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Will President Biden Scrap GILTI?

Summary:
Congratulations to Brad Setser for being selected to be the Agency Review Team for the Office of the United States Trade Representative. I’m curious, however, as to his views on certain aspects of President Elect’s proposals with respect to corporation taxation. There was lots to criticize as to the 2017 Tax Cuts and Jobs Act. Conservative economists were correct to note that it made corporation taxation more complicated. Progressives objected to the dramatic reduction in corporate tax rates. Biden wants the statutory rate raised to 28%. He also is not happy with certain aspects of the Global Intangible Low-Tax Income (GILTI) provisions. Brad Setser ties trade policy and international taxation in a post that brings up transfer pricing abuse. The Cliff Notes version of his insights is that

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Congratulations to Brad Setser for being selected to be the Agency Review Team for the Office of the United States Trade Representative. I’m curious, however, as to his views on certain aspects of President Elect’s proposals with respect to corporation taxation. There was lots to criticize as to the 2017 Tax Cuts and Jobs Act. Conservative economists were correct to note that it made corporation taxation more complicated. Progressives objected to the dramatic reduction in corporate tax rates. Biden wants the statutory rate raised to 28%. He also is not happy with certain aspects of the Global Intangible Low-Tax Income (GILTI) provisions. Brad Setser ties trade policy and international taxation in a post that brings up transfer pricing abuse. The Cliff Notes version of his insights is that Big Pharma may source production of these new coronavirus treatments in places like Ireland so that they can abuse transfer pricing to make sure their high profits face low tax rates even if the patient is American. My understanding of all that BEAT, FDII, and GILTI jazz was to shore up transfer pricing enforcement by complex legal schemes. Conservatives can rightfully complain that all these legal complications make compliance by multinationals just trying to pay their fair share of taxes very costly. Progressives will note that the large multinationals who want to avoid US taxes find clever means around these silly rules. And to add to our woes – these bizarre rules frustrate our allies abroad who will respond with their own complex rules both in trade and tax issues. Maybe a simple idea might be for all parties involved including our foreign allies to sit down and scrap these legalese and simply get back to enforcing the arm’s length standard using sound economic principles. Just saying.

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