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The Simple Fix to the Problem of How to Tax Multinational Corporations – Ending Deferral

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The Simple Fix to the Problem of How to Tax Multinational Corporations – Ending Deferral

Issue Brief

EPI,

5 min read
5 take-aways
Audio & text

What's inside?

To paraphrase the Beatles: Should companies’ tax rates appear too small, be thankful they pay tax at all.

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Editorial Rating

8

Qualities

  • Innovative

Recommendation

Efforts to balance budgets and bring government revenues and expenditures into equilibrium have largely focused on austerity measures. Though business leaders bemoan the sorry state of infrastructure and education in the United States, effective corporate tax rates are plummeting while corporate profits as a share of national income are growing rapidly. Economist Thomas L. Hungerford offers a bold idea to generate additional revenue and a broader tax base that will fund the services a healthy economy needs. getAbstract recommends this straightforward attempt at tackling one of the most manipulated aspects of US tax policy.

Summary

A “territorial system” of taxation assesses taxes only on earnings that a multinational generates within a country. A “worldwide system” taxes corporations on their global profits but also credits them for taxes paid in other jurisdictions, to avoid “double taxation.” While a territorial system provides “capital import neutrality” by offering all economic participants in a given country the same tax considerations, a worldwide system creates “capital export neutrality” – that is, it eliminates a company’s incentive to allocate funds to different jurisdictions...

About the Author

Thomas L. Hungerford, director of tax and budget policy at the Economic Policy Institute, previously worked at the US General Accounting Office and the US Office of Management and Budget.

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