Academic studies show that higher corporate tax rates depress worker wages and lead to fewer jobs. An Organisation for Co-operation and Development (OECD) study has found that the corporate tax is the least efficient and most harmful way for governments to raise revenue.
This year’s robust corporate tax collections calls into question efforts by the administration and congressional Democrats to increase the corporate tax rate and raise other corporate taxes based on claims of relatively low tax collections following the Tax Cuts and Jobs Act (TCJA) in 2017.
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Tax Foundation testimony on the diversity of tax systems within the EU, three important ways to consider reforms by Member States, and several recommendations for the EU Parliament’s Subcommittee on Tax Matters to consider.
Tax competition has proven to be key in keeping tax hikes under control in some regions of Spain as regional governments look to copy Madrid’s tax reforms.
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Florida is now the ninth state to implement or adopt a corporate income tax cut in 2021, with the state’s new rate the nation’s second lowest—for now.
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A carbon tax would be a less economically harmful pay-for than either personal or corporate income tax hikes and a more efficient way to reduce carbon emissions than green energy tax credits, but would come with other trade-offs.
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Under the House Ways and Means tax plan, the United States would tax corporate income at the third-highest integrated tax rate among rich nations, averaging 56.6 percent.
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The White House Council of Economic Advisors (CEA)’s recent report estimates the average federal individual income tax rate for the top 400 wealthiest households in the U.S to be 8.2 percent, lower than typically estimated for top earners.
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As Congress considers several tax proposals designed to raise taxes on high-income earners, it’s worth considering the distribution of the existing tax code.
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Under the Ways and Means text, the U.S. would have an average corporate tax rate of 30.9 percent, which would be the third-highest corporate tax rate in the OECD, behind only Colombia and Portugal.
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Under the House Democrats’ tax plan, companies in 21 states and D.C. would face a higher corporate tax rate than in any country in the OECD.
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The recent effort to change international tax rules has been one of significant contradictions. The proposals have been driven by arguments about the need to raise additional revenues, to stabilize corporate tax rates, or to prevent offshoring. However, upon closer examination, these three arguments fail to capture what is occurring.
The Biden corporate tax plan would disproportionately harm these congressional districts and make the U.S. less internationally competitive. These tax hikes, along with individual tax increases, would also raise taxes on net for 96 percent of congressional districts by 2031 after these temporary credits expire in 2025.
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The proposed restructuring of the GILTI and FDII regimes makes several changes to the tax base that are largely offsetting, leaving virtually all the revenue potential to be determined by the tax rates on GILTI and FDII and the haircuts on foreign tax credits. Lawmakers should carefully weigh the trade-offs between higher tax revenues and competitiveness.
While arcane, expense allocation rules are relevant to current debates because they result in a heavier tax burden for U.S. companies under current law than the recently negotiated global minimum tax proposal.
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There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
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The Biden administration recently cited an analysis from Treasury claiming that “the President’s agenda will protect 97 percent of small business owners from income tax rate increases.” However, the figure is misleading. To assess the economic effect of higher marginal tax rates, it matters how much income or investment will be affected—not how many taxpayers.
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Changes to international tax rules are likely on the way, and it is therefore important for lawmakers to understand how various reform options would impact U.S. tax burdens on multinational companies. Moreover, policymakers should also recognize the need for prudent policies that do not put U.S.-based multinationals at a competitive disadvantage or severely curtail investment and hiring.
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