Do you think that the new tax act helped or further complicated the tax code?
The 2017 Tax Cuts and Jobs Act (TCJA) was enacted with the goal to help entities in the US that
were multinational companies. These goals included lowering the corporate and business tax rates,
and incentives for new domestic investments. This tax act also had the intention of increase
investments by setting up guardrails against international profit sharing, making workers more
productive, and raising output and wages. This act may have reduced the marginal effective tax
rates, but it did not appear to have much of an impact on business investments (Gale & Haldeman,
2021).
It does seem like this tax act may have complicated the code further than it already was. US
multinational firms were still encouraged to incorporate to foreign jurisdictions, shift their profits to
other countries, and earn and report their profits in low-tax foreign countries. This new act
included IRC § 951A, introducing the Global Low Tax Intangible Income (GILTI) at a rate of 10.5%
which is much lower than many other countries federal corporate tax rates. Although this may have
reduced some company’s incentives, it did not eliminate them, and many companies continued to
shift their profits to tax havens. The current US system still allows companies to have some benefits
by establishing their parent companies outside of the US. There are also more controlled foreign
corporation rules, but the US is not able to apply these rules to foreign-resident multinationals
(2020b).
Have we become more competitive with other countries?
I believe the US has become more competitive with other countries. The US system used to
discourage investments in the US which was helped with the TCJA. The top corporate rate in the US
is also slightly lower than the average corporate tax rate of the most common trading partners. The
US tax system new also encourages US-based multinationals to invest in low-tax foreign countries
rather than investing in the US (2020a).
Why is international tax so important to the U.S. tax code?
International tax is very important to the US tax code. All entities that are multinational firms or
have a cross-boundary presence needs to be aware of international tax. Tax codes are constantly
being modified so it is important that the most updated tax code is being used. International tax is
also important for companies generating income abroad that are subject to international tax rules.
There can be tax treaties between counties that may specify which county collects tax income on
certain transactions. There are also anti-avoidance regulations put into place but some companies
to reduce a business’s opportunity to reduce their tax liability (Chaudry, 2022).
I do not necessarily believe the new tax policy further complicated the tax code for a few reasons.
First off, the TCJA reduced U.S. a companies’ incentive to shift their profits among different tax haven
companies, because it introduced a new Global Low Tax Intangible Income percentage (Tax Policy
Center, 2020). A similar change was made for intangible assets, which also reduced U.S. companies’
incentive to hold intangible assets in low-tax countries. The new tax policy also provided new
penalties involved with inversions. It appears to me the new tax policy was attempting to make
company reporting more streamlined when it comes to foreign activities.
Ensuring competitiveness is important for the U.S. to consider to keep the economy strong and
growing (U.S. Department of the Treasury, n.d.). One way to ensure competitiveness is to make
sure a country's tax system is different from other countries tax systems, especially those that don't
promote competitiveness. Even after the TCJA, the U.S. remains competitive as it promotes
international trading due to its slightly lower than average corporate tax rate than their major
trading partners (Tax Policy Center, 2020). The U.S. also has generous capital recovery provisions, as
companies who have machinery and equipment investments in the U.S. can deduct 100% of their
costs.
International tax is so important to the U.S. tax code because it helps them decide what changes or
implications need to be made to the U.S. tax code. It is also important because U.S. multinationals
must determine which countries to recognize revenue in and how their corporate tax rates will
affect their revenue.
References:
Tax Policy Center. (2020). How does the tax system affect US competitiveness?
https://www.taxpolicycenter.org/briefing-book/how-does-tax-system-affect-us-competitiveness
Tax Policy Center. (2020). What are the consequences of the new US international tax
system?https://www.taxpolicycenter.org/briefing-book/what-are-consequences-new-us-
international-tax-system
U.S. Department of the Treasury. (n.d.). TESTIMONY OF PAMELA OLSON, ASSISTANT SECRETARY FOR
TAX POLICY, UNITED STATES DEPARTMENT OF THE TREASURY BEFORE THE SENATE COMMITTEE ON
FINANCE ON INTERNATIONAL TAX POLICY AND COMPETITIVENESS.
https://www.finance.senate.gov/imo/media/doc/071503Olson.pdf
Chaudry, M. S. (2022, September 15). Why International Tax So Important to the US Tax Code? The
Accounting and Tax. https://theaccountingandtax.com/us-tax-code/
Gale, W. G., & Haldeman, C. (2021, July 6). Searching for Supply-Side Effects of the Tax Cuts and
Jobs Act. Brookings. https://www.brookings.edu/articles/searching-for-supply-side-effects-of-the-
tax-cuts-and-jobs-
act/#:~:text=The%202017%20Tax%20Cut%20and,ultimately%20raise%20output%20and%20wages.
How Does the Tax System affect US Competitiveness? Tax Policy Centre. (2020a, May).
https://www.taxpolicycenter.org/briefing-book/how-does-tax-system-affect-us-competitiveness
What are the Consequences of the New US International Tax System? Tax Policy Center. (2020b,
May). https://www.taxpolicycenter.org/briefing-book/what-are-consequences-new-us-international-
tax-system
