All of a Piece Throughout: The Four Ages of U.S. International Taxation

34 Pages Posted: 13 Jun 2005

Date Written: June 2005


This paper divides up the history of U.S. international taxation into four periods, on the basis of what was the basic theoretical principle underlying the major legislative enactments made in each period. The first period lasted from the adoption of the Foreign Tax Credit in 1918 to the end of the Eisenhower administration, and was dominated by the concept of the right to tax as flowing from benefits conferred by the taxing state. The second period lasted from 1960 until the end of the Carter administration and was dominated by the concept of capital export neutrality and an emphasis on residence-based taxation. The third period lasted from 1981 until 1997, and was driven by the need to preserve the competitiveness of the U.S. economy in an increasingly globalized marketplace, resulting in an emphasis on source-based taxation, albeit with significant exceptions. The last period began with the decision to cooperate with the OECD's harmful tax competition project in 1998, and is marked by a continuous attempt to coordinate residence and source taxation to prevent both double taxation and double non-taxation.

Three general observations can be made on this evolution: 1. In some ways, surprisingly little has changed in the course of the last hundred years: U.S. international taxation is still dominated by the need to balance the desire to prevent both double taxation and complete tax avoidance with sustaining the competitive position of U.S. businesses. 2. Although it is possible to detect some measure of cyclicality, in that the emphasis shifts from source to residence to source and back to residence again, the underlying balance does not shift very significantly, and the various theories advanced appear more as convenient support for pre-existing policy preferences than the real reason for policy changes. 3. On the basis of the history, it seems unlikely that the U.S. will in the near future make a clean break with the past either by abandoning all source-based taxation of foreigners or all residence-based taxation of U.S. persons.

Keywords: International taxation, tax history

JEL Classification: H25, H87

Suggested Citation

Avi-Yonah, Reuven S., All of a Piece Throughout: The Four Ages of U.S. International Taxation (June 2005). Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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