Government Commission on the German Corporate Governance Code (2005). The German Corporate Governance Code ('Cromme Code')

Corporate Governance Committee (2004). The Belgian Code on Corporate Governance ('Lippens Code')

The Corporate Tax Conundrum

Corporate and income tax

A lower rate would strengthen incentives for investment and job creation in the US, and weaken incentives for tax avoidance. It would also reduce numerous efficiency reducing distortions in the US tax code, including substantial tax advantages for debt financing over equity financing and for non corporate businesses over corporate businesses.

What Corporate Tax for Europe?

Finance Committee on Corporate Governance (2000). Malaysian Code on Corporate Governance.

Committee on Corporate Governance (1999). Code of Best Practice for Corporate Governance.

Committee on Corporate Governance (1997). Corporate Governance in the Netherlands Forty Recommendations (Peters Code).

These features add complexity to the tax code, raise the cost of tax compliance, and reduce corporate tax revenues. They also affect business decisions about what to invest in, how to finance investments, which form of business organization to adopt, and where to produce reflecting sizeable differences in the effective tax rates behind these choices.

Instead of cutting proven tax incentives for business investment, the US should offset at least some of the revenue losses from a lower corporate tax rate by raising tax rates on corporate shareholders. Most countries that reduced their corporate tax rates have followed this path, while the US has done the opposite.

Confederation of Indian Industry (1998). Desirable Corporate Governance A Code.

Instituto Brasileiro de Governança Corporativa (Brazilian Institute of Corporate Governance) (2001). Code of Best Practice of Corporate Governance.

These revenue losses could be offset by curtailing so called corporate tax expenditures deductions, credits, and other special tax provisions that subsidize some economic activities while penalizing others and broadening the corporate tax base. Both President Barack Obama s plan for business tax reform and the Simpson Bowles deficit reduction plan propose reducing such expenditures to pay for a reduction in the corporate tax rate.

Berliner Initiativkreis (Berlin Initiative Group) (2000). German Code for Corporate Governance.

In 1999, when Laar became Prime Minister again, he abolished the tax on corporate profit, which was harming entrepreneurship. As a consequence of the ensuing tax competition, corporate tax rates have fallen to 15 25 in most European countries.

A new tax code was adopted, with lower and fewer taxes, notably a flat income tax of 13 . The civil code was completed, a new customs code was enacted, and substantial judicial reform was implemented.

Perhaps the most promising reform is corporate tax reduction, which will help Japan boost both foreign and domestic investment. By spurring increased business activity, it will actually increase Japan s corporate tax revenue.

London Stock Exchange Committee on Corporate Governance (1998). The Combined Code Principles of Good Governance and Code of Best Practice.

The idea is also expressed in the Malaysian Code on Corporate Governance (2000).

The US now has the highest corporate tax rate of these countries. Even after incorporating various deductions, credits, and other tax reducing provisions, the effective average and marginal corporate tax rates in the US what corporations actually pay are higher than the OECD average.

A 15 tax would raise 300 billion. The choice of tax rate would be part of the negotiation over how far to reduce the overall US corporate tax rate.

At the same time, the effective corporate tax rate in Japan is higher than it is elsewhere, making it difficult for Japan to attract investment, foreign or domestic. In order to survive international tax competition and thus be able to rely on corporate taxes as a source of revenue Japan s corporate tax rate should be lowered in the long run.

Comitato per la Corporate Governance delle Società Quotate (Committee for the Corporate Governance of Listed Companies) (1999). Report and Code of Conduct (Preda Report).

But he is also proposing a significant cut in the corporate tax rate. To many, this approach seems inconsistent Shouldn t the corporate tax rate be raised, not lowered, so that corporations contribute their fair share to deficit reduction?

Finally, Abe s government must reduce the corporate tax rate to align it more closely with international standards. Amid increasingly intense international competition to attract foreign investment, reducing the corporate tax would actually increase Japan s tax revenues, by spurring companies to invest their vast cash stockpiles in more productive activities.

None of the major petroleum and rice importers paid corporate tax for the current year.

Corporate tax reform also offers a good opportunity for bipartisan agreement, especially given that Obama and congressional leaders of both parties have expressed interest. While gains from fundamental tax reform say, replacing the current tax system with a broad based consumption tax are large, on the order of 0.5 1 percentage point per year of economic growth for a decade, corporate tax reform would also boost growth.

Indeed, cutting these items to pay for a reduction in the corporate tax rate could end up increasing the tax on corporate economic activity in the US. Eliminating accelerated depreciation for equipment would raise the effective tax rate on new investments repealing the domestic production deduction would increase the effective tax rate on US manufacturing and rescinding the R D tax credit would reduce investment in innovation.

Where there is no local code on corporate governance, companies should follow recognized international good practices.

Brussels Stock Exchange Banking and Finance Commission (1998). Corporate Governance for Belgian Listed Companies (Merged Code).

Indeed, cutting these items to pay for a reduction in the corporate tax rate could end up increasing the tax on corporate economic activity in the US. Eliminating accelerated depreciation for equipment would raise the effective tax rate on new investments repealing the domestic production deduction would increase the effective tax rate on US manufacturing and rescinding the R amp D tax credit would reduce investment in innovation.

Has published books and articles on international taxation, transfer pricing and the tax code.

But a rate cut would be costly in terms of foregone revenues each percentage point would reduce corporate tax revenues by about 100 billion over the next decade. Moreover, recent studies indicate that a significant share of the corporate tax burden falls on capital, so a reduction in corporate taxes would weaken the progressivity of the tax system at a time when income inequality is at an all time high.

The United Nations Development Corporation had planned to issue tax free bonds to finance the construction, but such a tax free scheme is not allowed under the United States tax code.

Eliminating special interest loopholes, like tax breaks for oil and gas, or for corporate jets, would not yield enough revenue to pay for a meaningful rate cut. And curtailing accelerated depreciation, the manufacturing production deduction, and the R amp D tax credit which account for about 80 of corporate tax expenditures would involve significant tradeoffs.

Eliminating special interest loopholes, like tax breaks for oil and gas, or for corporate jets, would not yield enough revenue to pay for a meaningful rate cut. And curtailing accelerated depreciation, the manufacturing production deduction, and the R D tax credit which account for about 80 of corporate tax expenditures would involve significant tradeoffs.

Reducing the tax preferences for non corporate business entities (such as partnerships) that pass their income through to their owners individual returns would also broaden the tax base subject to the corporate income tax. Pass through companies now account for more than 80 of net business income (by far the highest share in the developed countries).

These features are rightly called tax expenditures, because they describe the government spending that occurs through the tax code. Eliminating or reducing these tax expenditures should therefore be seen as cutting government spending.

Meanwhile, corporate profits have soared. The GDP share of after tax corporate profits is at a nbsp record high, whereas labor compensation has plunged to its lowest share since 1950.

Half of tax revenue is collected with a value added tax, which is essentially a tax on consumption. Although there is a tax on corporate income, it is integrated with personal taxes in a way that reduces its adverse effect on investment and production.

Reducing the tax rate for companies substantially, while eliminating targeted business tax preferences and broadening the corporate tax base, would increase both investment and workers wages. Allowing multinational companies to repatriate overseas profits without paying additional US tax would also bolster investment and job creation at home.

In lieu of raising the gas tax, Obama has proposed a four year 302 billion plan to close the existing HTF funding gap, and boost HTF spending by 20 billion a year above current levels. His plan, which relies on using transitional corporate tax revenues raised in conjunction with corporate tax reform, has virtually no chance of becoming law this year.

The second incentive is corporate tax exemption provided for the portion of profit generated through research and software development activities.

Excessive state spending, heavy regulation, and dangerously high taxes have helped create the state s economic woes. The top personal income tax rate (also levied on capital gains), the sales tax rate, the corporate tax rate, and the gas tax are all at or near the highest of any state.