rate (%) Nuclear fuel 42.4 Prepackaged software 39.7 Inventories 39.0 Office and accounting equipment 39.0 Computers and peripheral equipment

Transcription

1 Highest marginal effective tax rates on capital income of corporations by asset type (214) Asset type Marginal effective tax rate (%) Nuclear fuel 42.4 Prepackaged software 39.7 Inventories 39. Office and accounting equipment 39. Computers and peripheral equipment 38.6 Source: Congressional Budget Office.

2 Lowest marginal effective tax rates on capital income of corporations by asset type (214) Asset type Marginal effective tax rate (%) Petroleum and natural gas structures 18.7 Aircraft 17.7 Railroad equipment 16.6 Mining structures 14.7 Track replacement 11.7 Source: Congressional Budget Office.

3 Effective tax rates on income for C corporations by source of financing (214) Percent % 31% -6% Debt financed Equity financed Typically financed Source: Congressional Budget Office.

4 Domestic distortions created by a high corporate income tax rate It reduces the incentives to save because the expected after-tax cost of investing is lessened. It creates biases in the organization of businesses by discouraging incorporation in favor of forms that are not subject to the tax (such as partnerships and sole proprietorships). Since it taxes alternative assets and industries at different effective rates, it shifts economic activity toward more lightly taxed areas. More resources are devoted to tax compliance and avoidance planning, leaving fewer resources for productive investment. Source: Milken Institute.

5 International considerations of a high corporate tax rate The efficiency of investment is reduced as businesses allocate capital investment in specific projects across the globe based largely on tax considerations. The tax base of relatively high-corporate-tax countries may be eroded further as MNCs attempt to realize profits in low-tax countries and slow or diminish repatriation. A high-tax country will curtail the amount of capital available to workers, which tends to reduce their wages. Lower foreign direct investment diminishes the opportunities for technology transfer and knowledge spillovers from foreign firms in the host country. Source: Milken Institute.

6 Corporate income tax policy simulation: impact on real GDP Rate cut to 22% (Milken Institute Analysis) Billions of chained 25$ 4 Percent Absolute difference from baseline (L) Percent difference from baseline (R) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 1 Sources: U.S. Bureau of Economic Analysis, Milken Institute.

7 Corporate income tax policy simulation: impact on employment Rate cut to 22% (Milken Institute Analysis) Absolute difference from baseline, employment in millions Manufacturing Non-manufacturing Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 1 Sources: U.S. Bureau of Economic Analysis, Milken Institute.

8 Diminishing rates of return as corporate tax rate increases due in large part to shifting of reported profits overseas Among leading economies, 214 Maximum corporate tax rates by country, percent Corporate tax revenues as share of GDP by country, percent United States 39.1 Japan 4.1 Japan 37. Canada 3.1 France 34.4 Italy 2.7 Germany 3.2 United States 2.4 Italy Canada United Kingdom France CBO projects 1.6% by 226 United Kingdom 21. Germany Sources: OECD (214), Tax Policy Center, Congressional Budget Office.

9 United States presence in the Global 5 diminishing due, in part, to corporate tax rates U.S. 3.% U.S. 26.8% Foreign 7.% Foreign 73.2% Source: Fortune Global 5.

10 Domestic investment near historic lows Percent Net domestic investment as a share of GDP Pre-28 average Source: U.S. Bureau of Economic Analysis.

11 Slow growth of real potential GDP Percent 6 5 Growth of real potential GDP 4 3 CBO forecast Source: Congressional Budget Office.

12 Growth in total revenues for charitable organizations and growth in real GDP Percent growth Total revenues for charitable organizations, right axis Real GDP, left axis Sources: Internal Revenue Service, U.S. Bureau of Economic Analysis.

13 Depreciation vs. write-off (A Better Way) Source: House Republican Caucus.

14 Corporation tax revenues as a percent of total tax revenues 3 25 Percent of revenues Japan FRA JAP UK USA GER CAN ITA 2 15 USA Canada UK Italy 1 5 France Germany Source: OECD Revenue Statistics.

15 Corporate tax revenues, percent of GDP and total revenues 5 Percent of GDP Percent of total revenues 25 4 Percent of total revenues, right axis Percent of GDP, left axis Sources: Congressional Budget Office, Office of Management and Budget.

16 Key elements of tax systems D = Deductible, I = Ignored, and T = Taxable U.S. corporate income tax Territorial corporate income tax A modern corporate tax Sales revenues T T T if from domestic sources; otherwise I Current expense, including wages and salaries D D D if from domestic sources; otherwise I Interest expense D D D if borrowing is domestic; otherwise I Borrowing I I T if from domestic sources; otherwise I Capital investment D over time following depreciation schedule D over time following depreciation schedule Immediately D if from domestic sources; otherwise I Inventory investment I until goods sold I until goods sold Immediately D if from domestic sources; otherwise I Source: Center for American Progress (The Hamilton Project).