Tax policy colloquium on Zwick et al, part 3

Here and here above, I discussed the Zwick et al paper on high-end wealth concentration from yesterday’s colloquium session, as well as the relationship between a semantically correct measure and issues of particular interest (such as wealth tax revenues and negative externalities).

But while wealth’s meaning seems semantically fixed if one is counting up the dollar bills in a strongbox (meant, of course, in a broader metaphorical sense), there are instances in which one’s underlying normative or empirical concerns might more plausibly affect how one does and/or uses the computation. Here are three examples:

1) Human capital – As pretty much all the leading empirical researchers agree, even if one has an intellectual warm spot for Piketty-esque beliefs about “capital” and r > g as key drivers of rising high end inequality, one simply can’t ignore, at least in the U.S. data, labor income’s central role over the last few decades. Rising high-end wage inequality (defining “wage” to include, e.g., the economic gains of a Bezos or a Zuckerberg from their companies’ outsize success) has been the drama’s lead actor.

We can reasonably use the term “human capital” (though Piketty, as I recall, disparages it) to connote the present value of people’s expected future earnings. Given the role of labor income at the top – not all of which has been formally converted into seeming “capital income” via the sale of shares to the general public – one simply can’t ignore this component of rising high-end inequality. The really big players here can use their human capital to help them buy (and prudently rationalize to themselves buying), for example, big houses and political influence. So even if one semantically considers human capital to be outside the permissible meaning of “wealth,” it needs to be added to the analysis of how much high-end inequality has increased. I would guess that it’s a far greater factor in this regard in the U.S. in 2019 than in the 1960s, helping to explain how much things appear to have changed even if technical pure wealth measures don’t show as much growth.

2) Vertically heterogeneous returns – Let’s return now at last to vertically heterogeneous rates of return, which, as I noted in Post 1 of this 3-part series, is one of the main refinements to Piketty-Saez in the Zwick et al paper. Recall the hypothetical in which, if both the plutocrat and the peasant are earning $5 per year from a given financial instrument, we plausibly assume that the former has a $100 bond (based on a 5% assumed rate of return), while the latter has a $125 bond (based on a 4% assumed return). As I noted earlier, if the rich have “better money” (in that they earn higher rates of return), does that mean we should respond by lowering our estimate of high-end inequality?

As a purely technical matter, perhaps the answer is Yes. After all, if we think of the exercise (at least metaphorically) as asking what dollar amount we would see on the instrument of we could look inside the strongbox, $100 vs. $125 are indeed the amounts that follow from the analysis. Yet the fact that some are getting higher returns from such wealth as they have than others is surely relevant as well.

One takeaway might be that we should measure income inequality as well as wealth inequality, and regard them as complementary inputs to measuring the degree of high-end concentration. But even just within the wealth measure, it may be illuminating to ask how it could possibly be that the wealthy have higher returns (and also higher expected returns, if there are positive risk premia) on the same “thing,” i.e., wealth. Here are a few possible explanations, with a few words regarding what one might make of each of them:

a) Segmented markets – Suppose that the peasants lack the minimum investment capital, contacts, or knowledge that are needed to buy higher-yielding assets. So they are stuck with low-interest bank accounts in lieu of bond funds with internal diversification and low per-dollar management fees. In this scenario, even among assets with equal risk they can’t buy the high-yielding ones, and the plutocrats don’t touch the low-yielding ones. I think of this scenario as pushing towards the view that one should use uniform capitalization rates, rather than vertically heterogeneous ones, to get a handle on retention (as distinct from sales) value.

b) Better connections, etc., as a distinct intangible asset – Say that you can earn 5 percent, while I only earn 4 percent, because you know people who will put you onto a good thing. That is in effect a distinct intangible asset that you have and I don’t, which we might indirectly include in our balance sheets by using uniform, rather than vertically heterogeneous, capitalization rates.

c) Higher-risk assets – It’s generally agreed that wealthier people tend to choose riskier investments than poorer ones. This need not reflect distinct utility functions regarding risk – a person with a very conventional utility function will be more risk-tolerant with a large cushion than a small one.

With this in mind, suppose we revise the earlier bond hypothetical to involve a pair of $100 bonds, the plutocrat’s paying $5 and the peasant’s $4 because it’s riskier. And suppose we re-conceptualize the latter bond as equivalent to an $80 bond that likewise pays 5% (i.e., $4), plus a $20 insurance contract that pays zero if nothing bad happens (i.e., what it does is top off the $4 in bad states of the world, including those in which there’d otherwise be a huge negative return).

Suppose we further agree that both the plutocrat who buys the bond paying $5, and the peasant who buys the bond-insurance combo paying $4, are (i) choosing rationally, and (ii) getting $100 of value. We might still conclude that the plutocrat is better-off in a way not captured by crediting them with $100 of value each, via the application of vertically heterogeneous capitalization rates.

The point I have in mind here is that, while the insurance is worth $20 to the peasant, it’s worth much less to the plutocrat (and again, this may be due to divergent circumstances, rather than diverse utility functions). Can this be analogized – I’m still thinking this through, which is why I’m formulating it as a question – to the case where you rationally buy $20 of health insurance, and I rationally don’t, because my health is better? Might I be ($20?) better-off than you in this respect, because my circumstances meant I didn’t need to incur this cost, while yours meant that you did?

Tax policy colloquium, Zwick et al, part 2

I closed the prior blog post by noting a conundrum seemingly presented by the Zwick et al adjustment to top wealth shares that relates to applying capitalization heterogeneously. Again, suppose that both a person at the top of the income distribution and one much further down is observed to be reporting $5 of interest income. And suppose we have established that the former individual typically earns 5% returns, while the latter typically earns only 4% returns. We would therefore infer $100 of wealth for the former, and $125 for the latter, reducing the finding of high-end wealth concentration.

Hence we seemingly get the lesson – albeit, not one that Zwick et al are peddling; they’re simply being scientists here – that things aren’t as bad as all that. Whereas an alternative take would be: Mightn’t vertically heterogeneous returns be a part of the story around rising high-end inequality, rather than a ground for adjusting downward our estimates of it? After all, ignoring for the moment the question of why there might be vertically heterogeneous returns, one might be inclined to say, or at least snark: I like the $100 bills that earn 5% returns more than those that merely earn 4%. Please gimme some of the former, not the latter.

Before going more deeply into this particular “why” question, however, I believe that it’s useful to zoom out, for a moment, rather than in, in the sense of going meta, as follows

What is wealth, and why does it matter? – The paper starts by noting that the measurement of high-end wealth concentration is relevant to addressing “public concern over rising inequality, whether the distribution of resources is fair, and how policy ought to respond.” Might the nature of these concerns affect how we ought to measure it, or adjust / apply the definition insofar as it’s already become semantically specified without full reference to them? Let’s turn to a couple of main issues here.

1) Relevant to wealth tax revenue estimates – While I’ve certainly been interested by public debates about this, such as the recent Summers versus Zucman twitter war, as a practical matter it may not be the most important piece. After all, even if one were to assume that Senator Warren is elected president with both House and Senate majorities, I’d still place a very low subjective probability on the likelihood that the proposed wealth tax will be enacted, much less allowed to take effect.

But if it were to pass, then the Zwick et al adjustment for vertically heterogeneous returns seems  logically correct, as a matter of predicting the actual wealth out there that would be subject to the tax, assuming successful implementation in spite of both avoidance and evasion opportunities. One could put the point this way, in terms of my very simplified hypothetical:

Suppose again that both a plutocrat and a peasant (so to speak) are reporting $5/year of interest income from particular financial instruments that they have placed in strongboxes on their desks. The estimator’s job is to guess correctly what’s in the strongbox, which the authorities will get to look inside once the tax is in place. If the plutocrat earns 5 percent while the peasant earns 4 percent, this suggests that in fact the former’s strongbox contains a $100 bond, while the latter’s contains a $125 bond. Any thought that the former’s money is actually “better” because it earns a higher rate of return is ruled out semantically by the question we have asked ourselves, which is how much wealth the strongbox holds with respect to this particular financial instrument. (I’m assuming, of course, that each bond actually is worth, and would sell, for the indicated amounts despite their different returns, surely reflecting other differences between them such as in riskiness, term, or ready marketability.)

Insofar as one thinks that a wealth tax might in fact be implemented in the U.S., notwithstanding my skepticism regarding its likelihood, the question of how much a reduced revenue estimate should affect a potential proponent’s normative assessment depends on the reasons for favoring it. Reduced revenue might lower one’s assessment under a standard revenue and distributional gains versus efficiency cost assessment (unless the lower wealth subject to the tax commensurately reduces expected deadweight loss from behavioral responses). But if one views the wealth tax as akin to a pollution tax, reducing negative externalities associated with high-end wealth concentration, revenue might be a smaller part of the motivation even though still relevant.

2) Relevant because wealth distribution can have important societal effects – Wealth tax or no, we should be interested in the degree of high-end wealth concentration because it can have important societal effects.

Saez and Zucman assert in their latest piece that high-end wealth concentration undermines democratic institutions and corrodes the social contract. There’s a vast literature, in both the hard and soft social sciences further exploring how it might have concrete adverse consequences. But these will vary with the broader social context, suggesting that two societies with identical wealth distributions might have very different negative externalities (both qualitatively and quantitatively) from their shared degree of high-end wealth concentration.

Going back to the strongbox metaphor for an illustration, suppose that in each of two societies the super-rich have large amounts of cash locked up in the vaults behind their desks. But in the first society – let’s call it the 1960s U.S. – the money tends to just stay there. It’s used surprisingly little for giant, ostentatious houses, Lear jets, Caribbean islands, and so forth, and it also is not much used to buy political influence or drive propaganda campaigns in such media as there then were. Indeed, this extra cash almost mightn’t be there, so far as its discernible effects on daily of behavior are concerned – e.g., its owners don’t seem to be smoothing lifetime or dynastic consumption, so much as, in Keynes’ famous phrase, “satisfy[ing] pure miserliness.”

In the second society – let’s call it the current U.S. – the strongbox funds are being used a whole lot to pay for conspicuous consumption, conspicuous leisure, and other such Veblenesque display, as well as to fund political and media dominance (without thereby depleting high-end wealth, since using it politically results in its replenishment).

High-end inequality seems likely to cause far greater problems, of multiple kinds, in the second society than the first. Yet the two societies might conceivably have identical high-end wealth concentration, as measured within the term’s apparent semantic limits.

It’s only through the reasoning suggested by this sort of hypothetical example that I can find it at all plausible that high-end wealth concentration HASN’T in fact vastly (not just marginally) increased in the U.S. since the 1960s. Or to put it another way, if wealth concentration DID uniformly translate into the social ills that I have in mind, I would be inclined to conclude that Saez and Zucman just had to be closer to the truth than proponents of downward adjustment, however technically appealing the latter’s arguments about particular measurement questions might be. But given the lack of a precise relationship, the evidence of one’s own eyes is not dispositive here.

In this example, the definition of wealth for measurement purposes was too fixed semantically to allow for adjusting it to better track our reasons for caring about high-end wealth inequality. But there are also instances in which the purpose might influence the definition, at least insofar as we were using a particular measure to help us get a handle on the underlying social problem. I will address  this aspect in a third and final blog post concerning the Zwick et al paper, to follow shortly.

Tax policy colloquium, week 2: Eric Zwick on U.S. top wealth shares, part 1

Yesterday at the colloquium, Eric Zwick presented his article (coauthored by Matthew Smith and Owen Zidar), Top Wealth in the United States: New Estimates and Implications for Taxing the Rich. It enters the fray regarding recent Saez-Zucman work on the percentage of U.S. wealth held by the top 0.1 percent, with implications as well for evaluating the controversial Saez-Zucman revenue estimate of Senator Warren’s wealth tax proposal.

Based on a set of thoughtful adjustments that appear to me clearly motivated by a scientific desire to get it right, rather than by any ideological or other axe to grind, Zwick et al find that the top 0.1%’s wealth share is somewhat smaller, and has grown less substantially in the last 50 years, than Saez and Zucman find. But I’d say that the basic outlines of the story – rising high-end wealth inequality- don’t change in any fundamental way.

One implication that could in principle matter, however, pertains to Zwick et al’s “mechanical tax revenue calculation” for the proposed wealth tax. As they emphasize, this is not an actual revenue estimate, as it omits behavioral responses and enforcement issues. It is based on asking, if all the actual wealth above the proposal’s threshold amounts were actually taxed at the indicated rates, how much revenue would be raised? So it offers an upper bound that is likely substantially to exceed the actual revenue yield if the wealth tax were enacted. Zwick et al find this amount to be significantly lower than Saez and Zucman had concluded in their letter to Senator Warren (which was self-presented as a revenue estimate, albeit based on a mechanical calculation under their figures plus a downward adjustment for tax planning effects et al).

Certainly the most interesting, and perhaps the most important, of the ways in which Zwick et al compute top wealth shares differently than Saez-Zucman pertains to capitalization rates. Suppose (as is in fact the case here) that one is using income tax data to infer wealth holdings. To illustrate with a very simple example, suppose that IRS data show I am reporting $5/year of interest income. The wealth question is what wealth holdings (e.g., a bond that I might own) are generating this income flow.Under a capitalization approach, if we assume that my savings earn 5% a year, it must be a $100 bond, so we include that amount in an estimate of my wealth. But if we assume that I earn only 4% a year, then it’s presumed to be a $125 bond. In short, the lower the presumed interest rate, the more wealth I must have to generate the observed income flow.

I gather that prior work (such as Saez-Zucman) assumed uniform capitalization rates for lower- and higher-income individuals. But Zwick et al note evidence suggesting that higher-income individuals earn higher rates of return than lower-income individuals. So they apply heterogeneous capitalization rates. In this example (retaining or increasing its hyper-simplification for expositional purposes), we might assume that it had to reflect $125 of savings if in the hands of a non-plutocrat, but only $100 if in the hands of a plutocrat.

Unsurprisingly, this adjustment reduces the estimate of top wealth shares – although Zwick et al also make adjustments that increase it. (Again, this is a fair-minded effort, however one comes out on all of the estimating issues.)

Why would higher-wealth individuals earn higher rates of return than lower-wealth individuals? There are a number of possible reasons. Savings by the latter are very substantially placed in checking and savings accounts in banks, which offer liquidity but very low returns. The upper-tier folks are far more invested in bonds that pay higher rates but that are riskier – at a minimum, by reason of not being federally insured. (They’re also far more in the stock market, but this is in a different computational bucket as it doesn’t yield reported interest income.)  They may have greater risk tolerance, less need to sacrifice expected returns for liquidity, greater access to information and opportunities that permit them to find higher-yielding investments, and so forth.

But here’s a peculiar aspect to the adjustment that calls for rumination outside the four corners of the computational debate itself. One of the aspects of the wealthy’s superior position in our society is that they can earn greater returns. So it’s peculiar and paradoxical, however logically consistent with the underlying computational enterprise, to say: Because they can earn a higher rate of return than the rest of us, therefore we will lower our estimate of how much high-end inequality there is. Isn’t that disparity a part of the broader story, rather than an indication that things are less askew than we thought?

But I will place reflections on that question in a separate blog post, to follow shortly.

New Piketty book

Thomas Piketty has just published a new book, entitled “Capital and Ideology,” currently just available in French, but to be released in English in March 2020.

As it’s apparently 1150 pages, my first thought was to snark, “I guess he didn’t have time to write a shorter book.” But Branko Milanovic has posted a thoughtful review of it here.

Three quick things about my newly posted international tax article

My newly posted article isn’t just about digital service taxes, but also about, e.g., the notions of source and “value creation” in international tax policy, a number of other recently discussed international tax reform proposals, the set of concerns that are sometimes called inter-nation equity, and how one might think about countries’ strategic interactions in taxes and trade.

Three quick further things I’ll say about it:

1) I can be self-critical (more in my own head than publicly, of course), but at least at present I quite like the piece and feel that it turned out well (albeit, after consuming a lot of sweat equity).

2) I try to model being gracious about acknowledging my intellectual debts to others in the field, including some more junior to myself. Academics are not always as gracious about this as they ought to be.

3) It aims to be a bit “Graetzean,” which I mean as a compliment to Michael Graetz. That is, one nice aspect that I have noticed about Graetz’s work is his identifying what he felt were important points to emphasize publicly at a given point in time. In other words, his work isn’t just analytic, but also aims to steer public debate regarding, e.g., “what we ought to be thinking about / where we ought to be going right now.” I try to do that a bit in my new piece – although my effort in this direction, just like any such, may fail to resonate with people who don’t happen to share my sense of what the moment calls for. But I came to feel that, if one has some potential influence (however slight it might be, in truth), it’s part of one’s responsibility, insofar as one is wearing the public intellectual hat, to think about doing good, as one conceives of it. This is something that Graetz has always modeled well.

A draft of my paper on digital services taxes has now gone live

A completed first draft of my new paper, Digital Service Taxes and the Broader Shift From Determining the Source of Income to Taxing Location-Specific Rents, has now gone live. It’s available here.

The abstract goes as follows: In recent decades, a number of fantastically successful, mainly American, multinational entities (MNEs) – led and epitomized by the “Four Horsemen,” Apple, Amazon, Facebook, and Google – have risen to global economic hyper-prominence. While their market capitalizations and profits are high, reflecting that they earn substantial rents or quasi-rents, their aggregate global taxes are generally quite low, reflecting their ability to create stateless income.

Often, these MNEs are technology companies, like the Four Horsemen – but not always. Starbucks, for example, enjoys high global profits and low taxes despite its following a classic brick-and-mortar retail business model. This reflects that, like its more obviously high-tech peers, it relies on valuable intellectual property that helps it in creating both global pretax profitability and stateless income.

Such MNEs’ rise has placed substantial pressure on existing corporate income tax models. While the existing models might perhaps be significantly improved, this would still leave market countries (where the MNEs’ consumers are located) well short of being able to tax, as fully as they might like, the location-specific rents that these companies earn by interacting with their residents.

Market countries that use novel tax instruments, such as properly designed digital services taxes (DSTs) to expand their capacity to reach such location-specific rents, are not acting unreasonably, as judged within existing (and fairly lax) norms for constraining and channeling countries’ self-interested behavior. DSTs also have the potential (although whether it will be realized is uncertain) to improve, rather than worsen, global efficiency and distribution. Whether they prove permanent or merely transitional, DSTs look like harbingers of a new era in which entity-level corporate taxation rightly focuses more on locational rents, and less on decades-old doctrinal and semantic debates concerning the supposedly “true” source of economic income and value creation.

Tax policy colloquium, season 25, session 1

Yesterday we kicked off the fall 2019 Tax Policy Colloquium, our 25th “season,” with my colleague and co-convenor Lily Batchelder’s paper Optimal Tax Theory as a Theory of Distributive Justice.

This is an illuminating paper that reviews and elucidates relevant literature, while also convincingly supporting a perhaps counter-intuitive conclusion, to the effect that, despite fervent denials by both Ronald Dworkin, as a proponent of “resource egalitarianism,” and prominent welfarists (such as Louis Kaplow) that Dworkin’s theory has much in common with egalitarian welfarist theories, in fact they substantially converge in their conclusions, even if reaching them by different means and based on different concerns.

The paper also discusses the longstanding tax literature sub-theme (which I may have helped launch in legal academic circles) regarding endowment taxation, the conundrum regarding “slavery of the talented” and the hypothetical beachcomber who could have been an investment banker, etc. Its conclusions in this area are certainly compatible with mine, although more thoroughly worked out.

Dworkin’s theory, which I have always found more of an impressive effort than actually persuasive, has the following main premises (quoting Lily’s paper): It aims to “treat[] all members of society with equal concern and respect, as determined from a position of equality. this has two components. First, everyone should begin their life with equal transferrable resources, as measured by the value of those resources to others. Second, the state should provide insurance against inequalities arising from non-transferrable resources, such as one’s talents and health. But it should only insure against the effects [of] brute luck – not option luck, which is the result of deliberate and calculated gambles.”

Egalitarian welfarism is the same as utilitarianism, except that it assigns greater social welfare weight to the utility of worse-off individuals. Both it and utilitarianism are sometimes viewed as compatible in theory with imposing an endowment or ability tax, such that the above beachcomber who could have been an investment banker is viewed as no worse-off (and hence, if you add a string of unrealistic assumptions, as rightly owing just as much tax) as her peer who actually went the investment banker route. But in the welfare framework what matters is utility – endowment only matters instrumentally since in a particular reasoning chain one might think (all else equal) that, the higher your potential earnings, the higher your total and marginal utility. We’re far from the world in which such assumptions would hold, in multiple dimensions.

There are a few main reasons why the two sets of theories converge to a degree. Both may support addressing brute luck, since as defined this isn’t the individual’s fault or responsibility (Dworkin) and in the absence of choice won’t have adverse incentive effects (welfare egalitarianism). In both one has to be leery of addressing option luck, in Dworkin as a matter of principle and in welfare egalitarianism merely insofar as incentive effects might lead to adverse efficiency consequences. And once Dworkin started pursuing in earnest his analysis of insurance against inequalities pertaining to non-transferrable resources, he inevitably found himself in territory where welfare-type considerations were going to matter (e.g., moral hazard et al would now affect the character of the insurance scheme people would hypothetically want).

Here are two quick thoughts I’d add regarding the underlying theories that the paper discusses:

1) I have always found the case for egalitarian welfarism to be a bit askew. That is, I’m sympathetic to the motivation, but find it peculiarly expressed. It’s a very odd set-up, and inconsistent with how one would think about distribution issues behind Harsanyi’s version of the veil of ignorance, in which one would want to maximize expected utility. In effect, the social planner who is making a social welfare assessment has declining marginal utility with regard to people’s utility – a very abstract set-up that lies in a land far beyond where our moral intuitions can reasonably take us, one way or the other.

What I see as motivating it is the judgment, which I share, that focusing just on the declining marginal utility of consumption and leisure to a particular individual falls far short of explaining fully why – to some of us, at least – inequality appears to be a bad thing. As I discussed in my recent paper, The Mapmaker’s Dilemma in Evaluating High-End Inequality, the standard economic assumption that people’s utility is solely a product of their consumption of market goods plus leisure, may work well enough in price theory, but not here.

To quote that paper:“We are an intensely social species, and often a rivalrous one, prone to measuring ourselves in terms of others, and often directly against others. People thus “have deep-seated psychological responses to inequality and social hierarchy,’ creating the potential for extreme wealth differences to “invoke[] feelings of superiority and inferiority, dominance and subordination” that powerfully “affect[] the way we relate to and treat each other.”

Case in point, the Wilkinson-Pickett data suggesting that inequality “does not just reduce happiness for all groups—the rich as well as the poor—but even has measurable adverse effects on social trust, economic mobility, life expectancy, infant mortality, children’s educational performance, teenage births, homicides and other violence, imprisonment rates, mental illness, drug and alcohol addiction, and obesity.”

Anyway, back to the weighted welfarists. My thought is that perhaps their recognizing intuitively the inadequacy of the standard story in which it’s all DMU and nothing else (based on the radically impoverished utility function that was used for reasons of tractability), and that inequality was also bad for reasons not included in the model, led to the ad hoc solution of weighting towards the bottom, based on the observer’s arbitrarily posited inequality aversion. But however one thinks otherwise about utilitarianism’s adequacy as a moral theory (given all the standard challenges and conundra it raises), I would say that is not really the best response to this particular problem. Rather, one should broaden the relevant inputs to posited utility, however indeterminate that makes the analysis, keeping in mind that determinacy within the boundaries of a little toy model doesn’t really do or mean much anyway.

2) Turning to Dworkin, and recognizing that there’s a rich literature here that I don’t know well, I’ve always been troubled by his use of the brute luck versus option luck distinction, despite its being related to issues of definite interest. The distinction between bad outcomes that don’t versus do reflect choice matters, even purely in a welfare framework, because (a) the individual’s choice may shed light on her underlying preferences or utility function, and (b) the less chosen, the less we have to worry about incentive issues. But I don’t join Dworkin in wanting to moralize the distinction to the degree that he does, because I’ve long found beneficence to be a more attractive principle than desert, “you’ve made your bed now lie in it,” etcetera. I also wonder about such problems as (a) the brute luck of being a bad chooser with respect to option luck, and (b) the brute luck aspect of having been handed particular choices on which to exercise option luck. E.g., assuming a counter-party I can bet as I like, and as high or low as I like, on tonight’s US Open matches. But when I choose a profession, activity, etc., I didn’t choose the payoff set that I have. Maybe I’d have preferred to have had different and better choices and payoffs. And I suspect this causes difficulties for the distinction that others must have explored.

More active again

I’ve only been posting rarely over the last couple of months.

This has reflected my (for different reasons) (1) not wanting to address the political madness of the current era, which only makes one seem (and feel) angry and shrill, and (2) not always being focused on the minutiae of admittedly important day-to-day stuff in the tax system.

E.g., new regs come out in an area that I know something about. With finite time, especially as one’s summer all too rapidly ebbs away, I’ve wanted to continue focusing on the more general sets of issues that interest me more intellectually, and on which I feel I have distinctive ideas to contribute. There are a lot of smart people out there who do excellent jobs, close to the ground, in areas where I haven’t felt driven to focus my attention.

Academically speaking, I did three main things this summer. The first was push my literature and inequality book towards publication, which I hope will actually be taking place in early 2020. One thing I did in this respect, although not required by the prospective publisher, was to shorten the book by about 10% – taking out material that I had personally found interesting but that wasn’t sufficiently connected to the book’s main themes. This results, I hope, in a sharper and tighter manuscript. In the broader context, the stuff I removed seemed self-indulgent and unnecessary.

Second, I began work on a follow-up (but much shorter) book on international tax policy, reflecting the extensive legal and intellectual developments that have transpired since I published Fixing in 2014. But I put this aside for a bit to write a new article that I felt would sharpen my discussion of source concepts in this still-planned new book.

Third, I wrote Digital Service Taxes and the Broader Shift from Determining the Source of Income to Taxing Location-Specific Rents. This should be publicly available shortly, both on SSRN and at the NYU Tax Policy Colloquium website, as I’ll be presenting it there on October 1. I’ll eventually give a talk based on it in Singapore in mid-January 2020, after which it will appear in a Singapore law review. I’m also game to discuss it elsewhere, e.g., in North America or the EU as well as in Asia, Australia, Africa, and Central and South America. (I enjoy travel, and benefit intellectually from getting to meet & discuss things with different groups of people.)

Now that the NYU Tax Policy Colloquium is starting (tomorrow!), I will be posting weekly commentaries on the papers that are presented there. These will not discuss the sessions themselves, as we feel it’s best to keep these off the record, a rule I would violate if I did not confine my reactions to my thoughts about and in relation to the papers.

These commentaries will of course be consistently quite diplomatic – I don’t like slagging people, especially at a stage when I’ve become more senior than most of the presenters. Slagging combines being genuinely unkind with being a bad  choice from the perspective of one’s own self-interest (and that of the colloquium). But consistently with all that, I will aim to be clear when I disagree with particular things that I see in the papers, since one can’t make mutual intellectual progress without exchanging points of view.

Once a few years ago, I expressed some degree of disagreement with a paper that was presented at the colloquium. The author disagreed sufficiently with me to revise the paper by adding several long footnotes that quoted and disagreed with what I had said. While I don’t recall the exact issue, I will say, in such author’s favor, that he had clearly spent a lot more time thinking about the issue than I had. (My response to a colloquium paper is the matter of a few days’ reflection at most – and I’m willing to opine more casually in blog entries than in traditionally published work.)

The author, being a gracious person himself and I think not actually too mad at me, showed me in advance his lengthy footnotes rebutting what I had said, and asked if I had any objection, etc. I said no, that’s fine, go ahead, and I also saw no reason to answer, even though it’s conceivable (but not certain) that upon fuller reflection I’d have at least partly stuck to my prior view.

There are also of course trolls out there, looking for ill-mannered fights, but that’s not my thing, and they tend to discredit themselves anyway.

Better and better ideas for Mnuchin?

Kyle Pomerleau does a nice job here of taking down the idiotic (and probably, as a manner of administrative discretion, illegal) idea of unilaterally, by Treasury action, indexing capital gains for inflation.

The core problem is that inflation adjustments apply on both the plus side and the minus side of the ledger. If one excludes the inflationary component of gains while still allowing taxpayers e.g, to deduct the inflationary component of their interest costs, then pervasive tax arbitrages worsen income measurement and will induce pervasive game-playing by wealthy tax avoiders.

In the spirit of the capital gains plan’s idiocy, I was trying to think of what else would be logical by its dim lights. So here’s an idea: In traditional IRAs or other such tax-preferred savings vehicles, you deduct the contribution, but pay tax on the withdrawal. In Roth IRAs and other such alternative tax-preferred savings vehicles, you don’t deduct the contribution, but you exclude the withdrawal.

To a great mind like Steve Mnuchin’s, the lesson should be obvious. Why not combine the best features of each? Create a savings vehicle in which you can make unlimited deductible contributions (a la traditional), and then exclude the withdrawals (a la Roth)!

Better still, Mnuchin can decide to authorize this by Treasury fiat. What’s more, if there are no limits to taxpayer contributions, and no minimum timing periods before tax-free withdrawals are allowed (and why would we want to impede people’s economic planning?), then no one need ever pay income tax again!

Just think how this might hyper-charge our economy in the run-up to November 2020, even with a trade war and ever-rising tariffs on everything.

Conference at NYU next week

Next Friday to Saturday (September 6-7), NYU Law School will be hosting the 2019 Journal of Law, Finance, and Accounting (JLFA) conference, in a joint venture with the Stern Business School at NYU. Info about the conference, including its schedule, is available here.

There’s only one tax paper at the conference, by my friend Yehonatan Givati of Hebrew University, entitled Theories of Tax Deductions: Income Measurement Versus Efficiency. I will be the commentator, and I will use, although I have not yet decided whether I will subsequently post, PowerPoint slides.