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34 Tax Features 1 (1990)

handle is hein.tera/taxfeaturs0034 and id is 1 raw text is: TAX FOUNDATION'S VOL. 34, NO. 1 JANUARY 1990 Increasing Corporate Tax Burden Finishes Decade on the Upswing Poyoris Inc Tear Down the Protectionist Wall Some members of Congress want to build the tax and regulatory equivalent of a new Berlin Wall around the United States. This Berlin Wall is designed to keep foreigners out, or in the case of the Burke-Hartke bill, to keep American in- vestment in. A second group of legislators, often overlap- ping with the first, is eager to protect the manag- ers of companies susceptible to takeovers or buyouts, whether domestic or foreign, that might threaten to enrich U.S. stockholders. Both of these anticompetitive interests find common ground in thinly disguised efforts to discourage foreign investment by tinkering with the tax code. Recent attempts to sneak several protectionist proposals into the budget reconcili- ation process are revealing. One of them was an attempt to tax the capi- tal gains on sales of stock in U.S. companies by foreigners who own more than ten percent of such stock. With an estimated tax revenue of only $5 million, not billion, revenue obviously was not the point. There was a hidden agenda at work, but it wasn't too well hidden. The Finan- cial Times caught it quickly with a headline that said U.S. Plan Attacks Foreign Buyers. Foreign retaliation against a proposal like that would be almost guaranteed. The vicious cycle of retaliation would snuff out capital gains revenue windfalls everywhere, as the efficient (See FRONT BURNER on page 2) Ed. Note: The Front Burner is a forum for participants in the fiscal arena to express their opinions on tax and budget issues. These opinions are not necessarily those of the Tax Foundation. Editorial responses are encouraged. With federal deficits hovering around THIS $150 billion, the government will continue its drive for more revenues. Corporations are ISSUE: often targeted because they are said to be PAGE 1: undertaxed. Despite statistical evidence to the Corporate Tax contrary, this recurring theme seems to have a Burden life of its own and always resurfaces when Front Burner more revenues are required for increased PAGE 4: spending. In fact, corporations carry a heavy Facts & tax burden and provide a large and growing Figures percentage of the total tax revenue collected Conference by the federal government. Proceedings Recent Corporate Tax History In 1981, Congress enacted a significant corporate tax cut under the Economic Recovery Tax Act of 1981 (ERTA). If it had been allowed to take effect fully, it would have substantially reduced overall corporate income tax liabilities in the 1980s. Instead, there were major contravening tax bills starting with the Tax Equity and Fiscal Responsibility Act (TEFRA) in 1982 and the Deficit Reduction Act (DEFRA) in 1984. Outside of the Tax Reform Act of 1986, the major drive behind tax legislation after 1981 was purely and simply to increase tax revenues. The Tax Outside of the Tax Reform Act of 1986, the major drive behind tax legislation after 1981 was purely and simply to increase tax revenues. Reform Act of 1986 obliterated the capital recovery and business tax relief of 1981 and effectively piled on significant net increases in corporate tax liabilities after 1986. More recently, further in- creases in corporate income taxes have occurred as a result of the Omnibus Budget Reconciliation Act of 1987 and the Continuing Resolution for 1988. Table I on page 2 compares the effect of major enacted legislation in the 1981-1988 period on individual and corporate income taxes currently and projected through 1992. Individuals' taxes are markedly lower than they would have been without the legislation, but the corporate sector is (See CORPORATE TAX BURDEN on page 2) This article is taken from the Tax Foundation's recent Special Report on the corporate tax burden which is available for $2.50 plus $1 p/h. LI TAX FOUNDATION'S VOL. 34, NO. 1 JANUARY 1990 TAX•0

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