There appears to be an emerging consensus in policy circles on the general outlines of business and corporate tax reform, although there remains much uncertainty about its precise shape and the likelihood and timeframe of its enactment. The aim here is to briefly sketch the major features of this consensus, and to discuss the efficiency consequences of this type of reform in the light of the framework in section 8.2. The major impetus for reform appears to stem from the lockout problem and from the recognition that the US statutory corporate tax is out of step with those of other comparable countries. This tax rate differential has become increasingly

Portfolio investment abroad by US residents. Notes

Figure 8.2 Portfolio investment abroad by US residents. Notes: This figure is drawn from Desai and Dharmapala (2009b: figure 2) and Desai and Dharmapala (2010: figure 5). It depicts the mean ratio of outbound US FPI to aggregate US holdings (where aggregate US holdings are defined as the sum of US FPI and US FDI) for two subsamples of countries. The bars represent ratios for subsamples divided at the median corporate tax rate. Data on corporate tax rates (specifically, the top statutory corporate tax rate) is obtained from the data provided by the accounting firm PricewaterhouseCoopers’ worldwide summaries of corporate tax rates. The data on FPI by US investors are obtained from the US Treasury's Treasury International Capital (TIC) reporting system, available at http://www.treas.gov/ tic/. The data on FDI are obtained from the Bureau of Economic Analysis (BEA), available at http://www.bea.gov.

difficult to ignore, as has the accumulation of cash held by the foreign affiliates of US MNCs and the growth of corporate inversions. Thus, the key elements of the emerging consensus are a reduction in the corporate tax rate to somewhere between 20% and 28% (we use 25% for concreteness in the discussion) and a shift from a worldwide to a territorial system (i.e., the exemption from US tax of dividends paid by foreign affiliates to their US parents). Broadly speaking, this is the type of reform envisaged by the Hatch Report and embodied in a number of current legislative proposals.

However, there is greater disagreement and uncertainty about various other elements of a possible reform package, especially the anti-avoidance rules that may be introduced as part of a reform. In particular, two quite novel ideas (analyzed in more detail in sections 8.3.2 and 8.3.3 have been widely discussed: (1) a one-time levy on the foreign cash holdings of US MNCs to be implemented at the time of the reform and (2) a minimum tax on foreign income.

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