires a deep, strong, effective, and multi-talented team if it is to succeed, but luckily that is what we've had.

Doing it solo the last couple of years is the other big change. While I've enjoyed and benefited from working with all of my co-teachers, doing it this way does leave more air in the room for others to breathe (if I may mangle the metaphor a bit), along with more time for reflection as a byproduct of our having a new paper every 2 weeks rather than weekly. It also allows students to take the class without making as big a sacrifice of other course needs.

Anyway, on to the paper. In addition to being itself interesting, it also helped round out the semester a bit. Generally the papers all concerned inequality. We had looked at high-end economic inequality, and at gender and racial inequality, so it was very appropriate to shift the focus this time to low-end economic inequality.

This week's paper discusses fiscal impoverishment (FI), which arises when people are made poor (or poorer) by paying federal and/or state taxes in excess of the antipoverty public benefits that they receive. FI arises, despite the US fiscal system's overall progressivity, for 3 main reasons:

1) Our fiscal system is not very generous.

2) It imposes a number of first-dollar taxes (i.e., without a zero bracket or its effective equivalent), such as payroll taxes and retail sales taxes.

3) Its coverage on the transfer side is spotty and gap-filled, for reasons that appear to combine the deliberate with the inadvertent. Hence, within a heterogeneous population of low-income individuals and households, some inevitably miss out, even on such benefits as there are.

Fiscal Impoverishment (FI) as a Measure

Proposed fiscal measures can serve one or both of two purposes: the purely analytical or descriptive, and the rhetorical purpose of helping to motivate policy change. This reflects the "scientist versus moralist" choice in one's scholarship that I discussed here with regard to Stanley Surrey and Boris Bittker.

Thus, consider tax expenditure analysis. Although the distinction it addresses actually lies between distributional and allocative objectives, rather than between "taxes" and "spending" as such, it partly aims (and serves) to provide what is simply a more accurate accounting of what (and in a sense "how much") the government is doing. But it also served, at least in Stanley Surrey's hands, as effectively a hit list of provisions that should be eliminated from the income tax code even if they were permitted to re-emerge somewhere else.

FI likewise combines science with enlightened advocacy. The science part is well-illustrated by the old joke about the statistician who says: "My head is in a block of ice and my feet are on fire. On average, I'm very comfortable."

It's a joke because we know that the statistician is wrong. The distribution of outside temperatures for various body parts matters, not just the average.

By analogy, suppose that the fiscal system's average effects, considered for all income levels together, are progressive, inequality-reducing, and poverty-reducing. Taking that as given, it's worse if we have the accountant's problem than if we don't. For example, suppose that people whose market income lies right at the poverty line gain on average 5% after considering both taxes and transfers. It would be better if each of them gained exactly 5% than if (a) half of them lost 50% of their market income, while (b) the other half of them gained 60%. Declining marginal utility alone would tend to support this normative conclusion, and there may be other grounds, too.

FI is not, however, aimed at simply measuring dispersion, even at the bottom of the income scale in particular. It adds two further premises, each subject to challenge from the standpoint of pure "science," albeit each defensible from the standpoint of enlightened advocacy. They are as follows:

        1) The poverty line is (or should be treated as) discontinuously important. Say that the fiscal system's net effect is to reduce your market income by $1. FI counts this as a violation if the loss pushes you below (or further below) the poverty line, but not if it pushes you from $1 above the poverty line right to it. However, while this claimed discontinuity is open to challenge from a "scientific" standpoint, it allows the FI measure to have a dramatic and salient takeaway that might help to motivate desirable policy changes.

        2) Market income is normatively meaningful as a baseline. FI addresses, not where one stands relative to the poverty line after considering taxes and transfers, but how that placement compares to where one stood considering only market income. This seemingly invites the usual Murphy-Nagel critique of market income as lacking normative relevance given (for example) markets' dependence on government's existence and role. Plus FI looks separately just at the fiscal system, and combines the effects of what one might consider separate sovereigns given our federal form of government. But these "scientific" objections do not prevent FI from offering useful and salient information about how fiscal instruments that we can conceptualize separately and change as we like are affecting things.

The paper's discussion of FI also raises a host of interesting measurement issues. It relies on the federal poverty line, based not on a conviction that it is canonically correct but rather as a placeholder that one could separately adjust or replace if one liked. I do think that the measure ought to be regionally adjusted for price-level differences, whether or not actual fiscal rules should be so adjusted, given that it does indeed cost more (say) in NYC than Biloxi to pay for food, rent, heating, etcetera. And there are also measurement issues relating, e.g., to Medicaid benefits and to the accrual during one's working years of expected Social Security retirement benefits. Without seeking to cover all that here, the paper offers cogent arguments for including, say, SNAP benefits that help one to afford the needed calories but not, say, the value to a given individual of national defense protection or a nice park across the street.

As an extension, the paper's arguments might also support measuring what I call regulatory impoverishment. Suppose, for example, that a minimum wage increase leads to an increase in low-wage workers' aggregate income, but that this comes (as it might not) at the price of net job loss. Or suppose that, while there is no net job loss, the increase causes some of the jobs to shift from people in low-income households to (say) high school and college students in high-income households. This is an example of information that would be highly relevant to a policy assessment, and that aggregated information misses.

BROADER POLICY IMPLICATIONS 

        1) How could fiscal impoverishment be reduced? - The most obvious and straightforward approach would be to make the fiscal system more generous towards those at the bottom. However, stating it that way would miss the main takeaway of FI analysis, which pertains to how the fiscal system treats some low-income individuals and households much less favorably than others, leading to adverse effects on some in the face of heterogeneity. 

The main groups that the paper identifies as being disadvantaged on the transfer side today, and thus facing most of the FI, are as follows: the undocumented, childless households, the unemployed, and those whose use of extended kinship relationships (e.g., with cousins or neighbors supplying unpaid care) prevents them from qualifying under child-focused rules. For each of those groups, there are indeed arguments out there for disfavoring them. These arguments are worth noting, in terms of the underlying substantive debate that FI encourages, even though I happen to disagree with each of them.

The undocumented: Here we obviously face issues of immigration policy, which, even in the absence of white supremacist racism, would require analyzing how broadly (or not) we want to limit the fiscal system's generosity, along with access to US wage levels, to those who arrive or stay without being authorized.

Childless households - While I have thought for a long time that US fiscal rules (e.g., for the EITC) are often insufficiently generous to childless households, there are clearly reasons for providing additional benefits to households that have minor children, whose welfare is therefore at stake.

The unemployed - Here we get into such longstanding debates as those concerning TANF work requirements, the UBI vs. EITC approaches, and so forth. I tend not to favor conditioning benefits on having a job (it's like providing reverse insurance for the winners of the job search lottery), but there are arguments for doing so, pertaining e.g. to claims about both externalities and internalities.

Extended kinship relationships - It seems clearly anomalous, and perhaps "unintended," for various childcare benefits to be denied to people because their use of extended networks to provide childcare (in lieu of just the parents plus paid providers) causes them to fall outside the eligibility rules for particular benefits. But there is an underlying administrative issue of needing to direct benefits to the right people (i.e., those who would be most likely to use them on the kids' behalf). So there may be design challenges to think through here even if current law unnecessarily falls short.

    2) Relationship to support for universal basic income (UBI)

From the standpoint of avoiding FI that results from households' heterogeneity across various benefit design dimensions, the obvious answer would seem to be providing a generally available and unconditional UBI. So if FI troubles you that's a point in favor of UBI, and if you favor UBI that may help to make FI seem a salient and relevant measure.

But even if one supports UBI (which is my own inclination), I wouldn't be overly driven by FI as such in determining what the benefit level should be. That might instead be better driven by the standard policy tradeoffs regarding the distributional and incentive effects that it would have if it were set (and funded) at various alternative levels.

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This wraps up my blogposts on the NYU Tax Policy Colloquium for fall 2022. But we'll be back, with blogposts from me after each public session, at the same time and place next year.

Tax Policy Colloquium for November 15: Goldburn Maynard's Biden's Gambit and Wage Enslavement papers

Yesterday at the colloquium, Goldburn Maynard presented two thematically linked papers: Biden's Gambit: Advancing Racial Equity While Relying on a Race-Neutral Tax Code, and Wage Enslavement: How the Tax System Holds Back Historically Disadvantaged Groups of Americans. (The latter was co-authored by David Gamage.) Here are some of my thoughts about the issues discussed therein:

1) Racial equity

Biden's Gambit (which discusses the American Rescue Plan Act) notes a distinction that has been drawn in the literature between "racial equity" (RE) and "racial equality." As it notes: "While racial equality has come to connote equal treatment and race blindness," RE is about fairness and anti-subordination, and is "firmly race-conscious."

I would describe this distinction as involving, not "equity" versus "equality" as such, but the choice between substantive and purely formal definitions of racial equality.

To illustrate the purely formal view of racial equality, consider Chief Justice Roberts' infamous statement (or at least it should be): "The way to stop discrimination on the basis of race is to stop discriminating on the basis of race."

This silly and disingenuous bromide suggests that there would be nothing to worry about if the elimination of affirmative action in college admissions led to elite institutions' being 100 percent white, even if this result was due to historical  and continuing private sector racism. It purports to perceive no difference between using race-conscious categories to dismantle and to enforce racial subordination.

While using racial categories raises important issues, I can't imagine a coherent normative view that was based on caring only about formal, not substantive, racial equality. Using race-conscious categories to advance substantive racial equality clearly raises a bunch of serious issues (e.g., pertaining to perceived fairness, political support, and potential misuse), but cannot reasonably be ruled out in principle.

2) "Wage enslavement"

The Wage Enslavement paper uses this term, a bit apologetically, because it was picked as a framing device by the organizers of the symposium in which it appears.

The term "wage slavery" has a bit of a mixed history, as it was used pre-Civil War by slavery proponents to argue that Northern workers were no better-off than enslaved persons in the South. But it has come to denote being trapped in a bad job (e.g., one that is not only low-paying but also unpleasant, exploitative, and physically dangerous) because one otherwise can't stay afloat.

Its metaphorical relevance to the paper arises from the concern that (a) people who don't accumulate significant savings must keep working to support themselves, and (b) the US tax system contributes to this lack of savings from one's work by imposing higher tax rates on labor income than on capital income. 

Among the standard tax policy issues raised by this view are (a) the incidence of taxes on capital income, e.g., do they affect wages over time, (b) the income tax's system's discouragement of saving even if capital income tax rates are nominally lower, and (c) whether one should view the accrual of Social Security retirement benefits as reducing the net marginal tax rate on the underlying wages.

I also would argue that a big part of the issue here is not so much the relative tax rates on "wages" and "capital income" as the fact that much of what is economically labor income may be mislabeled by the tax system as capital income. E.g., suppose I am a founder who creates a successful company, and that I "underpay" myself in salary terms because I am profiting from the stock appreciation (but I hold the shares until death). Then my labor income, in economic terms, faces only the 21% corporate rate, and not even that insofar as I can tax-plan effectively at the company level.

The paper mentions the well-known "Buy-Borrow-Die" (BBD) formulation by my good friend Ed McCaffery, but I have long thought that a better formulation would be "Earn-Borrow-Die." After all, the point isn't to buy stocks on margin - thus profiting only to the extent that they earn a rate of return exceeding the interest rate on the loan, and not even creating a tax arbitrage if the interest is caught by the investment interest limitation. This is not necessarily a well-advised plan. Rather, the idea is to do BBD with the proceeds of untaxed "sweat equity" - thus making it, in effect, EBD.

3) The racial wealth gap

As the paper notes, a Brookings analyst, Vanessa Williamson (who also kindly commented on my new book at an October 6 NYU event) estimates the "racial wealth gap" at $10.14 trillion. This is the estimated amount by which Black households' actual share of US national wealth ($2.54 trillion) falls short of what it would be ($12.68 trillion) if held proportionately to population.

There are several reasons, including at least the following, why the racial wealth gap matters:

--Even if it had no concerning empirical consequences as such, it would be of interest as a diagnostic. The gap "shouldn't" be so great (and it's much greater than the related racial income gap), unless other, underlying things are wrong.

--This is all the more true given that various conventional modes of explanation appear to fall short of accounting for it. For example, it persists at a high level even when one adjusts for income or education differences. It appears not to reflect different savings preferences. Some of it may reflect different types of asset holding (although that itself might call for further explanation), but there is also a large unexplained residual that those working in the field of stratification economics have sought to explain.

--Despite wealth's flaws as a measure, it offers more of a lifetime perspective than income, since it includes resources that are neither earned nor consumed in the current year, but that are relevant to one's level of material wellbeing. Put differently, savings matter a lot, as does the intergenerational transmission of material wealth.

--It contributes to substantive racial inequality and racial subordination, which reduce the wellbeing not only of its victims but actually of all Americans, who live our lives in its malign shadow. Consider the evidence (e.g., from Wilkinson & Pickett's The Spirit Level) that economic inequality reduces subjective wellbeing (and increases social gradient ills) for all groups. This is surely true as well for racial inequality. I suspect that even the millions of insecure Trumpian white supremacists who seek solace from subjugating non-whites would be better-off if our country's pervasive racial consciousness and anxiety could be shunted off centerstage by the achievement of secure racial equality.

--It's easy to think of the racial wealth gap in zero-sum terms. E.g., if national wealth were the same but there were no racial wealth gap, then Black households' having $10.14 trillion more in savings would arithmetically require other households' having $10.14 trillion less. But in a positive-sum world one group's having more than previously, because their opportunities have been increased, does not imply others having less.

4) Tax policy takeaways

As I discuss in this article, which recently appeared in this volume, the tax policy literature is still at an early stage of incorporating racial inequality concerns into an analysis that has traditionally been more focused on general economic inequality. But herewith a few quick points:

--Bad rules are even worse than we thought: Work by Dorothy Brown and others suggests that a number of income tax rules that already were widely viewed in the biz as defective, also tend to aggravate racial inequality (even when one adjusts their impact to income). Examples include the home mortgage interest deduction, income tax preferences for retirement saving that have been found to do little to increase retirement saving by those with the greatest need for it, and marriage bonuses for one-earner couples. The new information about these provisions' adverse racial impact is good to have, but it doesn't change bottom-line conclusions insofar as we already knew that these were bad rules.

--But what about what are otherwise good rules?: Things get more complicated if one views a rule as being good tax policy except for its having an adverse effect on substantive racial inequality. Then such questions arise as: How should one evaluate the tradeoffs? Should one now oppose this rule despite its otherwise beneficial net effects? Can one compensate / adjust for its adverse racial effects, thereby continuing to secure its other benefits?

An example might be switching to the income tax to a progressive consumption tax, if one otherwise favors this this switch (as I did at one time) but it were to turn out to increase the racial wealth gap relative to not making the change. A second example might be adopting a VAT without, rather than with, an exemption for "necessities," where the VAT would be used to fund good things. A third might be repealing (or declining to adopt) hypothetical income tax preferences that, while otherwise inefficient, were opposite to the home mortgage interest deduction in that they happened to benefit Black households relative to White ones at the same income level due to differences in asset choice, etc.

A natural way to think about this is in terms of the standard argument that one should think only about efficiency in designing the tax base, since once can separately adjust for progressivity. Thus, suppose again that one is choosing between an income tax and a progressive consumption tax, in light of one's believing that the latter is more efficient but (all else equal) less progressive. In principle, one can get the best of both worlds by adopting the progressive consumption tax but making it more progressive than the income tax to which it is being compared in its marginal rate structure, allowance for "basic income" cash grants, etcetera.

With respect to racial inequality, progressivity adjustments get you at least part of the way there, given the racial income gap. But one could view this as not doing enough, be it due to the larger racial wealth gap or the adverse racial effects that particular rules have even once one has adjusted for income. This in turn might call for (1) addressing wealth inequality more aggressively than one would otherwise consider optimal, given all the other tradeoffs, and also (2) considering the use of race-conscious rules (the tax equivalent of affirmative action) to make up the difference and/or move broadly in the equalizing direction.

Tax Policy Colloquium for October 25: Alex Raskolnikov's Should Only The Richest Pay More?

Yesterday at the colloquium, Alex Raskolnikov presented Should Only the Richest Pay More?, a paper which I believe has been receiving a bit of well-deserved attention on the conference etc. circuit.

While reading it, I thought of Voltaire's famous (although probably apocryphal) statement: "I detest what you say, but I will defend to the death your right to say it."

Here, by contrast, I was thinking: "I generally agree with what you say, but a part of me wishes that you wouldn't say it!"

The paper starts by suggesting that the upper income echelons in our society might reasonably be divided into 3 groups: the really rich (the top 0.1%), the pretty rich (the rest of the top 1%), and the affluent (the rest of the top 10%). As the paper shows, 

The "really rich" earn at least $2 million a year. Often they are top executives, superstar lawyers or doctors, or highly successful business owners and real estate or finance professionals.

The "pretty rich" earn between $500,000 and $2 million a year. Often they are successful doctors, lawyers, engineers, software developers, or mid-level executives, along with a few academics in select fields.

The affluent earn between $150,000 and $500,000 per year (although here as well as above one might want to consider the relevance of regional adjustments). While this group is highly heterogeneous, recent college or professional school graduates may enter it promptly upon becoming Big Law associates, practicing surgeons, or software engineers at top tech companies.

The paper makes three main arguments: 

(a) Much recent tax policy talk in the biz has overly distinguished between the top 0.1 percent and others in the top 10 percent. This has occurred at the level of both diagnosis (discussing whose economic blast-off from the lower echelons has adversely affected society as a whole) and tax policy prescription (whose taxes should be increased in a progressive tax reform that aims both to raise revenue and to mitigate rising high-end inequality).

(b) Progressive tax reform proposals, which often these days are limited to the top 0.1%, should at least consider raising taxes on the entire top 10%. Even if concerns about political feasibility weigh against the broader reach, it should at least be more on the table in academic discussions.

(c) The recent literature's deafening silence on such a broader reach (this is my phrase, but I think it expresses the paper's view) merits interrogation.

To illustrate the shift, consider progressive tax reform plans from 20-ish years ago, such as Michael Graetz's plan to replace the income tax on up to the first (say) $100,000 of income with a VAT, or Bruce Ackerman's and Anne Alstott's plan to use a wealth tax to fund cash grants that people would start receiving at age 18. Both had a broader reach at the top than recent plans to, say, impose wealth taxes, or else to tax accrued but unrealized capital gains, but with these proposals applying only at the very top of the income spectrum. The paper argues that, while it's one thing for Elizabeth Warren or the Biden Administration to aim proposed tax increases purely at the really rich and perhaps the pretty rich, it's another thing for academic commentators, who need not be limited in all their writing by political feasibility concerns, to avoid all consideration or even discussion of extending progressive tax increases to the affluent.

As the paper notes, one can see this shift happening in real time in, say, Piketty et al's work over the last 20 years. And in popular culture, one can see it in the 2011 Zuccotti Park Occupy Wall Street protests, which distinguished between the top 1 percent and everyone else. But to the contrary, the paper argues, the affluent resemble the top 0.1 percent in the extent to which they both (i) have gained economically in recent decades, relative to everyone else, and (ii) have contributed, through their rise, to the broader social ills that many (myself included) attribute to extreme high-end inequality.

Here I will offer 2 types of comments: critiquing the paper's main arguments, and seeking to explain the attitudinal changes that it notes.

1) Critiquing the paper's main arguments - I agree with the paper's conclusion that there is enough continuity, as we march down the economic scale from the really rich through the pretty rich to the affluent, to suggest that tax increases for all ought to be on the table from a progressive standpoint (which I share with those whom the paper critiques). But I think that in some cases the current draft overstates the similarities between these groups. In other words, I think the differences are greater than the paper allows, albeit not great enough to support the sharp distinctions between the groups that the paper criticizes. Just to pick a couple of main areas (there are more in the paper than I will seek to review here):

a) Political and cultural influence - The paper argues that the affluent may have as great (and democratically disproportionate) an influence on US political outcomes as the really rich, who have been widely blamed (including by me) for exerting plutocratic power.

I agree that the affluent are very powerful in certain narrow realms of particular interest to them. Consider the politics around §529 plans (and short-lived proposals to reduce their tax benefits), or around tax subsidies for retirement savings that do far more to benefit their retirement saving than that of people who really need help in this regard. Or concerning SALT deductions, even though (to date) the coastal affluent have not been able to reverse their losses from the 2017 act.

But I believe that the super-rich have far broader, more pervasive, and more agenda-setting influence. Consider the long-plotted, well-funded plan now recently crowned with success, to capture the Supreme Court and much of the federal judiciary for Federalist Society ideologues with a consciously anti-democratic agenda. Or consider the decades-long anti-tax and anti-regulatory campaigns that have been funded through right-wing think tanks as well as through campaign contributions. Or consider big-donor dark money, whose rise since the Supreme Court more fully unleashed it has been pervasive (even if deployable to a degree by Democrats as well as Republicans).

On the cultural front and with regard to public discourse, note how the likes of the Murdochs and Fox News, Zuckerberg and Facebook, and perhaps soon Musk and Twitter can shape things for all of us. It's true, as the paper notes, that these institutions are staffed by members of the affluent class. But does this really democratize them, even just from the 0.1 percent to the full 10 percent, given under whose direction the well-paid flunkies are laboring?

b) Keeping up with the Joneses - Bob Frank and others (including me) have discussed the importance of relative position to people's wellbeing and behavior. Thus, for example, when people in one's reference group start having fancier weddings or living in bigger houses, one may feel a need to match them just to avoid losing ground in either status competition or one's own feelings of personal satisfaction. The paper notes that one's reference group often prioritizes those who are equal to or just above oneself economically, as opposed to those all the way at the top.

While there is certainly some truth to this, there are prominent social science theories (such as those of Veblen as well as Bob Frank) suggesting that radiation down from the top has a pervasive influence on the entire process, even if it in effect functions one step as a time. This happens to fit my own intuitions about how these social processes operate, although I recognize that there are unresolved empirical questions here.

c) Comparative rate of progress - As the paper notes, in multiple studies of how wealth and income distribution have changed in recent decades, the relative gains of the top 10 percent appear to rival those of top 0.1 percent, while everyone below has relatively stagnated. (The pretty rich have also gained somewhat less in comparative terms than the really rich or the affluent.) The gains of the affluent reflect increased "skill bias" in the labor market, rewarding the well-educated with good college and professional degrees, while the gains of the really rich reflect rising globalization and economic concentration, resulting "tournaments" with a few big winners, the rise of rent-seeking, IP's growing role, etcetera. So, if one is concerned about relative change, both groups should be kept in mind.

But on the other hand relative change in position is not as such what matters the most. While it raises transition concerns, arguably today's statics (and what we expect in the near future) have greater normative weight than what things used to look like. For example, if today the positions of the affluent and/or the really rich have negative effects on the rest of society, how much does it matter whether these effects are new as opposed to having been around for decades?

There's lots more in the article that I won't touch on here. But, in general, I agree that, even if the paper might overstate a bit the extent to which the current positions of the really rich and the merely affluent present exactly the same issues, I agree that the issues posed are similar enough to support the paper's conclusion that progressive tax policy thinking should look more broadly, and that there is a strong case for raising taxes on the affluent as well as on the really rich. And yes, even if political feasibility concerns support the narrower scope, the broader reach should at least be on the table (more than it now is) in academic discourse.

2) Why the changes in attitude? - If the reach of academic discussions of progressive tax changes has narrowed in the last two decades, and I agree that it has, what might explain the shift? In the mode of explanation rather than justification, I think the key change is that things have gotten so much darker and more dystopian in our country since the era of the Graetz and Ackerman-Alstott proposals.

a) Political feasibility - It's not just that one's proposals may have little chance of being enacted unless they hold harmless the bottom 99 percent of the distribution. The bigger problem is that Republicans and the right have weaponized and debased tax policy talk, making responsible budget talk about needed long-term tax levels close to impossible.

There's a "Nixon goes to China" thing going on here. Only a responsible person on the right could safely bring broader-ranging tax increases back into public discourse. And unfortunately that appears to be a null set or oxymoron, in sharp contrast to 1980s US politics.

Plus, those on the right who would attack any broader-ranging tax increases are not merely undermining long-term revenue adequacy and distributive justice - many of the same people are also actually trying to overthrow American democracy. This creates an environment in which even independent-minded academics could reasonably think: If I don't align with the Democrats' (politically constrained) tax policy discourse, I might actually be aiding the cause of galloping American fascism.

I'm not saying here that this feeling is correct - that is, that one shouldn't conduct a broader progressive tax policy discourse due to the grotesquely and indeed transparently malignant evil that is triumphantly on the march in America today - but rather that it may influence (even if unduly) the questions one poses to oneself and the issues that one chooses to write about.

b) Who's to blame? - Twenty years ago, the main concern among progressive tax policy analysts was simply that personal welfare and economic opportunity were too unequally distributed. Hence, even if one was merely affluent, it was easy to see that others were worse-off and had fewer opportunities than oneself and one's children, and that one ought to support doing something about this.

Today, by contrast, there is a widespread sense (which I share) that things have gone darkly wrong in our society, and that this may have something to do with the rise of high-end inequality. So people are looking for scapegoats or villains.

The paper captures this current spirit, asking such questions as "Who ruined the American Dream?" and "Who sapped the American spirit?" These are not questions that the likes of Graetz or Ackerman-Alstott were asking in the more halcyon era of the late nineties and early aughts.

Once one is viewing high-end inequality in this way, I think it becomes psychologically more uncomfortable to include oneself among the targets of progressive tax policy than it was 20 years ago. It's one thing to agree that one is doing pretty well and others less so, and quite another to include oneself in the roster of those who one deems responsible for the awful current state of things.

Again, I offer this suggestion by way of explanation, not justification. It certainly makes me want to focus more on the top 0.1 percent than the top 10 percent, even if I ought to be focusing on both.

Cheat sheet / Admittedly a cheap shot

In my Law / Literature / Social Sciences class at NYU Law School, we read The Great Gatsby 2 weeks ago, and we'll be reading The House of Mirth for next week. For each week's reading, I attach a short "Advance Discussion" doc with lots of questions that the students can use to organize their thinking. (I.e., they don't have to answer any of the questions - it's just to stimulate thought and offer possible discussion topics, etc.)

Here is a question that I just added to my House of Mirth list,  reflecting the view that it's pedagogically good to link different weeks' discussions:

"In The Great Gatsby, Jay Gatsby is deliberately built up as a mysterious character. But is Lily Bart also mysterious, in the sense that we often do not know why she makes particular choices throughout the novel? Is she also a mystery to herself? How would you compare these two mysteries (if such they both are)?"

If I were to answer this question myself - and notwithstanding that I actually do like (albeit, not love) The Great Gatsby - the first difference I'd point to is that the "mystery" in The House of Mirth is actually interesting.

Book panel at NYU Law School

Yesterday at NYU Law School, we had a book panel to discuss my recent publication, Bonfires of the American Dream in American Rhetoric, Literature, and Film.

Our Dean, Troy McKenzie, said in introducing the panel that he'll never look the same way again at the film It's a Wonderful Life (which I compare in the book to The Wolf of Wall Street). It's true that I view Wonderful Life as a pretty dark film, offering interesting contrasts (in light of Wolf) between American views of the rich and the poor in the 1930s and 1940s versus today. But I myself still get choked up when I watch it, even though (or perhaps because) I find its happy ending so unpersuasive.

Next my colleague Christopher Sprigman spoke, offering comments about the lack of US social solidarity that I diagnose and seek to explain in the book.

Then Vanessa Williamson of the Brookings Institution discussed the class and racial social divides that also feature prominently in the book, addressing both their historical roots and data suggesting that they are especially bad today.

After that, I offered some background about the book, and then we did Q & A. Here, among other things, I got to explain an earlier throwaway comment to the effect that Piketty got Balzac wrong in Capital in the 21st Century.

In the "things that make you go hmm" category, the event was attended by NYU law students, tax colleagues, members of the broader NYC tax community, visiting assistant professors at the law school (both tax and non-tax), other NYU visitors, and precisely zero (other than panelists) non-tax tenured or tenure track members of the NYU Law School faculty.

I believe that a video of the event with subtitles will be publicly available once it's been cleaned up for dead time, etcetera.

If I do say so myself, there were some testimonials at the panel to the effect that the book is fun to read. It's also mercifully short - the first book of mine about which this can accurately be said. But then again, one learns from experience (I hope).

If any of this sounds tempting, it is available for $18.99 here.