Talk:Taxation in the United States

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edit·history·watch·refresh Stock post message.svg To-do list for Taxation in the United States:

See discussion below. Most items accomplished. Still to do:

  • Add more inline references
  • Determine what charts should be added
  • Expand policy section somewhat (but not to the highly targeted POV stage it was)
  • Update for current year amounts

Oldtaxguy (talk) 17:32, 3 April 2011 (UTC)

TTB is part of DoT not DOJ[edit]

Under the Tax administration section the article stated the Alcohol and Tobacco Tax and Trade Bureau was under United States Department of Justice. This is a false fact i think someone was thinking of Bureau of Alcohol, Tobacco, Firearms and Explosives, which is under DOJ.

TBB and a part of ATF under DoT(Department of the Treasury) prior to Homeland Security Act of 2002, in which ATF was split into two separate Bureaus one for law enforcement (ATF) and one for taxation (TBB). ATF was then moved to DOJ. — Preceding unsigned comment added by Simmons123456 (talkcontribs) 03:55, 12 August 2015 (UTC)

Slightly misleading description[edit]

One of the charts in the article contains the following description:

”The U.S. federal effective corporate tax rate has become much lower than the nominal rate because of tax shelters such as tax havens.”

The wording of this passage seems to reflect a misunderstanding of what the sources are saying, a misunderstanding of tax law terms, and a misunderstanding of arithmetic.

First of all, under U.S. Federal corporate income tax law, there is no such thing as “the” nominal rate (as if there were only one rate). The tax system is a multi-rate tax system – a graduated tax rate system. This means that there are several tax rates, each applied to different levels of taxable income. So, it’s meaningless to say that the effective tax rate for a given corporation for a given year will be lower than “the” nominal tax rate. Instead, you could say that the effective rate for a given corporation for a given year is lower than its HIGHEST nominal rate for that year.

Second, by definition, the effective rate for a given corporation’s taxable income for a given year will generally be lower than the highest nominal rate for than same corporation -- regardless of whether the corporation is involved in a tax shelter or a tax haven. This is basic arithmetic.

The correct thing to say, based on the sources, would probably be something like this:

”The U.S. federal effective corporate income tax rate is much lower than the highest nominal rate in part because of tax shelters such as tax havens.”

Yours, Famspear (talk) 22:51, 21 May 2016 (UTC)

OK, I changed the description in the article accordingly. Famspear (talk) 22:54, 21 May 2016 (UTC)

I still find this a bit confusing as the first part is math, except for the degree deemed "much lower", but then we seem to state that all businesses use tax shelters as the reason. Would this be better wording? "The U.S. federal effective corporate income tax rate is lower than the highest nominal rate, which can be significant in part because of tax shelters such as tax havens." Morphh (talk) 19:57, 23 May 2016 (UTC)
I don't see anywhere in the article where we mention tax shelters, except in that one place. So, I don't see that we are stating that all businesses use tax shelters, or that the use of tax shelters is the reason that the effective rate is lower than the nominal rate or rate.
I think that what causes the confusion is trying to tie tax shelters to the effective rate/nominal rate concepts. As a general proposition, the national effective rate of taxation for almost any group of taxpayers will, by definition, be less than the highest marginal rate (the highest nominal rate), whether they are involved in tax shelters or not. The reason is that we don't have just "one" tax rate, under the U.S. Federal income tax system.
For example, for tax year 2015, an unmarried individual working as an employee with a gross income of $35,000 would incur a tax of $3,248. His highest nominal rate is 15%, according to the officially published tax rate schedule. Whether you compute the effective rate on his gross income (35,000) or on his taxable income ($24,700, which is $35,000 less $4,000 personal exemption less $6,300 standard deduction), you are going to get an effective rate that is lower than his highest marginal rate (lower than his highest nominal rate).
Example A: $3,248 divided by $35,000 = 9.28% effective rate.
Example B: $3,248 divided by $24,700 = about 13.1498% effective rate.
Both of those rates are less than 15%.
The effective rate will generally be lower than the highest nominal rate partly because the first $10,300 of income isn't being taxed at all (that is, it's being taxed at a tax rate of 0%) and partly because the first $9,225 of income above that initial level is being taxed at only 10%, not 15%.
Now, a tax shelter certainly lowers the taxpayer's effective rate even more -- maybe a lot more. But, it may be confusing to try to tie tax shelters to the effective rate/nominal rate concepts, because the average person probably doesn't even understand the difference between an effective rate and a nominal (specifically, a highest marginal nominal) rate. Famspear (talk) 21:17, 23 May 2016 (UTC)
PS: Yes, I like your wording: "The U.S. federal effective corporate income tax rate is lower than the highest nominal rate, which can be significant in part because of tax shelters such as tax havens." Famspear (talk) 21:36, 23 May 2016 (UTC)
I changed it to your wording, Morphh. Good work. You should get the rest of the week off -- with pay, of course. Famspear (talk) 21:41, 23 May 2016 (UTC)
Thanks - Is unrepatriated income held in shelters normally included in an effective corporate income tax rate calculation? Just concerned we may be twisting the definition to make a point outside of what the graph represents. Morphh (talk) 15:23, 25 May 2016 (UTC)

If the unpatriated income is legally excluded from taxable income (as defined in section 63 of the U.S. Internal Revenue Code) and is being ignored in the calculation of tax for the tax year in question, then the unpatriated income is not considered in the computation of the effective corporate income tax rate -- as we have described that rate, above.

However, the term "effective rate" is not an actual U.S. federal income tax law term from the Internal Revenue Code (at least, I don't remember seeing the term in the Code). Therefore, I suppose that an economist writing about U.S. federal income tax policy could define the term "effective rate" in different ways, depending on what kind of analysis he or she might be trying to do. There is no "tax law rule" that says that an economist could not define the "effective rate" in more than one way. For example, I guess if you wanted to do so, you could define the effective rate to be the tax amount divided by the SUM of "section 63 taxable income" and the legally sheltered income for a given year. In that case, a different effective rate would be reached.

So, I guess it's not a question of twisting the definition. It's more a question of making sure that you adequately explain what definition of "effective rate" you are using, so your reader understands. Famspear (talk) 16:09, 25 May 2016 (UTC)