What Corporations Say They Do, and What They Really Do: Implications for Tax Policy and Tax Research

Abstract

When Kaye Newberry asked me to address this group, I jumped at the chance for two reasons, other than an excuse to hang out next to Walt Disney World with everyone: (1) to offer an apology, and (2) to ask you some questions. A meeting of accountants to talk about taxation sounds like the setup for any of a thousand or so jokes. A meeting of accountants whose idea of an interesting lunchtime speaker is an economist should be the setup of a thousand more. Many of these jokes concern what a boring lot we are. The somewhat enlightened believe that accountants and economists aren’t boring people, but just get excited over boring things. Even within our respective academic disciplines, tax academics don’t get a lot of respect. Of course, the truly enlightened know that both stereotypes are untrue. I will not stoop to reply to the claim that we are boring people—after all, here we are at Walt Disney World, aren’t we? That taxation is a boring topic is demonstrably rubbish. In reality, it is boring only to those who are uninterested in human nature and in the institutions that have been designed to channel human nature to build productive civilizations. Taxation is about the relationship between individuals and the state, about honesty and trust, and about how a society designs institutions to try to overcome the free-rider impulse that threatens to undermine beneficial collective action. Two of these institutions, the public corporation and the corporation income tax, are under attack these days. Enron, WorldCom, Tyco, and others have caused a rethinking of the governance of public corporations, and a new set of laws. Corporate tax collections as a percent of GDP or total federal taxes have been in a steady decline for four decades. In 2003 there was a substantial cut in the taxation of dividends, and there are rumors that a second Bush administration could entertain a serious proposal to replace the income tax with a consumption-based tax.