by Eric Toder, Alan D. Viard
American Enterprise Institute
April 07, 2014
It is widely recognized that the current U.S. corporate income tax is flawed, particularly in its treatment of foreign-source income. Unfortunately, current reform proposals fail to resolve the fundamental contradictions in the current corporate income tax structure. The current system and the reform proposals attempt to base corporate taxation on the source of the corporate income, the residence of the corporation, or a combination of those two factors. However, neither source nor corporate residence can be easily defined. Any viable reform must either find an agreed-upon way to define those terms or must restructure the tax system in a way that avoids the need to define them. One option would seek international agreement on how to allocate income of multinational corporations among countries. The other option would eliminate the corporate income tax, but would tax American shareholders at ordinary income tax rates on their dividends and accrued capital gains.

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