Advances in Taxation: Volume 21

Dissatisfaction with the current federal tax system is fostering serious interest in several tax reform plans such as a value-added tax (VAT), a flat tax, and a national retail sales tax. Recently, one of the former Republican presidential candidates, Herman Cain, initiated a 999 tax plan. As illustrated on Cain’s official website, the 999 plan intends to replace current federal taxes with a 9% business flat tax, a 9% individual flat tax, and a 9% national sales tax. We examine the distributional effects of the 999 tax plan, as well as the current system it intends to replace, under both annual income and lifetime income approaches. Global measures of progressivity and bootstrap-t confidence intervals suggest that the current federal tax system is progressive while Cain’s 999 tax plan is regressive under the annual income approach. Under the lifetime income approach, both the current federal tax system and Cain’s 999 tax plan show progressivity. However, the current federal tax system is more progressive. The findings in this study suggest that Cain’s 999 tax plan should be considered more seriously and further analysis of the 999 tax plan is warranted.

This chapter applies an “integrative” model to examine the impact and interaction of economic and moral/social factors in the corporate tax compliance context. More specifically, it examines whether social norms moderate the effect of economic factors in this context.

Fifty-five MBA students assumed corporate CFO roles and analyzed a proposed aggressive corporate tax shelter transaction (“tax shelter”). Participants indicated whether they would recommend the tax shelter and answered questions regarding the transaction and their corporate tax compliance views.

Hierarchical Regression results indicate that, in the corporate tax compliance context, decision makers’ norms (moral/social factors) moderate the effect of perceived expected value of aggressive tax transactions (economic factors). More specifically, results indicate that (1) perceived legality of aggressive corporate tax transactions significantly impacts willingness of corporate decision makers to recommend them, even when controlling for perceived economic effect of the transaction, and (2) due to moral/social factors, corporate decision makers often may not support aggressive tax treatments with material positive expected values.

Accordingly, (1) custom and social factors should be integrated into the corporate tax compliance decision-making framework, and (2) campaigns to strengthen corporate tax compliance should focus on the law’s text and intent as well as upon sanctions for noncompliance.

We examine whether variations in the most fundamental aspects of state corporate income tax regimes affect state economic activity as measured by personal income, gross state product, and total non-farm employment. We focus on a variety of statutory components of state corporate income taxes that apply broadly in most U.S. states and for most multi-state corporate taxpayers. Our econometric strategy consists of a series of fixed effects panel regressions using state-level data from 1996 through 2010. Our results reveal important interaction effects of tax rates and policies, suggesting that policy makers should avoid making decisions about tax rates in isolation. The results demonstrate a relatively consistent negative economic response to the combination of high tax rates with throwback rules and heavy sales factor weights. Combined reporting has no discernible effect on personal income, GSP, or employment after controlling for tax rates, apportionment, and throwback rules. In an effort to gauge the relative impacts of tax policies on the location of economic activity, we also estimate alternative models in which each state’s economic activity is measured as a share of the national economic activity in each year. Statistically significant effects for tax rates, apportionment formulas, and throwback rules in the shares models suggest that at least some of their impact involves the movement of activity across state lines, thereby leaving open the possibility of a zero-sum game among the states.

This paper takes a unique approach to provide additional insight into the agency view of tax avoidance. We directly investigate the association between the presence of agency conflicts and corporate tax avoidance. Using a measure of CEO centrality, developed by Bebchuk, Cremers, and Peyer (2011), we identify settings in which agency conflicts are likely to be high. In contrast to prior literature, our primary tests do not rely on the inferences of market participants regarding tax avoidance. We find that CEO centrality is positively and significantly associated with tax avoidance. Additionally, we analyze the mediating role of monitoring by institutional investors in our setting. We find that the relation between tax avoidance and the existence of agency conflicts is strongest for firms with low levels of CEO monitoring. We also add to prior literature by investigating the implications of our setting on future accounting performance and future firm value.

Examine tax-related decisions of married couples to determine whether decisions are made jointly or if one spouse dominates the decision. We also examine characteristics related to decision styles.

Questionnaires completed independently by both the husband and wife.

Nearly 40 percent of the couples make tax decisions jointly, while the remaining couples allow one spouse to dominate tax-related decisions. The results indicate that when one spouse dominates the decisions, it is most often the wife. We also find that couples are more likely to share tax-related decision responsibility jointly when the husband earns significantly more than the wife, when the couple has greater income as a family, and when they are a new couple.

Prior research has generally not recognized tax decisions by married couples as a joint decision or attempted to determine whether tax decisions are dominated by the husband or wife. This issue has implications for interpreting research results in light of prior research that has found that tax-related decisions vary significantly by gender. The finding that many couples make joint decisions suggests that an interesting avenue for future research would be to determine the nature of that joint decision making and whether it is collaborative, bargaining, or something else.

Prior research on tax-related decisions has not recognized that for approximately 40 percent of tax returns filed, the unit of study is not a single individual but a married couple.

This research quantifies the economic impact of regional tax policy incentives included in the Gulf Opportunity Zone Act of 2005.

This research utilized linear mixed-effects modeling and multiple regression procedures with a matched sample panel dataset from 2002 through 2008 containing real-world county-level economic data.

The results indicated that the regional tax incentives provided by the GO Zone Act did not generate significant increases in key economic indicators included in this study. These tax incentives were intended to spur economic recovery, but based on research findings, they do not appear to have had the impact desired by Congress.

Archival empirical data for the affected region make this study possible but also limit the ability to generalize these results to other regions. In addition, empirical research utilizing real-world data can be prone to internal validity issues that exist due to lack of environmental controls and other possible causal factors.

This research adds to the existing literature by using real-world county-level economic indicators to test the impact of tax policy investment incentives at the regional level and minimizes some of the issues addressed by prior empirical research and provides evidence on the effectiveness of tax policy investment incentives at the regional level.

A number of states have recently either adopted, or have considered adopting, combined reporting accounting for state income tax purposes. Proponents claim that this policy increases state revenues by obviating certain tax panning techniques, while critics claim this policy causes firms to avoid locating in a state, or to downsize. There has been mixed empirical evidence to support either position. The purpose of this paper is to provide more convincing empirical evidence, which is enabled by a new dataset.

The study uses regression analysis and a new dataset available through Dun & Bradstreet. The analysis employs a firm-specific, difference-in-differences design which controls for trends and specifically identifies multistate firms which might be affected by combined reporting. Specifically, the study examines the economic impacts of the recent adoption of combined reporting by four states in terms of sales and employment changes, moves, births, and deaths. The theoretical scope of the paper uses the economics literature on location choice, combined with traditional tax optimization concepts from the accounting and economics literature.

The results suggest that combined reporting does in fact reduce investment in a state in terms of employment and births, deaths, and moves, and this effect is largest for in-state-based firms. From a policy perspective, this may imply that (ceteris paribus) there is an incentive for firms to move their headquarters/major operations out of combined reporting states and into separate reporting states. Given the recent trend for states to adopt combined reporting, the findings may be important. While imposition of combined reporting may increase state tax revenues, states should also consider that such policies may hurt locally based firms and reduce employment, much more so than for out-of-state-based firms. While firms’ location/expansion decisions are clearly also a function of nontax factors, the results here are broadly consistent with literature reviews which conclude that state business taxes do have an impact on business decision-making.

In addition to contributing to the literature on the economic effects of combined reporting for state income tax purposes, this study also introduces the tax research community to a newly available dataset from Dun and Bradstreet that contains precise locational firm and establishment data for public and private firms, as well as data on births, deaths, and moves. The data allows clear identification of firms that are multistate, as well as affiliate information (including exact name and location of parent); type of legal entity; employment; sales; CEO minority information; government contract data; import/export status; foreign ownership; credit data from D&B and Paydex; and other useful data.