Tuesday, February 14, 2017

NYU Tax Policy Colloquium, week 4: Allison Christians' "Human Rights at the Borders of Tax Sovereignty"

Yesterday at the colloquium, Allison Christians, having braved our no doubt fraught international border to the north, presented her work in progress, Human Rights at the Borders of Tax Sovereignty. Despite the title, it's less a "human rights" piece as such than an inquiry into how countries' rights to tax may properly be defined and limited.

In making this inquiry, she operates from the view, as I do, that we must ultimately be thinking in terms of people. States are often the actors, not only in the reality of international relations but also in terms of how writers in the field conceptualize law and justice. E.g, from a Hobbesian starting point one might think of a state's rightful powers being limited only by other states. She doesn't accept this (nor do I), since (a) when thinking in terms of one state we are not fans of totalitarian absolutism, (b) states' only good purpose is to act on behalf of some set of individuals, and (c) it is individuals' interests, wellbeing, and/or rights that ought to concern us.

In an article (Taxing Potential Community Members' Foreign Source Income) that I gather will be coming out shortly in the Tax Law Review, I noted what I called the "Monty Python tax principle." It's derived from the bit in an old Monty Python skit in which a silly man in a bowler hat says: "To boost the British economy, I'd tax all foreigners living abroad." This is exactly what a given country seemingly should want to do, as a matter of self-interest, if we posit both that it's feasible (think greatly expanded drone capabilities) and there will be no blowback from other countries. If benign policymakers in a given country as prioritizing their own people's (citizens? residents? domiciliaries? community members') wellbeing over that of people outside the charmed circle - a move that seems unavoidable, yet is hard to support ethically in a wholly satisfying way - then this both (a) enriches the favored group relative to outsiders who are assumed to matter less, and (b) avoids tax-discouraging domestic activity. Think of it as the idea that the U.S. ought to want to tax, say, dealings by people in Germany with each other and/or people in China, if only it could and if only the Germans and Chinese wouldn't respond by doing something we disliked.

In the article, I took it as given that of course we don't try to do this, presumably at least in part because we ARE concerned about how the Germans and Chinese would respond. It helped to set up what I considered the paradoxical character of how we tax, say, people living in Germany or China who might or might not potentially be viewed as Americans for purposes of applying the U.S. income tax (e.g., in the case where they are U.S. citizens but long-time expatriates with only very limited if any continuing U.S. ties). The paradox, or irony, or whatever you want to call it that I discerned goes as follows: To say you are a U.S. person, e.g., by reason of your citizenship, is to say: You are still one of us. We still care about you. But the direct practical consequence is that, if you're still one of us and thus we still care about you, we respond by imposing continuing U.S. tax burdens on you - whereas if we don't care about you we DON'T impose those burdens. Talk about tough love! This approach would be exactly backwards if we were actually thinking in terms of the Monty Python tax principle (i.e., if we preferred imposing disutility on those we don't care about), at least if no other strategic or other considerations were relevant here.

Anyway, a further line of thought that our article for yesterday's colloquium interested me in pursuing was that we in the U.S. would not only be displeased and disadvantaged if, say, the Germans and Chinese imposed taxes on Americans transacting with themselves or with Mexicans or Canadians; we would indeed likely think that it was outrageous and unfair. So despite the limited scope by reason of national boundaries (e.g., the U.S. government can properly be mainly concerned with Americans' welfare), there are also reciprocity types of norms that we bring to our thinking about how we and other countries alike should exercise our tax jurisdiction. Hence, not generally following the Monty Python tax principle (which is not to say it never influences one's behavior) is not just a matter of limited power or concern about retaliation, but also about subscribing (at least to a degree) to cooperative behavioral norms that one may view as properly limiting one's claims of taxing power.

That in turn brings us back to the paper by Allison Christians. At this early stage, it posits three alternative ways of thinking about how a given country's right to tax might be conceptualized and limited. One's view might be based on (a) sovereignty, (b) nexus, comprising residence and source principles, or (c) a notion of "membership" such as that recently explored in work on tax competition by Peter Dietsch, who is at McGill and writes about distributional justice, including in the international setting. I am generally sympathetic to the normative views the paper expresses, but I would tend to cast differently the relationship between these alternative approaches.

1) Sovereignty - The article describes this as the idea that a state's power to tax is absolute, unless perhaps it butts up against the claims of another state. I agree with the paper that this is not a normatively satisfying position, even in a one-state world. My own take is that rejecting this view commits one to believing that a given country's tax claims must be reasonable, in terms of some underlying, but as yet unspecified, set of metrics. In the one-state case, these might mainly relate to ideas about due process, limiting uncompensated takings, etcetera. In the case where a given state has limited membership and limited territory, they may relate to why we don't generally accept the Monty Python tax principle, and agree, for example, that the U.S. should not be taxing the people of Germany or China when they transact with themselves or each other.

In sum, therefore, the sovereignty view that she describes is not a proposed standard for deciding which claims of taxing authority that a government might make are reasonable - it's an alternative to requiring reasonableness of any kind.

2) Nexus - Here we have the traditional standards, which have been around in varying forms for close to a hundred years, since the work of League of Nations economists in the 1920s (but probably in fact for even longer). As they have crystallized today, let's call them the ideas of "residence" and "source." Under the nexis view, a country can reasonably tax its residents on any of their worldwide income (yes, for the moment let's assume an income tax, although at some point the analysis may need to be more general).  Or it can reasonably tax non-residents on income the source of which is domestic.

Let's abstract from the, in many ways arbitrary and unsatisfying, aspects of actual residence and source rules, as they have evolved in given countries' laws, in tax treaties, in the work of multilateral institutions (such as the OECD and the UN). Corporate residence, for example, is inherently a formalistic and unsatisfying idea, albeit hard to avoid once one has an entity-level corporate income tax. Likewise, source rules for particular types of income are inevitably formalistic and unsatisfying, e.g.., when (lacking better alternatives) we "source" passive income based on the place of residence of the issuer. And the source idea inherently can employ either origin-based or destination-based approaches. E.g., if I write a book and it's sold and read in India, this is U.S. source income if we focus on the act of production but Indian source income if we focus on the act of production. (An income tax is seemingly a production-based concept, but the existing U.S. income tax uses both types of approaches here and there - even leaving aside the currently prominent idea of replacing it with a "destination-based" tax.) But of course to say that we might think of the income from this as U.S. source or Indian source does not mean that we might also (without more facts) reasonably think of it as German source or Chinese source.

Okay, enough throat-clearing and back to the point I meant to make. Without in any way tieing oneself to existing residence and source doctrine, these are versions of two fundamental ideas on which an anti-Monty Pythonesque claim of "reasonable" tax jurisdiction might rest. First, you are one of our people or a member of our community. Second, while you aren't one of our people or a member of our community, you are doing something that relates to us sufficiently to make it reasonable that we might impose tax consequences on it (potentially meaning that you might have to participate in payment of the tax, and/or be expected to bear its economic incidence).

Thus, standards somewhat like "residence" and "source" appear to be fundamental once we have multiple states with distinct members and territories, even if current legal doctrine lacks any sort of fundamental or universal character. So I'd say, "nexus" as defined to mean generalized ideas akin to (a) residence and (b) source seems fundamental here - of course, also without any further implication that we are necessarily thinking in terms of the current legal meanings of the term nexus.

So we now have, I would say, at least some very guidance re. thinking about reasonableness here - reasonableness in terms of what? But of course this still leaves the vast majority of the hard work still to be done.

3) Membership - As I understand this set of concepts from the discussion in the paper, it comprises (a) an approach to thinking about what "residence" might reasonably mean, plus (b) a benefits-based approach to thinking about what "source" might reasonably mean.

On (a) or residence, I'm sympathetic. In defining "Americans" who might be treated as U.S. taxpayers for purposes of being taxable on non-U.S. source income, notions that the paper discusses of voluntariness, intentionality, ability to opt out, the importance of factors suggesting true affiliation (not limited to geographic presence within a given period), may be very helpful as we try to flesh out the contours of reasonableness. Christians, of course, has written eloquently about what she views as the grotesque over-reach of the U.S. tax system with respect to foreign non-resident U.S. citizens who may not even know that they are citizens or ever have valued or chosen a U.S. affiliation, e.g., by reason of having been born here without ever subsequently living here. (Indeed, her eloquence on this point is such that I am sometimes reminded of Hamlet speaking to his mother: "You go not till I set you up a glass / Where you may see the inmost part of you" - she is good at holding up the glass so that we can see what our system is doing to people whom we apparently don't care about.)

On (b) or source, I'm unsympathetic at least to treating benefit as an exclusive ground for viewing tax jurisdiction as reasonable. Take the case of an optimal tariff, applied to inbound sales that would otherwise be generating rents to the sellers, e.g., by reason of the monopoly power conveyed by intellectual property rights. This might include the case where, say, Apple is selling iPhones in India.

Do we really care about whether India has a "benefit" theory on hand for the existence of a consumer market that Apple can now exploit? I don't find a benefit analysis here particularly necessary or interesting. The optimal tariff that India might levy, even if we called it a source-based income tax, can be thought of as organizing the Indian consumers to exercise monopsony power that offsets Apple's monopoly power as a seller and thus creates a bilateral monopoly, under which India can extract some of the surplus, in lieu of Apple's owners getting it all. I see nothing wrong with this, especially once we think of the Indian government as rightly acting on behalf of its people's interests. And even if one has monopsony power being exercised in otherwise competitive market settings, one might think of negotiations between countries as being the best way to create Pareto improvements - as distinct from positing that a given country lacks "rights" with respect to influencing the terms of transactions that involve its own people.

It's probably fair to say that I find the topic of this paper interesting enough to add it to the list of topics for future papers that I probably won't ever write, but that, who knows, perhaps someday I would (especially if asked).

Tuesday, February 07, 2017

Auerbach et al on intra-generational accounting, part 2

I like the intra-generational accounting methodology that Auerbach et al introduce in their paper. By "like," I mean that I believe it makes a positive contribution to our understanding and should be part of one's toolkit in evaluating U.S. distribution and progressivity issues. But herewith a few comments re. both its limits and particular ways in which it might be used.

Technical measurement issues - Obviously, there are a lot of these, which got considerable attention at both our AM and PM sessions. For example, is capital income actually less tax-burdened than the model assumes? (E.g., due to flow-throughs' ability in many cases to avoid even one level of tax). Should low-earners be assumed to earn a normal rate of return on their saving than high-earners, or to pay higher borrowing rates when they're not entirely liquidity-constrained? The model can of course be adjusted to accommodate alternative assumptions on these and other issues.

What is inequality, and why does it matter? - The paper states that "ultimate inequality" is nothing more or less than "inequality in remaining lifetime spending." Similarly, it says that "economically relevant inequality" is limited to inequality in spending power.  I would tend to view inequality as a more flexible and multi-faceted issue than this language suggests, and I suspect Auerbach agrees.

The paper's implicit model reflects viewing people as deriving utility solely from their own market consumption. The underlying public economics behavioral models would broaden this slightly, treating people as deriving utility solely from their own market consumption plus leisure, but leisure isn't in the measure. If it were, one possible implication would be opening up the question: Are A and B actually the same, if A has $10 million in the bank and lives at the beach, while B has nothing in the bank but has remaining career earnings with an expected value of $10 million? In short, is human capital relevantly the same as wealth? Even staying mainly within the confines of a standard public economics model, I would say this depends on whether B disvalues having to work,

Then there are all the issues around inequality arising from the fact that (as I have discussed elsewhere) the simple public economics model is simply too simple for some purposes. For example, people evidently care about status, prestige, relative position, etc. This not only might increase the social costs of inequality, but also might affect how one needs to measure it. Suppose, for example, that - in keeping, say, with the research by Wilkinson and Pickett - inequality tends to increase stress-related social gradient ills from the top to the bottom, albeit especially at the bottom. Does the inequality that people observe or feel, and that leads to these effects, necessarily track inequality in remaining lifetime spending? Not necessarily. The logic behind the paper's definition is rooted in rational choice assumptions about a particular individual, which (even apart from its incomplete accuracy, especially with the constrained utility function) may be significantly different.

Likewise, suppose that the harms resulting from extreme high-end inequality include its political economy effects.  These might range from outright plutocratic capture of the political system to reduced democratic responsiveness, loss of social solidarity, etc. It's not necessarily clear that this, either, would have to track inequality in remaining lifetime spending power better than some other metric.

But again, this just counsels having multiple ideas in mind and using multiple tools - it does not discredit intra-generational accounting as a useful method.

One final point concerns how intra-generational accounting might reasonably be used. Suppose we are evaluating how Paul Ryan's fiscal roadmap would affect the distribution of remaining lifetime spending power. My guess is that - starting with a statiic analysis; I'll note the dynamic issues shortly - it would have a very large effect, especially if the true plan were set forth a bit more forthrightly (e.g., with respect to long-term fiscal sustainability). The plan's elements, so considered, would include enormous tax cuts at the top, and significant cuts (over time, likely far greater than are being acknowledged) to at least the growth rates of privatized Social Security and Medicare, block-granted Medicaid, etcetera.

This might have very large effects indeed on inequality in remaining lifetime spending power. A Saez-Zucman-style wealth measure (assuming it was projected forward, rather than just being computed looking backwards) would fail to show the impact as meaningfully. So would typical tax distribution tables. So the ability to use intra-generational accounting towards measuring the distributional effects of major long-term government fiscal policy changes strikes me as potentially a huge contribution.

But it would require addressing two very large measurement problems. The first is what to do about the fiscal gap - i.e., the fact that current fiscal policy appears not to be sustainable over the long term, and any plans that Ryan has ever announced (disregarding magic asterisks) would make the sustainability problem far worse. Generational accounting tried to deal with this issue by assigning the entire cost of meeting the fiscal gap to "future generations" - a solution that proved confusing (since it was a measurement convention, rather than an actual prediction) and that undermined its acceptance. Not sure what best to do re. intra-generational accounting: use alternative scenarios involving multiple age cohorts?

Second, one has to consider the dynamic issues when designing such a measure. E.g., Ryan et al claim huge positive growth effects, which others believe would be lower even without the "fiscal overhang" issue of failing to fund all of the tax cuts. Again, I suppose one could use alternative scenarios here, including with and without rising interim fiscal overhang.

These difficulties may be too great to support much optimism that intra-generational accounting can play a large part (or perhaps any part) in the political process regarding major policy change proposals. But it may have analytical value for those who are interested in better understanding the distributional issues that are posed by a given policy scenario.

NYU Tax Policy Colloquium, week 3: Alan Auerbach (et al)'s "U.S. Inequality, Fiscal Progressivity, and Work Disincentives: An Intragenerational Accounting" - Part 1

Yesterday my frequent past colloquium co-convenor Alan Auerbach came to the NYU Tax Policy Colloquium to discuss the DBCFT how we should measure the fiscal system's progressivity. His paper (coauthored with Laurence Kotlikoff and Darryl Koehler) draws on earlier work (with Kotlikoff) that I've always liked and considered important, despite criticisms that it has received elsewhere, concerning generational accounting (GA).  GA aims to look at how the fiscal system - taxes, transfers, and whatever spending one can reasonably classify as funding consumption by particular individuals - affects generational distribution. More shortly on a couple of the issues that raised. The current paper, as per its title, engages in "intragenerational accounting" - measuring the fiscal system's distributional effects within an age cohort, in particular as between richer and poorer individuals (although a key part of the issue is how to classify people in this vertical sense.

I'll discuss the paper in two separate blog posts, so as to keep this one from getting too long.

To place the paper's analysis in context, consider the following chart from Table 1 of a 2014 NBER working paper by Auerbach's Berkeley colleagues Emmanuel Saez and Gabriel Zucman (containing findings that are also mentioned in their forthcoming Quarterly Journal of Economics Paper):

Wealth group
# of families
$$ threshold
Average wealth
Wealth share
Full population

Top 10%
Top 1%
Top 0.1%
Top 0.01%
Bottom 90%


One point from this table that has received a lot of attention is that the top 0.1% in the U.S. population, in terms of families ranked by wealth, holds almost as high a share as the bottom 90%. A second widely noted point, also mentioned in Saez-Zucman 2016, is that the wealth share of the top 0.1% has more than tripled since 1978.

But how should we think of wealth as a measure, in assessing U.S. progressivity and distribution? Auerbach et al note in their paper that its defects include the following:

1) It doesn't include the value of human capital, i.e. the present value of one's future earning power. To show why this might be important, suppose there are 2 people, one with $10 million in the bank and no job (or plans to get one), and the other with a job and/or career, as secure as the first one's wealth, that is expected to generate earnings with a present value of $10 million. These two individuals seemingly can afford the same value of remaining lifetime consumption (including bequests, which Auerbach et al note can often be thought of as a personal consumption choice, preferred to other uses by the individual who leaves the bequest). A big difference, of course, is that the first one doesn't have to work, while the second one does. But - suppose the second individual actually likes working, and indeed prefers it to "leisure."

2) It doesn't include the net positive value (if any) of expected future net transfers (minus taxes) from the government. Now, while Social Security obviously is not generous enough to offer anyone expected future benefits with a present value of $10 million, if it did (and if these benefits were politically secure) that person - also leaving aside liquidity issues - would be able to afford just as much remaining lifetime consumption as the two whom I mentioned above. Now obviously, Social Security and Medicare "wealth" (which raises further issues, since it has to be consumed in the form of healthcare) isn't going to do much about the wealth numbers we observe at the top. But it would discernibly raise numbers at the lower wealth echelons.

3) It's a snapshot that doesn't count for lifecycle effects. In a standard pattern, people have little wealth (unless they have inherited it) when they are young, then gradually build up some wealth as they save during their working careers, then spend it down during their retirement years except insofar as they are leaving bequests (either deliberately or as a byproduct of precautionary saving).

Suppose - although we of course know that this isn't the case - that the Saez-Zucman wealth charts were solely a function of lifecycle effects. That is, suppose everyone did identically on a lifetime basis, but started at the bottom when they were young, gradually marched up to the top 0.01 percent as they reached their late peak working years, and then went down again (say, to zero wealth at death) during retirement. Then the Saez-Zucman chart would say nothing whatsoever about wealth distribution in our society, at least as conceived of on a lifetime basis. Each of us would be taking the same full ride. It would still be interesting to know why things have changed so much since 1978, and there might be issues of failed lifetime consumption smoothing - meaning that we might need policies to make it easier for people to borrow or save as needed to consume as much they wanted (given the lifetime budget constraint) in low-wealth periods. But everyone would be doing the same on a lifetime basis.

Now, I am convinced that the Saez-Zucman info is extremely important despite all these issues (and I would guess that Auerbach, whether or not all of his coauthors, agrees). But they offer a system of measurement that aims to adjust for these issues. It aims to group people in a given age cohort by the present value of their remaining lifetime spending power, and also to look at the fiscal system's impact on where they end up.

One finding is that U.S. inequality is far less extreme by this measure than by the Saez-Zucman wealth measure. Now, surely we already knew that. Saez-Zucman would be portraying a horrific dystopia, featuring mass privation in the U.S. population, if people could only consume - including necessities such as food and shelter - by using saved wealth. Insert Trump Administration joke here if you like, but we know that things aren't actually currently like that here. And it's by reason of the excluded factors, such as earning capacity and U.S. transfer programs (especially during retirement) that things aren't so dire. But looking ahead for a moment, that doesn't mean the Saez-Zucman finding is "wrong' or irrelevant - just that one needs to think further about what its significance might be. The Auerbach et al measure of expected remaining lifetime consumption is also highly relevant, and for some purposes clearly the more informative of the two.

A second finding in the Auerbach et al paper is that the U.S. fiscal system is significantly redistributive. People at the high end, by its metric, appear to pay far higher marginal and tax rates than those lower down. One reason for this is the U.S. transfer system, especially for retirement. A second reason is that we do indeed tax capital income, and thus saving to fund future consumption (or bequests). Indeed, between the entity-level corporate tax and owner-level capital income taxes on saving, the effective rate as measured may exceed current year marginal tax rates.

A third finding is that there's lots of dispersion in marginal tax rates, as among people whom the study groups at the same level vertically. Loss of Medicaid benefits when one places out of it on earning or asset grounds is one reason for this at the lower end. The paper looks at marginal tax rates by examining what one happens to one's taxes and transfers if one earns an extra $1,000, and might come out differently if one were asking, say, the effect of permanently earning an extra, say, $1,000 per year (which in some cases might be a better rendering of the actual marginal choice that a given individual faced).

Auerbach et al haven't done similar studies for other countries, which would require a whole lot of data and also local detail regarding the relevant fiscal systems. But it's likely that our peer countries show significantly greater after-tax-and-transfer equality in remaining lifetime spending power. To make good cross-country comparisons, however, one might need to tweak the treatment of government spending to adjust for the fact that other countries often offer a lot more by way of benefits that are methodologically tricky to assign to particular individuals, and yet that are enjoyed sufficiently pro rata (while being funded through VATs and income taxes under which the rich pay absolutely more) to have a potentially significant bottom line impact.

Further comments on intra-generational accounting to come in Part 2, which I hope to post shortly.

Wednesday, February 01, 2017

Next section of my literature book

I'm finally getting a chance to turn to part 3 of my literature book (U.S. from post-Civil War through World War I). In the general Part 3 intro, I may talk a bit about Horatio Alger, whom I've been both reading and reading about. Then, going into today, I had figured my 3 chapters would be on ??, Theodore Dreiser's The Financier and The Titan, and Edith Wharton's House of Mirth. But I've now moved a bit further forward.

For ?? I had been leaning towards William Dean Howell's The Rise of Silas Lapham, but also considering mentioning Mark Twain's and Charles Dudley Warner's The Gilded Age. But today I decided to do Twain-Warner, not Howells (whom I'll at most mention in passing). It's not just darker, but also I think significantly richer, and also more attuned to what I'd enjoy discussing about that era. There's something a bit simplistic and not terribly interestingly moralistic about the Howells novel, although I do on balance like it.

For Dreiser, I had initially thought I might just cover The Financier, but (as I may have mentioned in an earlier post) when I re-read both over the winter break I realized that The Titan is, if anything, even richer. David Frum's great comment is that these are Ayn Rand novels written by a socialist.

It took me most of the way through Wharton (also a re-reading, from many decades ago) to see a through-line for writing about it, but now I think I have a good one, although it will be many months before I get there. It's about values that are really aesthetic, not moral, that money is destroying. I'd also considered Booth Tarkington's The Magnificent Ambersons, but that, too, is less rich, although it has an interesting and slightly complementary perspective. (And I'll have to re-see the movie; that's also been several decades.)

Of course, I can only do so much of these things while I am teaching and otherwise busy during the semester.  They require a lot of concentration and focus - I think, more than when I am engaged in more familiar (to me) types of projects. But I do have sabbatical the next two falls, although I plan to travel a lot during those periods as well.

The Gorsuch nomination

I was asked by someone from the tax press to give my thoughts on Gorsuch as a Supreme Court nominee, so I looked briefly into the man's record and sent the following response:

Purely from a tax standpoint, Gorsuch appears to be a mixed bag. I have more sympathy in principle than he appears to have for using the dormant commerce clause to restrain discrimination against interstate commerce, but the excerpts I’ve read from his concurring opinion in Direct Marketing Association v. Brohl appear to be intelligent and thoughtful. And dormant commerce clause jurisprudence is a mess anyway; it’s also unclear whether and to what extent it has a positive in terrorem effect that restrains bad state legislation.

The dormant commerce clause also doesn’t empower courts to address the opposite problem from discrimination against interstate commerce, which is engaging in tax competition in ways that (as a policy matter) ought to be restrained at the national level. But the question of when state-level tax competition is good versus bad  might be too hard for the courts anyway, unless there was a well-tailored statutory hook for addressing it.

I don’t like the fact that, according to Steve Johnson as quoted in the taxprof blog, Gorsuch “isn’t big on legislative history or policy intent, and … tends to find statutes more clear than others might.”  It’s my view that Treasury regulations have been tending recently to receive too little judicial deference, not too much, so his reputed dislike for the Chevron doctrine might have bad effects (by my lights) in the tax area, and perhaps elsewhere, too.

Looking more broadly, I presume that Gorsuch will be confirmed, one way or another, assuming that the Senate Republicans are willing to blow up the filibuster if they need to. In terms of whether I’d be glad or not that it’s Gorsuch rather than someone else, the key question, to me, is whether or not he is intellectually honest and consistent. I hope so, but don’t know enough about him to say. In my view, Justice Scalia, by the end of his career, was exceptionally intellectually dishonest. He would vote in almost all cases in favor of right-wing or Republican causes, wholly without regard to his supposed jurisprudential principles. (This of course made his rhetorical self-righteousness and relentless self-congratulation all the more stomach-turning.) He became the sort of person who seemed to believe that Democratic presidents should have more narrowly defined powers than Republican presidents.  Given the current administration, I can only hope that at least one or two of the five Republicans on the court (assuming Gorsuch is confirmed) will be better than that.

As a political matter, my own personal belief is that Democrats should not only vote against the nomination, but force Republicans to end the filibuster. But they should be clear that they respect Gorsuch personally (assuming that his full record merits this, which appears to be likely), and that they are responding to the inappropriateness of what happened last year to the Garland appointment, as well as to eight years of broader Republican legislative obstructionism.

Tuesday, January 31, 2017

Mark Gergen's "How to Tax Global Capital," part 2

Here is part 2 of my discussion of Mark Gergen’s paper, “How to Tax Global Capital,” which was presented yesterday at the NYU Tax Policy Colloquium. Part 1 is here.

While the new paper, discussing how the securities tax and the complementary tax would apply to cross-border activity, is still at an early stage, the basics at this point are as follows.

First, the securities tax would only be remitted by U.S. issuers. These might be defined as issuers who are listed on U.S. securities exchanges, possibly with an election whether or not to be classified as a U.S. issuer if one is also listed on foreign exchanges. Allowing electability would reflect the assumption, which I discussed in the prior post, that the securities and complementary taxes work in close tandem. (They might be especially well-matched, however, as to publicly traded “foreign” securities, as these might have readily discoverable market values that could be used for purposes of the complementary tax, even if the issuer wasn’t required to remit under the securities tax.)

Comment: My point in Part 1 of my comments regarding principle-agent issues and the “forced dividend” issue would affect how indifferent companies and their shareholders actually were (administrative and compliance costs aside) to U.S. issuer status, even assuming that the two taxes otherwise operate in close tandem.

Second, the paper suggests that foreigners should get a rebate for inbound foreign portfolio investment (FPI) that faced the securities tax. For example, if a French individual owns $1 million of Apple stock, then she should get a rebate from the U.S. Treasury for part or all of the $8,000 of securities tax that Apple remitted with respect to such stock. How best to do this remains open at this point.

Comment: This would be a policy change, insofar as foreign shareholders effectively bear their share of entity-level corporate income taxes. While it might be a desirable change, if we believe that under present law they don’t bear the true economic incidence of this tax anyway (and absent the treaty leverage we might get from initially charging the tax but being willing to reciprocally negotiate it away), it seems likely to present implementation difficulties.

Third, the paper suggests that inbound foreign direct investment (FDI), as in the case where a foreign corporation, owned by foreign individuals, conducts business activities in the U.S., should be exempt from both taxes. (Insofar as it’s owned by U.S. individuals, they’d pay the complementary tax.)

Comment: This may be undesirable insofar as the foreign companies are earning extra-normal returns in the U.S., on which we can make them bear some of the incidence. It also would lead to “round-tripping” problems, from the use by U.S. persons of foreign entities to avoid the wealth tax, if the complementary tax wasn’t fully up to the job of taking the place of the securities tax.

Fourth, the paper suggests that no foreign tax credits be allowed when U.S. persons owe complementary tax on foreign business operations that are also subject to source-based income taxation. The rationale is that U.S. companies are good at tax planning to avoid source-based taxes.

Comment: While I am generally no fan of foreign tax credits, there are further issues raised here for those who do like them, as source-based taxation is not always wholly avoidable. Also, there might be value to being able to negotiate down each other’s source-based taxes (e.g., via permanent establishment requirements for levying a source-based tax) in the treaty context.

Fifth, the complementary tax might not apply, for administrative and informational reasons, to foreign realty (e.g., London real estate, or natural resources holdings in a Gulf State).

Comment: I would certainly want to apply the complementary tax, if sufficiently administratively feasible, in these settings.

Sixth, with regard to the fundamental challenge of levying the tax on foreign assets – which often is thought to make wealth taxation highly problematic – the paper is bullish on the capacity of FATCA-like outreach to make enforcement feasible. It notes that this could in principle be handled via either withholding or information reporting (centered in either case on third-party agents), which might have to apply to tax havens in order for the complementary tax to work well enough.

Comment: Clearly this has the potential to be a huge implementation problem, which I trust the paper, as it develops, will address more fully.

NYU Tax Policy Colloquium, week 2: Mark Gergen's "How to Tax Global Capital," Part 1

Yesterday at the colloquium, Mark Gergen presented his paper, “How to Tax Global Capital.”  A predecessor paper that provides important background for it, “How to Tax Capital,” is available here.

Herewith some background and thoughts regarding this very interesting paper. Part 1 discusses Gergen’s proposed major tax reform, as applied purely in the domestic setting. Part 2, which I will place in a separate blog entry given the length of Part 1, discusses the international aspect, which was the subject of his new paper (which, however, is still at an early stage of development).

One could think of the income tax as falling on labor income and capital income. In practice they often are mixed.  For example, if Mark Zuckerberg sold his Facebook stock, the capital gain might look like capital income, but in true substance would mainly be labor income. The existing tax system generally doesn’t try or need to tell them apart (and if one thinks of the capital asset definition as aiming to do so, it gets this wrong, as in the Zuckerberg). Nonetheless, the distinction is conceptually important, since one might favor different policies towards the two pieces if one could sufficiently effectively distinguish them.

As has frequently been discussed (including at our week 1 colloquium), a system that provided expensing for all capital outlays, or that provided interest on basis at a suitable interest rate, would effectively exempt the normal return piece of capital income, which is the piece that it might be reasonable to want to exempt.  Thus, expensing or interest on basis can be the backbone of a well-designed consumption tax. This, in turn, may be viewed as equivalent to a labor income tax, if you spend what you earn and saving does not alter the present value of the tax liability that would have resulted from spending one’s earnings immediately.

Gergen’s novel proposal involves repealing the income tax, and replacing it with separate instruments in lieu of the labor income tax component and the capital income tax component. While this is not the main focus of his proposal, he’d replace the labor income tax with a VAT or a consumed income tax (i.e., cash flow personal tax that is like an income tax with unlimited IRA deductions for saving and inclusions for dissaving). As for the capital income tax, he’d replace it with a two-part instrument, comprised of a “securities tax” and a “complementary tax.”

The securities tax would apply to all capital represented by a publicly traded security, at its market value. It would be assessed and collected from issuers. The tax rate might be, say, 0.8% annually. (As I further discuss below, the reason the nominal rate is so low is that it is a wealth tax, rather than a capital income tax.)

To illustrate: Suppose that Apple has a current market capitalization of $650 billion (i.e., this is the market value of its equity). Suppose further that Apple has issued publicly traded debt securities that are worth $100 billion, and has non-traded outstanding debt (such as accounts payable) worth $50 billion. Apple would annually remit securities tax of (a) about $5 billion with respect to its stock (at a rate of 0.8%, (b) $800 million with respect to its publicly traded debt, and (c) zero with respect to its other debt – which is not a publicly traded security, and hence is subject to the complementary tax, described next, rather than the securities tax.

When the value of a publicly traded security reflects the issuer’s holding of other publicly traded securities, a tax credit prevents cascading application of the same tax multiple times. For example, if Goldman Sachs holds Apple stock, Goldman Sachs gets a credit for the securities tax paid by Apple. For example, if Goldman Sachs holds $100 million of such stock, it would get a tax credit of $800,000. Absent this feature, when Goldman held Apple stock, the value of such stock would in effect be taxed twice (as it presumably would increase the value of Goldman’s stock by its own value).

The complementary tax would apply to all income-producing assets other than publicly traded securities. In addition to items such as Apple’s non-publicly traded debt, it would generally apply to partnerships, other businesses, bank accounts, gold and cash held by individuals, etc. More below on its applying only to income-producing assets.

The complementary tax would apply the same rate (such as 0.8%) as the securities tax, to what I will call its “basis” although this is meant to be a proxy for its value. An item’s initial basis typically would be its cost basis (presumably, carryover basis for gifts and bequests, unless the gift is a revaluation event, as might be the case if the item had to be valued for gift or estate tax purposes). It would then be increased by a measure of the normal rate of return – say, the federal borrowing rate plus 2%.  The complementary tax would then apply annually to what I am calling basis (i.e., estimated value under this methodology). However, the basis would be changed to a market-based measure of value whenever some arm’s length event, such as the redemption of someone’s interest in a hedge fund, made this feasible. (This market revaluation principle also might apply, say, to one’s gold holdings, and it certainly would apply to one’s bank account.)

To further illustrate the complementary tax, suppose I buy or create a business for $10 million, without its having publicly traded securities. In Year 1, I pay complementary tax of $80,000. Suppose that, for the ensuing year, the deemed rate of return is 4%, and that I take no cash out of the business (which would reduce “basis”). Then, in Year 2 the “basis” is $10.4 million, and the complementary tax (at 0.8%) is $83,200.

It’s crucial to the proposal’s successful operation in practice that the complementary tax be at least a decently good proxy for the securities tax. While a degree of divergence might be tolerable (and is inevitable, given the difficulty of measuring the value of non-publicly traded items) – even though this would create some distortions around decisions to issue publicly-traded securities and to sell other assets – if it gets too great, then a key underlying assumption is undermined. This is the assumption that people won’t be enormously eager to avoid the securities tax, because even if they do the complementary tax will get them to approximately the same place. If the two are close enough, then the main difference between them is administrative – the securities tax collects the tax at the issuer or entity level, while the complementary tax does so at the owner level.

Here are some main issues that I see as raised by the proposal, holding off the very challenging international issues for Part 2 in my next blog post:

1) Constitutional issue – This is basically a wealth tax, although one could try to call it a levy on mandatorily imputed capital income. (The latter characterization seems unlikely to succeed, since the “imputation” based on value is irrebuttable.) Hence, there are major constitutional issues raised under the constitutional requirement that “direct taxes” be apportioned among the states. See discussion here (at pages 46-49) in a paper that I recently coauthored with Joseph Bankman, and that subsequently appeared in the Tax Law Review.

2) Wealth tax vs. capital income tax – The two are identical, with adjusted nominal rates, if assets’ rate of return is completely fixed both across time and between assets. Thus, suppose that all assets always earn a rate of return of exactly 4%. Then a 0.8% wealth tax is effectively equivalent to a 20% capital income tax. For example, an asset worth $100 million (generating $800,000 of 0.8% wealth tax liability) would always generate a return of $4 million (generating $800,000 of 20% capital income tax liability).

Things are not so simple, however, when rates of return change across time or differ between assets. For example, if the rate of return drops to 2%, then a 0.8% wealth tax is instead identical to a 40% capital income tax. (The legislature could presumably keep changing the tax rate under one instrument or the other in order to keep them in equipoise, but this would change the burden of inertia.) Likewise, if Asset A is worth $1 million because it quadrupled in value over the last year, while Asset B is worth $1 million because it lost 80% of its value, this year’s wealth tax treats them the same but this year’s capital income tax treats them very differently.

So, even apart from the constitutional issue, one may want consult one’s own beliefs in order to determine which one seems preferable. Does one want the effective tax rate to be automatically adjusted when normal rates of return change? Does one care about asset value changes in the past year, or only about current value?

3) Flat rate structure – On the labor income piece, the VAT would have a flat rate structure, while the consumed income tax could have a nonlinear rate structure. But this lies outside the proposal’s distinctive features. The securities tax inevitably is a flat rate tax, since it’s collected at the issuer level, and the complementary tax may need a flat rate (and the same rate) as well, both to maintain parity between the two components and since, to apply a nonlinear rate intelligently to it, one really would need to know how much wealth a particular taxpayer had that was subject to the securities tax.

4) Transition issues – Lots to analyze here, although I won’t attempt it at present. These include transition gains from repealing existing taxes, transition losses from enacting the new taxes, and anomalous effects on pre-enactment contractual and other arrangements that reflected assumptions about who – as between, say, an issuer and a holder – would be charged with remitting the tax liability.

5) Liquidity issues posed by both taxes – Some of the taxpayers who were required to remit either tax might face liquidity issues. E.g., suppose (counterfactually) that Apple not only suffers huge losses in a given year, but also is strapped for free cash.

6) “Forced dividend” issues posed by the securities tax – Suppose that the tax liability pertaining to Apple’s $650 billion of stock really would be the same (about $5 billion) whether Apple remitted it under the securities tax, or shareholders remitted it under the complementary tax. (Based on what I’ve said so far, the latter would require that Apple stock not be publicly traded – a rather large and unlikely change – but, as we’ll see in the international piece, Apple might avoid being required to remit the tax if it could avoid being classified as a U.S. issuer.)

Why might Apple’s managers or shareholders care which of them pays the same $5 billion amount? One could think of (a) requiring Apple to pay it as equivalent to (b) requiring the shareholders to pay it, but also requiring Apple to pay out a dividend to the shareholders in the amount of the tax. Not just liquidity issues but also principal-agent issues could make this choice consequential to the parties.

7) Owned-occupied housing and consumer durables – These could easily be subjected to the complementary tax, assuming a political and policy willingness to do so. The main question posed would be how to adjust “basis” from year to year. Should it appreciate even though the owner is presumably generating an imputed return by reason of asset use? Should economic depreciation instead apply? The latter would surely be necessary for short-lived consumer durables. One problem with not taxing this category of items is that one could imagine very rich people avoiding the tax by buying super-expensive sports cars, artworks for their personal collections, etcetera.

8) Consumer and other nontraded debt – Maybe I don’t understand the proposal correctly in this regard, but I wonder if it has a problem dealing with nontraded debt in some settings. Case 1, Goldman holds $X of debt issued by Apple. Under the securities tax, Apple pays tax on the value of the debt, but Goldman gets a credit. Case 2, I borrow $Y from my neighborhood bank. It pays complementary tax on the value of the debt obligation, but I don’t get any sort of credit. Is this a problem? Gergen thinks not, but I’m not entirely sure on what grounds. Happy, however, to be enlightened on this.

Saturday, January 28, 2017

A downer list in lieu of the format that went viral

Instead of 10 favorite teenage albums, I'll list 3 albums that really disappointed me when I was still in school:

1) Television, Adventure - Quite a nice album, but Marquee Moon had been such a stunning visionary triumph that this one was (and remains) a letdown.

2) Elvis Costello, Trust - I had thought his first 4 albums (plus an odds and sods collection) were great, almost like Dylan fronting the Beatles (plus 60s organ). This one was labored and uninvolving, which is how I've also felt about almost all his subsequent work.

3) The Who, Who Are You. - The Stones had already successfully responded to the punk / new wave movement with Some Girls. Townshend seemed sympathetic and ready to do it too. Plus I had quite liked (unlike most fans) their previous album, the deeply depressive and singer-songwritery Who By Numbers, and I had also found his contributions to a joint album with Ronnie Laine quite delightful. This one I found to be a tedious waste of time, decisively ending his career as an interesting artist.

Tuesday, January 24, 2017

2017 NYU Tax Policy Colloquium, week 1: Lily Batchelder's "Accounting for Behavioral Considerations in Business Tax Reform: The Case of Expensing"

Yesterday we had our first meeting of the 2017 NYU Tax Policy Colloquium. This is Year 22 of the long-running series, so we're ahead of Survivor in longevity, albeit behind it in the numbers both for separate seasons (they've had 34) and separate episodes. But we're probably ahead in screen time (so to speak), as our sessions are 110 minutes long and theirs are usually just 45 minutes or so, leaving aside commercials. Then again, we don't have "Reunion Episodes" after the last session.

On a more serious note, I'm glad to be co-teaching with Rosanne Altshuler, and to have had the above-titled paper by Lily Batchelder at our first session. (BTW, the paper has just been posted on SSRN, and is available here.)  I might also mention here - indeed I evidently am mentioning here - that next year and presumably thereafter I will be co-teaching the colloquium with Lily.

Here are 5 thoughts that I had in relation to the paper, although I was not this week's lead discussant:

1) The paper rightly uses a budget-neutral framework for assessing alternatives. It compares a corporate tax system with economic depreciation and a lower rate, to one with expensing but a higher rate. (The higher rate makes the two alternatives budget-neutral.) This is the right framework because the federal government faces an overall budget constraint, making it useful to decide which of these two alternatives is better for the same bucks. Plus, there may also be an underlying political decision regarding how much the business or corporate sector should pay.

The paper, rather than asking which of these two choices is better overall (note: it also discusses using an investment tax credit in lieu of expensing), asks which would lead to greater U.S. investment. The standard view is that this would be expensing. But the paper notes that public companies whose managers care only about currently reported book income, rather than about the companies' true long-term tax burdens, will be wholly unmoved by expensing, for the simple reason that accounting rules completely ignore its effect, by reason of their treating the time value of money, with respect to when one pays taxes, as zero (!!!).

This is great stuff and an important contribution. But the current policymakers in Washington aren't necessarily doing tradeoffs under an overall budget constraint. There may be some limits in the back of their minds, or else they would simply make the corporate rate zero, but I think these are optical and have nothing to do with actual numbers (which they will finagle if they need to, never mind the Senate's Byrd Rule). So I suspect that, in their framework, such as it is, a lower rate and expensing are viewed additively, not as alternatives involving tradeoffs.

2) The paper makes some good points about transition issues. E.g., why lower the rate that corporate investments made in the past will make in the future? A second transition issue is: Why give companies a windfall from having deducted accelerated depreciation against a higher rate in the past, and then getting to include the resulting income at a higher rate in the future? The Reagan Treasury, in their 1985 "Treasury II" tax reform plan that eventually gave rise to the Tax Reform Act of 1986, tried to address this issue through what they called "depreciation recapture." In principle, both of these issues might be worth addressing if we lower the corporate rate, but don't hold your breath and expect this to happen.

3) After noting that the accounting rules deny companies any credit for the genuine economic benefit that they receive by reason of lowering their tax burdens in present value via expensing or accelerated depreciation, the paper further explains that investors would not easily be able to figure out the truth for themselves via things that are discernible from the financial statements. This leads to the question: Why don't companies try to communicate this to investors somehow? It seems as if they "should," and yet apparently they don't.

4) Suppose we agree that, because accounting treatment dwards economic reality in shaping both company behavior and investor perceptions, the tax system fails to generate the positive investment response that it "should" get by reason of allowing acceleration or expensing. Does this suggest that there are further opportunities the tax rules could try to exploit? E.g., suppose tax prepayment were required, way in advance, in zero-interest-bearing accounts, and that the accounting rules treated these as irrelevant until the tax liabilities actually accrued. Then the government would be gaining present value tax revenue, and (in the pure case) the companies would be acting as if they hadn't lost anything in present value. The example is deliberately fanciful and indeed unrealistic - but the point it makes is that, insofas as the accounting rules induce companies to ignore time value considerations with respect to their tax liabilities, there might be opportunity for policymakers to make greater use of the lacuna than merely by using economic depreciation in lieu of expensing.

5) As per my prior blog post describing a (sort of) new corporate tax reform idea, one might conceivably want to tax the normal rate of return, when earned by companies, at a lower rate than the tax rate on rents or extra-normal returns. One way to do this might be by allowing companies interest on basis, but taxing that interest at a lower rate than the corporate rate generally, The paper pushes towards taxing the normal rate of return at the same rate as rents, but one might nonetheless end up in an intermediate position.

UPDATE: Lily blogs at Tax Vox about her paper here.

Corporate tax reform idea

I am about to write and post a blog entry regarding yesterday's first session of the 2017 Tax Policy Colloquium, at which we discussed Lily Batchelder's paper, Accounting for Behavioral Biases in Business Tax Reform: The Case of Expensing.  But here I just thought I'd mention a corporate tax reform idea that I came up with while thinking about this paper, and that I believe ought to be on the list that people consider over time.

There has been a lot of discussion in recent years of the distinction between (a) the "normal" return on investment that businesses expect to get when they invest, and (b) rents or extra-normal returns. Everyone agrees that the latter should be taxed, and there are grounds for trying to tax them at a high rate. Income tax advocates want to tax the former as well, while consumption tax advocates want to exempt the former.

Even if one doesn't exempt the normal return (an issue that Lily's paper helps to illuminate), there are strong grounds for taxing it a lower rate than rents. But how could one do this in practice, given the difficulty of telling them apart case by case?

One of the main virtues of Edward Kleinbard's business enterprise income tax (BEIT) proposal is that it does exactly this. But here is a simpler, less elegant way of addressing the same issue. Or more precisely, here is a way of using the cost of capital allowance (COCA) feature from BEIT without including all the rest.  While this probably leads to a worse proposal than Kleinbard's (or at least a far more skeletal one at this point), it's worth having on the list simply so thoughtful people will have more possible choices to consider (e.g., if they think that BEIT is not politically feasible). It would go as follows.

1) Use economic cost recovery rules, rather than expensing or accelerated cost recovery - the classic income tax approach.

2) Allow interest on unrecovered basis, increasing its amount. If we stop here, this converts the seeming income tax back into a consumption tax. This, so far, is the proposal that David F. Bradford ended up favoring. He preferred it to expensing, to which it is present value-equivalent if one gets the interest rate right, because it works better at avoiding anomalous transition effects when the tax rate changes. (Without the Bradford transition issue, once one allows interest on basis - if at the proper rate - it doesn't actually matter whether one is following economic depreciation correctly or not.)

3) The twist, borrowed from BEIT & COCA: Treat the interest on basis as taxable to the business, but at a lower rate than that under the business or corporate tax generally.  In principle, this should result in one's taxing the normal return (i.e., the interest return on basis) at a rate that is positive but below that for the rents, which in principle should be facing the regular corporate tax.

This leaves a whole lot of other things to be considered separately. E.g., what should we do about interest deductions. And I am not pushing it against BEIT; rather, I'm suggesting that one piece of BEIT could be adopted by itself even if one didn't do the rest.

What BEIT does instead of this is tax the normal rate of return to owners, rather than to the businesses, based on their "outside" basis rather than the business's "inside" basis. The reason for using inside basis instead, and in effect placing it in a separate tax base to which a separate rate applies, is simply to have more options on the table. Suppose, for example, that this proved optically superior to full-out adoption of BEIT and COCA, even if substantively inferior.

For more on BEIT and COCA, see this and this.

Radio appearance to discuss taxes and jobs

This morning at 7:15 am EST, I was a guest on a New Orleans radio show, hosted by Tommy Tucker on WLL. (This was 6:15 am New Orleans time.) The topic was our new president's trade policies, in relation to employment.

With regard to using tariffs, either generally or selectively against particular companies that move plants out, as a way of increasing employment, here's what I said. Let's travel back to 2012, when Romney was running against Obama. Some economists believed Romney's plans were better for the economy and jobs, others believed Obama's plans were better. Now let's go to the present. Not a single reputable economist in the country believes that Trump's trade policies will increase employment. And these aren't just academic economists - real businesses pay real economists real money to help them anticipate economic developments.

I noted that it might be easy to arrange a story every week about some company that supposedly moves in jobs or decides not to move them out due to Trump. Companies have every reason to court both good publicity in the country and favor with the current administration by cooperating to devise these stories, even if they aren't really true regarding what happened and why. But even if they were true, in a country where (even when things are going great) hundreds of thousands of jobs are created and lost on a regular basis in real time, they're utterly trivial in terms of the overall employment situation.

Retaliatory tariffs against particular companies might be illegal under U.S. law. They would also risk prompting retaliation by other countries that could cost us jobs and raise consumer prices. Plus, even if a particular company was affected by the threat, when you think about the level of dynamism and change in the world economy, this focus on particular companies that might move out particular jobs is a bit like trying to calm the Pacific Ocean by putting a giant concrete block at one point where the waves are a bit choppy. You can't affect the ocean as a whole that way.

A listener asked me what I would do to promote employment. I said for the short term, stimulus, such as building infrastructure, and in the long run, better education, job training and re-training, social insurance and other (such as childcare) support that makes it easier for people to work.

Then I was asked about the border adjustment plan in Ryan's so-called "Better Way." I said, this is a really interesting proposal, we could have a 3-hour academic seminar discussing it. But the big point is this. While it might conceivably lead to a good place, both the transition of getting to it and the fit between it and the rest of the tax system create gigantic problems that make me very nervous and that would need to be carefully addressed over a long implementation period - which isn't how it will happen, if it does happen.

On that note, we were done.

Sunday, January 22, 2017

Not to live in the past, but ...

The last novel that I mentioned in the prior blog post reminds me of what is surely the most astounding 3-film run in the history of cinema: Hitchcock's Vertigo, followed by North by Northwest, followed by Psycho.

The first of these was so perverse and personal that, by his standards, it was both a critical and commercial failure at the time. So he decided: "I'll show them," by making one of the most delightful and perfectly commercial films ever, albeit still wholly rooted in his own distinctive feel for paranoia. Then, when the studios wanted him to just keep making more of the same, he went for maximum shock and discomfort, at a time when doing this was daring and startling.

The individual greatness of each of these three films is augmented by seeing how they change course and react to each other.

Books I read on the beach

Counting right before and right after my 6 days in Jamaica:

1) Theodore Dreiser, The Titan - I had initially thought that, in my literature book, I would only write about the predecessor volume, The Financier. But this one is in some ways even more interesting sociologically. It foreshadows Ayn Rand (and is much closer to that than to Horatio Alger), except that the author stands somewhat apart from the lead character's regard for his own "greatness." Someone, perhaps David Frum, called this book an Ayn Rand novel written by a socialist, and that's a good way of putting it.

2) Lindsay Cameron, Biglaw - I read this for my first-year reading group, covering 4 novels about law school or  legal practice (with the other three being by Lisa McElroy, David Lat, and me). The idea is that we read the books, then meet and talk with the authors, including Ms. Cameron this coming Wednesday. Biglaw does a great job of satirically yet horrifyingly conveying the NYC Biglaw corporate setting. I certainly hope that it's exaggerated for literary effect, rather than meant to be accurate! But I fear that it actually is all too accurate. Something to ask the author about.

3) Edith Wharton, House of Mirth - also for my literature book. Great and very sad; I was half or more of the way through before I saw my line of approach for writing about it. An odd point about the book's structure: it's all about Lily Bart having one chance after another after another after another to succeed in achieving complete financial security. But she throws all of these chances away, sometimes whimsically or self-indulgently, but often based on her actually accepting the Old Money social ideals that everyone else realizes by now are wholly fraudulent.  And she's the only one who still actually believes in those ideals (which are aesthetic, not by any means ethical).  Okay, Selden believes in them too, but they cost him nothing rather than everything.

4) Booth Tarkington, Alice Adams - interesting Midwestern early 20th century social portrait of a whimsical and ill-starred character, by the author of The Magnificent Ambersons (which I may also, though only briefly, write about in the literature book). I kept picturing a flightier Katherine Hepburn (who played the title part in the movie of Alice Adams), but the book mercifully lacked the movie's saccharine ending.

5) Margaret Millar, A Stranger in My Grave - interesting mid-century noir fiction, although the resolution was a bit pat.

6) Georges Simenon, The Mahe Circle - very dark and perverse, concerning a mad and suicidal obsession. One of his "dur" rather than Maigret novels.

7) Elmore Leonard, 52 Pickup - fun reading for the plane, though it got a bit tense near the end.

8) Pierre Boileau and Thomas Narcejac, Vertigo - The novel that was the basis for the immortal Hitchcock film. They apparently wrote it in the hope that he would option it. Set in 1940s France, and with a couple of key plot differences including a different (but also dark) ending. Obviously, I knew what the key plot twist would be before it happened. Quite good in its own way, especially if you come to it from the movie and find the transmutations interesting.

I seem to have used the word "dark" quite a lot in this blog entry. Sorry about that from a writerly standpoint, but it certainly is the word of the day for me these days.