The tax community this week is mourning the loss of University of Southern California law professor Edward D. Kleinbard. Ed previously served as Chief of Staff at the congressional Joint Committee on Taxation (JCT) from 2007-2009, following a distinguished career in private practice. Throughout his career, Ed wielded an exceptional combination of diligence, erudition, acumen, and wit, which in recent years he focused on promoting progressive fiscal reforms.
I first met Ed while working on financial taxation for the US Department of the Treasury. Ed was a partner at the New York law firm Cleary, Gottlieb, Steen & Hamilton LLP-a position he held for two decades. He frequently represented financial institutions in regulatory debates over the appropriate tax treatment of derivatives that blurred the lines between debt and equity and between ordinary income and capital gains. Ed's command of this extremely complex and technical area of tax law was encyclopedic, although his ironic wit made his insights anything but dry reading.
After thirty years in private practice, Ed reoriented his career toward public policy and service. As JCT Chief of Staff, he launched an in-depth study of US tax expenditures, which had grown to overshadow budget outlays. This transformed the US into a country with a low tax burden but also relatively low provision of basic governmental services.
In 2009, Ed moved to academe-and the west coast-to 'think deep thoughts' not just about tax law but broadly about fiscal policy, moral philosophy, and social welfare. His scholarship during this period focused on three broad themes: international corporate tax avoidance, business and capital income tax reform, and progressive fiscal reform.
Ed coined the term 'stateless income ' to describe the massive accumulation of offshore earnings by US multinational corporations prior to the 2017 tax reform. In a series of essays, he explored the myriad ways corporations exploit details of international tax rules to create abstruse structures like the 'Double Irish Dutch sandwich' that minimize their global tax burdens. He found that US multinationals, far from being disproportionately burdened by the relatively high-rate, worldwide US corporate income tax, were so adroit at gaming the system that they often enjoyed lower global tax rates than foreign multinationals.
I had the privilege of working with Ed on an International Monetary Fund (IMF) mission to examine the impact of the US Tax Cuts and Jobs Act (TCJA) on Ireland, a country that had benefitted from profit-shifting under the previous system. Despite ongoing health challenges, Ed dove head-first into analyzing Ireland's own recent tax reforms, the European Union's Anti-Tax Avoidance Directives, digital service taxes, the replacement of the 'Double Irish' with the 'Single Malt' tax dodge, and more. His enthusiasm for digging out the facts and discerning their implications was truly dazzling; Ed never rested on his laurels, no matter how deep and cushy that leaf pile may have grown.
Ed did much more than critique the prevailing system. He also proposed a detailed reform of business and capital income taxation that he called the 'dual BEIT' (Business Enterprise Income Tax). As a dual income tax, the BEIT combines a progressive tax on labor income with a moderate-rate flat tax on capital income to accommodate capital's greater mobility. Businesses pay tax only on supernormal returns or 'rents,' and taxation of an imputed normal return to capital at the investor level reduces capital gains lock-in. The dual BEIT taxes multinationals on a consolidated worldwide basis with a country-by-country foreign tax credit, eliminating incentives for transfer pricing and use of tax havens.
Ed expressed his broader vision for fiscal policy reform in two books: We Are Better Than This: How Government Should Spend Our Money (2014) and What's Luck Got To Do With It? Rescuing the American Dream Through Smarter Government (forthcoming). His work in both seeks to place tax reform in the current context of widening US inequality and emphasize integration of tax and expenditure policies.
Ed insisted that restoring opportunity and the underlying fabric of our society will require significant investments in public education, social insurance (especially health care), and infrastructure. The benefits of progressive expenditure policies outweigh those of progressive income taxation alone, justifying reliance on a more efficient and diversified tax structure. Though Ed is sadly no longer with us, the wisdom of his scholarship will hopefully help shape future reforms.