June 15, 2012
Tax Panel at Today's ISNIE Annual Conference at USC
Today is the second day of the 16th Annual International Society for New Institutional Economics Conference at USC, with this tax panel:
- Leo Martinez (UC-Hastings) (Chair)
- Victor Fleischer (Colorado), Tax and the Boundaries of the Firm: How does tax policy affect the behavior of corporations? In the midst of national debates about the corporate tax rate, job creation, and international competitiveness, the dizzying complexity of the tax code can make it difficult to see the jungle through the vines. Does tax policy make U.S. firms grow or shrink? Do firms respond mainly to economic forces or tax incentives? This Essay goes back to foundational ground—Coase’s inquiry into why firms exist at all—to gain some traction on these important questions. I make two main claims. First, tax law incentivizes firms to expand the boundaries of the firm beyond what we would observe in a world without taxes. Tax policy favors larger firms. Second, firms often respond to this pressure by expanding the legal boundaries of the firm while leaving the underlying economic relationships largely undisturbed. What we observe is an expansion of the legal boundaries of firms and a smaller distortion of economic production.
- Sagit Leviner (SUNY-Buffalo & Ono), The Intricacies of Tax and Globalization
- Kirk Stark (UCLA), Federal Tax Reform and the Deduction for State & Local Taxes: Most proposals for federal tax reform envision the repeal of the deduction for state and local taxes (i.e, the SALT deduction). These proposals are not without precedent. The Reagan Administration’s proposed repeal of the SALT deduction as part of its 1985 tax reform proposal generated substantial academic analysis of this reform option. Since that time, however, there have been numerous developments relevant to the possibility of repeal or reform of the SALT deduction. The growing significance of the alternative minimum tax, the influence of the Great Recession on state and local fiscal structures, mounting concerns with subnational revenue volatility, and various demographic changes have altered the framework for considering the influence of federal tax reform on state and local fiscal incentives. We consider three specific reform options—the 2005 Presidential Advisory Panel on Federal Tax Reform, the Rivlin/Domenici plan, and the Simpson-Bowles National Commission on Fiscal Responsibility and Reform. Each of these proposals would repeal the SALT deduction in its entirety, yet the experience of TRA 1986 suggests that outright repeal is likely to face considerable political opposition from state and local government lobbyists. In an effort to anticipate the likely political instinct for reforms short of outright repeal, we also consider the merits of three alternative half-measures:(i) limiting the SALT deduction to a subset of taxpayers, (ii) limiting the SALT deduction to a subset of taxes, and (iii) converting the deduction to a flat-rate credit. Because of their differential effect on the tax price faced by state and local taxpayers, these reform options have very different implications for state and local fiscal incentives. These alternative reform options also implicate broader questions about the proper role of the federal government in the design of subnational tax structures.
- Nancy Staudt (USC), Supercharged IPOs (with Vic Fleischer (Colorado)): In this article, we investigate a new and widely discussed financial innovation: the supercharged initial public offering (IPO). A supercharged IPO differs from a conventional IPO because it involves a contract provision that enables the original owners of a firm to extract large amounts of money from the company in the post-IPO period. Stated most directly, the supercharged IPO involves an agreement—unseen and unheard of prior to 1993—whereby a newly public company agrees to pay (often) billions of dollars to its founding owners over the course of a fifteen-year period after the IPO takes place. The supercharged IPOs have generated substantial debate and controversy but no commentator has thus far posed the question: why now? After all, owners and founders have taken companies public for at least three hundred years, yet the unusual payout scheme emerged just two decades ago. Moreover, this new-style IPO, while not routine, has spread across industries and geographic areas, a process that raises the question of how and why innovations diffuse after the initial discovery takes place. Finally, and perhaps most importantly, the supercharged IPO raises the question of who actually benefits: the architects of the plan, the investing public, or both? In this study, we seek to find answers to these questions with the help of a large IPO database—the first of its kind—and one that includes both conventional and supercharged IPOs over the course of the last several decades.
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