What Do Corporations Really Pay in Income Tax?
What Do Corporations Really Pay in Income Tax?
What Do Corporations Really Pay in Income Tax?
e are proud of the fact that we have been advocating the same principles of sound tax policy for the past 74 years. We believe that taxes should be neutral to economic decision making; they should be simple, transparent, and stable; and they should promote economic growth. But shouldnt taxes be fair too? I was asked recently. Hmm, well, thats a trickier one. You see, fairness tends to be in the eye of the beholder. Billionaire Warren Buffett believes its unfair that he pays 15 percent on his vast capital gains and dividend income while his secretary pays the normal income tax rate on her salary. I guess it hasnt occurred to Buffett that taxing corporate income twice once as profits and a second time as dividends is unfair. President Obama, like many liberals, believes that the tax code should be used to correct income inequality. To them, a fair tax code is one that has progressively high tax rates on upper-income taxpayers and Now that redistributes income to the poor through tax credits. But now that 51 percent of American households 51 percent pay no federal income taxes, is it fair that they enjoy of American the benefits of government but pay nothing for its households pay costs? And is it fair that millions of those nonpayers no federal income still get a cash refund check from the IRS in the form taxes, is it fair of a refundable tax credit? that they enjoy Speaking of fair share, taxpayers making over the benefits of $200,000 now pay 50 percent (half) of all income government but taxes even though they earn 26 percent of all income. pay nothing for In other words, their share of the tax burden is twice their share of the nations income. Is that fair? its costs? The flat tax will fix all this, argues our friend Steve Moore in a recent Wall Street Journal editorial titled Flat is the New Fair. He quotes Dick Armey as saying that Obamas mantra that billionaires should pay the same tax rate as janitors may be the catalyst to sweeping tax reform. I hope Armey is right. Over the next 12 months, lets work together to make tax reform a defining issue in the presidential election and a top legislative issue in 2013. Sincerely,
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The Tax Foundation is an independent, nonpartisan and nonprofit research institution founded in 1937 to educate taxpayers, policymakers and the courts on sound tax policy. Our economic and policy analysis is guided by fundamental tax principles that should serve as touchstones for sound tax policy everywhere.
IN THIS ISSUE
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On the Road: Speaking to State-Based Groups and Testifying Before State Legislatures
4 5
Warren Buffetts Proposals Hide Telling Truths Taxes The Cure-All for Deficit and Debt Reduction? Capitol Hill Briefing on Repatriation
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Local Income Taxes on the Wane 2012 State Business Tax Climate Index Coming Soon New Report Explains Complexities of Unemployment Insurance Taxes
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Tax Foundation Report Helps Thwart Proposed Minnesota Income Tax Increase Tennessee and Arizona Lead the Country in Sales Tax Rates
| Highlights
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Meet JiaQi Bao and Tenzing Tsering, Our Fall Interns Corporate Tax Reform Key Issue for Economic Growth
| Guest Columnist
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Fundamental Tax Reform Is the Key to Economic Prosperity
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during which time the federal statutory rate has been 35 percent. Despite the introduction of a number of corporate loopholes, or tax expenditures, over this 15-year period, the effective rate has remained fairly stable. This is because the tax expenditures, at least on the corporate side, amount to relatively little. We find that the sum total of all corporate tax credits, i.e. the so called below-the-line tax preferences, reduces the effective rate by a mere one or two percentage points. Instead, it is the foreign tax credit generally not considered a tax expenditure that explains almost the entirety of the reduction in the effective rate from 35 percent to 26 percent. The foreign tax
Contribution of Various Credits in Reducing Effective U.S. Corporate Income Tax Rate, as a Share of Taxable Income
credit is a credit for (most) taxes paid to foreign governments, and represents about $100 billion per year. When we include this as a measure of foreign taxes paid, and include the foreign income of U.S. corporations, i.e. both deferred and non-deferred, the overall effective corporate income tax rate is about 33 percent, very close to the statutory rate of 35 percent. Further, taking into account foreign taxes explains much of the variance in effective rates across industries and by company size. How does the U.S. compare internationally in terms of the corporate effective tax rate? To answer this, we issued another report that surveys the 13 most recent studies on the matter, and found that despite a variety of methodologies, the results are remarkably similar: the U.S. not only has one of the highest statutory corporate rates in the world, it also has one of the highest effective rates. The average effective corporate tax rate in the U.S. is 27 percent, versus an average of about 20 percent in other countries. The U.S. consistently ranks among the five highest effective rates. Typically, the U.S. ranks second only to Japan, which not by coincidence is also the only developed nation with a higher statutory rate than the U.S. Recent Special Reports on the corporate tax rate: U.S. Corporations Suffer High Effective Tax Rates by International Standards, www. taxfoundation.org/publications/show/27609. html and Beyond the Headlines: What Do Corporations Pay in Income Tax?, www.tax foundation.org/publications/show/27596.html
TAXWatch
Fall 2011
n September 8th, 2011, President Obama presented the $447 billion American Jobs Act to encourage businesses to hire new workers and stimulate spending. The key tax measures in the American Jobs Act include hiring incentives for new workers, a 50% payroll tax cut for workers, and a business investment incentive that allows for 100% expensing of qualifying business deductions. A review of the academic literature suggests that the proposed policies will have little, if any, impact. Indeed, because these temporary tax measures would be offset by some $460 billion in permanent tax increases, the whole package might do more harm than good. Much of the problem with the Presidents tax proposals stems from their temporary nature. Households and corporations dont make the kind of economic decisions the administration is hoping to see based on temporary tax policy changes. Many Americans will choose to pay off debt or save their additional wages from a payroll tax cut, while income saved by business could very well go to similar priorities. The tax incentive portion of the Presidents plan would deliver few jobs and little economic growth, and the $460 billion in permanent tax increases that pay for the tax cuts mean the plan may end up doing much more economic harm than good.
Tax Foundation President Scott A. Hodge testifies before the U.S. House of Representatives on tax reform
Read Academic Research Suggests That the American Jobs Act Will Produce Few Jobs at www.taxfoundation.org/publications/ show/27632.html/ .
n Sept. 14, Tax Foundation President Scott A. Hodge testified before the House Budget Committee on The Need for Pro-Growth Tax Reform. His presentation addressed both the individual and corporate sides of the federal tax code and provided suggestions for reducing complexity, increasing competitiveness, and spurring economic growth. Heres an excerpt from his testimony: Since 1937, the Tax Foundation has been guided by the immutable principles of sound tax policy which state that taxes should be neutral to economic decisionmaking; they should be simple, transparent, and stable; and they should promote economic growth. In other words, an ideal tax system should do only one thing: raise a sufficient amount of revenues to fund government activities with the least amount of harm to the economy. By all accounts, the U.S. tax system is far from that ideal. In fact, the economic research suggests that the U.S. corporate and individual tax systems are undermining the nations long-term economic growth. OECD economists studied the impact of taxes on economic growth across the largest capitalist nations and determined that high corporate and personal income tax rates are the most harmful taxes for long-term economic growth. This should be a red flag because when it comes to corporate taxes, the U.S. has a Neiman Marcus tax system while the rest of the world has moved toward a Wal-Mart model of corporate taxation. Now, with deference to Warren Buffett, OECD research has also found that the U.S. has the most progressive income tax burden among the leading industrialized nations. The top 10 percent of U.S. taxpayers pay a larger share of the income tax burden than do their counterparts in any other industrialized country, while low-income Americans have the lowest income tax burden of any OECD nation. In fact, roughly half of all households pay no income taxes after taking their credits and deductions. The research shows that the more a country tries to make an income tax system progressive, the more it undermines the factors that contribute most to economic growth such as investment, risk taking, entrepreneurship, and productivity. continued, next page
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ur responses to Warren Buffetts highly publicized New York Times op-ed calling for tax increases on the mega-wealthy were succinct and effective, picked up by the Wall Street Journal, the Financial Times, Forbes.com and Commentary magazine, among others. The blog posts also spurred additional requests for media commentary; our interviews and analysis were heard around the country and seen around the world on various stations. Everyone wanted to know more about our criticism of Buffetts proposal. Mr. Buffett believes that he and his wealthy friends are under-taxed. However, Mr. Buffetts actions and the facts tell the real story: Mr. Buffett chose to leave most of his fortune to the Bill & Melinda Gates Foundation and, thus, avoided an estate tax that could potentially give 55 percent of his wealth to Uncle Sam. Moreover, keeping that wealth actively working in the private sector would generate deficit-reducing tax revenues indefinitely. Mr. Buffett seems to forget that capital gains and dividends taxes are a double tax on corporate income. The combined tax rate of 50 percent on dividends is the fourth-highest combined dividend rate in the industrialized world. Ironically, we had the eighth-highest combined rate under Bill Clinton. While the top 1 percent of taxpayers earn 20 percent of the nations income, they currently pay nearly 40 percent of the income taxes. Thats a greater share of the burden than the bottom 90 percent combined (thats everyone earning under $100,000). Lets not forget that when the top marginal income tax rate was 70 percent in 1980, the rich paid 20 percent of all income taxes. Yet now, when the top marginal rate is 35 percent, they pay twice that. Finally, while the tax burden on the rich has been growing, the burden on low- and middle-income Americans has been shrinking. By most accounts, roughly 50 percent of American households pay no income tax at all. Contrary to Mr. Buffetts and President Obamas perceptions, Americas wealthiest taxpayers are paying a disproportionate share of the income tax burden. Before we ask the rich to pay more, perhaps we should ask those who are paying nothing to contribute at least something to the basic cost of government.
The Statutory U.S. Corporate Tax Rate Compared to OECD Averages 1981 to 2010
I believe that such a tax code would actually generate a more predictable and stable revenue stream to fund government programs as opposed to the roller coaster revenues we have today. And, most importantly, such a tax code would be conducive to long-term economic growth, which is one of the keys to fixing the long-term fiscal crisis facing the country. Read the full testimony, Tax Reform: The Key to a Growing Economy and Higher Living Standards for All Americans, at www.taxfoundation.org/ publications/show/27613.html or watch a video of the hearing at http://budget.house.gov/ HearingSchedule/#9142011.
Read the blog posts that generated all the media attention: Warren Buffetts Proposed Tax Hikes Would Provide Insignificant Revenue http://taxfoundation.org/blog/show/27547.html Warren Buffetts Call for Higher Taxes on the Rich Doesnt Fit the Facts http://taxfoundation.org/blog/show/27542.html
TAXWatch
Fall 2011
REPATRIATION:
By Richard Morrison
State with the highest percentage of taxpayers who itemize: Maryland, 49.1% Lowest: West Virginia, 18.4%
www.taxfoundation.org/blog/show/27633.html
Two of the Hill Briefing panelists: (l-r) Douglas Holtz-Eakin, President, American Action Forum and former Congressional Budget Office Director, with Walter Galvin, Vice Chairman, Emerson
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10 Reasons
By Scott a. Hodge
Ten Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings 1. 2. 3.
Parity. The U.S. system must be aligned with our global trading partners. The experiences of Japan and Great Britain are lessons for the U.S. The premise of the worldwide tax system capital export neutrality (CEN) is obsolete when subsidiaries have access to global capital markets and can self-fund their expansion with retained earnings. The worldwide tax system violates the benefit principle of taxation. The U.S. maintains a territorial tax system for foreign-owned companies but a worldwide system for U.S. companies. Moving to a full territorial system will level the playing field. The compliance cost of the current system is excessively high relative to companies foreign activities and the revenues raised from taxing foreign-source income. Our current system traps capital abroad the lockout effect. Our high corporate tax rate and worldwide system makes it cheaper for companies to take on debt rather than use their own profits to fund their growth. The current system dissuades global companies from headquartering in the U.S. Eliminating deferral nearly killed the U.S. shipping industry.
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COMING SOON:
usiness location decisions and debates over state and local tax policy will be enhanced with our landmark new study that allows, for the first time, an apples-to-apples comparison of business tax burdens across all the 50 states. Tax Foundation economists designed seven model firms of different types and worked with experts at KPMG, a respected audit, tax, and advisory firm, to calculate total tax bills for each firm in each state. All taxes were included: corporate income tax, property tax, sales tax, unemployment insurance tax, and other business taxes. Each firm was calculated twice in each state: once as a new firm able to take advantage of any targeted tax incentives offered by a state, and once as a mature firm usually not eligible for such programs. State and local taxes are a large business cost and they vary widely by state. This comprehensive calculation of the real-world tax burden faced by representative firms will help policymakers better understand and address their competitive position, help business better evaluate where to operate or invest, and help the general public better understand the relative tax competitiveness of the 50 states.
s the heat of the Republican primary turns up, it is hard to know which claims to trust. Recently under fire is the new Texas business tax, which replaced the 4.5% franchise tax with a 1% margins tax. Governor Rick Perry claims the tax is a success because it reduced the statutory rate, but Tax Foundation Vice President of State and Legal Projects Joe Henchman set the record straight for an ABC News reporter: I think Perrys margin tax in Texas is a destructive type of tax. You have taxes being levied on taxes based on how many levels of production a product has. It basically encourages people to form conglomerates purely for tax reasons, which is economically destructive. You have these taxes pyramiding on each other so the effective rate is higher. The report was also extensively quoted in an article in the New American: With the Texas margin tax collecting far less in revenue than expected, causing significant confusion and compliance costs, resulting in significant litigation and controversy over cost of goods sold definitions, and facing calls for substantial overhaul and even repeal, it should not be used as a model tax reform for any other state.
The Tax Foundation/KPMG 50-State Model Business Competitive Tax Cost Study will be available soon on our website.
Percentage of nonpayers (tax filers who owe no federal income tax) who earn more than $100,000/year: 0.3%
ww.taxfoundation.org/blog/show/27661.html
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NEW STUDY:
At the National Conference for State legislatures legislative Summit in San antonio, Tax Foundation Economist David S. Logan talks to visitors at the Tax Foundations display table
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ax competitiveness is an important aspect of state and local fiscal policy. The Tax Foundations State Business Tax Climate Index (SBTCI) is an annual report that helps lawmakers, the media, and individuals gauge how their states tax system stacks up against the competition. The ideal tax system is simple, transparent, stable, and neutral towards different types of businesses. A tax system riddled with politically motivated preferences will cause businesses to make decisions for tax reasons instead of sound economic fundamentals. The tax systems that score best in the SBTCI are those that avoid economic distortions, levy low tax rates on broad tax bases, and treat all taxpayers the same. Taxes matter to business. Business taxes affect business decisions, jobs, location, competitiveness, and the economy. Most importantly, taxes diminish profits, an effect which is passed on to shareholders, workers, and consumers. Thus a state with a better business tax structure will be more attractive to business investment and more likely to experience economic growth. The economy is increasingly characterized by mobile capital and labor, and many companies have the ability to locate where they have the greatest competitive advantage. State lawmakers are often tempted to lure business with lucrative tax incentives and subsidies instead of relying on a broad, neutral tax system. However, if a state needs to offer tax incentive packages, it is most likely a sign of an uncompetitive overall business tax climate. A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the states competitiveness and give it an edge in generating economic and employment growth. The SBTCI analyzes five important areas of taxation: major business taxes, individual income taxes, sales taxes, unemployment insurance taxes, and property taxes. While not all of these taxes are direct business taxes, they all affect business competitiveness. Keep your eyes open for the next edition of the State Business Tax Climate Index.
At the american legislative Exchange Council annual Meeting in New Orleans, Tax Foundation Vice President of Legal & State Projects Joseph Henchman speaks about solutions to online state sales tax issues
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hile much attention gets drawn to statewide sales tax rates, many people are only vaguely aware of county- and city-level sales taxes, which can have palpable impacts on the overall sales tax rate consumers pay. Our recent report Ranking State and Local Sales Taxes calculates the average local tax rate and brings these often-neglected rates to the attention of taxpayers. For example, Colorado, despite having the relatively low statewide sales tax rate of 2.9%, has an average local rate of 4.58%, which makes its combined rate two and a half times as high. Other notable combined state and average local rates include Tennessee, with the nations highest rate at 9.43%, and Arizona, with the number two rate of 9.12%. The highest combined rate in a single locality is found in Tuba City, Arizona, which has a combined state and local rate of 13.725%. This rate is composed of a 6.6% state tax, a 1.125% Coconino county tax, and an additional 6% tribal tax levied by the ToNaneesDizi local government.
Sales Tax: Combined State and Average Local Rates Tax Year 2011
The largest stable source of federal revenue is the payroll tax. Payroll taxes are the second-largest source of revenue, and more stable than personal and corporate income tax revenues, which fluctuate with the economy.
www.taxfoundation.org/blog/show/27606.html
SOURCE: Tax Foundation calculations; Sales Tax Clearinghouse; 2010 Census NOTE: Three states levy mandatory, statewide, local add-on sales taxes at the state level: California (1%), Utah (1.25%), and Virginia (1%). Hawaii, New Mexico, South Dakota, and Wyoming have broad sales taxes that also apply to many services. These states rates are not directly comparable to other states rates. Due to data limitations, table does not include sales taxes in local resort areas in Montana.
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Q&A in North Carolina
Over 100 North Carolina residents gathered
for a tax reform symposium series in WinstonSalem, Raleigh, and Wilmington on September 15. Our Vice President for Legal & State Projects, Joseph Henchman, spoke briefly on North Carolinas tax standings (16th highest state-local tax burden and higher than neighboring states, 9th worst business tax climate and worse than neighboring states, high gas taxes). At each stop, he and panelists from other organizations like the National Taxpayers Union, Americans for Tax Reform, Americans for Fair Taxation, and the Civitas Institute answered dozens of questions from the audience. Common question topics included the prospect of higher federal taxes on capital gains and investment dividends, the estate tax, how to design a pro-growth sales tax for North Carolina, and the debate over the FairTax national sales tax and prebate proposal, and tax reform generally.
s usual, our analysts have been busy traveling to states where their expertise is requested. In August, analyst Scott Drenkard participated in a roundtable discussion on local soda tax proposals in Seattle. He and Joseph Henchman were in town for the
annual meeting of the State Policy Network, where Henchman spoke on state tax trends. Economist Mark Robyn spoke on state tax reform at the annual meeting of the Wyoming Taxpayers Association in Cheyenne in October. He and Henchman will soon speak to the full meeting of the National Taxpayers Conference in Miami. Following are some more of our recent speaking engagements, including congressional testimony in three states.
new super committee set up to deal with it. McBride spoke about how comprehensive tax reform could address not only the debt crisis but also the larger problem of economic stagnation and chronic unemployment. Specifically, he spoke of the benefits of lowering the corporate income tax rate and more generally of lowering taxes on capital income.
regarding the states business tax structure. Illinois passed large personal and corporate income tax hikes at the beginning of 2011. This made the state less competitive for businesses, and many businesses left or threatened to leave the state. In states with burdensome business taxes, it is common for policymakers to offer generous, targeted tax breaks to keep businesses from heading for greener pastures. In such a system, Robyn argued, politically powerful companies get special treatment while smaller or immobile companies are stuck with the bill. Illinois should move towards low tax rates and a broad tax base, a system which benefits all businesses equally.
Pennsylvania Testimony
On August 23 Tax Foundation Economist Mark Robyn testified before the Pennsylvania House Majority Policy Committee regarding possible improvements to the states business tax climate. Robyn testified about how the good parts of Pennsylvanias tax structure are weighed down by a poor corporate tax structure. His suggestions included improving the states treatment of business losses, accelerating the phase out of the states burdensome and outdated capital stock tax, and scaling back on costly, ineffective, and distortionary corporate tax breaks.
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e filed a brief with the U.S. Supreme Court on September 9 asking them to hear a case involving a city that gave tax refunds to some taxpayers but not others. The case involves the Indianapolis city sewer tax, which taxpayers had to pay either in full or in installments. In 2005, the city reduced the tax and forgave all future obligations by taxpayers paying in installments. Taxpayers who paid in full requested a prorated refund but were denied. The city claims that by not providing refunds to those who paid in advance, they are saving administrative costs and helping low-income taxpayers. Our brief rejects those arguments, noting refund processing of any kind is costly but necessary, and that the policy does not benefit poor taxpayers exclusively or even primarily. If poor taxpayers do benefit disproportionately, it is only by chance, we write. As we note: When governments act arbitrarily in their tax procedures, scarce taxpayer resources must be allocated to cumbersome compliance procedures. Without the ability to make reasonable predictions about tax climates and resource allocation, making important business decisions becomes more difficult and reduces business activity. For many citizens, paying taxes is one of the few ways that they interact with the government. Tax policy widely perceived as unusual and unfair threatens to foster a general disenchantment with the government, creating tensions between the law and citizens. While the City waived its opportunity to respond to these arguments, the Supreme Court on September 14 instructed the City to file a response. We hope the Court will take the case and reverse the Citys arbitrary refund policy.
ess than three months after our Vice President for Legal & State Projects, Joseph Henchman, testified on the issue, the U.S. House Judiciary Committee approved the Business Activity Tax Simplification Act (BATSA) on a bipartisan voice vote on July 7. The bill, H.R. 1439, would establish that businesses could only be subject to corporate income tax and business activity taxes in states where they have property or employees for at least 15 days in a year. This physical presence standard is the historical norm, but many states have recently pushed for economic presence standards, which tax businesses on a variety of different thresholds based on where customers are located, sales occur, goods or services travel through the state, or other actions. Co-sponsors Rep. Bob Goodlatte (R-VA) and Rep. Bobby Scott (D-VA) spoke in favor of the measure. Rep. Judy Chu (D-CA), a former member of Californias tax administration board, proposed an amendment that would change the legislations effective date from 2012 to 2022. Six Democrats joined all present Republicans to reject the amendment. A voice vote occurred by similar margins to reject an amendment to strike the 15-day minimum threshold. Henchman testified on BATSA and other proposals to limit state tax overreaching that harms interstate commerce. While income tax should be paid by those who work or live in a jurisdiction, Henchman said, the costs of unnecessary compliance outweigh the benefits from income tax obligations kicking in at minimal levels of activity. The measure now moves to the full House of Representatives.
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hen a consumer buys something online, in many cases that consumer is not charged sales tax by the online retailer. The U.S. Supreme Court has ruled that, to prevent disruptions to interstate commerce, a state may force only those businesses with a nexus (substantial connection) with the state to collect its sales tax. Otherwise, the Court held in its 1992 case Quill Corp. v. North Dakota, businesses would face an enormous burden of complying with numerous separate sales tax jurisdictions (over 9,600 as of 2011) with ever-changing bases and rates. Thus, only businesses with employees or property in a state usually collect a states sales tax, even if the employees or offices are not directly involved in soliciting sales in the state. Some states have sought to make their taxes more uniform (although not simpler) with the Streamlined Sales Tax Project, and its associated federal bill that would let them require sales tax collection from out-of-state companies, the Main Street Fairness Act. Other states have sought to assert that out-of-state companies actually are in-state if they pay referral commissions, laws known as Amazon laws or clickthrough nexus laws. Such laws havent raised revenue and have led to lengthy legal challenges. California adopted such a law in July, leading to an effort to repeal it at the ballot box, and finally a compromise was hammered out between the state and Amazon.com. The state will back off from requiring collection for a year, and in return Amazon.com is going to develop a physical presence in the state with new facilities. Does this mean that other states can get the same deal? Unlikely, as Amazon had wholly-owned subsidiaries in the state that made its non-presence argument tricky, and because of the sheer size of Californias consumer market. That doesnt mean great things arent possible, however. If something can be devised that simplifies state sales taxes, and makes sure that neither brickand-mortar businesses nor online businesses face unequal obligations or compliance burdens, it could
be a winner. If negotiations in the Golden State presage a deeper discussion about how we have a fair sales tax that doesnt result in states exceeding their taxing powers and harming interstate commerce, its a good step. Read more at http://www.taxfoundation.org/blog/ show/27664.html.
The U.S. has the fourth-highest overall tax rate on dividend income (including taxation at both the corporate level and individual level) among the largest industrialized countries in the OECD, at 52.1 percent. Only Denmark (56.5 percent), France (57.8 percent) and the United Kingdom (54 percent) tax dividends at a higher rate.
www.taxfoundation.org/blog/show/27635.html
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Highlights
Tenzing Tsering
Tenzing holds a Master of Science degree in Economics from Oklahoma State University, where he previously served as a Research and Teaching Associate. He plans to pursue a career in economic and policy analysis, and joins the Tax Foundation with eagerness to move towards that goal. In his spare time, Tenzing enjoys writing. His writing can be read in Muse India and Centre Colleges publication, The Vantage Point. We are able to provide our internship program thanks to the generous support of our donors. Please consider supporting our internship program by visiting www.TaxFoundation.org/support.
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According to the nonpartisan Tax Foundation, the 1 percent of households with the highest incomes pay 38 percent of federal income taxes. The top 10 percent pay 70 percent of federal income taxes. Meanwhile, 46 percent of households pay no federal income tax at all. And the president thinks that the wealthy arent paying the fair share?
Bloomberg, September 22
ocal and state sales taxes add significantly to the amount consumers pay for everyday goods, with Tuba City, Arizona, charging 13.725 percent, the most of any municipality, the Tax Foundation reported. Tennessee has the highest combined sales-tax rate at 9.43 percent, the foundation reported today. Arizona followed with 9.12 percent; Louisiana, 8.84 percent; Washington, 8.79 percent; and Oklahoma, 8.66 percent. The foundation calculated the liabilities by averaging all local sales taxes in each state, giving added weight by population, and combining the average with the statewide rate.
hris Wallace, host: But if you are [a] businessman, you are thinking five years down the road, 10 years down the road. So, the idea, well, I may get a $1,000 tax cut in 2012, but Im going to get $2 trillion of tax increases over the next decade doesnt isnt likely to make them go out and hire more people. I also want to get back to this issue of fair share, which you [David Plouffe] keep talking about. Put it up on the screen.
he Tax Foundation reports that a review of actual Internal Revenue Service corporate tax return data shows that while the largest corporations in America (those with assets larger than $2.5 billion) represent a tiny fraction of all corporations, they pay an overwhelming share of all federal corporate income taxes.
Web Traffic: How the Tax Foundation Stacks up Against Other Tax Policy Groups
Time.com September 27
n recent years, many states and even some cities have set up departments whose job it is to entice Hollywood executives to use their region to shoot motion pictures or television shows because of the jobs these productions attract. The Tax Foundation estimates that states doled out $6 billion in these subsidies over the past decade. There is near-unanimous agreement
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any companies also watch statistics from the nonpartisan Tax Foundation. Last fall, that group ranked Illinois business tax climate at 23rd nationwide for 2011. But with the income tax hike, expect Illinois to fall even further behind Indiana. And expect another crossborder rival for employers, Wisconsin, to improve as Republican lawmakers make strides against that states tax burden. We hope the review ordered by [House Speaker Michael] Madigan and [Senate President John ] Cullerton isnt just a stunt to deflect all the criticism that has rained down on them, and on Quinn, since together they raised income taxes.
here is a mild kerfuffle brewing over Marylands upcoming sales tax holiday, which starts Sunday. State comptroller Peter Franchot told the Baltimore Sun: It benefits the retail stores in Maryland, which provide 70 percent of the jobs. Most importantly, it helps the citizens, many of whom have been hammered by the recession, to get a little relief. Critics, including the conservative Tax Foundation, argue that sales tax holidays dont spur economic growth: Sales tax holidays introduce unjustifiable government distortions into the economy without providing any significant boost to the economy.
anager of Communications Richard Morrison recently interviewed George Runner, member of the California Board of Equalization, on recent developments in California tax policy. Runner, a former state Senator, discussed the debate over online retailers and the states Amazon law, the property tax legacy of Proposition 13, and the protections afforded by the Golden States Taxpayer Bill of Rights. When asked about a proposal by Los Angeles Mayor Antonio Villaraigosa to loosen the property tax limitations created by Proposition 13 in 1978, Runner replied: It comes down to the fact that theres this misguided idea that somehow the state and local governments are owed more money because taxpayers focused now on business taxpayers, on the property tax arent paying their fair share, and as a result of that, if theyd just pay their fair share, government would have enough money. I kind of back away a little bit at that discussion and say, hey look, government has enough money. These are tough times for everybody and they ought to be tough times for government too, and government just needs to react to the revenues that are coming in. The fact is California is the sixth highest taxed state in the nation, and in property tax were about in the middle. So this effort to then try to go after businesses and have them reassessed differently than homeowners is only going to drive California to be one of the highest property tax states also. And again, the lens that I look through all these issues on is, Will this increase employment in California or will this decrease employment in California? And I dont think anyone could doubt, if youre going to go to business landowners and ask them to pay a higher property tax, that that is not going to create a new job. That is only going to create less jobs in the state of California.
conomist Will McBride of the Tax Foundation says some of [Republican presidential candidate Herman] Cains ideas make a lot of sense. A national sales tax, for instance, would mean taxing people for the things they consume, which means theyd spend less and save more. And McBride says a higher savings rate would benefit the economy long-term. When you tax saving and investment you are taxing growth, essentially, and you want to encourage thrift, not discourage it, he says. But McBride also voices a concern expressed by a few conservative politicians. Theyre wary of the government imposing a new tax of any kind and they worry that Cains 9 percent would drift higher over time. It sounds good in theory but we have to think about the prospective political situation and that would be to raise the rates, McBride says.
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Guest Columnist
Senator John Thune (R-S.D.)
Act of 1986, the last time our government adopted serious tax reform. Through leadership and political courage, President Reagan made possible a tax overhaul that lowered tax rates substantially, reducing the top marginal rate from 50 percent to 28 percent and significantly broadening the tax base. Our nation experienced continued prosperity and strong economic growth following these reforms and federal tax revenues nearly doubled during the 1980s. While the national deficit hit a high of 6 percent of Gross Domestic Product in 1983, it fell to 3.1 percent by 1988, after the 1986 reforms had taken effect. The case for pro-growth tax reform is even stronger today. Our tax code has grown considerably and become a complex maze of special interest provisions and temporary tax measures. But America now faces much more intense global competition for jobs and investment than it did 25 years ago. Today, multinational corporations can place the next cutting-edge research and development or manufacturing facility anywhere from Bangalore to Sao Paolo to Shanghai. Unfortunately, our tax code still operates as if this competition for jobs and investment is irrelevant. Americas combined state and federal corporate tax rate is the second-highest in the developed world, topping out at nearly
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Our MissiOn
The mission of the Tax Foundation is to educate taxpayers about sound tax policy and the size of the tax burden borne by americans at all levels of government. From its founding in 1937, the Tax Foundation has been grounded in the belief that the dissemination of basic information about government finance is the foundation of sound policy in a free society.
tax reasons, the better. The primary purpose of taxes is to raise needed revenue, not to micromanage the economy. The tax system should not favor certain industries, activities, or products.
Stability: When tax laws are in constant flux, long-range financial planning is difficult. Lawmakers should avoid enacting temporary tax laws, including tax holidays and amnesties. No Retroactivity: As a corollary to the principle of stability, taxpayers should rely with confidence on the law as it exists when contracts are signed and transactions made. Broad Bases and Low Rates: As a corollary to the principle of neutrality, lawmakers should avoid enacting targeted deductions, credits and exclusions. If such tax preferences are few, substantial revenue can be raised with low tax rates. Broad-based taxes can also produce relatively stable tax revenues from year to year. Twitter: http://twitter.com/TaxFoundation Facebook: http://www.facebook.com/TaxFoundation YouTube: http://www.youtube.com/user/TaxFoundation E-mail Updates: http://TaxFoundation.org/subscribe/
Simplicity: Administrative costs are a loss to society, and complicated taxation undermines voluntary compliance by creating incentives to shelter and disguise income. Transparency: Tax legislation should be based on sound legislative procedures and careful analysis. A good tax system requires informed taxpayers who understand how tax assessment, collection, and compliance works. There should be open hearings and revenue estimates should be fully explained and replicable.