Paul L. Caron
Dean





Monday, May 6, 2024

Columbia Tax Workshop (Day 1)

Today's Columbia Tax Workshop is being held at its Manhattanville Campus

Columbia (2023)Kimberly Clausing (UCLA; Google Scholar), Capital Taxation and Market Power
Discussant: Wojciech Kopczuk (Columbia; Google Scholar)

In recent decades, market power has increased substantially, according to multiple measures that describe industry concentration, mark-ups, and business profitability. While market power can generate benefits, it also raises vexing policy concerns, including the potential for adverse effects on labor markets, income inequality, and the dynamism of market competition. The concept of market power also has implications for how we conceptualize capital income, making it important to distinguish between normal and above-normal returns to capital. The tax system taxes both types of returns to capital, but often imperfectly and incompletely. Full consideration of the relationship between market power and capital income suggests important implications for optimal capital taxation design, including the role of entity taxation, the use of graduated business tax rates, and international tax reform.

Conor Clarke (Washington University; Google Scholar) & Wojciech Kopczuk (Columbia; Google Scholar), Income Inequality and the Corporate Sector
Discussant: Yair Listokin (Yale; Google Scholar)

In recent decades, scholars have turned to tax data to study the distribution of United States income and wealth. In more recent years, the focus has expanded from information that appears on individual income tax returns to a broader set of data. This shift partly reflects the observation that what appears on individual tax returns is only a subset of “national income” — a subset that is subject to change as laws and incentives change. But the use of both individual tax data and national accounts data has been controversial, and one important piece of this controversy is the role of corporate income and the corporate sector. We provide a framework for thinking about the historical and conceptual relationship between income, inequality, and the corporate sector. We make several contributions.

First, we assemble a variety of previously unused data to study the corporate sector and corporate income over the long run.

Second, we survey and highlight the importance of long-run sectoral and legal changes — including some that have gone unappreciated in the last thirty years, such as the rise and fall of the so-called General Utilities doctrine — to the allocation of income between the individual and corporate sector and the study of inequality. 

Third, we show that inequality measures are sensitive to how corporate income is imputed to individuals, and that the primary methods used in existing literature — which rely on dividends and capital gains reported on individual tax returns — may understate top income shares before the 1986 Tax Reform Act. Different imputation methods, such as those that treat small and large firms differently, may suggest higher levels of pre-1986 income inequality, but also less dramatic increases since 1986.

Shu-Yi Oei (Duke; Google Scholar, The Conflictual Core of Global Tax Cooperation (with Diane M. Ring (Boston College; Google Scholar))
Discussant: Mitchell Kane (NYU) 

Conventional wisdom suggests that the world is in a transformative era of global tax cooperation, as evidenced by the launch of a sweeping multilateral tax reform project to confront tax base erosion and profit shifting (“BEPS”) spearheaded by the OECD and G20. This Article argues that this dominant cooperation-centric account of OECD/G20-based global tax reform is overstated and masks fundamental conflicts in how developing and developed countries evaluate these reforms.

This Article illuminates and decodes the conflictual core imbedded in the OECD/G20 tax reform project by analyzing developing countries’ criticisms of the project and by identifying their unifying drivers. We argue that, fundamentally, developing countries are intensely concerned about the wide historical gulf in resources and power between developing and developed countries (particularly the United States and the European Union), and how the OECD/G20 global tax reform fails to address, and may even exacerbate, that gulf. Meanwhile, OECD and developed country defenses of the global tax reform have largely missed this fundamental crux of developing country criticisms—as evinced by their focus on the project’s incremental short-term benefits for inter-developing country tax competition.

Discerning the deep conflicts at the heart of contemporary global tax reform has important implications for accurately describing the state of asserted global tax cooperation and for appreciating both its promise and its risks. For example, decoding the crux of the conflict helps explain the recent proposal by key developing countries to shift the location of global tax reform work to the United Nations, and also explains why this turn to the UN seems to have caught developed countries by surprise.

Michael Best (Columbia), Greener on the Other Side: Inequity and Tax Compliance (with Francois Gerard (Columbia), Evan Kresch (Oberlin), Joana Naritomi (London School of Economics) & Laura Zoratto (World Bank)) 
Discussant: Max Risch (Carnegie Mellon; Google Scholar

This project works with the governmentofthecityofManaus, Braziltoimprovecompliance with the municipal property tax. Specifically, we aim to understand the role that inequity– similar households being treated differently by tax policy– plays in determining compliance with the tax. We do this by combining a novel survey experiment raising the salience of horizontal inequity with rich administrative data on tax liabilities and tax compliance.

David Schizer (Columbia), Wealth Taxes Under the Constitution: An Originalist Analysis (with Steven Calabresi (Northwestern))
Discussant: Thomas Brennan (Harvard) 

A federal wealth tax is high on the wish list of progressive icons like Elizabeth Warren and Bernie Sanders, but is it constitutional? This Article shows that it is a “direct tax,” which must be apportioned among the states. This means that the percentage of revenue collected in each state must match its percentage of the population. For instance, if two states each have three percent of the population, each must provide three percent of the revenue from a wealth tax. This leads to an unappealing outcome: if one state is less wealthy, it needs a higher tax rate to supply its share. To rescue wealth taxes from apportionment, distinguished commentators have offered a range of theories. For example, some treat apportionment as a mistake, while others dismiss it as a shameful protection for the institution of slavery.

But these commentators do not give the Framers enough credit. 

The taxing power was too important for them to be sloppy or to prioritize the institution of slavery over getting it right. In response, we offer an interpretation of the taxing power that is unconventional, but also unsurprising: it was shaped by the same influences, and expressed the same values, as the rest of the Constitution. Like the new national government itself, the taxing power was supposed to be effective, but limited. The Framers wanted to solve the fundamental problem under the Articles of Confederation (insufficient revenue), without recreating the fundamental problem under imperial rule (taxation without representation). Specifically, they sought to prevent what we call “fiscal raids,” in which states join forces to enact national taxes that mostly burden other states. This risk could arise with a tax not just on enslaved persons, but also on other economic activity that was concentrated in particular regions, such as tobacco or undeveloped land in the South and ships and manufacturing in the North. 

In pursuing these various goals, what did the Framers mean by “direct taxes”? These taxes are imposed directly on taxpayers—that is, because of what they own (e.g., real estate and other wealth) or where they live (e.g., head taxes). In contrast, taxes on what they do–that is, on transactions (like buying imported goods) or activities (like transferring money to an heir)–are indirect (and thus not subject to apportionment). Although some courts and commentators have argued that there are only two types of direct taxes–head taxes and real estate taxes–the category actually was much broader in early America, reaching livestock, loans, business assets, and other personal property. Yet since the Framers called these broad levies “land taxes,” some commentators and judges have misinterpreted early references to “land taxes” as covering only real estate. Dicta in an early case, Hylton v. United States, offers this narrow reading of “direct taxes.” Yet the holding is (largely) consistent with our interpretation, as are most other Supreme Court cases construing the direct tax clause.

https://taxprof.typepad.com/taxprof_blog/2024/05/columbia-tax-workshop-day-1.html

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