The topic was inequality and the tax system; Dylan Matthews was the other guest.
Tax policy colloquium, week 10: Omri Marian on international tax law convergence
This is interesting and worth knowing, but a key question is what one learns from and should make of it. For example, it’s not immediately clear to what extent common or even converging treaty language relates to underlying legal content. One can use common terms, especially vague and general ones such as those used, say, to imply a need for transfer pricing, to mean very different things. Nor is it immediately clear how treaty law relates to domestic international tax law or to unwritten customary practice in the field.
The paper’s current draft argues that treaty language convergence is relevant to debate in the international tax policy field regarding Reuven Avi-Yonah’s claim that a sufficiently well-developed and binding regime of transnational tax law has arisen to suggest that nation-states “are not free to adopt any international tax rules they please, but rather [must] operate within the context of the regime.” In particular, Avi-Yonah argues in favor of a “single tax principle” under which all income should be taxed once, not zero times or twice. Although the Marian paper does not discuss the single tax principle as such – and the treaties generally focus on parceling out non-overlapping rights to tax, whether or not exercised by someone in each case – it states: “While we stop short of concluding that a binding international tax regime exists, we believe our findings lend support to such an argument.”
I have historically been somewhat skeptical regarding the “binding regime” claim’s centrality with respect to policy debates on which, as it happens, Avi-Yonah and I often find ourselves in significant substantive agreement regarding the bottom line. The binding regime debate raises a rich set of issues all on its own, but the extent to which tax treaty linguistic convergence sheds light on it is probably best evaluated separately from this paper’s very interesting empirical findings.
Tax policy colloquium, week 9: Jeffrey Hoopes on tax planning by private C corporations
Death of Alan Krueger
I didn’t know him personally, but was only two degrees of separation away by multitudinous pathways (if we define knowing someone directly as one degree of separation).
On a professional note, I was intrigued and influenced by Krueger’s minimum wage work with David Card, which I first read – fittingly enough – when I was on the verge of leaving the University of Chicago for NYU in the mid-1990s. To economists, part of the interest lay in the use of well-chosen natural experiments to raise questions, the answers to which had unduly been taken for granted (and left unchallenged by reason of publication bias in favor of positive findings). But for me, the main interest lay in its potential theoretical and policy implications.
I found the Card-Krueger work illuminating with respect, not just to minimum wages’ potential employment and broader wage effects in particular, but also the more general need to go beyond “Econ 101-ism” and think hard about how particular markets’ – especially labor markets’ – odd features can lead to non-neoclassical results. (This even before the full rise of behavioral economics, which plays an important, albeit only partial, role in explaining how Card-Krueger outcomes could come to be.)
Throwing in as well my interest in the interrelationships between various formally distinct, but substantively overlapping, types of rules (e.g., minimum wage versus cartelization versus mandate versus EITC versus negative income tax), I wrote here about all of the above, including the Card-Krueger work. I probably still agree with most, though perhaps not all, of what I wrote there more than 20 years ago.
Krueger continued to do important work after his minimum wage research, in addition to being a great public servant in two Administrations.
Tax policy colloquium, week 8: Tatiana Homonoff on SNAP (fka Food Stamps)
This interview can be by phone, and apparently aims more at providing counseling and aid towards completing the process, than at raising obstacles. But I would be unsurprised if SNAP participants who need to recertify, and who still meet the qualifications, were to view it with anxiety.
SNAP has a great deal of “churn.” That is, people fail to recertify in time, get thrown off the program, and then succeed in being reinstated. The paper mentions estimates suggesting that this actually costs the SNAP program money, in that the administrative costs of recertification exceed the fiscal savings from the missed benefits. This of course is a lose-lose scenario, since even the fiscal saving comes at the expense of people who needlessly miss benefits that would have helped them. For example, one may have children going hungry due to the missed benefits, at the same time that the program is losing money on net.
The paper studies how randomly assigned interview dates in San Francisco’s SNAP program affected rates of successful recertification. San Francisco staggers the interview dates that it assigns people, so that its case workers will have a smoother workload. But if your interview is late in the month and you don’t act promptly to reschedule (such as in advance), you may run out of time and get thrown off the program – albeit just temporarily in what turn out to be the “churn” cases.
The effects of being randomly assigned an interview date late in the month turn out to be startlingly large. “We estimate that a one-day delay in the assigned interview date decreases the chance of succesfully recertifying by one-third of a percentage point. In other words, a case that has an initial interview on the 28th day of the month [the last date to which interviews are randomly assigned] is 9.0 percentage points less likely to recertify than a case that has an initial interview scheduled on the first of the month – a 19 perent decrease in recertification success.”
The paper finds, moreover, that needier households that would get large benefits are affected on average more than those closer to exceeding SNAP’s income thresholds and that would thus get smaller benefits. So the hazard that is effectively being imposed here, via randomly assigned dates later in the month, worsens rather than improves SNAP’s “targeting efficiency,” as this typically is defined by SNAP researchers to distinguish between worse-off and better-off households, among those that are sufficiently poor to qualify for the benefits.
Benefit loss here looks less like a function of rational choice (e.g., expending less effort to preserve your benefits if they’re smaller) than of reverse screening. That is, needier households are apparently less able to overcome the obstacles created by having less time to reschedule if needed, get everything done, etc.
The most obvious policy takeaway is that interviews should be scheduled earlier in the month when recertification needs to be completed, and/or extra time given to complete the documentation requirements post-interview. One step broader is the question of why recertification is required to be so frequent when, at least in this paper’s data set, there appears to be such a high probability of continuing to qualify for the benefits. (And the reverse-screening aspect of recertification makes this even worse.) But broader still is the sociological / fiscal language question of how SNAP’s character as a transfer or benefit program appears to influence its structure in telling, and perhaps counterproductive, ways.
A number of my tax colleagues at various law schools have written papers about integrating the tax and transfer systems. One shouldn’t necessarily have any particular prior about the extent to which this is likely to be desirable as an administrative matter. But the clearer and perhaps more interesting point for me, which I have written about here, here, and here, is that “taxes” such as the income tax and “transfers” such as SNAP are part of the very same thing. We should think about them in an integrated fashion, but often we don’t, and this is partly a function of the optics that result from staring intently at stand-alone transfer programs without a grasp of the broader context. It leads to program maldesign, and bad effects on poor people, even when they are not the deliberate targets of lawmakers’ malice. In particular, it encourages
Should we so focus on SNAP’s stand-alone “program integrity” that Type 1 errors (mistaken allowance of benefits) get treated as far more regrettable than Type 2 errors (mistaken disallowance)? I don’t inherently see why, even though it is a “transfer” rather than a “tax.” The direction of cash flow, between the government and a given household, under one program for one period, as considered in isolation from all the rest of the system, is of zero normative interest. Suppose, for example, that Bill Gates mistakenly got $100 in SNAP benefits. Leaving aside the difficulty of imagining Bill at the checkout counter with a SNAP card, this has no more significance than the case in which he ought to have been required to pay $100 more in income taxes.
Transfer programs are often in-kind rather than being paid in cash, although SNAP is one of the more cash-like in that people’s total food expenditures typically exceed their SNAP benefits (hence the word “supplemental” in SNAP). Thus, while for behavioral reasons it might increase food outlays relative to giving out straight cash, the difference is probably not that great.
Transfer programs – and SNAP in particular – are also typically more tied to current period available resources, rather than to long-term or even lifetime, material wellbeing levels. Hence, the case for replacing an income tax with a progressive consumption tax would be difficult to apply sensibly here. (“Sorry, we’re going to let you starve because you have great expectations for the future, and/or spent too much last year.”)
But the broader conceptual interchangeability suggests that we should view under- and over-payment of SNAP benefits, relative to the case where eligibility criteria were correctly applied,more symmetrically than I gather we do. This would likely suggest making recertification less frequent and more easily accomplished. Even people on the high end of SNAP eligibility are presumably below the median economic level in our society. And where hazards are reverse-screening out the neediest, that is worse still. Even the concept of “program size” can involve unduly separating in our minds one intertwined piece of our overall fiscal system from all the rest.
Book event on Kim Clausing’s Open
Here is a quick version of much of what I said at the event, expanded from my notes:
This is a great book that performs a valuable public service in bringing important and widely misunderstood ideas, of great current political and policy relevance, accessibly to the attention of a broader audience. In one sense, however, it’s a commenter’s nightmare! The problem I have in that regard is that I agree with too much of it, whereas commentators are more fun to hear when they offer criticism. But.luckily, I know the standard fallbacks that academic commenters have used, when faced with this problem, for decades, if not longer.
“Why did you write THIS book, instead of a different one?” – I get this all the time, as do plenty of other people when they present their work at a given forum. Usually the person who makes such a comment has a perfectly good hypothetical book in mind. But this doesn’t weigh against the value and importance of the book that the author actually did write. Nonetheless, faute de mieux I will not completely refrain from using it below.
“If X is such a great idea, why isn’t it already happening?” – This was a favorite at the University of Chicago, where I spent 8 quite happy years before coming to NYU Law School in 1995. It is an application of the old joke in which the economist says: “That can’t be a $20 bill on the floor right by my feet, even if it looks like one. Because if it really were a $20 bill, someone would have picked it up already.”
The sense in which I am reminded of it here is that Open proposes a political Grand Bargain, involving a decent swathe of the political spectrum and buy-in from many in the top 0.1% and the business, with features that would include the following: far more extensive free trade (and immigration) but with help offered to those displaced by the transitions, a decent safety net, better infrastructure, better education and healthcare, more support for basic scientific research, sound macroeconomic policy, proper financial regulation, and policies addressing climate change,
Surely this set of policies could attract enough consensus support that there would be no need to write a book advocating them. Indeed, I would “predict” (a favorite phrase among academics, when they aren’t actually predicting the future) that surely we must have these policies already.
No, wait a second, strike that.
If one had to find a “weakness” in the book, but only by being unfair, it doesn’t show how, as a matter of politics, we can get to a reasonable policy space, But that not only would be a version of the “different book” complaint, but would involve deeming it a “weakness” not to have found something that isn’t there. When you have a political system that’s rife with bad people, bad power imbalances, and bad incentives, you get collective $20 bills (so to speak) just staying, and indeed accumulating, on the floor.
That said, here are three quick sets of comments on particular topics in the book:
High-end inequality – I’ve long been a proponent of breaking down “inequality” talk into at least two distinct realms: high-end inequality or problems of plutocracy, and low-end inequality or problems of at least relative deprivation. (One could add more categories if one liked, e.g., addressing patterns in the middle.) Aiming to raise those at the bottom is commanded by beneficence, while wanting to lower those at the top requires a different sort of motivation, which I’d put in terms of the negative externalities resulting from extreme concentration at the top. For now, I’ll note just that, while the difficulty of enacting a clearly desirable Grand Bargain has many causes, to my mind one of them is the extreme concentration of both political and economic power at the top in current U.S. society. Plutocratic outliers want it all, they’re mainly not interested in Grand Bargains, and the darkening ripple effects throughout the society of extreme high-end wealth concentration make reasonable policy outcomes less accessible still.
Low-end inequality – In addition to arguing that trade and immigration are on balance good for all – not just for those at the top – and that trying to unwind them would only make things worse still, the book offers wide-ranging suggestions for helping those who have been at least relatively left behind. At the risk of entering the “different book” realm, I just want to suggest that yet further expansion of policy debate might be of interest. For example, the book mentions using at least modest negative income taxation to address the distributional impact at the bottom that stand-alone carbon taxes and VATs would likely have. And it urges expanding the earned income tax credit (EITC), thus helping, as the saying goes, to “make work pay.” Whatever one’s ultimate policy conclusions, I’d propose adding still more items to the discussion list. A huge issue is the relationship between work and distributional aid at the bottom. E.g., discussion of demogrants or Universal Basic Income on the one hand, and federal job guarantees on the other.
Tax policy – Recent talk about increasing tax progressivity at the top has focused on at least 3 alternative approaches: (1) significantly raising the top marginal tax rate (as per AOC and Diamond-Saez, (2) enacting a wealth tax (as per Elizabeth Warren), and (3) raising the capital gains rate and estate taxation (e.g., Bill Gates).
The book is mainly in the third of these camps, based partly, but not wholly, on the idea of a widely politically palatable Grand Bargain. I myself am somewhat agnostic in this fight, and/or believe there could be some of each, with the details being vital to the merits, but I’m not convinced that a Grand Bargain is in the offing anyway, so I suppose a fella might as well dream in multiple channels. But my point for now is just to keep the set of alternatives more open (no pun intended).
I’d also note a possible downside to the book’s view that capital gains rates should generally be the same as ordinary income rates. Capital gains realization tends to be far more elastic than labor supply, reflecting that it’s often easier to just keep holding an appreciated asset than to change how much one earns and works in a given period. So, at least absent further structural changes to the tax system, one oughtn’t too swiftly to rule out ordinary income rates that are higher than capital gains rates.
NYU Tax Policy Colloquium, week 7: Richard Reinhold’s Does the Parsonage Exemption Violate the Establishment Clause?
Financial transactions taxes et al
Here’s the abstract:
Upcoming NYU event on Kim Clausing’s “Open”
It’s open to the public, and info about attending is available here. Info about the book is available here, and you can buy it from Amazon here. I may post comments about the book on this blog, after the session.
Here is a basic description:
Globalization has a bad name. Critics on the left have long attacked it for exploiting the poor and undermining labor. Today, the Right challenges globalization for tilting the field against advanced economies. Kimberly Clausing faces down the critics from both sides, demonstrating in this vivid and compelling account that open economies are a force for good, not least in helping the most vulnerable.
A leading authority on corporate taxation and an advocate of a more equal economy, Clausing agrees that Americans, especially those with middle and lower incomes, face stark economic challenges. But these problems do not require us to retreat from the global economy. On the contrary, she shows, an open economy overwhelmingly helps. International trade makes countries richer, raises living standards, benefits consumers, and brings nations together. Global capital mobility helps both borrowers and lenders. International business improves efficiency and fosters innovation. And immigration remains one of America’s greatest strengths, as newcomers play an essential role in economic growth, innovation, and entrepreneurship. Closing the door to the benefits of an open economy would cause untold damage.
Instead, Clausing outlines a progressive agenda to manage globalization more effectively, presenting strategies to equip workers for a modern economy, improve tax policy, and establish a better partnership between labor and the business community
Accessible, rigorous, and passionate, Open is the book we need to help us navigate the debates currently convulsing national and international economics and politics.