In The Hamilton Project book “Tackling the Tax Code: Efficient and Equitable Ways to Raise Revenue” (Nunn and Shambaugh 2020), leading economists and other experts offered a range of detailed proposals for better tax policies that would raise revenue in a progressive and growth-friendly manner. That book includes policy proposals for several issues, including a value-added tax, a financial transactions tax, wealth and inheritance taxes, better enforcement and administration of old and new tax laws via enhanced Internal Revenue Service resources, and fixing the broken corporate and international tax systems. On that last point, Kimberly Clausing contributed a policy proposal intended to raise additional revenue from U.S. multinational corporations in efficient, equitable ways (Clausing 2020a). Congress is currently considering some of the essential aspects of Clausing’s proposal.
In this set of economic facts, The Hamilton Project and the Tax Law Center at NYU Law present background on the international corporate tax proposals that U.S. lawmakers are currently considering, including how those proposals would connect to a new multilateral agreement on international corporate taxation. This paper first describes the following issues:
- How current law allows U.S. multinationals to substantially lower their effective worldwide tax rates by shifting their profits abroad.
- How proposals to reform the U.S. taxation of multinationals, building on the basic approach to corporate international tax policy in tax legislation enacted in 2017 (known as the Tax Cuts and Jobs Act of 2017 [TCJA]), seek to raise revenue and reduce profit shifting.
- How tax proposals being considered by U.S. lawmakers and the new multilateral deal on international corporate tax are intended to be mutually supportive, maintaining the competitiveness of the United States as a location for investment and for corporations to reside.
It then presents six facts to illustrate the drivers and goals of current reform proposals. Because this paper is focused on U.S. reforms that Congress is currently considering as well as on the new multilateral deal, it does not describe or assess the many alternative domestic and multilateral reforms that would take tax law in a fundamentally different direction.