"we should replace lost corporate tax revenue with more taxes on the owners of capital, such as higher capital gains and dividend taxes or a shareholder-level tax on undistributed corporate profits.
In other words, instead of trying to tax Apple, we would tax its shareholders. Individual taxes are simpler than corporate taxes, and it's a lot harder for an individual to shift his tax residence, so we could expect less avoidance."
"Forget trying to make Apple pay higher taxes. How about if we don’t make them pay any taxes at all?"
I think what Barro and Klein are advocating here is the right policy prescription.
Global understanding and agreement among nations to put a floor on Global Corporate Income tax is impossible to come by. Any legislature or political system which expects any such global agreement is simply naive, or even irresponsible. There are always going to be nations desperate enough to attract Global Corporation's profit for whatever advantage those profits bring and hence would be offering 'zero corporate income tax'. As Globalization entrenches more by every passing day, it implies open Trade and freer movement of Capital and Labor across borders - all of which enables corporations multiple ways to move 'profits' where it is taxed least or none. That is why it makes more sense to give up on this 'looser game' and simply focus on generating lost Corporate Income Tax revenue by taxing shareholders when dividends are paid or capital gains are accrued - which predominantly happen for high income tax payers.
This can be further modified by forcing Corporations to spend cash accumulated in certain time frame. Basically, within a reasonable time frame (2 to 5 years), Corporations have to spend overseas profit on one of the 3 things for no tax consequences:
- dividend payouts
- share buy back or
- board approved and executed investment plan within USA which starts within say 2 years and completes within 5 or 10 years.
If companies fail to invest profits back in USA, companies will be taxed no matter whether profit is brought back to USA or not. As far as companies which earn profit in USA, but are not incorporated in USA or do not have headquarters in USA; same reciprocity can be extended so long as their originating countries have 'no double taxation treaty' with USA. This treaty should be different than 'no double taxation treaty' for individuals. That way Congress can decide whether to enter into 'no corporate double taxation' with say Germany or not. If America and Germany agree for 'no corporate double taxation' it means essentially profit investment back either in America or Germany should be non-taxable. This way Congress decides whether it is advantageous to enter into such a treaty with Germany based on profits of German companies in USA, profits of American companies in Germany and patterns of ploughing back those profits into respective economies. These treaties can be time bound too. Point is Congress would have the power to determine and calibrate needle on 'no corporate double taxation' treaties with other countries on ongoing basis.
The core objective of such reformed taxation should be to help companies invest back profits and so long as that happens, companies should not have to worry about any tax implications. And if that does not happens, regardless of where companies hoard that profit, those companies should be taxed. Bargain of 'no corporate taxation' rests on - recouping lost revenue from individual taxation, incentivizing corporations to invest back into economies and country by country trade understanding.