Although tax reform has been in the national spotlight lately—between the Obama team's April Buffett Rule push and the Republican primary candidates' proposals (remember 9-9-9?)—don't expect corporate tax reform to be a legislative priority in the near future. “From the beginning, we acknowledged that this would be a heavy lift and take time,” an official from the Treasury Department said.
If the last ten years of debt and jobs destruction have taught us anything, it’s that we must change our tax system and soon, or face economic disaster. Instead of maintaining our infrastructure, we are consuming it. Instead of investing in education and research with an eye to later wealth, we’re cutting our way to a poorer future.
Mitt Romney has now disclosed that he paid only 14.5 percent of his reported income in federal income taxes in 2010. That’s no surprise. My group, Citizens for Tax Justice, predicted as much last fall, based on Romney’s previous disclosure that almost all of his 2010 income came from capital gains and dividends taxed at the low 15 percent top rate.
Newt Gingrich insists that this is not fair. Touting his own “flat tax” proposal on January 17, Newt said, “I think we ought to rename our flat tax, we have a 15 percent flat tax, so this would be the ‘Mitt Romney flat tax.’ All Americans would pay the rate Mitt Romney paid. I think it’s terrific.”
It may seem like a no-brainer that low corporate tax rates will attract investment from multinational corporations. However, the empirical evidence is surprisingly scanty, and in a forthcoming article in Comparative Political Studies (earlier non-paywalled version here), Nate Jensen finds no significant relationship across OECD countries, even when he tries to control for endogeneity.
The mantra that governments must remain competitive in the global marketplace by slashing levels of corporate taxation permeates public policy debates and has influenced academic scholarship. To date, few studies have systematically analyzed the impact of lowering levels of corporate taxation on changes in FDI inflows. Utilizing dynamic tests for up to 19 OECD countries from 1980 to 2000 and isolating the impact of time-varying factors on FDI inflows, I find no empirical relationship between corporate taxation and FDI inflows. Using a number of different tax rate variables, control variables, and estimation techniques, I find no relationship between corporate tax rate changes and FDI flows. This null results remains even after using delayed tax rate changes as an identification strategy to mitigate endogeneity concerns.This result has the potential to drive the tax policy literature and the broader literature on globalization and the states in a slightly different direction.
While Web developers and techies jetted to San Francisco this weekend for Apple’s Worldwide Developer Conference, protesters gathered at Apple stores across the country to oppose their effort to reduce the corporate tax rate.
If you haven't read The New York Times' lengthy investigation of how America's largest corporation, General Electric, avoids paying taxes, you ought to take a look, because it's a remarkable story. As the article says, "regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion. How do they do it? In two ways: they have a large, skilled, and creative tax department whose job is to ferret out every loophole they can exploit; and they have a huge lobbying operation, which enables them to rewrite the tax laws to their benefit.
According to Pat Garofalo's research, it can! Ireland has long been a favored economic example for conservatives, who loved its ridiculously low tax rates -- so low that the country's role as a corporate tax shelter actually distorted measures of its economic growth. Now that Ireland has been caught up in the financial crisis, conservatives are changing their tune and saying Ireland's big government led to disaster. Here's CATO's Dan Mitchell, in 2002: