An Analysis of Where American Companies Report Profits: Indications of Profit Shifting

This report uses data on the operations of U.S. multinational companies (MNCs) to examine the extent to which, if any, MNCs are moving profits out of high-tax countries (or out of the U.S.) and into low-tax countries with little corresponding change in business operations, a practice known as “profit shifting.” To do this, the profits reported by American firms in two groups of countries are compared with measures of real economic activity in those locations. The first group consists of the five countries commonly identified as being “tax preferred” or “tax haven” countries, and includes Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland. The second group, which provides a baseline for comparison, consists of five more traditional economies. This group includes Australia, Canada, Germany, Mexico, and the United Kingdom. Consistent with the findings of existing research, the analysis presented here appear to show that significant shares of profits are being reported in tax preferred countries and that these shares are disproportionate to the location of the firm’s business activity as indicated by where they hire workers and make investments. For example, American companies reported earning 43% of overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland in 2008, while hiring 4% of their foreign workforce and making 7% of their foreign investments in those economies. In comparison, the traditional economies of Australia, Canada, Germany, Mexico and the United Kingdom accounted for 14% of American MNCs overseas’ profits, but 40% of foreign hired labor and 34% of foreign investment. This report also shows that the discrepancy between where profits are reported and where hiring and investment occurs, as examples of business activity, has increased over time. Additional evidence that profit shifting has increased over time is found from a comparison of business profits with economic output (gross domestic product) in the two country groups. MNC profits as a share of gross domestic product (GDP) in the traditional economies averaged from 1% to 2% between 1999 and 2008, while their profits in the tax preferred countries profits averaged 33% of GDP in 2008, up from 27% in 1999. Individual countries within the tax preferred group displayed more dramatic increases in the ratio of profits to GDP. For example, profits reported in Bermuda have increased from 260% of that country’s GDP in 1999 to over 1000% in 2008. In Luxembourg, American business profits went from 19% of that country’s GDP in 1999 to 208% of GDP in 2008. This report may be of interest to Members of Congress for at least four reasons. First, profit shifting has been the specific target of recent Congressional action, including a September 2012 hearing held by the Senate Permanent Subcommittee on Investigations, as well as several bills introduced in the 112th Congress. Second, anti-abuse provisions have been included in general tax reform proposals in the 112th Congress. Third, most general tax reform proposals would lower the top corporate rate which would diminish the incentive to shift profits. And fourth, to the extent that profit shifting is reduced, federal tax revenues would increase which could assist in addressing the country’s debt and deficit problems

The Corporate Income Tax System: Overview and Options for Reform

The corporate income tax system has been a focus of many recent debates about tax reform and the economy. Many economists and policy makers argue that reform of the corporate income tax system is needed, although a variety of rationales on why and how have been offered. Some argue that a simpler system with lower tax rates is necessary to encourage domestic investment, employment, and economic growth. Others argue that reform is needed to close loopholes and restrict access to tax havens, both of which are seen by some to allow corporations to avoid taxes too easily. A number of others have advocated for corporate tax reform on the basis that the current system puts American corporations at a disadvantage when compared with foreign competitors. Many believe it is a combination of these arguments that justify reforming the corporate tax system. This report presents information and research on the corporate tax to help policy makers understand and evaluate arguments presented in the tax reform debate. Many of the topics and ideas discussed here are analyzed in greater detail in the other CRS reports and academic research referenced throughout. This report first reviews the structure of the corporate income tax. Data on which companies pay the corporate tax, corporate tax revenue, and how the U.S. system compares to the rest of the world are then presented and analyzed. Next, the economic effects of the corporate tax are reviewed—including a discussion of the purpose of the corporate tax, who bears the burden of the tax, and how to evaluate alternative corporate tax systems. The report then reviews broad reform options and concludes with a comparison of specific proposals that have been offered

A general equilibrium theory of college with education subsidies, in-school labor supply, and borrowing constraints

This paper analyzes the effectiveness of three different types of education policies: tuition subsidies (broad based, merit based, and flat tuition), grant subsidies (broad based and merit based), and loan limit restrictions. We develop a quantitative theory of college within the context of general equilibrium overlapping generations economy. College is modeled as a multi-period risky investment with endogenous enrollment, time-to-degree, and dropout behavior. Tuition costs can be financed using federal grants, student loans, and working while at college. We show that our model accounts for the main statistics regarding education (enrollment rate, dropout rate, and time to degree) while matching the observed aggregate wage premiums. Our model predicts that broad based tuition subsidies and grants increase college enrollment. However, due to the correlation between ability and financial resources most of these new students are from the lower end of the ability distribution and eventually dropout or take longer than average to complete college. Merit based education policies counteract this adverse selection problem but at the cost of a muted enrollment response. Our last policy experiment highlights an important interaction between the labor-supply margin and borrowing. A significant decrease in enrollment is found to occur only when borrowing constraints are severely tightened and the option to work while in school is removed. This result suggests that previous models that have ignored the student's labor supply when analyzing borrowing constraints may be insufficient.Education - Economic aspects ; College costs

The Corporate Income Tax System: Overview and Options for Reform

[Excerpt] The corporate income tax system has been a focus of many recent debates about tax reform and the economy. Many economists and policymakers argue that reform of the corporate income tax system is needed, although a variety of rationales on why and how have been offered. Some argue that a simpler system with lower tax rates is necessary to encourage domestic investment, employment, and economic growth. Others argue that reform is needed to close loopholes and restrict access to tax havens, both of which are seen by some to allow corporations to avoid taxes too easily. A number of others have advocated for corporate tax reform on the basis that the current system puts American corporations at a disadvantage when compared with foreign competitors. Many believe it is a combination of these arguments that justify reforming the corporate tax system. This report presents information and research on the corporate tax to help policymakers understand and evaluate arguments presented in the tax reform debate. Many of the topics and ideas discussed here are analyzed in greater detail in the other CRS reports and academic research referenced throughout. This report first reviews the structure of the corporate income tax. Data on which companies pay the corporate tax, corporate tax revenue, and how the U.S. system compares to the rest of the world is then presented and analyzed. Next, the economic effects of the corporate tax are reviewed—including a discussion of the purpose of the corporate tax, who bears the burden of the tax, and how to evaluate alternative corporate tax systems. The report then reviews broad reform options and concludes with a comparison of specific proposals that have been offered

The Corporate Income Tax System: Overview and Options for Reform

[Excerpt] The corporate income tax system has been a focus of many recent debates about tax reform and the economy. Many economists and policymakers argue that reform of the corporate income tax system is needed, although a variety of rationales on why and how have been offered. Some argue that a simpler system with lower tax rates is necessary to encourage domestic investment, employment, and economic growth. Others argue that reform is needed to close loopholes and restrict access to tax havens, both of which are seen by some to allow corporations to avoid taxes too easily. A number of others have advocated for corporate tax reform on the basis that the current system puts American corporations at a disadvantage when compared with foreign competitors. Many believe it is a combination of these arguments that justify reforming the corporate tax system. This report presents information and research on the corporate tax to help policymakers understand and evaluate arguments presented in the tax reform debate. Many of the topics and ideas discussed here are analyzed in greater detail in the other CRS reports and academic research referenced throughout. This report first reviews the structure of the corporate income tax. Data on which companies pay the corporate tax, corporate tax revenue, and how the U.S. system compares to the rest of the world is then presented and analyzed. Next, the economic effects of the corporate tax are reviewed—including a discussion of the purpose of the corporate tax, who bears the burden of the tax, and how to evaluate alternative corporate tax systems. The report then reviews broad reform options and concludes with a comparison of specific proposals that have been offered

How and why DNA barcodes underestimate the diversity of microbial eukaryotes

Background: Because many picoplanktonic eukaryotic species cannot currently be maintained in culture, direct sequencing of PCR-amplified 18S ribosomal gene DNA fragments from filtered sea-water has been successfully used to investigate the astounding diversity of these organisms. The recognition of many novel planktonic organisms is thus based solely on their 18S rDNA sequence. However, a species delimited by its 18S rDNA sequence might contain many cryptic species, which are highly differentiated in their protein coding sequences. Principal Findings: Here, we investigate the issue of species identification from one gene to the whole genome sequence. Using 52 whole genome DNA sequences, we estimated the global genetic divergence in protein coding genes between organisms from different lineages and compared this to their ribosomal gene sequence divergences. We show that this relationship between proteome divergence and 18S divergence is lineage dependant. Unicellular lineages have especially low 18S divergences relative to their protein sequence divergences, suggesting that 18S ribosomal genes are too conservative to assess planktonic eukaryotic diversity. We provide an explanation for this lineage dependency, which suggests that most species with large effective population sizes will show far less divergence in 18S than protein coding sequences. Conclusions: There is therefore a trade-off between using genes that are easy to amplify in all species, but which by their nature are highly conserved and underestimate the true number of species, and using genes that give a better description of the number of species, but which are more difficult to amplify. We have shown that this trade-off differs between unicellular and multicellular organisms as a likely consequence of differences in effective population sizes. We anticipate that biodiversity of microbial eukaryotic species is underestimated and that numerous ''cryptic species'' will become discernable with the future acquisition of genomic and metagenomic sequences

Critical parameters and performance tests for the evaluation of digital data acquisition hardware

Recent developments of digital data acquisition systems allow real-time pre-processing of detector signals at a high count rate. These so-called pulse processing digitizers are powerful and versatile instruments offering techniques which are important for nuclear security, critical infrastructure protection, nuclear physics and radiation metrology. Certain aspects of digital data acquisition affect the performance of the total system in a critical way and therefore require special attention. This report presents a short introduction to digital data acquisition, followed by a discussion of the critical parameters which affect the performance in the lab and in the field. For some of the parameters, tests are proposed to assess the performance of digital data acquisition systems. Good practices are offered to guide the selection and evaluation of digital data acquisition systems. More general performance criteria which are not specifically related to digital data acquisition systems are discussed separately.JRC.D.4-Standards for Nuclear Safety, Security and Safeguard

Evidence for Pervasive Adaptive Protein Evolution in Wild Mice

The relative contributions of neutral and adaptive substitutions to molecular evolution has been one of the most controversial issues in evolutionary biology for more than 40 years. The analysis of within-species nucleotide polymorphism and between-species divergence data supports a widespread role for adaptive protein evolution in certain taxa. For example, estimates of the proportion of adaptive amino acid substitutions (alpha) are 50% or more in enteric bacteria and Drosophila. In contrast, recent estimates of alpha for hominids have been at most 13%. Here, we estimate alpha for protein sequences of murid rodents based on nucleotide polymorphism data from multiple genes in a population of the house mouse subspecies Mus musculus castaneus, which inhabits the ancestral range of the Mus species complex and nucleotide divergence between M. m. castaneus and M. famulus or the rat. We estimate that 57% of amino acid substitutions in murids have been driven by positive selection. Hominids, therefore, are exceptional in having low apparent levels of adaptive protein evolution. The high frequency of adaptive amino acid substitutions in wild mice is consistent with their large effective population size, leading to effective natural selection at the molecular level. Effective natural selection also manifests itself as a paucity of effectively neutral nonsynonymous mutations in M. m. castaneus compared to humans

Virus Replication as a Phenotypic Version of Polynucleotide Evolution

In this paper we revisit and adapt to viral evolution an approach based on the theory of branching process advanced by Demetrius, Schuster and Sigmund ("Polynucleotide evolution and branching processes", Bull. Math. Biol. 46 (1985) 239-262), in their study of polynucleotide evolution. By taking into account beneficial effects we obtain a non-trivial multivariate generalization of their single-type branching process model. Perturbative techniques allows us to obtain analytical asymptotic expressions for the main global parameters of the model which lead to the following rigorous results: (i) a new criterion for "no sure extinction", (ii) a generalization and proof, for this particular class of models, of the lethal mutagenesis criterion proposed by Bull, Sanju\'an and Wilke ("Theory of lethal mutagenesis for viruses", J. Virology 18 (2007) 2930-2939), (iii) a new proposal for the notion of relaxation time with a quantitative prescription for its evaluation, (iv) the quantitative description of the evolution of the expected values in in four distinct "stages": extinction threshold, lethal mutagenesis, stationary "equilibrium" and transient. Finally, based on these quantitative results we are able to draw some qualitative conclusions.Comment: 23 pages, 1 figure, 2 tables. arXiv admin note: substantial text overlap with arXiv:1110.336