A consumption-based direct tax for countries in transition from socialism

This paper suggests a consumption-based direct tax, referred to here as a simplified alternative tax or SAT, as an alternative to the standard income tax for reforming socialist economies (RSEs). The paper consists of seven sections. Section I serves as an introduction. Section II outlines some of the objectives of tax policy in RSEs and some of the constraints on the achievement of those objectives. Section III provides examples of the overwhelming complexity of the income tax. Section IV explains the basic mechanics of the SAT and contrasts the simplicity of the SAT with the complexity of the income tax. Section V describes the economic advantages of the SAT and section VI discusses some potential problems of the SAT. The final section concludes by stating that the SAT encourages saving and investment in a way that is economically neutral and avoids many of the administrative problems of an income tax.Environmental Economics&Policies,Economic Theory&Research,Public Sector Economics&Finance,Banks&Banking Reform,International Terrorism&Counterterrorism

A Reference Manual for Child Tax Benefits

Describes the dependent exemption, child tax credit, earned income tax credit, child and dependent care tax credit, flexible spending accounts, and higher education credits. Discusses the complexity of child tax benefits and proposed reforms

It's all about tax rates: An empirical study of tax perception

In this paper we apply conjoint analysis to study the influence of changes in the tax rate and the tax base on the perceived tax burden. Our results show that the majority of individuals do not make rational tax decisions based on the actual tax burden, but rather use simple decision heuristics. This leads to the importance of the tax rate being significantly overestimated and the importance of the tax base being significantly underestimated. Furthermore we determine framing effects and show that under specific assumptions, a rise in the actual tax burden can lead to a electoral success. --behavioral public finance,decision heuristics,framing effects,perceived tax burden,tax-cut-cum-base-broadening,tax complexity,tax illusion

Tax Complexity and Inward Investment

The negative relationship between host-country tax rates and FDI has been tested in a large number of papers. This paper looks at a different channel through which tax systems could affect FDI, namely the complexity of the tax system. Complying with tax authority requirements can be extremely time consuming for business and this implies an additional cost for more complex tax systems. We use measures of the time taken to deal with tax obligations and the number of tax payments for a representative firm compiled by the World Bank to examine their effect on FDI selection and flows from 16 OECD FDI-source countries to 57 host countries. We find a negative and significant effect of tax rates in line with other studies. In addition, the tax complexity measures are found to have a significant inhibiting effect on the presence of FDI for a country pair, but have little impact on the level of the FDI flow once it is established. In other words, the complexity measures affect FDI primarily through the extensive margin. A 10% reduction in tax complexity is found to be comparable in its effect on FDI to a one percentage point reduction in the effective corporate tax rate. The results are robust to the inclusion of other proxies for bureaucracy in the host country.

Tax Structures and FDI The Deterrent Effects of Complexity and Uncertainty

In this study we examine the connection between the varied experiences of the transition countries in attracting FDI and their diverse experiences in transforming their tax structures to be consistent with a market economy. In particular, we study whether complexity and uncertainty in their tax laws have deterred foreign direct investment by increasing transaction costs, the compliance burden and the unpredictability of tax liabilities. Our results indicate that complexity and uncertainty, in the sense of multiple tax rates, indeterminate language in the tax law, and inconsistent changes in the tax laws have a significant negative effect on inward foreign direct investment.http://deepblue.lib.umich.edu/bitstream/2027.42/39943/2/wp558.pd

Tax Perception: An empirical survey

This paper gives a survey of the experimental literature on the perception (bias) of individuals with respect to their own tax burden and its effect on economic decisions. Six strands of literature are discussed: (1) perception of marginal tax rates, (2) influence of tax complexity on tax perception, (3) taxation and incentives to work, (4) tax salience, (5) tax morale and fairness and (6) money illusion, perceived inflation and fiscal drag. The literature discussed contains more evidence for than against a perception bias. --taxation,tax perception,literature survey

Maybe Just a Little Bit Special, After All?

The attitude—common among tax professionals—that tax is special (mostly because of its supposedly unique complexity), and that special legal rules should apply in the tax context, has been described and excoriated by scholars as tax exceptionalism or tax myopia. The Supreme Court dealt tax exceptionalism a grievous blow in its 2011 opinion in Mayo Foundation for Medical Education & Research v. United States, in which it held that the Chevron standard for determining the validity of regulations applied in tax just as it applied in other fields. One commentator gleefully celebrated Mayo as the death knell of tax exceptionalism, declaring, The tax world finally recognized a stark fact of life in 2011: Tax law is not special. This Article offers, with numerous hedges and qualifications, a defense of the exceptionalists and of exceptionalism. It makes three points for the defense. First, it is not so much tax professionals who think tax is special; rather, the view of tax as a thing apart is held most strongly by everyone else. Second, to the extent tax professionals do believe that tax is special, they resemble antitrust lawyers who think that antitrust is special, bankruptcy lawyers who think that bankruptcy is special, and so on. In other words, there is nothing exceptional about tax exceptionalism. And, finally, to the extent tax professionals not only think tax is special but also think it is more special than, say, antitrust lawyers think that antitrust is special, they may not be altogether wrong. Maybe tax really is just a little bit special, after all

What are the Drivers of Tax Complexity for Multinational Corporations? Evidence from 108 Countries

All over the world, firms and governments are increasingly concerned about the rise in tax complexity. To manage it and develop effective simplification measures, detailed information on the current drivers of complexity is required. However, research on this topic is scarce. This is surprising as the latest developments - for example, triggered by the BEPS project - give rise to the conjecture that complexity drivers may have changed, thus questioning the findings of prior studies. In this paper, we shed light on this issue and provide a global picture of the current drivers of tax complexity that multinational corporations face based on a survey of 221 highly experienced tax practitioners from 108 countries. Our results show that prior complexity drivers of the tax code are still relevant, with details and changes of tax regulations being the two most influential complexity drivers. We also find evidence for new relevant complexity drivers emerging from different areas of the tax framework, such as inconsistent decisions among tax officers (tax audits) or retroactively applied tax law amendments (tax enactment). Based on the responses of the practitioners, we develop a concept of tax complexity that distinguishes two pillars, tax code and tax framework complexity, and illustrates the various aspects that should be considered when assessing the complexity of a country's tax system.Series: WU International Taxation Research Paper Serie

Theoretical Perspectives on Resource Tax Design

The importance and complexity of petroleum and hard minerals operations is matched by the importance and complexity of finding effective ways to tax them. Many of these challenges arise in other activities too (exhaustibility of deposits being the main exception), but they take such extreme form in relation to resources as to have led to a proliferation of creative instruments and analytical methods. This paper reviews the challenges for tax policy in dealing with the resource sector, the principal instruments used, and some of the central design issues.natural resources, resource taxation, non-renewable resources

Tax law: rules or principles?

This is the year of simplification of tax legislation and I should like to add my thoughts to the debate. There is nothing new in complaining about the complexity of tax legislation. Every generation does it. To give two examples, the Codification Committee in 1936 looked back longingly to the early days of income tax: ‘... the Statutes of 1842 and 1853 were relatively simple. The growth of legislation since 1907 and its increasing complexity have been in large measure due to the high rates of tax in operation ... The space occupied by the provisions relating to such reliefs and exemptions is now prodigious, and contrasts with the comparative brevity of the earlier code.... Unhappily the actual language in which many of the statutory provisions are framed is so intricate and obscure as to be frankly unintelligible’. In 1955, the Royal Commission said much the same: ‘... the law on the subject of income tax remains voluminous, complicated and obscure.... The history of earlier attempts [to simplify it], however, suggests that the problem may be in fact an intractable one, beyond the reach of recommendations’.