Daniel Shaviro

• New York University

This short paper, prepared for a symposium, “Reconsidering the Tax Treaty,” to be held at Brooklyn Law School on October 23, 2015, examines the “single tax principle,” arguably underlying bilateral tax treaties, in connection with evaluating the treaties’ future role in the development of international tax law and policy. It distinguishes between “...

Recent years have witnessed rising debate, on both sides of the Atlantic, regarding how to define the category of individuals whom a given country classifies as domestic taxpayers, and who thus may be taxable on their foreign source income (FSI) even if they live abroad. While the United States rules focus distinctively on citizenship, the broader...

In both public policy debate and the academic literature, there is widespread, though not universal, agreement that millions of Americans are saving too little for their own retirements. If this is true, we could potentially increase such individuals’ welfare through the adoption of policies that resulted in their saving more. A key dilemma, howeve...

In the aftermath of the 2012 U.S. presidential election, while there is increasing consensus that high-income individuals’ taxes should increase, there is considerable disagreement about how this might best be done. In particular, while some favor raising upper-bracket marginal income tax rates, others prefer an approach that I call distributionall...

Contemporary political debate about Social Security and Medicare often conflates the issue of the programs’ long-term fiscal sustainability with that of whether their design should be made more market-based, such as by transforming Social Security into a private accounts program and Medicare into a voucher-based program. In fact, the sustainability...

Surely just about everyone in the U.S. federal income tax field has heard of Henry Simons, if only for his famous definition of “personal income.” Few realize, however, that this proponent of “drastic progression” in a broad-based income tax was also a self-described libertarian who generally denounced government economic regulation and was arguabl...

In both Europe and the United States, there has been much recent debate regarding whether, in response to the 2008 financial crisis, one should enact a financial transactions tax (FTT) or a financial activities tax (FAT) – commonly viewed as mutually exclusive alternatives. This article evaluates these two alternative instruments, focusing on recen...

Tax rules encouraging excessive debt, complex financial transactions, poorly designed incentive compensation for corporate managers, and highly leveraged homeownership all may have contributed to the financial crisis, but do not appear to have been among the primary causes. Even without a strong causal link, however, the pre-existing case for tax r...

Despite the demographic causes of the long-term U.S. fiscal gap, only severe dysfunction in our political system, abetted by malfunctioning and discontinuously responsive global financial markets, could lead to a U.S. budget catastrophe. Unfortunately, the risk of disaster appears to be alarmingly high. The rising danger has implications both for i...

In international tax policy debate, it is usually assumed that, if one chooses not to exempt residents' foreign source income, the preferred system would offer foreign tax credits. This assumption is mistaken, given the bad incentives created by the credits' marginal reimbursement rate (MRR) of 100 percent and the unpersuasiveness of common rationa...

Tax rules encouraging excessive debt, complex financial transactions, poorly designed incentive compensation for corporate managers, and highly leveraged home ownership all may have contributed to the financial crisis, but do not appear to have been among the primary causes. Even without a strong causal link, however, the preexisting case for tax r...

Observers of international tax rules have long conflated two distinct effects of the foreign tax credit on multinational firms: the effect on the incentive to invest abroad and the effect on foreign tax sensitivity. With national welfare as the policy objective, we discuss how a burden neutral shift from foreign tax credits to deductibility could b...

In an increasingly integrated global economy, with rising cross-border stock listings and share ownership, U.S. corporate residence for income tax purposes, which relies on one’s place of incorporation, may become increasingly elective for new equity. Existing equity in U.S. companies, however, is effectively trapped here, given the difficulty of e...

International tax policy experts often mistakenly conflate two distinct margins: (1) the overall tax burden on outbound investment, and (2) the marginal reimbursement rate (MRR) for foreign taxes paid, which is 100 percent under a foreign tax credit system, but equals the marginal tax rate for foreign source income under an explicit or implicit ded...

In the aftermath of the recent financial crisis, a variety of taxes on financial institutions have been proposed or enacted. These taxes’ justifications range from punishing those deemed to have caused or unduly profited from the crisis, to addressing the budgetary costs of the crisis, to better aligning banks’ and bank executives’ incentives in li...

In international tax policy debate, it is usually assumed that, if one chooses not to exempt residents’ foreign source income, the preferred system would offer foreign tax credits. This assumption is mistaken, given the bad incentives created by the credits’ marginal reimbursement rate (MRR) of 100 percent and the unpersuasiveness of common rationa...

The U.S. international income tax rules, which govern the U.S. tax treatment of multinational companies, employ five key concepts: corporate residence, source of income, foreign tax credits with limits, deferral, and subpart F. This paper, which is a draft version of chapter 2 of a book in progress entitled Fixing the U.S. International Tax Rules,...

Current U.S. budget policy is unsustainable because it violates the intertemporal budget constraint. While the resulting fiscal gap will eventually be eliminated whether we like it or not, the big issue in current budget debate is whether the ultimately unavoidable course corrections should start now or be left for later. This paper argues that con...

The persistence of the book-tax gap, or excess of companies’ reported financial accounting income over their taxable income, suggests that accounting manipulation and tax sheltering remain significant problems, even in the aftermath of the “Enron era.” Some have therefore suggested making the United States a “one-book” country, in which the same in...

Historians and sociologists frequently debate American exceptionalism, or the “view that America can be understood only by appreciating its singular origins and evolution.”1 In some areas, ranging from the death penalty2 to the Bush Administration’s embrace of torture and preemptive war, American exceptionalism has been emergent in recent years rat...

David Bradford is best known for his work on fundamental tax reform, although his contributions to public economics were more wide-ranging. His early writings, after he joined the economics department at Princeton University in 1966, largely focused on municipal finance and public goods pricing. His interests took a dramatic turn, however, when he...

In the last two decades, the dominant norm in fundamental tax reform has shifted from income taxation to consumption taxation, among academics no less than policymakers. Few have recognized, however, that the case for a consumption tax overlaps substantially with that for lifetime income averaging, an idea that has drawn considerably less support....

This paper, written for a European conference on tax and corporate governance, evaluates two aspects of the U.S. legal response to corporate tax shelters: the civil penalty rules and the disclosure rules. It argues that, while the disclosure rules do not impose undue burdens, their usefulness to the IRS is limited by the difficulty of steering betw...

One of the most vexed issues in the history of the federal income tax is how family or household status should affect tax liability. This article suggests a general approach for thinking about the treatment of households in the fiscal system generally under a utilitarian social welfare norm. The fiscal rules considered include those not only in the...

One of the main advantages of consumption taxation that its advocates, including me, have claimed is simplification. However, the extent to which simplification actually would result from a major consumption-based tax reform would depend not only on the compliance and administrative issues raised by the structure of the hypothetical new system, but...

What's in a word? Plenty, when it's a word such as 'taxes', 'spending', or 'deficits' that pervades Washington political debate despite lacking coherent economic content. The United States is moving toward a possible catastrophic fiscal collapse. The country may not get there, but the risk is unmistakable and growing. The 'fiscal language' of taxes...

Marginal rates are frequently analyzed based solely on taxes, without regard to benefit phase-outs that have exactly the same incentive and distributional effects as increasing positive taxes. This myopia reflects the notion, rooted in our current fiscal language, that “taxes” and “spending” are fundamentally different. In fact, however, the differ...

Under a prominent and influential economic model known as the permanent income hypothesis, people s decisions depend on their expected lifetime income, not their current income. If completely true, this hypothesis would have radical implications for tax, transfer, and entitlements policy. For example, unless modified by other information, it would...

Recent U.S. tax cuts, to the extent that they involved a principled, long-term policy view, seem to have been aimed at shrinking the size of government. The idea apparently was to force eventual spending discipline, even (or perhaps especially) with respect to Social Security and Medicare, by turning reduced tax revenues into a political fact on th...

Shaviro believes that the Bush administration's policy of sharply cutting taxes while increasing government spending is both misguided and harmful. He presumes that the policy is rationalized in private as a way of shrinking government by starving the beast, but the administration is in fact increasing the government's distributional intervention b...

Tax expenditure analysis is like a hardy plant with shallow roots that spreads widely, resisting the occasional effort to extirpate it, and yet has little if any effect on the soils in which it sprouts. At least sixteen countries release tax expenditure data pertaining to various taxes. However, public acceptance of tax expenditure analysis has bee...

Shifting from an income tax to a consumption tax would offer major simplification advantages. Even if Congress created as many preferences and other special rules as under the existing income tax, the massive set of complications that relate to realization and to the taxation of financial transactions would largely be eliminated. The main (though n...

Transactions commonly known as cross-border tax arbitrages take advantage of inconsistencies between countries' tax rules to achieve more favorable tax results than could have been achieved by investing just in one country. Examples include dual resident companies and double dip leases, in which clever structuring may enable a multinational enterpr...

The 2001 through 2003 tax cuts, to the extent that they involved a principled, long-term policy view, seem to have been aimed at shrinking the size of government. The idea apparently was to force eventual spending discipline, even (or perhaps especially) with respect to Social Security and Medicare, by turning reduced tax revenues into a political...

Transactions commonly known as "cross-border tax arbitrages" take advantage of inconsistencies between countries' tax rules to achieve more favorable tax results than could have been achieved by investing just in one country. Examples include "dual resident companies" and "double dip leases," in which clever structuring may enable a multinational e...

This paper presents the story of Knetsch v. United States, 364 U.S. 361 (1947), the leading case in defining impermissible tax avoidance. Drawing upon newspaper stories, briefs, unpublished judicial opinions and memoranda, and other sources, it describes the tax shelter market of the 1950s, the government's and the taxpayer's litigation strategies...

This report argues that the recent decision of the Fifth Circuit in Compaq v. Commissioner is seriously misguided and may have adverse consequences for the tax system if not reversed either by the Supreme Court or legislatively. In particular, it criticizes the Fifth Circuit's discussion of the pre-tax profit and business purpose requirements, and...

The United States has a huge long-term fiscal gap, perhaps with a present value as great as $74 trillion. The US may thus be unable to continue meeting its current spending commitments without eventually enacting huge tax increases. The tax cut enacted in 2001 may have increased the fiscal gap by about $13 trillion, but the main cause of the gap is...

Curtailment or even repeal of the alternative minimum tax (AMT), the author believes, is only a matter of time. Due to inflationary bracket creep, the individual AMT in particular has an everwidening reach that Congress is unlikely to find politically tolerable. However, he notes, clear thinking about the AMT requires decoupling simplification issu...

This article discusses, from an economic perspective but with considerable legal detail, the United States income tax rules for "sourcing" deductions for interest expense incurred by American multinationals. Among other points, it shows that the "fungibility" standard for interest allocation that has been unquestioned for several decades lacks any...

This paper analyzes the broad tax policy issues raised by the use of an economic substance approach (whether through rules or standards) to deter corporate tax shelters, with particular reference to the recent Tax Court decision in Compaq Computer Corp. v. Commissioner. It argues that the basic rationale for an economic substance requirement is tha...

Should (or when should) separate governments, including sub-units in a federal system, be encouraged to engage in tax competition rather than harmonizing their tax systems? The question is akin to asking when government should be used to solve collective action problems through coercion, and thus has no uniform answer. The paper discusses tariff ex...

Should (or when should) separate governments, including sub-units in a federal system, be encouraged to engage in tax competition rather than harmonizing their tax systems? The question is akin to asking when government should be used to solve collective action problems through coercion, and thus has no uniform answer. The paper discusses tariff ex...

Neither income, consumption, nor wealth is an "ideal" tax base, or one that plausibly identifies what one really should want to tax. Rather, they are best justified as imperfect stand-ins for some underlying (but unobservable) metric of inequality that may be relevant to distributive justice under a variety of normative views.This paper examines a...

This paper aims to provide a swift tour of the economic issues presented by vouchers and thus to fill an apparent gap in the literature for a basic survey of the subject. Among the issues it considers are: factors determining a voucher's cash-equivalence; reasons (such as paternalism, externalities, and distribution) for giving beneficiaries non-ca...

Discussion of marginal tax rates (MTRs) on low-income households often ignores the significance of income-conditioned benefits such as TANF, Food Stamps, Medicaid, and housing vouchers, and fails to account properly for the payroll tax or the possible accrual of expected Social Security benefits. This paper discusses the equivalence between a benef...

New government decisions, in the tax law and elsewhere, often have retroactive effects, in that they alter the consequences of people's prior decisions. Retroactivity is typically considered acceptable in some circumstances (such as a change in interest rates by the Federal Reserve Board) but not others (such as ex post facto criminal legislation)....

The minimum wage is equivalent to a non-means-tested low-wage subsidy, financed by a tax on low-wage employers. This paper, building on insights from both labor economics and tax-transfer policy, assesses the main reasons for adopting such a subsidy, and shows that the tax financing method largely defeats the presumed goals. The assessment includes...

This article makes four main points. First, the widely recognized crisis in the taxation of financial assets, resulting from the development of the innovative new financial products commonly called derivatives, results from the tax system's reliance on what I call "risk-based rules." These are rules that give the presence or absence of elements of...

One cannot determine the merits of using base rate evidence and subjective probabilities without stipulating the underlying purposes in structuring trials. Yet commentators have not always distinguished clearly between verdict accuracy and what we will term 'policy concerns' (i.e., policies distinct from verdict accuracy that are implicated by tria...

As the Volcker task force evaluates base-broadening ideas, some important and meritorious reforms are unfortunately off the table. One example would be (after the housing market workout has eased) replacing the home mortgage interest deduc- tion with a smaller, capped subsidy for homeownership that is unrelated to homeowner debt and takes the form...

Both the supporters and opponents of President Bush's 2001-2003 tax cuts assert that the cuts are steps toward smaller government. That claim appears to misunderstand the notion of the size of government and rests on spending illusion - confusing the amount of the nominal dollar flows between individuals and government with the actual size of gover...

Social Security privatization is a package whose main components are offering portfolio choice, prospectively eliminating transfers within the system, and changing the program's official language to one of "individual accounts" rather than a collective "trust fund." The language change is aimed at jawboning Congress into regarding Social Security's...

Debate about U.S. international tax policy often emphasizes norms, such as capital export neutrality (CEN) and capital import neutrality (CIN), that relate to worldwide welfare rather than U.S. national welfare. While this focus may seem paradoxical, or at least surprisingly altruistic, in a world full of self-interested players, it potentially mak...

The Social Security Act of 1935 must be counted among the most monumental pieces of legislation ever passed by Congress. Today, sixty-five years after its enactment, public support for Social Security remains extremely strong. At the same time, there have been reports that Social Security is in grave danger of financial collapse, and numerous group...

Do deficits matter? Yes and no, says Daniel Shaviro in this political and economic study. Yes, because fiscal policy affects generational distribution, national saving, and the level of government spending. And no, because the deficit is an inaccurate measure with little economic content. This book provides an invaluable guide for anyone wanting to...