OMG Transatlantic Tax Talks: Daniel Hemel


Daniel Hemel

Read more about Daniel Hemel


Michael Devereux (Oxford)
Lilian Faulhaber (Georgetown)
Michelle Hanlon (MIT)
Jim Hines (Michigan)
Wolfgang Schön (Max Planck)
John Vella (Oxford)

What is OMG?

On behalf of the Oxford University Centre for Business Taxation, University of Michigan, Massachusetts Institute of Technology, Max Planck Institute for Tax Law and Public Finance, and Georgetown University Law Center, we are excited to announce the OMG Transatlantic Tax Talks will continue this academic year. (Why OMG? Oxford-Michigan-MIT-Munich-Georgetown.) 

This speaker series will be taking place on Zoom. It is an interdisciplinary series, with experts in taxation from law, economics, and accounting presenting their work.

Daniel Hemel, NYU School of Law, will present his paper "The Realization Doctrine and the Optimal Taxation of Capital Income" (co-written with Dhammika Dharmapala) on Thursday 18 May. 

All talks will be on Zoom at 11:00 Eastern time/4:00 UK/5:00 CET. Presenters will speak for about 20 minutes, and the remaining 40 minutes will be used for Q&A. 


The realization requirement—a common feature of real-world capital income tax systems—defers the taxation of gains until the sale or other disposition of assets. As implemented, it generally imposes effective capital income tax rates that decline over a taxpayer’s holding period. Scholars of tax law and public finance have long appreciated that the realization requirement generates a deferral benefit and an associated allocative inefficiency (the “lock-in effect”). However, they have largely overlooked the relationship between realization and the optimal taxation of capital over the lifecycle. In this paper, we connect the realization requirement to canonical results in the optimal tax literature—in particular, the Atkinson-Stiglitz argument for the nontaxation of retirement savings and the Diamond-Mirrlees argument for high tax rates on savings withdrawn in midlife. First, we reconcile these results in a simple three-period framework with stochastic skill shocks in the middle period, demonstrating that the optimal tax rate on savings withdrawn in the middle period is high while the optimal tax rate on savings withdrawn in the final period is zero. We next show how the realization requirement partially implements the optimal age-dependent capital income tax schedule. Then, we consider alternative implementations of the optimal age-dependent capital tax regime, such as tax-preferred retirement savings accounts, as well as the relationship between the realization requirement and the optimal age-dependent labor income tax schedule. Our analysis does not provide a standalone justification for the realization requirement, but it highlights potentially salutary effects of the realization rule that policymakers may seek to preserve or enhance as part of any comprehensive capital tax reform.