Category Archives: Taxation

Optimal Taxation, Inequality and Top Incomes

Source: Yuri Andrienko Sr., Patricia F. Apps, Ray Rees, Sydney Law School Research Paper No. 14/103, May 30, 2014

From the abstract:
In a number of high-income countries over the past few decades there has been a large growth in income inequality and at the same time a shift in the burden of taxation from the top to the middle of the income distribution. This paper applies the theory of optimal piecewise linear taxation to the issue of the taxation of top incomes. Our results suggest that an appropriate response to rising inequality is a shift towards a more progressive multi-bracket income tax system, with a more differentiated structure of rates in the top percentiles.

Misconceptions about Value-Added and Retail Sales Taxes: Are They Barriers to Sensible Tax Policy?

Source: John L. Mikesell, Public Budgeting & Finance, Vol. 34, Issue 2, Summer 2014
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From the abstract:
Retail sales and value-added taxes both aim to tax consumption, but lawmakers, the public, and academics view them differently. Several American states have sought increased retail sales tax (RST) reliance, some have argued for a national RST, but a value-added tax (VAT) remains anathema. Conversely, international observers strongly reject the RST in favor of the VAT. This paper examines these views from the standpoints of administration, transparency, rate increases, and breadth to see how misconceptions might be involved.

Local Sales Taxes as a Means of Increasing Revenues and Reducing Property Tax Burdens: An Analysis Using Propensity Score Matching

Source: Whitney B. Afonso, Public Budgeting & Finance, Vol. 34, Issue 2, Summer 2014
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From the abstract:
In keeping with previous literature, local option sales taxes (LOSTs) are shown to reduce property tax burdens as well as increase own source revenue, although the magnitude is larger than previously estimated. This article advances the literature by using more sophisticated econometric techniques to minimize self-selection bias concerns. It also addresses some of the lingering questions from previous studies. Using county data from 35 states over the time period of 1983–2004, counties with LOSTs are matched to counties that have the same estimated propensity to adopt a LOST but are precluded by their states from doing so.

Special Issue on Inequality

Source: Science, Vol. 344 no. 6186, May 23, 2014

From the introduction:
The Science of Inequality – What the numbers tell us
Gilbert Chin, Elizabeth Culotta

In 2011, the wrath of the 99% kindled Occupy movements around the world. The protests petered out, but in their wake an international conversation about inequality has arisen, with tens of thousands of speeches, articles, and blogs engaging everyone from President Barack Obama on down. Ideology and emotion drive much of the debate. But increasingly, the discussion is sustained by a tide of new data on the gulf between rich and poor.

This special issue uses these fresh waves of data to explore the origins, impact, and future of inequality around the world. Archaeological and ethnographic data are revealing how inequality got its start in our ancestors (see pp. 822 and 824). New surveys of emerging economies offer more reliable estimates of people’s incomes and how they change as countries develop (see p. 832). And in the past decade in developed capitalist nations, intensive effort and interdisciplinary collaborations have produced large data sets, including the compilation of a century of income data and two centuries of wealth data into the World Top Incomes Database (WTID) (see p. 826 and Piketty and Saez, p. 838).

Articles include:
The ancient roots of the 1%
H. Pringle
Don’t blame farming. Inequality got its start among resource-rich hunter-gatherers.

Our egalitarian Eden
E. Pennisi
Today’s economic inequality goes back thousands of years but in evolutionary time it is relatively recent.

Physicists say it’s simple
A. Cho
If the poor will always be with us, an analogy to the second law of thermodynamics may explain why.

Inevitable inequality?
A. Deaton
The distribution of wealth between and within countries stems from progress in health and wealth that began 250 years ago.

Inequality in the long run
T. Piketty and E. Saez
Everything you wanted to know and weren’t afraid to ask about income and wealth.

Tax man’s gloomy message: the rich will get richer
E. Marshall
With a massive database of income tax records, a French superstar challenges conventional wisdom on inequality.

A world of difference
Emily Underwood
New data allow researchers to map inequality the world over.

Can disparities be deadly?
E. Underwood
Controversial research explores whether living in an unequal society can make people sick.

The intergenerational transmission of inequality
A. Aizer and J. Currie
Helping needy mothers helps their children.

On the psychology of poverty
J. Haushofer and E. Fehr
Being poor exacts psychological costs, too.

While emerging economies boom, equality goes bust
M. Hvistendahl
Inequality spikes in developing nations around the world.

Income inequality in the developing world
M. Ravallion
Growth does not widen the gap between rich and poor.

Skills, education, and the rise of earnings inequality among the “other 99 percent”
D. H. Autor
A rising tide lifts some people’s boats, but capsizes others

Tracking who climbs up—and who falls down—the ladder
J. Mervis
Researchers seek new ways to understand social mobility and opportunity in America

More on the science of inequality
J. Mervis
How two social scientists got unique access to tax records, the meaning of “IGE” and more…

Offshore Shell Games 2014 – The Use of Offshore Tax Havens by Fortune 500 Companies

Source: Richard Phillips, Steve Wamhoff, Dan Smith, Citizens for Tax Justice and U.S. PIRG Education Fund, June 2014

From the summary:
Many large U.S.-based multinational cor­porations avoid paying U.S. taxes by using accounting tricks to make profits made in America appear to be generated in offshore tax havens—countries with minimal or no taxes. By booking profits to subsidiaries registered in tax havens, multinational corporations are able to avoid an estimated $90 billion in fed­eral income taxes each year. These subsidiaries are often shell companies with few, if any em­ployees, and which engage in little to no real business activity.

Congress has left loopholes in our tax code that allow this tax avoidance, which forces ordinary Americans to make up the difference. Every dollar in taxes that corporations avoid by using tax havens must be balanced by higher taxes on individuals, cuts to public investments and public services, or increased federal debt.

This study examines the use of tax havens by Fortune 500 companies in 2013. It reveals that tax haven use is ubiquitous among America’s largest companies, but a narrow set of compa­nies benefit disproportionately.

∙ Most of America’s largest corporations maintain subsidiaries in offshore tax ha­vens. At least 362 companies, making up 72 percent of the Fortune 500, operate subsid­iaries in tax haven jurisdictions as of 2013….

∙ Approximately 64 percent of the companies with any tax haven subsidiaries registered at least one in Bermuda or the Cayman Islands—two notorious tax havens. Fur­thermore, the profits that all American multi­nationals—not just Fortune 500 companies—collectively claim were earned in these island nations in 2010 totaled 1,643 percent and 1,600 percent of each country’s entire yearly economic output, respectively.

∙ Six percent of Fortune 500 companies ac­count for over 60 percent of the profits re­ported offshore for tax purposes. These 30 companies with the most money offshore—out of the 287 that report offshore profits—collectively book $1.2 trillion overseas for tax purposes.

∙ Only 55 Fortune 500 companies disclose what they would expect to pay in U.S. taxes if these profits were not officially booked offshore. All told, these 55 companies would collectively owe $147.5 billion in ad­ditional federal taxes. To put this enormous sum in context, it represents more than the en­tire state budgets of California, Virginia, and Indiana combined….

The Parallel March of the Ginis: How Does Taxation Relate to Inequality and What Can Be Done About it?

Source: Reuven S. Avi-Yonah, University of Michigan Public Law Research Paper No. 385, February 9, 2014

From the abstract:
The United States currently has one of the highest levels of inequality among industrialized economies. In addition, numerous scholars have shown that social mobility in the United States is significantly lower than it was in the period between 1945 and 1970, when inequality was also declining. The combination of these trends is dangerous because it risks transforming the US into a society where small elites capture most of the gains, a pattern in which growth cannot be sustained over time (Acemoglu and Robinson 2012, Zingales 2012). The level of inequality in the US after taxes and transfers are taken into account is much lower, but it is still higher than in most OECD countries and the trend is still for inequality to increase. This paper explores how the US tax system can be used to counter these trends and concludes that the key is not to increase taxes on the rich (although some reforms in this direction can be adopted), but instead to adequately fund and even strengthen the social safety net. The only way to do this in the medium to longer term is to adopt a broad-based federal consumption tax.

Walmart’s Executive Bonuses Cost Taxpayers Millions

Source: Sarah Anderson and Frank Clemente, Americans for Tax Fairness and Institute for Policy Studies, June 4, 2014

From the summary:
New report reveals that Walmart cut its taxes by $104 million by giving executives lavish “performance-based” bonuses. Walmart has been widely criticized for shifting the costs of its low-wage model onto taxpayers. This report, co-published by IPS and Americans for Tax Fairness, reveals that taxpayers also subsidize much of the cost of Walmart’s executive pay. Specifically, the report calculates the cost of a tax loophole that allows Walmart and other corporations to deduct unlimited amounts from their income taxes for the cost of executive compensation if it is in the form of stock options and other so-called “performance pay.”…

Reforming Taxation to Promote Growth and Equity

Source: Joseph E. Stiglitz, Roosevelt Institute, White Paper, May 28, 2014

This white paper outlines concrete policy measures that can restore equitable and sustainable economic growth in the United States, in the context of the country’s recurring budgetary crises. Effective policies are within our grasp, because these budgetary crises are the result of political and not economic failings. Tax reform in particular offers a path toward both resolving budgetary impasses and making the kinds of public investments that will strengthen the fundamentals of the economy. The most obvious reform is an increase in the top marginal income tax rates – this would both raise needed revenues and soften America’s extreme and harmful inequality. But there are also a variety of other effective possible reforms related to corporate taxation, the estate and inheritance tax, environmental taxes, and ensuring that the government gets full value when it sells public assets. This white paper describes the gravity of the economic situation in the United States, but also shows that there is a way out…

STAMP is an Unsound Tool for Gauging the Economic Impact of Taxes

Source: Institute on Taxation and Economic Policy, May 2014

From the Citizens for Tax Justice summary:
When anti-tax groups working in the states need a data point to help them argue in favor of their newest tax cutting idea, they often look to the Beacon Hill Institute (BHI). BHI is housed in the economics department at Suffolk University, but its mission is more ideological than academic: providing research to voters and policymakers that promotes a “limited government” and “free market” perspective. The cornerstone of BHI’s research is a computerized economic model it calls the State Tax Analysis Modeling Program (STAMP).

To a casual observer, STAMP may appear to be a rigorous model worthy of consideration. But new research from the Institute on Taxation and Economic Policy (ITEP) explains in great detail the myriad ways in which STAMP is rigged to portray tax cuts as hugely beneficial to state economies, and tax increases as an inefficient drag on economic growth.

The broad ways in which STAMP fails to accurately gauge the impact of taxes on state economies include:
– STAMP underestimates the economic importance public service such as education and infrastructure to both the short- and long-term health of state economies.
– STAMP assumes that workers, consumers, and businesses are hypersensitive to tax changes, causing private sector economic activity to boom (or bust) as a result of modest changes in after-tax incomes and prices.
– STAMP depicts tax changes as having an instantaneous impact on the economy, even when that impact involves long-run issues such as migration, property value changes, and business formation.
– STAMP assumes a simplistic, perfectly efficient marketplace where everybody who wants a job already has one. This assumption simplifies the math behind the model, but is a poor reflection of the economy that actually exists today.

ITEP’s report also describes a number of instances where STAMP’s findings have been contradicted by academic researchers and state revenue officials. In one particularly implausible analysis, for example, STAMP actually found that cutting Rhode Island’s sales tax rate by more than half would not only benefit the state’s economy—it would actually raise $61 million in tax revenue.

In another analysis, STAMP predicated that roughly 40,000 jobs would be created by a tax cut enacted in Kansas. Since that analysis was released, Kansas’ economy has underperformed and the state actually saw its credit rating downgraded because of slow economic growth and lagging tax revenues….

Dozens of Companies Admit Using Tax Havens – Hundreds More Likely Do the Same, Avoiding $550 Billion in U.S. Taxes

Source: Citizens for Tax Justice, May 19, 2014

From the summary:
American Fortune 500 corporations are likely saving about $550 billion by holding nearly $2 trillion of “permanently reinvested” profits offshore. Twenty-eight of these corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.

While congressional hearings over the past few years have focused attention on the tax avoidance strategies of technology corporations like Apple and Microsoft, this report shows that a diverse array of companies are using offshore tax havens, including U.S. Steel, the pharmaceutical giant Eli Lilly, the apparel manufacturer Nike, the supermarket chain Safeway, the financial firm American Express, and banking giants Bank of America and Wells Fargo.
Related:
Download the Company by Company PRE Data (XLS)