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today’s aggressive progressives hope to stall that movement by imposing an  on these would-be exiles. These efforts should evoke oppressive regimes like East Germany, which erected the Berlin Wall to keep malcontents at home. It will surely face a fierce constitutional attack, as our Constitution has long been understood to have created a nationwide free-trade zone. In the United States, goods, services—and individuals—can move easily across state lines to promote economic development and growth. An exit tax imposes an explicit barrier on that project and is likely to be struck down as an impermissible burden on interstate commerce, as it is a direct descendant of the taxes and regulations that Chief Justice John Marshall struck down in such notable cases as  (1824) and  (1827).

The exit tax is a bad idea for policy and technical reasons. It has been considered in the past and rejected. The Joint Committee on Taxation, in its comprehensive February 2003 study, did not embrace the approach.2 Not only should it not be enacted into law, but it should also be dropped once and for all. (For the JCT report, see 2003 WTD 31-18 or Doc 2003-3954.)

This discussion is summary in nature. Renunciation of citizenship or relinquishment of permanent residency status (both commonly referred to as expatriation) is a very serious step and should only be undertaken after the most careful consideration of all the legal and personal consequences.3 It is unfortunate that individuals and families must worry about developments like this. They should not have to arrange their lives on short notice around U.S. tax legislative proposals.

**Read this on Aff against the states cp, on federal level, an exit tax may be imposed by the congress to disincentivize immigration for purpose of tax avoidance

We then turn to a triple-difference estimator based on the notion that a billionaire’s sensitivity to the estate tax should increase as they age. In terms of identification, the triple-differenced models allow us to control for the interaction of estate tax state X post-2001. Any correlation between changes in the unobserved determinants of Forbes’ 400 geographical locations and changes in estate status after 2001 is accounted for. We find that the number of old Forbes billionaires in estate tax states drops after 2001 relative to the number of younger Forbes billionaires. The elasticity of location with respect to estate taxes of the old billionaires is significantly higher than the elasticity of the young billionaires.3

Our estimates indicate that the growth in EIG (estate, inheritance, and gift) taxes per decedent is negatively related to the growth in the number of firms, especially small firms. This result is consistent with the asymmetric liquidity effect – the claim that EIG taxes have a stronger negative effect on small businesses because of the difficulty small business owners face in raising the funds needed to pay the estate tax bill. Consequently, the dissolution incentive falls more heavily on small businesses. Our estimates suggest that, holding everything else constant, the phase out of the Federal estate tax after the enactment of EGTRRA in 2001 has lead to a higher growth in the number of firms, especially small ones.

Contrary to the popular belief that the estate tax impacts only the rich, our estimates suggest that EIG taxes may affect numerous other individuals. By increasing the dissolution rate of businesses, higher EIG taxes may increase unemployment and create efficiency losses in the form of decreased competition. Higher EIG taxes may also discourage entrepreneurs from starting new businesses or increasing their value. As a result, higher EIG taxes may decrease capital accumulation, thereby lowering labor productivity, wages, and economic growth (Stiglitz, 1978). All members of society, rich or poor, share the detrimental consequences of lower economic growth.

The Internal Revenue Service (IRS) recently released federal estate tax data for 2017. This data continues to show relatively few taxpayers pay the estate tax—the number of estate tax filers has declined by 88 percent since 2000—and that it generates little federal revenue compared to other taxes. Changes to the filing threshold in the recent Tax Cuts and Jobs Act (TCJA) almost ensures a further decline in the number of estate tax payers.

By way of background, the federal estate tax is levied on the value of a deceased individual’s assets above the filing threshold at a rate of 40 percent. Estate tax filers technically pay taxes on the entire value of their estate, but take what’s called the “unified credit,” which completely offsets taxes paid on the value of the estate below the filing threshold ($5.49 million in 2017).

China urgently requires to find a solution to the conflict between ecological civilization building and economic growth in the new era, and the introduction of environmental fee-to-tax means that the Chinese government is now highlighting the tasks of pollution control and prevention. To investigate whether this environmental protection policy can simultaneously enhance the natural environment and encourage economic expansion, so as to achieve double dividends, this paper utilized the enactment of China's EPTL in 2018 as a quasi-natural experiment, used Shanghai and Shenzhen A-share listed enterprises from 2012 to 2021 as study samples, and empirically tested the impact of China's environmental fee-to-tax on ETFP by the DDD model. Here are the primary research findings: First, the environmental fee-to-tax suppresses the ETFP [enterprises' total factor productivity] in China, and the findings still dependable with a number of robustness tests. Second, according to the mechanism analysis, environmental fee-to-tax has no obvious effect on the overall degree of technical innovation of enterprises, and the negative impact of the tax mainly originates from the strategic innovation and greenwashing behavior. Although such actions enable enterprises to accept financial support, and then alleviate the pressure of tax burden, they cannot really foster the growth of manufacturing technologies, hinder the improvement of TFP, and are not favorable to the long-term progress. Third, this paper further explores the heterogeneous responses of different firms to the influence of the environmental fee-to-tax. The all samples are grouped at the individual, industrial, and regional levels with the features of the firms. The empirical results show that enterprises with larger size, higher investment efficiency, and state-owned characteristics are more resilient to policy shocks; and there is less negative function on enterprises in industries with fierce competition or in western region with greater financial support.

For a book that is supposed to provide objective analysis, the title of this chapter may seem a little overbearing. After all, aren’t there two sides to every story? Well, when it comes to the economics of corporate tax, the answer is a big fat no. There is no economic justification for its existence. This statement boils the blood of liberals, and it surprises most of the general public. Sorry to hurt people’s feelings, but there is no escaping the truth. And this is the almost universally accepted view among economists, both Republican and Democrat. In fact, of all the bad taxes out there, economists consider the corporate tax the most harmful to economic growth. If the corporate tax must exist, of course we should strive to make it as efficient and simple as possible. And much of Part 2 of this book discusses the possibilities along these lines. But we must always keep in the back of our minds that all we are doing is making a fundamentally flawed situation less awful—like when we order a Diet Coke with our double cheeseburger. Why are economists so whiny about the corporate tax? Are they so enamored with free-market capitalism that they are willing to let the world’s most powerful and rich organizations shirk the responsibility of contributing to the national welfare? Economists are devoted to minimizing government interference in the marketplace. They want the government to stay clear of market decision-making. They want a level playing field. In the realm of business taxation, this veneration of the free market translates into the commandment, Thou shalt tax all business income equally. That means all business income should be taxed once. The corporate tax double-taxes business profits. When economists condemn the corporate tax, they are not thinking about politics or even about popular conceptions of fairness. They are focused on long-term economic growth. Their models tell them the corporate tax is a drag on national productivity. There are two reasons for this. First, the corporate tax shrinks the size of the nation’s capital stock. And second, because it alters the allocation of capital, the efficiency of the capital stock is diminished. Besides—and here’s the main point—corporate profits are already taxed at the individual level. To illustrate their concerns, let’s suppose we lived on island that had only two kinds of businesses: apple growing and peach growing. Now suppose all production is subject to tax. But also, for some reason that no one can remember, apple production is subject to a second tax. The second layer of tax on apples has two effects. First, the tax reduces the overall profitability of the fruit business. Overall investment in the island’s economy declines. The second problem with the additional tax on apples is that it shifts the mix of the production away from apples to peaches. If there were no second tax on apples, the allocation of resources between apple and peach production would be determined purely by efficiency considerations. Besides making island production smaller, the tax-induced switch from apples to peaches makes the mix of production less efficient. If government must have the revenue, it would be better to tax apple and peach production equally, or even better from the economists’ perspective, tax the consumption of fruit instead of its production. The corporate tax is analogous to our hypothetical second tax on apples. It not only reduces the capital stock, but it leaves us with a mix of capital that is less productive.

Conclusions This article has examined the accounts given by corporate tax avoiders involved in the Panama Papers scandal. In particular, the study analyzed 134 narratives published in newspapers in nine Latin American countries. The results show that those involved in corporate tax avoidance often use three types of denial (denial of responsibility, denial of injury, and condemnation of the condemners) when justifying their behaviors. Taking into account the possibility that the fear of stigmatization may affect the type of accounts given by perpetrators when their identity was revealed in the media, I disaggregated the data collected to explore closely the accounts not related to the condemnation of the condemners (in this case, the media). Here, I found that corporate tax avoiders build a “truth” that they use to justify their felonies. For these corporations, innovation is an intelligent deviation that companies use to create international structures and operations in secret locations that facilitate tax avoidance globally (appeal to higher loyalties, whereby the loyalty is to the principle and goal of capital accumulation/creation of more wealth). In fact, corporate tax avoiders use legal pragmatism to operate in international jurisdictions, where rules are different from those of their country of residency (claim of entitlement), while claiming that they operate as other international investors do (claim of normality). On these grounds, corporate tax avoiders leave the issue of social harm unattended as their actions are not motivated by injurious intent (claim of negative intent). The overall results of this study suggest that individuals and corporate entities engage in corporate tax avoidance because they use national and international regulations that create opportunities for crime. Therefore, corporate tax avoiders not only believe that they are not responsible for this type of offense, but maintain that they are entitled to leverage international regulations that result in their own economic benefit. This result poses challenges for those responsible for preventing corporate tax avoidance because a new global tax order is needed to contend with this phenomenon.

Results Table reports the neutralization techniques used by Latin American CEOs involved in the Panama Papers scandal. Column one to column four present the results, and column five shows the aggregated totals. Starting with column five, it should be noted that denial of responsibility was the neutralization technique most often used by Latin American corporate tax avoiders (31%), followed by condemnation of the condemners (16%) and denial of injury (12%). The use of these three types of neutralization techniques has been reported previously in general studies on white-collar crime (Klenowski ; Klenowski et al. ; Piquero et al. ) and in studies on tax crime (Kroneberg et al. ; Thurman et al. ). In this study, however, denial of responsibility appeared far more often than the other neutralization techniques. In particular, corporate tax avoiders denied responsibility by claiming that they are or were not involved in crime or illegal behavior because the reported companies (created by Mossack & Fonseca) no longer existed. This rationale, however, fails to explain why these firms existed in the past and how they were used as instruments for reducing tax liabilities then. Furthermore, tax avoiders claimed that the companies did not have operations or assets (denial of injury), implying that they were shell companies (often used for reducing tax burdens). To illustrate, consider the statements of an Argentinian football star, who had been convicted previously of tax crimes in Spain, regarding the Panamanian firm Mega Star Enterprises Inc.: Table 3 Neutralization techniques used in the case of corporate tax avoidance It is false and insulting that the media accuses me of creating a tax evasion schema [condemnation of condemners]. Mega Star Enterprises Inc. is completely inactive [denial of responsibility]. The company did not have assets or bank accounts [denial of injury]. This company was part of an old family holding created by legal advisors of the family [claim of normality]. (Ruiz et al. , my translation) Another high-ranking state politician from Colombia said: Today, I do not have a relationship with any Panamanian company nor with any other active foreign company [denial of responsibility]. In 2009, we created a company called Davinia for security and confidentiality reasons [defense of necessity]. The company did not have bank accounts or produce any income, loans or other type of lucrative operations [denial of injury]. I do support the work of journalists, but I really regret that they are conflating criminals with honest people [condemnation of condemners]. (Connectas , my translation) A well-known Peruvian journalist that used Chester Investments Assets Ltd., incorporated in the British Virgin Island, to produce his popular TV show in Peru, expressed discontent with his journalists’ colleagues: I do not have anything to hide. I have not done anything illegal [denial of responsibility]. The funny part is that the media has not found anything illegal. They have written headlines that are really bad intentioned [condemnation of condemners]. (La República , my translation) In Ecuador, a high-ranking politician affirmed: I strongly reject the false publications from the media that question my honor and integrity. I will demand that the newspapers disseminated the stories retract the slander [condemnation of condemners]. (JITO/AFP , my translation) Because corporate tax avoiders may be “forced into a position where they must defend themselves and others like them” (Maruna and Copes : 260), I conducted a separate analysis on the neutralization techniques used by those who condemn (or do not condemn) the media (condemnation of the condemners). Table presents a descriptive analysis of the neutralization techniques used by those who condemned the condemners/the media (column 1) and those who did not do so (column 2). The results reported in Table , Column 1, suggest that those who condemn the media (39%) did not give additional explanations or accounts of their offenses beyond the two neutralization techniques previously mentioned (denial of responsibility (29%) and denial of injury (10%)). Table 4 Neutralization techniques used by tax avoiders that condemn the condemners/the media In contrast, those who did not condemn the media (Table , Column 2) tended to use a range of neutralization techniques and used them more extensively. Here, appeal to higher loyalties (11%), denial of negative intent (11%), claim of entitlement (11%), and claim of normality (10%) received higher responses. This revealed that those who did not condemn the media employed different neutralization techniques that put forward how innovative structures are used when conducting international business/investments and how they rely on legal pragmatism when operating in tax paradises. These two dimensions have been identified by Ruggiero () as part of the “experimental logic” that the powerful uses to justify their criminal activities. For instance, a former high-ranking public official from Colombia explained the existence of the Panamanian company Navemby Investments Group Inc. as follows: Navemby was created in 2007 and was the majoritarian investor of the Colombian firm Konfigura Capital S.A. Navemby was created to operate as holding to develop investment projects in various Latin American countries [appeal to higher loyalties]. Navemby was registered in Panama because most of the investments were in dollars and the Colombian regulations does not permit bank accounts in dollars [denial of necessity of law]. I want to clarify that Konfigura never send money to Navemby [denial of injury]. We only received resources from Navemby, the investment capital entered to the country fulfilling all norms, including tax regulations, and doing the respective registers in the tax office and the central bank [denial of negative intent]. (El Espectador , my translation) A former politician and pastor of a Christian church in Guatemala said: We created an offshore entity to buy the land where we built the church [appeal to higher loyalties]. We bought the land very cheap because the owner was having problems and the land was about to be reclaimed by the bank. The bank advised us to put the land under the name of an offshore company because there could be legal problems [claim of normality]. Additionally, there were problems. It was very good to have an offshore entity so the church was not involved in legal problems [denial of responsibility]. In 2015, I created a foundation for inheritance purposes [appeal to higher loyalties]. None of this is against the law [denial of negative intent]. (Redacción Crítica , my translation) A Mexican businessman claimed that: We used the offshore company in the British Virgin Islands to buy a yacht [appeal to higher loyalties]. All my financial transactions have strictly adhered to the law [denial of negative intent]. (Martínez , my translation) Another Mexican executive stated: I have fulfilled all my tax obligations according to Mexican law [claim of normality]. I have not evaded any taxes [denial of negative intent]. I created Ucetel, incorporated in the Bahamas, because I wanted to buy an apartment and membership in a diving club located in the Bahamas [appeal to higher loyalties]. (Gaceta Mexicana , my translation) Behind the so-called experimental logic suggested by Ruggiero () rests the idea that powerful individuals create their own “truth” as they use different neutralization techniques to justify crime—in this case corporate tax avoidance—as a routinized and legal practice when conducting international business/investment. Below, I discuss how the different neutralization techniques used by corporate tax avoiders contribute to create “a truth” reserved only for the powerful. Corporate tax avoiders appeal to higher loyalties when claiming that their innovative investment practices seek to protect the economic expansion of owners of capital by adopting necessary international (legal/illegal) structures to operate their business (here, the higher bidder is capital accumulation/creation of more wealth). This view coincides with Ruggiero’s observation that innovation “allows individuals to pursue legitimate ends (money and success) while using illegitimate means” (: 68). While Ruggiero borrows the idea of innovation as an intelligent deviation from economists (Mill ), he also recalls that innovation is one of the adaptations of Merton’s sociology of deviance, whereby people experiencing certain strains seek to accumulate wealth (as a symbol of success) by using illegal means (Merton ). Corporate tax avoiders also use the claim of negative intent when arguing that their business activities do not intend to produce injury, but if and when they do, such injuries arise from negligence rather than from intentional injury. Here, Ruggiero notes that because the crimes of the powerful “are hard to detect and responsibilities are difficult to apportion” (Ruggiero : 67), such crimes are essentially condoned because they leave the issue of social harm unattended. Corporate tax avoiders invoke the claim of entitlement to demonstrate that their corporations have the authority to conduct international business in tax paradises without others reacting to it as they simply operate in international jurisdictions where rules are different. For Ruggiero (: 70), the crimes of the powerful “invoke legal pragmatism…. inspired by an experimental logic” because they are aware of their illicit behavior. Finally, corporate tax avoiders appeal to the claim of normality to argue that they always respect laws and that they even fulfill national tax obligations promptly as other citizens do. Ruggiero (: 126) notes that normalization emerges when powerful offenders inform the community of their practices and their views because they wish to create custom and habit by influencing societal norms. By doing so, they seek acceptance and sympathy because their ultimate purpose is to regularize (or normalize) their criminal practices.

Expensing Boosts Wages, Investment, and Growth By removing the costs of government-imposed depreciation tables and the unpredictability of inflation, expensing increases the after-tax return on new investments, which has consistently been shown to boost job creation and wages. Physical capital (e.g., equipment and buildings) complements workers who can be more efficient and innovative when using the latest tools. One important driver of economic growth is business investment in capital that allows producers and service providers to better meet consumers’ needs at lower prices.20 There is a robust economic literature showing that 1) businesses invest more when after-tax investment returns are higher and 2) the resulting larger capital stock (the accumulation of investments) increases labor demand and leads to higher wages.21 There is also Depreciation overstates taxable income, reduces investment returns Table 2 Revenue (present value) $115 Revenue (present value) $115 Investment cost $100 Investment cost $100 Value of tax deduction allowable in rst year $100 Present value of tax deduction $56 Prot (revenue - cost) $15 Taxable prot (revenue - allowable deduction) $59 Tax $3 Tax $12 After-tax income $12 After-tax income $3 After-tax rate of return 12% After-tax rate of return 3% Full expensing Depreciation at 5% ination, 20-year asset Sources: Author’s calculations; Stephen J. Entin, “The Tax Treatment of Capital Assets and Its Effect on Growth: Expensing, Depreciation, and the Concept of Cost Recovery in the Tax System,” Tax Foundation Background Paper no. 67, April 2013. Notes: Assumes 3 percent discount rate; numbers may not add up due to rounding. 5 research showing that expensing specifically boosts capital investments and increases employment.22 Using variation in expensing rules between 2002 and 2011, two separate papers in the American Economic Review show that expensing led to increased business investments. Eric Zawick and James Mahon found that expensing “raised investment in eligible capital relative to ineligible capital by 10.4 percent between 2001 and 2004 and 16.9 percent between 2008 and 2010.”23 They also found that smaller firms and those with tight cash flow show the biggest investment response. Using variation in how states adopt federal tax changes, Daniel G. Garrett, Eric Ohrn, and Juan Carlos Suarez Serrato found that increasing a location’s exposure to expensing “increased employment by 2.1 percent on average over our sample period.”24 Likely because the tax changes during the period studied were temporary, the effects on employment were not permanent. A similar study of accelerated depreciation allowances in the United Kingdom also found that qualifying businesses increased investment.25 Because inflation was relatively low and stable in the early 2000s, policymakers should expect similar permanent expensing rules in today’s environment of high inflation to have a larger effect on investment and employment. Expensing also helps American workers by making U.S. investments more attractive relative to countries with depreciation systems. Ranking countries by the present value of capital allowances in 2022, Cristina Enache estimates that the United States ranks 21st out of 38 Organisation for Economic Co-operation and Development countries. The United States is weighed down by five-year amortization of research expenses and ineligibility of expensing for structures.26 Philip Bazel and Jack Mintz show that compared to Canada, the U.S. marginal effective tax rate on capital investment is about 7 percentage points higher and scheduled to increase 23 percent as expensing phases out.27 Because full expensing lowers the cost of capital only for new investments that are made in the United States, it removes barriers to re-shoring supply chains and boosting domestic investment. Tax Foundation estimates from 2020 show that making the 2017 expensing reforms permanent would increase gross domestic product (GDP) by 0.9 percent. Expanding expensing to all investments (including structures, which are not eligible under the Tax Cut and Jobs Act) would boost investment, wages, and growth even further. The combined effect of this reform is projected to increase GDP by 4 percent, the capital stock by 10 percent, and wages by more than 3 percent and add more than 800,000 new full-time-equivalent jobs.28 By removing policy distortions that make domestic investments less attractive, Congress could make the United States a more attractive investment location by simply extending and expanding the expensing policies passed in 2017.

EXPENSING, PROFITS, AND INFLATION The loss of full expensing is most economically costly during times of high inflation because inflation erodes the deduction’s value more quickly. At 2 percent inflation, a new building’s present value tax deduction is worth 45 cents of each dollar invested. If inflation is 5 percent, the write-off value falls to 32 cents on the dollar. 3 Following persistent high inflation in the 1970s, inflation was relatively low and stable for almost 40 years. In the decade before the 2020 pandemic, the average annual inflation rate was 2.2 percent as measured by the Consumer Price Index for All Urban Consumers. Since the beginning of 2021, the inflation rate has remained at a stubbornly high average rate of 6.3 percent.10 In March 2023, inflation was 5 percent over the previous 12 months.11 Even if inflation continues to retreat from its post‐pandemic highs, there is substantial risk that it will remain above the historical average for some time. Businesses and their investors make decisions about future investments based on the project’s projected aftertax rate of return compared to its alternatives. The normal depreciation system lowers after-tax returns because the value of the investment deduction declines over time as inflation and time erode its real present value. By effectively recognizing only a portion of the investment’s true cost, the tax system raises effective tax rates by artificially increasing business profits (by reducing the real value of allowable expenses). Table 1 shows how the present value of investment deductions can vary significantly according to the length of the asset life and the rate of inflation. Congress and the IRS assign investments to asset classes, between 3 years (for example, certain livestock) and 39 years (office buildings and other structures). There are multiple ways an asset can be depreciated, but most investments are depreciated under the Modified Accelerated Cost Recovery System’s general depreciation system (GDS).12 Table 1 shows estimates for different asset classes under GDS with no expensing and research and development expenditures amortized over five years. The calculations assume a 3 percent real discount rate and inflation rates of between 0 and 8 percent.13 At 2 percent inflation, Table 1 shows that a $1 investment depreciated over seven years under the GDS (without expensing) is worth only 90 cents to the business in present value. At 5 percent inflation, it is worth only 85 cents in present value. Under full expensing, the business can write off the full investment immediately, recovering the entire cost. A $1 investment in a nonresidential structure, depreciated over 39 years, has a present value of 45 cents at 2 percent inflation and 32 cents at 5 percent inflation. While it is unlikely that inflation will stay above 5 percent for the next three decades, even low inflation levels over long periods erode the real value of investment tax deductions. Because economy-wide investment is not evenly distributed across the IRS asset classes, it is helpful to estimate how much of a firm’s annual investment is ultimately denied as a tax deduction. To get such an estimate, we can roughly assign investment data by type from the Bureau of Economic Analysis’s private fixed assets accounts tables to IRS asset class lives. The present value deduction estimates from Table 1 can then be weighted by the estimates of 2021 private investment in each asset class.14 This exercise shows that at 2 percent inflation, U.S. businesses would only be able to deduct about 78 percent of the value of their investments in the absence of full expensing. If inflation is sustained at 5 percent, U.S. businesses would only be able to deduct 72 percent of the value of their annual investment spending. Denial of a full tax deduction can have a significant effect on an investment’s after-tax rate of return. Table 2 shows a $100 investment in a farm structure (with asset class life Inflation erodes the value of investment deductions Table 1 Present value of $1 write-off when ination is 0% 0.98 0.96 0.94 0.91 0.83 0.78 0.69 0.60 0.93 2% 0.97 0.93 0.90 0.85 0.74 0.68 0.56 0.45 0.89 5% 0.96 0.90 0.85 0.78 0.64 0.56 0.43 0.32 0.83 8% 0.94 0.87 0.81 0.72 0.56 0.47 0.34 0.25 0.78 Asset lives' years → 3 5 7 10 15 20 27.5 39 Amortized R&D Source: Author’s calculations. Notes: R&D = research and development; present value assumes a 3 percent real discount rate; 3-year to 20-year assets are placed in service in the first quarter of the year using 200 percent (3–10 years) or 150 percent (15 years and 20 years) declining balance general depreciation system (GDS); 27.5-year to 39-year assets are placed in service in January using GDS straight line method; and R&D is amortized over 5 years using the midyear convention. 4 of 20 years) that generates $115 in revenue. Under immediate expensing, the investment returns $15 in profit, which is taxed at 20 percent for a 12 percent after-tax rate of return. Under a system of tax depreciation and 5 percent inflation, the same $100 write-off’s present value is reduced to $56 (from Table 1). This smaller write-off increases the taxable profit from $15 to $59 and increases taxes paid to $12. Table 2 shows that the rate of return on the same investment falls from 12 percent to 3 percent due entirely to how the investment is treated in the tax code. Under higher tax rates and higher inflation, the effect of expensing is even more pronounced. At a tax rate of 28 percent, the Table 2 investment would have a negative after-tax return under depreciation. 1970s Inflation Stunted Investment A largely forgotten cost of high inflation in the 1970s was the resulting decrease in business investment due, in part, to the tax code’s treatment of depreciation. The high costs of inflation helped motivate cost recovery reforms that shortened asset lives in the 1981 Economic Recovery Tax Act.15 In 1979, Martin Feldstein and Lawrence Summers estimated that inflation increased the total effective tax rate on capital income by 23 percentage points, from 43 percent to 66 percent. They concluded that the principal reason inflation raises effective tax rates is because “depreciation causes a major overstatement of taxable profits.”16 Feldstein concludes in a separate econometric analysis in 1980 that “the rising rate of inflation has, because of the structure of existing U.S tax rules, substantially discouraged investment in the past 15 years.”17 In the years after the high inflation, a series of similar papers confirm that inflation—even at relatively low levels— significantly increases the after-tax cost of capital, which decreases business investment.18 International Monetary Fund research similarly shows that under certain assumptions (22 percent tax rate and 25 percent depreciation rate), “the optimal investment level would decrease by 0.42 percent in response to a one-percentage point increase in inflation.”19 Facing high inflation again, the U.S. tax code is set to begin denying businesses the full investment deduction. By requiring long and variable depreciation deductions, the tax code will accelerate the negative effects of inflation on investment and economic growth.

Dear Capitolisters, With one progressive victory in the bag, the Biden administration and congressional Democrats are now—as promised—itching for more. Over the last few days, details have emerged about the White House’s “infrastructure” (scare quotes intentional) bill and how Democrats plan to pay for some of it. As helpfully tabulated by economist Donald Schneider, the entire package includes about $3.75 trillion in new spending and $2.67 trillion in new taxes, thus generating another $1.1 trillion in new debt. These details, of course, are subject to change, but one part of the package seems very likely to stick: increasing the corporate tax rate to 28 percent from 21 percent—i.e., where the Tax Cuts and Jobs Act (TCJA) put it in 2017—and making a few other moves to increase taxes on multinational corporations and shareholders. It’s thus a perfect time to dig into the literature on corporate taxes and their economic effects—literature showing that, while “taxing corporations” might make for good politics and great soundbites, it’s pretty bad tax policy. Where We Are It’s no wonder that countries around the world have been lowering corporate tax rates for 40 years. Prior to the passage of the TCJA, the United States had a combined federal‐​state corporate tax rate of 38.9 percent, almost all of which (35 percentage points) was at the federal level. Because many countries—including more “progressive” ones like Canada and Sweden—lowered their corporate tax rates over the last 40 years, the United States in the 2010s ended up with one of the highest statutory corporate tax rates in the developed world (and the highest in the OECD). Following the TCJA, which lowered the federal rate to 21 percent, corporate tax rates in the United States were more in line with the OECD average but certainly not “low” by any reasonable definition: lccome1-.jpg The TCJA also ended up lowering the effective corporate tax rate in the United States (meaning the average amount that corporations actually pay in income taxes), though this stat obviously varies a lot by company and calculation method. Regardless, the general trend is clear: Pre‐​TCJA, U.S. corporations faced an average effective tax rate that was higher than most peer countries; post‐​TCJA, it was better but still not world‐​beating. For example, the OECD calculates rates of 37.5 percent and 17.4 percent for respective average and marginal effective U.S. corporate taxes in 2017 and 24.6 percent and 11.2 percent rates, respectively, in 2019—basically in the middle of the OECD pack. Similar analyses have been completed here for just multinational corporations and here for just the United States. Even with lower rates, however, corporate taxes in the United States remain uncompetitive in several respects. First, the combined U.S. statutory rate is still higher than 24 of the 36 developed economies examined by the OECD, as well as the average rate in the OECD (23 percent) and Europe (21 percent) and the rates in a lot of “competitor countries” like Switzerland (15 percent), the U.K. (19 percent), and South Korea (25 percent). Similar trends apply to the effective corporate tax rates discussed earlier—we’re fine overall but still worse than many similarly situated countries vying for the same pot of multinational investment dollars. The World Bank’s latest Doing Business report provides additional details on the tax burdens that American corporations actually face and how these stack up against corporations in other countries. The report finds that the United States in 2020 ranked 25th in the world in “paying taxes,” which includes both the total tax rate that a “normal” corporation pays across all relevant jurisdictions and the various administrative burdens that it faces. On just the tax rate part of that score—which includes federal, state and local taxes—the United States’ 36.6 percent combined rate is slightly better than the OECD average (39.9 percent) but still higher than almost 100 other countries, including Singapore (21 percent), Denmark (23.8 percent), Canada (24.5 percent), the U.K. (30.7 percent), New Zealand (34.6 percent) and Norway (36.2 percent). Second, the statutory rankings we read about in the press do not include U.S. taxes on dividends and capital gains, which are paid by shareholders and amount to a second layer of corporate income taxation (backgrounder here). According to Tax Foundation calculations, when this second tax is included, the top U.S. “integrated tax rate on corporate income” stands at about 47.7 percent, again ranking in the bottom third of OECD countries: lccome2-.jpg In short, the TCJA improved the United States’ corporate tax competitiveness, but most certainly didn’t turn the United States into some sort of “tax haven.” And there remain plenty of places in the world that have less burdensome statutory and effective corporate tax systems than the United States. Whether you like it or not, tax burdens are one of many factors that corporations consider when deciding where and how much to invest in things like facilities and equipment, and that this capital is highly mobile. Higher‐​tax countries can overcome that burden with other policies and better people, but there’s little doubt that, in the race for global capital, these places are starting from the back of the pack. The Perils of Corporate Income Taxes There’s also plenty of evidence that corporate taxes are a pretty lousy way to finance government operations and raise all sorts of problems. Most basically, there’s the fact that corporations, while technically paying corporate taxes, don’t bear their ultimate burden (what we call “tax incidence”). Instead, academic research shows that corporate taxes are actually paid by a combination of shareholders, workers, and consumers. A 2020 paper, for example, estimated that “the incidence on consumers, workers, and shareholders is 31 percent, 38 percent, and 31 percent, respectively”—thus showing that corporate taxes aren’t very good at taxing “capital,” and that a substantial share of corporate taxes are simply passed on through retail prices or lower wages. As AEI’s Michael Strain recently noted, even left‐​leaning economists acknowledge that workers bear a significant portion of a corporate tax burden. Onerous corporate taxes also encourage all sorts of clever accounting to avoid them—great news for accountants and tax lawyers but not so great for the rest of us. For example, the Tax Foundation notes that the pre‐​TJCA system encouraged companies (1) to shift profits abroad and in some cases even move their corporate headquarters overseas to avoid U.S. tax liability (aka “inversions”—some real‐​world examples here); and (2) to reorganize into “pass‐​through entities, which are subject to only one layer of tax at the individual level” but still protected from some legal liability, instead of classic “C corporations”: lccome3-.jpg This trend likely helps to explain why corporate tax revenues have historically been relatively low compared with other revenue sources (e.g., income taxes) in the United States: Pretty much nobody wanted to be a corporation if they could possibly avoid it. The TCJA may be changing that dynamic: Economists at Penn’s Wharton School of Business have estimated, for example, that the TCJA could cause more companies to switch back to traditional “C corporations.” New academic research not only confirms the pre‐​TCJA trend toward noncorporate business formation in the United States, but also shows that this tax‐​induced decision can have distortive economic effects on investment, firm growth, and even inequality: Higher levels of corporate taxation change the composition of economic activity both by encouraging entrepreneurs to establish their firms as unincorporated businesses and—more importantly—by reducing the size and growth of corporations, thereby causing noncorporate businesses to expand. This reallocation of economic activity represents substitution away from relatively safer economic forms and styles of business organization into those that offer high returns to some and low returns to others. As a consequence, there will be greater numbers of entrepreneurs who are highly successful and join the ranks of the rich, just as there will be greater numbers of unsuccessful businesspeople. The result is to make the distribution of income less equal… Other economic harms arising from high corporate tax rates in the United States and elsewhere include: Lower investment and economic growth, thus reducing wages and living standards over time: “the economic literature shows that corporate income taxes are one of the most harmful tax types for economic growth, as capital investment is sensitive to corporate taxation.” (Translation: companies invest less in places with high corporate tax burdens.) As we discussed a few weeks ago, economic growth isn’t the only thing that matters in an economy, but it’s still quite important. Less innovation. Recent studies of the United States and China show a strong connection between corporate tax rates and firm innovation (e.g., spending on R&D, hiring high‐​skill workers, filing patents, and introducing new products). In short, higher corporate taxes mean less innovation, while lower ones mean more. High corporate tax burdens have also been tied to lower productivity and distorted corporate decision‐​making. It’s thus no wonder that countries around the world have been lowering their corporate tax rates for the last 40 years. Biden’s team, apparently, doesn’t care about this research and will seek to increase U.S. corporate tax rates substantially. In fact, its plan to increase the corporate tax rate to 28 percent and tax capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent would put the United States back in last place among OECD nations with a top integrated tax rate of almost 63 percent (and just the 7 percentage point corporate tax rate increase alone would put us at 54.5 percent): lccome4-.jpg The Tax Foundation adds that “[i]f the Biden tax plan were fully implemented, the U.S. rank on the Tax Foundation’s International Tax Competitiveness Index would fall from 21st in 2020 to 30th, with the corporate rank falling from 19th to 33rd overall.” It’s hard to see how this could possibly be good for attracting new companies, entrepreneurs, and investment in the United States. But What About … Okay fine, corporate tax fans say, that’s the basic economic theory, but it’s not reality. In particular, these folks commonly allege that we need higher corporate taxes because certain large companies—Amazon, for example—pay “no taxes” or because the TCJA simply didn’t boost business investment as intended. Neither case, however, withstands serious scrutiny. On the common claim that corporate taxes need to be higher to force Amazon and other big companies—especially tech companies—to pay their “fair share,” there are a few problems. First, as already noted, large corporations don’t actually pay these taxes and shareholders pay only a portion of them. Many companies, moreover, can often avoid U.S. corporate taxes by moving offshore or maintaining a noncorporate form. Second, in almost all of these cases, the companies aren’t doing anything illegal. Third, and relatedly, this criticism ignores why Amazon and many other U.S. corporations that allegedly pay low or “no” taxes actually have tax bills like that: because they’re doing precisely what Congress told them to do. The Wall Street Journal’s Richard Rubin walked through Amazon’s case back in 2019, looking at its public tax records from 2018 (TCJA) and prior years (pre‐​TCJA, obviously). He finds that not only did Amazon pay $1.2 billion in 2018 taxes—up from only few hundred million in 2015–16—but the reasons for its still‐​relatively low effective tax rate (ranging from 8 to 13 percent since 2002) were neither nefarious nor an indictment of current law. In particular, Amazon lowered its taxable income in three main ways: (1) applying previous period losses (“carryforwards”), which let all companies “smooth tax payments across business cycles and a company’s lifespan”; (2) tax credits mainly related to R&D; and (3) deducting (“expensing”) business investments (e.g., cloud computing or solar farms), on which Amazon spent more than $160 billion since 2011. Many other large companies — as even their left‐​leaning critics acknowledge—have employed similar (lawful) strategies to lower their tax liability. One can argue that some of these tax rules should be changed—for example, the R&D tax credit has been found to suffer from design and implementation problems—but that doesn’t refute the aforementioned data and research on U.S. corporate tax rates generally, nor is it an indictment of the now‐​lower U.S. corporate tax rate. As Rubin put it, “the current corporate tax system was designed by Congress to encourage investment and research and let companies realize the benefit of early losses when they become profitable.” Amazon and many other companies utilize those rules as Congress intended, and Biden’s team doesn’t appear to be targeting them. Indeed, they might actually expand corporate tax incentives—precisely the wrong approach if one worries about corporations taking advantage of corporate tax “loopholes,” especially when combined with a higher statutory rate that would encourage companies to use them. Second, we hear today that the TCJA failed because U.S. corporations simply bought their own stock (“buybacks”) instead of plowing that money back into the economy (for example through investment or pay raises). However, as Cliff Asness explained in 2018 (or Tyler Cowen or John Cochrane or Ryan Bourne, all around the same time), the “buyback” hysteria reflects a fundamental misunderstanding of corporate finance/​governance and basic macroeconomics. In short, an initial round of share repurchases was the predictable result of a bunch of corporations having unplanned “excess capital” on their hands when the law took effect—choosing to distribute that money to shareholders instead of plowing it back into the company. However, those shareholders can (and almost certainly will) reinvest any cash windfalls into other, likely more productive U.S. endeavors; the “buyback companies” can (and actually do) use debt (e.g., corporate bonds or loans) to raise new capital for wages or investments; and there is little long‐​term connection between share repurchasing and corporate investment levels (see also, this Federal Reserve research helpfully summarized by Schneider). As these guys note, economic theory says that, over the longer term, total business investment will rise, regardless of any share buybacks. Unfortunately, the pandemic intruded on the TCJA’s corporate tax/​business investment experiment, but the initial returns (pun intended!) weren’t nearly as bad as some critics have claimed—even the ones who didn’t make rudimentary analytical mistakes. As Schneider noted last year, for example, U.S. business investment in 2018 and 2019 easily beat the CBO’s pre‐​TCJA forecast and “ended up matching what CBO said would occur even in the face of a trade war and rate hikes”: lccome5-.jpg A new report from the Joint Committee on Taxation, using actual corporate tax returns for 2018, also found that “business investments in things like plants and equipment, as well as employment in the U.S., increased following enactment of the law.” And research from the St. Louis Federal Reserve has shows that “both innovation and [venture capital] investment increased significantly” after the TCJA, thus laying the groundwork for faster economic growth in the future: lccome6-.jpg lccome7-.jpg Schneider’s second point above is also essential to any discussion of the TCJA and business investment: As we’ve discussed here (repeatedly!), numerous studies show that Trump’s trade wars had a real and significant impact on domestic business investment as tariffs ate into corporate profits and uncertainty gripped global markets. The Fed’s tightening also may have played a role—something the Fed itself sorta admitted in late 2019. It’s thus unsurprising that Schneider’s gray line, which was cruising above‐​forecast right before and after the TCJA was enacted, started petering out in 2018–2019 as the rate hikes and trade wars kicked in. People will call that a failure of the TCJA’s corporate tax provisions, but they really, really shouldn’t. (And you pro‐​tariff TCJA‐​lovers out there can’t say you weren’t warned.) Summing It All Up The TCJA was far from perfect, but its basic corporate tax reforms moved the United States in the right direction—from one of the highest corporate tax jurisdictions in the world to one that is today at least competitive with most of the developed world, in terms of both the basic tax rates on paper and the actual tax burdens imposed on U.S. corporations. These reforms are consistent with oodles of research showing how high corporate tax rates discourage investment, economic growth, and innovation, while likely burdening U.S. workers and consumers more than those fat‐​cat capitalists we all (apparently) love to hate. Biden’s corporate tax plans, assuming they make it into whatever final package Congress will consider, would undo these recent improvements, raising rates and adding complexity and uncertainty at a precarious moment for the U.S. economy. Indeed, by reportedly considering whether to phase‐​in a corporate tax rate increase, the Biden administration seems to understand the economic risks that the policy entails. As AEI’s Kyle Pomerlau notes, however, that ploy won’t be effective, and “[t]he simplest way to avoid the economic harm of raising the corporate tax rate is to not raise the rate.” Unfortunately, the Biden administration doesn’t seem to be listening.

To fund their infrastructure and entitlement spending plans, House Democrats are proposing large tax increases over the coming decade. They want to increase taxes on businesses, investments, and high-earners, but the burdens of these hikes would ultimately fall on all of us in the form of lower wages, smaller retirement accounts, and slower growth. Let’s take a look at the proposed corporate tax increases, which are to raise $1 trillion. Such increases would be a lose-lose-lose proposition for businesses, workers, and the economy for at least 10 reasons. Competition. Businesses can locate their automobile, semiconductor, and pharmaceutical plants in any of dozens of countries today. America needs to compete to attract these investments, but the Democrats’ proposed corporate tax increase from 21 percent to 26.5 percent would push them away. With the increase, our combined federal-state corporate tax rate would be , and thus much higher than the of 23.6 percent. Investment. Corporations invest to earn after-tax profits. Higher taxes would reduce profits and thus undermine investment in factories, machinery, and other assets. Ironically, the Democrats want to boost infrastructure investment, but two-thirds of America’s infrastructure is owned by the private sector and would be harmed by the tax increases. Innovation. The Democrats want to increase research spending on energy, manufacturing, and other activities. But of America’s research is funded by businesses trying to earn after-tax profits, and funding would fall if taxes rose. infrastructure mentions “innovation” 17 times, but a corporate tax hike would reduce innovation by slowing the process of businesses replacing older machines with newer, more advanced machines. Wages. Despite leftist rhetoric, labor and capital are complements, not adversaries. When taxes rise on one factor of production, it hurts the other. If corporate taxes are raised, businesses would reduce investment in factories and machines, which in turn would reduce worker productivity and slow wage growth. Foreign Operations. The Democrats would not only hike the corporate tax rate but also raise taxes on the foreign operations of U.S. companies. But the main purpose of foreign operations is to penetrate foreign markets, partly with products exported from the United States. When a U.S. corporation increases sales abroad, it benefits the workers in headquarters, research, and production facilities here at home. The Democratic tax hike would make U.S. companies less competitive abroad, thus undermining their domestic operations. Transparency. The burden of the corporate tax lands on individuals as workers, consumers, and shareholders, with the latter including everyone who has a retirement plan. Politicians favor corporate taxes because they hide part of the cost of government from voters, but it is more transparent and democratic to impose simple and equal taxes on individuals so they can see the government’s full cost. Avoidance and Evasion. When tax rates rise, corporations have more incentive to reduce taxes with legal loopholes and illegal dodges. These problems have increased because corporate profits are difficult to measure in today’s global economy, but Congress has made it worse by littering the tax code with narrow breaks and complex structures that businesses mix-and-match to save money when tax rates go up. Complexity. The Democratic tax plan would increase tax complexity by adding dozens of special-interest breaks that businesses would likely abuse, especially if tax rates rise. The plan, for example, includes more than two dozen green energy breaks totaling . The big winners from the added complexity would be high-paid lawyers and lobbyists who would find ways to twist them and expand them. Government Revenue. The Democratic plan would raise government revenues in the short run but may lose revenues in the long run as corporations invest less and avoid and evade more. Treasury Secretary Janet Yellen that governments are losing money from a “race to the bottom” on corporate taxes, but that is not true. For , the average corporate tax rate fell from 47 percent in 1980 to 25 percent in 2019, but average corporate tax revenues rose from 2.2 percent of gross domestic product in 1980 to 3.0 percent in 2019. Over time, businesses and markets respond to tax changes, so tax rates and revenues can move in opposite directions. Dubious Spending. The Democrats want to raise taxes to fund higher government spending, but the private sector can likely use funds more productively at the margin. The Democrats have not performed any cost-benefit analyses to show that their spending would be higher in value than the private spending it would replace. Besides, if new government spending is needed, there is nothing stopping state governments from funding it themselves for their own residents. Democrats want corporations to pay their “,” as if corporate taxes don’t ultimately land on people. The truth is that corporate investment in pharmaceutical research, energy generation, internet infrastructure, and many other activities benefit all of us and would be damaged by corporate tax hikes.

Does it matter that carbon taxes only impose economic harms, and not necessarily physical ones? Does the Do No Harm effect apply as powerfully to economic harms as it does to physical harms? Apparently so. Another Do No Harm experiment asked research subjects if, as the trade negotiator for a nation of wheat growers and bean growers, they would accept a final offer of a trade agreement that would decrease the income of one group but increase the cost of the other. Research subjects responded by requiring much larger gains to the one group in exchange for the losses to the other— in exchange for a $10,000 increase in the income of one group, subjects rejected losses greater than $4,000. In order to answer the objection that these losses would be more painful than the gains would be beneficial, research subjects were also asked if they thought the harms were “greater” than the gains. They generally acknowledged that the losses were not as significant as the gains. Baron contends that people were “knowingly nonutilitarian.” 13 Apparently, Do No Harm includes a Do No Economic Harm effect.

That a carbon tax is unpopular because it harms people was most directly tested by Baron and James Jurney in 1993. They hypothesized that voter support for certain reforms might be reduced by the presence of certain norms against coercion. Using six different hypothetical reform proposals, one of which was a gasoline tax to “combat global warming,” Baron and Jurney not only asked survey respondents whether they would vote for a gas tax that would double the price of gasoline, but also asked them if they thought it was a reform that would actually make things better. In different experiments, they found that substantial numbers of respondents believed that the proposal would make things better, but opposed it anyway, because they feared that the proposal would harm people, and thought the proposal unfair. 14 Exactly why respondents thought this and whether they would think this about other climate instruments are subjects for further research, but the implication for carbon taxes seems quite compelling.

It is time to give up on the carbon tax. Putting a price on carbon has not been popular with the public (although a 2021 global poll indicated increasing support), and few politicians are eager to attach their name to a policy with the word “tax” in it. I, like many economists, have been a long-time supporter of carbon taxes. But there are two important reasons for a rethink.

Focusing on market failures

Proposals to prop up green energy will have more severe inflationary effects than their advocates let on, not only because of the magnitude of the efforts needed but also because of the thus-far ignored inflationary impacts of simply trying to fabricate the quantities of hardware needed.

For perspective on the scale of the challenge: getting to today’s state of green-energy affairs took about 20 years and well over $5 trillion of global spending on hydrocarbon alternatives. Yet hydrocarbons’ share of world energy has declined only by 2 percentage points over that time. The favored alternatives of wind and solar energy still supply only about 3 percent of global energy. As for electric cars, spending on them famously doubled last year—yet batteries still power just 0.8 percent of all transportation, while oil still fuels nearly 97 percent.

Carbon taxes, and their functional equivalent disguised in the form of energy taxes, have faced political obstacles and serial failures to take effect ever since the debacle of the 1993 Clinton–Gore “BTU” tax. Now a bipartisan group of American lawmakers has proposed a “border carbon adjustment” tariff intended to reduce society’s use of hydrocarbons and usher in energy innovation. But carbon taxes have failed, so far, for good reason: they’re a bad idea and would do little to cut hydrocarbon use or stimulate productive innovations. And whether framed as a border adjustment or as the broad-based levy that Congress toyed with enacting three years ago, any carbon tax would be inflationary—meaning this latest proposal couldn’t come at a worse time.

It’s easy to ignore the benefits of cheap energy when, well, it’s cheap. Energy is needed for everything that is fabricated, grown, operated, or moved. Since hydrocarbons directly supply 84 percent of the world’s energy and are indirectly embodied in all the rest, the inflationary potential of any carbon tax is clear. In normal times, energy typically accounts for only about 10 percent of the cost of most products and services. But double the spending on energy, and the average overall final price tag for a product or service rises at inflationary levels. With today’s energy prices already doubled, or more, the consequences are apparent. Over half of wheat’s inflation, for example, is a direct result of higher prices for natural gas, the fuel needed to make fertilizer.

Some analysts have finally come to realize that access to the gigatons of minerals needed for the green transition would also have undesirable geopolitical consequences. Europe would become less dependent on Russia but more dependent on China. The U.S. would rely less on its domestic hydrocarbon industries—but more on Chinese minerals. Here, the IEA has been quietly honest in its analyses. China has over the past two decades engineered a global market dominance in most key energy-minerals that is greater than OPEC’s market share for petroleum. Good luck negotiating energy-mineral prices in that future.

In any case, a carbon tax would fuel inflation at a particularly terrible time. Those eager to find a compromise to reduce society’s dependence on hydrocarbons should consider other options.

It is time to give up on the . Putting a price on carbon has not been  with the public (although a 2021 global poll  increasing support), and few politicians are eager to attach their name to a policy with the word “tax” in it. I, , have been a long-time supporter of carbon taxes. But there are two important reasons for a rethink.

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This study provides policymakers with two policy suggestions. First, it is suggested that the government should consider the effect of environmental rules on corporate tax avoidance behavior when designing future environmental policy, and more generally, the distorted effect of environmental rules on corporate tax evasion behavior. Second, it is recommended that the government adopt different environmental regulations for different enterprises. Because there are different types of companies in the market, and their respective companies have corresponding characteristics, a one-size-fits-all environmental supervision policy may affect individual companies and cause them to be unable to operate normally.

Taking the 2013 China carbon emissions trading pilot policy as the background, in this study we utilized the DID approach to analyze the effect of environmental regulations on firm tax avoidance. We found that: (1) Environmental regulation has led companies to adopt further tax evasion behaviors. Furthermore, the core conclusion was confirmed after a series of robust and endogenous tests, such as parallel trends and PSM-DID. (2) Environmental regulations increase tax avoidance activities by reducing corporate cash flows. (3) The influence of environmental regulation on firm tax evasion is obvious among non-state enterprises, small-scale enterprises, and enterprises with a high degree of industry competition. The policy contribution of this article is that when the government implements environmental regulation policies, it should consider the possible impact on micro-enterprises.