Question A:
Aggressive use of tax alpha investment strategies that use long-short strategies to enhance loss realization, as well as accounting treatments that allow generation of losses that can offset ordinary income, offers substantial additional returns for high net worth investors over a ten-year horizon.
Responses
Responses weighted by each expert's confidence
Question B:
Aggressive use of tax alpha investment strategies that use long-short strategies to enhance loss realization, as well as accounting treatments that allow generation of losses that can offset ordinary income, is leading to substantial reductions in government revenue from high net worth investors.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 Viral Acharya |
NYU Stern | Bio/Vote History | ||
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I have no experience nor knowledge from friends as to how important these strategies are in HNI net worth, but it seems standard tax management and if not these there might be some other options?
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 John Campbell |
Harvard | Bio/Vote History | ||
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I have studied these strategies and the tax advantages are clear.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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An insanely complex tax code offers opportunities. Perhaps by design: price discrimination by complexity.
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 Douglas Diamond |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Wenxin Du |
HBS | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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 Andrea Eisfeldt |
UCLA Anderson | Bio/Vote History | ||
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If substantial is defined as changing behavior it is possible that tax alpha strategies change behavior in the sense that investors avail themselves of them, while at the same time not changing their overall capital allocation decisions substantively.
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 Eugene Fama |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Xavier Gabaix |
Harvard | Bio/Vote History | ||
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 Itay Goldstein |
UPenn Wharton | Did Not Answer | Bio/Vote History | |
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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Could be 1-2% per annum which I consider "substantial"
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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 Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Deferral is valuable.
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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yes and look at the growth of assets under management for the firms that are offering these products, people have figured this out!
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 Arvind Krishnamurthy |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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 Loretta Mester |
UPenn Wharton | Bio/Vote History | ||
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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 Tyler Muir |
UCLA Anderson | Bio/Vote History | ||
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The aggressive versions clearly offer large benefits, one reason why this area has grown so much recently (even despite potentially regulatory risks).
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Higher financing and transaction costs, higher fees, and erosion of pre-tax alpha due to tax optimization may offset the tax benefits.
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 Dimitris Papanikolaou |
Northwestern Kellogg | Bio/Vote History | ||
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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 Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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 Thomas Philippon |
NYU Stern | Did Not Answer | Bio/Vote History | |
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 Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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 Paola Sapienza |
Hoover Institution Stanford | Bio/Vote History | ||
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1% additional return: unambiguously large enough to change HNW behavior which is exactly why AQR added roughly $47 billion and Quantinno ~$39 billion in tax-aware assets in about a year
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Assume you mean additional returns versus an otherwise non-active strategy. Probably adds some expected return, but also additional tracking error, leaving me uncertain about the net benefit in terms of risk-adjusted return.
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 Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Did Not Answer | Bio/Vote History | |
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 David Thesmar |
MIT Sloan | Bio/Vote History | ||
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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offsetting ordinary income with capital losses is generally hard, under scrutiny, and incurs substantial fees. Harvested losses lower the basis in replacement positions, resulting in deferral not avoidance.
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 Nancy Wallace |
Berkeley Haas | Bio/Vote History | ||
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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 Haoxiang Zhu |
MIT Sloan | Bio/Vote History | ||
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It really depends on the investment goal, i.e., whether the investor needs to realize the capital gains in the first place, before optimizing tax losses.
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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Viral Acharya |
NYU Stern | Bio/Vote History | ||
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It would seem that just offsetting taxes with losses might not be the predominnant form of tax "management" but I am not sure as to the impact on overall tax collection.... my instinct is that there are some bigger schemes at work!!
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John Campbell |
Harvard | Bio/Vote History | ||
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This will almost certainly be true in the future if no changes are made to tax law - and likely already true - but the current magnitude of the loss is hard to measure.
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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It's hard to complain of "tax loss" from people following perfectly legal strategies. One could phrase the question "before these strategies people were paying too much." Many were following other tax reduction strategies -- don't sell -- so revenue is hard. Consumption tax!
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Douglas Diamond |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Wenxin Du |
HBS | Bio/Vote History | ||
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Andrea Eisfeldt |
UCLA Anderson | Bio/Vote History | ||
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I have seen no reliable study addressing this question.
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Eugene Fama |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Did Not Answer | Bio/Vote History | |
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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The current-year deferred could be in the $10-$20b range. I am not sure that is "substantial" reduction.
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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It is legal, but not in the spirit of the law. Loophole should be closed.
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Arvind Krishnamurthy |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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the more important question is how to close such loopholes in the tax system--tax alpha being only the latest example
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Matteo Maggiori |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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Loretta Mester |
UPenn Wharton | Bio/Vote History | ||
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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We don’t know how much this affects the aggregate so hard to know what “substantial” is. We also don’t know how what the equilibrium effects are, which is typical of any tax impact analysis.
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Tyler Muir |
UCLA Anderson | Bio/Vote History | ||
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Not sure, my guess is the current scale is still too small to be "substantial" for overall tax revenue. But if aggressive versions are allowed I would expect continued massive growth and this could eventually have big effect
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Dimitris Papanikolaou |
Northwestern Kellogg | Bio/Vote History | ||
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Christine Parlour |
Berkeley Haas | Did Not Answer | Bio/Vote History | |
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Thomas Philippon |
NYU Stern | Did Not Answer | Bio/Vote History | |
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Hoover Institution Stanford | Bio/Vote History | ||
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It is a deferral - “substantial reductions in revenue” is too strong - what makes these deferrals permanent is character conversion of short-term into long-term gains, ordinary-loss generation, and step-up at death, not sure how big the permanent loss of revenues will be
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Did Not Answer | Bio/Vote History | |
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David Thesmar |
MIT Sloan | Bio/Vote History | ||
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Its billions of dollars, but probably substantially less than 1% of revenue.
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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fiscal effect is uncertain since benefits represent deferral, and there is no good data on unused loss carryforwards, future recapture, or losses eliminated through estate planning. Strategies that offset ordinary income would be a bigger fiscal problem.
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Nancy Wallace |
Berkeley Haas | Bio/Vote History | ||
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Haoxiang Zhu |
MIT Sloan | Bio/Vote History | ||
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Capital gain taxes are a small fraction of total tax received by the government.
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