All posts by Janet Byrd

Dr. Seuss’s The Lorax

Having had young children, although they are grown now, I spent some years extensively reading out loud the greater part of Dr. Seuss’s oeuvre. I tended to group his books into two categories – those that are astounding works of genius, and those that are a bit more rote or formulaic albeit clever (inspiration hadn’t hit quite as strongly in these) and that also tended to be full of tongue-twisters that could become annoying to read out loud repeatedly.

Wodehouse, a fave of mine, is similar. His books are always skillfully done, but some have immense comic inspiration coursing through them, while others are more like rote exercises that make light reading but are disposable and forgettable.

A few examples of Category 1 (genius) for Dr. Seuss: Green Eggs and Ham, The Sneetches, Cat in the Hat & its sequel, One Fish Two Fish Red Fish Blue Fish, And To Think That I Saw It On Mulberry Street.

Also in Category 1, and of particular interest to law and economics types: The Lorax. I believe that people have even written about it in the biz. E.g., it offers a classic illustration of externalities and common pool problems. (Exam question: Could these have been solved by assigning the Once-ler ownership rights to all Truffula trees?)

But The Lorax also seems to posit a violation of rational choice by the Once-ler, who completely fails to anticipate that the trees are running out until the last one faces the axe. We know people sometimes fail to exhibit appropriate planning depth, but it isn’t really explained here.

Anyway, today’s NYT has an article discussing a recent article in Nature (available here, but it may be restricted-access) about The Lorax.

First point of interest, the backstory: Ted Geisel (Seuss) “was fighting to keep a suburban development project from clearing the Eucalyptus trees around his home. But when he tried to write a book about conservation for children that wasn’t preachy or boring, he got writer’s block.

“At his wife’s suggestion to clear his mind, they [went on a Kenyan safari] ….. And if you haven’t guessed by now, it was there that The Lorax took shape – on the blank side of a laundry list, nearly all of its environmental message created in a single afternoon.”

This is how inspiration tends to work, even if you aren’t a Seuss.

Per the Nature article, this more particularly involved his seeing an acacia tree, along with patas monkeys that commensally use it without harming it. So it was the original truffula tree, and they helped inspire the Lorax himself.

The NYT article continues: “[S]ome have worried that [the] Lorax … isn’t really a good teaching model because he comes off as a self-righteous eco-warrior with unfounded anger.” Well, right at the start, the narrator calls his voice “sharpish and bossy,” and he continues to act that way throughout the story.

Per an interview that the NYT writer, JoAnna Klein, conducted with Nathaniel Dominy, the Nature paper’s lead author, while “[t]he prevailing sense among literary critics is that the Lorax is too angry …. [i]f you see the Lorax not as some indignant steward of the environment, but instead, as a participating member of the ecosystem [that is being threatened], then I think his anger is so much more understandable and I think forgivable.”

That’s a reasonable point, but it’s also part of Seuss’s aesthetic to have the spokesman be shrill and hence a bit self-defeating. It’s a part of his combining moral lessons with an aversion to the smug sententiousness of prior children’s literature that he found, not just boring, but insulting to his child audience. So he frequently complexifies a book’s stance and impact by standing apart from the messenger (in cases where he assigns someone the role of being “right” – which he only does occasionally).

For another example of the same thing, consider Green Eggs and Ham. This is a book with a clear moral message for children: be openminded, try things, expand your horizons, etc. But who is the messenger for this point? The very annoying and over-zealous Sam-I-Am. There’s something distinctly odd and off about Sam-I-Am’s persistence, which is part of the fun even though he’s right.

More examples of moral complexity in Seuss: Should the kids tell mother what happened in the Cat in the Hat? Are the child’s fantasies (which he must keep to himself) more important and valuable than the mundane truth that his parents demand, in And To Think That I Saw It On Mulberry Street?

So we can combine the Nature article’s explanation for why the Lorax is so shrill – he’s personally threatened, and hence feels justifiably defensive and anxious – with understanding how Seuss uses this type of strategy to help make his best works far more memorable and powerful than 99.9% of the young children’s literature that is out there.

Good news from the 9th Circuit – Altera reversal

I haven’t yet found this online, because it just came out this morning, but the 9th Circuit has reversed the – sorry for sounding shrill here, but it’s justified – egregious and embarrassing Tax Court decision in Altera v. Commissioner.  In Altera, the Tax Court held – unanimously! – that the IRS exceeded permissible administrative discretion when it amended its transfer pricing regulations to make them less of a tool for profit-shifting to tax havens than they had previously been. The issue arose under an election companies have to use cost-sharing agreements with their foreign affiliates to profit-shift, and the taxpayers were insisting that the state of the law required that they be allowed to pretend that incentive compensation they paid to their own employees was irrelevant and, in effect, cost zero. This was based on a misleading analogy to how companies at arm’s length act when they are engaged in actual cost-sharing and (typically) each have their own incentive compensation arrangements. It also was based in part on embarrassing expert testimony to the effect that incentive compensation should be viewed as costing the company zero.

Not to repeat it all, but I discussed why the Tax Court decision is so bad here, and an amicus brief to the 9th Circuit, lead-authored by Clint Wallace, that I signed here. So it’s great that the Ninth Circuit has now reversed, based on a very thorough discussion of the relevant legislative and regulatory history, along with Congress’s and the Treasury’s underlying policy concerns, and adopting arguments very compatible with (and similar to) those in our amicus brief.

The Tax Court decision did not merely permit taxpayers to game the system in a manner that is entirely contrary to the logic behind cost-sharing (which is itself flawed, but better than having absolutely no constraints). It also seemed to reward an aggressive taxpayer strategy that I was concerned we’d see more of in the future. (And we still may.) This is to spend lots of money making lots of bogus arguments in the notice and comment phase of regulatory issuance, and then to get the regulation struck down as “arbitrary and capricious” unless its preamble is written, not to inform taxpayers and advisors as has been the general past practice, but instead as a litigating document that responds carefully and fully to each argument made in notice and comment, no matter how meritless and frivolous.

The Ninth Circuit is to be commended for getting it right. Now, it’s true that it relies on the Chevron standard for reviewing administrative regulations, which may well be on the Supreme Court’s chopping block in the near future. But in this particular case, it shouldn’t matter, as the IRS regulation at issue, concerning the treatment of incentive compensation in cost-sharing arrangements between affiliates, was not only a reasonable interpretation, but clearly the most reasonable interpretation, and indeed perhaps the only reasonable one.

UPDATE: The 9th Circuit’s Altera decision is now available here.

SECOND UPDATE: Leandra Lederman blogs about the decision (including key administrative law aspects) here.

Locker room talk

In the health club locker room yesterday, a couple of folks nearby were talking about their jobs, which for the young NYC crowd that mainly frequents these places always seems to involve Internet startups and the like.

One of them apparently works on fund-raising for real estate projects, and he said the “Trump tariffs” have been a disaster for this business, causing multiple projects to be deemed economically unfeasible.  He also said something about an 18-month timeline for the projects to get going, so I wasn’t sure if the real estate construction slowdown that he identified is being driven by what’s happened already, or by what might happen next.

Tax Notes article on international tax provisions in the 2017 act

Last week, Tax Notes published part 1 of my article, The New Non-Territorial U.S. International Tax System, and this week it published part 2.

Part 1 discusses normative frameworks for international tax policy, while part 2 discusses the BEAT, GILTI, and FDII. As per the above photo, part 2, which is presumably of wider practical interest, made the cover.

Consistently with editorial permission, I’ll be posting the entire article on SSRN on July 30.

International tax talk at Oxford

Last Wednesday I gave a talk at Oxford Academic Symposium in re. my new international tax article. Slides are available here; they’re basically a shortened version of my Vienna slides from a couple of weeks previously, the relative brevity reflecting that I had less speaking time.

Meanwhile, Part 1 of the paper came out today in Tax Notes and Tax Notes International. Part 2 will be out next Monday (July 9), and I’ll be allowed to post the paper (both parts) on SSRN on July 30.

It was nice to see old friends at Oxford. On my way back home, I stopped briefly in London and got to see Oscar Wilde’s An Ideal Husband, the Mel Brooks Young Frankenstein musical, and Christo’s installation in the Hyde Park Serpentine, which you can see here.

The Supreme Court overturns Quill

I’m glad about the Supreme Court decision in South Dakota v. Wayfair, allowing states to require Internet retailers to collect sales taxes. Indeed, I was among the tax law professors who signed the Daniel Hemel-penned amicus brief urging this result. The ostensibly constitutionally mandated effective tax preference for out-of-state retailers was distortionary and lacking in any good rationale given the ease of collecting sales taxes via modern technology.

One could see the Quill/Wayfair issue as helping to illustrate my old point that tax cuts or tax preferences can make government effectively “bigger” even if they reduce tax revenues, and thus that their elimination may effectively make the government “smaller.” At least when we are talking about fiscal matters – let’s leave aside for now, say, the issues around government agents who put children in cages – a meaningful, rather than formalistic, view of the “size of government” should be based on its distributional and allocative effects, relative to some baseline. (Although the choice of baseline is admittedly a vexed issue.) Thus, suppose that in Case 1 the government “taxed” $X from you on Day 1 and gave the same amount back to you (as “spending) on Day 2.  Versus, in Case 2, it took half as much from you on Day 1 but either gave it to someone else or spent it on subsidies for the coal industry. I’d say the government is “bigger” in Case 2 than Case 1, even though the formal measures of “taxes” and “spending” are lower.

Giving Internet sales an effective exemption from state sales taxes, against the background of general under-collection of use taxes, could be viewed in tax expenditure terms as analogous to taxing all sales and then giving the money back to Internet sellers as a special outlay on their behalf. The fact that the effective exemption arguably wasn’t intended as a subsidy is immaterial if the question we are asking is simply what level of distortionary economic effects result from state sales taxes. These effects may now be lower, and if the states want to have the same net revenue as before they can do so by lowering their rates. If they choose increased revenues, this might conceivably lead to “larger government” in some dimensions, but there would still be an offset by reason of the greater neutrality as between retailers.

Overheard on the street …

… between two parents who were walking their kids to PS 41 in Greenwich Village (probably for day camp, rather than school):

“So, what did you guys do for Father’s Day?”

“We went to Central Park. No meltdowns, it was relatively seamless, couldn’t have been better!”

Back in the USA

Yesterday we got back to NYC after spending just over a week in Vienna and Czechia (Prague and Cesky Krumlow). These days it’s nice to be away, especially in cities that have beautiful architecture and well-functioning transit systems (if less varied food than NYC), not to mention that being abroad permits one to take a step back from the constant blaring of horrible US political news. I really quite like being in Europe, even if inevitably less at home there than in my native country.

It was vacation, except for a talk at Vienna University on my forthcoming international tax paper, at which I learned that, since in a sense it’s two papers (international tax policy lessons of recent years, plus analyzing 3 key provisions in the 2017 act), neither of which is wholly uncomplicated, it’s basically impossible for me to present the whole paper unless I have at least 45 minutes. I did indeed have that much time on this particular occasion. But the next few times I present it, I’ll probably have only 20 minutes, so it appears that I’ll need to jettison one half or the other almost entirely.

Slides for the talk are available here.

Forthcoming talk in Vienna

I’ve been quiet here lately because it’s the summer, both at NYU and in tax policy circles (albeit, not so much in terms of our actual weather here in the northeastern U.S.).

Since finishing my article on the international provisions in the 2017 tax act (forthcoming in Tax Notes on July 2 and 9), I’ve mainly been working on my book on literature and high-end inequality. I’m getting towards the finish line for what I see as volume 1, which ends before World War I with literature from the First Gilded Age in the U.S.

But I am heading across the Great Pond tomorrow to spend a week-plus in Vienna, Prague, and Cresky Krumlov (a small and apparently beautiful city in Czechia that is reachable from Prague). The work-related tie-in for this is that on Monday, June 11, I’ll be discussing my international tax paper at a Vienna University Tax Seminar.

Slides for the talk are available here.

Forthcoming article on U.S. international tax law

I have on a couple of occasions mentioned here the tax article that I’ve been working on, when time permits, since late January.  Entitled The New Non-Territorial U.S. International Tax System, it discusses and evaluates three of the main new international tax provisions in the 2017 tax act: the BEAT, GILTI, and FDII.  (This includes attempting to explain, very simply and intuitively rather than technically, what these provisions appear mainly to be “about.”)

I have now completed the piece, and it will be appearing in Tax Notes in two parts, on July 2 and 9.

The two-part publication was necessary due to its length (close to 30,000 words), and made sense due to a natural breakpoint between the two main parts.  The first half focuses on international tax policy conundrums and dilemmas in general, and the second half on the BEAT, GILTI, and FDII in particular.

I put both halves of the analysis in the same article due to their complementarity. One needs the first part in order to ground the evaluation in the second part.  And I think the second part helps show that the normative discussion in the first part is focusing on things that countries actually care about – which cannot comparably be said about standard-fare generalizations regarding, for example, the supposedly central choice between “worldwide” and “territorial” models, neither of which any major industrial country appears to want in its unalloyed entirety.

While I don’t pull my punches in evaluating the BEAT, GILTI, and FDII, the piece is written in a far kinder, more tolerant, and even verging on forgiving, spirit than my piece on the passthrough deduction. I expressly address in the new piece my reasons for taking a different tone here.  I also offer general thoughts regarding how the provisions might be changed or improved, taking the more defensible underlying policy aims as given, albeit without getting into the weeds as some outstanding recent pieces, such as this one, have.

On July 23, with Tax Notes’ permission, I will be posting the article on SSRN. Evidently I’m fine with losing a few downloads under the official count, in exchange for having, I hope, significantly more actual readers.

I’ll also be discussing the piece in Vienna on June 13, in Oxford at the end of June, in Ann Arbor on October 24, and in Copenhagen on November 5. (Time permitting, I’d be happy to add, say, Australia, New Zealand, China, or Japan to the tour, assuming roundtrip business class tickets, but no one has as yet asked.)