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Abolished Company Tax
- Analysis and Consequenses

"Slopad bolagsskatt
- analys och konsekvenser"

click here for a summary in English

Authors: Erik Norrman and Niclas Virin

Slopad bolagsskatt - analys och konsekvenser











During the latest years there has been an international trend towards reudced company tax rates. The book reviews i.a. legal and economic problems attached to this form of taxation. The legal and practical problems about company taxation - not the least at the international lelvel - are extremely difficult to master. At the same time this form of taxation seems to be unnecessary and counteracting desired and useful capital accumulation. The book describes the consequences of company taxation and analyses by means of modern research socioeconomic effects of abolished or strongly reduced company tax.

Read more about the book, and order it here.

Slopad bolagsskatt - analys och konsekvenser



click here for a summary in English

INTERESTING QUOTATIONS

TAX STRUCTURE AND ECONOMIC GROWTH

Young Lee, Hanyang University, Seoul, South Korea, and Roger H. Gordon

University of California, San Diego, CA, USA

Journal of Public EconomicsVolume 89, Issues 5-6, June 2005, Pages 1027-1043

http://www.clangmann.net/2007_July_13/Tax_Structure_Economic_Growth.pdf

Abstract

Past theoretical work predicts that higher corporate tax rates should decrease economic growth rates, while the effects of high personal tax rates are less clear.

In this paper, we explore how tax policies in fact affect a country's growth rate, using cross-country data during 1970-1997. We find that statutory corporate tax rates are significantly negatively correlated with cross-sectional differences in average economic growth rates, controlling for various other determinants of economic growth, and other standard tax variables.

In fixed-effect regressions, we again find that increases in corporate tax rates lead to lower future growth rates within countries. The coefficient estimates suggest that a cut in the corporate tax rate by ten percentage points will raise the annual growth rate by one to two percentage points.

Anybody surprised?

ROBERT BARRO'S RECIPEE

Robert J. Barro is an economics professor at Harvard University and senior fellow at Stanford University's Hoover Institution.

In an article in http://online.wsj.com/article/SB123258618204604599.htmlWall Street Journal 22 januari 2009 he criticizes the moves by the Obama administration to create new jobs. He doubts that the multiplier of the American economy diverges from 0. The adminstrationen expects it to be 1.5.

Much more focus should be on incentives for people and businesses to invest, produce and work. On the tax side, we should avoid programs that throw money at people and emphasize instead reductions in marginal income-tax rates -- especially where these rates are already high and fall on capital income. Eliminating the federal corporate income tax would be brilliant. On the spending side, the main point is that we should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis. Just as in the 1980s, when extreme supply-side views on tax cuts were unjustified, it is wrong now to think that added government spending is free.

Read once more: Eliminating the federal corporate income tax would be brilliant.

THE EFFECT OF CORPRATE TAXES 0N INVESTMENT AND ENTREPRENEURSHIP

Simeon Djankov, Tim Ganser, Caralee McLiesh, Rita Ramalho, Andrei Shleifer

National Bureau of Economic Research, NBER Working Paper No. 13756

Issued in January 2008

NBER Program(s): CF PE EFG

http://www.nber.org/papers/w13756.html

We present new data on effective corporate income tax rates in 85 countries in 2004. The data come from a survey, conducted jointly with PricewaterhouseCoopers, of all taxes imposed on "the same" standardized mid-size domestic firm. In a cross-section of countries, our estimates of the effective corporate tax rate have a large adverse impact on aggregate investment, FDI, and entrepreneurial activity. For example, a 10 percent increase in the effective corporate tax rate reduces aggregate investment to GDP ratio by 2 percentage points. Corporate tax rates are also negatively correlated with growth, and positively correlated with the size of the informal economy. The results are robust to the inclusion of controls for other tax rates, quality of tax administration, security of property rights, level of economic development, regulation, inflation, and openness to trade.

Elementary, my dear Watson. (Although Holmes never uttered those words)

TIME TO JUNK THE CORPORATE TAX

By MICHAEL J. BOSKIN

WSJ May 6 2010

President Obama has put tax reform on the agenda, but surprisingly little attention is being paid to fixing the most growth-inhibiting, anticompetitive tax of all: the corporate income tax. Reducing or eliminating the corporate tax would curtail numerous wasteful tax distortions, boost growth in both the short and long run, increase America's global competitiveness, and raise future wages.

The U.S. has the second-highest corporate income tax rate of any advanced economy (39% including state taxes, 50% higher than the OECD average). Many major competitors, Germany and Canada among them, have reduced their corporate tax rate, rendering American companies less competitive globally.

Of course, various credits and deductions-such as for depreciation and interest-reduce the effective corporate tax rate. But netting everything, our corporate tax severely retards and misaligns investment, problems that will only get worse as more and more capital becomes internationally mobile. Corporate income is taxed a second time at the personal level as dividends or those capital gains attributable to reinvestment of the retained earnings of the corporation. Between the new taxes in the health reform law and the expiration of the Bush tax cuts, these rates are soon set to explode.

This complex array of taxes on corporate income produces a series of biases and distortions. The most important is the bias against capital formation, decreasing the overall level of investment and therefore future labor productivity and wages. Also important are the biases among types of investments, depending on the speed of tax vs. true economic depreciation, against corporate (vs. noncorporate) investment, and in favor of highly leveraged assets and industries. These biases assure that overall capital formation runs steeply uphill, while some investments run more, some less uphill. It would be comical if the deleterious consequences weren't so severe.

Of course, the corporation is a legal entity; only people pay taxes. In a static economy with no international trade, the tax is likely borne by shareholders. The U.S. economy is neither static nor closed to trade, and taxes tend to be borne by the least mobile factor of production. Capital is much more mobile globally than labor, and the part of the corporate tax that is well above that of our lowest tax competitors will eventually be borne by workers. In a growing economy, the lower investment slows productivity growth and future wages.

There is considerable evidence that high corporate taxes are economically dangerous. In a 2008 working paper entitled "Taxation and Economic Growth," the Organization for Economic Cooperation and Development concluded that "Corporate taxes are found to be most harmful for growth, followed by personal income taxes and then consumption taxes." Virtually every major tax reform proposal in recent decades has centered on lowering taxes on capital income and moving toward a broad-based, low-rate tax on consumption. This could be accomplished by junking the separate corporate income tax, integrating it with the personal income tax (e.g., attributing corporate income and taxes to shareholders or eliminating personal taxes on corporate distributions), and/or allowing an immediate tax deduction (expensing) for investment (which cancels the tax at the margin on new investment and hence is the priority of most economists). The Hall-Rabushka Flat Tax, the Bradford progressive consumption tax, a value-added Tax (VAT), the FairTax retail sales tax, four decades of Treasury proposals and the 2005 President's Tax Commission proposals would all move in this direction.

Reducing or eliminating the negative effects of the corporate tax on investment would increase real GDP and future wages significantly. Junking both the corporate and personal income taxes and replacing them with a broad revenue-neutral consumption tax would produce even larger gains. Nobel Laureate Robert Lucas concluded that implementing such reforms would deliver great benefits at little cost, making it "the largest genuinely true free lunch I have seen."

Reducing taxes on new investment could help strengthen what is a historically slow recovery from such a deep recession. It would also strengthen the economy long-term. American workers would benefit from more jobs in the short run and higher wages in the long run.

However, if a new tax device is used to grow government substantially, it will seriously erode our long-run standard of living. The VAT has served that purpose in Europe and, while better than still-higher income taxes, the larger-size governments it has enabled there are the prime reason European living standards are 30% lower than ours. Trading a good tax reform for a much larger government is beyond foolish. No tax reform can offset losses that large. Hence, a VAT should only be on the table if it is not only revenue-neutral but accompanied by serious spending control.

Further, the fraction of Americans paying no income taxes is approaching 50%. That sets up a dangerous political dynamic of voting ever-rising taxes to pay for ever-rising spending. We need more people with a stake in controlling spending. Replacing corporate and personal income taxes with a broad-based consumption tax could increase the number of those with "skin in the game." But some reforms, for example a VAT, might be much less transparent and may not serve this purpose.

Congresses (and presidents) seem unable to avoid continually tinkering with the tax code. A tax reform that is quickly riddled with special features would lose much of its economic benefit. We need a stable tax system that changes much less frequently, so families and firms can more reliably plan their future. Current fiscal policy, loaded with immense deficits, ever-growing debt, and the prospect of higher future taxes, is the biggest threat to such stability. To balance proposed spending in Mr. Obama's budget in 2015, his Deficit Commission's target year, will require at least a 43% increase in everyone's income tax. Thus, spending control is vital to tax stability.

American companies and their workers compete in the global marketplace saddled with a costly, anachronistic corporate tax system. To compete successfully in the 21st century, we will need to reform corporate taxation. There are several paths to doing so, each with its advantages. Unfortunately, tax policy is headed in exactly the wrong direction, raising taxes on corporate source income. Business investment is growing again after the collapse in the recession, which is usual in a cyclical recovery with very low interest rates. But eventually structural drags, from our antiquated tax code to massive public debt, will impede investment and economic growth.

Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.

TO TAX CORPORATIONS IS TO TAX CANADIANS

MAXIME BERNIER, Canadian Minister of State for Small Business and Tourism delivered the following speech in the House of commons on June 22 2011.

Maxime Bernier, canadadensisk minister för småföretag och turism, har i ett anförande den 22 juni i år inför det canadensiska parlamentet anfört följande:

I would like to take a few minutes to explain corporate income tax. I think that many people here probably do not realize that taxing a company means taxing individuals and Canadians. A business is simply a collection of contracts. Businesses enter into contracts with their clients and their managers, as well as employment contracts with their employees, as the NDP members well know, since they like to defend only the one side. Thus, a business is a fiscal invention. It is a cluster of contracts that have been negotiated with employers, clients and investors.

For the business owner, taxes add to the cost of wealth creation. When a small business or large corporation is taxed, that puts an additional burden on the company, and this prevents it from creating wealth and the necessary jobs. What is important to understand is that this burden is always passed on to individuals, because the business, in a capitalist system, must be profitable. Profitability is a good thing, and I am not afraid to say that businesses should make as much profit as they can, because that profit can be reinvested in wage increases for their employees, in equipment to increase productivity and in the creation of new products. Profit is a good thing in a capitalist system, and I do not understand how the people in the NDP can be against the profits made by a small or large business owner.

When a business is taxed, this imposes an additional cost on the business owner and that cost must be passed on to real individuals. Ordinary people are the ones who pay the price. The cost is passed on to consumers, because it increases the retail price of the product, and this becomes a sort of consumption tax. So when a business is taxed, this becomes a consumption tax when the business passes the cost on to the consumer. The business can also pass it on to investors, the owners of the business, and then it becomes a tax on capital, and at the end of the day, it is the business owner, the investor, who pays the tax. The business can also pass it on to the workers, whom the NDP claims to defend. Workers are also taxed when a business is taxed. This cost is passed on to the workers, who then get a lower wage increase and therefore have less wealth.

Depending on the competitive environment the company works in, it will transfer this cost one of those three ways and at the end of the day, Canadians will pay this tax. There is therefore no distinction between corporate tax and individual tax. It is a false distinction. Everyday Canadians are the ones who pay taxes. Corporations do not pay taxes. They transfer them to consumers. We are all consumers. They transfer them to workers. We are all workers. They transfer them to investors. We are all investors through the shares we hold in our pension funds.

We are the ones who always pay taxes. When the NDP wants to increase corporate taxes, it does not tell Canadians it wants to indirectly increase individual taxes. Taxing corporations indirectly taxes individuals, and that is why we have to continue down this path. That is the mandate the Canadian public gave us. We campaigned on cutting corporate taxes from 16.5% to 15%. The NDP argued in favour of increasing corporate taxes to 19%. It argued against the workers it claims to defend, consumers and small business owners.

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I also said that taxing businesses means taxing individuals, but it also means putting an additional burden on our businesses because entrepreneurs become tax collectors for the government. While they are collecting taxes to jump through all the administrative hoops imposed on them by the bureaucracy, they are not doing what they should be doing, and that is making their dreams come true, creating wealth and working for themselves. By being self-centred and working for themselves, they are working for society because they are creating wealth and hiring individuals. When we tax businesses, we undermine their creative freedom. We restrict their freedom by asking them to be agents of the state.

Hela anförandet kan läsas och höras här.
Niclas Virin

• Former Head of Department,
   National Tax Board

• Former Senior Vice President,
   Svenska Handelsbanken

• Former Member of Tax Law Committee
   for Advance Rulings

Niclas Virin

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