Paul L. Caron

Tuesday, December 20, 2022

Crane Reviews Congressional Research Service's Corporate Tax Reform: Issues For Congress

Charlotte Crane (Northwestern), What Do We Know About The US Corporate Income Tax? (JOTWELL) (reviewing Jane Gravelle (Congressional Research Service), Corporate Tax Reform: Issues for Congress (RL34229 2021): :

Jotwell (2023)In the most recent update of the Congressional Research Service pamphlet, Corporate Tax Reform: Issues for Congress (RL34229 2021), Jane Gravelle presents a survey of the recent economic literature that has been invoked to support various changes in the corporate income tax. Gravelle is an economist who has spent her career bridging the gap between academic approaches to tax and the nitty gritty of tax policymaking within the beltway. In this document she explains how little anyone knows about the corporate income tax in the US. ...

The summary provided of this literature is rather dense, especially since it assumes the reader is fully conversant in both the statistical methods and the classic models involved. The benefit to the non-economist reader is not an easily digested synopsis of each of these recent studies, although the references are more than adequate for the reader hoping to build a firm background in the literature. The virtue in this report is instead the revelation of the weak spots in the literature on which current policy debates rely.

The report is far more useful than just a debunking of some of the current economic literature and the tendency for overclaiming by those relying on it. It also outlines in summary fashion the actual structure of the current tax structures through which business income is taxed and summarizes the tax rates actually imposed on income derived through various business forms. In particular, Table 1 on page 8 shows different effective tax rates for various alternative forms of organizations under alternative rate structures, assuming a 29.6% individual rate. The range and complexity of the effective rates that could be applicable to domestic business income, depending upon the choice of form and distribution, may come as a surprise to those who deal only with the individual income tax, or with only the corporate income tax. This thoroughness will be helpful for those trying to comprehend the current complexities, not just for those whose expertise is not in corporate tax, but also for those approaching the topic from a legal perspective who need to understand better the economic perspective on the topic.

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