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The Great American Tax Gambit

US President Joe Biden is seeking to raise America’s corporate tax rate from 21% to 28% and introduce a global minimum corporate tax in order to halt an international “race to the bottom.” The bold proposal has sharpened the debate about how his administration should finance its ambitious spending plans, and, more broadly, how to tax increasingly footloose multinational companies.

In this Big Picture, MIT’s Daron Acemoglu welcomes Biden’s plan, saying that it would increase corporations’ share of US federal tax revenues and potentially revolutionize corporate taxation worldwide. And fair taxation of multinationals, argue José Antonio Ocampo, Nobel laureate economist Joseph E. Stiglitz, and Jayati Ghosh of the Independent Commission for the Reform of International Corporate Taxation, must be a central part of any tax system aimed at driving economic growth and creating high living standards for all.

But Alan J. Auerbach of the University of California, Berkeley thinks Biden’s corporate-tax proposal is designed for a bygone era, and instead advocates a destination-based cash-flow tax (DBCFT) similar to the one that Republican leaders unsuccessfully proposed in 2016-17.

Back then, New York University’s Nouriel Roubini rebutted the claim by DBCFT proponents that such a tax would improve the US trade balance and boost domestic production, investment, and employment. Similarly, Michael Heise of HQ Trust argued that the economic, political, and legal risks of such a radical reform would likely far outweigh any rewards.

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