What is the future of corporate tax reform?

On June 7, AEI hosted two panels on how the US could reform the corporate tax code, the first focusing on business-level taxation and the second focusing on shareholder-level taxation.

Christopher H. Hanna of the Senate Finance Committee delivered the symposium’s opening remarks, with a major focus on how the inefficiencies and increasing obsolesce of the US corporate tax system could be ameliorated by the implementation of corporate tax integration. Tax integration would prevent corporate income from being taxed twice — once as corporate profit and once when distributed to shareholders — and Mr. Hanna believes that integration would induce more investment in corporations and a more efficient distribution of corporate profits.

The first panel began with a discussion on tax incidence. Columbia’s R. Glenn Hubbard referenced studies that claim 60 to 70% of the corporate tax burden is borne by labor, while USC’s Edward Kleinbard countered there is a different incidence on normal returns on capital and the returns on economic rents. Because the owners of capital bear more the burden of the corporate tax on rents, the growing size of economic rents has meant more of an incidence on the owners of capital as opposed to labor. The Joint Committee on Taxation of the US Congress assigns 75% of the corporate income tax burden to owners of capital.

Broadening the scope of the conversation, Alan Auerbach advocated for switching from an origin-based system of taxing corporate income to a destination-based income. A destination-based tax applies to goods that are consumed in the United States, rather than goods that are produced. Auerbach argued that a destination-based tax would remove the incentive for corporate inversions and investment abroad. Kleinbard worried that moving to a destination basis could significantly reduce the US tax base.