The Corporate Tax Conundrum

What Corporate Tax for Europe?

A lower corporate tax rate would weaken this justification.

Instead of cutting proven tax incentives for business investment, the US should offset at least some of the revenue losses from a lower corporate tax rate by raising tax rates on corporate shareholders.

Indeed, cutting these items to pay for a reduction in the corporate tax rate could end up increasing the tax on corporate economic activity in the US.

As a consequence of the ensuing tax competition, corporate tax rates have fallen to 15 25 in most European countries.

The resulting revenue loss could be offset by raising the corporate tax rate.

The Supreme Court even found a corporate income tax law unconstitutional in 1909.

These revenue losses could be offset by curtailing so called corporate tax expenditures deductions, credits, and other special tax provisions that subsidize some economic activities while penalizing others and broadening the corporate tax base. Both President Barack Obama s plan for business tax reform and the Simpson Bowles deficit reduction plan propose reducing such expenditures to pay for a reduction in the corporate tax rate.

Reducing the tax rate for companies substantially, while eliminating targeted business tax preferences and broadening the corporate tax base, would increase both investment and workers wages.

In order to survive international tax competition and thus be able to rely on corporate taxes as a source of revenue Japan s corporate tax rate should be lowered in the long run.

Moreover, pension funds, retirement plans, and non profit organizations, which receive about 50 of all corporate dividends, do not pay tax on these earnings, and would benefit from a lower corporate tax rate.

That is why countries around the world have been cutting their corporate tax rates.

Maryland collected 1 billion in corporate income tax revenue, the most in the region.

Virginia has the lowest corporate income tax by far of the three jurisdictions (all of which have flat corporate rates) at 6 percent.

That had been accomplished by widening the tax base, improving administration efficiency, reducing corporate income tax, introducing a personal income tax of 10 per cent and keeping value added tax at 10 per cent.

A 15 tax would raise 300 billion. The choice of tax rate would be part of the negotiation over how far to reduce the overall US corporate tax rate.

BERKELEY The United States now has the highest statutory corporate income tax rate among developed countries.

Moreover, a high corporate tax rate is an ineffective and costly tool for producing revenues, owing to innovative financial transactions and legal tax avoidance mechanisms.

These so called inversions would reduce these companies total tax bill by allowing them to escape from the United States uniquely unfavorable corporate tax rules.

For example, a French firm that invests in Ireland pays the 12.5 Irish corporate tax but is then free to repatriate the after tax profits with a tax of less than 5 .

Economy Sunrise s strong tax base includes Sawgrass Mills, Sawgrass International Corporate Park, IKEA and other commercial development.

(If one worried about double taxation, one could allow a credit for corporate taxes on individual tax returns.)

While gains from fundamental tax reform say, replacing the current tax system with a broad based consumption tax are large, on the order of 0.5 1 percentage point per year of economic growth for a decade, corporate tax reform would also boost growth.

And curtailing accelerated depreciation, the manufacturing production deduction, and the R amp D tax credit which account for about 80 of corporate tax expenditures would involve significant tradeoffs.

In 1999, when Laar became Prime Minister again, he abolished the tax on corporate profit, which was harming entrepreneurship.

Most countries that reduced their corporate tax rates have followed this path, while the US has done the opposite.

Greece s tax system needs to be revamped, and the revenue authorities must be freed from political and corporate influence.

That said, if the goal of corporate tax reform is to boost investment and job creation, broadening the tax base to pay for a lower rate could be counterproductive.

Eliminating special interest loopholes, like tax breaks for oil and gas, or for corporate jets, would not yield enough revenue to pay for a meaningful rate cut. And curtailing accelerated depreciation, the manufacturing production deduction, and the R D tax credit which account for about 80 of corporate tax expenditures would involve significant tradeoffs.

Both President Barack Obama s plan for business tax reform and the Simpson Bowles deficit reduction plan propose reducing such expenditures to pay for a reduction in the corporate tax rate.

This could cover issues concerning harmonization of codes and policies, contract enforcement, tax and other incentives, monitoring of corporate practice with respect to transfer pricing, tax avoidance, and the like.

But only two policies are particularly promising for such a Pact for America federal infrastructure spending and corporate tax reform.

Given their policy objectives, conservatives should support a well crafted federal infrastructure program, and liberals should support corporate tax reform.

But each percentage point reduction in the corporate tax rate would reduce federal revenues by about 12 billion per year.

The second incentive is corporate tax exemption provided for the portion of profit generated through research and software development activities.

Instead, reasonably low and stable corporate tax rates should apply and all firms should operate under the same labour laws.

Next to the 100 billion annual rise in after tax corporate profits in the US in 2003, the scandals look puny.

This disincentive disappears if the corporate tax base is decoupled from current profits and linked to some broad measure of activity.

It would also be desirable to reduce the US corporate tax rate gradually, bringing it closer to the 25 OECD average.

Many developing countries lack a corporate income tax the huge profits of the telecom, cement, and other monopoly sectors escape taxation.

In the absence of close and broad international cooperation, the US must join the race and lower its corporate tax rate.

This disincentive disappears if the corporate tax base is decoupled from current profits and linked to some broad measure of activity.

The shift to a territorial system and a lower corporate tax rate would appeal to American multinational corporations even if they had to pay a 10 15 tax on accumulated past earnings.

Corporate tax expenditures narrow the base, raise the cost of tax compliance, and distort decisions about investment projects, how to finance them, what form of business organization to adopt, and where to produce.