Taxes cause offshoring that gut effectiveness.

IV. Other considerations when revising corporate tax policy?

It might be worth considering the effect of CIT policy in the wider international context. Because the CIT is such a competitive tax, incentivizing production and capital movement based on lower tax rates, any proposed changes to the CIT may have to be instituted internationally. Such reforms are generally organized through the Organization for Economic Cooperation and Development.42 It would be very hard, in a practical sense, for any major change in CIT structure to happen nationally, as there would be major incentives for corporations to flee the newly reformed area in search of more competitive rates, especially if the newly reconstructed CIT would have the effect of better capturing corporate income (or income earned by shareholders). On April 5, 2021, US Treasury Secretary Janet Yellen advocated for a global minimum corporate tax.43 Politically this message was conveyed to ensure a decrease in jobs shifting overseas and a “race to the bottom on corporate tax rates.”44 In fact, just two days after Yellen’s address, the G-20 announced that it hopes to come to an agreement on global minimum low tax rates by mid-2020.45 This does suggest that a major overhaul of the national corporate tax regime in accordance with the aim of taxing shareholders more directly would be more doable, as it looks like there is going to be a major reconfiguration of the global corporate tax regime. Furthermore, after such international reforms, there would be less incentive to move outside of the US in search of marginally lower rates, even if the US tax regime was more efficient at taxing wealthy shareholders.

V. Conclusion

In light of the above discussion on the CIT’s justifications, given the stated aim of taxing wealthy shareholders, it can be seen that there is no one true justification for placing an indirect tax on shareholders through the earning of corporate profits. Though the aim is to tax wealthy shareholders, it can be seen that justifications for such tax do not fall directly within a revenue raising or distributive justice rationale. The further problem of who bears the ultimate burden of this tax muddles matters even further: does it actually meet the aim of taxing these wealthy shareholders if economists are unsure of where the incidence lies?

Lastly, modifications proposed to the CIT by Avi-Yonah may fall short of the ultimate aim of taxing the wealthy corporate owners, as only those at the top of the profit’s spectrum will be captured by his anti-monopolistic corporate tax. All of this said, major changes to the global corporate tax regime may be coming, which may give policy makers in the future the chance they need to recalibrate the CIT or eliminate it completely, in favor of taxes like those proposed by Brauner or maybe even a consumption tax.