Debating Corporate “Inversions”

September 19, 2014 at 3:32 pm

At a Heritage Foundation panel discussion this week, CBPP Senior Tax Policy Analyst Chye-Ching Huang debunked myths surrounding the recent wave of corporate “inversions,” in which U.S.-based firms move their headquarters overseas for tax purposes, and explained why policymakers should take strong action against them, explaining:

People think that there is a simple story that is driving inversions . . . that there are companies that are changing their tax headquarters to escape the highest statutory rate in the OECD [Organisation for Economic Co-operation and Development].  But that simple story is not what is happening. . . . The problem is really about U.S. multinationals and other multinationals gaming the tax system in the U.S. and all throughout the OECD so that they can claim that all of their profits are in tax havens.

Other panelists included CNBC Senior Economics Contributor Larry Kudlow, Heritage Chief Economist Stephen Moore, and Walter J. Gavin, Retired Vice Chairman of Emerson Electric.

As we’ve explained (see here and here for examples), the effective tax rate that U.S. multinationals face on their worldwide income is well below the 35 percent top U.S. statutory rate.  A big reason why is that multinationals report vast amounts of their income as coming from tax havens where they pay little or no tax.  Adopting a foreign headquarters could make it easier for multinationals to claim that their profits are made offshore and to use tax havens to avoid taxes anywhere.

Child Poverty Remains High, But States Can Make a Difference

September 19, 2014 at 12:55 pm

Update, September 22:  We’ve corrected the map in this post. 

More than half of the states plus the District of Columbia had child poverty rates of 20 percent or higher last year (see map), new data from the Census Bureau’s American Community Survey show, and in some states — like New Mexico and Mississippi — poverty affected as many as one in three kids.  Such extensive child poverty unnecessarily damages the prospects of millions of children.

Relative to their better-off peers, poor children have poorer health, do less well in school, and complete fewer years of education.  

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Why More Inequality Means Less State Revenue — And How States Can Respond

September 19, 2014 at 11:06 am

Growing income inequality in recent decades has slowed state tax collections, a new report from Standard & Poor’s finds, making it harder to fund public services ― like education ― that lay the groundwork for a strong future and help push back against rising inequality. States need to adapt their tax codes to take growing inequality into account.

Virtually all states collect more taxes (as a share of family income) from low- and moderate-income families than from high-income families.  So it makes sense that collections would slow when, as we’ve documented, the lion’s share of income growth goes to the richest families.

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Poverty Above Pre-Recession Levels in 47 States, New Census Data Show

September 18, 2014 at 4:46 pm

Poverty remained above pre-recession levels last year in 47 states plus the District of Columbia, our analysis of Census data issued this morning shows (see chart).  In some states, the increase was substantial — in Arizona, California, Florida, Georgia, and Nevada, poverty rates were four to five percentage points higher in 2013 than in 2007.  The stubbornness of high poverty rates in the wake of the Great Recession underscores the need for states to do more to help working families make ends meet.

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Income Inequality Remains at Historic High, Census Data Show

September 18, 2014 at 2:43 pm

Income inequality remained near a record high in 2013 by several measures the Census Bureau released earlier this week, with data going back to 1967.

The principal Census summary measure of household income inequality, known as the “Gini coefficient,” was not statistically different from the record high in 2012.  And the share of national income that goes to the top fifth of households was 51.0 percent, not statistically different from its record high of 51.1 percent in 2011.  The share of the nation’s income going to the top 20 percent has been growing for decades, but it only recently surpassed 50 percent. 

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