Susan C. Morse (Texas) presents International Cooperation and the 2017 Tax Act, 128 Yale L.J.F. ___ (2018), at San Diego today as part of its Tax Speaker Series hosted by Jordan Barry:
In 2017, House Speaker Paul Ryan, Representative Kevin Brady and Senator Mitch McConnell accomplished something that many others, including Barack Obama, had aimed for. They lowered the federal corporate tax rate so that the U.S. rate now falls within the range used in most of the rest of the world. The Tax Cuts and Jobs Act of 2017 (“TCJA”) has attracted just criticism for its deficit financing, for its abysmal craftsmanship, and for the misguided policy objectives of some provisions.1 But the TCJA deserves credit for international corporate tax provisions that move the United States closer to the framework used by other nations. The TCJA may help establish a minimum tax rate globally, thus arguably saving the corporate income tax.
The characters in this Essay’s story are multinational corporations (“MNCs”) and the states that seek to tax them. We may think of a certain multinational corporation as a “U.S.” firm—for instance, because its publicly traded parent company is incorporated in the State of Delaware. Yet, by definition, a multinational firm does business in two or more national jurisdictions. When setting corporate tax policy, states may pursue “cooperation,” to help each other maintain a positive corporate tax rate. They also may pursue “competitiveness,” which in the context of tax policy means to lower tax burdens in hopes of attracting investment. The TCJA features both.
Part I of this Essay compares the U.S. law before the TCJA, which I call the “maybe later” approach, to the provisions of the TCJA. The TCJA includes both provisions that reduce the U.S. corporate tax burden, like the dual, lower rate structure for U.S. income; and provisions that place a floor under the U.S. corporate tax, like the minimum tax on global intangible low-taxed income, or GILTI. Part II investigates the tax policy idea of “competitiveness,” which is the hypothesis that reducing tax burdens will increase corporate profitability and thus attract investment. The rate reduction component of the TCJA uses deficit financing to decrease the corporate tax burden significantly, but it does not set the U.S. on a path toward eliminating the corporate income tax.
As Part III explains, the TCJA also includes cooperative elements. Part III proposes that “cooperation” within the context of the TCJA means using the U.S. system to support the corporate income tax laws of other members of the OECD, while excluding or punishing tax haven countries. Part III highlights the GILTI minimum tax and the base erosion and anti-abuse tax, or BEAT, as de facto cooperative provisions that support the corporate income tax.