Delegating Tax Hines, Jr., James R; Logue, Kyle D
Michigan law review,
11/2015
114.2
Journal Article
Odprti dostop
Congress delegates extensive and growing lawmaking authority to federal administrative agencies in areas other than taxation, but tightly limits the scope of Internal Revenue Service (IRS) and ...Treasury regulatory discretion in the tax area, specifically not permitting these agencies to select or adjust tax rates. This Article questions why tax policy does and should differ from other policy areas in this respect, noting some of the potential policy benefits of delegation. Greater delegation of tax lawmaking authority would allow administrative agencies to apply their expertise to fiscal policy and afford timely adjustment to changing economic circumstances. Furthermore, delegation of the tax reform process to an independent commission or agency offers the prospect of Congress committing itself to rational reform and long-run budget sustainability in a way that is more apt to succeed than piecemeal legislative efforts. The Article concludes with an analysis of the constitutionality of tax delegation, noting the applicability of recent Supreme Court decisions confirming Congress’s broad discretion to delegate rulemaking authority to federal agencies, and arguing that tax policy is of a kind with other federal policies.
This paper compares the distribution between U.S. states of investment from countries that grant foreign tax credits with investment from all other countries. The ability to apply foreign tax credits ...against home-country tax liabilities reduces an investor's incentive to avoid high-tax foreign locations. State corporate tax rate differences of 1 percent are associated with differences of 9-11 percent between the investment shares of foreign-tax credit investors and the investment shares of all others, suggesting that state taxes significantly influence the pattern of foreign direct investment in the United States.
Market reactions to export subsidies Desai, Mihir A.; Hines, James R.
Journal of international economics,
03/2008, Letnik:
74, Številka:
2
Journal Article
Recenzirano
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This paper analyzes the economic impact of export subsidies by investigating stock price reactions to a critical event in 1997. On November 18, 1997, the European Union announced its intention to ...file a complaint before the World Trade Organization (WTO), arguing that the United States provided American exporters illegal subsidies by permitting them to use Foreign Sales Corporations to exempt a fraction of export profits from taxation. Share prices of American exporters fell sharply on this news, and its implication that the WTO might force the United States to eliminate the subsidy, which happened in 2004. The share price declines were largest for exporters with high profit margins and those whose tax situations made the threatened export subsidy particularly valuable. This evidence suggests that export subsidies do not merely benefit foreign consumers, but also improve the profitability of exporters, particularly those earning rents in imperfectly competitive markets.
Anomalies: The Flypaper Effect Hines, James R.; Thaler, Richard H.
The Journal of economic perspectives,
10/1995, Letnik:
9, Številka:
4
Journal Article
Recenzirano
Odprti dostop
What happens to a state's spending when it receives an unconditional grant from the federal government? The standard theoretical analysis predicts that the increase in spending will be the same as ...that generated by an equivalent increase in local incomes--or roughly 5-10 percent for most states. In contrast, numerous empirical analyses have found that spending increases by much more, with some estimates near 100 percent. This result is known as the ’flypaper effect,’ since the money appears to ‘stick where it hits.’ The authors review this evidence as well as other studies that find similar behavior in firms.
This paper investigates the determinants of corporate expatriations. American corporations that seek to avoid U.S. taxes on their foreign incomes can do so by becoming foreign corporations, typically ...by "inverting" the corporate structure, so that the foreign subsidiary becomes the parent company and the U.S. parent company becomes a subsidiary. Three types of evidence are considered in order to understand this rapidly growing practice. First, an analysis of the market reaction to Stanley Works' expatriation decision implies that market participants expect its foreign inversion to be accompanied by a reduction in tax liabilities on U.S. source income, since savings associated with the taxation of foreign income alone cannot account for the changed valuations. Second, statistical evidence indicates that large firms, those with extensive foreign assets, and those with considerable debt are the most likely to expatriate—suggesting that U.S. taxation of foreign income, including the interest expense allocation rules, significantly affect inversions. Third, share prices rise by an average of 1.7 percent in response to expatriation announcements. Ten percent higher leverage ratios are associated with 0.7 percent greater market reactions to expatriations, reflecting the benefit of avoiding the U.S. rules concerning interest expense allocation. Shares of inverting companies typically stand at only 88 percent of their average values of the previous year, and every ten percent of prior share price appreciation is associated with 1.1 percent greater market reaction to an inversion announcement. Taken together, these patterns suggest that managers maximize shareholder wealth rather than share prices, avoiding expatriations unless future tax savings—including reduced costs of repatriation taxes and expense allocation, and the benefits of enhanced worldwide tax planning opportunities—more than compensate for current capital gains tax liabilities.
This paper considers the impact of the tax treatment of military contractors on the cost and timing of U.S. military procurement. Prior to the early 1980s, taxpayers were permitted to defer tax ...obligations on profits earned from long-term contracts. Legislation passed in 1982, 1986, and 1987 required that at least 70 percent of the profits earned on long-term contracts be taxed as accrued, thereby significantly reducing the tax benefits associated with long term contracting. Comparing contracts that were ineligible for these tax benefits with those that were eligible, it appears that between 1981-1989 the duration of U.S. Department of Defense contracts shortened by an average of between one and two months, or somewhere between 10 and 23 percent of average contract length. This pattern implies that the tax benefits associated with long term contracts promoted artificial contract lengthening in the 1980s, and suggests that the Department of Defense ignores the federal income tax consequences of its procurement actions, thereby indirectly rewarding contractors who benefit from tax expenditures.
American nonprofit organizations receive favorable tax treatment, including tax exemptions and tax-deductibility of contributions, in return for their devotion to charitable purposes and restrictions ...not to distribute profits. Recent efforts to extend some or all of these tax benefits to for-profit companies making social investments, including the creation of the new hybrid nonprofit/for-profit company form known as the Low-Profit Limited Liability Company, threaten to undermine the vitality of the nonprofit sector and the integrity of the tax system. Reform advocates maintain that the ability to compensate executives based on performance and to distribute profits when attractive investment opportunities are scarce makes for-profit entities more efficient than nonprofit counterparts. Offering more favorable tax treatment to for-profits engaging in charity would encourage greater charitable entrepreneur ship, the argument goes, and provide worthwhile competition for the nonprofit sector. As matters stand, however, nonprofits can and occasionally do reward executives with performance-based compensation, and their nondistribution rules impose no obligation to make subpar investments. The existing nonprofit sector is extremely competitive, and the charitable activities of for-profits already receive favorable tax treatment. Going further and offering socially active for-profits the tax benefits equivalent to those available currently to nonprofits would create opportunities for tax arbitrage by providing tax deductions to high-bracket donors and taxable income for lightly taxed recipients. The difficulty of policing lines between nonprofit and for-profit activities of the same business entities would entail significant administrative complexity and is unlikely ultimately to succeed. And even should it succeed, the costs of offering new tax benefits to far-profit charities include not only foregone tax revenues, but also spillover effects on the charitable activities of nonprofits.
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