Column: Farewell to USC’s Ed Kleinbard, 68, a peerless champion of the public interest
A couple of things set Ed Kleinbard apart from the army of tax experts who spend their hours delving into the minutiae of tax law.
For one thing, he was smarter than most of the others. But more important, having developed his store of knowledge at an elite corporate law firm and then as a top congressional advisor, he chose to deploy it in the public interest — as a professor of law at USC, as a widely-read commentator on tax policy and as the author of an indispensable book on how to make fiscal policy function for the betterment of American life.
We are inundated today by economic noise and fog designed to generate superficially plausible rationales for what at bottom are simply jerk-like instincts.
— Edward D. Kleinbard, 2015
Kleinbard died Monday at 68, following a long battle with cancer. He had been my guide through the thickets of tax policy since I first profiled him in 2014 and a source for dozens of columns since then. He was always gracious, lucid and amusing when I pestered him for his insights, even during his bouts with illness toward the end. His passing will be profoundly felt by his family, his colleagues, my readers and a world that is immeasurably poorer for the loss.
Let’s learn why.
We can begin with his career trajectory. After graduating from Yale Law School in 1976, he moved into corporate law, rising to a partnership at Cleary Gottlieb Steen & Hamilton. In 2007 he jumped to the public sector as chief of staff to the Congressional Joint Committee on Taxation, then joined USC’s Gould School of Law in 2009.
“Only people who are practicing law at a very high level know exactly how corporations do things like move income around to minimize taxes and the other tax games major corporations play,” says Kleinbard’s friend, cycling companion and USC Law colleague Gregory Keating. “And most of the people who have that kind of knowledge are working with the companies. Ed had that expertise and was committed to coming up with solutions as an academic and a policy person that were public-spirited and public-minded.”
“The left sees me as a Wall Street Journal Satanist, and the right as a stealth Marxian bent on destroying free enterprise,” Edward D.
Coupled with that was an engaging persona that his colleagues remembered as “funny, loyal, passionate, and acerbic,” as Daniel N. Shaviro of NYU Law School put it in a valedictory on the TaxProf blog.
Kleinbard had a way of clarifying abstruse concepts so they could be better grasped by policy-makers. One that he long will be remembered for was the term “stateless income,” which he coined to define corporate foreign income stashed by multinationals in low-tax countries.
Kleinbard estimated this hoard at $3 trillion by 2018, enabling “many well-known multinationals (to) enjoy single-digit effective tax rates on their foreign income.”
His formulation may have prompted a Republican Congress to include a provision in the 2017 tax cut act aimed at encouraging corporations to bring this money back home, though it was probably not as effective as he would have preferred.
In any event, he declined to join in the chorus of praise that corporations such as Apple subsequently sought for repatriating their foreign billions. When Apple boasted of paying a “record” $38 billion in tax to bring home $252 billion in sequestered foreign profits, he observed:
“Apple is paying a record tax because for the last two decades, it has been the world champion at global tax avoidance. They’ve ... paid tax essentially nowhere on that income to speak of.”
To hear the White House tell it, Apple’s big announcement last week that it would increase jobs and make billions in new investments in the United States is proof positive that the big tax cut President Trump signed in December is working.
Kleinbard’s worldview can be gleaned from the title of his 2015 book: “We Are Better Than This: How Government Should Spend Our Money.”
The book was designed as a learned counterweight to the sanctimony and hypocrisy that infect fiscal policy-making.
“My values are old-fashioned progressive values,” he declared in the book’s introduction. Those values derived from his awareness that much of what he had achieved in life — and what other privileged people achieve — was the product not only of native talent but also good fortune.
Those who “view with derision those who have not achieved comparable success,” he wrote, see fiscal policy through the prism of “thinly veiled narcissism, or the embrace of a cartoon version of Calvinist predestination. Both are distasteful and un-American.”
That led him to what may have been the most important point Kleinbard made during our first encounter, which was that conversations about government fiscal policy always grasp the issue from the wrong end by focusing on taxation rather than spending.
“We ask how much pain we want to inflict on ourselves, and the answer is always ‘not very much,’” he told me. “The question should be what useful things can we do together by way of investment and insurance to enhance our lives — and how much of that can we afford?”
The tax-centered viewpoint, he wrote, was a subterfuge to shrink the size of government for the benefit of the wealthy. “We have arbitrarily set projected tax revenues to excessively low levels, and now argue about which spending programs should be lopped off to fit the revenue constraints we have imposed on ourselves.”
Big controversies often arise from big numbers, and on the surface the cost in U.S. tax revenue from the corporate tax avoidance scheme known as “inversion” looks like a big number: potentially $20 billion over 10 years, according to a congressional estimate last year.
Among the programs that the tax-centered viewpoint undervalued, he observed, were public education, social insurance and infrastructure-building. All produced immediate and long-term benefits, especially in contrast to tax-cutting policies that put more money in the pockets of the rich but eroded the federal government’s ability to provide for its citizens.
“Which is better for both the wealth and the happiness of our nation,” he asked in his book: “A small number of immensely wealthy Americans employing the underclass as dog walkers and topiary trimmers, or a larger commitment to publicly financed infrastructure that yields both direct productivity enhancements and a more robust middle class, through the jobs those projects create?”
Kleinbard reveled in puncturing the arguments of academic theorists carrying water for the rich. “We are inundated today by economic noise and fog designed to generate superficially plausible rationales for what at bottom are simply jerk-like instincts” for preservation of the resources of the wealthy, as he wrote in his book’s introduction.
He found their work to be both morally obtuse and bad in economic terms. Among his targets was Milton Friedman, a deity among conservatives for his assertion that “capitalism and freedom were joined at the hip,” as Kleinbard put it, adding, “This worldview leaves little from for government to articulate any shared values beyond those required to host laissez-faire economic tournaments.”
Kleinbard was withering about the Milton Friedman who was so “mystified by the existence of national parks” that he could write: “If the public wants this kind of activity enough to pay for it, private enterprises will have every incentive to provide such parks.” Because Friedman didn’t himself feel the visceral joy of public parks or their contribution to a shared national pride, he concluded that no such values could exist.
For this and other similarly crabbed visions of a market-dominated world, Kleinbard aptly labeled Friedman “a political and social simpleton.”
The single most pernicious idea in modern American finance is that the corporation exists to “maximize shareholder wealth.”
It would have been fascinating to have Kleinbard’s views about the cant being mustered by conservatives just now for the purposes of eliminating or cutting the unemployment benefits provided for victims of coronavirus-related business shutdowns. The argument is that the augmented benefits are discouraging people from going out and getting work.
It may be that Kleinbard’s illness prevented him from addressing this argument directly, but fortunately we have his commentary on the same argument in general terms: He thought it was nonsense.
Kleinbard’s discussion of the argument in his book used conservative economist Casey Mulligan of the University of Chicago as a whipping boy. Mulligan had argued, in effect, that programs such as unemployment insurance and food stamps should be cut to the bone because they encouraged idleness at the expense of responsible taxpayers.
As Kleinbard digested Mulligan’s message, “hard-working Americans who are gainfully employed now find their incomes ‘redistributed’ to others who choose not to work, because the federal government has made idleness so comfortable that at the margin they have no reason to look for work.” Mulligan’s prescription was to slash those programs to give the layabouts an incentive to get off their duffs.
This is a variation on the “undeserving poor” image beloved of conservatives. As Kleinbard explained, it was riddled with flaws. The truth that the long-term income gains from working far outstrip the short-term income from unemployment benefits, which most Americans not burdened by a job concocting theory from behind a desk at a big university well understood.
Ed Kleinbard bequeaths us a standard of public spiritedness that all those who have learned policy-making and the law from the inside should aspire to. His contribution to my understanding of public policy won’t cease with his passing, because his book remains near at hand on my bookshelf. But he will be missed.