Although largely not reflected until now in my public profile, I’ve been busy writing tax articles over the last month, and it looks like I’ll be continuing to do so for a bit. I have more or less completed two short articles (each about 10,000 words long) and just started a new piece today.
The two that I’ve largely completed are as follows:
1) “The Disgraceful U.S. Passthrough Rules,” drawing on analysis that will be familiar to people who have been reading this blog over the last few months. Yes, this piece has a definite point of view. I plan to post it on SSRN fairly soon.
2) “Goodbye to All That? A Requiem for the Destination-Based Cash Flow Tax.” Here the content will likewise be familiar to people who have looked at slides that I’ve posted in various incarnations here (and in one of them on SSRN). This one will also probably be on SSRN soon.
Then there’s the new one. I’ve just started it, but am hoping it will go fast as I can use portions of an early draft of an article that I wrote (but never posted) in the last quarter of 2017, before U.S. legislative developments made portions of it obsolete.
Its current working title is “Does the United States Now Have a Territorial Tax System?” The answer, in a word, is No.
I don’t make readers wait for this conclusion – it actually comes on the bottom of page 1. And I note, of course, that this isn’t my novel conclusion – sophisticated observers were saying it publicly before the bill had even been signed. What makes it seem useful to me as the article’s title is that it helps to show the thorough unhelpfulness of the terms “worldwide” and “territorial” – not just as descriptions of actual real world tax systems, but even as basic analytical tools.
I’m planning to go on from there to point at what I think are better tools for analyzing international tax systems. Design issues of interest include (1) whether or not there is deferral, (2) what is the domestic tax rate for different kinds of foreign source income, (3) what is the effective marginal reimbursement rate for foreign taxes paid, and (4) how does one address profit-shifting, both in general and when it’s done by resident as opposed to nonresident multinational firms (as classified by domestic law).
One point I will make is that the new U.S. international tax rules (along with various international tax rules in other countries) show the influence of considerations that I have argued are important with respect to the above questions.
It will also be clear to readers of the article that I by no means lump the 2017 act’s international tax rules with its abysmal (or, per my article title, ‘disgraceful”) passthrough rules. There are clearly some serious problems with the new international tax rules. But even if they’re not better than prior law right now – on which I don’t have a definite conclusion at this point – they certainly could be tweaked to be significantly better.
This is partly a “compared to what”” point. The U.S. international tax rules were bad beforehand, and getting rid of deferral is an immediate plus, although the next question has always been what replaces it. (Both pure worldwide and pure territorial advocates, who have long existed in academia despite what I’d call the underlying weakness and analytical sloppiness of both positions, alike hated deferral.)
But it also reflects that the legislative effort with respect to international tax law changes appears to have been fundamentally different in character than that with respect to the passthrough rules and the corporate rate cut.
I argue in “Disgraceful” that the passthrough rules, along with the lack of any serious effort to cabin heightened incentives to use corporations as tax shelters for labor income, raise serious concerns about the competency and even the good faith character of the legislative effort. But the new international rules, despite having some sloppy and rushed elements, are in a different category, as some serious thought by serious people does seem to have gone into designing them.
It’s a relief to be able to take a far less negative tone in my second piece addressing aspects of the 2017 act than in my first.