Comments on: The US plans to shift the tax burden onto ordinary people http://www.taxresearch.org.uk/Blog/2007/12/21/the-us-plans-to-shift-the-tax-burden-onto-ordinary-people/ Richard Murphy on tax and corporate accountability Wed, 03 Dec 2008 20:03:29 +0000 http://wordpress.org/?v=2.6 By: Martin B. Tittle http://www.taxresearch.org.uk/Blog/2007/12/21/the-us-plans-to-shift-the-tax-burden-onto-ordinary-people/#comment-326922 Martin B. Tittle Fri, 21 Dec 2007 19:38:40 +0000 http://www.taxresearch.org.uk/Blog/2007/12/21/the-us-plans-to-shift-the-tax-burden-onto-ordinary-people/#comment-326922 For those who would like to look further, a summary of the U.S. Treasury report "Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century," as well as a hyperlink to an Acrobat copy of the report, is available at http://www.ustreas.gov/press/releases/hp749.htm. Lowering of the corporate tax rate is linked to base broadening so that, at least nominally, the same amount of tax would be collected at the lower rate. Another subject discussed in that part of the report is a shift from worldwide to territorial taxation. This sort of change is proving a hard sell in the U.S. because, at least on a theoretical level, it requires disallowance of domestically incurred expenses that are properly allocable to the foreign-source income -- income that, in a territorial regime, would be tax-exempt. A research paper released in the last few weeks argues that all domestically incurred expenses should continue to be deductible in a territorial system, but I remain unconvinced. The business activity tax, or "BAT," is structured as a subtraction VAT, so, unless it were permissible for businesses to add it on to the bottom line of consumer invoices, it might not be shifted forward to consumers more than the current corporate tax is. In at least one U.S. state, similar additions to consumer invoices (reflecting certain taxes the seller had to pay) have been proscribed. That said, I think it would certainly be tempting for businesses to leave their retail prices where they are and try to add on an amount for the new "BAT." In a statement released contemporaneously with the report, Assistant Treasury Secretary for Tax Policy Eric Solomon said "[t]he report outlines several broad approaches to business tax reform. The study also outlines specific business tax areas that can be addressed. There are no policy recommendations in this study. We believe it will provide significant substance for discussion, and will further the effort to inform the public policy debate." The full text of his remarks is available at http://www.ustreas.gov/press/releases/hp751.htm. The lack of policy proposals in the report caused dismay for many in our tax community. One commentator this morning said "the report makes sure not to give the impression that any specific plan is being advocated or even considered. . . . [F]or those who expected to see concrete policy recommendations, it is like searching under the Christmas tree for a Nintendo Wii and finding socks instead." For those who would like to look further, a summary of the U.S. Treasury report “Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century,” as well as a hyperlink to an Acrobat copy of the report, is available at
http://www.ustreas.gov/press/releases/hp749.htm. Lowering of the corporate tax rate is linked to base broadening so that, at least nominally, the same amount of tax would be collected at the lower rate.

Another subject discussed in that part of the report is a shift from worldwide to territorial taxation. This sort of change is proving a hard sell in the U.S. because, at least on a theoretical level, it requires disallowance of domestically incurred expenses that are properly allocable to the foreign-source income — income that, in a territorial regime, would be tax-exempt. A research paper released in the last few weeks argues that all domestically incurred expenses should continue to be deductible in a territorial system, but I remain unconvinced.

The business activity tax, or “BAT,” is structured as a subtraction VAT, so, unless it were permissible for businesses to add it on to the bottom line of consumer invoices, it might not be shifted forward to consumers more than the current corporate tax is. In at least one U.S. state, similar additions to consumer invoices (reflecting certain taxes the seller had to pay) have been proscribed. That said, I think it would certainly be tempting for businesses to leave their retail prices where they are and try to add on an amount for the new “BAT.”

In a statement released contemporaneously with the report, Assistant Treasury Secretary for Tax Policy Eric Solomon said “[t]he report outlines several broad approaches to business tax reform. The study also outlines specific business tax areas that can be addressed. There are no policy recommendations in this study. We believe it will provide significant substance for discussion, and will further the effort to inform the public policy debate.” The full text of his remarks is available at
http://www.ustreas.gov/press/releases/hp751.htm.

The lack of policy proposals in the report caused dismay for many in our tax community. One commentator this morning said “the report makes sure not to give the impression that any specific plan is being advocated or even considered. . . . [F]or those who expected to see concrete policy recommendations, it is like searching under the Christmas tree for a Nintendo Wii and finding socks instead.”

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