Tag: tax policies

America Alone on Punitive Corporate Taxes

In Tax Notes International today, two Ernst and Young experts describe how corporate tax reforms in Japan have made America an even bigger outlier in its punitive treatment of multinational corporations:

Japan’s recent adoption of a territorial tax system as part of a broader tax reform reduces the tax burden on the foreign-source income of Japanese multinational corporations.

Before the Japanese reform, the two largest economies had both high corporate income tax rates and worldwide tax systems. Now the United States not only has the second-highest corporate income tax rate of the OECD countries, it is also one of the few that still have a general worldwide tax system.

The Japanese corporate tax reform is part of a global trend toward reduced taxation of corporate income, which often takes the form of a significantly reduced corporate tax rate but also is reflected through reduced taxation of foreign-source income.

The details of the president’s budget proposal to reform deferral are expected in the coming weeks. As we await the specifics, it is clear that the direction of the proposal runs counter to this strong current of global corporate tax reform with lower overall corporate tax rates and reductions in domestic taxation of foreign-source income.

In simple terms, Japan’s reforms may give firms such as Toyota or Hitachi an advantage over firms such as Ford or General Electric in international markets.

Alas, U.S. policymakers don’t seem to understand that in a globalized world of free-flowing capital we need to change our uncompetitive tax policies. At Cato, we will keep trying to educate them, but it is sad that our economy loses jobs and investment because our elected leaders are such slow learners compared to leaders in Japan, Jordan, Canada, and elsewhere.

Is Rick Perry Really for Limited Government?

Conservative radio hosts are excited about a recent speech by Texas governor Rick Perry. Perry forcefully argued his theme of “unwavering support for efforts all across our country, but, most of all, here in Texas, to reaffirm the states’ rights affirmed through the Tenth Amendment to the U.S. Constitution.”

That sounds great, but does he really mean it?

In a study, I noted that Perry and the Texas state government are aggressive scavengers of federal grant dollars. The rise in federal granting is one of the central causes of the destruction of the Tenth Amendment in recent decades.

I noted that Perry’s official webpage is chock full of press releases touting his distribution of federal subsidies. These press releases are from a short time period in 2006:

  • “Perry: Texas Farmers and Ranchers to Share $780 Million in Drought Assistance.”
  • “Perry: FEMA Agrees to Reimburse Texas at Same Rate as Louisiana for Hurricanes.”
  • “Gov. Perry Announces $1.6 Million in Grants to Juvenile Offender Accountability Programs.”
  • “Perry: Homeland Security Grants to Focus on Technology Needs.”
  • “Gov. Perry: Presidential Disaster Declaration Approved for El Paso.”
  • “Gov. Perry Announces $38,098 in Victims of Crime Act Funds to El Paso County.”
  • “Gov. Perry Announces $3.6 Million in Grants to Local Law Enforcement.”

Notice how Perry takes credit for all the new spending? Politicians love spending, especially when they can foist the cost on taxpayers living in other states.

Look at these two press releases up on Perry’s website right now:

  • Apr. 9: “Gov. Perry Backs Resolution Affirming Texas’ Sovereignty Under 10th Amendment.”
  • Apr. 10: “Gov. Perry Calls on FEMA to Assist the State in Fighting Wildfires.”

Governor Perry: Do you want to revive the Tenth Amendment or do you want the FEMA money? You’re giving us whiplash out here!

I don’t think Perry’s tax policies have been particularly conservative either, as they have centralized fiscal power at the state level and thus reduced beneficial competition between local governments.

Obama Tax Policies and Beyond

I was a panelist for a Tax Notes forum on April 3 regarding Obama’s tax policies. The other panelists were Len Burman of the Urban Institute and Gene Steuerle of the Peterson Foundation. It was an expert and ideologically diverse panel, but nobody was fond of Obama’s fiscal policy direction. (In the photo, that’s former CBO director Rudy Penner to my left. Photo credit to Derek Squires)

Tax Notes summarized the discussion: “A diverse panel of economists and tax specialists largely agreed … that President Obama’s tax and budget plans at best would fail to forestall long-term fiscal ruin and could even hasten its arrival.” One point of agreement was that the tax code is too complex and it doesn’t need the complicated new tax credits that Obama has proposed.

Where we differed was on the need for added federal revenue, and herein lies the big tax policy battle ahead. Len thought that some form of new value-added tax (VAT) was inevitable in order that the government could  raise more money. I am increasingly hearing that argument from top fiscal scholars, and I fear that the drumbeat for a VAT will get louder.

Dan Mitchell and I are dead-set against a VAT because it will be a tool to fund even larger government, as we discuss in Global Tax Revolution. But supporters of limited government need to start watching this issue and making preparations to ward off a Euro-style money machine.