Fuck its silent in here.......

[Chuck to Chuck]

You want to create jobs through fiscal policy?

NO!

I want the government to pick services to provide and fund them.  Government jobs creation is a GOVERNMENT PROGRAM!!!!

[morpheus]

You want to create jobs through fiscal policy?

NO!

I want the government to pick services to provide and fund them.  Government jobs creation is a GOVERNMENT PROGRAM!!!!

Governments can't create jobs.  They can get out of the way, though.  That's what I'm talking about.

[J. Walter Weatherman]

And don't get me started on the corporate tax rate, a major reason why corporations shift their business and jobs elsewhere.  The U.S. has the second-highest corporate tax rate in the developed world.  You want to create jobs through fiscal policy?  Lowering the corporate tax rate is one of the surest ways to do it, as it will make the US more competitive versus other countries as far as where businesses locate their operations.

And yet...

http://www.taxanalysts.com/www/features.nsf/Articles/FE9DCA58402875D7852573680064DA50?OpenDocument

The background paper reports that the United States has the second highest combined (federal and state) statutory corporate income tax rate among the 30 member countries of the OECD. At 39 percent, the U.S. combined statutory corporate tax rate is reported to be 8 percentage points higher than the OECD average. More recent data collected by the OECD show that the OECD average corporate tax rate has fallen to 28.4 percent in 2006, almost 11 percentage points below the U.S. tax rate. This gap continues to widen. Legislation has been enacted further reducing corporate tax rates in Germany (from 38.9 percent to 29.8 percent), the United Kingdom (from 30 percent to 28 percent), and Denmark (from 28 percent to 25 percent).

Although the United States has the second highest statutory corporate tax, the background paper reports that U.S. corporate income tax revenue (federal and state) as a percentage of GDP paradoxically is much lower than the OECD average — 2.2 percent in the United States versus an OECD average of 3.4 percent — over the 2000-2005 period. In short, the OECD data present a conundrum — the United States has the second highest combined statutory corporate tax rate among OECD countries, yet is tied with Hungary in raising the fourth lowest amount of combined corporate income tax revenue relative to GDP in 2004.

...

A second explanation is that high statutory tax rates encourage U.S. corporations to structure their investments with an eye to tax efficiency. For example, high corporate tax rates encourage increased usage of debt finance and discourage sale of appreciated corporate assets and repatriation of foreign subsidiary profits. As a result of these types of behavioral responses, the experience in OECD countries is that corporate income tax revenue does not rise in proportion to increases in the statutory tax rate. Using data on corporate tax rates and collections over the 1980-2005 period, a recent study by Alex Brill and Kevin Hassett finds that the revenue- maximizing central government corporate tax rate in the OECD is now about 26 percent. In other words, an increase in the average OECD corporate tax rate above 26 percent would be expected to reduce, rather than increase, total OECD member corporate tax revenue.

There is a third explanation that has received relatively little attention, yet may be the single-most important answer to the corporate tax conundrum. In the United States, federal and state business and tax laws provide firms with considerable flexibility in the legal form of organization. Rather than organize as regular corporations subject to two levels of tax (at the corporation and the shareholder levels), businesses may organize as S corporations, partnerships, or limited liability companies that are not subject to entity-level tax. Since the Tax Reform Act of 1986, which lowered the top individual income tax rate below the top corporate tax rate, the share of taxable business income earned through passthrough entities (including sole proprietorships) has increased by 75 percent from 29 percent in 1987 to 52 percent in 2004 (see table). There is a large body of empirical evidence that confirms that corporate income tax rates that are high relative to individual income tax rates reduce the share of U.S. business activity conducted in corporate form.

[R-V]

And don't get me started on the corporate tax rate, a major reason why corporations shift their business and jobs elsewhere.  The U.S. has the second-highest corporate tax rate in the developed world.  You want to create jobs through fiscal policy?  Lowering the corporate tax rate is one of the surest ways to do it, as it will make the US more competitive versus other countries as far as where businesses locate their operations.

And yet...

http://www.taxanalysts.com/www/features.nsf/Articles/FE9DCA58402875D7852573680064DA50?OpenDocument

The background paper reports that the United States has the second highest combined (federal and state) statutory corporate income tax rate among the 30 member countries of the OECD. At 39 percent, the U.S. combined statutory corporate tax rate is reported to be 8 percentage points higher than the OECD average. More recent data collected by the OECD show that the OECD average corporate tax rate has fallen to 28.4 percent in 2006, almost 11 percentage points below the U.S. tax rate. This gap continues to widen. Legislation has been enacted further reducing corporate tax rates in Germany (from 38.9 percent to 29.8 percent), the United Kingdom (from 30 percent to 28 percent), and Denmark (from 28 percent to 25 percent).

Although the United States has the second highest statutory corporate tax, the background paper reports that U.S. corporate income tax revenue (federal and state) as a percentage of GDP paradoxically is much lower than the OECD average — 2.2 percent in the United States versus an OECD average of 3.4 percent — over the 2000-2005 period. In short, the OECD data present a conundrum — the United States has the second highest combined statutory corporate tax rate among OECD countries, yet is tied with Hungary in raising the fourth lowest amount of combined corporate income tax revenue relative to GDP in 2004.

...

A second explanation is that high statutory tax rates encourage U.S. corporations to structure their investments with an eye to tax efficiency. For example, high corporate tax rates encourage increased usage of debt finance and discourage sale of appreciated corporate assets and repatriation of foreign subsidiary profits. As a result of these types of behavioral responses, the experience in OECD countries is that corporate income tax revenue does not rise in proportion to increases in the statutory tax rate. Using data on corporate tax rates and collections over the 1980-2005 period, a recent study by Alex Brill and Kevin Hassett finds that the revenue- maximizing central government corporate tax rate in the OECD is now about 26 percent. In other words, an increase in the average OECD corporate tax rate above 26 percent would be expected to reduce, rather than increase, total OECD member corporate tax revenue.

There is a third explanation that has received relatively little attention, yet may be the single-most important answer to the corporate tax conundrum. In the United States, federal and state business and tax laws provide firms with considerable flexibility in the legal form of organization. Rather than organize as regular corporations subject to two levels of tax (at the corporation and the shareholder levels), businesses may organize as S corporations, partnerships, or limited liability companies that are not subject to entity-level tax. Since the Tax Reform Act of 1986, which lowered the top individual income tax rate below the top corporate tax rate, the share of taxable business income earned through passthrough entities (including sole proprietorships) has increased by 75 percent from 29 percent in 1987 to 52 percent in 2004 (see table). There is a large body of empirical evidence that confirms that corporate income tax rates that are high relative to individual income tax rates reduce the share of U.S. business activity conducted in corporate form.

I'm in favor of a much lower corporate tax rate...if the tradeoff is we increase individual tax rates as an offset so total revenue remains the same. Corporations don't pay tax anyway; people pay tax. Might as well cut out the middleman. And morph is right that a lower corporate tax rate would discourage offshoring and encourage repatriation of capital (and jobs). Permanently lowering the corporate rate is a much better idea than these every-so-often repatriation holidays which totally screw up incentives.

[morpheus]

And don't get me started on the corporate tax rate, a major reason why corporations shift their business and jobs elsewhere.  The U.S. has the second-highest corporate tax rate in the developed world.  You want to create jobs through fiscal policy?  Lowering the corporate tax rate is one of the surest ways to do it, as it will make the US more competitive versus other countries as far as where businesses locate their operations.

And yet...

http://www.taxanalysts.com/www/features.nsf/Articles/FE9DCA58402875D7852573680064DA50?OpenDocument

The background paper reports that the United States has the second highest combined (federal and state) statutory corporate income tax rate among the 30 member countries of the OECD. At 39 percent, the U.S. combined statutory corporate tax rate is reported to be 8 percentage points higher than the OECD average. More recent data collected by the OECD show that the OECD average corporate tax rate has fallen to 28.4 percent in 2006, almost 11 percentage points below the U.S. tax rate. This gap continues to widen. Legislation has been enacted further reducing corporate tax rates in Germany (from 38.9 percent to 29.8 percent), the United Kingdom (from 30 percent to 28 percent), and Denmark (from 28 percent to 25 percent).

Although the United States has the second highest statutory corporate tax, the background paper reports that U.S. corporate income tax revenue (federal and state) as a percentage of GDP paradoxically is much lower than the OECD average — 2.2 percent in the United States versus an OECD average of 3.4 percent — over the 2000-2005 period. In short, the OECD data present a conundrum — the United States has the second highest combined statutory corporate tax rate among OECD countries, yet is tied with Hungary in raising the fourth lowest amount of combined corporate income tax revenue relative to GDP in 2004.

...

A second explanation is that high statutory tax rates encourage U.S. corporations to structure their investments with an eye to tax efficiency. For example, high corporate tax rates encourage increased usage of debt finance and discourage sale of appreciated corporate assets and repatriation of foreign subsidiary profits. As a result of these types of behavioral responses, the experience in OECD countries is that corporate income tax revenue does not rise in proportion to increases in the statutory tax rate. Using data on corporate tax rates and collections over the 1980-2005 period, a recent study by Alex Brill and Kevin Hassett finds that the revenue- maximizing central government corporate tax rate in the OECD is now about 26 percent. In other words, an increase in the average OECD corporate tax rate above 26 percent would be expected to reduce, rather than increase, total OECD member corporate tax revenue.

There is a third explanation that has received relatively little attention, yet may be the single-most important answer to the corporate tax conundrum. In the United States, federal and state business and tax laws provide firms with considerable flexibility in the legal form of organization. Rather than organize as regular corporations subject to two levels of tax (at the corporation and the shareholder levels), businesses may organize as S corporations, partnerships, or limited liability companies that are not subject to entity-level tax. Since the Tax Reform Act of 1986, which lowered the top individual income tax rate below the top corporate tax rate, the share of taxable business income earned through passthrough entities (including sole proprietorships) has increased by 75 percent from 29 percent in 1987 to 52 percent in 2004 (see table). There is a large body of empirical evidence that confirms that corporate income tax rates that are high relative to individual income tax rates reduce the share of U.S. business activity conducted in corporate form.

The third explanation, that people respond to incentives by avoiding taxes through the form of business organization chosen, does make some sense to me.  However, it's also a fact that corporations choose where to locate their investments on an after-tax basis, and the US features not only high statutory rates, but also high effective rates.  And I'd bet this is the larger effect.

[Bort]

high statutory rates

Yeti got nervous for a second there...

[thehawk]

Morph and Chuck,

Both of you know that the tax rates in the US are a canard.  Effective tax rates are what should matter (I dont think many Fortune 400 companies are paying effective tax rates of 29% or 20%).  What the US probably should do is go to a unitary tax system like Canada and most of Western Europe has gone to, which eliminates the 'shell game' to some degree, but I do not imiagine that happening anytime soon.

Morph, we'll agree to differ on whether tax regimes 'should' promote income equality or inequality, but they always do.  I'm more a political scientiest and historian than economist, so maybe I look at this differently, but highly unequal income levels have never been compatable with stable democracies (or, ironically, good condtions for long term economic development).

[morpheus]

I'm in favor of a much lower corporate tax rate...if the tradeoff is we increase individual tax rates as an offset so total revenue remains the same. Corporations don't pay tax anyway; people pay tax. Might as well cut out the middleman. And morph is right that a lower corporate tax rate would discourage offshoring and encourage repatriation of capital (and jobs). Permanently lowering the corporate rate is a much better idea than these every-so-often repatriation holidays which totally screw up incentives.

No, no, no.  You want to raise revenue, then flatten the tax structure and get rid of loopholes and deductions.  Raising individual rates will only lead to an increase in tax avoidance, especially by the so-called "rich."

[morpheus]

Morph and Chuck,

Both of you know that the tax rates in the US are a canard.  Effective tax rates are what should matter (I dont think many Fortune 400 companies are paying effective tax rates of 29% or 20%).  What the US probably should do is go to a unitary tax system like Canada and most of Western Europe has gone to, which eliminates the 'shell game' to some degree, but I do not imiagine that happening anytime soon.

Morph, we'll agree to differ on whether tax regimes 'should' promote income equality or inequality, but they always do.  I'm more a political scientiest and historian than economist, so maybe I look at this differently, but highly unequal income levels have never been compatable with stable democracies (or, ironically, good condtions for long term economic development).

I think I addressed your first point.  The corporate effective average tax rate in the US is also the second highest among OECD countries, and the effective marginal rate is fifth highest.  See my earlier link for details.

[R-V]

I'm in favor of a much lower corporate tax rate...if the tradeoff is we increase individual tax rates as an offset so total revenue remains the same. Corporations don't pay tax anyway; people pay tax. Might as well cut out the middleman. And morph is right that a lower corporate tax rate would discourage offshoring and encourage repatriation of capital (and jobs). Permanently lowering the corporate rate is a much better idea than these every-so-often repatriation holidays which totally screw up incentives.

No, no, no.  You want to raise revenue, then flatten the tax structure and get rid of loopholes and deductions.  Raising individual rates will only lead to an increase in tax avoidance, especially by the so-called "rich."

Sure, that'd be great and I'm in favor of it if we are talking about an ideal world. But realistically it'll never hai. Mortgage interest and the health insurance exclusion are so entrenched that I doubt we'll ever see significant changes made to them.

[J. Walter Weatherman]

The third explanation, that people respond to incentives by avoiding taxes through the form of business organization chosen, does make some sense to me.  However, it's also a fact that corporations choose where to locate their investments on an after-tax basis, and the US features not only high statutory rates, but also high effective rates.  And I'd bet this is the larger effect.

http://www.techceocouncil.org/clientuploads/reports/Are_US_corporate_ETRs_low_20100202.pdf

Although the United States relies more heavily on corporate taxes to finance the cost of government than the average OECD country, corporate taxes as a share of U.S. GDP are below the OECD average. The share of corporate tax revenues in GDP is not, however, a reliable indicator of effective corporate tax rates, because the portion of business income earned by companies subject to corporate tax varies among countries. The United States has a substantially larger share of businesses that are not subject to corporate-level tax, especially big businesses, than other OECD countries.17 Over 80 percent of U.S. businesses in 2004 and more than half of business income reported in 2002 were organized as pass-through entities and not subject to corporate-level tax.18 As a result, the taxes paid by U.S. corporations as a share of corporate profits (i.e., the effective tax rate) can be relatively high (as found in the literature reviewed above) while, at the same time, corporate tax revenues as a share of GDP (which includes economic activity of corporations and unincorporated businesses) are relatively low.

And this...

I'm in favor of a much lower corporate tax rate...if the tradeoff is we increase individual tax rates as an offset so total revenue remains the same. Corporations don't pay tax anyway; people pay tax. Might as well cut out the middleman. And morph is right that a lower corporate tax rate would discourage offshoring and encourage repatriation of capital (and jobs). Permanently lowering the corporate rate is a much better idea than these every-so-often repatriation holidays which totally screw up incentives.

... all sounds good to me.

[morpheus]

The third explanation, that people respond to incentives by avoiding taxes through the form of business organization chosen, does make some sense to me.  However, it's also a fact that corporations choose where to locate their investments on an after-tax basis, and the US features not only high statutory rates, but also high effective rates.  And I'd bet this is the larger effect.

http://www.techceocouncil.org/clientuploads/reports/Are_US_corporate_ETRs_low_20100202.pdf

Although the United States relies more heavily on corporate taxes to finance the cost of government than the average OECD country, corporate taxes as a share of U.S. GDP are below the OECD average. The share of corporate tax revenues in GDP is not, however, a reliable indicator of effective corporate tax rates, because the portion of business income earned by companies subject to corporate tax varies among countries. The United States has a substantially larger share of businesses that are not subject to corporate-level tax, especially big businesses, than other OECD countries.17 Over 80 percent of U.S. businesses in 2004 and more than half of business income reported in 2002 were organized as pass-through entities and not subject to corporate-level tax.18 As a result, the taxes paid by U.S. corporations as a share of corporate profits (i.e., the effective tax rate) can be relatively high (as found in the literature reviewed above) while, at the same time, corporate tax revenues as a share of GDP (which includes economic activity of corporations and unincorporated businesses) are relatively low.

And this...

I'm in favor of a much lower corporate tax rate...if the tradeoff is we increase individual tax rates as an offset so total revenue remains the same. Corporations don't pay tax anyway; people pay tax. Might as well cut out the middleman. And morph is right that a lower corporate tax rate would discourage offshoring and encourage repatriation of capital (and jobs). Permanently lowering the corporate rate is a much better idea than these every-so-often repatriation holidays which totally screw up incentives.

... all sounds good to me.

Tank, your point is that high corporate tax rates lead to avoidance of corporate taxes?  Then I guess I agree.  However, are you seriously arguing that lowering the corporate tax rate in the U.S. would not lead to more multinationals engaging in economic activity based in the U.S.?  That is pretty hard to believe.

[morpheus]

DPD.  The effective corporate tax on new investment is higher in the U.S. than pretty much anywhere.

[J. Walter Weatherman]

The third explanation, that people respond to incentives by avoiding taxes through the form of business organization chosen, does make some sense to me.  However, it's also a fact that corporations choose where to locate their investments on an after-tax basis, and the US features not only high statutory rates, but also high effective rates.  And I'd bet this is the larger effect.

http://www.techceocouncil.org/clientuploads/reports/Are_US_corporate_ETRs_low_20100202.pdf

Although the United States relies more heavily on corporate taxes to finance the cost of government than the average OECD country, corporate taxes as a share of U.S. GDP are below the OECD average. The share of corporate tax revenues in GDP is not, however, a reliable indicator of effective corporate tax rates, because the portion of business income earned by companies subject to corporate tax varies among countries. The United States has a substantially larger share of businesses that are not subject to corporate-level tax, especially big businesses, than other OECD countries.17 Over 80 percent of U.S. businesses in 2004 and more than half of business income reported in 2002 were organized as pass-through entities and not subject to corporate-level tax.18 As a result, the taxes paid by U.S. corporations as a share of corporate profits (i.e., the effective tax rate) can be relatively high (as found in the literature reviewed above) while, at the same time, corporate tax revenues as a share of GDP (which includes economic activity of corporations and unincorporated businesses) are relatively low.

And this...

I'm in favor of a much lower corporate tax rate...if the tradeoff is we increase individual tax rates as an offset so total revenue remains the same. Corporations don't pay tax anyway; people pay tax. Might as well cut out the middleman. And morph is right that a lower corporate tax rate would discourage offshoring and encourage repatriation of capital (and jobs). Permanently lowering the corporate rate is a much better idea than these every-so-often repatriation holidays which totally screw up incentives.

... all sounds good to me.

Tank, your point is that high corporate tax rates lead to avoidance of corporate taxes?  Then I guess I agree.  However, are you seriously arguing that lowering the corporate tax rate in the U.S. would not lead to more multinationals engaging in economic activity based in the U.S.?  That is pretty hard to believe.

Where did I argue that?

[morpheus]

The third explanation, that people respond to incentives by avoiding taxes through the form of business organization chosen, does make some sense to me.  However, it's also a fact that corporations choose where to locate their investments on an after-tax basis, and the US features not only high statutory rates, but also high effective rates.  And I'd bet this is the larger effect.

http://www.techceocouncil.org/clientuploads/reports/Are_US_corporate_ETRs_low_20100202.pdf

Although the United States relies more heavily on corporate taxes to finance the cost of government than the average OECD country, corporate taxes as a share of U.S. GDP are below the OECD average. The share of corporate tax revenues in GDP is not, however, a reliable indicator of effective corporate tax rates, because the portion of business income earned by companies subject to corporate tax varies among countries. The United States has a substantially larger share of businesses that are not subject to corporate-level tax, especially big businesses, than other OECD countries.17 Over 80 percent of U.S. businesses in 2004 and more than half of business income reported in 2002 were organized as pass-through entities and not subject to corporate-level tax.18 As a result, the taxes paid by U.S. corporations as a share of corporate profits (i.e., the effective tax rate) can be relatively high (as found in the literature reviewed above) while, at the same time, corporate tax revenues as a share of GDP (which includes economic activity of corporations and unincorporated businesses) are relatively low.

And this...

I'm in favor of a much lower corporate tax rate...if the tradeoff is we increase individual tax rates as an offset so total revenue remains the same. Corporations don't pay tax anyway; people pay tax. Might as well cut out the middleman. And morph is right that a lower corporate tax rate would discourage offshoring and encourage repatriation of capital (and jobs). Permanently lowering the corporate rate is a much better idea than these every-so-often repatriation holidays which totally screw up incentives.

... all sounds good to me.

Tank, your point is that high corporate tax rates lead to avoidance of corporate taxes?  Then I guess I agree.  However, are you seriously arguing that lowering the corporate tax rate in the U.S. would not lead to more multinationals engaging in economic activity based in the U.S.?  That is pretty hard to believe.

Where did I argue that?

I have argued that the corporate tax rate is too high in the U.S. and that lowering it would lead to more job creation.  You responded with this stuff about corporations vs. noncorporations in the U.S.  I took that to mean that you were trying to rebut my argument somehow.  Are you not?