Write-Off: The Tax Blog

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If Corporate Taxes are So Hurtful to Corporations, Why Haven’t We Seen the Stock Market Going Down as Biden Promises to Increase Corporate Taxes?

Jeff Hoopes, UNC
April 08, 2021

In the last couple weeks, things have been getting much more specific about President Biden’s plans to increase corporate taxes, and his plans have got a lot of media air time. Further, signs are suggesting the tax hikes will be legislatively possible to do pass. For example, on Monday, the Senate Parliamentarian concluded that reconciliation can be used more than once this year, meaning that if a majority in the House and Senate can agree on a tax bill, it can become law. The proposed hikes are not minor tax adjustments. The corporate rate increase would be meaningful, the tax on foreign income would be substantial, and, the tax on book income would lay the hurt down on some of the biggest corporations on earth. But yet, as one of my accounting colleagues here at UNC recently noted, we have not seen a large drop in the stock market that seems attributable to taxes. What gives?

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Did the BEAT Work?

Jeff Hoopes, UNC
April 08, 2021

Joe Biden and the Democrats want to change how multinational firms pay taxes. They argue that the current tax system enacted as part of the Tax Cuts & Jobs Act (TCJA) of 2017 encourages profit-shifting. Thus, the Biden Administration and the Department of Treasury are proposing a new global minimum tax and the repeal of the Base Erosion and Anti-Abuse Tax (BEAT). They suggest this because they think the BEAT is not working because companies can just plan around it, and not pay it. So, is there evidence that such planning actually occurs?

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How much should we increase funding at the IRS?

Jeff Hoopes, UNC
April 07, 2021

Many are calling for increased funding at the IRS. But, how much is appropriate? I don’t know the answer. But, one thing comes to mind—let’s just try something, and, see what happens. Congress (at least some version of Congress, i.e. a republican controlled Congress) knows it has the political will to cut the IRS budget (unlike budgets of other government organizations). And, unlike other parts of the government, the IRS has pretty measurable outcomes. If we cut defense spending and we don’t get invaded by a hostile government because they are afraid of our military, we don’t really know if the cut hurt the effectiveness of the military. But, the IRS has a mission that can pretty easily be measured, in dollars collected. Let’s increase their budget for 3 years, and see what happens. So, how much extra?

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New Research Suggests IRS Underestimates Tax Evasion by Wealthiest Filers

Simon Belokowsky,
April 06, 2021

At a recent hearing of the Senate Budget Committee styled “Ending a Rigged Tax Code,” Chairman Bernie Sanders opened proceedings with a list of familiar economic “absurdities” and “obscenities,” as he called them, stating among other things that Jeff Bezos and Elon Musk alone own as much wealth as the poorest 40% of Americans combined. There was one new obscenity for the list: the claim that the wealthiest 1% of Americans are evading about 20% of their tax obligation, amounting to hundreds of billions annually. This figure comes from a recently published paper by economists John Guyton, Patrick Langetieg, Daniel Reck, Max Risch, and Gabriel Zucman. Zucman in particular has been a prominent voice in academic discussions around the precise scale of various measures of income and wealth inequality, most notably with his UC Berkeley colleague Emmanuel Saez, and Zucman was on hand to testify before the Committee.

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Are IRS Estimates of Tax Evasion Reasonable for Large Corporations?

Jeff Hoopes, UNC
April 06, 2021

A recent paper by John Guyton, Patrick Langetieg, Daniel Reck, Max Risch, and Gabriel Zucman finds that previous IRS estimates of income misreporting at the top of the individual income distribution are understated. By a lot. In other words, the paper finds that rich people cheat on their taxes much more than we used to think. Random audits, which are used to detect this cheating, are less accurate for rich people than poor people, as the rich are able to use tax evasion techniques that are particularly difficult to find upon audit (holding asserts in difficult-to-discover entities in countries with low disclosure). I thought this was an interesting and useful paper. I won’t dive into any details here. But, as someone who thinks a lot about corporate income, given this paper, the question becomes, how should I think about IRS estimates of non-compliance for large corporations?

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Is the IRS underfunded?

Jeff Hoopes, UNC
April 05, 2021

In classes I teach, at least once a semester, an issue will come up where I will ask the question, “when was the last time you heard of a government bureaucracy saying it is well-funded, and needs no more money?” The answer I share, and, that my students reply with before I share, is “basically never.” This is not only true of government organizations, but, basically every organization—all think they are underfunded, could use more money, etc. With this in mind, I hear the increasingly frequent claims that the IRS is underfunded. It is true that the marginal revenue produced by a marginal dollar into the IRS budget is much more than one, and, given that fact, if the IRS were a business, we should keep investing in it. But, the IRS is not a business. While it is true we should not think about investing in the IRS as we thinking about investing in a business, in my opinion, we should likely increase funding to the IRS. Why?

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Corporate tax rates are on the move

Jeff Hoopes, UNC
April 03, 2021

For many years, the US corporate statutory tax rate was the highest among developed nations, at 35%. In 2017, Congress passed the Tax Cuts and Jobs Act, which lowered the corporate statutory tax rate to 21%. While that seems like a big decrease, even at 21%, combined with state taxes, the corporate statutory tax rate was still in the middle of the pack when compared to other developed nations. We had achieved a goldilocks level of tax—not too high, not too low, rather, right in the middle of all the other countries we compete with. President Biden is now proposing to raise the tax rate to 28%, which, when combined with the state taxes that companies in the U.S. face, will put us back at the top again—the highest corporate statutory tax rate. Is that a bad thing?

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Increasing Corporate Tax Rates

Courtney Knoll,
April 01, 2021

Yesterday Biden unveiled his infrastructure plan, which is funded in part by an increase in the corporate tax rate from 21% to 28%.   Relative to the pre-TCJA 35% top marginal corporate tax rate, or even the current 37% top individual marginal tax rate, this may not seem like a bitter pill to swallow.  But consider a couple of facts that I was reminded of by Rohit Kumar (Co-leader of PwC’s Washington National Tax Services) during our February 10 CPE webcast, and Manal Corwin (Principal in Charge of KPMG’s Washington National Tax Office), during our March 26 UNC tax symposium:

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New Paper: Tax Boycotts

Jeff Hoopes, UNC
March 30, 2021

When you ask tax directors why they don’t do more tax planning, one common response is that they don’t want to damage the reputation of their company—they don’t want to end up on the front page of the Wall Street Journal and make their company look bad. But, when was the last time you read a story of a tax planning firm, and, decided not to buy something? If you are like most people—never. In a recent paper, coauthored with Scott Asay, Jake Thornock, and Jaron Wilde, we dig deep into the concept of a tax boycott. Many people remember when Starbucks in the UK was boycotted because of their taxes. But, how common is that, really? And, even with Starbucks specifically, was it actually meaningful?

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Financial Accounting Income Should Not Be Included as Part of the Tax Base: Statement for the record, U.S. Senate Committee of Finance

Jeff Hoopes, UNC
March 29, 2021

Last week the Senate Finance Committee held a hearing on How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment. There was some (disingenuous) discussion of taxing book income, at about 1:42:00. The eminent Fabio Gaertner and I decided to write an official statement for the record about including financial accounting income income in the tax base, and, submitted it as part of the official record associated with the hearing. Following is our full statement:

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