US International Tax Policy: Is Significant Reform on the Way?
Posted: 15 Oct 2013 Last revised: 28 Sep 2017
Date Written: August 3, 2009
Abstract
The Administration’s proposal for international tax policy reform is evaluated relative to another alternative, burden-neutral worldwide taxation, which also addresses the concerns that exist under the U.S. international tax policy. Both the Administration’s reform proposal and burden-neutral worldwide taxation address the concerns caused by the deferral provision, but the most notable difference between the two alternative international tax policies is the intended use for the government revenues generated from the proposals’ modification to the deferral provision. Under the Administration’s proposal the revenues generated from limiting deferral are retained by the government resulting in an effective tax increase on multinationals that currently benefit from the deferral provision. In contrast, burden-neutral worldwide taxation is revenue-neutral as it uses the tax revenues generated by the repeal of the deferral provision to reduce the top corporate tax rate for U.S. corporations from 35 percent to 28 percent. While maintaining government revenues at their current level, burden-neutral worldwide taxation would make the average U.S. corporation more competitive in the global economy, and it would also achieve horizontal equity for U.S. corporations. That is, U.S. corporations, both with and without foreign operations, would be taxed the same regardless of where the income is earned. The comparison of the reform proposals is important as the differences between the alternatives highlights the concerns of policymakers that are likely to be the main topics of upcoming debates to decide the future of the international tax policy. Based on the sentiments of policymakers, the United States may finally achieve significant reform of the international tax policy, but this study presents evidence to suggest that the primary caveat for significant reform to take place is policymakers’ ability to keep U.S. corporations competitive in the global economy.
Keywords: tax policy, debate, territorial, worldwide, corporate tax, reform
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