Monday, June 27, 2016

Redemption of a lazy cliche?

When Americans talk about the U.K., or for that matter about the U.S., there is generally no lazier, tireder, more meretricious cliche than the Churchill Invocation, in which it's always 1938 and always about Munich.  Of course, whereas Churchill was bravely and farsightedly urging a benighted, unready country to stand tall against a brutal, ravening bully, in the U.S. it's generally invoked to support beating up on smaller, weaker, countries or for that matter civilian groups that, even if not as friendly as we might wish, are also not irredeemably hostile (unless and until we make them so).

And of course U.K. people, compared to those in the U.S., are likelier to know Churchill's full political history, which  had low points in addition to the world-historic high point that we always have in mind (even when it's wholly off-point) on this side of the Pond.

But in the U.K., where the winning pro-Brexit forces were too cynical to have any plan, and the government decided not to make any plans, and where there is currently neither a functioning government nor an organized opposition, it's time to think about Churchill 1938, albeit at a greater level of abstraction.

Although I'm non-UK and obviously don't know the politics, I am getting the sense that Brexit is likely to happen, even though it still requires a set of deliberate political acts by people who already well know (or will soon find out) both (a) that it is unwise, and (b) that the public didn't choose it knowingly (as opposed to voting symbolically so as to "send a message," or else under the influence of false information).  Plus, for that matter, the wrong public voted - to match voice with consequences, young people and future generations should have counted for more here than they did in the actual balloting.

But the reasons it seems likely to happen are (a) politicians in both of the major parties who know better are playing it safe or thinking small or treating it as "politics as usual," and (b) those with a large enough voice to do something individually, such as the U.K.'s own U.S.-born version of Trump, might prefer to see terrible things happen (even if they couldn't dodge the blame) than have to admit what a sham they've been playing out in public.

So if "being like Churchill" means being brave, and taking the long view, and not worrying about whether it's to one's current political advantage, or about who else will go along, or about whether it's good for one's current image, and if "being like Churchill" has no necessary connection to the particulars of the canonical 1938 Munich showdown, then at last it's time for it now.  But takers seem likely to be in short supply.

Brexit / international tax policy follow-up

I was a bit soft-spoken about Brexit in my prior post ("I'm inclined to think that Brexit will predominantly have bad effects") as I didn't want to rant or screech, especially in a very preliminary response before getting a chance to read more about it.

But here's the odd thing, clarifying a point that was implicit in the post but that I hadn't as yet thought through as clearly.  Damaging (or even calamitous) as Brexit may be for the English on the whole if it actually goes through (and I say "the English," not "the UK" or "the British" advisedly), it may actually increase their flexibility in international tax policymaking, which (all else equal) would potentially be a good thing.  But, alas for them, "all else equal" is not a good operating assumption.

If the English value their own international tax policymaking flexibility, they can actually use it in a number of different ways post-Brexit that would not have been as feasible before.  Removing European Commission and European Court of Justice oversight increases their freedom of action whether they want to use it towards (a) cracking down more on their own multinationals, without having to worry about such ECJ decisions such as Cadbury Schweppes, (b) becoming even more of a tax haven, such as by doing state aid without facing oversight by the EC, or (c) reviving corporate integration via shareholder imputation, without having to credit other EU countries' corporate taxes or to offer refunds to other EU countries' residents.

What does this leave out?  Well, here are a few things:

(1) how Brexit's terms are negotiated - e.g., it could conceivably involve agreeing to limits on international tax policymaking flexibility,

(2) how remaining EU countries change their tax policy towards the English (e.g., the gain in flexibility is reciprocal - other EU countries would now presumably be able to treat English companies and taxes less favorably than before), and

(3) everything else that could happen to the English by reason of Brexit if it actually goes through (i.e., if they don't do the smart thing by never actually triggering Article 50).

Friday, June 24, 2016

Brexit and tax policy

I'm inclined to think that Brexit will predominantly have bad effects, on both sides of the English Channel and on both sides of the Atlantic Ocean.  But it all depends on what people do next.  Although it's a strategic trade-off, I think the EU folks would be far wiser to play this in a "nice" way than a "mean" way.  I don't think their overall position is strong enough for "mean" to pay off.

Interesting tax policy, among other, implications for the UK.  (Or should I say, the English? - suppose Scotland, Northern Ireland, and even Wales were to leave and rejoin the EU.)

Some years ago, the European Court of Justice (ECJ) seemed to be actively obstructing UK efforts to have strong CFC rules that would protect the UK tax base against sheltering activity that took advantage of EU tax havens.  This may have been one reason that the UK switched strategies and decided to set up business as itself somewhat of a tax haven.

Without the ECJ, the UK may be free, if it likes, to go back to the previous strategy.  But the thing is, I suspect they've made their choice and are unlikely to revisit it.  (This reflects that there are competing strategic arguments for both types of approaches.)  I note that the UK apparently was opposed to stronger CFC rules within the OECD-BEPS process, a stance that was not ECJ-constrained.

Of course, with Cameron resigning, we don't know for sure who will be controlling UK tax and other policy in either the short or long term.

Leaving the EU would also presumably free the UK to engage in "state aid" of the sort that the EU has been barring when it comes from the likes of Ireland or Luxembourg.  So they could now double down on the tax haven strategy if they like.

I suspect that it is actually, or at least technically, possible for Brexit to end up not mattering all that much. If the two sides sufficiently agree to cooperate, e.g., as a condition of mutually favorable trade arrangements, life could go on with surprisingly little change.  But the political dynamics may be wrong for that to happen.

One final small tax policy point: Michael Graetz and Al Warren have argued in the policy debate that the ECJ caused the UK to abandon corporate integration via imputation.  Another view holds that the UK was trending in that direction anyway.  We now have a test case for the Graetz-Warren claim, unless they can establish a credible "path dependence" explanation for why the UK wouldn't revive imputation, similar to my point above regarding CFC rules et al.  (Except, my point relies on the existence of imponderable tradeoffs, whereas they may be more inclined to see imputation as a huge and clearcut policy improvement.)

Tuesday, June 21, 2016

I guess he really is desperate

Today I got a fundraising email from one Donald J. Trump,who says:

"This is the first fundraising email I have ever sent on behalf of my campaign.  That's right.  THE FIRST ONE.

"And I'm going to help make it the most successful first introductory fundraising email in modern political history by personally matching every dollar that comes in WITHIN THE NEXT 48 HOURS, up to $2 million!"

While matching donations is a well-known fund-raising gambit, it's a bit of an odd twist that the donations he says he'll be matching would be to himself.

Are we to assume that Trump WON'T give himself the full $2 million if the targets don't pony up enough?

But on the other hand, should we assume that he WILL have sufficient funds to give himself the full $2 million even if they do?

UPDATE: Talking Points Memo, which has reproduced the email on-line, points out that it doesn't definitively say whether Trump's $2 million match will be a true contribution or a loan.

The fact that the Trump campaign owes Trump $50 million for past loans, and has been paying 20% of its outlays to Trump organizations, is not exactly catnip to the prospective donor.

Monday, June 20, 2016

Short publication

As promised or threatened, Tax Notes has indeed today published the lunch remarks I gave at the National Tax Association Spring Symposium on May 12. The cite is Shaviro, 10 Observations Concerning International Tax Policy, 151 Tax Notes 1705-1710 (June 20, 2016).

Perhaps because it's in their "Current and Quotable" section, it doesn't appear to be in today's online version of Tax Notes for subscribers.  (Nor is John Samuels' "The Joint Committee Staff - From the Outside Looking In," also in "Current and Quotable.")  But I'm permitted to post it on SSRN two weeks after its appearance in Tax Notes, and thus I will do so in early July.

UPDATE: The talk is available here, but probably requires a Tax Notes subscription to access.

Tax Notes article on AEI corporate tax reform panel

In today's Tax Notes, Andrew Velarde describes the proceedings at AEI last Friday (I'd post, the link, but presumably it's subscribers only).  He accurately summarizes the main gist of my comments as follows:

"Daniel N. Shaviro of New York University School of Law lauded the plan's move away from its old pure integration model, saying that 'there's a lot to like' in the new plan. He called the annual tax collection and the addressing of debt-equity positions of tax-exempts positive points to the proposal, but he still worried that companies may be discouraged from going public, even with the transition rules, and that the divide between publicly traded and nonpublicly traded companies still remained. Shaviro also expressed some skepticism that corporate tax reform could be accomplished in such sweeping measures.

"Shaviro said that one possible solution would be to address the biggest problems of the U.S. corporate tax system more narrowly, arguing for stronger thin capitalization rules and debt limits, rules on normal versus extra-normal returns, and international tax changes. 'There's a time for a bunt, instead of a grand slam,' he said.

Friday, June 17, 2016

AEI corporate tax reform panel

I'm back in NYC from appearing at AEI in Washington this morning, where I offered comments on the Toder-Viard corporate tax reform proposal.

A video for the event is here.  My remarks begin at about the 33-minute mark.

You can view the slides for my talk here.

Rather than addressing the plan's very thoughtfully designed features item-by-item, I sought to locate it conceptually within the universe of corporate tax reform and entity-level corporate rate reduction proposals, and to explain what I think are the broader conceptual challenges in the field, as well as their relationship to the various alternative plans' particular merits.  I also briefly addressed the "dividend deduction plus withholding tax" plan that I gather Senator Hatch and the Senate Finance Committee staff are currently working on.

Thursday, June 16, 2016


Tomorrow morning I'll be in Washington, commenting on the Toder-Viard corporate tax reform plan (and on corporate tax reform more generally) at this AEI event.  Slides to be posted here on Monday.  Also on Monday, a written-out version of my NTA spring symposium lunch talk from May 12 will be appearing in Tax Notes.

Monday, June 13, 2016

Universal basic income

The idea of offering lump sum payments to all citizens or residents, often called "universal basic income" or "demogrants" or the "negative income tax," has been cycling back into public consciousness recently, although it was just rejected in Switzerland by a vote of 77% to 23% (!), and although I can't imagine it happening in the U.S., at least explicitly, at any time in the foreseeable future.

Still, the UBI and related concepts combine (a) genuine policy merits with both (b) being frequently misunderstood and (c) having an unusual mix of support on both the left and the right (e.g., James Tobin and Milton Friedman; George McGovern and Richard Nixon; Martin Luther King and Friedrich Hayek).

Ben Leff has recently posted a blog entry regarding UBI (see also his prior post here) in which he was kind enough to post a link to an article that I wrote, more than 15 years ago (egad), touching on this topic.

I hope my readers will forgive me for being unable to resist noting here that Leff says my article "figuratively blew my mind when I first read it .... When I told my wife that Shaviro's article had blown my mind, she said, 'Compare it to Carlos Castaneda, and I said 'More! It blew my mind more than Castaneda.'"  He then offers a crisp account of several of the main points I made in that article.

UBI is an extremely rich topic, touching in multiple ways not just on economics, but also on political science, distributive justice, administrative law, and poverty program mechanics.  It's thus well worth writing about.  Even if an express UBI is politically unattainable, the discussion can have not just theoretical but perhaps even practical benefits, by reason of its improving our understanding of the relevant issues and design trade-offs.