Directions for U.S. International Tax Policy, A Response to Hanna and Wilson

Abstract

Christopher Hanna and Cody Wilson argue in U.S. International Tax Policy and Corporate America that an international tax reform proposal focusing on maintaining low financial accounting effective tax rates could win over proponents of full current rate taxation of foreign income as well as U.S. publicly traded corporate America. They propose combining full current rate taxation of foreign income with a reduced overall corporate tax rate of approximately 15%. This, they assert, could be roughly revenue neutral or raise revenue. As long-time proponents of full current taxation of foreign income subject to a credit for foreign taxes, we explain why we respectfully disagree on several grounds. A further reduction in the corporate tax rate would increase the problem of income and wealth inequality and exacerbate distortions of current law. We would not accept, as a revenue baseline, corporate tax revenue after its massive reduction by the 2017 Tax Cuts and Jobs Act. Moreover, with the adoption of the corporate alternative minimum tax by the United States in 2022 and the anticipated adoption by many countries of Pillar 2 qualified domestic minimum taxes, full current taxation of foreign income under their proposal will raise little or no additional revenue. We submit instead that the direction for international (and domestic) tax policy should lie in moving toward a comprehensive tax base that can support existing and needed future expenditures for the welfare of each country’s citizens and residents, including meeting the challenges of climate change and maintaining the capacity to meet future emergencies (such as pandemics and wars). We would combine full current taxation of international income with per-country credits for foreign taxes. We support international coordination of tax rules and convergence of U.S. rules with an international consensus that is the product of a fair and inclusive international process.