Required Reading: Corporate Tax Plans

This was in the January 7th edition of the New York Times:

The Major Potential Impact of a Corporate Tax Overhaul (NY Times)

The current corporate income tax manages the weird trick of both taxing
companies at a higher statutory rate than other advanced countries while
collecting less money, as a percentage of the overall economy, than most of them.
It is infinitely complicated and it gives companies incentives to borrow too much
money and move operations to countries with lower tax rates. 

Now, the moment for trying to fix all of that appears to have arrived. With the
House, Senate and presidency all soon to be in Republican hands and with all
agreeing that a major tax bill is a top priority, some kind of change appears likely
to happen. And it may turn out to be a very big deal, particularly if a tax plan that
House Republicans proposed last summer becomes the core of new legislation. 

Among Washington’s lobbying shops and policy analysis crowd, it’s known as
a “destination-based cash flow tax with border adjustment.”

This is explained a bit further down the page:

The House Republicans’ approach, instead of taxing the easy-to-manipulate
corporate income, goes after a firm’s domestic cash flow: money that comes in
from sales within the United States borders minus money that goes out to pay
employees and buy supplies and so forth. There’s no incentive to play games with
overseas companies that exist only to exploit tax differences or to relocate
production to countries with lower taxes because you’ll be taxed on things you sell
in the United States, regardless. 

“With an income tax, one of the key issues is ‘how do you measure income,’ ”
said Alan Auerbach, an economist at the University of California, Berkeley, who is
a leading advocate of the idea. “But with cash flow you just follow the money.”

The plus-side of this is that it ought to vastly reduce some of the crazy headquarters outsourcing this country has endured over the last few decades.  For example, Apple is theoretically headquartered in Ireland--as an obvious tax dodge--but sells a goodly portion of its stuff here and does pretty much all of its actual headquarters-type business here.  With this plan, that wouldn't be relevant.  The U.S. would instead tax domestic sales minus domestic costs.  That might even cause U.S. businesses to bring staff back to the U.S., and obvious long-term benefit.

The downside is that we'd have literally no way whatsoever to profit on U.S. sales overseas.  Our current tax methods for those profits are already highly theoretical, but it's still true that this plan only works to the extent that the U.S. remains a domestic consumer rather than an exporter.  As a matter of reality, we do, in fact, export quite a bit.

That said, it's still almost certainly true that any reasonable reform is better than what we have now.  What we have now is flat not working at all.