Career
Auerbach began his academic career at Harvard University as an Assistant Professor and later Associate Professor of Economics. He joined the University of Pennsylvania in 1983,where he served as a Professor of Economics and Law and chaired the Economics Department. Since 1994,he has been a faculty member at the University of California,Berkeley,where he also chaired the Department of Economics multiple times.
Auerbach is a past president of the National Tax Association and the Western Economic Association International. He was awarded the Daniel M. Holland Medal for lifetime contributions to the study and practice of public finance.
In 2021,Auerbach was awarded the Order of the Rising Sun. In May 2022,he was presented with a presented the certificate of decoration by Minister Daishiro Yamagiwa. [4] [5]
Research and contributions
Beyond academia,Auerbach has significantly impacted public policy,notably serving as Deputy Chief of Staff for the U.S. Joint Committee on Taxation in 1992. He has advised government institutions such as the U.S. Congressional Budget Office and the Bureau of Economic Analysis. He has written extensively on taxation,fiscal policy,and macroeconomic stability. He has served as editor of the Journal of Economic Perspectives and the American Economic Journal:Economic Policy and held editorial roles in numerous other academic journals,including the Journal of Economic Literature , American Economic Review , National Tax Journal ,and International Tax and Public Finance. [6]
Destination-Based Cash Flow Tax
The Destination-Based Cash Flow Tax (DBCFT) is a proposed reform to business taxation that combines features of a cash-flow tax and a destination-based principle. The concept was co-originated by Alan J. Auerbach and Michael Devereux,with contributions by Auerbach dating back to his 1997 article in the American Economic Review, titled The Future of Fundamental Tax Reform. [7] Auerbach is widely regarded as the "principal intellectual champion" of the DBCFT and related border-adjustment tax policies. [8]
The DBCFT allows firms to immediately expense all capital investments,known as "full expensing," while disallowing deductions for interest payments. [9] [10] This shifts the tax base to target economic rents (profits above the normal return on investment) rather than taxing normal returns,thus promoting investment efficiency. [9] [8] [10] The destination-based aspect shifts the tax burden to where goods and services are consumed rather than produced,implemented through border adjustments that exempt exports from taxation and apply taxes to imports. This structure mirrors the treatment of cross-border transactions under a value-added tax (VAT),although wages remain deductible under the DBCFT framework. [11]
Advocates of the DBCFT,including Auerbach and colleagues Michael Devereux,Michael Keen,and others,highlight its potential to address challenges such as base erosion,profit shifting,and tax competition. [12] [13] By neutralizing tax distortions between debt and equity financing,the DBCFT can improve corporate investment decisions. [8] [14] Its border-adjustment mechanism reduces incentives for multinational corporations to engage in tax avoidance strategies like transfer pricing,tax inversions,and profit shifting to low-tax jurisdictions.
The concept gained prominence in U.S. tax policy discussions following its inclusion in the Republican Party's 2016 policy paper,A Better Way:Our Vision for a Confident America. [15] This proposal advocated reducing the corporate tax rate from 35% to 20%,offsetting revenue losses with a border-adjustment tax on imports consumed domestically. Auerbach theorized that the border-adjustment tax would lead to a strengthening of the U.S. dollar by about 25%,offsetting potential cost increases for consumers and rendering the tax value-neutral.
Critics have raised concerns about the DBCFT’s compliance with international trade agreements,its administrative complexity,and potential transitional effects on trade balances and exchange rates. The World Trade Organization (WTO) compliance of such a tax has been debated,with some experts,such as Itai Grinberg,proposing ways to structure the tax to align with WTO rules. Additionally,some corporate interests and policymakers have expressed opposition due to fears of increased consumer costs and retaliatory trade measures by other countries. [14] [16]
Auerbach further detailed the benefits and mechanisms of the DBCFT during his testimony before the Tax Subcommittee of the U.S. House of Representatives Committee on Ways and Means in December 2023. He emphasized the tax's ability to create a stable,competitive environment for businesses,eliminate profit-shifting incentives,and simplify tax compliance by focusing on consumption rather than production. Auerbach also addressed misconceptions about the DBCFT,including concerns about trade distortion and regressivity,providing evidence and theoretical frameworks to support the tax’s neutrality and progressive implications. [17]
Generational accounting
In their 1991 paper "Generational Accounts:A Meaningful Alternative to Deficit Accounting," Auerbach,Jagadeesh Gokhale,and Laurence J. Kotlikoff introduced generational accounting as an alternative to traditional deficit accounting for evaluating fiscal policies. They argued that conventional deficit metrics were arbitrary and failed to capture the intergenerational implications of fiscal policy. Generational accounting provided a framework to assess the lifetime net tax burden (taxes minus transfers) imposed on different generations under existing policies,revealing that future generations faced significantly higher fiscal pressures compared to current ones. The authors urged policymakers to address these imbalances to ensure intergenerational equity. Their work also demonstrated how the methodology could analyze policy impacts,prioritizing long-term sustainability over short-term measures. [18]
Auerbach co-edited Generational Accounting around the World,a seminal work published in 2007 by the University of Chicago Press. The work explored the global application of generational accounting in assessing fiscal sustainability. The book featured analyses from 23 nations. [19]
