Corporate Tax Policy between US and Ireland - Literature review Example

Corporate Tax Policy Task: Corporate Tax Policy between USA and Ireland Every country has its own corporate tax policy, which significantly affect the profitability and growth of any state. This also applies to big economies such as the US and Ireland. However, some of these formed tax policies are effective in promoting job creation as well as in collecting taxes. The policies also vary from country to country, as they are formed to suite the existing environment. Therefore, this manuscript will compare the tax policies of USA and Ireland using the opinions of various scholars. In the article by Sinn, the author suggests that corporate tax policy in Ireland is more effective in creating jobs and tax revenue than United States. He mentions Ireland as one of the European nations that have improved their corporate tax collection through alterations in the Irish tax Code. The author further explains the different techniques applied by most European countries in corporate tax collection to generate revenue and create more jobs. For instance, the use of proportional taxes called ‘flat taxes’ are utilized to attract foreign investors. In addition, the earnings retained in the corporate sector are not taxed while those on distributions are. The article continues to applaud the corporate tax policy system of Ireland as a source of tax revenue with a potential of creating numerous job opportunities than the US. In other words, Sinn maintains that with increased foreign investment because of friendly taxation policies, revenue is increased which in turn generates jobs (Steinmo, 1989). The author also proposes two defensive mechanisms that can help in tax collection including the corporate tax especially in European countries. For instance, Sinn talks about tax harmonization such as that of indirect taxes to the import country and de-taxation of the income earned through corporate profits. This, he argues will boost the revenue collection in Ireland, which is transformed into job opportunities across the country. It is also significant to note the observation by the author concerning tax harmonization in the corporate world and other sectors of the economy in return for an increase in Gross Domestic Product (GDP). Sven Steinmo, on the other hand, explains the advancement of taxation policy especially in developed countries such as the United States and those from Europe. The author continues to explain the development of the theory of historical institutionalism in relation to the taxation policy. This is in the form of the connection of taxation policy with ideas, policy outcomes and interests. Sven proceeds to analyze the history of current taxation techniques. In this analysis, he explains the reason of how the issue of ‘good’ tax policy arose because of capitalism. In other words, the Sven reveals that many nations discovered several areas of generating revenue through utilization of fresh ideas. As a result, the government jumped in the advancement of the economy because of the new revenue resources such as corporate organizations and other sectors. The writer explains that this was not possible during the old days hence such a move attracted many policy makers and other stakeholders. Sven further analyses the politics involved in the tax policy system of the United States especially during the 1980s. This article puts emphasis on the Tax Reform Act that swept America in 1986 (TRA ’86). The author describes how the influence of this historic Act under the presidency of Ronald Reagan influenced other states around the world in the implantation of their tax reforms. Such tax reforms led to improved corporate tax policy systems in Europe especially in Ireland. This helped generate revenue and create job opportunities for their citizens. The author further points that, the integration of corporate taxes, and progressive income had several influences on the proceeding taxation developments. This led to the transformation of many nations into modern states because of increased revenue collection. In summary, Sven says the idea of imposing progressive taxes on the citizens could lead to unequal distribution of wealth and income in the country. Mihir Desai, in his article, argues that in the recent years numerous corporations have stopped reporting their profits to the government and capital markets (Desai, 2004). This has resulted to worry among various stakeholders such government planner and economists. In other words, the author explains that this trend of profit reportage has declined in quality thus affecting other sectors of the economy. In this aspect, the author point out that essence of evaluating corporate profits has an impact on the economic policy decisions and capital allocation in the country. In addition, the measurement of corporate profits assists economic analysts in the sound assessment of the health of the economy and an evaluation of the stock market report. The writer also explains that economic experts use corporate profits in evaluating the condition of the economic evaluation. In addition, it helps in projection of tax revenues and the consideration of other policies that help in capital formulation. This vice has spread to the evasion of taxes by the corporate organizations, which the author laments affects the American Tax Systems. Such unethical activities have led to reduced collection of revenue, which makes it hard for job creation in America. In other words, the findings of Mihir suggest that corporate firms have a tendency to raise their profits when reporting to the capital markets. On the other hand, when reporting to the tax authorities, corporate organizations deflate the profits to evade taxation from the authorities. In summary, the author argues this unethical trend is even common in European countries where large companies dodge the tax policy system. Fioretos, in his article, purport that there have certain parameters that control corporate identity of international organization. These parameters are natural in nature except for the European Company Statute (Fioretos, 2009). The writer continues to explain that there are legal identities that establish the conditions of corporate governance and their taxation. Additionally, Fioretos expounds the role of the government in establishing rules that help it attract investments and retain it as well for enhancement of corporate identity. However, this market is only comfortable for companies that deal in product markets. Alternatively, the author explains how other companies with dependence on factors of national importance such as skills, infrastructure and social networks have no access to such markets hence lack of the international market. After numerous deliberations, European countries under their banner European Company Statute agreed on a common method of taxation. This move would involve a single taxation technique towards all corporate organizations found in Europe. However, other countries were opposed to this proposal such as Germany who felt lower tax rates would result to other companies changing their real corporate identities (Fioretos, 2009). Furthermore, in this proposal the European nations resolved that all corporate companies would present their taxes to the national authorities. In return, this would raise revenue to be utilized in other sectors such infrastructure, education and job creation. Therefore, on this perspective, the corporate tax policy system of Ireland was applauded for its strict and profitable goals. The author concludes that the institutional is the most effective method to increase tax revenue and create employment opportunities. In another article, Genschel discusses the impacts of globalization in relation to tax collection in countries around the world. However, he is specific in the case of the US and other European nations since the era of the world war. According to this author, several factors destabilized the well-being of the state especially during the 80s and 90s (Genschel, 2002). These include the effects of globalization, high unemployment, and slow growth of the economy, high spending and an increasing public debt. Therefore, in confronting these challenges of the state, the issue of tax competition was put aside so that tax revenue could be increased. The writer continues to explain the determination of the state back then to despite a tax competition that made it hard to tax capital. In summary, the author says the issue of tax completion is not a noble idea in itself. Genschel reasons that this strains the national tax policy compelling the tax reduction on capital. The writer further explains that the taxes collected from corporate organizations and social security organizations helped in the rebuilding of the economy. He goes ahead to expound on the effect of the tax burden among various countries necessitated by unhealthy tax competition. These include the US and the sixteen OECD countries such as Germany and Ireland. In his analysis, the author notes that the tax revenue of the OECD countries has continued to rise since the 70s despite the tax constrain on their tax policy system (Genschel, 2002). Therefore, such nations are able to avail more and better opportunities than other nations that support tax competition. In conclusion, I do not see any flaws in the body of research that I have used. In all the articles, thesis consensus among the authors that tax collection is important. This is specific on corporate tax, which an author explained as using avoidance tactics to escape taxation of their large profits. This affects the total revenue collection of a country, as these organizations are known to direct the economy. Therefore, in my opinion, such corporate organizations should receive severe penalization from the state to teach others a similar lesson. Otherwise, tax competition as a way of increasing tax revenue should be encouraged by most countries to create numerous opportunities of employment for jobless citizens. References Desai, M. (2004). The Degradation of Corporate Profits. Harvard University and NBER, 19 (4), 171-192. Fioretos, O. (2009). The Regulation of Transnational Corporate Identity in Europe. Comparative Political Studies, 42(9), 1167-1192. Genschel, P. (2002). Globalization, Tax Competition, and the Welfare State. Politics & Society, 30 (2), 245-275. Sinn, H. (1990). Tax Harmonization and Tax Competition in Europe. European Economic Review, 34, 489-504. Steinmo, S. (1989). Political Institutions and Tax Policy in the United States, Sweden, and Britain. British Politics and International Relations, 41(4), 249-265. Steinmo, S. (2003). The evolution of policy ideas: tax policy in the 20th century. British Politics and International Relations, 5(2), 206–236. Read More