Wednesday, March 11, 2009

Urban Institute event on Decoding the Corporate Tax

This morning, I attended a book event at the Urban Institute discussing my corporate tax book. Good crowd, maybe about 80 people, apparently plus a webcast audience. My PowerPoint slides for my portion of the event are available here.

Greg Ip of the Economist was the moderator, and the discussants were Rosanne Altshuler of Urban/Rutgers Economics, Dan Halperin of Harvard Law School, and Pam Olson of Skadden Arps (formerly Assistant Secretary of the Treasury for Tax Policy).

While the discussants naturally focused on the policy proposals I make at the end of Decoding, I mainly devoted my comments to an overview of the whole thang, as I believe its main and most enduring value relates to the broad question of how one should think about and understand the corporate tax.

Rosanne emphasized the difficulties of deciding where to head in U.S. international taxation as between the worldwide and territorial approaches, and noted that her burden-neutral proposal (with Harry Grubert) to repeal deferral, which I propose to extend to foreign tax credits as well, needs a lot more fleshing out than any of us have given it as yet. She also noted the importance of the U.S.’s having an usually high marginal corporate tax rate by worldwide standards, even if our effective rates are considerably more within the norm.

Dan made an excellent point that the book at least rhetorically underplays a bit, namely that many of the problems raised by corporate integration would apply as well to lowering the U.S. corporate rate. For example, effects on debt-equity choices, the use of corporate tax preferences, and whether we want to use the corporate tax in order to impose an indirect levy on tax-exempts such as Harvard University (his example) really are common to both. This leaves, however, the difference that lowering the entity-level rate applies to inbound investment by foreign corporations, and affects incentives to transfer-price international income into, as opposed to out of, the United States.

Pam addressed corporate governance issues and book-tax conformity in income measurement. While she questioned my exact proposal (50% conformity between taxable income and an adjusted measure of book income), she joins what I think is a growing consensus (at least outside the accounting profession) that the gap between companies’ book and taxable income is too troubling to be dismissed with the airy statement that, gee, the two systems are just different.

Greg asked me about a comment I had made in chat before the start to the effect that I questioned the Obama Administration’s budgetary claim to have $200 billion of revenue to be garnered out of “reforming” deferral by U.S. multinationals. I explained that I was skeptical that the money will turn out to be there either as a matter of legislative politics or straight revenue-raising, and that it’s questionable how much more money we can try to get out of U.S. multinationals when the underlying thing we are taxing – the decision to classify one’s investments as made through a U.S. corporate resident – is so trivial and, over the long term, easily changed.

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