Daily Deduction

from the Tax Policy Center

On Credits, Boycotts, and the Economy

By :: September 2nd, 2014

Congress is in recess until Monday, September 8. The Daily Deduction will resume its regular schedule when Congress returns.

There will be credits.” Alaskans like the way oil industry profits are taxed--barely. The state grants a corporate income tax credit for qualified oil and gas service-industry expenditures. Ballot Measure No. 1 would have repealed the credit available under the state’s Oil and Gas Production Tax, but the referendum was rejected by a narrow margin after absentee votes were tallied. Oil companies spent millions of dollars opposing  the measure.

Movin’ on up” to the… next floor? An Atlanta-based firm, First Data, leases space on the 39th floor of a Jersey City, N.J. office building. When First Data raised the possibility of relocating back to Georgia, budget-crunched New Jersey awarded the firm $5,920,000 in state tax credits over the next 20 years if it agreed to stay. Now, the firm will move upstairs instead of down south, taking over the 40th floor of the Jersey City building. The move promises to bring new jobs to the city: a total of 74.

“Let them eat Wendy’s or White Castle!” After Burger King announced its plans to buy Canada’s Tim Hortons and move north, Ohio’s Democratic Senator Sherrod Brown calls for a BK boycott. He wants folks to dine at Ohio-based burger chains instead. If Burger King’s plan succeeds, it would become the world's third-largest fast food restaurant company with global sales of $22 billion. It could also save a bundle on taxes. Senator Brown thinks inversions like this could be avoided with a country-by-country global minimum tax rate.

Or, US multinationals’ taxable profits could be based on worldwide sales. Under single sales factor apportionment,” a multinational would report income for all its worldwide entities and be taxed on a share of its total worldwide profits. In other words, if half of Burger King’s global sales occurred in the US, half of its global profits would be taxed at the US corporate tax rate, no matter where it is legally incorporated. TPC’s Howard Gleckman delves deeper into this tax method in his review of a new paper by Michael Udell and Adithi Vashist.

How does the income tax system affect economic growth? Could tax reform boost the economy? TPC’s Bill Gale and the Andrew Samwick of Dartmouth’s Nelson A. Rockefeller Center will share findings from their new paper on the issue on Tuesday, September 9, at a special TPC presentation and panel discussion. The Center on Budget and Policy Priorities’ Chye-Ching Huang and the Tax Foundation’s William McBride will comment on the paper. You can register here or tune in to the live webcast.

After Citizens United, what is the correct tax treatment of political activity? Catholic University’s Roger Colinvaux considers the question, and recommends ways Congress could prevent the laundering of political dollars through tax-exempt nonprofit organizations.

Schoolhouse Rock!” for the federal debt? You might not be able to sing along, but this new three-minute animated short tells you everything you need to know about the federal debt. It’s from the new Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution and distills research from TPC’s Bill Gale and the University of California at Berkeley’s Alan Auerbach.

Now that you know, you’re prepared for the next fiscal fight on the Hill. TPC’s Howard Gleckman reviews the Congressional Budget Office’s latest spending projections and deficit forecast. “If Republicans win control of the Senate and retain dominance in the House, don’t be surprised to see a fundamental battle over spending beginning next spring. Remember, for many in Congress, the deficit isn’t the issue. It is the size of government.”

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  1. Michael Bindner  ::  12:52 am on September 3rd, 2014:

    Alaskans rightly feared that any tax change would put their annual subsidy check and tax free status at risk. They know the oil companies are not going anywhere and if they do, others will take their place until the oil is gone. The companies are over an oil barrel.

    The First Data case shows why we need a VAT rather than corporate profit taxes. There is not such thing as granting tax credits to avoid payment – indeed, doing so would sabotage the tax payment for those who buy your services.

    The answer to Burger King’s inversion is the same as for First Data – do a VAT so that corporate income taxes are entirely unnecessary, since VAT taxes both cost and profit. BK is still a better burger, although White Castle is more a snack food than dinner – you eat them one after the other until they are gone. A global minimum tax rate would be impossible to negotiate where a VAT is only one country’s business, when border adjustments are included. World-wide sales and profit taxation is just a much more complicated VAT. The world already does it – we should too – mostly for our workers. The reason big business and the GOP do not want it is because they are all dependent on American consumption – both for business and to keep the voters happy. There is absolutely no business case for this because lower consumpton hear means cheaper goods elsewhere.

    Bill Gale’s paper has been posted on TaxVox, so I will comment on it there.

    The correct tax treatment of political activity is intersting. You can’t tax volunteer labor, you certainly can tax campaign materials (buttons, paper for the copier, etc ), as well as advertisements, consultants and paid staff. Political committees laundering money would pay for staff costs, but not the money circulated. The recipient would pay the taxes. As you can guess, the appropriate taxes would be an income tax on high income consultants and mangers and a net business receipts and VAT tax on those items listed above. Indeed, this should be the same regimine for all non-profits, political and non-political.

    Cute video. Let me add that it is the interest that is the problem – or that we roll the interest over. Of course, if GDP is under-estimated, which is likely, the share of debt is less. Still, the notion that we can keep rolling over the net interest into more debt has to be ended eventually. Not only do we need to not borrow for current spending (see VAT discussion above), we also must run a surplus equal to the size of the net interest payment – if not more. Is that possible? Sure. We borrow money form people with money all the time. Tax it instead. Problem solved.

    Its a big if as to the GOP taking the Senate and has the campaign goes on, expect more Republican misteps. Irregardless, the 2016 forecast dooms the GOP to a long winter – which is why they wanted to do a Balanced Budget Amendment that gives enhanced rights to the minority. In truth, even if the GOP does control the entire Congress, the Budget Control Act spending caps function as Section 302 allocations, so the appropriations committees can work without anyone else. Sadly, there is not automatic spending provision for when Congress cannot act. If there were, shutdowns as a point of leverage would be impossible.