Corporation tax

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Corporation tax

  1. 1. ECO383 PUBLIC FINANCE US REVENUE SYSTEM: THE CORPORATION TAX Instructor: Jieruo Liu jieliu@ic.sunysb.edu
  2. 2. An Overview  Just as the Person Income Tax: the corporation or corporate tax has its own way to compute the tax base and its own rate structure.  Also, it affects the corporate decisions in various ways which are mostly covered in Corporate Finance. In this course though, the main issue is the government tax policy.  What should the tax rate structure be?  How to treat the taxes of multi-national corporations?
  3. 3. Question 1: What should the tax rate structure be?  How high should it be?  What are the corporate tax rates in U.S. ? How about other countries’?  Are the tax rates too high or too low?  What are the moderate tax rates?  What is the corporate tax structure in U.S. ?  Isthe tax a progressive rate or regressive rate?  Should the government adjust it?
  4. 4. US corporate tax rate (consists of federal tax and state corporate tax) remains far above OECD average
  5. 5. Federal Corporate Tax Rates Taxable income Tax rate First $50,000 15% $50,001–$75,000 25% $75,001–$100,000 34% $100,001–$335,000 39% $335,001–$10,000,000 34% $10,000,001–$15,000,000 35% $15,000,001–$18,333,333 38% Over $18,333,333 35%
  6. 6. Question 2: How to treat the multi-national corporations?  Structure: US multinational corporations are subject to tax at the standard rate on their global income, including income earned abroad. A credit is then allowed for foreign taxes paid. The credit cannot exceed the amount that would have been owed under US tax law. It is a common way around the world.  Analyze the impacts of a high corporate tax on both US-owned and non-US-owned multi-national corporations.
  7. 7. Question 2: How to treat the multi-national corporations?  Subsidiary Status: Taxation of the income from a foreign enterprise can be deferred if the operation is a subsidiary. Profits earned by a subsidiary are taxed only if returned(repatriated) to the parent company as dividends.  “Tax Haven”  Income Allocation:  Arm’s length system: the procedure now used for allocating income between domestic and foreign operations  Transfer-pricing problem:

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