Major Surgery Needed: A Call for Structural Reform of the U.S. Corporate Income Tax

52 Pages Posted: 20 Apr 2014

See all articles by Eric J. Toder

Eric J. Toder

Urban Institute

Alan D. Viard

American Enterprise Institute

Date Written: April 4, 2014


It is widely recognized that the current U.S. corporate income tax is flawed, particularly in its treatment of foreign‐source income. These flaws are amplified by the high U.S. statutory tax rate. Unfortunately,current reform proposals fail to resolve the fundamental contradictions in the current corporate income tax structure.

The current system and the reform proposals attempt to base corporate taxation on the source of the corporate income, the residence of the corporation, or a combination of those two factors. The problem is that neither source nor corporate residence can be easily defined. Any viable reform must either find an agreed‐upon way to define those terms or must restructure the tax system in a way that avoids the need to define them.

In this report, we describe the challenges facing the corporate income tax and discuss two structural reform options that could address them. One option would seek international agreement on how to allocate income of multinational corporations among countries. The other option would eliminate the corporate income tax, but would tax American shareholders of publicly traded companies at ordinary income tax rates on their dividends and accrued capital gains. We discuss the benefits and limitations of each option.

Suggested Citation

Toder, Eric J. and Viard, Alan D., Major Surgery Needed: A Call for Structural Reform of the U.S. Corporate Income Tax (April 4, 2014). Available at SSRN: or

Eric J. Toder

Urban Institute ( email )

Urban Institute
2100 M Street NW
Washington, DC 20037
United States
2022615577 (Phone)

Alan D. Viard (Contact Author)

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
(202) 419-5202 (Phone)
(202) 862-7177 (Fax)

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