The R’s corp tax plan

December 30th, 2016 at 1:53 pm

A number of folks asked me what I thought of this part of the Republican’s tax plan–their corporate tax replacement–and that required some thought, as it’s very different than what we have. Here’s what I got, over at WaPo.

I couldn’t fit it in the piece, but I wanted to reference the more jaundiced take on the proposal–I’m pretty skeptical of some of the claims of proponents, but find a few attributes worth considering–from Senate Democrats, who summarize the replacement as follows:

The key feature on the business side of the plan—a destination-based cash flow corporate income tax with “border adjustments”—is confusing, untested, leads to bizarre results, and is possibly illegal under WTO rules.

Other than that, they’re OK with it…

I also predict that the increased costs that this proposal implies for retailers and other major importers will kill its legislative chances. That said, given recent developments, I pretty heavily discount such predictions, by myself and anyone else.

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7 comments in reply to "The R’s corp tax plan"

  1. nobody says:

    We’re bracing…

  2. stewart sprague says:

    need some kind of differential process.

  3. Raven Onthill says:

    Wouldn’t China and Mexico retaliate? And wouldn’t this result in a medium-term price shock for most electronics?

    • Jared Bernstein says:

      Retaliation certainly a possibility, contingent of $ adjustment. Yes, re price shock, but only if $ fails to adjust, or producers fail to pass savings from said adjustment forward to consumers.

  4. Jon Beusen says:

    Eliminating the incentive for corporate inversions and eliminating the incentive to keep profits outside of the US are laudable goals, but the BAT plan seems too complex and indirect. How about a simpler (at least conceptually) idea? It would be possible to calculate an imputed US profit as follows: Determine the total worldwide sales of related corporations and US sales. Determine the percentage of those sales that the US represents. Calculate the worldwide profits of those related corporations and multiply it by the percentage of sales in the US. Apply the tax rate to the resulting imputed US profits. In addition to taking care of the corporate inversion problem, this would also minimize the incentive to transferring profits overseas using transfer pricing, paying royalties to ex-US subsidiaries for intellectual property and other methods. The definition of related corporations would be important and should be somewhat less that 50%. Sales would only count if they were made by one of the related corporations to customers that are not related corporations.

    • Jared Bernstein says:

      This sounds like a version of “sales factor apportionment” which is how many states tax their corps. Google Bill Parks–he’s written a bunch on this.

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