1. ECO383 PUBLIC FINANCE
US REVENUE SYSTEM:
THE CORPORATION TAX
Instructor: Jieruo Liu
jieliu@ic.sunysb.edu
2. An Overview
Just as the Person Income Tax: the corporation or
corporate tax has its own way to compute the tax
base and its own rate structure.
Also, it affects the corporate decisions in various
ways which are mostly covered in Corporate
Finance. In this course though, the main issue is the
government tax policy.
What should the tax rate structure be?
How to treat the taxes of multi-national corporations?
3. Question 1:
What should the tax rate structure be?
How high should it be?
What are the corporate tax rates in U.S. ? How about
other countries’?
Are the tax rates too high or too low?
What are the moderate tax rates?
What is the corporate tax structure in U.S. ?
Isthe tax a progressive rate or regressive rate?
Should the government adjust it?
4. US corporate tax rate
(consists of federal tax
and state corporate tax)
remains far above
OECD average
5.
6. Federal Corporate Tax Rates
Taxable income Tax rate
First $50,000 15%
$50,001–$75,000 25%
$75,001–$100,000 34%
$100,001–$335,000 39%
$335,001–$10,000,000 34%
$10,000,001–$15,000,000 35%
$15,000,001–$18,333,333 38%
Over $18,333,333 35%
7.
8.
9. Question 2:
How to treat the multi-national corporations?
Structure: US multinational corporations are subject
to tax at the standard rate on their global income,
including income earned abroad. A credit is then
allowed for foreign taxes paid. The credit cannot
exceed the amount that would have been owed
under US tax law. It is a common way around the
world.
Analyze the impacts of a high corporate tax on both
US-owned and non-US-owned multi-national
corporations.
10. Question 2:
How to treat the multi-national corporations?
Subsidiary Status: Taxation of the income from a
foreign enterprise can be deferred if the operation is a
subsidiary. Profits earned by a subsidiary are taxed
only if returned(repatriated) to the parent company as
dividends.
“Tax Haven”
Income Allocation:
Arm’s length system: the procedure now used for
allocating income between domestic and foreign operations
Transfer-pricing problem:
