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News from EPI Ending Corporate Tax Deferral Could Save $50 Billion a Year

In The Simple Fix to the Problem of How to Tax Multinational Corporations: Ending Deferral, Economic Policy Institute Tax and Budget Director Thomas L. Hungerford argues that the best start to reform the corporate tax code is also the simplest. Deferral provides an incentive for multinational corporations to keep foreign-sourced income offshore, because corporate taxes are not due until that income is repatriated. Ending deferral and bringing the United States closer to a worldwide tax system would simplify the corporate income tax system, reduce tax-haven abuse, and increase tax revenue by $50 billion a year.

“Tax reform is sometimes characterized as insurmountably complex, but on the corporate side, there is a good way to start,” said Hungerford. “Simply eliminating deferral would remove incentives for corporations to shift profits, investment, and jobs overseas. And the revenue it would bring in could be used to rebuild our roads and bridges, or fund universal pre-K.”

While large-scale tax reform has stalled on Capitol Hill, some legislators are looking at enacting corporate tax reform this year. Unfortunately, the most recent proposal from House Ways and Means chair Dave Camp would move in the opposite direction—adopting a mostly territorial tax system and not taxing foreign-sourced income at all. This would increase incentives for corporations to shift profits and investments overseas. Meanwhile, Senate Finance committee chair Ron Wyden has proposed eliminating deferral as recently as 2011, but has not introduced this legislation more recently.