Ideas on Corporate Tax Reform
The Information Technology and Innovation Foundation (ITIF) released a new report, Effective Corporate Tax Reform in the Global Innovation Economy, in which Robert Atkinson examines the issue of corporate tax reform.
At the release of the report, C. Fritz Foley, Associate Professor at the Harvard Business School and Robert Shapiro, former undersecretary at the U.S. Department of Commerce argued against a proposal by the Obama administration to, among other steps, limit deferral of foreign source income. They highlighted that such measure would only hurt U.S. workers since companies’ activities here and abroad are interrelated and complementary. Shapiro also highlighted that most multinational firms invest abroad to serve new markets rather than to outsource per se, dispelling the myth that corporate taxes to punish outsourcing benefit the U.S. economy.
The new ITIF report lays out six key principles for policymakers to consider:
1. Differentiate between individual taxes and corporate taxes and focus on making the individual tax code more progressive.
2. An effective corporate tax code is neither simple nor neutral.
3. An effective corporate tax code should explicitly spur innovation and productivity.
4. Nations need competitive corporate tax systems in a global economy.
5. Tax reform should shift revenue collection from mobile sources of economic activity toward immobile ones.
6. Recognize that international tax competition is here to stay.
Based on these principles, the report offers three key policy recommendations for crafting an innovation-based corporate tax code:
1. Significantly expand the research and development tax credit, by expanding the Alternative Simplified Credit, broadening the definition of qualified R&D to include “process R&D”, and creating a more generous credit for research conducted by companies at universities and federal labs.
2. Create a “knowledge tax credit” by allowing company expenditures on employee training to qualify for the Alternative Simplified R&D Credit.
3. Allow companies to expense in the first year expenditures on capital equipment instead of having to depreciate it over a number of years.
Atkinson argues that reforming the code this way would spur investment in the building blocks of the growth: research, workforce training, and new capital equipment.