Wednesday, October 28, 2020

NYU Tax Policy Colloquium, week 10: Steve Rosenthal on who owns shares of US companies' stocks, part 1

 Yesterday at the colloquium, Steve Rosenthal presented his paper (coauthored with Theo Burke), Who's Left to Tax? U.S. Taxation of Corporations and Their Shareholders. This is a follow-up to, and refinement of, his eye-opening 2016 piece with Lydia Austin, which showed that the share of U.S. corporate shares owned in immediately taxable form by US taxpayers is far lower than people have thought.

Here in part 1 I'll discuss the paper's main findings, and put them in context. In a follow-up part 2 I'll discuss some of the policy issues raised.

Rosenthal's and Burke's basic methodology is to take the excellent information compiled by the Fed regarding who owns U.S. equity, and to adjust and convert it to answer the question of who owns C corporation stock under the US federal income tax. This requires a lot of careful and well-thought-through adjustments, aided by the fact that the Fed (along with US Treasury staff who need to run revenue estimates) has capable people who are interested in the issue.

The underlying motivation is that, in the classic picture most of us have in mind, US companies (including the US affiliates of foreign companies, are subject to the classic double taxation regime. First the corporation is taxed on its income, then the shareholders are taxed on the receipt of dividends or other distributions, and on capital gains if they sell the stock. But this may be a misunderstanding insofar as the shareholders are not themselves taxable.

Understanding the US tax status of US corporate shareholders is important in a whole lot of contexts. An obvious one is how we should think about corporate integration proposals, which may be premised on preserving one layer of tax. A second is thinking about the transition effects of the 2017 U.S. corporate tax rate cut - e.g., to what extent did foreign individuals reap a short-term transition gain? The actual origin of this long-term project came from Rosenthal's taking a look at the 2016 Hillary Clinton proposal to combat short-termism among US corporate managers by giving the shareholders (via capital gains rates that would have declined over time) incentives to buy and hold for a long time. This was not a good proposal to begin with (on multiple grounds), but Rosenthal realized that it presupposed a lot of shareholders who were subject to the capital gains tax if they sold their stock.

Here is the new paper's main finding. US corporate stock appears to be owned approximately as follows:

--40 percent by foreign shareholders. This includes both foreign direct investment (FDI), as in the case where a foreign multinational has a US subsidiary through which it engages in US business activity, and foreign portfolio investment (FPI), such as in the case where a foreign company or individual owns some shares of, say, Apple, Facebook, or Google stock.

--30 percent by tax-favored US retirement accounts. These include, for example, both defined benefit (DB) and defined contribution (DC) plans, along with both traditional and Roth IRAs.

--5 percent by nonprofits, such as Harvard's $40 billion endowment, insofar as it's invested in stock.

--25 percent by taxable US individuals (leaving aside their interests held through tax-favored retirement accounts.

A few decades ago, the last group's share was 80%, as compared to 25% today. Key reasons for the drop include not only the rise of stockholding through retirement accounts, but also the rise of cross-border stock ownership. The paper shows that, just as foreign ownership of US stocks has increased, so has ownership by US individuals of foreign stocks. Home equity bias has declined sharply in recent decades, which is good news from the standpoint of individuals' diversification but very much mixed news from the standpoint of a given country's fiscal system. (Good to have outside $$ coming in, not so good to have inside $$ going out, maybe also not so good to be more subject than previously to global tax competitive pressures.)

As to their direction, these findings are entirely to be expected. We knew that there is more cross-border equity-holding than previously, and that DC plans along with other stock-funded retirement saving has been on the rise.

But the findings are very surprising in the magnitude of what they show. I gather that, before the 2016 Rosenthal-Austin paper, leading economists figured that the 80% figure for direct taxable shareholding had fallen to, say, 50%. Finding that it is already just half that is an eye-opener that can make a major difference in how we view multiple issues.

Suppose, for example, that one was interested in corporate integration specifically from the standpoint of getting rid of "double taxation." (A more sophisticated view in its favor would focus instead on specific distortions - e.g, in the choice of entity, financial instrument, or timing and form of corporate distributions.) We've already seen the entity-level tax recede substantially, due both to cross-border tax planning and the 2017 cut in the US corporate rate from 35% to 21%. We now see that the effective shareholder rate is way down, due not just to cuts in the capital gains and dividend rates, but also to the decline of directly taxable shareholding. So, just as in the international realm, where concern about "double taxation" has receded relative to that about "double non-taxation" or stateless income, so we might have such a concern in the domestic corporate realm.

As it happens, however, the lessons to be learned from the Rosenthal-Burke findings are more complex and subtle than those suggested by the above account. For one thing, one has to interrogate both viewing the 75% share as not taxed at the owner levels (which depends on further things) and viewing the 25% as taxed (e.g., given the tax-free step-up in basis at death). The one thing we can be sure of is that the findings are important and that we should interrogate them further. I'll do a bit of that in my next blog post.

5 comments:

adaa rajput said...

thanks for sharing this informarion




Alpha Cyber Solution

Brittany Seiber said...

To know more about Chief Dr Lucky you can visit his website (https://chiefdrluckyherbaltherapy.wordpress.com/)
 
 A friend that suffered from Herpes and was cure with the help of this great herbal doctor Chief Lucky so i decided to contact him for help in getting rid of my families genital herpes virus 1/2 which i did and all i was told to provide was just some useful information and some materials used in preparation of the natural cure and that i did and now i am the happiest person on earth because i am writing this testimony of mine with joy and happiness in my heart to the whole world to know that natural remedy is real because i am a living testimony of Chief Lucky traditional herbal cure and i want you all to contact Chief Lucky via his email: chiefdrlucky@gmail.com or WhatsApp him +2348132777335 am sure he will help you too.

micheal pan said...

BE SMART AND BECOME RICH IN LESS THAN 3DAYS....It all depends on how fast 
you can be to get the new PROGRAMMED blank ATM card that is capable of
hacking into any ATM machine,anywhere in the world. I got to know about 
this BLANK ATM CARD when I was searching for job online about a month 
ago..It has really changed my life for good and now I can say I'm rich and 
I can never be poor again. The least money I get in a day with it is about 
$50,000.(fifty thousand USD) Every now and then I keeping pumping money 
into my account. Though is illegal,there is no risk of being caught 
,because it has been programmed in such a way that it is not traceable,it 
also has a technique that makes it impossible for the CCTVs to detect 
you..For details on how to get yours today, email the hackers on : (
atmmachinehackers1@gmail.com ). Tell your 
loved once too, and start to live large. That's the simple testimony of how 
my life changed for good...Love you all ...the email address again is ;
atmmachinehackers1@gmail.com

Ric Clayton said...

I really want to thank Dr Emu for saving my marriage. My wife really treated me badly and left home for almost 3 month this got me sick and confused. Then I told my friend about how my wife has changed towards me. Then she told me to contact Dr Emu that he will help me bring back my wife and change her back to a good woman. I never believed in all this but I gave it a try. Dr Emu casted a spell of return of love on her, and my wife came back home for forgiveness and today we are happy again. If you are going through any relationship stress or you want back your Ex or Divorce husband you can contact his whatsapp +2347012841542 or email emutemple@gmail.com website: Https://emutemple.wordpress.com/ Https://web.facebook.com/Emu-Temple-104891335203341

FIRMWARE HACKS said...

It Tears me Up Whenever we receive complaints from Clients About Their Experience With the Hackers They Met Before They Heard about us.
These Days There Are alot of Hackers Online, You Just Have to Be Careful about who you meet for help, because many people now don't know who to ask for help anymore but there's actually a solution to that which I am giving you for free, Don't go out there seeking for Hackers Yourself, Because the probability of getting a Real Hacker Out there Is Very Slim . ❌❌ ❌ Most Of Them are actually not who they say they're, they are just here to Rip people Off, You Can Always Identify Them With Their False Advertisements and False Testimonies Trying To Lure you Into their Arms, And most of them use yahoomails, gmails and other cheaper email providers which could easily expose their vulnerabilities, Please Don’t Fall For Them🚷 Come To Think Of It, Why would a Legit Hacker Be using a gmail or a cheap email provider that exposes his vulnerabilities????⚠️⚠️⚠️
Well, Our Purpose Here Is To Link You Up With Top Legit Hackers With Great Online Reputations and Impressive LinkedIn Profiles That’ll Blow Your Mind.

☑️ COMPOSITE FIRMWARE SECURITY SPECIALISTS is here to Provide you with The Best Hackers, So you can get saved from The Arms of the Fake Hackers❌❌.


☑️All our Specialists are well experienced in their various niches with Great Skills, Technical Hacking Strategies And Positive Online Reputations And Recommendations🔘
They hail from a proven track record and have cracked even the toughest of barriers to intrude and capture all relevant data needed by our Clients.

We have Digital Forensic Specialists, Certified Ethical Hackers, Software Engineers, Firmware Security Experts, Private investigators and more. Our Goal is to make your digital life secure, safe and hassle free by Linking you Up With these great Professionals such as JACK CABLE, ARNE SWINNEN, SEAN MELIA, DAWID CZAGAN, BEN SADEGHIPOUR And More. These Professionals are Well Reserved Professionals who are always ready to Handle your job with great energy and swift response so that your problems can be solved very quickly.
All You Need to Do is to send us a mail and we’ll Assign any of these specialists to Handle your Job immediately.

☑️ Below Is A Full List Of Our Services:
▪️ FUNDS RECOVERY ON SCAM INVESTMENTS, BINARY OPTIONS TRADING and ALL TYPES OF SCAMS.
▪️ WEBSITE AND DATABASE HACKING 💻
▪️ CREDIT REPAIR. 💳
▪️ PHONE HACKING & CLONING (giving you 📱 Unnoticeable access to everything Happening on the Target’s Phone)
▪️ CLEARING OF CRIMINAL RECORDS ❌
▪️ SOCIAL MEDIA ACCOUNTS HACKING 📱
▪️RECOVERY OF DELETED FILES 📤
▪️LOCATION TRACKING 📌
▪️BITCOIN MINING ⛏ And lot More.


☑️ CONTACT:
.....
firmwarehacks@gmail.com
🔘2021 © composite firmware specialists
🔘Want faster service? Contact us!
🔘All Rights Reserved ®️