The voices of Tax Policy Center's researchers and staff
About last year’s inversion rush… The US corporate tax rate, highest among industrialized nations at 35 percent, was driving companies to switch mailing addresses in return for lower tax rates, right? Not so fast. A Reuters analysis finds that the taxes paid by the six largest inversion-seeking companies had already been paying lower effective rates: Their average rate was 20.3 percent for 2011-2013. That’s because there’s more than one way to trim a tax bill. “Until we address earnings stripping and the transfer of intangible rights abroad, we're always going to have this incentive for foreign companies to combine with US companies and strip the US corporate tax base,” said TPC’s Steve Rosenthal.
Innovative small businesses may lose some tax benefits. TPC’s Donald Marron and Joe Rosenberg explain how in a paper based on a new TPC tax model. Businesses that invest in intellectual property often rely on higher-taxed equity than firms that invest in tangible goods with lower-taxed debt. And many start-ups lose money for years: Without taxable income they can’t use preferences for research, capital investment, or even interest expense—at least until they turn a profit. They end up with a higher marginal effective tax rate and a higher cost of capital. The authors conclude that “Efforts to…[lower] the corporate tax rate and [‘level’] the playing field among different types of investment should pay particular attention to these types of effects on startups and entrepreneurship.”
Was Swiss private bank HSBC just a tax avoidance service? The International Consortium of Investigative Journalists, France’s Le Monde newspaper, the UK’s Guardian, the BBC’s Panorama, and CBS’s 60 Minutes have once-secret documents that reveal UK-based bank employees promised clients they would help them avoid paying taxes on their assets. The bank reportedly hid billions of dollars from international tax authorities before 2007. The bank is facing criminal investigations in the US, France, Belgium and Argentina, but not in the UK.
And an MVP can avoid the IRS… but his friend won’t. The New England Patriots’ quarterback Tom Brady was chosen Most Valuable Player at last week’s Super Bowl—and won a new Chevrolet truck. He wanted to give the ride to cornerback Malcom Butler whose last-minute interception sealed the victory. Chevy is giving the truck directly to Butler, so Brady avoids paying up to $22,000 in gift and income taxes on the $35,000 vehicle. Butler gets the truck, but will have to owe income tax on the reward.
Fire up the grill and enjoy an extra pint of cider… maybe. The Senate Finance Committee is expected to consider 17 tax-related bills starting tomorrow. One would lower the excise tax on propane from 18.3 cents to 13.2 cents per gallon. Liquefied natural gas would be taxed at 14.1 cents instead of 24.3 cents. That bill would cost $54 million over the next ten years. Another measure would adjust the definition of hard cider—which faces a lower tax than wine or champagne. Hard cider could come from pears as well as apples, but would be taxed if its alcohol reaches 8.5 percent, up from 7 percent. The cider tax change would cost an estimated $12 million over a decade. The panel needs to keep busy until it considers tax reform.
Today on the Hill: The Tax Reform Act of 1986. The Senate Finance Committee will review the lessons Congress can learn from the Tax Reform Act of 1986 at a hearing tomorrow with former Finance Committee Chair Bob Packwood and former Democratic senator Bill Bradley.
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