The Economic Efficiency Case Against Business Tax Privacy

By statute, business tax returns are not publicly available. But with public access, investors would acquire useful information that would help them make better investing decisions; business tax compliance and planning would become more uniform, preventing tax-savvy firms from gaining an advantage over other relatively more productive firms; and businesses could learn from one another, which would spare firms the cost of redundantly developing the same tax strategies. In the long run, these efficiency gains could result in lower prices, higher wages, more innovation, more leisure, and better investment returns. In the debate over business tax privacy, these sorts of economic efficiency arguments have received surprisingly little attention. This Article argues that economic efficiency is central to the debate and may well change where we come out on business tax privacy

The Intergenerational Equity Case for a Wealth Tax

Intergenerational equity is commonly set aside in favor of other policy objectives, perhaps because of the extreme challenges inherent in adopting and applying an intergenerational equity normative framework. Even when there is a near consensus that the choices of today will have substantial costs in the future, these costs are often downplayed or disregarded. This Article asks whether there are measures that might offer redress to a generation for the costs imposed on it by its predecessors and finds that a one-time wealth tax is a promising option. Although its analysis applies more generally, this Article focuses on the widely understood intergenerational consequences of unsustainable deficits. While there is little evidence to suggest that the U.S. government’s current debt is near a crisis level, there is widespread concern about the pace at which the debt is growing. Eventually the rate at which the U.S. borrows must slow. When this happens, the government is likely to raise taxes, and the taxpayers affected will bear the burden of their predecessors’ deficit spending. If the tax increase is substantial and sudden, the newly burdened taxpayers may be worse off than their predecessors, and there will be a violation of intergenerational equity. This Article shows that the burden of a one-time wealth tax would be distributed approximately proportionally to the benefit that taxpayers, during the era of unsustainable deficits, derived from those deficits. In doing so, this Article offers a novel justification for wealth taxes: to restore intergenerational equity

The Case for Subsidizing Harm: Constrained and Costly Pigouvian Taxation with Multiple Externalities

Many activities are subsidized despite generating negative externalities. Examples include needle exchanges and energy production subsidies. We explain this phenomenon by developing a model in which the policymaker faces constraints or costs. We highlight three examples. First, it may be optimal to subsidize a harmful activity if the policymaker cannot set the first-best tax on an externally harmful substitute. Second, it may be optimal to subsidize a harmful production process if the activity mix at lower levels of output uses more harmful activities than the activity mix at higher levels of output. Third, it may be optimal to subsidize a harmful activity if there is a large administrative cost associated with taxing a harmful substitute. We also show how the functional form of the cost of administering a Pigouvian tax affects the optimal tax. When administrative cost is a function of only tax rates, the policymaker should tax each activity. However, an increase in the tax presents a tradeoff: lower externality, but higher administrative cost. A subsidy may be optimal for some externally harmful activities. When administrative cost is a function of only activity levels, it may not be optimal to tax every activity. If it is optimal to tax all of the activities, the policymaker should set the tax equal to the externality plus the marginal administrative cost. If it is not optimal to tax every activity, the complementarity between activities comes into play and it may be optimal to subsidize externally harmful activities

The Intergenerational Equity Case for a Wealth Tax

Intergenerational equity is commonly set aside in favor of other policy objectives, perhaps because of the extreme challenges inherent in adopting and applying an intergenerational equity normative framework. Even when there is a near consensus that the choices of today will have substantial costs in the future, these costs are often downplayed or disregarded. This Article asks whether there are measures that might offer redress to a generation for the costs imposed on it by its predecessors and finds that a one-time wealth tax is a promising option. Although its analysis applies more generally, this Article focuses on the widely understood intergenerational consequences of unsustainable deficits. While there is little evidence to suggest that the U.S. government’s current debt is near a crisis level, there is widespread concern about the pace at which the debt is growing. Eventually the rate at which the U.S. borrows must slow. When this happens, the government is likely to raise taxes, and the taxpayers affected will bear the burden of their predecessors’ deficit spending. If the tax increase is substantial and sudden, the newly burdened taxpayers may be worse off than their predecessors, and there will be a violation of intergenerational equity. This Article shows that the burden of a one-time wealth tax would be distributed approximately proportionally to the benefit that taxpayers, during the era of unsustainable deficits, derived from those deficits. In doing so, this Article offers a novel justification for wealth taxes: to restore intergenerational equity

Three Essays on Optimal Policy

This dissertation is comprised of three chapters that explore optimal policy. Charper 1: Most energy production activities are subsidized despite generating negative externalities. We explain this phenomenon by developing a model that generalizes previous work on second-best Pigouvian taxation. In this model the policymaker will optimally subsidize a harmful production activity if a constraint or cost prevents the first-best correction of an even more harmful alternative. We highlight three examples. First, it may be optimal to subsidize a harmful activity if a political constraint prevents the taxation of an even more harmful substitute. Second, it may be optimal to subsidize a harmful activity if there is a large administrative cost associated with taxing an even more harmful substitute. Third, it may be optimal to subsidize a harmful production process if the activity mix at lower levels of output uses more harmful activities than the activity mix at higher levels of output. Chapter 2: This chapter characterizes optimal criminal punishments when there are multiple interrelated crimes. Optimal punishments are functions of the extent to which related crimes are complements or substitutes weighted by their relative harms to society. The available empirical evidence on the relationship between index crimes in the United States suggests that tailoring criminal punishments properly to incorporate relationships between crimes could reduce the aggregate harm to victims by 3%, or about $8 billion dollars annually, holding enforcement expenditures fixed. The actual harm reduction of a marginal increase in arrests for an index crime is on average about 1.5-3 times greater than the harm reduction calculated without these effects. Chapter 3: Under Internal Revenue Code, Section 6103, most of the information contained in corporate tax returns is not publicly available. This chapter investigates what corporations would do if they had access to other corporations’ returns, what investors would do if they had access to corporate returns, and ultimately how these behavioral responses would affect welfare. The analysis suggests that corporate tax preparation and sheltering technology would become more widely available as firms learned from each other’s returns. This would shift investment away from firms that have relatively good tax preparation and sheltering technology and toward firms that are relatively more productive. Socially wasteful expenditure aimed at lowering effective tax rates would also fall. Tax rates would likely need to rise in order to maintain government revenue, but the increase in productivity and decrease in socially wasteful expenditure would be welfare improving. The additional information that investors would gain would improve investors’ estimates of the returns and risks of investing in each corporation, which would also be welfare-improving.PHDEconomics PhDUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttps://deepblue.lib.umich.edu/bitstream/2027.42/140859/1/dschaffa_1.pd

The Economic Efficiency Case Against Business Tax Privacy

By statute, business tax returns are not publicly available. But with public access, investors would acquire useful information that would help them make better investing decisions; business tax compliance and planning would become more uniform, preventing tax-savvy firms from gaining an advantage over other relatively more productive firms; and businesses could learn from one another, which would spare firms the cost of redundantly developing the same tax strategies. In the long run, these efficiency gains could result in lower prices, higher wages, more innovation, more leisure, and better investment returns. In the debate over business tax privacy, these sorts of economic efficiency arguments have received surprisingly little attention. This Article argues that economic efficiency is central to the debate and may well change where we come out on business tax privacy

The Intergenerational Equity Case for a Wealth Tax

Intergenerational equity is commonly set aside in favor of other policy objectives, perhaps because of the extreme challenges inherent in adopting and applying an intergenerational equity normative framework. Even when there is a near consensus that the choices of today will have substantial costs in the future, these costs are often downplayed or disregarded. This Article asks whether there are measures that might offer redress to a generation for the costs imposed on it by its predecessors and finds that a one-time wealth tax is a promising option. Although its analysis applies more generally, this Article focuses on the widely understood intergenerational consequences of unsustainable deficits. While there is little evidence to suggest that the U.S. government’s current debt is near a crisis level, there is widespread concern about the pace at which the debt is growing. Eventually the rate at which the U.S. borrows must slow. When this happens, the government is likely to raise taxes, and the taxpayers affected will bear the burden of their predecessors’ deficit spending. If the tax increase is substantial and sudden, the newly burdened taxpayers may be worse off than their predecessors, and there will be a violation of intergenerational equity. This Article shows that the burden of a one-time wealth tax would be distributed approximately proportionally to the benefit that taxpayers, during the era of unsustainable deficits, derived from those deficits. In doing so, this Article offers a novel justification for wealth taxes: to restore intergenerational equity