Borderline Case International Tax Policy, Corporate Research and Development, and Investment (1997) / Chapter Skim
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10 DIRECTIONS FOR INTERNATIONAL TAX REFORM
10 DIRECTIONS FOR INTERNATIONAL TAX REFORM
Pages 133-142
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From page 133... ...
"HERE AND NOW" OF INTERNATIONAL TAXATION In the 1950s, 1960s, and even the 1970s, the United States entertained a "grand vision" of the international tax system. This vision was built around several foundation facts and assumptions (Hufbauer, 1992~: Countries that were important players in the international economy generally operated "classical" tax systems, consisting of separate corporate and individual income taxes.
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From page 134... ...
The source country was generally assigned primary taxation rights to the particular stream of income. This primary right was recognized by the residence country when it exempted the income from its own tax net or when it allowed a credit against its own taxes for foreign taxes paid on the income (the foreign tax credit)
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From page 135... ...
Between the 1960s and 1980s, the United States relative to other industrial nations exchanged its position as the country with high personal and corporate marginal tax rates for a new position as a low income tax country. Since the mid1980s, however, the United States has once again drifted up into the high corporate tax ranks, as established industrial countries and emerging industrial powers have cut their own corporate rates.
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From page 136... ...
Surrey, a distinguished professor at the Harvard Law School and Assistant Secretary for Tax Policy during the Kennedy and Johnson administrations. Surrey's searchlight was his list of "tax expenditures," a schedule of revenue lost by departures from an "ideal" tax system.
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From page 137... ...
The fiscal year 1997 budget listed the corporate tax expenditure items shown in Table 10.1, with figures for both 1997 and the five years 1997-2001. In 1997, there was an assault on the export source rule and modest attempts to curb deferral.
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From page 138... ...
The fourth countervailing force is the responsiveness of production location decisions to corporate tax rates, documented in a recent report for the Export Source Coalition (Hufbauer and DeRosa, 1997~. Although "older" studies (dating from 1981)
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From page 139... ...
Recent scholarship uses more sophisticated econometric techniques than the earlier work surveyed by Hines, but there is more to the story than an improved ability to detect production response rates. With the integration of the world economy and the sharp decline of major political risks communism, socialism, expropriation, and protectionism firms have in all liklihood become more responsive to differental tax rates.
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From page 140... ...
In addition to these political propositions about basic tax reform, some less evident economic proportions should be taken into account. There are two basic principles for making adjustments at the border for domestic taxation-the destination principle and the origin principle.
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From page 141... ...
The destination principle is more friendly to investment than the origin principle since it automatically creates tax parity between domestic production both in competition with imports and in export markets. Destination principle adjustments require more administrative machinery, however, and create a new form of tax on international transactions.
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From page 142... ...
1996. Selected Tax Policy Implications of Global Electronic Commerce.
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