Sunday, November 15, 2020

Will President Biden Scrap GILTI?

Congratulations to Brad Setser for being selected to be the Agency Review Team for the Office of the United States Trade Representative. I’m curious, however, as to his views on certain aspects of President Elect’s proposals with respect to corporation taxation. There was lots to criticize as to the 2017 Tax Cuts and Jobs Act. Conservative economists were correct to note that it made corporation taxation more complicated. Progressives objected to the dramatic reduction in corporate tax rates. Biden wants the statutory rate raised to 28%. He also is not happy with certain aspects of the Global Intangible Low-Tax Income (GILTI) provisions. Brad Setser ties trade policy and international taxation in a post that brings up transfer pricing abuse. The Cliff Notes version of his insights is that Big Pharma may source production of these new coronavirus treatments in places like Ireland so that they can abuse transfer pricing to make sure their high profits face low tax rates even if the patient is American. My understanding of all that BEAT, FDII, and GILTI jazz was to shore up transfer pricing enforcement by complex legal schemes. Conservatives can rightfully complain that all these legal complications make compliance by multinationals just trying to pay their fair share of taxes very costly. Progressives will note that the large multinationals who want to avoid US taxes find clever means around these silly rules. And to add to our woes – these bizarre rules frustrate our allies abroad who will respond with their own complex rules both in trade and tax issues. Maybe a simple idea might be for all parties involved including our foreign allies to sit down and scrap these legalese and simply get back to enforcing the arm’s length standard using sound economic principles. Just saying.

7 comments:

Anonymous said...

Corporate tax receipts as a share of GDP have been declining since 1952. Changing this in any significant way in the wake of this recession strikes me as impossible. The point will be to keep corporations healthy and in place as the economy is rebuilt.

Before the recession, Amazon was looking among cities for another headquarters and New York City was chosen by the company for the location and tax breaks. Thousands of fine jobs would have been created by Amazon in New York City. However, there was union-centered opposition to Amazon and concern about the tax breaks offered and local political figures such as AOC successfully fought against the Amazon headquarters. Paul Krugman decided Amazon did not matter to New York. The decision of Amazon not to locate in New York was a terrible blow to the city. Krugman and AOC were wildly mistaken.

Anonymous said...

Biden wants the statutory rate raised to 28%....

[ This strikes me as ridiculous when meaningful corporate tax rates are so much lower in competing countries. Not remotely possible. ]

pgl said...

Is 28% impossible? A useful link:

https://home.kpmg/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html

A lot of other nations have 28% rate or higher including Australia, France, Germany, and Japan. Their tax authorities are a lot more aggressive at enforcing transfer pricing than is our tax authority.

Sure there are lots of tax havens. But one proposal is to have the major players like China and the US impose minimum worldwide tax rates. Since China's tax rate = 25% maybe that should be the floor. Of course we used to have such a regime but it developed more holes than Swiss cheese.

Anonymous said...

An excellent response; I appreciate this assistance in helping me understand the matter.

Anonymous said...

https://fred.stlouisfed.org/graph/?g=pGWt

January 30, 2018

Corporate Income Taxes * as share of Gross Domestic Product, 1948-2018

* Federal receipts

rosserjb@jmu.edu said...

Obviously this depends on getting Dem control of the Senate. Waiting on Georgia on my mind.

Anonymous said...

Biden wants the statutory rate raised to 28%....

[ So my mistake in immediately thinking such a rate impossible was because of the prominence of tax shelter countries such as Ireland or the Netherlands... I was wrong, but there must be a limiting of the tax shelters to make raising corporate tax rates significantly possible.

Important post. ]