Senator Kerry on Corporate Tax Reform: Right Diagnosis, Wrong Prescription
Senator John Kerry has proposed a major overhaul in corporate taxation with the goal of persuading multinational companies (MNCs) to employ more workers at home and fewer abroad. Kerry has correctly emphasized that domestic production is often taxed at a higher rate than production abroad, but his prescriptions would not boost US jobs. Relocating production to the United States is not likely to be the central response to Senator Kerry's proposed tax regime. Instead, MNCs would find ways to avoid the US tax burden. Under Kerry's plan, moreover, foreign-based MNCs would gain further tax advantages over US companies in worldwide markets--giving them a leg up in future expansion. Other tax policy changes would better address the tax tilt toward investment and production abroad. Reforming WTO rules that allow border tax adjustments for indirect taxes but prohibit them for direct taxes would be a far superior response to Senator Kerry's core concern than his own tax proposals.