Thirty years have passed since the United States last made major changes to its tax laws. That year, President Reagan worked with a GOP-controlled Senate and a House of Representatives controlled by the Democrats to enact the Tax Reform Act of 1986. That legislation overhauled both domestic and international tax laws, yet left many parts of the system (including its confounding complexity) intact. The world has seen many changes since then: the fall of the Soviet Union, the rise of global terrorism, and the proliferation of technology and all the tax planning opportunities it offers, not to mention the Chicago Cubs winning the World Series.
One thing that hasn't changed much in 30 years, however, is the way Congress approaches tax reform. This includes the legislative inertia that regularly prevents any meaningful, wholesale reform of the tax code. But that may be about to change. Over the past few years thoughtful proposals to address pressing international tax issues have emerged from the Obama White House, as well as from Democrats and Republicans in Congress. And with President-elect Donald Trump and his Republican allies in control of Congress, those proposals may just dovetail with proposals that candidate Trump floated on the campaign trail.
One proposal that might find traction in 2017 is a deemed repatriation tax on the $2.5 trillion in earnings that U.S. corporations now hold offshore. Taxing those profits could help raise the money that Trump will need to pay for his promise to rebuild the nation's infrastructure. And Washington could enact the deemed repatriation tax without raising anyone's tax rates. Although the technology and pharmaceutical sectors will object, the wave of populism that Trump and others rode to victory this month might give them the political capital they need to enact this proposal.
Mindy Herzfeld reviews the prospects for other proposals that may form the core of U.S. international tax reform in a Trump administration. They include lowering the corporate tax rate, scrapping the dual taxation of corporate earnings in favor of an integrated system (as floated by Sen. Orrin Hatch, R-Utah), and moving to a destination-based cash flow tax, suggested in the tax reform blueprint released earlier this year by the House Ways and Means Committee. Herzfeld also reviews items not involving legislation that Trump will face when he takes office in January, including regulations attacking corporate inversions and base erosion, and multilateral efforts underway at the OECD and G-20 to reform the global tax system.
After the results of the U.S. election began to sink in, many Americans who supported Hillary Clinton began to look into leaving the U.S. for another country. The morning after the election the Canadian immigration website crashed twice, likely because of high demand. But Americans who leave for supposedly greener pastures are still bound by U.S. laws, particularly when it comes to tax and financial reporting. Liliana Menzie and Steven J. Walker review those reporting requirements as they apply to U.S. citizens who are also citizens of another country.
The United States does not have a monopoly on populist rage at the rising trend toward globalization. In Europe last month, the Belgian region of Wallonia nearly derailed a major trade pact between the EU and Canada over concerns about globalization. Observing that "there is a worldwide popular revolt against the elites that preach globalization," Frans Vanistendael reviews how Europe arrived at this point, and discusses the prospects for future tax and trade agreements between the EU and its trading partners.
Stuart Gibson is editor of Tax Notes International.