A Taxing Blog

Thursday, August 28, 2003
Jewish Mothers and Law Professors  
Running around now getting ready to leave for the weekend, but I had to share this story, as told to me by Joel Handler (one of my new colleagues). Many years ago, Joel's mother was asking him how many days a week he teaches:

Joel: I'm teaching twice a week this semester.

Mom (skeptically): What do you do on the other days?

Joel (smugly): Our rabbi only performs a service once a week. But you don't ask him what he does on the other days, do you?

Mom: Don't be such a wiseass, Joel -- he's a rabbi.

I too have found it difficult to explain what I do when I'm not teaching.

Happy Labor Day  
The blog will be quiet for a few days as I head to nyc for the long weekend tonight. Happy weekend everyone.

Case Study on Venture Capital  
This afternoon in my Deals class I'll be teaching my "Streetwatch" case study, which examines a fictional startup that rates Wall Street research analysts.

After two classes where I've been introducing a lot of abstract concepts like information asymmetry, moral hazard, and agency costs, I'm looking forward to seeing if the students can start applying them to real (okay, almost real) facts.

EITC vs. minimum wage  
MaxSpeak defends both the EITC and the minimum wage here. I don't pretend to know enough about how much of the EITC is effectively captured by employers, not employees, but I agree with Max that the relevant questions is how much of the subsidy is captured -- and it's surely nowhere near 100%.

Larry Zelenak has a great paper on the EITC that I'll link to once it appears on SSRN.

Wednesday, August 27, 2003
One L -- the Japanese perspective  
As I was looking for some materials on the Columbia Law School site, I stumbled across the following book announcement:

The Challenges of the Legal Elite---My Studies at Columbia Law School
By Douglas Freeman ‘99
(Shoji Homu, Tokyo, 2003)

This book, in Japanese, describes the rigors of the U.S. law school experience as seen through the eyes of a Japanese lawyer (bengoshi). It humorously covers the trauma of being grilled under the Socratic Method, the harrowing first-year exams, the challenges of making Law Review, and the craze of clerkship application process. The book also covers what Mr. Freeeman calls the splendors of the summer associate experience. The author was born in Japan, raised bilingually, and became a bengoshi in 1996.

The book attempts to shed light on what the author views as the unique aspects of an American legal education: the emphasis on legal argumentation in a common law system, the intense competition in class and in the legal profession in general, and the challenges of finding one's place in the legal profession in a competitive market. Although Scott Turow's One L has been translated into Japanese, Mr. Freeman's book truly introduces Japanese readers to the full scope of the U.S. law school experience. It is a particularly timely book, as Japan is the midst of a historical reform process of its legal education system and is creating one patterned on that of the United States.

Mr. Freeman was actually in a class I guest lectured for in the spring of 2002 -- David Schizer's Taxation of Financial Instruments class. He was an excellent student; I had an interesting talk with him once about law school in Japan --- the bar passage rate in Japan is something like 3%. (And you thought California was bad.) In Japan, only a few people who attend law school become lawyers in firms; most go into the government and work as bureaucrats or go into the private sector as managers.

I just noticed that the book is actually written in Japanese, so I guess I can't read it to find out who he makes fun of at Columbia. Bummer.

Tuesday, August 26, 2003
the Fortunate 400 -- more on redistribution  
Speaking of redistribution, here's a copy of Joel Slemrod's The Fortunate 400, recently published in Tax Notes. It's really a remarkable article -- it examines the 400 individuals with the highest adjusted gross income each year and how much of that income is capital vs. ordinary, what their effective rate is compared to the rest of us, how fluid the group is from year to year, and so on.

Oversimplifying a bit, these 400 people make 1% of all the income in the US. They pay about 1.5% of all the taxes. No doubt the WSJ would stop here and cite the paper as proof that out tax system need no more redistribution. What irks me, though is that their effective tax rate is about 22%, which is higher than the average rate for all Americans (15%) but a lot lower than, say, my own.

I suppose this could be good policy if we think that the incentive effects of a low capital gains rate offsets the drawback of lower revenue. But the low effective rate is a hard fact to swallow. It is clearly true that we are not doing a lot of redistribution at the upper end of our tax scale, especially if we assume that really rich people benefit disproportionately from government outlays (protection of private property, keeping the capital markets intact, etc.).

In any event, Slemrod provides a fair and balanced view (in the non-Fox-news sense of the phrase).

More on Kaplow's Clarification Piece  
Kaplow's article, Taxation and Redistribution: Some Clarifications, centers itself around the idea that "there is no tight relationship between graduation/flatness and redistribution." Proponents of a flat tax are often anti-redistribution, but Kaplow rightly points out that the amount of redistribution depends on the exemption level (e.g is the first $30,000 of income exempt?), the overall amount of revenue raised, and how the revenue is spent. As Kaplow points out, the most redistributive tax scheme of all --- one in which ALL income is confiscated by the government and redistributed equally among all the citizens -- is a "flat" tax of 100%.

Kaplow tends to be a bit to the right of where I think of myself, but like most economists he likes to think of not just the tax system on the one hand and social programs on the other but rather to think about an integrated tax-and-transfer system. We think of one program -- the Earned Income Tax Credit -- as part of the tax system, but that's about it. The more I think about tax policy problems -- e.g., should medical expenses be deductible -- the more I like the economist approach of also thinking about social programs that transfer wealth, and how those programs distribute (or fail to distribute) benefits to people of different income classes.

Monday, August 25, 2003
Kaplow Clarifies Redistribution  
Anyone interested in debates about progressivity or flat tax proposals should read Louis Kaplow's Taxation and Redistribution: Some Clarifications, just posted on SSRN.

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