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Thursday, February 28, 2008

Shaviro Presents The Optimal Relationship Between Taxable Income and Financial Accounting Income Today at NYU

Daniel Shaviro (NYU) presents The Optimal Relationship Between Taxable Income and Financial Accounting Income at NYU today as part of its Colloquium Series on Tax Policy and Public Finance.  Here is the abstract:

The persistence of the book-tax gap, or excess of companies’ reported financial accounting income over their taxable income, suggests that accounting manipulation and tax sheltering remain significant problems, even in the aftermath of the “Enron era.” Some have therefore suggested making the United States a “one-book” country, in which the same income measure would be used for both purposes. This Article offers the first systematic exploration of the optimal relationship between the two income measures, based on the distinct purposes they serve and the significance of two distinct sets of incentive problems: those pertaining to corporate managers, and to the political decision-makers who make the rules.

Absent these incentive problems, the two ideal measures would differ, reflecting that allocating tax burdens is not the same exercise as informing investors. The incentive problems cut in favor of uniformity, however, by supporting the creation of a “Madisonian” offset between managers’ and politicians’ twin quests for high accounting income and low taxable income. But this offset has more promise as a device to constrain managers than politicians, given the difficulty of binding Congress and the existing partial insulation of accounting rules from direct political influence. In light of the political incentive issues, pure one-book and two-book approaches may both be inferior to partial conformity, such as that which would result from generally requiring a 50% adjustment by large, publicly traded companies of taxable income towards financial accounting income.

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Comments

Very simply, Obama increases marginal rates for the poor and the rich, making it likely they will work less or cheat or simply turn to tax free income or deferred income. In all cases, revenues will decline. To raise revenue Obama will have to do what Clinton did: raise taxes on middle class, salaried people who cannot hide, defer, or otherwise avoid reporting income. If you think Bush raised your taxes, take your income and apply 1998 tax tables. Obama tells half americans vote for every benefit and pay nothing for it. The rich: 5% or 3% or 1%--who knows what it will be next: 10%, 20%, 30%--they will pay. someone else will pay. It's chicago politics: handing out jobs and cash for votes.

Posted by: steven berk | Nov 2, 2008 11:13:42 PM