How does taxation help or hinder businesses

Business Cards. Payment Solutions. International Payments. Business Class. Summary The U. There are two ways to execute an inversion strategy: Self-inversion. A company can simply reincorporate abroad in a country with lower taxes, like Ireland, assuming it already has significant business activity in that country.

Inversion through merger or acquisition. The more common approach is to buy a small, foreign company where the owners of the acquired company will own at least 20 percent of the newly combined business. The new company can incorporate anywhere it chooses. We work hard to make our analysis as useful as possible. Would you consider telling us more about how we can do better? McBride has more than ten years of experience analyzing a variety of economic and policy issues.

Most recently, he served as a manager in the National Economic and Statistics NES group at PricewaterhouseCoopers where he worked on numerous projects, including economic impact analyses, industry surveys, U. McBride holds a PhD in economics from George Mason University, where he specialized in macroeconomics and agent-based modeling. December 18, William McBride. Print this page Subscribe Support our work.

Introduction The idea that taxes affect economic growth has become politically contentious and the subject of much debate in the press and among advocacy groups. Literature Review Nearly every empirical study of taxes and economic growth published in a peer reviewed academic journal finds that tax increases harm economic growth.

He argues that annual data, at least at the state level, suffers from measurement error and misspecification of lagged effects and may prevent findings of a robust relationship between taxes and growth: My analysis suggests that tax policies take time to work its full effects on the economy. Was this page helpful to you? Thank You! Let us know how we can better serve you! Give Us Feedback. Share Tweet Share Email.

About the Author. Follow William McBride. Related Research. A 1 percentage point cut in the average personal income tax rate raises real GDP per capita by 1. A 1 percentage point cut in the average corporate income tax rate raises real GDP per capita by 0. Taxes on income and profit are most damaging to economic growth over the long run, followed by deficits, and then consumption taxes.

Corporate taxes most harmful, followed by taxes on personal income, consumption, and property. Progressivity of PIT harms growth. A 1 percent shift of tax revenues from income taxes both personal and corporate to consumption and property taxes would increase GDP per capita by between 0.

Corporate taxes, both in terms of the statutory rate and depreciation allowances, reduce investment and productivity growth. Raising the top marginal rate on personal income reduces productivity growth. Fiscal stimuli based upon tax cuts more likely to increase growth than those based upon spending increases. Fiscal consolidations based upon spending cuts and no tax increases are more likely to succeed at reducing deficits and debt and less likely to create recessions.

International Monetary Fund, Will it hurt? Robert Reed, The robust relationship between taxes and U. Robust negative effect of state and local tax burden. Multi-year panels mitigate misspecified lag effects, serial correlation, and measurement error.

Bania, J. Stone, Growth, taxes, and government expenditures: growth hills for U. Marc Tomljanovich, The role of state fiscal policy in state economic growth , 22 Contemporary Economic Policy Positive tax shocks, or unexpected increases in total revenue, negatively affect private investment and GDP. Galli, E. Cutting taxes reduces government revenues, at least in the short term, and creates either a budget deficit or increased sovereign debt.

The natural countermeasure would be to cut spending. However, critics of tax cuts would then argue that the tax cut is helping the rich at the expense of those with fewer resources because the services that would likely get cut are beneficial to those in a lower income bracket. Proponents argue that by putting money back in consumer's pockets spending will increase; hence, the economy will grow and wages will rise.

At the end of the day, the outcome depends on where the cuts are made. Internal Revenue Service. Accessed April 12, Chicago Tribune. Revenue, Critics Say. National Center for Biotechnology Information, U. National Library of Medicine. Federal Reserve Bank of St. National Bureau of Economic Research. Congressional Research Service.

Tax Laws. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. How does the earned income tax credit affect poor families? What are error rates for refundable credits and what causes them?

How do IRS audits affect low-income families? Taxes and Retirement Saving What kinds of tax-favored retirement arrangements are there? How large are the tax expenditures for retirement saving? What are defined benefit retirement plans? What are defined contribution retirement plans? What types of nonemployer-sponsored retirement savings accounts are available? What are Roth individual retirement accounts? Who uses individual retirement accounts? How does the availability of tax-favored retirement saving affect national saving?

What is an automatic k? How might low- and middle-income households be encouraged to save? Taxes and Charitable Giving What is the tax treatment of charitable contributions? What entities are tax-exempt? Who benefits from the deduction for charitable contributions? How would various proposals affect incentives for charitable giving? How large are individual income tax incentives for charitable giving? How did the TCJA affect incentives for charitable giving? Taxes and Health Care How much does the federal government spend on health care?

Who has health insurance coverage? Which tax provisions subsidize the cost of health care? How does the tax exclusion for employer-sponsored health insurance work? What are premium tax credits? What tax changes did the Affordable Care Act make?

How do health savings accounts work? How do flexible spending accounts for health care expenses work? What are health reimbursement arrangements and how do they work? How might the tax exclusion for employer-sponsored health insurance ESI be reformed?

Taxes and Homeownership What are the tax benefits of homeownership? Do existing tax incentives increase homeownership? Taxes and Education What tax incentives exist for higher education? What tax incentives exist to help families pay for college? What tax incentives exist to help families save for education expenses? What is the tax treatment of college and university endowments? Tax Complexity Why are taxes so complicated? What are the benefits of simpler taxes?

What policy reforms could simplify the tax code? Wealth Transfer Taxes How do the estate, gift, and generation-skipping transfer taxes work? Who pays the estate tax? How many people pay the estate tax?

What is the difference between carryover basis and a step-up in basis? How could we reform the estate tax? What are the options for taxing wealth transfers? What is an inheritance tax? Payroll Taxes What are the major federal payroll taxes, and how much money do they raise? What is the unemployment insurance trust fund, and how is it financed?

What are the Social Security trust funds, and how are they financed? Are the Social Security trust funds real? What is the Medicare trust fund, and how is it financed?

Excise Taxes What are the major federal excise taxes, and how much money do they raise? What is the Highway Trust Fund, and how is it financed? Energy and Environmental Taxes What tax incentives encourage energy production from fossil fuels?

What tax incentives encourage alternatives to fossil fuels? What is a carbon tax? Business Taxes How does the corporate income tax work? What are pass-through businesses?

How are pass-through businesses taxed? Is corporate income double-taxed?