24Taxation of Business Income 课件(共51张PPT)- 《财政与金融》同步教学(人民大学·第五版)

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24Taxation of Business Income 课件(共51张PPT)- 《财政与金融》同步教学(人民大学·第五版)

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(共51张PPT)
24
24.1 What are Corporations, and Why Do We Tax Them
24.2 The Structure of the Corporate Tax
24.3 The Incidence of the Corporate Tax
24.4 The Consequences of the Corporate Tax for Investment
24.5 The Consequences of the Corporate Tax for Financing
24.6 Treatment of International Corporate Income
24.7 Conclusion
Taxation of Business Income
24
Introduction
On May 4, 2009, Barack Obama proposed to reform the corporate tax system by ending tax incentives for U.S. companies that have invested heavily in overseas operations.
He claimed that these companies were “shirking” responsibilities and were a large factor in the “iniquities of a broken tax system that rewarded firms for creating jobs in Bangalore rather than Buffalo, New York.”
24
Introduction
In particular, Obama proposed to reform deferral rules so companies will not receive deductions on their U.S. tax returns until they pay the appropriate taxes on their overseas profits. This provision, which would be enacted in 2011, would raise $60 billion between 2011 and 2019.
The second component of Obama’s proposals would raise a total of $87 billion between 2011 and 2019 through more stringent restraints on offshore “tax havens” where tax rates are particularly low.
24
Introduction
Supporters agreed that the government needs to intervene to “fix” the tax system.
Others argued that instead of creating more opportunities in the United States, Obama’s plan would reduce domestic job creation.
A lower U.S. tax rate on foreign income:
Allows U.S. companies to be competitive in economies abroad where foreign owned companies are subject to lower tax rates, increasing the tax base despite a lower tax rate.
Compensates for a lagging domestic market presence by diversifying its customer base, thereby reducing domestic layoffs due to reduced domestic customer demand.
24
Introduction
President Obama’s plan has not, as of this writing, come close to becoming law.
The strong feelings inspired by the debate over corporate taxation were due in part to the realization that the role of corporate taxation in government revenue has changed dramatically in recent years.
Corporations are taxed on their net earnings.
By statute, most corporations face a marginal tax rate of 35%. In practice, numerous features of the corporate tax system (loopholes) make effective tax rates much lower than this, and increased use of these loopholes has at least partly led to the significant decline in corporate tax revenues.
24
The Shrinking Corporate Tax: Federal Revenue
(% of Total Revenue)
In 1960, for example, almost one-quarter of federal revenues was raised through the corporate tax. This share has changed dramatically over the past several decades, with corporate taxes bringing in 15.1% of federal revenues today.
24
Corporate Taxation
To its detractors:
The corporate tax is a major drag on the productivity of the corporate sector.
Its reduction has been a boon to the economy.
To its supporters:
The corporate tax is a major safeguard of the overall progressivity of our tax system.
Its erosion over time has enriched owners of capital at the expense of other taxpayers.
24.1
What Are Corporations, and Why Do We Tax Them
In the corporate sector, most production occurs in firms owned by many shareholders.
Shareholders: Individuals who have purchased ownership stakes in a company.
Having many shareholders spreads the risk of ownership across many people.
S-corporations generate income that is treated as personal income.
C-corporations generate income that is taxed under the corporate income tax.
24.1
Ownership Versus Control
Owners of large corporations rarely also control them.
This separation creates an agency problem.
Agency problem: A misalignment of the interests of the owners and the managers of a firm.
Managers may buy jets or other items for their own pleasure, rather than to improve the company.
Detecting and preventing this behavior is especially difficult when managers control the accountants.
24.1
APPLICATION: Executive Compensation and the Agency Problem
Many recent compensation packages seem wildly out of proportion to the executives’ actual value.
In 2012, Amgen CEO Kevin Sharer earned $21.1 million, plus a jet and other perks, while shareholders lost 3%.
In 2008, the Abercrombie and Fitch CEO received $71.8 million in compensation, including $6 million retention bonus. In 2007, A&F’s stock dropped more than 70%.
In 2011, Hewlett-Packard’s CEO was fired after a disastrous term but received a $13 million firing benefit.
24.1
APPLICATION: Executive Compensation and the Agency Problem
How can poor executives receive such high compensation
Owners cannot fully track manager’s compensation, so managers compensate themselves well.
Owners try to control executives through the use of a board of directors.
Board of directors: A set of individuals who meet periodically to review decisions made by a firm’s management and report back to the broader set of owners on management’s performance.
24.1
APPLICATION: Executive Compensation and the Agency Problem
The issue of executive compensation came to a head in 2008–2009.
Thousands of traders and bankers received huge bonuses as the financial crisis battered shareholders.
Following public outrage, Congress voted to limit compensation of firms accepting bailout funds.
But compensation remains uncapped at the vast majority of financial and other firms in the United States.
24.1
Firm Financing
Firms can raise financial capital in three ways:
Debt finance: The raising of funds by borrowing from lenders such as banks or by selling bonds.
Bonds: Promises by a corporation to make periodic interest payments, as well as ultimate repayment of principal, to the bondholders (the lenders).
Equity finance: The raising of funds by sale of ownership shares in a firm.
Retained earnings: Any net profits that are kept by the company rather than paid out to debt or equity holders.
24.1
Firm Financing
Investors in a company can be rewarded in two ways:
Dividend: The periodic payment that investors receive from the company, per share owned.
Capital gain: The increase in the price of a share since its purchase.
24.1
Firm Financing
If a firm wants to finance an investment, it can either use its own retained earnings, or raise new funds from the capital market in one of two ways. The first is to issue bonds (debt finance). The other is to issue ownership (equity) shares (equity finance).
24.1
Why Do We Have a Corporate Tax Pure Profits Taxation
If firms have market power, they earn pure profits, and a tax on pure profits has no distortion.
Should tax economic, not accounting profits.
Economic profits: The difference between a firm’s revenues and its economic opportunity costs of production.
Accounting profits: The difference between a firm’s revenues and its reported costs of production.
24.1
Why Do We Have a Corporate Tax Retained Earnings
If corporations were not taxed on their earnings, then owners could avoid taxes by retaining earnings.
These retained earnings would earn interest tax free, effectively subsidizing savings.
If corporations paid out those earnings many years later, the present discounted value of the tax burden would be quite low.
24.2
The Structure of the Corporate Tax
The taxes of any corporation are:
Revenues: What the firm earns selling to the market.
Expenses: Cash flow costs of doing business, interest payments, and depreciation allowances.
Depreciation: The rate at which capital investments lose their value over time.
Depreciation allowances: The amount of money that firms can deduct from their taxes to account for capital investment depreciation.
Economic depreciation is the true expense.
Economic depreciation: The true deterioration in the value of capital in each period of time.
Difficult to measure in practice.
Depreciation schedules: The timetable by which an asset may be depreciated.
Expensing investments: Deducting the entire cost of the investment from taxes in the year in which the purchase was made.
Deductions claimed sooner are more valuable.
24.2
Economic Depreciation and Depreciation in Practice
24.2
APPLICATION: What is Economic Depreciation
The Case of Personal Computers
Doms et al. (2003) modeled the market value of PCs as a function of their ages.
Depreciation takes only five years and is exponential, not linear: Computers lose half their value each year.
Most of the depreciation is due to market revaluation, as older computers cannot use new software.
PCs illustrate the difficulty policy makers face in setting depreciation schedules: Hard to account for all these features.
24.2
Corporate Tax Rate
The corporate tax rate rises with a firm’s taxable income, but for most large firms, the rate is a flat 35%.
24.2
Tax Credits
Tax credits are the final piece of the corporate tax code.
Historically, investment tax credit was the most important, but it has not existed since 1986.
Investment tax credit (ITC): A credit that allows firms to deduct a percentage of their annual qualified investment expenditures from the taxes they owe.
24.3
The Incidence of the Corporate Tax
The burden of the corporate tax is shared in some proportion by consumers, workers, corporate investors, and noncorporate investors.
There are also general equilibrium effects through capital movement between the corporate and non-corporate sectors.
Desai et al. (2012) find that 44 75% of the corporate income tax is shifted to wages, suggesting that much of the incidence is not on shareholders.
With no corporate taxation, the investment decision is determined by firms setting the marginal benefits and costs of investment equal on a per-period basis.
The firm estimates the return it will get from its investment in each period (the benefit), and it compares that to the cost of the investment in each period.
The firm invests only if the benefits are larger than the costs.
24.4
The Consequences of the Corporate Tax for Investment: Theory
With no corporate tax, the firm chooses its investment level by equating MB and MC. The marginal benefit (MB1) is equal to the actual return per dollar of investment, the marginal product of capital (MPK). The marginal cost is equal to the required return per dollar of investment, the sum of depreciation (d) and financing costs (r). This equality initially occurs at point A, with investment level K1.
24.4
The Consequences of the Corporate Tax for Investment: Theory
With corporate taxation, firms invest less because the government takes some of their return.
The firm’s after-tax actual rate of return on the investment must be large enough to meet the required rate of return. As a result, the pre-tax rate of return must be higher than it is without taxation, and that only occurs if the firm is investing less.
24.4
The Consequences of the Corporate Tax for Investment: Theory
Taxing corporate profits lowers the benefits of investment to MPk × (1 – π), so that the marginal benefit curve shifts to MB2. The firm lowers its investment, moving to point B, and a lower level of investment, K2.
24.4
The Consequences of the Corporate Tax for Investment: Theory
Cost and return per dollar of investment per period, in dollars
Quantity of investment, in dollars, K
0
$0.20
K1
A
Marginal cost
MC = δ + ρ,
return required
per period
Marginal benefit:
MB1 = MPK,
actual return per period
The Consequences of the Corporate Tax for Investment: Theory
24.4
K2
B
MB2 =
MPK × (1 τ)
Effect
of taxes
C
K3
MC2 = (δ + ρ)
x (1 – [τ × Ζ] α)
Effect of
depreciation
allowance
and ITC
$0.145
Depreciation allowances and the ITC lowers the costs of investment.
Effective corporate tax rate (ETR): The percentage increase in the rate of pre-tax return to capital that is necessitated by taxation.
With 35% tax on earnings, no depreciation and no ITC, the required rate of return was 20% before taxes.
After taxes, the required rate of return is 35% higher:
So, the ETR is 35%.
24.4
Effective Corporate Tax Rate
24.4
Effective Corporate Tax Rate
More generally, the effective corporate tax rate (ETR) is measured as:
With depreciation and the ITC, the ETR is:
With and ,
24.4
Negative Effective Tax Rates
With a large enough and ITC , the effective corporate tax rate could be negative.
Suppose investments were fully deductible and there was a full tax credit for them .
Then ETR is:
24.4
Policy Implications of the Impact of the Corporate Tax on Investment
Differences in the corporate tax structure can have very different implications for investment.
A tax on just revenue, with no deductions or ITCs, would reduce investment by reducing .
Deductions and the ITC undue this effect, and big enough deductions or credits can encourage investment above the pre-tax level.
The ETR has varied from 51% in 1980 to 27% in 2003.
24.4
Evidence on Taxes and Investment
There is a large literature investigating the impact of corporate taxes on corporate investment decisions.
The investment decision is sensitive to tax incentives, with an elasticity of investment with respect to the effective tax rate on the order of 0.5.
Corporate tax policy affects investment, and the corporate tax is very far from a pure profits tax.
24.5
The Consequences of the Corporate Tax for Financing
If the firm takes on debt, and pays $1 to bondholders, it subtracts the dollar from its taxable income, so that bondholders get the full $1, on which they pay interest taxes.
24.5
The Consequences of the Corporate Tax for Financing
If the firm issues equity, it pays that $1 to equity holders in the form of either dividends or capital gains. The firm has to pay corporate taxes on the dollar, and individuals then pay either dividend or capital gains taxes.
24.5
Why Not All Debt
Since debt is tax-advantaged, why do firms use equity at all
Bondholders only get paid if the firm avoids bankruptcy, so a debt-only firm carries a lot of risk for bondholders.
A firm earns $600,000/year, and has 10% cost of debt.
It’s considering a project with a 50–50 chance of earning $3 million or losing $6 million.
A debt-heavy firm might like this project.
24.5
Why Not All Debt
Share of Financing Possible Gain Possible Loss Expected Return
Equity holders $1m $3m $2m $0.5m
Debt holders $5m 0 $10m $5m
Equity holders $5m $3m $10m $3.5m
Debt holders $1m 0 $2m $1m
Bankruptcy creates an agency problem between debt and equity holders.
High debt-equity ratios exacerbate this problem.
24.5
EMPIRICAL EVIDENCE: How Do Corporate Taxes Affect a Firm’s Financial Structure
Corporate taxes are themselves a function of a variety of firm decisions—including financial structure! A firm with more debt will have lower tax payments, so a regression of debt levels on corporate tax payments will yield a biased estimate.
Heider and Ljungqvist (2012) addressed this problem by using multiple changes in state corporate taxes in the United States. Over the 1990–2011 period, they found 38 instances of states changing their corporate tax rates. They compared the effect of these tax rate changes on firms in those states, compared to other firms in the same industry in nearby states. In this way, they could can use comparable firms to identify how tax changes impact firm financial structure.
24.5
EMPIRICAL EVIDENCE: How Do Corporate Taxes Affect a Firm’s Financial Structure
They controlled for other factors that determine firm leverage by examining firms that are right near the border of states that do and do not change taxes. These firms face similar economic conditions, but the tax cuts only impact some of the firms and not others.
The authors found a sizeable effect of state corporate tax rates changes on how firms are financed.
Tax increases lead to more use of debt.
At the same time, they find that this effect is asymmetric: cuts in corporate taxation don’t lead to reductions in firm leverage.
This surprising asymmetry suggests that more is at work than the simple firm optimization of financial structure with respect to taxation.
24.5
The Dividend Paradox
Capital gains tax rate is lower than dividends rate.
Why pay dividends instead of retaining earnings
Empirical evidence supports two views:
Agency problems: Investors suffer the tax inefficiency of dividends to get the money out of the hands of managers, who would misuse it.
Signaling: Investors have imperfect information about how well a company is doing, so dividends signal good performance.
24.5
How Should Dividends Be Taxed
Why tax dividends more highly than capital gains
Three effects of high dividends tax rate:
Reduces use of dividends to pay equity holders.
Pushes firm to choose debt rather than equity.
Most importantly, could reduce investment.
But little is known about how dividend taxes affect investment.
24.5
APPLICATION: The 2003 Dividend Tax Cut
The 2003 tax reform reduced the dividend and capital gains rates to 15%, making dividends more attractive.
Proponents hoped the cut would stimulate the economy, and end double taxing of corporate income.
Opponents argued that the tax cut would worsen the fiscal balance and make the tax burden less progressive.
Research shows that the 2003 reform increased dividend payments, but whether this tax cut actually raised investment remains unanswered.
24.5
Corporate Tax Integration
Corporate tax integration: The removal of the corporate tax to tax corporate income at the individual (shareholder) level.
Tax integration would remove many of the biases in the tax code, and eliminate incentives to incorporate as S-class rather than C-class.
By lowering corporate rates, could reduce DWL.
But would also reduce tax revenues, due to eliminating double taxation of firm dividends.
24.6
Treatment of International Corporate Income
Multinational firms are increasingly common.
Multinational firms: Firms that operate in multiple countries.
Subsidiaries: The production arms of a corporation that are located in other nations.
International operation can provide many tax breaks.
GE claimed a $3.2 billion U.S. tax break on $14.2 billion of global profit, $5.1 billion in the United States, thanks to international diversification.
24.6
How to Tax International Income
The United States uses a territorial tax system.
Territorial tax system: A tax system in which corporations earning income abroad pay tax only to the government of the country in which the income is earned.
Global tax system: A tax system in which corporations are taxed by their home countries on their income regardless of where it is earned.
Territorial tax systems mean that firms face many different tax rates.
24.6
How to Tax International Income
Foreign tax credit is supposed to level the playing field.
Foreign tax credit: U.S.-based multinational corporations may claim a credit against their U.S. taxes for any tax payments made to foreign governments when funds are repatriated to the parent.
In practice, allows multinational firms to pay lower rates.
24.6
Foreign Dividend Repatriation
Foreign dividend repatriation is one reason multinationals pay lower taxes.
Repatriation: The return of income from a foreign country to a corporation’s home country.
U.S. taxes aren’t paid until profits are repatriated, so PDV of profits earned abroad is much higher.
Profits that are never repatriated are never taxed.
24.6
APPLICATION: A Tax Holiday for Foreign Profits
The American Jobs Creation Act of 2004 cut the tax rate on repatriated profits from 35% to 5.25% for one year.
Repatriated profits had to be spent on job creation.
Critics worried about the difficulty in controlling how companies would spend the money.
Others were skeptical of the bill’s ostensible intention of stimulating the economy.
No evidence that it stimulated the economy, and it cost the government at least $3.3 billion.
24.6
Transfer Pricing
Transfer pricing is a second tax advantage for multinationals.
Transfer prices: The amount that one subsidiary of a corporation reimburses another subsidiary of the same corporation for goods transferred between the two.
Firms shift profits to low-tax countries by setting high transfer prices for goods produced in those countries.
24.6
APPLICATION: The A(pple) B(urger King) C(aterpillar)’s of Avoiding Corporate Taxes in a Global System
By relying on low corporate taxation in Ireland and a creative organizational structure, Apple shifts much of its profits to Ireland, a country where Apple has received a special corporate tax rate in the single digits for many years.
Burger King undertook a corporate inversion with a Canadian firm. It is estimated that Burger King will avoid anywhere between $400 million and $1.2 billion in U.S. taxes over the next four years.
In 1999, Caterpillar decided that it could sharply reduce the American tax on profits from the sale of parts sent from the United States to customers around the world by simply taking the name off of the invoices and replacing it with the name of a Swiss subsidiary.
24.7
Conclusion
The corporate tax remains an important determinant of the behavior of corporations in the United States.
It significantly influences firms’ investment and financing decisions.
The United States faces a difficult set of decisions about how to reform its corporate tax system.
Little action despite repeated calls for reform.
Corporate tax breaks have highly concentrated and powerful supporters, with only the diffuse taxpaying public to oppose them.

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