If there’s one policy agreement between Republicans and Democrats, it’s that the 35% corporate tax rate in the United States should be reduced to 28% or 25%. The current rate, highest in the advanced industrial world, disincentivizes investment and encourages corporations to relocate overseas.
Category Archives: Article
How to slash the US corporate tax rate [Financial Times]
Both Republicans and Democrats agree that the 35 per cent corporate tax rate in the US is too high. Yet discussions over the corporate tax fizzled out during the recent fiscal cliff negotiations, partially because of the budgetary maths. Neither party has identified enough revenue increases to offset the $1.2tn cost over 10 years of lowering the corporate tax rate to a more reasonable 25 per cent.
Striking a balance on money market funds [Washington Post]
Co-authored with Theresa Hamacher.
Since the financial crisis of 2008, money market funds have been the subject of fierce debate. Regulators say money market funds need to be fundamentally transformed to prevent them from creating too much systemic risk. The fund industry has pushed back, trying to preserve the utility of money market funds for millions of investors. Fortunately, a smart compromise exists that would reform the riskiest money market funds while protecting retail investors.
Make 2013 the Year to Resolve the Money Fund Debate [Brookings Up Front]
The road to money market fund reform has been politically arduous. In August, Mary Schapiro, then the Chairwoman of the SEC, was forced to call off a vote on money market fund reform. Three of the five commissioners had indicated that they were not prepared to support the rules under consideration. Fortunately, two of the three dissenters have recently expressed receptivity to some reforms in certain circumstances.
Capping the Deductibility of Corporate Interest Expense [Tax Notes]
Co-authored with Lucas Goodman
From the abstract:
Many lawmakers have indicated support for reducing the statutory corporate tax rate from 35 to 25 percent on a revenue-neutral basis. However, they have not made clear how they would broaden the base enough to pay for that rate reduction. This report proposes a specific approach for revenue neutral corporate tax reform: limiting the tax deductibility of interest expense for C corporations.That would significantly reduce the tax code’s bias in favor of debt-financed investment relative to equity-financed investment, while keeping the overall cost of capital roughly the same.
The authors propose reform that lowers the corporate tax rate from 35 to 25 percent and allows nonfinancial C corporations to deduct only 65 percent of their interest expense, with special treatment for the financial sector and for companies that
would have otherwise realized taxable losses. Based on a static analysis of aggregate data between 2000 and 2009, the authors calculate that the revenue loss from lowering the corporate tax rate to 25 percent would have been about the same as the revenue gain from their proposed limits on interest deductions.
Not all money market funds are equal [Financial Times]
Co-authored with Theresa Hamacher
There is a sensible compromise to the debate over money market fund reform that regulators should seriously consider: requiring a fluctuating share price for some money market funds owned by institutional investors, but not for those owned by retail investors. Currently, all money market funds may use a fixed share price – known as the “net asset value”, or NAV – at one dollar per share, subject to strict conditions.
Getting Wall Street Accountability Right [Real Clear Markets]
When it comes to the financial crisis of 2008, there’s certainly no shortage of blame. But who should be legally liable for any wrongdoing that occurred? In my view, enforcement actions should be brought for two primary purposes: to increase accountability and deter future wrongdoing. In most cases, that means focusing attention on the individuals who committed the alleged bad acts, not the corporate entities. Unfortunately, the SEC and other agencies have often brought actions against the corporate entities instead. Here are two particularly egregious examples.
The SEC vs. J.P. Morgan [Wall Street Journal]
J.P. Morgan Chase & Co. announced last week that it had agreed to settle a multiyear probe by the Securities and Exchange Commission. The probe alleges that Bear Stearns (which J.P. Morgan acquired in early 2008) failed to disclose key information about the mortgage-backed securities it sold—such as the low quality of the mortgages underlying them. Under the proposed settlement, J.P. Morgan will pay an undisclosed amount, but no individuals will be charged.