Corporate Expatriation, Inversions, and Mergers: Tax Issues
This report discusses relevant portions of the U.S. corporate income tax system and how inversions have commonly been structured. It also looks at how Congress and Department of the Treasury have reduced the benefits of inversions, including The American Jobs Creation Act, as well as post-2004 inversions and treasury regulations, and policy options.
Tax Havens: International Tax Avoidance and Evasion
The federal government loses both individual and corporate income tax revenue from the shifting of profits and income into low-tax countries, often referred to as tax havens. Tax havens are located around the world with concentrations in the Caribbean and Europe. Corporate profit shifting may cost up to $60 billion in revenue and remedies are likely to involve tax law changes. Individual income tax losses more often arise from tax evasion, and are facilitated by the lack of information reporting; remedies involve administrative changes, especially in requirements for information reporting. Losses may be as much as $70 billion per year.
Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries
Corporate tax rates among industrialized nations have been declining steadily since the mid 1980s. Theories of globalization, capital mobility and tax competition have been proposed to explain these changes. Less attention has been paid to the changes in corporate tax receipts during this period and their relationship to tax rates. This note explores these changes and finds, similar to Clausing (2007), strong statistical evidence of a Laffer curve in the international corporate tax data. This conclusion remains even when significant potential outlier countries, such as Ireland, Switzerland and Norway, are excluded from the sample. We extend her work by exploring the time variation in the revenue maximizing corporate income tax rate from 1980 to 2005. We find robust evidence that a Laffer curve has existed in the corporate tax sphere throughout most of our sample period. It is not merely a recent phenomenon. We also find that the revenue maximizing corporate tax rate was about 34 percent in the late 1980s, and that this rate has declined steadily to about 26 percent for the most recent period. In addition, we confirm our finding when using combined central and sub-central (i.e. federal plus average state) tax rates.