Research Paper: Policy Problem &amp Proposal

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[. . .] The memo was triggered by the results of a survey conducted by Treasury Inspector General for Tax Administration that found documentation had not been requested by auditors in nearly one-half of the cases audited. And further, taxpayers were submitting pro forma annual reports.

APA program expansion and costs. From 2009 to 2010, the total number of hours spent by APA professional staff increased by approximately 14.5%. APA hours for attorneys, economists, and paralegal staff by year (excluding holiday and leave) consumed over the last nine years is as follows:

2002 = 61,528

2003 = 52,495

2004 = 51,170

2005 = 51,744

2006 = 54,970

2007 = 56,410

2008 = 51,077

2009 = 56,549

2010 = 64,763

These figures illustrate that efforts to reduce the costs of the APA program were of limited effectiveness, and they crept up again in 2010 to a point exceeding the first year of implementation which was characterized by start-up costs. Even with a reduction of four staff in 2010, the costs continued to climb to a new height.

The APA office structure includes four branches, two of which are staffed with APA team leaders, one branch is staffed with economists in Washington, D.C., and the West Coast branch, which is headquartered in San Francisco and has an additional office in Laguna Niguel, California, is staffed with both economists and team leaders. In addition to staff hours, then, there is the overhead cost of maintaining these branch offices.

A gross and casual calculation of the filing fee income to the Internal Revenue Service for fiscal year 2010, at its most generous -- assuming no completions or renewals of APA were small businesses, which generate a smaller fee -- comes to $2,605,000. Recall that the fees are $35,000 for a new request, $25,000 for a renewal, $10,000 for an amendment, and $22,500 for a small business. For the 69 new APA requests completed, $2,515,000 was paid in fees. The 9 amendments generated $90,000. The Advance Price Agreement doesn't pencil.

Problem Definition. As one APA team member argued, "The APA Program works for both the IRS and tax community" ("Baker & MacKenzie, LLP," n.d.). Oversight of the APA process is negligible to non-existence, yet the economic stakes for the nation as substantive. The cost of conducting the APA program creeps up year-after-year -- those costs are borne by taxpayers who do not file APA requests and do not benefit from the APA program. If a legitimate process does occur, not all requests for APA would be approved. Further, given the heavy front-loaded costs to taxpayers to file an APA, a chilling effect may occur that dissuades APA team members from denying APA requests. The benefits of the APA program are considerable -- for corporate America (referred to as "the taxpayer") and for the IRS. The filing fees are minor compared to the foreign tax savings and business profits to be made through outsourcing. However, the penalties to non-APA taxpayers are staggering. Outsourcing reduces available domestic jobs for U.S. citizens, opportunity costs for lost tax revenue are huge, and the trickle-down, supply-side economics -- Keynesian economics touted as the redeeming fiscal policy has yet to improve the domestic financial situation. Precipitous changes in the measures of national economic health indicate that the tax cuts of the Bush administration produced drastic and steady deterioration in overall real GDP. The table above shows on a year-by-year basis the dynamics of the decade beginning in 2001. It seems one of the few fiscal numbers that has increased in this dominant downward trend is the number of millionaires in the U.S. And across the globe. The total number of millionaires in the U.S. is expected to more than double, reaching 20.6 million (Strachan, 2011). These households are projected to see a 223% increase in wealth by the end of the decade, bringing that number to about $87 trillion (Strachan, 2011). In 2010, the U.S. share of millionaire wealth dropped to 42% from 55% (Strachan, 2011). Millionaire wealth in emerging economies is expected to grow by about 260%, and in developed countries, the growth is forecast to rise about 107% (Strachan, 2011). Clearly a number of vectors have coalesced to create an unhealthy economic situation in the Unites States. Continuing to subsidize what amounts to a tax relief program for large corporations with deep-pockets means continuing to misalign policy with policy needs.

Proposed policy change. The proposed policy change is as follows: Advanced Pricing Agreements should result in taxation specific to the request for an APA -- whether it is a new request, a renewal, or an amendment -- and that tax should reflect a percentage of the gain and/or savings accomplished or anticipated as a result of transfer pricing agreement. Further, the policy will have the following components: (a) Provisions that do not allow income shifting, wherein in-paper-only corporate subsidiaries cause income to be attributed to tax-favorable environments while expenses are allocated to countries with higher taxation. (b) Transparency in reporting that enables the public to review the estimated corporate tax savings / opportunity cost tax revenue lost associated with established APA agreements. (c) Adjustment of function of the APA that better reflects the role of the Internal Revenue Service as an entity created to generate revenue for the government of the United States -- based on appropriate tax laws -- and not to provide inherent supports to companies that result in gains in corporate profits.

Agenda setting. In an effort to bring about this policy that alters the function and use of the APA, the following strategies will be used: Public education in conjunction with media and communication, convening stakeholders and building coalitions. The effort to get this policy on the docket could take place during an election year when all the associated issues are already being discussed on every stump, porch, and town hall (Kingdon, 1984).

Policy adoption. During this stage in the policy lifecycle, policymakers and staffers discuss and consider options related to the policy, and ascertain whether new or amended existing policy is the best route. The strategies that may be used by policymakers and their constituents include advocacy about the issue and regulations, community organizing, and the creation of public and private partnerships. Policy makers must be able to agree that there is not an efficient frontier for policymaking wherein all the policy makers will have perfect and complete information with which to formulate policy (Wildavsky, 1979). It is essential that policy makers communicate that there is no perfect solution -- no silver bullet, no magic potion -- that can be offered up for timely utility in the policymaking stream. The case for speaking truth to power with regard to this policy problem and potential policy solution is both strong and necessary. The stakeholders who benefit from the current APA policy have every reason to maintain the status quo, and every reason to promote policy slippage.

Implementation. Of all the stages of policy lifecycle, implementation is the least visible and the least understood, yet it has tremendous influence on whether the policy problem is even addressed. The approaches that are often used in policy implementation -- and which can have tremendous impact on policy effectiveness (Pressman and Wildavsky, 1984) -- are as classically considered to be as follows: Issue and regulatory advocacy, litigation, and public / private partnership creation. But Pressman and Wildavsky (1984) -- and others who have accomplished seminal work in policy implementation studies -- would add a number of other dynamics. The notion of street-level bureaucrats is particularly applicable to this policy problem. Street-level bureaucrats determine who gets access to public policies and programs, and they are most active under conditions of ambiguity. In Working, Shirking, and Sabotage: Bureaucratic Response to a Democratic Public, Brehm and Gates (1997) examine what it is that bureaucrats tend to maximize when they make decisions, and also what appears to be most influential their choices. Brehm and Gates (1997) argue that there are three types of bureaucratic decisions: working, shirking, or sabotage. Working means that bureaucrats exert effort toward accomplishing policy goals that align with supervisors' goals. Shirking means that bureaucrats direct effort toward leisure, past-times, or other non-policy goals. When bureaucrats sabotage, they are focused on accomplishing policy goals that do not align with the goals of their supervisors.

During the research for this policy proposal, a number of people came to the forefront due to the coping-strategies they employed to deal with the tremendous backlog of APA requests, renewals, and applications. That street-level bureaucrats were influencing the implementation of policy was made evident through responses to the survey conducted by Treasury Inspector General for Tax Administration and by the memo from the Commissioner of the IRS Large and Midsize Business (LMSB) Division was issued.

Evaluation. Policy research and policy analysis are both platforms that can be used to assess whether a policy is accomplishing its… [END OF PREVIEW]

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APA Format

Policy Problem &amp Proposal.  (2011, August 8).  Retrieved May 23, 2019, from

MLA Format

"Policy Problem &amp Proposal."  8 August 2011.  Web.  23 May 2019. <>.

Chicago Format

"Policy Problem &amp Proposal."  August 8, 2011.  Accessed May 23, 2019.