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US Corporate Tax Reform: Implications for the rest of the world

The paper examines the likely impacts of the US reforms on the US and on the rest of the world, placing the US changes in the context of the global trend toward lower corporate taxes.

On 27 September 2017, the United States (US) Administration and Republican Congressional leadership released a framework for US tax reform, including a reduction in the federal corporate tax rate from 35 to 20 per cent.

A corporate tax rate cut stimulates investment by making more investment opportunities sufficiently profitable to attract financing. How much of an impact in practice will depend on how the tax cut is funded and whether investors consider the tax cut to be permanent.

Ultimately, the impact of the plan on the US economy – and globally – will depend on the shape of the final package.

While the size of the US economy means changes to the US tax system have particular significance, it is important to consider these reforms as part of an ongoing trend. The US reforms have the potential to accelerate tax competition between jurisdictions, making Australia’s current corporate tax rate increasingly uncompetitive internationally.

While the Administration and Republican Congressional leadership have indicated that they will ‘set aside’ the idea contained in the House Republicans’ 2016 plan to move to a destination-based cash flow tax (DBCFT), this paper also provides a discussion of the theoretical underpinnings of the proposal.

The views expressed in this paper are those of the authors and do not necessarily reflect those of the Treasury or the Australian Government.