Johnson Presents The Effective Tax Ratio and the Undertaxation of Intangible Investments at Northwestern

Calvin H. Johnson (Texas) presented The Effective Tax Rate Ratio and the Problem of Intangibles at Northwestern on Wednesday as part of its Graduate Tax Program Speakers Series. Here is the abstract:

Effective tax rate in economics measures how much tax reduces internal rate of return. The presentation proves an an “effective tax rate ratio” that can be estimated from available accounting data, which is that the firm-wide effective tax rate is the marginal tax rate multiplied by a ratio, the adjusted basis for the firm’s assets divided by the fair market value of the assets in absence of tax. The ratio shows that the effective corporate tax rate is very modest for products like Google, and games like Grand Theft Auto IV, Doom III and Guitar Hero. The effective tax rate is above statutory tax rates, however, e.g. for Macy’s. The articles calls either for fixing the problem of intangibles by capitalization of intangible investment or for abandoning accounting-based definitions of income as a tax base.