taxation reform来源：人大经济论坛论文库　作者：Wenjun LI　时间：2014-08-25

 TOC \o "1-3" \h \z \u Introduction. PAGEREF _Toc386244008 \h 2

Chapter one. PAGEREF _Toc386244009 \h 3

Problems of Current tax system.. PAGEREF _Toc386244010 \h 3

Goals of a good taxation system.. PAGEREF _Toc386244011 \h 6

Outcomes caused by the problems. PAGEREF _Toc386244012 \h 7

Chapter Two. PAGEREF _Toc386244013 \h 9

Necessary Changes in Reform.. PAGEREF _Toc386244014 \h 9

Foreign Examples. PAGEREF _Toc386244015 \h 11

Chapter Three. PAGEREF _Toc386244016 \h 13

Opposition. PAGEREF _Toc386244017 \h 13

Chapter Four PAGEREF _Toc386244018 \h 15

Implications. PAGEREF _Toc386244019 \h 15

Conclusion. PAGEREF _Toc386244020 \h 16

References. PAGEREF _Toc386244021 \h 17

Introduction

          The purpose of taxation should be collecting money that supports the activity of government. A government should not collect unnecessary money from both individuals and corporations. This is President Obama’s state of the union address on January 25, 2011:

                  Over the years, a parade of lobbyists has rigged the tax code to benefit

                 Particular companies and industries. Those with accountants or lawyers

                 To work the system can end up paying no taxes at all. But all the rest are

                 Hit with one of the highest corporate tax rates in the world. It makes no

                Sense, and it has to change. So tonight, I'm asking Democrats and Republicans

                To simplify the system. Get rid of the loopholes. Level the playing

                Field. And use the savings to lower the corporate tax rate for the first

                Time in 25 years—without adding to our deficit.

           American corporate needs to be reformed. The system should be more efficient and less expensive. A government should correct the current loopholes in the system. This essay is going to demonstrate tax reform.

          The first chapter is about the current problems of the corporate tax system in the United States. This chapter also describes what goals of a good corporate tax system should be. The second chapter is about what changes should proceed in this tax reform. There is a recitation of Obama’s tax reform proposal in this chapter, as well as, list some tax policies from other countries like China and Japan, and it will analyze whether those changes are good reform. Chapter three is about the argument between those recommendation and opposition. The last chapter is conclusion of this essay.

Chapter one

Problems of Current tax system

            The major problems of U.S corporate tax system are high tax rate, double taxation, complexity, worldwide taxation, and low efficiency. These shortcomings of the taxation system are affecting the U.S. economic system. Those disadvantages are obstacles of the economic growth and development of domestic corporation. The main purpose of taxation should behavior what companies should do and collect revenues for government. Government spends that money on establishing policy, like monetary policy, to help making a good economic environment for the corporation. It should be a good cycle. However, if loopholes and disadvantages exist in current taxation system, it would reduce economic growths, or make corporations engaging to invest money in overseas. This would be bad for the U.S status, and it is against with original purpose of taxation. Now we do need a tax reform to change the current situation here.

             The first obvious disadvantage is the high tax rate. According to the corporate tax rate schedule from Internal Revenue Service (2013), the federal tax rates on the corporate taxable income are from 15% to 39%. Especially, the corporation that makes more than 10 million dollars as taxable income has to pay no more than 35% tax rate for their tax bracket. This is a very high tax rate, which means corporations that make money in the nation have to pay an expensive income tax.

              There is another report from the Tax Foundation (2014) which states, “The U.S. has the highest corporate income tax rate in the industrialized world at 39.1 percent.” They also compared the U.S tax rate to all countries of Organization for Economic Cooperation and Development (OECD). The U.S. Tax is the highest one among the countries, followed by Japan at 37.0 percent. The OECD weighted average tax is 29.0 percent. This U.S. statutory corporate tax rate has not changed since 1993, while tax rate of other OECD nations kept falling. Data shows that the tax rate for business in U.S. is apparently higher than other countries.                    

                 High tax rates divert investment away from U.S. corporation since capital is mobile. If the investments were transferring to housing, non-corporate sector, and foreign countries, the American worker would lose better job opportunities. An expensive taxation could make corporations transfer the capital to other investment. Especially in this globalized world, more and more big firms tend to invest in foreign countries. The corporation in the nation will be in recession, and the job opportunities will decrease. Because of the high tax rate, companies have incentive to lower their taxable income, and they do not have to pay so much expensive taxes. They probably will take another way to secure capital and get more profit without paying expensive taxes. This phenomenon will cause a decrease of domestic economic growth and job chances.

                Another shortcoming is double taxation. In current taxation system, both profit that companies earned and dividends to share holder are taxed. Before the distribution goes to the shareholders, that distribution has been taxed twice. Sullivan supports that, (2011) double tax would cause a reduction in business investment. Double taxation makes corporation would try to avoid the double-taxed corporate sector.

               To increase competitiveness, companies usually increase investment in property and equipment. Especially in America, workers maintain a high level of productivity and competitiveness because of the investment in research or development of new technology. Double-taxation would decrease the profit and retain earning of companies. The decrease of money corporations has left means a decrease of the investment in intangible assets. Moreover, shareholders are trying to protect their personal asset and benefit. They try to get their earning out of taxing. They would prefer to make the corporation avoid Subchapter C statue. Only C-corporations need to be double-taxed, so shareholders would hire lawyers and accountants to change the status of the C-corporation. They do not want their corporation that is reclassifying as double-taxed corporations. Even though the costs of avoiding Subchapter C may not show up in a billing statement, they do exist in the expenses of operation.

               Another main problem of taxation is the complexity. A report states that, in 2004, each small businesses devoted about 240 hours complying with the tax code on average. Average company needed to spend over $2,000 in tax compliance costs. That time they spent is due to recordkeeping. For most small businesses, the cost of tax compliance is significantly burdensome . Because of such a complex tax code, companies need to spend hours on preparing documents for the tax season.

              The purpose of taxation is collecting the money from the corporations. What corporations need to do should be only pay a proper amount of money to IRS. They should not spend hours and extra money to figure out how much money they should pay. When employees spend hours on complying with the tax code, they cannot do anything else. This means a complex tax code would waste a lot of energy and resources to continue their business or expand the business. Complexity of tax code is hurting the operation of most small businesses that do not enough hours for tax preparation.

              The last problem that needs to be noticed here is the worldwide taxation. The corporations in the United States do not need to pay tax for the income they earned in foreign until they repatriate that money back to the nation. Repatriation in here means the process of bringing foreign income to the home country. If they keep all profit they earn in foreign countries, they do not have to pay tax on that part of profit to the U.S. They just need to pay tax to the local area, particularly the low tax rate country before the repatriation. For example, the corporate tax rate is only 12.5 percent in Ireland and 17 percent in Singapore. In 2010, Microsoft licensed its software in Europe through an Irish subsidiary. It was selling software through a Singapore subsidiary in 2010. Totally, Microsoft reported an effective tax rate of only 25 percent for the benefit in 2010.

               In this globalized world, big firms like Microsoft have many subsidiaries in foreign countries. Their headquarters are in U.S, but they are contributing to other countries. Because of the high tax rate in the U.S, they are trying to defer the expensive tax by transferring the industry to the countries with lower tax rates. High tax rates and worldwide taxation make the majority of big corporations tend to build up their benefit in foreign areas. Corporations in the U.S. have invested a lot in research and development to keep productivity high and invent new technology. After that, they use the intangible asset to benefit foreign countries. Because of the current tax policy, they are shifting investment to foreign countries without repatriating to the U.S. This is hurting the economic growth in the U.S.

Goals of a good taxation system

            There are so many problems in this taxation system. Apart from collecting money from corporations, a good taxation system is able to achieve their goals. The first goal should be encouraging domestic investment. “U.S. corporations’ share of worldwide profits attributable to foreign revenue has increased from 6.7 percent in 1965 to 38.2 percent in 2009” . American firms are shifting the investment to foreign areas, that means firms and jobs changes would decrease in the home country. A good taxation should encourage corporation investment in domestic industry, and attract more foreign direct investment to come in the U.S.

            The second goal should be increasing more small business activity and creating more profit of small businesses. Different from big corporation, small businesses have less resource of their businesses. It is harder for small businesses to operate in burdensome taxation. A good taxation system should have policy to encourage people to have built up small business.

            The third goal should be increasing the competiveness of the corporation. Corporations should have more investment in research and development (R&D). U.S. fulltime employees have highest average annual wages. As a country with high salaries, worker should be able to maintain a high productivity. Corporations should have more retained earnings to develop and keep a good competiveness. In this competitive world, different countries are rising up after globalization started. Corporations in America are losing their status in the world. Companies need more money to invest in new technology. Good taxation should not be an obstacle of development of corporations.

Outcomes caused by the problems

                Domestic industry is falling in U.S. John Boehner, Speaker of the United States House of Representatives, said in May of 2011: “If we want to put Americans back to work, I think lowering the tax rate is critically important. To do that, I think we have to look at tax expenditures, deductions, credits, and other gimmicks embedded in the tax code.” Domestic investment, industries and employment opportunities is decreasing in the nation. The U.S. needs to enhance domestic economy and create jobs, but the current high tax rates that corporations are trying to avoid are an obstacle to achieve this goal. We need to fix the loopholes in the taxation system. More importantly, worldwide taxation lets foreign subsidiaries keep foreign profit offshore, because they have to pay higher taxes when they repatriate money to U.S. The tax policy is currently against encouraging domestic investment.

                 Complexity of tax compliance is killing small business. It is hard for small business to spend 240 hours to comply with the tax code in a year. They still need energy and resource to develop the business. Small businesses do not have the necessary professionals to help them out of trouble. Small businesses have their own businesses to operate during the tax season. Busy tax season may make small businesses do not have enough concentration on their operation. A good taxation should be the burdensome tax code that is wasting too many resources of small businesses. Tax code need to be simplified.

                 Double taxation and high tax rates are big issues for corporations that need to develop competiveness. “To improve long-term economic growth and competitiveness, it is essential to increase capital formation”. A double tax on corporate profits is especially problematic. Taxing profits takes away money that might be investing in R&D and productivity-enhancing assets. This is hurting competitiveness of corporations since U.S. Corporations are losing status.

Chapter Two

Necessary Changes in Reform

               There are two principles in the debate of the taxation reform. Tax law effects what corporation would do and corporations are trying to protect their own benefit. If tax law encourages corporations to do something bad for economy, corporations would probably do something that is hurting economic growth. For example, tax law is encouraging to invest in foreign country with high tax, and companies tend to go offshore for its benefits. Taxation definitely needs to reform then, because one function of taxation should be helping domestic economy and development of firms, not only collecting money, and rather than hurting domestic firms.

               The first necessary change is decreasing corporate income tax rates. High statutory tax rates are distorting U.S. industries and economic growth. Moreover, higher statutory rates can encourage corporations to shift income and production out of the United States to a lower tax marketplace. President Obama proposed that corporate tax rates should be reduced from 35 percent to 28 percent (2011).

                  Cutting the tax rates can encourage more amounts of investments in United States. On the other hands, lower tax rates can attract more Foreign Direct Investment in the U.S. This change can enhance domestic corporation development. Once the corporations want to expand, employment will increase; companies need more people to work with them. More jobs will be created, and it can help the economic growths.

                   The second change is shifting worldwide taxation to territorial taxation. Companies whose headquarter are in the U.S should be not required to pay tax on the profit they earned overseas to the U.S when repatriation. There will not be any deferral foreign taxes. It is always welcome them to invest back to the home countries. They just only need to pay a territorial tax rate.

                   Sullivan supports that defferal can generate a important disavantage. It gives corprations an ability to allow foreign profits of U.S. multinationals to almost entirelly escape U.S. taxation.Worldwide taxation is encourging U.S. firms to investment and reinvestment in foreign countries. They are reaping the benefits of locating proftis in low-tax countires. Taxing the profits they earned can prevent the situation like that, and the problem would happen that was described in chapter one.

                    The third neccessary change is simplifying the tax code. Small business nearly spends too much energy to record and prepare documents for the tax preparation. This is burdensome to small busniesses.

                    There are a few movements that can relieve the stress from complex tax code. These movements are driven by President Obama’s tax reform framwork. The IRS should allow small businesses to expense more in investment. Under the President’s framwork, small businesses are allowed to expense up to $1,000,000 of qualified investments, which is a double amount of current tax code. It lets small businesses avoid the complexity of tracking depreciation schedules. Another movement is allowing cash accounting on busineses with up to $ 10 million in gross receipts. Because cash accounting is much simpler than accrual accouting, increasing the qualified amount would simplify the tax compliance. Another change in this recommandation is increase deduction of start-up costs. It would encourge people invest in small businesses. Increasing the deduction of start-up costs would also simplifies accounting for small businesses. This increasing deduction will write off the many expenses that corporations need to record.

Foreign Examples

           There are foreign examples that show the changes after they reformed. The foreign reforms that are listed below are similar to this tax reform proposal. China has created a new tax law reform in 2008. Both domestic and foreign corporate income taxes are at 25 percent. It deceased from 33 percent in 2007. There were 690,000 foreign companies that invested in China, creating 45 million jobs, said the Ministry in China. Lowering tax rates can enhance domestic investment. In this case, China attracted a big amount of investments from foreign countries. A low tax rate can keep a country competitive. If the U.S. tax rate can be lower, it could help the U.S. firms that invest in foreign to repatriate back to the nation.

              In 2009, Japan, New Zealand, and United Kingdom shifted their worldwide taxation to territorial taxation. Japan was also with high corporate tax rate of 39.5% in 2008 . The shift from worldwide to territorial can attract capital to repatriate back to Japan. Before 2009, leaders of Japan became very concerned with the foreign earning that was held in foreign areas. That profit increased from $1.1 billion in 2001 to $ 3.2 billion in 2012. Because of the concerns, Japan decided to change the tax policy. One noticeable thing is that the tax revenue has definitely increased. Their employments rate was down, and wages were up. Policy changes encourage corporations to create job chances back in the country. Meanwhile, Japan has aging problem of population. Job positions are a big issue in there. Many older people in Japan who have high salaries may face to a dismissal problem. That also satisfies the Japanese aging population problem. They can get older people more stable jobs.

              On August 2007, Brazil has proceeded their simplified tax regime. For the small business part, companies with annual gross revenues of up to Brazilian Real (currency in Brazil) $2,400,000 (approximated US $ 1,224,500) pay a single tax in place of seven federal, state and municipal taxes. Those taxes are federal corporate income tax, Federal social contribution on net income, federal contributions levied on income, federal excise tax, payroll tax, state value-added-tax, and municipal services tax. This is a huge simplification of a corporate taxation. This reform is beneficial to both government department and small businesses in Brazil. Simplifying tax compliance can save hours, which are used to prepare the tax compliance. The changes that this proposal described previously is not as big as the Brazil government did, but Brazil’s tax simplification works.

Chapter Three

Opposition

          Even though some necessary changes have been proposed, there are still a lot of objections claiming those recommendations will not work. An organization called Americans for Tax Fairness supports that the government should reduce tax rate. They should raise tax revenues so that they can meet the long-term fiscal needs, help the poor families, and make investments with those revenues.

               The U.S. government is still in debt. Reducing tax rates may reduce the revenue of government, and that may get government and country in trouble. We have one more issue that needs to be addressed-- the unemployment rate. The unemployment rate was 6.7 percent in Feb 2014. The government needs to reduce the unemployment rates as low as 5 percent that was being maintained before the economic recession happened in 2008. Lowering the corporate tax rate means creating jobs. When economic growth is strong enough, the domestic industry is better than before the crisis, it will not worry that the government cannot get enough revenues. Revenue can come from individuals and corporate subjects. If income of individuals and corporations increase, the increasing revenue will relive the debt of government in future.

             For the lowing tax rate recommendation, there is an argument that we need to concern. There are still $2 trillion in profits that U.S. companies have in offshore. We suppose U.S will still be using worldwide taxation. The U.S. government has not taxed that money currently, since they did not repatriate back to country. If the tax rate once changes low, that $2 trillion could be huge giveaway during repatriation, because there may not be any difference between the U.S tax rate and foreign tax rate. Companies with that $2 trillion can void the tax that they should pay before the tax rate change.. The problem described in chapter one is that corporations are shifting investments to overseas. This phenomenon is already hurting the U.S domestic economy, because of both high tax rates and worldwide taxation. Even though some people claim that there will be a huge giveaway, it is a necessary sacrifice. This reform is a “no pay no gain” decision. If they do not change the policy, there will be a greater potential danger.          

Chapter Four

Implications

             As this proposal described previously, goals of good taxation are encouraging domestic corporation development, creating more small activities, and increasing competiveness of the U.S companies. Now people tend to invest money in housing, the non-profit sector, and foreign countries because of high corporate income tax rates. Lowering the corporate tax rate to 28% percent will make operating a corporation more attractive. If the cuts on tax rate can be proceeded, there would be more investment in domestic corporations. As the domestic corporations developed, employment would also increase. One thing that may be worried by people is that the national deficit is about 16.8 trillion, and the U.S government needs tax revenue to pay its debt. This is shortsighted to keep the high tax rate in order to pay off the deficit. Our goal so far is developing the economy after the big recession in 2008, which increased the national debt. Cuts on tax rates will be helpful to both the economy and domestic corporate development.

            Shifting the worldwide taxation to territorial is also a helpful way to encourage domestic development. Apparently, investment form foreign income repatriated can help the deficit. Moreover, it will let companies whose headquarters are in the U.S repatriate their investment to the U.S. As a matter of fact, a few countries had the same problems as the U.S.A do, but they changed their worldwide taxation right a few years ago. The U.S government should proceed with a tax reform as soon as it can. Decreasing tax revenue and 2 trillion giveaway in foreign counties should not be reasons why they do not proceed with the tax reform.

            If tax compliance is simplified, filing tax returns will be easier for small businesses, and tax return will be less burdensome to small businesses. Small businesses would not have to spend hours to prepare tax compliances since policies would become easier. There will be more small businesses from then on. Partnership will also be easy to operate because of easier compliance. For example, it would be easier to track the depreciation of equipment.

             Lowering the tax rate, relieving the burden of double taxation, and simplifying tax compliance will actually increase the competiveness of the corporations. A series of necessary changes will increase corporation’s retained cash after taxes. Companies can use that money to expand the firms. They will be able to spend more money on R&D. High technology and high productivity is the characteristic of corporations in the U.S.A, and corporations need money to maintain R&D. Higher retained earnings can help corporations to increase their competitiveness.

              In other words, after tax reform, income tax and tax compliance will not be as burdensome as the current tax system. The current taxation system is like a pressure pushing corporations down, and we can relieve the pressure with this tax reform.

Conclusion

              Tax reform is big issue that we should worry right now. Lowering tax rate, changing worldwide taxation and simplification of taxation will significantly improve the both economy and domestic corporate development of the U.S. The U.S should proceed the tax reform as soon as possible, because a bad taxation is unpredictably negative effect on businesses. Japan, Brazil, and some other countries have started a tax reform a few years ago, and they have already received a good result from new policy. Tax reform is in hurry. The U.S government should learn other countries, and take a proper tax code.

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