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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

Thomas L. Hungerford
EPI, 2014
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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.

Take-Aways

  • In taxation, “territorial systems” tax profits based on where enterprises book them, while “worldwide systems” tax the global earnings of a multinational.
  • Territorial systems provide “capital import neutrality” in that they give all players equal tax treatment within a given jurisdiction.
  • Worldwide systems create “capital export neutrality”: Because income gets taxed the same no matter where it’s earned, worldwide systems eliminate incentives to reallocate profits based on tax considerations.

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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