Burger King made big news in August when it announced it was merging with the Canadian company Tim Hortons to be incorporated in Canada - and incidentally escape its US tax burden. Many criticized Burger King at the time, but Greg Mankiw writes in the NYT that the action was likely driven by the fact that the US is one of the few developed countries without a territorial tax system.
Most countries levy taxes on corporations based on what economic activity occurs within their borders. The United States taxes all profits earned by any company based in the United States, even if those profits were earned abroad. Thus, for US corporations that operate internationally, they often pay taxes to both the US and the country they're operating in.
Would a territorial tax system be better for the US? More efficient? Fairer? What issues is Mankiw not addressing in his article?
I agree with the author's ideas on the corporate tax system. I think that switching to a territorial system is much more effective in today's economy where so many corporations are international. Our current tax system only encourages companies to leave the U.S. and causes the U.S. to miss out on tax revenue. If numerous corporations are merging with foreign companies to escape the tax system then the U.S. needs to reconsider its reasoning behind the tax system. I agree that this may be a longshot to have passed by Congress but it is an idea that should be debated.
ReplyDeleteI agree with Scott. Switching to a territorial tax system would take the incentive away for US corporations to leave. This would benefit the US because they would actually be able to tax these corporations and I believe this is more fair to corporations who would no longer face the possibility of being taxed twice for profits earned abroad.
ReplyDeleteOur corporate tax system is lagging far behind, and I agree that a territorial tax system would be more practical in such a globalized economy. It would certainly take away large corporations' ability to avert current U.S. taxes, to the ability that they can. Even just lowering the corporate tax rate to something along the lines along our European partners (19% to 20%), as Mankiw mentions in the article, would at least take away some of the incentive for more corporations to practice this avoidance strategies.
ReplyDeleteI also agree that the best course of action is for the United States to changes its corporate tax system. The current system really does not make sense in the current market setting. I think that a territorial system will work better than the current system in place, but I think all options should be examined before just selecting a system.
ReplyDeleteI share the same idea with everyone that United States needs to change its corporate tax system for a friendly business environment. It is still too early to determine whether a territorial system would work but there should be some changes for the tax system.
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