Old Rules and New Realities: Corporate Tax Policy in a Global Setting
Mihir A. Desai
Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)
James R. Hines Jr.
University of Michigan; NBER
Ross School of Business Paper No. 920
This paper reassesses the burden of the current U.S. international tax regime and reconsiders well-known welfare benchmarks used to guide international tax reform. Reinventing corporate tax policy requires that international considerations be placed front and center in the debate on how to tax corporate income. A simple framework for assessing current rules suggests a U.S. tax burden on foreign income in the neighborhood of $50 billion a year. This sizeable U.S. taxation of foreign investment income is inconsistent with promoting efficient ownership of capital assets, either from a national or a global perspective. Consequently, there are large potential welfare gains available from reducing the U.S. taxation of foreign income, a direction of reform that requires abandoning the comfortable, if misleading, logic of using similar systems to tax foreign and domestic income.
Number of Pages in PDF File: 34
Keywords: Corporate taxation, international taxation, multinational corporations, foreign tax credit
JEL Classification: H87, H21, F23
Date posted: October 19, 2004