I’d add a couple quick comments.
-The first is that the companies certainly aren’t unaware of the loopholes. This is why the effective rate is lower than the statutory rate. Investment is going to be driven by what a company will actually pay, not a topline number. The benefit is to accountants and lawyers yes, but also those companies who qualify for loopholes, or can afford the accountants and lawyers.
-That being said, the previous point brings me to my next one, which is that the tax code thus likely favors large companies. They are more effective at lobbying for tax cuts for their specific kinds of activity, and they are better equipped to take advantage of loopholes.
-Another thing to consider though: the panoply of loopholes are frequently cited as “distortions” (a kind of market-based inefficiency), and that eliminating these loopholes is an unabashed good. Jan, you didn’t quite say either of those things above, although you *could* be read as having implicitly done something like the latter. But some deductions are probably driven a recognition of genuine market failures or other reasonable policy considerations. For instance, Jan’s proposal above regarding putting limits on how repatriated money (with lower taxes) is spent is one such example. It might be good policy, and it might be good economics if there is a market failure happening (say, the benefits of investing in the workforce accrue in a diffuse fashion, and so create a kind of collective-action problem). Getting rid of loooholes isn’t ALWAYS good.
-One other consideration for corporate tax policy. I agree that it’s effect on shareholders seems to be less straightforward than we’d tend to imagine. But in a post-Citizen’s United world, there may be other reasons to avoid allowing excessive concentrations of corporate wealth. This allows for too much political power, which can be used to hijack the regulatory state and tax code to stack the deck in favor of the already powerful. (Hence, the source of many of the loopholes!). I am probably not doing it justice, but Jan’s colleague Clay Christensen has suggested that this problem is one reason to favor a small state–the long arm of the state cannot be used for crony capitalism if the arm is in fact a short arm! I am not convinced, but it is provocative. In any case, per Jan’s point, it isn’t always clear what greater taxes will lead to–will higher taxes make big companies poorer and less able to lobby? Or will it just mean that they stash money offshore, or that they will respond to this higher tax rate as an incentive to dedicate more resources to lobbying for loopholes? Jan’s writing above suggests that they will do the money stashing. The latter (will they lobby more?) is also an empirical question–and I don’t know that anyone has researched it.
Back to work! Fun distracting myself today. I’ve basically written about all that I disagree with on the blog today (which means I don’t have too much to add!).
I disagree with Karen on the ethical question here.
From a legal perspective, there is no constitutional duty for local enforcement officials to enforce federal law, which is known as the “anti-commandeering” principle. Slippery slope or not, this is a product of the dual sovereignty enshrined in constitutional jurisprudence (see, e.g, New York v. United States, and Printz v. United States).
Obviously the ethical and the legal are not the same thing and I do not mean to conflate them. But surely the legal status of an action affects the ethical obligations of those who are charged with enforcement, right? If local officials would be acting well within their constitutional rights to pass their own judgment as to whether they would like to enforce federal laws, it is unclear to me why it would be unethical for state/local officials to instead enforce the laws they are charged with enforcing, rather than the federal ones. Why would it be more ethical for them to let federal policy supplant state policy?
It should also be noted, though, that the federal government would also be within its rights to withhold SOME funding as a form of retaliation. That being said, its ability to do so has been narrowed significantly, through cases that establish the “anti-coercion” doctrine (e.g., in South Dakota v. Dole, the feds could withhold 5% of highway funds to a state for failure to adopt a minimum drinking age of 21, because the funds we related and the order of magnitude wasn’t coercive. But in NFIB v Sebelius (the Affordable Care Act case), the court said withholding 100% of Medicaid funds from states that refused to expand Medicaid under the ACA was an unacceptable “gun to the head.”).
Reno v Condon (Congress can request information) may give the government an opening for some sort of commandeering, though, but I think this is an unlikely result. (See this LA times article for the argument in favor of that position. http://www.latimes.com/opinion/op-ed/la-oe-rivkin-foley-sanctuary-city-20161207-story.html)
For a better articulation of these matters, see Noah Feldman (superstar Harvard Law School professor)