2012年-IMF国际货币组织全球_Allocating_Business_Income_between_Capital_and_Labor_under_a_Dual_Income_Tax_The_Case_of_Iceland_27页_1mb

Summary of "Allocating Business Income between Capital and Labor under a Dual Income Tax: The Case of Iceland"

Core Content

This paper examines the tax treatment of closely held businesses (CHBs) in Iceland under its dual income tax (DIT) system, comparing it with asset-based allocation methods used in other Scandinavian countries. It evaluates the implications of different income allocation approaches on tax revenue and distributional equity.

Main Points

1. Dual Income Tax System in Iceland

• Iceland's DIT combines a progressive tax on labor income with a lower flat tax on capital income.
• The tax system is designed to promote equity by taxing labor at higher rates while encouraging investment by taxing capital at lower rates.
• However, the system faces challenges due to the "Achilles Heel" of allocating business income between capital and labor.

2. Income Allocation Methods

There are three main methods for allocating business income between capital and labor:

• Imputing a return to capital (capital-based method): Net income exceeding the imputed return is treated as labor income.
• Imputing a return to labor (labor-based method): Net income exceeding the imputed return is treated as capital income.
• Arbitrary split (e.g., 50/50): Income is split without reference to economic factors.

Iceland uses a minimum wage allocation method (MWM), where income is allocated to labor based on administratively set minimum wages, with the remainder treated as capital income.

3. Minimum Wage Allocation Method (MWM)

• Administrative Minimum Wages: Minimum wages are set for different business categories and adjusted annually for inflation and productivity.
• Tax Implications:
  • The MWM results in a progressive tax regime for lower-income business owners.
  • However, for higher-income owners, it creates regressive tax rates due to the allocation of residual income to capital.
• Social Security Contributions (SSCs): SSCs are only applied to the minimum wage portion of income for self-employed individuals, creating horizontal inequity compared to salaried workers.
• Incentives:
  • MWM may discourage growth as owners approach higher minimum wage thresholds.
  • It does not incentivize overinvestment in capital.

4. 20/50 Allocation Method

• Introduced in 2010, this method maintains the MWM but reallocated 50% of dividends above 20% of equity to labor.
• This change increased the tax burden on CHB owners with high dividend payouts, reducing the tax advantage of capital income.
• The revenue increase was modest, ranging from 1–4% of total distributions.
• The policy led to a significant shift in business structures, with many corporations converting to partnerships to avoid higher tax burdens.

5. Asset-Based Allocation Methods (NAM and GAM)

• Net Assets Method (NAM) and Gross Assets Method (GAM) are used in Norway and Sweden, respectively.
• These methods impute a return to capital (either gross or net assets) and treat the remainder as labor income.
• GAM is preferred due to its simplicity and reduced opportunities for tax arbitrage.
• The paper analyzes the revenue and distributional impact of shifting from MWM to NAM or GAM.

Key Findings

• Switching to an asset-based method would likely increase tax revenues from CHBs in a progressive manner.
• The shift would raise the tax burden on skilled labor-intensive industries more than on capital-intensive industries.
• The MWM is less objective than asset-based methods due to the unobservable nature of labor inputs.
• The GAM is more efficient in terms of administrative costs and political resistance.
• The 20/50 method partially addresses the regressive nature of the MWM but is less effective than an asset-based approach.
• The MWM allows high-income CHB owners to pay less tax than similar employees due to the regressive capital allocation.
• The tax wedge between labor and capital was narrowed post-2008 crisis, but capital income remains more favorable for incomes above the basic PIT allowance.

Distributional Impact

• Low-income CHB owners are better off under the asset-based method due to the higher capital tax on their first ISK 3.75 million of income.
• High-income CHB owners prefer the MWM, as it results in a lower average tax burden.
• Moderate-income owners are better off under the asset-based method.

Policy Implications

• The MWM is costly to administer and may distort incentives for growth and investment.
• Asset-based methods are more objective and efficient, and could increase tax revenues without significant distortion.
• The 20/50 method is a middle-ground reform, but not as effective as asset-based methods in addressing distributional concerns.
• The Icelandic government opted for the 20/50 method over a full shift to asset-based methods, likely due to political and administrative considerations.

Conclusion

• The MWM has led to significant tax advantages for CHB owners, particularly those with high incomes.
• A shift to asset-based methods could enhance tax equity and increase revenue, but was not implemented due to practical and political constraints.
• The 20/50 method provides a partial solution, but does not fully address the equity issues inherent in the MWM.