Increase In Tax Rate Research Articles

Practical Applications of Medicare and Tax Planning for Higher-Income Households

Practical Applications Summary In Medicare and Tax Planning for Higher-Income Households, from the Winter 2019 issue of The Journal of Wealth Management, authors William Reichenstein and William Meyer (both of Social Security Solutions, Inc. and Retiree, Inc. in Overland Park, KS) warn high-income retirees that they may owe more taxes than expected if their income exceeds certain levels. Most people know that income tax rates go up as income rises. However, many do not know that higher-income individuals pay higher Medicare premiums; each time their income exceeds one of several threshold levels set by the Affordable Care Act (ACA), their Medicare premium jumps. Since Medicare is a government program, these premium spikes are effectively tax rate increases. The authors offer strategies that take advantage of the current tax laws to help people avoid Medicare premium spikes and generally lower their lifetime income taxes. The authors’ key recommendations are to report life-changing events that reduce income, make Roth IRA conversions before tax rates are scheduled to increase in 2026, and satisfy charitable giving plans by making qualified charitable distributions from IRAs after age 70½. The authors say these measures can reduce retirees’ taxable income and thus reduce their lifetime income taxes and Medicare premiums. TOPICS:Wealth management, retirement

The Fiscal Costs of Climate Change

This paper explores the fiscal consequences of climate change. The analysis considers climate change impacts on (i) the cost of existing government services (e.g., disaster assistance) and (ii) the need for publicly provided anticipatory adaptation (e.g., sea walls). These channels are integrated into the COMET, a dynamic general equilibrium climate-economy model with distortionary taxation and government expenditures. The main result is that accounting for fiscal impacts may increase the welfare benefits of efficient climate policy by up to 30 percent. Business-as-usual climate change may necessitate increases in income tax rates and elevate the marginal cost of raising public funds.

Do Creditors Have a Say in Corporate Tax Planning? Evidence from a Natural Experiment

I examine corporate tax avoidance through the lens of agency costs of debt by investigating the impact of an exogenous variation in creditor rights resulting from the staggered enactment of anti-recharacterization laws (ARL). Using difference-in-difference approach, I find that strengthening creditor rights leads firms to engage in less nonconforming tax avoidance. The ARL estimate of 0.011 indicates that the treated firms increase their GAAP effective tax rates, on average, by 1.1 percentage points, which amounts to more than a 3 percent increase in the sample median GAAP effective tax rate. This new evidence appears to apply to firms with high growth opportunities, financially unconstrained firms, and those with high institutional ownership. My findings suggest that creditor rights affect corporate tax planning.

Does Private Country‐by‐Country Reporting Deter Tax Avoidance and Income Shifting? Evidence from BEPS Action Item 13

ABSTRACTTo combat tax avoidance by multinational corporations, the Organisation for Economic Co‐operation and Development introduced country‐by‐country reporting (CbCr), requiring firms to provide tax authorities with a geographic breakdown of their profitability and activities. Treating the introduction of CbCr in the European Union as a shock to private disclosure requirements, this study examines the effect on corporate tax outcomes. Exploiting the €750 million revenue threshold for disclosure and employing regression‐discontinuity and difference‐in‐differences designs, I document a 1–2 percentage point increase in consolidated GAAP effective tax rates among affected firms. I also find evidence consistent with a decline in tax‐motivated income shifting, starting in 2018. These results suggest that, although private geographic disclosures can deter corporate tax avoidance, so far, the regulations have had a limited effect on tax‐motivated income shifting. My findings have policy implications for the global implementation of private CbCr and extend the debate on public versus private disclosure of tax information.

Social Norms Moderate the Effect of Tax System on Tax Evasion: Evidence from a Large-Scale Survey Experiment

In this study, we reconcile conflicting findings from the extant literature on the impact of tax system parameters on tax noncompliance. We argue that social norms play a role of heuristics facilitating tax payers’ response to the instrumental incentives posed by the systemic parameters, such as tax rate and penalties for evasion, and thus moderate the effect of those parameters on willingness to evade taxes. Relying on a unique survey experiment conducted in fourteen countries of Central-Eastern Europe, we demonstrate two types of a conditioning effect of norms. First, the impact of tax rates on respondents’ propensity for tax evasion is moderated by the perceived norms of the society at large (descriptive norms). In particular, an increasing tax rate lowers the probability of evasion as long as one views “most others” as honest taxpayers, which highlights the importance of equitability (fairness) concerns for tax compliance decisions. In contrast, the impact of punishment is moderated by the perceived norms of one’s immediate reference group (subjective norms). Strong subjective compliance norms tend to effectively replace penalties as a mechanism discouraging tax evasion, suggesting that the deterrent effect of a penalty can be entirely suppressed when subjective norms are strong. These findings have important implications for the understanding of tax compliance decisions under different formal and informal regimes.

Effects of Implementation of Green Tax on Environmental Pollutants’ Dispersion on Macroeconomic Variables: Application of Multi-Regional General Equilibrium Model

The present paper aims to determine the effects of various scenarios of green tax burden on pollution dispersion and multiple macro-economic variables such as GDP along with welfare and inflation. In addition, the effects of technical progress on major pollutant industries such as coal, oil and gas were evaluated. For this purpose general multiregional equilibrium method (GTAP-E) was used. The results of the study indicated that under low tax rate scenario, GDP remained unchanged. Increase in the carbon tax rate would not followed by increase in GDP. Energy consumption and social welfare increased but inflation decreased. Furthermore, increase in efficiency along with advance technology caused reduction in dispersion of environmental pollutants along with GDP growth and consequent increase in government tax revenue.

Rising Wage Inequality and Optimally Postponing Taxation

This paper studies the (Ramsey) optimal taxation of labor income when wage inequality is rising, as has been the case in many developed economies in recent decades. The tax schedule is a linear or affine function of labor income every period. Workers are ax-ante heterogenous in their initial productivity/wage and its growth rate. An increasing profile of tax rates over time (postponing taxation) redistributes resources to the workers whose productivity grows at a below-average rate, because their income constitutes a smaller share of the tax base in later periods. For a given path of government expenditures and transfers, postponing labor taxation is associated with an increase in the stock of government debt. A quantitative example studies the optimal policy in a model with two types of workers, calibrated to match the increasing wage inequality in the US since the 1980s. The low-skilled workers are characterised by a lower initial productivity and its growth rate than the high-skilled workers. The solution is sensitive to the Pareto weights in the social planner’s function. With equal Pareto weights on both types the optimal policy redistributes resources to the low-skilled workers by postponing taxation of labor income and increasing the stock of government debt. Over a 30-year period the optimal increase in the labor tax rate is significant, and the government debt/GDP ratio increases by 156 percentage points (linear tax schedule), or 71 percentage points (affine tax schedule). The actually observed increase in debt/GDP ratio between 1980 and 2010 (34 percentage points) is optimal if the Pareto weight on the high-skilled workers is 2-4 times the weight on the low-skilled workers.

On the impacts of anticipated carbon policies: A dynamic stochastic general equilibrium model approach

This paper examines the environmental and welfare impacts of pre-announced carbon policies using an environmental dynamic stochastic general equilibrium (E-DSGE) model. We find that pre-announcing a rise in the carbon tax rate could reduce CO2 emissions but would decrease output and investment during the interim period (between the announcement and implementation dates). Pre-announcing an increase in the carbon tax rate from 1% to 5%, 1 and 3 years in advance could reduce the quarterly aggregate consumption by 0.081% and 0.114%, respectively. Compared to carbon taxation, pre-announcing a tightening carbon intensity target could reduce CO2 emissions even more, while pre-announcing a tightening carbon capacity target under a cap-and-trade regime has no such CO2 reduction effect. In a welfare analysis, we show that an unanticipated rise in the carbon tax rate is more preferable to the 1-year, 2-year, and 3-year-ahead announcements. The intensity regime produces a greater welfare than the cap-and-trade regime, which is in turn better than the carbon taxation regime.

The effect of deed taxes on real estate prices in China

With rapidly accelerating real estate prices in China, the government has used changes in deed tax rates to affect demand. Tax rates have been increased for buyers of large or multiple homes to discourage speculative demand. We analyze the effects of deed tax rates on real estate prices over the period 2004–2013, estimating traditional dynamic models and dynamic spatial models. Results indicate that deed tax rate increases have a negative effect on pre-tax prices for both residential units and land use rights. Spatial spillover effects are also found in the residential market, with larger effects in the long term.

Two-echelon supply chain operational strategy under portfolio financing and tax shield

PurposeThe development of small- and medium-sized enterprises (SMEs) is vital to the economy, as such the financing of SMEs has become the focus of government and enterprises. The purpose of this paper is to find the operational and financial strategies of the supplier and retailer in supply chain.Design/methodology/approachIn a Stackelberg game, supplier moves first setting wholesale price, while the retailer follows, setting the ordering quantity. Enterprises maximize their profits by optimization. When measuring profit targets, the capital constraints and income taxes of two companies are considered. In the portfolio financing model, the retailer can obtain products from suppliers through trade credit, and the supplier can use asset-backed securitization (ABS) to solve his/her financing problems.FindingsThe wholesale price is a decreasing function of retailer’s initial cash balance, and the supplier’s financing interest rate is a decreasing function of his/her own capital, the incentive effect of the supplier’s price discount strategy on retailer is more intense in the supply chain with high-priced product or high-capital retailer. And in a capital-constrained supply chain, an increase in tax rate or financing rate does not necessarily motivate the supplier to increase wholesale price. Most importantly, if the supplier’s markup is moderate, portfolio financing has value for both retailer and supplier, while solving the financing problems of both parties.Research limitations/implicationsFuture research can consider the explicit and implicit interest when supplier provides trade credit to retailer. It is also possible to consider the portfolio financing when multiple retailers are facing financial constraints.Practical implicationsIt provides guidance for supply chain enterprises with financing needs, helping them find optimal decisions. With financial interest, enterprise income tax on the enterprises’ financing factors will produce a tax shield effect; thus, a cost–benefit analysis with the tax shield effect can provide more accurate picture when making corresponding decisions.Social implicationsGovernment takes feasible adjustments of tax rate for the sake of motivation on financial SMEs tax shield. Furthermore, ABS calls for service from financial institutions, which will, in turn, expedite financial institutions revenue.Originality/valueThe authors provide insights on enterprise financing models, combining ABS with trade credit, expanding enterprise financing channels and enriching the theory of financial supply chain and supply chain management. The authors analyze in detail the influence of tax factors on enterprises by introducing tax factors into traditional process of enterprise operation and financing strategy.

Pricing and Carbon Emission Reduction Decisions in a Supply Chain with a Risk-Averse Retailer under Carbon Tax Regulation

Carbon tax is an emission regulation, which widely used to curb the carbon emissions generated from firms. In the context of carbon tax policy, firms need to determine an optimal carbon reduction level and optimal product prices. To address firms’ decision-making challenges, this paper considers a two-echelon supply chain consisting of a single manufacturer and a single retailer under carbon tax policy; it establishes a Stackelberg game model with a risk-averse retailer and a risk-neutral manufacturer who is the leader of the game. The paper studies the influence of the government’s carbon tax policy and retailer’s risk-averse attitude on the optimal decision of the supply chain. The result shows that when the retailer is risk aversion, the degree of risk aversion of the retailer is positively correlated with the wholesale price of the manufacturer and unit carbon emission reduction, and within a certain range of carbon emission reduction cost coefficient, it is positively correlated with the price of products; with the increase of the carbon tax rate imposed by the government, the retail price of unit products, the wholesale price of the manufacturer, and the carbon emission reduction of unit products also increase. Finally, the results are verified by numerical examples.

ВЛИЯНИЕ СТАВКИ НДС НА МОДЕЛЬ ПРЕДПРИНИМАТЕЛЬСКОГО ПОВЕДЕНИЯ (НА ПРИМЕРЕ ИМПОРТЕРОВ ПАЛЬМОВОГО МАСЛА)

The article discusses the problem of the reducing life quality of Russians in the new conditions of the market economy. The Russian phenomenon of the use of “palm oil” as a priority raw material in food production is analyzed against the decrease in its use in the EU countriesand against the expansion of the daily diet of the Chinese due to increased dairy food consumption. Opposing points of view of key industry associations (the Dairy Union of Russia and the Fat and Oil Union of Russia) have been identified and are presented in the context of palm oil use in dairy food production. The results of a statistical study of the demand for palm oil from Russian importers against the background of an increase in the value-added tax rate from 10 to 20% in October 2019 are presented. The data of customs statistics on palm oil imports were analyzed in the context of countries of origin, nine codes of the commodity nomenclature of foreign economic activity, months and years within the five-year period of 2016–2020, as well as in the context of the importing regions of Russia. The results of statistical processing of data by the Federal Customs Service revealed no effect of the sharp increase in the VAT rate on the volume of palm oil imports. The analysis of foreign statistics revealed a significant presence of actors in the chemical industry among transnational companies that are the largest consumers of palm oil. The model of entrepreneurial behavior based on consumption in palm oil production, formed and widely spread in the Russian food industry market, is criticized. 98% of palm oil and its fractions imported into Russia goes to the needs of food industry enterprises, and the authors consider that the foreign ownership of these enterprises plays an important role. In the authors’ opinion, in many respects, the latter fact determined our country’s ranking first in the food chemistry sector in the distribution of published patent applications by technology field for the top 10 origins in 2014–2016. In this respect, Russia is far ahead of China, the USA, Japan, South Korea, Germany, the UK,France, and Switzerland. In China, systematic research is being carried out on the ratio of palm oil use in the food (primarily, instant noodles, other fast food) and non-food (chemical industry, including cosmetics production) sectors.

Pareto-Improving Reforms of Tax Deductions

We analyze Pareto-ei¬?cient tax deduction rules for work-related expenses. Pareto efi¬ ciency dictates a strict rule for marginal deductions along the income distribution. An immediate implication is a recipe for designing Pareto-improving reforms. We apply our theory and simulate a Pareto-improving reform that introduces deductions for non-care household services (housekeeping, gardening, laundry) in the United States. The reform combines marginal deduction rates for household services between 55% and 85% with a slight increase in marginal tax rates.

Shared Residential Occupancy and Property Tax Compliance

This article examines for the first time the property tax compliance behavior of homeowners who rent out part of their own home to tenants. This increasingly popular occupancy arrangement typically arises due to the financial constraints of homeowners. Currently little is known about the property tax compliance behavior of homeowners in this shared occupancy arrangement, relative to homeowners who fully occupy their properties. Using granular administrative-level data on occupancy characteristics from the Accra Metropolitan Assembly (AMA) in Ghana, we find that owner-and-tenant-occupied dwelling units have a higher probability of being in tax arrears, as compared to owner-occupied units. Their non-compliance is more sensitive to increases in property tax rates and is greater for those located farther away from local public amenities (suburban police stations and hospitals). Overall, our findings provide new insights for policy-makers on the tax compliance of owner-and-tenant-occupancy arrangements in a weak regulatory environment.

Investors´ decision on the context of the effective taxation of agricultural companies

The analysis of the effective taxation combines two different effective tax rates which are crucial for placement and monitoring of the investment amount in the particular country. Both of these tax rates are important for investors who make a decision on the benefits, as well as the risks of corporate taxation in the country. The contribution deals with the problem of the effective taxation through effective average tax rates (EATR) and effective marginal tax rates (EMTR). Especially, it focuses on agricultural production companies. The effectivity of taxation was observed for selected intangible and tangible assets for a period of 2004 and 2018. Our analysis evaluated the influence of the change in the statutory tax rates (and the other taxes and indicators, as well) on the change in effective average tax rates on capital in the agricultural companies. Based on the results, the lowest EATR, ranging from 20.79% to 25.25%, reported agricultural lands in both reference periods and for both ways of financing. Analyzing EMTR we found out that the lowest value reported investments in intangible assets that have crucial significance for investors. Our results definitely made it clear that in the EATR ↔ EMTR relationship, a form of financing investments is decisive. This relationship is used when an investor decides between several mutually exclusive locations or types of investment in a given country. In equity financing, the most effective capital is investing in intangible assets, and when we consider financing from external sources it is investment into stocks. An increase in the statutory tax rate of 2% resulted in a 12% increase in effective average tax rates.

Environmental Tax Reform and the "Double Dividend" Hypothesis in a Small Open Economy.

In this paper, we build and analyze a general equilibrium model to evaluate the effects of environment tax reform on a small open economy in a “suboptimal environment” with existing tax distortions. We then use the macroeconomic data from the Chongqing Municipality in China to conduct simulations to empirically test our analytic results. Our main findings include the followings. First, an increase in environmental tax rate can effectively reduce the use of polluting consumer goods by households as well as investment in polluting factors by enterprises. Hence, an increase in environmental tax rate can improve environmental quality and obtain “environmental dividend”. Second, an increase in environmental tax rate can negatively impact employment, family income and economic growth. Hence, there is no “non-environmental dividend” effect. Third, an increased environmental tax rate has both substitution effect and income effect on household consumption. On the one hand, it motivates households to substitute polluting consumer goods with clean consumer goods. On the other hand, it lowers the total consumption level of households. Fourth, we show that the “double dividend” hypothesis on environmental tax is invalid. And the optimal environmental tax under the suboptimal environment is lower than the Pigouvian tax rate. Finally, we discuss the policy implications of our results.

Missing miles: Evasion responses to car taxes

We study a tax evasion response to car taxes in Finland, where used car importers overstate the mileage to reduce tax liability. First, we develop a tax evasion measure by comparing reported mileage upon import with subsequent information from vehicle inspections, and find that a decline in mileage — “missing miles” — occurs frequently. Second, we analyze a tax rate increase, and observe a reduction in the number of imported used cars, but only among non-evaders. Finally, we analyze an RCT informing some potential importers about a program of inspections that uncovers true odometer readings, and the results suggest that third-party reporting reduces evasion.

STATES’ ADDICTION TO SINS

“Sin taxes” are often viewed as budget saviors, despite their rather small role in state budgets. While states can and do raise revenue from sin taxes, they should be mindful about the limitations of these taxes. The longer-term growth patterns for sin tax revenue often have been weak and limited, absent policy changes such as increased tax rates. Moreover, greater dependence on sin tax revenues can set up odd incentives, as part of the reason for taxing some of these activities is to discourage consumption and use, not to maximize revenue.

Impact of Direct Tax and Indirect Tax on Economic Growth in Vietnam

Tax can be categorised into direct tax and indirect tax. This paper uses the ordinary least-squares regression method to study the impact of direct and indirect tax on economic growth in Vietnam in the period 2003-2017. Statistical data is collected from the Ministry of Finance of Vietnam. Theoretically, tax generates the state budget revenue and is a tool to regulate the economy. The results of statistical tests show that tax has a positive impact on Vietnam's economic growth. However, the effects of direct tax and indirect tax are different. The indirect tax has a positive influence and promote Vietnam's economic growth, while the impact of the direct tax is invisible. There has not been sufficient evidence to confirm that the indirect tax has a more positive impact than the direct tax. To promote economic growth, Vietnam needs to restructure its tax system towards: (1) Increasing the proportion of indirect tax, reducing the proportion of direct tax in the state budget revenue; (2) Expanding tax bases; (3) Reducing tax rates of corporate income tax and personal income tax; (4) Increasing tax rates of environmental protection tax, natural resources tax, value added tax and excise tax on some types of goods which harm health and environment.

Welfare Estimation in Peer-to-Peer Markets with Heterogenous Agents: The Case of Airbnb

Peer-to-peer markets allow small suppliers to enter markets traditionally occupied by large firms and provide a potential decentralized distribution of opportunities. This paper investigates how these opportunities are distributed across agents and affected by government regulations. Using daily panel data of Airbnb rentals in Chicago, I develop an individual-level multinomial logit model to estimate consumer and producer surpluses across differentiated agents. The results find higher surpluses for low-income property owners but indicate a disproportionate concentration of welfare in high-income neighborhoods. The counterfactual analysis shows that restricting institutional hosts reinforces this concentration. However, increasing tax rates potentially helps redistribute welfare.