As per the tax plan, following are the flaws in the current tax system:

(i) Evidence following the 2017 corporate rate cut from 35 percent to 21 percent, however, did not show an increase in investment or economic growth from trend levels.

(ii) The share of federal revenue raised by the corporate tax has fallen steadily and is now under 10 percent, while the share of revenue raised by taxing labor has been growing for decades and now exceeds 80 percent.

(iii) As a result of the tax cuts of prior years, the US now raises only about 16 percent of GDP in federal tax revenue, a decline of about four percentage points in the last two decades.

(iv) More U.S. profits are housed in tiny tax havens than in the major economies of China, India, Japan, France, Canada, and Germany combined. Bermuda, a country of merely 64,000 people, shows 10 percent of all reported U.S. multinational foreign profit

The Made in America tax plan implements a series of corporate tax reforms to address profit shifting and offshoring incentives and to level the playing field between domestic and foreign corporations.

These include:

1. Raising the corporate income tax rate to 28 percent.

2. Strengthening the global minimum tax for U.S. multinational corporations.

3. Reducing incentives for foreign jurisdictions to maintain ultra-low corporate tax rates by encouraging global adoption of robust minimum taxes.

4. Enacting a 15 percent minimum tax on book income of large companies that report high profits, but have little taxable income.

5. Replacing flawed incentives that reward excess profits from intangible assets with more generous incentives for new research and development.

6. Replacing fossil fuel subsidies with incentives for clean energy production.

7. Ramping up enforcement to address corporate tax avoidance

Implications for large economies like India:

1. Although countries have strong incentives to work together to counter tax competition, they will not stop the race to the bottom unless enough large economies adopt a minimum tax on foreign earnings.

2. The Made in America tax plan’s proposal would be transformative in that regard by incentivizing other large economies to join the United States in taking the first step to adopt strong minimum taxes on corporations and leveling the playing field between the taxation of domestic and foreign corporations.

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May 2021