The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Kimberly Clausing, Edward Kleinbard, and Thornton Matheson
INTERNATIONAL MONETARY FUND
This paper examines the main distortions of the U.S. corporate income tax (CIT), focusing
on its international aspects, and proposes a set of reforms to alleviate them. A bold reform
to replace the CIT with a corporate-level rent tax could induce efficiency-enhancing
reform of the international tax system. Since fundamental reform is politically difficult,
this paper also proposes an incremental reform that would reduce tax expenditures, reduce
the CIT rate to 25-28 percent, and impose a minimum rent tax on foreign earnings.
Finally, this paper analyzes empirically the likely impact of the incremental on corporate
revenues outside the U.S.: Though a U.S. rate cut would likely lower revenues elsewhere,
implementation of a strong minimum tax could more than offset that effect for most
countries with effective tax rates above 15 percent.