The Next Step in Corporate Tax Reform
Do you think policymakers, tax analysts, and interested citizens should better understand and evaluate whether the corporate income tax is structured in such a way that all corporations doing business in the state pay their fair share of the tax and tax liabilities are distributed among corporations as policymakers intend?
Do you think these individuals should analyze whether specific corporate tax cuts enacted to achieve a variety of economic development-related objectives are actually achieving those objectives?
Do you think exposing problems with the corporate tax system to policymakers, the media, and the general public would increase the likelihood that appropriate changes in tax policy will be enacted?
If you answered yes to any of those questions, then you should be interested in corporate tax disclosure and a new report from the Center on Budget and Policy Priorities titled State Corporate Tax Disclosure: The Next Step in Corporate Tax Reform (PDF).
In the report you will read about "The Fading State Corporate Income Tax." For instance, while profits and federal corporate income tax receipts have grown at about the same rate from 1993 to 2005 (7.8 and 7.8 percent respectively), state corporate income tax collections have fallen short (6.6 percent), which means that individual taxpayers are left picking up a larger share of the responsibility for funding state services.
You will get all the arguments you need to make "The Case for Company-specific Corporate Tax Disclosure."
The next time some apologist for the current secrecy – and for the current tax system where large corporations with significant revenues pay little in state income taxes – calls you “anti-business,” if you have read the section titled "Responding to Arguments against Company-specific Disclosure" you’ll be prepared.
Perhaps your conflict-adverse friend or your legislator in Salem asks "aren't there less controversial alternatives?" The section "Proposed Alternatives to Company-specific Disclosure Are Inadequate" will give you the facts you need to say with confidence "no, we should just do it.”
Last, and certainly not least, there's a detailed "Explanation of the Model State Corporate Tax Disclosure Act" that will help you understand the bill that will be printed soon in Salem. I'll add the bill number to this post when it becomes available, so stay tuned.
The bottom line: read State Corporate Tax Disclosure (PDF) so you can help Oregon take the next step. And visit the Corporate Accountability Reporting Resources page at the Oregon Center for Public Policy.
|
February 15, 2007 |
Chuck Sheketoff | Comments (12 so far)
| Share on Facebook |
Comments
Posted by: fred Thompson | Feb 15, 2007 9:06:11 AM
Chuck Sheketoff identifies one reason for State Corporate Tax Disclosure -- extracting greater tax revenues from corporations. Maybe. But a better reason for action by the Oregon legislature is that disclosure is investor friendly. Oregon is not going to attact corporate headquarters by being management friendly. States like New Jersey beat us hands down on that dimension. But we might possibly attract and retrain corporate headquarters by being exceptionally shareholder friendly. The fact is that corporate headquarters are very valuable to a community in a way that many economic activities are not.
I am not convinced that State Corporate Tax Disclosure would encourage corporations to pay more corporate income taxes, but I am open to persuasion. The main reason that state corporate income tax revenues have fallen as a proportion of taxes collected is that states have moved away from uniformity in apportionment practices. This means that corporations now have greater latitude to recognize income where corporate rates are lower. Because Oregon has a high corporate income tax rate. changes in apportionment rules have affected Oregon's corporate tax revenues more than in most states.
While I am not convinced that increasing corporate income tax payments is necessarily a good thing (the incidence of corporate income taxes is hard to parse), we ought to understand how to accomplish that end. Obviously, eliminating the corporate kicker ought to be the first order of business. Lowering corporate income taxes rates is also an obvious possibility. Returning to a triangular system of apportionment based on assets and employment as well as on the location of sales is a third -- that would increase revenues from companies like Nike and Intel, for examples.
Posted by: BlueNote | Feb 15, 2007 11:25:15 AM
Excellent post and linked article, but I am not sure how to reconcile the reasonable privacy needs of business with your proposal. Should I be able to obtain information regarding my competitor's gross income, or total deductions or net tax liability? For publicly traded companies that information is probably available anyway (although perhaps not broken down by state), but for private businesses that information is sensitive and it seems like that information could be used to the disadvantage of the taxpayer, particularly as the level of detail increases.
Clearly the Oregon legislature needs to force all businesses to pay their fair share of state taxes, but we can't let Oregon gain a reputation of being less accommodating to businesses than its sister states. I am already watching a lot of small to medium size manufacturing and distribution companies migrate to Washington where there is no corporate income tax and where development land is cheaper. I don't think anybody wants the outward migration of good jobs to get any worse than it already is.
Posted by: dddave | Feb 15, 2007 1:16:11 PM
The only corporations that pay any tax are public traded corps. Private corporations typically pay out all the profit to the owners/shareholders to limit corporate taxes.
Why would anyone leave money in a corporation just to be taxed more?? That would be poor fiscal policy.
And remember, the "kicker" is simply over collected taxes, so their money. The fact that govt collected me or my businesses tax money is justification for keeping it is really idiotic. If you want more money, budget for it and get it approved.
A better strategy is to forgo all corporate taxes in favor of having more people with better jobs, since we rape them for 9% with the state income tax. Perhaps even a sliding scale based on whether a company has their HQ here and some number of manufacturing/other workforce. Can anyone is Salem ever think out of the box? Money comes from peoples wallets, not their businesses.
Why we are having this conversation at all is amazing.
The next biennial budget is up 20%, or $4 BILLION dollars a year. That ain't enough? Shouldnt we be reducing the state income tax percentage rate to 7% instead, and just let the unwashed masses keep their money?
Sheesh, Ted could not even find it in himself to get the State Police any new money, out of a $4 BILLION budget INCREASE.
Oregon is not a business friendly state, it's a PERS friendly, tax friendly, we know what is better for business and taxpayers than they do state.
Oregon doesn't need or deserve more tax revenues.
Posted by: BlueNote | Feb 15, 2007 3:43:37 PM
Lots of small business entities (corporations, LLCs, etc.) pay Oregon income tax. Yes, Mom and Pop companies usually distribute all profits to themselves prior to the end of their tax year to avoid paying tax at the entity level, but there are hundreds and probably thousands of middle-size business entities in Oregon that pay taxes. I am the attorney for dozens of them.
My point is - catch the cheaters, close the loopholes, and if necessary raise tax rates to make business pay a fair share. But be careful when proposing laws that make private tax return information into pubic information.
Would you want your next door neighbor or your ex-wife (or the bartender at the Elks Club) to know how much tax you paid last year? Not sure I would, and small businesses have some of the same concerns.
Posted by: BlueNote | Feb 15, 2007 3:44:51 PM
oops, got too excited. LLCs don't pay tax at the entity level. Ignore that mistake in the above.
Posted by: torridjoe | Feb 15, 2007 4:15:41 PM
"And remember, the "kicker" is simply over collected taxes, so their money. The fact that govt collected me or my businesses tax money is justification for keeping it is really idiotic."
How so? If I make $10,000 in a year, I'll be taxed for (say) $2,500. If I make $15,000, I'll be taked for $3,750. That's not "overcollected taxes," that's legitimate taxes based on unforseen additional tax revenue--predicated on unforseen additional income.
Or to put it another way--since you seem to think that the target revenue figure is what should end up in the treasury at the end of the year--if you make less than you predicted next year, you won't mind paying the additional tax on the amount you predicted...right?
Posted by: Kari Chisholm | Feb 16, 2007 12:17:21 PM
Would you want your next door neighbor or your ex-wife (or the bartender at the Elks Club) to know how much tax you paid last year? Not sure I would, and small businesses have some of the same concerns.
Sure. Why not? I don't understand what the problem is. There's nothing in your tax files that's a corporate trade secret.
Maybe it's because most of my company's revenues ARE a matter of public record (through campaign C&E reporting), but I just don't see what the big deal is.
The secret formula for the next New Coke isn't in their tax filing. Heck, the CEO's salary isn't even in there.
Posted by: jim karlock | Feb 17, 2007 2:11:16 AM
Kari Chisholm Would you want your next door neighbor or your ex-wife (or the bartender at the Elks Club) to know how much tax you paid last year? Not sure I would, and small businesses have some of the same concerns.
Sure. Why not? I don't understand what the problem is. There's nothing in your tax files that's a corporate trade secret.
JK: Again Blueoregon is showing its lack of understanding business. Say I have a small business that has hit the mother lode of a popular product. I only sell it on the internet, so the competition has no hint that I am very successful and thus will not decide to compete with me. Until the competition sees that I am making a killing from my tax filings.
The obvious solution it to take my business and YOUR job somewhere else. Hope you want to commute to Vancouver which is currently advertizing the lack of a corporate tax!
Thanks
JK
Posted by: Fred Thompson | Feb 18, 2007 6:04:10 PM
JK writes: Again Blueoregon is showing its lack of understanding business. Say I have a small business that has hit the mother lode of a popular product. I only sell it on the internet, so the competition has no hint that I am very successful and thus will not decide to compete with me. Until the competition sees that I am making a killing from my tax filings.
State corporate tax disclosure is primarily addressed to businesses that are now required to report their general-purpose financial statements to the public and file extensive financial information with the SEC on a quarterly basis. All of this information is available to investors (including potential rivals). What tax disclosure would do is give everybody greater insight into their cash flows, as well as their income and tax management practices. Some privately held businesses would be affected, but I don't think the small business case cited by JK is relevant.
The merits of the corporate income tax (few in my opinion) or the corporate kicker (none) deserve their own discussion.
Posted by: Jeff Peterson | Mar 27, 2007 2:01:09 PM
Chuck, Don't you realize that there is no such thing as taxing "Corporations". Corporations don't pay taxes, consumers who buy their products pay the taxes. So whinning about corporations not paying taxes is self defeating since the corporation will just pass any tax burden on to the consumer. You end up paying your personal taxes and then you also get to pay the Corporate taxes for every product you buy on top of that.
Admit it, you just love taxes, and you think this somehow hurts corporations when it's just another name for taxing the poor! Doesn't pass the resonability test for me.
Sounds good though, bad Corporations, make them big bad guys pay!
Posted by: Steve Selengut | Jul 10, 2008 8:27:45 AM
Investor Politics - Corporate Income Tax Reform
The investor's eye view of politics is a simplistic, practical, dot-connecting approach to sorting things out so that win/win change can be considered. Real world politics is not concerned with such things, and that is one of the most serious problems facing investors today. There are at least ten issues that require government action if we are to maintain our competitive position in the world economy. Most of these are interrelated and need to be acted upon simultaneously--- thus causing a major political dilemma.
Politicians are much more interested in talking about change than they are in actually legislating it; they prefer to champion just one specific issue at a time so as not to appear too independent; and they can't keep themselves from back sliding into the now archaic distinction between investors and poor people. Rich or poor, most Americans have investments. For the small investor to become wealthier his or her efforts must be encouraged by the tax code-- the wealthy will become wealthier in spite of the tax code. And, believe it or don't, the vast majority of the wealthy (even corporate executives) are good, productive, caring-about-the-environment, people.
At the root of the problem is the tremendous investment the major parties have in nurturing divisiveness, jealousy, and misunderstanding in the electorate. The Republicans or Democrats in power are always ruining the country and, of course, the guys who are seeking power, will undoubtedly do the same. Perhaps the most obvious example of misguided political handiwork is the negative attitude of most individuals toward corporations, big business, and international economic collaboration.
As non-voting but taxable entities, corporations are easy to blame for all that is wrong in society, easy to sue frivolously with no remorse or control, and popular to tax--- by both parties. The sad thing is that most people don't take the time to appreciate just how important business success and profitability are to their own financial interests, short and long term. Mutual funds, for example, perform better when businesses, large and small, prosper. Profitable businesses produce jobs, provide higher salaries, and (once all the extra fees, mandates, taxes, and handouts are eliminated) lower prices.
Politicians have never been shy about dictating proper behavior to individuals or hesitant in shamelessly picking the pockets of businesses to fund their projects. Self-employed business owners, for example, pay a minimum 35% Federal Income Tax, state and local taxes of various kinds, and the usual Workers Compensation, Medicare, and double Social Security Taxes. It adds up to better than 50% quickly, and, at every level, all taxes, fees, subsidies, assessments, withholdings, compliance costs, etc. are:
(1) Added to the price of goods and services, (2) considered in hiring decisions at all levels in all business entities, and (3) factored into decisions regarding new plant locations and service function outsourcing. Businesses will only produce jobs in an environment that recognizes the importance of the contributions they make. Meaningful tax reform needs to begin where the jobs begin. Reforms to the Individual Tax Code and the Social Security/Retirement System can then be integrated into the business framework.
Just as Congress picks corporate pockets, corporations pick those of their shareholders. The compensation of corporate officers is a clear example of how this has gone totally out of control, even if it is understandable under existing tax codes--- both corporate and individual. Multi-million dollar salaries, bonuses, deferred compensation and option packages are all designed to avoid and/or to defer taxes while, at the same time, they are deductible on a dollar for dollar basis from business taxes.
Changes on the personal side could clean this up quickly but, for now, politicians need to focus more on protecting shareholders from these creative, and excessive, compensation schemes. Eliminating the Corporate Income Tax, and all tax deferral/option/bonus mechanisms that are not available to all employees at all levels, would be an excellent start. Then cap total compensation packages at a specific number--- any excess being paid only in the form of dividends to all shareholders.
The Corporate Income Tax is a non-productive weight on business decision makers, causing expenditures that would not be considered were they not tax deductible. Ironically, jobs are not created to reduce the tax bite because every dollar of salary brings with it an additional 40% or so in overhead. All the actual costs of doing business (and all the perceived risks associated with doing business) wind up in the price of goods and services. The fact that governments can raise corporate costs so much more easily than they can raise individual's taxes is perhaps the biggest shell game threatening our economic well being today.
If instead of taxing them into leaving the country, Congress would cultivate the profitability of corporations, while focusing regulatory efforts on the economic abuses of shareholders, employees, and consumers, a whole new era of economic expansion and productivity growth would ensue--- and we're just getting started.
Investors need to impress upon candidates that they expect meaningful change throughout the tax code, and that a second term just won't happen without it.
After the Corporate Tax environment changes, politicians will be able to devote their energies to defining "proper corporate and non-corporate business behavior", and monitoring compliance with a whole new set of rules and regulations. Converting the United States into a Free Trade Zone, by eliminating all nuisance assessments from all levels of government, would: increase employment, reduce prices, and multiply distributable dividends. Making it happen should not be that difficult, particularly with the growing outrage concerning the obscene compensation of high level corporate executives, and considering how successful the FTZs have been on the local level.
Managers will make these changes work because the incentives are where they belong--- on the bottom line instead of the tax return. Small businesses would benefit from the reduction in taxation, and fees, and would be less constrained in their efforts to grow. If they don't do the right thing, they will become less competitive in the marketplace, and that is the way capitalism is supposed to work. But, don't be naive. Publicly held companies will need direction, guidance, and policing--- an excellent new career for displaced accountants and lobbyists.
Steve Selengut
http://www.sancoservices.com
http://www.kiawahgolfinvestmentseminars.com/
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
Posted by: John Calhoun | Feb 15, 2007 8:18:28 AM
Chuck,
Thank you for doing this. We are indeed fortunate to have you and your organization providing hard data on tax and public policy issues for Oregon. For too long the corporate world and the anti-tax crowd has controlled the information flow. Companies like Nike and Intel could publish their side, but we had trouble getting our hands on the hard data to counter their positions. They have sucker punched our politicians and the result is that individuals feel that they pay too much tax after almost two decades of cutting taxes. Of course the tax cuts went to the large corporations not to individuals.