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.
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.
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.
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.
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.
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.