Paul L. Caron

Tuesday, January 24, 2023

Weisbach Posts Three Tax Papers On SSRN

David A. Weisbach (Chicago; Google Scholar) has posted three tax papers on SSRN:

SSRN Logo (2018)Against Anti-Tax Exceptionalism:

This paper examines the arguments found in what has become known as the anti-tax exceptionalism literature. That literature seeks to apply the rules of administrative law to tax procedures. The core claim is that the procedures used by the Internal Revenue Service and the Treasury routinely violate the requirements of administrative law. Secondarily, that literature argues that this is normatively bad: the Treasury and Internal Revenue Service should not be treated differently from other administrative agencies because the tax system is not exceptional. Promoting the goals of administrative law, that literature argues, requires that the tax system conform to standard procedures.

This paper addresses both claims. First, it shows that the procedures used by tax administrators substantially comply with administrative law requirements. The central doctrinal claim of the anti-tax exceptionalism literature is incorrect. Second, the paper considers normative concerns of the anti-tax exceptionalism literature, focusing on three: (i) uniformity versus exceptionalism, (ii) information flows, and (iii) accountability. Regarding uniformity, even assuming that current tax procedures do not comply with administrative law requirements, uniformity would not be a desirable goal. Administrative law is, and should remain, flexible, adapting to the needs of widely varying agencies. Moreover, the goal of reforms to tax procedures should be to improve the operation of the system, not conform it to procedures used by agencies that operate in different contexts. The framing of uniformity versus exceptionalism misstates the issue. Regarding information flows and accountability, the remedies suggested by the anti-tax exceptionalism literature, notably greater use of notice and comment procedures and more supervision of tax administration by courts, are not good ways of meeting those goals. The paper offers alternative, better methods of improving information flows and accountability. The paper concludes that we should reject the claims of the anti-tax exceptionalism literature on both positive and normative grounds. 

Constrained Income Redistribution and Inequality: Legal Rules Compared to Taxes and Transfers:

A widely accepted result, associated with Louis Kaplow and Steve Shavell, is that it is more costly to use legal rules to redistribute income than to use the tax and transfer system (the income-tax only result). An assumption behind this result is that if a legal rule is changed to eliminate its income-redistributive effects, the tax and transfer system can be adjusted to counteract the effects of those changes on the distribution of income. A number of commentators have questioned this assumption, suggesting that political constraints may limit the ability of the tax and transfer system to adjust to changes in legal rules. They conclude that legal rules should sometimes, or always, be designed to redistribute income.

Building on this critique, this paper considers how adding political constraints on redistribution changes the income-tax only result. After examining what we know about the effectiveness of the tax and transfer system in redistributing income, the paper considers a political constraints that limit adjustments to the tax and transfer system, in each case examining the implications for the income-tax only result. It concludes that adding political constraints strengthens rather than weakens the result. There are two key considerations.

First, legal rules may be regressive as well as progressive. To the extent that the wealthy control the political system and seek to redistribute wealth upwards, allowing the use of legal rules may make it easier for the wealthy to do so because redistribution using legal rules is less transparent than redistribution via the tax system. Second, allowing the use of legal rules to redistribute may lead to tit-for-tax strategies when coalitions change, with coalitions that favor less redistribution enacting regressive legal rules and coalitions that favor more redistribution enacting progressive legal rules. The net result is a loss in the effectiveness of legal rules with unclear effects on the distribution of income. The income-tax only approach mitigates this effect.

Climate Change Policy in the International Context: Solving the Carbon Leakage Problem (with Samuel Kortum (Yale; Google Scholar), Michael Wang (Northwestern) & Yujia Yao (IMF):

Climate policies vary widely across countries, with some countries imposing stringent emissions policies and others doing very little. When climate policies vary across countries, energy-intensive industries have an incentive to relocate to places with few or no emissions restrictions, an effect known as leakage. Relocated industries would continue to pollute but would be operating in a less desirable location. We consider solutions to the leakage problem in a simple setting where one region of the world imposes a climate policy and the rest of the world is passive. We solve the model analytically and also calibrate and simulate the model. Our model and analysis imply: (1) optimal climate policies tax both the supply of fossil fuels and the demand for fossil fuels; (2) on the demand side, absent administrative costs, optimal policies would tax both the use of fossil fuels in domestic production and the domestic consumption of goods created with fossil fuels, but with the tax rate on production lower due to leakage; (3) taxing only production (on the demand side), however, would be substantially simpler, and almost as effective as taxing both production and consumption, because it would avoid the need for border adjustments on imports of goods; (4) the effectiveness of the latter strategy depends on a low foreign elasticity of energy supply, which means that forming a taxing coalition to ensure a low foreign elasticity of energy supply can act as a substitute for border adjustments on goods.

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