Think Tankers Toder, Viard: US Should Consider Dumping Corporate Tax

Friday, 08 Aug 2014 10:07 AM

By Dan Weil

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Most participants in the corporate tax debate agree the system should be reformed, but how?

"The United States should either reach agreement with its trading partners on a common way to allocate profits of multinational corporations or should scrap the corporate tax and directly tax shareholders instead," Eric Toder, a fellow at the Urban Institute, and Alan Viard, a resident scholar at the American Enterprise Institute, write in an article for MarketWatch.

The U.S. corporate tax rate — about 39 percent including state taxes — is the highest in the developed world, they note. Yet the government collects less in corporate taxes than other developed countries, only about 2 percent of GDP.

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As for the first possible solution, the government could "seek international cooperation on defining the source of corporate income," Toder and Viard suggest.

"Agreement on common rules for allocating income would stop the shifting of profits to tax havens, without putting U.S. multinationals at a competitive disadvantage."

Then there's the nuclear option, eliminating the corporate tax. "The tax system would no longer discourage domestic investment, reward U.S. companies for shifting income elsewhere, or favor foreign over U.S.-resident companies," Toder and Viard write.

"Both these options would confront difficult design choices and significant political obstacles. We do not pretend that either is likely to be enacted soon. At some point, though, the United States has to move beyond tinkering with the current system and fundamentally reform the way we tax corporate income."

President Obama wants to outlaw tax inversions, whereby U.S. corporations take over foreign ones and then domicile overseas to avoid U.S. taxes.

Grover Norquist, president of American for Tax Reform, isn't too impressed with the idea. "It's the president's fault that he has done nothing in five years to reduce corporate rates, which he has said he was going to do," Norquist tells CNBC.

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