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The tax-reform plan released by Speaker of the House Paul Ryan and House Ways and Means Committee Chairman Kevin Brady aims to improve our corporate tax system by, among other things, taxing companies based on where they sell their goods, not the corporation’s home or the location of its production facilities. As part of such reforms, companies would pay taxes on their U.S. sales revenues, with deductions permitted for the cost of input materials and labor, along with exclusions for the value of export sales.
Although policymakers rarely need to take the World Trade Organization (WTO) or its rules into account when devising tax policy, the proposal as outlined would have significant WTO implications. In this Issue Brief, Jennifer Hillman, a former Chairman of the WTO’s Appellate Body, argues that, as currently described, the plan’s taxes on imports are a clear violation of WTO rules and the rebates or exclusion from taxes for exports could pose challenges as well. As a result, the plan risks significant litigation, retaliation from our trading partners, possible additional duties on U.S. exports, and carries the potential to start a trade war. As a result, reforms to the corporate tax system should be scrutinized and undertaken carefully.
Prior IIEL Issue Briefs:
Renminbi Internationalization and Systemic Risk, in which IIEL Faculty Director and Williams Research Professor Chris Brummer argues that China’s renminbi strategy introduces novel systemic risks to the global financial system, including a potentially inadequate provision of renminbi liquidity, a regulatory race to the bottom between offshore RMB-hubs, and significant transmission belts of financial risk to even non-renminbi markets. To mitigate these risks, he argues for a policy recipe of stronger Mainland macroprudential oversight, transparent countercyclical capital account reforms and credible commitments on the part of the government to refrain from competitive currency devaluations.
IIEL’s inaugural Issue Brief on Shadow Banking was penned by Amias Gerety, then-Acting Assistant Secretary for Financial Institutions, U.S. Department of the Treasury.
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