conversationpc wrote:Nevertheless, some have argued that U.S. corporate tax rates unduly burden U.S. companies by pointing to the country’s top statutory tax rate, which is 35 percent. For example, a recent Wall Street Journal editorial calling for corporate tax cuts noted that this is the second highest top statutory tax rate among developed countries.[2] While true, this gives the false impression that the corporate tax burden is greater here than in other developed countries. Because the U.S. tax code offers so many deductions, credits, and other mechanisms by which corporations can reduce their taxes, the actual percentage of profits that U.S. corporations pay in taxes — or what analysts refer to as their effective tax rate — is not high, compared to other developed countries.
Because the average U.S. corporate tax burden is low, many economists believe a revenue-neutral corporate tax reform that reduces statutory corporate tax rates, while broadening the tax base by eliminating costly tax breaks, could improve economic efficiency and likely benefit the U.S. economy.
There's a shred of truth to this concept that while the stated tax rate is something that is very high for corporations, there's enough prescriptive application in the Internal Revenue Code for the tax code to evolve into an effective tax rate that may be significantly different from the percentage stated.
There's a current paradigm-struggle in modern accounting. US based accounting rules are called 'rules-based' accounting....International accounting standards are based on something called 'principles-based' accounting. The difference is that how to account for a certain number in a rules-based system is one that is dependent upon a huge list of do's, dont's, exceptions, rules, etc. In principles-based accounting, the guidance is left more to the judgment of the accountant to determine the economic benefit of the treatment. Our current accounting system *and* the Internal Revenue Code are both developed out of a rules-based system. One of the common problems with a rules based system is that as soon as you create an overly prescriptive procedure for accounting for someone, you create a 'bright-line' that accountants (in this case, tax accountants) can circumvent, avoid and work around.
Anyway, to the point at hand, I don't believe, given our current system that it's possible to enact "revenue-neutral corporate tax reform" as mentioned above. Because of this rules-based system, the laws of unintended consequences often comes into play when tax rates are lowered or raised. For example, as capital gains taxes were lowered in this country, people could 'avoid' tax by demanding more stock-based payment instead of salary. It's no accident that as capital gains taxes were lowering in the Clinton era, that stock options became more popular. This might have even been an intended consequence...but regardless, the IRS went nuts trying to write very specific code to prevent people from taking unjust advantage of this.
The current Internal Revenue Code is chock full of tons of pages of guidelines, dos, donts, exceptions, etc. All in an effort to close loopholes and prevent people from engaging in unlawful tax avoidance. At the *same* time, loopholes (often presented in the form of 'credits') are also actually put into place to give a certain party a tax advantage for one reason or another (to aid poor folk, to help an oil buddy from texas, etc)....
As soon as you apply more credits, change tax rates, etc...you basically create a chain reaction which starts with highly paid tax accountants working for large corporations that will antagonize the new code to find new ways around it....Mind you, these guys are usually better paid (and that equates to smarter) than the accountants at the IRS.... The chain reaction usually ends with the 'intended' change resulting in several unintended effects. Then the IRS goes crazy plugging up the new holes.
It's like sticking your finger in a mud dam to stop a leak.
The point I'm trying to make is that no matter WHAT the stated tax rate is and no matter what credits are applied...US corporations are going to take advantage of it, under our current system.
Im fully convinced, that the above mentioned "revenue-neutral corporate tax reform" change would only really happen under a principles-based accounting system. That would force accountants to be trusted to apply more 'judgment' into tax treatments and I'm not so sure our society (our our accountants) is (are) ready to handle that, given how litigious we can be. Let's also consider the fact that theres 80+ years of tax law codified by our judicial system, that would have to get abolished or at the very least, de-emphasized.
The alternative is to abolish are great deal of the secondary code in the IRC...like credits, deductions, exceptions, etc....and that would likely result in re-instating all of the various loopholes that we've spent the past x number of years trying to do away with.
