The core challenge in taxing multinational companies is one of competing priorities: maintaining U.S. competitiveness while protecting the corporate tax base. It can be difficult for tax authorities to determine where profits are earned, a fact that multinational companies exploit to reduce their tax burden. Raising the domestic corporate tax rate relative to rates abroad encourages international profit shifting or moving production overseas, thereby eroding the corporate tax base.
A proposal by Kimberly Clausing of Reed College offers several reforms to improve the taxation of multinational companies. Specifically, Clausing’s proposal would immediately increase the corporate tax rate, strengthen the global intangible low-taxed income (GILTI) minimum tax, and repeal the foreign-derived intangible income (FDII) deduction. In the longer run, the author proposes a formulary approach to the taxation of international corporate income that would transcend the tradeoff between competitiveness and tax base protection.