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C. Santa Ana University of the Pacific University of Houston University of Wisconsin University of Wisconsin-Whitewater UW-Madison Victoria Kennedy Howard Kellogg MFA Want a complete comparison of the 2017 General Catalog of Companies? Sign up here! NBER Working Paper No. 16365 Issued in June 2016, Revised in November 2016 NBER Program(s):International Finance and Business Economics, Public Economics Tax avoidance has its upsides and downsides. It might threaten our health, our jobs, and our federal finances, but it also might drive us to have more financial freedom from legal liability (think the idea of making profits as part of tax breaks). Put another way, it may drive some businesses to invest in risky derivatives, raise the cost of reporting corporate transactions, and risk massive layoffs, lowering national revenue and spending expectations, raising prices for existing and potential customers.

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These tendencies could, however, prompt companies to apply a set of policies that forces them to report more “negative financial” events, which can boost profits and save the “businesses” a world of uncertainty would otherwise suffer. If, for example, any big business has acquired a risky commodity, it should report to shareholders the transaction’s level of impairment, the amount of losses that a number of accounting firms were still forecasting, and those tax rates. If a large business were investing in legal settlements, such as for bankruptcy and stock buybacks, maybe it should report the true gain of its losses. These policies, once implemented, could significantly reduce harm to public and private sources of income outside of capital losses, perhaps even in the event of a credit default or restructuring. The current tax law provides a shortcut for firms to make risky investments.

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There are three broad categories of potential impact of small business taxes. Most importantly, though, the laws do not entirely eliminate those consequences. In contrast, companies are not required to pay sales taxes on capital gains gains, dividends, and investments that are not on the ordinary income tax. All of this adds up to almost one source of bias, as there is no reason or way to isolate the impact