Top Tax Rates Research Articles

Obsolescent Corporate Cultures

Informal cultures exist in every organization, and in every nation. They can provide incentives for greatness as well as barriers to the necessary changes required for survival. Cultures evolve, based on methods, procedures and biases which had their origin in pragmatic ways of coping with the problems of the time. However, both the basic premises and the core competencies on which they are based can become both obsolescent, and resistant to change. A national culture supportive of risk investment is critical for the creation of wealth (1.2). The U. S is known for its entrepreneurs and for its entrepreneurial culture, which has provided incentives for, and removed many of the barriers to, business creation. A similar environment can be replicated almost anywhere, and entrepreneurs fortunately exist in all nations. For example, Hernando deSoto, a Peruvian, based oil a seven-year study of Latin American economies (3), has pointed out that the definition of an underdeveloped country is one in which entrepreneurial activity is not allowed. The entrepreneurs are there, but they are confined to the underground economy. When personal property rights, the rule of law, and incentives for risk investments are put in place, they surface immediately. The U.S. expanded its supportive culture in the early 1980s. During the late 1970s, stagflation' has resulted when the top tax rate for individuals was 70 percent, and the capital gains tax on profits from investments was a punitive 49 percent. When the Economic Recovery Tax Act of 1981 was put in place, the top tax rate for individuals was reduced to 28 percent, and the capital gains tax was reduced to 20 percent. This released enormous sources of funding for investments. As a result, unprecedented changes have since occurred. Historically, after over two centuries of economic growth, by 1980 the U.S. had 4.6 million incorporated companies. However, since 1982, 20 million additional small businesses have incorporated, and about 98 percent of these have fewer than 100 employees, while 84 percent have fewer than 20 employees (4). These small businesses (the new economy) now account for almost 65 percent of the U.S. GDP, while old economy large businesses have declined steadily from over 60 percent to about 35 percent of GDP today. This small business revolution, which was jumpstarted by the Economic Recovery Tax Act, resulted in a tripling of startups to 600,000-800,000 per year, and has generated about 95 percent of all American wealth ($44 trillion since 1982 ). About 80 million jobs also were created, since 1982, most of them in companies with fewer than 20 people (5). Sadly, old economy businesses simultaneously lost about 40 million jobs in downsizing and restructuring. Innovation now has become the core competency of the U.S. and it is the primary source of productive growth. A shift has resulted, which has created a sustained environment for corporate investment that is unique in history. The recession of 2001-3 temporarily delayed this process, but it has since resumed. Fortuitously, it builds on an unprecedented database of advanced technology, involving about 90 percent of all scientific knowledge, generated over just the last 30 years (6). This is the seed corn of innovation. Elements of Radical Change As a direct result of this shift, a pervasive restructuring is now taking place for manufacturing, marketing and distribution functions. To survive, most manufacturers now must morph into a role of continuous innovation, while outsourcing their components and systems, and then marketing and distributing both their own and their competitors' products and services (the ultimate in corporate cultural heresy). This disconcerting projection is not a hypothetical construct. Emerging models are already in operation: For instance, CarsDirect, one of the largest automobile dealers in the U. …

Steuerreform und Unternehmensfinanzierung / Tax Reform and Corporate Finance

Zusammenfassung Der Aufsatz diskutiert die Finanzierungsanreize, wie sie von der Steuerreform ausgehen und vergleicht sie mit den Anreizen vor der Reform. Trotz des Systemwechsels vom körperschaftsteuerlichen Anrechnungsverfahren zum Halbeinkünfteverfahren ergeben sich nur moderate Veränderungen in der relativen Vorteilhaftigkeit der Finanzierungswege. Dies ergibt sich jedenfalls, wenn die Unternehmenspolitik im Hinblick auf Anteilseigner optimiert wird, die dem Spitzensteuersatz der Einkommensteuer unterliegen. Auch die Anreize Aktienrückkäufe zu tätigen, wie sie seit 1998 auch in Deutschland möglich sind, hat sich für Unternehmen mit solchen Anteilseignern nur geringfügig geändert. Der Aufsatz argumentiert, dass die Steuerfreiheit für Veräußerungsgewinne auf Unternehmensebene eine Maßnahme ist, welche die künstliche Bevorzugung der Beteiligungsfinanzierung für Tochterunternehmen beseitigt.

State Income Taxes and Homeownership: A Test of the Tax Arbitrage Theory

Since states have different income taxes, the marginal tax rate in the top tax bracket varies across states. According to the tax arbitrage theory of homeownership, the frequency of homeownership in any given tax bracket ought to be lower in states with higher top tax rates. To test this hypothesis, we estimated a probit model of homeownership using data on over 16,000 families from 38 different states. As hypothesized, we found that a family was less likely to own its home if it lived in a state with a high top tax rate. We also found that it was more likely to own its home if it had a high marginal tax rate.

Harsh New Rules For Employee And Shareholder Loans

Abstract This month, "Tax Topics" examines the changes proposed in the November 12, 1981 federal budget relating to the taxation of stock purchase and housing loans. The changes, if enacted, will come into effect in 1982 to tax the benefits derived from low-interest and interest-free loans. As a result of public pressure, some transitional rules have been announced since the budget date to phase-in the new rules. Introduction Since November 12, 1981, whim Finance Minister Allan MacEachen introduced his proposed sweeping tax changes, there has been a public outcry at the breadth of tax changes and the lack of public discussions preceding the budget. In addition, the original budget was notable in its lack of transitional rules regarding the implementation of many important changes. The proposed taxation of stock purchase loans and honsing loans is one of the few areas that, due to the furor created, has seen some substantive changes since November 12, 1981. However, the draft legislation is not expected until April or May of this year. so it is quite conceivable that the rules may change yet. Many taxpayers associated with the oil and gas industry will be particularly hard hit by these proposals, because of the relatively widespread use of interest-free loans in the industry. For junior oil com panies needing maximum amounts of cash resources to finance exploration and development, the use of interest-free loans to enable employees to acquire company shares has been an attractive compensation device. As the accompanying examples illustrate, although Mr. MacEachen has lowered the top personal income tax rates, the additional amounts that will be included in taxable income can create a greater tax liability. The New Rules According to the budget proposals beginning in 1982, employees and shareholders will be fully taxed on benefits derived from certain loans and other forms of indebtedness. The benefits will be determined by deducting actual interest paid, if any, in the year and within 30 days of the end of the year from imputed interest to be calculated at prescribed rates. The prescribed rate, in future, will be adjusted every three months in relation to the average interest rate on 90-day treasury bills during the first month of the preceding quarter. Although it was orginally announced that the prescribed rate for the first quarter of 1982 would be set at 19%, because of a decline in interest rates since the budget, the prescribed rate was subsequently reduced to 16% for this quarter. Although a loan bearing interest at a rate below the prescribed rate will usually give rise to a taxable benefit, there will be no income inclusion unless the rate charged is also below the prevailing rate available in financial markets at the time the loan was made. The proposed new rules will generally apply to all loans and indebtedness regardless of whether issued before or after the November budget date.

Federal Income Taxes, Business Enterprise and a Depreciating Dollar

P RIVATE ENTERPRISE HAS attained an advanced growth in the United States. In this, we are envied by much of the world, nor do we shrink from praising ourselves! The rest of the world does not envy us our tax laws. Our corporate taxes not only are about the highest, but personal taxes against the middle income brackets are nearly confiscatory and against the top income brackets actually confiscatory. A private enterprise economy thus labors under a settled contradiction: an anti-private enterprise tax structure. As compared with an effective peak personal tax rate, Federal and State combined, of 92 % (New York), the peak personal tax rate in the Soviet Union is 12%. Thus, while our own economy suffers a tax structure that is unsuited to private enterprise, the economy of the Soviet Union flaunts a tax structure appropriate to private enterprise. Nor is the comparison academic: in Russia, a growing class of scientists, engineers, industrial managers, writers, actors and other professional people has been moving into the salary group that, in these same professions here, faces a Draconian income tax. Plain economic facts, rates of pay and rates of income tax, may underlie a circumstance lamented often: the number of scientists and engineers has been growing only half as fast in the United States as in the Soviet Union! Steep as our progressive tax schedules appear, in actuality they are higher than they would seem at first blush. A steadily growing weight of income taxes has taken many individuals by surprise. There has been little general understanding of the process whereby, whenever wages, salaries and, with these, the cost of living and dollar incomes advance, taxpayers are faced with a more than proportionate rise of tax obligations. The process is a radical one, caused by the mountainous upward slope that, over the years, has been built into the structure of personal income taxes. For single individuals, the Basic Federal Income Tax of 20%r starts with incomes as low as $667 annually, far below the government's own estimated minimum for decent living. Making allowance for standard deductions, a 2 % added tax begins as soon as incomes exceed $2,891. The tax rate rises fast, and on incomes above $11,601, it is 38%c; on incomes above $19,601, it graduates to 53%; above $51,601, 75%; and above $101,601, 89%. On incomes above $201,601, a punitive top tax rate of 91% is levied. Unlike many countries, the United States does not, excepting for a limited allowance, credit the individual tax payer for corporate income taxes paid. Thus, the topincome dividend recipient may actually find himself in the somewhat unbelievable tax bracket of 95% plus! In this progression from an initial 20% personal Federal tax to a 91% peak tax, more than half the distance (47% ) is reached as soon as a single person has earned $15,601, or a married person (using the joint return privilege) $30,201. Despite the combined burden of ( 1) ever-steeper personal income taxes, and (2) and ever-rising cost of living, economic growth in disposable real income has been achieved. Many groups, however, have fallen far behind overall growth; and a few have been cruelly unable to keep up with the rise of living costs. The unlucky ones include, notably, pensioners and others dependent on relatively fixed incomes. Also, a surprising variety of others have been affected, notably successful professional people and successful managers of their own businesses. Of import to the growth of the United States economy, organizers and developers of businesses, such as those who accumulated savings in other periods, have found themselves, in the prosperous post World War II era, with little left over after providing for taxes and living costs. This cold reality throws a clear, if unpleasant, light on the shortage of capital now faced by so many small businesses. How, actually, has the impact of rising personal taxes been felt? The table below shows the long-term effects on real incomes of the rise in tax rates and the decline in the