Excesso Imposto Benefício De Exercício De Estoque Opções

Incidência tributária, carga tributária e mudança de imposto: quem paga realmente o imposto Quem paga o imposto sobre o rendimento, o imposto sobre a folha de pagamento, a propriedade e os impostos sobre os presentes. Quem assume o peso dos impostos sobre a gasolina e o tabaco. Se o Congresso elevasse essa taxa, ou Diminuir essa dedução fiscal, quem ganharia e quem perderia. Os resultados das batalhas políticas sobre as mudanças no sistema tributário dependem frequentemente das respostas a tais questões. Para demonstrar quem paga impostos atuais ou quem seria vencedores e perdedores de uma mudança de imposto, o Comitê Conjunto de Tributação do Congresso (JCT) produz quotburden tablesquot mostrando a quantidade de dinheiro que todo mundo envia ou enviaria ao Tesouro. Os vencedores e perdedores são agrupados pela classe de renda bruta ajustada, e os impactos distributivos de um imposto, ou uma mudança de imposto, são exibidos. As mesas de carga também são preparadas na ocasião pelo Tesouro e pelo Escritório de Orçamento do Congresso, bem como grupos de pesquisa privados, usando suposições e métodos de exibição às vezes semelhantes, às vezes diferentes (como por quinhão de quintilas). As tabelas de carga devem lançar luz sobre o sistema tributário ou o efeito de uma nova proposta de imposto, mas muitas vezes fazem mais para ofuscar do que para iluminar os fatos. A verdadeira medida do ônus de um imposto é a mudança nas condições econômicas dos povos como resultado do imposto. As mudanças devem ser medidas como os efeitos sobre a receita líquida de imposto de todos os usuários após todos os ajustes econômicos terem executado seus cursos. A medida do fardo deve incluir não apenas as mudanças nos benefícios fiscais pós-impostos em um único ano, mas as conseqüências ao longo da vida da mudança de imposto também. Infelizmente, os formuladores de políticas não são apresentados com este tipo de informações abrangentes sobre o verdadeiro ônus da tributação e devem fazer julgamentos de política com base em estatísticas incompletas e enganosas. Não se pode dizer o verdadeiro ônus de um imposto apenas olhando para onde ou sobre quem ele é inicialmente imposto, ou no que é chamado. Os impostos afetam o comportamento dos contribuintes, provocando mudanças econômicas que, com regularidade, alteram alguns ou mesmo todo o ônus econômico de um imposto para outras partes e alteram a produção total e os rendimentos. Os impostos reduzem e distorcem o mix do que as pessoas estão dispostas a produzir em seus papéis como trabalhadores, poupadores e investidores. Os impostos aumentam o que esses produtores procuram cobrar pelos seus serviços ou produtos. As mudanças nos preços e as quantidades de produção, por sua vez, afetam as pessoas em seus papéis como consumidores quando tentam gastar seus rendimentos. A perda de produção e outras conseqüências da tributação impõem custos adicionais aos contribuintes que não se refletem nos meros valores em dólares das cobranças de impostos. O Tesouro colocou bem esses problemas em seu estudo de 1991 sobre o fim da dupla tributação do lucro das empresas, escrevendo que: O ônus econômico de um imposto, no entanto, freqüentemente não depende da pessoa ou empresa que tenha a responsabilidade legal pelo pagamento do imposto para o governo. Este fardo, ou incidência, de um imposto refere-se à mudança nos rendimentos reais que resulta da imposição de uma mudança de imposto.1 Esses efeitos e encargos finais da tributação são explorados em um canto da literatura econômica, mas eles não estão em nenhum lugar A ser encontrado nas tabelas de quotburden que são preparadas pelas agências governamentais e examinadas em debates tributários. Em vez disso, as tabelas de carga são construídas usando pressupostos brutos e regras simplificadas demais para atribuir vários impostos aos fornecedores de mão-de-obra ou capital, ou aos consumidores. Esses pressupostos e regras geralmente são adotados mais para facilidade de computação do que para a precisão econômica. De fato, nenhuma tabela de carga já publicada foi baseada em como os impostos realmente afetam os rendimentos. Qual o preço que pagamos por esclarecer o verdadeiro ônus econômico de um imposto. A incapacidade de entender e ter em conta as conseqüências econômicas da tributação leva a uma falsa representação grosseira da distribuição da carga tributária. Isso, por sua vez, levou a um sistema tributário que, ao mesmo tempo que promove a justiça social, é realmente prejudicial para os trabalhadores e economistas de baixa renda, além de prejudicar a população como um todo. Uma melhor compreensão das conseqüências econômicas e dos encargos reais da tributação é indispensável para alcançar um sistema fiscal ideal que minimiza o dano econômico e social associado ao financiamento de desembolsos governamentais. Uma melhor compreensão das conseqüências econômicas da tributação também beneficiará o Tesouro e o Congresso enquanto planejam o orçamento federal e contemplam mudanças no sistema tributário. Isso deve levar a previsões de receita mais precisas. Também pode encorajar a adoção de contas tributárias mais preocupadas com o aumento das receitas nacionais e individuais e menos preocupadas com a redistribuição do nível de produto nacional existente. Este artigo discutirá as conseqüências econômicas da tributação e os fatores que influenciam onde o peso de vários impostos realmente cai. Ele irá rever algumas das discussões na literatura econômica. Finalmente, sugerirá que uma mudança para um sistema de impostos diferenciadamente diferente beneficiaria todos os jogadores da economia. II. Sorting Out Some Terminology Os termos quottax incidencequot e quottax burdenbot são lançados em torno bastante frouxamente na literatura econômica e na imprensa popular. Alguns autores os utilizam de forma intercambiável para alguns dos vários conceitos do efeito de um imposto. Alguns autores usam-nos para conceitos separados, mas diferentes autores não concordam em qual termo significa qual conceito. Este artigo procurará distinguir claramente entre vários conceitos distintos de quotincidência de um imposto e reservar um único termo para cada um. Nós definimos três conceitos: a quotstatutoryquot ou a obrigação quotlegal, que se refere à pessoa a quem a lei diz que a obrigação fiscal cai (o que pode ter pouca relação com quem realmente sente a dor) 2 A incidência econômica quotinitial (ou quotincidencequot for short ), Que é como as condições econômicas de oferta e demanda no mercado do produto ou serviço tributado ou fator de produção alocam o imposto entre fornecedores e consumidores do item tributado (qual alocação pode ser diferente no curto prazo e no longo prazo) E o quotultimate de carga econômica (ou quotburdenquot por curto), que mede as mudanças nos países após impostos, após todos os ajustes econômicos do imposto ocorreram em todos os mercados afetados, pois o comportamento do consumo, o uso de recursos e os rendimentos mudam para os novos padrões . Essas definições distinguem entre os termos quotincidencequot e quotburden. quot Incidencequot é definido como os efeitos econômicos parciais do próprio mercado do imposto, que também podem ser considerados análises de equilíbrio parcial. QuotBurdenquot é definido como os resultados econômicos de equilíbrio geral envolvendo todos os mercados. Quando o artigo cita outras fontes que empregam os termos de forma diferente, o leitor deve realizar a tradução mental necessária.3 III. O Exemplo Simples de um imposto de consumo seletivo: Obrigação estatutária, Incidência inicial, Carga final de um imposto especial de consumo exclusivo Considere a imposição de um imposto especial de consumo seletivo, como o imposto sobre cigarros ou o imposto sobre a gasolina. (Ver Gráfico 1.) Na ausência do imposto, a oferta seria igual à demanda no ponto de equilíbrio E0, com um preço unitário de P0 e uma quantidade de unidades Q0. Impor um imposto por unidade de t (Pc-Pp) desencadeia uma divisão entre o preço pago pelo consumidor (Pc) e o preço recebido pelo produtor (Pp). À medida que o preço bruto para o comprador é impulsionado, a quantidade exigida encolhe (movimento ao longo da curva de demanda). À medida que o preço líquido recebido pelo vendedor cai, menor é fornecido (movimento ao longo da curva de oferta). A quantidade de saída cai do seu valor original (Q0) para o seu novo valor (Q1). O equilíbrio do mercado muda de E0 para E1. A receita fiscal é t x Q1 (a área sombreada, a quantidade de tempos de impostos unitários). Note-se que a receita não é igual a t vezes a quantidade original do produto na ausência do imposto é t vezes a produção reduzida provocada pelo imposto. Na linguagem usual, a parte superior do retângulo de receita, (Pc-P0) x Q1, é considerada a parcela do imposto que cai no consumidor porque ele agora paga um preço mais elevado para impostos. A parte inferior do retângulo, (P0-Pp) x Q1, é considerada a participação do imposto que cai no produtor sob a forma de um menor preço líquido e receita recebida pela venda do produto. A redução na saída priva o consumidor do valor que ele coloca na saída perdida, a área trapezoidal mais alta sob a curva de demanda entre Q0 e Q1. A redução no resultado libera recursos para outros usos, igual à área trapezoidal mais curta sob a curva de oferta entre Q0 e Q1. O triângulo sombreado entre as curvas de oferta e demanda é o custo social de peso morto do imposto, representando o valor excedente do produto perdido em relação ao seu custo de recursos, dividido entre o consumidor e o produtor. A imposição do imposto às vezes é ilustrada como uma mudança para trás na curva de oferta (deslocando a curva de oferta tax-inclusive para passar pelo ponto E1, rotulado quotsupply com taxquot no diagrama). Isso pode ser visto como mostrando o imposto como um custo de chamar o produto. Alternativamente, é descrito como uma representação de um imposto imposto ao consumidor, enfatizando o preço bruto mais alto pago como resultado do imposto. O imposto também pode ser desenhado como uma mudança para trás na curva de demanda, deslocando-o para passar pelo ponto onde o preço é igual a Pp e a quantidade é igual a Q1. Isso às vezes é descrito como ilustrando um imposto imposto ao produtor, enfatizando o recebimento pelo produtor do menor preço líquido de imposto. Se o imposto é descrito como sendo pago pelo produtor ou pelo consumidor, o resultado é o mesmo: o aumento do preço para o comprador para a Pc, a queda no preço para o vendedor para Pp e a queda na produção para O Q1 é idêntico, qualquer que seja a visão e dependa inteiramente da taxa do imposto e das inclinações (elasticidades) das curvas de oferta e demanda. A elasticidade será discutida em maior detalhe abaixo. Estatutária ou legal Obrigação de um imposto especial de consumo Quem paga um imposto especial de consumo seletivo A obrigação legal de pagamento dependerá da redação do estatuto. Pode ser chamado de um imposto ao nível do consumidor (por exemplo, o imposto sobre o consumo de gasolina, coletado na bomba) ou um imposto no nível do produtor (por exemplo, os impostos sobre o álcool e o tabaco, coletados pelos fabricantes). Como mostra o diagrama, a distinção é economicamente sem sentido e não reflete a divisão econômica da carga tributária. Os consumidores e os produtores são afetados até certo ponto, independentemente do rótulo estatutário. Como eles compartilham a incidência do imposto depende inteiramente de sua capacidade de resposta às mudanças de preços, as inclinações das curvas de oferta e demanda, e não se a redação do estatuto cobra ao consumidor o imposto e é meramente cobrada pelo vendedor e Encaminhado ao governo, ou se o estatuto nomeia o vendedor como sendo cobrado diretamente pelo imposto. Incidência econômica de um imposto especial de consumo A incidência econômica inicial é devidamente calculada em parte em relação aos consumidores, na medida das receitas que pagam, acrescido de sua participação no triângulo de perda de peso morto e, em parte, de produtores, na medida das receitas que pagam Mais a sua participação na perda de peso morto. Os produtores são os trabalhadores que fornecem mão-de-obra e os investidores que fornecem capital para uma empresa. O que queremos dizer com a afirmação de que parte do imposto especial de consumo recai sobre os produtores. Quando um imposto é imposto sobre um produto final, a redução na demanda e produção do produto, por sua vez, reduz a demanda pelos insumos utilizados para produzir o produto, o que Reduz os salários dos trabalhadores e os retornos dos investorsrsquo na poupança. Note-se que a maioria dos consumidores também são trabalhadores e / ou fornecedores de capital (a menos que estejam vivendo inteiramente em pagamentos de assistência social ou outros pagamentos de transferência). O imposto especial de consumo, na medida em que os consumidores pagam ou na medida em que os leva a reafectar seus recursos para as melhores escolhas, reduz a quantidade e o valor do que podem comprar com um dólar extra de renda. O imposto desvaloriza seus ganhos de mão-de-obra ou de poupança. Ou seja, na medida em que o imposto é transferido para os consumidores, é, em última instância, um imposto sobre a sua renda trabalhista e de capital. Todos os impostos são, em última análise, impostos sobre a renda, ou seja, sobre os produtores. Um imposto especial de consumo recai sobre o trabalho e o capital empregado na indústria tributada ou sobre os consumidores, que fornecem serviços trabalhistas e de capital em outras indústrias. Incidência e elasticidade. Como os compradores e os vendedores compartilham a incidência inicial de um imposto dependem do comportamento do mercado. A parcela do imposto presumivelmente pago pelo comprador ou pelo vendedor varia de acordo com a capacidade de resposta da demanda e do fornecimento do produto ou entrada à medida que o preço muda. No gráfico, isso se reflete na inclinação das curvas de demanda e oferta. QuotElasticityquot é a variação percentual na quantidade de um produto (ou fator de produção, trabalho, capital, terra, etc.) fornecido ou exigido dividido pela variação percentual em seu preço (ou salário ou taxa de retorno). Por exemplo, se as pessoas são facilmente desencorajadas de comprar um produto específico (ou empregando um fator particular) à medida que seu preço aumenta, então essa proporção será alta, a demanda pelo produto (ou para o fator) é dita ser elástica, e A curva de demanda é bastante plana. Se as pessoas não estão dispostas a desistir de grande parte do produto (ou fator), mesmo que o preço aumente bruscamente, o índice será baixo, a demanda será inelástica e a curva de demanda é íngreme. As elasticidades da demanda e da oferta tendem a ser maiores no longo prazo do que no curto prazo. Pode levar algum tempo para que as pessoas se adaptem plenamente a uma mudança de imposto. Por exemplo, no curto prazo, um aumento no imposto sobre a gasolina pode encorajar as pessoas a conduzir seus carros existentes menos, levando menos viagens, por agrupamento de carros ou passando para o transporte público. A mais longo prazo, as pessoas podem substituir seus carros existentes por modelos que oferecem maior economia de combustível ou podem se aproximar de seu trabalho. A demanda de longo prazo para a gasolina deve ser mais elástica do que a demanda de curto prazo. Quatro casos extremos de elasticidade. Existem quatro casos extremos ou limitantes que não são geralmente vistos no mundo real, que ilustram o conceito de elasticidade e suas implicações. Fornecimento perfeitamente elástico (Gráfico 2a). Se um produto é facilmente reproduzido ou obtido ao mesmo custo por unidade, independentemente de quantas unidades são procuradas, a curva de oferta é horizontal e o preço do imposto líquido é fixado nesse custo marginal. (Exemplo: o fornecimento em uma pequena cidade de uma mercadoria vendida a nível nacional, Budweiser). Se os compradores da cidade estiverem dispostos a pagar o preço do mercado, eles podem obter um fornecimento praticamente ilimitado ou, pelo menos, tudo o que eles podem conter. Se eles não estão dispostos a pagar esse preço, eles não receberão nenhum.) Qualquer imposto é suportado pelo consumidor. O produto ou a disponibilidade cairão se a demanda for sensível ao preço. Demanda perfeitamente elástica (Gráfico 2b). Se a demanda é perfeitamente elástica, qualquer aumento no preço causaria um colapso no consumo. (Exemplo: a demanda por cerveja em uma das 12 concessões de concessão fica em um estádio. Se um ponto tenta cobrar mais do que os outros, perderá todo o seu negócio para os outros stands.) A curva de demanda é horizontal e o mercado O preço é fixo. Qualquer imposto imposto (naquele ponto de venda de cerveja) simplesmente reduza o preço líquido do imposto para o produtor, que deve suportar o imposto total. A saída cairá se o fornecimento for sensível ao preço. Fornecimento perfeitamente inelástico (Gráfico 2c). Se o fornecimento for perfeitamente inelástico, a mesma quantidade de produto deve ser oferecida independentemente do preço. (Exemplo: morangos perecíveis em um mercado de agricultores no final do dia.) A curva de oferta é vertical. O preço é fixado pela demanda (o que os consumidores estão dispostos a pagar). Qualquer imposto imposto resultará em um menor preço líquido de imposto para o vendedor, que deve suportar o imposto. A saída é inalterada. (Os morangos são um exemplo de curto prazo. A incapacidade repetida de vender a fruta resultará em menos crescimento na próxima temporada.) Demanda perfeitamente inelástica (Gráfico 2d). Se a demanda é completamente insensível ao preço, as pessoas insistem na mesma quantidade de produção, independentemente do que deve ser pago. (Exemplo: drogas adictivas. Os viciados que precisam de uma correção exigirão os medicamentos até a quantidade total de seus recursos). A curva de demanda é vertical e qualquer imposto será suportado pelos consumidores. A saída é inalterada. (Claro, isso é língua na bochecha. Um revendedor de drogas ilegais não é mais provável que colete e cumpra um imposto de venda hipotético do que ele deve denunciar seus lucros ilegais ao IRS sob o imposto de renda. Substituindo um imposto nacional de vendas pela O imposto de renda não eliminaria a evasão fiscal na economia subterrânea.) A base de impostos perfeita e não distorcida Os políticos procuram ansiosamente essas duas últimas situações de oferta e demanda perfeitamente inelétricas na busca da base de impostos perfeita. Não importa o quão alto eles possam empurrar o imposto sobre esse produto, a base de impostos não entraria em colapso e as receitas continuarão subindo. Em particular, os políticos gostam de acreditar que as curvas de demanda de cigarros, licores e jogos de azar são perfeitamente inelásticos. Eles estão errados, mas eles continuam empurrando as taxas de imposto de tabaco e álcool mais alto, esperando um milagre. Eles também ficam mesquinhos com os índices de pagamento nas loterias patrocinadas pelo estado. Neste caso, são aqueles que compram bilhetes de loteria que esperam um milagre. Em teoria, os governos podem reduzir as distorções econômicas e minimizar as perdas de peso morto, colocando as maiores taxas de imposto sobre os produtos ou insumos que estão na demanda ou na oferta mais inelásticos. O exemplo final de um imposto não distorcitivo seria um imposto principal ou imposto de votação que se devesse apenas por estar vivo e não está totalmente relacionado a nenhum lucro incremental ou a quantidade de onersquos atividade econômica. Tal imposto, no entanto, pode não passar no teste da citação, a menos que se possa demonstrar que todas as partes compartilharão a melhoria resultante na produção e na renda nacional. Carga econômica de um imposto especial de consumo O principal encargo econômico de um imposto especial de consumo seria encontrado ao levar a análise um passo adiante. Não são apenas os consumidores e os produtores do produto tributado que são afetados pelo imposto. Os recursos gerados pela produção dos itens tributados devem buscar emprego alternativo e, em geral, obterão retornos mais baixos nesses segundos melhores usos. Eles vão competir e afetar os recursos nesses outros usos. Por exemplo, as terras retiradas da produção de tabaco por causa de maiores impostos sobre cigarros podem ser usadas para produzir vegetais em vez disso, reduzindo o preço dos vegetais. Tanto os agricultores de tabaco deslocados quanto os agricultores de caminhões existentes que agora enfrentam concorrência adicional estão feridos, enquanto os consumidores de vegetais se beneficiam. O impacto do imposto pode mudar ao longo do tempo. Um novo imposto sobre o vinho pode simplesmente acertar as vinícolas inicialmente, porque suas videiras, fermentação de cubas e máquinas de engarrafamento ainda estão em vigor e ganharão mais em uso do que ser encerrado se as receitas reduzidas após impostos, pelo menos, cobrir os custos trabalhistas. Mais tarde, no entanto, as videiras podem ser desenterradas e a terra deslocada para outras culturas que agora produzem um retorno maior. A máquina pode desgastar e não ser substituída. À medida que a oferta cai, o imposto especial de consumo será transferido para consumidores a mais longo prazo. Eles terão que pagar mais por uma garrafa de vinho. Eles podem mudar alguns de seus gastos para outros bens e serviços, afetando outras indústrias. O capital humano pode suportar parte do custo. Se um imposto sobre o vinho faz com que uma vinha se converta em uvas de mesa ou abacates em crescimento, os trabalhadores da vinha podem ser mantidos para escolher e escolher as novas culturas se suas habilidades são transferíveis, elas enfrentarão poucos danos. Seria diferente para os especialistas técnicos responsáveis ​​pela fermentação, teste e degustação dos vinhos que eles não tenham uso alternativo para essas habilidades altamente especializadas, que se tornam redundantes. Esses especialistas que são forçados a outras ocupações perderão o salário premium de suas habilidades comandadas. As cavernas em que os vinhos foram armazenados e as encostas com microclimas especialmente adaptados à produção de vinho perderão sua vantagem e parte do aluguel que comandaram na produção de vinho. A necessidade de considerar essas ramificações em toda a economia e longo prazo, chamada de análise de equilíbrio geral, não é uma nova idéia na teoria dos impostos. A discussão clássica de Alfred Marshallrsquos sobre a incidência da tributação em seus Princípios de Economia é tão válida hoje como era há cerca de cem anos. Os impostos sobre os insumos são suportados em grande parte pelos fornecedores dos insumos se esses insumos não tiverem bons usos alternativos (oferta inelástica), mas são suportados em grande parte pelos consumidores do produto se as entradas forem facilmente transferidas para outros usos (fornecimento elástico). Um novo imposto imposto sobre o capital existente será suportado pelo capital no curto prazo, mas pode desencorajar a renovação do estoque de capital à medida que se desgasta, fazendo com que o imposto seja transferido para os consumidores no longo prazo (e para quaisquer outros insumos imóveis Isso teria funcionado com a capital perdida). Um imposto nacional pode afetar os produtores e consumidores do produto, mas um imposto local simplesmente levará os produtores a transferirem suas insumos para outra parte do país. Em palavras de Marshallrsquos: é um princípio geral que, se um imposto incidir sobre algo usado por um conjunto de pessoas na produção de bens ou serviços a serem descartados para outras pessoas, o imposto tende a verificar a produção. Isso tende a mudar uma grande parte do ônus dos impostos para os consumidores, e uma pequena parte para trás para aqueles que fornecem os requisitos deste conjunto de produtores. Da mesma forma, um imposto sobre o consumo de qualquer coisa é transferido em maior ou menor grau para trás em relação ao seu produtor. Por exemplo, um imposto inesperado e pesado sobre a impressão atingiria fortemente os envolvidos no comércio, pois se eles tentassem aumentar os preços, a demanda cairá rapidamente: mas o golpe suportaria de forma desigual em várias classes envolvidas no comércio. Uma vez que as máquinas de impressão e os compositores não conseguem facilmente encontrar emprego fora do comércio, os preços das máquinas de impressão e dos salários dos compositores serão mantidos baixos por algum tempo. Por outro lado, os edifícios e as máquinas a vapor, os porteiros, engenheiros e funcionários não esperariam que seus números fossem ajustados pelo lento processo de decadência natural à demanda diminuída, alguns deles seriam rapidamente no trabalho em outros negócios, E muito pouco do fardo permaneceria longo naqueles que permaneceram no comércio. Uma parte considerável do fardo, novamente, cairá em indústrias subsidiárias, como as que estão envolvidas na fabricação de papel e tipo porque o mercado de seus produtos seria reduzido. Autores e editores e bookellershellipwould sofrer uma pequena covarde. Se o imposto fosse apenas local, os compositores migrariam para além do seu alcance e os proprietários de impressoras poderiam ter uma maior parcela da carga do que aqueles cujos recursos eram mais acessíveis. Em seguida, suponha que o imposto seja cobrado sobre impressoras em vez de em material impresso. Nesse caso, se as impressoras não tivessem pressões semi-obsoletas que estivessem inclinadas a destruir ou a deixar ocioso, o imposto não atingiria a produção marginal: não afetaria imediatamente a saída de impressão nem o preço. Seria apenas interceptar alguns dos ganhos das impressoras no caminho para os proprietários, e diminuir as quase-aluguéis das prensas. Mas isso não afetaria a taxa de lucro líquido que era necessário para induzir pessoas a investir capital fluido em prensas: e, portanto, à medida que as impressões antigas desapareceram, o imposto aumentaria os gastos marginais. O fornecimento de impressão seria reduzido, o seu preço aumentaria: e novas pressões seriam introduzidas somente até a margem em que eles poderiam pagar o imposto e, no entanto, render lucros normais nos desembolsos. Quando este estágio foi atingido, a distribuição do ônus de um imposto sobre as impressas seria doravante o mesmo que o de um imposto sobre o chip de impressão.4 As tabelas de carga e as tabelas do Burundi de carga incluem o menos significativo de todos os conceitos acima. De incidência e ônus para alocar o impacto dos impostos especiais de consumo. As tabelas de carga assumem que todos os impostos especiais de consumo, sejam eles considerados consumidores ou impostos de impostos, são pagos integralmente pelos consumidores dos produtos (conforme o conceito de obrigação legal de um imposto de nível de consumidor). O quotdistributionquot do imposto em todos os níveis de renda é calculado tomando o valor médio gasto no produto por pessoas em várias classes de renda brutas ajustadas, com a taxa de imposto. As tabelas ignoram a divisão entre produtores e consumidores que deve ocorrer em qualquer mercado com elasticidades normais. Além disso, eles olham apenas as receitas coletadas, t x Q1, e ignoram a perda de peso morto, de modo que, mesmo ignorando a divisão, eles não medem corretamente a incidência inicial total. Um analista de impostos especiais de consumo no JCT ou no Tesouro usará as elasticidades de longo prazo da demanda e do fornecimento para o bem tributado para estimar a eventual mudança no consumo (a queda de Q0 para o primeiro trimestre) e estimará a receita fiscal que o Tesouro receberá No novo nível reduzido de consumo. Ao construir uma tabela de carga, ele atribuirá toda a incidência do imposto aos consumidores. No entanto, o analista não assumirá nenhuma perda na produção total ou eficiência para a economia como um todo, e sem perda de receita de outros impostos, porque ele assume que os recursos expulsos da produção taxada são bons encontrar empregos alternativos em ganhos praticamente inalterados. Ele ignora qualquer mudança do fardo econômico para os produtores, uma vez que os recursos são transferidos para usos alternativos e de menor remuneração. A análise da tabela de carga obtém tanto o total como a distribuição de impostos especiais de consumo errado, exceto no caso extremo de um produto em demanda absolutamente inelástica. IV. Estendendo a Análise: Imposto de renda e folha de pagamento sobre capital e mão de obra O mesmo tipo de diagrama pode ser aplicado a qualquer imposto. O imposto pode ser um imposto de vendas geral, ou uma folha de pagamento ou imposto de renda pessoal sobre salários ou sobre a renda do capital, ou o imposto sobre o rendimento das pessoas colectivas. No caso de um imposto sobre a renda do trabalho, o preço se torna o salário, e a quantidade se torna o horário trabalhado ou o nível de emprego ou alguma outra medida dos serviços de trabalho. No caso dos serviços de capital, o preço se torna a taxa de retorno sobre o capital e a quantidade é o montante dos serviços de capital a partir do estoque de instalações, equipamentos, estruturas e terrenos. A demanda por mão-de-obra e capital reflete o valor para o empregador de usar unidades adicionais de mão-de-obra e capital. A saída adicionada obtida empregando mais um trabalhador ou máquina é o produto quase mercantil do produto ou o produto quotmarginal do capital. quot Os tempos de saída física adicionados pelo preço que ele vende (produto de valor marginal) é o máximo que uma empresa pagará para contratar um Trabalhador adicional ou pagar pelos serviços de uma máquina ou edifício adicional. À medida que mais um fator é adicionado, outros fatores são constantes, a produção sobe, mas a uma taxa decrescente. Este é o quotlaw famoso dos retornos decrescentes. O declínio gradual nos produtos marginais do trabalho ou do capital como mais de um deles é empregado é por isso que a demanda curva para que os fatores se inclinem para baixo. Os Gráficos 3 e 4 ilustram as condições de oferta e demanda geralmente assumidas para entradas trabalhistas e de capital amplamente definidas, respectivamente, e os diferentes efeitos que se poderia esperar de tributar esses fatores. O fornecimento de mão-de-obra. O fornecimento de mão-de-obra é bastante inelástico. Na década de 1950 e 1960, era de opinião que o fornecimento de mão-de-obra era perfeitamente inelástica em relação ao salário (ou salário pós-imposto). Ou seja, os trabalhadores não modificaram muito sua oferta de mão-de-obra em resposta a mudanças no salário após impostos. O pensamento era que os machos adultos eram a maior parte da força de trabalho, e, como suas famílias, eram únicos patrocinadores de família, eles estavam muito ligados à força de trabalho. Além disso, eles eram geralmente funcionários de empresas ou outras empresas que definiam suas horas, o que lhes conferia praticamente nenhuma opção senão trabalhar uma semana de 40 horas, a menos que houvesse horas extras, que normalmente eram obrigatórios, ou estavam dispostos a assumir o segundo emprego. Com capacidade limitada para variar suas horas trabalhadas ou participação na força de trabalho, esses trabalhadores foram assumidos como suportando os impostos impostos sobre o trabalho, incluindo o imposto sobre o rendimento e todo o imposto sobre a folha de pagamento, tanto o empregado quanto o empregador compartilham. Esta é a convenção ainda usada nas tabelas de carga. Ao longo do tempo, a maioria das mulheres casadas e muitos adolescentes entraram na força de trabalho, e um número crescente de quotretireesquot ocupou empregos de meio período. Muitos desses trabalhadores estão menos ligados à força de trabalho do que os homens de idade média. Desde os anos 80 e 90, uma maior parte da força de trabalho tornou-se trabalhadora independente ou procura trabalhar a tempo parcial. Esses trabalhadores têm muito mais flexibilidade para definir suas próprias horas e exibir um apego menos rígido à força de trabalho do que os homens adultos. Além disso, como os casais de dois países se tornaram a norma, os homens tiveram mais oportunidades de trabalhar menos, cortesia de seus rendimentos de mulheres. Embora os homens tenham trabalhado menos quando a renda familiar aumentou, o casal pode ter trabalhado mais, juntando os dois esforços dos cônjuges. Deve-se esperar uma maior elasticidade para os trabalhadores de renda superior, cuja renda e riqueza lhes conferem flexibilidade adicional para alterar suas horas, mantendo um alto padrão de vida. As estimativas de consenso modernas da elasticidade da força de trabalho, embora ainda baixas, geralmente não são zero. Por exemplo, uma pesquisa de 65 economistas trabalhistas produziu estimativas da elasticidade da oferta de trabalho para homens de 0,1 (estimativa média) e zero (estimativa mediana). Para as mulheres, a pesquisa forneceu estimativas de 0,45 (média) e 0,3 (mediana) .5 Demanda por trabalho. A demanda por mão-de-obra é moderadamente elástica. Sua grande parcela da renda nacional é uma despesa importante para os empregadores, e o produto marginal do trabalho diminui gradualmente à medida que a força de trabalho aumenta. Até certo ponto, o capital pode ser substituído por mão-de-obra se os custos da mão-de-obra aumentarem. Existe também a possibilidade de transferir a produção de mão-de-obra intensiva no exterior para aproveitar os menores custos trabalhistas se a mão-de-obra estrangeira for suficientemente produtiva para fazer a diferença nos custos unitários da mão-de-obra. A oferta de capital. O fornecimento de capital é altamente elástico. O capital físico (equipamentos mais estruturas industriais, comerciais e residenciais) pode ser facilmente reproduzido ou expandido (dado um pouco de tempo). Além disso, os investidores parecem dispostos a construir e empregar plantas, equipamentos e prédios adicionais sempre que a taxa de retorno ajustada ao risco pós-imposto aproxima-se de cerca de 3% (novamente, dado um pouco de tempo) .6 Dito de outra forma, os poupadores financiarão prontamente (buy claims to the earnings of) capital assets at about a 3 percent after-tax risk-adjusted rate of return, substituting additional saving for additional consumption. Thus, the supply of investment goods and the supply of saving to pay for it are both fairly elastic over time. Conversely, when rates of return on physical capital fall below that level, old assets are not replaced when they wear out. Investors and savers use a bit more of their income for consumption instead, which is, at the margin, virtually as attractive as the foregone investment. The Demand for Capital. The demand for capital is fairly elastic because the marginal product of capital declines only gradually as the stock increases. Years of real-world observations suggest that it takes a significant rise in the quantity of capital and the capital-to-labor ratio to depress returns and discourage further investment. Incidence of taxes on labor and Capital Incidence of labor Taxes. The relatively elastic demand for labor, coupled with the assumption of a highly inelastic supply of labor, means that labor bears most of the initial economic incidence of taxes on labor income. It has become common to assert that all taxes on labor income fall on the worker, including the employersrsquo share of the payroll tax, the employeesrsquo share of the payroll tax, the unemployment compensation tax, and the portion of the income tax that falls on wages and salaries. However, the modern workforce is seen to display some elasticity of supply and to that extent, it must be assumed that workers will respond to higher tax rates by taking more leisure, and the quantity of labor supplied would fall. A reduced workforce would lower the productivity of the capital stock, suggesting that some of the ultimate burden of a tax on labor would fall on capital owners. (Just as the productivity of a given number of workers is enhanced if they have more capital to work with, the productivity of a given amount of capital is enhanced if there are more workers, particularly more skilled workers, to utilize it. Conversely, if fewer skilled workers were available, the productivity of capital would decline. Think of what would happen to the earnings of the fifth truck at a small trucking company if one of the five truck drivers called in sick.) However, the capital stock may contract in response to a drop in its productivity and rate of return in order to restore its former rate of earnings (see below), which would shift the burden back onto the work force. Incidence of taxes on Capital Income. The incidence of a tax on capital income depends greatly on the time frame. Physical capital cannot disappear overnight (in the event of a tax increase), and it takes time to add to the stock of plant, equipment, and buildings (in the event of a tax reduction). Immediately after a tax increase is imposed on businesses or savers, their after-tax returns on old assets would be depressed. Financial market adjustments would come swiftly. Bond and stock prices would fall, restoring after-tax returns for new buyers and forcing new borrowers to offer higher interest rates and rates of return to new investors. Over time, investors in physical capital can adapt. The high long-run elasticity of supply of capital suggests that a tax imposed on capital will reduce the capital stock until the gross return rises to cover the tax, leaving the after-tax return about where it was before the tax was imposed. Because of the high elasticities of supply and demand for capital, the reduction in the capital stock may have to be substantial to increase its return by enough to cover the tax. As a result, taxes on the earnings of capital assets or on saving may result in sharp reductions in the stock of capital available for production. Downward adjustments in the physical capital stock may take time because capital takes some years to wear out. Eventually, the reduction in the capital stock (or slower than normal growth) will bring it back into balance with the growth in demand for capital associated with population growth. Adjustment to an adverse shock may take a few years for equipment, a decade or two for structures. (For example, in the 1988-1990 period, Japan instituted an quotanti-tax reformquot that sharply raised taxes on capital income, including interest and capital gains from stocks, and increased taxes on buildings and land. The result was a particularly severe economic shock that not only affected the returns to physical capital but threw much of the Japanese financial sector into chaos as stock and land prices plunged. It has taken nearly 15 years to sort out the mess. Most shocks are not that severe, and most adjustment periods are not that long.) Positive shocks may be easier to deal with. New equipment can be ordered and placed in service in a few months, new housing constructed within a few quarters, and new commercial or office buildings put up within two or three years. Implications of Incidence for the Tax Base The differences in the elasticities of supply and demand for labor and capital suggest that a tax imposed evenly on labor and capital income will reduce the stock of capital by more than the quantity of labor supplied. (Compare Charts 3 and 4.) Such a tax is more distorting of economic behavior than a tax imposed chiefly on labor income. This suggests an economic advantage from moving away from the so-called broad-based income tax, which actually taxes income used for saving and capital formation more heavily than income used for consumption, to various taxes that are saving-consumption-neutral.7 Such neutral taxes are often labeled as consumption-based or consumed-income-based and are often, somewhat erroneously, described as taxing labor and exempting returns on capital income. These taxes do, in fact, tax quasi-rents and other abnormal returns to capital that exceed the cost of the saving required to obtain the assets. One argument against major reform of the tax system (moving to a saving-consumption-neutral tax) is that, if labor is truly in highly inelastic supply, sweeping tax rate reductions would do little to boost labor force participation and hours worked and would have only limited economic benefits. Advocates of the tax status quo, or of higher tax rates on upper-income workers, should be careful in making such arguments. A highly inelastic supply of labor would also mean that there is a relatively small reduction in employment from taxes on labor income at all levels, which would make such taxes relatively non-distorting of economic activity. In theory, for those public finance graduates who put great stock on avoiding quoteconomic distortionquot and maximizing quoteconomic efficiency, quot this should make labor income the ideal tax base. One suspects, however, that people who oppose fundamental tax reform proposals on the grounds that they may appear superficially to be regressive and shift the tax burden from capital income to labor income would not favor heavy taxes on labor income as an alternative. The Ultimate Burden: Further Tax Shifting in a General Equilibrium Framework labor and Capital: Complements More than Substitutes. Output and incomes are at their highest when optimal amounts of labor and capital work together to create the goods and services on which consumers place the greatest value. Depending on the production process, there may be some room to substitute labor for capital (or vice versa) or to substitute skilled labor for unskilled labor. For the economy as a whole, however, and in most situations, the various skills and talents of the workforce, managers, and entrepreneurs and the services of various types of capital are complements in production, not substitutes. That is, the more there is of any one type of factor, the higher will be the productivity and incomes of the other factors that work with it and gain from its presence. If there is more capital for labor to work with, wages rise. If an increase in the skilled work force makes capital more productive, the returns on capital go up. taxes Matter quotat the Margin. quot taxes affect the willingness of labor and capital to participate in production or, put another way, taxes affect the cost of labor and capital services, and therefore the cost of production. Supply decisions are not usually all or nothing. One chooses to work a little bit more or less, or to save a little more or less, or to employ a slightly higher or lower number of machines, or slightly more or less powerful or modern ones, on the factory floor. The tax rates that affect such decisions are the marginal tax rates that apply to the last or next dollar to be earned from small reductions or increases in onersquos economic activity. taxes that fall at the margin on incremental activity reduce the quantity of resources available for production. With fewer inputs, there will be less output and income, according to the characteristics of the production process. Lump-sum taxes, such as a head tax, involve a fixed dollar amount owed regardless of income, and so have no impact on decisions about increasing onersquos earnings. Likewise, one-time retroactive tax hits do not apply to future income, although they may make taxpayers suspicious that they will be repeated. Such taxes are not quotat the margin, quot meaning that they do not affect the last or next dollar earned, and are the only kind of tax that does not reduce incentives and curtail activity. Similarly, rebates of taxes on income of past years, such as President Gerald Fordrsquos 1975 tax rebate on 1974 income tax liability, give no incentive to increase output in the future. Taxing One Factor Hurts the Other. If a tax falls quotat the margin, quot it depresses the reward to the taxed factor of production, and less of that factorrsquos services will be offered and employed. Because there is less of that input, all the other factors that work with it suffer a loss of productivity and income. They, too, bear some of the burden of the tax. For example, a tax that reduces the quantity of capital lowers the wages of labor. labor thus bears much of the burden of the tax on capital. (See Chart 5.) Taxing Capital Hurts labor a Lot. Insofar as some inputs are more affected by the taxes than others, they may withdraw their services to a greater or lesser extent than others do. As some inputs withdraw heavily from the market, their relative scarcity affects the productivity, employment, and income of other productive inputs with which they would normally work. Because capital is more sensitive to taxation than labor, a tax on capital will have a relatively large adverse impact on the quantity of capital, which will then cause a relatively large drop in the marginal product and compensation of labor. taxes on labor hurt capital as well, but because labor is less elastic in supply and withdraws less from the market, the effect is less pronounced. Consider a small trucking company with five vehicles. Suppose that the rules for depreciating trucks for tax purposes change, with the government demanding that the trucks be written off over five years instead of three. The owner has had enough business to run four trucks flat out and a fifth part-time. He is barely breaking even on the fifth truck under old law. It is now time to replace one of the trucks. Under the new tax regime, it does not quite pay to maintain the fifth truck. The owner decides not to replace it, and his income is only slightly affected. But what happens to the wages of the fifth truck driver If he is laid off, who bears the burden of the tax increase on the capital Consider another example, involving human capitalmdashspecifically, medical training. Suppose the imposition of a progressive income tax were to discourage the supply of physicians by inducing some doctors to retire, by causing others to work fewer weeks per year, and by dissuading people from applying to medical school. One result would be fewer Jobs available and lower levels of productivity and incomes for nurses and support staff in medical offices and hospitals. Another would be a rise in the price of health care for consumers (including the government). For example, assume that four doctors have been operating separate practices in a large town. Each has been taking off o Such effects may seem small or unlikely at curshyrent tax rates, but they are certainly pronounced when tax rates are very high. Historical examples abound. The 1954 tax overhaul in the United States did little to reduce the top World War II tax rates. The top rate went from 92 percent to 91 pershycent, where it remained until the Kennedy tax rate cuts, which lowered the top marginal rate in stages to 70 percent in 1964 and 1965. President Ronald Reagan often remarked that at such extreme tax rates, it did not pay him to make more that one or two movies a year. There were obvious adverse effects on the U. S. labor markets from the inflashytion-induced bracket creep of the 1970s, which pushed marginal tax rates higher across the board. The top tax rate in Britain before Margaret Thatchers reforms in 1979 was 98 percent. The infamous British brain drain was one result.8 In short, taxes on capital reduce the wages of labor taxes on labor reduce the rates of return on capital (at least in the short run, until the capital stock shrinks) taxes on certain types of labor reduce the wages of other types of labor taxes on certain types of capital reduce the returns on other types of capital. The repercussions of a tax on one factor of production on the income of other factors, or of a tax on one sector of the economy on other sectors, are general equilibrium effects. They occur outside of the immediate market for the factor or product being taxed and represent impacts that go beyond the initial economic incidence of the tax. Such effects are part of the ultimate economic burshyden of the tax and represent some of the shifting of the tax burden from the taxed factors or products to other factors and sectors. Implications of Burden Shifting for the Tax Base Even for labor, the Optimal Tax on Capital Is Zero. Several studies in the economic literature illustrate that a zero tax rate on capital income would raise the after-tax income of labor, in present-value terms, even if labor must pick up the tab for the lost tax revenue. That is, a tax on capital is effectively shifted to labor, which pays more than the full value of the tax. In a 1974 paper,9 Martin Feldstein explored the consequences of a variable capital stock for the distribution of the tax burden. Previous studies that generally assumed no change in the capital stock had concluded that the burden or benefit of a tax increase or decrease on capital was borne by capital. (See the discussion of the corporate income tax, below.) Feldstein showed the imporshytance of allowing for the capital stock to vary. Feldstein assumed the tax on capital income was eliminated and that on labor was increased in a revenue-neutral manner. He then looked at the least favorable case for labor, in which people were either savers who had no wage income or workers who did no saving. In a statutory obligation or burden table or static sense, the savers would enjoy all of the benefit from the initial tax cut on capital income. All workers would face an initial tax increase on wages equal to the dollar amount of the tax cut on capital. However, Feldstein argued, cutting the tax on the savers would enable them to save more, at the given propensity to save that they display, by leavshying them more after-tax income. The added saving would cause the capital stock to rise to a new equishylibrium level at which the added saving was just sufficient to cover the added depreciation so as to maintain the incremental stock. At the higher capital-to-labor ratio, the producshytivity of labor and the wage would both be higher (Chart 5 in reverse), leaving the workers with higher gross wages and more after-tax income in the steady state despite the higher tax rate on wages. Feldstein showed that, under plausible assumptions, the present value of the increase in future after-tax wages due to the rise in gross wages would be greater than the near-term reducshytion in after-tax wages due to the rise in the tax rate on wages. Workers would be better off in present-value terms with no taxation of capital. A 1986 study by Christophe Chamley showed that the optimal tax rate on capital is zero in the long run under a narrow set of assumptions, including a fixed growth rate not affected by taxes, a closed economy, and identical consumers living infinite lives.10 Many other studies on the shifting of taxes on capital to labor have expanded on this work by easing a number of Feldsteins and Chamshyleys restrictions and using different types of modshyels, showing it to be a more general proposition.11 For example, a 1999 study by Andrew Atkeson, V. V. Chari, and Patrick J. Kehoe demonstrated that Chamleys result holds under greatly relaxed assumptions, including heterogeneous consumers in overlapping generations, an open economy, and a growth rate that is affected by taxes.12 Speed of Adjustment Is Critical. The results in many of these studies are sensitive to the speed of adjustment of the capital stock. In a 1979 paper,13 Professor Robin Boadway questioned the conclusion that labor would gain in present value by eliminating the tax on capital. He suggested that a low elasticity of saving could slow the rise in the capital stock and delay the expected rise in after-tax incomes. If the added capital formation took long enough, the higher tax rate on labor in the not-so-short short run would then outweigh, in present value, the rise in after-tax incomes in the long run, and workers would be worse off. Similarly, a rise in the tax on capital and a reducshytion in the tax on labor might make labor better off for many years before the reduction in the capital stock lowered workers before - and after-tax wages by enough to make them worse off in present value. Boadway suggested that labor might gain from a tax on capital for as long as 65 years before the steady state was reached. Many of these presentations involve stylized models of a highly simplified economy or populashytion. They achieve the change in national saving and the capital stock solely on the basis of mechanically moving disposable income from those who do not save to those who do, at conshystant propensities to save (fixed rates of saving out of labor and capital income), and let the change in saving, which is only a fraction of the shifted income in this approach, determine the change in the capital stock. By contrast, in the real world, a tax change affects the cost of capital and the returns to saving, which in turn alter the desired capital stock and level of saving. These changes in saving and the capital stock can be much larger than the dollar amounts of the tax change. N. Gregory Mankiw has illustrated this mechanshyical type of model in a paper aptly titled The SavshyersSpenders Theory of Fiscal Policy.14 Such models generally assume a closed economy (not open to trade and international capital flows), limshyiting the supply of saving available to boost domestic investment. Most assume their elasticishyties without deriving them from a general equilibshyrium model tested against actual experience. Hence, they cannot be considered robust pictures of the real world. These studies, of which the Boadway study is a good example, produce unduly pessimistic estimates of the length of time it takes to increase the capital stock following a reduction in the tax rate and of the amount by which the capital stock would rise. Reality Check. Traditional economists are used to thinking in terms of a fairly constant propenshysity to save and an inelastic supply of saving. They may be skeptical that the quantity of domesshytic saving can increase by enough to allow for a strong burst of capital formation needed to bring about a rapid adjustment of the capital stock to a tax shock. Their focus on the channels by which the needed investment is financed is misplaced. They should look first at the speed of adjustment in the historical record of the real world and then worry about how it happens rather than declaring an observed phenomenon to be impossible.15 How rapidly the economy will invest or disinshyvest to reach the new equilibrium level of capital depends on several factors, such as the elasticity of saving with respect to the rate of return, the ease with which existing saving flows can be redirected across national borders, the elasticity of the global supply of investment goods and their resulting cost, and the rate at which existing capital wears out (in the case of disinvestment). Although these sources of financing and the production streams of physical capital are flows, they are part of a complex stock adjustment process. One could try to imagine or to measure separately how flexible these flows may be. Alternatively, one could review the changes in the capishytal stock that have occurred in the past following shocks to the after-tax rate of return. The latter approach gives an important reality check. If adjustment of the capital stock has proceeded more rapidly in the past than can be accounted for by the flows of saving and investment preshydicted by some current models, then there may be additional or deeper channels for capital flows in the real world that are not recognized by the models. Its fine in practice, but it will never work in theory. is an indictment of the theory, not of the real phenomenon. Rapid Adjustment of Capital Is the Norm. How fast the capital stock adjusts, which is to say how quickly the return on capital is restored to normal levels after a shock, is really an empirical question, not a theoretical one. Many events, such as technological change, a shift in tax policy, or a shift in inflation, can change the expected returns on capital investment or alter the user cost of capishytal. The result will be a shift in the desired stock of capital, toward which the economy will move over a number of years. Are changes in the rate of return to capital merely consequences of business cycles, or are they independent factors that drive savers and investors to adjust the size of the capital stock to conform to new economic conditions, causing changes in the rate of investment that generate business cycles Gary Robbins of Fiscal Associates and the Heritage Foundation Center for Data Analshyysis has plotted after-tax rates of return to business capital over time. He finds that the movements in the return to capital, in the desired capital stock, and in the resulting swings in investment activity are seen to lead the business cycle up and down. They are therefore most likely to be a cause, not a result, of the business cycle. (See Chart 6.) Robbins also finds that the rates of return have tended strongly to remain in the neighborhood of 3 percent. Between 1956 and 2000, the four-quarter moving average rate averaged 2.76 percent and was within half a percentage point of this average 60 percent of the time. Not only do the returns on capshyital remain within a fairly narrow band over time, but they tend to revert to the band fairly quickly. This implies that, each time there was a major shock to the rate of return, whether traceable to tax, inflation, or technological changes, the quantity of capital has adjusted rapidly and the rate of return was restored soon to its long-run average.16 Robbins has tested the speed of adjustment by running regressions looking at implied desired stocks versus the actual deliveries of capital using various distributed lags. He finds that roughly half of the investment in equipment and structures needed to move to the new desired capital stock will occur in the first three years following the shock and that nearly all of the adjustment is completed within five to 10 years (with structures taking a bit longer than equipment). If the bulk of the increase in the capital stock occurs in the first decade following the tax change, as Robbins has found by looking at historishycal experience, then the case for eliminating the tax on capital is quite strong. An Open economy and Flexibility of Saving Speed the Adjustment of Capital. The observed stability in the real after-tax rate of return in the United States and the speed of adjustment of the capital stock to shocks make sense because, in a global economy, the risk-adjusted rate of return in any sub-region should be kept in rough alignment with global returns. Put another way, the size of the capital stock in any one country is sensitive not merely to the innate desired rate of return that humans display (the marginal rate of time prefershyence), but also to its relative rate of return comshypared to that available on capital abroad. The elasticity of the capital stock in a region is much higher than for the world as a whole. In a closed economy, net national saving (net of government dissaving) equals private investment, and the speed of adjustment to a new desired equilibrium capital stock following a shock is limshyited by the change in the national saving rate. In the case of a tax change in the closed economy, the change in national saving and investment will depend on the immediate effect of the tax change on the government deficit (which is the only effect considered in fixed-GDP static analysis used by government officials) and on the subsequent dynamic effects of the tax change on the nations own domestic private saving, investment, and income, which in turn depends on the elasticity of domestic saving and investment with respect to the after-tax rate of return. However, the limitation imposed by the flexibility of own-country saving does not hold in an integrated world economy with international capital flows. In todays world, it would be a great mistake to assert that the progress of any one nation toward a new equilibrium capital stock following a tax or technological change is limited by its own saving elasticity or by the static tax-induced change in its own national saving rate. Changes in the flow of capital across national borders can have a major impact on the speed of adjustment. For example, following the major tax and monetary policy changes of the early 1980s, new U. S. bank lending abroad dropped from roughly 120 billion in 1982 to under 20 billion in 1984. The drop in U. S. capishytal outflow of 100 billion more than covered the 19821984 change in the government deficit folshylowing the 1980 and 19811982 recessions and the 1981, 1982, and 1984 tax changes. The shift to domestic lending was large enough to finance a large portion of the increase in private investment in the first half of the decade. In addition, the private savshying rate increased. There was only a modest rise in foreign capital flows to the United States in that period. (They rose further later in the decade). Longer time horizons reinforce the importance of international capital flows and of how a nation treats foreign investment. From the first Spanish and English settlements in Florida (St. Augustine, 1565) and Virginia (Jamestown, 1607) until World War I, a period of over 300 years, the region that became the United States experienced a massive inflow of population and capital from Europe, Africa, and Asia. The capital inflow allowed the country to run current account deficits for most of that period. (There was a brief period of current account surplus for about a dozen years after the Civil War, when the U. S. was deflating and importing gold to restore the dollar to the gold standard at the pre-war parity. Being money, the gold inflow was not considered an import. If gold were treated as a commodity, even these surpluses might have been deficits.) Much of the investment in the early U. S. canals, railroads, and industry was financed by foreigners. International capital flows are not a new phenomenon. Neither is awareness of the implications of an open economy for the stock of capital, the wages of labor, and the revenues of the state. Adam Smith laid out the case for treating capital with kid gloves in The Wealth of Nations : The proprietor of stock is properly a citizen of the world, and is not necessarily attached to any particular country. He would be apt to abandon the country in which he was exposed to a vexatious inquisition, in order to be assessed to a burdensome tax, and would remove his stock to some other country where he could either carry on his business, or enjoy his fortune more at his ease. By removing his stock he would put an end to all the industry which it had maintained in the country which he left. Stock cultivates land stock employs labor. A tax which tended to drive away stock from any particular country would so far tend to dry up every source of revenue both to the sovereign and to the society. Not only the profits of stock, but the rent of land and the wages of labour would necessarily be more or less diminished by its removal.17 In addition to the international flow of capital, one must consider the willingness of savers to increase saving at the expense of consumption and to alter their investment plans as conditions change. Since Michael Boskins 1978 paper on savshying and after-tax returns, people have been a bit more willing to concede some flexibility in saving behavior.18 Does Atlas Shrug . edited by Joseph Slemrod, contains a number of interesting studies describshying the taxation of the rich and their responses.19 In Chapter 13. Entrepreneurs, Income taxes, and Investment. authors Robert Carroll, Douglas HoltzEakin, Mark Rider, and Harvey S. Rosen explored the effect of changes in marginal tax rates on the investment behavior of entrepreneurs. They found that a five-percentage point rise in marginal tax rates would reduce the proportion of entrepreshyneurs who make new capital investments by 10.4 percent. Further, such a tax increase would lower mean capital outlays by 9.9 percent. They add. the magnitudes of the estimated response are quite substantial. Our response to the question posed by the title of this volume is that these parshyticular Atlases do indeed shrug.20 Progressive taxes on Human Capital May Also Hurt labor, and a Flat Rate Tax May Be Best. People with particularly high levels of human capital earn returns well above those available to ordinary labor. They may have special talents, such as athletes and entertainers. They may be people with an unusual ability and willingness to make decisions and manage risk, such as successful entreshypreneurs. They may be people who have acquired advanced educations and skills. Such people are among the highest paid people in the country. They earn more, but they also face higher average and marginal tax rates than most workers. Because labor is not homogeneous and there are significant differences in the skill mix across the population, the relative amounts of skilled and unskilled labor can make a difference in the wage rates earned by each group. Taxing the earnings of people with significant human capital at higher rates than ordinary labor may prove to be countershyproductive to workers, just as excessive taxation of physical capital appears to be. If people with sigshynificant human capital withdraw that capital from the market due to high tax rates, the productivity, wages, employment, and incomes of other people who would have worked with them may be lowshyered. The tax on the personal service income of the highly compensated is then shifted to other workshyers and factors.21 Some studies indicate that high-income workers do not seem to reduce work effort in the presence of high tax rates. Several reasons are offered. Upper-income individuals may receive some of their compensation in the form of psychic perks rather than financial rewards. The tax may be avoided by changing the method of compensation. The tax may be shifted to other factors. Psychic perks might include the power and presshytige that are associated with prominent positions in business, sports, or entertainment. These perks are unaffected by high tax rates. Economist Henry Simons, godfather of the progressive income tax, offered this as a justification for not fearing adverse consequences from steeply progressive taxation. Simons dismissed the concern that highly skilled workers or entrepreneurs would cut back on their efforts very much simply because they were taxed, on the grounds that their Jobs were interesting. Our captains of industry are mainly engaged not in making a living but in playing a great game. and that the status and power attached to these Jobs were rewards enough to encourage continued effort.22 This cavalier assumption cannot hold, however, when highly progressive rates reach down to tens of millions of small-business owners and professional couples in the middle class. High tax rates can sometimes be avoided by employing alternative forms of financial compenshysation that allow the recipients to defer the high tax payments, as with pension plans, or by taking them in a form, such as capital gains or stock options, that is subject to a lower rate of taxation and which also have a deferral feature. There has been a surge in stock options as a form of compenshysation in recent years, spurred in part by the 1993 Tax Act. That Act raised the top marginal tax rates to 36 percent and 39.6 percent from 31 percent. It also decreed that executive salaries in excess of 1 million would be non-deductible business expenses, apparently in a misguided effort to disshycourage inequality across the wage scale and to punish corporate boards perceived as being too generous to top management. To the extent that the marginal product of the affected senior manshyagement justified the higher salaries, the meddling of the law reduced economic efficiency and equity rather than enhancing it. The options explosion, however, altered incentives for senior management and has been blamed for some recent corporate scandals which, though small in number, have been rather spectacular. Another reason that the rich may not appear to be stampeding into retirement may be that they are able to shift the tax to other factors. Such peoshyples human capital and talents may be in someshywhat inelastic demand. If so, with only a small change in their numbers, they may be able to trigshyger higher compensation to cover their higher taxes. The burden of the tax would shift to other workers and consumers without the appearance of a large reduction in the hours worked of the rich. In a typical production function, a small distinct factor of production would typically have a smaller elasticity of demand than larger or more readily substitutable factors. As highly paid as some CEOs are, their compensation is generally a small pershycent of a businesss total costs, and their knowlshyedge of the business and ability to run it at maximum efficiency may be very hard to replace, at least in the short run. Their administrative or inventive talents, however, may be transferable to other applications, and they may be more mobile, across companies or across borders, than ordinary labor. This would suggest a further ability to shift taxes to other factors. Neutrality and Economic Efficiency Versus Income Redistribution Neutral Tax Systems Maximize Income. The potential damage to ordinary labor from excessive taxation of capital, both physical and human, is significant. It suggests that a saving-consumption neutral tax with a flat rate would serve every type of economic actor better than the current tax sysshytem, which includes the graduated comprehensive personal income tax, the corporate income tax, and the estate and gift taxes. The alternatives might include a saving-deferred income tax,23 a national retail sales tax, a value-added tax (VAT),24 a returns-exempt Flat Tax,25 or some combination. The more familiar comprehensive or broad-based income tax in use today taxes most income as it is received, including income used for saving, and taxes the returns on saving as soon as they accrue (except for capital gains, which can be deferred until realized). Such taxes fall more heavily on income used for saving than for conshysumption. The tax bias against saving is made worse by imposing an add-on corporate tax and transfer (estate and gift) taxes.26 Any justification of the comprehensive or broad-based income tax and the additional corporate and death duties must rely on significant non-economic social benshyefits because these taxes impose high economic costs, including reduced incomes across the board. Redistribution Lowers Total Income and Can Hurt Those It Is Designed to Help. Early advoshycates of redistributionist tax systems acknowledged some of the costs. Professor Henry Simons was one of the most influential early advocates of the broad-based income tax. Simons and Professor Robert Haig defended the use of a definition of taxable income that includes both income saved and the subsequent returns on the saving, including capital gains, interest, and dividends (basically, ones income was defined as equal to current consumpshytion plus the increase in ones wealth during the year). This tax base is sometimes described as the increase in the ability to consume. It results in a tax that is not saving-consumptionneutral that is, it falls more heavily on income used for saving than consumption.27 Since the rich save more than the poor, taxing saving more heavily than consumption is assumed to be progressive. Simons also favored making the marginal tax rate structure graduated (higher tax rates imposed on incremental taxable income as it exceeds specified levels) to further increase the progressivity of the system. The pure HaigSimons definition of income did not allow for a corporate tax in addition to the individual income tax, however, because that would have been an additional layer of double taxshyation. The professors would have preferred an integrated tax structure that passed corporate income on to shareholders for taxation as it was earned, but were thwarted by practical impedishyments. Even for these redistributionists, the degree of double taxation and distortion inherent in an add-on corporate income tax went too far. Professor Simons was well aware that the twin distortions of the tax base and the rate structure inherent in the income tax could lead to a drop in saving, investment, and national income. Thereshyfore, he knew of the possibility of adverse shifts in the tax burden due to heavy taxation of capital income and progressivity. In his magnum opus, Personal Income Taxation . Simons wrote: The case for drastic progression in taxation must be rested on the case against inequalityon the ethical or aesthetic judgment that the prevailing distribution of wealth and income reveals a degree (andor kind) of inequality which is distinctly evil or unlovely. The degree of progression in a tax system may also affect production and the size of the national income available for distribution. In fact, it is reasonable to expect that every gain, through taxation, in better distribution will be accompanied by some loss in production. If reduction in the degree of inequality is a good, then the optimum degree of progression must involve a distinctly adverse effect upon the size of the national income. But what are the sources of loss, these costs of improved distribution There are possible effects (a) upon the supplies of highly productive, or at least handsomely rewarded, personal services, (b) upon the use of available physical resources, (c) upon the efficiency of enterpriser activity, and (d) upon the accumulation and growth of resources through saving. Of these effects, all but the last may be regarded as negligible.28 As mentioned above, Simons dismissed the conshycern that highly skilled workers or entrepreneurs would make less effort if highly taxed because they found their Jobs interesting. Simons took more seriously the possibility that saving and investshyment would suffer from his policy prescription: With respect to capital accumulation, however, the consequences are certain to be significantly adverse. It is hardly questionable that increasing progression is inimical to saving and accumulation. That the net effect will be increased consumption hardly admits of doubt.29 Simonss remedy was not to do away with proshygressivity, but to offset its effect on saving by runshyning federal budget surpluses: The contention here is not that there should be correction of the effects of extreme progression upon saving but that government saving, rather than modification of the progression, is the appropriate method for effecting that correction, if such correction is to be made.30 The assumption that the government virtuously would run large budget surpluses to make up for the anti-growth consequences of a biased and proshygressive tax system has proven to be utterly naive. Furthermore, a budget surplus cannot make up for the adverse effects that high corporate or individshyual tax rates and unfriendly capital cost recovery allowances have on the present value of after-tax cash flow from an investmenta calculation that any business school graduate will undertake in deciding on the feasibility of an investment project. Thus, even an offsetting budget surplus would not prevent a reduction in the equilibrium capital stock from a reduction in the marginal return on investment. Professor Alfred Marshall, who bowed to the general acceptance of progressivity, nonetheless favored a more neutral graduated tax on consumpshytion over a graduated tax on income: There is a general agreement that a system of taxation should be adjusted, in more or less steep graduation, to peoples incomes: or better still to their expenditures. For that part of a mans income, which he saves, contributes again to the Exchequer until it is consumed by expenditure.31 As Marshall pointed out, one does not need to adopt a non-neutral income tax to achieve proshygressivity. Saving-consumptionneutral taxes can be made progressive as well. In fact, it is not necesshysary to have graduated tax rates to achieve proshygressivity. A tax which exempts some amount of income at the bottom and imposes a flat marginal tax rate on income above that amount is progresshysive because the average tax rate will rise with income. A graduated consumption-based tax is not as economically efficient as a flat rate conshysumption-based tax because it increases the tax penalty at the margin the more productive an indishyvidual becomes and the more effort he or she makes. Nonetheless, it is far more efficient than a graduated income tax. The tax bias against saving that was built into the income tax may have been seen as a way of putting a kinder face on capitalism and defending the free market and private property against the foreign ideologies of fascism, national socialism, and communism that seemed to be sweeping the world in the 1930s. In retrospect, however, we can see that the broad-based income tax retards investshyment, which reduces wages and employment and keeps people who lack savings and access to capishytal from getting ahead. taxes on capital formation hurt the poor more than the rich (who can simply exchange the pleasures of current consumption for the future income of similar present value that their saving would have generated). Implication of Dynamic Effects of taxes for Estimating Federal Revenues A better understanding of the economic conseshyquences of taxation would also benefit the Treasury and the Congress as they plan the federal budget and contemplate changes in the tax system. Governshyment revenue estimators generally ignore the effect of tax changes on the overall level of economic activity, employment, incomes, payroll, profits, divishydends, and capital gains. This method is known as static revenue estimation or static scoring. Static scoring leads to misestimates of the effect of tax changes on revenues. In particular, the reveshynue losses from tax reductions that would promote an increase in economic activity are overstated, and the revenue gains from raising taxes in a manshyner that would retard the economy are overstated. Different tax changes have different effects on the economy. Ignoring these effects denies Congress and the Executive important information in choosshying among tax proposals. Inaccurate revenue estishymates therefore interfere with budget planning and assessment of proposed tax changes. In particular, they exaggerate the difficulty in achieving fundashymental reform of the tax system. By contrast. dynamic scoring would take into account the effect of tax changes on total income and its component parts. Dynamic scoring would lead to more accurate revenue forecasting and, one would hope, to tax bills that are more concerned with increasing national and individual income and less inclined toward redistributing a fixed pie. V. Burden Tables: An Exercise in Misdirection Whenever a change is proposed in the tax sysshytem, one of the first questions asked is. What is the distribution of the tax increase or decrease. That is to say. If this tax change is enacted, who will pay more, and who will pay less. or Who will be helped or hurt by the tax change. One possible concern is how the burden is distribshyuted among people of different incomes that is, how the tax change affects the progressivity of the tax system. Burden Table Assumptions, Methods at Odds with Economic Theory, Reality Tax analysts in the research community, the JCT, the Congressional Budget Office (CBO), and the Office of Tax Analysis of the Treasury (OTA) present burden tables or textual analysis to answer these questions. The presentation of these estimates has considerable political import. Thereshyfore, it is important to remember that, when tax analysts prepare burden tables or present a description of tax incidence, they must make assumptions and apply conventions to assign the incidence of the tax to various economic actors, be they consumers, workers, savers, etc. Among other things, they must make assumptions about the responsiveness of labor, capital, and consumshyers to the tax and what time frame to consider in presenting the burden. Some of these conventions have more to do with convenience than with accushyracy and are, in fact, highly arbitrary and often contrary to economic reality. Incidence, Not Burden. These burden tables or distribution tables show how a tax proposal would alter tax payments of individuals across varishyous income classes or quintiles in a given year, other things held constant. (One such table is the Urban Brookings Tax Policy Center Microsimulation Model (version 03042), prepared jointly by the Urban Institute and the Brookings Institution and available on-line. Other methods of display are posshysible, such as listing how many tax filers get tax reductions of various amounts, how the tax cut is distributed among single filers, joint filers, families with children, the elderly, etc.) Such tables are based on existing levels of each type of pretax income and the existing distribution of whatever exemptions and deductions are in force at the time of the tax change. They attribute each tax either to consumers or producers, or to labor or capital, with a vague nod to economic theory in what would be a limited partial equilibrium analysis of the shifting of the tax within its own market if it were done consistently. However, they generally assume that taxpayers aggregate incomes and behavior are not affected by the tax change. Thus, the analysis is cut short of a full explorashytion of the economic consequences of the tax, and the ultimate burden of the tax is not described. Consequently, these burden tables attempt to demonstrate only the initial incidence of the taxes (and should be renamed incidence tables). They tell us virtually nothing about the distribution of the burden of the taxes after people adjust their behavior as a result of the levies. Inconsistent Attribution and Sloppy Theory. Furthermore, the conventions used in tax analysis are often inconsistent from one tax to the next and fail to do a good job of demonstrating even the inishytial incidence of the taxes. In standard JCT burden tables, and in Treasury and CBO analytical work, consumption taxes are usually assumed to be passed forward to consumers in the form of higher prices. These taxes include: Retail sales taxes and value added taxes, and excise taxes (whether imposed on the manushyfacturer, the distributor, or at the point of retail sale). Meanwhile, income taxes and other taxes on facshytors are assumed to be passed backwards to workers and owners of capital in the form of lower take-home pay and after-tax incomes from saving and investing. These taxes include: The personal income taxes (federal, state, and local) The corporate income taxes (federal, state, and local) The payroll tax The estate and gift taxes (federal and state) and Customs fees are an exception to this pattern. They are consumption taxes but are assumed (by the Treasury) to be borne by the suppliers of the foreign labor and capital that produced them. Consumption taxes, such as a retail sales tax, a VAT, or excise taxes, whether imposed on consumshyers or on manufacturers, are routinely described as being paid by consumers in the form of higher prices because it is assumed that consumers are less flexible than producers, so that consumer prices increase by an amount equal to the tax, with none of the tax borne by the producers of the taxed goods. It is as if the supply of goods and services were totally elastic, such that production would dwindle to zero if there were any reduction in the price received by the producers, so the consumers must foot the entire bill. The personal income tax, however, which falls on labor and capital income of individuals, is roushytinely described as falling entirely on individual income earners in the form of lower after-tax incomes, with none borne by the consumers of their output. The payroll taxes on wages are simishylarly assumed to be borne entirely by labor. The estate tax is assumed to fall on the decedents, and the gift tax, if triggered before death, on the donors. The distribution of the corporate income tax is so uncertain that it is left out of most burden tables but is thought to be borne mainly by either shareholders (at least in the short run) or workers (in the long run, as capital adapts). These taxes are described as if workers, savers, and investors offered their labor and capital in totally inelastic supply, undiminished in quantity, when the tax cuts their compensation. It is assumed that they make no demand for an increase in compensation in response to the tax, so they swallow the entire burden of the income and other factor taxes that they pay. These questionable presentations of initial incidence unfortunately can have a profound effect on the prospects for adoption of one or another tax change. Understanding the shortcomings of the existing quotburdenquot tables that are really bad efforts at quotincidencequot tables would improve the policy debate. The goal is not so much to arrive at a better presentation of quotincidencequot but to redirect attention from the concept of initial incidence and to refocus the debate on the actual economic consequences of tax changes, the ultimate burden of taxation, and the ultimate economic benefits of favorable tax reform. Snapshots in Time Rather Than Lifetime Impacts. It is very misleading to display the distribution of tax changes as affecting people only in proportion to their current earnings. A very large share of the income inequality in our economy is due to the fact that more experienced and older workers earn more than their younger counterparts. Most people will experience a gradual increase in their real incomes as they advance in their careers and their work experience builds, followed by a decline in current earnings upon retirement. Even if everyone had the same lifetime incomes, people currently age 50 would probably display higher incomes than people currently age 20 or currently age 80. It is misleading to characterize these normal age-related or experience-related changes in income over peoplesrsquo lives as class-based income inequality. That, however, is exactly what the burden tables do when they lump all ages together. Similarly, saving behavior and ownership of assets vary with age. A reduction in the tax rate on capital gains does nothing this year for someone who has no capital gains this year but will help him in the future when he has gains to realize. Suppose Mr. Jones turns 70 this year and decides to sell his business of 50 years for a 1 million gain. Mr. Smith is only 69 and will wait to sell his business until next year. The reduction in the capital gains tax from 20 percent to 15 percent saves Mr. Jones 50,000 this year and saves Mr. Smith nothing. Should Mr. Smith feel left out Hardly. Hersquoll get his benefit next year. The burden tables would suggest massive unfairness each year because one (different) person each year gets a 50,000 tax break (in the one year of his life in which he has a million dollar gain) and another person the same year gets none. In this illustration, the capital gains of both Jones and Smith had built up over many years. Should the gain be counted as occurring only in the year it is taken, boosting the realizer into the top quintile Would it not better be counted for distribution purposes as it is accrued (at an average gain of 20,000 a year), which would make it clear that each man is solidly middle-class Should it be counted at all, in that the gain is merely the accumulated reinvestment (saving) of income recorded in the gross domestic product (GDP) in the years it was originally earned That makes it double counting, which is why economists do not count capital gains in national income (and why the capital gains tax is double taxation to begin with).32 The Treasury has recently constructed and quotagedquot a panel of taxpayers whose returns it has followed for several years, based on a sample of the taxpaying population.33 The panel enables the Treasury to examine how a tax change would affect a typical taxpaying population over time, not just in a single year. As an illustration, the authors compared the expanded distributional analysis of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) over the span of the then-current budget period (2004-2013) to the distribution calculated at a point in time. Looked at over time, the major provisions of the bill benefitted many more taxpayers than was indicated by a one-year snapshot. In the panel study, some taxpayers who lacked dividends income or capital gains in some years of the period had dividends or capital gains in other years and benefitted from the billsrsquo reductions in the tax rates on dividends and capital gains. Some taxpayers who were in the lowest tax brackets in some years were in higher brackets in others and benefitted from the reduction in marginal tax rates in the four highest brackets at some time during the period. The authors report that: For example, in the first year 34.7 percent of taxpayers would benefit from the reduction of tax rates above 15 percent, whereas over ten years 60.7 percent would benefit in at least one yearhellip. In the first year, some tax return filers do not benefit from any of the major provisions of EGTRRA because they have no income tax liability under pre-EGTRRA law and do not qualify for the expanded refundability of the child credit. But over time, nearly all taxpayers, 94.4 percent, would benefit.34 Over time, then, the benefits of the bill are far more widely distributed than is indicated by the ordinary one-year snapshot of the distribution of the tax reduction. This research goes far in revealing the flaws inherent in standard distribution tables and the distributional objections to growth-oriented tax changes. Nonetheless, it still leaves out entirely the economic adjustments induced by the tax changes, which may have an even greater role in spreading the benefits of a growth-oriented tax change. For example, the reduction in the tax rates on dividends and capital gains lowers the service price of capital and will induce more investment, which will lead to higher productivity and higher wages across the board. Consequently, anyone who works will benefit from the higher wages triggered by the bill, even if he or she never has dividends or capital gains. Even people living entirely on Social Security will benefit from the lower cost structure and more plentiful supply of goods and services made possible by the lower tax rates on wages and capital income. These additional benefits can only be found by taking into account the shifting of the tax burden and the changes in peoplersquos economic circumstances that are due to the economic adjustments to the tax changes. Measuring Dynamic Responses Essential to a True Burden Table The burden tables normally produced by the Treasury, the congressional committees, and outside researchers do not take into account the economic consequences of taxation and the resulting shifts in incomes and tax burdens. These shifts can have very large effects on the pre-tax incomes of workers, savers, and investors at all income levels, which means that they can have a major effect on the level and distribution of tax burdens. Because the burden tables ignore these effects, they do not accurately measure the tax burden, either in the aggregate or as to how it is distributed among different groups within the population. A true burden table can only be created by undertaking an assessment of the dynamic effects of the tax on economic behavior. The information needed to produce a true burden table is identical to that which is required for dynamic revenue estimation (discussed earlier). Government revenue estimators are very reluctant to attempt dynamic scoring of the revenue effects of tax changes, claiming that the process is too difficult and controversial. If that is correct, then they need to give up the pretext that the burden tables that they routinely produce are accurate. If one cannot do dynamic scoring of tax changes for budget purposes, one cannot generate accurate burden tables. If burden tables are feasible, then so is dynamic scoring, and it should be adopted forthwith. VI. Analysis of Some Specific Types of taxes The Corporate Income Tax Initial Incidence of the Corporate Income Tax. No competent student of taxation believes that corporations pay the corporate income tax. Only people pay taxes. Things and abstractions do not pay taxes. A corporation is, in law, a legal person, but that is, in fact, a legal fiction. Therefore, corporations do not really pay the corporate income tax. Conservative Nobel Prize-winning economist Milton Friedman is well known for espousing that view, but liberal economists share it as well. The liberal Nobel economist Wassily Leontief told The New York Times 20 years ago: Corporate income taxes fall ultimately on people. Economists have tried but have never succeeded in finding out how the weight of these taxes is ultimately distributed among income groups. There can be little doubt that elimination of corporate income taxes would simplify our tax system and limit its abuse.35 Ultimate Burden of the Corporate Income Tax. Tax analysts generally assume that the corporate income tax is borne, at least in the first instance, by shareholders. As the Treasury put it, quotbecause corporations are owned by shareholders, corporations have no taxpaying ability independent of their shareholders. Corporations pay taxes out of the incomes of their shareholders. quot36 However, the analysis does not stop there. Economists also recognize that corporate taxes, though initially coming out of shareholdersrsquo incomes, have further economic repercussions that shift part of the ultimate burden to others. As the Treasury report continues: Importantly, the burden of the corporate income tax may not fall on shareholders. A corporate tax change could induce responses that would alter other forms of income as well. For example, some of the burden may be shifted to workers through lower wages, to consumers through higher prices, to owners of non-corporate capital through lower rates of return on their investments, or to landowners through lower rents. This shifting might not happen quickly, so the short-run incidence could well differ from the long-run incidence.37 (Note the Treasuryrsquos interchangeable use of the terms incidence and burden, for both the short-run own-market effect and the long-run general equilibrium outcome.) In years past, the Congressional Budget Office has also suggested that the corporate tax falls about half on owners of capital and about half on the workforce, arguing that the tax depresses capital formation and therefore depresses productivity and wages, shifting at least some of the burden to labor. More recently, the Treasury and the CBO have assumed that the corporate tax is borne by owners of all capital (corporate capital and competing non-corporate capital), and none by workers. Most economists believe that the burden of the corporate tax is borne to some extent by shareholders, workers, and consumers (who are often the same people in different roles), but they do not agree on the division of the burden. Because of the uncertainty in the profession, the JCT has stopped assigning it to anyone in the official quotburden tables. quot If the corporate income tax were raised and individual income taxes were cut by equal amounts, the burden tables would show a reduction in the tax on the population with no loss of federal revenuemdashan ultimate (and quite impossible) free lunch Of course, someone pays the corporate income tax even if the JCT cannot point out who it is. In fact, a modern view of the corporate tax in the context of an open, globally integrated economy holds that the burden of the corporate tax falls primarily on labor after all adjustments are taken into account. Varying Views of the Corporate Tax. In 1962, Professor Arnold Harberger produced a seminal article on the incidence of the corporate income tax.38 The article did more than analyze the corporate tax it showed the importance of going beyond narrow partial equilibrium analysis in looking at the effects of taxation. The early Harberger work suggested that the corporate tax was borne by the owners of all capital, not just corporate capital. Harberger assumed a closed economy with a fixed total capital stock . The capital could be allocated either to the corporate or to the non-corporate sectors, which were assumed to produce somewhat different goods and services.39 If a corporate tax were imposed, raising the tax rate above that of the non-corporate sector, capital would migrate to the non-corporate sector. Gross returns would rise in the corporate sector and fall in the non-corporate sector to equalize after-tax yields between the sectors. Thus, a portion of the corporate tax would be shifted to non-corporate capital. There would also be an efficiency (dead weight) loss that would make the burden greater than the amount of the tax itself. In later work, Professor Harberger changed his assumption that the economy is closed and concluded that the corporate tax is borne largely by domestic labor, at least in the case of a small open economy that has little impact on the world rate of return. Putting a tax on the income from corporate capital would simply lead to adjustments whereby less capital would be at work in that countryhellip. Where would the capital go It would go abroadhellip. In realizing that the presence of the tax implies that significantly less capital will be combining with the same amount of total labor (in the small developing country), it should come as no surprise that the equilibrium wage has to be lower. But there is an additional and more critical reason (above and beyond simple capital labor-substitution) why laborrsquos wage must fall: the need to compete with the ROW rest of the world in the production of manufactures (corporate tradables). The tax is a wedge that has been inserted into the pre-existing cost structure. The prices of corporate tradable products cannot go up because they are set in the world marketplace the net-of-tax return to capital cannot go down (except transitorily), because capital will not be content to earn less here (in the small developing country) than abroad. Some element of cost has to be squeezed in order to fit the new tax wedge into a cost structure with a rigid product price at one end and a rigid net-of-tax rate of return to capital on the other. The only soft point in this cost structure is wages. If they do not yield, the country may simply stop producing corporate tradables. Or, if the country continues to produce such goods, then wages must have yieldedmdashby just enough to absorb the extra taxes that have to be paidhellip.40 Harberger goes on to point out that the United States is a large country, not a small one, so the exit of U. S. capital would somewhat depress the rate of return to capital in the world, which would somewhat mitigate the capital flight and reduce the share of the tax burden passed on to U. S. labor. Nonetheless, he estimates that U. S. labor would still have to bear seven-eighths of the corporate tax.41 Harberger assumes an unchanged world capital stock, i. e. that the world stock of capital does not fall to restore after-tax returns to the levels they enjoyed before the imposition of the U. S. tax. If one instead adds the assumption that the world capital stock is elastic over time with respect to the rate of return, then even this modest offset to the impact of the U. S. corporate tax on U. S. labor would vanish. Harberger reiterated his analysis in a recent interview in the IMF Survey conducted by Prakesh Loungani.42 Loungani: The effects of some economic policies are better understood thanks to your academic contributions. You did path-breaking work on whether capital or labor bears the burden of the corporate income tax. Harberger: There are interesting developments to report on that front. In the closed-economy case that I analyzed in the 1960s, the natural result is that capital bears the burden of the tax and can easily bear more than the full burden. But my students and I have now analyzed the open-economy case, which is more applicable to todayrsquos global economy. The result in this case is that labor bears the burden and can easily bear more than the full burden. Loungani: Thatrsquos quite a flip. Why does it happen Harberger: Think of the so-called quottradable goodsquot sector of an open economy, the sector that produces goods that are traded on a world market. The prices of these goods are determined in the world market. And, with an open economy, the rate of return to capital is largely determined in the world market, because capital can flow from country to country in search of the highest return. Now the government gets in there and tries to impose a corporation income tax on capital. Well, who bears the burden Capital can move across national boundaries to try to escape the tax. So itrsquos labor, the factor of production that canrsquot easily escape national boundaries, that ends up bearing the burden of the tax. In this analysis, part of the fixed quantity of U. S. capital relocates abroad, and domestic labor suffers a loss in income and therefore bears the entire corporate tax, plus a dead weight loss. One could go two steps further in refining the analysis, however. First, one could note the effect of the shift of U. S. capital abroad on foreign labor and world capital returns while retaining the idea of a fixed total world capital stock. This would put some of the burden of the corporate tax back on U. S. capital. If the United States were a very small economy, the shift in U. S. assets abroad would have little impact on global rates of return, and the Harberger result for the U. S. would follow. Given the size of the U. S. economy, however, there would be some effects abroad. The tax on domestic U. S. corporations would drive some investment offshore, but that investment would have to compete harder for available foreign labor. Initially, the foreign capital-labor ratio would rise, increasing returns to foreign labor but reducing returns to foreign capital, consisting of the expatriate U. S. capital and the pre-existing foreign capital. The misallocation of the fixed world capital would depress capital returns here and abroad. At least temporarily, all capital, U. S. and foreign, would suffer some loss of income due to the U. S. tax. Nonetheless, U. S. labor would bear most of the burden of the tax, which would exceed the tax revenue due to the added dead weight burden of the economic distortions. Second, however, one really must relax the (still partial equilibrium) assumption of a fixed quantity of domestic and world capital. Capital formation has been shown to be sensitive to the after-tax return. Over time, there would be a reduction in the quantity of foreign-located capital (whether foreign - or U. S.-owned) to restore its normal after-tax return, reducing the gains to foreign workers. Foreign returns to capital would not decline significantly. The reduction in the quantity of U. S. capital would restore its original after-tax return as well. Capital would bear very little of the burden of the U. S. corporate income tax. In the long run, one should expect a general equilibrium result that the main losers would be U. S. workers. Other analysts have a different view of the corporate income tax in an open, or partially open, economy. For example, Jane Gravelle and Kent Smetters construct a model in which the largest part of the corporate tax can be borne by domestic capital in spite of trade and capital flows, in effect restoring the old view of who bears the corporate tax.43 They get this result by assuming imperfect substitution of domestic and foreign capital (people prefer the stocks and bonds of their home country governments and businesses) and imperfect substitution of domestic and foreign goods and services. They also assume a fixed total capital stock to abstract from the issue of the elasticity of saving. In their four-sector model, they get the usual result of a corporate tax shifted mainly to domestic labor when substitution elasticities are very large: Capital moves abroad, equalizing the domestic and foreign after-tax rates of return. The capital flight depresses rates of return to foreign capital (quotexportingquot some of the tax) and raises foreign wages. Wages of domestic labor (the immobile factor) fall. But assuming lower elasticities, which the authors feel are more plausible, less capital shifts abroad (because it is assumed to be somewhat immobile too). People are willing to accept a drop in the after-tax return on capital to own domestic assets, and the tax can open a permanent differential between rates of return at home and abroad. As a result, the bulk of the corporate tax falls on domestic capital, less on domestic labor. Some capital is exported, which shifts some of the tax to foreign capital with some gains to foreign labor, but less than in the high-elasticity case. There are several areas of concern with the Gravelle-Smetters approach: The assumption of a constant world capital stock is unrealistic, just as it is in the Harberger analysis, and simply throws out the bulk of the adjustment process. The quantity of capital has been seen to vary substantially to restore its after-tax rate of return to normal levels over time following a tax change. The lower worldwide return on capital post-tax would depress global capital accumulation and shift the tax back to labor. The assumption of a low substitutability of domestic and foreign capital appears to be at odds with observed international flows of financial and physical investment. Even if savers and investors on average display a home country preference, the capital markets act very quotopenquot if even a few large savers are, at the margin, willing to move capital freely across borders. It may be that many people never buy foreign securities and many companies prefer to invest at home, reducing the average ratio of global to local assets in domestic portfolios. At the margin, however, there are many people, businesses, and institutions that freely arbitrage across borders. Multinational financial and non-financial corporations send funds and direct fixed investment all over the world. Consider that the outflow of U. S. capital has been averaging roughly 400 billion a year and foreign investment in the U. S. has been averaging over 500 billion a year for some years. The sum of the annual cross-border investment flows has been about 1 trillionmdashalmost as large as total annual investment in the United States. In the cases where the corporate tax falls on domestic capital, the Gravelle-Smetters model implies that a tax increase can lower the after-tax rates of return on capital for a very long time and can lead to prolonged differences in the after-tax rates of return on domestic and foreign capital. This is disturbing on two grounds. First, in the modern world, returns on global assets of similar risk and quality do not display wide and permanent differentials. Second, taxation of capital has risen drastically over the past hundred years with the inventions of the corporate and personal national and sub-national income taxes, property taxes, and estate and inheritance taxes, yet there has been no correspondingly large change in the real, risk-adjusted after-tax yields on capital, either financial or physical. It appears that capital, by adjusting its quantity, is able to shift a large part of the taxes aimed at it onto other factors. The Payroll Tax The entire Social Security payroll tax on wages is remitted by employers to the Treasury, but according to statute, it supposedly is paid half by employees and half by employers (quotstatutory obligationquot). Most economists would argue that, legislative language notwithstanding, the initial incidence and the ultimate economic burden of the entire tax is borne by workers. Why The whole tax comes out of gross labor compensation that could otherwise have gone to labor. Furthermore, the supply of labor has been thought by many to be highly quotinelasticquot Consequently, the tax is assumed to be quotshiftedquot almost entirely onto the worker, not only in its initial incidence, but also in its ultimate burden. A more modern view of the labor force suggests that the workforce, particularly certain subgroups, such as secondary workers in a family and teenagers, does respond to changes in the after-tax wage. A general equilibrium economist would argue that this partial elasticity of the supply of labor would further shift a portion of the ultimate burden of the payroll tax to other economic factors, such as consumers, other types of labor, and any immobile forms of capital such as land, as the labor supply shrinks in response to the tax. Mobile capital, however, would bear little of the burden, as it could move abroad or shrink in quantity to restore its original rate of return. The Unified Estate and Gift taxes The federal unified gift and estate tax (the quotdeath taxquot) is an additional layer of tax on saving. Every cent saved to create an estate has either been taxed or will be taxed under some provision of the income tax. Ordinary saving by the decedent was taxed repeatedly when the decedent and the companies she or he may have owned shares in paid individual and corporate income taxes. Saving by the decedent in a tax-deferred retirement plan will be subject to the heirsrsquo income taxes and was subject to the corporate income tax in the case of stock holdings. The death tax is always an extra layer of tax. Prior to 2001, the estate and gift tax rate topped out at 55 percent if a parent left money to a child but could reach almost 80 percent under the generation-skipping tax (GST) if the bequest went to a grandchild or other relative more than one generation removed from the decedent. (The GST rate is equivalent to imposing a 55 percent tax on the estate as if it had gone to a child and then imposing another 55 percent rate on the remaining 45 percent of the estate as if it had gone from the child to the grandchild. Congress didnrsquot want to miss out on any potential revenue by letting anyonersquos death go untaxed) If a near-to-retirement couple were thinking of working an extra year just to add to an estate, the combined income, payroll, and estate tax rates could have exceeded 78 percent, or even 90 percent with the GST. That produced quite an incentive to retire instead of continuing to work or to reinvest interest or dividends in an estate. The 2001 Tax Act reduces the top estate tax rate to 45 percent by 2007 and raises the exempt amounts for the estate and gift tax. It will eliminate the estate tax (but not the gift tax) in 2010, but the tax will reappear at the old rates in 2011 unless Congress votes to make the repeal permanent. Under the conventions used by the Treasury, the unified estate and gift tax is assumed to be borne by the decedents (or donors if they exceed exempt amounts before they die). The assumption about decedents is distinctly odd, as they are beyond feeling any pain. The heirs are the ones who get lower bequests due to the tax, and they are a more reasonable choice for victims. However, there are no readily obtainable data on who the heirs are, so the decedents are selected by default. This is much the same rationale as that offered by the drunk who looks for his lost car keys on the sidewalk under the lamp post, instead of in the parking lot where he dropped them, because under the lamp post is the only place with enough light to search by. An even odder form of misrepresentation is that this tax is not even called a tax in the National Income and Product Accounts, which instead label it as an innocuous-seeming and voluntary-sounding quotasset transferquot from the private sector to the government. It is not a tax, in NIPAnese, because it falls on the principal rather than the income of the assetsmdasha distinction without economic meaning or merit. There is one way in which the decedents could be said to have borne the estate tax. If they had a rigid goal of how much after-tax bequest they wished to leave their heirs and trimmed their consumption during their lifetimes to save additional sums or to buy additional life insurance to cover the added tax cost of leaving an estate, then one could say that they had borne part of the burden of the tax. However, it is a fundamental law of economics that the more expensive you make something, the less people will do of it. The estate and gift taxes seem far more likely to reduce the personal saving and capital accumulation of the potential donors, rather than their personal consumption, and therefore to reduce the inheritances of their heirs. The heirs do not bear the full cost of the estate and gift taxes, however. These taxes add to the tax on capital formation and result in a reduced stock of capital. The economic consequences of the reduced capital stock are largely borne by the labor force. In spite of (or because of) its horrendously high tax rates, the death tax probably doesnrsquot raise any net revenue for the government. Professor B. Douglas Bernheim of Stanford estimates that avoidance of the estate tax by giving assets to children, most of whom are in lower income tax brackets than their parents, costs more in income tax revenue on the earnings of the assets than the estate tax picks up.44 Gary and Aldona Robbins of Fiscal Associates estimate that the reduced saving and capital formation lower GDP and wages by so much that the resulting reductions in income and payroll tax collections exceed the estate tax take.45 If Bernheim and the Robbinses are each even half right, the tax loses money. Estate tax repeal would pay for itself and would encourage wealth and job creation. Centuries of thought and research have been devoted to the relationship between taxes and economic behavior. Classical pioneers explored the price or incentive effects of taxes on the supply of factors and products over 200 years ago. Microeconomists refined the concepts a century later. In the middle of the past century, the Keynesian focus on aggregate demand turned taxes into a demand management tool divorced from price or incentive effectsmdasha theoretical detour that the monetarist school and the neoclassical resurgence have largely corrected. Today, although more sophisticated work than ever before is being done in the tax field, it appears that the original insights of the classical pioneers still hold true. Strenuous efforts to find exceptions to the quotlaw of demandquot have largely come a cropper. It is still the best presumption that, if something is made more expensive, people will buy less of it, and if something is made less expensive, people will buy more of it. This law still applies to work, saving, and investment and to the trade-off between current and future consumption, and between consumption of market goods and leisure. Increase the tax on effort, and less will be supplied. Reduce the tax on effort, and more will be offered. Fewer inputs mean less total output. Factors of production are largely complementary to one another. More of one factor of production boosts the productivity and income of the other factors. Less of a factor limits the productivity and income of all the other factors. It is well understood in the Economics profession that the current tax system imposes heavier taxes on income used for saving and investment, and on the formation of human capital, than on income used for consumption. Today, most economists would agree that these tax disincentives to save and invest, to work and take risk, have consequences. They lead people to undersave and overconsume and to work less and play more. These modern advances in economic understanding strongly urge us to dispose of the current income tax structure and replace it with a flat rate tax that is neutral in its treatment of saving and consumption. The tax biases against saving and investment and steeply graduated tax rates were introduced for the purpose of improving quotsocial equity. quot In decades past, it was assumed that the added layers of tax on income used for capital formation would do relatively little economic damage, would inconvenience only the wealthy, and would provide significant income redistribution. It is becoming apparent, however, that most of the taxes that seem to fall on those who supply physical capital, intellectual capital, or special talents to the production process may actually be shifted to ordinary workers and lower-income retirees in the form of reduced pre-tax and after-tax incomes. The adverse economic consequences of non-neutral taxation and graduated tax rates, and the resulting adverse impact on quotsocial equity, quot are not displayed in the so-called burden tables used to inform the public policy debate or the votes in Congress. With bad information, the public and the Congress are left with a bad tax system and a sub-optimal economy. A more rational system of calculating and displaying the real tax burdenmdashone that took full account of how taxes are shiftedmdashwould make it easier to explain and adopt a more rational tax system. A more rational tax system, in turn, would maximize the efficiency of the economy as a whole and would enable every individual to maximize his or her potential lifetime productivity and income. Stephen J. Entin is President and Executive Director of the Institute for Research on the Economics of Taxation (IRET), a Washington, D. C.-based pro - free market economic public policy research organization. This CDA Report is slightly adapted from IRET Policy Bulletin No. 88, September 10, 2004, and is published by permission of IRET. About the Author 1 U. S. Department of the Treasury, Report of the Department of the Treasury on Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once . January 1992, p. 146. 2 Statutory obligation is not the same thing as the obligation to remit, which involves the tax collection laws and process. A tax is in a sense ampldquopaidamprdquo by whoever is legally responsible for remitting the money to the taxing authority, whether that is the U. S. Treasury or one of the various state and local tax departments or offices. Most people are sophisticated enough to realize that who sends in the check does not indicate who pays the tax. Income tax withholding is a good example. A workeramprsquos employer by law must transmit income taxes withheld from a workeramprsquos paycheck to the Treasury each pay period, but the tax actually falls according to statute on the workeramprsquos wages, not on the employeramprsquos income. ampldquoRemittanceamprdquo is not the same thing as ampldquostatutory obligation. amprdquo 3 See Don Fullerton and Gilbert E. Metcalf, The Distribution of Tax Burdens . International Library of Critical Writing in Economics, No. 155 (Northampton, Mass. Edward Elgar Publishing, Inc. March 1, 2003). Fullerton and Metcalf use the term ampldquostatutory incidenceamprdquo to refer to the statutory obligation as defined by the tax law (what is here called ampldquostatutory obligationamprdquo). They use the term ampldquoeconomic incidenceamprdquo to refer to the changes in peopleamprsquos economic welfare brought about by the tax, in that the tax changes equilibrium prices, with wide-ranging consequences, what is here called ampldquoultimate economic burden. amprdquo For example, a tax on a particular product induces consumers to alter their purchases, which in turn affects the prices or returns paid to each input, thereby affecting the welfare of consumers, workers, and suppliers of capital. Two terms are not really enough, however. There is still the need to distinguish between the economic incidence revealed by ampldquopartial analysis, amprdquo which involves the changes in the price of the taxed product and its effect on that productamprsquos consumers and producers (and which must further be broken down into the short - and longer-run effects), and ampldquogeneral equilibrium analysis, amprdquo which must include all the subsequent adjustments as consumers switch to other products and factors shift to other uses, including leisure, or are reallocated between consumption and capital accumulation, altering the capital stock over time and affecting wages throughout the economy. The FullertonampndashMetcalf anthology contains many seminal papers on tax incidence that explore these different facets of the analytical spectrum. 4 Alfred Marshall, Principles of Economics . 8th edition (1920) (Philadelphia, Pa. Porcupine Press, reprinted 1982), Chapter IX, pp. 343ampndash345. The first edition was printed in 1890. Tax incidence and tax shifting are not new notions. 5 Victor R. Fuchs, Alan B. Krueger, and James M. Poterba, ampldquoEconomistsamprsquo Views About Parameters, Values, and Policies: Survey Results in Labor and Public Economics, amprdquo Journal of Economic Literature . Vol. 36 (September 1998). Some writers believe that the empirical evidence points to a labor supply elasticity of zero or less, which could lead to more work effort at higher tax rates and ampldquoreverseamprdquo tax shifting. For a number of reasons, that outcome is highly unlikely. For a more sympathetic view, see Jane Gravelle, ampldquoLabor Supply Elasticity and Dynamic Scoring, amprdquo Congressional Research Service Memorandum, August 21, 2002. 6 Gary Robbins and Aldona Robbins, ampldquoCapital Taxes and Growth, amprdquo National Center for Policy Analysis, Policy Report No. 169, January 1992, and Gary Robbins and Aldona Robbins, ampldquoEating Out Our Substance (II): How Taxation Affects Investment, amprdquo Institute for Policy Innovation, TaxAction Analysis Policy Report No. 134, November 1995. 7 Federal and state revenue systems tax income that is saved more heavily than income that is used for consumption. At the federal level, there are at least four layers of possible tax on income that is saved. (1) Income is taxed when first earned (the initial layer of tax). If one uses the after-tax income to buy food, clothing, or a television, one can generally eat, stay warm, and enjoy the entertainment with no additional federal tax (except for a few federal excise taxes). (2) But if one buys a bond or stock or invests in a small business with that after-tax income, there is another layer of personal income tax on the stream of interest, dividends, profits, or capital gains received on the saving (which is a tax on the ampldquoenjoymentamprdquo that one ampldquobuysamprdquo when one saves). The added layer of tax on these purchased income streams is the basic income tax bias against saving . (3) If the saving is in corporate stock, there is also the corporate tax to be paid before any distribution to the shareholder or any reinvestment of retained after-tax earnings to increase the value of the business. (Whether the after-tax corporate income is paid as a dividend, or reinvested to raise the value of the business and create a capital gain, corporate income is taxed twiceampmdash the double taxation of corporate income .) (4) If a modest amount is left at death (beyond an exempt amount that is barely enough to keep a couple in an assisted living facility for a decade), it is taxed again by the estate and gift tax (the ampldquodeath taxamprdquo) . Eliminating the estate and gift tax and the corporate tax would remove two layers of bias. Granting all saving the same treatment as is given to pensions or IRAs, either by deferring tax on saving until the money is withdrawn for consumption (as in a regular IRA) or by taxing income before it is saved and not taxing the subsequent returns (as in a Roth IRA), would remove the basic bias. Saving-deferred taxes, the Flat Tax, VATs, and retail sales taxes are examples of saving-consumptionampndashneutral taxes. For a further explanation of the biases against saving in the current income tax, see Stephen J. Entin, ampldquoFixing the Saving Problem: How the Tax System Depresses Saving and What to Do About It, amprdquo Institute for Research on the Economics of Taxation, IRET Policy Bulletin No. 85, August 6, 2001, pp. 15 ff, available at iret. org . Also see David F. Bradford and the U. S. Treasury Tax Policy Staff, Blueprints for Basic Tax Reform . 2nd edition, revised (Arlington, Va. Tax Analysts, 1985). 8 Another result was conspicuous consumption. That is, saving was affected as well. At the 20 percent interest rates then prevailing in Britain (reflecting high tax rates and high inflation), one could invest 50,000 in a government note, earn 10,000 in interest, pay 9,800 in tax, and have 200 a year left over. Alternatively, one could give up the bond and the interest to buy a Rolls Royce for 50,000 and enjoy the car. Was driving a Rolls Royce worth 200 a year Many people thought so. 9 Martin Feldstein, ampldquoIncidence of a Capital Income Tax in a Growing Economy with Variable Savings Rates, amprdquo Review of Economic Studies . Vol. 41, No. 4 (1974), pp. 505ampndash513. 10 Christophe Chamley, ampldquoOptimal Taxation of Capital Income in General Equilibrium with Infinite Lives, amprdquo Econometrica . Vol. 54 (May 1986), pp. 607ampndash622. 11 Kenneth L. Judd, ampldquoRedistributive Taxation in a Simple Perfect Foresight Model, amprdquo Journal of Public Economics . Vol. 28 (October 1985), pp. 59ampndash83. Also see Kenneth L. Judd, ampldquoA Dynamic Theory of Factor Taxation, amprdquo American Economic Review . Vol. 77 (May 1987), pp. 42ampndash48 N. Gregory Mankiw, ampldquoThe Savers-Spenders Theory of Fiscal Policy, amprdquo American Economic Review . Vol. 90, No. 2 (2000), pp. 120ampndash125 and Casey B. Mulligan, ampldquoCapital Tax Incidence: First Impressions from the Time Series, amprdquo National Bureau of Economic Research, Working Paper No. 9374, December 2002. 12 Andrew Atkeson, V. V. Chari, and Patrick J. Kehoe, ampldquoTaxing Capital Income: A Bad Idea, amprdquo Federal Reserve Bank of Minneapolis Quarterly Review . Vol. 23, No. 3 (Summer 1999), pp. 3ampndash17. 13 Robin Boadway, ampldquoLong Run Tax Incidence: A Comparative Dynamic Approach, amprdquo Review of Economic Studies . Vol. 46, No. 3 (July 1979), pp. 505ampndash511. 14 Mankiw, ampldquoThe Savers-Spenders Theory of Fiscal Policy, amprdquo p.120. 15 Before van Leeuwenhoek invented the microscope, physicians knew that arteries carried blood from the heart and veins returned it, but they had no way to see the capillaries that connected the arteries to the veins. They were unable to map the full circulatory system, and many people were skeptical of the concept of a circular flow of blood. It would have been logical to assume that it was a single system in flow equilibrium, but that concept had not been invented yet. Today, many economists doubt the countryamprsquos ability to finance federal deficits and the investment that is increasing the stock of capital, and to balance saving and investment, because they cannot see where the financing is to come from. They will never be able precisely to predict or trace the flow of trillions of dollars of funds throughout the complex world financial system, but the funds do flow nonetheless. 16 Unpublished preliminary figures for a forthcoming study from The Heritage Foundation. See Gary and Aldona Robbinsamprsquos earlier work for the Institute for Policy Innovation, ampldquoEating Out Our Substance (II): How Taxation Affects Investment, amprdquo TaxAction Analysis Policy Report No. 134, November 1995, available at ipi. org . In the IPI study, using earlier Commerce Department data that have since been revised for the period 1954ampndash1994, the authors found that ampldquothe rate of return to new investment, after taxes, depreciation, and inflation, has been remarkably stable over the last forty years. The reason is that investors quickly counter shocks that cause their after-tax return to go up or down by changing their investment behavior. In short, increases in the after-tax return have led to an increase in the rate of capital formation until the return was driven back down to its long-run, economy-wide average of 3.4 percent old data. Conversely, decreases in the after-tax return have been followed by a decrease in investment until the after-tax return went back to 3.4 percent. And the adjustment generally takes five years or less. A major source of amplsquoshockamprsquo is changes in tax policy. amprdquo The revisions appear to have affected the level of the rate of return, but not the pattern of year-to-year changes or the conclusion that the public restores its desired rate of return to capital by adjusting the quantity of the capital stock it employs, and does so quickly. 17 Adam Smith, An Inquiry into the Nature And Causes of the Wealth of Nations . Chapter II, 1776. 18 Michael Boskin, ampldquoTaxation, Saving, and the Rate of Interest, amprdquo Journal of Political Economy . Vol. 86, Part 2 (April 1978), pp. S3ampndashS27. 19 Joel B. Slemrod, ed. Does Atlas Shrug The Economic Consequences of Taxing the Rich (New York, N. Y. and Cambridge, Mass. Russell Sage Foundation and Harvard University Press, 2000). 20 Robert Carroll, Douglas HoltzampndashEakin, Mark Rider, and Harvey S. Rosen, ampldquoEntrepreneurs, Income Taxes, and Investment, amprdquo Chapter 13 in Slemr 22 Henry C. Simons, Personal Income Taxation (Chicago, Ill. University of Chicago Press, 1938), p. 20. 23 A tax on income less net saving, in which all saving is tax-deferred in the manner that current law allows for limited amounts of saving in an ordinary IRA, 401(k), or pension. This type of tax is also called an inflow-outflow tax, a consumed income tax, an individual cash flow tax, or an expenditure tax. 24 Value-added tax, including European-style credit invoice method VATs goods and services taxes or GSTs (as in Canada and Australia) or subtraction method VATs (also called business transfer taxes in the United States, such as is proposed in the USA Tax). 25 A returns-exempt tax does not allow a deduction for or deferral of current saving, which must be done on an after-tax basis, but it does not subsequently tax the returns on that after-tax saving. It is the method used for Roth IRAs. 28 Simons, Personal Income Taxation . pp. 18ampndash20. 31 Marshall, Principles of Economics . P. 661. 32 In a very fundamental sense, taxation of capital gains is double taxation of the future income of an asset. Assets have value because they provide income over time (by providing services over time for which the assetamprsquos owner is paid). In fact, the current market price of an asset is the present value of the expected after-tax future earnings of the asset (the future after-tax returns discounted to the present by an appropriate discount rate). It is the after-tax returns that are relevant because that is the only part of the returns that the owner can expect to keep. An asset will rise in value today if there is an increase in what people expect the asset to earn in the future. If the asset does in fact earn the higher expected income in the future, that higher income will be taxed when it is earned. To also tax the rise in the present value of that increased future after-tax income stream (the present-day capital gain) is to tax the future earnings twice. 33 See Julie-Anne Cronin, Janet Holtzblatt, Gillian Hunter, Janet McCubbin, James R. Nunns, and John Cilke, ampldquoTreasuryamprsquos New Panel Model for Tax Analysis, amprdquo prepared for the session on ampldquoForecasting Government Fiscal Situations, amprdquo 96th Annual Conference on Taxation, National Tax Association, Chicago, Ill. November 25, 2003 forthcoming in the proceedings of the conference. 35 Wassily Leontief, ampldquoWhat It Takes to Preserve Social Equity: Amid Dynamic Free Enterprise, amprdquo The New York Times . February 1, 1985, p. A29. 36 U. S. Department of the Treasury, Report of the Department of the Treasury on Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once . P. 146. 38 Arnold C. Harberger, ampldquoThe Incidence of the Corporation Income Tax, amprdquo Journal of Political Economy . Vol. 70, No. 3 (June 1962), pp. 215ampndash240. 39 If the types of business organizations, corporate and non-corporate, were equally effective in all sectors of the economy, then there would be no cross-sector reallocation due to the tax and no reduction in the returns to the non-corporate sector. Corporate businesses would merely shift the form of their organization to non-corporate, giving up whatever efficiencies (for example, ease of financing or trading ownership in a large business) that had driven them to the corporate form to begin with. They would bear the burden of the tax. 40 See Arnold C. Harberger, ampldquoThe ABCs of Corporation Tax Incidence: Insights into the Open-Economy Case, amprdquo Chapter 2 in Tax Policy and Economic Growth (Washington, D. C. American Council for Capital Formation, 1995), pp. 51ampndash73. Cited lines on pp. 51ampndash52. 42 IMF Survey . Vol. 32, No. 13 (July 14, 2003). 43 Jane Gravelle and Kent Smetters, ampldquoWho Bears the Burden of the Corporate Income Tax in the Open Economyamprdquo National Bureau of Economic Research, Working Paper No. 8280, May 2001. 44 B. Douglas Bernheim, ampldquoDoes the Estate Tax Raise Revenueamprdquo in Tax Policy and the Economy . Vol. 1, ed. Lawrence H. Summers (Cambridge, Mass. MIT Press, 1987), pp. 113ampndash138. 45 Gary Robbins and Aldona Robbins, ampldquoThe Case for Burying the Estate Tax, amprdquo Institute for Policy Innovation, IPI Policy Report No. 150, 1999.Top 10 Tax Considerations When Selling Your Business Many buyers and sellers of businesses put tax issues on the 8220back burner8221 and don8217t consider tax consequences until after a deal is struck, including a deal on purchase price. Ignorar as considerações fiscais no início de uma transação é um grande erro e pode colocá-lo em uma posição de negociação adversa, mesmo que a carta de intenção que foi assinada foi 8220não vinculante.8221 Nenhum vendedor de uma empresa deve concordar sobre quaisquer aspectos da Até encontrar um conselheiro fiscal competente que possa explicar, dada a situação específica, onde eles acabarão depois que o acordo terminar com uma base de 8220 após impostos8221. Os seguintes pontos descrevem dez importantes considerações fiscais para os vendedores de empresas. 1. O tipo de entidade que você usa para conduzir seu negócio Você conduz o seu negócio através de uma empresa de responsabilidade civil exclusiva, parceria, sociedade de responsabilidade limitada (8220LLC8221) ou corporação S. Todos esses são considerados entidades 8220pass-through8221 e fornecerá o máximo Flexibilidade na negociação de uma venda do seu negócio. Por outro lado, se você conduzisse sua empresa através de uma corporação C, sua flexibilidade na venda do negócio pode ser limitada devido a uma falta de 8220 pass-through8221 da C corporation8217s e a possibilidade de que 8220double tax8221 possam surgir (no nível corporativo e acionista ) Onde uma empresa da C vende seus ativos e distribui o produto aos seus proprietários. Se o seu negócio for conduzido em uma das entidades passivas descritas acima, você geralmente poderá vender ativos para um potencial comprador e isso deve ser benéfico para você como vendedor. Note-se que, em situações em que uma corporação S costumava ser uma corporação C, haveria uma exposição tributária dupla sob as regras de imposto de ganhos acumuladas 8220 na década de dez anos após a data em que a corporação S se converteu do status de corporação C. Além disso, mesmo que uma corporação C geralmente esteja sujeita a imposto duplo em uma venda de ativos, é possível que a corporação C tenha perdas operacionais líquidas ou transações de crédito comercial que possam compensar o imposto de nível corporativo e fazer uma venda de ativos plausível. Embora seja possível converter de um tipo de entidade para outra, as regras fiscais geralmente foram estruturadas para evitar que você melhore sua posição pós-imposto ao converter sua entidade em uma forma diferente de entidade imediatamente antes de uma transação de venda potencial. 2. É possível um negócio livre de impostos A maioria das vendas de negócios são concluídas sob a forma de transações tributáveis, mas pode ser possível concluir uma transação com base em 8220tax-free8221 (efetivamente diferido). Se você trocar ações da corporação S ou da corporação C para o estoque corporativo de um comprador, é possível que a troca possa ser feita de forma livre de impostos, assumindo que as disposições complicadas de reorganização isentas de impostos do Código da Receita Federal sejam cumpridas. Para fazer uma bolsa de valores isenta de impostos, você precisa receber pelo menos 40 ou 50 por cento de estoque de comprador como parte de sua consideração total na transação, até 100% de estoque de comprador. Uma transferência de ativos livre de impostos para um comprador também é possível, mas essa variação geralmente requer que você receba 100% de estoque de comprador na troca. Na medida em que você receber qualquer dinheiro como parte da transação, geralmente será tributável para você, assumindo que você teve um ganho nas ações trocadas. Um aspecto importante de um acordo isento de impostos é que o comprador não obtém 8220step-up8221 com base nos ativos do seller8217s (mesmo que o vendedor tenha que pagar o imposto em dinheiro recebido). Isso torna as operações isentas de impostos um pouco menos valiosas para o comprador, em comparação com o qual um aumento na base de ativos é obtido, como em uma compra de ativos tributáveis, mas essa perda de valor pode ser comprovada ao poder usar estoque de comprador Para todo ou parte do preço de compra, em vez de dinheiro. As regras de troca isentas de impostos geralmente não se aplicam a empresas de propriedade única, parcerias ou LLCs. A conversão de uma LLC para uma empresa imediatamente antes de uma reorganização livre de impostos também pode ser contestada pelo IRS. Outra maneira de reverter um ganho na venda de ações envolve a venda de seu estoque corporativo a um plano de participação de ações dos empregados (8220ESOP8221) que, se estruturado corretamente, permite que suas ações sejam vendidas com os seus ganhos reinvestidos antes de impostos em outros Títulos qualificados. As transações ESOP são complicadas, exigem envolvimento substancial de terceiros (credores, curadores, avaliadores, etc.) e precisam ser cuidadosamente exploradas para considerar as possíveis armadilhas que possam surgir. Além disso, certas vendas de ações da corporação C podem atender às provisões de propriedade de pequenas empresas qualificadas 8220rollover8221 provisões da Seção de Código 1045. Esta provisão permite que o produto de certas vendas de ações tributáveis ​​de corporações C seja seguido por um reinvestimento em outro estoque de pequenas empresas qualificadas dentro de sessenta ( 60) dias. Quando uma rolagem bem sucedida é realizada, o imposto sobre a venda de estoque original pode ser diferido. 3. Você está vendendo ativos ou ações A maioria das transações serão estruturadas como transações de ações ou ações tributáveis, em vez de uma transação isenta de impostos. É importante para você saber se o seu negócio é ou pode ser estruturado como um ativo ou estoque antes de concordar com os termos da transação. Em geral, os compradores preferem comprar ativos porque (i) eles podem obter um aumento na base dos ativos comprados, resultando em maiores deduções fiscais futuras e (ii) há pouco ou nenhum risco de assumirem quaisquer responsabilidades do vendedor desconhecido. Por outro lado, os vendedores geralmente desejam vender ações para obter um tratamento de ganho de capital claro e de longo prazo na venda. Um vendedor que detenha ações em uma corporação C (ou uma corporação S sujeita às regras tributárias de ganhos incorporadas de dez anos) pode, de fato, ser forçado a vender ações, uma vez que uma venda de ativos seria sujeita a imposto duplo na Nível corporativo e acionista. Observe que, em uma venda de ações, o comprador não obtém nenhum aumento na base dos ativos da entidade alvo8217s e, portanto, o comprador presumivelmente pagará ao vendedor menos por uma transação de estoque do que um negócio de ativos. Além disso, em uma transação de ações, o vendedor geralmente será obrigado a apresentar extensas declarações e garantias ao comprador e normalmente seria necessário indenizar o comprador por passivos que não são expressamente assumidos. O período de tempo que essas indenizações se aplicam e o montante de quaisquer tributos relacionados para garantir tais reclamações é um ponto de negociação entre as partes. Se você está vendendo suas participações em uma entidade passiva, pode ser possível que essa venda seja tratada como uma venda de ativos, embora pareça ser uma venda 8220stock8221. Os vendedores de ações das corporações S podem fazer uma eleição da Seção 338 (h) (10) em conjunto com um comprador corporativo e ter a transação de venda de ações tratada como uma venda de ativos considerados para fins fiscais. Essa transação é tratada como uma venda de ativos para todos os fins tributários e o comprador obteria um aumento na base dos ativos adquiridos mesmo que o comprador adquiriu ações tecnicamente adquiridas. O vendedor seria tratado como vendendo os ativos individuais da corporação S, de modo que algum ganho poderia ser tratado como renda ordinária. Um resultado semelhante ocorre se os interesses em uma LLC ou parceria forem transferidos para um comprador. Em alguns casos, as eleições apropriadas devem ser feitas pela LLC ou parceria para fornecer uma base de ativos para o comprador. 4. A atribuição do preço de compra é crítica. Ao vender ativos de negócios, a taxa de imposto federal sobre ganhos pode variar de 15 (ganho de capital de longo prazo) para 35 (taxas de renda ordinárias). Os vendedores e compradores de ativos precisam chegar a acordo sobre a alocação do preço de compra total para os ativos específicos adquiridos. Tanto o comprador quanto o vendedor depositam um Formulário IRS 8594 para memorizar sua alocação acordada. Ao considerar a alocação do preço de compra, você precisa determinar se você opera seu negócio em dinheiro ou regime de competência, em seguida, separe os ativos em seus vários componentes, tais como: caixa, contas a receber, inventário, equipamentos, imóveis, propriedade intelectual e outros intangivel. Um vendedor de contas a receber com base em caixa terá receita ordinária até a extensão total do valor desses recebíveis (mas o vendedor de base de competência terá uma base total em contas a receber e não deve ter ganho quando vendê-los). Qualquer alocação ao estoque em excesso de sua base tributária também estará sujeita às taxas de imposto de renda ordinárias. Os ativos que foram depreciados ou amortizados no passado podem sujeitar o proprietário da venda a 8220recapture8221 de deduções de depreciação passadas quando o ativo é alocado preço de compra em excesso de sua base de imposto atual, mas inferior ou igual ao seu custo original. A recaptura é feita a taxas de imposto de renda ordinárias para equipamentos e a uma taxa de 25 para a maioria dos imóveis. A propriedade intelectual e outros intangíveis geralmente se qualificam para taxas de ganho de capital de longo prazo, desde que nenhuma depreciação ou amortização passada tenha sido tomada em tais ativos pelo vendedor. O vendedor também deve considerar o momento da capacidade do comprador8217s de cancelar qualquer base de ativos, incluindo qualquer um que seja 8220stepped-up8221 como parte da transação. Os compradores geralmente gostam de alocar o preço de compra para ativos mais curtos, como recebíveis, inventário e equipamentos. Os compradores podem escrever esse preço de compra muito rapidamente. Por outro lado, a base da terra e do estoque não pode ser amortizada, os bens imóveis serão sujeitos a uma baixa de 39 anos e a propriedade intelectual e outros intangíveis, como o ágio, podem ser baixados ao longo de um período de 15 anos. A necessidade de alocar o preço de compra para os ativos específicos vendidos aplica-se a vendas reais de ativos, bem como às vendas de corporações S de acordo com uma eleição da Seção 338 (h) (10) e às vendas de participações LLC ou parceria (onde é necessário 8220look - através de 8221 a LLC ou parceria para os ativos específicos detidos pela entidade). 5. Outros Pagamentos para o vendedor Goodwill pessoal. Conforme mencionado acima, um vendedor que possui uma corporação C (ou uma corporação S sujeita às regras de imposto de ganhos incorporadas) enfrentará uma situação de imposto duplo se os ativos forem vendidos. Além disso, a venda de ações pelo vendedor não resultará em nenhum aumento de base em ativos ou outros pagamentos dedutíveis ao comprador, uma vez que o comprador não pode depreciar ou amortizar a base de estoque. Esta questão é frequentemente tratada por ter o comprador pagar um montante para o estoque corporativo e pagar outros montantes diretamente aos proprietários da corporação por itens como: consultoria, uma aliança para não competir, juros, aluguel de imóveis, licenças de propriedade intelectual e Boa vontade pessoal. Nessas situações, o comprador obterá uma dedução para os pagamentos que (i) seja imediato no caso de consultoria de boa-fé, juros ou aluguéis e (ii) amortizado ao longo de 15 anos no caso de pagamentos por não concorrência ou Boa vontade pessoal. Permitir que o comprador faça esses tipos de pagamentos normalmente tem um custo para o vendedor, em comparação com se eles foram simplesmente adicionados ao preço de compra de ações. Quando esses pagamentos diretos são feitos ao vendedor pelo comprador, o vendedor normalmente terá uma tributação de renda ordinária, em vez das taxas de ganho de capital disponíveis em uma venda de ações, com pagamentos de consultoria também desencadeando imposto adicional de trabalho independente. Uma distinção significativa é a venda do chamado 8220 goodwill8221 pessoal, que é tributável como ganho de capital de longo prazo para o vendedor (e amortizado em 15 anos pelo comprador). Muitas vezes, é uma questão difícil determinar se um vendedor realmente possui boa vontade pessoal ou se todo o ágio relacionado ao negócio reside na entidade usada para conduzir o negócio. Os vendedores que assumem a posição de que estão vendendo uma boa vontade pessoal ou que estão fornecendo uma aliança direta para não competir para um comprador, devem antecipar que o IRS pode desafiar esses pagamentos e tentar tratá-los como se fossem feitos diretamente para a entidade corporativa e Depois distribuído ao vendedor com uma taxa de 8220double.8221. Deve ser tomado cuidado para avaliar qualquer boa vontade pessoal e estabelecer a sua existência de acordo com a jurisprudência aplicável. 6. Vendas por liquidação (Financiamento do vendedor) e Custas. Se um comprador tiver permissão para pagar o preço de compra durante algum período de tempo prolongado, como cinco anos, o vendedor poderá diferir o ganho global da transação até que os pagamentos sejam realmente recebidos pelo vendedor (juntamente com o interesse aplicável). No entanto, nenhum adiamento é permitido em relação a qualquer parte da transação que represente a recaptura de depreciação (descrita na Seção 4 acima) ou ganho em itens de tipo de renda ordinária, como contas a receber ou inventário. Um vendedor que fornece financiamento para o vendedor corre, naturalmente, em risco para o comprador não operar o negócio com sucesso e o possível não pagamento da nota parcelada. Além disso, se a parcela diferida do preço de venda exceder 5 milhões, o IRS estabeleceu regras que exigem que o vendedor efetue pagamentos de juros que, essencialmente, negam o benefício do adiamento do imposto de venda de parcelamento. Os vendedores que efetuam uma venda por parcela são autorizados a escolher o out8221 do método de venda por prestação e pagar todo o imposto relacionado à transação na frente. Isso pode ser desejável em algumas situações, especialmente se o vendedor acredita que as taxas de aumento de capital aumentarão significativamente nos anos em que os pagamentos serão feitos. Os compradores também podem estabelecer montantes de custódia onde uma parcela do preço de compra é colocada em custódia e paga ao vendedor em uma data posterior, depois que é claro que as representações e garantias do vendedor8217s nos acordos de transação não foram violadas. Esses tipos de depósito podem ser estruturados para fornecer ao vendedor um tratamento de venda por prestação para que o vendedor não pague o imposto sobre o valor bloqueado até que o fideicomisso 8220breaks8221 e o produto do fideicomisso sejam pagos ao vendedor. 7. EarnoutContingent Payments. Quando um comprador e um vendedor não podem concordar com um preço de compra específico, às vezes é fornecido que um pagamento inicial será feito e serão feitos pagamentos adicionais adicionais ou eventuais ao vendedor se determinados marcos forem atingidos em anos posteriores pelo negócio que foi vendido. Mesmo quando a operação original foi qualificada para tratamento de ganho de capital a longo prazo, uma parcela de qualquer pagamento contingente será tratada como juros imputados e tributável ao vendedor como renda ordinária. Este montante aumenta a cada ano a partir da data do fechamento da transação original. Portanto, um pagamento contingente que é feito cinco anos após a conclusão da transação pode ter um montante significativo de juros imputados, dependendo das taxas de juros vigentes. Os destinatários de pagamentos contingentes têm o direito de usar o método de venda por prestação (ou eleger fora dele). Uma armadilha com o método de venda por prestação é que as regras especiais se aplicam a uma base de imposto do 8220spread8221 para um vendedor8217s para anos posteriores em que os pagamentos contingentes estão envolvidos em uma transação. Ao mudar a base para os anos posteriores, um imposto fiscal superior do vendedor8217s é aumentado e existe o risco de que a base empurrada para os anos posteriores possa ser desperdiçada. Se os marcos aplicáveis ​​não forem cumpridos e os pagamentos contingentes não forem pagos, isso poderia deixar o vendedor com base significativa.8221 e uma perda de capital em um ano posterior quando os pagamentos contingentes eram esperados, mas nunca se materializaram. Esta perda de capital não pode ser devolvida para compensar os ganhos de capital anteriores reconhecidos na transação nos exercícios anteriores, só pode ser utilizada para compensar os ganhos de capital atuais e futuros ou 3.000 de renda ordinária a cada ano, com uma reversão ilimitada. Os vendedores que concordem com pagamentos contingentes ou de earnout devem analisar cuidadosamente as regras de venda por prestação e antecipar a possibilidade de terem sido desperdiçados nos últimos anos. Em alguns casos, pode ser aconselhável 8220 eleição de 8221 de venda por prestação. 8. Opções de compra pendentes. Se a entidade vendedora tiver opções de compra em circulação, elas deverão ser consideradas como parte da análise fiscal global. Em uma transação de ativos, as opções geralmente permanecem em circulação, a menos que a transação seja estruturada como uma venda de ativos considerados e os interesses pendentes na entidade sejam vendidos ao comprador. Quando o estoque ou os interesses em uma entidade são vendidos, o vendedor precisará considerar o que acontece com as opções pendentes. É possível ao comprador assumir as opções e talvez substituí-las por opções em uma entidade compradora. Outra alternativa é retirar as opções para a diferença entre seu valor e seu preço de exercício. Este tipo de pagamentos de 8220cash out8221 são considerados rendimentos salariais ordinários, reportados em um W-2 com folha de pagamento e retenção de imposto de renda, e criará uma dedução de despesa na declaração de imposto final da entidade vendedora8217s, mesmo quando as opções são exercidas antes do acordo ser Fechado (embora o exercício de uma opção de opção de incentivo qualificada antes da venda do estoque a um comprador possa evitar a folha de pagamento e a retenção na fonte sobre o rendimento ordinário do outorgante). Note-se que algumas opções podem não ser adquiridas (exercitáveis) no momento de um acordo, mas uma mudança no controle da empresa emissora pode ser adquirida. Se isso acontecer, tenha cuidado com os 20 impostos especiais de consumo que são aplicados nos termos do Contrato de Receita Federal, seção 280G a 8220parachute8221 pagamentos (que inclui o valor de aquisição acelerada de opções) feitos a determinados vendedores quando ocorre uma mudança de controle em uma empresa. Onde a Seção 280G do Código poderia ser aplicada, um voto dos acionistas vendedores pode negar sua aplicação para certas empresas privadas. 9. Questões fiscais estaduais e locais. Além do imposto de renda federal, um imposto estatístico e local significativo pode ser imposto ao vendedor como resultado da transação. Diferentes estados podem estar envolvidos dependendo se a transação é estruturada como um ativo ou uma transação de estoque. Quando uma venda de ativos ou uma venda de ativos considerados estão envolvidos, pode ser devido um imposto nos estados em que a empresa possui ativos, vendas ou folha de pagamento e onde já tenha gerado renda no passado. Muitos estados não prevêem benefícios de taxa de imposto sobre o ganho de capital de longo prazo, pelo que um ganho de venda de ativos que se qualifica para tributação de ganho de capital de longo prazo para fins federais pode estar sujeito a taxas comuns do estado. As vendas de ações são geralmente tributadas no estado de residência do proprietário vendido, mesmo que a empresa conduza seus negócios em outro estado. Assim, um proprietário que estabeleceu uma residência de boa-fé em um estado sem imposto de renda pode vender ações sem incorrer em nenhum imposto estadual. Uma venda de estoque que é tratada como uma venda de ativos considerados, no entanto, pode ser avaliada em 8221 pelos estados onde a empresa conduz seus negócios e os impostos estaduais podem ser avaliados nesses estados, mas alguns contribuintes fizeram desafios bem-sucedidos a tais posições em certos estados . Os impostos estatais sobre vendas e uso também devem ser considerados em qualquer transação. As transações de ações geralmente não estão sujeitas a vendas, uso ou transferência de impostos, mas alguns estados impõem um imposto de selo e podem tentar cobrar seu imposto de selo na transferência de estoque. As vendas de ativos, por outro lado, precisam ser cuidadosamente analisadas para determinar se o imposto sobre vendas ou uso pode ser aplicado. A maioria dos estados impõe a transferência de bens pessoais tangíveis de um vendedor para um comprador, exceto que, quando um negócio inteiro é vendido, geralmente há uma isenção de venda isolada ou ocasional 8221 ou 8220casual8221 para ativos comerciais que não são vendidos regularmente no negócio do vendedor8217. As regras de isenção de venda isoladas ou ocasionais geralmente não se aplicam à transferência de veículos a motor que exigem retitulação como resultado da transação de venda, pelo que provavelmente será devido o imposto sobre as transferências de veículos a motor. Além disso, normalmente há uma isenção de revenda disponível para o inventário que é comprado por um comprador, de modo que o imposto sobre as vendas e o uso do imposto devam ser devolvidos no inventário. As transferências de imóveis geralmente exigem imposto de transferência de imóveis (ou escrituras) e este tipo de imposto de transferência também se aplica em alguns estados quando o estoque de uma entidade detentora de imóveis é vendido, mesmo que o imóvel real não seja transferido. Alguns estados exigem notificações de pré-venda para o estado em relação a uma transação potencial, com o comprador em risco para as vendas não pagas do vendedor8217 ou imposto de uso (e retenção de salário do estado do empregado não remunerado) se um certificado de apuramento de imposto não for obtido antes do Fechamento de transações. Um comprador que ignora as regras de notificação pré-venda pode liquidar o preço de compra duas vezes 8212 uma vez para o vendedor e uma vez para o estado para os impostos não pagos do vendedor8217s. 10. Planejamento imobiliário pré-venda. Se um dos seus objetivos é mover uma parte do valor do negócio para as gerações futuras, o planejamento imobiliário deve ser feito em um estágio inicial para mover qualquer interesse na entidade vendedora em benefício dos filhos ou netos quando os valores são baixo. Se o patrimônio líquido for transferido para fideicilhos para crianças ou netos numa fase precoce, esses fundos fiduciários receberão os benefícios do produto das vendas quando um ativo ou venda de estoque estiver concluído. Por outro lado, pode ser muito mais difícil e caro simplesmente vender a empresa e, em seguida, tentar mover o produto após impostos da venda para crianças ou netos em uma data posterior. Uma série de outras técnicas de planejamento imobiliário também podem ser implementadas, especialmente se forem postas em prática bem antes de qualquer acordo ser contemplado. As transações, como uma denominada confiança de concedente deficiente 82221, fornecem uma excelente maneira de transferir valor de transação substancial para as gerações futuras com base em impostos se forem estabelecidas com antecedência suficiente para evitar o escrutínio do IRS. Conclusão Antes de decidir vender seu negócio ou entrar em negociações substantivas com um comprador, certifique-se de ter revisado com um consultor fiscal qualificado as inúmeras considerações fiscais envolvidas. Somente depois de ter considerado as opções de estruturação de transações à luz de sua estrutura comercial e situação financeira, você pode se envolver em negociações significativas com um comprador. Copyright Oppenheimer Wolff amp Donnelly LLP. Marty Culhane é advogada e sócio fiscal do escritório de minneapolis do escritório de advocacia Oppenheimer e de um CPA (inativo) com mais de vinte e cinco anos de experiência trabalhando com clientes comprando ou vendendo negócios e transações corporativas relacionadas.