A Time for Corporate Tax Reform?

The United States has not had a comprehensive overhaul of its tax code since the 1986 Tax Reform Act signed into law by President Reagan. Nearly twenty-six years and over 15,000 special tax provisions later, many critics say the time for another round of reform is long overdue.

Both parties are calling for a reduction in the headline corporate rate--now the highest in the world at 35 percent-- and an end to many of the corporate tax expenditures (tax breaks) that litter and complicate the code. However, stark differences persist over how to tax U.S. multinational corporations, the firms most sensitive to global competition.

President Obama's proposal would largely maintain the current U.S. system that taxes the overseas profits of these companies, while Republicans favor a shift to a territorial system--like most of the industrialized world--that only taxes domestic profits. The outcomes of this debate will have significant consequences for the ability of these firms, and the United States as whole, to compete on the international playing field.

This CFR backgrounder puts the debate in context and outlines several plans for reform.