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Market-Based Solutions to Vital Economic Issues


Market-Based Solutions to Vital Economic Issues

federal tax


Using U.S. tax-return data containing the universe of individual taxable stock sales from 2008 to 2009, we examine which individuals increased their sale of stocks following episodes of market tumult. We find that the increase was disproportionately concentrated among investors in the top 1 and top 0.1% of the overall income distribution, retired individuals, and individuals at the very top of the dividend income distribution. Our estimates suggest that, following the day when Lehman Brothers collapsed, taxpayers in the top 0.1% sold $1.7 billion more in stocks than individuals in the bottom 75%. This difference is equal to 89% of average daily sales by taxpayers in the top 0.1%.

We keep hearing that the corporate tax code is riddled with “loopholes” and that large corporations are tax cheats for using them and not paying their “fair share.” Is it true? No, most large corporations pay the amount in taxes they do because Congress expressly wrote the tax code to allow them to pay that amount.

The more significant revenue loss, however, is from exceptions to the tax code. When it comes to lost corporate tax revenue, exceptions are the rule, and not following the rules is the exception.

Jeff Hoopes, research director of the Kenan Institute-affiliated UNC Tax Center, weighed in as part of The Washington Post’s coverage of the recent ProPublica report on how America’s wealthiest individuals pay little to no income tax.

The Biden administration's $2.3 trillion American Jobs Plan comes with a hefty price tag, which the president hopes to pay in part by introducing a 15% minimum tax on corporate book income. Predictably, policymakers from both sides of the aisle are sounding off, but the argument is more complicated and nuanced than partisan rhetoric. In this Kenan Insight, we outline the intricacies and implications of taxing book income.

Corporations are able to deduct some strange things on their tax returns. But new tax proposals from President Joe Biden and Sen. Elizabeth Warren introduce a few doozies.

Sound crazy? We think it does. But because Biden and Warren want to place a tax on financial accounting income (the income that companies report to investors), everything that is allowed as an expense for financial accounting purposes would become a proper deduction under the new proposed taxes.And that includes a lot of things.

It is true that President Joe Biden has proposed increasing the capital gains tax, and it is very reasonable to think about how to respond to these potential rate increases. Indeed, in classes I teach to undergraduates and graduate students at the University of North Carolina Kenan-Flagler Business School, I mention that selling ahead of a capital gains tax rate increase might be a smart move. But when is it?

In partnership with the AICPA, the UNC Tax Center's expert panel will share highlights from the Senate Finance Committee expected whitepaper on proposed US tax legislation, details from the expected Treasury Green Book on Biden administration revenue proposals, as well as updates and discussion of the latest academic research on income shifting and global tax policy.

UNC Tax Center Research Director Jeff Hoopes testified at Sen. Elizabeth Warren’s finance subcommittee hearing on Tuesday, April 27. Hoopes called Warren’s proposal for a 7% tax on book income a "Band-aid solution that creates more problems than it solves."

My testimony will focus on perceptions of fairness in the tax code and recent proposals to fix such perceived unfairness; specifically, a tax on book income and the wealth tax. My main message is that corporations and individuals remit the taxes they do, including in situations some perceive as unfair, frequently because of explicit allowances in the tax code. In other words, the largest holes in our national tax revenue bucket are ones Congress has, itself, poked, and not the product of elaborate tax planning schemes, as is a current misperception.

Kenan Institute Senior Fellow Mary Moore Hamrick, CEO of Political Quotient Advisors, outlines the major “buckets” of President Biden’s proposed $3 trillion infrastructure bill.

Mar 30, 2021

Tax Boycotts

To what extent do consumers boycott in response to corporate tax planning? Anecdotes suggest consumer boycotts are a meaningful deterrent to tax planning, but empirical evidence on their frequency and impact is lacking. We undertake a comprehensive study to examine how consumers’ purchase behavior relates to corporate tax planning.

Recently proposed tax policies have financial accounting income (GAAP income, or book income) serve as part of the tax base. These proposals range from a flat tax on book income for corporations above a certain size, to using book income as part of a minimum tax for corporations above a certain size.

In short, including financial accounting income in the tax base will result in worse financial information for investors and less efficient tax collection, economically disadvantage companies based in the United States, politicize accounting standards, and require highly complex implementation, which may undermine the intention of current proposals. These arguments can be further understood below.