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The corporate income tax in the United States, which has remained largely unchanged since the much celebrated Tax Reform Act of 1986, is ripe for reform. The statutory tax rate in the United States is now the highest in the world, we no longer have relatively low marginal effective tax rates, and most of our international competitors have moved to “territorial” tax systems, under which the foreign source income of their multinationals is exempt from domestic taxation – in contrast to the U.S. system under which such income is subject to a residual domestic tax. In addition, the corporate income tax in the United States is widely recognized as a complex tax instrument that distorts a wide variety of business decisions, favoring certain activities and industries over others and thus lowering the productivity of capital and labor and hampering economic growth. Moreover, high statutory rates exacerbate all of the inefficiencies of the current tax system, encourage tax avoidance and evasion, and increase administrative and compliance costs. Finally, high statutory tax rates in the United States are especially harmful in the modern globalized economy, as they drive capital, especially highly mobile firm-specific capital that earns above normal returns, out of the country, and create incentives for income shifting to lower tax jurisdictions that significantly reduces US revenues.
