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Tax

Increase Competitiveness and Progressivity by Taxing Individuals Instead of Corporations

A recent proposal by two noted tax experts—“Shifting the Burden of Taxation from the Corporate to the Individual Level and Getting the Corporate Tax Rate Down to 15 Percent” by Harry Grubert of the Office of Tax Analysis in the Department of the Treasury and Rosanne Altshuler of Rutgers University—promises to lower the federal corporate tax rate to 15 percent. Much of the revenue loss would be made up by eliminating lower individual taxes on capital gains and dividends. The proposal solves many of the political problems plaguing corporate tax reform and deserves serious consideration.

There is wide agreement that the U.S. corporate tax laws need broad reform. Over the past decade or so, nations have become increasingly aggressive in competing for the business tax base generated by multinational companies and fast-growing start-ups. This competition includes lowering statutory tax rates, and providing incentives for investment through policies like innovation boxes and research credits. As a result, the U.S. tax rate of 35 percent is now the highest statutory rate among Organization for Economic Cooperation and Development countries, in many cases 20 percentage points higher than U.S. competitors. These rates strongly

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The Clock Is Ticking on ITFA

Since 1998, the Internet Tax Freedom Act (ITFA) has been essential in promoting the expansion of e-commerce and ensuring a level playing field for Internet businesses. This will change on December 11th without decisive action from Congress.

The moratorium on Internet access taxes has been a central tool in driving innovation and the exponential growth of the Internet over the last two decades. It has spurred development in nearly every sector of the economy from Silicon Valley technology giants to new entrepreneurs to more traditional industries such as manufacturing, health care and education.

Since the ITFA was enacted, the Pew Charitable Trust estimates Internet usage among Americans has grown from below 25 percent in 1998 to over 85 percent today. For minorities, the growth in usage has occurred primarily in the last decade. These gains could be reversed if the act is allowed to expire and costs on Internet access rise.

What’s more, helping consumers, schools and small businesses continue to access the Internet is not a partisan issue. Permanently extending the moratorium on Internet access is widely supported in both the House and Senate by both parties. Everyone agrees:

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IBM Super computer

Critique of OECD R&D Tax Credit Report

R&D is fundamentally important to economies because it is a primary source for innovation and new technologies. But markets rarely provide enough incentives for innovation on their own—innovations are expensive to create but easy to copy.

For those reasons many countries provide R&D tax incentives to companies that spend money on basic or applied research. The best way to think of this policy is as actually as a fix—R&D has positive benefits for the economy as a whole, but because individual companies have trouble capturing all the benefits of R&D they are unlikely to invest the socially optimal amount.

Tax breaks for businesses are fraught with controversy because they “distort” the market and according to conventional neoclassical economics thinking distortions are by definition bad, even if they are pro-growth. To be sure certain tax incentives outlive their usefulness, as they have in the fossil fuel industry, and some tax incentives are only on the books because they serve special interests, not the public interest.

But the R&D tax incentive doesn’t suffer from any of these problems. In fact, there is solid evidence that R&D incentives spur additional R&D spending and

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