A Review of Selected Corporate Tax Privileges

Picture illustration of people silhouetted against a backdrop projected with the picture of various currencies of money

The conversation on corporate tax expenditures is complicated by an official tax baseline that relies on a misleading definition of spending through the tax code.

Adam Michel and Veronique de Rugy write:

The US government uses the term tax expenditure to describe both privileges granted to politically favored special interests and patches to the tax system that address economic inefficiencies created by the income tax code. This use of the term confuses two very different phenomena and muddies policy discussions about tax reform.

[Read the full story here, at Mercatus Center]

A new study from the Mercatus Center at George Mason University examines the current accounting of tax expenditures, presents case studies of some corporate tax expenditures, and proposes reforms to reduce favoritism in the tax code. The study investigates the difference between tax expenditures that privilege a particular group at the expense of others and tax provisions that, if properly accounted for, would not be counted as tax expenditures at all.

A teller counts US dollars and Chinese 100-yuan notes at a bank in Hefei, east China's Anhui province on January 16, 2011

BACKGROUND

A corporate tax expenditure is defined as a provision in the tax code that allows a firm or group of firms to not pay a tax which would otherwise be collected.

  • The modern US tax system is built on the income tax. This system double-taxes investment and savings, distorting market decisions and slowing economic growth.
  • To correct these distortions in the income tax, some special tax provisions were created to mitigate biases against savings and investment and offset other distortions.
  • Current methods employed by Congress’s Joint Committee on Taxation (JCT) and the administration’s Office of Management and Budget (OMB) for assessing the fiscal impact of tax expenditures use the income tax as the “baseline” from which to make their count.
  • Under the current accounting methods, broadly available tax expenditures that correct for economic bias are economically indistinguishable from government-provided tax subsidies that benefit some businesses and industries at the expense of others.
  • A superior tax expenditure baseline would rely on consumption, which would provide a more equal
    treatment of economic activity and focus attention on tax provisions that truly provide unfair advantages.

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[Read the more here, at Mercatus Center]

However, even by the standards of a consumption baseline, most corporate tax expenditures are unnecessary privileges that provide unfair advantages to certain industries and firms.

  • Sixty-five percent of corporate tax expenditures privilege certain activities or industries while excluding others.
  • The proliferation of corporate tax expenditures results in disparate effective tax rates that distort consumption and investment and motivate wasteful rent-seeking.
  • The growth of tax expenditures also increases compliance costs by contributing to the lengthening of the tax code, which in the past 30 years has nearly tripled in length, from 26,300 pages in 1984 to the almost 75,000-page behemoth it is today.

Read the rest of this entry »


[VIDEO] Is Capitalism Moral? 

Is capitalism moral or greedy? If it’s based on greed and selfishness, what’s the best alternative economic system? Perhaps socialism? And if capitalism is moral, what makes it so? Walter Williams, a renowned economist at George Mason University, answers these questions and more.


SPEECH CODE SLAYER AWARD: George Mason University Given Highest Rating

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George Mason University also becomes the third green light institution in the state of Virginia, joining the University of Virginia and The College of William & Mary

WASHINGTON, April 21, 2015—George Mason University (GMU) has eliminated all of its speech codes, earning the highest, “green light” rating from the Foundation for Individual Rights in Education (FIRE). After working with FIRE to ensure its policies comply with the First Amendment, the Virginia university has joined a select group of colleges and universities nationwide to earn FIRE’s most favorable rating for free speech on campus.

“Freedom of speech and academic freedom are core values of a university’s mission. I’m delighted that George Mason has joined the ranks of universities that have committed themselves to the full protection of free speech. Thank you to our administration for their dedicated work in providing a context where students and faculty can express controversial ideas freely, and even inartfully, without fear of reprisal.”

“We commend George Mason University for improving its policies and fully upholding the First Amendment rights of its students and faculty members,” said Azhar Majeed, Director of FIRE’s Individual Rights Education Program. “GMU is now a national leader in terms of respecting free speech in higher education, and the university’s actions should serve as a positive example for other institutions to follow.”

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Foundation for Individual Rights in Education Awards Highest Free Speech Rating to George Mason University 

FIRE has been advocating for speech code reform at GMU for nearly a decade. In May 2014, Majeed and GMU Director of Special Diversity Projects Dennis Webster began working together to revise seven university policies, including a flyer posting policy, a sexual harassment policy, two provisions from the student conduct code, and a policy on leafleting. GMU Foundation Professor of Law Todd Zywicki also assisted in the effort.

“We commend George Mason University for improving its policies and fully upholding the First Amendment rights of its students and faculty members. GMU is now a national leader in terms of respecting free speech in higher education, and the university’s actions should serve as a positive example for other institutions to follow.”

— Azhar Majeed, Director of FIRE’s Individual Rights Education Program

“Freedom of speech and academic freedom are core values of a university’s mission,” said Zywicki. “I’m delighted that George Mason has joined the ranks of universities that have committed themselves to the full protection of free speech. Thank you to our administration for their dedicated work in providing a context where students and faculty can express controversial ideas freely, and even inartfully, without fear of reprisal.” Read the rest of this entry »


[BOOKS] F.H. Buckley: ‘The Presidency Has Turned Into an Elective Monarchy’

“Presidentialism is significantly and strongly correlated with less political freedom.”

The Once and Future King: The Rise of Crown Government in Americabuckleybook by F.H. Buckley, Encounter Books, 2014, 319 pages, $27.99.

For Reason writes: Try making sense out of what Americans tell pollsters. According to the Pew Research Centerfewer than one in five of us trusts the federal government. Gallup says that nearly three quarters of us consider it “the biggest threat to the country in the future.”

[Check out Buckley’s book “The Once and Future King” at Amazon.com]

Yet by equally overwhelming margins, Gallup shows Americans agreeing that “the United States has a unique character because of its history and Constitution that sets it apart from other nations as the greatest in the world.”

[Also see Juan Linz‘s 1990 article “The Perils of Presidentialism”]

Apparently, we’re disgusted and frightened by our government as it actually operates. And yet we’re convinced that we’ve got the best system ever devised by the mind of man.

On both counts, no one’s more convinced than American conservatives. Few goquite as far toward constitutional idolatry as former House Majority Leader Tom Delay, who earlier this year proclaimed that God “wrote the Constitution.” But the superiority of our national charter, with its separation of powers and independently elected national executive, is an article of faith for conservatives.

It’s about time for some constitutional impiety on the right, and F.H. Buckley answers the call in his bracing and important new book, The Once and Future King. Buckley, a professor of law at George Mason University and a senior editor at The American Spectator, is unmistakably conservative. But that doesn’t stop him from pointing out that America’s not so all-fired exceptional—or from arguing that our Constitution has made key contributions to our national decline. Read the rest of this entry »


Yes, We Still Have the World’s Highest Corporate-Tax Rate

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…And Paul Ryan is Still Right To Fix It

I selected this article not because of the Paul Ryan budget, but because it has this chart (see below) produced by Veronique de Rugy for the Mercatus Center at George Mason University, that reveals which countries pay what in corporate taxes. We knew the U.S. had among the highest, but like most, I didn’t know the U.S. has the #1 highest. And right behind us are France, Belgium, and Mexico.

I didn’t know that Canada, Iceland, and Switzerland have the lowest. I suspect those countries have fewer rigged policies and armored truck-sized loopholes (managed by corrupt legislators dispensing favors and punishments) and probably enjoy better tax revenues, too, as corporations have far less motive to either move their operations somewhere else, or try to shelter their profits from punitive taxation. Capitol tends to flee high tax regions, and seek lower tax regions. Are Iceland and Canada radical ‘anti-tax’ Tea Party countries? Hardly. The best reason to have an abnormally high corporate tax rate is to insure opportunities for graft and corruption. If a corporation wants tax relief, well, it just needs to know which campaigns to contribute money to.

Veronique de Rugy writes:  Chairman Paul Ryan put out the blueprint for his FY2015 budget on Tuesday. I will have more to say about it in the next few days, but first I’ll focus on one idea in his budget: reforming our tax system and, specifically, reducing the U.S. corporate-tax rate from 35 to 25 percent and shifting from a worldwide tax system to a territorial system. These are very good policy proposals.

For several years now, the U.S has been leading with the developed world with the highest corporate-income tax rate. The chart below illustrates this sad record:

The extremes of that chart, reflecting 2013 rates, haven’t changed since 2011: National statutory corporate-tax rates among the 34 members of the OECD range from 8.5 percent in Switzerland to 35 percent in the United States.

Despite having the highest national statutory rate, the United States raises less revenue from its corporate tax than the other members of the OECD on average. In fact, the federal corporate-income tax raised just (roughly) 10 percent of total federal tax revenues in 2013.

To make matters worse, yesterday marked a sad anniversary: the second year in a row where the U.S. not only has the highest statutory rate but also has the highest combined rate (39.2 percent) when both the federal and average state rates are added. Japan used to hold the record for combined rates (39.8 percent), until it lowered its combined rate to 36.8 percent in April 2012. Read the rest of this entry »


[VIDEO] Professor of Economics Walter Williams talks about the Encroachment of Government

Walter E. Williams is the John M. Olin Distinguished Professor of Economics at George Mason University and an adjunct scholar at the Cato Institute. He is an expert on discrimination, labor policy, regulation, and South Africa as well as a well-known columnist and the author of South Africa’s War Against Capitalism (1989), The State Against Blacks (1982), and More Liberty Means Less Government (1999).

In this lecture given at a Libertarian Party of Georgia event in 1991, Williams talks about libertarianism generally and relates his own moral arguments against state coercion. Williams also briefly suggests a few things he thinks libertarians should be doing if they want the libertarian movement to grow.

 


Are Robots Killing The Middle Class?

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More wishful thinking on joblessness

 writes: A few years back, President Barack Obama claimed that America was experiencing “structural issues with our economy.” It wasn’t simply that inflexible Republicans were standing in the way of prosperity but that “a lot of businesses” had become more efficient. “You see it when you go to a bank and you use an ATM,” he went on, “you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate.”

That didn’t seem right. Innovation creates jobs, drives output and growth and improves the quality of goods, services and our lives. Or, at least, that’s the theory economists have been peddling. Read the rest of this entry »


Economist Ronald Coase Was Chased Out of UVA in 1964 for Supporting Market Solutions

By 
The Twitter feed of academic Siva Vaidhyanathan points to this story about how recently deceased economist Ronald Coase was chased out of the University of Virginia in the early 1960s.

The heinous crime of Coase, who would go on to win the 1991 Nobel Prize in economics? He stood against the rising tide of belief in an economy managed by experts and regulators. Read the rest of this entry »


Market innovation, not government regulations, are the key to keeping college costs down

Higher-education reformers shouldn't have to rely on the government to experiment with new methods. (Thinkstock)

Higher-education reformers shouldn’t have to rely on the government to experiment with new methods. (Thinkstock)

BY CONN CARROLL

“Over the last month,” President Obama said in Buffalo, N.Y., on Thursday, “I’ve been out there talking about what we need to do as a country to make sure that we’ve to a better bargain for the middle class and everybody who’s working hard to get into the middle class.”

Stella, the second youngest of five brothers, was raised in a single parent home in Roanoke, Alabama. He was the only one of his siblings to finish high school, although he has since encouraged all of his siblings to go back and get their G.E.D.s.

Now living in Warren, Ohio, with a son of his own, Stella wanted to improve his own life and his son’s opportunities. But as a single parent with a full-time job, his options were limited.

Read the rest of this entry »


Regulation nation: Obama expands the regulatory state

By Ben Goad and Julian Hattem 

President Obama has overseen a dramatic expansion of the regulatory state that will outlast his time in the White House.

The reach of the executive branch has advanced steadily on his watch, further solidifying the power of bureaucrats who churn out regulations that touch nearly every aspect of American life and business.

Experts debate whether federal rulemaking has accelerated under Obama, but few dispute that Washington — for better or worse — is reaching deeper than ever before into the workings of society.

“It would be difficult for anyone to pretend that this isn’t a high water mark in terms of regulation,” said Douglas Holtz-Eakin, a former director of the nonpartisan Congressional Budget Office who now heads the American Action Forum.

Read the rest of this entry »


Was America’s Economic Prosperity Just a Historical Accident?

The Blip

What if everything we’ve come to think of as American is predicated on a freak coincidence of economic history? And what if that coincidence has run its course?

By Benjamin Wallace-Wells

Illustration by Mario Hugo

Picture this, arranged along a time line.

For all of measurable human history up until the year 1750, nothing happened that mattered. This isn’t to say history was stagnant, or that life was only grim and blank, but the well-being of average people did not perceptibly improve. All of the wars, literature, love affairs, and religious schisms, the schemes for empire-making and ocean-crossing and simple profit and freedom, the entire human theater of ambition and deceit and redemption took place on a scale too small to register, too minor to much improve the lot of ordinary human beings. In England before the middle of the eighteenth century, where industrialization first began, the pace of progress was so slow that it took 350 years for a family to double its standard of living. In Sweden, during a similar 200-year period, there was essentially no improvement at all. By the middle of the eighteenth century, the state of technology and the luxury and quality of life afforded the average individual were little better than they had been two millennia earlier, in ancient Rome.

Then two things happened that did matter, and they were so grand that they dwarfed everything that had come before and encompassed most everything that has come since: the first industrial revolution, beginning in 1750 or so in the north of England, and the second industrial revolution, beginning around 1870 and created mostly in this country. That the second industrial revolution happened just as the first had begun to dissipate was an incredible stroke of good luck. It meant that during the whole modern era from 1750 onward—which contains, not coincidentally, the full life span of the United States—human well-being accelerated at a rate that could barely have been contemplated before. Instead of permanent stagnation, growth became so rapid and so seemingly automatic that by the fifties and sixties the average American would roughly double his or her parents’ standard of living. In the space of a single generation, for most everybody, life was getting twice as good.

At some point in the late sixties or early seventies, this great acceleration began to taper off. The shift was modest at first, and it was concealed in the hectic up-and-down of yearly data. But if you examine the growth data since the early seventies, and if you are mathematically astute enough to fit a curve to it, you can see a clear trend: The rate at which life is improving here, on the frontier of human well-being, has slowed.

If you are like most economists—until a couple of years ago, it was virtually all economists—you are not greatly troubled by this story, which is, with some variation, the consensus long-arc view of economic history. The machinery of innovation, after all, is now more organized and sophisticated than it has ever been, human intelligence is more efficiently marshaled by spreading education and expanding global connectedness, and the examples of the Internet, and perhaps artificial intelligence, suggest that progress continues to be rapid.

But if you are prone to a more radical sense of what is possible, you might begin to follow a different line of thought. If nothing like the first and second industrial revolutions had ever happened before, what is to say that anything similar will happen again? Then, perhaps, the global economic slump that we have endured since 2008 might not merely be the consequence of the burst housing bubble, or financial entanglement and overreach, or the coming generational trauma of the retiring baby boomers, but instead a glimpse at a far broader change, the slow expiration of a historically singular event. Perhaps our fitful post-crisis recovery is no aberration. This line of thinking would make you an acolyte of a 72-year-old economist at Northwestern named Robert Gordon, and you would probably share his view that it would be crazy to expect something on the scale of the second industrial revolution to ever take place again.

“Some things,” Gordon says, and he says it often enough that it has become both a battle cry and a mantra, “can happen only once.”

Read the rest of this entry »


Washington Booms — Thanks to Other Peoples Money

Jeff Jacoby

Give Stephen Fuller credit for this much: He’s willing to admit he was wrong.

During the debate leading up to the federal budget sequester, Fuller was a voice of doom. An economist at George Mason University and the director of its Center for Regional Analysis, he predicted that sequestration would be especially calamitous for Washington, D.C., and its surroundings. If Congress didn’t stop the automatic spending cuts from going into effect, Fuller warned last year, the Washington area was headed for a “devastating recession.” Some 450,000 jobs, many of them in the private sector, would be wiped out in Virginia, Maryland, and the District of Columbia.

“It’s something you don’t even want to draw a picture of because it’s too scary,” he said in a radio interview last summer. In January he described the sequester’s impact on the national capital region as an “end-of-the-world kind of hit.”

But the world hasn’t ended. Not even in Washington.

In the months since President Obama signed the order to cut federal outlays by $85 billion, the Washington Post reported last week, the region has added 40,000 jobs. “Income-tax receipts have surged in Virginia, beating expectations. Few government contractors have laid off workers.” There is no sign of the economic hellfire and brimstone foretold by Fuller, who says it’s a “surprise” to him that Washington’s economy is still booming. “We’ve done better than I expected,” he confessed.

The real surprise is that anyone is still surprised by the affluence of the Washington area.

According to the most recent census data, seven of the nation’s 10 wealthiest counties surround Washington – including the only three counties in the United States with median incomes above $100,000: Loudoun, Fairfax, and Arlington, all in Northern Virginia. In 2010, there were six Washington-area counties in the Top 10; in 2007, there were five. The Great Recession may have left great swaths of America reeling, but it didn’t stop Washington from surging even higher in the income rankings.

If the worst recession in decades couldn’t tarnish Washington’s opulence, sequestration – a political budget maneuver designed to achieve merely a tiny reduction in the growth of federal spending over the next decade – isn’t likely to either.

Coverage of the D.C. area’s high-flying economy sometimes sounds like an episode of “Lifestyles of the Rich and Famous.” In a front-page article last weekend – “What Sequester? Washington Booms as a New Gilded Age Takes Root” – The Wall Street Journal described the extraordinary wealth of Washington’s “moneyed brain trust,” beneficiaries of a generation’s worth of soaring government budgets and immense political aggrandizement. Examples of extravagance are everywhere, from the flourishing Aston Martin dealership selling sports cars at $120,000 and up to the Georgetown hotel that charges $22 for a martini.

Washington hasn’t grown so rich because it is home to industries that produce wealth through commerce or manufacturing or invention. Unlike Silicon Valley or Manhattan or Houston or Hollywood, Washington’s primary activity isn’t the creation of goods and services that have intrinsic value in themselves, and that raise the national standard of living. Government doesn’t generate new income – it redistributes income that others have already generated. Through taxes, spending, and regulation, the federal establishment now dominates more of the private economy than ever, directly confiscating trillions of dollars earned in the private economy, and indirectly controlling the fate of tens of trillions more.

“Power is the great aphrodisiac,” Henry Kissinger famously claimed. It is also a great conduit to other people’s money. When a single tweak in the tax code can make or break a business, when fortunes are being doled out through federal bailouts and contracts, when regulations can decide the future of industries and interest groups, it stands to reason that so many will spend so much to get a piece of what government controls.

“Most federal activity involves taking money from some people, giving it to others, and keeping a big chunk as a transaction fee,” says the Cato Institute’s David Boaz. At its broadest, that “transaction fee” is reflected in everything from overpaid federal employees to Washington’s gargantuan lobbying industry to the clustering of America’s wealthiest counties in suburban Washington.

If sequestration really meant a sharp decline in government spending and influence, Versailles-on-the-Potomac might have reason to fear those doomsday scenarios. That is why you can be sure that Congress and the president will never voluntarily enact anything of the kind. The federal boom will continue at our expense, as ever more of America’s wealth goes to Washington to be consumed.

Townhall.com