U.S. Corporate Tax Reform: Groupthink or Rational Debate?
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U.S. Corporate Tax Reform: Groupthink or Rational Debate?

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The United States is at risk of losing its global competitive advantage and with it faster per-capita income growth. To effectively respond, the nation must take concerted and strategic actions in a ...

The United States is at risk of losing its global competitive advantage and with it faster per-capita income growth. To effectively respond, the nation must take concerted and strategic actions in a host of areas, including reform of the corporate tax code to transform it into a more effective tool to support private sector efforts to innovate and be more productive.

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U.S. Corporate Tax Reform: Groupthink or Rational Debate? Presentation Transcript

  • 1. July 19, 2011U.S. Corporate Tax Reform:Groupthink or Rational Debate?Dr. Robert D. AtkinsonPresidentInformation Technology and Innovation Foundation
  • 2. The Washington Consensus on Corp Tax Reform“The numerous combinations of a high statutory rate and deductions and exclusions results in an inefficient tax system that distorts corporate behavior in multiple ways.”Source: The President’s Economic Recovery Advisory Board, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, special report prepared at the request of the President, August 2010, 65, 2
  • 3. Four Intellectual Groups in The Corporate Tax Reform Debate1. Hard Core Base Broadeners 3
  • 4. Four Intellectual Groups in The Corporate Tax Reform Debate1. Hard Core Base Broadeners2. Pragmatic Base Broadeners 4
  • 5. Four Intellectual Groups in The Corporate Tax Reform Debate1. Hard Core Base Broadeners2. Pragmatic Base Broadeners3. Progressive Tax Increasers 5
  • 6. Four Intellectual Groups in The Corporate Tax Reform Debate1. Hard Core Base Broadeners2. Pragmatic Base Broadeners3. Progressive Tax Increasers4. Pragmatic Tax Incentivists 6
  • 7. Not All Distortions Are BadThe R&D tax credit is growth enhancing, even though it is a“distortion.”“There is no presumption that distortions are necessarilywelfare-reducing. Distortions that favor the contributors tolong-run growth will be welfare-enhancing.” (Canadiangovernment economist Aleb ab Iorwerth) 7
  • 8. Risks of “Conventional” Corporate Tax Reform1. Revenue Neutrality Will Not Make the U.S. Economy More Competitive 8
  • 9. Risks of “Conventional” Corporate Tax Reform1. Revenue Neutrality Will Not Make the U.S. Economy More Competitive2. Reform would reduce taxes on industries that face little or no international competition (e.g., electric utilities) and raise them on industries that are fighting for global market share (e.g., technology- based industries). 9
  • 10. Risks of “Conventional” Corporate Tax Reform1. Revenue Neutrality Will Not Make the U.S. Economy More Competitive2. Reform would reduce taxes on industries that face little or no international competition (e.g., electric utilities) and raise them on industries that are fighting for global market share (e.g., technology-based industries).3. Corporate tax reform risks cutting rather than expanding tax incentives which are critical to growth and innovation, such as the R&D tax credit and expensing of capital equipment. 10
  • 11. So What Should Corporate Tax Reform Do?Lower the effective rate by enacting an American Innovationand Competitiveness Tax credit that provides a credit of 30percent on expenditures on R&D and workforce training anda credit of 15 percent on machinery and equipment (includingsoftware) in excess of 50 percent of base period expenditures. 11
  • 12. Thank You ratkinson@itif.org www.itif.org Follow ITIF: Twitter: @robatkinsonitif or @itifdc/itif Facebook: facebook.com/innovationpolicy Blog: www.innovationpolicy.org Website: www.itif.org