After taking a leave from the Law School in 2021 to serve assistant secretary for tax policy at the US Department of the Treasury, Lily Batchelder, the Robert C. Kopple Family Professor of Taxation played a pivotal role in advancing some of the Biden administration’s most far-reaching legislative and regulatory initiatives. Issues addressed ranged from climate change to racial equity to advancing credit uptake.
As assistant secretary, Batchelder led Treasury’s Office of Tax Policy (OTP), which is responsible for developing and implementing the government’s tax policies and programs, negotiating tax treaties, and providing estimates for the president’s budget, fiscal policy decisions, and cash management decisions. In collaboration with partners across the US government, OTP also helps shape economic policy, health and retirement policy, and clean energy policy.
Batchelder had previously held other government positions. From 2014 to 2015, she was deputy director of the White House National Economic Council and deputy assistant to the president under President Barack Obama. And from 2010 to 2014, she served as majority chief tax counsel for the US Senate Committee on Finance.
We caught up with Batchelder to ask her about her most recent stint in government service.
Why did you decide to return to academia, and to NYU Law specifically?
There was never any question in my mind that I would return to academia and to NYU. It is such a privilege and a joy to be an academic. I love teaching—watching the lightbulbs go off as students understand just how impactful and fun tax is, teaching them how to interpret a statute and regulations and anticipate how the law may change, helping them improve their writing, mentoring them through law school and career choices, and seeing their careers flourish after they graduate. I also love having the freedom to research and write about what I think is important.
And NYU has always felt like my home professionally. I love its motto, “a private university in the public service.” I decided to come here many years ago because of the Law School’s commitment to public service—whether through our clinics, our public interest scholarship programs and their alumni networks, or our centers and faculty activities. And that commitment has just grown over time.
Now that I’m back, I am excited to get back to teaching and writing, and also to be closer to the important work we are doing at the NYU Tax Law Center, which I helped found before leaving for Treasury with my faculty co-director David Kamin, [Charles L. Denison Professor of Law], and which is led by Chye-Ching Huang. It’s a team of highly trained tax attorneys representing the public interest in tax policy through rigorous legal analysis. I see this work as critical because, despite the enormous stakes of tax policy for the general public, most lawyers in the field represent well-resourced private clients.
How did your work at the Treasury Department differ most notably from your previous work for Congress and in the White House?
I have been so honored and fortunate to have these three experiences in government, and I was surprised each time by how different each was from the other. When I worked for the Senate Finance Committee, we were obviously mainly focused on legislation. When I moved to the White House, there was less legislation happening, so my experience was partially shaped by that. Instead, the work focused more on how the president’s words and convening power can shape the public debate, whether through gathering stakeholders, or rapid response and fact sheets.
At Treasury, we did a lot of work on legislation, but we also spent huge amounts of time on tax regulations and the policy of tax administration, neither of which were major parts of my prior government positions. My team was also much larger. At Senate Finance, my team was around 15 people and at the White House’s National Economic Council, it was five or less. At Treasury, we started with about 100 lawyers, economists, accountants, and professional staff members in the Office of Tax Policy (OTP) and grew to about 120, thanks to funding from the Inflation Reduction Act. As a result, I spent much more time on management. In my role at Treasury, I also had more decision-making authority. We would always brief Secretary [Janet] Yellen on the largest and most consequential policy choices, but she had only so much time in the day and was responsible for a host of issues beyond tax. So many regulations and guidance projects were signed off on just by me and the Internal Revenue Service (IRS). Thankfully, I was blessed with an extraordinarily talented and dedicated team at OTP, whom I trusted to consider multiple perspectives and advise me well.
Tell us about the work of OTP, which you oversaw as assistant secretary, and how it evolved during your time there.
OTP is unusual in the federal government because it combines lawyers and economists in one office. OTP is responsible for the federal government’s work on domestic tax, international tax, tax aspects of employee benefits, and tax policy aspects of tax administration, whether through regulations, helping to develop legislative proposals, or estimating the revenue and distributional effects of tax policies.
When I started in 2021, some of our major areas of focus were international tax negotiations, furthering credit uptake, advising on legislation, and research on racial equity.
On the international front, Secretary Yellen was instrumental in negotiating an agreement among over 140 countries to update the international tax rules, on a scale not seen in a century. This included establishing a global minimum tax that will curtail the race to the bottom in corporate tax rates. OTP’s international teams were her primary advisers and negotiators in that effort.
We were also very focused on implementing the American Rescue Plan (ARP), which included a number of major and novel tax provisions that required guidance and partnering with the IRS and outside groups to increase take-up. For example, the ARP expanded the child tax credit to the lowest income children and, for the first time, provided that it should be paid out monthly. This expansion cut child poverty by almost half, to its lowest level on record. The ARP also expanded or extended other tax credits benefiting low- and middle-income households, like the earned income tax credit, stimulus payments, and health insurance premium tax credit. Lawyers in OTP and IRS issued guidance on these provisions so they could go into effect. And the economists in OTP worked to identify more than 10 million individuals and households who appeared to be eligible for these credits but hadn’t claimed them, so the IRS could send outreach letters making these taxpayers aware that they might be leaving money on the table.
We also spent a lot of time providing behind-the-scenes technical assistance on the legislation that ultimately became the Inflation Reduction Act.
Finally, we were very focused on implementing President Biden’s executive order on advancing racial equity and support for underserved communities. OTP’s economists developed a state-of-the-art model for imputing race and ethnicity on to tax data because the IRS of course doesn’t collect data on race. They then used this model as the foundation for a series of papers where Treasury, for the first time, analyzed aspects of the tax system through the lens of race and ethnicity, much as it looks at the distributional effects of the tax system by other demographic characteristics. In one particularly notable paper, a group of researchers, some economists in OTP and some in academia, identified audit disparities by race and ethnicity, which the IRS is now working to address.
This work was keeping us very busy, but starting in the summer of 2022, OTP’s responsibilities expanded significantly when Congress enacted a series of bills in rapid succession that were, in whole or in part, tax legislation. These included the CHIPS and Science Act, the Infrastructure and Jobs Act, SECURE 2.0, and, most notably, the Inflation Reduction Act (IRA). Together with the IRS, OTP was responsible for implementing the tax provisions in these bills, including issuing regulations and guidance, and partnering with the IRS on tax policy questions related to tax administration.
This was, and continues to be, a huge and exciting undertaking. The IRA is the largest climate legislation in US history, and the vast majority of its climate provisions are delivered through an estimated $900 billion in tax incentives. Providing clarity and certainty through guidance is key to unlocking these climate benefits, so we were sprinting to get guidance out with IRS Chief Counsel. Ultimately, we issued more than 50 proposed rules, final rules, and pieces of sub-regulatory guidance on the IRA’s clean energy provisions before I left. The guidance process for these clean energy provisions was particularly complicated because the law frequently references the law or models of other agencies, and other agencies often had very valuable expertise on clean energy. So we were partnering with and learning from a huge array of components of the federal government, whether it was the Department of Energy, Environmental Protection Agency, Department of Labor, Department of Commerce, US Department of Agriculture, State Department, or components of the White House like the National Economic Council and Office of Clean Energy Innovation and Implementation.
The IRA also included an entirely new corporate tax that is based on larger corporations’ financial accounting income. And it included a historic investment of $60 billion in long-term funding for the IRS.
Throughout my time there, there were also certain constants. For example, OTP is responsible for the “Greenbook”, which is the book of tax proposals in the annual President’s Budget, and for estimating receipts for purposes of the budget and cash management decisions. There is also a large backlog in regulations and sub-regulatory guidance that needs to be issued to provide clarity to taxpayers, so we kept trying to plug away at that backlog.
What is it about tax incentives that makes them an effective way of implementing policy in areas like climate change and health care?
To be honest, the biggest reason why so much policy is done through the tax code is Senate procedural rules. Laws changing annual appropriations or applying regulatory floors or limits are subject to the filibuster in the Senate. This means that if you want to put a cap on carbon emissions or increase the minimum wage or regulate prices for pharmaceutical drugs, you need 60 votes in the Senate, which one party very rarely has. But if you can further those policy goals through tax incentives, there is a procedural path in the Senate, called the reconciliation process, where legislation can be passed with 50 votes. This is how some of the most consequential legislation in the past several decades was passed, including the Bush tax cuts, Affordable Care Act, Tax Cuts and Jobs Act, American Rescue Plan, and IRA.
Over time, the tax system and IRS have evolved to become more effective at implementing such policies through the tax code, though there is always more that can be done. For example, the IRS was able to get out more than half of the stimulus checks within three weeks of enactment and achieved a 92 percent take-up rate, which is remarkable compared to direct spending programs. Tax law and tax administration have also evolved in other ways to operate more in real time. The increased, long-term funding for the IRS in the IRA is necessary to make tax administration fairer and provide a better customer experience. But it is also necessary to effectively implement these policies in the tax code.
How will the Supreme Court ruling in June overturning “Chevron deference” affect the Treasury Department and the IRS?
There have been several recent Supreme Court that have changed the legal landscape for tax regulations, potentially dramatically. One is the Loper Bright case, which overturned Chevron, and held that courts, not agencies, have the ultimate say in interpreting ambiguous statutes absent a delegation of discretion to the agency and, in such cases of non-delegation, courts should identify the single best interpretation with no deference to the agency. The decision was only issued on June 28, so it is not yet clear how lower courts will interpret it in the tax context.
My hope is that courts will understand that Congress has and does delegate a lot of authority to Treasury and the IRS to interpret tax law. I can’t tell you how many times when I was on the Hill, a question would come up about how to define a term or flesh out a concept and—after wrestling with how to do so in a way that would limit gaming and mesh with the rest of the tax code—we’d decide that Treasury and IRS were much more capable of doing so than us, so we would leave the concept vague. But it remains to be seen whether lower courts will give full effect to these delegations.
You post about tax law and policy on X (formerly Twitter). What value have you found in using social media?
I remember on the Hill being frustrated by how much misinformation there was out there about tax. Some of it was just getting the facts wrong, but often it was selectively presenting facts in a way that made someone’s point but ignored that larger context. I semi-joked that when I returned to academia, I was going to become a fact checker. When I did return, I discovered that Twitter could be a useful way to do so in real time. What I enjoyed most was using it to present facts in charts that were more easily digestible than, say, a large table of raw numbers released by the Joint Committee on Taxation. I also found it to be a valuable resource for learning from my fellow tax and economic policy nerds. For a while, there was a really lively and bipartisan group of people tweeting about tax and fiscal policy developments, and helping each other understand what different legislative or regulatory proposals meant. That unfortunately declined precipitously after Twitter became X.
Posted September 6, 2024