All posts by Janet Byrd

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.)

Text of my Stanford book talk!

I did my Stanford book talk today, regarding my literature & inequality book (and the chapter on E.M. Forster’s Howards End in particular; thought it went well.

If interested, you can find the text of my talk here.

The abstract goes something like this:

We are an intensely social species, and often a rivalrous one, prone to measuring ourselves in terms of others, and often directly against others. Accordingly, relative position matters to our sense of wellbeing, although excluded from standard economic models that look only at the utility derived from own consumption of commodities plus leisure. For example, people can have deep-seated psychological responses to inequality and social hierarchy, creating the potential for extreme wealth differences to invoked feelings of superiority and inferiority, or dominance and subordination, that may powerfully affect how we relate to each other. 
The tools that one needs to understand how and why this matters include the sociological and the qualitative. In my book-in-progress, Dangerous Grandiosity: Literary Perspectives on High-End Inequality Through the First Gilded Age, I use the particular tool of in-depth studies of particular classic works of literature (from Jane Austen’s Pride and Prejudice through Theodore Dreiser’s The Financier and The Titan) that offer suggestive insights regarding the felt experiences around high-end inequality at different times and from different perspectives. A successor volume will carry this account through the twentieth century and up to the present.

Official link for my Stanford book talk tomorrow

As previously noted, tomorrow at Stanford I’ll be discussing my literature & high-end inequality project, as a whole, with particular focus on my chapter on Forster’s Howards End. Elizabeth Anker of Cornell will be the commentator. The official link for the event is here.

Upcoming West Coast events

Late next week, I will be at Stanford Law School to participate in a couple of events.

First, on Thursday, May 17, at 4 pm, I’ll be giving a talk entitled “Gilded Age Literature and Inequality.” This relates to my literature book project – now in two parts, with Book 1 to be entitled Dangerous Grandiosity: Literary Perspectives on High-End Inequality Through the First Gilded Age.

I’ll be speaking for up to 40 minutes, and have more or less written up a talk that I may post afterwards on SSRN and/or here. In addition to discussing the project in general, it focuses in particular on my chapter discussing E.M. Forster’s Howards End. Elizabeth Anker of Cornell (both the law school and the English Department) will be the respondent, and then there will be Q and A.

There doesn’t seem to be a link posted yet for this event, but I will provide it here once available.

Then, on May 18-19, there will be a Law and Humanities Conference at Stanford, hosted by Bernadette Meyler of Stanford (who also kindly arranged my literature book event) and Simon Stern of Toronto.

As per the conference program, I’ll be participating, including as the respondent at a May 19 panel entitled “Areas of Substantive Law” that will feature papers by Daniel Williams of Harvard, Andrew Gilden of Williamette, and Sherally Munshi of Georgetown.

I’m looking forward to these events, which I anticipate will be welcomedly (to coin a new word) horizon-expanding.

Tax policy colloquium, week 14: Mitchell Kane on international tax policy and tax treaty interpretation

Yesterday, in our final session of the 2018 NYU Tax Policy Colloquium (my 23rd season of same), my colleague Mitchell Kane presented “International Tax Reform: The Tragedy of the Tax Commons, and Bilateral Tax Treaties.”

The current draft was written before the 2017 tax act took form, but the act then added greatly to its immediate policy relevance (as will no doubt be reflected in the next draft). In particular, it’s directly relevant to the question of whether one of the key international provisions in the 2017 act, known as GILTI (for “global intangible low-taxed income”) is compatible with bilateral tax treaties. This is not just a U.S. question under U.S. tax treaties, although it certainly is that, since, if other countries choose to enact GILTI-like rules they would face the same question under other treaties.

In broad outline, GILTI works as follows. (And again, I have a forthcoming article draft that discusses it in more detail.) U.S. companies, with respect to much of their foreign source income (FSI), including that earned through their foreign subsidiaries, must (1) compute the portion that exceeds a 10% deemed return on tangible business assets held abroad, (2) include 50% of that amount in taxable income, and (3) pay U.S. tax on whatever liability remains after claiming foreign tax credits for 80% of the foreign taxes paid on that income.

Simplified illustration: say Acme Products has $100X of relevant FSI, and $100X of foreign business assets. A 10% return on the latter is $10X, so we reduce the relevant FSI by that amount, to $90X. Then we include half of it (or more specifically, include the whole thing then deduct half), reducing the net GILTI inclusion to $45X. At a 21% U.S. corporate tax rate, that would yield U.S. tax liability of $9.45X. But suppose the relevant foreign taxes paid on the FSI are $10X. 80% of that is $8X. So the U.S. tax liability on the GILTI inclusion is reduced from $9.45X to $1.45X.

Why foreign tax credits for only 80% of the foreign taxes paid? This reflects an issue that I think I can reasonably say I introduced to the literature, namely the incentive effects, from a unilateral national welfare standpoint, of having a 100% marginal reimbursement rate (MRR) for foreign taxes paid. Full foreign tax credits offer a 100% MRR. GILTI is a kind of global minimum tax rule at a 10.5% rate, but with full foreign tax credits U.S. companies with tax haven income might simply pay the full 10.5% abroad (perhaps economizing on the tax planning needed to stash it in pure havens) and we’d get zero revenue. There’s no direct gain to U.S. interests in this scenario from U.S. companies, to some extent owned by U.S. individuals, now paying higher foreign taxes and still no additional U.S. taxes.

The 80% foreign tax credit restores some incentive to economize on foreign taxes paid. It also kind of makes the GILTI a 13.125% global minimum tax. In theory, pay that rate globally and you’ll zero out your U.S. tax liability on GILTI. (But sometimes this is only true in theory, not in practice, due to various odd features of GILTI that can result, for example, in the loss of foreign tax credits due to a mismatch between when the taxable income arose under U.S. versus foreign law.)

This brings us to the treaty issue. Bilateral tax treaties between the U.S. and other countries generally say that one should offer either exemption or foreign tax credits for FSI of a resident of one of the treaty partners that was earned in the other treaty partner’s jurisdiction. So how can we both tax GILTI, to a degree, and offer only incomplete foreign tax credits?

I noted this issue in my work on foreign tax credits, but I think it’s fair to say that I expended close to zero intellectual capital in trying to resolve it. I left it for others to ponder, and happily they did. First Fadi Shaheen wrote on the issue, and now Mitchell Kane is following up. (Side point: it appears that the only thing they disagree about is whether they disagree about anything.)

Here is a very quick summary of Shaheen’s contribution: Both formally and in terms of the purpose of the foreign tax credit, it’s permissible to take a dollar of FSI and divide it into a portion that gets exemption and a portion that gets the foreign tax credit. A case in point is Option Z in international tax reform proposals that were disseminated a few years back by then-Chairman Baucus of the Senate Finance Committee. It provided that FSI would be 60% taxable and with full foreign tax credits allowed, and 40% exempt. Hence, if one put the two pieces back together, and given the then-prevailing 35% U.S. corporate tax rate, the covered FSI would in effect be taxed at 21 percent and would get 60% foreign tax credits.

Returning to Shaheen’s generalization, he argues, to my mind convincingly (on all grounds relevant to statutory interpretation) that, so long as the two pieces add up to at least 100%, a mixed approach is U.S. model treaty-compliant. (The case for its being OECD model treaty-compliant is apparently clearer still.) If that’s correct, then GILTI is more generous than it needs to be in order to satisfy tax treaties. Again, it taxes only 50% of the FSI (even ignoring exclusion of the deemed return on tangible business assets), yet offers 80% foreign tax credits.

Case closed if one accepts the analysis, except for one further issue. Treaties are bilateral, whereas GILTI applies globally. So, might it be an issue if Country A were to argue that less than 100% of the FSI that U.S. companies derived there was getting either exemption or foreign tax credits, given interactions with other FSI and foreign taxes within the GILTI basket? This is an issue that Kane and Shaheen both plan to consider further. (Shaheen’s article, like Kane’s draft, preceded GILTI.)

Even at this earlier stage, Kane offers a further development of Shaheen’s explication of how one can combine exemption with creditability without relying entirely either on one or on the other, so long as one provides sufficient relief under the two approaches considered jointly. I believe that his interpretation of what a typical bilateral tax treaty requires can be explained as follows:

(1) The residence country can’t cause its residents’ FSI to be taxed higher than domestic source income (considering both its and the source country’s taxes), unless this results from the source country’s imposing a higher tax;

(2) Where the above follows from the source country’s tax, the residence country can’t impose any residence-based tax on the FSI. But where the source country charges less tax on it than the residence country would if the income were earned in the residence country, the residence country can charge a tax equaling anything up to the amount of that shortfall. (Charging more would lead to violation of Rule 1 above.)

While this may initially sound both a bit abstract, and not especially close to the precise language of bilateral tax treaties addressing “double taxation,” Kane has done historical research showing how this relates to and fulfills the purposes expressed throughout the history of the treaty process regarding why double taxation is considered potentially bad and what the rules against it are trying to accomplish. So it is defensible based on underlying intention, as well as more formally via his analysis of typical treaty language.

Tax policy colloquium, week 13: Wolfgang Schön on taxation and democracy

Earlier this week at the colloquium, Wolfgang Schön presented his paper, Taxation and Democracy, offering a broad-ranging inquiry into a set of related topics that include the following:


1) How should we think about “congruence,” or the importance or not of having voters and taxpayers be the same people? Issues raised here include taxing resident and visiting non-citizens on their domestic source income, taxing other inbound income, and the voting and taxation rights of citizens abroad.

2) How is the imposition of tax burdens generally justified? The two alternative mechanisms that the paper discusses are content and consent. Content is top-down, and involves the application of principles to protect taxpayers against unfair or arbitrary measures. The US constitutional bar on bills of attainder would be an example, albeit not one pertaining to taxation in particular. Content-based protections may need to be judicially enforceable in order to operate as significant constraints, although perhaps notions of fairness can function this way if heeded by players in the political process, Consent, by contrast, might emerge from voting, except that if it need not be unanimous then one has the issue of majorities vs. minorities. The former might oppress the latter by reason of outvoting them, or the latter might prevent the former from having their preferences heeded, by reason of disproportionate influence on the political process, or because there are multiple veto points that permit them to triumph via inertia.  In the cross-border context, consent can rely on exit, rather than just on voice.

The paper also discusses various international issues that overlap in varying degrees with #1 and/or #2 above, e.g., Dani Rodrik’s statement of a “trilemma” that prevents countries from having all three of (a) national sovereignty, (b) democratic control over policies, and (c) integration into the global economy. This includes concern that tax competition may make entity-level corporate taxation, and/or redistributive taxation, impossible for a given country to pursue unless it is able (perhaps at high cost) to opt out of the global economy.

 A large part of the paper’s inspiration is comparativist, and responds to the fact that judicial oversight with regard to taxation is extremely variant as between countries. In the US, constitutional review of federal tax statutes is extremely limited. There is of course whatever remains, as constitutional law, of Eisner v. Macomber, the infamous 1920 case that held it unconstitutional to impose tax on stock dividends since they weren’t a realization. (Not taxing them was in fact substantively unproblematic, but the murky reasoning would have caused huge problems had the Supreme Court subsequently taken it seriously.) More generally, a federal wealth tax might be unconstitutional under current doctrine without apportionment between the states, and there are also, say, the uniformity and origination clauses to consider. 

But to show how different it is in a number of EU countries, consider the passthrough rules that Congress enacted in 2017. I have written an article arguing that they are wholly arbitrary and unprincipled. But obviously, being an American, it never occurred to me that this might have any relationship to viewing the passthrough rules as unconstitutional. And of course, in the US legal setting, it has no such possible implication.

But apparently, if Germany had enacted the passthrough rules, a court that agreed with me regarding how arbitrary and unprincipled they are would likely conclude that this made them unconstitutional under German law. That is certainly a bracing new perspective to think about. All the U.S. palaver about reining in the courts, democratic deficit, etcetera would not get in the way, and arguably that the passthrough rules were constitutional would focus on discerning reasonable rationales for them that my article rejects.

While this is certainly the road not taken in the US – nor do I expect it to be taken, nor am I sure how having taken it would affect things (e.g., it depends on what the courts are like in this scenario), it broadens one’s perspective to see how other countries differ. The US is indeed unusual, if not entirely “exceptional” (the UK goes even further) in limiting, as it does, constitutional review of what are claimed to be arbitrary tax provisions, but one enriches one’s intellectual horizons in being aware of a greater range of possibilities.