Friday, January 13, 2017

Temporary escape

I'm leaving for a warm climate (outside the U.S.) for 6 days, returning late on January 20 as I don't teach my first class (Tax Policy Colloquium with paper by Lily Batchelder) until Monday, January 23.

Wednesday, January 11, 2017

Three ways a president can make money through his businesses, absent a blind trust

One is to shape government policies, procurement decisions, etcetera, to favor his businesses. A second is to get business from others who seek to curry favor (the emoluments issue). A third is to have the businesses act on inside information about impending news before it becomes public.

Thursday, January 05, 2017

This should not be normal

It's not just Trump.

As Rebecca Kysar notes, courtesy of Tax Policy Center estimates:

"The House blueprint ... awards three-quarters of its tax cuts to earners in the top 1 percent ....  Even factoring in favorable macroeconomic effects, the plan would also add trillions to the country's debt, creating an unsustainable fiscal chasm."

We've been too gaslighted for too long to find this surprising. But if you step back for a second and just think about it in political, social, economic and budgetary context, its reckless and malicious irresponsibility beggars belief. In no still-sane country could such a plan even be proposed by anyone, apart from tin-hat lunatics ranting on street corners.

This is not normal.  A country in which it has become normal is not normal.

Friday, December 30, 2016

Plus ca change

From Booth Tarkington's The Magnificent Ambersons, which I am reading (and so far enjoying) on the view that I might use it in Part 3 of my literature book (U.S. from the Civil War through World War I):

"He does anything he likes to, without any regard for what people think. Then why should he mind so furiously when the least little thing reflects upon him, or on anything or anybody connected with him?"

Eugene patted her hand. "That's one of the greatest puzzles of human vanity, dear; and I don't pretend to know the answer. In all my life, the most arrogant people that I've known have been the most sensitive. The people who have done the most in contempt of other people's opinions and who consider themselves the highest above it, have been the most furious if it went against them. Arrogant and domineering people can't stand the least, lightest, faintest breath of criticism. It just kills them."

Tuesday, December 27, 2016

The Beatles' Let It Be (Spectorized version)

I hadn't played the official Phil Spector version of Let It Be for probably 30 years, since I have alternate versions that I prefer (the original Get Back as compiled by Glyn Johns, plus various compilations of outtakes and alternative versions). But needing something fresh to play in the health club, I decided to save it on Spotify and give it a shot.

The Spector version is better than I remembered or expected. Although all the extra orchestration is a bit questionable, only on The Long and Winding Road does it really go beyond the pale, and that song drags enough to need something (albeit, not what Spector gave it - one can appreciate how much lighter a touch George Martin had on orchestral backing for their songs).

Let It Be has a different George Harrison solo, which I hadn't heard for the 30 years. It's well-done, but less original (more standard issue late-60s Lead Guitar Part) than what George usually played.

You can see how they try to cover up the lack of Lennon songs by including Across the Universe (well worth it, but from 1968), his lead vocals on Dig It, Maggie Mae, and of course the delightful retread of One After 909. He hadn't written (or at least completed writing) anything suitable apart from I Dig a Pony and Don't Let Me Down - which Spector disliked, so relegated to Side B of a single.  There's an outtake where John slags himself for not having anything good on hand for them to play.

The album remains the Beatles' only failure to convert material on hand into an entirely suitable finished product. But over the 40+ years since, they've done their fans and themselves a disservice by not releasing (a) an expanded version of the movie that shows more of the tensions (c'mon, it's old news by now), plus (b) a box set of the sessions - say, one CD for Let It Be plus other official releases from the sessions, one for the Glyn Johns versions of Get Back, and two more for outtakes. There's enough good  (if often rough and unpolished) extra material from the sessions to support, say, two 50 or 60-minute extra disks, one from Twickenham and one from the Apple sessions.  McCartney's Let It Be Naked (with a ridiculously short, inadequate, and unlistenable "bonus" disk) was worse than nothing as it apparently supplanted doing the reissue properly.

Or they could just put everything from the sessions on iTunes and let people make their own compilations.

Okay, I guess that's enough Beatles nerding for now.

Friday, December 23, 2016

Simple border adjustment example

Given all the talk (and confusion) about how border adjustment in a properly designed destination-based corporate tax would work, I thought a really simple example might help.  BTW, I myself find this unintuitive - my brain tends to reject it, so every time I think about it after a long time away, I have to work it out again for myself.  But anyway, here goes.

Say a U.S. company sells imported Scottish wool sweaters for $100.  To keep things simple, no profit - the company simply buys them from a Scottish firm for $100 (and has no other expenses).  Suppose the dollar and the Euro are in exact parity, so the Scottish firm gets 100.

Since the U.S. company has no profit, it doesn't have income tax liability.  (Again, this is just to keep things simple.)  But now Congress enacts a 20% destination-based corporate tax (DBCT). So amounts paid for imports are no longer deductible.

Now the U.S. company is going to have to pay $20 of tax upon selling the Scottish sweater for $100 to a U.S. consumer.  So it is only willing to pay the Scottish firm $80.

No dice, so far as the Scottish firm is concerned, if it is selling as many sweaters as it likes on world markets for $100 = 100 and the dollar remains in parity with the Euro.  But if the dollar appreciates against the Euro so that $80 = 100, everyone''s happy and it all works just as before.

Now let's add the export case.  A U.S. firm was making cotton sweaters for $100 and selling them for $100, both at home and to EU firms. But now, under the 20% DBCT, it's going to exclude from "income" the amount that it gets from foreign purchasers, while still expensing the $100 that it spends. Now it only needs $80 from EU purchasers, rather than $100, to break even as it was before. And again this happens without any change if the dollar appreciates against the Euro so that $80 = 100.

Now, how does the currency shift happen?  Ay, there's the rub, as they say, but now that supply and demand have changed as described above things should at some point get there, at least in the simple story. (Real world institutions and complications may have a huge interim effect, however.) Or to put it differently, there won't be a stable equilibrium until they get there, and until that moment shifts in supply and demand at the old exchange rate will be pushing in that direction. But how and when it gets there is actually, in my view, potentially quite disruptive in ways we might not like.

One last point about all this. The appreciation of the dollar against the Euro (etc.) would reduce the dollar value of Americans' foreign asset holdings, and increase the Euro (etc.) value of foreigners' U.S. asset holdings.  As Alan Viard has noted:

“The wealth transfers could be quite large. Assume, for simplicity, that foreigners hold $10 trillion of American assets and that Americans hold the same amount of foreign assets. Adding a border adjustment to a 20 percent (tax-inclusive) VAT would increase foreigners’ wealth by $2 trillion and reduce Americans’ wealth by $2 trillion. Because cross-border holdings are balanced in this example, the border adjustment would not change the present discounted value of federal revenue, but it would cause $2 trillion of that revenue to be collected from Americans rather than from foreigners.

What is more: “Because the United States is a net debtor country, the border adjustment would actually cause a net loss to the U.S. Treasury ... and foreign investors’ gains would exceed American investors’ losses.

Thursday, December 22, 2016

Tariffs and border adjustments

Yesterday the Trump transition team said it wanted a 5% tariff on all imports, today it's up to 10%. Who knows, maybe by tomorrow it will be 15% or 20%.

Supposedly this would happen either by executive order or else as part of corporate tax reform.

Any guesses out there regarding whether other countries would retaliate against U.S. goods? Not my field, but I suspect this could be a really major body blow to the U.S. and world economies. If it tanks things sufficiently, Trump may conclude he needs to do something really big to distract voters from the mess. War? Use nuclear weapons abroad? Why not?

Meanwhile, talk continues about the possibility of enacting a destination-based corporate tax, which CNBC says (using a simple example) could "boost the taxes on a sweater from $1.75 to $17."

Among the experts who has been addressing the border adjustment issue is Alan Viard at AEI, who notes that, while exchange rate changes (appreciation of the dollar) would over time wash out the impact on cross-border trade, how fast it would happen is debatable. "Logically, it should be a quick, or immediate adjustment, but economists are not good at predicting speed."  Plus, as he's noted elsewhere in relation to the issue of adopting a VAT (which likewise taxes imports but not exports), there can be (a) temporary discouragement of trade as institutions adjust, (b) a giant transitional giveaway of revenues from U.S. taxpayers to foreign persons, and (c) adverse effects on trade in particular sectors.

Most bizarre of all is the suggestion above, from the article on linking the tariff to tax reform, that Trump wants to do the destination-based corporate tax PLUS a 10% tariff.

He's like a child playing with tinker toys that have bombs attached on the underside.

Latest developments in my literature book

I've managed to finish Part 2 of my literature book (now entitled "Literature and the Rise of Toxic Inequality") before the break.

Part 1 (England and France During the Age of Revolution) has chapters on Austen's Pride and Prejudice, Stendhal's The Red and the Black, and Balzac's Pere Goriot. Part 2 (England from the 1840s Through World War I) has chapters on Dickens's A Christmas Carol, Trollope's The Way We Live Now, and Forster's Howards End. Each part opens and closes with short intro and then summary sections that knit the three works together and find overall themes or trajectories, related to that of the book as a whole.

I'm now ready to start Part 3 (The United States Between the Civil War and World War I, or perhaps just pre-World War I). I'm planning 3 chapters, the second and third of which will be Dreiser (The Financier and/or The Titan) and Wharton (The House of Mirth). While I do plan to take a true break between semesters, I've thought I could read and cogitate a bit on this part, which leads to the question of what book from earlier in the era I should put first.

My first choice was Horatio Alger's aptly-named Ragged Dick (despite recognizing what a comedown it would be in terms of literary quality from everything else on the list so far).  But my gawd is it thin. There are a few interesting points here - e.g., these really aren't the Horatio Alger myth as we think of it but something different (handsome boy uses older male benefactors to find modest success), but this point has already been well written about, plus is tangential to the themes I have in mind in this project. There are a few other interesting aspects to think about - e.g., hatred of rich boys who are described as effeminate, the role of villains, intense self-consciousness about putting on airs and acting "aristocratic," looks plus honesty plus "pluck" are the keys to success as distinct from intelligence or hard work - but I'm still not feeling it at the moment.

Two other possibilities are Howells' The Rise of Silas Lapham and Twain/Warner's The Gilded Age. But I've never read either, so I don't start out with the feeling that either or both might feel right. I'll probably read them over the break.

A more out-of-the-box idea is urban/office life from 3 shorter works that straddle the Civil War: Poe's The Business Man (1840), Melville's Bartleby The Scrivener (1853), and then Alger's Ragged Dick (which is from 1867). But only if I can make it all fit together, which actually strikes me at the moment, perhaps unreasonably, as not entirely impossible. It would certainly be a change of pace, possibly a good thing in terms of sustaining the overall scheme.

Any other suggestions out there?

UPDATE: Based on suggestions plus my own looking around, I may add Booth Tarkington's The Magnificent Ambersons, if it passes the test when I read it. Will also consider Twain/Warner The Gilded Age. Plus, Silas Lapham still in play.  Poe / Melville / Alger will probably just show up in the Intro to Part 3, where I think they can help set the stage re. a couple of central themes.

Upcoming NYU Tax Policy Colloquium

Starting a month from tomorrow, Rosanne Altshuler and I will be co-hosting the 22nd(!) NYU Tax Policy Colloquium. Here is our schedule for the semester. All sessions meet from 4 to 5:50 pm in Vanderbilt 208 at NYU Law School.

1.  Monday, January 23 – Lily Batchelder, NYU Law School. “Accounting for Behavioral Biases in Business Tax Reform: The Case of Expensing.”
2.  Monday, January 30 – Mark Gergen, Berkeley Law School.  “How to Tax Global Capital.”
3.  Monday, February 6 – Alan Auerbach, Berkeley Economics Department. “U.S. Inequality, Fiscal Progressivity, and Work Disincentives: An Intragenerational Accounting.”

4.  Monday, February 13 – Allison Christians, McGill Law School.  “Human Rights at the Borders of Tax Sovereignty”
5.  Tuesday, February 21 – Jason Oh, UCLA Law School. "Are the Rich Responsible for Progressive Marginal Rates?"
6.  Monday, February 27 – Stephen Shay, Harvard Law School. “’A Better Way’ Tax Reform: Theory and Practice.”
7.  Monday, March 6 – Scott Dyreng, Duke Business School. “Trade-offs in the Repatriation of Foreign Earnings.”
8.  Monday, March 20 – Daniel Hemel, University of Chicago Law School.  "Federalism as a Safeguard of Progressive Taxation."  
9.  Monday, March 27 – Leonard Burman, Urban Institute.  “Is U.S. Corporate Income Double-Taxed?”

10.  Monday, April 3 – Kathleen Delaney Thomas, University of North Carolina Law School.  “Taxing the Gig Economy.”
11.  Monday, April 10 – Julie Cullen, UC San Diego Department of Economics. “Political Alignment and Tax Evasion.”
12.  Monday, April 17 – Miranda Perry Fleischer, University of San Diego Law School.  “The Libertarian Case for a Universal Basic Income.”
13.  Monday, April 24 – Joel Slemrod, University of Michigan Business School.  “Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts.”
14.  Monday, May 1 – Richard Vann, University of Sydney Law School.  "International tax post-BEPS: Is the corporate tax really all that bad?”