Corporate Taxes in the World Economy: Reforming the Taxation of Cross-Border Income
AbstractProposals for the reform of the taxation of cross-border income are evaluated within the general context of the corporate tax in an open economy. We focus on the various behavioral decisions that can be affected such as the location of income and its repatriation. The two income tax proposals considered are: (1) dividend exemption and (2) burden neutral worldwide taxation in which all foreign subsidiary income is included currently in the U.S. worldwide tax base, and at the same time the corporate tax rate is lowered and overhead allocations to foreign income are eliminated so as to keep the overall U.S. tax burden on foreign income the same. We also consider the attractiveness of destination-based and origin-based consumption taxes. Our evaluation of reform options makes use of the best available information. We also present new information on the burden of the current system. However, there are many important unknown behavioral parameters required to judge international tax systems and this missing information, some of which may ultimately be unknowable, makes it difficult to make definitive recommendations. The burden neutral worldwide option seems to offer greater efficiency gains among the two income tax options, particularly because of reduced incentives for income shifting which wastes resources and distorts effective tax rates on investment. To be sure, the burden neutral worldwide option would increase effective tax rates on investment in low-tax countries while not increasing the average U.S. tax rate on foreign source income. The option requires a substantial reduction in the U.S. corporate tax rate. We suggest that increased capital mobility makes changing the mix of corporate and personal level taxation of business income appropriate even apart from the special issues of cross-border taxation such as repatriation taxes and income shifting opportunities that are the main subject of the paper.
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Bibliographic InfoPaper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200626.
Length: 20 pages
Date of creation: 01 Mar 2007
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international taxation; multinational corporations; tax reform;
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
This paper has been announced in the following NEP Reports:
- NEP-ACC-2007-03-10 (Accounting & Auditing)
- NEP-ALL-2007-03-10 (All new papers)
- NEP-PBE-2007-03-10 (Public Economics)
- NEP-PUB-2007-03-10 (Public Finance)
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- Griffith, Rachel & Miller, Helen & O'Connell, Martin, 2011. "Corporate taxes and the location of intellectual property," CEPR Discussion Papers 8424, C.E.P.R. Discussion Papers.
- John W. Diamond & George R. Zodrow, 2007.
"Economic Effects of A Personal Capital Income Tax Add-on to a Consumption Tax,"
International Center for Public Policy Working Paper Series, at AYSPS, GSU
paper0715, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- John W. Diamond & George R. Zodrow, 2006. "Economic Effects of a Personal Capital Income Tax Add-On to a Consumption Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0629, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Harry Grubert, 2009. "MNC Dividends, Tax Holidays and the Burden of the Repatriation Tax: Recent Evidence," Working Papers 0927, Oxford University Centre for Business Taxation.
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